2017 (2) TMI 1000 - AT - Income Tax

Disallowance of consultancy charges incurred on designing and implementation of TDS and other systems - nature of expenditure - Held that - Keeping in view of the argument advanced by the parties and by going through the record carefully, it came into the notice that the assessee is in the business of manufacturing, purchasing, processing and refining crop protection goods etc. The expenditure was incurred for the improving and rationalizing of system such as TDS and Works Contract Tax System, Security Deposit Management System, Excel Vouchers upload systems, inferface of auto-booking of excise / CENVAT to BayMAP system, sales tax administration sales, sales tax administration purchases, maintaining capital work in progress, forex payable and leased assets etc. In view of the said facts and circumstances, it is quite clear that it is revenue expenditure and the case of the assessee is fairly covered by the law settled in Commissioner of Income Tax Vs. Raychem RPG Ltd. 2011 (7) TMI 953 - Bombay High Court - Decided in favour of assessee Disallowance u/s.14A to the extent of 10% of the total exempted income - Held that - From the facts and figures mentioned above, it noticed that own fund is more than the investment, therefore in the said circumstances no expenditure is required to be deducted in view of the law settled in Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ), accordingly, we delete the expenditure assessed by the CIT(A) in view of the provision u/s.14A of the Act. Accordingly, this issue is decided in favour of the assessee

Summary

Issues:
1. Disallowance of consultancy charges
2. Disallowance u/s.14A of the Act
3. Non-granting of deduction towards refurnishing

Issue No.1:
The assessee challenged the disallowance of consultancy charges for designing and implementing systems. The expenditure was incurred for improving the existing system, making it compatible with legal requirements. The ITAT found the expenses to be revenue in nature, citing precedents Commissioner of Income Tax Vs. Raychem RPG Ltd. and Commissioner of Income Tax Vs. Asahi India Safety Glass Ltd. The decision favored the assessee.

Issue No.1.1:
The alternate plea to treat consultancy charges as capital expenditure for depreciation was dismissed as the expenses were already treated as revenue.

Issue No.2:
The disallowance u/s.14A of the Act was challenged by the assessee. The ITAT ruled in favor of the assessee, considering the investment from its own funds and the law settled in Reliance Utilities and Power Ltd. The disallowance was deleted based on the fund's analysis and balance sheet details.

Issue No.3:
The action of the Assessing Officer for not granting a deduction towards refurnishing was challenged. The ITAT directed the AO to comply with the directions issued in a previous order and decide the issue afresh, providing an opportunity for the assessee to be heard. This issue was decided in favor of the assessee.

In conclusion, the ITAT partially allowed the assessee's appeal, ruling in favor of the assessee on all three issues discussed. The judgment was pronounced on 10th February 2017.