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TMI Blog2016 (8) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... venue 3. Only issue raised in this appeal is whether the first appellate authority (FAA) was justified in deleting the addition made by the AO on account of claiming of interest expense u/s 57(iii) without appreciating the fact that the was no direct nexus between the loan borrowed by the assessee and the interest bearing loan advanced by the assessee. 4. Brief facts of the case are that the assessee filed its return of income for the assessment year 2010-11 on 4.10.2010 declaring total loss of Rs. 2,51,33,965/-. The return was processed under section 143(1) of the Income tax Act, 1961. Thereafter the case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. The assessment was framed by the AO after considering the submissions of the assessee as made from time to time during the assessment proceedings vide order dated 20.2.2013 passed under section 143(3) of the Act by assessing loss of Rs. 1,60,13,040/- by making two disallowances namely u/s 14A amounting to Rs. 21,19,699/- and interest income treated as income from other sources as amounting to Rs. 51,89,984/- without allowing deduction as claimed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to our notice that there was direct nexus between the interest bearing borrowed funds and earning of interest income by advancing loans to other companies and the AO had completely ignored this fact while making the disallowance as claimed u/s 57(iii) of the Act. The ld. AR further submitted that the AO disallowed the deduction claimed u/s 57 on the ground that the purpose of taking loan from bank was not connected with the loan advanced, whereas the provisions of section 57 (iii) of the Act provided for the deduction where the expenditure was incurred wholly and exclusively for the purpose of making or earning such income and thus, existence of nexus between the activity producing the income and the expenditure incurred is the sole criteria for claiming deduction u/s 57(iii) of the Act. The ld. AR strongly supported the order of ld. CIT(A) who has rightly appreciated the facts that there was a nexus between the earning of income and incurring the expenditure for earning such income and therefore prayed that the order of ld. CIT(A) be upheld by dismissing the appeal of the revenue. 7. We have considered the rival contentions and perused the material on record including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2008-09 on 27.9.2008 declaring total loss of Rs. 110,90,93,410/-. The return was processed under section 143(1) of the Income tax Act, 1961. Thereafter the case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. The assessment was framed by the AO, after considering the submissions of the assessee as made from time to time during the assessment proceedings vide order 29.12.2010 passed under section 143(3) of the Act by assessing the loss at Rs. 1,04,48,39,034/- by making various disallowances as detailed in para 6 of the assessment order. 14. Regarding the issue raised in grounds No.1 and 2 the facts are that the AO during the course of assessment proceedings found that the assessee has debited the following expenses under the head Advertising, marketing and sales promotion expenses : 1. Brand building marketing expenses Rs.1,50,37,135/- 2. Market research expenses Rs.19,28,589/- Visual display and signage expenses Rs.65,32,615/- Total Rs.2,34,98,339/- The AO came to the conclusion that the above said expenditures were of capital in nature and were wrongly claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same as capital expenditure being not sustainable is deleted herewith. The ground number 1 taken by the appellant is allowed." 15. The ld. DR submitted before us that the order of ld.CIT(A) was bad in law as the ld. CIT(A) has failed to appreciate the fact that the expenses as claimed by the assessee were of capital nature. The ld. DR heavily relied on the order of AO by submitting that the AO has rightly disallowed the expenditure being capital in nature as the assessee purposively suppressed the income by charging off the capital expenditure as revenue. The ld. DR prayed that the order of the ld. CIT(A) be set aside and that of AO be restored. 16. On the other hand, the ld.AR while strongly objecting the arguments of the ld. DR submitted that these are routing revenue expenses incurred on brand building marketing expenses (Rs.1,50,37,135/-), Market research expenses (Rs.19,28,589/-) and Visual display and signage expenses (Rs.65,32,615/-). The ld. AR submitted that the assessee retail business was to sell designer or branded readymade garments for every section of society in addition to the other personal wears like watches, foot wears, cosmetics, sunglasses. Jewellery etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions of both sides and on perusal of the records including the orders of authorities below, we find that the expenses incurred by the assessee under various heads as has been mentioned herein above are more of revenue in nature than the capital ones. The AO without going into the real nature of the expenses, described the same as capital in nature whereas as a matter of fact, the ld. CIT(A) has gone into the nature of expenses purpose of expenses and business expediency and accordingly treated the same as revenue expenditure. We, therefore finding no fault with the findings of ld.CIT(A) on this issue, dismiss the ground No.1 and 2 taken by the revenue by upholding the order of CIT(A) on this issue and direct the AO accordingly. 