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TMI Blog2012 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that:- As decided in ITO vs.v.Omni Globe Information Technologies India (P.) Ltd.[2010 (4) TMI 769 - ITAT, DELHI ] that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system and cannot be used without the computer, entitled for deduction of depreciation at the rate of 60 per cent - against revenue. Disallowance of legal and professional charges - AO treated the amount capital in nature while the ld. CIT(A) reduced the disallowance by 50% - Held that:- CIT(A) without analyzing the basis of allocation of each of the job undertaken by M/s Wadia Gandy & Co. vis-à-vis assessee and other entities, attributed 50% of the amount in relation to merger of the company as capital in nature. The CIT(A) nowhere adduced the basis of such allocation nor the DR could throw any light on this aspect - CIT(A) did not make elaborate discussion on the scope of study undertaken by the consultants nor the ld. DR submitted a copy of the agreement with consultants, if any - complete facts in relation to scope of study are not available restore the matter to his file for deciding the issue. Dis al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that when the purpose of services rendered is partly related to trading activity, then the payment made for such services has to be bifurcated suitably, ignoring that, i) In the case under consideration the purpose of services rendered was almost entirely related to benefit of enduring nature as apparent from submissions of the assessee itself during appellate proceeding cited at para 5.1 (i) on page 4 of the learned CIT(A) order. ii) The assessee has not been able to satisfactorily establish that the said legal and professional expenses incurred chiefly in connection with drafting, revising and amending of Articles of Association, Investment Agreements etc was not for enduring benefit of the company and was in the nature of revenue expenditure. iii) The assessee has stated in its submission during the appellate proceedings as cited at page 5 of the CIT(A) order that, without prejudice to its other submissions, the said expenditure may be amortized @1/5th for five successive years, thus showing that even the assessee itself does not believe the said expenditure to be entirely allowable during the year. iv) There is no acceptable basis for allowance of 50% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 by the assessee, engaged in the business of Digital Cinema System, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 23.09.2008. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed exemption of dividend income of Rs.97,153/- u/s 10(34) of the Act. On perusal of details, the AO noticed that the assessee incurred an expenditure of Rs.27,98,84,089/- for earning gross income of Rs.7,92,48,938/-. Accordingly, the AO disallowed proportionate expenditure of Rs.3,43,116/-, having recourse to provisions of section 14A of the Act. 4. On appeal, the ld. CIT(A) restored the issue back to the file of AO for re-computing disallowance in the light of decision in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT and Another, 234 CTR 1 (Mumbai). 5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR while referring to ground no.1 in their appeal contended that the ld. CIT(A) did not have power to set aside and thus, directions of the ld. CIT(A) were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Godrej Boyce Manufacturing Company Ltd. (supra) while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e. f 24.3.2008 cannot be regarded as retrospective because i t enacts an artificial method of estimating expenditure relatable to tax-free income. I t applies only w.e. f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having regard to all the facts and circumstances, the Hon ble High Court concluded. 6.2 Hon ble Supreme Court in their decision dated 6.7.2010 in CIT v. Walfort Share Stock Brokers (P. ) Ltd. ,326 ITR 1, inter alia, observed that for attracting sect ion 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. 6.3 Hon ble Punjab Haryana High Court in their decision in CIT vs. Hero Cycles Ltd. ,323 ITR 518 have observed that disallowance under sect ion 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s." 38. We may also refer to the CBDT Circular No.14/2006 dated 28.12.2006 and to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and logic behind the introduction of sub-section (2) of Section 14A of the said Act. Paragraph 11.3 specifically provided for applicability of the provisions of subsection (2) and it clearly indicated that it would be applicable "from the assessment year 2007-08 onwards". 39. It is, therefore, clear that sub-sections (2) and (3) of Section 14A were introduced with prospective effect from the assessment year 2007-08 onwards. However, sub-section (2) of Section 14A remained an empty shell until the introduction of Rule 8D on 24.03.2008 which gave content to the expression "such method as may be prescribed" appearing in Section 14A(2) of the said Act. 40. From the above discussion, it is clear that, in effect, the provisions of sub sections (2) and (3) of Section 14A would be workable only with effect from the date of introduction of Rule 8D. This is so because prior to that date, there was no prescribed method and sub-sections (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. In another decision dated 9.11.2010, Hon ble Delhi High Court in CIT vs. Citycorp Maruti Finance Ltd. in ITA nos. 1712 1714/2010 followed their own decision in BSES Yamuna Powers Ltd.