2018 (5) TMI 933 - AT - Income Tax

ITAT upholds CIT(A) decisions on under-disclosed receipts & 'Vision Plus' software expenses

The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 9,98,65,912/- for under-disclosed receipts, as the receipts represented service tax ... Addition on account of less receipts disclosed representing to TDS claimed - Held that:- FAA has rightly deleted the addition and odds made by the Assessing Officer because these receipts cannot be held as undisclosed receipts by the appellant, as it represents the service charged on the receipts which do not form part of the profit and loss account of the assessee and the same has been shown it as a balance sheet items. The assessee has provided reconciliation statement of service tax liability and it has been reconciled with Form No. 26AS. The assessee has also submitted service tax return before the CIT(A) on which due service tax has been paid to the Government. Therefore, there is no under reporting in the profit and loss account of the assessee of ₹ 9.98 crores and odds. Addition on account of license fee connectivity charges and coordination charges paid to US based company - Held that:- CIT(A) has held that as the facts for AY 2011-12 are similar to the facts of AY 2008-09 and AY 2010-11, therefore, he held that his findings in the order passed for AY 2008- 09 would stand equally applicable here and accordingly, in view of the same, the impugned payment on account of license fee and data management service charges for use of the 'Vision Plus' software was rightly held as revenue in nature and allowable u/s 37. We further note that the factual finding of the CIT(A) on the issue in dispute also could not be controverted by the department during the proceedings before us and we, therefore, find no reason to interfere with the findings of the Ld. CIT(A) on this issue as well and while upholding the same Issues Involved:1. Deletion of addition of Rs. 9,98,65,912/- made on account of less receipts disclosed representing TDS claimed.2. Deletion of aggregate disallowance of Rs. 3,69,40,306/- on account of License fee, Connectivity charges, and Coordination charges paid to GE Capital Corporation for use of 'Vision Plus' software.3. Non-adherence to the decision of the predecessor CIT(A) for the assessment year 2007-08 regarding the nature of the expenditure as capital.Detailed Analysis:Issue 1: Deletion of Addition of Rs. 9,98,65,912/- on Account of Less Receipts Disclosed Representing TDS ClaimedThe Revenue contended that the assessee did not disclose receipts of Rs. 9,98,65,912/- in the books of accounts, despite claiming TDS on this amount. The Assessing Officer (AO) observed that the assessee had shown total receipts of Rs. 193,95,54,582/- with TDS of Rs. 5,67,76,413/-, but only disclosed Rs. 110,67,56,397/- as revenue receipts. The AO referred to Section 198 of the IT Act, which deems all sums on which TDS is deducted as income. The AO concluded that the assessee had under-disclosed receipts by Rs. 86,58,13,253/-. However, the assessee provided explanations for Rs. 76,59,47,341/- as reimbursements and operating expenses, leaving a balance of Rs. 9,98,65,912/-.The CIT(A) found that the receipts in question represented service tax charged on receipts, which do not form part of the profit and loss account but are shown as balance sheet items. The CIT(A) held that the assessee had duly disclosed cost allocations in its books by netting off the same in the respective expense ledger, in accordance with its accounting policy, verified by auditors.The ITAT upheld the CIT(A)'s decision, noting that the reconciliation of service tax liability with Form 26AS and the service tax returns substantiated that all taxes were paid and all income was offered to tax. Thus, there was no underreporting of income, and the addition of Rs. 9.98 crores was rightly deleted.Issue 2: Deletion of Aggregate Disallowance of Rs. 3,69,40,306/- on Account of License Fee, Connectivity Charges, and Coordination Charges Paid to GE Capital Corporation for Use of 'Vision Plus' SoftwareThe AO treated the payments made to GE Capital Corporation for the use of 'Vision Plus' software as capital expenditure, arguing that the software provided enduring benefits. The CIT(A) disagreed, treating the payments as revenue expenditure allowable under Section 37 of the IT Act. The CIT(A) noted that the software was an application software used for routine business operations and did not confer any enduring benefit or ownership rights to the assessee.The ITAT referenced its earlier decision in the assessee's case for AY 2011-12, where it was held that the payments for the software license were revenue in nature. The ITAT reiterated that the software was for business use only, with no right to sell or alienate it, and the payments were periodic, not for acquiring a capital asset. The ITAT upheld the CIT(A)'s decision, confirming that the payments were revenue expenditure.Issue 3: Non-Adherence to the Decision of Predecessor CIT(A) for AY 2007-08The Revenue argued that the CIT(A) did not follow the decision of the predecessor CIT(A) for AY 2007-08, which held the software-related payments as capital expenditure. The CIT(A) and ITAT found that the facts and circumstances for the current assessment year were similar to those in AY 2008-09, 2010-11, and 2011-12, where the payments were treated as revenue expenditure. The ITAT emphasized consistency in judicial decisions and upheld the CIT(A)'s treatment of the expenses as revenue in nature.ConclusionThe ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the additions and disallowances. The ITAT found that the receipts in question were correctly accounted for, and the software-related payments were rightfully treated as revenue expenditure. The decision reinforced the importance of consistency in judicial rulings and adherence to established accounting practices.