Case Law Details
DCIT Vs Yazdani International Pvt Ltd (ITAT Cuttack)
ITAT Cuttack that expenditure towards various computer software and stationary and the expenditure towards upgradation of software for filing of return before the ROC and website design is revenue in nature and hence allowable.
Facts- The revenue has challenged the action of CIT(A) in deleting the addition of Rs.2,12,51,123/- representing the amount of 1,78,30,659/- towards the cost price of shortage in quantity of iron ore fines and Rs.33,95,089/- towards cost price of iron ore fines, for which the assessee could not produce Form-1.
Revenue also challenged the action of CIT(A) in deleting the addition of Rs. 2,27,557/- which was added by revenue on the ground that software development expense is capital in nature.
Conclusion- Held that the demand note was raised for the violation of terms and conditions of the license. The license is a contract, violation of the contract does not lead to levy of penalty, but leads to claim of compensation. The fact that these amounts have been paid as compensation clearly shows that these are business expenditure and ld CIT(A) is right in law and facts in deleting the addition. Ground No.1 thus stands dismissed.
Held that expenditure incurred in respect of various computer software and stationary and the expenditure towards upgradation of software for filing of return before the ROC and website design is revenue in nature and hence allowable.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
This is an appeal filed by the revenue against the order dated 26.5.2016 of the ld CIT(A)-1 , Bhubaneswar in Appeal No.0041/15-16 for the assessment year 2012-13. The assessee has filed cross objection in the appeal filed by the revenue.
2. Shri Sunil Mishra, ld AR appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue.
3. It was submitted by ld CIT DR that in Ground No.1, the revenue has challenged the action of the ld CIT(A) in deleting the addition of Rs.2,12,51,123/- representing the amount of 1,78,30,659/- towards the cost price of shortage in quantity of iron ore fines and Rs.33,95,089/- towards cost price of iron ore fines, for which the assessee could not produce Form-1. It was the submission that these two payments though admittedly paid to the Government agencies but in the nature of penalty. It was the submission that a perusal of the order of the Deputy Director, Mines, Jajpur Road Circle, Jajpur shows that these amounts were paid though claimed as the cost price but has resulted in the suspension of the license of the assessee for usage for the plot No.G8, Paradeep Port Area. It was the submission that the ld CIT(A) had deleted the addition on the ground the payment had been made to the Government Agency and that the same could not be treated as bogus expenditure as claimed by the Assessing Officer. The ld CIT(A) has also taken the stand that the payment has been made through banking channel. He submitted that the order of the ld CIT(A) be reversed as the payment was in the nature of penalty.
4. In reply, ld AR supported the order of the ld CIT(A).
5. We have considered the rival submissions. A perusal of the facts of the case clearly shows that the amounts have been charged to the assessee by the DDM, Jajpur Road Circle, Jajpur on account of shortage of iron ore fines at the time of physical The said demand note categorically specifies that the amounts directed towards cost price for the shortage in the quantity of iron ore fines. The order has been passed as per Orissa Minerals (Prevention of theft, smuggling & illegal Mining and Regulation of Possession, Storage, Trading & Transportation) Rules, 2007. There is no word of penalty being used in the said demand note. The demand note was raised for the violation of terms and conditions of the license. The license is a contract, violation of the contract does not lead to levy of penalty, but leads to claim of compensation. The fact that these amounts have been paid as compensation clearly shows that these are business expenditure and ld CIT(A) is right in law and facts in deleting the addition. Ground No.1 thus stands dismissed.
6. In regard to Ground No.2, ld CIT DR submitted that the assessee has claimed expenditure of Rs.7,68,215/- under the head “donation and subscription”. It was the submission that the ld CIT(A) has erroneously granted 50% deduction. Ld CIT DR drew our attention to page 16 of PB, which clearly showed that out of Rs.7,68,215/-, an amount of Rs.7,51,000/- was clearly donation given to various organizations. The said page at page 16 is ledger copy representing donation and It was the submission that the order of the ld CIT(A) on this issue may be modified to make the disallowance of Rs.7,51,0000/-.
7. In reply, ld AR supported the order of the ld CIT(A).
8. We have considered the rival submissions. A perusal of page 16 of PB which is filed by the assessee is the ledger copy, which clearly shows that the ledger itself shows donation to the extent of Rs.7,51,000/-. The balance expenditures are in respect of various expenses in regard to each of the sites maintained by the assessee. As the donations paid by the assessee to the various organization are not supported by certificate for exemption u/s. 80G, we are of the view that the order of the ld CIT(A) is liable to be modified to increase the disallowance of Rs.7,51,000/- from the amount of Rs.3,84,108/- as confirmed by the ld CIT(A). Ground No.2 of the revenue is partly allowed.
9. In regard to Ground No.3, ld CIT DR submitted that the Assessing Officer had disallowed Rs.2,27,557/- representing the software development expenses on the ground that the said expenditure was capital in nature. It was the submission that the ld CIT(A) has deleted the addition holding the same to be revenue in nature. He submitted that the order of the ld CIT(A) be reversed.
10. In reply, ld AR drew our attention to pages 17 to 19 of PB, which was the ledger account in respect of computer software and stationary. It was the submission that the said expenditure was in respect of various computer software and stationary and the expenditure of Rs.21,950/- towards upgradation of software for filing of return before the ROC and website design. It was the prayer that the order of the ld CIT(A) be confirmed.
11. We have considered the rival submissions. A perusal of the ledger account clearly shows that the expenditure incurred towards computer software and stationary which are nothing but revenue in nature. This being so, the findings of the ld CIT(A) are confirmed and ground of the revenue stands dismissed.
12. Ground Nos.4 & 5 are general in nature.
13. In respect of cross objection filed by the assessee, the only ground against the order of the ld CIT(A) in restricting the disallowance under the head “donation and subscription” of 3,84,108/-. As we have already decided the ground No.2 of the revenue, wherein, the disallowance as reduced by the ld CIT(A) has been enhanced to Rs.7,51,000/- against the disallowance made by the AO Rs.7,68,215/-, the cross objection filed by the assessee does not survive and consequent, same is dismissed.
14. In the result, appeal of the revenue stands partly allowed and cross objection of the assessee stands dismissed.
Order dictated and pronounced in the open court on 29/12/2022.
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