DCIT, Cir-22, Kolkata, Kolkata V. M/s. Lovelock & Lewes, Kolkata

ITA 1021/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2501 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHEY SHYAM
• Keywords: Business income; Depreciation; Opportunity of being heard; Assessment record; Revenue expenditure; Capital expenditure; TDS
• Section: 37

Judgement Text

ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI A.T. VARKEY, JUDICIAL MEMBER I.T.A. NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 DEPUTY COMMISSIONER OF INCOME TAX,................. .....................APPELLANT CIRCLE-22, KOLKATA, 54, RAFI AHMED KIDWAI ROAD, 4 TH FLOOR, KOLKATA-700 016 -VS.- M/S. LOVELOCK & LEWES,............................. ..............................RESPONDENT PLOT NY 14, BLOCK-EP, SECTOR-V, SALT LAKE, KOLKATA-700 091 [PAN: AABFL 5878 L] APPEARANCES BY: SHRI RADHEY SHYAM, CIT (D.R.), FOR THE APPELLANT SHRI KANCHAN KAUSHAL, FCA, SHRI K.M. GUPTA, ADVOCAT E, SHRI B.K. JAIN, FCA AND SHRI PULKIT CHHAJER, ACA , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 09, 2019 DATE OF PRONOUNCING THE ORDER : MARCH 08, 2019 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ):- THESE TWO APPEALS ARE PREFERRED BY THE REVENUE AGA INST TWO SEPARATE ORDERS OF LD. COMMISSIONER OF INCOME TAX ( APPEALS)-6, KOLKATA FOR ASSESSMENT YEARS 2007-08 AND 2010-11 AND THE SA ME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGLE CONS OLIDATED ORDER. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR A.Y. 2007-08 BEING ITA NO. 1020/KOL/2017 , WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-6, KOLKATA DATED 13.02.2017 AND THE GR OUND RAISED THEREIN BY THE REVENUE READS AS UNDER:- THE LD. CIT(A), KOLKATA HAS ERRED BOTH IN FACT AND LAW BY DELETING THE ADDITION MADE ON THE GROUNDS OF DISALLOWANCE OF EXPENDITURE UNDER THE HEAD INTERES T ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 2 PAID ON DELAYED PAYMENT OF TAXES, PERSONAL USE OF TELEPHONE, PWC GLOBAL SERVICES CHARGES & SOFTWARE LICENCE FEE. 3. THE ASSESSEE IN THE PRESENT CASE IS A FIRM OF CH ARTERED ACCOUNTANTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON, I.E. A.Y. 2007-08 WAS FILED BY IT ON 31.10.2007 DECLARING TOTAL INCOM E OF RS.51,94,80,507/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE S AID RETURN, A SUM OF RS.1,73,456/- WAS DEBITED BY THE ASSESSEE ON ACCOUN T OF INTEREST ON LATE PAYMENT OF TAXES. THE SAID AMOUNT INCLUDED A SUM OF RS.94,992/- INCURRED ON ACCOUNT OF INTEREST PAID ON DELAYED DEP OSIT OF SERVICE TAX, WHICH WAS CLAIMED BY THE ASSESSEE AS A DEDUCTIBLE E XPENDITURE. THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT ON THE GROUND THAT INTEREST ON DELAYED PAYMENT OF TAX WAS NOT ALLOWABLE. THE LD . CIT(APPEALS), HOWEVER, DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE INTEREST PAID BY THE ASSESSEE O N DELAYED DEPOSIT OF SERVICE TAX WAS COMPENSATORY IN NATURE. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD INCURRED TELEPHONE EXPENSES OF RS.18,29,339/-. THE ASSESSING OFFICER DISALLOWED THE SAID EXPENSES TO THE EXTENT OF 10% ON THE GROUN D THAT THE PERSONAL USE OF TELEPHONE COULD NOT BE RULED OUT. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ADHOC BASIS. 5. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD INCURRED A TOTAL EXPENDITURE OF RS.1,81,41,550/- ON ACCOUNT OF PWC GLOBAL SERVICE CHARGES PAID TO M/S. PRICE WATER HOUSE COOPERS SERV ICES BV NETHERLANDS IN TERMS OF FIRM SERVICE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE OVERSEAS ENTITY. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3), THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE H OLDING IT TO BE CAPITAL IN NATURE. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE BY OBSERVING THAT THERE WAS NO ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 3 EVIDENCE OF ANY UNDERLYING ASSETS HAVING COME INTO EXISTENCE WHICH MIGHT PROVIDE ENDURING BENEFITS TO THE ASSESSEE. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD INCURRED A TOTAL EXPENDITURE OF RS.10,98,467/- ON ACCOUNT OF P AYMENT MADE TO M/S. WIPRO LIMITED FOR RENEWAL OF SOFTWARE LICENCE FOR P ERSONAL COMPUTERS. THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITU RE ON THE GROUND THAT PAYMENT MADE TOWARDS SOFTWARE LICENCE FEES WAS A CA PITAL EXPENDITURE AS IT RESULTED INTO ENDURING BENEFIT TO THE ASSESSEE. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A SSESSING OFFICER ON THIS ISSUE HOLDING THAT THE EXPENDITURE INCURRED ON PAYMENT OF SOFTWARE LICENCE FEES WAS A REVENUE EXPENDITURE. 7. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS) G IVING RELIEF TO THE ASSESSEE ON THESE FOUR ISSUES, THE REVENUE HAS PREF ERRED THIS APPEAL BEFORE THE TRIBUNAL RAISING A CONSOLIDATED GROUND A S GROUND NO. 1. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, ALL THE FOUR ISS UES INVOLVED IN THIS APPEAL OF THE REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS DECISIONS OF THE TRIBUNAL. AS REGARDS THE I SSUE RELATING TO DISALLOWANCE OF INTEREST PAID ON DELAYED DEPOSIT OF SERVICE TAX, IT IS OBSERVED THAT A SIMILAR ISSUE INVOLVED IN THE CASE OF DCIT VS.