TaxTMI 
TaxTMI 
2023 (6) TMI 107
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.... the assessment records observed that assessee has claimed EDP expenses to the extent of Rs..2,84,82,194/- in its Profit and Loss Account. The above said claim of the assessee was allowed by the Assessing Officer while completing the assessment u/s. 143(3) of the Act. However, as the said expenditure incurred by the assessee are enduring in nature, the Assessing Officer should have treated the same as capital in nature which the Assessing Officer failed to do so. Further, he observed that, Assessing Officer failed to disallow the said expenditure by treating it as capital expense and thereby allowed depreciation, if any, as per the provisions of section 32 of the Act. 4. Further, he observed that assessee has debited an amount of Rs..2,77,23,272/- in its Profit and Loss Account under the head 'Royalty'. He observed that a careful examination of the Tax Audit Report indicates that TDS u/s. 194J in respect of Fees paid for Technical Services has been shown. However, no TDS in respect of Royalty having been made and paid is shown in Column No.34A of the Tax Audit Report. Therefore, the scope of disallowance @30% of such Royalty u/s. 40(a)(ia) of the Act has not been explore....
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....ee are enduring in nature, thus should have been treated as capital expenditure and hence, should have been disallowed. During the captioned assessment year, the Assessee has debited expenditure amounting to INR 2,84,82,194 under the head EDP expenses in P&L account. These expenses mainly comprise of license fee, maintenance charges, etc. for billing software used by Assessee at various salons. It also includes expenses related to rental charges for printer, desktop, laptop, etc. taken on hire and other miscellaneous IT related expenses. These expenses are incurred for efficient functioning of the business operations and are accordingly charged to P&L account. Assessee did not acquire any new asset or right or advantage of an enduring nature by incurring these expenses, Sample invoice copies of EDP expenses is enclosed as Annexure 3. Further, as per the provisions of section 37 of the Act any expenditure not being in the nature of capital expenditure or personal expenditure incurred for the purpose of business and profession shall be allowed while computing the total income from business and profession. Various Courts have time and again discussed on the demarcati....
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....nses incurred on account of software development in the nature of annual maintenance contracts, upgradation and installation of antivirus expenses cannot result in any benefit of enduring nature so as to be called capital expenses. Separately, the reliance placed on the judicial precedent in case of DCIT vs IKEA Trading India (P) (Ltd) (2017) 82 taxmann.com 325 (Delhi Tribunal) wherein the taxpayer had incurred certain expenses in the nature of EDP maintenance charges comprising of purchase of Printer tonner, ink infuser, repair and annual maintenance of EDP peripherals which was categorized as capital expenditure by the Assessing Officer. However, CIT(A) held that it can be Said that that these expenses are allowable as revenue expenses us 37 () of the IT Act as these have been incurred for the purposes of business. The Hon'ble ITAT further upheld the order of the CIT(A). The relevant extracts of the ruling are reproduced below: "In view of the details of expenditure provided by the appellant and verification thereof through the bills/vouchers submitted in form of paper book it is observed that all these expense are allowable as revenue expenses u's 37(1)....
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....cense rights granted by HUL to the Assessee, the Assessee was under an obligation to pay HUL, royalty for the use of the Licensed Marks, Domain names and Licensed Services as also the fees for the technical know-how and other services It's further submitted that tax has been duly deducted at source under section 194) of the Act by the Assessee on such payments/amounts credited to HUL. The Company at the time of payment of royalty has withhold taxes at the rate of 10% under section 194) of the Act and same is evident in the tax audit report for the year under consideration. We would like to bring to your attention that under clause 34(a) of the tax audit report it is reported total amount of payments under section 194) of the Act amounts to INR 16,72,51,762 on which taxes have been withheld to the tune of INR 1,66,57,265. Relevant extract of the Tax Audit Report is attached as Annexure 4. Further, the payment of royalty expenses by the Company is included in the above payments reported under section 194) of the Act in the tax audit report. We have attached herewith sample invoice copies mapped with the corresponding TDS certificates depicting that the taxes have been wi....
