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TMI Blog2019 (12) TMI 966X X X X Extracts X X X X X X X X Extracts X X X X ..... e, dismiss the ground raised by the revenue and allow the grounds raised by the assessee on this issue CIT(A) after obtaining a remand report from the Assessing Officer and the rejoinder to such remand report, deleted the addition by passing a detailed order the reasons for which have also been extracted in the preceding paragraphs. We find no infirmity in the order of the CIT(A). He has given justifiable reasons while deleting each and every disallowance made by the Assessing Officer. Even the complete documentary evidence filed before him which were forwarded to the Assessing Officer for his counter comments remained unattended by the Assessing Officer in the sense he did not give any adverse comment against the same. Since the ld.CIT(A) while deleting the disallowance has passed a speaking order by giving detailed reasons which could not be controverted by the ld. DR, therefore, we find no infirmity in the order of the CIT(A) deleting such addition. No distinguishable feature was brought to our notice by the Revenue so as to take a contrary view than the view taken by the CIT(A) on this issue. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals), Gurgaon is bad in law and wrong on facts to the extent as stated above. ITA No.5135/Del/2015 (By Revenue) 1. On the facts and circumstances of the case , the Ld.CIT(A) has erred in fact and in law Deleting the disallowance of ₹ 19,81,467/-made on account of interest component attributable to Capital Work-in Progress(CWIP) which is capital in nature. 2. On the facts and circumstances of the case, the Ld. CIT(A)has erred in law deleting the addition of ₹ 14,85,496 /-made on account of disallowances of software expenses ignoring the provision as contained in the Appendix of the Income Tax Rules , 1962 read with section 32 of the income Tax Act 1961 and AMC expenses of the case, which are part of Computer . 3. On the fact and circumstances of the case, the Ld CIT(A)has erred in fact and in law Deleting the disallowance of expenses / provisions of expense ₹ 5,35,66,302/-under the below mentioned heads:- a. Provision for disallowed material other than (RMC) ₹ 34,65,157/- b. Provision for disallowance other subcontractor works. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has substantial amount of own funds at its disposal which is much more than the CWIP. The Assessing Officer has not brought any nexus between the borrowed funds and the CWIP and, therefore, there can be no basis for disallowance of interest. Further, the Assessing Officer, in the subsequent two years, has not made any such addition. He accordingly deleted the disallowance made by the Assessing Officer. 5. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal. 6. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We find identical issue had come up before the Tribunal in assessee s own case in the immediately preceding assessment year and the Revenue, vide ITA No.5178/Del/2014 had raised the following grounds:- b. Disallowance of interest expenses on estimated rate of 12% amounting to ₹ 49,01,176/- on the ground that same pertains to Capital Work In Progress (CWIP) 7. We find, the Tribunal dismissed the ground raised by the Revenue by observing as under:- 7.0 Coming to ground nos. 2 and 3, it is seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en incurred on the items shown in CWIP. 7.4 Before proceedings further it would be proper to examine the business of the appellant company. The appellant is engaged into the business of construction as a Contractor. It has fixed assets in the share of plant and machinery, furniture and fixture etc., on 31st March 2009, to the tune of ₹ 292.62 Cr. Out of these total fixed assets of ₹ 298.24Cr. i.e. 2% of the total fixed assets appear as the closing capital work in progress. Moreover the closing CWIP at the end of the year is at ₹ 4,69,42,604/- as compare to ₹ 22,26,69,694/- at the start of the year. The appellant has a share capital and reserve worth ₹ 111,39,95,205/- there are secured loans of ₹ 213,62,47,973/- on which interest of ₹ 26,58,49,339/- was paid. As the company is into the business of construction as a contractor the plant and machinery is in the shape of steel shuttering, cranes, batching plant, generators etc. The appellant worked for different clients at different sites and for these purposes and the plant and machinery in the shape of cranes, batching plant etc. were deployed at several sites. The cranes, batching plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 Total 4,69,42,604 The above details makes it clear that the main part of CWIP represents expenditure incurred on cranes amounting to ₹ 4,37,38,406/- out of the total CWIP of ₹ 4,69,42,604/-. Similarly, there is an opening CWIP of ₹ 22,26,69,694/- as on 01.04.2008, and ₹ 1,65,12,229/- as on 