DY. CIT CC- 2(3), MUMBAI V. AMIT AVINASH BHOSALE, PUNE

ITA 165/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0272 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Appeal Filed On: 18-02-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D; Capital Gains
• Section: 6; 132; 10; 143(3); 2(14); 153A; 14A; 43; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “A” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER ITA NOs. 123 & 245/MUM/2021 (A.Ys: 2015-16 & 2016-17) DCIT – Central Circle – 2(3) 8 th Floor, Room No. 803 M.K. Road, Churchgate Mumbai - 400020 v. Avinash Nivrutti Bhosale 2, ABIL House Ganesh Khind Road Range Hill Corner Pune City, Pune Maharashtra – 411007 PAN: ABTPB8151F (Appellant) (Respondent) ITA NOs. 165 & 166/MUM/2021 (A.Ys: 2018-19 & 2015-16) DCIT – Central Circle – 2(3) 8 th Floor, Room No. 803 M.K. Road, Churchgate Mumbai - 400020 v. Amit Avinash Bhosale 2, ABIL House Ganesh Khind Road Range Hill Corner Pune City, Pune Maharashtra – 411007 PAN: AFDPB3400P (Appellant) (Respondent) Assessee by : Shri Vijay Mehta Department by : Ms. Shailja Rai Date of Hearing : 03.11.2021 Date of Pronouncement : 11.01.2022 2 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale O R D E R PER S. RIFAUR RAHMAN (AM) 1. All these appeals are filed by the revenue against different orders of the Learned Commissioner of Income Tax (Appeals)–48, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.11.2020 in the appeals of Avinash Nivrutti Bhosale for the A.Y. 2015-16 and 2016-17 and dated 17.12.2020 in the appeals of Amit Avinash Bhosale for the A.Y. 2015-16 and 2018-19. 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal No ITA.No. 123/Mum/2021 A.Y. 2015-16 being the lead appeal. 3. The revenue has raised three different issues in its grounds of appeal and each issue is dealt in ground wise. Ground No. 1 raised by the revenue is as under: - “1. Whether on the fact and circumstances of the case the Ld. CIT(A) is justified in allowing assessee’s claim of carry forward of Long Term Capital Loss of ₹.17,86,21,665/- arising from sale of equity shares, eligible to set off against Long Term Capital Gain (LTCG) of any subsequent assessment year which do not form part of total income as envisaged in the provisions of section 10(38) of the Income Tax Act.” 3 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 4. Brief facts relating to the above grounds of appeal are, search and seizure action u/s. 132 of the Income-tax Act (for short “Act”) were initiated on ABIL Group on 21.07.2017 and various residences of the partners/directors of the group situated at Mumbai and Pune were covered by search action. The assessee Shri Avinash N. Bhosale is a promoter and founder of ABIL Group. The group companies are primarily engaged in infrastructure development, real estate development and hospitality services. As the case of the assessee is covered under search action all the cases were centralized u/s. 127(2) of the Act and accordingly, notices u/s. 153A of the Act were issued and served on the assessee calling for filing of correct return of income for the A.Y.2015-16. 5. In response assessee filed return of income on 14.11.2018 declaring total income of ₹.10,57,63,490/-. During assessment proceedings Assessing Officer observed that assessee has claimed long term capital loss of ₹.17,86,21,665/-, he observed that the above capital loss was arising from sale of equity shares of listed company M/s. Reliance Power Limited and this transaction is subject to Security Transaction Tax (STT). According to Assessing Officer long term capital gain on listed shares which is covered u/s. 10(38) of the Act where STT has been paid being 4 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale exempt from income tax, does not form part of total income chargeable to tax, and any loss on such sale of shares (STT paid) also does not form part of the total income and is a dead loss. Assessing Officer further observed that even though there has been loss in A.Y. 2015-16 which is accepted, the claim of assessee for set off of this loss in current year and / or carrying forward such loss for setting off in subsequent year against taxable capital gain has no merit. 6. Before Assessing Officer, Assessee submitted submissions vide letter date 15.05.2019 in support of the claim to carry forward of such loss by relying on the decision of ITAT, Mumbai in case of M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT in ITA Nos. 3317/Mum/ 2009 & 1692/ Mum/ 2010 [58 taxmnn.com 115]. After considering the submissions of the assessee Assessing Officer rejected the same and he did not allow the assessee to carryforward for setting off the above said losses. 7. Aggrieved assessee preferred appeal before Ld.CIT(A) and Ld.CIT(A) considering the detailed submissions made before him which Ld.CIT(A) has reproduced in Para No. 10.1 of the order. After considering the submissions of the assessee, Ld.CIT(A) allowed the claim of the assessee by relying on Coordinate Bench decision in the case of 5 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale ACIT v. Smt Gauri Avinash Bhosale in ITA.No. 1303/PUN/2017 and M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT (supra). Aggrieved revenue is in appeal before us raising the above said ground of appeal. 