TaxTMI 
TaxTMI 
2019 (12) TMI 966
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.... the circumstances of the case, the learned Commissioner of Income-tax(Appeals) erred in holding and treating the expenditure a sum of Rs. 75,10,303 incurred on payment of "License Fees" on renewal of software license as "Capital" in nature in place of "Revenue" claimed by the appellant. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding "License Fees" as a part of "Software" and treating it as a capital expenditure as defined in income tax rules for Rates of depreciation disregarding the fact that License Fee was paid for one year only and proof in support thereof was provided in appellate proceedings. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in disregarding the fact that the appellant has not purchased any new "Software" for its business. The Software were purchased in prior years and no expenditure was incurred on "Software Purchased". 3.1 That benefit of license fees is only for one year and no benefit of license fees payment can be drawn by appellant beyond that. Therefore no benefit of enduring nature have been taken by the appellant. 4. That the impugned order d....
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....s, as a part of the construction activity. It filed its return of income on 29.09.2010 declaring total income at Rs. 22,91,20,757/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has shown capital work-in-progress (CWIP) as on 31.03.2010 at Rs. 1,65,12,229/-. He, therefore, asked the assessee to give the details of working of CWIP and to submit why interest on CWIP should not be capitalized. Rejecting the various explanations given by the assessee, the Assessing Officer disallowed an amount of Rs. 19,81,467/- being interest @ 12% on different items of CWIP. 4.1 In appeal, the ld.CIT(A) deleted the addition by observing that the funds utilized by the assessee in CWIP were for the purpose of its ongoing business. CWIP was appearing in the balance sheet on account of the fact that there was a gestation period between the acquisition of capital assets and their use for the purpose of business. Further the assessee has substantial amount of own funds at its disposal which is much more than the CWIP. The Assessing Officer has not brought any nexus between the borrowed funds and the CWIP and, therefore, there can be no basis for disallowance....
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....filed by the appellant from time to time and other discussion held. The following points emerge from them:- (a) That the appellant is engaged into the business of construction as a Contractor. (b) The plant and machinery of the appellant business is in the shape of cranes, cement feeding plants etc. (c ) Its quiet understandable that the cranes or other machinery purchased from various suppliers cannot be put to use immediately at the time of purchase, due to time lag in transporting these items to various sites and thereafter assembling of various items as per the requirement. (d) The time period which is the gestation period from the date of its purchase/ payment till its "use "is being shown as CWIP. In the year under consideration, appellant had 17 projects in hand from locations as far away as, Mumbai, Chennai, Gurgaon, Cochin, Kolkatta etc. e) Only the purchase cost that has been incurred by the appellant has been shown in CWIP and no other costs have been incurred on the items shown in CWIP. 7.4 Before proceedings further it would be proper to examine the business of the appellant company. The appellant is engaged into th....
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.... very nature CWIP is a work that has not been completed but on which capital investment has already been incurred. In the case of appellant, there is no doubt that the CWIP is basically an asset which has not reached the final product stage. The details filed by the appellant during the course of assessment proceedings as well as during the course of appellate proceedings reveal that there is a closing CWIP of Rs. 4,69,42,604/- as on 31.03.2009, which represents the following:- S.No. Particulars Amount (Rs.) 1. Capital Work in progress-construction plant and equipment 11,29,866 2. Capital Work-in-Progress - Cranes 4,37,38,406 3. Capital Work in Progress-Batching Plant 20,44,598 4. Advance (debit balance ) to creditors for fixed assets 29,734 Total 4,69,42,604 The above details makes it clear that the main part of CWIP represents expenditure incurred on cranes amounting to Rs. 4,37,38,406/- out of the total CWIP of Rs. 4,69,42,604/-. Similarly, there is an opening CWIP of Rs. 22,26,69,694/- as on 01.04.2008, and Rs. 1,65,12,229/- as on 31.03.2010. The above details makes it clear that the closing CWIP of ....
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....eeds and same could not be considered as capital in nature. The Ld. CIT (Appeals) has also held that the respondent/assessee has sufficient own funds and further that the net worth of the company is far more than the value of CWIP and as such there is no nexus between the borrowed funds and the CWIP. We also note that the assessing officer has accepted the claim of interest in AY 2011-12 wherein, on identical facts, no such disallowance was made. In these circumstances, the department cannot be allowed to agitate this issue in the year under reference. Accordingly, in our considered view, the order of Ld. CIT (Appeals) on this issue is well reasoned and warrants no interference and is hereby upheld. Consequently, ground nos. 2 and 3 are rejected." 8. Since the facts of the impugned assessment year are identical to the facts of the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee's own case, we find no infirmity in the order of the CIT(A) on this issue. Accordingly, ground of appeal No.1 raised by the Revenue is dismissed. 9. Ground of appeal No.2 by the Revenue and all the grounds raised by the assessee relate t....
