Shri Vinay Bhasin, New Delhi V. ACIT, New Delhi

ITA 2274/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5116 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 17-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARIKSHIST SINGH
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 14A; 37(1); 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (E-COURT MODULE) ITA NO. 2274/DEL/2017 : ASSTT. YEAR : 2013-14 VINAY BHASIN, C-14, SOUTH EXTENSION, PART-II, NEW DELHI-110049 VS ACIT, CIRCLE-63(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAAPB3445J ASSESSEE BY : SH. SALIL AGARWAL, ADV. REVENUE BY : SH. PARIKSHIST SINGH, SR. DR DATE OF HEARING: 30.09.2020 DATE OF PRONOUNCEMENT: 12.10.2020 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-20, NEW DELHI DATED 19. 01.2017. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 7,38,963/- FAILING TO APPRECIATE THAT AFORESAID DISALLOWANCE HAS BEEN MADE MECHANICALLY APPLYING THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 AND WITHOUT RECORDING A SATISFACTION VI S- A-VIS BOOKS OF THE ACCOUNTS OF THE ASSESSEE AS ENVISAGED UNDER THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT AND HENCE THE DISALLOWANCE MADE OF RS. 6,93,610/- IS WHOLLY UNSUSTAINABLE IN LAW AND DESERVES TO BE DELETED. ITA NO. 2274/DEL/2017 VINAY BHASIN 2 1.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE FAILING TO APPRECIATE THAT WHILE MAKING THE AFORESA ID DISALLOWANCE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX HAS NOT ESTABLISHED THE NEXUS BETWEEN THE SPECIFIC EXPENDITURE AND THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME DESPITE THE FACT THAT THE APPELLANT HAS SPECIFICALLY SUBMITTED THAT NO EXPENDITURE HAS BEEN EARNED FOR EARNING THE EXEMPT INCOME. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINI NG A DISALLOWANCE OF RS. 2,22,649/- ON ACCOUNT OF INTEREST EXPENSES CLAIMED ON CAR LOAN. 2.1 THAT IN DOING SO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE FACT THAT REQUISITE DOCUMENTS/EVIDENCES WERE FILED AND EXPLANATION WERE TENDERED BEFORE THE LEARNED ACIT EXPLAINING THE AFORESAID EXPENDITURE, BUT THE LEARNED ACIT BASED HIS DECISION PURELY ON SUSPICION , SURMISES AND CONJECTURES AND AS SUCH, THE DISALLOWANCE SO MADE SHOULD BE DELETED. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINI NG A DISALLOWANCE OF RS. 1,92,186/- ON ACCOUNT OF SOFTWARE EXPENSES. 3.1 THAT IN DOING SO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE FACT THAT REQUISITE DOCUMENTS/EVIDENCES WERE FILED AND EXPLANATION WERE TENDERED BEFORE THE LEARNED ACIT EXPLAINING THAT THE SOFTWARE EXPENSE CLAIMED OF RS. 4,80,465/- IS A REVENUE EXPENDITURE, BUT THE LEARNED ACIT BASED HIS DECISION PURELY ON SUSPICION , SURMISES AND CONJECTURES AND AS SUCH, THE CAPITALIZATION OF THE SAID EXPENDITURE AND ALLOWANC E OF DEPRECIATION AT THE RATE OF 60% IS HIGHLY UNJUST AND UNTENABLE IN LAW. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINI NG ITA NO. 2274/DEL/2017 VINAY BHASIN 3 AN ADHOC DISALLOWANCE OF RS. 2,62,484/- ON ACCOUNT OF INTEREST EXPENSES CLAIMED ON CAR LOAN. 4.1 THAT IN DOING SO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE FACT THAT REQUISITE DOCUMENTS/EVIDENCES WERE FILED AND EXPLANATION WERE TENDERED BEFORE THE LEARNED ACIT EXPLAINING THE AFORESAID EXPENDITURE, BUT THE LEARNED ACIT BASED HIS DECISION PURELY ON SUSPICION , SURMISES AND CONJECTURES AND AS SUCH, THE DISALLOWANCE SO MADE SHOULD BE DELETED. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GROSSLY ERRED IN RECORDING ADVERSE FINDINGS WHICH ARE PERVERSE AND HAVE BEEN RECORDED WITHOUT CONSIDERING THE FACTUAL SUBSTRATUM OF THE CASE AND HENCE SUCH FINDINGS ARE VITIATED AND DESERVES TO BE DELETED. 3. THE ASSESSEE HAS EARNED INCOME EXEMPT FROM TAX AMOUNTING TO RS.24,62,098/- FROM DIVIDEND U/S 10(34 ) AND RS.12,90,604/- UNDER THE HEAD LTCG ON LISTED SECU RITIES U/S 10(38). THE ASSESSEE WAS ASKED ON 15.09.2015 TO GIV E DETAILS AND JUSTIFY THE CLAIM IN VIEW OF SECTION 14A READ W ITH RULE 8D WITH REFERENCE TO THE EXEMPT INCOME. AFTER CONSIDER ING THE SUBMISSIONS, THE AO REFERRING TO THE CASE OF CIT VS WALFORD SHARES & STOCK BROKERS PVT. LTD. DISALLOWED RS.7,38 ,963/- U/S 14A. 4. THE LD. CIT (A) CONFIRMED THE ORDER OF THE AO. 5. AT THE OUTSET, IT WAS BROUGHT TO OUR NOTICE THAT A SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF ITAT DELHI IN ITA NO. 5822/DEL/2015 FOR THE EARLIER YEAR S. IT WAS SUBMITTED THAT EXCEPT THE QUANTUM OF THE AMOUNT INV OLVED, THE ISSUE STANDS SIMILAR THE FACT WHICH COUNSELS FROM B OTH THE SIDES NOT CONTROVERTED. ITA NO. 2274/DEL/2017 VINAY BHASIN 4 6. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND F IND IT SIMILAR TO THE EARLIER YEARS. WE HAVE ALSO GONE THR OUGH THE ORDER OF THE CO-ORDINATE BENCH OF ITAT DELHI AND FI ND THE RATIO SQUARELY APPLICABLE TO THE YEAR IN QUESTION. THE RE LEVANT PART OF THE SAID ORDER IS AS UNDER: 13. ON GROUND NO. 3 ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 6,08,180/- U/S 14A OF THE ACT R EAD WITH RULE 8D(2)(III) OF THE ACT. THE AO NOTED THAT ASSESSEE HAS EARNED INCOME EXEMPT FROM TAX AMOUNTING TO RS. 21,26,012/- FROM DIVIDENDS. THE ASSESSEE WAS ASKED TO GIVE DETAILS AND JUSTIFY THE CLAIM IN VIEW OF SECTION 14A READ WITH RULE 8D WITH REFERENCE TO THE DIVIDEND INCOME. THE ASSESSEE SUBMITTED THAT HE HAS NOT CLAIMED ANY EXPENSES AGAINST EARNING OF THE SAID INCOME. THEREFORE, ABOV E PROVISIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE RELIED UPON THE FOLLOWING DECISIONS: 1. CIT VS. WIMCO SEEDLINGS ITA NO. 1367/2008, 1368/2008 & ITA NO. 1391/2008; 2. ACIT VS. SUN INVESTMENTS PVT. LTD. (2011) 48 SOT 159 (DELHI); 3. RELAXO FOOTWEAR LTD. VS. ADDL. CIT, RANGE-15, NE W DELHI (2012) 50 SOT 102 (DELHI). 