- M/S. WEBEL CONSUMER ELECTRONICS LIMITED HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DATED DECEMBE R 28, 2012 PASSED IN ITA NO. 392/KOL/2012, WHEREIN INTEREST PAID ON DELA YED PAYMENT OF SALES TAX WAS HELD TO BE A DEDUCTIBLE EXPENDITURE B Y THE TRIBUNAL. TO THE SIMILAR EFFECT IS ANOTHER DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS.- PRICE WATER HOUSE (ITA NO. 611/KOL/2011). RESPECTFU LLY FOLLOWING THESE DECISIONS OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 4 BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAI D BY THE ASSESSEE ON DELAYED PAYMENT OF SERVICE TAX. 9. AS REGARDS THE ISSUE RELATING TO ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF TELEPHONE EXPENDITURE, IT IS OBSERVED THAT A SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE CASE OF ACIT VS.- PRICE WATER HOUSE WAS DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 22.09.2006 PASSED IN ITA NO. 1280/KOL/2005 HOLDING THAT THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE B ASIS OF PRESUMPTION WITHOUT BRINGING ANY MATERIAL EVIDENCE ON RECORD TO SHOW THE PERSONAL USE OF TELEPHONE WAS NOT SUSTAINABLE. RESPECTFULLY FOLLOWING THIS DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE ADHOC DISALLOW ANCE MADE BY THE ASSESSING OFFICER OUT OF TELEPHONE EXPENSES. 10. AS REGARDS THE ISSUE OF DISALLOWANCE OF PWC GLO BAL SERVICE CHARGES, IT IS OBSERVED THAT A SIMILAR ISSUE HAS BEEN DECIDE D BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF M/S. PRICE WA TER HOUSE COOPERS PVT. LIMITED VS.- ACIT VIDE PARAGRAPH NO. 23 OF ITS ORD ER DATED 12.09.2018 PASSED IN ITA NO. 483/KOL/2017, WHICH READS AS UND ER:- 23. THE ASSESSEES NEXT SUBSTANTIVE GROUND CHALLEN GES CORRECTNESS OF DISALLOWANCE AMOUNTING TO 150,046,130/- IN RESPECT OF PWCDA NETWORK FORM CHARGES. THERE IS NO DISPUTE ABOUT THE SAME TO HAVE BEEN PAID TO ITS EPONYMOUS DUTCH ENTITY INCORPORATED IN NETHERLAND S AGAINST INVOICES RAISED BY PWCDA SERVICES IN TERMS OF FIRMING SERVIC ES AGREEMENT. THE LOWER AUTHORITIES SEEM TO HAVE DISALLOWED THE ABOVE PAYMENT MAINLY FOR THE REASON THAT THE ASSESSEE COULD NOT ESTABLISH TH E RELEVANT BUSINESS NEXUS / PURPOSE AND THERE WAS ALSO A FAILURE ON ITS PART IN NOT DEDUCTING TDS THEREUPON. WE HAVE HEARD RIVAL CONTENTIONS REITERAT ING BOTH PARTIES RESPECTIVE FACTS. THERE IS NO DISPUTE IN PRINCIPLE ABOUT THE ASSESSEES FIRM SERVICE AGREEMENT WITH THE PAYEE M/S PWCDS SERVICE S AS WELL AS ITS ROLE PLAYED AS PROVIDING CENTRAL SERVICES TO THE ENTIRE PWC GROUP BASED ON COST ALLOCATION METHOD KEEPING IN MIND THE NATURE O F SERVICES RENDERED BENEFITS DERIVED AS PER PAGES 117 TO 261 OF THE PAP ER BOOK. THE ASSESSEE HAS ALSO PREPARED A LIST OF SERVICES AVAILED VIA THE PA YEE CONCERNED IN RESPECT OF ALL MEMBER FIRMS OF THE GROUP INVOLVING SAMPLE CASE S OF E-LEARNING AND EDUCATION, MANDATORY FOUNDATION PROGRAMMES, TRAININ G PROGRAMMES ALLOYS SPECIFIC / TECHNICAL PROGRAMMES ETC. ALL THI S HAS GONE UNREBUTTED FROM THE REVENUE SIDE WHOSE CASE IS THAT THERE IS N O BUSINESS LINK FORTHCOMING FROM THE IMPUGNED EXPENDITURE. WE FIND NO SUBSTANCE IN ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 5 REVENUES INSTANT STAND. WE MAKE IT CLEAR THAT THE ASSESSEE- COMPANY IS ENGAGED IN MULTI FUNCTIONAL CONSULTANCY SERVICES AS A GROUP ENTITY OF PWCDA ORGANIZATION BASED IN NETHERLANDS. LEARNED CO UNSEL HAS ALSO FILED BEFORE US RELEVANT ASSESSMENT RECORDS WITH REGARD T O THE PAYEE ENTITY PERTAINING TO THE IMPUGNED ASSESSMENT YEAR ITSELF A CCEPTING THE RETURNED INCOME WITHOUT MAKING ANY ADDITION. NECESSARY REFER ENCE REGARDING FIRM SERVICES AGREEMENT IS ALSO MADE TO PAPER BOOK PAGES 6304 AND 6305. IT EMERGES THAT THIS TRIBUNALS DECISION IN DCIT VS. E RNST & YOUNG (P) LTD. 49 TAXMAN.COM 386 (KOL) ALSO HOLDS THAT NO TDS IS DEDU CTIBLE IN CASE OF SUCH FIRM SERVICES AGREEMENT PAYMENTS NOT INCLUDING ANY INCOME COMPONENT BUT ONLY REIMBURSEMENT OF EXPENSE ON COST ALLOCATION FO RMULA. WE TAKE INTO ACCOUNT ALL THESE FACTS AS WELL AS JUDICIAL PRECEDE NTS TO DELETE IMPUGNED DISALLOWANCE OF FIRM SERVICES EXPENDITURE PAYMENT A MOUNTING TO 150,046,130/-. 11. IT IS ALSO OBSERVED THAT A SIMILAR CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PWC GLOBAL SERVICE CHARGES WAS ALLOWE D BY THE ASSESSING OFFICER HIMSELF IN THE ASSESSMENT COMPLETED FOR AY 2005-06 AND 2006-07 IN ASSESSES OWN CASE UNDER SECTION 147/143(3) OF T HE ACT VIDE ORDERS DATED 16.07.2010. KEEPING IN VIEW THE DECISION OF T HE TRIBUNAL IN THE CASE OF PRICE WATER HOUSE COOPERS SERVICES (SUPRA) AS WE LL AS THE STAND TAKEN BY THE ASSESSING OFFICER HIMSELF IN ASSESSEES OWN CASE FOR AY 2005-06 AND 2006-07, WE UPHOLD THE IMPUGNED ORDER OF THE LD . CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PWC GLOBAL SERVICE CHARGES. 12. AS REGARDS THE ISSUE RELATING TO SOFTWARE LICEN CE FEES PAID BY THE ASSESSEE TO M/S. WIPRO LIMITED, IT IS OBSERVED THAT THE ASSESSING OFFICER HIMSELF HAS ALLOWED THE SIMILAR CLAIM MADE BY THE A SSESSEE FOR A.YS. 2005-06 AND 2006-07 VIDE ITS ORDER DATED 16.07.2010 PASSED UNDER SECTION 147/143(3) OF THE ACT. IT IS ALSO OBSERVED THAT A SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE I N THE CASE OF DCIT VS.