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TMI Blog2011 (12) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... came into effect from 1st April 2000, it cannot be inferred that even revenue expenses, which were otherwise eligible for deduction under section 37(1), were to be treated as inadmissible in the earlier assessment years even when there is no specific finding, backed by cogent reasons, to the effect that such Y2K expenses are capital in nature - In the present case, the expenses are only for systems testing and consultancy charges and there is no material whatsoever, except for pointing out that these are 'once in a millennium expenses', that these expenses are capital expenses - Appeal is allowed - ITA No.4855/ Mum/2004, ITA No.7325/ Mum/2004, ITA No.3321/ Mum/2006, ITA No.826/ Mum/2009, and ITA No.3114/ Mum/2009 - - - Dated:- 30-12-2011 - N.V. Vasudevan, Pramod Kumar, JJ. A.V. Sonde for the Appellant Goli Srinivas Rao for the Respondent ORDER Pramod Kumar, Accountant Member 1. These are cross appeals filed by the assessee and revenue against separate orders of the CIT(A) for the assessment years 1999-2000, 2000-2001, 2002-03, 2004-05 and 2005-06, respectively. Since some common issues are involved in these appeals, and for the sake of convenience, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the essential ingredients of treating the amount of Rs.2.04 crores paid by the assessee for acquisition of leasehold rights for 99 years in the land as capital in nature are present. The benefit conferred on the assessee of lease rights is for 99 years against the lump sum payment of Rs.2.04 crores is of enduring nature. There is no material on record to suggest that the sum of Rs.2.04 crores had been paid by way of advance rent nor was there any provision for its adjustment towards rent or for its repayment to the assessee. We find that in case, the assessee terminates the lease agreement and handovers the vacant position of the land to MIDC (lessor) prior to the expiry of lease period of 99 years, it shall not be entitled to any refund out of the amount of Rs.2.04 crores paid by the assessee. There is also no material on record to show that the assessee has made the advance payment of rent for future years to secure any reduction in the rent payable for the future years or for any other business consideration. Considering the totality of the facts and circumstances of the case and the terms of the agreement dt. 5th March, 1992 entered into between the assessee company and MIDC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any other supporting evidences to the effect that the liability to pay these expenses crystallised during the relevant previous tear were not produced before the AO or before him. We also find that the issue of prior period expenses on account of hire charges, traveling expenses and meeting and traveling expenses had come up for consideration in assessee's own case for the assessment year 1998-99 in ITA No.3799/M/2004 before the coordinate bench and the said issues were decided as follows: 3.2 Hire charges of Rs.43,418/-: This amount was paid to M/s. Anil electric Co. on 16.07.1997 towards hire charges of cupboards from October 1996 to arch 1997 as hire charges were ultimately passed for payment and crystallised in the current year. The CIT(A) has examined the bills in question and as these bills were drawn on dates anterior to the previous year under consideration he did not allow. There is no evidence on record that these bills were received during the year, which finding was also given by the CIT(A). In view of this, we are unable to hold that the expenditure has crystallised during the year. Since it pertains to previous year, the same cannot be allowed in this year unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imply is that "since the assessment is following mercantile method of accounting, it could have taken these amounts on accrual basis in .(the preceding year)". This approach, in our considered view, is a very hyper technical and very pedantic approach. As long as there is a reasonable basis for claim, i.e. crystallization of liability to pay or receipt of bills at a later point of time, and merely because provision could not be made in the year of expense, the deduction cannot be declined at the point of time when liability has crystallized. Once the books of accounts of the assessee are closed and it is not possible to provide for an expense on the basis of subsequent information coming to the assessee, the assessee cannot claim it in the year in respect of which books are closed. It is not a case of double deduction and the amounts involved are relatively insignificant. In view of these discussions, and bearing in mind entirety of the case, we hold that the assessee's claim for expenses, even though strictly speaking these expenses pertain to the preceding year, are eligible for deduction in this year that is the year in which liability has crystallised and bills are received. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges in respect of the existing software. However, the Assessing Officer has proceeded to disallow the same as capital expenditure on the short ground that "Y2K expenses are once in a millennium expenses and cannot be equated to regular maintenance charges allowable under section 37(1)". No doubt, as a result of insertion of Section 36(1)(xi), with effect from 1st April 2000, all the Y2K expenses are allowable - whether capital or revenue, but merely because this section came into effect from 1st April 2000, it cannot be inferred that even revenue expenses, which were otherwise eligible for deduction under section 37(1), were to be treated as inadmissible in the earlier assessment years even when there is no specific finding, backed by cogent reasons, to the effect that such Y2K expenses are capital in nature. A concession granted by the statute, i.e. permitting deduction in respect of Y2K expenses, whether capital or revenue, cannot so inferred as to restrict admissibility of deduction in respect of Y2K expenses which were otherwise eligible, such as revenue expenses in nature. In the present case, the expenses are only for systems testing and consultancy charges and there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1998-99, we restrict the disallowance to 1%. 20. Ground No.4 raised by the assessee is rejected and Ground No.3 raised by the revenue is partly allowed. 21. In Ground No.5, the assessee is aggrieved by the CIT(A)'s upholding the disallowance of Rs.3952 u/s.43B r.w.s. 36(1)(va) on account of delay of PF contributions to employees. 22. Having heard the rival contentions, we find that the Assessing Officer has disallowed Rs.61,541 on account of delay in payment of PF contribution to the government treasury. On appeal, the CIT(A) deleted an amount of Rs.57,589 on account of the fact that the said payment has been deposited within the grace period allowed under the P.F.Act. However, he sustained the balance amount of Rs.3952 as the same were not paid within the due date but before the date of filing of the return. The Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd., 319 ITR 306 (SC), has held that deletion of second proviso to section 43B by Finance Act, 2003 is retrospective and it would operate with effect from 1.4.1988 and the amount paid before the date of filing of the return under the Act is allowable deduction. Respectfully following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1998-99, wherein, for the detailed reasons given, the Tribunal upheld the action of the CIT(A) treating the expenditure as revenue expenditure, as follows: "We have considered the issue. We are of the opinion that the expenditure is Revenue in nature as the assessee has to realign the existing network which is synchronized with earlier satellite to a new satellite which does not give any enduring advantage. It allowed for smooth conduct of the existing operations which are generally through the satellite only for connectivity with various NSE Centres and dealers all over India. In fact as stated by the CIT(A), assessee in a short span has to depute technical persons to various Centres to realign the transponders to the satellite. Most of the expenses are with reference to salary and travel expenses pertaining to the officials/ technical personnel and not to purchase of any asset. In view of this, we agree with the finding of the CIT(A) that the expenditure is revenue in nature. The case law relied upon by the learned D.R. are given in different context of shifting physical plants existing in one place to another place. This is not like that. This is a connection netwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us. 33. Learned counsel for the assessee produced before us a decision of the coordinate bench of this Tribunal for the assessment year 1998-99 in ITA No.4022/M/2004 and contended that the issue is covered in favour of the assessee. Learned Departmental Representative did not dispute the same. 34. We find that the issue in this ground is squarely covered by a coordinate bench's decision in assessee's own case for the assessment year 1998-99 (supra), wherein the Tribunal has, inter alia, observed as follows: "16. This issue was already considered by the ITAT in assessee's own case in ITA 7436/Mum/2007 for A.Y. 1994-95 which was followed in A.Y. 1995-96. The findings of the ITAT in para 17 in order dated 22.12.2008 are as under:- "17. After hearing both the sides, we find that the Tribunal in the assessee's own case in ITA No. 7436/Mum/07 vide order dated 27th March, 2007 for the assessment year 1994-95 has directed the Assessing Officer to allow the various expenses and depreciation for the year under consideration holding that the business of the assessee has been set up for the purpose of carrying on the business. M/s. National Stock Exchange of India Ltd. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts and circumstances of the case, provisions of the I.T.Act, 1961 and rules made thereunder." 42. Facts in brief are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed Rs.25,53,030, including an amount of Rs.9,58,645 towards purchase of new software, as deduction under the head "software expenses". The Assessing Officer treated the amount of Rs.9,58,645 as capital expenditure, as the same pertains to capital assets of the assessee. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. Aggrieved further, the assessee is in appeal before us. 43. Learned counsel for the assessee submitted that the expenses incurred towards software are for smooth and efficient functioning of business and not having any enduring benefit. Due to over changing technology in the modern days, it is required to upgrade the computer on periodic basis. Therefore, the expenditure is revenue expenditure. Learned counsel relied on the judgment of Hon'ble Madras High Court in the case of CIT vs. Southern Roadways Ltd(304 ITR 64) and also the decision of ITAT (SB) Delhi in the case of Amway India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the fact that the assessee had gained a new and different advantage and benefit of enduring nature by incurring these expenses." 52. This ground is similar to ground No.1 of the revenue for the assessment year 1999-2000. In line with our decision of even date for the assessment year 1999- 2000, in paras 27 and 28, we reject the ground taken by the revenue. 