New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 261 - ITAT MUMBAI

2016 (7) TMI 261 - ITAT MUMBAI - TMI - Disallowance of e-connectivity charges - Held that:- Respectfully following the decisions of the Coordinate Bench in the Assessee’s own case for A.Y. 2004-05 and for A.Y. 2009-10 we hold that the e-connectivity charges incurred by the assessee are revenue in nature as they do not result either in the acquisition of software by the assessee or in any enduring benefit to the assessee - Decided in favour of assessee - ITA No. 8819/Mum/2010 - Dated:- 3-6-2016 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the Act on 20.09.2010. 2. The facts of the case, briefly, are as under: - 2.1 The assessee-company, engaged in the manufacture and trading of pharmaceutical products, filed its return of income for A.Y. 2006-07 on 29.11.2006 declaring total income of ₹ 23,72,68,243/-. The impugned order was passed under section 144C(13) r.w.s. 143(3) of the Act on 12.10.2009 wherein the income of the assessee was determined at 23,72,70,189/- in view of, inter alia, disallowance of ₹ 20,56,266/- on a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

under section 234B of the Act inspite of assessee having paid advance tax which is more than 90 percent of the assessed tax. Your Appellant prays that such levy of interest be deleted. 4. Ground No. 1 - Disallowance of e-connectivity charges - Rs. 20,56,266/- 4.1 In this ground, the assessee has assailed the action of the AO in making a disallowance of ₹ 20.56,266/- by considering e-connectivity charges as capital expenditure by holding that this expense is incurred for acquiring software .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee neither acquired any software by payment of e-connectivity charges nor was there any enduring benefit to the assessee and therefore the e-connectivity charges paid by the assessee are revenue in nature. 4.2 Per contra, the learned D.R. supported the finding in the impugned order. 4.3.1 We have heard both parties and perused and carefully considered the material on record, including the judicial pronouncement cited (supra). We find that the issue of whether e-connectivity charges pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er at 20 of the order for A.Y. 2004-05: - 20. We have heard both the parties, perused the orders of the authorities below. The assessee is paying charges to its parent 21 UCB India Pvt. Ltd. company UCB SA annually certain amounts towards following services: access/ usage of SAP modules and related functionalities; data security, data protection, backup/ restore facilities; capacity planning and performance tuning; e-mail capacity; connection to intranet sites; web browsing capacity; access to c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any software from its parent company but assessee is paying activity charges for the facility of access/usage of various applications, intranet websites, emails, global resources etc for day today running of the business. We do not find any acquisition of software by the assessee by payment of this activity charges. We also do not find any enduring benefit for the assessee. Thus, we hold that the e-connectivity charges paid by the assessee are of Revenue in nature. 4.3.2 In its order in the asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

connectivity services and People Soft services, that the AO held that the said expenditure was incurred for acquisition of software, he further held that the assessee was not in the business of software and that it was acquiring of the connectivity and information system service to support its pharmaceutical business, that it was a capital expenditure, that he allowed depreciation at the rate of 60% on the said expenditure holding the same as being incurred for acquisition of software, that the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to any software, server, processes or connections, that the assessee would merely receive services related to the software, that it would costs/charges for uses of the leased line separately, that the parent company would provide the services to the assessee as any other party would provide. We find that the allocation of expenses by the parent company has not been challenged by the AO, that the AO and the DRP had not been able to prove that the expenses were not in nature of periodic charges(an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uring benefit is not a certain or a conclusive test which the Courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards running a business as against an expens .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage would thus collapse in such like cases. It would be only truer in cases which deal with technology and software application, which do not in any manner supplant the source of income or add to the fixed capital of the assessee. The Tribunal, which is decidedly the final fact-finding authority has after noticing the material on record observed that the expenditure was incurred under various s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the system. In the background of the aforementioned findings, it cannot be said that the expenses brought about an enduring benefit to the assessee. The AO was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (asst. yr. 1998- 99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. …. the rationale supplied by the AO in support of its order which found resonance in submissions of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ments by law or by professional bodies like the ICAI, which are given the responsibility of conceiving and formulating the Accounting Standards from time to time, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system-ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pense had been written off and, therefore, the assessee s own understanding of the nature of the expense involved was that it was expended on capital account is only to be stated to be rejected. The reason being that the treatment of a particular expense or, a provision in the books of accounts can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it di .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version