AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 915
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....I, Kochi for the assessment year 2008-09. I. T. A. No. 803/Coch/2013-Assessee's appeal (assessment year 2006-07) 2. The first ground in I. T. A. No. 803/Coch/2013 is with regard to disallowance of network support service charges on the reason that there was no deduction of TDS for payment of the same before due date of filing the return. 3. The brief facts of the issue are that an amount of Rs. 21,26,805 claimed by the assessee under the head administrative expenses towards fees for international network support charges was disallowed by the Assessing Officer as the approval from the Government of India has not been obtained for payment of such sum outside India. Further, the expenditure is only a provision made in the books of account and there was no deduction of TDS on the above payments and the TDS was remitted to the Govt. account only on January 3, 2007 instead of payment before May 31, 2006. Accordingly, the expenditure was disallowed by the Assessing Officer by invoking the provisions of section 40(a)(i) of the Act. 4. On appeal, the Commissioner of Income-tax (Appeals) observed that the assessee has obtained proper approval from FIPB unit of Department of E....
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....s unwarranted as the tax has been remitted within the due date of filing of the return. However, we are not in agreement with the assessee's counsel in view of the judgment of the jurisdictional High Court in the case of Prudential Logistics and Transports v. ITO in I. T. A. No. 1 of 2014 dated January 13, 2014 [2014] 364 ITR 689 (Ker) wherein the High Court in paras 5 and 6 has observed as under (page 692) : "5. Reading of section 40(a)(ia) along with second proviso and section 201(1) along with proviso, it would mean that the mandate or requirement on the part of the payer to deduct tax at source is not so strict if they are able to show that the payee or the recipient of the amount has paid tax in accordance with the provisions of section 201(1) and the proviso. 6. This was not the claim made by the assessee before the Assessing Officer. The claim was on a different stand, initially reflecting the amounts as loan in the account books though shown as freight charges in the returns and later explained that it was not the loan amount but freight charges. It was never the case of the assessee that there was no mandate subsequent to amendment, to deduct tax as T....
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....the software and use it for business purposes. Hence, the applicable rate of depreciation is to be 50 per cent. of the prescribed rate arrived at by the lower authorities. Accordingly, this ground of the assessee is dismissed. 13. The last ground is with regard to disallowance made under section 41(1) of the Income-tax Act on the amount outstanding in the name of sundry creditors. 14. The brief facts of the case are that the Assessing Officer noticed that the amount of Rs. 10,61,041 relating to old balance carried forward and an amount of unpaid cancelled cheques of Rs. 5,29,708 were appearing as sundry creditors. The Assessing Officer made the addition by observing as under : Profits under section 41(1) : The breakup of sundry creditors showed the following : (a) Deputy Collector of Customs, Cuddalore-Old balance brought forward Rs.10,61,041 (b) Outdated/unpaid/cancelled cheques Rs. 5,29,708. Though the assessee claimed that the amount payable to Collector of Customs has been treated as income for the financial year 2005-06 relevant to this assessment year, it was noticed that such sum has not been credited to the profit and loss acco....
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....hed by the party from the company's bank account on November 1, 2006. 17. We have heard both parties and perused the record. The argument of the assessee's counsel is devoid of merit. In our opinion, these credits continue to be carried forward year after year and there was no claim from the person to whom it was owing. Generally, in the normal course, nobody would ordinarily not claim his dues and usually they take steps to recover the dues if it is a genuine liability. In this case, the liability is outstanding in the books of account of the assessee year after year. 17.1. The hon'ble Delhi High Court as per its recent decision in the case of CIT v. Chipsoft Technology P. Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract and theoretical one which does not ground itself in reality. The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee- debtor....
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....ure. With regard to the business amortisation expenses, the assessee paid for the liner business an amount of Rs. 1,30,17,000 on two occasions. On June 3, 2005, the agency business of Adsteam was lost to the assessee for which they paid an amount of Rs. 59,69,040 and an amount of Rs. 2,18,000 was amortised during financial year 2004-05. The balance amount of Rs. 68,29,960 amortised during the current assessment year 2006-07. The assessee did not maintain separate profit and loss account on this score. The Assessing Officer went into the details of nature of such expenditure, considered the agreement that was entered into by the assessee for taking this agency, pointwise submissions of the assessee and after giving detailed reasoning and finding on each point held that the expenditure made for acquiring the agency rights for the company is capital in nature. 19.1. Regarding compensation of Rs. 59,69,040 received on termination of the agency, the Assessing Officer treated this amount as revenue in nature. The Assessing Officer holding that one expenditure being capital in nature and another in revenue, the payment was made to one party and compensation is received from another par....
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....s. 1,30,17,000 for the purpose of taking liner business of Hamburg Sued Line Germany from their existing agent M/s. Adsteam Agency (India) Pvt. Ltd., Mumbai which was transferred to the assessee's name in January 2005. However, the assessee lost the business of Hamburg Sued Agency on June 30, 2005. On termination of the agency, the assessee received compensation of Rs. 59,69,040 from the parent company. The assessee set off the compensation received out of the payment made for the purpose of securing the agency business and claimed the amount as revenue expenditure. Admittedly, the assessee paid an amount of Rs. 1,30,17,000 for the purpose of securing the agency business which brought enduring benefit to the assessee. The treatment of expenditure whether capital or revenue depends upon the nature and purpose of payment and not the end result. In other words, the decisive factor determining the nature of the expenditure is the purpose for which it was incurred. The expenditure would be in the nature of capital, if it is made with a view to bring in a profit making asset or business asset or enduring advantage to the assessee. In the present case, the expenditure was incurred wit....
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....ould not be allowed as an expenditure in computing the assessee's income Since the tax was not remitted in the above case within the due date, i.e., May 31, 2006 the above payment amounting to Rs. 22,43,000 was disallowed and added back to the assessee's income. 25. The learned Departmental representative relied on the order of the Assessing Officer. 26. Before the Commissioner of Income-tax (Appeals), the assessee submitted that this is an expenditure that has been incurred towards purchase of software which has been capitalised and depreciation claimed at the appropriate rate. Thus it was submitted that this expenditure was not claimed as revenue expenditure and hence there is no basis for disallowing the same. The assessee further submitted that the entire fee for network support charges and technical services amounting to Rs. 21,26,805 has already been disallowed by the Assessing Officer. 27. The Commissioner of Income-tax (Appeals) observed that the payment of the amount of Rs. 22,43,000 is the cost of software development and licences for various modules and the assessee claimed that this amount has already been included in making disallowance of network supp....
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....tual valuation and in view of the judgment of Supreme Court in the case of CIT v. Textool Co. Ltd. (2013) (35 taxman 639), the expenditure is to be allowed. 32. We have heard both the parties and perused the record. The expenditure was disallowed by the Assessing Officer on the reason that the amount was contributed to the group gratuity fund which was not approved by the Commissioner. Before the Commissioner of Income-tax (Appeals), the assessee took the plea that it has been paid to LIC of India towards gratuity. The Commissioner of Income-tax (Appeals) placed reliance on the judgment of the Supreme Court in the case of Textool Co. Ltd. (supra0 cited supra and allowed the claim. In our opinion, the payment to LIC towards gratuity is to be verified and accordingly, this issue is remitted back to the file of the Assessing Officer to see whether the payment has been made to the LIC towards gratuity fund. Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. This ground of the Revenue is partly allowed for statistical purposes. 33. The next ground is with regard to the amount of Rs. 3,32,116 written off which represent amount adv....