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TMI Blog2024 (2) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... E PRINCIPLES OF NATURAL JUSTICE IS BAD-IN-LAW: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in passing the impugned order without giving a fair and reasonable opportunity of hearing to the Appellant in respect of addition made in the order and thereby violated the principles of natural justice. 2. Hon'ble CIT(A) further erred in not appreciating that non-adjudication of additional ground filed, and non-consideration of additional evidence results in a violation of principles of natural justice. 3. The Appellant, therefore, prays that the impugned order passed in violation of the principles of natural justice, be quashed. WITHOUT PREJUDICE TO GROUND NO. I, GROUND NO. II: VIOLATION OF DOCTRINE OF JUDICIAL PRECEDENCE: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in not following the binding decisions of the Hon'ble Jurisdictional Tribunal in the Appellant's own case. 2. The Appellant prays that the order, qua the additions made in of judicial precedents, be quashed. WITHOUT PREJUDICE TO GROUND NO. I & II, GROUND NO. III: DISALLOWANCE OF LEASE RENT EXPENSES -RS.64,39,586/- 1. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, depreciation @ 10% ought to be allowed. GROUND NO. VII: GENERAL:- The Appellant craves leave to add, amend, alter, and/or delete any/all of the above grounds of appeal. 3. The Revenue has raised the following grounds of appeal in ITA No. 1985/Mum/2023: "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not upholding the disallowance Rs. 1,75,16,000/- u/s. 40(a)(ia) of the Income Tax Act, 1961 on account of payment of Data/circuit Bandwidth Charges without appreciating the fact that the said payment is covered by the definition of "Fees for Technical Services" as per section 194J of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 1,67,67,179/-(being 25% of expenses incurred towards travelling, conveyance and staff training) without appreciating the fact that during the assessment proceedings, the assessee failed to submit itineraries, log book and finer details bills/vouchers in support of its claim of expenses." 4. The relevant facts in brief are that the Assessee Company holds Corporate Membership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee as well as the Revenue are in appeal before the Tribunal on the grounds reproduced in paragraph 2 to 4 above. 7. We would first take up grounds raised by the Assessee in its appeal. Appeal by Assessee : ITA No. 1886/Mum/2023 Ground No. I & II 8. Ground No. 1 raised by the Assessee challenged the validity of the order impugned on the ground of violation of the principles of natural justice. By way of Ground No. II the Assessee had raised the issue of violation of the doctrine of judicial precedence. Both the aforesaid grounds, though raised as independent grounds, also support the other grounds raised by the Assessee. Further, the aforesaid grounds can be decided only after taking into consideration the relevant facts which are also relevant for adjudication of specific grounds raised by the Appellant. Therefore, Ground No. I & II are not adjudicated separately and would be taken into consideration, where relevant, along with the other grounds raised. Ground No. III 9. Ground No. III pertains to disallowance of provisions for Lease Rent Expenses of INR 64,39,586/-. 10. In the computation of income the Assessee had claimed deduction for INR 64,39,586/- being provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heavy reliance was also placed on the judgment of the Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Virtual Soft Systems Ltd.: [2012] 341 ITR 593 (Delhi)[07-02-2012] to contend that once expenses have been accounted for in the books of account as per the accounting standard, deduction for the same would have to be allowed while computing taxable income as per the provisions of the Act. However, on closer analysis of the judgment of the Hon'ble Supreme Court [reported in 404 ITR 409 (SC)], whereby the aforesaid judgment of the Hon'ble Delhi High Court was affirmed, it becomes clear that the Hon'ble Supreme Court had held that the assessee was entitled for bifurcation of lease rental as per the accounting standard prescribed by the Institute of Chartered Accountants of India since there was no express bar in the Act. We note that Section 30 of the Act contains provision relating to deduction for rental expenses and provides that in respect of premises used for the purpose of business or profession deduction shall be allowed in respect of the rent paid for such premises. Section 43(2) of the Act defines rent "paid" as actually paid or incurred as per the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that it was a prepaid expense and that it could not be claimed during the year under appeal, that the assessee had claimed the expenditure as per the provisions of AS-19, that the agreement entered into by the assessee was in the nature of operating lease as defined in AS-19, as per the accounting standard in such cases the payments have to be considered as an item of P&L account on a straight line basis over the lease period. The FAA had given a categorical finding of fact that the provision of