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TMI Blog2016 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law and on facts in upholding the contention of the learned Assessing Officer that the Courseware of Rs. 5,02,29,679/- is not eligible for depreciation at the rate of 60%. 1.2 On facts and in the circumstances of the case. the learned CIT(A) erred in law and on facts in upholding the contention of the learned Assessing Officer that the Courseware is eligible for depreciation @ 15%. 1.3 On facts and in the circumstances of the case the learned CIT(A) erred in law and on facts in upholding the disallowance of Rs. 1,67,76,003/- made by the learned Assessing Officer being 20% or full depreciation of Rs. 8,38,80,014/- claimed on computers, software and courseware as depreciation attributable to course ware. 2. On facts and in the circumstances of the case the learned CIT(A) erred in law and on facts in upholding the disallowance of 10% of Rs. 1,04,80,500/- i.e Rs. 10,48,050/- made by the learned Assessing Officer of expenses incurred on account of Lucknow School project 3. On facts and in the circumstances of the case the learned CIT(A) (A) erred in law are on facts in upholding the disallowance made by the learned Assessing Officer of ESOP charges of Rs. 11,06,563 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pholding the contention of the learned Assessing Officer that while computing deduction u/s 14A of the Act, . gross interest paid of Rs. 2,56,81,429/-is to be taken as amount of expenditure by way of interest and not the net interest of Rs. 2,37,19,435/-. (Interest Paid R.s 2.56,81,429/- (-) Rs. 19,61,994/-- being interest received) 8. On facts and in the circumstances of the case the learned CIT(A) erred in law and on facts in upholding the addition by the learned Assessing Officer u/s 68 of the Act to the extent of Rs. 5,15.396/- on the basis of inadequate ITS information available with the department. 9. The order of the Commissioner (Appeals) being contrary to law, evidence and facts of the case should be set aside, amended or modified in the light of grounds deduced above. 10. Each ground of appeal hereinabove is independent and without prejudice to each other." 3. Facts of the case are that the assessee-firm filed its return of income for the assessment year 2007-08 on 30.11.2007 declaring total income at Rs.NIL after setting off of earlier years brought forward business losses and unabsorbed depreciation. The said return was revised on 26.9.2008 declaring a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer's order, submissions made for the appellant and material on record have been considered. As per the Act and IT. Rules computer software means any programme recorded in the specified or other information storage device. It means a computer programme, and not merely a manual or set of instructions. As per Wikipedia, Computer software is a collection of computer programs and related data that provides the instructions for telling a computer what to do and how to do it. Software refers to one or more computer programs and data held in the storage of the computer. In other words, software is a set of programs, procedures, algorithms and its documentation concerned with the operation of a data processing system, Program software performs the function of the program it implements, either by directly providing instructions to the digital electronics or by serving as input to another piece of software. Other explanations state that Software is a generic term for organized collections of computer data and instructions, often broken into two major categories: system software that provides the basic non-task-specific functions of the computer, and application software which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of ld.CIT(A), the assessee is in appeal before us. The ld. AR submitted before us that the CIT(A) was grossly erred in holding that the coursewares were basically manuals/programmes for trainers /trainees which could not be taken to mean that these training manual consisted of computer softwares. The ld. CIT(A) held that these courseware were only readable with software. The ld. AR submitted that these courseware were developed on customized basis which were not used as standard educational tools or method for training and e-learning. Each course was designed as per the customer's requirement independently by taking into account the nature of business and its training and e-learning requirements. The ld. AR submitted that in I T Rules, 1962, the computer software was treated as definite asset under the head plant and machinery and software was eligible for depreciation at the rate of 60%. The ld. AR also distinguished the difference between the hardware and software. Anything that can be stored electronically is computer software and machines used to run the software is called hardware. Thus, following the same analogy of electronically storage of data as software , the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware or customized training softwares which are eligible for depreciation at the rate of 60% as per the Income Tax Rules and the same was correctly depreciated at the rate of 60% by the assessee. Accordingly, we set aisle the order o ld.CIT(A) and direct the AO to allow the deprecation at the rate of 60%. The ground raised by the assessee is allowed. 