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TMI Blog2016 (3) TMI 1486X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the assessee had borrowed loan and whether there was any nexus between the borrowed loan and advance said to be made by the assessee to the Associate Enterprise in UK. It is open to the AO to refer the matter once again to Dispute Resolution Panel in accordance with provisions of the Act. Accordingly, the orders of the lower authorities are set aside and the AO is directed to re- examine the matter. Disallowance u/s 14A r.w.r.8D - As argued expenditure incurred by the assessee for earning of income which does not form part of total income cannot be allowed as deduction while computing the total income - HELD THAT:- Though the assessee claims that the borrowed funds were not used for making investment, the fact remains that the assessee borrowed the funds and the interest-free funds and borrowed funds were put in a common pool. Therefore, it is very difficult to identify which part of the funds was used for making investment for earning dividend income. Moreover, the assessee-company is not in the business of investment. Therefore, it has to necessarily incur certain expenditure on the managerial level for taking decision for investing the funds in a right company. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the material furnished in support of the claim of the assessee. In view of the right direction given by DRP to the AO, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. Appeal of the assessee is partly allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... . Placing reliance on the decision of this Bench of the Tribunal in Siva Industries Holding Ltd. v. DCIT (95 ITD 182), the Ld. D.R. submitted that the assessee has to charge interest on the corporate loan given to the Associate Enterprise by applying LIBOR rate of interest. Therefore, the Dispute Resolution Panel has correctly found that the notional interest has to be charged. 4. We have considered the rival submissions on either side and perused the relevant material available on record. During the year under consideration, the assessee advanced a corporate loan of ₹13.17 Crores to its Associate Enterprise M/s Cramlington Precision Forge Ltd., a UK company. The assessee has not charged any interest on the said corporate loan extended to the Associate Enterprise. The assessee claimed before the Transfer Pricing Officer and Dispute Resolution Panel that the loan was advanced from the interest-free subsidy funds available with the assessee, therefore, there is no need for charging any interest. The Transfer Pricing Officer, however, found that the Associate Enterprise is located in UK and liable for taxation in UK jurisdiction. Therefore, the profits to the extent of loan adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther there was any nexus between the borrowed loan and advance said to be made by the assessee to the Associate Enterprise in UK. It is open to the Assessing Officer to refer the matter once again to Dispute Resolution Panel in accordance with provisions of the Act. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to re- examine the matter in the light of the observation made above and thereafter decide the issue in accordance with after giving reasonable opportunity to the assessee. 6. The next issue arises for consideration is with regard to disallowance made under Section 14A of the Act. 7. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee has earned ₹11,35,049/- as dividend income during the year under consideration. The assessee has not incurred any expenditure for earning the said dividend income. According to the Ld. counsel, when the investment was made from such dividend income earned and out of available surplus funds in the earlier assessment year, then there is no question of any disallowance under Section 14A of the Act. 8. On the contrary, Sh. Pathlavath Peerya, Ld. Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is not in the business of investment. Therefore, it has to necessarily incur certain expenditure on the managerial level for taking decision for investing the funds in a right company. Therefore, the assessee has to necessarily incur expenditure with regard to managerial decision that was taken for making investment. In view of the above, this Tribunal is of the considered opinion that Rule 8D is applicable to the facts of the case. Therefore, the Dispute Resolution Panel has rightly found that Rule 8D has to be followed. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. 10. The next ground of appeal is with regard to expenditure incurred by the assessee on software. 11. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the assessee has incurred a sum of ₹3,33,786/- on software. According to the Ld. counsel, the expenditure was incurred on the software which needs to be renewed and updated by the assessee every year. Therefore, the expenditure incurred by the assessee is in the nature of revenue expenditure. 12. On the contrary, Sh. Pathlavath Peerya, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and to be allowed in the year in which it was incurred. As far as permanent license is concerned, the Dispute Resolution Panel found that there was enduring benefit to the assessee. When the assessee bought the software permanently, the initial purchase of software has to be on the capital field since the assessee earned the right over the software. Even though it was licensed to use, the license given to the assessee is exclusively for the assessee. Therefore, this Tribunal is of the considered opinion that the Dispute Resolution Panel has rightly found that the permanent license is in the capital field. As far as application of software is concerned, again we have to see whether it was temporary one or for long period. If the application software is only for a short period, then it has to be treated as revenue expenditure and it has to be allowed in the year in which it was incurred. If the application software is for a longer period, then it will have an enduring benefit. Therefore, as rightly found by the Dispute Resolution Panel, the expenditure has to be capitalized. The Dispute Resolution Panel directed the Assessing Officer to verify the nature of expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding of total income. 19. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the Assessing Officer has wrongly taken the total income at ₹65,92,20,452/- instead of ₹62,47,03,090/- as per revised return filed on 22.03.2012. 20. We have heard Sh. Pathlavath Peerya, the Ld. Departmental Representative also. The mistake in recording the total income has to be verified by the Assessing Officer in the light of the material available on record. If there is any mistake in the total income, this Tribunal is of the considered opinion that the mistake needs to be rectified. Accordingly, this issue is remitted back to the file of the Assessing Officer for reconsideration. The Assessing Officer shall re-examine the matter after giving reasonable opportunity to the assessee, to find out whether there was any error in computing the total income. If there is any error, the Assessing Officer shall rectify the same and record the correct total income. 21. The next issue is with regard to credit for TDS and TCS. 22. Sh. R. Vijayaraghavan, the Ld.counsel for the assessee, submitted that the tax deducted at source as per Form 16A and the tax collection certificate i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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