Tribunal partially allows appeals, directs re-examination of issues, limits disallowance, and reviews book profit calculation.

The Tribunal partly allowed both appeals, directing the Assessing Officer (AO) to re-examine the issues in light of relevant judicial decisions and after giving the assessee a reasonable opportunity to be heard. The AO's disallowance under section 14A of the Income-tax Act was restricted to Rs. 31,69,778 following the decision in Godrej and Boyce Mfg. Co. Ltd. The disallowance of service tax under section 43B was deleted as service tax was not payable until received. The disallowance of payment for software charges was rejected as capital expenditure, but depreciation was disallowed. The computation of book profit under section 115JB was to be reconsidered by the AO.

---

---

Issues Involved:
1. Disallowance under section 14A of the Income-tax Act.
2. Disallowance of service tax under section 43B of the Act.
3. Disallowance of payment of software charges.
4. Computation of book profit under section 115JB of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A of the Income-tax Act:
The Assessing Officer (AO) observed that the assessee had earned dividend income, which was exempt under section 10(34) of the Act, and allocated an expenditure of Rs. 1,13,676 against such exempt income. The AO, using section 14A read with rule 8D, computed the disallowance at Rs. 99,56,933. On appeal, the Commissioner of Income-tax (Appeals) (CIT(A)) accepted the assessee's calculation and restricted the disallowance to Rs. 31,69,778. The Tribunal found that the AO's application of rule 8D was not applicable for the assessment year 2007-08 as per the decision in Godrej and Boyce Mfg. Co. Ltd. [2010] 328 ITR 81 (Bom). The Tribunal set aside the order and restored the matter to the AO for fresh examination in light of the Godrej and Boyce decision.

2. Disallowance of service tax under section 43B of the Act:
The AO disallowed Rs. 90,08,661, comprising Rs. 48,10,998 and Rs. 41,97,663, as service tax payable, presuming it was unpaid. The CIT(A) deleted the disallowance, noting that Rs. 41,97,663 was paid before the due date of filing the return and the remaining Rs. 48,10,998 was not payable as the amounts were not received from the parties. The Tribunal upheld the CIT(A)'s decision, referencing the Tribunal's consistent view that service tax is only payable upon receipt by the assessee, thus section 43B could not be invoked.

3. Disallowance of payment of software charges:
The AO treated the software charges payment of Rs. 26,70,405 as capital expenditure, allowing depreciation and disallowing Rs. 10,68,162. The CIT(A) deleted the disallowance, noting that the payments were for maintenance and technical support, not for software purchase. The Tribunal agreed with the CIT(A) that the maintenance of software expenses should be treated as revenue expenditure. However, the Tribunal also agreed to disallow depreciation on this expenditure, modifying the CIT(A)'s order accordingly.

4. Computation of book profit under section 115JB of the Act:
The AO added Rs. 99,56,933 disallowed under section 14A to the book profit under section 115JB. The CIT(A) directed the AO to restrict the addition to Rs. 31,69,778. The Tribunal found merit in the Departmental representative's plea to set aside the issue to the AO in light of the Godrej and Boyce decision. The Tribunal directed the AO to re-examine the computation of book profit under section 115JB afresh, considering the relevant decisions and providing reasonable opportunity to the assessee.

Conclusion:
Both appeals were partly allowed for statistical purposes, with directions to the AO to re-examine the issues afresh in light of the relevant judicial decisions and after providing a reasonable opportunity of being heard to the assessee. The Tribunal's order was pronounced on October 31, 2012.

---