TMI Blog2022 (2) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest paid on delayed payment of service tax is allowable as deduction or not? - As decided in the case of M/s. EMDEE Digitronics Pvt. Ltd. [ 2019 (7) TMI 86 - ITAT KOLKATA] interest expenditure on late deposit of VAT, service tax, etc. are allowable as deduction u/s 37(1) of the Act. Accordingly, following the above said decision, we hold that the interest paid on delayed payment of service tax is a business expenditure to the assessee and accordingly allowable as deduction. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance. Disallowance of software subscription charges - AO noticed that the assessee has incurred expenses on software purchases and claimed the same as deduction - HELD THAT:- Whether the payments made by the assessee for upgrading the software would constitute revenue or capital expenditure, we may gainfully refer to the decision in the case of IBM Ltd. [ 2013 (10) TMI 1225 - KARNATAKA HIGH COURT] wherein the Hon ble High Court has taken the view that payment of application software though there is an enduring benefit, it does not result into acquisition of any capital asset and merely en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... COUNTANT MEMBER: The assessee has filed this appeal challenging the order dated 4.12.2017 passed by Ld. CIT(A)-3, Bengaluru and it relates to the assessment year 2014-15. The assessee is contesting the decision of Ld. CIT(A) rendered on the following three issues:- a) Disallowance of interest paid on service tax. b) Disallowance of software subscription charges c) Disallowance of bad debts claimed. 2. The facts relating to the case are stated in brief. The assessee company is engaged in the business of software development. The assessment in the hands of the assessee for the year under consideration was completed u/s 143(3) of the Act, wherein the A.O. made above said additions. The appeal filed by the assessee before Ld. CIT(A) was partly allowed. Aggrieved, the assessee has filed this appeal before us. 3. The first issue relates to disallowance of interest paid on late payment of service tax. The assessee had paid a sum of ₹ 2,66,211/- as interest on delayed payment of service tax. The A.O. noticed that the assessee did not route the service tax collection and payment through profit and loss account. Since the service tax paid is not claimed as expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this disallowance. 4. The next issue relates to disallowance of software expenses claimed by the assessee. The A.O. noticed that the assessee has incurred expenses on software purchases and claimed the same as deduction. The nature of software purchase has been explained as under:- 5.3 The details of the software purchased by the appellant and treated as capital expenditure by the AO is as follows: Sl.No. Software Name Amount Utilization 1 SAP B1 Payroll addon 1,25,000 Payroll Customization and implementation charges 2 SAP B1 Support charges 25,000 Support charges incurred for developing additional features in SAP 3 SAP B1 Professional user 1,83,097 SAP License Renewal charges for the period Oct 2013 to September 2014 i.e. SAP B1 Professional User/Limited CRM User/Finance User Logistics User. Amount pertaining to period April to September 2014 has been considered as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken the view that payment of application software though there is an enduring benefit, it does not result into acquisition of any capital asset and merely enhances the productivity or efficiency and hence has to be treated as revenue expenditure. The relevant observations made by Hon ble jurisdictional High Court are extracted below:- 9. The Tribunal, on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of the companys working expenses or is it expenditure laid out as a part of the process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to SAP license renewal charges, we noticed that the Ld CIT(A) has held it to be revenue expenditure. However, he has directed the AO to examine the applicability of sec.40(a)(ia) of the Act. Before us, the Ld A.R has placed reliance on the notification no.21/2012 dated 13th June, 2020 issued by CBDT in order to contend that the TDS is not required to be deducted when the software license is acquired from a Resident. We have gone through the same and notice that the CBDT has laid down certain conditions. Further, the Hon ble Supreme Court, in a recent decision rendered in the case of Engineering Analysis Centre for excellence (Civil Appeal 8733-8734 of 2018) has explained the law on deduction of TDS on payments made to non-residents on purchase of software licenses. Hence the above said notification has to be read along with the decision rendered by Hon ble Supreme Court in the above said case. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to examine this issue in the light of discussions made supra. 5. The next issue relates to disallowance of bad debt claimed of ₹ 58,35,144/-. The A.O. noticed that the assessee has claimed bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and I-Manage in the second ledger are not in the nature of any trade advance i.e. these transactions do not have anything to do with the business of the assessee. Accordingly, he confirmed the disallowance made by the A.O. 5.2 The Ld. A.R. submitted that the amount written off by the assessee, viz., ₹ 58,35,144/- is related to second ledger. However, a sum of ₹ 5,17,380/- has been transferred from first ledger to second ledger on 30.11.2011. Hence, the above said amount of ₹ 5,17,380/- should be allowed as deduction as bad debt u/s 36(1)(vii) of the Act as bad debt. `With regard to the remaining amount of ₹ 53,17,754/-, the Ld. A.R. reiterated the contentions that it is in the nature of trade advance or a trading loss. 5.3 The Ld. D.R. supported the order passed by Ld. CIT(A). From the perusal of order passed by Ld. CIT(A), we notice that the Ld. CIT(A) has extracted both the ledger accounts maintained by M/s I-Manage Technology Services P Ltd in the name of the assessee. As noticed earlier, the first ledger represents purchase and sales transaction and it does not show any outstanding balance. The second ledger, as observed by Ld. CIT(A), con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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