DCIT 8(1), MUMBAI v. APATECH LTD, MUMBAI

ITA 1228/MUM/2013 | 2008-2009
Pronouncement Date: 06-10-2016 | Result: Allowed

Appeal Details

RSA Number 122819914 RSA 2013
Assessee PAN AADCA0602L
Bench Mumbai
Appeal Number ITA 1228/MUM/2013
Duration Of Justice 3 year(s) 7 month(s) 24 day(s)
Appellant DCIT 8(1), MUMBAI
Respondent APATECH LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 06-10-2016
Appeal Filed By Department
Order Result Allowed
Bench Allotted A
Tribunal Order Date 06-10-2016
Date Of Final Hearing 13-05-2015
Next Hearing Date 13-05-2015
Assessment Year 2008-2009
Appeal Filed On 12-02-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE HONBLE S/SHRI JOGINDER SINGH (JM) AND RAJESH KUMAR ( AM ) ./ I.T.A. NO . 946 AND 723 / MUM/20 1 3 ( / ASSESSMENT YEAR : 200 7 - 08 AND 2008 - 09 ) M/S APTECH LIMITED A - 65 MIDC MAROL ANDHERI (E) MUMBAI - 400093 / VS. DY.COMMISSIONER OF INCOME TAX 8(1) R NO.260 - C 2 ND FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPO NDENT ) ./ I.T.A. NO .1227 AND 1228 / MUM/20 13 ( / ASSESSMENT YEAR : 2007 - 08 AND 2008 - 09 ) DY.COMMISSIONER OF INCOME TAX 8(1) R NO.260 - C 2 ND FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI - 400020 / VS. M/S APTECH LIMITE D A - 65 MIDC MAROL ANDHERI (E) MUMBAI - 400093 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .1271/ MUM/20 14 ( / ASSESSMENT YEAR : 2009 - 10 ) M/S APTECH LIMITED A - 65 MIDC MAROL ANDHERI (E) MUMBAI - 400093 / VS. DY.COMMISSIONER OF INCOME TAX 8(1) R NO.260 - C 2 ND FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO . 2003 / MUM/20 1 4 ( / AS SESSMENT YEAR : 200 9 - 10 ) ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 2 DY.COMMISSIONER OF INCOME TAX 8(1) R NO.260 - C 2 ND FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI - 400020 / VS. M/S APTECH LIMITED A - 65 MIDC MAROL ANDHERI (E) MUMBAI - 400093 ( / APPELLANT ) .. ( / RESPON DENT ) ./ ./PAN. : AADCA06 0 2 L / A SSESSEE BY: SHRI S C TIWARI AND RUTUJA N PAWAR / RESPONDENT BY SHRI A RAMCHANDRAN / DATE OF HEARING : 2 6 .7. 201 6 / DATE OF PRONOUNCEMENT : 6. 10 . 2016 / O R D E R PER RAJESH KUMAR ACCOUNTANT MEMBER : THESE ARE SIX CROSS - APPEALS FILED BY THE RESPECTIVE PARTIES. CROSS - APPEALS FOR THE ASSESSMENT YEAR S 2007 - 08 AND 2008 - 09 ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) - 16 DATED 16.11.2012. THE CROSS - APPEALS FOR THE ASSESSMENT YEAR 2009 - 10 ARE DIRECTED AGAINST THE ORDER DATED 24/12/2013 PASSED BY THE LD.CIT(A) - 16. SINCE THE APPEALS BEFORE US RELATE TO THE SAME ASSESSEE THEREF ORE FOR THE SAKE OF CONVENIENCE THEY ARE CLUBBED TOGETHER HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER . 2. I.T.A. NO.946/MUM/2013 (BY ASSESSEE) GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED BELOW : 1.1 ON FACTS AND IN TH E CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW A ND ON FACTS IN UPHOLDING THE CONTENTION OF THE LEARNED ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 3 ASSESSING OFFICER THAT T HE COURS E WARE OF RS.5 02 29 679/ - IS NOT ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60% . 1.2 ON FACTS AND IN THE CI RCUMSTANCES OF THE CASE. THE LEARNED CIT(A) ERRED IN LAW A ND ON FACTS IN UPHOLDING THE CONTENTION OF THE LEARNED ASSESSING OFFICER THAT T HE COURS E WAR E IS ELIGIBLE F OR DEPRECIATION @ 15%. 1 .3 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A ) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.1 67 76 003/ - MADE BY THE LEARN ED ASSESSING OFFICER BEING 20% OR FULL DEPRECIATION OF RS. 8 38 80 014/ - CLAIMED ON COMPUTERS SOFTWARE AND COURS E WAR E AS DEPRECIATION ATTRIBUTABLE TO COURSE WAR E. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED C IT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF 10% OF RS.1 04 80 500/ - I.E RS. 10 48 050 / - MADE BY THE LEARNED ASSESSING OFFICER OF EXPENSES INCURRED ON A CCOUNT OF LUCK NOW SCHOOL PROJECT 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) (A) ERRED IN LAW AR E ON F ACTS IN UPHOLDING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER OF ESOP CHARGES OF RS.11 06 563/ - 4. ON FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE LEARNED CIT(A) ON FACTS IN UPHOLDING THE DISALLOWANCE BY THE LEARNED ASSESSING OFFICER U/S 40(A)(IA) OR THE ACT OR HIRE CHARGES TO THE EXTENT OR RS .4 46 593/ - . 5. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) E RRED IN LAW A ND ON FACTS IN UPHOLDING THE DISALLOWANCE BY THE LEARNED ASSESSING OFFICER OF PROVISION OF REBATE AMOUNTING TO RS.2 50 00 00 0/ - . 6. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW A ND ON FACTS IN UPHOLDING THE DISALLOWANCE BY THE LEARNED ASSESSING OFFICER OF PROVISION FOR LEAVE ENCASHMENT TO THE EXTENT OF RS.19 00 418/ - (RS .40 71 369/ - BEING DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY CIT(A) LESS RS.21.70 951 / 70 BEING THE LEAVE ENCASHMENT ACTUALLY PAID BY THE APPELLANT DURING THE YEAR AND DIRECTED BY THE CJT(A) TO LEARNED ASSESSING OFFICE R TO VERIFY AND ALLOW THE CLAIM TO SUCH EXTENT.) 7.1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UP HOLDING THE CONTENTION OR THE LEARNED ASSESSING OFFICER TH AT DISALLOWANCE U/S 14 A OF THE ACT COULD BE COMPUTED B Y APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. 1962 FOR ASSESSMENT Y EAR 2007 - 08. . ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 4 7.1.1 ON FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LEARNED CIT(A) ERRED IN LAW AN D ON FACTS IN UPHOLDING THE CONTENTION OR THE LEARNED ASSESSING OFFICER THAT THE INVESTMENTS OF THE APPELLANT AS ON 01 - 04 - 2006 WERE RS.63.97.33 668/ - AND R.S. 10 00 000 A S CLAIMED BY THE APPELLANT AND AS ON 31.03.2 007 WERE OF RS.82.52.36 269/ - AND NOT RS. 23 88 60 346/ - AS CLAIMED BY THE APPELLANT AN D THEREFORE THE AVERAGE IN VESTMENT WERE OR RS.73.24.84.968/ - AND RS.11 99 30 173 AS CLAIMED BY THE APPELLANT. 7.1.2 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED ERR (A) ERRED IN LAW AN D ON FACTS IN UPHOLDING THE C ONTENTION OF THE LEARNED ASSESSING OFFICER THAT THE TOTAL ASSETS OF THE APPELLANT AS ON 1.4.2006 WERE RS.142. 10 95 818/ - AND N OT RS. 150 19 18 020/ - AS CLAIMED BY THE APPELLANT AND AS ON 31.03.2007 WERE OF RS.172 33 26 035/ - AND NOT 1 76 74 75 925/ - AS CLAIMED BY THE APPELLANT AND THEREFORE THE AVERAGE TOTAL ASSETS WERE OF RS.157 22 10 927/ - AND NOT RS. 163 46 96 973/ - AS CLAIMED BY THE APPELLANT. 7.2 ON [ACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE CONTENTION OF THE LEARNED ASSESSING OFFICER THAT WHILE COMPUTING DEDUCTION U /S 14A OF THE ACT . GROSS INTEREST PAID OF RS. 2 56 81 429 / - IS TO BE TAKEN AS AMOUNT OF EXPENDITURE BY WAY OF IN TEREST AND NOT THE NET INTEREST OF RS.2 37 19 435/ - . (INTEREST PAID R.S 2.56 8 1 429 / - ( - ) RS 19 61 994 / - - BEING INTEREST RECEIVED) 8. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION BY THE LEARNED ASSESSING OFFICER U /S 68 OF THE ACT TO THE EXTENT OF RS.5 15.396/ - ON THE BASIS OF INADEQUATE ITS INFORMATION AVAILABLE WITH THE DEPARTMENT. 9. THE ORDER OF THE COMMISSIONER (APPEALS) BEING CONTRARY TO LAW EVIDENCE AND FACTS OF THE CASE SHOU LD BE SET ASIDE AMENDED OR MODI FIED IN THE LIGHT OF GROUNDS DEDUCED ABOVE. 10. EACH GROUND OF APPEAL HEREINABOVE IS INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 3. FACTS OF THE CASE ARE THAT THE ASSESSEE - FIRM FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2007 - 08 ON 30.11.2007 DECLARING TOTAL INCOME AT RS.NIL AFTER SETTING OFF OF EARLIER YEARS BROUGHT FORWARD BUSINESS LOSS ES AND ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 5 UNABSORBED DEPRECIATION . THE SAID RETURN WAS REVI S ED ON 26.9.2008 DECLARING A LOSS OF RS.3 14 06 293/ - WHICH WAS PR OCESSED U/S 143(1) OF THE ACT. THEREAFTER SCRUTINY PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE AND STATUTORY NOTICES UNDER SECTION 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. 4. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE CONFIRM ATION OF DELETION OF RS.1 67 76 003 / - BY THE LD.CIT(A) UPHOLDING THE ORDER OF THE AO THAT THE ASSESSEE WAS NOT ENTITLED TO DEPRECIATION AT THE RATE OF 60% ON THE COURSEWARE OF RS. 5 02 29 679/ - AND ACTUALLY ALLOWING THE DEPRECIATION AT THE RATE OF 15%. T HUS THE DISALLOWANCE HAS ARISEN BECAUSE OF REDUCTION IN THE RATE OF DEPRECIATION FROM 6 0% TO 15% ON COST OF COURSEWARE . 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 60 % WHEREAS AS A MATTER OF FACT THE ASSESSEE WAS ENTITLED TO DEPRECIATION AT THE RATE OF 15 %. ACCORDINGLY THE A SSESSEE WAS ISSUED SHOW NOTICE WHICH WAS REPLIED BY THE ASSESSEE BY STATING THAT THE COMPANY OPERATED VARIOUS TYPES OF COURSEWARES FOR TRAINING AND E - LEAR NING WHICH WERE CUSTOMIZED . THE ASSESSEE IMPARTS TRAINING USING VARIOUS SOFTWARE LIKE JA V A DOTNET C LANGUAGE C++ FLAT SCRIPTING ETC. THE ASSESSEE DEVELOPED ITS OWN COURSES FOR E - LEARNING AND TRAINING WHICH ARE DEVELOPED INTO COMPUTER SOFTWARE CALLE D COURSEWARE . THE LD. AR SUBMITTED THAT THE ASSESSEE HAS TO OFFER CUSTOMIZE D E - LEARNING TRAINING AS PER THE REQUIREMENTS OF EACH INDIVIDUAL CUSTOMER AND THESE ARE MARKETED ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 6 AS T AILOR MADE PRODUCT CUSTOMIZED AS PER THE REQUIREMENT OF EACH CUSTOMER . T H ERE WAS CONTINUOUS PROCESS OF ENHANCEMENT UPGRAD AT I ON AND PRODUC TION NEW COURSE S IN THE FORM OF NEW COURSEWARE AS THESE ARE REQUIRED TO BE TUNED TO THE CHANGING REQUIREMENTS OF TRAINING AND E - LEARNING OF CUSTOMERS OF THE ASSESSEE . THE THESE SPECIFI C PURPOSED SOFTWARE DEVELOPED BY THE ASSESSEE FOR TRAINING AND E - LEARNING WERE CALLED COURSEWARE . THE AO NOT FINDING REPLY OF THE ASSESSEE AS CONVINCING CAME TO THE CONCLUSION THAT THE COURSEWARE WERE NOT SOFTWARE AND THEREFORE NOT ENTITLED TO HIGH DEP RECIATION AT THE RATE OF 60% AS WAS ALLOW ABLE ON THE COMPUTER HARDWARE AND SOFTWARE . THE AO ACCORDING LY RESTRICTED THE DEPRECIATION TO 1 5% THEREBY DISALLOW ING A SUM OF RS.1 67 76 003 / - ON ACCOUNT OF EXCESS DEPRECIATION . THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AND HOLDING AS UNDER : 5 . 