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Income Tax Appellate Tribunal, DIVISION BENCH, ‘SMD’ CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
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 .
The assessee has taken the following grounds of appeal:-
That the Ld. CIT(A) has erred in law as well as on facts in upholding the addition of Rs. 5,66,947/- made by applying the provisions of section 14A of the Act is arbitrary and unjustified.
That no expense whatsoever has been incurred to earn dividend income and as such invocation of section 14A read with rule 8D of the Act is misplaced, arbitrary and unjustified.
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That the Ld. CIT(A) has further erred in upholding the addition of Rs. 43,302/- treating software license expenses to be in the nature of capital expense as against Revenue expense claimed by the assessee which is arbitrary and unjustified.
That the Ld. CIT(A) has further erred in upholding the charging of interest u/s 234A and 234B of the Act which is not chargeable in the facts of the case.
Ground No. 1 & 2 are in relation to the disallowance made u/s
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/-.
Being aggrieved by the above aforesaid disallowance, the
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.
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Before us, the Ld. Counsel for the assessee has submitted that
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.
The Ld. DR, on the other hand, has relied on the findings of the
lower authorities and has submitted that the disallowance has been
rightly computed u/s 14A read with Rule 8D of the I.T. Rules.
We have considered the rival submissions. A perusal of the
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
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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.
Now coming to ground No.3 of the appeal, the assessee has
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
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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.
Ground No. 4 is relating to the charging of interest u/s 234A and 234B of the Act which is consequential in nature. Since we have restored the ground Nos. 1 & 2 of the file of the Assessing officer, the Assessing officer is also accordingly directed to decide this issue at the time of decision on the issues taken in ground Nos. 1 &2 of the
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