- EXCIDE INDUSTRIES LIMITED VIDE ITS ORDER DATED 13.0 4.2016 PASSED IN ITA NO 1347/KOL/2013. KEEPING IN VIEW THE SAID DECISION OF THE TRIBUNAL AND THE STAND TAKEN BY THE ASSESSING OFFICER HIMSELF ON THE SIMILAR ISSUE ALLOWING THE SIMILAR CLAIM FOR A.YS 2005-06 AND 200 6-07, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ALLOWING THE DEDUCTION CLAIMED BY ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 6 THE ASSESSEE ON ACCOUNT OF SOFTWARE LICENCE FEES PA ID TO M/S. WIPRO LIMITED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A. Y. 2006-07 BEING ITA NO. 1020/KOL/2017 IS DISMISSED. 14. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR A.Y. 2 010-2011 BEING ITA NO. 1021/KOL/2017 , WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(APPEALS)-6, KOLKATA DATED 14.02.2017. 15. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN TREATING THE RECEIPT OF RS.7,92,57, 500/- AS BUSINESS RECEIPT INSTEAD OF INCOME FROM OTHER SOURCES AS HEL D BY THE ASSESSING OFFICER. 16. DURING THE YEAR UNDER CONSIDERATION M/S. PRICE WATER HOUSE COOPERS SERVICES BV, NETHERLANDS (PWC BV) HAD PROVI DED A NON- REFUNDABLE GRANT OF RS.7,92,57,500/- AT THE REQUEST OF THE ASSESSEE. THE SAID AMOUNT WAS CLAIMED TO BE RECEIVED BY THE ASSES SEE AS PER THE FIRM SERVICES AGREEMENT DATED 16.03.2011. IN THE PROFIT & LOSS ACCOUNT, THE AMOUNT OF GRANT RECEIVED WAS CREDITED BY THE ASSESE E-COMPANY AS SUNDRY INCOME AND IN THE COMPUTATION OF TOTAL INCOME, IT W AS CLAIMED TO BE A PROFESSIONAL INCOME. ACCORDING TO THE ASSESSING OFF ICER, THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS COULD N OT EXPLAIN THE CIRCUMSTANCES IN WHICH THE PWC BV HAD PROVIDED THE SAID NON-REFUNDABLE GRANT. HE ALSO OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENT SHOWING ANY PROFESSIONAL SERVICES RENDERED TO PWC BV. THE CLAIM OF THE ASSESESE THAT THE SAID RECEIPT WAS DIR ECTLY AND INEXTRICABLY LINKED TO ITS PROFESSION WAS NOT FOUND ACCEPTABLE B Y THE ASSESSING OFFICER. HE HELD THAT JUST BECAUSE THE ASSESSEE WAS ENGAGED IN PROFESSIONAL SERVICES, EVERY AMOUNT RECEIVED BY HIM COULD NOT BE SAID TO BE A PROFESSIONAL RECEIPT. HE HELD THAT THE SAID AM OUNT OF GRANT RECEIVED ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 7 BY THE ASSESSEE THUS DID NOT CONSTITUTE THE BUSINES S INCOME OF THE ASSESSEE AND THE SAME WAS CHARGEABLE TO TAX UNDER T HE HEAD INCOME FROM OTHER SOURCES. 17. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE GRANT RECEIVED FROM PWC BV AS INCOME FROM OTHER SOURCES WAS CHALLE NGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APP EALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) ALLOWED T HE CLAIM OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO TREA T THE AMOUNT OF GRANT IN QUESTION AS BUSINESS INCOME OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4.3 OF HIS IMPUGNED ORDER:- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE APPELLANT'S SUBMISSIONS. IT IS AN UNDISPUTED FACT T HAT THE APPELLANT RECEIVED AN AMOUNT OF RS.7,92,57,500/- FR OM PWC BV, NETHERLAND WHICH WAS NON-REFUNDABLE. THE AO HAS STATED IN THE ASSESSMENT ORDER THAT, AS PER THE AGREEMENT BETWEEN PWC BV AND THE APPELLANT, PWC BV HAD AGREED TO PAY THE APPELLANT FOR MAINTAINING AND ENHANCING ITS RESOURC ES AND CAPABILITIES TO FURTHER THE OBJECTIVE OF THE NETWOR K OF MEMBER FIRMS. HOWEVER, THE AO WAS OF THE VIEW THAT NO EVID ENCE OF ANY PROFESSIONAL SERVICE RENDERED BY THE APPELLANT FOR RECEIVING THE SAID NON-REFUNDABLE GRANT WAS PROVIDED. THE GRA NT COULD NOT BE TERMED AS A PROFESSIONAL RECEIPT MERELY FOR THE REASON THAT THE APPELLANT WAS OTHERWISE ENGAGED IN PROFESS IONAL ACTIVITY. THE APPELLANT'S CONTENTION IS THAT THE NO N-REFUNDABLE GRANT HAS BEEN RECEIVED FOR FACILITATING ENHANCEMEN T OF THE FIRM RESOURCES AND SKILLS AND IS, ACCORDINGLY INEXT RICABLY LINKED TO BUSINESS OR PROFESSION CARRIED ON BY THE APPELLANT FIRM I HAVE EXAMINED THE RELEVANT AGREEMENT DATED 16.03.2011 AND FIND THAT THE APPELLANT FIRM IS AN I NDEPENDENT MEMBER FIRM OF THE PRICEWATERHOUSE COOPER NETWORK W HICH PROVIDES AUDIT SERVICES TO INDIAN AND MULTINATIONAL CLIENTS INCLUDING WORK THAT IS REFERRED TO IT BY OTHER MEMB ER FIRMS OF THE NETWORK. AS THE CLIENTS INCREASINGLY CONDUCT BU SINESS ON A CROSS-BORDER BASIS, THE APPELLANT IS STATED TO RECO GNIZE THE NEED TO MAINTAIN LEVEL OF HUMAN, TECHNOLOGICAL AND CAPITAL RESOURCES CONSISTENT WITH THE LEVEL MAINTAINED BY O THER MEMBER FIRMS AND COMPETITORS. THE GRANT IS PROVIDED BY PWC BV WITH A SPECIFIC UNDERTAKING BY THE APPELLANT FIR M' TO USE THE GRANT TO ENHANCE ITS RESOURCES BY MEETING THE C OST OF ACQUIRING / ENHANCING THE REQUIRED EXPERTISE AND SK ILL SETS AS SPECIFICALLY SET OUT IN THE GRANT AGREEMENT. IT IS ALSO AGREED THAT NO SPECIFIC SERVICES ARE TO BE PROVIDED BY THE APPELLANT AND PWC BV TO EACH OTHER. VARIOUS WAYS IN WHICH THE GRANT ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 8 CAN BE UTILIZED ARE LAID DOWN IN CLAUSE 2.3 UNDER T HE GENERAL HEADING, '2.GRANT & PURPOSE' WHICH INCLUDE INTER-AL IA, DEVELOPMENT OF AND ACQUISITION OF RESOURCES FOR ADD ITIONAL TECHNICAL EXCELLENCE AND KNOWLEDGE IN THE FIELDS OF PROFESSIONAL PRACTICE DEVELOPMENT, MAINTENANCE AND ENHANCEMENT OF QUALITY STANDARDS, DISSEMINATION OF REFERENCE AND RESEARCH MATERIAL. TO PROFESSIONALS, CONTINUING EDUCATION, IMPROVEMENT AND IMPLEMENTATION OF RISK MANAGEMENT POLICIES. THE AO HAS REJECTED THE APPELLANT'S CLAIM OF NEXUS BETWEEN THE GRANT AND ITS PROFESSION BY ONLY STATIN G THAT THE APPELLANT HAS NOT RENDERED ANY PROFESSIONAL SERVICE S. HOWEVER, THE CLEAR DESCRIPTION OF THE PURPOSE THE G RANT AND ITS LINK WITH THE PROFESSION OF THE APPELLANT FIRM MAKES IT CLEAR THAT THE AO HAS NOT PROPERLY APPRECIATED THE TERMS OF THE GRANT AGREEMENT. IT IS NOT THE CASE OF THE AO T HAT THE GRANT WAS NOT RECEIVED BY THE APPELLANT FROM PWC BV OR WAS NOT OFFERED FOR TAXATION AS A REVENUE RECEIPT. THE AGREEMENT AVAILABLE ON RECORD CLEARLY PROVES THAT THE GRANT W AS RECEIVED ONLY IN CONNECTION WITH AND BECAUSE OF THE NATURE O F PROFESSIONAL SERVICES OF THE APPELLANT FIRM. THE GR ANT CANNOT BE TREATED AS INCOME FROM OTHER SOURCES ONLY BECAUS E NO SERVICES WERE PROVIDED BY THE APPELLANT FIRM TO PWC BV. HENCE, THE SECOND GROUND IS ALLOWED. THE AO IS DIRE CTED TO TREAT THE NON-REFUNDABLE GRANT AS INCOME FROM BUSIN ESS OR PROFESSION. 18. THE LD. D.R. STRONGLY RELIED ON THE ORDER OF TH E ASSESSING OFFICER IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE CON TENDED THAT THE AMOUNT OF GRANT IN QUESTION RECEIVED BY THE ASSESSEE WAS N ON-REFUNDABLE IN NATURE AND SINCE THE SAME WAS HAVING NO NEXUS WHATS OEVER WITH THE PROFESSION OR BUSINESS CARRIED ON BY THE ASSESSEE-C OMPANY, IT WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDE R THE HEAD INCOME FROM OTHER SOURCES AS RIGHTLY HELD BY THE ASSESSIN G OFFICER. HE INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE ASSESS MENT ORDER TO POINT OUT THE SPECIFIC REASONS GIVEN BY THE ASSESSING OFFICER FOR TREATING THE AMOUNT OF GRANT IN QUESTION AS INCOME FROM OTHER SO URCES AND CONTENDED THAT THIS COGENT AND CONVINCING REASONS GIVEN BY TH E ASSESSING OFFICER ARE NOT APPRECIATED BY THE LD. CIT(APPEALS) WHILE ALLOW ING THE CLAIM OF THE ASSESSEE THAT THE AMOUNT OF GRANT IN QUESTION WAS I N THE NATURE OF BUSINESS INCOME. ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 9 19. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE AMOUNT OF GRANT IN QUESTION WAS RECEIVED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND THE SAME, THEREFORE, WA S IN THE NATURE OF ITS BUSINESS INCOME BEING DIRECTLY AND INEXTRICABLY LIN KED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. HE RELIED ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.- MEGHALAYA ST EELS LIMITED [383 ITR 217], WHEREIN IT WAS HELD THAT THE HEAD INCOME FRO M OTHER SOURCES IS ONLY A RESIDUARY HEAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME DOES NOT FALL UNDER ANY OF THE OTHER FOUR HEADS OF INCOM E AND THE SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. HE INVITED OUR ATTENTION TO THE COP Y OF GRANT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH PWC BV ON MARCH 1 6, 2011 (COPY PLACED AT PAGE NO.165 OF THE PAPER BOOK) TO POINT O UT THAT THE GRANT IN QUESTION WAS PROVIDED TO THE ASSESSEE IN ORDER TO E NABLE IT TO IMPROVE THE QUALITY OF ITS HUMAN, TECHNOLOGICAL AND CAPITAL SYSTEMS AND MAINTAIN THEIR QUALITY SUCH THAT IT IS CONSISTENT WITH THE S TANDARDS OF PWC NETWORK. HE ALSO POINTED OUT THAT THE SAID GRANT WA S AVAILABLE FOR UTILIZATION FOR THE SPECIFIC PURPOSE CONNECTED WITH THE BUSINESS OF THE ASSESSEE. HE CONTENDED THAT THIS PURPOSE FOR WHICH THE GRANT IN QUESTION WAS SPECIFICALLY GIVEN TO THE ASSESSEE IS RELEVANT TO DECIDE ITS NATURE AND SINCE THE SAID PURPOSE WAS DIRECTLY CONNECTED WITH THE BUSINESS OF THE ASSESSEE, THE GRANT CONSTITUTED ITS BUSINESS INCOME AS RIGHTLY HELD BY THE LD. CIT(APPEALS). HE SUBMITTED THAT A SIMILAR GRANT RECEIVED BY M/S. PRICE WATER HOUSE PVT. LIMITED WAS ACCEPTED BY THE ASSESS ING OFFICER AS BUSINESS INCOME IN THE CASE OF THE SAID ASSESSEE. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE QUESTION WHETHER PARTICULAR RECEIPT IS IN THE NATURE OF BUSINESS INCOME OR INCO ME FROM OTHER SOURCES IS PRIMARILY TO BE DECIDED HAVING REGARD TO THE FAC TS AND CIRCUMSTANCES OF ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 10 THE CASE AND IN ACCORDANCE WITH LAW. WHILE DETERMIN ING THE NATURE OF RECEIPT, ONE SHOULD BE GUIDED BY THE TERMS OF THE A GREEMENT GENUINELY ENTERED INTO BETWEEN THE PARTIES AND THE REVENUE AU THORITIES CANNOT IGNORE THE GENUINE AGREEMENT BETWEEN THE ASSESSEE A ND THE PARTY FROM WHOM THE AMOUNT IN QUESTION IS RECEIVED WHEN THERE IS NOTHING TO SUGGEST THAT THE PARTIES WERE NOT DEALING WITH EACH OTHER AT ARMS LENGTH AND THERE IS NO SUGGESTION FOR ANY COLLUSION. IN TH E PRESENT CASE, THE GRANT IN QUESTION RECEIVED BY THE ASSESSEE FROM PWC BV WA S HELD TO BE THE INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER AND NOT THE BUSINESS INCOME AS CLAIMED BY THE ASSESSEE AND A PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER SHOWS THAT THIS DEC ISION WAS ARRIVED AT BY THE ASSESSING OFFICER ON THE BASIS OF AN AGREEMENT ENTERED INTO BETWEEN PWC BV AND THE ASSESSEE ON 01.07.1998. THE SAID AGR EEMENT MADE ON 01.07.1998 WAS FILED BY THE ASSESSEE DURING THE COU RSE OF ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER AND IT WAS STATED BY THE ASSESSEE THAT IT IS ON HIS REQUEST PWC BV HAD PROVI DED THE GRANT AS PER THE AGREEMENT DATED 01.07.1998. IT WAS ALSO OBSERVE D BY THE ASSESSING OFFICER THAT THIS IS THE FIRST TIME THAT THE ASSESS EE DURING THE YEAR UNDER CONSIDERATION HAD RECEIVED SUCH A NON-REFUNDABLE AM OUNT FROM PWC BV SINCE 1998 WHEN THEY ENTERED INTO AN AGREEMENT. 