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....ut of total software expenses amounting Rs. 97,64,993/- claimed this year is allowed as a business expenses on account of depreciation on computer software. Depreciation @60% is allowed against the similar addition of Rs. 65,70,768/- made last year which works out to Rs. 39,42,461/-. Accordingly, the balance of Rs. 14,85,496/- (Rs. 97,64,993 - Rs. 82,79,497) is disallowed and added back to the income of the assessee company." 12. Before the CIT(A), the assessee filed detailed submissions along with details of software expenses which include expenses on AMC, consumables, licence fee paid for renewal of software licence. Copies of various bills were also submitted by the assessee to substantiate that the expenditure incurred under various softwares was of recurring nature and no enduring benefit was derived. Relying on various decisions, it was argued that the action of the Assessing Officer is not correct. Based on the arguments advanced by the assessee, the ld.CIT(A) held that while the Assessing Officer erred in treating the AMC and consumables as capital expenditure, the treatment of licence fees in connection with software was rightly held to be of capital nature. 13. Aggr....
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....es purchase of small items like training expenses, auto card software, gateway checkpoint software etc and licence fees pertains to renewal of various licences for one year only. The appellant also stated that the expenditure incurred on AMC has been accepted by the AO in the assessment proceedings for the A.Y. 2011-12. Thus the fact as evident from the various details filed by the appellant clearly reveals that the expenditure was incurred on the following three accounts. a) Annual Maintenance Cost b) Consumables c) Licence Fees. The details filed also reveals that there is no such item which is enduring in nature, rather expenses were incurred in purchase of various software items, licence fees for renewal of licences, consumables etc. with a limited shelf life. The expenditure incurred on AMC is definitely only for one year and no enduring benefit can be derived there from. Similarly licence fees are being paid only for one year and no enduring benefit is being derived there from. As far as consumable items are concerned there are various software's purchased for different purposes and the warranty for these software's were no....
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....pted the claim with regard to AMC expenses in AY 2011-12. 8.2 It is our considered view, the finding and reasoning of the Ld. CIT (Appeals) that software expenses are of revenue nature is well founded and in consonance with decision of the Hon'ble Jurisdictional High Court in the case of CIT v. G.E. Capital Services Ltd. reported in [2008] 300 ITR 420 (Del) which has been followed by the Delhi Tribunal in the case of the sisterconcern of the respondent/assessee DLF Home Developers Ltd. (supra). Accordingly, we hereby confirm the order of the Ld. CIT (Appeals) and uphold the deletion of disallowance of software expenses. Thus ground no. 4 of the revenue's appeal stands dismissed." 15. Since the facts of the impugned assessment year are identical to the facts of the case for the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee's own case, we hold that the AMC, consumables and the software expenses are revenue in nature. We, therefore, dismiss the ground raised by the revenue and allow the grounds raised by the assessee on this issue. Accordingly, ground No.2 raised by the Revenue is dismissed and the....
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....dition for allowability of expenses u/s 37(1) stands violated. c. Further, the assessee has led no evidence to show that any dispute has been raised or requisite effort has been made with any client regarding recovery of such expenses. It has also not shown any rate revision contract with any party/client to make good the escalation of prices, if any, on account of expenses so incurred. d. Likewise, the provision for Disallowed Material other than RMC expenses & Provision for disallowed other subcontractor works is totally unwarranted. The setting apart of amounts only to meet the contingency of disallowance by the client is not allowable. The assessee has also not led any argument/evidence to show that the provision for expenses was an ascertained liability duly certified/accepted by the clients to have been incurred at their instance. As such the allowability of these provisions is totally and completely unacceptable. e. Contractor/Subcontractors provisions to the tune of Rs. 2,69,92,558/- are unsubstantiated that liability to incur the same was crystallized during the year itself. The assessee has not led any evidence to show that these expenses were i....
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....0 3. Disallowed Administrative Expenses 85,73,636 4. Purchase Sundries 3,73,669 5. Contractor / Sub contractor provisions 2,69,92,558 The appellant gave details along with requisite evidence in respect of all these expenses; but the AO was not satisfied with the submissions of the appellant as a result of which she made addition in respect of the aforesaid expenses. The appellant is in appeal against the said additions. Let us examine each of these additions one by one:- (a) Provision for Disallowed Material other than RMC During the course of appellate proceedings, the appellant clarified that it was executing work in accordance with the 'Cost Plus' basis and under this system, the client was supposed to reimburse the appellant, all costs involved in execution of work on actual basis plus a certain percentage of margin as agreed in the Agreement. During cost verification, certain costs incurred by the appellant were objected to by the client. In response to this, the appellant submitted further details which could meet the client's objections in most of the cases. However, in some cases the clients could not be conv....
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....isallowance, the appellant submitted invoices, nature of payment, Bill No. along with complete details of disallowance. It was stated that the said expenditure was actually incurred by the appellant for business purposes for which complete details were available. In support thereof, copies of Bills along with supporting documents were filed. (d)Disallowed Sundries Regarding the disallowance of Sundries amounting to Rs. 3,73,669/-, it was stated that the same pertained to day to day routine expenses on purchase of small and petty items, like Chemical, Acid, Plastering Powder, Phenyl, Spare Parts, etc. used at different sites of the appellant. The expenditure was required to be incurred on routine basis for construction activities. Copy of ledger account with documentary evidence i.e. vouchers and bills were filed in support thereof. (e) Contractor / Sub-contractor Provision These were the provisions of sub-contractors and material for which works had already been executed / material procured. Further, corresponding revenue had also been provided against the said provisions in its profit and loss account under the head 'Construction & Project R....
