DIRECTI INTERNET SOLUTIONS P.LTD,MUMBAI vs. ACIT 5(1), MUMBAI

सुनवाई की तारीख / : 12.07.2016 Date of Hearing घोषणा की तारीख / : 30.09.2016 Date of Pronouncement आदेश / O R D E R Per Pawan Singh, JM: 1. These two appeals are filed by assessee against the order of CIT(Appeals) -9, Mumbai dated 10.01.2013 and 28.04.2014 for Assessment Years (AYs) 2009-10 & 2010-11 respectively. In both the appeal, assessee has raised common grounds of appeal; hence both the appeals were clubbed, heard together and are decided by & 5150/M/2014 Directi Internet Solutions P. Ltd. common order. Basically, the assessee has raised only two grounds which are as under: (1) Disallowance u/s. 14A r.w.Rule 8D of the Act. (2) Disallowance of Software Usage Charges.

AY-2009-10 2. Brief facts of the case are that the assessee filed return of income for relevant Assessment Year (AY) on 22.09.2009 declaring total income of Rs. NIL. The return of income came under scrutiny. The assessment under u/s 143( 3) was framed vide order dated 13.02.2011. While framing the assessment, the AO made the disallowance u/s. 14A of Rs. 19,43,486/-. The assessee claimed Software uses Charges of Rs. 14,56,292/-. The AO hold that the payments were made on account of software development which is capital in nature. Thus, depreciation @ 60% was allowed and accordingly. Rs. 5,82,517/- was disallowed. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) confirmed both the disallowance in the impugned order. Thus, the present appeal is filed before us. In AY-2010-11. The assessee filed return of income on 30.09.2010 declaring total income of Rs. 98,69,335/-. The assessment came under scrutiny and while framing the assessment, the AO disallowed a sum of Rs.10,52,335/- u/s. 14A. The assessee claimed Software Uses charges of Rs.13,83,762/-. The AO allowed depreciation @ 60% and Rs. 5,53,505/- was disallowed in the assessment order. The assessee carried that matter in appeal before the First Appellate Authority (FAA), wherein both the disallowance was confirmed. Hence, the present appeal is filed before us.

of exempt income. The Ld. AR of the assessee further relied upon the decision of Rajshree Production Pvt. Ltd. (TS-570 ITAT 2013, Mum), Kalyan Steel Ltd. vs. ACIT (ITA No. 1733/PN/2011), CIT vs. Gujarat State Fertilizers & Chemicals Ltd. (2013) 85 CCH 226 (GUJHC), Shopper Stop Ltd. vs. ACIT, ACIT vs. Midcaps Ltd. decision of Indore Tribunal. On the other hand, Ld. DR for the Revenue strongly supported the order of authorities below.

was of Rs. 29,98,21,124/-. Further, as per the balance sheet for AY 2009-10, the total investment of the assessee as on 31.03.2010 was Rs. 29,98,21,124/- and the assessee was having reserve and surplus amount of Rs. 1,48,60,50,942/-. The assessee has secured loan of Rs. 3,70,00,000/-. The assessee-company has own sufficient fund. We have noticed that before making disallowance the AO not made any enquiry about the nature of investment as if it was strategic or the investment were made in earlier years and the manner in which exempt income was derived and credited to the account of assessee. Similarly no such exercise was made by Ld. CIT(A). The power of ld CIT(A) is co-terminus with AO. The disallowance made by AO and sustained by ld CIT(A) is not in accordance with the procedure prescribed u/s 14A r.w.s. Rule 8D. There is no finding that assessee has sufficient fund available with him or not. Hence, we deem it appropriate to restore this ground of appeal to the file of AO to pass order afresh. The AO shall made necessary enquiry about the systematic/strategic investment and the manner in which exempt income was earned and credited to the account of assessee. The AO shall grant adequate opportunity to assessee to submit its details with regard to earning of exempt income. Hence, this ground of appeal is allowed for statistical purpose.

5. Second Ground of appeal raised in the present appeal is that the CIT(A) erred in confirming the disallowance of Software Usages Charges. The Ld. AR of the assessee argued that Software Uses Charges are Revenue in nature. The Software Uses Charges are not enduring in nature and they are fully allowable and relied upon the decision of Thomas Cook (I) Ltd. vs. DCIT, ITAT, Mumbai in & 9354/Mum/1992 reported in 15 SOT 392. The Ld. DR for Revenue supported the orders of authorities below.

6. We have considered the rival contention of the parties and perused the orders of authorities below. While making assessment, the AO observed that assessee-company claimed Software Uses Charges of Rs. 14,56,292/- which was paid on account of Software Uses Charges. The AO concluded it as Capital in nature and allowed only 60% depreciation, thus Rs. 5,82,517/- was disallowed. The CIT(A) while considering this ground concluded that the AO has given consequential effect on the depreciation in the specific year in accordance with provision of the Act and on the written down I.T.A. Nos.1778/M/2013 & 5150/M/2014 Directi Internet Solutions P. Ltd. value of the previous year mentioned software capitalized by him on the basis of depreciation allowed @ 60% in AY 2006-07. For ascertaining as to whether the expenditure of computer software gives enduring benefit to assessee, the duration of time for which assessee required right to use the software become relevant having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it would be said that where the life of computer software is shorter (less than 2 years) it may be treated as revenue expenditure. In Thomas Cook (India) ltd Vs DCIT (supra) the coordinate bench of Tribunal held that expenses incurred on up-gradation of software do not result into acquisition of any asset nor acquisition of enduring benefits as software become obsolete very quickly. Thus, following the order of coordinate bench this Ground of appeal is allowed.