DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS),MUMBAI vs. DCIT(IT)2(1)(1), MUMBAI

सपनवधई की तधरऩख /Date of Hearing : 22/02/2018 घोषणध की तधरऩख /Date of Pronouncement : 02/05/2018 अदेश / O R D E R

PER SHAMIM YAHYA, ACCOUNTANT MEMBER:

“The appellant submits the following grounds of appeal which are separate/alternative and without prejudice to one another:

1. Treatment of software expenditure as capital - Rs.1,20,60,089/- On the facts and in the circumstances of the case and in law, the learned AO erred in treating the software expenditure of Rs. 1,2,060,089 as of capital nature instead of allowing the same as revenue expenditure, as claimed by the appellant. The appellant prays that the software expenditure of Rs. 1,20,60,089 be allowed as of revenue nature as it does not bring into existence any capital asset nor does it result in any enduring benefit to the appellant, as is so held in the appellant's own case by this Tribunal for the assessment year 2008-09 by its order dated 29 February 2016 in ITA No. 200/Mum/2014.

2. Interest on delayed payment of TDS - Rs. 54,054 DNV GL AS (Formerly known as Det Norske Veritas AS) On the facts and in the circumstances of the case and in law, the learned AO erred in disallowing Rs. 54,054, being interest paid by the appellant on delayed payment of TDS. The appellant prays that the interest of Rs. 54,054 paid by the appellant on delayed payment of TDS be allowed to the appellant.

3. Other/consequential reliefs On the facts and in the circumstances of the case and in law, the appellant prays Your Honours to grant such other and/or further and/or consequential reliefs as may be deemed fit and as per law. The appellant craves leave to add to, alter, amend or withdraw all or any of the foregoing grounds of appeal at or before hearing of this appeal. At the outset we note that there was a delay of 35 days in filing the appeal. The reasonable cause for the delay has been attributed to an oversight and inadvertent error on the part of the consultant who has given an acceptance of the same. Accordingly after hearing both the Counsel and perusing the records we condone the delay.

2.1. Appropos Ground No.1 2.2. On this issue the Assessing Officer noted that the assessee has incurred an amount of Rs.1,20,60,089/- towards software charges. Assessee explained that these were not payment for obtaining the benefit of enduring nature. The Assessing Officer noted that the assessee submissions were as under :-

Assessee vide its letter dated 26/02/2015 sated as reproduced below: “…the payments made on account of claim of Software Expenses as revenue in nature be allowed based on the following summarised reasons: The payments are made annually for use of license. The payments are made on the basis of the number of users using the software. The payments do not create an asset of an enduring nature. ...

2.2. However, the Assessing Officer was not convinced. He held the impugned expenditure to be capital in nature, then he allowed depreciation thereon.

2.3. Against the above order the assessee is in appeal .

2.4. We have heard both the counsel and perused the records. Ld. Counsel for the assessee submitted that identical issue was declared by this ITAT in assessee’s own case for assessment year 2008-09 vide order dated 29/02/2016 (ITA No.200/Mum/2014). The Tribunal has held as under :- 2

DNV GL AS (Formerly known as Det Norske Veritas AS)

“18. So far as this grievance of the assessee is concerned, it is sufficient to take note of the fact that, during the course of scrutiny assessment proceedings, the Assessing Officer himself noted that the software expenses represent Microsoft licence fees which is chargeable on annual basis , yet he disallowed the expenses as capital expenses though he allowed depreciation thereon. In appeal, learned CIT(A) confirmed the disallowance. The assessee is aggrieved and is in appeal before us.

2.5. The ld. Counsel further submitted that the Dispute Resolution Panel (DRP) for subsequent years has directed this issue in favour of the assessee and subsequently the Department has allowed this issue in favour of the assessee.

2.6.Upon careful consideration we note that the issue has been decided in favour of the assessee by the ITAT and the Department has allowed it subsequently. Hence, we set aside the order of the Assessing Officer and decide the issue in favour of the assessee .

3.1. We have heard both the Counsel and perused the records. We find that this issue is covered in favour of the Revenue by the decision of Hon'ble Apex Court in the case of Bharat Commerce & Industries Ltd. Vs. CIT (230 ITR 733). In this case the Hon’ble Apex Court has expounded as under :-

“Held When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the 3

DNV GL AS (Formerly known as Det Norske Veritas AS) case of payment of income- tax and interest for delayed payment of income-tax or tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessee's income after the income is determined. This cannot, therefore, be considered as an .expenditure for the purpose of earning any income or profits. Interest which is paid for delayed payment of advance tax on such income cannot be considered as expenditure wholly and exclusively purpose of business. Under the Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory objection Act, which is calculated with reference to the tax on income, cannot be allowed as a deduction.”

3.2. Examining the present issue on the touchstone of above said decision we find that the interest on delayed payment of TDS cannot be considered as expenditure wholly and exclusively for the purpose of business. The payment of TDS is not a permissible deduction u/s. 37, as any interest payable for default committed by the Assessee in discharging a statutory objection under the Act cannot be allowed as a deduction. Hence, when the assessee deducted TDS but failed to deposit the same in the Government Exchequer, the assessee was using Government money for its own purpose and hence, interest on late payment of TDS cannot be held to be an allowable expense. Similar view was also expressed in the case of East India Pharmaceuticals Works Ltd. by the Hon'ble Apex Court (224 ITR 627).

3.3. In the background of aforesaid discussion and precedents we donot find any infirmity in order of the authorities below on this issue. Accordingly, we confirm the same.

In the result, appeal of the assessee stands partly allowed. ननधधाररतऩ द्वधरध दधनखल की गई ऄपऩल ऄंशतः मंजफर की जधतऩ है । Order pronounced in the open court on 2/5/2018. अदेश की घोषणध खपले न्यधयधलय में ददनधंकः 2 मई, को की गई । Sd/- Sd/- ( AMARJIT SINGH ) ( SHAMIM YAHYA) न्यधनयक सदस्य / JUDICIAL MEMBER लेखध सदस्य / ACCOUNTANT MEMBER मपंबई Mumbai; ददनधंक Dated 02/05/2018 JV, Sr. PS अदेश की प्रनतनलनप ऄग्रेनषत/Copy of the Order forwarded to :