2017 (5) TMI 1213

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....ated 15/03/2014. 2. The Revenue has raised the following Grounds of appeal:- 1. "On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 15,19,000/- made by the AO without appreciating the fact that prior period expenses are not allowable as per the provisions of Income Tax Act as the assessee is following the mercantile system of accounting and services were received in earlier year, which fact the assessee was aware of." 2. "Without prejudice to ground No.l, on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 15,19,000/- made by the AO on treating such sum as capital expenditure. In doing so, the AO had relied on the ....

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....ceived by the assessee during the year under consideration, which related to the advice and documentation rendered to the assessee regarding the buy-back of shares. According to CIT(A), since the bills were received in the instant year, the liability crystallized during the year. The CIT(A) has also held that expenditure pertaining to buy-back of shares was deductible as a revenue expenditure. Accordingly, the CIT(A) disagreed with the Assessing Officer on both the reasons and allowed the claim of the assessee. 4. Before us, the Ld. Departmental Representative has reiterated the stand of the Assessing Officer, which we have already noted in the earlier paras and the same is not being repeated for the sake of brevity. 5. On the other h....

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....der section 14A of the Act on the ground that assessee has made investments in shares and securities, which is capable of generating exempt income. Notably, the Assessing Officer computed the disallowance by applying the formula contained in Rule 8D(2) of the Income Tax Rules,1962 ('in short the Rules'). In this context, the CIT(A) has deleted the addition by holding as under:- " 5.2.5 The guiding principles enshrined in the above judicial decisions constitute an effective and objective litmus test to apply to any case for determining both the applicability of section 14A of the Act as well as that of Rule 8D of the Income Tax Rules. The facts of each case have to be carefully subjected to the litmus test of the following questions and a....

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.....) 5.2.6 Applying the ratio of the case laws cited above and the parameters to be examined for determining applicability of section 14A read with Rule 8D, I find that the assessing officer has not given any cogent or specific reason for dissatisfaction with the appellant's contention. Although he has himself stated that during the year under consideration, the appellant has not received any exempt dividend income, he has made the disallowance on the premise that the investment has a potential of earning tax exempt income in future. He has also not dealt with the fact that the appellant had ample interest free own funds or that the investments are either in foreign companies which have to be excluded or in Indian companies which are f....