2013 (6) TMI 379 - AT - Income Tax

Service charges paid on software development to DERPOL - CIT(A) deleted the addition - Held that - Issue in question is squarely covered in favour of assessee as ITAT in the preceding year from January, 2006 to March, 2006 on the basis of same agreement had allowed the expenditure stating that as from the agreement and the nature of the services provided by M/s DERPOL Investment Ltd. it is not at all established that the assessee had acquired any asset of capital in nature. AO has failed to point out as to how and in what manner, the expenses incurred by the assessee for availing the services of M/s DERPOL can said to be of enduring in nature. Since no capital assets was acquired nor any benefit of enduring nature so as to treat the expenditure as of capital in nature has been acquired by the assessee and since assessee has availed the services of M/s DERPOL in the course of carrying on its business of software development and deployment and the payment is related to the services rendered. Thus the expenses claimed by the assessee are of revenue in nature - Against revenue. Confirmation of disallowance on account of legal and professional charges - Held that - CIT(A) has elaborately dealt with the issue and AR did not bring any fresh material in support of the expenses claimed. Therefore, no infirmity in the order of CIT(A). Against assessee.

Summary

Issues Involved:
1. Deletion of addition of Rs.30,91,500/- made by the Assessing Officer by disallowing the services charges paid on software development to DERPOL.
2. Disallowance of Rs.16,39,833/- on account of legal and professional charges made by the Assessing Officer and confirmed by the Ld CIT(A).

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs.30,91,500/-:
The revenue appealed against the deletion of the addition of Rs.30,91,500/- made by the Assessing Officer, who had disallowed the service charges paid on software development to DERPOL. The Assessing Officer argued that the expenses were claimed to reduce the tax liability and that the agreement with DERPOL in January 2006 had no bearing on the revenue generated in the financial year 2005-06. The Ld CIT(A) deleted the addition based on the ITAT's order from the preceding year, which allowed the expenditure of Rs.10,30,500/- for the period from January 2006 to March 2006 under the same agreement. The Tribunal upheld the Ld CIT(A)'s decision, stating that the expenditure incurred was for the purpose of the assessee's business of software development and deployment and should be allowed as revenue expenditure, irrespective of whether any revenue was generated from those services.

2. Disallowance of Rs.16,39,833/- on Legal and Professional Charges:
The assessee cross-appealed against the disallowance of Rs.16,39,833/- on account of legal and professional charges paid to M/s APC Securities (India) Pvt. Ltd. The Assessing Officer disallowed the expenses, claiming they were an arrangement to inflate expenses. The Ld CIT(A) upheld the disallowance, noting that there were no details of services rendered by APC Securities, no confirmation of any arrangement between the parties, and the scope of work and terms of payment were vague. The Ld CIT(A) found that the genuineness of the transactions did not stand proved. The Tribunal agreed with the Ld CIT(A)'s findings, noting that no fresh material was brought in support of the expenses claimed, and upheld the disallowance.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection. The deletion of the addition of Rs.30,91,500/- was upheld as it was covered by the ITAT's order from the preceding year. The disallowance of Rs.16,39,833/- on legal and professional charges was also upheld due to the lack of evidence proving the genuineness of the expenses.