Successful appeal: Disallowance under section 14A remanded for fresh assessment. Software Usage Charges allowed.

The appeals were allowed in favor of the appellant. The first issue regarding disallowance under section 14A was remanded to the Assessing Officer for fresh assessment as the disallowance was deemed excessive due to lack of inquiry into the nature of investments and exempt income. The second issue concerning the disallowance of Software Usage Charges was decided in favor of the appellant based on the enduring benefits of the software expenditure, following a precedent where software upgrades were treated as revenue expenditure.

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Issues:
1. Disallowance under section 14A r.w.Rule 8D of the Act.
2. Disallowance of Software Usage Charges.

Issue 1: Disallowance under section 14A r.w.Rule 8D of the Act:
The appellant filed appeals against the CIT(Appeals) order for AYs 2009-10 & 2010-11 regarding disallowance under section 14A and Software Usage Charges. The AO disallowed amounts under section 14A for both years. The appellant argued that section 14A should not apply as no expenses were debited to the P&L A/c and no expenditure was incurred in relation to tax-exempt securities. The AO calculated disallowances under Rule 8D. The CIT(A) upheld the disallowances. The Tribunal found that the AO did not inquire about the nature of investments or how exempt income was earned. The disallowance was deemed excessive, and the case was remanded to the AO for fresh assessment.

Issue 2: Disallowance of Software Usage Charges:
The AO disallowed Software Usage Charges as capital in nature, allowing only 60% depreciation. The CIT(A) upheld this disallowance based on depreciation allowed in a previous year. The Tribunal considered whether the software expenditure provided enduring benefits. It cited a case where software upgrades were treated as revenue expenditure due to quick obsolescence. Following this precedent, the Tribunal allowed the appeal regarding Software Usage Charges.

In conclusion, both appeals were allowed, with the first issue remanded to the AO for fresh assessment and the second issue decided in favor of the appellant based on the nature of the software expenditure.

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