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TMI Blog2017 (5) TMI 1826X X X X Extracts X X X X X X X X Extracts X X X X ..... cal to the grievance raised in ground no. 2 in ITA No. 2463/Ahd/2013. The relevant finding of the Co-ordinate Bench reads as under:- 9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present is whether the software expenses are allowable are Revenue expenses. We find that the ld. CIT(A) while deciding the issue has noted that identical facts arose in assessee's own case in AY 2007-08. He thereafter following the decision of his predecessor, decided the issue against the assessee. We find that against the order of ld. CIT(A) for AY 07-08 the matter was carried before the Coordinate Bench of Tribunal (ITAT "B" Bench Ahmedabad). The Coordinate Bench of Tribunal vide order dated 02/05/2016 decided the issue in favour of assessee by observing as under:- "8. We have heard the rival contentions and perused the material on record. The sole grievance of the assessee in this appeal is against the action of the ld. CIT(A) in treating the expenditure of Rs. 35,30,328/- towards purchasing and upgrading software as capital expenditure which has been claimed by the assessee as revenue exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation @60% and granted depreciation of Rs. 5,24,091/- and thereby made a disallowance of Rs. 3,49,384/-. In the present case, the incurring of expenses has not been disputed by the Revenue. It is also a fact that the matter pertains to AY 2006-07 and if the impugned expenses is considered to be capital expenditure, the Assessee will have to be granted depreciation @ 60% on WDV basis in A.Y. 06-07 and also in subsequent years. The depreciation of WDV for subsequent years will work out to Rs. 2,09,630/- (for A.Y.07-08), Rs. 83,854 (for A.Y. 08-09), Rs. 33,542(for A.Y. 09-10) and so on. Considering the totality of the facts, the total taxable income of Rs. 35.85 crore as determined by the AO, the changes that would be required to be made in subsequent assessments orders if the depreciation is to be allowed in all subsequent years and the peculiar facts of the case, we are of the view that the claim of the assessee be allowed in the present case. We may however add that the allowance of the expenditure in the present case should not be considered as a precedence for allowance of the expenditure. Thus these grounds of the Assessee are allowed." 10. We further observe that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal rightly came to the conclusion that none of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. The Tribunal classified the said expenses as being recurring in nature to upgrade and/or to run the system. [Para 9.1] In the background of the aforementioned findings, it cannot be said that the expenses brought about in an enduring benefit to the assessee. The Assessing Officer was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (assessment year 1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of Rs. 150 crores and that even without this expenditure it would have continued to achieve the said turnover, though the expenditure in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the Assessing Officer in support of its order is flawed and, hence, it would have to be reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software I applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The Assessing Officer has erred precisely for these very reasons. [Para 12] The contention of the revenue that in the books of account, the assessee had not written off the expense in issue, while in the succeeding assessment year only a part of the expense had been written off and, therefore, the assessee's own understanding of the nature of the expense involved was that it was expended on capital account is be rejected. The reason being: that the treatment of a particular expense or a provision in the books of account can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich could prove of bringing any new asset into existence or that the expenditure was towards replacement of existing assets. Before us, Revenue has not brought any material on record to point out any fallacy in the finding of ld. CIT(A). In view of the aforesaid facts, we see no reason to interfere with the order of ld. CIT(A) and thus this ground of Revenue is dismissed. 6. As no distinguishing decision has been brought on record before us, respectfully following the findings of the Co-ordinate Bench (supra), we decline to interfere. Ground no. 3 is dismissed. 7. Coming to the grievance raised vide ground no. 2 of the appeal, we find that during the course of the assessment proceedings, the A.O. noticed that the assessee has debited expenses of Rs. 17,11,387/- as Clearing and Forwarding charges on export. The A.O. noticed that the assessee has not deducted tax at source on these payments. The assessee was asked to show cause why the payments made to clearing & forwarding charges agents should not be disallowed u/s. 40(a)(ia) of the Act. Assessee challenged the proposed disallowance by the A.O. on the ground that the payments are nothing but reimbursement charges and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a belief that the loan has been taken from a related party. The guarantee has also been supplied by a related party and there is no evidence to third parties also insisting on guarantee for giving loan to the assessee. As the assessee had sufficient reserves as well as assets to support the loan and collateral guarantee was neither needed nor demanded. The A.O. accordingly proposed a downward adjustment in the payment of guarantee to the extent of Rs. 23,51,667/-. Taking a leaf out of the findings of the TPO, the A.O. made the disallowance of Rs. 23,51,667/-. 14. Assessee assailed the findings of the A.O. before the ld. CIT(A). 15. After considering the facts and the submissions, the ld. CIT(A) observed that in the earlier assessment year also similar transaction was there with the AE and was part of Transfer Pricing records which has not been controverted by the A.O./TPO and since on similar facts, no adjustment was made in the earlier assessment year, following the rule of consistency, such adjustment cannot be made in the current assessment year also. 16. Before us, the ld. D.R. strongly supported the findings of the A.O./TPO. Per contra, the ld. Counsel for the assessee re ..... 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