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TMI Blog2023 (6) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... written off by the virtue of the Circular No. 69 dt. 27-07-2011 issued by RBI. 4. The Ld. CIT(A) ought to have appreciated the fact that the appellant had, as per the FEMA regulations, obtained the permission from RBI to convert the outstanding amount into equity and thereafter, the Investments were written off by virtue of the Circular No. 69 dt. 27-07 2011 of the RBI. 5. The Ld. CIT(A) ought to have accepted the claim of deduction of Investments written off of Rs.3,60,72,141/- since the amount was originally offered as income, and non-receipt of the same is eligible deduction u/s 37(1) of the I.T. Act, 1961 for assessment year 2011-12. 6. The Ld. CIT(A) ought to have appreciated RBI circular No.69 dated 27th May 2011 which says: "the Reserve Bank of India has allowed wholly owned subsidiaries to write off the investments made in their overseas subsidiaries. " 7. The Ld. Assessing Officer ought to have accepted the "Investments written off of Rs.3,60,72,141/- as allowable deduction u/s 37 of the Act for this year under consideration keeping in view the decision of Hon'ble ITAT, 'C Bench, Mumbai in the case of DCIT, Range - Palmolive 10(3), Mumbai vs. Colgate In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer rejected the explanation given by the assessee on the ground that the investment is made with an intention of getting enduring benefit therefore, it is a capital investment. Therefore, the investment written off has to be treated as capital loss which is not an allowable expenditure. He accordingly disallowed an amount of Rs.3,60,72,141/- u/s 37 of the I.T. Act. 6. In appeal, the learned CIT (A) upheld the action of the Assessing Officer by observing as under: "5.2.1 As observed earlier, during the course of assessment proceedings, the Assessing Officer observed that an amount of Rs.3,60,72,141/- was debited to the P&L A/c as "Investments written off". In respect of this write-off, the assessee submitted that the said investments were in it's wholly owned subsidiary companies and therefore is an allowable business expenditure. The AO held that the said investments were made with an intention of getting an enduring benefit and therefore, is capital in nature. Accordingly, AO treated the said write-off as a capital loss and disallowed the same. 5.2.2 From the assessment order, it is apparent that the appellant did not make much effort to explain to the AO it's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en no request made by the appellant in course of the appellate proceedings for admission of such details/documents as additional evidence. 5.2.4 Since the issue involved is identical which has been decided by the CIT(A) for AY 2009-10, therefore following the same, for the year under consideration, the action of the AO of not allowing the appellant's claim of write off of investment of Rs. 3,60,72,141/- in respect of two of the subsidiaries, M/s Cybermate Infotek Ltd. Inc, USA and M/s Cybermate Infotek Ltd. FZE, UAE, is upheld. Accordingly, the said Grounds of appeal raised by the appellant, are dismissed". 7. Aggrieved with such order of the learned CIT (A) the assessee is in appeal before the Tribunal. 8. The learned Counsel for the assessee strongly objected to the order of the learned CIT (A)-NFAC in confirming the disallowance of Rs. 3,60,72,141/- made by the Assessing Officer treating the investment written off as capital loss as against revenue loss treated by the assessee. Referring to page 50 to 59 of the paper book, he drew the attention of the Bench to the copy of RBI approval for opening foreign subsidiary. Referring to page 60 of the paper book, he drew the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision has held that finances made by the assessee company to managed company were part of or incidental to carrying on of business by assessee company as managing agents and, if as result of managed company having gone into liquidation, advances became irrecoverable, ,loss would have to be regarded as trading loss. 13. Referring to the order of the Tribunal for the A.Y 2009- 10 vide ITA No.474/Hyd/2014 & ITA 631/Hyd/2014 dated 17.4.2015, he submitted that identical issue had come up before the Tribunal in assessee's own case and the Tribunal had restored the issue to the file of the Assessing Officer. However, the Assessing Officer has not yet passed the order. He submitted that for the impugned A.Y details were given and available. Therefore, in view of the decision of the Hon'ble Bombay High Court and the Hon'ble Supreme Court the investment written off amounting to Rs. 3,60,72,141/- has to be allowed as a revenue expenditure. 