Rs.1.08 crores was in respect of the liability that had accrued during the FY 2009-10. We are of the opinion that, by following AS-19 the assessee has complied with the provisions of the Act, that AS-19 provides that in case of operating leases, the lease rent payment has to be treated as an allowable expenditure. Therefore, in our opinion, the order of the FAA does not require any interference from our side." 17. On perusal of the above it emerges that, though the Revenue had invited the attention of the Tribunal towards the provisions contained in Section 30 of the Act, the Tribunal decided identical issue in favour of the Assessee and confirmed the order passed by the first app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: "5.13 The learned AO disallowed sum of Rs. 1,97,53,879/- on account of enhancement and customization expenses incurred by the appellant on its software. The learned AO also disallowed sum of Rs.72,45,000/- towards facility management expenses incurred on account of maintenance of existing hardware. Also, the learned AO disallowed sum of Rs.5,46,479/- on account of maintenance expenses by treating them capital in nature. 5.14 The appellant explained that such expenses are incurred towards maintenance of existing software, therefore the same are allowable expenditure. The appellant submitted supporting invoices and copy of agreement wherein it is observed that the total amount paid includes amount towards AMC charges as well which is allowable expenditure. The amount paid also comprises of license charges which would provide enduring benefits to the appellant and shall be capitalised Instead of expensed out. 5.15 In view of the same the learned AO is directed to allow the expenses towards AMC charges and license charges which do not provide enduring benefit after due verification of claim of appellant along with supporting evidences thereto. Learned AO 2 shall not allow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was correct in holding the same as capital in nature. The Assessing Officer has fairly allowed depreciation at the rate of 25% and therefore, the Assessee was not entitled to any further relief. The CIT(A) has gone a step further any directed the Assessing Officer to allow deduction for expenses not providing enduring benefit after verification and therefore, no further relief could be granted to the Assessee. 28. Having considered the rival submissions, we find merit in the submissions advanced by the Learned Authorised Representative for the Assessee. The Assessee is engaged in the business of stock broking. The annual maintenance expenses have been incurred by the Assessee for keeping the software in line with the regulatory requirements and business requirements. The Assessee has been incurring the annual maintenance charges on a recurring basis for smooth functioning of business. Vide order, dated 16/04/2018, passed in appeal for the Assessment Year 2011-12 [ITA No. 738/Mum/2016], the Tribunal had deleted the disallowance of Enhancement & Customization Expenses and allowed deduction for identical annual maintenance expenses paid/payable to TCS as revenue expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds of installed machines etc. The expenses of the facilities management were regularly incurred right from the inception of the Assessee in order to facilitate the business operations and were also being allowed by the Revenue. No disallowance was made in respect of identical deduction claimed for the Assessment Years 2008-09 (INR 93,65,935/-), 2009-10 (INR 1,13,18,201/-) and 2010-11 (INR 88,06,270/-). Therefore, it was contended on behalf of the Assessee that no disallowance ought to have been made on the principles of consistency when there was no change in the facts or nature of the expense. It was also contended that the aforesaid expenses did not provide any benefit of enduring nature to the Assessee and hence, did not form part of profit earning apparatus of the Assessee. 34. Per contra, the Learned Departmental Representative placed reliance on the assessment order and submitted that the Assessee had failed to justify that the payments made to Wipro were revenue in nature. 35. Having considered the rival submission, we find merit in the submission made on behalf of the Assessee. We have perused the sample invoices and the letters dated 31/03/2011 and 19/10/2011 and find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of repairs of furniture, electrical and telephone & data lines and instruments, across all branch. The Assessee has placed on record the ledger account along with the relevant invoices. Majority of the expenses incurred pertain to supply in installation of networking products such as crone modules, voice cabling for work stations, supply and installation of key board trays connectors, data/voice/electrical cabling and electrical work incurred for keeping the working station in operating conditions. (b) Amount aggregating to INR 61,700/- was paid to Mahal Decorator, a carpenter carrying out petty repairs for the Assessee. The Assessee has provided following details during the assessment proceedings in relation to the same: S. No. Particulars of Expense Amount in INR 1 Payment against Bill Nos. 31, 32 &30 dtd.02.12.11 & 03.12.11 towards keyboard channel repair & carpentry work done for Malad, Borivali & Thane Branches. 