3 THE ASSESSING OFFICER'S ORDER SUBMISSIONS MADE FOR THE APPELLANT AND MATERIAL ON RECORD HAVE BEEN CONSIDERED. AS PER THE ACT AND I T. RULES COMPUTER SOFTWARE MEANS ANY PROGRAMME RECORDED IN THE SP ECIFIED OR OTHER INFORMATION STORAGE DEVICE . IT MEANS A COMPUTER PROGRAMME AND NOT MERELY A MANUAL OR SET OF INSTRUCTIONS. AS PER WIKIPEDIA COMPUTER SOFTWARE IS A COLLECTION OF COMPUTER PROGRAMS AND RELATED DATA THAT PROVIDES THE INSTRUCTIONS FOR TELLI NG A COMPUTER WHAT TO DO AND HOW TO DO IT. SOFTWARE REFERS TO ONE OR MORE COMPUTER PROGRAMS AND DATA HELD IN THE STORAGE OF THE COMPUTER. IN OTHER WORDS SOFTWARE IS A SET OF PROGRAMS PROCEDURES ALGORITHMS AND ITS DOCUMENTATION CONCERNED WITH THE OPERATI ON OF A DATA PROCESSING SYSTEM PROGRAM SOFTWARE PERFORMS THE FUNCTION OF THE PROGRAM IT IMPLEMENTS EITHER BY DIRECTLY PROVIDING INSTRUCTIONS TO THE DIGITAL ELECTRONICS OR BY SERVING AS INPUT TO ANOTHER PIECE OF SOFTWARE . OTHER EXPLANATIONS STATE THAT S OFTWARE IS A GENERIC TERM FOR ORGANIZED COLLECTIONS OF COMPUTER DATA AND INSTRUCTIONS OFTEN BROKEN INTO TWO MAJOR CATEGORIES: SYSTEM SOFTWARE THAT PROVIDES THE BASIC NON - TASK - ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 7 SPECIFIC FUNCTIONS OF THE COMPUTER AND APPLICATION SOFTWARE WHICH IS USED BY US ERS TO ACCOMPLISH SPECIFIC TASKS SYSTEM SOFTWARE IS RESPONSIBLE FOR CONTROLLING INTEGRATING AND MANAGING THE INDIVIDUAL HARDWARE COMPONENTS OF A COMPUTER SYSTEM SO THAT OTHER SOFTWARE AND THE USERS OF THE SYSTEM SEE IT AS A FUNCTIONAL UNIT WITHOUT HAVIN G TO BE CONCERNED WITH THE LOW - LEVEL DETAILS SUCH AS TRANSFERRING DATA FROM MEMORY TO DISK OR RENDERING TEXT ONTO A DISPLAY. GENERALLY SYSTEM SOFTWARE CONSISTS OF AN OPERATING SYSTEM AND SOME FUNDAMENTAL UTILITIES SUCH AS DISK FORMATTERS FILE MANAGERS DISPLAY MANAGERS TEXT EDITORS USER AUTHENTICATION (LOGIN) AND MANAGEMENT TOOLS AND NETWORKING AND DEVICE CONTROL SOFTWARE APPLICATION SOFTWARE ON THE OTHER HAND IS USED TO ACCOMPLISH SPECIFIC TASKS OTHER THAN JUST RUNNING THE COMPUTER SYSTEM. APPLIC ATION SOFTWARE MAY CONSIST OF A SINGLE PROGRAM SUCH AS AN IMAGE VIEWER; A SMALL COLLECTION OF PROGRAMS (OFTEN CALLED A SOFTWARE PACKAGE) THAT WORK CLOSELY TOGETHER TO ACCOMPLISH A TASK SUCH AS A SPREADSHEET OR TEXT PROCESSING SYSTEM; A LARGER COLLECTION (OFTEN CALLED A SOFTWARE SUITE) OF RELATED BUT INDEPENDENT PROGRAMS AND PACKAGES THAT HAVE A COMMON USER INTERFACE OR SHARED DATA FORMAT SUCH AS MICROSOFT OFFICE W HICH CONSISTS OF CLOSELY INTEGRATED WORD PROCESSOR SPREADSHEET DATABASE ETC.; OR A SOFTW ARE SYSTEM SUCH AS A DATABASE MANAGEMENT SYSTEM WHICH IS A COLLECTION OF FUNDAMENTAL PROGRAMS THA T MAY PROVIDE SOME SERVICE TO A VARIETY OF OTHER INDEPENDENT APPLICATIONS SOFTWARE IS CREATED W ITH PROGRAMMING LANGUAGES AND RELATED UTILITIES WHICH MAY C OME IN SEVERAL OF THE ABOVE F ORMS: SINGLE PROGRAMS LIKE SCRIPT INTERPRETERS PACKAGES CONTAINING A COMPILER LINKER AND OTHER TOOLS; AND LARGE SUITES (OFTEN CALLED INTEGRATED DEVELOPMENT ENVIRONMENTS) THAT INCLUDE EDITORS DEBUGGERS AND OTHER TOOLS FOR MU LTIPLE LANGUAGES. MERELY BY USING THE TERM SOFTWARE DOES NOT IMPLY THAT IT WOULD COME WITHIN THE AMBIT OF THE SPECIFIC DEFINITION UNDER THE ACT. THE APPELLANT HAS USED THE TERM COURSEWARE WHICH IS BASICALLY A MANUAL FOR TRAINERS/ TRAINEES WHICH HAS BEEN DIGITIZED AND IS BEING USED FOR TRAINING THEIR STUDENTS/ TRAINERS. MERELY BECAUSE THE COURSE CONTENT IS ON A SOFT COPY IT DOES NOT MEAN THAT IT CAN BE HELD TO BE COMPUTER SOFTWARE. THE ASSESSING OFFICER'S ACTION IN DENYING DEPRECIATION AT THE HIGHER RATE AS CLAIMED IS THEREFORE FOUND CORRECT AND IS CONFIRMED. 6 . AGGRIEVED BY THE ORDER OF LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED BEFORE US THAT THE CIT(A) WAS GROSSLY E R RED IN HOLDING THAT THE COURSEWARE S WERE BASICALLY MANUA LS /PROGRAMMES FOR ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 8 TR AINERS /TRAINEES WHICH COULD NOT BE TAKEN TO MEAN THAT THESE TRAINING MANUAL CONSISTED OF COMPUTE R SOFTWARE S . THE LD. CIT(A) HELD THAT THESE COURSEWARE WERE ONLY READ ABLE WITH SOFTWARE . THE LD. AR SUBMITTED THAT THESE COURSEWARE W ERE DEVELOPED ON CUSTOMIZE D BASIS WHICH WERE NOT USED AS STANDARD EDUCATIONAL TOOLS OR METHOD FOR TRAINING AND E - LEARNING . EACH COURSE W AS DESIGNED AS PER THE CUSTOMERS REQUIREMENT INDEPENDENTLY BY TAKING INTO ACCOUNT THE NATURE OF BUSINESS AND ITS TRAIN ING AND E - LEARNING REQUIREMENT S. THE LD. AR SUBMITTED THAT IN I T RULES 1962 THE COMPUTER SOFTWARE W A S TREATED AS DEFINITE ASSET UNDER THE HEAD PLANT AND MACHINERY AND SOFTWARE WAS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60 %. THE LD. AR ALSO DISTINGUIS HED THE DIFFERENCE BETWEEN THE HARDWARE AND SOFTWARE. ANYTHING THAT CAN BE STORED ELECTRONICALLY IS COMPUTER SOFTWARE AN D MACHINES USED TO RUN THE SOFTWARE IS CALLED HARDWARE . THUS FOLLOWING THE SAME ANA LOGY OF ELECTRONICALLY STORAGE OF DATA AS SOFTWARE THE COURSEWARE S ( SOFTWARE S) WHICH WERE USED FOR TRAINING AND EDUCATION BY THE ASSESSEE FOR ITS CUSTOMERS WERE NOTHING BUT COMPUTER SOFTWARES . THESE EDUCATION SOFTWARE S WERE A KIND OF COMPUTER SOFTWARE THE PRIMARY PURPOSE OF WHICH WAS TEACHING AND SELF LEARNING . THEREFORE THE LD . AR SUBMITTED TH AT THE COURSEWARE S WERE ELIGIBLE FOR DEPRECIATION AT THE RA T E OF 60%. THE LD. AR ALSO SUBMITTED THAT THE DEPRECIATION HAS BEEN ALLOWED AT THE RATE OF 60% FOR THE ASSESSMENT YEAR S 2004 - 05 TO 2013 - 14 WHICH WE RE SCRUTINIZED AND ASSESSMENTS WERE FRAMED U/S 143(3) OF THE ACT . ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 9 7 . ON THE OTHER HAND THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT COURSEWARE S IN NO WAY CONSISTED OF THE SOFTWARE AND THEREFORE THE ASSESSEE WAS NOT ENTITLED TO DEPRECIATION AT THE RA T E OF 60%. THE LD. DR SUBMITTED THAT THESE COURSES WERE CONSIST ED OF EDUCATIONAL MANUALS USED FOR TRAINING AND THEREFORE COULD NOT BE SAID OR TREATED AS SOFTWARE S . THE LD. DR PRAYED THAT THE ORDER OF LD. CIT(A) BE UPH E LD BY DIS MISS ING THE APPEAL OF THE ASSESSEE . 8 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSED THE MATERIALS PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPARTING COMPUTER TRAINING AND EDU CATION ON CUSTOMIZED BASIS AS PER THE REQUIREMENTS OF THE CUSTOMERS. T HE ASSESSEE DEVELOPED VARIOUS TYPES OF EDUCATIONAL SOFTWARE/SPECIAL COURSES KEEPING IN VIEW OF THE REQUIREMENT S OF EACH INSTITUTION / CUSTOMER AND THESE COURSES ARE DESIGNED AND DEVELOP ED KEEPING IN VIEW OF THE REQUIREMENT S WHICH VARIES FROM CUSTOMER TO CUSTOMER FROM INDUSTRY TO INDUSTRY AND T HESE COURSES WHEN COMBINED WITH TH E SOFTWARE WERE CALLED COURSEWARE S . IN OUR VIEW TH ESE COURSES ARE NOTHING BUT SPECIAL LY DESIGNED COMPUTER SOFTWARE S MEANT FOR TRAINING AND E - LEARNING . WE FIND THAT THE LD. CIT(A) HAS WRONGLY HELD THAT THESE COURSES ARE BASICALLY MANUAL WHICH ARE USED BY THE ASSESSEE IN TRAINING INSTITUTES AND MERE FACT THAT THESE MAN UALS WERE ON SOFTWARE COULD NO T BE TAKEN TO MEAN THAT THESE ARE COMPUTER SOFTWARE S . WE FURTHER FIND THAT THE DEPARTMENT HAS ALLOWED DEPRECIATION TO THE ASSESSEE AT ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 10 THE RATE OF 60 % IN THE PREVIOUS AND SUCCEEDING YEARS EVEN IN THE ASSESSMENT S FRAMED U/S 143(3) OF THE ACT AND THUS THE DEPARTMENT CANNOT BE ALLOWED TO TAKE DIFFERENT VIEW IN THE DIFFERENT ASSESSMENT YEARS QUA THE SAME ASSET S WHICH ARE NOTHING BUT SPECIALIZED SOFTWARE OR CUSTOMIZE D TRAINING SOFTWARE S WHICH ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60% A S PER THE INCOME TAX RULES AND THE SAME WAS CORRECTLY DEPRECIATED AT THE RATE OF 60% BY THE ASSESSEE . ACCORDINGLY WE SET AISLE THE ORDER O LD.CIT(A) AND DIRECT THE AO TO ALLOW THE DEPRECATION AT THE RATE OF 60%. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED . 9. THE ISSUE RAISED IN THE SECOND GROUND OF APPEAL IS QUA THE CONFIRMATION OF DISALLOWANCE OF RS.10 48 050/ - BY THE LD. CIT(A) AS MADE BY THE AO AT THE RA T E OF 10% OF RS.1 04 80 500/ - BEING THE EXPENDITURE INCURRED ON LUCKNOW SCHOOL PROJECT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE PERCENTAGE OF EXPENSES IN RELATION TO REVENUE IS INCREASED SUBSTANTIALLY AND DISPROPORTIONATELY FROM FINANCIAL YEAR 2003 - 04 AND TH EREFORE THE ASSESSEE WAS ASKED TO PRODUCE VOUCHERS ETC IN OR DER TO JUSTIFY SUCH STEEP HIKE IN THE EXPENSES WHICH WERE 55% IN THE FINANCIAL YEAR 2003 - 04 AND 75% IN THE FINANCIAL YEAR 2006 - 07. THE AO DISALLOWED 10% OF T HE EXPENDITURES CLAIMED FOR THE REASONS THAT THE ASSESSEE FAILED TO PRODUCE ANY BILLS AND VOUCHE RS OR FAILED TO GIVE ANY JUSTIFICATION FOR THE SAID STEEP RI S E IN THE EXPENSES AND THUS WORKED OUT DISALLOWANCE AT RS.23 34 728/ - BEING 10% OF RS.2 33 47 380/ - . THE LD. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 11 CIT(A) CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.10 48 050/ - BY HOLDING THAT THE AO HAD WRONGLY TAKEN THE FIGURE OF RS.2 33 48 380/ - WHICH WERE THE TOTAL OF EXPENSES FROM THE FINANCIAL YEAR S 2004 - 05 TO 2006 - 07 AND T HUS SUSTAINED THE DISALLOWANCE AT THE RATE OF 10% OF THE TOTAL EXPENSES INCURRED IN RESPECT OF LUCKNOW SCHOOL PROJ ECT AFTER CALLING REMAND REPORT FROM THE AO WHO ADMITTED IN THE REMAND REPORT DATED 20.11.2011 THAT THE DISALLOWANCE WAS WRONGLY CALCULATED BY TAKING WRONG FIGURE OF EXPENSES . THE LD. CIT(A) REJECTED THE SUBMISSIONS AND PLEAS OF THE ASSESSEE THAT THE SE EXPENSES WERE ACTUALLY INCURRED FOR THE BUSINESS OF THE ASSESSEE WHOLLY AND EXCLUSIVELY AND THE BOOKS OF ACCOUNT WERE AUDITED AS PER THE COMPANIES ACT 1956 AND ALSO AS PER THE INCOME TAX ACT 1961. 10 . THE LD. AR SUBMITTED BEFORE US THAT THE INCREA SE IN EXPENSES WAS BONAFIDE AND THEREFORE THERE WAS NO JUSTIFICATION IN MAKING ADHOC DISALLOWANCE. THE LD. AR SUBMITTED THAT THE PAYMENT S WERE DULY VOUCHED AND AUDITED AND WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE LD. AR FINALLY SUBMITTED THAT THE EXP ENDITURES INCURRED BY THE ASSESSEE FOR ITS BUSINESS C OULD NOT BE DISALLOWED ON THE BASIS OF MERE CONJECTURE AND SURMISES AND IT WAS A S ETTLED LAW THAT THE DISALLOWANCE OF EXPENDITURE ON ADHOC BASIS C OULD NOT BE SUSTAINED WHICH WAS MADE WITHOUT ANY REAS ONS AND JUSTIFICATION . FINALLY LD AR PRAYED THAT THE DISALLOWANCE BE DELETED BY SETTING ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 12 11 . THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 12 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW . WE FIND THAT THE ASSESSEE HAS INCURRED EXPENSES ON LUCKNOW SCHOOL PROJECT WHICH HAVE BEEN INCREASED BY 25% OVER THE LAST THREE YEARS. THE REASONS CITED BY THE ASSESSEE FO R SUCH INCREASE WAS THAT THE EXPENSES WHICH W ERE AS PER TERMS AS AGREED IN THE MEMORANDUM OF AGREEMENT AND ACCORDINGLY THE ASSESSEE MADE PAYMENTS THROUGH BANKING CHANNEL S AS AGREED . WE FIND MERIT IN THE SUBMISSIONS OF THE LD. AR THAT MERE INCREASE IN EXPENDITURE WAS NOT SUFFICIENT GROUND FOR DISALLOWANCE ON ESTIMATION BASIS WHICH IS NO BASIS IN OUR OPINION AND IS NOT JUSTIFIED PARTICULARLY WHEN THESE EXPENSES WERE INCURRED IN TERMS OF AGREEMENT BETWEEN THE ASSESSEE AND FRANCHISEES. T H E LD. CIT(A) HAS N OT GIVEN ANY COGENT AND SOLID REASON S TO SUPPORT THE ADDITION MADE BY AO . THE ASSESSEE WAS MAINTAINING PROPER BILLS AND VOUCHERS WHICH WERE SUBJECT OF VARIOUS TYPES OF AUDIT . W E THEREFORE OF THE VIEW THAT THE ADHOC DISALLOWANCE AT THE RATE OF 10% WHE N THE ASSESSEE IS MAINTAINING BOOKS OF ACCOUNTS WHICH AUDITED AND SUPPORTED WITH BILLS AND VOUCHERS AND THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES AS PER THE AGREEMENTS WITH FRANCHISE E S CAN NOT BE SUSTAINED ESPECIALLY WHEN THE AO TOOK THE TOTAL EXP ENSES OF THREE YEARS AND THEREBY MAKING DISALLOWANCE OF RS.23 34 738/ - IN A CASUAL MANNER . IN VIEW OF THESE FACTS AND THE MANNER IN WHICH ADHOC DISALLOWANCE WAS MADE WE ARE INCLINED TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 13 13. THE ISSUE RAISED IN THE THIRD GROUND OF APPEAL IS WITH REGARD TO THE CONFIRMATION OF DISALLOWANCE OF RS.11 06 563/ - BY THE LD. CIT(A) WHICH WAS MADE BY T HE AO IN RESPECT OF ESOP CHARGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAS CLAIMED ESOP CHARGES TO THE TUNE OF RS.11 06 563/ - WHICH THE AO FOUND TO BE OF CAPITAL NATURE AND ACCORDINGLY ISSUED SHOW CAUSE NOTICE DATED 14.9.2009 . AS PER THE AO THE ASSESSEE DID NOT REPLY TO THE SHOW CAUSE NO TICE AND AS A RESULT OF WHICH HE TREATED THE SAID EXPENDITURE AS CAPITAL IN NATURE AS BEING INCURRED FOR ISSUE OF EQUITY SHARES WHICH WERE ISSUE D TO THE ELIGIBLE EMPLOYEES . AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 14 . THE LD CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY UPHOLDING THE ORDER OF AO BY REJECTING THE VARIOUS SUBMISSIONS AND ARGUMENTS OF THE ASSESSEE WHICH HAVE BEEN INCORPORATED 7.2 OF THE APPEAL ORDER. THE ASSESSEE SUBMITTED B EFORE THE CIT(A) THAT ESOP EXPENSES WERE WRONGLY TREATED BY THE AO AS EXPENSES INCURRED TO INCREASE THE SHARE CAPITAL WHEREAS AS A MATTER OF FACT EMPLOYEES STOCK OPTIONS WERE GIVEN AT A DISCOUNTED PRICE AS AGAINST THE PREVAILING MARKET PRICE AND THE DIFF ERENCE WAS AMORTISED AND WRITTEN OFF ON STRAIGHT LINE BASIS OVER VESTING PERIOD AND INCLUDED THE SAME UNDER THE HEAD OF SALARIES AND OTHER ALLOWANCES AND THEREFORE THESE WERE ACTUALLY INCURRED ON EMPLOYEES AND HAVE BEEN TREATED AS SUCH AFTER FOLLOWIN G THE PROCEDURE L AID DOWN BY THE REGULATOR SEBI. AS ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 14 SUCH THESE WERE NOT OF CAPITAL NATURE AND NOT INCURRED AS SHARE ISSUE EXPENSES. HOWEVER THE CIT(A) NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE DISMISSED THE GROUND RAISED BY THE ASSESSEE BY GIVING DETAILED FINDINGS AS INCORPORATED IN PARA 7.3 OF THE APPEAL ORDER BY HOLDING AS UNDER. - .. THE CIRCUMSTANCES IN THE PRESENT CASE IN APPEAL ARE SIMILAR OPTIONS HAVE BEEN OFFERED BY THE COMPANY TO ITS EMPLOYEES AND VESTING PERIOD AND PERIOD OVER WHICH OP TIONS CAN BE EXERCISED HAS BEEN MENTIONED HOWEVER LOSS REMAINS NOTIONAL IN ABSENCE OF ANYTHING TO SHOW THAT OPTIONS WERE ACTUALLY EXERCISED. THUS THE CLAIMS REMAIN A CONTINGENT LIABILITY WHICH IS NOT ALLOWABLE UNDER THE ACT IN THESE CIRCUMSTANCES A ND IN VIEW OF THE ABOVE DISCUSSION BOTH ON FACTS AND LAW THE ASSESSING OFFICERS ACTION IN NOT ALLOWING DEDUCTION IS CONFIRMED. . 15 . THE AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ESOP CHARGES ARE NOT OF CAPITAL IN NATURE AS THESE WERE NEITHER INCURRED ON ISSUE OF SHARE S NOR WERE OF CONTINGENT NATURE AS HELD BY THE LD CIT(A). THE LD. AR SUBMITTED THAT THE ESOP CHARGES AMOUNTING TO RS.11 06 563/ - WERE NOT INCURRED FOR THE PURPOSE OF INCREASING THE SHARE CAPITAL AND THUS FACTS WERE GROSS LY MISUNDERST OOD BY THE AO . T HE LD. CIT(A) UPHELD THE ACTION OF THE AO BY HOLDING THAT THE SAME WERE CONTINGENT IN NATURE. THE LD.AR FURTHER SUBMITTED THAT THE EMPLOYEES OF T HE COMPANY WERE G I V EN STOCK OPTION AT DISCOUNTED PRICE VIS A VIS THE PREVAILING MARKET PRICE AN D THE SAID DISCOUNT WAS WRITTEN OFF ON STRAIGHT LINE BASIS OVER THE VESTING PERIOD AND THE AMOUNT WRITTEN OFF EACH YEAR USED TO BE SHOWN UNDER THE HEAD SALARY AND ALLOWANCES AS THESE WERE INCENTIVES GIVEN TO THE EMPLOYEES AND ACCORDINGLY TREATED AS ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 15 E XPENDITURE INCURRED ON EMPLOYEES IN THE RESPECTIVE PERIOD OVER THE V ESTING PERIOD AND THUS THESE WERE NOT INCURRED ON CAPITAL ACCOUNT OR WE R E NOT OF CONTINGENT NATURE. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS FOLLOWED THE PROCEDURE AS THEY DRAWN FROM SEBI WITH REGARD TO THE EMPLOYEES STOCK OPTION SCHEME . THE LD AR FURTHER SUBMITTED THAT THE DEDUCTION OF THE SAID EXPENSES BY AMORTISING AND WRITING OFF OVER THE VESTING PERIOD WERE ALLOWABLE AS REVENUE EXPENDITURE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT (1997) 225 ITR 802 (SC) . THESE EXPENDITURES WERE INCURRED FOR THE BENEFIT OF THE EMPLOYEES AND THE SE OPTION S WERE NOT TRANSFERABLE. IT WAS ALSO ARGUED THAT THE GUIDELINES ISSUED B Y THE SEBI AND ICAI HAVE BEEN FOLLOWED IN GIVING ACCOUNTING TREATMENT TO THESE EXPENSES. THE LD. COUNSEL SUBMITTED THAT SPECIAL BENCH OF THE BANGALORE TRIBUNAL IN THE CASE OF BIOCON LTD. VS DEPUTY COMMISSIONER OF INCOME - TAX (LTU) BANGALORE [2013] 25 ITR(T) 602 (BANGALORE - TRIB.) HAVE SET AT REST ALL THE DOUBT S WITH REGARD TO THE TREATMENT OF ESOP CHARGES. THE SPECIAL BENCH HELD THAT THE OBJECTIVE OF STOCK EMPLOYEES OPTION WAS NOT TO RAISE SHARE CAPITAL BUT SIMPLY THE MODE OF COMPENSATING THE EMPLO YEES. THE SPECIAL BENCH OF THE TRIBUNAL FURTHER HELD THAT ISSUE OF SHARES AT AN DISCOUNTED PRICE ON A FUTURE DA T E IN VIE W OF THE SERVICES SATISFACTORILY RENDERED BY THE EMPLOYEES WAS NOTHING BUT AN EXPENDITURE U/S 37(1) OF THE ACT. IT WAS FURTHER HELD THAT THE EXPENDITURES IS INCURRED ON THE DA T E OF V E STING OF OPTION. FURTHER THE LD.AR RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. PVP ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 16 VENTURES LIMITED (2013) 90 DTR 340 (MAD.)(HC) AND THE DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT V S LEMON TREE HOTELS LTD IN ITA 107/2015 DATED 18.8.2015 WHICH FULLY ENDORSE D THE VIEW THAT ESOP CHARGES IS ALLOWABLE AS REVENUE EXPENSES. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEES ESOP SCHEME 2004 AND ITS ACCOUNTING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE MADE ON THE V ESTING DATE OF EXERCISING OF OPTION BY THE EMPLOYEES AND ALSO SUBMITTED THAT THE AMOUNT OF OPTION S WHICH LEFT FOR THE WANT OF EXERCISE OF OPTION BY THE EMPLOYEES HAVE BEEN DULY WRITTEN BACK IN T HE BOOKS OF ACCOUNT S OF ASSESSEE AS PER THE SEBI GUIDELINES AND OFFERED THE SAME FOR TAXATION . 16 . THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF THE A UTHORITIES BELOW AND PRAYED THAT THE GROUND OF THE ASSESSEE BE DISMISSED ACCORDINGLY. 