8. Before us Ld. DR brought to our notice the relevant facts in this appeal and she strongly objected the decision of the Ld.CIT(A) in allowing the set off of long term capital loss in the present case. Ld. DR relied on Apollo Tyres Ltd. v. DCIT [130 taxmann.com 295] and she brought to our notice Para No. 6.1 of the above order. Further she relied on the decision of the ITAT Delhi in the case of Nikhilsawhney v. ACIT [119 taxman.com 372]. she submitted that Hon'ble High Court has not considered the decision of the Bombay and ITAT Delhi Benches. 9. On the other hand, Ld. AR submitted that the issue involved in the cases relied on by the Ld. DR is not the issue raised by the department in the grounds of appeal. He relied on the findings of the Ld.CIT(A). On merits in support of his contention, he relied on the following decisions: - (i). M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT [58 taxmnn.com 115]. (ii). ACIT v. Smt Gauri Avinash Bhosale in ITA.No. 1303/PUN/2017. 6 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale (iii). Nomura India Investment Fund Mother fund v. Addl. DIT (IT) in ITA.No. 8140/Mum/2010 dated 24.12.2019. (iv). Netesoft India Limited v. DCIT in ITA.No. 5359/Mum/2017 dated 20.12.2019. 10. Considered the rival submissions and material placed on record, we observe from the record that the assessee has claimed carryforward of long term capital loss which assessee has incurred by making investment in M/s. Reliance Power Limited and this transaction involves the STT which assessee has paid while transfer of the above shares. No doubt the profit which assessee would have earned will be exempt from tax u/s. 10(38) of the Act. However, we observe from the submissions of both the parties and in our considered view the facts in the case relied by the Ld.CIT(A) in ACIT v. Smt Gauri Avinash Bhosale (supra) and M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT (supra) are exactly same, for the sake of brevity we reproduce the extract in the case of M/s. Raptakos Brett & Co. Ltd, Mumbai v. DCIT (supra): - “7. We have heard rival submissions and perused the relevant findings given in the impugned orders. The main issue before us is, whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. 7 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale Section 2(14) defines “Capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain. 8. From the conjoint reading and plain understanding of all these sections it can be seen that, firstly, shares in the company are treated as capital asset and no exception has been carved out in section 2(14), for excluding the equity shares and unit of equity oriented funds that they are not treated as capital asset. Secondly, any gains arising from transfer of Long term capital asset is treated as capital gain which is chargeable u/s. 45; thirdly, section 47 does not enlist any such exception that transfer of long term equity shares/funds are not treated as transfer for the purpose of section 45 and section 48 provides for computation of capital gain, which is arrived at after deducting cost of acquisition i.e. cost of any improvement and expenditure incurred in connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, section 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides exemption of income only from transfer of Long term equity 8 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in subsection (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital gain on debt funds; and Long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of Long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court in Royal Turf Club, wherein the Hon’ble High Court observed that “under the Income tax Act 1961 there are certain incomes which do not enter into the computation of the total income at all. In computing the total income of a resident assessee, certain incomes are not included under s.10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for 9 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made.” The Hon’ble High Court was besieged with the following question “Whether under s.10(27) read with s.70 of the I.T.Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head “Business” ”Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: “In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person 10 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under s. 10 of the Act. It depends on the particular case where certain income, in respect of which the Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such a case we must look to the specific exclusion that has been made. The question is in this case whether s. 10(27) is a source which does not enter into the computation at all or is a source the income in respect of which is excluded in the computation of total income. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn.” After discussing the various decisions of the Hon’ble Supreme Court specifically the decision of in the case of Karamchand Premchand (supra), the Hon’ble High Court came to the following conclusion: “cl.