12,500 2 Amount payables towards carpentry work done at Kanjurmarg Office vide bill dtd.09.02.12 & 11.02.12 & 22.02.12 for Andheri & Trade World 22,200 3 Towards dismantling charges of Server room at Prime Plaza vide bill dtd 07.02.12 10,000 4 Towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer and direct the Assessing Officer to allow deduction for INR 5,46,479/- as revenue expenditure; delete the disallowance of INR 5,46,479/- and reverse the depreciation granted to the Assessee in relation to the same. In terms of the aforesaid, Ground No. VI raised by the Assessee is allowed. Appeal by Revenue: : ITA No. 1985/MUM/2023 43. We would now take up grounds raised by the Revenue in the cross-appeal. Ground No. 1 44. Ground No. 1 pertains to deletion of disallowance of Data Circuit/Broadband/Multi-Protocol Label Bandwidth Charges under Section 40(a)(ia) of the Act. 45. During the assessment proceedings, the Assessing Officer noted that the Assessee had debited INR 175.16 Lakhs as Data Circuit/Broadband Charges to various parties consisting of the following - (a) Data Circuit Charges : INR 105.38 Lakhs, (b) MPLS Charges : INR 63.58 Lakhs; and (c) Data Circuit Charges : INR 6.20 Lakhs. However, tax was not deducted at source from the aforesaid payments. Therefore, the Assessee was asked to explain why disallowance of INR 1,75,16,000/- should not be made under Section 40(a)(ia) of the Act on account of failure of the Assessee to deduct tax at source under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical disallowances was deleted by the Mumbai Bench of the Tribunal in appeal for the Assessment Year 2010-11 [ITA No. 3137/Mum/2014] following the decision of the Pune Bench of the Tribunal in the case of iGate Computer System Limited (67 SOT 296). Following the aforesaid decision for Assessment Year 2010-11, the Mumbai Bench of the Tribunal has also decided similar issue in the favour of the Assessee in appeal for Assessment Year 2011-12 [ITA No. 716/Mum/2016]. The Learned Authorised Representative for Assessee submitted that the agreements in terms of which payments have been made continue to be the same and therefore, there is no change in the facts and circumstances of the case. 49. We have heard the rival submissions and perused the material on record. On perusal of record, we find that the Assessing Officer has returned a finding that the Assessee had failed to bring on record the relevant agreements. As per the submission of the Assessee recorded by the CIT(A) on this issue, the Assessee had filed application for admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 on 03/10/2013 and 14/08/2018. However, no remand report was called for in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Internet Bandwidth, or for coordination with BSNL for internet connectivity, etc. are not having any enduring benefit. If any consultancy is required for the said purpose, the amount clearly would come under the head of Consultancy and that surely could not be considered as capital in nature. In the present form, the expenditure made was at the best for continuing the benefit for one year, Resultantly, such payment cannot be categorized as capital in nature as no asset is brought into existence on account of such payment," 5.3.6. In view of the foregoing submissions, the Appellant prays that the AO be directed to allow the entire amount of Rs. 96,60,000/- incurred on account of facilities management under section 37(1) of the Act. 5.3.7. Lastly, facilities management expenses are regularly incurred right from the inception of the Appellant in order to facilitate its business operations and were also being allowed by the Department and, therefore no disallowance ought to be made on the principles of consistency when there is no change in the facts or nature of the expense. These expense does not give benefit of enduring nature hence does not form part of profit earning appara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 53. In the assessment order the Assessing Officer has, on verification of details furnished by the Assessee, recorded that the above said expenses were not fully supported by proper bills/vouchers and were supported by self made voucher (in cash). Further, the Assessing Officer was of the view that an element of personal expenditure could not be ruled out. 54. In appeal before CIT(A), the Assessee filed sample bills and vouchers pertaining to various expenses. We note that CIT(A) deleted the disallowances made by the Assessing Officer observing that the Assessing Officer has failed to specify expenses which are to be disallowed and has made the disallowances on ad-hoc basis. The observation of the Assessing Officer that expenses incurred may involve personal element was without any basis. Further, the Assessing Officer has also not quantified the element of personal expenses. 55. Before us, it was contended by the Ld. Departmental Representative that it was the duty of the Assessee to substantiate the expenses claimed during the course of assessment proceedings. Since the Assessee failed to discharge this duty, the Assessing Officer was justified in disallowing the expenses. ..... 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