TaxTMI 
TaxTMI 
2026 (6) TMI 1449
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....iation on computer software @25% instead of @ 60% as claimed by the Appellant and thereby disallowed the excess depreciation on the alleged ground that software purchased separately and independent from computer purchases amounts to "intangible assets". 2. He further erred in calculating the amount of depreciation ignoring the second proviso to section 32(1)(ii) of the Act and thereby making a higher addition to the total income. 3. The Appellant prays that the AO be directed to allow depreciation @60% on computer software as claimed by the Appellant and accordingly delete the disallowance made amounting to Rs. 29,23,184/-. 4. Without Prejudice to the above, the Appellant prays that the software purchased be allowed as business expenditure u/s 37(1) of the Act. 5. In any case, the amount of disallowance, if any, be restricted to Rs. 20,80,549/- as correctly computed as per the provisions of the Act. GROUND NO. II: DISALLOWANCE AMOUNTING TO Rs. 92,92,31,540/- u/s. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 ("THE RULES"): 1. On the facts and circumstances of the case and in law, the AO erred in making a disallo....
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....profits u/s 115JB of the Act. GROUND NO. IV: RECOMPUTING THE LOSSES AND UNABSORBED DEPRECIATION TO BE CARRIED FORWARD: Consequent to the above the Appellant prays that the AO be directed to re-compute the eligible losses and unabsorbed depreciation for the captioned year to be carried forward to subsequent years after set off. 2. The Appellant further prays that based on the outcome of the appeals filed in the respective years, the AO be directed to re-compute the eligible losses and unabsorbed depreciation brought forward from AY 2012-13 to AY 2014-15 to be set off in the captioned year and to be carried forward to the subsequent years. GROUND NO. V: CHARGING INTEREST U/S, 234B AND 234C OF THE ACT: 1. On the facts and circumstances of the case and in law, the AO erred in levying interest amounting to Rs. 2,48,40,288/- and Rs. 16,46,944/- u/s 234B and 234C of the Act respectively. 2. The Appellant prays that the AO be directed to delete the levy of interest made u/s. 234B and 234C of the Act." 2. Briefly stated, the assessee is a company, engaged in the business of real estate/real estate development and incidental s....
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....he outset, Ld. AR of the assessee submitted that the disallowances made by the Ld. AO regarding assessee's claim for depreciation and the disallowance u/s 14A are not in accordance with the provisions of Act or settled principles under the jurisprudence of Hon'ble Courts. Therefore, both the disallowances are subject to reversal and otherwise the expenditure for purchase of software is allowable as business expenditure u/s 37(1) of the Act. 5. Per contra, Ld. DR representing the revenue vehemently supported the orders of Revenue Authorities and requested to uphold the same. 6. We have considered the rival submissions, perused the material available on record and jurisprudence relied upon by the assessee. Our adjudication towards the grounds of assessee's appeal are as under: 7. Ground No. I -Disallowance of claim of depreciation on addition to computer software of Rs. 20,80,548/- : While making the aforesaid disallowance, the Ld. AO has observed that the assessee has made additions on account of computer software purchase during the year, under the head intangible assets with sub-head computer software for Rs. 83,51,955/-. Ld. AO referred to the provisions of section 32....
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...., the genuineness of purchase of software has not been doubted by the Ld. AO, he only doubted the classification of it as an asset, according to him the software purchased by the assessee are intangible assets and, therefore, are entitled for depreciation at the rate of 25% only. On this issue, Ld. AR placed his reliance on various decisions listed as under: Arkema Chemicals India (P.) Ltd v. ACIT [2022] 139 taxmann.com 540 (Mum. Trib) CIT v. I-Flex Solutions Ltd [2014] 46 taxmann.com 88 (Bombay HC) Owens-Corning (India) (P.) Ltd. v. ACIT [2018] 93 taxmann.com 223 (Mumbai -Trib) Piramal Healthcare Limited v. DCIT [ITA No.1257/Mum/2014] (Mum. Trib.) - Relevant extracts PRL Developers (P.) Ltd. v. ACIT [2024] 164 taxmann.com 328 (Mumbai - Trib.) Indian Potash Ltd. v. DCIT [2025] 176 taxmann.com 822 (Delhi - Trib) DCIT v. Vodafone Business Services Ltd. [ITA No.297/Ahd/2020] (Ahm. Trib) Plintron Mobility Solutions (P.) Ltd. v. ITO [2021] 133 taxmann.com 366 (Chennai - Trib) PCIT v. Times Internet Ltd. [2023] 156 taxmann.com 577 (Delhi HC) CIT v. Computer Age Management Services (P.) Ltd. [2019] 1....
