2020 (8) TMI 164 - AT - Income Tax

Disallowance of annual maintenance charges for software out of total annual maintenance charges - addition on the ground that the same do not pertain to the assessment year under consideration - HELD THAT - We have noted that the assessee has placed on record copy of submission with regard to the software expenses before assessing officer and the copy of written submission filed before ld CIT(A) on the issue of Software expenses. Assessee also filed application dated 24.01.2018, for admitting additional evidences on the impugned issue. On the admission of additional evidence the CIT(A) sought the remand report of the assessing officer, copy of such application is also on record. The copy of remand report dated 23.08.2018, furnished by assessing officer for objecting the admission of additional is also available on record. Despite sufficient material on record, including the copy of tax invoice with regard to annual maintenance of Software and written submission, the ld CIT(A) affirmed the action of assessing officer without examining the facts by holding that no submissions were made by assessee. Considering AO in his remand report has already accepted that the submissions of the assessee are in order, therefore, we direct the assessing officer to allow the expenses. Even otherwise, we have seen that on the tax invoice it is clearly mentioned that purchase order was placed on 10.02.2014, invoice was generated on 10.03.2014 and maintenance contract was valid till 31st December 2014. - Decided in favour of assessee.

Summary

Issues Involved: Disallowance of prepaid software expenses

Analysis:
1. The appeal was against the order of the ld. CIT(A)-49, Mumbai for Assessment Year 2014-15, concerning the disallowance of prepaid software expenses of ?3,03,372 out of total annual maintenance charges of ?3,37,080. The assessing officer disallowed the expenses, claiming they were only for one month based on the invoice date.

2. The assessee argued that the expenses were for annual maintenance of software and stress analysis, covering a 12-month contract from 31st December 2013 to 31st December 2014. The assessing officer did not request details before disallowing the expenses. The assessee reversed the prepaid amount for nine months, amounting to ?2,52,810, and claimed only the net expenditure.

3. The ld AR submitted complete details to the ld CIT(A), including the contract agreement and evidence of expenses incurred. However, the disallowance was upheld without proper verification by the ld CIT(A), who claimed no submissions were made, despite written submissions and supporting documents provided by the assessee.

4. The ld DR for the revenue supported the lower authorities' decision, stating that the assessee failed to explain the facts as recorded in the order. However, the assessing officer's remand report acknowledged that the bills and vouchers submitted by the assessee were in order.

5. The Tribunal noted that despite the sufficient material on record, including invoices and written submissions, the ld CIT(A) affirmed the disallowance without examining the facts. The Tribunal directed the assessing officer to allow the expenses, considering the assessing officer's acceptance in the remand report that the submissions of the assessee were in order.

6. The tax invoice clearly indicated the validity of the maintenance contract until 31st December 2014, with the purchase order placed on 10.02.2014 and the invoice generated on 10.03.2014. Consequently, the grounds of appeal raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

7. The order was pronounced on 16/06/2020, directing the assessing officer to allow the expenses incurred by the assessee for prepaid software maintenance, as supported by the evidence presented during the proceedings.