2015 (2) TMI 637 - HC - Income Tax

Disallowance of variable license fee - ITAT allowed the claim - Held that - It is not disputed by counsel for the parties that the issue - as to whether such amounts are to be disallowed under Section 35ABB has now been answered against the Revenue by another Division Bench in CIT v. Bharti Hexacom Ltd. 2013 (12) TMI 1115 - DELHI HIGH COURT - Decided in favour of assessee. Disallowance on account of interest on delayed payment to DoT (towards the license fee) - ITAT allowed the claim - Held that - This Court notices that after recording as above in Bharti Hexacom 2013 (12) TMI 1115 - DELHI HIGH COURT , the matter was remitted to the Assessing Officer for working out the correct position. Accordingly, we direct the Assessing Officer to work out the correct position and determine whether the allowance claimed is to be capitalized or treated as revenue depending upon the payment period, i.e., before 31.7.1999 or subsequent to it. - Decided in favour of revenue for statistical purposes. Upfront fee and loans - initial determination of the AO was upset by the Tribunal which held that the fee is to be treated as revenue expenditure - Held that - the issue is covered by the decision in Commissioner of Income Tax v. Gujarat Guardian Limited 2009 (1) TMI 13 - HIGH COURT DELHI . This position was not disputed. Accordingly, the finding in the impugned order to this extent is upheld. - Decided against revenue. Pre-operative expenses - revenue v/s capital expenditure - Held that - The very same issue stands covered by the decision of this Court in CIT v. Modi Industries Ltd.(1992 (10) TMI 74 - DELHI High Court). This has received further endorsement in judgments reported as CIT v. Monnet Industries (2008 (11) TMI 43 - HIGH COURT DELHI ) and CIT v. Relaxo Footwears (2007 (4) TMI 53 - HIGH COURT,DELHI ) thus to be held as revenue expenditure . - Decided in favour of assessee. Software expenditure - revenue v/s capital expenditure - Whether the ITAT was justified in the eyes of law in remitting the mater back to the file of the AO concerning the issue about the claim of the software expenses - Held that - The question of law has to be answered in favour of the assessee treating the expenditure as revenue. See CIT v. Asahi India Safety Glass Ltd. 2011 (11) TMI 2 - DELHI HIGH COURT . A direction remitting the matter for consideration, affirmed by the ITAT is accordingly set aside. - Decided in favour of assessee. Interest disallowance - AO disallow this amount as the assessee had borrowed amounts for the relevant assessment years, and was paying interest, but at the same time, had invested other amounts which were not yielding income - Held that - In the present case, the CIT (A) and ITAT held that there was no nexus between the borrowing from the external sources/financial institutions - for which interest payments were made - and the investments made by the assessee in its subsidiaries. As relying on CIT, Delhi-I, New Delhi v. Bharti Televentures Ltd. 2011 (1) TMI 326 - DELHI HIGH COURT being the factual position reflected from the record of the assessee, the onus that laid on it stood discharged. - Decided in favour of assessee. Non adjudication of claim of expenditure made in the revised return - Held that - The A.O. while finalizing the assessment u/s 143 (3) has incorrectly ignored/over looked the revised return filed by the appellant company within the stipulated period u/s 139 (5). In view of these facts the expenses of ₹ 14,05,886/- are held to be allowable as these were wrongly claimed by the appellant company in respect of A.Y. 2002-03 from where these expenses have been deleted and claimed in respect of A.Y. 2001-02 to which they pertain, by filing the revised return of income. Relief allowed ₹ 14,05,886/- - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of variable license fee
2. Disallowance of upfront fee
3. Treatment of expenses on basic telephone projects
4. Claim of software expenses
5. Disallowance of interest paid
6. Disallowance on account of delayed payment
7. Claim made in the revised return

Issue 1: Disallowance of Variable License Fee
The AO disallowed a portion of the variable license fee claimed by the assessee under Section 35ABB. The ITAT granted relief to the assessee, citing precedents. The Court noted that the issue has been decided against the Revenue in other cases. The matter was remitted to the AO for further clarification on the payment period for the fee.

Issue 2: Disallowance of Upfront Fee
The Tribunal overturned the AO's decision to treat the upfront fee as revenue expenditure, aligning with a previous judgment. The Court upheld this finding based on established legal principles.

Issue 3: Treatment of Expenses on Basic Telephone Projects
The AO treated the expenses as capital expenditure, but the assessee argued for revenue treatment based on business expansion. The Court referred to previous judgments supporting revenue treatment for such expenses and ruled in favor of the assessee.

Issue 4: Claim of Software Expenses
The ITAT directed a reevaluation of the software expenditure claim, emphasizing the application of the functional test. The Court referred to relevant case law and overturned the direction for reassessment, favoring the assessee.

Issue 5: Disallowance of Interest Paid
The AO sought to disallow interest payments made by the assessee, alleging a lack of nexus between borrowings and investments. The CIT (A) and ITAT found in favor of the assessee, emphasizing the adequacy of non-interest-bearing funds. The Court upheld this decision based on factual findings.

Issue 6: Disallowance on Account of Delayed Payment
The AO did not address the claim of expenditure made in the revised return. The CIT (A) allowed the claim, which was affirmed by the ITAT. The Court found no substantial legal question, ruling in favor of the assessee based on factual considerations.

In conclusion, the Court disposed of the appeals, remitting only one matter for further clarification. The judgments were based on established legal principles, precedents, and factual findings in each issue.