TaxTMI 
TaxTMI 
2016 (7) TMI 261
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....Act on 20.09.2010. 2. The facts of the case, briefly, are as under: - 2.1 The assessee-company, engaged in the manufacture and trading of pharmaceutical products, filed its return of income for A.Y. 2006-07 on 29.11.2006 declaring total income of Rs. 23,72,68,243/-. The impugned order was passed under section 144C(13) r.w.s. 143(3) of the Act on 12.10.2009 wherein the income of the assessee was determined at 23,72,70,189/- in view of, inter alia, disallowance of Rs. 20,56,266/- on account of econnectivity expenses. 3. Aggrieved, the assessee has preferred this appeal raising the following grounds: - "1. The learned AO has erred in law and in fact, in making an addition of Rs. 20,56,266 by considering e-connectivity charges as an....
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.... supported the finding in the impugned order. 4.3.1 We have heard both parties and perused and carefully considered the material on record, including the judicial pronouncement cited (supra). We find that the issue of whether e-connectivity charges paid by the assessee are capital in nature as held by Revenue or revenue in nature as claimed by the assessee, has been considered by a Coordinate Bench of this Tribunal in the assessee's own case for A.Y. 2004-05 in its order in ITA No. 6681/Mum/2013 dated 18.05.2016 and for A.Y. 2009-10 in ITA No. 1218/Mum/2014 dated 18.05.2016. In the order for A.Y. 2004-05 the Coordinate Bench has considered the issue at paras 17 to 19 of the order and decided the issue in favour of the assessee holding as....
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....nature." 4.3.2 In its order in the assessee's own case for A.Y. 2009-10 in ITA No. 1442/Mum/2014 dated 18.05.2016, the Coordinate Bench at para 12 thereof decided the same issue, whether e-connectivity charges paid were revenue expenditure as claimed in favour of the assessee holding as under at para 12 thereof: - "12. We find that the assessee had been incurred e-connectivity charges of Rs. 4. 73 crores, being allocated to it by its parent company annually for providing the e-connectivity and system services i.e. SAP services, e-connectivity services and People Soft services, that the AO held that the said expenditure was incurred for acquisition of software, he further held that the assessee was not in the business of software and t....
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.... assessee had neither acquired any enduring benefit nor did any capital asset came into existence. Here, we would like to refer to the case of Asahi Safety Glass Ltd (346 ITR 329) believed by the Honorable Delhi High Court and same reads as under: "It is now somewhat trite to say that the test of enduring benefit is not a certain or a conclusive test which the Courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) de....
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....ses as being recurring in nature to upgrade and/or to run the system. In the background of the aforementioned findings, it cannot be said that the expenses brought about an enduring benefit to the assessee. The AO was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (asst. yr. 1998- 99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. .... the rationale supplied by the AO in support of its order which found resonance in submissions of the counsel for the Revenue is, flawed and, hence it would have to be rejected. What the assessee acquired through AA was an application software which enabled it to execute tasks in the field of ac....
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....son being that the treatment of a particular expense or, a provision in the books of accounts can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it differently in its books." Cases relied upon by the AR also support the stand taken by the assessee. So, we are of the opinion that the expenditure incurred by the assessee on e-connectivity is incurred for day-to-day running of its business without creating any asset and therefore same is allowable as revenue expenditure. Effective ground of appeal, raised by the assessee is decided in its favour." 4.3.3 Respectfully following the decisions of....