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2023 (1) TMI 91 - ITAT MUMBAICapitalization of software charges as debited to Profit & Loss account - Appellant has not provided any description in respect of expenses incurred - HELD THAT:- While the Assessing Officer referred to some of the documents filed by the Appellant, the CIT(A) has returned a finding that the Appellant has not provided any description in respect of expenses incurred. The finding returned by the CIT(A) is contrary to the material on record. While concluding that the expenditure incurred by the Appellant in respect of software was capital in nature, the CIT(A) has proceeded on the presumption that the software would have useful life for many years. The approached adopted by the CIT(A) cannot be countenanced as it is based upon presumption rather than examination of facts. Details submitted by the Appellant are not supported by the certificate from the external auditor which, though giving details of allocation keys, does not cover the relevant previous year. The Assessing Officer has also observed that while the IS Service Agreement was executed on 14.10.2011, the expenses claimed pertain to period prior to execution of the IS Service Agreement (as can be seen from the invoice date). In view of the aforesaid, we deem it appropriate back to the file of Assessing Officer for de-novo adjudication after giving the Appellant an opportunity of being heard. Ground No. 2 raised by the Appellant is treated as allowed for statistical purposes. Disallowance of expenditure incurred on travelling & conveyance AND disallowance of expenditure incurred on legal & professional fees - HELD THAT:- The primary evidence in support of incurring the expenditure was placed before the CIT(A) as additional evidence. Perusal of record shows that the Appellant was also not called upon by the Assessing Officer to submit more/additional invoices in support of the claim. The reason for concluding that the Appellant was not able to support the claim with evidence was that the Appellant did not furnish party-wise details and/or failed to co-relate the expenses debited to Profit & Loss Account. We are not inclined to accept the aforesaid approach adopted by the CIT(A)/Assessing Officer for the reason that the primary fact as well as supporting evidence were placed on record. The finding returned by the CIT(A) that the Appellant had furnished no supporting documents to substantiate the claim is, therefore, factually incorrect. Further, the CIT(A) and Assessing Officer (in remand proceedings) neither pointed out any infirmity in the same nor the necessity of the detailed break-up asked for by the Assessing Officer. The quantum of disallowance was also computed by the Assessing Officer on ad-hoc basis. - Decided in favour of assessee. Disallowance of interest relating to Capital Work in Progress (CWIP) - AO disallowed interest expenses being 2.15% of capital work-in-progress out of the interest expense claimed by the Appellant as Revenue expenditure and capitalized the same as capital work-in-progress - HELD THAT:- It is not the case of Revenue that the Appellant did not have sufficient own funds. To the contrary the Assessing Officer had clearly stated that the Appellant also had own funds but proceeds to make disallowance on the presumption that, both, borrowed funds and own funds have been used. The Appellant has furnished the relevant working capital facility agreements and ledger account to show that the unsecured loans were for working capital, and the interest paid thereon is also clearly reflected in the financial statements in Schedule 18 - “Interest – On working capital loans”. In our view, in absence of any information/circumstances to suggest, in some form or manner, any diversion of working capital loans for funds by the Appellant, in the facts and circumstances of the present case, the presumption drawn by the Assessing Officer cannot be sustained as it has no basis. Accordingly, we overturn the decision of CIT(A) and delete the disallowance on interest made by the Assessing Officer. Ground No.5 raised by the Appellant is allowed.
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