M/S BEBO TECHNOLOGIES PVT. LTD.,MOHALI vs. DCIT, C-6(1), MOHALI

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against

the order dated 07.06.2017 of the Commissioner of Income Tax

[hereinafter referred to as CIT(A)]-2, Chandigarh .

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14A of the Income-tax Act, 1961 (in short 'the Act'). The Assessing

officer during the assessment proceedings found that the assessee had

during the year earned tax exempt income of Rs. 53.45 lacs but did

not offer any disallowance incurred in earning of the aforesaid tax

exempt income. On being asked to explain in this respect, the

assessee could not offer any explanation as to why the disallowance

should not be made u/s 14A read with Rule 8D of the I.T. Rules. He,

therefore, computed the disallowance at Rs. 5,66,947/-.

Assessee preferred appeal before Ld. CIT(A). It was pleaded before

the CIT(A) that in fact the assessee had not incurred any expenditure

in relation to the earning of tax exempt income. However, the Ld.

CIT(A) observed that the expenditure for investment was made out

of the common pool which also constituted interest bearing funds.

He, therefore, held that Assessing officer has rightly applied Rule 8D

of the I.T. Rules while computing the disallowance u/s 14A of the

Act.

ITA No.1258/Chd/2017- Bebo Technologies Pt Ltd, Mohali 3

Assessing officer has not recorded his satisfaction as required under

the provisions of section 14A of the Act before making the aforesaid

disallowance. He has further submitted that in fact entire tax exempt

income was earned from investment in mutual funds which were

already subjected to dividend distribution tax. That the expenditure

relating to the earning of the dividend from mutual funds had

already been deducted by the portfolio managers and that no

separate charges were paid by the assessee to the investment

manager. That all the investments were done through investment

manager and that no extra expenditure was incurred by the assessee

in making the aforesaid investment in mutual funds.

lower authorities and has submitted that the disallowance has been

rightly computed u/s 14A read with Rule 8D of the I.T. Rules.

para 5.1 of the impugned order of the CIT(A) reveals that it has been

noticed by the CIT(A) that assessee had claimed that it had not

incurred any expenditure in relation to earning of the tax exempt

income. As per sub section (2) of section 14A of the Act, the

Assessing officer is supposed o determine the amount of expenditure

in relation to the tax exempt income as prescribed method under rule

8-D, if the Assessing officer having regard to the account of the

assessee is not satisfied with the correctness of the claim of the

assessee in respect of the said expenditure in relation to the tax

exempt income of the assessee. Further, as per the provisions of sub

ITA No.1258/Chd/2017- Bebo Technologies Pt Ltd, Mohali 4

section (3) the provisions of sub section (2) shall also apply in

relation to the case where the assessee claimed that no expenditure

has been incurred by him in relating to earning of tax exempt income.

In the case in hand, apparently, the tax exempt income has been

earned from investment in mutual funds. It is plea of the assessee

that no expenditure has been incurred in making the aforesaid

investment. Further, it has not come out on the record whether the

assessee has used interest bearing funds for making the aforesaid

investment and what were the available own funds / interest free

funds available to the assessee as on the date of making the

investment and further what were the resources for making the

investment in mutual funds. Though the Ld. CIT(A) has powers co-

terminus with that of Assessing officer, but he has failed to examine

the claim of the assessee in this respect. In view of this, the entire

issue is required to be restored to the file of the Assessing officer for

examining it afresh and to pass a speaking order on this issue in

accordance with law. Needless to say that the Assessing officer will

give opportunity to the assessee to present its accounts and evidences

and then to examine the same and decide the issue in the light of the

relevant judicial pronouncements.

agitated the disallowance of expenditure of Rs. 43,302/- incurred on

software license expenses. The Ld. Counsel for the assessee has

brought our attention to para 6.2 of the impugned order of the CIT(A)

wherein the Ld. CIT(A) has mentioned that the aforesaid expenditure

was incurred to secure antivirus for mobiles and Norten antivirus for

ITA No.1258/Chd/2017- Bebo Technologies Pt Ltd, Mohali 5

computers and the license for the use of the aforesaid software was granted for one year only. In our view, the antivirus expenses are not of the nature of expenses to enhance the performance of the software or in any way of enduring benefit to the assessee. Antivirus

software is to protect the computer / mobiles and data stored therein from the attack of malware and is essentially an expenditure in the nature of Revenue expenditure. In view of this, ground No. 3 of the appeal is allowed and the disallowance made on account of purchase of aforesaid antivirus software is hereby ordered to be deleted.

appeal. 11. Ground No.5 is general in nature and needs no adjudication. 12. In the result, the appeal of the assessee is treated as allowed for statistical purposes. Order pronounced in the Open Court.

Sd/- Sd/- (B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 09.04.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR

ITA No.1258/Chd/2017- Bebo Technologies Pt Ltd, Mohali