9911796707
TMI Blog2023 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has also observed that while the IS Service Agreement was executed on 14.10.2011, the expenses claimed pertain to period prior to execution of the IS Service Agreement (as can be seen from the invoice date). In view of the aforesaid, we deem it appropriate back to the file of Assessing Officer for de-novo adjudication after giving the Appellant an opportunity of being heard. Ground No. 2 raised by the Appellant is treated as allowed for statistical purposes. Disallowance of expenditure incurred on travelling conveyance AND disallowance of expenditure incurred on legal professional fees - HELD THAT:- The primary evidence in support of incurring the expenditure was placed before the CIT(A) as additional evidence. Perusal of record shows that the Appellant was also not called upon by the Assessing Officer to submit more/additional invoices in support of the claim. The reason for concluding that the Appellant was not able to support the claim with evidence was that the Appellant did not furnish party-wise details and/or failed to co-relate the expenses debited to Profit Loss Account. We are not inclined to accept the aforesaid approach adopted by the CIT(A)/Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as the CIT(A) ] for the Assessment Year 2011-12, whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 26.03.2015, passed under Section 143(3) read with Section 94CA(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The Appellant has raised following grounds of appeal: Ground No. 1: Assessing the total income of the Appellant at Rs. 27,36,18,810 as against income of Rs. 22,55,54,223 On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income Tax -(Appeals) [CIT(A)] erred in computing the total income of the Appellant at Rs. 27,36,18,810 as against Rs. 22,55.54,223 as declared by the Appellant in its return of income. 2. Ground No. 2: Capitalization of software charges amounting to Rs. 5,52,26,376 debited to Profit and Loss account On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the disallowance made by the Assessing Officer (AO) in relation to recurring software expenses of Rs. 5,52,26,376 debited to Profit and Loss account holding the same to be capital in nature. The Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AO be directed to set aside the penalty proceedings initiated under section 271(1)(c) of the Act. 3. Brief facts of the case are that the Appellant is a company engaged in the business of manufacture of flavors fragrances. The Appellant filed return of income on 30.11.2011 declaring total income of INR 22,55,54,223/-. The return was selected for scrutiny. In reference made under Section 92CA(1) of the Act, the Transfer Pricing Officer accepted the international transactions undertaken by the Appellant with the Associated Enterprises to be at arm's length. The assessment was thereafter completed under section 143(3) read with section 94CA(4) of the Act vide Assessment Order, dated 26.03.2015. The Assessing Officer made following additions/disallowance (i) disallowed Software Charges of INR 3,86,58,463/- and capitalized the same (ii) disallowed expenses amounting to INR 90,32,800/- under heads of travelling and conveyance and legal and professional fees, and (iii) disallowed interest expense of INR 3,73,326/-, and capitalized the same by adding the same to capital work-in-progress. The aforesaid additions/disallowances were also sustained by the CIT(A) and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided any description in respect of the expenses incurred by them. Further, the software was purchased by the parent company of the appellant and was transferred to the appellant which could not fulfill the condition that, any technical support was provided by the parent company pay recurring services were provided. 4.2.6 It is also pertinent to mention herein that the agreement submitted by the appellant does not contain the details of first two invoices, which were considered as revenue expenditure by the appellant. Further, the appellant was previously using different types of software's and replaced all by one software which was purchased from the parent company which clearly states that the said software was not for a year or two, it would be definitely for several years. Accordingly, the AO has correctly considered the expenditure incurred by the appellant in respect of software expenses as capital expenditure. Hence, this ground of appeal is dismissed. 8. Being aggrieved, the Appellant is now in appeal before us challenging the order passed by CIT(A). 9. Ld. Authorised Representative for the Appellant had contended that the Appellant had been using Orac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of recurring services with Schedule A providing details of Recurrent Services Fee. Schedule B of the IS Service Agreement provided details of Specific Service Fee. The Appellant has also placed on record invoice dated 21.05.2010 (CHF 269,213), 31.07.2010 (USD 14,416), 30.04.2011 (USD 1,267,907.94) and 30.04.2011 (USD 1,038,336.64). Perusal of the details placed at page 68 and 69 of the paper book show that the Appellant has been charged distinction between Specific Services Fee and Recurrent Services Fee. The same also give details of estimated cost as well the allocation key. However, the report of the external auditor furnished by the Appellant, which also gives details of allocation on the basis of allocation keys, has been issued on 15.02.2013 and covers period starting from 01.07.2011 to 30.06.2012 and therefore, does not cover the relevant previous year. The Appellant has also furnished the details of software licenses utilized by the Appellant (placed at page 62 and 63 of the paper book) in respect of which the Appellant has been re-billed . The facts that the aforesaid documents/details were filed before the Assessing Officer/CIT(A) has not been disputed by the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess travelling conveyance expenses, and legal professional fee, respectively. An aggregate disallowance of INR 90,32,800/- was made by the Assessing Officer. 15. Being aggrieved, the Appellant preferred appeal before the CIT(A) on this issue. 16. The Appellant moved Application for Additional Evidence under Rule 46A of the Income Tax Rules, 1962. It was submitted that the Appellant was prevented from submitting the additional evidence as the Appellant had changed the accounting software and for the reason that the Appellant was not put to notice. The additional evidence filed by the Appellant was sent to the Assessing Officer for remand report. The Assessing Officer submitted remand report, dated 18.10.2018 and in response to the same the Appellant filed letter, dated 25.01.2019. After taking into consideration the remand report and their response received to the Appellant, the CIT(A) confirmed the order passed by Assessing Officer holding that despite reasonable opportunity having been granted, the Appellant has failed to substantiate the expenses in the remand proceedings. There was huge increase in expenses as compared to the revenues for which no supporting docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the CIT(A) and Assessing Officer (in remand proceedings) neither pointed out any infirmity in the same nor the necessity of the detailed break-up asked for by the Assessing Officer. The quantum of disallowance was also computed by the Assessing Officer on ad-hoc basis. In view of the aforesaid, we delete the addition of INR 90,32,800/- made by the Assessing Officer. Ground No. 3 4 raised by the Appellant are allowed. Ground No. 5 19. Ground No. 5 relates to disallowance of interest amounting to INR 3,73,326/- relating to Capital Work in Progress (CWIP). 20. During the assessment proceedings, the Assessing Officer vide letter, dated 13.02.2015, asked the Appellant to furnished the details of capital work-in-progress and state whether any interest expenditure was capitalized. According to the Assessing Officer, no response was received from the Appellant in this regard and therefore, the Assessing Officer presumed that no interest was capitalized as part of work-in-progress. Therefore, after making an observation to the effect that the Appellant had, both, borrowed as well as own funds, and had incurred expenditure for capital work-in-progress out of both, the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the purpose and not the actual utilization of the loan amount. The contention of the Appellant is that the interest bearing funds were taken as well as utilized for the working capital requirements. Therefore, the disallowance been made by the Assessing Officer was based on incorrect premise that the same have been used for the purpose of capital work-in-progress and therefore, the same must be deleted. We note that the Appellant had furnished the relevant working capital credit facility agreement and the ledger account showing payment of interest. Further, in the submission filed before CIT(A), the Appellant had contended that the Appellant had own funds of INR 59,38,43,000/- whereas increase in capital work-in-progress is INR 1,59,30,000/-. It is not the case of Revenue that the Appellant did not have sufficient own funds. To the contrary the Assessing Officer had clearly stated that the Appellant also had own funds but proceeds to make disallowance on the presumption that, both, borrowed funds and own funds have been used. The Appellant has furnished the relevant working capital facility agreements and ledger account to show that the unsecured loans were for working capital, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