53. Ground No.1 of the revenue is dismissed. 54. In Ground No.2, the Assessing Officer has raised the following grievance: "On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in directing the AO to allow interest of Rs.19,95,038 u/s.36(1)(iii) ignoring the fact that the assessee itself has capitalized the interest in the books of account and the interest related to the period prior to the use of the assets." 55. This ground is similar to ground No.2 of the revenue for the assessment year 1999-2000. In line with our decision of even date, in paras 33 and 34, we reject the ground taken by the Assessing Officer. 56. Ground No.2 is thus dismissed. 57. In the result, appeal of the assessee and revenue are partly allowed. Assessment Year: 2002-2003: 58. In Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is partly allowed. 72. Ground No.6 of the assessee pertains to disallowance of software expenses. 73. This issue is similar to ground No.1 of the assessee for the assessment year 2000-2001. In line with our decision of even date, we restore the issue to the file of the AO for deciding the issue afresh. 74. Ground No.6 of the assessee is allowed for statistical purposes. 75. In ground no. 1 of the Assessing Officer, the Assessing Officer has raised a grievance against CIT(A)'s allowing deduction in respect of VSAT shifting expenses of Rs 8,41,816. 76. Learned representatives fairly agree that this issue is covered in favour of the assessee by orders of the coordinate benches for the assessment year 1998-99 and 2001-02 . Following these decisions, as also our own views and reasoning set out earlier in this order while dealing with the assessment year 1999-2000, we reject the grievance of the Assessing Officer and decline to interfere in the matter. 77. Ground No. 1 is thus dismissed. 78. As regards ground no. 2, we have already dealt with the same alongwith assessee's related grievance. 79. In Ground No.3, the Assessing Officer has raised the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable in the present case. Therefore, the CIT(A) is not justified in directing the AO to recompute the amount of disallowance u/s.14A as per Rule 8D. The Hon'ble High Court has held that a reasonable disallowance for expenses incurred in earning dividend income is nevertheless to be computed by the AO. We also find that the Tribunal in assessee's own case for the earlier assessment years, on similar set of facts, has restricted the disallowance to 1% to the exempt income. Therefore, following the same we direct the AO to restrict the exempt income to 1%. 90. Ground No.1 is thus partly allowed. 91. Ground No.2 of the assessee pertains to upholding of disallowance of the shifting expenses amounting to Rs.3,60,780 by treating the same as capital expenditure. 91. This issue is similar to Ground No.1 of the revenue for the assessment year 1999-2000. In line with our decision of even date, we uphold the grievance of the assessee. 92. Ground No.2 is thus allowed. 93. In Ground No.3, the assessee is aggrieved by the CIT(A)'s making disallowance of lease premium paid to BMRDA amounting to Rs.1,28,37,644. 94. This ground is similar to ground No.1 taken by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the rival contentions and having perused the material on record, we find that the CIT(A) has indeed been very superficial in his approach and has simply brushed aside contentions of the assessee. The issue in appeal does not have much to do with the decision of Hon'ble Supreme Court in the case of Shambhu Investments (supra). It is a case where separate payment is being made and there is no dispute that the rent is to be treated as income from house property. The question really is whether a separate payment is being made for other services whether the same could be treated as income from house property. It is also to be examined whether such a payment is to be excluded for determination of annual value. There are decisions on the coordinate benches as also Hon'ble Courts above dealing with fine points regarding these aspects. Learned counsel has, even before us, made these legal submissions which the CIT(A) had no occasion to deal with by way of a speaking order. In this view of the matter, we deem it fit and proper to remit the matter to the file of the CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order and in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the rate at which depreciation is to be allowed - @25% or @ 60%. As learned representatives agree, this issue is also covered, in favour of the assesse, by Special Bench decision in the case of Amway India Enterprises vs DCIT (111 ITD SB 112) and by coordinate bench decisions in the case of National Securities Clearing Corp Ltd. In this view of the matter, we uphold the grievance of the assessee and direct the Assessing Officer to allow depreciation on software @ 60%. 116. Ground No. 4 is thus allowed. 117. In Ground No.5, the assessee has raised the following grievances: "(a) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in confirming disallowance of Rs.48,20,060 on account of software expenses by treating the same as capital in nature and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the I.T.Act, and the rules made thereunder. (b) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in holding software expenses being license fees in nature will fall into part B of Appendix I(i.e. intangible assets) and thereby er ..... X X X X Extracts X X X X X X X X Extracts X X X X
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