17 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING THE CASE LAW S RELIED BY THE LD.AR. WE FIND THAT THE ASSESSEE HAS FLO A TED THE SCHEME FOR THE ENTITLED EMPLOYEE S AS STOCK OPTION SCHEME 2004 AND ISSUED SHARES TO THE EMPLOYEES AT A DI SCOUNTED PRICE AS COMPARED TO THE PREVAILING MARKET RATE AND THE DIFFERENCE SHOWN BETWEEN THE ISSUE PRICE AND T HE MARKET PRICE WAS AMORTISED AND WRITTEN OFF OVER THE V ESTING PERIOD ON STRAIGHT LINE METHOD. THE SAID SCHEME WAS FLOATED TO RE MUNERATE THE EMPLOYEES OF THE ASSESSEE AND PRIMARY OBJECTIVE OF THE WHOLE EXERCISE WAS NOT TO RAISE SHARE CAPITAL BUT INCENTIVISE FOR CONSISTENT AND STRENUOUS EFFORT OF THE EMPLOYEE S DURING THE V E STING PERIOD. UNDER THE SAID SCHEME ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 17 THE ASSESSEE DID NOT INCUR ANY EXP ENSES TO ISSUE SHARES AT THE DISCOUNTED PRICES BUT GRANTED ONLY OPTION TO THE EMPLOYEES WHICH WILL BE EXERCISED AT A LATER DATE DURING THE V E STING PERIOD AND ONLY AT THAT POINT OF TIME THE COMPANY INCREASE ITS CAPITAL BY ISSUE OF SHARES AT DISCOUNTED PRI CE AND THEREFORE THE INCIDENT OR EVENT OF GRANTING OPTION DOES NOT CAST ANY LIABILITY ON THE COMPANY. WE ARE NOT IN AGREEMENT WITH THE OBJECTION OF THE A O THAT THE SAID EXPENDITURE WAS INCURRED BY T HE COMPANY TO INCREASE SHARE CAPITAL OF TH E COMPANY AN D THUS CONSTITUTED THE CAPITAL EXPENDITURE NOR WITH OPINION AND CONCLUSION DRAWN BY THE LD.CIT(A) THAT THE LIABILITY IS CONTINGENT IN NATURE WHEREAS THE ARGUMENT S ADVANCED BY THE LD.AR ARE QUITE CONVINCING THAT THE SCHEME WAS FLOATED TO RE WARD THE E MPLOYEES OF THE COMPANY AND THE DIFFERENCE BETWEEN THE DISCOUNTED PRICE AND PREVAILING MARKET PRICE WAS AMORTISED OVER THE V ES TING PERIOD. THE CASE OF THE ASSESSEE FINDS STRONG SUPPORT FROM THE NUMBER OF THE DECISIONS REFERRED AND RELIED UPON BY THE LD.AR. IN THE CASE OF BIOCON LTD (SUPRA) THE SPECIAL BENCH OF THE BANGALORE TRIBUNAL HAS HELD THAT DISCOUNT ON ISSUE OF SHARES TO THE EMPLOYEE STOCK OPTION IS ALLOWABLE DEDUCTION IN COMPUTING THE INCOME IN THE PROFIT AND LOSS ACCOUNT OF BUSINESS OR PROFESSION AND THE SAME WAS ON ACCOUNT OF AS CERTAIN ED LIABILITY AND NOT CONTINGENT LIABILITY. IT WAS ALSO HELD THAT BY ISSUING SHARES AT DISCOUNTED PRICE UNDER THE SCHEME ESOP IS SIMPLY ONE OF THE MOTIVE TO COMPENSATE THE EMPLOYEES FOR THEIR SERVICES AND IS PART OF THE RE MUNERATION . IN THE CASE OF PVP VENTURES LIMITED (SUPRA) THE HONBLE MADRAS HIGH COURT HAS HELD THAT THE ASSESSEE HAD TO FOLLOW SEBI ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 18 GUIDELINES AND BY FOLLOWING SUCH DIRECTIONS THE ASSESSEE HAS CLAIMED ASCERTAIN ED AMOUNT AS ELIGIBLE FOR DEDUCTION ARISING ON ACCOUNT OF EMPLOYEES STOCK OPTION PLAN . IN THE CASE OF LEMON TREE HOTELS LTD (SUPRA) THE HONBLE DELHI HIGH COURT UPH E LD AND FULLY ENDORSED THAT ESOP WAS AN ALLOWABLE EXPENSES . IN VIEW OF THE FACTS AS DISCUSSED ABOVE AND TH E RATIO L A ID DOWN IN THE VARIOUS DECISIONS WE ARE OF THE VIEW THAT THE ASSESSEE HAS RIGHTLY WRITTEN OFF ESOP CHARGES OF RS. 11 06 563/ - AND THEREFORE THE ORDER OF THE LD. CIT(A) IS WRONG AND CANNOT BE SUSTAINED. A CCORDINGLY WE SET ASIDE THE ORDER OF LD .CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS.11 06 563/ - . 18 . THE ISSUE RAISED IN GROUNDS OF APPEAL NO.4 IS AGAINST THE UPHOLDING THE DISALLOWANCE OF RS. RS.4 46 593/ - BY THE LEARNED CIT(A) AS MADE BY ASSESSING OFFICER U/S 40(A)(IA) OR TH E ACT . 19 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RE C O R D INCLUDING THE ORDER OF LD. CIT(A) AND AO. WE FIND THAT THE AO MADE THE DISALLOWANCE OF ENTIRE HIRE CHARGES OF RS.36 75 372/ - BY REFERRING THE PROVISIONS OF SECTIO N 40(A)(IA) OR THE ACT AS AMENDED WITH EFFECT 1.4.2015 WHICH WAS REDUCED BY THE FIRST APPELLATE AUTHORITY TO RS.4 46 593/ - AFTER CALLING THE REMAND REPORT DATED 20.11.2011 WHICH IS REPRODUCED BY THE LD.CIT(A) AT PAGE 19 OF THE IMPUGNED ORDER. IT WAS A LSO SUBMITTED BEFORE THE LD. CIT(A) THAT THE SAID AMOUNT COMPRISE D OF EXPENDITU RE S INCU RRED BY THE STAFF FOR HI RING VEHICLE OUT OF TRANSPORT ADVANCES GIVEN TO THEM ON BEHALF ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 19 OF THE ASSESSEE . THE LD. CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT T HE PA YMENT EXCEEDING RS.20 000/ - IN EACH INSTANCE AND AGGREGAT E OF PAYMENT S TO EACH E MPLOY EE/ PAYEE EXCEEDING RS.50 000/ . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE LD. CIT(A) HAS NOT SPECIFIED THE PROVISION UNDER WHICH THE ASSESSEE WAS LIABLE TO D EDUCT THE TAX AT SOURCES FROM THESE PAYMENT BY REFER R ING TO PAGE 617 OF THE PAPER BOOK. THE LD. AR ALSO SUBMITTED THAT THESE EXPENSES WERE INCURRED BY EMPLOYEES OUT OF THEIR TOUR ADVANCES WHILE THEY WERE ON TOUR. LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CA S E WE FIND TH AT THE AS S E S SEE HAD INCU RR ED THESE EXPENSE S THROUGH EMPLOYEES OUT OF THEIR T RAV ELLING ADVANCES FOR HIRING MOTOR VEHICLE S DURING THE COURSE OF THEIR EMPLOYMENT AND THE EXPENDITURES INCURRED B Y THEM OUT OF TRAVELLING ADVANCES . IN OUR VIEW THE SAME ARE NOT LIABLE FOR DEDUCTION U/S 40(A)(IA) OF THE ACT A S I T I S THE SETTLED LAW THAT RE - IMBURSEMENT TO THE EMPLOYEES IS NOT LAIBLE TO THE PROVISIONS OF TDS . ACCORDINGLY WE DIRECT AO TO DELETE THE ADDITION. 20 . THE ISSUE RAISED IN THE FIFTH GROUND OF APPEAL IS AGAINST THE UPHOLDING THE DISALLOWANCE OF RS.2 50 00 000/ - BY THE LD. CIT(A) BEING THE PROVISIONS FOR REBATE. 21 . THE BRIEF FACTS OF THE CA S E ARE THAT THE ASSESSEE ENTERED INTO A CONTRACT WITH DIRECTORATE OF EDUCATION DELHI FOR IMPARTING COMPUTER EDUCATION AND ALSO SUPPLYING THE RELATED A CCESSORIES IN THE GOVERNMENT AND GOVERNMENT AIDED SCHOOLS IN THE NATIONAL CAPITAL REGION OF DELHI . THE ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 20 ASSESSEE RAISED THE BILLS TO THE DIRECTORATE OF EDUCATION AND DIRECTORATE OF EDUCATIO N WITHHELD CERTAIN PAYMENTS ON THE GROUND OF DELAYED INSTALLATION OF INFRA STRU CTURE NON PERFORMANCE OF INFRASTRU CTURE AND FACULTY ABSENTEEISM ETC . THE ASSESSEE REDUCED THE AMOUNT BILLED AND RAISED TO DELHI GOVERNMENT BY WAY OF A PROVISIONS OF REBATE T O THE EXTENT THE AMOUNT WITHHELD FOR DEFICIENCY IN THE SERVICES BY THE ASSESSEE. THE AO DISALLOWED THE AMOUNT OF RS.2 50 00 000 / - ON THE GROUND THAT THE ASSESSEE DID NOT SUBMIT DETAILS OF ALL THESE EXPENSES AND SAME WERE IN THE NATURE OF CONTINGENT LIA BILITY. BEFORE THE LD.CIT(A) DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS SUBMITTED THAT THE ASSESSEE DI D NOT MAKE ANY PROVISION FOR ANTICIPATED LIABILITY BUT SHORT PAYMENT RECEIVED FROM DIRECTORATE OF EDUCATION GOVERNMENT OF DELHI WAS PROVIDED ON ACTUAL BASIS. IT WAS ALSO SUBMITTED THAT THE SAID WITHHOLDING OF THE AMOUNT WERE STILL NOT RECEIVED IN THE SUBSEQUENT YEAR S AND THERE WERE NO DISPUTE PENDING FOR RECOVERY AGAINST THE CUSTOMER QUA THE SAID AMOUNT . THE LD. CIT(A) HELD THAT THE AMOUNT W RITTEN OFF BY THE ASSESSEE AS A PROVISION OF REBATE BUT IT WAS CLAIMED AS BAD DEBT. THE LD. CIT(A) FURTHER NOTED THAT UNDER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT THE DEDUCTION FOR DEBTS WRITTEN OFF CAN BE ALLOWED ONLY WHERE THE SAID AMOUNT H AVE BEEN CLAIMED AS INCOME BY THE ASSESSEE WHICH HAD BEEN INCLUDED AS INCOME OF THE ASSESSEE IN THE EARLIER YEARS. SINCE THE ASSESSEE DID NOT FULFILLED THE PRIMARY CONDITION LAID DOWN IN THE ABOVE SECTION THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY T HE AO. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 21 22 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU S ED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW . THE LD. AR ARGUED BEFORE US THAT THE PROVISION OF REBATE OF RS 2 50 00 000/ - REPRESENTED THAT PART OF BILLED AMOUNT DUE FROM GOVT OF DELHI BUT NOT ACCEPTED BY THE DIRECTORATE OF EDUCATION OF DELHI GOVERNMENT . THE LD.AR SUBMITTED THAT IN THE MERCANTILE SYSTEM OF ACCOUNTING THERE IS NO ACCRUAL OF INCOME IF THE BILL ED AMOUNT WAS NOT ACCEPTED BY THE CUSTOMERS . THE LD. COUNS EL IN DEFENCE OF HIS ARGUMENT RELIED UPON THE DECISION IN THE CASE OF : A) CIT VS. BHARAT PETROLEUM CORPORATION LTD. (1993) 202 ITR 492 (CAL) B) CIT V/S KERALA STATE DRUGS AND PHARMACEUTICAL LTS 192 ITR 1 (KER); C) CIT V/S SIKARIA SONS AND CO. 216 ITR 440 (GAU); INDIAN OVERSEAS BANK V/S CIT 183 ITR 200(MAD) THE LD.COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE FULFILLED ALL THE CONDITIONS ENUMERATED UNDER SECTION 37(1) OF THE ACT . THE LD. COUNSEL ALSO SUBMITTED THAT RS.2 50 00 000/ - WAS PART OF T HE BILL ED AMOUNT WHICH WAS ALREADY TREATED AND INCLUDED IN THE ASSESSEES INCOME BY REFERRING TO THE LEDGER ACCOUNT OF THE DIRECTORATE OF EDUCATION IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WHICH IS SUBMITTED AT PAGE 621 TO 628 OF THE PAPER BOOK. THE S IMILAR PROVISION S FOR REBATE WERE MADE IN EARLIER YEARS QUA THE AMOUNT BILLED BUT NOT ACKNOWLEDGED BY THE DIRECTORATE OF EDUCATION DELHI. THE PROVISIONS FOR REBATE OF RS.3 00 00 000/ - FOR THE ASSESSMENT YEAR 2006 - 07 AND RS.10 80 00 000/ - FOR THE AY 2010 - 11 WERE ALLOWED BY THE REVENUE IN THE ASSESSMENT PROCEEDINGS COMPLETED U/S 143(3) OF THE ACT . FINALLY THE LD. AR ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 22 PRAYED THAT SINCE THE ASSESSEE HAS ALREADY CREDITED THE BILLED AMOUNT IN ITS BOOKS OF ACCOUNTS AND TREATED AS INCOME AFTER RAISING BILLS O N THE DIRECTORATE OF EDUCATION DELHI WHICH WAS PARTLY ADMITTED BY THE CUSTOMER AND THEREFORE THE AR OF THE ASSESSEE SUBMITTED THAT PART OF THE AMOUNT WHICH WAS NOT ACKNOWLEDGED BY THE CUSTOMER IS ALLOWABLE AS GENUINE BUSINESS LOSS AND THEREFORE PRAY ED FOR THE DELETION OF DISALLOWANCE WHICH STANDS ALLOWED BY THE DEPARTMENT IN THE SUCCEEDING AND PRECEDING YEARS. 