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TMI Blog2022 (1) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... erm capital loss incurred on which STT paid could not be set off against long term capital gain arising out of sale of land, the issue is distinguishable. With regard to Nikhilsawhney [ 2020 (8) TMI 508 - ITAT DELHI] this case was pronounced on 17.08.2020 and subsequently Coordinate Bench has decided the issue in favour of the assessee. Aggrieved, when revenue preferred appeal before Hon ble Jurisdictional High Court, the same was dismissed. Therefore, the issue under consideration reached finality. Accordingly, ground raised by the revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - disallowance of the expenditure even where taxpayer in particular year has not earned any exempt income - HELD THAT:- Assessee has earned exempt income to the extent of .49,23,544/- whereas the Assessing Officer calculated the disallowance u/s. 14A r.w. Rule 8D to the extent of .67,13,465/- which is more than the exempt income earned by the assessee. The various courts have held that disallowance u/s. 14A of the Act cannot be more than the exempt income earned by the assessee. Therefore, we are in agreement with the finding of the Ld.CIT(A) and we do not find any reasons to interfere with the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;.17,86,21,665/- arising from sale of equity shares, eligible to set off against Long Term Capital Gain (LTCG) of any subsequent assessment year which do not form part of total income as envisaged in the provisions of section 10(38) of the Income Tax Act." 4. Brief facts relating to the above grounds of appeal are, search and seizure action u/s. 132 of the Income-tax Act (for short "Act") were initiated on ABIL Group on 21.07.2017 and various residences of the partners/directors of the group situated at Mumbai and Pune were covered by search action. The assessee Shri Avinash N. Bhosale is a promoter and founder of ABIL Group. The group companies are primarily engaged in infrastructure development, real estate development and hospitality services. As the case of the assessee is covered under search action all the cases were centralized u/s. 127(2) of the Act and accordingly, notices u/s. 153A of the Act were issued and served on the assessee calling for filing of correct return of income for the A.Y.2015-16. 5. In response assessee filed return of income on 14.11.2018 declaring total income of ₹.10,57,63,490/-. During assessment proceedings Assessing Officer observed that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Bombay and ITAT Delhi Benches. 9. On the other hand, Ld. AR submitted that the issue involved in the cases relied on by the Ld. DR is not the issue raised by the department in the grounds of appeal. He relied on the findings of the Ld.CIT(A). On merits in support of his contention, he relied on the following decisions: - (i). M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT [58 taxmnn.com 115]. (ii). ACIT v. Smt Gauri Avinash Bhosale in ITA.No. 1303/PUN/2017. (iii). Nomura India Investment Fund Mother fund v. Addl. DIT (IT) in ITA.No. 8140/Mum/2010 dated 24.12.2019. (iv). Netesoft India Limited v. DCIT in ITA.No. 5359/Mum/2017 dated 20.12.2019. 10. Considered the rival submissions and material placed on record, we observe from the record that the assessee has claimed carryforward of long term capital loss which assessee has incurred by making investment in M/s. Reliance Power Limited and this transaction involves the STT which assessee has paid while transfer of the above shares. No doubt the profit which assessee would have earned will be exempt from tax u/s. 10(38) of the Act. However, we observe from the submissions of both the parties and in our consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular "provision" of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides exemption of income only from transfer of Long term equity shares and equity orie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made." The Hon'ble High Court was besieged with the following question "Whether under s.10(27) read with s.70 of the I.T.Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head "Business" "Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: "In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Premchand (supra), the Hon'ble High Court came to the following conclusion: "cl.(27) of s.10 excludes in express terms only "any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income" Thus, the ratio laid down by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon'ble Supreme Court in the case of CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118. The Hon'ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon'ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon'ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon'ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account and financial statements of these businesses are drawn up separately. The books of account of these business do not reflect investments, income from which is exempt from tax. All such investments have been reflected in his individual separate set of books maintained on consolidated basis. Therefore, there is no question of making any disallowance u/s 14A as far as income from these above mentioned three proprietary businesses are concerned. The submission of assessee is duly considered and the same is not acceptable. On Verification of P & L A/c. it was observed that assessee has incurred certain expense on salary, administrative expenses etc. and whole expenditure has been claimed as business expenditure. On the other sided, assessee has made investment in firms and other sister concerns, from which assessee has either not shown any taxable income or the share profit earned thereof has been claimed as exempt. Therefore, it