31.03.2010. The above details makes it clear that the closing CWIP of ₹ 22,26,69,694/- standing in A.Y, 2008-09 has come down to ₹ 4,69,42,604/- in A.Y. 2009- 10 and ₹ 1,65,12,229/- in A.Y. 2010-11. The said details leaves no doubt that the time gap for putting CWIP into use is not more than one year in any case. The appellant has a net worth of ₹ 325.02 Crores against which there is a closing CWIP of ₹ 4.69 Crores. The AO while making disallowance of interest presumed that the borrowed funds were actually being used for purchasing items shown under the head CWIP. However, the AO has not brought anything on record to prove that there is a time gap of more than one year in capitalization of CWIP. On the other side, the appellant has stated that CWIP is merely 1.44% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 are rejected. 8. Since the facts of the impugned assessment year are identical to the facts of the immediately preceding assessment year, therefore, respectfully following the decision of the Tribunal in assessee s own case, we find no infirmity in the order of the CIT(A) on this issue. Accordingly, ground of appeal No.1 raised by the Revenue is dismissed. 9. Ground of appeal No.2 by the Revenue and all the grounds raised by the assessee relate to part relief granted by the CIT(A) on account of disallowance of software expenses. 10. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, noted that the assessee company has claimed software expenses amounting to ₹ 97,64,993/-. He, therefore, asked the assessee to explain the nature of software expenses and to explain as to why the same have not been capitalized. The assessee filed a reply, vide its letter dated 27.11.2012, which has been reproduced by the Assessing Officer in the body of the assessment order which reads as under:- it is submitted that there is all expenses are in nature of routine exp. Like licence fee, AMC, renewal fee of licences of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure incurred under various softwares was of recurring nature and no enduring benefit was derived. Relying on various decisions, it was argued that the action of the Assessing Officer is not correct. Based on the arguments advanced by the assessee, the ld.CIT(A) held that while the Assessing Officer erred in treating the AMC and consumables as capital expenditure, the treatment of licence fees in connection with software was rightly held to be of capital nature. 13. Aggrieved with such part relief granted by the CIT(A), the assessee as well as the Revenue are in appeal before the Tribunal. 14. We have heard the rival arguments made by both the sides and perused the orders of the authorities below. We find identical issue had come up before the Tribunal in assessee s own case for the immediately preceding assessment year. We find the Tribunal, vide ITA No.5178/Del/2014, order dated 27.11.2018, for assessment year 2009-10, while holding the software expenses as revenue in nature has observed as under:- 8.0 Ground no. 4 is on the issue of capitalization of software expenses to the extent of ₹ 65,70,768/-. The assessing officer was of the view that Software ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for renewal of licences, consumables etc. with a limited shelf life. The expenditure incurred on AMC is definitely only for one year and no enduring benefit can be derived there from. Similarly licence fees are being paid only for one year and no enduring benefit is being derived there from. As far as consumable items are concerned there are various software's purchased for different purposes and the warranty for these software's were not exceeding twelve months. As these items are not for any enduring benefit the entire expenditure cannot be treated as Capital Nature . The Hon'ble Delhi High Court in the case of CIT Vs. Amway India Enterprises (2012) 346 ITR 341 opined that expenditure incurred on purchase of software application and payment for consideration for acquiring licence to use those application would be allowed as revenue expenditure. Similarly, in the following cases it has been held that the expenses incurred for either upgrade the system or to run the system is allowable as revenue in nature. a) CIT Vs. Asahi India Safety Glass Ltd. (2012) 346 ITR 329 (Delhi) b) Chief CIT Vs. O.K. Play India Ltd. (2012) 346 ITR 57 ( P HS.37(1) c) CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g assessment year, therefore, respectfully following the decision of the Tribunal in assessee s own case, we hold that the AMC, consumables and the software expenses are revenue in nature. We, therefore, dismiss the ground raised by the revenue and allow the grounds raised by the assessee on this issue. Accordingly, ground No.2 raised by the Revenue is dismissed and the grounds raised by the assessee are allowed. 16. Now, we take up ground No.3 and 3.1 raised by the Revenue. 