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2022 (2) TMI 700 - AT - Income TaxDisallowance of interest paid on service tax - interest on delayed payment of service tax - A.O. noticed that the assessee did not route the service tax collection and payment through profit and loss account and since the service tax paid is not claimed as expenditure, A.O. took the view that the interest paid on service tax is also not an expenditure in connection with the business carried on by the assessee. Accordingly, he disallowed the above said claim of the assessee - HELD THAT:- It is a settled principle of law that any tax collected along with sales/services is a trading receipt and hence remittance of the same to the credit of the government shall constitute trading expenditure. It is also settled proposition of law that the entries made in the books of account are not relevant for determining total income of the assessee. Hence, it cannot be said that the service tax collection and remittance is not related to the business carried on by the assessee, merely for the reason that they are not routed through the Profit and loss account. Whether the interest paid on delayed payment of service tax is allowable as deduction or not? - As decided in the case of M/s. EMDEE Digitronics Pvt. Ltd. [2019 (7) TMI 86 - ITAT KOLKATA] interest expenditure on late deposit of VAT, service tax, etc. are allowable as deduction u/s 37(1) of the Act. Accordingly, following the above said decision, we hold that the interest paid on delayed payment of service tax is a business expenditure to the assessee and accordingly allowable as deduction. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance. Disallowance of software subscription charges - AO noticed that the assessee has incurred expenses on software purchases and claimed the same as deduction - HELD THAT:- Whether the payments made by the assessee for upgrading the software would constitute revenue or capital expenditure, we may gainfully refer to the decision in the case of IBM Ltd. [2013 (10) TMI 1225 - KARNATAKA HIGH COURT] wherein the Hon’ble High Court has taken the view that payment of application software though there is an enduring benefit, it does not result into acquisition of any capital asset and merely enhances the productivity or efficiency and hence has to be treated as revenue expenditure. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the above amount as revenue expenditure. SAP license renewal charges - We noticed that the Ld CIT(A) has held it to be revenue expenditure. However, he has directed the AO to examine the applicability of sec.40(a)(ia) of the Act. Before us, the Ld A.R has placed reliance on the notification no.21/2012 dated 13th June, 2020 issued by CBDT in order to contend that the TDS is not required to be deducted when the software license is acquired from a Resident. We have gone through the same and notice that the CBDT has laid down certain conditions. Further, the Hon’ble Supreme Court, in a recent decision rendered in the case of Engineering Analysis Centre for excellence [2021 (3) TMI 138 - SUPREME COURT] has explained the law on deduction of TDS on payments made to non-residents on purchase of software licenses. Hence the above said notification has to be read along with the decision rendered by Hon’ble Supreme Court in the above said case. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to examine this issue Disallowance of bad debts claimed - A.O. noticed that the assessee has claimed bad debts against the amount due from a sister concern - HELD THAT:- We noticed earlier that the Ld. CIT(A) has given a categorical finding, which is also evident from the ledger account extracted by him in his order, that the transactions recorded in the second ledger are not related to the business carried on by the assessee. The transactions are in the nature of financial accommodation or financial support given by the assessee to its sister concern. Such kind of transactions, in our view, cannot said to relate to the business carried on by the assessee. Hence, the balance written off by the assessee, under these set of facts, cannot be considered as a case of write off of trading advance or a case of trading loss. Accordingly, we confirm the order passed by Ld. CIT(A) on this issue.
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