2017 (5) TMI 912 - AT - Income Tax

Addition u/s 69C - payment made to American Express Banking Corporation AEBC - Held that - Perusing the confirmatory letter issued by AEBC, we find strength in the argument of Ld. AR that the actual amount paid by the assessee was ₹ 13,95,903/- and the balance difference arose only due to erroneous reporting by AEBC as this fact is clearly mentioned by AEBC in the confirmatory letter dated 26/12/2011. Therefore, since the assessee has discharge its part of obligation, the balance addition of ₹ 6,95,199/- is not justified and therefore, the same is deleted. This ground of assessee s appeal succeeds. Addition u/s 69A - difference in interest income reflected by the assessee in his accounts vis- -vis interest amount reported by the payer Bank - Held that - AR made a short submission that the balance interest amount has been offered to tax in the succeeding AY and therefore, no addition on that account was warranted for and the difference arose only due to time lag. We are of the opinion that if the assessee has offered the same in succeeding AY, the addition thereof in impugned AY is not warranted for. Therefore, this issue is restored to Ld. AO for limited purpose of verification of the fact that whether the assessee has offered additional interest in the next AY. Disallowance of foreign travel expenditure being 50% of business related foreign travel - Held that - Since FBT has been paid on these expenses, disallowance thereof u/s 37(1) was not warranted for. Therefore, we are inclined to delete the said additions subject to verification of payment of FBT on these expenses by Ld. AO. Therefore, the matter is restored back to the file of Ld. AO for limited purpose of verifying the fact that the FBT has been paid on these expenses. Treatment of project advisory services fees paid to an entity - capital v/s revenue - Held that - We find that the said expenditure were in the nature of upfront consultancy fees to identify the projects which may be taken up by the assessee in future. A perusal of financial statements of the assessee reveals that as at the beginning of the year, the assessee had reserves of more than ₹ 20 Crores. The quantum of the amount or payment thereof has not been doubted by the revenue. The assessee has reflected income from House Property. Therefore, we find strength in the arguments of Ld. AR that the said expenditure was nothing but in the nature of revenue expenses being paid to explore the new business opportunities so as to deploy the excess resources more profitably and efficiently and payable irrespective of the fact whether the project materialized or not. Further by incurring the same, the assessee has not obtained any benefit of enduring in nature and therefore, the same were allowable as revenue expenditure. - Decided in favour of assessee Treatment of software expenditure - capital v/s revenue - Held that - A perusal of impugned expenses shows that the same were in the nature of obtaining license, implementation, set-up fees, AMC Charges etc. Therefore, we accept the stand of Ld. AR that the impugned expenses were incurred to ensure smooth conduct of the business and improve operational efficiency and therefore, being revenue in nature, were allowable to full extent. - Decided in favour of assessee Disallowance of service charges - AR contended that the said service charges were paid by the assessee to four parties against invoices and all the payment were through banking channels after deduction of TDS thereupon - Held that - We find that the issue requires re-examination at the level of Ld. AO as ledger extracts reveals that the said expenditure has been incurred towards installation of some machineries and hence prima facie, capital in nature. Therefore, this matter is restored back to the file of AO for reexamination in the light of documents placed by the Ld. AR in the paperbook. The assessee is directed to substantiate his claim forthwith before AO and submit necessary information / documents called for by Ld. AO . Depreciation on UPS - @25% OR 60% - Held that - UPS being integral part of computer system being installed to regulate the flow of the power to avoid any kind of damage to the computer network due to fluctuation in power supply which could lead to loss of valuable data and hence, entitled for same rate of depreciation as applicable to computer system. CIT Versus M/s. Saraswat Infotech Ltd. 2013 (1) TMI 861 - BOMBAY HIGH COURT

Summary

Issues Involved:
1. Addition under Section 69C towards payment to American Express Banking Corporation (AEBC).
2. Addition under Section 69A regarding interest income.
3. Disallowance of foreign travel expenditure.
4. Treatment of project advisory services fees as capital expenditure.
5. Treatment of software expenditure as capital expenditure.
6. Disallowance of service charges.
7. Restriction of depreciation on UPS.
8. Non-grant of interest under Section 244A.
9. Initiation of penalty proceedings under Section 271(1)(C).

Issue-wise Detailed Analysis:

1. Addition under Section 69C towards Payment to AEBC
The assessee contested the addition of ?6,95,199/- made under Section 69C for payments to AEBC, arguing that the actual amount paid was ?13,95,503/- and the discrepancy was due to erroneous reporting by AEBC. The Tribunal found merit in the assessee's argument, supported by a confirmatory letter from AEBC, and deleted the addition.

2. Addition under Section 69A regarding Interest Income
The assessee argued that the difference in interest income of ?21,391/- was due to a time lag and that the amount was offered to tax in the succeeding Assessment Year (AY). The Tribunal restored the issue to the Assessing Officer (AO) for verification of this claim, directing deletion of the addition if verified.

3. Disallowance of Foreign Travel Expenditure
The assessee contested the disallowance of 50% of foreign travel expenses amounting to ?57,65,712/- incurred for business purposes. The Tribunal found that since Fringe Benefit Tax (FBT) was paid on these expenses, the disallowance was not warranted. The matter was restored to the AO for verification of FBT payment, with instructions to delete the addition if verified.

4. Treatment of Project Advisory Services Fees as Capital Expenditure
The assessee argued that the project advisory fees of ?14,60,680/- paid to IL&FS Infrastructure Development Corporation for an IT SEZ project were revenue expenses aimed at exploring business opportunities. The Tribunal agreed, noting that the expenses were for feasibility studies and did not result in enduring benefits, thus allowing the expenditure as revenue in nature.

5. Treatment of Software Expenditure as Capital Expenditure
The assessee contested the treatment of software expenditure of ?35,36,682/- as capital, arguing it was for operational efficiency. The Tribunal, citing judgments from higher courts, concluded that such expenses are revenue in nature and allowed full deduction.

6. Disallowance of Service Charges
The assessee challenged the disallowance of ?24 Lacs paid as service charges, which were doubted by the AO due to lack of verification. The Tribunal restored the issue to the AO for re-examination, directing the assessee to provide necessary documentation.

7. Restriction of Depreciation on UPS
The assessee argued for higher depreciation of 60% on UPS, treating it as part of the computer system. The Tribunal, relying on a jurisdictional High Court judgment, agreed and allowed the higher depreciation rate.

8. Non-grant of Interest under Section 244A
The Tribunal noted that interest under Section 244A is allowable as per statutory provisions and dismissed the issue, indicating no interference was required at this stage.

9. Initiation of Penalty Proceedings under Section 271(1)(C)
The Tribunal found the issue premature and dismissed it, indicating no need for interference at this stage.

Conclusion
The Tribunal allowed the assessee's appeal partly, directing the AO to re-compute book profit under Section 115JB and re-work carry forward/set-off of losses based on the final outcome of the appeal. The order was pronounced in the open court on 17th May, 2017.