14. THE AO, HOWEVER, NOTED THAT THE BASIC OBJECT OF SECTION 14A IS TO DISALLOW THE DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME. AO REFERRED TO JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS WALFORT SHARE AND STOCK BROKERS P. LTD. 326 ITR 1. THE AO ALSO NOTED THAT AO HAS TO ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES FOR MAKING A DISALLOWANCE. THE ASSESSEE HAS NOT PROVIDED ANY SEPARATE AMOUNT FOR EARNING OF EXEMPT INCOME. THE ASSESSEE HAS MADE VERY HEAVY INVESTMENTS FOR EARNING EXEMPT INCOME THROUGHOUT THE YEAR. THE AO, THEREFORE, FOLLOWING SECTION 14A READ WITH RULE 8D DISALLOWED EXPENDITUR E ITA NO. 2274/DEL/2017 VINAY BHASIN 5 OF RS. 6,08,180/- WHICH IS ATTRIBUTED TO THE EARNIN G OF EXEMPT INCOME. 15. THE ADDITION WAS CHALLENGED BEFORE LD. CIT(A). THE WRITTEN SUBMISSION OF THE ASSESSEE IS REPRODUCE D IN THE APPELLATE ORDER IN WHICH IT WAS STATED THAT AO HAS NOT SPECIFIED OR POINTED OUT ANY EXPENSES, WHATSOEVER CLAIMED BY ASSESSEE FOR EARNING THE SAID DIVIDEND INCOME. THE ASSESSEE RELIED UPON THE DECISIONS OF DELHI HIGH COURT IN THE CASES OF CIT V S. TAIKISHA ENGINEERING INDIA LTD. 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD. VS. CIT 275 CTR 471. THE LD. CIT(A), HOWEVER, CONFIRM THE ADDITION AND DISMISS THE APPEAL OF ASSESSEE. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ADDITION IS WHOLLY UNJUSTIFIED. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT SIMILAR ISSUE W AS CONSIDERED BY ITAT DELHI D BENCH IN THE CASE OF ASSESSEE FOR AY 2009-10 VIDE ORDER DATED 15.11.2018 (SUPRA) AND SIMILAR ADDITION HAS BEEN DELETED. THE FINDINGS OF THE TRIBUNAL IN PARA 8 OF THE ORDER ABO VE IS REPRODUCED AS UNDER: 8. WE HAVE GONE THROUGH THE FINDINGS OF THE LD. ASSESSING OFFICER ON THIS ASPECT. LD. ASSESSING OFFICER RECORDED THAT THE ASSESSEE MADE HEAVY INVESTMENTS FOR EARNING OF EXEMPT INCOME AND BEING A BUSY PROFESSIONAL, HE REQUIRES THE MANAGEMENT OF SUCH A PORTFOLIO BY INCURRING EXPENSES, DIVERSION OF MAN-POWER/STAFF FOR INDULGING IN INVESTMENT ACTIVITIES TO VARIOUS ACTIVITIES LIKE VISITING BANKS, USE OF VEHICLE AND TELEPHONE, USE OF INTERNET IF PORTFOLIO MANAGEMENT IS WEB-BASED, COST OF COMPUTER AND ITS DEPRECIATION, COMPUTER OPERATOR, CONSEQUENT ELECTRICITY, USE OF OFFICE PREMISES, FEE CHARGED BY MUTUAL FUND AGENTS/BANKERS (ANNUAL FEE), PORTFOLIO RECORD MAINTENANCE AND ITS TRACKING TO ENSURE TIMELY SALE/PURCHASE OF MUTUAL FUND UNITS ETC. EXCEPT MAKING THIS STATEMENT AND READING ALL THE POSSIBLE EXPENSES THAT INVOLVE IN INVESTMENT PROCESS, LD. ASSESSING OFFICER IS NOT SPECIFIC AS T O WHAT EXACTLY THE PROBABLE EXPENDITURE IN THIS ITA NO. 2274/DEL/2017 VINAY BHASIN 6 MATTER THE ASSESSEE COULD HAVE INCURRED. ACCORDING TO THE ASSESSEE THE INVESTMENT WAS MADE IN MUTUAL FUNDS AND THE EXPENSES WERE ALREADY DIRECTED BY THE OPERATORS AND A CERTIFICATE TO THAT EXTENT WAS SUBMITTED BEFORE THE LD. ASSESSING OFFICER. FURTHER , THE INSTRUCTIONS ARE THAT THE DIVIDEND INCOME WILL BE DIRECTLY CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE SO THAT NO PROBABLE EXPENDITURE AT THE END OF THE ASSESSEE FOR DEPOSIT OF THE DIVIDEND IN BANK COULD HAVE OCCURRED. HAVING REGARD TO THIS SET OF FACTS AND CIRCUMSTANCES INVOLVED IN THIS MATTER, WE ARE OF THE CONSIDERED OPINION THAT INSTEAD OF MAKING A SWEEPING ENUMERATION OF THE PROBABLE EXPENSES INVOLVED IN INVESTMENT PROCESS, LD. ASSESSING OFFICER COULD HAVE TAKEN LEGAL EXERCISE T O VERIFY THE CORRECTNESS OR OTHERWISE OF THE CERTIFIC ATE THAT WAS ISSUED BY THE ASSET MANAGEMENT COMPANIES OR THE CITIBANK IN THIS RESPECT. WE, THEREFORE, FIND THAT THERE IS NO PROPER RECORD OF SATISFACTION AS TO THE EXPENSES INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. BY FOLLOWING THE DECISION REPORTED IN CIT VS. TAIKISHA ENGINEERING INDIA LTD. 275 CTR (DEL.) 316 AND JOINT INVESTMENTS (P) LTD. VS. CIT 372 ITR 694 (DEL.), WE ARE OF THE OPINION THAT THE AO AT THE FIRST INSTANC E SHOULD HAVE EXAMINED THE CORRECTNESS OF THE STATEMENT MADE BY THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING THE EXEMPT INCOME DURING THE YEAR AND IF AND ONLY IF THE LD. AO IS NOT SATISFIED ON THIS ACCOUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, HE IS ENTITLED TO ADOPT THE METHOD UNDER RULE 8D OF THE RULES. WE, THEREFORE, WHILE ALLOWING THE PLEA OF THE ASSESSEE DIRECT THE LD. ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS SCORE ALSO. COPY OF THE ORDER IS PROVIDED TO THE LD. DR WHO DID NOT DISPUTE THE SAME. 17. CONSIDERING THE FACTS OF THE CASE, IN THE LIGHT OF THE FINDINGS OF THE TRIBUNAL IN AY 2009-10 (SUPRA), WE ARE OF THE VIEW THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ABOVE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE. FOLLOWING THE REASONS FOR THE ITA NO. 2274/DEL/2017 VINAY BHASIN 7 DECISION OF THE SAME, WE SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND DELETE THE ADDITION. 7. SINCE, THE FACTS REMAIN UNALTERED, IN THE ABSENC E OF ANY CHANGE IN THE POSITION OF LAW, FOLLOWING THE RATIO LAID DOWN IN THE ORDER OF THE CO-ORDINATE BENCH OF ITAT, WE HERE BY DELETE THE ADDITION MADE BY THE AO U/S 14A. INTEREST ON CAR LOANS: 8. GROUND NO. 2: THE AO HELD THAT INCOME AND EXPEND ITURE ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION, IT WAS SEEN THAT THE ASSESSEE HAS DEBITED INTEREST PAID OF RS.2,22,649/- ON ACCOUNT OF VEHICLE LOAN. FURTHER, IT WAS OBSERVED THAT THE ASSESSEE HAD ADVANCED LOANS AND A DVANCES TO VARIOUS PARTIES INCLUDING RELATED PARTIES AND NO IN TEREST IS CHARGED. THE AO DISALLOWED THE INTEREST ON THE LOAN TAKEN FOR THE PURCHASE OF VEHICLE ON THE GROUNDS THAT THE ASS ESSEE HAS EXTENDED INTEREST FREE ADVANCE FOR PROPERTY OF RS.6 .89 CRS. AND HENCE THE INTEREST ON THE VEHICLE SHOULD BE DISALLO WED. 9. THE LD. CIT (A) CONFIRMED THE ACTION OF THE ASSE SSING OFFICER RELYING ON THE ORDER OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE PUNJAB STAINLESS STEEL INDUSTRIES LTD. VS. CIT 324 ITR 396. 