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.... Mumbai Tribunal in the case of Piramal Healthcare Limited v. DCIT [ITA No.1257/Mum/2014] (Mum. Trib.): "14. The A.O during the course of the assessment proceedings observed that the assessee had during the year incurred software expenses on upgradation of its existing software viz. MFGPRO, MS Office etc. It was noticed by him that the assessee had claimed depreciation on the capitalized value of the software expenses @ 60%.....the A.O holding a conviction that as the licence to use the software amounted to an intangible asset in the form of rights/ficenses, therefore, the same would be entitled for depreciation @ 25% as against 60% 15. We find that the issue before us is as to whether an independent purchase of software which admittedly formed part of the profit making apparatus of the assesses business and was capitalized in its books of accounts' would be entitled for depreciation @ 60% (as claimed by the assessee) or 25% (as allowed by the AO). Admittedly, the claim of the assessee towards depreciation on computer software @ 60% was allowed by the CIT(A) in its own case for A.Y 2008-09. The revenue had not carried the aforesaid order of the CIT(A) a....
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....Age Management Services (supra) has categorically held that items listed in Appendix I, prescribing rates of depreciation for different assets under the Act, have to be literally interpreted since the entry is in a taxing statute. In the matter before it the issue was identical, of rate of depreciation applicable to softwares, which as per the Revenue qualified as intangible assets since the softwares were actually licenses granted. The Hon'ble high court held that since computer software has been defined in Appendix as any computer program recorded on disc, tape or other information storage device, it has to be identified accordingly and the description could not be ignored. Therefore irrespective of the usage of the software, the Hon'ble high court held that as long as it fell within the definition provided in the appendix it qualified as computer software for enhanced rate of depreciation of 60%..." (Emphasis added)" 13. Considering the observations of Tribunal in aforesaid cases, any expenditure incurred by the assessee on software or on upgradation of existing software are in the nature of computer and software covered by new Appendix-I (effective from AY 2....
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....y the Ld. AO for Rs. 92,92,31,540/- was further reduced to Rs. 82,26,54,371/- vide rectification order u/s 154 of the Act dated 20.02.2018 by excluding the investment in debenture from the computation. It is submitted that the assessee has not earned any dividend income from the shares in which it has invested is an undisputed fact. On the issue of disallowance of section 14A, the assessee has raised various propositions and has submitted relevant case laws as under: Proposition 1: LLP agreements/ understanding between parties cannot be ignored CIT v. Arun Dua [1990] 186 ITR 494 (Cal. HC) Proposition 2: In case of investments in LLP, provisions of section 14A of the Actis not applicable in case of no profit during the year CIT v. Delite Enterprises [ITA No. 110 of 2009) (Bom HC) PCIT v. Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Guj. HC) DCIT v. Apex Realty Pvt Ltd [ITA No. 6265/Mum/2014] (Mum. Trib.) A. H. Baldota v. ACIT [2006] 10 SOT 757 (Mum. Trib.) Proposition 3: Without prejudice, where sharing of profit of a firm was not dependent on contribution of funds by partners, interest paid by partner on ca....
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....isallowance should be made in absence of satifaction recorded. Godrej & Boyce Manufacturing Company Ltd. v. DCIT [2017] 81 taxmann.com 111 (SC) PCIT v. Vedanta Ltd [2019] 102 taxmann.com 95 (Delhi HC) PCIT v. Godrej & Boyce Mfg. Co. Ltd [2023] 149 taxmann.com 222 (Bom. HC) 17. To support the propositions, a short note was also submitted before us which is extracted as under: "Proposition 1: There is no mandatory requirement in law (i.e. LLP Act) to contribute capital in order to be a partner in LLP 8. The Appellant submits that there is no mandate in the law to contribute any capital in order to be entitled to the share of profit in a LLP. Whether under the Indian Partnership Act, 1932 or under LLP Act, 2008, in order to become a partner and get share of profit, there is no sine qua non to contribute to capital. 9. However, as per section 33 of the Limited Liability Partnership Act, 2008, the obligation of a partner to contribute money shall be as per the limited liability partnership agreement. Accordingly, as per the terms of the LLP deeds, there are specific clauses governing the fixed and current capital by partner, which....