23 . THE LD. DR HEAVILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW BY SUBMITTING THAT THE PROVISION FOR REBATE WAS WRONGLY CLAIMED BY THE A SSESSEE TO SET OFF THE PROFIT WHICH WAS OF CONTINGENT IN NATURE AND DID NOT SATISFY THE CONDITIONS LAID DOWN U/S 3 6 (1)(VII) OF THE ACT AND PRAYED FOR UPHOLDING THE APPELLATE ORDER OF LD.CIT(A). 24 . CONSIDERING THE FAC TS OF THE CASE THAT THE DIRECTORA TE OF EDUCATION GOVERNMENT OF DELHI TO WHOM THE ASSESSEE RENDERED SERVICES OF COMPUTER EDUCATION TRAINING AND INSTALLATION OF INFRASTRUCTURE FOR IMPARTING TRAINING DENIED THE PART PAYMENT OF THE BILL ED AMOUNT FOR RENDERING THE DEFICIEN T SERVICES T O CUSTOMER AND THE SAID AMOUNT WAS NEVER RECEIVED BY THE ASSESSEE IN SUBSEQUENT YEAR S AND NO LITIGATION WAS PENDING BY THE ASSESSEE AGAINST SUCH CUSTOMERS IN ANY COURT OF LAW AND THEREFORE THE SAID AMOUNT WAS NOT RECOVERED AS BEING DENIED BY THE CUSTOME RS FOR THE REASONS STATED ABOVE. WE FIND THAT THE PROVISION OF REBATE WHICH IS A KIND OF DE - RECOGNIZING THE REVENUE WHICH WAS ALREADY CREDITED IN THE BOOKS OF ACCOUNTS OF THE ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 23 ASSESSEE AS IS CLEAR FROM THE LEDGER ACCOUNT OF THE DIRECTORATE OF EDUCATION NE W DELHI GOVERNMENT IN THE BOOKS OF ASSESSEE . IN OUR VIEW PROVISIONS OF REBATE WAS RIGHTLY CLAIMED BY THE ASSESSEE UPON THE SAME BEING DENIED BY THE PERSON FROM WHOM IT WAS RECEIVABLE AND ALSO SATISFIE S THE CONDITIONS AS LAID DOWN IN SECTION 36(1)(VI I) OF THE ACT PARTICULARLY WHEN THE SIMILAR DEDUCTIONS WERE ALLOWED BY THE DEPARTMENT IN THE EARLIER AND SUCCEEDING YEARS . WE ALSO FIND THAT THE ASSESSEES CASE FIND STRONG SUPPORT FROM THE DECISIONS CITED ABOVE IN WHICH IT HAS BEEN HELD THAT MERELY SHO WING ALL THE BILL IS NOT ACCRUAL OF INCOME UNLESS THE BILLS AMOUNT ARE ACCEPTED BY THE CUSTOMERS. IN THE CASE OF BHARAT PETROLEUM CORPN. LTD. (SUPRA) IT WAS HELD THAT MERELY RAISING THE CLAIM OF BILL DOES NOT CREATE ANY LEGALLY ENFORCEABLE RIGHT TO RECEI VE THE SAME. IT WAS ALSO HELD THAT THE AMOUNT CANNOT BE TREATED AS ASSESSEES INCOME AS THE ASSESSEE HAS NOT ACQUIRED ANY LEGAL RIGHT TO RAISE THE SAME AS THE CUSTOMER DID NOT ACCEPT OR SETTLE THE SAME. IN THE CASE OF COMMISSIONER OF INCOME - TAX V. KERALA S TATE DRUGS & PHARMACEUTICALS LTD (SUPRA) IT WAS HELD THAT MERE ENTRIES MADE IN THE ACCOUNTS DID NOT REPRESENT ANY INCOME ACCRUED OR RECEIVED BY THE ASSESSEE . T HAT EXCESS AMOUNT CREDIT ED IN THE BOOKS OF THE ASSESSEE W A S NOT ASSESSABLE AS I T S INCOME. IT W AS ALSO HELD THAT THE AMOUNT OF SUPPLEMENTARY BILL DISPUTED BY THE BUYER WHICH WAS ULTIMATELY SET ASIDE BY THE HONBLE HIGH COURT SEVERAL YEARS BACK AND LATER CANNOT BE CHARGED TO TAX IN THE YEAR OF RAISING OF THE SUCH SUPPLEMENTARY BILLS. ACCORDINGLY WE HOLD THAT THE ORDERS OF LD. CIT(A) IS NOT ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 24 CORRECT AND ACCORDINGLY SET ASIDE THE SAME AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 2 50 00 000/ - . 25. THE ISSUE RAISED IN THE GROUND NO.6 IS QUA THE UPHOLDING THE DISALLOWANCE OF RS.19 00 418/ - BEING DIFFERENCE BETWEEN THE PROVISION FOR LEAVE ENCASHMENT AND THE AMOUNT ACTUALLY PAID ON THAT ACCOUNT AS MADE BY THE AO BY HOLDING THAT THE CLAUSE (I) OF SECTION 43B OF THE ACT. 26. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PROVIDED AN AMOUN T OF RS.40 71 369 / - AS PROVISION FOR LEAVE ENCASHMENT. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS ISSUE D SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISION S SHOULD NOT BE DISALLOWED. IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESS EE SUBMITTED THAT THE SAID PROVISION S W ERE MADE ON THE BASIS OF ACTUARIAL REPORT WHICH WAS LIABILITY OF THE ASSESSEE AND WAS ACCORDINGLY PROVIDED. HOWEVER THE AO NOT FINDING THE REPLY CONVINCING REJECTED THE SAME BY STATING THAT THE SAID PROVISION IS COVERED BY THE PROVISIONS OF SECTION 43B( F ) OF THE ACT AND THEREFORE NOT ADMISSIBLE. ACCORDINGLY THE AO DISALLOWED RS.40 71 369/ - . THE LD. CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY ALLOW ING THE RELIE F TO THE EXTENT OF RS.21 17 905/ - BEING ACT UAL PAYMENT OF LEAVE ENCASHMENT BY REJECTING THE SUBMISSIONS OF THE ASSESSEE THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS REPORTED IN 245 ITR 428 BY OBSERVING THAT THE SAID JUDGMENT COVERS THE CASE OF THE ASSESSEE; T HAT THE AMOUNT PROVIDED BY THE ASSESSEE IN RESPECT OF FUTURE LIABILITY WOULD BE ALLOWABLE ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 25 SUBJECT TO THE FULFILLMENT OF CERTAIN CONDITIONS WHICH THE ASSESSEE HAS NOT SATISFIED AND THEREFORE THE PROVISIONS WERE SUSTAINED TO THE EXTENT OF RS. RS.19 00 418/ - . 27 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE . WE FIND THAT IN THE CASE OF EXIDE INDUSTRIES LTD THE HONBLE SUPREME COURT HAS ADMITTED THE SPECIAL LEAVE PETITION ON THE IDENTICAL ISSUE VIDE ITS ORDER D ATED 8.5.2009 IN SLP (CIVIL NO.22889/2008) ALLOWING TO FILE APPEAL BY THE REVENUE. WE FURTHER FIND THAT THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.5457/MUM/2013 (SUPRA) FOLLOWING THE DECISION OF THE HONBLE APEX COURT DIRECTED THE AO TO KEEP RECOV ERY OF TAX AND INTEREST IN ABEYANCE TILL THE DECISION OF THE SUPREME COURT IN SLP (CIVIL NO.22889/2008) OF THE DEPARTMENT IN THE CASE OF EXIDE INDUSTRIES LTD AND IT WAS FURTHER RULED BY THE CO - ORDINATE BENCH THAT IT WOULD BE OPEN TO THE DEPARTMENT TO R ECOVER THE OUTSTANDING DEMANDS IN CASE THE APPEAL OF THE DEPARTMENT IS ALLOWED BY THE APEX COURT. THE OPERATIVE PART OF THE DECISION IS REPRODUCED BELOW : 9. IN VIEW OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN OUR VIEW IT WILL BE PROPER TO DISP OSE OF THIS APPEAL IN THE LIGHT OF THE ORDER OF THE HONBLE SUPREME COURT DATED 08.05.2009 PASSED IN THE CASE OF CIT VS. EXIDE INDUSTRIES LTD. (SUPRA). WE THEREFORE DISPOSE OF THE PRESENT APPEAL WITH A DIRECTION THAT THE ASSESSEE WILL PAY THE TAX AS IF S ECTION 43B(F) IS ON THE STATUTE BOOK HOWEVER TILL THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXIDE INDUSTRIES LTD. (SUPRA) THE REVENUE WILL NOT RECOVER THE PENALTY AND INTEREST WHICH MAY ACCRUE TILL THE DECISION OF THE APPEAL BY THE HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THE OUTSTANDING INTEREST DEMAND IN CASE THE CIVIL APPEAL OF THE DEPARTMENT IN THE CASE OF EXIDE INDUSTRIES LTD. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 26 (SUPRA) IS ALLOWED BY THE HONB LE SUPREME COURT. SUBJECT TO OUR ABOVE OBSERVATIONS THE MATTER IS RESTORED TO THE FILE OF THE AO TO BE ADJUDICATED AFRESH AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) WE FIND THAT THE FACTS OF THE CASE BEFORE US IS IDENTICAL AS DECIDED BY THE COORDINATE BENCH IN THE DECISIONS(SUPRA) AND THEREFORE BY FOLLOWING THE DECISION OF THE BENCH RESPEC T FULLY WE RESTORE THE MATTER BACK TO THE FILE OF THE AO BY SETTING ASIDE THE ORDER OF CIT(A) AND DECIDE THE ISSUE ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 28. GROUNDS OF APPEAL NO.7 IS WITH RESPECT TO DISALLOWANCE MADE U/S 14A BY THE LD. CIT(A) BY APPLYING THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES. 29. THE BRI EF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS RECEIVED A DIVIDEND INCOME OF RS.2 67 21 188/ - FROM M/S BEJING APTECH JADE BIRD INFORMATION TECHNOLOGY CO. LTD. THE AO ALSO OB SERVED THAT T HE ASSESSEE MADE INVESTMENT S OF RS.23 85 10 346/ - IN THE SUBSIDIARY COMPANIES IN INDIA AND THESE SUBSIDIARY COMPANIES DID NOT DECLARE DIVIDEND DURING THE YEAR. ACCORDING TO THE AO THE INVESTMENT S MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANIES IN INDIA W ERE W ITH THE MOTIVE TO EARN DIVIDEND INCOME WHICH WOULD BE EXEMPT FROM TAX AS AND WHEN DECLARED BY THE SUBSIDIARY COMPANIES . A CCORDINGLY THE AO HELD THAT THE INTEREST PAID BY THE ASSESSEE ON THE BORROWED CAPITAL WHICH WAS UTILIZED TO FINANCE INVESTMEN T S IN THE ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 27 SUBSIDIARY COMPANIES WAS NOT ALLOWABLE AND COMPUTED THE DISALLOWANCE BY APPLICATION OF PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES BY RELYING ON THE DECISION OF THE HONBLE SPECIAL BENCH OF ITAT DELHI IN THE CASE OF CHEMINVES T LTD V/S ITO (2009) 121 ITD 318 (DELHI) (SB) AND THE M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. (2008) REPORTED IN 26 SOT 603. FINALLY THE AO COMPUTED THE DISALLOWANCE AT RS.1 56 27 270/ - BY APPLYING THE RATIO LAID DOWN ON THE DECISION OF SPECIAL BENCH OF TH E DELHI TRIBUNAL ON ACCOUNT OF INTEREST PAID. 30 . DURING THE COURSE OF APPELLATE PROCEEDINGS THE LD. CIT(A) DIRECTED THE AO TO RECALCULATE THE DISALLOWANCE BY EXCLUDING THE INVESTMENT MADE IN TH E FOREIGN COMPANIES ON THE GROUND THAT THE DIVIDEND RECEIVE D FROM THE INVESTMENT WITH FOREIGN COMPANIES IS NOT EXEMPT FROM THE TAX AND IS TAXABLE . D URING THE YEAR DIVIDEND RECEIVED FROM FOREIGN COMPANY RS.2 67 28 188 / - WAS SHOWN IN TH E PROFIT AND LOSS ACCOUNT AS TAXABLE INCOME. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT(A) THAT NO DISALLOWANCE WAS REQUIRED TO BE MADE UNDER SECTION 14A R.W.R.8D IN RESPECT OF INVESTMENT S MADE IN SUBSIDIARY COMPANIES ON WHICH NO DIVIDEND WAS RECEIVED DURING THE YEAR BY RELYING ON THE CASE OF S A BUILDER REPORTED IN 188 ITR 1 (SC). HO WEVER THE LD. CIT(A) UPH E LD THE DISALLOWANCE SUBJECT TO RE - WORKING OF THE SAME BY RELYING ON THE DECISION OF CHEMINVEST LTD (SUPRA) . 