10. IT WAS BROUGHT TO OUR NOTICE THAT A SIMILAR ISS UE HAS BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF ITAT DELHI IN ITA NO. 5822/DEL/2015 FOR THE EARLIER YEARS. IT WAS SUBMITT ED THAT EXCEPT THE QUANTUM OF THE AMOUNT INVOLVED, THE ISSU E STANDS SIMILAR THE FACT WHICH COUNSELS FROM BOTH THE SIDES NOT CONTROVERTED. ITA NO. 2274/DEL/2017 VINAY BHASIN 8 11. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND FIND IT SIMILAR TO THE EARLIER YEARS. WE HAVE ALSO GONE THR OUGH THE ORDER OF THE CO-ORDINATE BENCH OF ITAT DELHI AND FI ND THE RATIO SQUARELY APPLICABLE TO THE YEAR IN QUESTION. THE RE LEVANT PART OF THE SAID ORDER IS AS UNDER: AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE VIEW THAT ADDITION IS WHOLLY UNJUSTIFIED. 9. LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE AO NOTED IN THE ASSESSMENT ORDER THAT ISSUE IS SIMILAR AS HAS BEEN CONSIDERED IN AY 2009-10. HE HAS SUBMITTED THAT ASSESSEE PREFERRED APPEAL BEFORE ITA T D BENCH IN AY 2009-10 AND APPEAL OF ASSESSEE HAS BEEN ALLOWED ON THE SIMILAR GROUND, VIDE ORDER DATE D 15.11.2018 IN WHICH THE TRIBUNAL IN PARA 6 HELD AS UNDER: 6. LD. AR SUBMITTED THAT THIS CAR LOAN WAS THE ONLY INTEREST-BEARING LOAN THAT WAS TAKEN BY THE ASSESSE E DURING THE YEAR AND ALL THE OTHER FUNDS ARE EITHER INTEREST FREE LOANS OR THE BALANCE OF CAPITAL ACCOU NT AVAILABLE WITH HIM. WE FIND FORCE IN THE SUBMISSION OF LD. AR THAT THE CAR LOAN OF RS. 50 LACS IS NO MA TCH AGAINST THE AMOUNTS ADVANCED DURING THE YEAR UNDER CONSIDERATION WHICH ARE TO THE TUNE OF RS. 2.98 CRORES BY THE ASSESSEE. FURTHER, IT IS NOT THE CASE OF THE LD. ASSESSING OFFICER THAT THE CAR LOAN WAS DIVERTED FOR ANY OTHER PURPOSE, BECAUSE THERE ISNO DENIAL OF THE STATEMENT OF THE ASSESSEE THAT THE LO AN AMOUNT WAS DIRECTLY DISBURSED TO THE SELLER OF THE CAR. INASMUCH AS THE LOAN WAS FOR THE PURPOSE OF BUSINESS AND NO QUESTION OF DIVERSION OF SUCH FUNDS HAD TAKEN PLACE, MERELY BECAUSE THE ASSESSEE PLACED HIS OWN FUNDS AND ALSO THE INTEREST FREE LOANS FOR SOME OTHER PURPOSES, IS NOT OPEN FOR THE LD. ASSESSING OFFICER TO DISALLOW THE INTEREST ON THE AMOUNT TAKEN FOR BUSINESS PURPOSE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITIO N. 10. COPY OF THE ABOVE ORDER IS PROVIDED TO THE LD. DR WHO DID NOT DISPUTE THE SAME. ITA NO. 2274/DEL/2017 VINAY BHASIN 9 11. IN VIEW OF THE ABOVE, IT IS CLEAR THAT AO DISALLOWED THE INTEREST BECAUSE THE ISSUE IS SIMILA R AS HAS BEEN CONSIDERED IN AY 7 ITA NO. 5822/DEL/2015 2009-10. IN AY 2009-10 THE TRIBUNAL DELETED THE SIMILAR ADDITIONS. WE, THEREFORE, FOLLOWING THE REASONS FOR DECISION FOR AY 2009-10 (SUPRA) FOUND THAT ISSUE IS COVERED IN FAVOUR OF TH E ASSESSEE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. 