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2024 (2) TMI 1496 - AT - Income TaxDisallowance of provisions for Lease Rent Expenses - HELD THAT - On perusal of computation sheet furnished by the Assessee in respect of 127 operational leases we find that, both, upward as well as downward adjustment of lease rental expenses has been made for the relevant previous year. We note that the Assessee has been following this method of accounting for operational lease expenses on a consistent basis over the years. We also note that the aforesaid decision of the Tribunal in the case of the Assessee for the Assessment Year 2010-11 which has also been followed while deciding cross-appeals for the Assessment Year 2011-12. Therefore, we delete the disallowance made by the AO in respect of provision for operational lease rentals. Ground No. III raised by the Assessee is allowed. Net disallowance in respect of Enhancement Customization Expenses and in respect of Facility Management Charges debited to the Profit Loss Account - HELD THAT - Assessee is engaged in the business of stock broking. The annual maintenance expenses have been incurred by the Assessee for keeping the software in line with the regulatory requirements and business requirements. Assessee has been incurring the annual maintenance charges on a recurring basis for smooth functioning of business. Vide order 2018 (4) TMI 931 - ITAT MUMBAI for the Assessment Year 2011-12 the Tribunal had deleted the disallowance of Enhancement Customization Expenses and allowed deduction for identical annual maintenance expenses paid/payable to TCS as revenue expenditure. We are not persuaded to take a view, different from the aforesaid view taken by the Tribunal in appeal for the Assessment Year 2011-12. Accordingly, in view of the aforesaid, we direct the Assessing Officer to allow deduction for annual maintenance expenses paid/payable to TCS as revenue expenditure; delete the disallowance and direct the AO to reverse the depreciation @ 25% granted to the Assessee. Facility Management Charges - As perused the sample invoices and the letters dated 31/03/2011 and 19/10/2011 and find that the same support the stand of the Assessee. Wipro has agreed to provide facility management services to the Assessee for a fixed fee and accordingly invoices were raised by Wipro on the Assessee for the facility management charges. We note that while making the disallowance, the AO has not made any observations regarding the facility management charges. Therefore, order passed by the AO holding Facility Management Charges as capital expenditure cannot be sustained. Repairs Maintenance Expenses to be allowed as revenue expenditure. TDS u/s 194J - disallowance of Data Circuit/Broadband/Multi-Protocol Label Bandwidth Charges u/s 40(a)(ia) - CIT(A) deleted addition - primary contention of the Revenue was that the CIT(A) had deleted the addition without even carrying out basic verification - HELD THAT - In our view, the order passed by the CIT(A) deleting the disallowance made u/s 40(a)(ia) of the Act cannot be sustained. Given the facts and circumstances of the present case we deem it appropriate to remand this issue back to the file of the CIT(A) who shall adjudicate the same after calling for a remand report from the Assessing Officer in respect of additional evidence furnished by the Assessee as per law and after giving the Assessee opportunity to file response to the same. Disallowance of various expenses on ad-hoc basis - CIT(A) deleted addition - HELD THAT - We are not convinced with the submissions advanced by the Ld. Departmental Representative. The Assessee has furnished details of various expenses and had explained the nature and purpose of such expenditure. Without specifying or identifying the infirmity in the specific invoices, bills and vouchers pertaining to expenses furnished by the Assessee, the Assessing Officer proceeded to make a general observation that certain expenses were not supported by proper bills and vouchers. We concur with the CIT(A) that disallowance made on ad-hoc basis cannot be sustained in the facts of the present case. Further, the Assessing Officer has moved on the presumption that the expenses involved personal element without identifying or quantifying such expenses. Accordingly, we do not find any infirmity in the order passed by CIT(A) deleting ad-hoc disallowance.
Issues Involved:
1. Violation of the principles of natural justice. 2. Violation of the doctrine of judicial precedence. 3. Disallowance of lease rent expenses. 4. Disallowance of enhancement and customization expenses. 5. Disallowance of facility management expenses. 6. Disallowance of repairs and maintenance expenses. 7. Disallowance under Section 40(a)(ia) for non-deduction of TDS on Data Circuit/Broadband/Multi-Protocol Label Bandwidth Charges. 8. Ad-hoc disallowance of various expenses. Issue-wise Detailed Analysis: 1. Violation of the Principles of Natural Justice: The Assessee contended that the CIT(A) failed to provide a fair opportunity to present its case, thereby violating the principles of natural justice. The Tribunal noted that this issue was intertwined with other grounds and would be considered in conjunction with them. 2. Violation of the Doctrine of Judicial Precedence: The Assessee argued that the CIT(A) did not adhere to binding decisions from prior cases involving the Assessee. This issue was also connected to other grounds and not adjudicated separately. 3. Disallowance of Lease Rent Expenses: The Assessee challenged the disallowance of INR 64,39,586/- as lease rent expenses, arguing it was a recurring issue resolved in its favor in earlier years. The Tribunal, referencing prior decisions and the consistent accounting method followed by the Assessee, allowed the deduction, overturning the CIT(A)'s decision. 4. Disallowance of Enhancement and Customization Expenses: The Assessee contested the disallowance of INR 1,25,08,875/- related to maintenance charges paid to TCS. The Tribunal agreed with the Assessee, recognizing these as recurring expenses necessary for business operations, and directed the Assessing Officer to allow them as revenue expenditure, reversing the depreciation previously granted. 5. Disallowance of Facility Management Expenses: The Assessee argued against the disallowance of INR 72,45,000/- paid to Wipro for facility management. The Tribunal found these expenses to be routine and necessary for maintaining business operations, consistent with past treatment, and directed the Assessing Officer to allow them as revenue expenditure. 6. Disallowance of Repairs and Maintenance Expenses: The Assessee appealed the disallowance of INR 5,46,479/- for repairs and maintenance. The Tribunal, after examining the nature of the expenses, deemed them routine and necessary for business operations, and allowed them as revenue expenditure, overturning the Assessing Officer's decision. 7. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: The Revenue appealed the CIT(A)'s deletion of disallowance for INR 1,75,16,000/- related to Data Circuit/Broadband/Multi-Protocol Label Bandwidth Charges. The Tribunal found that the CIT(A) had not adequately verified the facts and remanded the issue back to the CIT(A) for reconsideration, directing a thorough examination of the agreements and relevant evidence. 8. Ad-hoc Disallowance of Various Expenses: The Revenue challenged the deletion of an ad-hoc disallowance of INR 1,67,67,179/-. The Tribunal upheld the CIT(A)'s decision, noting the lack of specific evidence from the Assessing Officer to support the disallowance and the absence of identified personal expenses, thereby dismissing the Revenue's appeal on this ground. Conclusion: The Tribunal allowed the Assessee's appeal and provided relief on several grounds, while partially allowing the Revenue's appeal for statistical purposes by remanding the issue related to TDS disallowance back to the CIT(A) for further examination.
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