2016 (7) TMI 261 - AT - Income Tax

Disallowance of e-connectivity charges - Held that - Respectfully following the decisions of the Coordinate Bench in the Assessee s own case for A.Y. 2004-05 and for A.Y. 2009-10 we hold that the e-connectivity charges incurred by the assessee are revenue in nature as they do not result either in the acquisition of software by the assessee or in any enduring benefit to the assessee - Decided in favour of assessee

Summary

Issues:
1. Disallowance of e-connectivity charges as capital expenditure.
2. Levy of interest under section 234B of the Income Tax Act.

Issue 1 - Disallowance of e-connectivity charges as capital expenditure:
The appeal was against the final assessment order passed under section 144C(13) r.w.s. 143(3) of the Income Tax Act, 1961. The assessee, a pharmaceutical products company, contested the disallowance of e-connectivity charges amounting to ?20,56,266 as capital expenditure. The Coordinate Bench had previously ruled in favor of the assessee in similar cases, holding that the charges were revenue in nature and did not result in the acquisition of software or enduring benefit. The Tribunal, following the precedent, concluded that the e-connectivity charges were revenue expenditure and directed the AO to delete the disallowance.

Issue 2 - Levy of interest under section 234B:
The assessee challenged the levy of interest under section 234B of the Act, arguing that it had paid advance tax exceeding 90% of the assessed tax. However, during the hearing, it was revealed that the Assessing Officer had already addressed this issue by deleting the interest charged under section 234B through an order under section 154 of the Act. Consequently, the ground raised by the assessee on this issue was rendered infructuous and dismissed.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled in favor of the assessee, allowing the appeal for the assessment year 2006-07. The disallowance of e-connectivity charges as capital expenditure was overturned based on previous decisions and the nature of the expenses. The issue regarding the levy of interest under section 234B was considered infructuous as it had been addressed by the Assessing Officer's order. The judgment was pronounced on 3rd June 2016 by the tribunal members Shri Jason P. Boaz and Shri Sandeep Gosain.