18. Facts relating to next issue raised in the grounds no.3 and 4 are that the AO during the course of assessment proceedings found that the assessee has debited a sum of Rs. 4,91,14,857/- under the head repairs and maintenance of plant and machinery for purchase of software as per details mentioned at pages 3 and 4 of the assessment order which are as under : 1 R&M-IT software-used Prod.Tool Rs.12,59,345 2 R&M-IT software-business appl. Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO and prayed for upholding of the order of AO. 20. Per contra, the ld. AR submitted before us that the expenditure incurred by the assessee for purchase of computer software were of revenue nature. The ld.AR submitted that the purchase of software were required in order to run and operate the business of the assessee at various locations and these were routing expense. In defence of his arguments the ld.AR relied in the number of decisions viz. M/s Glenmark Pharmaceutical Ltd, in ITA No.1110/Mum/07 and Brics Securities Ltd in ITA No.4514/Mum/2008 and finally prayed that the order of ld.CIT(A) being reasoned and deserved to be upheld in view of the ratio laid down in the above decisions. 21. We have considered the rival submissions of the parties, perused the material placed before us including the orders of authorities below and decisions relied upon by the parties. We find that the assessee incurred expenses for the purchase of computer softwares to the tune of Rs. 4,91,14,857/- and claimed the same as revenue expenditure under the head repairs and maintenance of plant and machinery. These expenses were required to be incurred in order to maintain the various outlets of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expenditure would be disallowable on application of this test. If the advantage consists merely in facilitating the assessee's day-to-day- administrative business operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. What is capital expenditure and what is revenue are not eternal verities but must be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The concept of enduring benefit must respond to the changing economic realities of the business. In the case under consideration, it is admitted fact that the assessee is a Licensee. The relevant clauses of the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present computer world, which revolves on the modern communication technology, enables the assessee to carry on its business operations effectively, efficiently, smoothly and profitably. Such software enhances the efficiency of the operation. It is an aid in the business administration/ process rather than the tool itself. Therefore, the payment for such application software, though there is an enduring benefit, does not result in acquisition of any capital asset and it merely enhances the business administration efficiency and hence, has to be treated as revenue expenditure. The length of the period of the agreement and quantum/ amount is not of much consequence, if the nature of the advice made available is such that it cannot be called a capital asset.The concept of enduring benefit must respond to the changing economy and the realities of the business. The expenses incurred for software which revolves on the modern administrative technology for day to-day administration of business activity to enable the assessee to carry on its business operations effectively, efficiently, smoothly and profitably. Such software enhances efficiency of such business operation. Therefore, acquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules 1962 does not mean that any expenditure incurred on computer software had to be treated as capital expenditure. In our view the nature of expenses in question is clearly a revenue expenditure. We, therefore, direct that the entire sum of Rs. 2,09,290/- be allowed as deduction." 22. Looking into the ratio laid down in the above mentioned decisions of the Tribunal, we are of the view that the order passed by the ld. CIT(A) squarely covered by the above mentioned decisions of the Tribunal. Respectfully following the same, we uphold the order of ld.CIT(A) and accordingly, reject the ground taken by the revenue on this issue. 23. Ground No.5 taken by the revenue relates to deletion of addition of Rs. 27,32,096/- by the ld.CIT(A) as made by the AO towards Stamp Duty and Registration Fee by holding the same as revenue expenditure instead of capital in nature. 