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....IT rejected the submissions of the assessee and he observed that Assessing Officer has allowed deduction of Rs..2,84,82,194/- on account of EDP expenses without verification whether it is capital expenditure or revenue expenditure. The Assessing Officer has not conducted any inquiry into about allowability of EDP expenses or capitalization thereof. Further, he observed that assessee has paid royalty, but as per return of income, it is not discernible whether the TDS has been done on royalty expenses. It was imperative on the part of the Assessing Officer to verify TDS on royalty expenses claimed, and since TDS on royalty expenses is not discernible from the return/Tax Audit Report, it was required to be disallowed. Therefore, Assessing Officer should have conducted inquiry into this, but he has not done. Therefore, he treated the assessment passed u/s. 143(3) of the Act as erroneous and also prejudicial to the interest of revenue. 7. By relying on the amended provisions of section 263(1) Explanation 2 clause (a) of the Act and relying on the decision of the Hon'ble Supreme Court in the case of Smt. Tara Devi Agarwal [88 ITR 0323] and also Rampyari Devi Saraogi [67 ITR 0084] ....
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.... expenditure and royalty. Further, he brought to our notice Page No. 36 of the Paper Book which is the financial statement for the year under consideration in which he brought to our notice the EDP Expenditure and royalty and technical know-how claimed by the assessee. He brought to our notice that the assessee is regularly claiming these expenditures over the years and he showed us the expenditure claimed by the assessee in previous Financial Year as on 31.03.2016. 11. Further, he brought to our notice Page No. 139 of the Paper Book which is the details submitted by the assessee subsequent to notices issued u/s. 143(2) of the Act before the Assessing Officer wherein assessee has submitted all the information before the Assessing Officer. Further, he brought to our notice Page No. 143 of the Paper Book which is the notice issued u/s. 142(1) and brought to our notice page 151 of the Paper Book wherein assessee has submitted partial informations before the Assessing Officer. Further, he brought to our notice Page No.153 of the Paper Book which is the section 142(1) notice issued by the Assessing Officer, in which he has specifically asked the assessee to file the details of TDS an....
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....ee, now, Ld. Pr.CIT cannot impose his view on the Assessing Officer. 16. On the other hand, Ld.DR relied on the orders of the Ld. Pr.CIT and with regard to royalty payments he submitted that the total amount claimed by the assessee Rs.. 277 lakhs whereas assessee has deducted TDS of Rs..255 lakhs, there is no explanation submitted by the assessee for the difference. Further, he brought to our notice Page No. 156 of the Paper Book wherein Assessing Officer has called for various informations and also brought to our notice Page No. 164 of the Paper Book and the explanation submitted by the assessee for which Assessing Officer has not made any enquiry apart from this, assessee has not filed any other documents in support of the above claim. He submitted that Assessing Officer has not called for any royalty agreement nor assessee has placed on record. Therefore, Ld. Pr.CIT is right in concluding that no enquiry was made by the Assessing Officer. Further, no invoices were submitted by the assessee relating to expenses claimed by the assessee and he submitted that the issue under consideration is squarely falls under Explanation 2 to section 263 of the Act. In this regard she relied o....
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....nvestments amounting to Rs. 1,18,23,413/- cannot added back to the balance of the profits as there is no specific prohibition against the allowance of such expenditure u/s. 30 to 43B of the Income Tax Act, 1961 even though such expenditure is to be added back in terms of Clause 5(a) of the First Schedule of the Income Tax Act, 1961? (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the amortized amount of the premium on investments which is not admissible under Section 30 to 43B of the Income Tax Act and is required to be added back as per the provisions of Clause 5(a) of the First Schedule of the Income Tax Act, cannot be allowed to be added to be the balance of profits as there is no specific prohibition against the allowance of such expenditure under Sections 30 to 43B of the Income Tax Act, 1961? (iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that profit of Rs. 34,77,000/- on sale of investment is exempt in view of the CBDT Circular No. 528 dated 16.12.1988 even though the said Circular was foe General Insurance Corporation of ....