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....d by the appellant and sought justification and supporting documents for incurring of expenditure. At times, the cost was subject to verification and in absence of proper satisfaction of the appellant's client, the cost incurred by the appellant and billed as revenue was disallowed. Out of the said disallowance of cost, the client allowed a certain amount on being convinced by the appellant's arguments in their discussions. Whenever, the costs were subsequently allowed by the client, the same were credited and reduced from expenses. The basis issue is once having incurred certain expenses and considered the same as revenue on cost plus basis, how can the appellant be denied to claim that portion of cost, not allowed by the client. (2)A mere disallowance of cost by the appellant's client does not mean that the expenditure was not incurred by the appellant for business purposes or it was an in genuine business expenditure. In support of incurring of the said expenditure, the appellant filed copies of Journal Vouchers in which the description of the invoices received by the appellant from its Sub Contractor / material supplier or any other services provided to the....
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....nt of freight and cartage, books and periodicals, staff welfare expenses, conveyance, travelling expenses, roads and taxes, health and safety, etc. The denomination of expenditure disallowed in each entry was in certain instances in the range of Rs. 50/-, Rs. 399/-, Rs. 1,545/-, Rs. 1,798/-, Rs. 14,246/- etc. When there were around 280 entries for a particular head under which disallowance was made, then it was up to the AO to find out as to how these costs were in genuine or inflated when the appellant had actually incurred these expenses. Similarly, in case of disallowance of Sub- Contractor Cost, the figures of disallowances were, for instance, of Rs. 477/-, Rs. 2589/-, Rs. 3803/-, Rs. 3,45,738/-, Rs. 3,48,424/-, Rs. 2,88,910/- etc. (5)The AO further stated while making disallowance that the disallowed cost was in the nature of contingent expenditure. She also stated that no evidences were filed to show that provisions of expenses was an ascertained liability duly certified / accepted by the client to have been incurred at their insistence. In this regard, I tried to ascertain whether the provisions for disallowed material / Sub contractor and administrative expenses we....
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....ithout any evidence. (7)The appellant submitted that no addition/disallowance on this issue was made by the AO in earlier or subsequent years as the AO was satisfied with the explanation of the appellant. (8)During FY 2009-10 a sum of Rs. 5,27,43,248 was disallowed out of which, a sum of Rs. 2,65,43,073 had been justified and balance remained as disallowed amounting to Rs. 2,62,00,175.The AO disallowed the said amount. Since the appellant had taken the disallowed amount as its income and even added profit margin to it, its claim as a deduction on account of its disallowance by the client is nothing but a deduction on account of Bad debt. As per the Provisions of Section 36(l)(vii) of the Income Tax Act, 1961 which reads as under:- "36. Other deductions:- (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-... (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year." This position in law is wel....
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....icate had been forwarded to the appellant after the close of the Financial Year and had been therefore, classified as "Provision", though accrued and accounted for on the basis of actual bills forwarded. This fact had been established before the Assessing Officer by furnishing supporting evidence. However, the Assessing Officer, accepted the expenses to the extent of supporting details furnished, and disallowed a sum of Rs. 2,69,92,558, comprising various amounts for which details could have been furnished at the assessment stage. The appellant during the course of appellate proceedings filed complete documentary evidence of Contractor Provision of Rs. 2,69,92,558/-. The same was sent to the AO for his counter comments and the AO, vide his remand report dated 02.03.2015 inquired into the said expenditure and did not give any adverse comment. It may be pertinent to mention that in earlier years as well as in the subsequent year, the Assessing Officer, considering the appellant's submissions and details/bills, supporting vouchers/documents etc, did not make any disallowance on this issue while completing the assessment u/s 143(3) of the Act. Even during the year under co....
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.... from the Assessing Officer and the rejoinder to such remand report, deleted the addition by passing a detailed order the reasons for which have also been extracted in the preceding paragraphs. We find no infirmity in the order of the CIT(A). He has given justifiable reasons while deleting each and every disallowance made by the Assessing Officer. Even the complete documentary evidence filed before him which were forwarded to the Assessing Officer for his counter comments remained unattended by the Assessing Officer in the sense he did not give any adverse comment against the same. Since the ld.CIT(A) while deleting the disallowance has passed a speaking order by giving detailed reasons which could not be controverted by the ld. DR, therefore, we find no infirmity in the order of the CIT(A) deleting such addition. No distinguishable feature was brought to our notice by the Revenue so as to take a contrary view than the view taken by the CIT(A) on this issue. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds raised by the Revenue are dismissed. ITA No.2595/Del/2016 (A.Y. 2011-12) (By Assessee) 21. The grounds raised by the assessee are as under:- ....