is not justifiable that all indirect expenditures are incurred for business only and although these expenditures are of such nature that it has also been incurred for making such investments. Further, there is always an element of indirect exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Subsections (2) and (3) of section 14A are intended to enforce and implement the provisions of sub section (1). The object of subsection (2) is to provide a uniformity of method where the AO is, on the basis of the accounts of the assessee, not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act." 14. After considering the submissions of the assessee, Assessing Officer rejected the claim of the assessee and calculated the disallowance u/s.14A of the Act as below: - Investments yielding exempt income As on 31.03.2015 (Rs.) As on 31.03.2014 (Rs.) Investment in equity shares (Quoted and unquoted) 63,06,99,763 71,45,06,296 Investment in Partnership Firms & LLP 1,21,83,25,752 6,49,36,729 Investment in Mutual Fund 2,29,68,234 2,29,68,234 Investment in PPF 57,96,538 51,84,269 Total 1,87,77,90,288 80,75,95,529 Annual average value of investment 1,34,26,92,908 Disallowance u/s 14A r.w. Rule 8D (0.5% of the annual average value of the investment) 67,13,465 15. Aggrieved assessee preferred an appeal before Ld.CIT(A) and Ld.CIT(A) after consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss Account under the group 'Repairs and Maintenance. During the assessment proceedings u/s 143(3) r.w.s 153A of the Act, the appellant had submitted regarding these expenses. b) The appellant is a promoter of ABIL Group and director of many of the companies of ABIL Group. M/s ABIL Corporation Pvt Ltd is one of the Group company of the ABIL Group. Many of the entities of the ABIL Group maintain their accounts and financial data in common ERP software. The usage license of this software is required to be renewed after certain period. This is the recurring expense. These license renewal charges are paid towards maintaining of the usage facility and upgradation of the said software. Thus, it is the revenue expenditure. Initially, the Group company M/s ABIL Corporation Pvt Ltd incurs these software license expenses and later on allocate the share of expenses to other group companies and entities who use this software. Accordingly, during the financial year 2014-15, M/s ABIL Corporation Pvt Ltd had paid software license renewal charges of ₹ 30,03,229/- and allocated expense of ₹ 2,66,855/- to the appellant as his share of the software license renewal charges. As st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing requirement in the day-to day business. Most of the softwares become obsolete in short span and new and upgraded version are required for better functioning. Unless, it has been brought on record that the software installed has a very long lasting life and enduring benefit on a capital asset, then, probably it can be said that it may not be of revenue in nature. However, the software application, per-se, do not, in any manner, supplants the source of income or make any addition to the capital side of the assessee. Thus, in our opinion, software application expenses are nothing, but up-gradation of efficient working of operations through computers in the day-today business management, which keeps on changing periodically and thus any expenditure on such an upgradation or buying of software is revenue expenditure only. The decisions as relied upon by the learned Counsel also supports our view. Even though the Rules have provided rate of depreciation on computer software, but that doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi High Court is enclosed herewith as Annexure 11. d) However, without considering the submission of the appellant, the Ld disallowed repairs maintenance expenses incurred towards software license renewal charges of ₹ 2,66,855/- by treating the same as 'Capital Expenditure' and added the same in the income of the appellant. e) In view of the above the appellant prays Your Honor to direct the Ld AO to delete the addition of ₹ 2,66,855/- made in the income of the appellant." 23. After considering detailed submissions Ld.CIT(A) allowed the ground raised by the assessee with the following observation: "7.4 The assessee in order to integrate, control and monitor the business activities of all entities in the group as well as to improve the accounting and book keeping processes incurred this expenditure. This software provides a common platform for accounting and business management for all the entities of the ABIL Group. In this age of computerization, various softwares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y. 2016-17, revenue has raised following grounds in its appeal: - "1. Whether on the fact and circumstances of the case the Ld. CITYA) is justified in allowing assessee's claim of set off brought forward Long Term Capital loss of ₹ 2,59, 92,608/- against Long Term Capital Gain arising from redemption of debentures which do not form part of total income as envisaged in the provisions of section 10(38) of the Income Tax Act, 1962. 2. Whether on the fact and circumstances of the case the Ld. CIT(A) erred in restricting the disallowance u/s 14A to exempt income earned without appreciating the fact that circular no. 5 of 2014 dated 11 February, 2014, issued by the Central Board of Direct Taxes clearly provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 3 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to treat the expenses on Software renewal license as revenue expenses, which is a capital asset. 4. Whether on the fact and circumstances of the case and law the Ld. CIT(A) erred in restricting the disallowance made by the AO on account of travelling expense ..... X X X X Extracts X X X X X X X X Extracts X X X X
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