31 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON THE ISSUE. IT WAS ARGUED BY THE LD. AR THAT THE DISALLOWANCE MADE ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 28 U/S 14A R.W.R.8D WAS MADE PRIMARILY BY RELYING ON THE DECISION OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL DELHI IN THE CASE OF CHEMINVEST LTD V/S ITO (2009) 121 ITD 318 (DELHI) (SB) WHICH IS NO LONGER APPLICABLE AS THE SAME WAS REVERSED BY THE HON BLE DELHI HIGH COURT AS REPORTED IN (2015) 378 ITR 0033 (DEL) WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE CAN BE MADE ON THE NOTIONAL BASIS ON EXEMPT INCOME AND HAS TO BE RESTRICTED THE ACTUAL INCOME CLAIMED IN THE ASSE SSMENT YEAR . THE SECOND LIMB OF ARGUMENT OF THE LD.AR WAS THAT THE TOTAL INVESTMENT S MADE IN THE SUBSIDIARY COMPANIES WERE TO THE TUNE OF RS.23 85 10 386/ - WHEREAS THE SHARE CAPITAL OF THE ASSESSEE COMPANY WERE RS.43 15 11 170/ - BY DRAWING OUR ATTENTI ON TO PAGE 57 OF THE PAPER BOOK WHICH IS THE COPY OF AUDITED BALANCE SHEET AS ON 31.3.20 07 AND THUS SUBMITTED THAT NO INTEREST DISALLOWANCE IS CALLED FOR AS THE ASSESSEES OWN FUND WERE SUFFICIENT TO COVER T HE INVESTMENT IN THE SHAR ES IN SUBSIDIARY COMPA NIES BY STRONGLY RELYING ON THE DECISION IN THE CASE OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SBI DHFL LTD REPORTED IN 376 ITR 296 (BOM) AND IN THE CASE OF CIT V/S HDFC BANK LTD REPORTED IN 383 ITR 529 (BOM) . CONSIDERING THE FACTS OF T HE CA S E AND IN TH E LIGHT OF THE VARIOUS DECISIONS CITED ABOVE WE FIND THAT THE ASSESSEE HAS MADE INVESTMENT IN THE SUBSIDIARY COMPANIES DURING THE YEAR WHICH IS A FINDING OF FACT RECORDED BY THE AUTHORITIES BELOW . I T IS ALSO CLEAR FROM THE COPY OF AUDITED BALANCE SHEET AS ON 31.3.2007 THAT THE ASSESSEES OWN FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT IN THE SUBSIDIARY COMPANY. MOREOVER THE INVESTMENT S MADE IN THE SUBSIDIARY COMPANIES WERE PRIMARILY MADE NOT WITH THE OBJECTIVE OF ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 29 EARNING DIVIDEND BUT MADE OUT OF STRATEG IC CONSIDERATION S TO WHICH THE PROVISIONS O F SECTION 14A CANNOT BE APPLIED AS HAS BEEN HELD IN THE CASE OF COMMISSIONER OF INCOME - TAX V.ORIENTAL STRUCTURAL ENGINEERS (P.) LTD. 2013] 3 2. TAXMANN.COM 210 (DELHI) GARWARE WALL ROPES LTD VS. ADDL. CIT (2014) ( 65 SOT 86 )( MUM ). AND IN THE CASE OF M/S JM FINANCIAL LIMITED V/S ADDL CIT(ITA NO.4521/M/2012 . WE THEREFORE FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECISIONS DELETE THE DISALLOWANCE MADE U/S 14A BY SETTING ASIDE THE ORDER OF LD.CIT(A) AND DIRECT IN G THE AO ACCORDINGLY. 33 . GROUND NO.8 IS IN RESPECT OF UPHOLDING THE ADDITION OF RS. RS.5 15 396/ - BY THE AO MADE U/S 68 OF THE ACT ON THE BASIS OF ITS INFORMATION AVAILABLE WITH THE DEPARTMENT . 34 . BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED FROM THE ITS DETAILS THAT ASSESSEE HAS RECEIVED FEES FOR PROFESSIONAL/ TECHNICAL AND OTHER SERVICES AMOUNTING TO RS.1 73 41 224/ - AND ASKED THE ASSESSEE TO RECONCILE THE SAME. HOWEVER THE ASSESSEE COULD NOT RECO NCILE THE SAME AND WAS NOT ABLE TO EXPLAIN WHETHER THE SAME WAS OFFERED FOR TAXATION OR NOT . AC CORDINGLY THE AO ADDED TO THE TOTAL INCOME OF THE ASSESSEE AN AMOUNT OF RS.1 73 41 224/ - U/S 68 OF THE ACT BY HOLDING THAT THE SAME AS UNEXPLAINED CASH RECEI P TS IN THE HANDS OF THE ASSESSEE. 35 . BEFORE THE LD. CIT(A) THE LD.AR SUBMITTED THAT THE ASSESSEE HAS FILED NECESSARY DETAILS AND RECONCILED STATEMENT AS PER ITS INFORMATION AND FILED VIDE LETTER DATED 28.12.2009 WHICH IS PLACED AT PAGES 195/296 OF V OL 1 OF ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 30 THE ASSESSEES PAPER BOOK WHICH WAS FILED BEFORE THE AO ONLY ON 30.12.2009 DUE TO THE REASONS BEYOND THE CONTROL OF THE ASSESSEE WHEREAS THE AO COMPLETED THE IMPUGNED ASSESSMENT ON 29.12.2009. IT WAS ALSO SUBMITTED THAT THE ENTIRE ADDITION HAS BEEN MADE BY THE AO WHICH HAS RESULTED IN DOUBLE ASSESSMENT OF THE SAME AMOUNT OF INCOME . IT WAS ALSO SUBMITTED BEFORE THE FAA THAT THE AO HAS GRANTED CREDIT OF TAX DEDUCTED AT SOURCE VIDE ORDER PASSED U/S 154 OF THE ACT AFTER VERIFYING THE RECEIPT D ULY ACCOUNTED FOR AND ACCORDINGLY THE LD. CIT(A) HELD THAT THE GROUND RAISED BY THE ASSESSEE WAS RENDERED INFRUCTUOUS IN VIEW OF THE RECTIFICATION APPLICATION AND ORDER THEREON BY THE AO HOWEVER T HE LD.CIT(A) SUSTAIN ED THE DISALLOWANCE TO THE EXTENT OF RS.5 15 396 . 36 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THE ISSUE . I T WAS VEHEMENTLY ARGUED BEFORE US BY THE LD.AR THAT SOME ITEMS OF IT N S AGGREGATING AMOUNT RS.5 15 396/ - COULD NOT BE RECONCILED IN ABSENCE OF INFORMATION. THE LD. COUNSEL DREW OUR ATTENTION TO THE PAGE 719 TO 750 OF THE PAPER BOOK BY POINTING OUT THAT THE AMOUNT OF RS.5 15 396/ - IS MADE UP OF SO MANY PARTIES WITH WHOM THE ASSESSEE NEVER HAD ANY BUSINESS DEALINGS AND IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS NOT EVEN CLAIMED CREDIT OF TDS DEDUCTED BY THE PARTIES ON THE SAID AMOUNT. THE LD. AR SUBMITTED THAT SINCE THE ASSESSEE WAS NOT AWARE OF THE FACT AND THE ASSESSEE HAD NEVER RENDERED ANY SERVICES TO THOSE PARTIES AND THEREFORE THE SAME COULD NOT BE TREATED AS INCOME OF THE ASSESSEE O N THE BASIS OF MERE IT N S INFORMATION ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 31 WITHOUT MAKING ANY INQUIRIES FROM THOSE PARTIES WHEN THE ASSESSEE HAS DIS OWN ED TRANSACTION S . THE LD.AR PRAYED THAT THE ADDITION WAS REQUIRED TO BE DELETED AS THERE IS NO PROPER ENQUIRY OR VERIFICATIO N ON THE PART O F THE AO AND ADDITION WAS MADE JUST BY REJECTING AN ITNS INFORMATION. 37 . THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 3 8 . I T IS CLEAR FROM THE ABOVE THAT THERE ARE SOME UN - RECONCILED ENTRIES IN IT N S AMOUNT ING TO RS.5 15 396/ - PERTAINING TO SEVERAL PARTIES WITH WHOM THE ASSESSEE HAS STATED NOT TO HAVE ANY BUSINESS OR OTHER DEALING S AND COULD NOT BE RECONCILED . THE AO MADE ADDITION ON THE BASIS OF MERELY IT N S INFORMATION WITHOUT MAKING ANY OTHER FURTHER VERIFICATION O F ITNS IN FORMATION AVAILABLE WITH THE AO AND THEREFORE THE ADDITION AS MADE BY THE AO AND SUSTAINED BY THE LD.CIT(A) WAS NOT JUSTIFIED WHEN THE ASSESSEE HAS COMPLE TELY DISOWNED THE TRANSACTIONS WITH THE SAID PARTIES. THE INFORMATION AS CONTAINED IN THE ITNS ARE FILED BY THE THIRD PARTIES AND THE AO COULD HAVE ENQUIRED FROM THOSE PARTIES WHOSE INFORMATION WAS AVAILABLE HOWEVER THE AO SIMPLY PROCEEDED TO ADD THE UNACCOUNTED AMOUNT WITHOUT DOING ANY INQUIRY. ACCORDINGLY WE DIRECT THE AO TO DELETE THE ADDI TION. I.T.A. NO.1227/MUM/2013 (BY REVENUE) 3 9 . GROUNDS OF APPEAL TAKEN BY THE REVENUES ARE AS UNDER : 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT UPHOLDING THE A O 'S VIEW THAT THE BRAND BUILDING EXPENSES ARE CAPITAL IN NATURE AND HENCE NOT DEDUCTIBLE AS REVENUE EXPENDITURE.' ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 32 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING BRAND BUILDING EXPENDITURE AS REVENUE IN NATURE MERELY BECAUSE THE SAID EXP ENDITURE COMPRISES ADVERTISING EXPENSES ETC WITHOUT APPRECIATING THAT THE SAID EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE YEAR UNDER CONSIDERATION ONLY.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING BRAND BUILDING EXPENDITURE AS REVENUE IN NATURE WITHOUT CONSIDERING THE FACT THAT ADMITTEDLY THE ASSESSEE HAD INCURRED THE SAID EXPENDITURE FOR THE CREATION OF A BRAND WHICH IS A CAPITAL ASSET OF ENDURING NATURE AND INTENDED TO BE USED FOR REVENUE GENERATION OVER SEVERAL YEARS/BEYOND THE RELEVANT ASSESSMENT YEAR.' 40 . THE SOLE ISSUE RAISED IN THE GROUNDS OF APPEAL IS AGAINST THE DELETION OF ADDITION BY THE LD.CIT(A) TO THE TUNE OF RS.1 01 60 695/ - BY THE LD. CIT(A) BY HOLDI NG THAT THE BRAND BUILDING EXPENSES WERE OF REVENUE IN NATURE AS AGAINST THE FINDING OF THE AO THAT SUCH EXPENSES WERE OF CAPITAL NATURE. 41 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS DEBITED AN AMOUNT O F RS.1 01 60 495/ - TO THE PROFIT AND LOSS ACCOUNT TOWARDS BRAND BUILDING EXPENSES. THE AO FOUND THAT THESE EXPENSES ARE CAPITAL IN NATURE AND THEREFORE ISSUED NOTICED D ATED 14.9.2009 CALLING UPON THE ASSESSEE AS TO WHY THE SUCH EXPENSES SHOULD NOT BE TREATED AS CAPITAL EXPENSE AND ULTIMATELY DI SALLOWED THE SAME AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE . 42 . THE ASSESSEE FILED REPLY VIDE LETTER DATED 6.11.2009 SUBMITTING THEREIN THAT THESE EXPENSES WERE IN THE FORM OF RETAI N ER - SHIP FEES MARKETING EXPENSES ART WORK CHARGES FOR CD S DESIGNS FOR LEAFLETS BROCHURES COLOUR PRINTS CAMPAIGN ILLUSTRATIONS ETC. THUS THESE WERE INCURRED IN THE NORMAL COURSE OF BUSINESS AS ROUTINE EXPENSES. IT WAS SUBMITTED BEFORE THE AO THAT ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 33 THESE EXPENSES DO NOT GIVE ANY BENEFIT OF ENDURING NATURE A ND WERE INCURRED FOR EXISTING AND RUNNING BUSINESS. IN SUPPORT OF THESE CONTENTIONS THE ASSESSEE RELIED ON NUMBER OF DECISIONS WHICH WERE REPRODUCED BY THE AO AT PAGE 6 OF THE ASSESSMENT ORDER. FINALLY THE AO DISALLOWED THESE EXPENSES UNDER THE HEAD BRAND BUILDING EXPENSES BY OBSERVING THAT THAT THE BRAND BUILDING EXPENSES WERE NOT ROUTING EXPENSES AND NOT INCURRED IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AND OBSERVED THAT THESE EXPENSES WERE INCURRED FOR BUILDING A BRAND NAME/ IMAGE OF THE ASSESSEE FROM WHICH THE ASSESSEE GOT ENDURING BENEFIT OVER THE PERIOD OF TIME. HOWEVER THE AO ALLOWED DEPRECIATION AT THE RATE OF 25% THEREBY MAKING AN ADDITION OF RS.76 21 871/ - . AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL B EFORE THE LD.CIT(A) 43 . BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT THESE EXPENSES IS DEBITED UNDER THE HEAD BRAND BUILDING EXPENSES WERE IN THE NATURE OF MARKETING/ADVERTISING INCURRED IN THE NORMAL COURSE OF BUSINESS AND INCURRED IN THE NORM AL COURSE OF BUSINESS THEREBY NOT CREATING ANY FIXED ASSETS NOR RESULTED INTO ANY VALUE ADDITION TO EXISTING FIXED ASSETS. THE BRAND BUILDING EXPENSES INCURRED DID NOT PROVIDE ANY BENEFIT OF ENDURING NATURE . THESE EXPENSES WERE RECURRING IN NATURE AND WER E INCURRED FOR RUNNING AND OPERATION OF BUSINESS OF THE ASSESSEE IN ORDER TO INCREASE THE SALES BY EFFECTIVE ADVERTISING AND MARKETING THEREBY ENABLE THE ASSESSEE TO DO BUSINESS MORE EFFECTIVELY AND PROFITA BLY WHILE CREATING NO FIXED BENEFIT OF PERMANE NT NATURE. IN DEFENCE OF ARGUMENT THE LD.AR RELIED ON NUMBER OF ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 34 DECISIONS INCLUDING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO . L TD . REPORTED IN 124 ITR (SC). 44 . THE LD.CIT(A) AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESS EE AND THE CASE LAW DELE T ED THE ADDITION BY OBSERVING AND HOLDING AS UNDER : 3.3 THE ASSESSING OFFICER'S ORDER SUBMISSIONS MADE FOR THE APPELLANT AND MATERIAL RECORD HAVE BEEN CONSIDERED. THE EXPENSES INCURRED ARE MARKETING EXPENSES FOR MARKETING THE BRAND AND PROMOTION OF ITS CORPORATE IMAGE. THE EXPENSES CANNOT BE SAID TO BE ADDIT ION TO FIXED ASSETS OR CAPITAL ALTHOUGH THEY MAY BE PROVIDING ADVANTAGE OF ENDURING NATURE. NO ASSET HAS BEEN PRODUCED AS A RESULT OF THE EXPENDITURE AT BEST IT CAN BE TR EATED AS DEFE RRED REVENUE EXPENDITURE SINCE THE EXPENSE INCURRED WOULD PROVIDE SOME ENDURING ADVANTAGE I THE YEARS. IN THESE CIRCUMSTANCES THE ADDITION MADE BY THE ASSESSING OFFICER IS DELE TED. ACCORDINGLY THE ASSESSING OFFICER WHEN GIVING APPEAL EFFECT W ILL ALSO MAKE SUITABLE ADJUSTMENT TO THE DEPRECIATION GRANTED ON THE PREMISES OF TAKING THE EXPENDITURE TO BE CAPITAL EXPENDITURE. 45 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THE ISSUE. WE FIND THAT THE ASSESSEE HAS INCURRED EXPENSES ON MARKETING/AD VERTISING AND RETAINER - SHIP ETC. F OR RUNNING AND OPERATION OF BUSINESS MORE PROFITABLY AND EFFICIENTLY W HICH DID NOT RESULT IN THE CREATION OF FIXED ASSET OR CREATION OF ANY BENEFIT OF ENDURING NATURE IN FAVOUR OF THE ASSESSEE AND THUS OBSERVATION AND FIN DINGS OF THE AO WAS NOT CORRECT AND THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY RECORDING THE FINDINGS OF FACTS THAT THE EXPENDITURE INCURRED WERE OF REVENUE IN NATURE EXPEN DED FOR DAY TO DAY RUNNING AND OPERATION OF ASSESSEES BUSINESS . WE ARE OF THE OPINION THAT THE ORDER PASSED BY THE LD.CIT(A) IS CORRECT AND DOES NOT REQUIRE ANY INTERFERENCE FROM ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 35 OUR PART AND ACCORDING LY WE UPHOLD THE SAME ON THIS ISSUE BY DISMISSING THE APPEAL OF REVENUE. I.T.A. NO.723/MUM/2013 (BY ASSESSEE ) GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE REPRODUCED BELOW : 1 THE L.D CIT(A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF ESOP EXPE NSES OF RS.3 64 49 900/ - 2. THE L.D CIT(A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) OF RS. 38 72 836/ - 2.1 . THE L.D CIT(A) ERRED IN LAW AND ON FACTS AND IN TH E CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT IGNORING THE FACT THAT THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE ON INTEREST AND IN FACT HAD EARNED NET INTEREST OF RS.48 63 712/ - 3. THE L.D CIT(A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF RS.44 94 048/ - (CORRECT AMOUNT RS.4 94 098/) 4. THE L.D CIT(A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE DISALLOWANCE OF RS.1 04 08 418/ - . 5. EACH GROUND OF APPEAL HEREINABOVE IS INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER ; 6. THE CIT(A) O R DE R BEING CONTRARY TO LAW EVIDENCE AND FACTS OF T HE CA S E SHOULD BE SET ASIDE AMENDED OR MO DIFIED IN THE LIGHT OF THE GROUND DEDUCED ABOVE 46 . GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THIS APPEAL BEARING GROUND NO.1 2 AND 3 ARE IDENTICAL TO THAT OF APPEAL FILED BY THE ASSESSEE BEARING ITA NO.946/MUM/2013 THEREFORE AND OUR DECISION TAKEN THEREIN BY ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 36 US WOULD BE APPLIED TO THESE GROUNDS AS WELL. THE GROUND S RAISED BY THE REVENUE ARE DISMISSED. 47 . THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.4 IS AGAINST THE CONFIRM ATION OF DISALLOWANCE OF RS.1 04 08 418/ - AS MADE BY THE AO ON ACCOUNT OF WRITING OFF ADVANCES. 4 8 . THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT T HE ASSESSEE HAS WRITTEN OFF SOME SECURITIES GIVEN FOR ELECTRICITY /TELEPHONE CONNECTIONS AGGREGATING TO RS.1 04 08 418/ - . THE ASSESSEE HAD WRITTEN OFF THE SAID ADVANCES AS THEY WERE NOT RECOVERABLE AND WERE ADJUSTED AGAINST THE COMPANY EXPENSES AGAINST THE OUTSTANDING BILLS OF ELECTRICITY AND TELEPHONE . THE AO CAME TO THE CONCLUSION THAT THESE ADVANCES WRITTEN OFF WERE NOT ADMISSIBLE EXPENS ES U/S 37 OF THE ACT THEREBY REJECTING THE CONTENTIONS OF THE ASSESSEE BY HOLDING THAT THE THESE DEPOSITS WERE GIVEN FOR ELECTRIC CONNECTION S WHICH WERE REFUNDABLE AND COULD BE CLAIMED AS AND WHEN THE ASSESSEE SURRENDERED THE CONNECTIONS TO THE C ONCERNED DEPARTMENT AND THUS REJECTED THE PLEA OF THE ASSESSEE THAT IT COULD NOT BE RECOVERED OR ADJUSTED BY THE DEPARTMENT CONCERNED AGAINST THE OUTSTANDING DUES. S IMILARLY THE TELEPHONE ADVANCES WERE GIVEN FOR AVAILING TELEPHONE FACILITY WHICH WAS WRITTEN OF F BY THE ASSESSEE WHEN THE SAME COULD NOT BE RECOVERED FROM THE TELEPHONE DEPARTMENT OR ADJUSTED AGAINST THE DUES. ULTIMATELY THE AO DISALLOWED THE WHOLE SOME RS. 1 04 08 418/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 37 4 9 . BEFORE THE LD. CIT(A ) THE ASSESSEE SUBMITTED THAT THE ADVANCES GIVE TO ELECTRICITY DEPARTMENT AND TELEPHONE DEPARTMENT WERE NOT RECOVER ABLE . WHEN THE ASSESSEE WAS NOT ABLE TO GET REFUND OF DEPOSITS AS THE FRANCHISES OPERATING FORM THE (RENTED) PREMISES HAD COMMITTED DEFAULT IN THE PAYMENT OF BILL S AND VIOLATED THE CONDITIONS FOR ALLOTMENT OF CONNECTION S. SIMILARLY IN THE CASE OF TELEPHONE DEPOSIT S THE DEPARTMENT HAS ADJUSTED THE OUTSTANDING BILLS AND PENALTY AGAINST THE SECURITY DEPOSIT S AND CANCELLED THESE CONNECTIONS. IT WAS ALSO SUBMITTED THAT THESE AMOUNTS WERE WRITTEN OFF AS A MATTER OF COMMERCIAL EXIGENCY AS PURSUING RECOVERY PROCEEDINGS WOULD HAVE PROVED EXPENSIVE AS THE COST OF LITIGATIONS WOULD HAVE BEEN MORE THAN THE AMOUNT RECOVERABLE . ULTIMATELY THE LD . CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AND DISMISSED THE APPEAL ON THIS GROUND BY OBSERVING AND HOLDING AS UNDER : 7.3. THE ASSESSMENT ORDER SUBMISSIONS MADE FOR THE APPELLANT AND MATERIALS ON RECORD HAVE BEEN CONSIDERED. THE BENEFIT OF THE PR OVISION OF SECTION 36(1)(VII) DEDUCTION FOR DEBTS WRITTEN OFF CAN BE ALLOWED ONLY WHERE THE SAID AMOUNTS HAVE BEEN CLAIMED AS INCOME BY AN ASSESSEE. IN THE PRESENT CASE IN APPEAL THE DEPOSITS MADE ARE NOT SHOWN TO HAVE BEEN INCLUDED AS INCOME OF THE ASSESS EE IN EARLIER YEAR/SO FOR SECTION 36(1)(VII) TO BE APPLIED FIRST THE APPELLANT MUST SHOW THAT THE AMOUNTS NOW WRITTEN OFF WERE INCLUDED AS INCOME IN ITS ACCOUNTS AND ONLY THEN CAN IT BE TRE ATED AS A BAD DEBT AND WRITE OFF ALLOWED WITHOUT HAVING TO SHOW TH AT IT IS IRRECOVERABLE ETC. THE PRIMARY REQUIREMENT OF THE AMOUNTS HAVING BEEN INCLUDED AS INCOME HAS NOT BEEN FULFILLED AND HENCE DEDUCTION U/ S 36(1)(VII) IS NOT ALLOWABLE. AS REGARDS THE PLEA THAT THE AMOUNT BE ALLOWED AS A BUSINESS LOSS LOSSES INCID ENTAL TO BUSINESS ARE ALLOWABLE AS DEDUCTION DESPITE THERE BEING NO SPECIFIC PROVISION FOR THE SAME. IF THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS OR ITS IS INCIDENTAL TO THEN THE LOSS IS DEDUCTIBLE. THE PARAMETERS F OR CLAIM OF BUSINESS LOSS AND THE BAD DEBTS ARE DIFFERENT. IN ORDER TO CLAIM BUSINESS ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 38 LOSS THE APPELLANT HAS TO PRODUCE SUFFICIENT EVIDENCES AS TO HOW AND UNDER WHAT CIRCUMSTANCES IT HAS INCURRED SUCH LOSSES. HOWEVER THE APPELLANT HAS NEITHER IN THE PR ESENT APPEAL PROCEEDINGS NOR BEFORE THE ASSESSING OFFI CE R ADDUCED SUFFICIENT EVIDENCES TO SUPPORT ITS CLAIM FOR SUCH BUSINESS LOSS AND HAS MADE STATEMENTS REGARDING WHY IT WOULD NOT BE COST EFFECTIVE TO PURSUE REFUND OF THE DEPOSITS. THEREFORE. THE CLAIM CANNOT BE ENTERTAINED AND IS ACCORDIN GLY RE J ECTED. IN THE RESULT THE GROUND IS DISMISSED. 