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2023 (1) TMI 1120 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - expenditure incurred to earn exempt income - HELD THAT - Averments made by the Ld. Authorised Representative for the Appellant are factually correct as the Appellant is a debt free company having sufficient own capital for making investments. In the case of ACB India Ltd. 2015 (4) TMI 224 - DELHI HIGH COURT has held that only investments yielding exempt income during the relevant previous year are to be considered while computing the average value of investment for the purpose of Rule 8D(2)(iii) of the Rules. In the present case the Assessing Officer has taken into consideration the entire Investments. Accordingly, we set aside the addition made under Section 14A - AO is directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments yielding exempt income during the relevant previous year as per the judgment of ACB India Ltd. (supra). In view of the above Ground No. 1 to 4 raised by the Appellant are partly allowed. Depreciation on application software - excess depreciation claimed by the Appellant by adopting higher rate of 60% as against the applicable rate of 25% - HELD THAT - As relying on Computer Age Managements Services Private Limited 2019 (7) TMI 1153 - MADRAS HIGH COURT rate of 60% shall be applicable in the case of application software. In view of the same, we hold that the Appellant is entitled to claim depreciation at the rate of 60% in respect of application software. The disallowance of depreciation is, therefore, deleted. Admission of additional claims - Net foreign exchange gain - DR denied claim as it was not made in the return of income and was raised for the first time during the assessment proceedings - HELD THAT - An assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. We hold that the CIT(A) erred in not adjudicating the claim of the Appellant raised by way of letter dated 15.11.2013. It has been contended that the net foreign exchange gain pertains to advance for purchase of capital asset and has been credited to the Profit Loss Account under head Miscellaneous Income (Schedule 8). We direct the assessing officer to verify (a) whether the net foreign exchange gain pertains to the purchase of capital asset and (b) whether the same is included in Miscellaneous Income credited to Profit Loss Account. In case on verification the Assessing Officer is satisfied that both the aforesaid conditions are satisfied, then the Assessing Officer shall reduce the amount of income by the amount of net Foreign Exchange Gain and reduce the same from the cost of capital asset as per Section 43A - Ground raised by the Appellant is treated as being allowed for statistical purposes.
Issues Involved:
1. Applicability of Section 14A of the Income Tax Act for disallowance of expenditure incurred to earn exempt income. 2. Addition of disallowed amount under Section 14A to book profits computed under Section 115JB. 3. Depreciation rate applicable to computer software. 4. Addition of unaccounted receipts. 5. Treatment of net foreign exchange gain related to capital advance. Issue-wise Detailed Analysis: 1. Applicability of Section 14A of the Income Tax Act: The Appellant challenged the disallowance of INR 9,73,508/- under Section 14A read with Rule 8D for Assessment Year 2009-10. The Appellant argued that the investments were made from their own funds and not from borrowed funds, thus no disallowance should be made. The Tribunal noted that the Appellant was a debt-free company with sufficient own capital. It was held that only investments yielding exempt income during the relevant previous year should be considered while computing disallowance under Rule 8D(2)(iii). The Assessing Officer was directed to re-compute the disallowance accordingly. Similar directions were issued for Assessment Years 2010-11 and 2011-12, with the specific amounts of disallowance being set aside for re-computation. 2. Addition of Disallowed Amount under Section 14A to Book Profits Computed under Section 115JB: The Appellant contended that the provisions of Section 14A cannot be applied for computing book profits under Section 115JB. The Tribunal noted that since the tax liability was computed under normal provisions of the Act, this ground was disposed of as infructuous for all the assessment years in question. 3. Depreciation Rate Applicable to Computer Software: The Appellant claimed depreciation at the rate of 60% for computer software, which the Assessing Officer and CIT(A) had restricted to 25%, treating it as an intangible asset. The Tribunal, relying on the judgment of the Hon'ble Madras High Court in CIT vs. Computer Age Management Services Private Limited, held that the Appellant is entitled to claim depreciation at the rate of 60% for application software. Consequently, the disallowance of depreciation was deleted for all the relevant assessment years. 4. Addition of Unaccounted Receipts: For Assessment Year 2009-10, the Assessing Officer made an addition of INR 99,670/- treating it as unaccounted receipts. The Appellant did not wish to pursue this ground due to the small amount involved. Therefore, this ground was disposed of as infructuous. 5. Treatment of Net Foreign Exchange Gain Related to Capital Advance: For Assessment Year 2011-12, the Appellant raised a claim regarding the net foreign exchange gain of INR 8,93,939/- related to a capital advance. The CIT(A) rejected the claim based on the Supreme Court's decision in Goetze India Ltd. vs. CIT, stating that the claim should have been made through a revised return. The Tribunal held that the CIT(A) had the jurisdiction to entertain the additional claim and directed the Assessing Officer to verify the nature of the foreign exchange gain. If it pertained to the purchase of a capital asset, the Assessing Officer was instructed to reduce the amount from the cost of the capital asset as per Section 43A of the Act. Conclusion: The appeals for Assessment Years 2009-10, 2010-11, and 2011-12 were partly allowed. The Tribunal provided specific directions for re-computation and verification of disallowances and claims, ensuring adherence to relevant legal precedents and statutory provisions.
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