2017 (2) TMI 112 - AT - Income Tax

Disallowance u/s.14A - Held that - It is not in dispute that the assessee earned the Long Term Capital Gain on mutual fund of ₹ 1,11,23,750 and other income from mutual funds of ₹ 31,55,355/-. It is long term investment and the income was directly credited to the assessee s account by way of bank transfer. Nothing was seen to be incurred to earn the said income from mutual funds. In view of the above mentioned law i.e. Canara Bank Vs. ACIT (2014 (1) TMI 1586 - KARNATAKA HIGH COURT), the said income is not liable to be considered for the purpose to assess the expenditure incurred to earn the exempt income. Accordingly, we set aside the order of CIT(A) in question and direct the Assessing Officer to re-assess the expenditure incurred to earn the exempt income in view of the above mentioned law by giving an opportunity of being heard to the assessee. Accordingly, this issue is decided in favour of the assessee against the revenue for the statistical purpose. Confirmation of the expenditure incurred upon lease hold improvements - Held that - The expenditure incurred on lease hold premises has been treated by the above said authorities as revenue expenditure, therefore, in view of the said circumstances we are of the view that the finding of the CIT(A) on this issue is wrong against law and facts, therefore is not liable to be sustainable in the eyes of law hence we set aside the finding of the CIT(A) on this issue and direct the Assessing Officer to consider the expenditure as revenue in nature. Accordingly, this issue is decided in favour of the assessee against the revenue.

Summary

Issues involved:
1. Disallowance of expenditure under Section 14A of the Act.
2. Treatment of leasehold improvement expenditure as capital expenditure.
3. Disallowance of claim for depreciation on software for earlier years.

Issue No.1:
The assessee challenged the disallowance of expenditure under Section 14A of the Act. The CIT(A) upheld the disallowance to the tune of ?11,85,545. The assessee argued that no expenses were incurred to earn the income from mutual funds, citing a Karnataka High Court decision. The Tribunal set aside the CIT(A) order, directing the Assessing Officer to reassess the expenditure incurred for earning exempt income, following the law. The issue was decided in favor of the assessee against the revenue for statistical purposes.

Issue No.2:
The issue revolved around the confirmation of leasehold improvement expenditure as capital expenditure. The Assessing Officer and CIT(A) treated the expenditure as capital in nature. The assessee contended that the expenditure was revenue in nature, citing relevant case laws. The Tribunal found the CIT(A)'s decision against the law and facts, directing the Assessing Officer to consider the expenditure as revenue in nature. This issue was decided in favor of the assessee against the revenue.

Issue No.3:
Regarding the disallowance of depreciation claim for earlier years, the Tribunal referred to a previous Tribunal order in the assessee's case for A.Y. 2007-08. The Tribunal remanded the issue to the Assessing Officer for a decision after considering the Tribunal's directions and giving the assessee an opportunity to be heard. This issue was decided in favor of the assessee against the revenue.

In another appeal for A.Y. 2009-10, similar issues were raised by the assessee. The Tribunal decided the appeal based on the findings of the previous appeal, ITA No. 3595/Mum/2013. The appeals filed by the assessee were allowed in both cases, and the orders were pronounced on 25th November, 2016.