50 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THE LD. AR SUBMITTED BEFORE US THAT THESE TELEPHONE AND ELECTRICITY DEPOSI TS WERE MADE THROUGHOUT INDIA IN NUMBER OF TOWNS AND CITIES WHEREVER THESE DEPOSITS WERE MADE BY SSI LIMITED WHICH THE ASSESSEE HA D TAKEN OVER. IT WAS ALSO SUBMITTED THAT THE ASSESSEE S BUSINESS MOSTLY CONSISTED ON CARRYING OUT BUSINESS ACTIVITY ALL OVE R INDIA FOR WHICH THE ASSESSEE HAS ENTERED INTO THE LARGE NUMBER OF FRANCHISEE AGREEMENT . THESE ADVANCES WERE GIVEN BY FRANCHISE E ON BEHALF OF THE ASSESSEE FOR OBTAIN ING ELECTRICITY AND TELEPHONE CONNECTION S . OUT OF THESE IN GOOD NUMBER OF CASES THE FR ANCHIS E E COULD NOT PAY THEIR TELEPHONE AND ELECTRICITY BILLS AND AS RESULT THE OF SUBSTANTIAL PART OF THESE ADVANCES WERE CONSUMED BY WAY OF ADJUSTMENTS OF THESE DEPOSITS BY THE DEPARTMENTS AGAINST THE ELECTRIC AND TELEPHONE BILLS. THE LD. AR ALSO ARGUED THAT THESE DEPOSITS WERE MADE IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AND ASSESSEE COULD NOT RECOVER AT ALL FROM THESE FRANCHISE E. I F IN THE SUBSEQUENT YEARS THESE ADVANCES WERE RECOVERED THE SAME WOULD BE CHARGEABLE TO TAX UNDER SECTION 40(1) (1). IT WAS ALSO ARGUED BY THE LD.AR THAT THE ASSESSEES RECORD WERE DAMAGED AND DESTROYED DUE TO UNPRECEDENTED FLOOD IN MUMBAI IN 2005 AND WERE ALSO ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 39 RECEIVED DUE AMOUNT OF COMPENSATION FROM ICICI LOMBARD AGAINST THE INSURANCE POLICY TAKEN BY THE ASSESSEE WHICH WERE FURNISHED BEFORE THE AUTHORITIES BELOW AND ALSO FORMING PART OF THIS RECORD AT PAGES AT 235 TO 272 OF THE PAPER BOOK. DUE TO ALL THESE REASONS THE LD. AR SUBMITTED THAT IT BECAME IMPOSSIBLE TO SEEK REFUND FROM THE DEPARTMENT LIKE ELECTRICITY A ND TELEPHONE WITHOUT HAVING THE RECEIPT S /DOCUMENTS. LASTLY THE LD. AR PRAYED THAT SINCE THESE ADVANCES WERE GIVEN IN T HE ORDINARY COURSE OF BUSINESS FOR DAY TO DAY RUNNING OF THE BUSINESS OF THE ASSESSEE AND THEREFORE THE AMOUNT WRITTEN OFF BY THE ASSE SSEE RS.1 04 98 418/ - BE DELETED BEING OUT OF BUSINESS EXIGENCY OF THE ASSESSEE . 51 . THE LD. DR HEAVILY RELIED ON THE ORDERS OF AUTHORITIES BELOW AND OBJECTED TO THE SUBMISSIONS OF THE LD.AR . THE LD. DR SUBMITTED THAT THE DEPOSITS WERE GIVEN BY THE ASSESS EE FOR GETTING TELEPHONE AND ELECTRIC CONNECTION S AND COULD NOT BE WRITTEN OFF AS BUSINESS LOSS AS THOSE WERE NOT COVERED U/S 41 OF THE ACT AND THEREFORE RIGHTLY DISALLOWED BY THE AO AND UPHELD BY THE LD. CIT(A) AND REQUESTED FOR UPHOLDING THE ORDERS OF THE AUTHORITIES BELOW. 52 . FROM THE ABOVE FACTS IT IS CLEAR THAT THE COMPANY HAS PAID VARIOUS ADVANCES FOR OBTAINING TELEPHONE AND ELECTRIC CONNECTION S IN THE BUSINESS PREMISES IN ITS FRANCHISE ES AS THE ASSESSEE CARRIED O N THE BUSINESS OF IMPARTING E DUCATION AND TRAINING AND RENDERING OTHER SERVICES. THESE DEPOSITS WERE ADJUSTED BY THE DEPARTMENT CONCERN ED AGAINST THE OUTSTANDING AND PENDING BILLS OF ELECTRICITY AND TELEPHONE WHEN THE FRANCHISE ES FAILED TO ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 40 MAKE THE PAYMENTS AND THE SAME COULD NOT BE RECOVERED FOR THE REASONS STATED ABOVE IN LARGE NUMBER OF CASES . WE ALSO FIND MERIT IN THE ARGUMENTS OF THE LD.AR THAT THE RECORD OF THE ASSESSEE WERE DESTROYED IN FLOOD IN 2005 AND THE DEPOSITS COULD NOT BE CLAIMED DUE TO DAMAGE AND DESTRUCTIONS OF RECO RD OF THE ASSESSEE. IN OUR OPINION THE SAID WRITING OFF ADVANCES GIVEN IN T HE ORDINARY COURSE OF BUSINESS WHICH HAS DIRECT NEXUS OF THE OPERATION OF BUSINESS OF THE AS S ES SEE AND THE AMOUNT OF ADVANCES WERE WRITTEN OFF OUT OF BUSINESS EXIGENCY AND IS THEREFORE BUSINESS LOSS . ACCORDINGLY WE SET ASIDE T HE O RDER OF THE LD.CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE. ITA NO.1228/MUM/2013 (BY THE REVENUE) 53 . THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. 'ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN NOT UPHOLDING THE AO'S VIEW THAT THE BRAND BUILDING EXPENSES AREA CAPITAL IN NATURE AND HENCE NOT DEDUCTIBLE AS REVENUE EXPENDITURE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN HOLDING BRAND BUILDING EXPENDITURE AS REVENUE IN NATURE MERELY BECAUSE THE SAID EXPENDITURE COMPRISES ADVERTISING EXPENSES ETC WITHOUT APPRECIATING THAT THE SAID EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE OF THE BUSIN ESS OF THE YEAR UNDER CONSIDERATION ONLY.' 3. 'ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A ) ERRED IN HOLDING BRAND BUILDING EXPENDITURE AS REVENUE IN NATURE WITHOUT CONSIDERING THE FACT THAT ADMITTEDLY THE ASSESSEE HAD IN CURRED THE SAI D EXPENDITURE FOR THE CREATION OF A BRAND WHICH IS A CAPITAL ASSET OF ENDURING NATURE AND INTENDED TO BE USED FOR REVENUE GENERATION OVER SEVERA L YEARS/BEYOND THE RELEVANT ASSESSMENT YEAR.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A ) ERRED IN DELETING THE ADDITION OF RS.2 12 854/ - AS UNEXPLAINED CASH RECEIPT IGNORING THE FACT THAT THE ASSESSEE HAD FAILED ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 41 TO RECONCILE THE ITS DETAILS AN D TO SHOW THAT THE SAID RECEIPT DID NOT PERTAIN TO IT 54 . GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS APPEAL BEARING GROUND NO.1 2 3 AND 4 ARE IDENTICAL TO THAT OF APPEAL FILED BY THE ASSESSEE BEARING ITA NO.946/MUM/2013 . THEREFORE OUT DECISIONS IN ITA NO.946/MUM/2013 WOULD MUTATIS MUTANDIS APPLY TO THESE GROUNDS AS WELL. ACCORDINGLY THESE GROUNDS ARE DISMISSED . I.T.A. NO.1271/MUM/2014(BY THE ASSESSEE) 55 . GROUNDS OF APPEAL TAKEN BY THE ASSESSEE READ AS UNDER : 1. THE LEARNED CIT ( A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIR MING THE DISALLOWANCE OF ESOP EXPENSES OF RS.1 49 21 324/ - . 2. THE LEARNED CIT ( A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2) OF RS.32 91 7S8/ - . 2.1 THE LEARNED C IT ( A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN HOLDING THAT IN THE FORMULA GIVEN IN RULE 8D IT IS THE INTEREST PAID AND NOT NET INTEREST WHICH IS TO BE CONSIDERED FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 2.2 THE LEARNED CIT ( A) WHILE HOLDING THAT IN THE FORMULA GIVEN IN RULE 8D IT IS THE INTEREST PAID AND NOT NET INTEREST WHICH IS TO BE CONSIDERED FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT ERRED - (A) IN PLACING RELIANCE ON THE DECISION OF ITAT AHMAD ABAD IN ADVANCE FINSTOCK PVT LTD AND NOT FOLLOWING THE DECISION OF THE CO - ORDINATE MUMBAI BENCH IN THE CASE OF MORGAN STANLEY SECURITIES P. LTD. WHICH IS BINDING ON HER AND; (B) IN NOT FOLLOWING THE DECISION OF THE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE WHEREIN AT PARA 24 IT WAS HELD 'THAT THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSES OF SECTION 14A ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 42 AND EXPENSES TOWARDS NONTAXABLE INCOME MUST BE EXCLUDED'; AND ( C) IN NOT FOL LOWING THE BASIC PRINCIPLE OF LAW THAT IF THERE ARE CONTRARY DECISIONS IN ANY MATTER THE DECISION WHICH IS IN FAVOUR OF THE ASSESSEE IS TO BE FOLLOWED. 3. THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF RS.22 11 564/ - . 4. THE ORDER OF THE COMMISSIONER (APPEALS) BEING CONTRARY TO LAW EVIDENCE AND FACTS OF THE CASE SHOULD BE SET ASIDE AMENDED OR MODIFIED. 5. EACH GROUND OF APPEAL HEREINABOVE IS INDE PENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 6. THE APPELLANT CRAVES LEAVE TO RESERVE TO ITSELF THE RIGHT TO ADD TO ALTER OR AMEND ANNUL ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING AND TO PRODUCE SUCH FURTHER EVIDENCES DOCUMENTS AND P APERS AS MAY BE NECESSARY. 56 . THE ISSUE RAISED IN GROUNDS OF APPEAL BEARING GROUND NO.1 2 AND 3 HAVE ALREADY BEEN DECIDED BY US IN ITA NO.946/MUM/2013 THEREFORE OUR DECISION IN ITA NO.946/MUM/2013 WOULD MUTATIS MUTANDIS APPLY TO THESE GROUNDS AS W ELL. ACCORDINGLY APPEAL OF THE ASSESSEE IS ALLOWED. 57 . ITA NO. 2003/MUM/2014 (BY REVENUE) 5 8 . GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER : 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.L0 90 275/ - ON ACCOUNT OF BRAND BUILDING EXPENSES RELYING ON THE DECISION OF THE CIT(A) IN ASSESSEE'S OWN CASE FOR A.Y. 2008 - 09 AND NOT UPHOLDING THE ASSESSING OFFICER'S VIEW THAT THE BRAND BUILDING EXPENSES ARE CAPITAL IN NATURE AND HE NCE NOT DEDUCTIBLE AS REVENUE EXPENDITURE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING BRAND BUILDING EXPENDITURE AS REVENUE IN ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 43 NATURE MERELY BECAUSE THE SAID EXPENDITURE COMPRISED OF ADVERTISEMENT E XPENSES ETC. WITHOUT APPRECIATING THAT THE SAID EXPENDITURE HAD NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE YEAR UNDER CONSIDERATION ONLY.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING BRAND B UILDING EXPENDITURE AS REVENUE IN NATURE WITHOUT CONSIDERING THE FACT THAT ADMITTEDLY THE ASSESSEE HAD INCURRED THE SAID EXPENDITURE FOR THE CREATION OF A BRAND WHICH IS A CAPITAL ASSET OF ENDURING NATURE AND INTENDED TO BE USED FOR REVENUE GENERATION O VER SEVERAL YEARS/BEYOND THE RELEVANT ASSESSMENT YEAR.' 59 . WE HAVE ALREADY DECIDED THE ISSUES RAISED IN THESE GROUNDS IN APPEAL NO.1227/MUM/2013 AND THEREFORE OUR FINDING IN ITA NO.122 7 /MUM/2013 WOULD MUTATIS MUTANDIS APPLY TO THESE GROUNDS AS WELL. ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. 60 . IN SUM AND SUBSTANCE THE ITA NO.946/MUM/2013 FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES APPEAL BEARING ITA NO.1227/MUM/2013 FILED BY THE REVENUE IS DISMISSED ITA NO.723/MU M/2013 BY THE ASSESSEE IS ALLOWED APPEAL BEARING ITA NO.1228/MUM/2013 BY THE REVENUE IS DISMISSED APPEAL BEING ITA NO.1271/MUM/2014 FILED BY THE ASSESSEE IS ALLOWED AND APPEAL BEARING ITA NO.2003/MUM/2014 FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6TH OCT 2016 . 6TH OCT 2016 S D SD (JOGINDER SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 6TH OCT 2016 . . . ./ SRL SR. PS ITA NO . 946 - 723 - 20003 - 1227 - 1271 - 1228 - APTECH 44 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. 6. / DR ITAT MUMBAI CONCERNED / GUARD FILE. / BY ORDER TRUE COPY (ASSTT. REGISTRAR) /ITAT MUMBAI