HDFC SECURITIES LIMITED, MUMBAI V. COMMISSIONER OF INCOME TAX (APPEALS), NATIONAL FACELESS APPEAL CENTRE , MUMBAI

ITA 1887/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 4875 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-12-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 23-05-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Additional evidence; Corroborative evidences; Revenue expenditure
• Section: 143(3); 40(a)(ia); 37(1); 143(1); 264; 194J; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1887/MUM/2023 (Assessment Year: 2013-14) & ITA No. 1888/MUM/2023 (Assessment Year: 2014-15) HDFC Securities Limited, Office Floor 8, I Think Techno Campus, Kanjurmarg (East) - 400042 [PAN: AAACH8215R] Commissioner of Income Tax (Appeals), National Faceless Appeal Centre ............. Vs ............. Appellant Respondent ITA No. 1986/MUM/2023 (Assessment Year: 2013-14) Assistant Commissioner of Income Tax 4(1)(1), Mumbai, Room No. 640, 6 th Floor, Aayakar Bhavan, M.K. Road, Mumbai - 400020 ............. Appellant HDFC Securities Limited, I-Think Techno Campus, Building – B, “Alpha” Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East) - 400042 [PAN: AAACH8215R] Vs ............. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Ms. Krupa Gandhi Ms. Labdhi Kothari Shri P.D. Chougule ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 2 Date Conclusion of hearing Pronouncement of order : : 14.12.2023 11.03.2024 O R D E R Per Bench: 1. This is a batch of three appeals pertaining to Assessment Years 2013-14 and 2014-15 arising from two separate order, each dated 30/03/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „the CIT(A)‟]. 2. ITA No. 1887/Mum/2023 preferred by the Assessee and ITA No. 1986/Mum/2023 preferred by the Revenue are directed against the order dated 30/03/2023, passed by the CIT(A) whereby the CIT(A) had partly allowed appeal of the Assessee against the Assessment Order, dated 09/02/2016, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for the Assessment Year 2013-14. 3. ITA No. 1888/Mum/2023 preferred by the Assessee is directed against the order dated 30/03/2023, passed by the CIT(A) whereby the CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 26/12/2016, passed under Section 143(3) of Act for the Assessment Year 2014-15. Assessment Year 2013-14 4. We would first take up cross appeals for the Assessment Year 2013-14. 5. The Assessee has raised following grounds of appeal in ITA No. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 3 1887/Mum/2023: “GROUND NO. I: ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS BAD-IN-LAW: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in passing the impugned order without giving a fair and reasonable opportunity of hearing to the Appellant in respect of addition made in the order and thereby violated the principles of natural justice. 2. The Appellant, therefore, prays that the impugned order passed in violation of the principles of natural justice, be quashed. WITHOUT PREJUDICE TO GROUND NO. I, GROUND NO. II: VIOLATION OF DOCTRINE OF JUDICIAL PRECEDENCE: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in not following the binding decisions of the Hon'ble Jurisdictional Tribunal in the Appellant's own case. 2. The Appellant prays that the order, qua the additions made in of judicial precedents, be quashed. WITHOUT PREJUDICE TO GROUND NO. I & II. GROUND NO. III: DISALLOWANCE OF LEASE RENT EXPENSES - RS.34,55,416/- 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in disallowing the lease rent expenses amounting to Rs. 34,55,416/- on the ground that the said expenses do not pertain to the year under consideration. 2. The Appellant prays that the disallowance of lease rent expenses amounting 34,55,416/- be deleted. WITHOUT PREJUDICE TO GROUND NO. I & II,- ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 4 GROUND NO. IV: DISALLOWANCE OF NET ENHANCEMENT AND CUSTOMISATION EXPENSES AMOUNTING TO RS. 20,29,120/- (AFTER ALLOWING DEPRECIATION AT THE RATE OF 25% ON TOTAL EXPENSE OF RS. 27,05,493/- DEBITED TO PROFIT AND LOSS ACCOUNT): 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in remanding the issue to the AO to verify whether the said expenses are of enduring nature or not. 2. The Appellant prays that the disallowance of enhancement and customization charges amounting to Rs. 20,29,120/- be deleted. 3. Without prejudice to the above, even if the said expenses are treated to be capital in nature, depreciation @ 60% ought to be allowed. WITHOUT PREJUDICE TO GROUND NO. I,- GROUND NO. V: DISALLOWANCE OF FACILITY MANAGEMENT EXPENSES AMOUNTING TO RS. 97,62,600/- (AFTER ALLOWING DEPRECIATION AT THE RATE OF 25% ON TOTAL EXPENSE OF RS. 1,30,16,800/- DEBITED TO PROFIT LOSS ACCOUNT) 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in remanding the issue to the AO to verify whether the said expenses are of enduring nature or not. 2. The Appellant prays that the disallowance of net facilities management expenses amounting to Rs. 97,62,600/- be deleted. 