24. During the course of assessment proceedings, the AO found that the assessee has debited a sum of Rs. 27,32,096/- under the head "Rates and Taxes" comprising of Stamp duty Rs. 21,95,247/- and License fees Rs. 5,36,849/- totaling to Rs. 27,32,096/-. The AO treated the same as capital expenditure and consequently added the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We have carefully considered the rival contentions and perused the material placed before us including the orders of authorities below on the issue. We find that the ld. CIT(A) after going into the matter and facts of the case came to the conclusion that these expenses were of revenue nature which were incurred for the purpose of lease transactions and not for the purchase of capital assets . The ld. CIT(A), decided the issue in favor of the assessee by following the decision rendered in the case of Richardson Hindustan Ltd, 169 ITR 516 ( Bom) and CIT vs. Cinecia P. Ltd. 137 ITR 652(Bom) and rightly followed the ratio laid down in the said decisions. The ld. CIT(A) further observed that the AO has not disputed the fact that the lease is Long term lease/licence and is not of recurring in nature. In view of these facts and the ratio laid down in the above said decision, we find no infirmity in the order of ld. CIT(A) and accordingly upheld the same by dismissing the appeal of the revenue. 28. Now we shall take up the appeal bearing ITA No.5732/Mum/2014 filed by the assessee. 29. At the time of hearing, the ld.AR did not press ground no.4 and therefore same is dismissed as not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable. The ld. Counsel heavily relied on the following decisions:. A. No disallowance u/s 14A of the Act can be made in respect of investments which have not yielded any dividend income during the year : 1 Cheminvest Ltd. vs. CIT 61 taxmann.com 118 Delhi HC 2 CIT vs. Shivam Motors (P.) Ltd 55 taxmann.com 262 Alla. HC 3 ACIT vs. Mr. M. Baskaran 50 taxmann.com 138 ITAT 4 Siva Industries and Holdings Ltd vs. ACIT 11 taxmann.com 404 ITAT 5. CIT vs.Delite Enterprises ITA No. 110 of 2009 Bombay HC 6 REI Agro Ltd. vs. DCIT 35 taxmann.com 404 I TAT 7 Avshesh Mercantile P. Ltd. vs. DCIT 26 taxmann.com 43 I TAT 8 Alliance Infrastructure Project Pvt. Ltd. vs. DCIT 1043/Bang/2013 ITAT B. No disallowance u/s. 14A of the Act can be made where investments are of strategic nature: 1 JM Financial Limited vs. Addl CIT ITA No. 4521/Mum/2012 ITAT 2 CIT vs. Oriental Structural Engineers (P.) Ltd. 35 taxmann.com 210 Delhi HC 3 Interglobe Enterprises Ltd. vs. DCIT ITA No.1362, 1032 and 1580/0ell2013 ITAT 4 Garware Wll Ropes Limited V/s Add. CIT Siva Industries and Holdings Ltd vs. ACIT 46 taxmann.com 18 ITAT 5. U P Electronics Corporation Lt V DCIT ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and no exempt income is earned by the assessee in the relevant assessment year, the provisions of section 14A read with rule 8D cannot be invoked. In the case of Cheminvest Ltd vs. ITO (supra), the Hon'ble High Court has held as under : "In the present case, the factual position that has not been disputed is that the investment by the assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the assessee is in relation to such investments which gives rise to income which does not form part of total income. [Para 18] In light of the clear exposition of the law in CIT v. Holcim India (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi) and in view of the admitted factual position in this case that the assessee has made strategic investment in shares of Max India Ltd.; that no exempted income was earned by the assessee in the relevant assessment year and since the genuineness of the expenditure incurred by the assessee is not in doubt, the question framed is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008-09 - Whether in absence of any tax free income earned by assessee, disallowance under section 14A could not be made - Held, yes [Para 10] [In favour of assessee]" In the case of ACIT V/s Mr.M.Baskaran the Tribunal has held as under : "11. In the case of CIT v. Winsome Textiler Industries Ltd. [2009] 319 ITR 204, the Hon'ble Punjab & Haryana High Court held that when there is no claim for exemption of income in such situation section 14A has no application. Respectfully following the above decisions, we delete the disallowance made under section 14A as the assessee has not earned / received for exempt income during the previous year relevant to the assessment year under appeal. Thus, we sustain the order of the Commissioner of Income Tax (Appeals) on this issue." In the case of J M Financial Limited V/s Addl.CIT, the Tribunal has held as under : "12. A similar view was taken by the Delhi Bench of this Tribunal in the case of M/s Oriental Structural Engineers (P) Ltd (supra) which has been confirmed by the Hon'ble Delhi High Court vide decision dated 15.01.2013 in para 6.3 as under:- "'6.3 We have carefully considered the submissions and perused the records. We find t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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