2016 (4) TMI 30 - AT - Income Tax

Tribunal decision: Revenue appeal partly allowed, reassessment directed, deletion upheld.

The Tribunal partly allowed the Revenue's appeal and the assessee's appeal for statistical purposes. The AO was directed to reassess the issues of ... Disallowance of software development and maintenance expenses - revenue v/s capital expenditure - Held that:- The assessee had demonstrated that the above expenditure was incurred by the assessee for up gradation of existing software for smooth running of online lottery business of the assessee. We, therefore, hold that the said expenditure was rightly claimed by the assessee as revenue expenditure. We, accordingly, hereby, set aside the finding of the Ld. CIT(A) on this issue and delete the disallowance so made by the lower authorities on this issue and direct the AO to treat the said software expenses as revenue in nature. - Decided in favour of assessee Unexplained credit - addition u/s 68 - Held that:- It has been explained that these documents pertained to a 10 year old period and the assessee was making all out effort to trace the same, however, despite best efforts the same could not be produced before the lower authorities. Since the said documents have now been retrieved and the same go to the root of the case, it has been pleaded that the same be admitted as additional evidence in support of the pleadings of the assessee. The Ld. A.R. in this respect has further relied upon an affidavit of one Mr. Sushil M. Waghmare, Director of the assessee company, wherein, the above facts have been explained and it has been submitted that the above documents be taken into consideration for just and proper decision of the case.We have gone through the application, affidavit and the relevant documents. We find that the relevant documents go to the root of the case and are very much necessary to be looked into for just and proper decision of the case. We, therefore, allow the application of the assessee for additional evidence and direct the AO to admit the documents relied upon and sought to be produced by the assessee and after considering the said documents/evidence, decide the issue afresh in accordance with law. This issue is accordingly restored to the file of the AO. - Decided in favour of assessee by way of remand Late deposit of Employees’ Contribution to PF - addition u/s 43B - Held that:- This issue is covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of “CIT vs. Alom Extrusions Ltd.” reported in (2009 (11) TMI 27 - SUPREME COURT ) wherein held that the amendment to section 43B vide Finance Act, 2003 w.e.f. 01.04.2004, whereby, the second proviso to section 43B has been deleted and further amendment to 1st proviso has been made, whereby, it has been provided that nothing contained in the said section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable for furnishing the return of income, is retrospective in nature and would operate from 01.04.1988. The Hon’ble Bombay High Court has in the case of “CIT vs. Hindustan Organics Chemicals Ltd.” [2014 (7) TMI 477 - BOMBAY HIGH COURT] has held that the Employees’ Contribution to PF is covered by the said decision and that the applicable date will be on or before the due date of filing of return of income for deposit of the said contribution. Moreover, we find that the assessment year under consideration before us is A.Y. 2005-06 for which the said amendment otherwise is applicable. The findings of the Ld. CIT(A) on this issue are therefore upheld. - Decided in favour of assessee Issues Involved:1. Disallowance of software development and maintenance expenses as capital expenditure.2. Treatment of loan as unexplained credit under Section 68 of the Income Tax Act.3. Deletion of disallowance of interest.4. Deletion of addition for late deposit of Employees' Contribution to PF.Issue-wise Detailed Analysis:1. Disallowance of Software Development and Maintenance Expenses:The assessee contested the disallowance of Rs. 17,00,000/- for software development and maintenance, which the AO treated as capital expenditure. The CIT(A) had partially agreed, treating certain expenses as revenue but upheld the capital nature of Rs. 17,00,000/- incurred for software adaptation charges. The assessee argued that these were for upgrading existing software for smooth business operations, citing the Tribunal's decision in 'ACIT vs. Sanghvi Savla Stock Brokers Ltd.' which recognized software expenses as revenue if they do not provide long-term benefits. The Tribunal agreed with the assessee, emphasizing that the expenses were for short-term upgradation and directed the AO to treat the Rs. 17,00,000/- as revenue expenditure.2. Treatment of Loan as Unexplained Credit:The AO treated Rs. 1,25,01,689/- as unexplained credit under Section 68, which the CIT(A) enhanced to Rs. 1,61,15,409/-. The assessee claimed these were security deposits from retailers, not loans, and sought to introduce additional evidence, including retailer application forms and distributor agreements, to substantiate the genuineness of these transactions. The Tribunal allowed the admission of additional evidence and remanded the issue back to the AO for fresh consideration based on the new documents.3. Deletion of Disallowance of Interest:The CIT(A) deleted the disallowance of Rs. 47,84,336/- interest, treating the amounts as security deposits used for business purposes. The Revenue argued this was not substantiated by evidence. The Tribunal restored this issue to the AO, linking it to the reassessment of the unexplained credit issue, directing a fresh decision in light of the new evidence.4. Deletion of Addition for Late Deposit of Employees' Contribution to PF:The Revenue challenged the CIT(A)'s deletion of Rs. 4,52,849/- added for late PF contributions, arguing it violated Section 36(va). Both parties agreed this issue was covered by the Supreme Court's decision in 'CIT vs. Alom Extrusions Ltd.' and the Bombay High Court's decision in 'CIT vs. Hindustan Organics Chemicals Ltd.,' which allowed contributions made before the due date for filing returns. The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the addition.Conclusion:The Tribunal allowed the assessee's appeal for statistical purposes and partly allowed the Revenue's appeal for statistical purposes. The AO was directed to reassess the issues of unexplained credits and interest disallowance based on the additional evidence provided by the assessee. The Tribunal upheld the CIT(A)'s decision on the deletion of the addition for late PF contributions.