3. Without prejudice to the above, even if the said expenses are treated to be capital in nature, depreciation @ 60% ought to be allowed. GROUND NO. VI: GENERAL:- The Appellant craves leave to add, amend, alter, and/or delete any/all of the above grounds of appeal. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 5 6. The Revenue has raised following grounds of appeal in ITA No. 1986/Mum/2023: “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not upholding the disallowance Rs. 5,13,285/- u/s. 40(a)(ia) of the Income Tax Act, 1961 on account of payment of Data/circuit Bandwidth Charges without appreciating the fact that the said payment is covered by the definition of "Fees for Technical Services" as per section 194J of the Income Tax Act, 1961. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 1,78,59,453/- (being 25% of expenses incurred towards travelling, conveyance and staff training) without appreciating the fact that during the assessment proceedings, the assessee failed to submit itineraries, log book and finer details bills/vouchers in support of its claim of expenses.” 7. The relevant facts in brief are that the Assessee Company holds Corporate Membership of Bombay Stock Exchange and National Stock Exchange and is engaged in the business of Share & Stock Broking. The Assessee filed return of income for the Assessment Year 2013-14 on 29/11/2013 declaring total income of INR 94,63,44,140/-. The return was processed under Section 143(1) of the Act. Subsequently, the case of the Assessee was selected for scrutiny. The Assessing Officer completed the assessment under Section 143(3) of the Act vide Assessment Order, dated 09/02/2016, at assessed total income of INR 97,99,64,014/- after making, inter alia, following additions/disallowances: (i) Disallowance of INR 5,13,285/- under Section 40(a)(ia) of the Act in respect of Data Circuit/Bandwidth Charges ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 6 (ii) Disallowance of provision for lease rent expenses of INR 34,55,416/- (iii) Aggregate Disallowance of INR 1,17,91,720/- in respect of Enhancement and Customization Charges (INR. 27,05,493/-), and facility management expenses of (INR. 1,30,16,800/-) debited to the Profit & Loss Account treating the same to be capital in nature. After allowing depreciation @ 25% from the aggregating amount of INR 1,57,22,293/-, the Assessing Officer made net disallowance of INR 1,17,91,720/-. (v) Disallowance of INR 1,78,59,453/- being 25% of various expenses debited to the Profit & Loss Account [i.e., conveyance expenses, travel expenses-hotel inland, travel expenses others and staff training & welfare] expenses aggregating to INR. 7,14,37,811/- 8. Being aggrieved, the Assessee preferred appeal against the Assessment Order, dated 09/02/2016, before the CIT(A). Vide order, dated 30/03/2023, the CIT(A) allowed partial relief to the Assessee. The CIT(A) deleted the addition/disallowances of INR 5,13,285/- made by the Assessing Officer under Section 40(a)(ia) of the Act and the disallowance of INR 1,78,59,453/- in respect of various expenses. The CIT(A) granted partial relief in respect of the net disallowance of Enhancement & Customization Expenses [INR 20,29,120/-] and Facility Management Charges [INR 97,52,600/-] made by the Assessing Officer. However, the CIT(A) confirmed the additions/disallowance made by the Assessing Officer in respect of provision for lease rent expenses of INR 34,55,416/-. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 7 9. Now, both, the Assessee as well as the Revenue are in appeal before the Tribunal on the grounds reproduced in paragraph 5 & 6 above. 10. We would first take up grounds raised by the Assessee in its appeal. Appeal by Assessee : ITA No. 1887/Mum/2023 Ground No. I & II 11. Ground No. 1 raised by the Assessee challenged the validity of the order impugned on the ground of violation of the principles of natural justice. By way of Ground No. II the Assessee had raised the issue of violation of the doctrine of judicial precedence. Both the aforesaid grounds, though raised as independent grounds, also support the other grounds raised by the Assessee. Further, the aforesaid grounds can be decided only after taking into consideration the relevant facts which are also relevant for adjudication of specific grounds raised by the Assessee. Therefore, Ground No. I & II are not adjudicated separately and would be taken into consideration, where relevant, along with the other grounds raised. Ground No. III 12. Ground No. III pertains to disallowance of provisions for Lease Rent Expenses of INR 34,55,416/-. 12.1 In the computation of income the Assessee had claimed deduction for INR 34,55,416/- being provisions for Lease Rent created by the Assessee as per Accounting Standard-19 on accounting for leases. The Assessing Officer disallowed deduction for the same as the Assessing Officer was of the view that amount of INR 34,55,416/- ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 8 represented prepaid rental expenses which should have been claimed by the Assessee in the relevant financial year to which the same belonged. 12.2 In appeal preferred by the Assessee on this issue, the CIT(A) agreed with the Assessing Officer that the deduction for provision for lease rent of INR 34,55,416/- could not be allowed during the relevant previous year and declined to grant any relief in this issue. 