Appeal details
Counselvise Citation
[2023] 103 COUNSELVISE.COM (IT) 4215 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 3 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-02-2023
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
A
Next Hearing Date
05-02-2023
Assessment Year
2013-2014
Appeal Filed On
23-10-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1633/PUN/2019 नधा रण वष / Assessment Year : 2013-14 Axis Technical Group India Pvt. Ltd., Yashashree, 14 Sunita Society, Lane opp. Karnataka High School, Bamboo Lane, Erandawane, Pune 411 004, Maharashtra PAN : AAGCA3116L Vs. DCIT, Circle-1(1), Pune Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-1, Pune on 13-08-2019 in relation to the assessment year 2013-14. 2. The first issue raised in this appeal is against not allowing deduction of Rs.9,45,000/- , which was written off by the assessee as security deposit not recovered. 3. Briefly stated, the facts of the case are that the assessee is a company engaged in providing IT enabled services and BPO Assessee by Shri Kishor B. Phadke Revenue by Shri Ramnath P. Murkunde Date of hearing 06-02-2023 Date of pronouncement 07-02-2023 ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 2 services. A sum of Rs.9,45,000/- was claimed as deduction in the Profit and loss account towards security deposit written off. On being called upon to justify the deduction, the assessee submitted that it entered into an Agreement with M/s. Adwitya Projects in the year 2010 for taking on lease certain premises at Sakal Nagar, Aundh, Pune. The assessee furnished a security deposit of Rs.15.00 lakh, being, rent equivalent of five months. The licensor permitted the assessee-licensee to use this property for 36 months, i.e., till 31-01-2013. However the licensor approached the assessee in April, 2011 for vacating the property. The dispute was ultimately resolved, as per the assessee, by deciding that the assessee will utilize the said premises till July, 2011 and not pay any rent for 3 months, i.e. from May, 2011, as compensation to vacate the property. On receipt of the possession, the licensor refunded security deposit amounting to Rs.5,55,000/- in October, 2011 and January, 2012. The remaining amount of Rs.9,45,000/- was not refunded in lieu of the assessee not paying rent for 3 months. The assessee claimed deduction by writing off the amount of security deposit not refunded. The Assessing Officer (AO) did not allow the deduction on the ground that the security ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 3 deposit was given for acquiring a capital asset and hence its part non-recovery could not be allowed as deduction. The ld. CIT(A) countenanced the assessment order on this point. 4. Having heard the rival submissions and gone through the relevant material on record, it is seen as an admitted fact that the assessee paid a sum of Rs.15.00 lakh as security deposit to the licensor. It was during the assessment year 2012-13 that the premises was prematurely got vacated by the licensor and the assessee used the premises for 3 months without paying any rent. Though it is claimed that some agreement was entered into with the licensor for allowing user of the premises for three more months free of rent, but no such agreement has seen the light of the day. This shows that the assessee used the premises for three months in the preceding assessment year without paying rent and the licensor deducted the equivalent amount of such rent from the security deposit at the time of its refund in the year under consideration. Thus, it is not a case of security deposit ceasing to be refundable and becoming loss, rather adjustment of security deposit against the period for which the assessee used the premises without paying any rent. In such circumstances, the ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 4 assessee cannot claim deduction in respect of non-refunded security deposit during the year under consideration as a business loss. Since the deduction by the licensor was in lieu of the rent for three months of the A.Y. 2012-13 for which the assessee used the premises without paying any rent, we direct to grant deduction of Rs.9,45,000/- to the assessee in the assessment for the preceding A.Y. 2012-13. 5. The next ground is against the writing off of Rs.5,76,631/- towards software capital work-in-progress. 6. The facts anent to this issue are that the assessee wrote off Rs.5.76 lakh out of software expenses capitalised earlier as work- in-progress. On being called upon to explain the reason for such deduction, the assessee submitted that it was in the business of software development and was in the process of developing in- house software modules named Axis QA Automation Framework /Axis ERP/ IntelX platform used for various applications. Total sum capitalised was Rs.38.54 lakh. Out of that, a sum of Rs.5,33,531/-, representing salary of developer and computer rent allocated to developer, was written off because the assessee discontinued development of those modules. Necessary detail ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 5 was also furnished. The AO did not grant deduction by holding that it was a capital expenditure and hence could not be allowed as a revenue expenditure during the year on discontinuance. The ld. CIT(A) echoed the assessment order on this point. 7. Having heard the rival submissions and perused the relevant material on record, it is seen that the assessee is engaged in the business of software development. Capital work-in-progress stood at Rs.38.54 lakh in the books of the assessee. Out of this, a sum of Rs.5.33 lakh was initially incurred towards development of certain modules, work on which was disbanded during the year under consideration. On discontinuing the work on such modules, the amount capitalized towards salary of developer and computer rent allocated to developer, was claimed as deduction by writing off Rs.5.33 lakh. The detail of expenses written off has not been disputed by the AO. This shows that the assessee had capitalized certain revenue costs in respect of certain modules which it was trying to use in the software development business, but abandoned them during the year under consideration. Costs incurred earlier on such modules, which are otherwise of revenue nature, cannot be treated as capital expenditure, incapable of ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 6 deduction on their write off. It is not a case where the assessee purchased certain plant and machinery or incurred certain capital costs which were capitalised earlier to work-in-progress account, and later on, on abandoning the same, it was claimed as deduction. Rather it is a case of incurring revenue expenditure, which was initially capitalized and now written off because of abandoning the modules, that were no more required in the software development business. In our considered opinion, the amount of Rs.5.33 lakh is eligible for deduction. The ground is allowed. 8. The last ground is against the confirmation of disallowance of Rs.88,200/- on account of interest on late payment of TDS. The assessee claimed deduction of this sum on late payment of TDS, which was disallowed by the AO. The same was approved in the first appeal. 9. Having regard to the facts of the instant case, it is seen that the sum in question is interest paid to the Income-tax Department on late payment of TDS. Obviously, such an amount cannot be considered as allowable in terms of 40(a)(ii) in the hue of the judgment of Hon’ble Madras High Court in CIT Vs. Chennai ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 7 Properties and Investment Limited (1998) 239 ITR 435 (Madras). Almost similar view has been taken by the Hon’ble Jurisdictional High Court in CIT Vs. Ghatkopar Estate and Finance Corporation (P) Ltd. (1989) 177 ITR 222 (Bom.). In view of the above judgments, we uphold the action of the authorities below in making and sustaining the disallowance. 10. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 07 th February, 2023. Sd/- Sd/- ( S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 07 th February, 2023 सतीश आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent 3. The CIT(A)-1, Pune 4. 5. The Pr. CIT-1, Pune DR, ITAT, ‘A’ Bench, Pune 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA No.1633/PUN/2019 Axis Technical Group India Pvt. Ltd., 8 Date 1. Draft dictated on 06-02-2023 Sr.PS 2. Draft placed before author 06-02-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *
AI Insights
The case involves Axis Technical Group India Pvt. Ltd., which appealed against the order of the CIT(A)-1, Pune, concerning the assessment year 2013-14. The primary issues in the appeal were the non-allowance of a deduction of Rs.9,45,000 for a security deposit written off and the disallowance of Rs.5,76,631 for software capital work-in-progress. The Tribunal found that the security deposit, although initially capitalized, was effectively a revenue expenditure as it was adjusted against rent-free usage of premises, and thus, the deduction should be allowed in the earlier assessment year. Regarding the software expenses, the Tribunal allowed the deduction as the costs were of a revenue nature and should not have been capitalized. The Tribunal upheld the disallowance of the interest on late payment of TDS, referencing relevant judicial precedents.