12. SINCE, THE FACTS REMAIN UNALTERED, IN THE ABSEN CE OF ANY CHANGE IN THE POSITION OF LAW, FOLLOWING THE RATIO LAID DOWN IN THE ORDER OF THE CO-ORDINATE BENCH OF ITAT, WE HERE BY DELETE THE ADDITION MADE BY THE AO U/S 14A. SOFTWARE EXPENSES: 13. GROUND NOS. 3 & 3.1: THE ASSESSEE HAS DEBITED RS.4,80,465/- AS SOFTWARE EXPENSES IN INCOME AND EX PENDITURE ACCOUNT. THE COUNSEL OF ASSESSEE VIDE ORDER SHEET N OTING DATED 20.11.2015 WAS ASKED TO EXPLAIN WHY COMPUTER AND SO FTWARE EXPENSES WHICH ARE DEBITED IN P&L A/C SHOULD NOT CA PITALIZED. 14. THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE OF TREATING SOFTWARE EXPENSES AS REVENUE EXPENSES AND TREATED IT AS CAPITAL EXPENDITURE AND DEPRECIATION @ 60% WAS A LLOWED AND 40% OF THE EXPENSES WERE DISALLOWED ON ACCOUNT OF S OFTWARE EXPENSES BEING CAPITAL IN NATURE. 15. THE ISSUE OF DEPRECIATION OF THE SOFTWARE AND T HE COMPUTER ACCESSORIES HAS BEEN ADJUDICATED A NUMBER OF CASES BY THIS TRIBUNAL WHEREIN DEPRECIATION @60% HAS BEEN ALLOWED . HOWEVER, SINCE THE AO AND THE LD. CIT (A) HAVE CATE GORICALLY MENTIONED THAT THE ASSESSEE DID NOT PRODUCE THE REL EVANT ITA NO. 2274/DEL/2017 VINAY BHASIN 10 EVIDENCES FOR THE PURCHASE OF SOFTWARE, WE, ACCORDI NGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTO RE THIS ISSUE TO THE FILE OF AO WITH DIRECTION TO RE-DECIDE THE I SSUE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSE E, AFTER VERIFYING THE BILLS AND VOUCHERS PRODUCED ON THIS I SSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. DISALLOWANCE OF PERSONAL EXPENDITURE: 16. GROUND NO. 4: THE AO NOTED THAT ASSESSEE HAS CL AIMED TELEPHONE AND TELEX, VEHICLE RUNNING AND MAINTENANC E EXPENSES AND DEPRECIATION ON VEHICLE IN PROFIT AND LOSS ACCO UNT. THE TOTAL EXPENSES ARE AMOUNTING TO RS. 34,93,780/-. THE AO N OTED THAT THE PERSONAL ELEMENT OF THESE EXPENSES CANNOT BE RU LED OUT. HENCE, 1/10TH OF THESE EXPENSES WAS DISALLOWED U/S 37(1) BEING OF PERSONAL NATURE. THE AO, THEREFORE, MADE ADDITIO N OF RS. 3,49,378/-. THE LD. CIT(A) GAVE A REMISSION OF RS.8 6,890/- AND CONFIRMED DISALLOWANCE OF RS.2,62,484/-. A SIMILAR MATTER HAS ALSO BEEN ADJUDICATED IN THE CASE OF THE ASSESSEE F OR THE ASSESSMENT YEAR 2011-12. 17. AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE VIEW THAT THE ENTIRE ADDITION IS WHOLLY UNJUSTIFIED. THE AO HAS NOT POINTED OUT ON WHICH ITEMS PERSONAL ELEMENT WAS INV OLVED IN CLAIMING THE AFORESAID EXPENSES. AO HAS NOT POINTED OUT ANY SPECIFIC ITEM WHICH IS USED BY THE ASSESSEE FOR PER SONAL PURPOSES. IT IS AD HOC ADDITION MADE BY THE AO BY D ISALLOWING 1/10TH OUT OF THESE EXPENDITURES. IT IS WELL SETTLE D LAW THAT AD HOC ADDITION CANNOT BE SUSTAINED UNLESS AO HAS POIN TED OUT ANY SPECIFIC ITEM IN WHICH PERSONAL ELEMENT IS INVOLVED . THERE WAS THUS, NO JUSTIFICATION TO MAKE ANY DISALLOWANCE OUT OF THESE ITA NO. 2274/DEL/2017 VINAY BHASIN 11 EXPENDITURES. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/10/2020. SD/- SD/- (BHAVNESH SAINI) (D R. B. R. R. KUMAR) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED: 12/10/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR