DCIT CIR 3(1), MUMBAI vs. EXPORT CREDIT GUARANGEE CORPORATION OF INDIA LTD, MUMBAI

Assessee by: Shri S. Venkatraman Department by: Shri Chandrajit Singh सुनवाई क" तार"ख / Date of Hearing: 30.03.2016 घोषणा क" तार"ख /Date of Pronouncement:29.06.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:

The revenue has filed the present appeal against the order dated 08.08.2013 passed by the Commissioner of Income Tax (Appeal) 6, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2008-09. A.Y.2008-09

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.2,04,39,081/- to the total income of the assessee being amount received post settlement of claims.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in observing that Rs.2,04,39,081/- is not the income of A.Y.2008-09 but represents an amount held in trust by the appellant in a fiduciary capacity for the exporters/banks.

7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in observing that the club expenses as business expenses of the assessee. A.Y.2008-09

4. Issue no.1 and 2 are interconnected, therefore are being taken up together for adjudication. The revenue has challenged the deletion of addition of Rs.2,04,39,081/- to the total amount which has been received by the assessee for post settlement of claims. The learned representative of the department has argued that the learned CIT(A) has wrongly deleted the addition to the tune of Rs.2,04,39,081/-. Therefore, the order of learned CIT(A) is hereby liable to be set aside in accordance with law. However, on the other hand the learned representative of the assessee has argued that these issues have duly been covered by order of Income Tax Appellate Tribunal in dated 11.12.2015 in the assessee’s own case for A.Y. 2007-08. In view of the argument advanced by the learned representative of the assessee, it is observed that the assessee company is a public limited company and is engaged in the business of Export Credit Insurance. The company issues an insurance policies to exporters and banks in India to cover the risk of them not realizing the proceeds on exports from foreign buyers. When a claim was made by an exporter and bank, the appellant honors the same under the Policy issued and makes payment of the claim to the extent of 90% to the exporters / banks in terms of the policy. Thereafter, the assessee makes efforts to recover the amount due from Central banks abroad where money remitted by the importers are held on account of A.Y.2008-09 exchange restrictions or lack of foreign exchange in the hands of concerned Central banks. In the previous year relevant to A.Y.2007- 08, the appellant received a lump sum amount of Rs.5,04,24,036/- from the Central Banks located abroad, that represented amounts remitted to the Central Banks by importers of goods from India. Such lump sum amount received did not contain the names of exporters and the amounts that pertained to them. Pending identification of the exporters and their amounts, the appellant reflected the same in its balance sheet for the year ended 31st March 2009, relevant to the A.Y.2009-10 as “Unapportioned Claim for Recovery”. In the year ended 31st March 2009, relevant to A.Y.2009-10, the appellant carried an amount of Rs.2,04,39,081/- as income to its Profit and Loss Account. The appellant, therefore, has already offered the amount of Rs.2,04,39,081/- to tax in A.Y.2009-10. 4.1 The learned CIT(A) deleted the said addition on the basis of the order passed by learned CIT(A) for the A.Ys. 1991-92, 1994-95, 1995-96, 1996-97 and 2007-08. It was held that the said amount is not the income of the assessee as the same was held in the capacity of fiduciary for the exporters / banks, pending identification of the exporters and their share. Accordingly, this amount has been ordered to be deleted. Thereafter, the matter in this regard came before the Income Tax Appellate Tribunal in ITA No.1971/Mum/2011 dated 11.12.2015 in the assessee’s own case for A.Y.2007-08 wherein it has A.Y.2008-09 been held that this amount was not the income of the assessee and upheld the finding of the learned CIT(A) in the assessee’s own case. Accordingly, it is apparent that this ground has been squarely covered by the order passed by the Income Tax Appellate Tribunal in the assessee’s own case for A.Y.2007-08 and therefore, we are of the view that on this ground learned CIT(A) has passed the order judiciously and correctly which does not required to be interfere with at this appellate stage. Accordingly, these issues are decided in favour of the assessee and against the revenue.

ISSUE NO.3 & 4 :-

5. The revenue has challenged the deletion of software expenses to the tune of Rs.26,59,715/- and disallowance of Rs.10,63,886/- being net amount of capitalised and depreciation allowed. The assessee claimed the expenditure on software expenses to the tune of Rs.26,59,715/-. The Assessing Officer treated the same as intangible asset and allowed the depreciation to the tune of Rs.15,95,829/- and disallowed the difference to the tune of Rs.10,63,886/- (Rs.26,59,715/- - Rs.15,95,829/-). At the very outset learned representative of the assessee has argued that this issue has also been covered by the assessee’s own case in dated 11.12.2015 for A.Y.2007-08. Copy of order perused. Finding of the ITAT’s order on this issues has been given at para 11 and 12 of the order which is hereby reproduced below:- A.Y.2008-09 “11. The AO has allowed the same by treating the same as capital expenditure but has granted depreciation. The said addition has been deleted by the CIT(A) as revenue expenditure. Before us, the Ld. Counsel relied upon the following decisions:- i CIT v Asahi India Safety Glass Ltd. 347 ITR 329 (Del) ii CIT v Amway India Enterprises 346 ITR 341 (Del) iii CIT v Raychem RPG Ltd. 347 ITR 138 (Bom) 12. After considering the rival contentions, we agree with the finding given by the CIT(A), because here is this case, the expenditure has been incurred on antivirus software which is used in the operating system of the computer which in turn is for running of the business more efficiently. No capital asset of any enduring benefit has been acquired by the assessee. In the case of switches also, there is no acquisition of any capital asset giving any advantage of enduring nature to the assessee, as these required periodical updation and constant improvement from time to time. In the decisions cited by Ld. Counsel it has been consistently held that such an expenditure on softwares is nothing but revenue in nature. Accordingly, on this score also, the ground raised by the revenue in nature. Accordingly, on this score also, the ground raised by the revenue is dismissed.” A.Y.2008-09 5.1 In view of the above said finding of the Income Tax Appellate Tribunal in ITA No.1971/Mum/2011 in the assessee’s own case, it is not in dispute that the co-ordinate bench of Income Tax Appellate Tribunal has treated that software expenses as revenue in nature and allowed the same. No distinguishable facts has been placed on record. No any other order which is contrary to the order passed by the Income Tax Appellate Tribunal in ITA No.1971/Mum/2011 in the assessee’s own case has been produced. Therefore, in the said circumstance by following the observations of co-ordinate bench we are of the view that the learned CIT(A) has rightly deleted the expenses and allowed the same. Accordingly, this issue is decided in favour of assessee and against the revenue.

ISSUE NO.5 & 6 :-

6. According to these issues the revenue has challenged the deletion of addition to the tune of Rs.10,00,000/- made u/s.40A(9) of the Act. The learned representative of the department has argued that the learned CIT(A) has wrongly deleted the said addition made u/s.40A(9) of the Act to the tune of Rs.10,00,000/-. On the other hand learned representative of the assessee has argued that this issue has also been covered by the assessee’s own case in dated 27.04.2011 relevant to the A.Y.2006-07. The finding on this issue has been given by the Income Tax Appellate A.Y.2008-09 Tribunal in para no.3 of the said order which is hereby reproduced below:-

3. We have perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure incurred by the assessee on account of contribution to employees’ recreation club. The club had been formed for providing recreation facilities to the employees for the purpose of distressing them with a view to improving the performance during the year. The assessee has placed reliance on the judgment of Hon’ble High Court of Mumbai in case of CIT Vs. Bharat Petroleum Corporation (Supra) in support of the allowability of claim. We have gone through the said judgement. We find that in that case the assessee had reimbursed the expenses incurred by the club formed for the welfare of the employees. The High Court held that the reimbursement of expenses incurred by the club did not constitute contribution under section 40A(9) and therefore could not be disallowed under the said section. In this case the factual position is not clear as to whether the payment made by the assessee was towards reimbursement of expenses or it was a general contribution. We therefore set aside the order and restore A.Y.2008-09 the matter to the file of AO for passing a fresh order after necessary examination in the light of judgment of Hon’ble High Court of Mumbai in case of Bharat Petroleum Corporation (supra) and after allowing opportunity of hearing to the assessee.

6.1 In the set aside proceedings the Assessing Officer has deleted the addition. Hence Ld. CIT(A), by following ITAT order and also after considering the order passed by Assessing Officer for A.Y.2006- 07 in the set aside proceedings, deleted the addition made in this year. In view of the said circumstances we are of the view that this issue has also been squarely covered by the order of Income Tax Appellate Tribunal in the assessee’s own case (Supra). No distinguishable facts were placed on record contrary to the finding of the learned CIT(A). Therefore, in the said circumstances we are of the view that the learned CIT(A) has passed the order judiciously and correctly which does not require to be interfere with at this appellate stage.

Order pronounced in the open court on 29th June, 2016. (B.R.BASKARAN) (AMARJIT SINGH) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 29th June, 2016 MP MP MP MP A.Y.2008-09