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TMI Blog2018 (4) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee appeared from time to time and submitted the details, as called for. The assessment has been completed u/s 143(3) on 24-12-2009 determining the total loss at Rs. 25,62,00,390 by making various additions towards disallowance of lease rent paid on land by treating it as capital expenditure, disallowance of repairs and maintenance expenses, payment for off-shore services, disallowance of foreign travel expenses and disallowance of provident fund and ESIC. 3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions to challenge each and every addition made by the AO towards disallowance of lease rent paid on land, disallowance of repairs and maintenance, payment of offshore services, late payment of PF & ESIC and disallowance of foreign travel expenses. The Ld.CIT(A), for the detailed reasons recorded in his order dated 27-12-2011 partly allowed appeal filed by the assessee wherein he has deleted additions made by the AO towards repairs and maintenance expenses on plant & machinery, repairs and maintenance to others; however, confirmed addition made by the AO towards disallowance of leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 12 years in all cases. According to the AO, once the period of agreement exceeds for more than 12 years, the assessee becomes the deemed owner of the property and lease rent paid on such land becomes payment for acquiring land. The AO has referred to the provisions of section 269UA to come to the conclusion that once the period of lease agreement is more than 12 years, then it is considered as deemed transfer of land and whatever lease rent paid whether it is periodical or lumpsum it is for the purpose of acquiring such property. The AO also relied upon the decision of Hon'ble Madras High Court in the case of Krishna & Co vs CIT reported in 88 ITR 406 wherein the Hon'ble Madras High Court held that amount paid for consideration for lease is for acquisition of capital asset which enables the assessee to carry on its business is a capital expenditure. 6. Having heard both the sides, we do not find any merits in the findings of the AO, for the reason that on perusal of details filed by the assessee we find that the assessee has entered into a lease agreement with various land owners and such lease agreements are entered into for a period of 30 years to 99 years. On further verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leasehold land cannot be regarded as capital in nature merely for the reason that the period of lease agreement is more than 12 years. Therefore, we direct the AO to delete additions made towards lease rent paid on leasehold land. 9. The next issue that came up for our consideration from assessee's appeal is disallowance of repairs and maintenance expenses paid to WIPRO for offshore services. The AO has disallowed a sum of Rs. 16,26,383 on the ground that the assessee has made payment for services rendered outside India to the assesse's group companies. The AO further observed that the assessee has got no business, therefore, it is evident that the payment has been made for other group companies and has been debited in the books of account of the assessee. It is the contention of the assessee that it has paid amount to WIPRO for services rendered towards IT support services which is revenue in nature and also it has deducted TDS from aforesaid payments. 10. Having heard both the sides and considered material on record, we do not find any merit in the arguments of the assessee for the reason that the AO has brought out clear facts to the effect that the payment made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Ld.CIT(A). We do not find any error in the order of CIT(A); hence, we are inclined to uphold the order of CIT(A) and reject ground raised by the assessee. 13. In the result, appeal filed by the assessee is partly allowed. Revenue's appeal : ITA No.2085/Mum/2012 14. The first issue that came up for our consideration from revenue's appeal is adhoc disallowance of Rs. 15,87,768, out of repairs and maintenance expenses on plant and machinery. The AO disallowed a sum of Rs. 15,87,768 on the ground that the repairs & maintenance expenses incurred by the assessee for the year under consideration is comparatively higher than the expenditure incurred in the previous financial year. The AO further observed that during the year, the assessee has undertaken extensive explanation of its operations and hence, the possibility of incurring repairs and maintenance expenses of huge magnitude shown in the accounts is minimal, therefore, disallowed 25% of repairs and maintenance expenses to plant and machinery; however, allowed depreciation on such disallowance @10%. It is the contention of the assessee that it has incurred various expenses for repairs and maintenance to plant and machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of capital expenditure as the assessee has purchased software and related products and also acquired patents in some cases which are in the nature of capital expenditure as such expenditure gives enduring benefit to the assessee. The AO has analysed the details of software expenses filed by the assessee and given his findings on each and every item purchased and observed that in some cases assessee has purchased licence to use software which is in the nature of capital expenditure. The AO further observed that the assessee has purchased laptops and computer accessories from Hewlett Packard and debited such expenditure to repairs & maintenance expenses. The AO further observed that the assessee has purchased patent and licence from M/s Systems Union Sun Lice for Rs. 17,60,000 and debited such expenditure to repairs & maintenance even though such expenditure is in the nature of capital assets (intangibles). It is the contention of the assessee that repairs & maintenance expenses includes expenses incurred in respect of IT technical support services and IT maintenance service, etc. These services are received by the assessee from various entities which are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther observed that a detailed perusal of the contract entered into by the assessee with the service providers revealed that the assessee has not purchased any patent or copyright or licence, rather than used software in line with policy of shell group of companies wherein a software is used to monitor stock position as well as other accounting policies adopted by the group. We find that the CIT(A) has given a categorical finding in respect of assessee's expenditure incurred towards IT related support services. According to the CIT(A), the expenditure incurred by the assessee are in the nature of revenue expenditure being annual maintenance contracts. According to the AO, the expenses incurred by the assessee are in the nature of capital expenditure as the assessee has acquired laptops and accessories and licence to use software and patents in certain software. No doubt, the expenditure incurred towards annual maintenance contracts for providing IT support services are in the nature of revenue expenditure. However, expenditure incurred in relation to acquiring of capital assets being laptops and accessories licence to use software and patents are in the nature of capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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