14. The learned DR, on the other hand, strongly supported the order of the learned CIT (A). He submitted that before the learned CIT (A), the assessee has submitted certain details which were never produced before the Assessing Officer to support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e third party to the subsidiary, under the FEMA regulations permission of the RBI was obtained to convert the outstanding amount into equity. Later on in view of the RBI's circular No.69 dt. 25-07-2011, 22.5% of the amount invested was written-off during the year. Since the amount was originally offered as income, non-receipt of the same was eligible as deduction u/s.37(1). After obtaining the Remand Report from the AO and also noted down the amounts remitted and capitalization of receivables, Ld. CIT(A) concluded that the write-off does not satisfy the conditions prescribed. Before us, Ld. AR filed various annual reports in support that the amount was originally offered as income and receivable from subsidiary was converted to equity, in view of the FEMA provisions, and then by virtue of RBI circular written-off the amount. Since the amount was originally offered as income, subsequent write-off is allowable as revenue expenditure, it was contended. 5.1. Without going into the merits of the claim, we are of the opinion that this claim also requires re-examination. Assessee's claim that amounts are originally offered as income, subsequently converted to equity of the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee amounting to Rs.9,02,037/-. 19. In appeal, the learned CIT (A) NFAC upheld the action of the Assessing Officer by observing as under: "5.3.1 As mentioned earlier, in the course of the assessment proceedings, the AO observed that the assessee has claimed expenditure of Rs.9,02,037/- on account of Software Purchases'. The assessee contended that the software purchases are in respect of annual software subscription and therefore is allowable as a revenue expenditure. However, the assessee failed to produce the bills/invoices etc in respect of these software purchases. In absence of bills / invoices etc, the assessee could not establish that the said expenditure incurred on software purchases of Rs.9,02,037/-, is revenue in nature. Therefore, the AO proceeded to disallow the same and add it to the total income of the assessee. 5.3.1 In course of the appellate proceedings, the appellant claimed that the supporting bills/vouchers in respect of the said software purchases were submitted to the AO in the course of the assessment proceedings. However, the AO has categorically mentioned in the assessment order that these supporting evidences were not produced. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the head software purchase on the ground that the assessee did not file the relevant bills/invoices of the items for which it pertains. He, therefore, treated the purchase of software as capital expenditure and disallowed the same u/s 37 of the I.T. Act. We find the learned CIT (A) sustained the disallowance made by the Assessing Officer, the reasons of which have already been reproduced in the preceding paragraphs. From the paper book filed by the assessee, we find the assessee, vide letter dated 23.11.2013, had filed the details of software purchases of Rs.9,02,037/-, the details of which are as under: 25. When the learned DR was asked to verify from the assessment record as to whether the above letter was available in the assessment record along with invoices, the learned DR after verification of the assessment record which was available at the time of hearing before us, fairly conceded that such bills are available in the assessment record. He however, submitted that due to work pressure, the Assessing Officer might have missed out on this while drafting the order. This type of conduct by the Assessing Officer has to be deprecated since the assessee has filed relevant detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [TCA Nos. 73 & 74 of 2011, dated 27-ll-2018] wherein the Court, apart from taking note of decision in Alembic Chemicals Works Co. Ltd. case (supra) noted the decision in CIT v. Southern Roadways Ltd. 2007] 158 Tax1man 1(Mad.) and decided the substantial questions of law in favour of the assessee by treating the expenses incurred in developing/upgrading the software to be revenue expenditure. 12. In the light of the above discussions, we hold that the Tribunal was right in dismissing these appeals filed by the revenue. In the result, the Tax Case Appeals are dismissed and the substantial questions of law are answered against the Revenue. No costs. Consequently, connected Miscellaneous Petitions are closed". 26. The various other decisions relied on by the learned Counsel for the assessee also support his case to the proposition that the expenditure towards software license is revenue expenditure in nature. Since the assessee in the instant case has filed all the relevant details along with supporting bills/invoices, during the assessment proceedings itself, therefore, respectfully following the decision of the Hon'ble Madras High Court in the case of CIT vs. Danfos Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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