17. Facts of the case, in brief are that the Assessing Officer, during the course of assessment proceedings, observed that the assessee has claimed the following expenses/provision for expenses in its accounts, the details of which are as under:- Provision for disallowed material other than (RMC) ₹ 34,65,157/- Provision for disallowed other subcontractor works. ₹ 1,41,61,380/- Purchase Sundries ₹ 3,73,669/- Disallowed Administrative expenses ₹ 85,73,638/ Contractor / Subcontractor s Provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable. The assessee has also not led any argument/evidence to show that the provision for expenses was an ascertained liability duly certified/accepted by the clients to have been incurred at their instance. As such the allowability of these provisions is totally and completely unacceptable. e. Contractor/Subcontractors provisions to the tune of ₹ 2,69,92,558/- are unsubstantiated that liability to incur the same was crystallized during the year itself. The assessee has not led any evidence to show that these expenses were indeed incurred as a certainty/established liability duly certified and acknowledged by the clients. f. Reliance is placed on the rulings of the Apex Court in the following cases: Indian Molasses Co. (P) Ltd V. CIT (1959) 37ITR 66(SC) CIT V. Gemini Cashew Sales Corpn. (1967) 65ITR 643(SC) 5.4 In view of the detailed discussion in the preceding paras, it is clear that the expenses/provision for expenses are not allowable. Accordingly, an addition of ₹ 5,35,66,402/-is made on account of disallowance of expenses/provision for expenses. Penalty proceedings u/s 271(1)(c) are separately initiated for furnishing inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine each of these additions one by one:- (a) Provision for Disallowed Material other than RMC During the course of appellate proceedings, the appellant clarified that it was executing work in accordance with the 'Cost Plus' basis and under this system, the client was supposed to reimburse the appellant, all costs involved in execution of work on actual basis plus a certain percentage of margin as agreed in the Agreement. During cost verification, certain costs incurred by the appellant were objected to by the client. In response to this, the appellant submitted further details which could meet the client's objections in most of the cases. However, in some cases the clients could not be convinced resulting in their disallowance. This was an ongoing process. During the year under consideration, the appellant filed details of material other than RMC amounting to ₹ 1,51,49,135/- which were initially objected to by the client and after prolonged discussions with the client, an amount of ₹ 1,16,83,978/- was recovered and the resulting amount of ₹ 34,65,157/- was claimed as disallowed cost. The appellant hastened to add that though the material cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 3,73,669/-, it was stated that the same pertained to day to day routine expenses on purchase of small and petty items, like Chemical, Acid, Plastering Powder, Phenyl, Spare Parts, etc. used at different sites of the appellant. The expenditure was required to be incurred on routine basis for construction activities. Copy of ledger account with documentary evidence i.e. vouchers and bills were filed in support thereof. (e) Contractor / Sub-contractor Provision These were the provisions of sub-contractors and material for which works had already been executed / material procured. Further, corresponding revenue had also been provided against the said provisions in its profit and loss account under the head 'Construction Project Revenue' which represented work executed but remained uncertified at the end of the year. The appellant submitted that, the said amount had been taxed twice/meaning thereby, that the amount was already included in the income as Unbilled Revenue under the head 'Construction Project Revenue' and at the same time, it was disallowed by the Assessing Officer without giving deductions of the said amount. The AO disallowed the same due to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs were subsequently allowed by the client, the same were credited and reduced from expenses. The basis issue is once having incurred certain expenses and considered the same as revenue on cost plus basis, how can the appellant be denied to claim that portion of cost, not allowed by the client. (2)A mere disallowance of cost by the appellant's client does not mean that the expenditure was not incurred by the appellant for business purposes or it was an in genuine business expenditure. In support of incurring of the said expenditure, the appellant filed copies of Journal Vouchers in which the description of the invoices received by the appellant from its Sub Contractor / material supplier or any other services provided to the appellant for appellant's client were provided. The correspondence for disallowance of cost