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TMI Blog2015 (8) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... n to 50 per cent. on software - Held that:- In this case, the purchase bill for the software was dated December 31, 2005. However, the assessee took the plea that the software was installed before September 30, 2005. However, no evidence is placed before us to show that the software was installed and payment was made before September 30, 2005 so as to own the software and use it for business purposes. Hence, the applicable rate of depreciation is to be 50 per cent. of the prescribed rate arrived at by the lower authorities - Decided against assessee. Disallowance u/s 41(1) on the amount outstanding in the name of sundry creditors - Held that:- The assessee has drawn balance-sheet based on its books of account in which the above amounts were being claimed as liabilities due to the various parties as at the end of the accounting year under dispute. However, the assessee failed to establish the genuineness of these liabilities by citing credible evidence. Simply the liabilities being reflected against certain names in its books of account would not establish the genuineness of such liabilities. On the other hand, the Assessing Officer went to the root of the issue and came to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of revenue expenditure and it was capitalised by the assessee as it was in nature of software development fee and licence fee for softwares and depreciation has also been claimed on such capital expenditure by the assessee. The assessee has produced evidence in support of its contention before the Commissioner of Income-tax (Appeals) and on obtaining the requisite evidence for treating it as capital expenditure, the Commissioner of Income-tax (Appeals) allowed the same. In our opinion, it is proper to remit the issue to the file of the Assessing Officer for fresh consideration in the light of the fresh evidence produced before the Commissioner of Income-tax (Appeals). Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. - Decided in favour of revenue for statistical purposes. Addition being contributions to group gratuity fund - CIT(A) deleted the addition - Held that:- The expenditure was disallowed by the Assessing Officer on the reason that the amount was contributed to the group gratuity fund which was not approved by the Commissioner. Before the Commissioner of Income-tax (Appeals), the assessee took the plea that it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brief facts of the issue are that an amount of ₹ 21,26,805 claimed by the assessee under the head administrative expenses towards fees for international network support charges was disallowed by the Assessing Officer as the approval from the Government of India has not been obtained for payment of such sum outside India. Further, the expenditure is only a provision made in the books of account and there was no deduction of TDS on the above payments and the TDS was remitted to the Govt. account only on January 3, 2007 instead of payment before May 31, 2006. Accordingly, the expenditure was disallowed by the Assessing Officer by invoking the provisions of section 40(a)(i) of the Act. 4. On appeal, the Commissioner of Income-tax (Appeals) observed that the assessee has obtained proper approval from FIPB unit of Department of Economic Affairs, Ministry of Finance for payment of international network support service fees to M/s. Gulf Agency Company Ltd. but existence of such approval in no way connected with the taxability of this amount for the Income-tax purposes. Further, the Commissioner of Income-tax (Appeals) found that the amount was actually paid to the party and credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the High Court in paras 5 and 6 has observed as under (page 692) : 5. Reading of section 40(a)(ia) along with second proviso and section 201(1) along with proviso, it would mean that the mandate or requirement on the part of the payer to deduct tax at source is not so strict if they are able to show that the payee or the recipient of the amount has paid tax in accordance with the provisions of section 201(1) and the proviso. 6. This was not the claim made by the assessee before the Assessing Officer. The claim was on a different stand, initially reflecting the amounts as loan in the account books though shown as freight charges in the returns and later explained that it was not the loan amount but freight charges. It was never the case of the assessee that there was no mandate subsequent to amendment, to deduct tax as TDS in the light of above provisions. The assessment year in question is 2007-08 and the amendment giving breathing space to payer of amounts is with effect from April 1, 2013. Therefore, the said benefit is not applicable to the assessee. Even otherwise, on factual situation, the very fact that these amounts were claimed as loan initially, till the security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of sundry creditors. 14. The brief facts of the case are that the Assessing Officer noticed that the amount of ₹ 10,61,041 relating to old balance carried forward and an amount of unpaid cancelled cheques of ₹ 5,29,708 were appearing as sundry creditors. The Assessing Officer made the addition by observing as under : Profits under section 41(1) : The breakup of sundry creditors showed the following : (a) Deputy Collector of Customs, Cuddalore-Old balance brought forward Rs.10,61,041 (b) Outdated/unpaid/cancelled cheques ₹ 5,29,708. Though the assessee claimed that the amount payable to Collector of Customs has been treated as income for the financial year 2005-06 relevant to this assessment year, it was noticed that such sum has not been credited to the profit and loss account. The assessee's counsel clarified that this sum, as well as the unpaid/outdated cheques were treated as income of the financial year ending March 31, 2008. There is no dispute that the above liabilities have ceased to exist and are no longer payable. Since the sums have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward year after year and there was no claim from the person to whom it was owing. Generally, in the normal course, nobody would ordinarily not claim his dues and usually they take steps to recover the dues if it is a genuine liability. In this case, the liability is outstanding in the books of account of the assessee year after year. 17.1. The hon'ble Delhi High Court as per its recent decision in the case of CIT v. Chipsoft Technology P. Ltd. [2012] 210 Taxman 173 (Del), examining the legal aspect of the matter, has clarified that the view that merely because a liability outstands in books, and that lapse of time bars the remedy but does not efface the liability, is an abstract and theoretical one which does not ground itself in reality. The interpretation of law, particularly fiscal and commercial legislation, is to be based on pragmatic realities. It would be indeed paradoxical, if not illogical, to allow the assessee- debtor to, while avoiding a liability on the basis that it is no longer enforceable in law, yet claim his status as a debtor, so that he was indeed liable for the amount reflected as a liability in accounts. 17.2. In the present case, the assessee has dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of ₹ 59,69,040 and an amount of ₹ 2,18,000 was amortised during financial year 2004-05. The balance amount of ₹ 68,29,960 amortised during the current assessment year 2006-07. The assessee did not maintain separate profit and loss account on this score. The Assessing Officer went into the details of nature of such expenditure, considered the agreement that was entered into by the assessee for taking this agency, pointwise submissions of the assessee and after giving detailed reasoning and finding on each point held that the expenditure made for acquiring the agency rights for the company is capital in nature. 19.1. Regarding compensation of ₹ 59,69,040 received on termination of the agency, the Assessing Officer treated this amount as revenue in nature. The Assessing Officer holding that one expenditure being capital in nature and another in revenue, the payment was made to one party and compensation is received from another party, held that the two payments cannot be netted off. According to the Assessing Officer, the payment made for acquiring the agency rights from Adsteam is a capital expenditure, and the compensation received from the parent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05. However, the assessee lost the business of Hamburg Sued Agency on June 30, 2005. On termination of the agency, the assessee received compensation of ₹ 59,69,040 from the parent company. The assessee set off the compensation received out of the payment made for the purpose of securing the agency business and claimed the amount as revenue expenditure. Admittedly, the assessee paid an amount of ₹ 1,30,17,000 for the purpose of securing the agency business which brought enduring benefit to the assessee. The treatment of expenditure whether capital or revenue depends upon the nature and purpose of payment and not the end result. In other words, the decisive factor determining the nature of the expenditure is the purpose for which it was incurred. The expenditure would be in the nature of capital, if it is made with a view to bring in a profit making asset or business asset or enduring advantage to the assessee. In the present case, the expenditure was incurred with a view to bring in an asset or advantage in the nature of agency. It is not necessary that the assessee should have final result. Admittedly in this case, the business was secured by the assessee from Hamburg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 22,43,000 was disallowed and added back to the assessee's income. 25. The learned Departmental representative relied on the order of the Assessing Officer. 26. Before the Commissioner of Income-tax (Appeals), the assessee submitted that this is an expenditure that has been incurred towards purchase of software which has been capitalised and depreciation claimed at the appropriate rate. Thus it was submitted that this expenditure was not claimed as revenue expenditure and hence there is no basis for disallowing the same. The assessee further submitted that the entire fee for network support charges and technical services amounting to ₹ 21,26,805 has already been disallowed by the Assessing Officer. 27. The Commissioner of Income-tax (Appeals) observed that the payment of the amount of ₹ 22,43,000 is the cost of software development and licences for various modules and the assessee claimed that this amount has already been included in making disallowance of network support charges. According to the Commissioner of Income-tax (Appeals) both payments are independent. According to the Commissioner of Income-tax (Appeals), the network support service fee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard both the parties and perused the record. The expenditure was disallowed by the Assessing Officer on the reason that the amount was contributed to the group gratuity fund which was not approved by the Commissioner. Before the Commissioner of Income-tax (Appeals), the assessee took the plea that it has been paid to LIC of India towards gratuity. The Commissioner of Income-tax (Appeals) placed reliance on the judgment of the Supreme Court in the case of Textool Co. Ltd. (supra0 cited supra and allowed the claim. In our opinion, the payment to LIC towards gratuity is to be verified and accordingly, this issue is remitted back to the file of the Assessing Officer to see whether the payment has been made to the LIC towards gratuity fund. Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. This ground of the Revenue is partly allowed for statistical purposes. 33. The next ground is with regard to the amount of ₹ 3,32,116 written off which represent amount advanced to an ex-employee of the assessee. 34. The brief facts of the case are that the assessee has claimed and written off ₹ 14,24,276 as bad debt. On a perus ..... 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