(27) of s.10 excludes in express terms only “any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income” Thus, the ratio laid down by the Hon’ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon’ble Supreme Court in the case of CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118. The Hon’ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any 11 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale obligation to compute or assess it much less for the purpose of carry forward. Further, the Hon’ble Supreme Court observed that "From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the ' total amount of income, profits and gains referred to in Section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." While concluding the issue their Lordships observed that “it may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set- off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such setoff is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be “carried forward”. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source.” The ratio and the principle laid down by the Hon’ble Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return 12 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3).” 11. Following the aforesaid decision in case of Raptakos Brett & Co. Ltd. v. DCIT (supra) has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon’ble Jurisdictional High Court, though, due to non-prosecution. Thus, we do not find any infirmity in the order of the Ld.CIT(A) in allowing the claim of carry forward of Long Term Capital Loss of ₹.17,86,21,665/- arising from sale of equity shares. With regard to case law relied by Ld. DR she relied on Apollo Tyres Ltd., v. DCIT (supra), the issue involved in that case was whether long term capital loss incurred on which STT paid could not be set off against long term capital gain arising out of sale of land, the issue is distinguishable. With regard to Nikhilsawhney v. ACIT (supra), this case was pronounced on 17.08.2020 and subsequently Coordinate Bench has decided the issue in favour of the assessee. Aggrieved, when 13 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale revenue preferred appeal before Hon'ble Jurisdictional High Court, the same was dismissed. Therefore, the issue under consideration reached finality. Accordingly, ground raised by the revenue is dismissed. 12. Coming to Ground No. 2, revenue has raised following ground in its appeal: - “2. On the fact and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance u/s 14A or A.Y. 2015-16 without appreciating the fact that circular no. 5 of 2014 dated 11 th February, 2014, issued by the Central Board of Direct Taxes Clearly provides for disallowance of the expenditure even where taxpayer in particular year has not earned any exempt income.” 13. Brief facts of the case relevant to the above ground are, Assessing Officer observed that assessee had claimed exempt income during the year of ₹.49,23,544/- in form of Dividend and PPF interest. When the assessee was asked the details of expenses made for earning the above said exempt income expenses, assessee filed following submissions: - “The assessee is an individual engaged in the business of construction and power generation. He is carrying his business through following sole proprietary firms: a) M/s SwapnaliConstrcutions b) M/s Amit Constructions c) M/s AvinashBhosaleWind mill farm The books of account and financial statements are drawn up separately. Accordingly, for assessment year 2009-10, books of account and financial statements of these businesses are drawn up separately. The books of account of these business do not reflect investments, income from which is exempt from tax. All such 14 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale investments have been reflected in his individual separate set of books maintained on consolidated basis. Therefore, there is no question of making any disallowance u/s 14A as far as income from these above mentioned three proprietary businesses are concerned. The submission of assessee is duly considered and the same is not acceptable. On Verification of P & L A/c. it was observed that assessee has incurred certain expense on salary, administrative expenses etc. and whole expenditure has been claimed as business expenditure. On the other sided, assessee has made investment in firms and other sister concerns, from which assessee has either not shown any taxable income or the share profit earned thereof has been claimed as exempt. Therefore, it is not justifiable that all indirect expenditures are incurred for business only and although these expenditures are of such nature that it has also been incurred for making such investments. Further, there is always an element of indirect expenditure for earning such an exempt income, which the assessee has neither identified nor offered to tax. However, as laid by Hon'ble Bombay High Court in Godrej Boyce vs. DCIT, that rule 8D is applicable from AY 2008-09 and if there is exempt income AO has to record