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TMI Blog2012 (7) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. In the second round, in reassessment proceedings, the A.O. has again raked up that very issue of disallowance of software expenses which had already reached to the finality in favour of the assessee by the order of ITAT - against revenue. - I.T.A. No. 2259 /AHD/2006 - - - Dated:- 29-6-2012 - Mukul Kr. Shrawat and Anil Chaturvedi, JJ. By Revenue : Samir Tekriwal, Sr. D.R. Respondent by : S. N. Soparkar, Sr. Adv. ORDER Per: Anil Chaturvedi, A.M. This appeal is filed by the Revenue against order of CIT (A)-VIII, Ahmedabad dated 1-8-2006 for the assessment year 1999-00. 2. The first ground is with respect to disallowance of interest expenses amounting to ₹ 17,18,000/- and Management expenses of ₹ 1,20,000/- under section14A of the Income tax Act. 3. The Second effective ground is with respect to deletion of disallowance of software expenses of ₹ 10,94,242/-. 4. The assessee is a Public Limited Company engaged in the business of manufacturing and trading of air-conditioners, spares and related services. The name of the company was changed from Amtrex Hitachi Appliances Ltd to Hitachi Home Life Solutions (I) Ltd. Assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or capital gain needs to be calculated on proportionate basis. He also placed reliance on the decision of Hon ble ITAT in the case of H.K. Bhatt vs. ITO (2004) 91 ITD 311, wherein it was held that interest paid by the assessee being expenditure incurred in relation to dividend income exempted from tax could not be allowed as deduction. It was also held that deduction of interest paid in respect of capital borrowed for the purpose of acquiring shares held as investments and to be allowed only against dividend income only if dividend income is includible in the total income for the purpose of chargeability of tax under the Act not otherwise. A.O. therefore, held that proportionate interest expenses for making investment in shares and mutual funds needs to be disallowed. He accordingly calculated the interest disallowance in following manner:- Total interest free funds with the assessee-company ₹ 8185.68 lacs Interest bearing loans ₹ 12077.06 lacs Total funds with the assessee-company Rs.10262.74 lacs. Total interest payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the total expenses incurred by the assessee was to the extent of ₹ 149.56 crores. He further relied on the decision of Godrej Boyce (2010) 328 ITR 81 where it was held that even if rule 8D has no application, the A.O. would be duty bound to compute the expenditure of disallowance by the application of reasonable method. The Ld. D.R. therefore urged that the order of CIT (A) with respect to deletion of disallowance u/s. 14A be set aside and that of A.O. be restored. 11. On the other hand, Ld. A.R. urged that unless expenses have been incurred no disallowance under 14A can be made he relied on the decision of 323 ITR 518 in the case of CIT vs. Hero Cycles Ltd., wherein it was held that disallowance u/s.14A requires finding of incurring of expenditure. It was further held that where it is found that for earning exempted income no expenditure has been incurred, disallowance u/s. 14A cannot be made. Assessee also relied on the decision of CIT vs. Reliance Utility Power Ltd., 313 ITR 340. wherein It has been held that if the interest free funds are available to an assessee sufficient to meet its investments and at the same time, the assessee has raised a loan it can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. to determine the amount of expenses incurred in relation to tax free income if having regard to the account of the assessee, he is not satisfied with the correctness of the claim of the assessee. A.O. can proceed to invoke Rule 8D only when he is prima facie not satisfied with the correctness of claim by assessee in respect of such expenditure or expenditure having been incurred in relation to exempt income. In view of the aforesaid facts, we are of the considered opinion that no disallowances u/s. 14A r.w. Rule 8D can be invoked in the present case. We therefore, direct to delete the addition made by A.O. Primarily because of the reason that the Assessment Year under appeal is 1999-2000 and in view of Godrej Boyce (supra), Rule 8D is to be applied prospectively from Assessment Year 2008-09 onwards. 13. The next ground relates to disallowance of software expenses. 14. The assessee-company had claimed software expenses to the tune of ₹ 14,58,990/- as revenue expenditure for the purpose of Income tax. In its books of account it has treated such expenditure as deferred Revenue Expenditure and written off amount of ₹ 4,86,330/-. As per the policy of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. D.R. urged that the assessee company had failed to furnish the nature of software despite sufficient opportunities given to the assessee and therefore the department was left with no other option but to presume that the software expenses debited to Profit and loss account were basically incurred for the purchase of software from outside. He further stated that the software expenses always remains part of the supplier and the party using software only gets the right to use it by way of licensing of right. He further stated that w.e.f 1999-00 the assessee is entitled for the depreciation @ 50%. He therefore, urged that the software expenses were eligible for depreciation and not eligible as revenue expenditure. He further stated that the assessee has itself treated the software as deferred revenue expenditure in its books of account. 18. The Ld. A.R. on the other hand strongly urged that in the matter of reopening the assessment, department can only seek information with respect to those matters for which the reasons have been recorded. He further stated that proceedings u/s.147 of the Act are initiated, the proceedings are opened qua the items of under assessment. The fina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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