was also filed by the appellant during the course of appellate proceedings and it was clarified that all the payments to material suppliers / Sub contractors or in relation to administrative cost had been made through banking channel and due care of all statutory compliances had been made by the appellant. In cases where TDS was applicable, the appellant de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w these costs were in genuine or inflated when the appellant had actually incurred these expenses. Similarly, in case of disallowance of Sub- Contractor Cost, the figures of disallowances were, for instance, of ₹ 477/-, ₹ 2589/-, ₹ 3803/-, ₹ 3,45,738/-, ₹ 3,48,424/-, ₹ 2,88,910/- etc. (5)The AO further stated while making disallowance that the disallowed cost was in the nature of contingent expenditure. She also stated that no evidences were filed to show that provisions of expenses was an ascertained liability duly certified / accepted by the client to have been incurred at their insistence. In this regard, I tried to ascertain whether the provisions for disallowed material / Sub contractor and administrative expenses were in the nature of Provisions . It was observed that Provisions were shown by the appellant in its Balance Sheet under the heading Current Liabilities Provisions and an amount of ₹ 15.21 crores had been shown under this head. The break-up of provisions was given in Schedule-10 of the Balance Sheet which reads as under:- Provisions for Leave Encashment ₹ 1.66 Crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed out of which, a sum of ₹ 2,65,43,073 had been justified and balance remained as disallowed amounting to ₹ 2,62,00,175.The AO disallowed the said amount. Since the appellant had taken the disallowed amount as its income and even added profit margin to it, its claim as a deduction on account of its disallowance by the client is nothing but a deduction on account of Bad debt. As per the Provisions of Section 36(l)(vii) of the Income Tax Act, 1961 which reads as under:- 36. Other deductions:- (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-... (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. This position in law is well-settled, After April 1, 1989, it is not necessary for the appellant to establish that the debt, in fact, had become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the books of account of the appellant. In the case of the appellant, an amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses to the extent of supporting details furnished, and disallowed a sum of ₹ 2,69,92,558, comprising various amounts for which details could have been furnished at the assessment stage. The appellant during the course of appellate proceedings filed complete documentary evidence of Contractor Provision of ₹ 2,69,92,558/-. The same was sent to the AO for his counter comments and the AO, vide his remand report dated 02.03.2015 inquired into the said expenditure and did not give any adverse comment. It may be pertinent to mention that in earlier years as well as in the subsequent year, the Assessing Officer, considering the appellant's submissions and details/bills, supporting vouchers/documents etc, did not make any disallowance on this issue while completing the assessment u/s 143(3) of the Act. Even during the year under consideration, on submission of evidence and bills and other documents relating to this issue, the Assessing Officer allowed an amount of ₹ 14,13,01,716 and balance ₹ 2,69,92,558, for which bills/evidence were not submitted before the Assessing Officer had been disallowed by her. Thus, after the submission of bills of the remaining am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer. Even the complete documentary evidence filed before him which were forwarded to the Assessing Officer for his counter comments remained unattended by the Assessing Officer in the sense he did not give any adverse comment against the same. Since the ld.CIT(A) while deleting the disallowance has passed a speaking order by giving detailed reasons which could not be controverted by the ld. DR, therefore, we find no infirmity in the order of the CIT(A) deleting such addition. No distinguishable feature was brought to our notice by the Revenue so as to take a contrary view than the view taken by the CIT(A) on this issue. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds raised by the Revenue are dismissed. ITA No.2595/Del/2016 (A.Y. 2011-12) (By Assessee) 21. The grounds raised by the assessee are as under:- 1. That on the facts and in the circumstances of the case, the learned Commissioner of Income-tax(Appeals) erred in holding and treating the expenditure on software as Capital in nature in place of Revenue claimed by the appellant amounting to ₹ 42,04,644. The expenditure on software was incurred on payment of Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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