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TMI Blog2018 (10) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... nate prayer made for increasing the value of the opening stock of the relevant assessment year by ₹ 90,35,298/- is dismissed as similar ground of the assessee for preceding year, reducing the value of closing stock to this extent, has been accepted by the Tribunal. Addition being credit balance of sundry creditors which were static for the last three years or more - Held that:- AR supplied a chart showing that a sum of ₹ 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 of Explanation to section 41(1) of the Act. Disallowance of ‘Regulatory expenses’ - revenue or capital expenditure - Held that:- On going through the above Memorandum, we fail t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of such payment could not be provided. In the given circumstances, we set aside the impugned order and remit the matter to the file of the AO for examining the nature of such payment. Disallowing deduction in respect of foreign exchange loss arising due to restatement of outstanding liabilities - Held that:- The Hon’ble Supreme Court in CIT vs. Woodward Governor India (P) Ltd. . [2009 (4) TMI 4 - SUPREME COURT] has held that the loss suffered by the assessee in respect of revenue liability on account of exchange difference as on the date of balance sheet is an item of expenditure liable for deduction u/s 37(1) in the year of accrual. In this view of the matter, the direction given by the ld. CIT(A) to the AO for allowing deduction if the restatement of liability is on revenue account and not allowing the same, if it is on capital account, does not warrant any interference. Although, technically, the direction given by the CIT(A) is not possible in view of his limit on the power to restore an issue to the AO, but, we adopt the same as our direction to the AO for consideration and decision on the issue raised in these grounds. Addition holding that the stock was not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ₹ 6,13,176/- made by the assessee to its inventory valuation. The ld. CIT(A) upheld the assessment order on this point, against which the assessee has come up in appeal before the Tribunal. 4. We have heard the rival submissions and perused the relevant material on record. The immediately preceding assessment year i.e., 2004- 05, as referred to in the assessment order, came up for consideration before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 of Explanation to section 41(1) of the Act. 8. Ground No.3 is against the confirmation of disallowance of Regulatory expenses of ₹ 39,58,543/-. 9. The facts apropos this ground are that the assessee claimed deduction of ₹ 39.58 lac as Regulatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the same to be capital in nature. The AO observed from the details furnished by the assessee that a sum of ₹ 43,25,979/- was claimed as Software expenses deductible in full. On a perusal of such details, the AO observed that a sum of ₹ 12 lac was in the nature of AMC of SAP software. He held such expenditure of ₹ 12 lac to be of revenue nature. The remaining amount of ₹ 31,25,979/- was capitalized. After allowing depreciation @ 60%, he made disallowance of ₹ 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 ITR 329 (Del) by holding that the expenditure incurred by the assessee on software is allowable as revenue expenditure, more so, when it is towards purchase of an application software. When we consider the detail o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Technically, he has no power to remit the matter to the AO for a fresh decision. However, on merits, we find that the direction given by him is in substance g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ₹ 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 ₹ 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 ₹ 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 confirming the foreign exchange fluctuation loss of ₹ 39.53 lac as a notional loss. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent, has been accepted. 31. Ground No.6 of the assessee s appeal is against confirmation of addition of ₹ 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 ₹ 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 ₹ 8,50,938/-, being the value of stock, the AO made an addition. No relief was allowed in the first appeal. 33. Having heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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