9. The issue raised in the second ground of appeal is qua the confirmation of disallowance of Rs. 10,48,050/- by the ld. CIT(A) as made by the AO at the rate of 10% of Rs. 1,04,80,500/- being the expenditure incurred on Lucknow School Project. During the course of assessment proceedings, the AO found that the percentage of expenses in relation to revenue is increased substantially and disproportionately from financial year 2003-04 and therefore the assessee was asked to produce vouchers etc in order to justify such steep hike in the expenses which were 55% in the financial year 2003-04 and 75% in the financial year 2006-07. The AO disallowed 10% of the expenditures claimed for the reasons that the assessee failed to produce any bills and vouchers or failed to give any justification for the said steep rise in the expenses and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and franchisees. The ld. CIT(A) has not given any cogent and solid reasons to support the addition made by AO. The assessee was maintaining proper bills and vouchers which were subject of various types of audit . We therefore of the view that the adhoc disallowance at the rate of 10% when the assessee is maintaining books of accounts which audited and supported with bills and vouchers and the payments were made by account payee cheques as per the agreements with franchisees can not be sustained especially when the AO took the total expenses of three years and thereby making disallowance of Rs. 23,34,738/- in a casual manner. In view of these facts and the manner in which adhoc disallowance was made, we are inclined to set aside the order of the ld. CIT(A) and direct the AO to delete the addition. 13. The issue raised in the third ground of appeal is with regard to the confirmation of disallowance of Rs. 11,06,563/- by the ld. CIT(A) which was made by the AO in respect of ESOP charges. During the course of assessment proceedings, the AO found that the assessee has claimed ESOP charges to the tune of Rs. 11,06,563/- which the AO found to be of capital nature and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derstood by the AO. The ld. CIT(A) upheld the action of the AO by holding that the same were contingent in nature. The ld.AR further submitted that the employees of the company were given stock option at discounted price vis a vis the prevailing market price and the said discount was written off on straight line basis over the vesting period, and the amount written off each year used to be shown under the head salary and allowances as these were incentives given to the employees and accordingly treated as expenditure incurred on employees in the respective period over the vesting period and thus, these were not incurred on capital account or were not of contingent nature. The ld. AR submitted that the assessee has followed the procedure as they drawn from SEBI with regard to the employee's stock option scheme. The ld AR further submitted that the deduction of the said expenses by amortising and writing off over the vesting period were allowable as revenue expenditure as held by the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC). These expenditures were incurred for the benefit of the employees and these options were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole exercise was not to raise share capital but incentivise for consistent and strenuous effort of the employees during the vesting period. Under the said scheme, the assessee did not incur any expenses to issue shares at the discounted prices but granted only option to the employees which will be exercised at a later date during the vesting period and only at that point of time the company increase its capital by issue of shares at discounted price and therefore the incident or event of granting option does not cast any liability on the company. We are not in agreement with the objection of the AO that the said expenditure was incurred by the company to increase share capital of the company and thus, constituted the capital expenditure nor with opinion and conclusion drawn by the ld.CIT(A) that the liability is contingent in nature, whereas the arguments advanced by the ld.AR are quite convincing that the scheme was floated to reward the employees of the company and the difference between the discounted price and prevailing market price was amortised over the vesting period. The case of the assessee finds strong support from the number of the decisions referred and relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. AR vehemently submitted before us that the ld. CIT(A) has not specified the provision under which the assessee was liable to deduct the tax at sources from these payment by referring to page 617 of the paper book. The ld. AR also submitted that these expenses were incurred by employees out of their tour advances while they were on tour. Looking into the facts and circumstances of the case, we find that the assessee had incurred these expenses through employees out of their travelling advances for hiring motor vehicles during the course of their employment and the expenditures incurred by them out of travelling advances. In our view, the same are not liable for deduction u/s 40(a)(ia) of the Act as it is the settled law that re-imbursement to the employees is not laible to the provisions of TDS . Accordingly, we direct AO to delete the addition. 20. The issue raised in the fifth ground of appeal is against the upholding the disallowance of Rs. 2,50,00,000/- by the ld. CIT(A) being the provisions for rebate. 21. The brief facts of the case are that the assessee entered into a contract with Directorate of Education, Delhi for imparting computer education and also supplyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Pharmaceutical Lts 192 ITR 1 (Ker); c) CIT V/s Sikaria Sons and co. 216 ITR 440(Gau); Indian Overseas Bank V/s CIT 183 ITR 200(Mad) The ld.counsel further submitted that the assessee fulfilled all the conditions enumerated under section 37(1) of the Act. The ld. Counsel also submitted that Rs. 2,50,00,000/- was part of the billed amount which was already treated and included in the assessee's income by referring to the ledger account of the Directorate of Education in the books of account of the assessee which is submitted at page 621 to 628 of the paper book. The similar provisions for rebate were made in earlier years qua the amount billed but not acknowledged by the Directorate of Education Delhi. The provisions for rebate of Rs. 3,00,00,000/- for the assessment year 2006-07 and Rs. 10,80,00,000/- for the AY 2010-11 were allowed by the revenue in the assessment proceedings completed u/s 143(3) of the Act. Finally the ld. AR prayed that since the assessee has already credited the billed amount in its books of accounts and treated as income after raising bills on the Directorate of Education, Delhi, which was partly admitted by the customer and therefore the AR of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax v. Kerala State Drugs & Pharmaceuticals Ltd (supra), it was held that mere entries made in the accounts did not represent any income accrued or received by the assessee. That excess amount credited in the books of the assessee was not assessable as its income. It was also held that the amount of supplementary bill disputed by the buyer which was ultimately set aside by the Hon'ble High Court several years back and later cannot be charged to tax in the year of raising of the such supplementary bills. Accordingly, we hold that the orders of ld. CIT(A) is not correct and accordingly set aside the same and direct the AO to delete the disallowance of Rs. 2,50,00,000/-. 