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2019 (6) TMI 428

..... n this point and restore the matter back to the file of the AO with the direction that he will readjudicate this issue as per decision of the Hon’ble Apex Court in the case of M/s. Exide Industries Ltd. [2009 (5) TMI 894 - SC ORDER] Disallowance on account of software expenses - nature of expenses - revenue or capital expenditure - HELD THAT:- It is observed that the payment was made for maintenance/hosting services and there was no acquisition of right in software as spelt out in Para 7(a) of Software Maintenance & Support Agreement dated 1stJuly, 2009. We find that the AO has misunderstood the facts of the case. The payment made by the assessee has not resulted in any enduring benefit and are only for annual maintenance and support services. The same services has been availed by the assessee in future years also which suggests that the same were availed on annual basis and was not a one-time payment. Hence, we do not find any possible reason to treat the expense as capital expenditure since the payment is made only for maintenance and support services, necessary for using the application efficiently. - Decided against revenue Disallowance of commission expenses - allowa .....

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..... the learned Commissioner of Income Tax (Appeals)-4, Kolkata (in short the ld. CIT(A) ], which in turn arise out of separate assessment orders passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the Act ). 2. First we shall take assessee s appeals in I.T.A. No. 1344 & 1345/Kol/2015, for assessment year 2011-12 and 2012-13. In these two appeals, common issue is that whether on the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer on account of provision for leave encashment, for A.Y. 2011-12 at ₹ 70,06,297/- and for A.Y 2012-13 at ₹ 1,73,21,918/-. Since the issue involved in these two appeals are common and identical, therefore, these appeals have been heard together and a consolidated order is being passed for the sake of convenience and brevity. The assessee s appeal in I.T.A. No. 1344/Kol/2015, for assessment year 2011-12, is taken as a lead case. 3. At the outset itself, Ld Counsel for the assessee submitted before us that the issue involved in these two appeals relate to disallowance on account of provision of leave encashment of ₹ 70,06,297/- for assess .....

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..... any objection. 5. We have considered the submissions of both the parties and have perused the records of the case. We find that Tribunal on identical issue in ITA No. 1787/Kol./2008 in the case of M/s. Ernst & Young Pvt. Ltd. has observed at para 12 in page 6 as under :- 12. Ground No. 5 of the revenue s appeal is against the relief allowed by the CIT(A.) in respect of provision for leave encashment which was deleted by the CIT(A.) following the decision of the Hon ble jurisdictional High Court in the case of M/s. Exide Industries Ltd. (supra). It was pointed out by the ld. DR that the Hon ble Apex Court in SLP (Civil) 22889 of 2008 has stayed the operation of the decision of the Hon ble jurisdictional High Court. In view of the above, we set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with the direction that he will readjudicate this issue as per decision of the Hon ble Apex Court in the case of M/s. Exide Industries Ltd. (supra) . Respectfully following the same we set aside the orders of authorities below on this point and restore the matter back to the file of Assessing Officer for adjudication as per the decisi .....

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..... of assessment proceedings vide its submissions explained to the AO and claimed that the expenditures were not made for acquiring the right of intangible assets but was actually in the nature of technical services. However, the contention of the assessee was not accepted by the AO and the amount of ₹ 1,11,56,494/- was added back to the computation of total income of the assessee. Out of the total sum, depreciation @ 25% was allowed to the assessee, therefore, net disallowance made by AO was to the tune of ₹ 83,67,730 (₹ 1,11,56,494 - 25% of ₹ 1,11,56,494). 10. Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us. 11. The ld. DR for the Revenue has primarily reiterated the stands taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand, the ld. Counsel for the assessee has defended the order of theld CIT(A). 12.We have heard both the parties and perused the .....

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..... Software Maintenance & Support Agreement dated 1stJuly, 2009. We find that the AO has misunderstood the facts of the case. The payment made by the assessee has not resulted in any enduring benefit and are only for annual maintenance and support services. The same services has been availed by the assessee in future years also which suggests that the same were availed on annual basis and was not a one-time payment. Hence, we do not find any possible reason to treat the expense as capital expenditure since the payment is made only for maintenance and support services, necessary for using the application efficiently. That being so, we decline to interfere in the order passed by the Ld. CIT(A), his order, on this issue is hereby upheld and the grounds of appeal raised by the Revenue is dismissed. 14. Ground No. 2 raised by the Revenue relates to disallowance of commission expenses of ₹ 1,10,58,743/-. 15. Brief facts qua the issue are that the assessee is a dealer of Caterpillar Inc. USA. During the year, the assessee has made commission payment amounting to ₹ 1,10,58,743/- to TRS Enterprises, SAS Enterprises and Chhundu Enterprises. During the year under consideration, .....

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..... he matter in appeal before the Ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 17. Before us, the ld. DR for the Revenue, has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity and on the other hand the ld. Counsel for the assessee has defended the order of ld CIT(A). 16. We have heard both the parties and perused the material available on record. We note that ld Assessing Officer has failed to appreciate the facts of the case that the payment made to three parties represents commission for securing sales order for the company. This payment is made as per clause 1 and 2 of the agreement entered into with SAS Enterprises, which states as under:- i. That TIPL and SAS hereby agree that SAS, acting as an independent consultant, shall use reasonable endeavor to find and/or secure buyers/customers for the Equipment for TIPL ii. SAS shall use reasonable endeavors for keeping TIPL fully informed about buyers'/customers' requirements, forwarding enquiries for Equipmen .....

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..... legation. On perusal of statement by third parties no adverse inference could be drawn. Based on facts placed on record, in absence of any evidence of payments being not genuine, we do not find any justification in the action of the A.O. in treating the impugned commission payments as not being expended wholly and exclusively for the purpose of business. In view of the facts narrated above, we note that the addition made on account of commission payments amounting to ₹ 1,10,58,743/- has been rightly deleted by ld CIT(A).That being so, we decline to interfere in the order passed by the Ld. CIT(A), his order on this issue, is hereby upheld and the ground no. 2 raised by the revenue is dismissed. 18. Ground No. 3 raised by the Revenue relates to addition of warranty expenses of ₹ 82,02,019/- . 19. Brief facts qua the issue are that the assessee company debited in profit and loss account a sum of ₹ 82,02,019/- as warranty expenses. It claims reimbursement of warranty expenses from Caterpillar for goods supplied on warranty to its customers. During the year under consideration, the assessee incurred total warranty cost of ₹ 15,99,76,159/- claimed as reimbursement .....

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..... ,99,76,159/- claimed as reimbursement from Caterpillar out of which warrant only claim of ₹ 15,17,74,140/- was accepted by the Caterpillar. Balance warranty claim of ₹ 82,02,019/- was denied by the Caterpillar and was not reimbursed to the assessee. The assessee in its books of accounts has not debited the full amount of warranty expenses but what has been debited is only the unrecovered warranty cost of ₹ 82,02,019/-. In this regard, we find no merits in the contention of the AO that the assessee has violated the principle of accounting by only recording the expense without any credit. Since warranty claim of ₹ 82,02,019/- is the net amount debited to profit and loss account, hence, there is no question of crediting in the profit and loss account. Since the unrecovered warranty cost represented business expense of the assessee, the same was debited to Profit and Loss Account and in view of the above, since the expenditure is incurred for business purpose, warranty expenses should be allowed.That being so, we decline to interfere in the order passed by the Ld. CIT(A), his order on this issue is hereby upheld and ground No.3 raised by the revenue is dismissed .....

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