TaxTMI 
TaxTMI 
2026 (5) TMI 1633
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....uring and supply of railway track maintenance machines (RTMMs) and its spare parts. The appellant filed its original return of income on 30 November 2017 declaring total income of Rs. 1,038,215,490/- under/normal provisions of the Act and book profit of Rs. 681,326,684/- under section 115JB of the Act. The return of income filed by the Appellant was selected for electronic assessment by the Assistant Commissioner of Income-tax, Special Range 7, New Delhi ('Ld.AO'). On completion of the assessment proceedings, the Ld.AO passed the assessment order under section 143(3) of the Act dated 28 December 2019 and assessed the total income at Rs. 1,171,27,060/- wherein, the following additions/disallowances were made: (a) Disallowance of deduction u/s 80G amounting to Rs. 2,511,688/-. (b) Disallowance under other trade payables amounting to Rs. 10,137,719/-. (c) Disallowance of guarantee charges amounting to Rs. 11,727,119/-. (d) Disallowance of royalty and technical service expenses amounting to Rs. 87,316, 122; and (e) Disallowance of provisions and write off amounting to Rs. 21,918,918/-. 3. We first take up the grounds in appeal of ....
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....software, which constitutes an intangible asset falling within the capital field. Thus, the claim of the appellant that the amount written off is allowable as revenue expenditure cannot be accepted 9.3 It is a well-settled position in law that expenditure incurred for acquisition of software is capital in nature, as it provides enduring benefit to the assessee. The Hon'ble Supreme Court in CIT v. Southern Switchgear Ltd. [1998] 232 ITR 359 (SC)held that capital expenditure cannot be claimed as deduction under section 37(1) of the Act. The Hon'ble Delhi High Court in Sharp Business Systems v. CIT [2012] 254 CTR 233 (Del.) also categorically held that software expenditure, being an intangible asset, is capital in nature and only depreciation under section 32 is allowable. In the present case, the appellant has not demonstrated any exceptional circumstance to justify treating the write-off of software as a revenue expenditure. The mere fact that the software was discarded or not put to use does not alter the inherent capital nature of the expenditure. In other words, an assessee can claim deduction only by way of depreciation under section 32 of the Act in respect of ....
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.... receipts and the 80G certificates issued by the Income-tax Authorities. It is observed that the appellant had duly submitted the donation receipts and supporting certificates during the course of assessment proceedings. It is also pertinent to note that the AO has not disputed the existence or genuineness of the donee institutions nor has he doubted the fact of payment. The disallowance has been made purely on certain technical grounds. On perusal of the donation receipts, it is evident that the donations were made through account-payee cheques/RTGS and were duly acknowledged by the recipient institutions by issuing proper donation receipts. Once the genuineness of the donation is established and the done organizations are approved under section 80G, there is no justification in denying the deduction merely for want of some technical compliance. If the AO had any doubt on the correctness of the certificates or receipts, it was incumbent upon him to make necessary independent verification. Without undertaking such inquiry and without granting adequate opportunity to the appellant, the disallowance is not sustainable. Accordingly, I find no merit in the action of the AO in disallowi....
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....in why the sundry creditors should not be treated as non-existent in case of non-furnishing of proof of payment during the year." 5.3 From the above notice, it is evident that the AO only required the appellant to furnish proof of payments to the creditors and simultaneously without any further inquiry, cast a presumption that non-furnishing of such proof would render the sundry creditors non-existent. This approach clearly reflects that the disallowance was made in an ad-hoc manner, without issuing a proper and specific show cause notice, and without assigning any cogent reasons. It is seen from the submissions and the relevant documents filed by the appellant that complete details of sundry creditors were furnished, including their addresses and ledgers of major creditors exceeding Rs. 2,00,000, duly evidencing the payments made. If the Assessing Officer had any doubts regarding the sundry creditors, it was incumbent upon him to independently verify the genuineness of the same. By furnishing the aforesaid details, the appellant has duly discharged the onus of establishing the genuineness of the creditors. Consequently, the ad-hoc disallowance made by the Assessing Office....
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.... deduction in earlier assessment years. The documentary evidence on record clearly demonstrates that the charges were paid to Indian banks for guarantees issued in connection with the import of components for Indian Railways, which is the primary customer of the appellant engaged in the business of manufacturing and supplying railway track maintenance machinery and spare parts. It is a settled principle of law that while expenditure incurred on acquisition of machinery is capital in nature, guarantee commission/charges stand on a different footing. By themselves, such charges do not result in the creation of any capital asset nor do they confer an enduring benefit. In the present case, the guarantee charges paid for import of components are revenue in nature and hence allowable as deduction under section 37(1) of the Act. It is also noticed that a part of the guarantee charges was paid to a non-resident Associate Enterprise. Such payment constitutes an "international transaction" within the meaning of the transfer pricing provisions and, therefore, falls within the jurisdiction of the Transfer Pricing Officer. The Assessing Officer, accordingly, has no authority to make a separate ....
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....ant as well as the details of the royalty and technical fees furnished during the assessment proceedings, which also form part of the Paper Book. It is observed from the assessment order that the Assessing Officer issued a show cause notice dated 10.12.2019 requiring the appellant to explain as to why the royalty and technical fees should not be disallowed in the absence of supporting documentary evidence. In response, the appellant filed a detailed reply dated 17.12.2019, which was duly placed on record. However, despite such compliance, the Assessing Officer proceeded to disallow the royalty and technical fees on the flimsy ground that the appellant had failed to establish the commercial and business expediency of the expenditure and to furnish details of withholding tax paid. Such observation has been made by the Assessing Officer while completely disregarding the comprehensive details and supporting evidence furnished by the appellant during the assessment proceedings. 7.5 It is further seen from the audited annual accounts that during the relevant financial year the appellant has paid royalty and technical fees to its Associate Enterprise. Importantly, similar payment....
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.... holding that such provisions cannot be allowed as deduction. During appellate proceedings, the appellant submitted that the provision was created in pursuance of the warranty obligation undertaken in respect of supplies made to Indian Railways under binding contracts, for which even a bank guarantee was required to be furnished. The appellant further contended that similar provisions were accepted in subsequent assessment years, and reliance was also placed on the judgment of the Hon'ble Supreme Court in the case of Rotork Control (India) P Ltd. 8.2 I have carefully considered the submissions and the details filed by the appellant. It is observed that the provision was made strictly in terms of the warranty obligation arising from contractual commitments. The Hon'ble Delhi High Court, in the assessee's own case, has allowed such provision, and further, the provisions made in subsequent years were also accepted in assessment. It is a settled legal position that provision for warranty expenses is allowable where it is created on the basis of past experience and on a scientific method of estimation. Furthermore, it is also important to note that the company is in....
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.... that after 1.4.1989, it is sufficient if the bad debt is written off as irrecoverable in the books of account of the assessee and the assessee is not required to establish that the debt has in fact become bad during the relevant year. However, the deduction is allowable only if the conditions of section 36(2) are satisfied, namely- 1. the debt must have been taken into account in computing the income of the previous year or any earlier year, and 2. it must be written off as irrecoverable in the books of account of the assessee. 10.5 In the present case, since the AO has not examined whether the conditions of section 36(2) of the Act are fulfilled, the matter requires verification. Accordingly, the AO is directed to verify whether the impugned bad debts written off were amounts taken into account in computing the income of the appellant in the relevant or earlier years, and if so, allow the same as deduction. If the appellant fails to substantiate the fulfilment of section 36(2), the disallowance shall stand confirmed. Subject to this direction, the Ground No. 10 stands partly allowed for statistical purposes. 5. To be precisely conclude we find that w....