his justification while applying Rule 8D. The relevant portion of judgement is reproduced as under: “Setion 14A was enacted by Parliament in order to overcome the judgments of the Supreme court in the case of Indian Bank, Maharashtra Sugar and Rajasthan Warehousing Corporation in which it was held that in the case of a composite and indivisible business which results in earning of taxable and non taxable income, it is impressible to apportion the expenditure between that which was laid out for the earning of taxable as opposed to non taxable income. ii) The effect of section 14A is to widen the theory of the apportionment of expenditure. Prior to the enactment of section 14A where the business of an assessee was not a composite and indivisible business and the assesse earned both taxable and non taxable income, the expenditure incurred on earning non taxable income could not be allowed as a deduction as against the taxable income. As a result of the enactment of section 14A, no expenditure can be allowed as a deduction in relation to income which does not form part of the total income under the Act. Hence, even in the case of a composite and indivisible business, which result in the earning of taxable and non taxable income, it would be necessary to apportion the expenditure incurred by the assessee. Only that part of the expenditure which is incurred in relation to income which forms part of the total income can be 15 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale allowed. The expenditure incurred in relation to income which does not form part of the total income has to be disallowed. iii) From this, it would follow that section 14A has implicit within it a notion of apportionment. The principle of apportionment which prior to the amendment of section 14A would not have applied to expenditure incurred in a composite and indivisible business which results in taxable and non taxable income, must after the enactment of the provisions apply even to such a situation iv) The expression “expenditure incurred” in section 14A refers to expenditure on rent, taxes, salaries, interest, etc. in respect of which allowances are provided for; v) Subsections (2) and (3) of section 14A are intended to enforce and implement the provisions of sub section (1). The object of subsection (2) is to provide a uniformity of method where the AO is, on the basis of the accounts of the assessee, not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act.” 14. After considering the submissions of the assessee, Assessing Officer rejected the claim of the assessee and calculated the disallowance u/s.14A of the Act as below: - Investments yielding exempt income As on 31.03.2015 (Rs.) As on 31.03.2014 (Rs.) Investment in equity shares (Quoted and unquoted) 63,06,99,763 71,45,06,296 Investment in Partnership Firms & LLP 1,21,83,25,752 6,49,36,729 Investment in Mutual Fund 2,29,68,234 2,29,68,234 Investment in PPF 57,96,538 51,84,269 Total 1,87,77,90,288 80,75,95,529 Annual average value of investment 1,34,26,92,908 Disallowance u/s 14A r.w. Rule 8D (0.5% of the annual average value of the investment) 67,13,465 16 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 15. Aggrieved assessee preferred an appeal before Ld.CIT(A) and Ld.CIT(A) after considering the detailed submissions restricted the disallowance to the extent of exempt income earned by the assessee by relying on various decisions of the various High Courts. 16. Aggrieved revenue is in appeal before us raising above said ground of appeal. 17. At the time of hearing Ld. DR relied on the CBDT Circular 5 of 2014 dated 11.02.2014 and strongly opposed the finding of the Ld.CIT(A) for restricting the disallowance to the extent of exempt income earned by the assessee. 18. On the other hand, Ld. AR relied on the finding of the Ld.CIT(A) at Page No 16 of Ld.CIT(A) order. 19. Considered the rival submissions and material placed on record, we observe that assessee has earned exempt income to the extent of ₹.49,23,544/- whereas the Assessing Officer calculated the disallowance u/s. 14A r.w. Rule 8D to the extent of ₹.67,13,465/- which is more than the exempt income earned by the assessee. The various courts have held 17 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale that disallowance u/s. 14A of the Act cannot be more than the exempt income earned by the assessee. Therefore, we are in agreement with the finding of the Ld.CIT(A) and we do not find any reasons to interfere with the finding of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. 20. With regard to the third grounds of appeal revenue has raised following ground in its appeal: - “3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to treat the expenses on Software renewal license as revenue expenses, which is a capital asset.” 21. At the time of assessment proceedings, Assessing Officer observed that assessee has claimed ₹.2,66,855/- as software licence charges, when assessee was asked to explain to the above said expenses which is in the nature of capital expenses. In reply assessee submitted that these expenses are allocated from the group company M/s. ABIL Corporation Pvt. Ltd., towards share of the assessee in the common ERP Software. Assessing Officer rejected the same and treated the above said expenses as capital expenses and Accordingly, disallowed. 