12.3 Being aggrieved by the order passed by the CIT(A) confirming the disallowance of provision for Lease Rent, the Assessee is now in appeal before us on this issue. 12.4 The Ld. Authorized Representative for the Assessee appearing before us submitted that the issue raised by way of Ground No. III is a recurring issue and the in Assessee‟s own case, in appeal pertaining to Assessment Year 2010-11, Tribunal has decided the aforesaid issue in favour of the Assessee and against the Revenue vide order, dated 19/02/2016, passed in ITA Nos. 3137 & 3502/Mum/2014. Same view was taken by the Tribunal in rge case if the Assessee in appeals for the Assessment Year 2011-12, vide order dated 16/04/2018, passed in ITA No. 738 & 716/Mum/2016. Per contra, the Learned Departmental Representative relied upon the order passed by the Assessing Officer and CIT(A). 12.5 We have heard the rival submissions and perused the material on record. 12.6 On perusal of Accounting Standard - 19 we find that the said accounting standard deals with the accounting for financial leases as well as operation lease. Further, it deals with recognition of lease ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 9 rental as income in the books of account of the Lessor as well as booking of lease rental as expenses in the books of account of the Lessee. During the course of hearing, the Learned Authorised Representative for the Assessee had relied upon judicial precedents dealing with the recognition of lease rental as income in the books of accounts of the Lessor in case of financial leases, whereas in the present case the issue raised pertains to recognition of lease rental pertaining to operational lease as expenses in the books of accounts of the Lessee. Therefore, in our view, the aforesaid judicial precedents are not applicable to the facts and circumstances of the present case. 12.7 During the course of hearing, heavy reliance was placed by the Ld. Authorised Representative for the Assessee on the judgment of the Hon‟ble Delhi High Court in the case of Commissioner of Income Tax Vs. Virtual Soft Systems Ltd.: [2012] 341 ITR 593 (Delhi)[07- 02-2012] to contend that once expenses have been accounted for in the books of account as per the accounting standard, deduction for the same would have to be allowed while computing taxable income as per the provisions of the Act. However, on closer analysis of the judgment of the Hon‟ble Supreme Court [reported in 404 ITR 409 (SC)], whereby the aforesaid judgment of the Hon‟ble Delhi High Court was affirmed, it becomes clear that the Hon‟ble Supreme Court had that the assessee was entitled for bifurcation of lease rental as per the accounting standard prescribed by the Institute of Chartered Accountants of India since there was no express bar in the Act. We note that Section 30 of the Act contains provision relating to deduction for rental expenses and provides that in respect of premises used for the purpose of business or profession deduction shall be allowed in respect of the rent paid for ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 10 such premises. Section 43(2) of the Act defines „paid‟ as actually paid or incurred as per the method of accounting on the basis of which profits or gains of business or profession are computed. The Assessee is following mercantile system of accounting and therefore, the deduction for lease rental expenses would ordinarily be allowed on accrual basis. However, while deciding the cross appeals for the Assessment Year 2007-08 [ITA No. 3137 & 3052/Mum/2014] the Tribunal had, vide common order dated 19/02/2016, held as under: “6. Effective ground of appeal raised by the AO is about deleting the addition of Rs.1.03 crores. During the assessment proceedings the AO found that the assessee had claimed the above mentioned amount under the head Rent being AN-19 Provisions. He called for justification for allowing the same. After considering the reply of the assessee, the AO held that the disputed amount was nothing but prepaid expenses which ought is have been claimed in the relevant financial year to which it belonged that the amount was a balance sheet-item and not a P&L A/c item. Finally he treated the amount in question as prepaid expense and made a disallowance of Rs. 1,08,45,878/-. 