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....by the partner is directly in proportion to the capital contributed by the partners. On the other hand, the appellant is of the view that there is no connection between the funds contributed by the appellant and the share of profit received from the partnership firm. M/s. Shreenath Enterprises, being a partnership firm, is governed by the Indian Partnership Act, 1932. There is no provision in the said Act as regards the contribution of capital by the partners. In other words, the Act does not contemplate or stipulate capital contribution by the partner as one of the conditions for a partnership firm......, including the appellant, are entitled to the profit sharing as per the partnership deed and the same was not dependent. on. contribution of funds made by the partners. Clause (8) of the partnership deed deals with the, capita/loans introduced by the partners to the firm. It clearly states that the partners may introduce capital and or give Loan to the firm which shall carry interest @ 12% annum or any other rate has been mutually agreed upon" we subscribe to 9. We have gone through the submissions and also the orders of the Revenue authorities and we have no hesitation o....
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....06-107 of LPB] PCIT v. Nirma Credit Capital Pvt. Ltd. (ITA No. 980/Ahd/2012) (Ahm Trib.) [Page 115 to 117 of LPB) Piramal Enterprise Ltd. (As a sucessor to PHL Holdings Pvt. Ltd) v. ITO (ITA No. 3536/Mum./2010 (Mum. Trib) 16. Accordingly, in view of proposition 2 and 3, the Appellant submits that disallowance u/s 14Aof the Act to be computed only based on fixed capital of PRL Properties LLP: i If gross interest expenditure is taken into consideration-restricted at Rs. 10,681 ii. If net interest expenditure is taken into consideration - restricted at Rs. 4,753/- deleted. Thus, the excess disallowance including the suo moto disallowance made by the Appellant be Without Prejudice to Proposition 1, 2 & 3: Proposition 4: The disallowance u/s 14A r.w.r 8D should be restricted to exempt income earned during the year: 17. The Appellant submits that the disallowance, if any, should be restricted to exempt income earned during the year. In support of its contention, the Appellant places reliance on the following judicial precedents: PCIT v. State Bank of Patalia [2018] 99 taxmann.com 286 (SC) [Page 91-93 of LPB] PCIT v. ....
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....ing opening and closing balance of such investment and exempt income earned during the year is furnished. The same is extracted hereunder for the sake of interpretation and reference: Details of Investments (Excluding Debentures) A) Investments in equity instruments (unquoted) Particulars Amount as per March 2015 Amount as per March 2014 Exempt income earned during the year? Shares of PDL Realty Private Limited 1,00,000 1,00,000 No Piramal Residence Private Limited 1,00,000 1,00,000 No Adelwise Investments Private Limited 1.00,000 1.00,000 No Silver Pearl Realty Private Limited 4,52,78,000 No PRL Developers Private Limited 1,00,000 No Piramal Sunteck Realty Private Limited 52,75,00,000 52,75,00,000 No Total 57.31,78,000 52,78,00,000 B) Investments in LLPs Particulars Amount as per March 2015 Amount as per March 2014 Share of Profit(Less) Interest income Fixed Capital Current Capital Fixed Capital Current Capital Share of profit (In Rs.) Share of loss (Is Rs) Amount (In Rs) Piramal Commercial Estates LI....
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....erefore, no disallowance on such investments would be required u/s 14A r.w.r 8D, being generating taxable income. It is also submitted that the assessee has worked out a suo motu disallowance of Rs. 9,11,435/-, the working of which has been furnished before us at page nos.88 and 89 of the assessee's paper book. The details so furnished are extracted hereunder for the sake of completeness of facts: Particulars Source of investment Date of new Investment during the year Amount of Investment Simple Average Rate Without prejudice Amount of disallowance Investment In Equity Shares ( PDL Realty Private Limited 50,000 11.65% 5,825 50,000 11.65% 5,825 (II) Piramal Residences Private Limited 50,000 11.65% 5,825 50,000 11.65% 5,825 ....
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....ithout prejudice Disallowance under section 14A 9,11,835 21. On perusal of aforesaid chart, it can be gathered that the assessee has shown an average income from the investment made in aforesaid concerns in the form of investment in equity shares and investment in LLP. It is also the submission by Ld. AR, the addition could have been made only to the extent of exempt income earned by assessee, however, the suo motu disallowance computed considering the fixed capital balance investment in LLP be accepted. It is also requested to keep the issue of current capital balance in LLP as open so that the assessee would be at liberty to agitate the same in subsequent years. We, without going into each and every proposition of the assessee as prayed by the Ld. AR find it appropriate to settle the issue by allowing the assessee to continue with the suo motu disallowance made by it and direct the AO to restrict the same to the extent of Rs. 9,11,435/-. In result, the Ground of Appeal No.2 of assessee is allowed in above terms. 22. Ground No.3 - Regarding addition of disallowance of Rs. 82,26,54,371/- u/s 14A of the Act r.w.r. 8D of the Income Tax Rules for the purpose of computing book....