2019 (2) TMI 993 - AT - Income Tax

Nature of expenditure - expenditure incurred by the assessee on acquiring licenses to use the software - whether it did not confer any enduring benefit on the assessee and has to be allowed as deduction under section 37 (1)? - Held that - Hon ble jurisdictional High Court in the cases of Oriental Bank Of Commerce 2018 (4) TMI 1534 - DELHI HIGH COURT and ACL Wireless Ltd 2013 (12) TMI 1160 - DELHI HIGH COURT a coordinate Bench of this Tribunal reached a conclusion that the expenditure incurred by the assessee on acquiring licenses to use the software which did not confer any enduring benefit on the assessee and has to be allowed as deduction under section 37 (1) of the Act. It is not the case of the revenue that there is any change of facts and circumstances involved in these two assessment years. There is no reason as to why we should not follow this line of decisions which are applicable to the facts of the case on hand. - Decided in favour of assessee. Disallowance on account of advertisement and marketing expenses - nature of expenditure - Held that - Since the genuineness of the expenditure is not in dispute and the dispute is only regarding capital or revenue expenditure in nature decided the issue in favour of the assessee holding that the expenditure incurred by the assessee on glow sign boards and a neon sign boards is revenue in nature and allowable as deduction under section 37 (1) of the Act. Depreciation on POS terminals - Assessee claimed depreciation on POS terminals at 60% by treating the same as part of block of assets computers whereas the learned assessing officer treated the same as part of Plant and Machinery block and allowed depreciation at 15% - Held that - As in assessee s own case Tribunal followed the decision in the case of Connaught Plaza restaurants 2014 (9) TMI 1105 - ITAT DELHI wherein the issue of higher rate of depreciation on POS terminals was considered and the decision of the Tribunal granting 60% depreciation thereon was upheld. In the said decision Hon ble jurisdictional High Court noticing that the CIT(A) in assessee s own case for the assessment year 2008-09 held that the assessee was entitled to the depreciation at 60% on the ground that the equipment was akin to a computer and such a finding was concurred by the ITAT. Disallowance of depreciation on UPS - whether depreciation could be allowed at 60% as claimed by the assessee treating it as the computer periphery or at 15% as restricted by the learned assessing officer by treating it as falling within Plant and Machinery block - Held that - DR placed reliance on the decision in the case of Nestl India Limited vs. DCIT 2007 (4) TMI 299 - ITAT DELHI-F wherein the Tribunal held that the depreciation on UPS is not to be allowed at 60%. However subsequently there are many decisions on this aspect and more particularly the Hon ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd 2010 (8) TMI 58 - DELHI HIGH COURT held that UPS forms part of the computer periphery and depreciation at a 60% is allowable. In view of this settled position by the said judgement, we do not find any merits in the contention of the revenue. Disallowance u/s 14A - Held that - In view of the decisions of the jurisdictional High Court in the cases of Ld. PCIT vs. McDonalds India Ltd 2018 (11) TMI 1057 - DELHI HIGH COURT , Cheminvest Ltd vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT) and Ld. PCIT vs.IL & FS energy development company Ltd ( 2017 (8) TMI 732 - DELHI HIGH COURT in the absence of any exempt income earned by the assessee in the financial year relevant to the concerned assessment year, no disallowance could be made under section 14 A of the Act. Issue is no longer res Integra and well settled by the aforesaid judgements

Issues Involved:
1. Disallowance of legal, professional, and consultancy expenses.
2. Disallowance of advertisement and marketing expenses.
3. Depreciation on POS terminals.
4. Depreciation on UPS.
5. Disallowance under section 14A.

Issue-wise Detailed Analysis:

1. Disallowance of legal, professional, and consultancy expenses:
The Revenue disallowed ?62,17,290/- on account of legal, professional, and consultancy expenses, arguing that payments made to Wipro Ltd and Interglobe Technologies were capital in nature for software development services. The assessee contended that these payments were for support services, not software development. The Tribunal noted that similar issues were previously resolved in favor of the assessee, citing decisions of the Hon’ble jurisdictional High Court in CIT vs. ACL Wireless Ltd and Oriental Bank Of Commerce vs. ACIT, which held that such expenses did not confer any enduring benefit and were deductible under section 37(1) of the Act. The Tribunal followed these precedents and dismissed the Revenue’s appeal on this ground.

2. Disallowance of advertisement and marketing expenses:
The Revenue disallowed ?52,16,124/- on advertisement and marketing expenses, considering them capital in nature as they provided enduring benefits. The assessee argued that these expenses were for promoting business through glow signs, signboards, and posters, which are revenue in nature. The Tribunal referred to its previous decision for the assessment year 2009-10, where similar expenses were allowed as revenue expenditure, citing decisions in CIT vs. Salora International Ltd and CIT vs. PepsiCo India Holdings Private Limited. The Tribunal upheld the CIT(A)’s decision and dismissed the Revenue’s appeal on this ground.

3. Depreciation on POS terminals:
The Revenue argued that POS terminals should be treated as Plant and Machinery with a depreciation rate of 15%, not as computers with a 60% depreciation rate. The assessee contended that POS terminals are akin to computers. The Tribunal referred to the Hon’ble Delhi High Court’s decision in PCIT vs. Connaught Plaza Restaurants (P) Ltd, which upheld a 60% depreciation rate for POS terminals. The Tribunal followed this precedent and dismissed the Revenue’s appeal on this ground.

4. Depreciation on UPS:
The Revenue contended that UPS should be depreciated at 15%, treating it as Plant and Machinery. The Tribunal referred to the Hon’ble Delhi High Court’s decision in CIT vs. BSES Yamuna Power Ltd, which held that UPS forms part of computer peripherals and is eligible for 60% depreciation. The Tribunal dismissed the Revenue’s appeal on this ground.

5. Disallowance under section 14A:
The Revenue disallowed ?16,24,375/- under section 14A, despite the assessee not earning any exempt income during the year. The Tribunal referred to decisions in PCIT vs. McDonalds India Ltd, Cheminvest Ltd vs. CIT, and PCIT vs. IL & FS Energy Development Company Ltd, which held that no disallowance under section 14A can be made in the absence of exempt income. The Tribunal upheld the CIT(A)’s decision and dismissed the Revenue’s appeal on this ground.

Conclusion:
The Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)’s decisions on all grounds. The order was pronounced on 15th February 2019.

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