TMI Blog2012 (12) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A to ₹ 1 lac. Issue partly allowed Software license fees – Capital or revenue in nature – Assessee has paid license fees for user of Finance, Purchasing, Order Management and Manufacturing users – Held that:- The most important test is the functional test and if it is found that the function being carried out with the help of the software is such which can be said to be a part of profit making apparatus of the assessee then the same has to be considered as capital expenditure and if it is only for increasing the organizational efficiency, the same cannot be treated as forming part of the profit making apparatus of the assessee company and should be treated as revenue expenditure. Software will help the assessee in increasing the efficiency but the same cannot be treated as forming part of profit making apparatus of the assessee company and, therefore, the expenditure on this software cannot be treated as capital expenditure. In favour of assessee Disallowance u/s 40(a)(ia) - Reimbursement of expenses of C&F agents – Held that:- if bills for reimbursement of expenditure have been raised by the commission agent separately, TDS was not required to be deducted for reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Calcutta High Court rendered in the case of Exide Industries Ltd. (supra). We find that the A.O. has made disallowance by invoking the provisions of clause (f) of Section 43B and the same was confirmed by Ld. CIT(A) also on the basis of Section 43B. As per the judgement of Hon ble Calcutta High Court rendered in the case of Exide Industries Ltd. (supra), it was held that clause (f) of Section 43B is arbitrary, unconscionable and dehorse of the Hon ble Supreme Court decision and, therefore, not valid. In view of this, clause (f) of Section 43B is not valid and, therefore, disallowance made by the A.O. on the basis of clause (f) of Section 43B cannot be sustained. We therefore delete the same. 4. Ground No.3 of the assessee s appeal reads as under: 3. The Hon'ble CIT(A) has erred in confirming the disallowance of ₹ 4,61,160/-u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Rules without proving the nexus of investment and appreciating the facts submitted during hearing. It is submitted that the disallowance is uncalled for and be directed to be deleted. 4.1 Brief facts of the case till the assessment stage are noted by Ld. CIT(A) in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministrative expenses of ₹ 1.02 lacs, disallowance of ₹ 50,000/- was confirmed in that year. He submitted that in the present year also, no disallowance is justified on account of interest expenditure because the own funds in the present year is also many times more than investment in shares beings ₹ 96.15 crores as against investment of ₹ 2.37 crores. Ld. D.R. supported the orders of authorities below. 4.3 We have considered the rival submissions, perused the material on record sand have gone through the orders of authorities below and the tribunal decision in assessee s own case for the assessment year 2006-07 cited by the Ld. A.R. After examining the facts of the present year as well as that of the assessment year 2006-07, we are satisfied that no disallowance is called for u/s 14A out of interest expenditure because own funds of the assessee were many times more than the amount invested in shares and no direct nexus is established by the A.O. between investment and interest bearing borrowing funds. But we find that some disallowance is justified out of administrative expenses. In assessment year 2006-07, disallowance of ₹ 1 lacs was made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order, management and manufacturing. A.O. observed that lumpsum payment for purchase of Oracle licenses, made for the first time could not be in the nature of revenue expenditure and even though the benefit derived by incurring such expenditure may not be for ever, it was spread over several years and it thus fell into the category of benefit of enduring nature. By relying on the decision of Aravalli Constructions Co. Pvt. Ltd. 359 ITR 30 (Raj.) and by distinguishing cases cited by the appellant, A.O. held the expenditure to be in the nature of capital expenditure. 5.2 Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) but without success and now, the assessee is in further appeal before us. 5.3 It was submitted by the Ld. A.R. before us that the entire software is with regard to oracle and consultation of software and there was no hardware. He placed reliance on the decision of Special bench of the Tribunal rendered in the case of Amway India Enterprise Vs DCIT as reported in 111 ITD 112 (114 TTJ 476) (Del.) S.B. Ld. D.R. supported the orders of authorities below. 5.4 We have considered the rival submissions, perused the material on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 40% of such expenditure and since we are holding that it is not a capital expenditure, we delete this disallowance. This ground is allowed. 6. Ground No.5 is as under: 5. The Hon'ble CIT (A) has erred in confirming the disallowance of ₹ 10,34,388/-u/s 40(a)(ia) being the reimbursement of expenses paid to clearing forwarding Agents reimbursed towards stamp charges, documentation charges for customs, loading unloading charges and other miscellaneous expenses. The said expenses incurred are in respect of reimbursement and hence not subjected to TDS. In view of this, the action of AO to invoke {provisions of Sec. 40(a)(ia) is unjust and unconfirmed. It be held so now and JAO be directed to delete the addition. 6.1 Brief facts of the issue till the assessment stage are noted by Ld. CIT(A) in para 6 of his order which is reproduced below: 6. Next ground of appeal is regarding disallowance of ₹ 29,62,200/- u/s.40(a)(ia). Appellant had made payment of ₹ 49.37 lakh to Aakash Mechatronics Limited (AML) for maintenance and service of its various machineries and also entered into annual maintenance contract with the said company. TDS U/S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een raised by the commission agent separately, TDS was not required to be deducted for reimbursement and as a consequence, section 40(a)(ia) is not applicable with regard to such reimbursement. In the present case, such details are not available before us as to whether the amount of reimbursement is exact amount of expenditure incurred by the C F agent and whether separate bills were raised by the C F agents in respect of reimbursement of expenditure and in respect of service charges payable to them. We, therefore, feel that in the interest of justice, this matter should go back to the file of the A.O. for a fresh decision. We order accordingly. The assessee shall bring on record the relevant bills raised by each C F agent and it has to be shown that exact amount of expenditure incurred by each agent was reimbursed by the assessee and bills were separately raised by the C F agent for the reimbursement of each expenditure and for service charges payable to them and if the assessee is able to establish these two ingredients then Section 40(a)(ia) is not applicable in respect of reimbursement of expenditure and the A.O. shall decide this issue afresh and pass necessary order as per l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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