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TMI Blog2017 (1) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... d to by us in the earlier paragraph clearly are such expenditure, which are incurred in the course of carrying on of business. - Decided in favour of assessee Disallowance of one-third of directors’ foreign travel and conveyance expenses - Held that:- The details were furnished by the assessee company before the AO. In Seshasayee Brothers Ltd. vs. CIT (1960 (3) TMI 50 - MADRAS HIGH COURT) and Cooper Engineering Ltd. vs. CIT (1981 (3) TMI 49 - BOMBAY High Court) it has been held that where the details are not furnished by the assessee, the claim can be disallowed on the ground that the assessee had not established that the amount in question was expenditure laid out wholly and exclusively for the purposes of the business. If the object of the undertaken tour is commercial in nature, the expenditure would qualify for deduction. We find that the disallowance made by the AO of the directors’ expenses is bereft of sound reasoning. Therefore, the disallowance made by the AO is deleted.- Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... mount paid should be treated as revenue expenses for earning fees from Fundtech Corporation. The assessee-company provided software products not only to Fundtech Corporation, but also to its Indian customers. There is nothing brought on record to show that the assessee-company had transferred all the rights in the product software including intellectual property in such software to its customers. The learned CIT(A) thus came to a finding that the assessee-company had developed software and provided services to its clients, hence in principle she agreed with the AO's action in treating expenses on software development of the assessee's products as capital expenditure. Thus coming to specific invoices listed at serial No. 1 to 39, she held the related expenses as capital expenditure. Regarding invoices at serial No. 40 & 45, the learned CIT(A) arrived at a finding that the same related to product implementation for security checks of the software after sale of the product for security assessment and hence cannot be held to be for software development and thus allowable as revenue expenses. As regards invoice at serial No. 46 for ₹ 8,42,700/-, the payment being to Deloitte Hask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e heard the rival submissions and perused the relevant material on record. The AO in the assessment order dated 10.12.2010 for the impugned assessment year has mentioned the nature of business of the assessee-company as software development and related activities. As per Form No. 3 CD, the nature of business of the assessee-company has been mentioned as (a) software development and related activities and (b) trading in computer software. 2.6 A perusal of the "Independent Contractor Agreement" entered into on 24.03.2006 between Cashtech Solution India Ltd. (the former name of the present assessee) and Quexst Solutions Pvt. Ltd., indicate that the former engages the latter, as an independent contractor, to perform services, for product development and customized software development. We may refer to clause 10 of the said agreement which says: ''All intellectual property rights including, rights and inventions, designs and improvements, which the contractor may make either alone or with Cashtech pursuant to or in relation to this agreement, shall automatically belong to Cashtech. The contractor shall have no claims and shall not make any claims in respect thereto. For this purpose t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any product developed. In fact, it is quite understandable that the business of the assessee is exposed to volatility of new and upcoming technological advances and the products developed by it may not be sustainable over a period of time to compete in the market place. Therefore, in this background one has to examine as to whether the expenditure incurred on development and launching of new products in the same line of business results in an 7 advantage in the revenue field or in the capital field. The Hon'ble Supreme Court in the case of Empire Jute Co Ltd (supra) has held that the true test to ascertain the nature and import of the expenditure is to examine the same from a commercial perspective. Even if, it has to be accepted that the expenditure results in an enduring benefit to the assessee, yet following discussion by the Hon'ble Supreme Court would show that each and every incidence of enduring benefit would not result in classification of expenditure as a capital expenditure: "There may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may breakdown. It is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conveyance expenses amounting to ₹ 11,72,587/- on an adhoc basis even though it was wholly and exclusively incurred for the purpose of business of the appellant. 4.1 The details of the foreign travel by the directors are mentioned by the AO at page 6 of the assessment order. The assessee-company submitted before the AO that the entire amount incurred on hire charges - local, hotel stay - overseas was incurred wholly and exclusively for the business purpose and therefore allowable. The assessee-company filed a written submission before the AO which is available at page 7 - 9 of the assessment order. The AO was not convinced with the said explanation of the assessee-company because of the reasons that "in now-a-day's, business scenario nobody requires to go door to door for effecting sales particularly in software trade. The sales made to various foreign clients are not the new one.'' In view of the above, the AO disallowed ₹ 1,50,00,000/- (out of travel expenses of ₹ 4,49,96,230/-) as not related to business expenditure and added to the total income of the assesseecompany. 4.2 In respect of disallowance of ₹ 1,50,00,000/- made by the AO out of foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Brothers Ltd. vs. CIT (1961) 42 ITR 568 (Mad) and Cooper Engineering Ltd. vs. CIT (1982) 135 ITR 597 (Bom), it has been held that where the details are not furnished by the assessee, the claim can be disallowed on the ground that the assessee had not established that the amount in question was expenditure laid out wholly and exclusively for the purposes of the business. If the object of the undertaken tour is commercial in nature, the expenditure would qualify for deduction. We find that the disallowance made by the AO of the directors' expenses is bereft of sound reasoning. Therefore, the disallowance made by the AO of ₹ 11,72,587/- is deleted. The 2nd ground of appeal filed by the assessee is therefore, allowed. 5. The learned counsels of the assessee submitted during the course of hearing that they would not like to press 3rd ground of the appeal. Therefore, the same dismissed as not pressed. 6. As regards 4th ground of appeal, the levy of penalty u/s 234B is mandatory, though consequential. We order accordingly. 7. As regards 5th ground of appeal, the AO has only initiated penalty proceedings u/s 271(1)(c) of the Act. The ground of appeal being premature, is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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