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2012 (7) TMI 273 - AT - Income TaxRevenue expenditure versus capital expenditure - expenditure incurred on ERP Held that - In case the software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter or say less than 2 years, it may be treated as revenue expenditure - software programme without which the computer cannot work and with the advancement of technology, the programme changes during short period and this change is requirement of the business of the assessee i.e. share - assessee s appeal is allowed Deduction being 150% weighted deduction u/s. 35(2AB) of the Act in respect of capital expenditure on motor cars and interest Held that - Capital expenditure incurred by the assessee on purchase of motor cars cannot be considered as expenditure incurred by the assessee on in-house research & development and therefore, the same is not eligible for weighted deduction u/s. 35(2AB) of the Act - capitalized interest on purchase of car is also not eligible for this benefit for same reasons because it is equal or similar to cost of car Against assessee Disallowance made u/s 14A of the Act - disallowance made merely on the basis of estimation of administrative expenses earned to tax free income - contention of the appellant that earning of dividend income does not require any specific/special administrative efforts, as even where company presumes to have not invested in single penny of money in shares /scripts, company would have to pay salary to its employees Held that - Proportionate disallowance u/s. 14A should be limited to only interest liability and not overhead or administrative expenditure, which should be considered for disallowance under Rule 8D of the I.T. Rule, 1962 from 2007-08 - addition made on account of administrative expenses deleted - assessee s appeal is partly allowed.
Issues Involved
1. Deletion of disallowance of garden expenses. 2. Deletion of disallowance of weighted expenditure on R&D expenses. 3. Confirmation of disallowance of Rs. 63,00,000 claimed on revenue account. 4. Non-acceptance of assessee's claim for deduction under Section 35(2AB) for capital expenditure on motor cars and interest. 5. Disallowance under Section 14A. 6. Levy of interest under Section 234D and withdrawal of interest under Section 244A. Detailed Analysis 1. Deletion of Disallowance of Garden Expenses The Revenue contested the deletion of the disallowance of garden expenses amounting to Rs. 27,06,563/-. The Ld. CIT(A) had deleted this disallowance, and the Revenue argued that this was erroneous. The assessee's representative cited a previous ITAT decision (ITA No. 4356/Ahd/2007) which had ruled in favor of the assessee for a similar issue in the assessment year 2004-05. The Tribunal found that the facts of the current case were identical to those of the earlier years and, following the precedent, dismissed the Revenue's appeal on this ground. 2. Deletion of Disallowance of Weighted Expenditure on R&D Expenses The Revenue also contested the deletion of the disallowance of weighted expenditure on R&D expenses amounting to Rs. 1,03,25,000/-. The Ld. CIT(A) had allowed the weighted deduction for recurring expenses related to building, municipal tax, and salary to Dr. C. Dutt. The Tribunal noted that this issue had been previously decided in favor of the assessee by the co-ordinate bench in ITA No. 3569/Ahd/2004 for the assessment year 2001-02. Consequently, the Tribunal found no infirmity in the order of the Ld. CIT(A) and dismissed the Revenue's appeal on this ground. 3. Confirmation of Disallowance of Rs. 63,00,000 Claimed on Revenue Account The assessee contested the confirmation of the disallowance of Rs. 63,00,000, which was claimed as revenue expenditure for payments made to IBM for ERP implementation. The Ld. CIT(A) had treated this expenditure as capital in nature. The assessee argued that ERP expenses are revenue in nature, citing various judicial pronouncements and a previous ITAT decision in their favor (ITA No. 4343/Ahd/2007). The Tribunal found that the ERP expenditure was indeed revenue in nature, following the precedent set by the Hon'ble Bombay High Court in the case of Raychem RPG Ltd. Therefore, the Tribunal allowed this ground of the assessee's appeal. 4. Non-Acceptance of Assessee's Claim for Deduction under Section 35(2AB) The assessee also contested the non-acceptance of their claim for deduction under Section 35(2AB) for capital expenditure on motor cars and interest totaling Rs. 82.99 lakh. The Ld. CIT(A) had allowed the weighted deduction for recurring expenses related to building, municipal taxes, and salary but not for motor car expenses and interest, as these were not incurred for research purposes. The Tribunal upheld the Ld. CIT(A)'s decision, stating that motor car expenses and interest capitalized do not qualify as expenditure on in-house scientific research and development under Section 35(2AB). Therefore, this ground of the assessee's appeal was rejected. 5. Disallowance under Section 14A The assessee contested the disallowance of Rs. 3,00,000 under Section 14A, arguing that the disallowance was based merely on an estimation of administrative expenses. The Tribunal referred to the judgment of the Hon'ble Kerala High Court in the case of Catholic Syrian Bank Ltd., which held that administrative expenses should not be disallowed until Rule 8D of the I.T. Rules came into force. The Tribunal found that the disallowance of administrative expenses was not justified and deleted the addition. Therefore, this ground of the assessee's appeal was allowed. 6. Levy of Interest under Section 234D and Withdrawal of Interest under Section 244A The assessee also contested the levy of interest under Section 234D and the withdrawal of interest under Section 244A. However, this issue was not elaborated upon in the judgment, and thus no detailed analysis is provided. Combined Result The Revenue's appeal in ITA No. 1869/Ahd/2009 was dismissed, and the assessee's appeal in ITA No. 1881/Ahd/2009 was partly allowed.
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