9911796707
TMI Blog2018 (10) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... UB Earth station at Gurgaon. The assessee also provides broadband, internet and other telecommunication services. On perusal of Schedule-G of the assessee's balance sheet, the Assessing Officer observed that the assessee declared inventories, after adjustment of Rs. 6,13,176/- on account of stock impaired during the year. On being called upon to explain the reasons for such reduction, the assessee stated that the stock was claimed at realizable value. It was further stated that the inventory consisted of old/used stock which was categorized as defective, but, repairable stock and demo stock. These stocks were valued at their net realizable value. The defective, but, repairable stocks were stated to be valued on the basis of estimate provided by the Technical Department, while the demo stock was valued by making a small reduction in its value on account of their use every year. The Assessing Officer observed that similar issue arose in the case of the assessee for the immediately preceding assessment year i.e., 2004-05. Following his view, he disallowed the adjustment of Rs. 6,13,176/- made by the assessee to its inventory valuation. The ld. CIT(A) upheld the assessment order on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any previous year, there is a remission or cessation of trading liability, such an amount shall be deemed to be income chargeable to tax. Explanation 1 to section 41(1) deals with a situation in which an assessee unilaterally writes off such a liability in his account, which shall also be deemed to be 'remission or cessation of any liability.' It implies that if an amount is otherwise payable by an assessee, even beyond a period of three years, which has not been written back, there can be no question of that amount of credit becoming income of the assessee. The Ld. AR supplied a chart showing that a sum of Rs. 2,32,743/- payable to its vendor, namely, Noisecon, was paid on 17.06.2008 and the remaining amounts were written back as its income in the accounts for the year ending 31.03.2009. On a pertinent query, the details of such write back in the accounts of the next year could not be pointed out by the ld. AR to demonstrate that such a sum was actually offered for taxation in the year of write back. We, therefore, direct the AO to verify the assessee's claim in respect of writing back of the amount in a later year and ensure that such an amount gets offered to taxation in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be capitalized. The assessee will be allowed an opportunity of hearing before reaching any conclusion. 11. Ground No. 4 of the assessee's appeal is against disallowance of 'Software expenses' amounting to Rs. 31,25,979/- by holding the same to be capital in nature. The AO observed from the details furnished by the assessee that a sum of Rs. 43,25,979/- was claimed as 'Software expenses' deductible in full. On a perusal of such details, the AO observed that a sum of Rs. 12 lac was in the nature of AMC of SAP software. He held such expenditure of Rs. 12 lac to be of revenue nature. The remaining amount of Rs. 31,25,979/- was capitalized. After allowing depreciation @ 60%, he made disallowance of Rs. 12,50,392/-. The ld. CIT(A) affirmed the action of the AO. The assessee is aggrieved by such a decision. 12. Having heard both the sides and gone through the relevant material on record, it is seen that the Hon'ble Delhi High Court in CIT vs. Amway India Enterprises (2012) 346 ITR 341 (Del), has held that expenditure incurred on purchase of application software is allowable as revenue expenditure. Similar view has been taken in CIT vs. Asahi India Safety Glass Ltd. (2012) 346 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the decision of the Hon'ble High Court, the same is capital in nature. However, if the payment has been made after amending the 1994 agreement in 1999 in accordance with the Telecom Policy of the Govt. of India and there is irrefutable documentary evidence showing computation of licence fee and a certificate from the Auditor certifying that the computation is as per 1999 policy, and the licence is only for maintaining and operating the services then the Licence Fee would be revenue in nature. However any payment of penalty would be disallowed and any payment on account of interest on licence fee for the period prior to 1999 would also be capitalized. The ground of appeal is accordingly disposed of." 17. The Revenue is aggrieved against the above direction given by the ld. CIT(A) on the ground that firstly, he was not competent to restore the matter to the file of the AO in giving such directions and further that such a payment is a capital expenditure. 18. After considering the rival submissions and perusing the relevant material on record, we find that the ld. CIT(A) has, in fact, restored the matter to the file of AO by giving certain directions. Technicall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee's revenue, then it should be allowed as deduction to that extent. If on the other hand, the payment is for acquiring some right, then it should be capitalized. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in this regard. 24. Ground No.3 is against capitalization of 'Regulatory expenses.' The assessee claimed deduction of Rs. 73,67,512/- as 'Regulatory expenses.' The AO held such amount to be capital in nature. After allowing depreciation @ 25%, he made a disallowance of Rs. 55,25,634/-. No relief was allowed in the first appeal. 25. Having heard both the sides and gone through the relevant material on record, it is noticed that this ground is similar to ground No.3 of the assessee's appeal for the immediately preceding assessment year. Following the view taken hereinabove, we hold accordingly and remit the matter to the file of the AO for deciding it afresh in the light of our above directions. 26. Ground No.4 of the assessee's appeal is against not allowing deduction of Rs. 39,53,944 in respect of foreign exchange loss arising due to restatement of outstanding liabilities. Ground No.3 of the Revenue's appeal is against not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for preceding year, reducing the value of closing stock to this extent, has been accepted. 31. Ground No.6 of the assessee's appeal is against confirmation of addition of Rs. 39,05,837/-, being credit balance of sundry creditors which were pending for last three years. Here, again, we find that the facts and circumstances of this ground are similar to Ground No.2 of the assessee's appeal for the A.Y. 2005-06. Following the view taken hereinabove, we allow this ground of appeal with a direction to the AO to ensure that the amount written back in later years gets taxed in terms of the Explanation to section 41(1) of the Act. 32. Ground No.7 is against the confirmation of addition of Rs. 8,50,938/- holding that the stock was not reconciled. The factual matrix of this ground is that the AO, on perusal of audit report, found that the figures of finished goods etc. of the preceding year were not properly reconciling with the figures of the current year. The assessee furnished some reconciliation, with which the AO was not satisfied. Translating the quantitative difference in monetary terms equivalent to Rs. 8,50,938/-, being the value of stock, the AO made an addition. No relief was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue in its appeal for the immediately preceding assessment year. Following the view taken hereinabove, we direct the AO to decide the issue afresh in the light of the directions given by the ld. CIT(A). 38. In the result, the appeal of the assessee is partly allowed and that of the Revenue is also allowed for statistical purposes. Assessment Year 2007-08 39. The first ground of the assessee's appeal was not pressed by the ld. AR. The same, therefore, stands dismissed. 40. Ground No.2 is against the confirmation of disallowance of 'Provision for impairment of stock' amounting to Rs. 80 lac. Both the sides are in agreement that the facts and circumstances of this ground are mutatis mutandis similar to ground No.1 of the assessee's appeal for the assessment year 2005-06. Following the view taken hereinabove, we delete the addition. Ground No.2.3, which is without prejudice to the main ground No.2, is aimed at increasing the value of opening stock by Rs. 32,86,824/-, being similar amount disallowed by the A.O. for the preceding year. In view of our decision in accepting such ground for the preceding year, this ground has been rendered infructuous. 41. Vide Ground No.3, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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