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2015 (7) TMI 906 - ITAT MUMBAI

2015 (7) TMI 906 - ITAT MUMBAI - TMI - Disallowance of provision made for doubtful advance paid for advancement of existing soft ware - Capital expenditure or revenue expenditure - assessee had made a claim u/s.37 stating that expenditure incurred by it on account of upgradation of ERP software was revenue expenditure, that it had advanced a sum of ₹ 15.91 lakhs to BT but the work was not executed to the satisfaction of the assessee - Held that:- The expenditure incurred by the assessee fo .....

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laimed it as a business loss. The AO disallowed it and the Tribunal held that the loss was not deductible under sections 36 and 37 of the Act. On a reference, the Hon’ble Court held that the amounts were advanced by the assessee was allowable as revenue expenditure, that the amounts advanced were for business purposes,that the advances made proved irrecoverable, that the consequent loss was a business loss and not a capital loss. Respectfully, following the above judgment, we decide ground no.1 .....

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he provisions of the Act. Therefore, reversing the order of the FAA, we decide ground in favour of the assessee.

Depreciation on expenditure treated as revenue expenditure by the assessee but held as capital expenditure in earlier years - Held that:- If the AO capitalised certain revenue expenditure and allowed depreciation in that year then there is no justification for not allowing the same in subsequent AY.s. In the interest of justice we are remitting back the issue to the file of .....

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- ITA/378 /Mum/2012 - Dated:- 13-3-2015 - S/Sh.Vijay Pal Rao & Rajendra, JJ. For the Appellant : Shri. Nishit Gandhi For the Respondent : : Shri. Premanand J. Order u/s.254(1)of the Income- tax Act,1961(Act) Per Rajendra, AM Challenging the order dated 16.11.2011 of the CIT(A)-9,Mumbai,the assessee has raised the following grounds of appeal: WITHOUT PREJUDICE TO ONE ANOTHER: 1. Provision for Bad Advances ₹ 15,91,570: (1) The learned CIT (A) erred in law as well in facts in confirming d .....

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ware as Capital expenditure instead of revenue expenditure. (5) The C.I.T.(A) erred in wrongly considering the issue as per the provisions of Sec. 36 of the LT. Act, 1961 instead of Sec. 37 of the I.T. Act, 1961. 2. Alleged Directors' excess Remuneration of ₹ 36,40,038: (1) The learned CIT (A) erred in law as well in facts in confirming disallowance made by A.O. of alleged excess remuneration of ₹ 36,40,036 paid to the Directors. (2) The C.I.T.(A) erred in not appreciating in co .....

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rlier years The C.I.T. (A) erred in not giving necessary direction to the A.O. to allow due depreciation on expenses like Repairs and Maintenance, Soft Ware Expenses, treated by the appellant as revenue expenditure, but held as capital expenditure by the I.T.A.T. or C.I.T.(A) or A.O. in earlier years and in current year as well. Assessee-company, engaged in business of manufacturing of Blister Packing machines, filed its return of income on 30.09.2008 declaring total income of ₹ 4.20 Crore .....

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he amount in question was given to M/s. Beehives Technoligies(BT) on 04.04.2006. He directed the assessee to furnish the complete details of the transaction. Vide its letter, dated 23.08.10,the assessee stated that the sum was paid to BT for preparing Electronic Reporting Procedure(ERP).The AO was of the opinion that the ERP was a composite software and therefore he asked the assesse as to why the expenditure should not be treated as capital expenditure and should not be disallowed. The assessee .....

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d made a provision in the books of accounts. Finally, he made an addition of ₹ 15.91 Lakhs to the income of the assessee. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him, it was contended that assessee had given advance to BT for upgradation of ERP software system, that the work could not be completed to the satisfaction,that it demanded back the advance from BT,that the amount in question was never shown as income i .....

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held that ERP software purchase expenditure fell in the territory of capital expenditure. 4.Before us, Authorised Representative (AR) stated that assessee had made the claim u/s.37 of the Act, that the payment made for ERP was of revenue nature.He relied upon the case of IVM World Trade Corporation(186 ITR 412) delivered by the Hon ble Bombay High Court. He also referred to the case of Sadan Roadways Ltd. (288 ITR 15)of Hon ble Madras High Court. Departmental Representative(DR) relied upon the o .....

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tten off as per the provisions of section 36 of the Act.So,the narrow issue before us as to whether the advance payment made to BT should be allowed or not.As per the AO and the FAA it was an expenditure of capital nature and the assessee claims it to be business loss.We find that BT was asked to upgrade the EPP Software and it could not perform the job satisfactorily. Therefore, the advance payment made to BT has to be treated a business loss. In our opinion, the expenditure incurred by the ass .....

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a business loss. The AO disallowed it and the Tribunal held that the loss was not deductible under sections 36 and 37 of the Act. On a reference, the Hon ble Court held that the amounts were advanced by the assessee was allowable as revenue expenditure, that the amounts advanced were for business purposes,that the advances made proved irrecoverable, that the consequent loss was a business loss and not a capital loss. Respectfully, following the above judgment, we decide ground no.1 in favour of .....

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) of the Act. After considering the submission of the assesse, the AO held that there was no dispute about the total remuneration debited and the remarks made by the auditors, that the assessee had failed to prove that working given by the auditors was incorrect. Invoking the provisions of explanation to 37(1) of the Act, the AO disallowed the excessive remuneration of ₹ 36.40 lakhs and added back to the total income of the assessee. 7. Aggrieved by the order of the AO, the assessee prefer .....

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esse s own auditor had reported the payment of excess remuneration, that a copy of sanctioned letter granted by the Central Government for excessive remuneration paid was filed before him.The FAA called for a remand report from the AO with regard to the additional evidence submitted by the assessee in form of the sanction letter of the Central government. After considering the remand report, dated 11.02.11,the FAA held that the provisions of section 309(5A) and 309(5B) of the Companies Act were .....

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isions of Explanation to section 37(1) were not applicable with regard to the payment.He referred to the page no.38 of the paper book. He also relied upon the order of the Tribunal delivered for the year 2001-02 to 2004-05 wherein alleged excessive remuneration to the Directors disallowed u/s. 40A (2)(b)of the was deleted.DR supported the order of the FAA. 9. We have heard the rival submissions and perused the material before us.We find that the assessee had made excessive payment of remuneratio .....

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