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TMI Blog2012 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. The appellant contends that it is allowable business expenditure. 4. The appellant contends that interest paid for the delayed payment of service tax is compensatory in nature and has the same character as service tax. Therefore, both service tax and interest on late deposit of service tax are allowable as deduction. Hence the addition of Rs.5,48,061/.- made by the Assessing Officer and upheld by CIT(A) should be deleted. 5. The CIT(A) has erred on facts and in law in upholding the disallowance of Rs.26,83,547/- u/s 14A read with Rule 8D. The disallowance is made mechanically without appreciating the assessee's explanation that no expenditure has been incurred for earning tax free income. The disallowance made should be deleted. 6. It is contended that section 14A of the Income Tax Act, 1961 contemplates expenditure incurred for earning exempt income which can only be disallowed. On the facts of the assessee's case no expenditure has been incurred for the purpose of earning tax free income, neither the Assessing Officer or CIT(A) has any material to show nexus between the expenditure and the exempt income. The disallowance of Rs.26,83,457/- should be deleted. 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance U/s 14A: 6. The Assessing Officer further noted that assessee had earned income on account of long term capital gains and dividends which were exempt u/s 10(34) & 10(38) of the Act. The Assessing Officer proceeded to make disallowance u/s 14A on the basis that assessee must have spent some expenditure for earning exempt income. The Assessing Officer further noted that no separate bank accounts were maintained for investment and for other activities and assessee was having mixed account, so specific expenditure for earning exempt income could not be calculated as such. The Assessing Officer, then calculated the disallowance u/s 14A in accordance with Rule 8D and made addition of Rs.26,83,457/-. 7. Aggrieved, on the above additions, the assessee filed appeal before Ld CIT(A). 8. The Ld CIT(A) after hearing the submissions of Ld AR decided the various additions as under:- Repairs & Maintenance: 9. The Ld AR filed details of each item of expenses under repairs & maintenance and explained the nature of expenses in a tablour form. The Ld AR also filed some case laws in support of its claim that the expenditure does not give rise to any benefit of enduring nature. The Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee's own funds. Further the dividends are automatically reinvested. As regards the gains on sale of investment, it is submitted that the same are done through PMS operated by Deutsche Bank and therefore no expenditure is incurred by the assessee for earning of the said dividend income and long term capital gain. The Assessing Officer had not pointed out any expenditure which was incurred for earning tax free dividend income and disallowance has been calculated by adopting mathematical formula. There is no interest expenditure and nor any interest bearing funds were utilized by the assessee for making investment. Further it was submitted that investment portfolio of the company is managed by Director Mrs. Remfry Sagar through Deutsche Bank and no remuneration is paid to her either for maintaining the company's investment or otherwise. All the transactions in mutual funds are handled by Deutsche Bank without any additional cost being charged by them. Reliance was placed on the following case laws:- 1. CIT v. Hero cycles Ltd. 2. CIT v. Sushma Kapoor (2009) 319 ITR 299 (Del.). 3. CIT v. Kasturbhai Mayabhai Pvt. Ltd. in I.T.A. No.1991 of 2008 (Guj. HC). 4. Minda Investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or flexible pipes, 44 ports to enable use of computer. From the above description of items of disallowance, we find that major items were purchased to run computers efficiently and effectively. In fact, Rs.60,000/- was paid as license fees for system administration training expenses which is clearly revenue expenditure as already held by ld CIT(A) with respect to other items of computer software; Rs.5396/- as per item(v) is also clearly a revenue expenditure. In respect of all other items at (ii), (iv) & (vi) are in fact computer accessories & are of capital nature being items of enduring nature and therefore are held to be of capital nature eligible for higher depreciation @ 60%. As regards Rs.64,501/- which was spent for granite polishing, table polishing and change of wall panel etc. these expenses of building repairs & maintenance are in the nature of current repairs and no new capital has come into existence. Therefore Rs.64,501/- is treated as revenue expenditure. In view of the above ground No.1 & 2 is partly decided in favour of the assessee. 19. In respect of service tax disallowed by the Assessing Officer and upheld by ld CIT(A), the Ld AR argued that this is not a pena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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