25. The issue raised in the ground no.6 is qua the upholding the disallowance of Rs. 19,00,418/- being difference between the provision for leave encashment and the amount actually paid on that account as made by the AO by holding that the clause (i) of section 43B of the Act. 26. The brief facts of the case are that the assessee has provided an amount of Rs. 40,71,369/- as provision for leave encashment. The AO during the course of assessment proceedings issued show cause notice to the assessee to explain as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on the statute book, however, till the decision of the Hon'ble Supreme Court in the case of "CIT vs. Exide Industries Ltd." (supra), the Revenue will not recover the penalty and interest which may accrue till the decision of the appeal by the Hon'ble Supreme Court in the case of "Exide Industries Ltd." It would be open to the Department to recover the outstanding interest demand in case the Civil Appeal of the Department in the case of "Exide Industries Ltd." (supra) is allowed by the Hon'ble Supreme Court. Subject to our above observations, the matter is restored to the file of the AO to be adjudicated afresh as per the decision of the Hon'ble Supreme Court in the case of "Exide Industries Ltd." (supra)" We find that the facts of the case before us is identical as decided by the coordinate bench in the decisions(supra) and therefore by following the decision of the bench respectfully , we restore the matter back to the file of the AO by setting aside the order of CIT(A) and decide the issue accordingly. The ground raised by the assessee is allowed for statistical purposes. 28. Grounds of appeal no.7 is with respect to disallowance made u/s 14A by the ld. CIT(A) by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made primarily by relying on the decision of the decision of the Special Bench of the Tribunal Delhi in the case of Cheminvest Ltd V/s ITO (2009) 121 ITD 318 (Delhi) (SB) which is no longer applicable as the same was reversed by the Hon'ble Delhi High Court as reported in (2015) 378 ITR 0033 (Del) wherein it has been held that no disallowance can be made on the notional basis on exempt income and has to be restricted the actual income claimed in the assessment year. The second limb of argument of the ld.AR was that the total investments made in the subsidiary companies were to the tune of Rs. 23,85,10,386/- whereas the share capital of the assessee company were Rs. 43,15,11,170/- by drawing our attention to page 57 of the paper book which is the copy of audited balance sheet as on 31.3.2007 and thus submitted that no interest disallowance is called for as the assessee's own fund were sufficient to cover the investment in the shares in subsidiary companies by strongly relying on the decision in the case of Hon'ble Bombay High Court in the case of SBI DHFL Ltd reported in 376 ITR 296 (Bom) and in the case of CIT V/s HDFC Bank Ltd reported in 383 ITR 529 (Bom). Considering the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was also submitted before the FAA that the AO has granted credit of tax deducted at source vide order passed u/s 154 of the Act after verifying the receipt duly accounted for and accordingly the ld. CIT(A) held that the ground raised by the assessee was rendered infructuous in view of the rectification application and order thereon by the AO however the ld.CIT(A) sustained the disallowance to the extent of Rs. 5,15,396. 36. We have considered the rival submissions on the issue. It was vehemently argued before us by the ld.AR that some items of ITNS aggregating amount Rs. 5,15,396/- could not be reconciled in absence of information. The ld. Counsel drew our attention to the page 719 to 750 of the paper book by pointing out that the amount of Rs. 5,15,396/- is made up of so many parties with whom the assessee never had any business dealings and it was also submitted that the assessee has not even claimed credit of TDS deducted by the parties on the said amount. The ld. AR submitted that since the assessee was not aware of the fact and the assessee had never rendered any services to those parties and therefore, the same could not be treated as income of the assessee on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal is against the deletion of addition by the ld.CIT(A) to the tune of Rs. 1,01,60,695/- by the ld. CIT(A) by holding that the brand building expenses were of revenue in nature as against the finding of the AO that such expenses were of capital nature. 41. Brief facts of the case are that the assessee has debited an amount of Rs. 1,01,60,495/- to the profit and loss account towards brand building expenses. The AO found that these expenses are capital in nature and therefore issued noticed dated 14.9.2009 calling upon the assessee as to why the such expenses should not be treated as capital expense and ultimately disallowed the same and added the same to the total income of the assessee. 42. The assessee filed reply vide letter dated 6.11.2009 submitting therein that these expenses were in the form of retainer-ship fees, marketing expenses, art work charges for CD's designs for leaflets, brochures, colour prints, campaign illustrations etc. Thus, these were incurred in the normal course of business as routine expenses. It was submitted before the AO that these expenses do not give any benefit of enduring nature and were incurred for existing and running business. In support o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer is deleted. Accordingly the Assessing Officer when giving appeal effect will also make suitable adjustment to the depreciation granted on the premises of taking the expenditure to be capital expenditure." 45. We have considered the rival submissions on the issue. We find that the assessee has incurred expenses on marketing/advertising and retainer-ship etc. for running and operation of business more profitably and efficiently which did not result in the creation of fixed asset or creation of any benefit of enduring nature in favour of the assessee and thus observation and findings of the AO was not correct and the ld. CIT(A) has rightly deleted the addition made by the AO after considering the submissions of the assessee and by recording the findings of facts that the expenditure incurred were of revenue in nature expended for day to day running and operation of assessee's business. We are of the opinion that the order passed by the ld.CIT(A) is correct and does not require any interference from our part and accordingly we uphold the same on this issue by dismissing the appeal of revenue. I.T.A. No.723/Mum/2013 (by assessee) Grounds of appeal taken by the assessee are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrendered the connections to the concerned department and thus rejected the plea of the assessee that it could not be recovered or adjusted by the department concerned against the outstanding dues. Similarly the telephone advances were given for availing telephone facility which was written off by the assessee when the same could not be recovered from the telephone department or adjusted against the dues. Ultimately, the AO disallowed the whole some Rs. 1,04,08,418/- and added the same to the total income of the assessee. 49. Before the ld. CIT(A) the assessee submitted that the advances give to electricity department and telephone department were not recoverable. When the assessee was not able to get refund of deposits as the franchises operating form the (rented) premises had committed default in the payment of bills and violated the conditions for allotment of connections. Similarly, in the case of telephone deposits the department has adjusted the outstanding bills and penalty against the security deposits and cancelled these connections. It was also submitted that these amounts were written off as a matter of commercial exigency as pursuing recovery proceedings would have pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity all over India for which the assessee has entered into the large number of franchisee agreement. These advances were given by franchisee on behalf of the assessee for obtaining electricity and telephone connections. Out of these, in good number of cases, the franchisee could not pay their telephone and electricity bills and as result the of substantial part of these advances were consumed by way of adjustments of these deposits by the departments against the electric and telephone bills. The ld. AR also argued that these deposits were made in the ordinary course of business of the assessee and assessee could not recover at all from these franchisee. If in the subsequent years these advances were recovered the same would be chargeable to tax under section 40(1)(1). It was also argued by the ld.AR that the assessee's record were damaged and destroyed due to unprecedented flood in Mumbai in 2005 and were also received due amount of compensation from ICICI Lombard against the insurance policy taken by the assessee which were furnished before the authorities below and also forming part of this record at pages at 235 to 272 of the paper book. Due to all these reasons the ld. AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) erred in holding brand building expenditure as revenue in nature merely because the said expenditure comprises advertising expenses etc, without appreciating that the said expenditure has not been incurred for the purpose of the business of the year under consideration only." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)erred in holding brand building expenditure as revenue in nature, without considering the fact that admittedly, the assessee had incurred the said expenditure for the creation of a brand, which is a capital asset of enduring nature and intended to be used for revenue generation over several years/beyond the relevant assessment year." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A)erred in deleting the addition of Rs. 2,12,854/- as unexplained cash receipt, ignoring the fact that the assessee had failed to reconcile the ITS details and to show that the said receipt did not pertain to it" 54. Grounds of appeal raised by the revenue in this appeal bearing Ground No.1,2, 3 and 4 are identical to that of appeal filed by the assessee bearing ITA No.946/Mum/2013. Therefore out decisions in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary. 56. The issue raised in grounds of appeal bearing Ground No.1,2 and 3 have already been decided by us in ITA No.946/Mum/2013, therefore, our decision in ITA No.946/Mum/2013 would mutatis mutandis apply to these grounds as well. Accordingly, appeal of the assessee is allowed. 57. ITA No. 2003/Mum/2014 (by revenue) 58. Grounds of appeal taken by the revenue read as under : "1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.l0,90,275/- on account of brand building expenses relying on the decision of the CIT(A) in assessee's own case for A.Y. 2008-09 and not upholding the Assessing Officer's view that the brand building expenses are capital in nature and hence not deductible as revenue expenditure." 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding brand building expenditure as revenue in nature merely because the said expenditure comprised of advertisement expenses etc.,without appreciating that the said expenditure had not been incurred for the purpose of business of the year under consideration only." 3. "On the facts and in the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X
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