18 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 22. Aggrieved assessee preferred appeal before Ld.CIT(A). Assessee submitted the following submissions before the Ld.CIT(A) for the sake of brevity it is reproduced below: - “a) During the financial year 2014-15, the appellant had debited software renewal charges of Rs.2,66,855/-to Profit and Loss Account under the group ‘Repairs and Maintenance. During the assessment proceedings u/s 143(3) r.w.s 153A of the Act, the appellant had submitted regarding these expenses. b) The appellant is a promoter of ABIL Group and director of many of the companies of ABIL Group. M/s ABIL Corporation Pvt Ltd is one of the Group company of the ABIL Group. Many of the entities of the ABIL Group maintain their accounts and financial data in common ERP software. The usage license of this software is required to be renewed after certain period. This is the recurring expense. These license renewal charges are paid towards maintaining of the usage facility and upgradation of the said software. Thus, it is the revenue expenditure. Initially, the Group company M/s ABIL Corporation Pvt Ltd incurs these software license expenses and later on allocate the share of expenses to other group companies and entities who use this software. Accordingly, during the financial year 2014-15, M/s ABIL Corporation Pvt Ltd had paid software license renewal charges of Rs.30,03,229/- and allocated expense of Rs. 2,66,855/- to the appellant as his share of the software license renewal charges. As stated earlier, these license renewal charges are ‘paid towards maintaining of the usage facility and upgradation of the said software. Thus, it is the ‘revenue expenditure’ and it shall not to be treated as ‘capital expenditure’. c) In support of above contention, the appellant had relied upon following judgments of judicial authorities: 19 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale In support of above contention, the appellant relied on the judgment of Hon. Mumbai Bench of ITAT in case of M/s DCIT vs M/s Integrateq Technology Solutions Pvt Ltd (ITA no 3325 M 2012). Relevant extract of para 4 and para 5 of the order of Hon. ITAT is reproduced herewith: 4. .........The expenditure of Rs.17 lakhs was incurred by the assessee for up-gradation of existing software which in fact contributed towards the smooth running of the business of the assessee. He, therefore, has submitted that such software expenses having life of short duration which require continuous up-gradation due to new technology introduced from time to time and not having long term enduring benefit were required to be treated as revenue in nature. He, in this respect, has relied upon the decision of the coordinate bench of this Tribunal in the case of "ACIT vs. Sanghvi Savla Stock Brokers Ltd." (2014) 43 Taxmann.com 323 (Mum Trib.). The Tribunal in the said decision has very elaborately discussed about the nature of the software expenses and has observed that software keep on changing at a very past pace with the growing requirement in the day to day business. Most of the software become obsolete in short span and new and upgraded versions are required for better functioning and that any expenditure on such an up- gradation or buying of software for facilitation and efficient working of operations through computers in day to day business management is to be treated as revenue in nature until and unless it is established that the software installed has a very long lasting life and enduring benefit on a capital asset. The relevant observations made by the Tribunal in para 12 of the said decision, for the sake of convenience, are reproduced as under: “...........Whether any particular expense falls in the capital field or revenue field has to be judged, looking to the nature of expenses and various tests laid down by the courts from time immemorial. In this age of computerization, various softwares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing requirement in the day-to day business. Most of the softwares become obsolete in short span and new and upgraded version are required for better functioning. Unless, it has been brought on record that the software installed has a very long lasting life and enduring benefit on a capital 20 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale asset, then, probably it can be said that it may not be of revenue in nature. However, the software application, per-se, do not, in any manner, supplants the source of income or make any addition to the capital side of the assessee. Thus, in our opinion, software application expenses are nothing, but up-gradation of efficient working of operations through computers in the day-today business management, which keeps on changing periodically and thus any expenditure on such an upgradation or buying of software is revenue expenditure only. The decisions as relied upon by the learned Counsel also supports our view. Even though the Rules have provided rate of depreciation on computer software, but that does not lead to any kind of drawing legal inference that all the softwares have to be characterised as capital asset. Thus, the grounds raised by the assessee in the cross objection are treated as allowed." 