TaxTMI 
TaxTMI 
2014 (10) TMI 472
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....se connectivity, email accounts and e-mail facility has been billed at Rs. 3 lakh + service tax of Rs. 30,000 and Cess of Rs. 600/-. Ld. Counsel further submitted that as per decision of Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemicals Ltd. vs CIT (1995) 213 ITR 523 (Guj) when the assessee is maintaining books of accounts as per mercantile system of accounting, then if liability arising in relevant previous year relating to the expenditure of earlier years, then expenditure is allowable and deductible as business expenditure u/s 37 of the Income Tax Act, 1961. It was also submitted on behalf of the assessee that the authorities below ignored the ratio of the above judgment of Hon'ble Gujarat High Court wherein it has been held thus:- "In each case where the accounts are maintained on the mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as to be required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has bee....
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....s and that it is related to a transaction of previous years. In view of above, we come to a conclusion that the revenue authorities grossly erred in disallowing the claim of expenditure incurred by the assessee during relevant previous year pertaining to the liability relating to earlier year. We further hold that the issue of prior period expenditure deserves to be adjudicated in the light of above decision of Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemicals Ltd. vs CIT (supra) and the AO is directed to verify and examine the claim of the assessee in the light of discussion made hereinabove. Accordingly, ground no. 3 of the assessee is deemed to be allowed for statistical purposes. Assessee's appeal in ITA No. 3214/Del/2013 7. Ld. Counsel of the assessee submitted an application and requested that the captioned appeal was mistakenly filed, therefore, the assessee may be allowed to withdraw this appeal. The DR has no objection in allowing the assessee to withdraw its appeal. Accordingly, the appeal of the assessee for AY 2008-09 bearing ITA No. 3214/D/2013 is dismissed as not pressed. Departmental appeal in ITA No. 3684/D/2013 for AY 2007-08 8. Th....
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....e AO was not sustainable and it was rightly deleted by the CIT(A). 12. On careful consideration of above contentions, submissions and careful perusal of the relevant material on record as well as ratio of the decisions relied by both the parties, at the outset, we note that as per decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs DCIT (2010) 328 ITR 81 (Bombay), Rule 8D is applicable from AY 2008-09 onwards prospectively. The case in hand is related to AY 2007-08. Hence, Rule 8D is not applicable to the present case. 13. Turning to the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Maxopp Investment (supra), we observe that their lordships have also enlightened the situation when the provisions of section 14A of the Act is to be invoked and disallowance to be worked out for the period prior to the introduction of Rule 8D. The relevant operative part of the decision reads as under:- "How is Section 14A to be worked for the period prior to the introduction of Rule 8D? Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in....
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....curred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis....
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....re invoking Rule 8D, if it were applicable, the AO ought to have pointed out any discrepancy in the claim made by the appellant, having regard to its accounts. In the absence of any cogent finding, the law does not allow the AD to use the provisions of Rule 8D in an automatic manner. Moreover, during the course of appellate proceedings, I was informed that the dividend income earned by the appellant was with respect to certain investment of its surplus funds in mutual funds in respect of which the concerned mutual funds in respect of which the concerned mutual funds charge Fund Management Charges as permitted by the SEBI. It was informed that in the case of the appellant, an amount of Rs. 55 lakh was charged by the mutual funds which were effectively in the nature of directly related administrative expenses in respect of such investment. The appellant has shown net dividend income hence such expenses which were directly related were already disallowed. The appellant informed that other than this, it had only to fill up mutual funds standard printed requisition form and issue cheques. It was informed that the appellant company does not have particular persons exclusively engaged in ....
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.... to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the provisions of the Act and the AO is required to do so on the basis of an acceptable and reasonable levy of apportionment of expenditure claimed by the assessee. Hence, the AO wrongly took aid of Rule 8D and the CIT(A) deleted the impugned addition only on this basis without analyzing the situation and factual matrix of the case and totally ignoring the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Maxopp Investment (supra). 17. In view of above, we come to a conclusion that the authorities below have not dealt with the issue of disallowance u/s 14A of the Act as per letter and spirit of the relevant statutory provisions and as per decision of Hon'ble Jurisdictional High Court of Delhi in the case of Maxopp Investment (supra) and other relevant decisions. Therefore, we are of the considered view that the issue of disallowance u/s 14A of the Act requires thorough verification and examination at the end of AO and hence assessment order as well as impugned order, only up to this extent, is set aside and the issue is restored to t....
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....nditure since neither any enduring benefit has been acquired by the appellant nor any capital asset has been put in place. Accordingly, the addition made on this ground is deleted." 21. In view of above, we note that the AO has not doubted the genuineness and truthfulness of the claim of the assessee pertaining to the expenses for glow sign board and hoardings in view of decision of Punjab & Haryana High Court in the case of CIT vs Liberty Group Marketing Division 315 ITR 125 (P&H) and decision of Hon'ble Himachal Pradesh High Court in the case of Mohan Meakin Breweries Ltd. Vs CIT 118 ITR 101(HP), we are of the considered opinion that the AO was not justified in making the disallowance and addition and on the other hand, CIT(A) rightly deleted the addition by holding that the expenses for hoardings and glow sings are expenditure of revenue in nature because the same neither bring any enduring benefit for the assessee and the advantage consists merely in facilitating the assessee's trading operations, supporting the management and conduct of assessee's business to be carried out on more efficiently or more profitably leaving fixed capital of the assessee untouched. We ....
