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2017 (5) TMI 912 - ITAT MUMBAI

2017 (5) TMI 912 - ITAT MUMBAI - TMI - Addition u/s 69C - payment made to American Express Banking Corporation [AEBC] - Held that:- Perusing the confirmatory letter issued by AEBC, we find strength in the argument of Ld. AR that the actual amount paid by the assessee was ₹ 13,95,903/- and the balance difference arose only due to erroneous reporting by AEBC as this fact is clearly mentioned by AEBC in the confirmatory letter dated 26/12/2011. Therefore, since the assessee has discharge its .....

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ference arose only due to time lag. We are of the opinion that if the assessee has offered the same in succeeding AY, the addition thereof in impugned AY is not warranted for. Therefore, this issue is restored to Ld. AO for limited purpose of verification of the fact that whether the assessee has offered additional interest in the next AY. - Disallowance of foreign travel expenditure being 50% of business related foreign travel - Held that:- Since FBT has been paid on these expenses, disallo .....

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cy fees to identify the projects which may be taken up by the assessee in future. A perusal of financial statements of the assessee reveals that as at the beginning of the year, the assessee had reserves of more than ₹ 20 Crores. The quantum of the amount or payment thereof has not been doubted by the revenue. The assessee has reflected income from House Property. Therefore, we find strength in the arguments of Ld. AR that the said expenditure was nothing but in the nature of revenue expen .....

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shows that the same were in the nature of obtaining license, implementation, set-up fees, AMC Charges etc. Therefore, we accept the stand of Ld. AR that the impugned expenses were incurred to ensure smooth conduct of the business and improve operational efficiency and therefore, being revenue in nature, were allowable to full extent. - Decided in favour of assessee - Disallowance of service charges - AR contended that the said service charges were paid by the assessee to four parties agains .....

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substantiate his claim forthwith before AO and submit necessary information / documents called for by Ld. AO . - Depreciation on UPS - @25% OR 60% - Held that:- UPS being integral part of computer system being installed to regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data and hence, entitled for same rate of depreciation as applicable to computer system. CIT Versus M/s. Saraswat Inf .....

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n grounds of appeal, which we take up in subsequent paragraphs. 2. Briefly stated the assessee, being resident corporate assessee engaged in the business of manufacturing of glass bottles, commission agent & trading, was assessed u/s 143(3) at ₹ 18,84,69,520/- after certain adjustments / disallowances vide Assessing Officer [AO] order dated 22/12/2011 as against returned income of ₹ 17,48,71,250/- filed by assessee on 26/09/2009. 3. In Ground Nos. 1 & 2, the assessee has agit .....

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T(A) on the premises that the assessee paid ₹ 13,95,503/- to AEBC on account of business related travels expenses incurred by assessee which was duly reflected in the books and the balance difference arose due to erroneous reporting in AIR by AEBC. In support, the assessee produced a confirmatory letter dated 26/12/2011 from AEBC. The Ld. CIT(A) after considering the remand report, deleted additions to the extent of ₹ 13,90,003/-, being amounts reconciled by the Assessee but confirme .....

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e confirmatory letter issued by AEBC, we find strength in the argument of Ld. AR that the actual amount paid by the assessee was ₹ 13,95,903/- and the balance difference arose only due to erroneous reporting by AEBC as this fact is clearly mentioned by AEBC in the confirmatory letter dated 26/12/2011. Therefore, since the assessee has discharge its part of obligation, the balance addition of ₹ 6,95,199/- is not justified and therefore, the same is deleted. This ground of assessee s a .....

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erefore, no addition on that account was warranted for and the difference arose only due to time lag. We are of the opinion that if the assessee has offered the same in succeeding AY, the addition thereof in impugned AY is not warranted for. Therefore, this issue is restored to Ld. AO for limited purpose of verification of the fact that whether the assessee has offered additional interest in the next AY. If so, the impugned additions shall stand deleted. The assessee is also directed to submit n .....

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n of Ld. AO, could not be properly substantiated / documented by assessee which led to disallowance of 50% against the same. The same was confirmed by Ld. CIT(A) also. The Ld. AR drew our attention to the fact that the assessee earned handsome commission from export and incurred travelling expenses to negotiate the business deals and hence the same was allowable particularly when the assessee has already paid Fringe Benefit Tax [FBT] against those expenses and therefore, adhoc disallowance again .....

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[ITA No.7119/M/2011 order dated 10/10/12] A perusal of the above orders of Tribunal lends strength to the argument of Ld. AR that since FBT has been paid on these expenses, disallowance thereof u/s 37(1) was not warranted for. Therefore, we are inclined to delete the said additions subject to verification of payment of FBT on these expenses by Ld. AO. Therefore, the matter is restored back to the file of Ld. AO for limited purpose of verifying the fact that the FBT has been paid on these expense .....

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isory for development of IT SEZ in Ambarnath Thane and the same was paid towards initiation, activation and set up of service to be rendered in future towards proposed IT SEZ project at Ambarnath. The assessee explained that the same was an upfront signing fees payable to the IDC regardless of the fact whether the project materialized or not. However, not convinced with the explanation, AO treated the same as capital expenditure and disallowed the same on the premises that the assessee failed to .....

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t and profitable utilization of the surplus funds and therefore, allowable u/s 37(1) of the Income Tax Act, 1961. The assessee further contended that it has reflected rental income of ₹ 38.70 crores and therefore, the feasibility study carried out for proposed IT SEZ, being related with the same, was an extension of existing business only and not a new line of business. However, not convinced, Ld. CIT(A) noted that the assessee failed to prove the nexus of new business with the existing bu .....

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d reliance on the stand of lower authorities and contended that the same being incurred to set up new business and therefore, not allowable. 7. After hearing rival contentions and perusing relevant material on record, we find that the said expenditure were in the nature of upfront consultancy fees to identify the projects which may be taken up by the assessee in future. A perusal of financial statements of the assessee reveals that as at the beginning of the year, the assessee had reserves of mo .....

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project materialized or not. Further by incurring the same, the assessee has not obtained any benefit of enduring in nature and therefore, the same were allowable as revenue expenditure. We hold so and allow this ground of assessee s appeal. 8. In Ground No.8, the assessee is aggrieved by treatment of software expenditure of ₹ 35,36,682/- as capital expenditure. The Ld. AO noted that the assessee acquired certain licenses to use the SAP software and made payments towards licensing, install .....

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efore capital in nature against which the assessee was entitled for depreciation @60%. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) who concluded that the assessee was entitled for full deduction against ₹ 3,08,840/- being annual expenses in nature and 60% depreciation on the balance amount, being capital in nature. Still aggrieved, the assessee is in appeal before us. The Ld. AR placed reliance on the following judgment in support of the claim that the .....

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pital in nature and rightly been allowed depreciation against the same as these expenses were intangible rights in nature. 9. We have heard the rival contentions and perused the cited case laws. We note the following observation of jurisdictional Bombay High Court in the case of CIT Vs Geoffrey Manners & Co. Ltd. [supra]:- 12. In relation to this the Tribunal in the impugned order observed that there is room for certain flexibility in the views taken from time to time. The Assessee in such c .....

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s in the market. Therefore, such expenditure will have to be treated as revenue expenditure. This decision of the Tribunal for the present Assessment Years also is in accord with its earlier decisions which are referred to in paragraph 14 of the order under challenge. 13. Further, in the case of CIT v. Raychem RPG Ltd. [2012] 346 ITR 138/21 taxmann.com 507, a Division Bench of this Court held that similar view of the Tribunal in the case of that Assessee cannot be said to be perverse or vitiated .....

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estion of law. Further, Hon ble Delhi High Court in CIT Vs. Asahi India Safety Glass Ltd. [supra] has observed as under:- 9. The revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that the test of enduring 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 .....

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e untouched, would in our view be an expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably; leaving the fixed assets untouched would be an expenditure in the nature of revenue expenditure 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 in our view be only truer in cases which deal with tech .....

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bove, that the assessing officer as a matter of fact has returned a finding that the expenditure undertaken was for overhauling the accountancy of the assessee and to efficiently train the accounting staff 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 sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator c .....

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e assessee that even if the software expenses incurred by the assessee results into enduring benefit to assessee, the same could not be treated as capital expenditure and real intent and purpose of the same has to be looked into. A perusal of impugned expenses shows that the same were in the nature of obtaining license, implementation, set-up fees, AMC Charges etc. Therefore, we accept the stand of Ld. AR that the impugned expenses were incurred to ensure smooth conduct of the business and impro .....

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ut at their premises by the inspector, however, the same did not yielded any result which led the AO to doubt the genuineness of the same and finally added to the income of the assessee. The same was also confirmed by the Ld. CIT(A) being remaining unsubstantiated. Before us, the Ld. AR contended that the said service charges were paid by the assessee to four parties against invoices and all the payment were through banking channels after deduction of TDS thereupon. In support, the relevant docu .....

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ht of documents placed by the Ld. AR in the paperbook. The assessee is directed to substantiate his claim forthwith before AO and submit necessary information / documents called for by Ld. AO failing which AO shall be at liberty to dispose-off the same on the basis of material available on record. The assessee s ground of appeal stands allowed for statistical purposes. 11. In ground No. 11 & 12, the assessee is aggrieved by restricting depreciation on UPS to 25% as against higher depreciatio .....

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