5. The above observations of the co-ordinate bench of the Tribunal can be safely applied to the case of the assessee wherein the assessee had demonstrated that the above expenditure of Rs.17 lakhs was incurred by the assessee for up gradation of existing software for smooth running of online lottery business of the assessee. We, therefore, hold that the said expenditure was rightly claimed by the assessee as revenue expenditure. We, accordingly, hereby, set aside the finding of the Ld. CIT(A) on this issue and delete the disallowance so made by the lower authorities on this issue and direct the AO to treat the said software expenses of Rs.17 lakhs as revenue in nature. Copy of the order of Hon. ITAT Mumbai Bench is enclosed herewith as Annexure 10. The appellant also would like to rely on the judgment of Hon. Delhi High Court in case of Oriental Bank of Commerce Vs Addl. CIT (ITA 129/2018, ITA 415/2017, ITA 56/2018). Relevant extract of the said judgment is reproduced herewith: 7. The mere circumstance that the depreciation rate is spelt out in the Schedule to the Income-tax Act in our opinion is not conclusive as to the nature of the expenditure and whether it resulted an enduring advantage to a particular assessee. It is nobody's case that assessee is dealing with computer softwares or is in the business of any related services. Rather it uses specific customized software, 21 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale which is specific to its banking activities. But for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be % answered in favour of the assessee and against the revenue. The appeal, are consequently allowed. No order as to costs. Copy of the order of Hon. Delhi High Court is enclosed herewith as Annexure 11. d) However, without considering the submission of the appellant, the Ld disallowed repairs maintenance expenses incurred towards software license renewal charges of Rs.2,66,855/- by treating the same as ‘Capital Expenditure’ and added the same in the income of the appellant. e) In view of the above the appellant prays Your Honor to direct the Ld AO to delete the addition of Rs.2,66,855/- made in the income of the appellant.” 23. After considering detailed submissions Ld.CIT(A) allowed the ground raised by the assessee with the following observation: “7.4 The assessee in order to integrate, control and monitor the business activities of all entities in the group as well as to improve the accounting and book keeping processes incurred this expenditure. This software provides a common platform for accounting and business management for all the entities of the ABIL Group. In this age of computerization, various softwares are developed for smooth functioning of various business needs that helps business to run effectively, efficiently and profitably. The softwares keep on changing at a very fast pace with the growing requirement in the day-today business. 22 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 7.5 In present case assessee has paid software license renewal chargesis to be treated as revenue in nature until and unless it is established that the software installed has a very long lasting life and enduring benefit on a capital asset and in this case assessee has not installed new software. The assessee has incurred not a big amount for renewal of this software which, certainly required for keeping the software in working position. The assessee has incurred amount for renewal charges paid towards maintaining of the usage facility and upgradation of the said software. This expenditure is type of upgrading the existing software license or renewal of licence. The time period of the software which gives profit to the capital asset ultimately to the business is the important part while deciding the issue whether expenditure is capital or revenue expenditure. Since the assessee has paid this charges towards renewal of software firstly, the ownership of software remained with the software selling Company. The assessee has ‘to necessarily renew the license period for using the same in the business. Merely because the assessee is using software as operating software in its system, it does not mean that software is the capital asset in the hands of the assessee- company. This expenditure is for upgrading the existing software license or renewal of licence, which the assessee has to pay on term basis. In view of above, the AO is directed to allow the renewal of software license expenditure amounting to Rs. 2,66,855/-. Therefore, this ground of appeal is Allowed.” 24. At the time of hearing Ld. DR relied on the finding of the Assessing Officer. On the other hand, Ld. AR relied on the finding of the Ld.CIT(A). 