21. IT IS OBSERVED THAT THE LD. CIT(APPEALS) DID NO T ENDORSE THE STAND TAKEN BY THE ASSESSING OFFICER AND ACCEPTED THE CLA IM OF THE ASSESSEE THAT THE AMOUNT OF NON-REFUNDABLE GRANT RECEIVED FROM PW C BV CONSTITUTED THE ASSESSEES BUSINESS INCOME. HE, HOWEVER, ARRIVE D AT THIS CONCLUSION ON THE BASIS OF AGREEMENT DATED 16.03.2011 ENTERED INTO BETWEEN PWC BV AND THE ASSESSEE. HE EXAMINED THE SAME AGREEMENT AN D DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING ON THE TERMS A ND CONDITIONS OF THE SAID AGREEMENT. HE, HOWEVER, IGNORED THE FACT THAT THE ISSUE WAS DECIDED BY THE ASSESSING OFFICER BY REFERENCE TO THE AGREEM ENT DATED 01.07.1998 BETWEEN PWC BV AND ASSESSEE AND APPARENTLY THE AGRE EMENT DATED 16.03.2011 FILED BY THE ASSESSEE BEFORE HIM AND REL IED UPON BY THE LD. ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 11 CIT(APPEALS) TO DECIDE THE ISSUE IN FAVOUR OF THE A SSESSEE WAS NOT FILED BEFORE THE ASSESSING OFFICE AS THERE WAS NO MENTION WHATSOEVER TO THE SAID AGREEMENT IN THE ASSESSMENT ORDER. EVEN AT THE TIME OF HEARING BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE ASSESS EE HAS SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(APPEALS) IN FA VOUR OF THE ASSESSEE BY RELYING ON THE SAID AGREEMENT DATED 16.03.2011, A COPY OF WHICH IS PLACED AT PAGE NO. 165 OF THE PAPER BOOK AND HAS NO T REFERRED TO ANY AGREEMENT DATED 01.07.1998, WHICH WAS FILED BEFORE THE ASSESSING OFFICER AND THE ISSUE WAS DECIDED BY THE ASSESSING OFFICER BY RELYING ON THE TERMS AND CONDITIONS OF THE SAID AGREEMENT. IN THE WRITTEN SUBMISSION DATED 27.03.2013 STATED TO BE FILED WITH THE ASSESS ING OFFICER ON 28.08.2013, THERE IS A MENTION MADE BY THE ASSESSEE TO THE AGREEMENT DATED 16.03.2011, BUT IT APPEARS THAT THE SAME FILE D AT THE FAG END OF THE PROCEEDINGS WAS NOT CONSIDERED BY THE ASSESSING OFF ICER WHILE COMPLETING THE ASSESSMENT VIDE AN ORDER DATED 30.03 .2013. IT IS ALSO PERTINENT TO NOTE THAT THE SAID AGREEMENT WAS ENTER ED INTO BETWEEN THE ASSESSEE AND PWC BV ONLY ON MARCH 16, 2011, I.E. AF TER ABOUT ONE YEAR FROM THE END OF THE YEAR UNDER CONSIDERATION AND AL THOUGH THERE WAS A MENTION THAT THE SAID AGREEMENT WAS INTENDED TO MEM ORIALISE PREVIOUS GRANTS, WHICH HAD BEEN PROVIDED TO THE ASSESSEE BY PWC BV PRIOR TO THE DATE OF THE AGREEMENT FROM MARCH 01, 2010, IT IS NE CESSARY TO ASCERTAIN AS TO WHETHER THE AMOUNT OF GRANT IN QUESTION WAS RECE IVED BY THE ASSESSEE AS PER THE AGREEMENT DATED MARCH 16, 2011, WHICH WA S NOT EVEN IN EXISTENCE DURING THE YEAR UNDER CONSIDERATION OR AS PER THE AGREEMENT DATED 01.07.1998 WHICH WAS APPARENTLY IN FORCE DURI NG THE YEAR UNDER CONSIDERATION AS IT WAS SPECIFICALLY STATED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT IT IS ON HIS REQUEST PWC BV HAD PROVIDED THE GRANT IN QUESTION AS PER THE SAID AGREEMENT. KEEPING IN V IEW ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE MATTER NEEDS RE- EXAMINATION BY THE ASSESSING OFFICER AS THE MATTER WAS DECIDED BY HIM WITH REFERENCE TO THE AGREEMENT DATED 01.07.1998 AN D NOT WITH REFERENCE TO THE AGREEMENT DATED 16.03.2011, WHICH WAS REFERR ED TO AND RELIED ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 12 UPON BY THE LD. CIT(APPEALS). AS ALREADY OBSERVED B Y US, IT IS RELEVANT TO ASCERTAIN FOR DECIDING THE EXACT NATURE OF THE NON- REFUNDABLE GRANT RECEIVED BY THE ASSESSEE FROM THE PWC BV AS TO WHET HER THE SAME WAS RECEIVED AS PER THE AGREEMENT DATED 01.07.1998 OR A S PER THE AGREEMENT DATED 16.03.2011. AS OBSERVED BY US WHILE DETERMINI NG THE NATURE OF RECEIPT, ONE SHOULD BE GUIDED BY THE TERMS OF THE A GREEMENT GENUINELY ENTERED INTO BETWEEN THE PARTIES. WE, THEREFORE, SE T ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASS ESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER CONSIDERING BOTH THE AGREEMENTS DATED 01.07.1998 AND 16.03.2011 AND AFTER GIVING THE ASSE SSEE PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. GROUND NO. 1 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. 22. THE ISSUE INVOLVED IN GROUND NO. 2 OF THE REVEN UES APPEAL FOR A.Y. 2010-11 RELATES TO THE DELETION BY THE LD. CIT(APPE ALS) OF THE DISALLOWANCE OF RS.4,75,32,761/- MADE BY THE ASSESS ING OFFICER ON ACCOUNT OF PARTNERS REMUNERATION UNDER SECTION 40( B)(V). 23. IN THE COMPUTATION OF TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION, A DEDUCTION OF RS.13,17,28,800/- WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF PARTNERS REMUNERATION AS PE R SECTION 40(B)(V) ON THE BASIS OF BOOK PROFIT. IN THE ASSESSMENT COMPLET ED UNDER SECTION 143(3), THE ASSESSING OFFICER RECOMPUTED THE BOOK P ROFIT OF THE ASSESSEE- COMPANY FOR THE YEAR UNDER CONSIDERATION AFTER REDU CING SUNDRY INCOME IN THE FORM OF GRANT AMOUNTING TO RS.7,92,57,500/- AND INTEREST INCOME OF RS.16,520/- AND ACCORDINGLY RESTRICTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 40(B)(V) ON ACCOUNT OF PART NERS REMUNERATION TO RS.8,41,78,039/- RESULTING IN A DISALLOWANCE OF RS. 4,75,32,761/-. ON APPEAL, THE LD. CIT(APPEALS) ALLOWED RELIEF TO THE ASSESSEE ON THIS CONSEQUENTIAL ISSUE ON THE BASIS OF THE DECISION RE NDERED BY HIM ALLOWING THE CLAIM OF THE ASSESSEE THAT THE NON-REFUNDABLE G RANT OF ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 13 RS.7,92,57,500/- RECEIVED BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION CONSTITUTED ITS BUSINESS INCOME. 24. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT THE ISSUE INVOLVED IN GROUND NO. 2 IS CONSEQUENTIAL TO THE MAIN ISSUE INVOLVED IN GROUND NO. 1 AND SINCE THE ISSUE IN GRO UND NO. 1 WAS DECIDED BY THE LD. CIT(APPEALS) IN FAVOUR OF THE ASSESSEE B Y HIS IMPUGNED ORDER, HE ALLOWED THE CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THE ISSUE INVOLVED IN GROUND NO. 2. SINCE WE HAVE SET ASIDE THE IMPUGN ED ORDER PASSED BY THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THE MAIN ISSUE INVOLVED IN GROUND NO. 1 AND RESTORED THE SAID ISSU E TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION, IT FOLLO WS THAT EVEN THE ISSUE INVOLVED IN GROUND NO 2, WHICH IS CONSEQUENTIAL IN NATURE, SHOULD ALSO GO BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATI ON DEPENDING ON HIS DECISION ON THE MAIN ISSUE. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RAISED AN ALTERNA TIVE GROUND IN SUPPORT OF THE ASSESSEES CASE ON THIS ISSUE BY RELYING, IN TER ALIA, ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF M D. SERAJUDDIN & BROTHERS VS.- CIT [24 TAXMANN.COM 46]. WE ACCORDIN GLY DIRECT THE ASSESSING OFFICER TO CONSIDER THIS ALTERNATIVE CONT ENTION RAISED ON BEHALF OF THE ASSESSEE IF THE ASSESESE FAILS TO GET RELIEF ON THE MAIN ISSUE, WHICH IS RESTORED BY US TO THE FILE OF THE ASSESSING OFFI CER. GROUND NO. 2 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 25. AS REGARDS GROUND NO. 3 OF THE REVENUES APPEAL FOR A.Y. 2010-11, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATIN G TO THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF PWC GLOBAL SERVIC E CHARGES AMOUNTING TO RS.2,37,86,375/- IS SIMILAR TO THE ONE INVOLVED IN REVENUES APPEAL FOR A.Y. 2007-08, WHICH HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE IN THE FOREGOING PORTION OF THIS ORDER. FO LLOWING OUR CONCLUSION ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 14 DRAWN IN A.Y. 2007-08, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 26. ANOTHER ISSUE THAT IS RAISED BY THE REVENUE IN GROUND NO. 3 OF ITS APPEAL FOR A.Y. 2010-11 RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION MADE BY THE ASSESSING OFFICER IN TREAT ING THE EXPENDITURE INCURRED BY THE ASSESSEE ON PAYMENT OF SOFTWARE LIC ENCE FEES AS CAPITAL EXPENDITURE. 27. DURING THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS.1,38.67.293/- WAS PAID BY THE ASSESSEE TO M/S. PRICE WATER HOUSE COOPER GLOBAL LICENSING SERVICES CORPORATION, CANADA AND THE SAID PAYMENT WAS CLAIMED TO BE MADE FOR MAINTENANCE AND TECHNICAL SUPPORT FE ES FOR MICROSOFT, WINZIP PRO, VERITY, IBM-LOTUS . FROM THE RELEVANT DETAILS FURNISHED BY THE ASSESSEE IN THIS REGARD, THE ASSESSING OFFICER NOTI CED THAT THE RELEVANT SOFTWARE WERE PURCHASED BY THE ASSESSEE AND CHARGES WERE MADE PER COMPUTER BASIS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE-COMPANY THUS HAD ACQUIRED RIGHT IN THE SOFTWARE LICENSE ENT ERED INTO BY ITS CANADIAN ENTITY AND THE AMOUNT IN QUESTION PAID FOR ACQUIRING THE SAID RIGHT WAS CAPITAL EXPENDITURE. HE ACCORDINGLY DISAL LOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF EXPENDITURE I NCURRED TOWARDS SOFTWARE LICENCE FEES. 28. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SOFTWARE LICENCE FEES WAS CHALLENGED BY THE ASSESSE E IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING T HE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE O N RECORD, THE LD. CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 7. 3 & 7.4 OF HIS IMPUGNED ORDER:- ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 15 7.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE APPELLANTS SUBMISSIONS. THE AO HAS DISALLOWED THE SOFTWARE LICENSE FEES AS CAPITAL EXPENDITURE AS THE CANADIAN COMPANY, PWC GLOBAL LICENSING SERVICES CORPORATION, THROUGH WHOM THE LICENSE TO USE THE SOFTWARE WAS ACQUIRED WAS NOT MA KING ANY PROFIT ON THE TRANSACTION AND THE ASSESSEE BEING A MEMBER FOR THE NETWORK FOR WHICH THE LICENSE WAS BEING ACQUIRE D, HAD RIGHTS IN THE SOFTWARE LICENSING. THUS, ACCORDING T O THE AO, THE APPELLANT HAD ACQUIRED ENDURING BENEFITS IN THE LIC ENSING. THE APPELLANT'S ARGUMENT IS THAT THE SOFTWARE LICENSE I S FOR A SHORT PERIOD, THE INVOICE SHOWS THAT RECURRING EXPENDITUR E HAS TO BE INCURRED AND REGULAR PAYMENTS HAVE TO BE MADE. IT H AS ALSO STATED THAT THE SOFTWARE FOR WHICH LICENSE IS ACQUI RED IS BECOMES OBSOLETE VERY FAST. VARIOUS CASE LAWS HAVE BEEN RELIED UPON TO STATE THAT SOFTWARE EXPENSES ARE REVENUE EX PENDITURE INCURRED TO ENABLE THE BUSINESS TO RUN SMOOTHLY AND IF RIGHTS FOR A LIMITED PERIOD ARE ACQUIRED TO USE SOFTWARE U NDER AN AGREEMENT, THE EXPENSES INCURRED ON ACQUIRING SUCH RIGHTS WOULD BE REVENUE EXPENDITURE. THE APPELLANT HAS ALS O REFERRED TO EARLIER ASSESSMENT ORDERS OF THE AO FOR A.Y. 200 5-06 AND A.Y. 2006-07 IN WHICH HE HAS ALLOWED SIMILAR EXPEND ITURE ON SOFTWARE LICENSE FEES AS REVENUE EXPENDITURE. 7.4. THE MATERIAL ON RECORD SHOWS THAT THE APPELLAN T HAS ACQUIRED RIGHT TO USE/LICENSE TO USE VARIOUS SOFTWA RES FOR A LIMITED DURATION AND RECURRING PAYMENTS HAVE TO BE MADE FOR RENEWAL OF LICENSES OR OBTAINING NEW LICENSES FOR U SING SOFTWARE. THE SOFTWARE IS REQUIRED FOR SMOOTH DAY-T O-DAY CONDUCT OF THE APPELLANT'S BUSINESS. THERE IS NO MA TERIAL ON RECORD TO INDICATE THAT THE APPELLANT HAS ACQUIRED ANY ENDURING BENEFITS OUT OF THE LICENSE TO USE VARIOUS SOFTWARES. ALSO, THE FACTS ARE SIMILAR TO EARLIER YEARS IN WHI CH SIMILAR CLAIMS WERE MADE FOR SOFTWARE LICENSING FEES AND IN A.Y. 2005- 06 AND A.Y. 2006-07, THE AO HAD ALLOWED SIMILAR CLA IMS. IN AN APPEAL BY THE APPELLANT FOR THE A.Y. 2007-08, I HAV E ALLOWED THE APPEAL NO. L022/CIT(A)-6/KOL/09-10 OF THE APPEL LANT ON A SIMILAR ISSUE IN MY ORDER DATED 13.02.2017 AS UNDER : '6.2. I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS . THE APPELLANT HAS RELIED UPON THE ORDER DATED 13.04.201 6 IN ITA NO. 1347/KOL/2013 FOR AY. 2008-09 IN THE CAS E OF DCIT CIRCLE, KOLKATA V M/ S. EXIDE INDUSTRIES LT D. OF HON'BLE ITAT 'C' BENCH, KOLKATA IN WHICH THE REVENU E'S GROUND OF APPEAL AGAINST DELETION OF DISALLOWANCE O N ACCOUNT OF SOFTWARE EXPENSES OF RS. 1,36,32,019/- B Y THE LD. CIT(A) WAS REJECTED. IN THE PRESENT CASE TH E AO HAS NOT DISCUSSED AS TO WHAT ENDURING BENEFITS ARE EXPECTED FROM THE SOFTWARE LICENSE FEES. THE APPELL ANT'S ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 16 CASE IS THAT THE SOFTWARE LICENSE FEE PERTAINS TO A PARTICULAR PERIOD OF TIME AND NO ENDURING BENEFITS ARE DERIVED. MOREOVER, IN EARLIER YEARS, THE AO HAS HIM SELF ALLOWED SIMILAR SOFTWARE LICENCE FEES HOLDING THAT THE SAME DID NOT RESULT IN ANY ENDURING BENEFITS. THE F ACTS FOR THE INSTANT ASSESSMENT YEAR ARE SIMILAR. IT HAS BEEN HELD IN THE CASE OF RADHASOAMI SATSANG VS CIT 193 I TR 321 BY THE HON'BLE SUPREME COURT THAT 'RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EA CH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ON E YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NO T BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHAN GED IN A SUBSEQUENT YEAR. THIS RATIO IS SQUARELY APPLIC ABLE TO THE FACTS OF THE APPELLANTS CASE. HENCE THE ADD ITION OF RS.10,98,467/- IS DELET4ED AND THE AO IS DIRECTE D TO WITHDRAW THE DEPRECIATION OF RS.3,29,540/- IN RELAT ION TO THE SOFTWARE LICENSE FEE AS ALSO DEPRECIATION AL LOWED IN SUBSEQUENT ASSESSMENT YEARS, IF ANY. THE FACTS FOR THE INSTANT ASSESSMENT YEAR BEING SIM ILAR, THE EXPENSES ON SOFTWARE LICENSE FEES OF RS.1,38,67,283 /- ARE HELD TO BE REVENUE IN NATURE AND THE DISALLOWANCE IS DEL ETED. 29. THE LD. D.R. SUBMITTED THAT THE EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSEE ON PURCHASE OF SOFTWARE LI CENCE AND THE SAME, THEREFORE, WAS RIGHTLY TREATED BY THE ASSESSING OFF ICER AS CAPITAL IN NATURE. HE CONTENDED THAT THE QUESTION AS TO WHETHE R THE EXPENDITURE INCURRED ON COMPUTERS SOFTWARE IS CAPITAL OR REVENU E IN NATURE IS REQUIRED TO BE DECIDED BY APPLYING A FUNCTIONAL TES T AND ONUS IN THIS REGARD WAS ON THE ASSESSEE-COMPANY, WHICH IT FAILED TO DISCHARGE. HE RELIED ON THE DECISION OF THE HONBLE RAJASTHAN HIG H COURT IN THE CASE OF CIT VS.- ARAWALI CONSTRUCTION CO. PVT. LIMITED [25 9 ITR 30], WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSES SEE ON ACQUIRING COMPUTER SOFTWARE WAS RIGHTLY DISALLOWED BEING EXPE NDITURE OF CAPITAL NATURE. ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 17 30. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE ENGAGED IN THE PROFESSION OF CHARTERED ACCOUNTANCY IS REQUIRED TO HAVE VARIOUS BASIC SOFTWARE LIKE MICROS OFT, WINZIP PRO, VERITY, IBM-LOTUS ETC. TO CARRY OUT SMOOTHLY ITS DA Y-TO-DAY FUNCTIONING FOR WHICH LICENCE IS REQUIRED. HE SUBMITTED THAT UPDATI NG SUCH SOFTWARE IS REQUIRED TO BE UNDERTAKEN ON A CONTINUOUS BASIS FOR WHICH THE CANADIAN COMPANY OF THE ASSESSEE BACK CHARGES SUCH COST ON U SER COUNT OF THE ASSESSEE. HE CONTENDED THAT SINCE ALL THE SOFTWARE USED BY THE ASSESSEE ARE APPLICATION SOFTWARE WHICH ARE REQUIRED FOR CON DUCT OF THE ASSESSEES BUSINESS/PROFESSION AS AN INTEGRAL PART OF PROFIT E ARNING PROCESS AND NOT FOR ACQUISITION OF ASSET OR RIGHT OF PERMANENT NATU RE, THE EXPENDITURE IN QUESTION INCURRED TOWARDS PAYMENT OF SOFTWARE LICEN CE FEES WAS REVENUE IN NATURE AS RIGHTLY HELD BY THE LD. CIT(APPEALS). IN SUPPORT OF THIS CONTENTION, HE, INTER ALIA, RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS.- ASAHI INDIA SAFETY G LASS LIMITED [346 ITR 329]. HE FURTHER CONTENDED THAT THE AMOUNT IN QUEST ION HAVING BEEN PAID BY THE ASSESSEE FOR THE RIGHT TO USE THE SOFTWARE F OR A LIMITED/PARTICULAR PERIOD OF TIME, IT DID NOT RESULT IN ANY ENDURING B ENEFIT TO THE ASSESSEE AND THERE WAS NO QUESTION OF TREATING THE SAME AS C APITAL IN NATURE. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE ASSESSEE IS ENGAGED IN THE PROFESSION OF CHARTERED ACCOUNTANCY AND FOR THE SAID PROFESSION, IT REQUIRES TO HAVE BASIC SOFTWARE TO C ARRY OUT ITS DAY TO DAY FUNCTIONING SMOOTHLY. AS PER THE PRACTICE CONSISTEN TLY FOLLOWED BY THE GROUP TO WHICH THE ASSESSEE BELONGS, THE LICENCE TO USE SUCH SOFTWARE IS ACQUIRED BY ITS CANADIAN ENTITY PWC GLOBAL LICENSIN G SERVICES CORPORATION AND THE ASSESSEE BEING A MEMBER OF THE NETWORK FOR WHICH THE LICENCE IS ACQUIRED GETS RIGHT IN THE SOFTWARE LICENSING. AS STATED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, THE VARIOUS BASIC SOFTWARE LIKE MICROSOFT, WINZIP P RO, VERITY, IBM-LOTUS ETC. FOR WHICH THE LICENCE TO USE WAS ACQUIRED WERE ESSENTIALLY ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 18 APPLICATIONS SOFTWARE GOING BY THE USE OF THE SAME IN THE PROFESSION OF THE ASSESSEE FOR DAY-TO-DAY FUNCTIONING AND SINCE T HE AMOUNT IN QUESTION WAS PAID BY THE ASSESSEE FOR THE RIGHT TO USE THE S OFTWARE FOR LIMITED/PARTICULAR PERIOD OF TIME, WE FIND MERIT IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE EXPENDITURE I N QUESTION INCURRED BY THE ASSESSEE DID NOT RESULT IN ANY ENDURING BENEFIT TO THE ASSESESE SO AS TO TREAT THE SAME AS CAPITAL IN NATURE. IF WE CONSI DER THE NATURE OF THE SOFTWARE FOR WHICH LICENCE WAS ACQUIRED BY THE ASSE SSEE AND THE USE FOR WHICH THE SAME WERE PUT IN THE PROFESSION OF THE AS SESSEE OF CHARTERED ACCOUNTANCY, THE EXPENDITURE IN QUESTION INCURRED B Y THE ASSESSEE AS ITS SHARE IN THE LICENCE ACQUIRED TO USE THE SAID SOFTW ARE IS REVENUE IN NATURE AND THE SAME IS ALLOWABLE AS DEDUCTION AS RIGHTLY H ELD BY THE LD. CIT(APPEALS). WE, THEREFORE, UPHOLD THE IMPUGNED OR DER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. 32. ONE MORE ISSUE RAISED BY THE REVENUE IN GROUND NO. 3 RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.1,78,83,131/- MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OF INSURANCE PREMIUM PAID BY THE ASSESSEE TOWARDS ACCOUNTANTS RISK POLIC Y. 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL AVAILABLE ON RECORD, IT IS OBSERVED THAT T HIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL RENDERED VIDE ITS ORDER DATED 11.05.2016 PASSED IN ITA NO. 1 278/KOL/2014 FOR AY 2009-10, WHICH WAS AGAINST THE ORDER PASSED BY THE LD. CIT UNDER SECTION 263, WHEREIN IT WAS HELD THAT IT COULD NOT BE DISPU TED THAT THE PAYMENT OF POLICY PREMIUM TO COVER THE RISK OF DAMAGES OWING T O PROFESSIONAL NEGLIGENCE WAS IN RELATION TO THE BUSINESS OF THE A SSESSEE AND THE FACT REMAINS THAT THE SAID PAYMENT HAD A DIRECT NEXUS WI TH THE BUSINESS OF THE ASSESSEE AND HAD TO BE RECORDED AS EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE LD . COUNSEL FOR THE ASSESSEE HAS ALSO CITED ANOTHER DECISION OF THE TRI BUNAL RENDERED IN THE ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 19 CASE OF PRICE WATER HOUSE VIDE ITS ORDER DATED 22.0 9.2017 PASSED IN ITA NO. 1135/KOL/2017, WHEREIN IT WAS HELD THAT THE PRE MIUM PAID TOWARDS ACCOUNTANTS RISK POLICY CANNOT BE CONSIDERED AS ONE FALLING WITHIN THE AMBIT OF EXPLANATION 1 TO SECTION 37 OF THE ACT. RE SPECTFULLY FOLLOWING BOTH THESE DECISIONS OF THE COORDINATE BENCH OF THI S TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INSURAN CE PAID BY THE ASSESSEE TOWARDS ACCOUNTANT RISK POLICY. WE ACCORDI NGLY DECIDE ALL THE THREE ISSUES RAISED IN GROUND NO. 3 OF THE REVENUE S APPEAL FOR A.Y. 2010- 11 IN FAVOUR OF THE ASSESSEE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 34. IN THE RESULT, THE APPEAL OF THE REVENUE FOR A. Y. 2010-11 BEING ITA NO. 1021/KOL/2017 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 35. TO SUM UP, THE APPEAL OF THE REVENUE FOR A.Y. 2 007-08 BEING ITA NO. 2020/KOL/2017 IS DISMISSED AND THE APPEAL O F THE REVENUE FOR A.Y. 2010-11 BEING ITA NO. 1021/KOL/2017 IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 08, 201 9. SD/- SD/- (A.T. VARKEY) (P.M. JAGTAP) JUDICIAL MEMBER VICE -PRESIDENT (KZ) KOLKATA, THE 8 TH DAY OF MARCH, 2019 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-22, KOLKATA, 54, RAFI AHMED KIDWAI ROAD, 4 TH FLOOR, KOLKATA-700 016 (2) M/S. LOVELOCK & LEWES, PLOT NY 14, BLOCK-EP, SECTOR-V, SALT LAKE, KOLKATA-700 091 (3) COMMISSIONER OF INCOME TAX (APPEALS)-6, KOLKATA , (4) COMMISSIONER OF INCOME TAX- , ITA NOS. 1020 & 1021/KOL/2017 ASSESSMENT YEARS: 2007-2008 & 2010-2011 M/S. LOVELOCK & LEWES 20 (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.