(supra) and upheld the view of the ITAT, allowing depreciation @60% on computer accessories and peripherals like printers etc. .A similar view was taken in CIT Vs. M/s Bonanza Portfolio Ltd.: I.T.A. no.833 of 2011 by the Hon ble jurisdictional High Court in their decision dated 10.8.2011. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A),allowing depreciation @60% on UPS. Therefore, ground no.2 in the appeal of the Revenue is dismissed. 12.. Ground no.3 in the appeal of the Revenue and ground no.1 in the CO relate to disallowance of legal and professional charges. During the course of assessment proceedings, the AO noticed that the assessee incurred an amount of Rs.6,16, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure is not discernible from the order of the Tribunal. According to the Tribunal itself, out of the five aspects on which report to the consultant was sought, two related to expansion or starting of new projects. On this observation of the Tribunal there is no dispute. This is correct as areas No.4 5 relate to possible acquisition in southern region and expansion of existing cement plant and from these studies benefit of enduring nature was sought to be derived at. Then the obvious fallout would be to allocate 40% of the total expenditure and not 20% to the head capital expenditure. We, therefore, answer the question by holding that the Tribunal was not correct in sustaining addition only to the extent of 20% treating as incurred in the same capital field and it should have sustained addition to the extent of 40% of the addition on total payment of Rs.47.25 lacs as capital expenditure. The order of the Tribunal is modified accordingly. 5.3 The ratio of the above said judgment of the Hon ble Delhi High Court is clearly attracted in the case as there is a basic similarity in the case as above mentioned case was pertaining to the report of the consultant for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with consultants, if any, before us. In these circumstances ,especially when complete facts in relation to scope of study are not available before us nor the basis of allocation of the amount towards each of the job undertaken by the consultant and nor even as to whether portion of expenditure was attributed to other entities in the group covered in the study, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) and restore the matter to his file for deciding the issue raised in the ground no.3 in the appeal of the Revenue and ground no.1 in the CO, afresh in accordance with law in the light of our aforesaid observations, after allowing sufficient opportunity to both the parties, bringing out clearly as to the nature of each of the job comprised in the scope of study and amount in relation thereto, before concluding as to whether or not such amount is capital or revenue in nature. With these observations, ground no. 3 in the appeal of the Revenue and ground no.1 in the CO are disposed of. 16.. Ground no.4 in the appeal relates to prior period expenditure of Rs.6,29,435/- . The AO disallowed the claim merely because the expenditure did not relate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lized in the year under consideration . Admittedly, the assessee is following mercantile system of accounting. It is well settled that accrual of a statutory liability depends upon the terms of the relevant statute. The quantification or ascertainment cannot postpone its accrual to the extent of admitted liability. On the other hand, contractual liability accrues when the basis for its quantification is settled by an agreement or otherwise. As held by the Hon ble Gujrat High Court in their decision in Saurashtra Cement Chemical Industries Ltd. vs. CIT, 213 ITR 523(Guj) ,merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may point out that the Hon ble jurisdictional High Court in CIT vs. Manish Build Well (P.) Ltd.,16 Taxmann.com27(Delhi) held that that the conditions prescribed in Rule 46A must be shown to exist before additional evidence is admitted and every procedural requirement mentioned in the Rule has to be strictly complied with so that the Rule is meaningfully exercised . Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed. A distinction should be recognized and maintained between a case where the assessee invokes Rule 46A to adduce additional evidence before the CIT (A) and a case where the CIT (A), without being prompted by the assessee, while dealing with the appeal, considers it fit to cause or make a further enquiry by virtue of the powers vested in him under sub Section (4) of Section 250. It is only when he exercises his statutory power suomoto under the above sub-section that the requirements of Rule 46A need not be followed. On the other hand, whenever the assessee who is in appeal before him invokes Rule 46A, it is incumbent upon the CIT (A) to comply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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