25. Considered the rival submissions and material placed on record, we observe from the record that Ld.CIT(A) allowed the software licence charges expenses claimed by the assessee by relying on the Coordinate Bench decision in the case of DCIT v. Integrated Technology Solutions 23 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale Pvt. Ltd., in ITA.No. 3325/Mum/2012. After considering the detailed findings of the Ld.CIT(A) we do not find any reason to interfere with the findings of the Ld.CIT(A). Therefore, the grounds raised by the revenue is dismissed. 26. In the result, appeal filed by the Revenue is dismissed. 27. With regard to appeal filed by the Revenue for the A.Y. 2016-17, revenue has raised following grounds in its appeal: - “1. Whether on the fact and circumstances of the case the Ld. CITYA) is justified in allowing assessee’s claim of set off brought forward Long Term Capital loss of Rs. 2,59, 92,608/- against Long Term Capital Gain arising from redemption of debentures which do not form part of total income as envisaged in the provisions of section 10(38) of the Income Tax Act, 1962. 2. Whether on the fact and circumstances of the case the Ld. CIT(A) erred in restricting the disallowance u/s 14A to exempt income earned without appreciating the fact that circular no. 5 of 2014 dated 11 February, 2014, issued by the Central Board of Direct Taxes clearly provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 3 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to treat the expenses on Software renewal license as revenue expenses, which is a capital asset. 4. Whether on the fact and circumstances of the case and law the Ld. CIT(A) erred in restricting the disallowance made by the AO on account of travelling expenses, when the assessee could not stablish the business relevance of such expenses.” 24 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 28. We observe from the grounds of appeal that Ground No. 1, 2 and 3 are similar to ground raised by the revenue in A.Y. 2015-16. Since the issues are exactly similar the finding given in above Para are applicable mutatis-mutandis to the appeal for the A.Y. 2016-17 also. Accordingly, Ground No. 1,2 and 3 raised by the revenue are dismissed. 29. With regard to Ground No. 4 revenue has raised following ground: “4. Whether on the fact and circumstances of the case and law the Ld. CIT(A) erred in restricting the disallowance made by the AO on account of travelling expenses, when the assessee could not stablish the business relevance of such expenses.” 30. Assessing Officer observed during the assessment proceedings that assessee has claimed helicopter expenses of ₹.19,58,687/- in Financial Year 2015-16. He observed that department is consistently disallowing 1/5 th helicopter expenses on account of personal use or use of non–business purposes. He also observed that ITAT in assessee’s own case for the A.Y. 2005-06 has confirmed the disallowance to the extent of 1/7 th of total expenditure on helicopter. Assessing Officer after considering the explanation and submissions made by the assessee according to him 25% of the helicopter expenses i.e. ₹.4,89,672/- shall be disallowed and has to be added in the income of the assessee. 25 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale 31. Aggrieved assessee preferred appeal before the Ld.CIT(A) and Ld.CIT(A) after considering detailed submissions before him he allowed the appeal filed by the assessee by relying on assessee’s own case in earlier year and allowed 1/7 th of the expenditure incurred by the assessee. Aggrieved revenue is in appeal before us by raising above said ground. 32. Considered the rival submissions and material placed on record, we observed that the Coordinate Bench after considering the facts in the case of the assessee has allowed 1/7 th of the expenses incurred by the assessee as personal. Ld.CIT(A) has relied on the above finding and accordingly, allowed the appeal filed by the assessee before him. After considering the finding of the Ld.CIT(A) we do not find any reason to disturb or interfere with the above finding. Accordingly, ground raised by the revenue is dismissed. 33. In the result, appeal filed by the Revenue for the A.Y. 2016-17 is dismissed. 34. With regard to appeal filed by the Revenue in ITA Nos. 165 and 166/MUM/2021 for the A.Ys. 2018-19 and 2015-16 in the case of Amit Avinash Bhosale, we observe that the grounds raised by the revenue are 26 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale exactly similar to the grounds raised in the case Avinash Nivriti Bhosale in in ITA.No. 123/Mum/2021 and 245/Mum/2021. 35. In view of our above findings in the case of Avinash Nivriti Bhosale in ITA.No. 123/Mum/2021 and 245/Mum/2021, we dismiss the grounds raised by the revenue for both the Assessment Years under consideration. 36. In the result, both the appeals filed by the revenue are dismissed. 37. In the net result, all the appeals filed by the revenue are dismissed. Order pronounced on 11.01.2022 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 11.01.2022 Giridhar, Sr.PS 27 ITA NOs. 123, 165, 166 & 245/MUM/2021 Avinash Nivrutti Bhosale & Amit Avinash Bhosale Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum