TMI Blog2018 (4) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that such payment is not for the purpose of assessee’s business, but for the business of assessee’s parent company. Therefore, we are of the considered view that the AO was right in disallowing offshore payment made to WIPRO. - Decided against assessee Disallowance of foreign travel expenses - Held that:- The assessee has failed to controvert the findings of lower authorities that foreign travel expenses have been incurred to meet the requirement of the entire shell group and such expense has no relevance to assessee’s business in India. The AO, as well as the CIT(A) has brought out clear fact that the assessee has incurred foreign travel expenses on behalf of its employees to visit foreign countries where it has no business connection. Therefore, we are of the considered view that the AO was right in disallowing foreign travel expenses and such disallowance has rightly upheld by the Ld.CIT(A). - Decided against assessee Disallowance of repairs and maintenance expenses on plant and machinery - AO disallowed expenses incurred by the assessee for the year under consideration is comparatively higher than the expenditure incurred in the previous financial year - Held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company is engaged in the business of marketing motor spirit and hybrid diesel through retail outlets, filed its return of income for AY 2006-07 on 30-11- 2006 declaring total loss of ₹ 31,14,57,633. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee 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 ₹ 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 disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect to say that the assessee become deemed owner of the properties merely because the lease agreement period is more than 12 years. 5. We have heard both the parties and perused the material on record. The AO disallowed lease rent paid on lease hold lands on the ground that such lease rent is in the nature of capital expenditure as the period of lease agreement is more 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court has approved the ratio laid down by the Hon ble Gujarat High Court by dismissing SLP filed by the revenue in SLP No.19002 of 2009 dated 04-12-2009. 8. In this view of the matter and also respectfully following the decision of Hon ble Supreme Court, in the case of CIT vs Sun Pharmaceuticals Industires Ltd (supra), we are of the considered view that the lease rentals paid on 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expense has no relevance to assessee s business in India. The AO, as well as the CIT(A) has brought out clear fact that the assessee has incurred foreign travel expenses on behalf of its employees to visit foreign countries where it has no business connection. Therefore, we are of the considered view that the AO was right in disallowing foreign travel expenses and such disallowance has rightly upheld 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 ₹ 15,87,768, out of repairs and maintenance expenses on plant and machinery. The AO disallowed a sum of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not find any error in the order of the CIT(A). Hence, we are inclined to uphold the order of CIT(A) and reject the ground raised by the revenue. 16. The next issue that came up for our consideration from revenue s appeal is disallowance of other repairs maintenance expenses of ₹ 1,96,69,928 incurred by the assessee. The AO has disallowed computer maintenance expenses on the ground that such expenditure is in 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and accessories, the same has been capitalized to computers and softwares. However, expenses in the nature of annual maintenance contracts has been treated as revenue expenditure. 18. Having heard both the sides, we find that the Ld.CIT(A) has given a categorical finding that all expenditure incurred by the assessee are in the nature of annual maintenance contracts for providing IT support services to its retail outlets. The CIT(A) further 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 expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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