2012 (10) TMI 435 - AT - Income Tax

Disallowance of Foreign Travelling expenses Whether expense on which FBT has been paid are allowed, irrespective of its nature either personal or official - AO argued that assessee failed to satisfy that such expenditure was incurred wholly and exclusively for the purpose of business Company had paid FBT on the aforesaid expenses Held that - As the CBDT explaining the provisions regarding the FBT makes it clear that FBT is levied on the expenses incurred by the employer irrespective of whether the same are incurred for official or personal purposes. Once FBT is levied on such expenses it follows that the same are treated as fringe benefits treated by the assessee as employer to its employees and the same have to be properly allowed as expenses incurred wholly and exclusively for the purpose of business. Following the decision in case of Hansraj Mathuradas (2012 (10) TMI 300 - ITAT, MUMBAI) direct the AO to delete the disallowance. Issue decides in favour of assessee Expenditure on computer software Capital or revenue expenditure - Assessee contended that expense has been incurred only on licence to use the software and that it was mere upgradation of the software Held that - Expenditure on account of software does not form part of the profit making apparatus of the assessee and the same is to enable the management to conduct the assessee s business more efficiently or more profitably and following the decision in case of Raychem RPG Ltd. (2011 (7) TMI 953 - BOMBAY HIGH COURT) direct the AO to allow the software expenditure as Revenue in nature. Issue decides in favour of assessee Disallowance u/s 40(a)(ia) Non deduction of TDS Assessee has not deducted TDS on payment of lease rent Held that As the assessee has paid entire lease rent on 20-05-2005 could not be controverted revenue. Since no amount of the lease rent is payable as on 31-03-2006, therefore, in view of the decision in case of Merilyn Shipping and Transport (2012 (4) TMI 290 - ITAT VISAKHAPATNAM), no disallowance u/s. 40(a)(ia) can be made. Issue decides in favour of assessee

Summary

Issues:
1. Disallowance of Foreign Travelling expenses
2. Treatment of Computer software expenses as capital expenditure
3. Disallowance of rent paid for quarry land lease

Issue 1: Disallowance of Foreign Travelling expenses

The Assessing Officer (AO) disallowed Rs. 2,70,131/- of Foreign Travelling expenses incurred by the Managing Director for exploring the export market, as the purpose of the expenditure was not considered wholly and exclusively for business. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the disallowance. However, the Income Tax Appellate Tribunal (ITAT) Pune allowed the appeal, citing that when fringe benefit tax is paid on such expenses, they are treated as expenses incurred wholly and exclusively for business. The Tribunal referred to Circular No. 8/2005 issued by the CBDT and set aside the CIT(A)'s order, directing the AO to delete the disallowance.

Issue 2: Treatment of Computer software expenses as capital expenditure

The AO considered software expenses of Rs. 4,96,970/- as capital expenditure due to depreciation provision in the Income Tax Rules. The assessee argued that the expenses were for software licenses and upgradation, constituting revenue expenditure. The CIT(A) confirmed the disallowance, but the ITAT Pune allowed the appeal. Relying on the decision in the case of Raychem RPG Ltd., the ITAT treated the software expenses as revenue expenditure, enabling efficient business management. The ITAT directed the AO to allow the software expenses as revenue in nature.

Issue 3: Disallowance of rent paid for quarry land lease

The AO disallowed Rs. 7,18,463/- of lease rent under section 40(a)(ia) for non-deduction of tax at source. The CIT(A) upheld the disallowance based on the lease rent being considered as rent liable for TDS. The ITAT Pune allowed the appeal, citing that since the entire lease rent was paid before 31st March, section 40(a)(ia) could not be invoked. Referring to the decision in the case of Merilyn Shipping and Transport, the ITAT set aside the CIT(A)'s order and allowed the appeal.

In conclusion, the ITAT Pune allowed all three issues raised by the assessee, directing the AO to delete the disallowances and treat the expenses as revenue in nature where applicable.