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....provisions of Rule 8D of the I.T. Rules which is not applicable automatically without recording any adverse satisfaction against the assessee in this regard. Ld. Counsel further pointed out that the AO passed order dated 25.08.2011 u/s 154/143(3) of the Act without affording due opportunity of hearing for the assessee and there was no mistake apparent from the record in the original assessment order dated 24.12.2010, therefore, the CIT(A) was right in deleting the baseless and unsustainable huge addition of Rs. 1.15 crore. 26. It was also prayed by both the parties that since the issue of disallowance and addition u/s 14A of the Act pertaining to AY 2007-08 has been restored to the file of AO for fresh adjudication as per provisions of the Act and as per ratio of the decision of Jurisdictional High Court of Delhi in the case of Maxopp Investment (supra), therefore, similar issue for AY 2008-09 may also be restored to the file of the AO for fresh adjudication. 27. On careful consideration of above, at the outset, we hold that Rule 8D of the Income Tax Rules 1962 is applicable to the present case Assessment Year i.e. 2008-09 as per decision of Hon'ble Bombay High Court in the c....
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....ve heard rival arguments of both the sides and carefully perused the relevant material placed on record. 31. Briefly stated, the facts pertaining to ground no. 3 of the revenue for AY 2008-09 are that the AO made disallowance in regard to Horticulture expenses (for plant and staff colony), security services expenses (for staff colony), computer supply (peripherals) and software purchase expenses total amounting to Rs. 68,40,814 which were deleted by the CIT(A) by allowing ground nos. 4, 5, 5.1, 6, 6.1, 7 & 8 of assessee raised before him i.e. CIT(A) in the impugned order. Now, the revenue re-agitated the above issue in ground no. 3 as reproduced hereinabove. 32. Apropos these five issues from the impugned order we observe that the CIT(A) granted relief for the assessee with following observations and conclusion:- "6.4 Regarding Ground No.3 of the appeal, keeping in view the decision in the case of (IT Vs liberty Group Marketing Division (supra), Mohan Meakin Breweries Ltd. Vs CIT (supra) and of the Hon'ble Delhi ITAT in the case of Sony India Ltd. Vs DCIT (supra), the expenses for laying hoardings and glow signboards are held as revenue expenditure since neither any enduring....
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....rpose or the same could alternatively be allowed as staff welfare. The appellant has claimed to have paid FBT on the same. It is undisputed that no other non- business benefit was derived from the appellant company by claiming such expenses. In view thereof, such expenses are allowed and the addition made in this regard is deleted. 6.7 Regarding Ground No.6 regarding disallowance out of computer supplies, on perusal of the details furnished before me, I find that these expenses are routine expenses in the nature of printer cartridges, computer peripherals like CD disks, pen drive etc. which are routine consumable items for the use of computer. Each item is a small value item. On careful consideration of the details, on holding the same revenue in nature, addition made on this ground is deleted. 6.8 Regarding Ground No.7 of the appeal relating to software licence fee, on careful examination, I find that the same are in the nature of e-mail to fax services, SMS charges etc. In view of this, I do not agree with the contention of the AO that such expenses were capital in nature and hold them are routine revenue expenditure. Therefore, the addition made in this regard is deleted." 33....
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....ng assessment year 2007- 08 of the department has accepted the stand of the assessee and not filed any appeal before the Tribunal on the aforesaid issue of security expenses on staff colony, which was similarly decided in favour of the assessee by the CIT(A) by following earlier order. Therefore, considering the rule of consistency too, there ought to be uniformity in the treatment and consistency in the approach adopted by the department. 39. On careful consideration of above submissions and perusal of the order of the CIT(A) for preceding AY 2007-08 and respectfully following the decision of Hon'ble Apex Court in the case of Empire Jute Co. Ltd. vs CIT 124 ITR 1(SC), wherein it was held that the expenditure incurred for welfare of employees and even general public interest is allowable as revenue deduction, we reach to a conclusion that the expenditure of security for staff colony is squarely covered in favour of the assessee by the earlier/preceding AY 2007-08 order of CIT(A) and in the present case, the CIT(A) was right in deleting the addition. Hence, we are unable to see any ambiguity or perversity in the impugned order or any other valid reason to interfere with the sam....
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....pital nature subject to admissible depreciation @60% and the AO rightly disallowed balance amount of Rs. 5,86,967/-. Ld. Counsel of the assessee replied that expenses on computer software are to be regarded to be incurred as revenue expenditure as per test laid down by the special Bench of the Tribunal in the case of Amway India Enterprise 111 ITD 112 (Del) (SB) inasmuch as (i) such computer software does not have utility for long duration and hence does not result in enduring benefit and (ii) such software does not constitute profit earning apparatus and merely enable the assessee to efficiently conduct its business. Ld counsel also placed reliance on the decisions of Hon'ble Jurisdictional High Court of Delhi in the case ofAsha India Safety Glass Ltd., 346 ITR 329 (Delhi) and CIT vs Amway India Enterprise 346 ITR 341 (Delhi) wherein it has been held that software expenses not to create new assets or a new source of income but upgrade system, hence, software expenditure is revenue expenditure which is allowable u/s 37 of the Act. 44. On careful consideration of above submissions of both the sides, we are of the considered view that the AO has not doubted about the genuineness....