7. Before the FAA, the assessee made elaborate arguments and produced additional evidences. He called for remand report from the AO. After considering the Report and rejoinder to the report of AO, the FAA held that lease expenses were nothing but expenses that accrued to the assessee and were computed as per the provisions of Accounting Standard-19(AS-19), that the assessee had to follow the AS compulsorily, that AS-19 had been prescribed by the ICAI to claim lease expenses, that the expenses were claimed in accordance with accounting standard, that AO was not justified in treating the expenses as contingent/unconfirmed, that the claim made by the assessee was based on scientific method, that the assessee was following the same method in earlier years. Finally, he held that the lease payment under the operating lease should be recognised as an item of the P&L A/c on a straight line basis over the lease period. He deleted the addition made by the AO. 8. Before us, the DR supported the order of the AO. AR relied upon the order of the FAA and stated that the assessee followed the mandate of AS-19,that the provision was made on a scientific basis, ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 11 that rent payable was allowable as per the section 30 of the Act. 9. We find that the AO had made the disallowance as he was of the opinion that it was a prepaid expense and that it could not be claimed during the year under appeal, that the assessee had claimed the expenditure as per the provisions of AS-19, that the agreement entered into by the assessee was in the nature of operating lease as defined in AS-19, as per the accounting standard in such cases the payments have to be considered as an item of P&L account on a straight line basis over the lease period. The FAA had given a categorical finding of fact that the provision of Rs.1.08 crores was in respect of the liability that had accrued during the FY 2009-10. We are of the opinion that, by following AS-19 the assessee has complied with the provisions of the Act, that AS-19 provides that in case of operating leases, the lease rent payment has to be treated as an allowable expenditure. Therefore, in our opinion, the order of the FAA does not require any interference from our side.” 12.8 On perusal of the above it emerges that, though the Learned Departmental Representative had invited the attention of the Tribunal towards the provisions contained in Section 30 of the Act, the Tribunal decided identical issue in favour of the Assessee and confirmed the order passed by the first appellate authority deleting the disallowance made by the Assessing Officer in respect of the provision for lease rent created as per AS-19. On perusal of computation sheet furnished by the Assessee in respect of 190 operational leases [placed at pages 132 to 152 of the paper-book], we find that, both, upward as well as downward adjustment of lease rental expenses has been taken into account while computing the amount of provision for Lease Rent Expenses of INR 34,55,416/- made for the relevant previous year. We note that the Assessee has been following this method of accounting for operational lease expenses on a consistent basis over the years. We also note that the above decision of the Tribunal in the case of the Assessee for the Assessment Year 2010-11 which has also been ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 12 followed while deciding cross-appeals for the Assessment Year 2011-12 [ITA No.738 & 716/Mum/2016, dated 16/04/2018]. Therefore, keeping in view of the aforesaid facts and circumstances as well as the above decisions of the Tribunal in the case of the Assessee for the Assessment Years 2010-11 and 2011-12, we delete the disallowance of INR 34,55,416/- made by the Assessing Officer in respect of provision for operational lease rentals. Ground No. III raised by the Assessee is allowed. Ground No. IV 13 Ground No. IV pertains to net disallowance of INR 20,29,120/- in respect of Enhancement & Customization Expenses of INR 27,05,493/- debited to the Profit & Loss Account. 13.1 During the assessment proceedings, the Assessee had submitted a Note on Enhancement & Customization Expenses vide letter, dated 12/01/2016, wherein a break-up of Enhancement & Customization charges of INR 27,05,493/- debited to the Profit & Loss Account along with brief description of the nature of services availed was provided. According to the Assessing Officer, the aforesaid expenses were incurred by the Assessee towards creation of asset by making major amendments in the software. Therefore, the Assessing Officer held the aforesaid Enhancement & Customization Expenses to be capital in nature [rejecting Assessee‟s claim for deduction as revenue expenditure] and allowed depreciation on the same. 13.2 In appeal before the CIT(A) on this issue, the Assessee explained that out of total Enhancement & Customization Expenses of INR 27,05,493/-, expenses of INR 25,22,125/- were paid to Tata ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 13 Consultancy Services (for short „TCS‟) towards maintenance of existing software. The aforesaid expenses were incurred by the Assessee for carrying out minor modification, customization, and/or enhancement to existing software for the purpose of complying with the regulatory requirements and for the ease of doing business. The aforesaid software was used by the Assessee in the routine business of stock-broking. After taking into consideration the submissions made by the Assessee, the CIT(A) directed the Assessing Officer to verify the claim of the Assessee after examining the supporting documents in case the expenses did not provide enduring benefit the Assessing Officer was directed to allow deduction for the same. On other hand, in case the expenses provided enduring benefit the Assessing Officer was directed to capitalized expenditure and allowed depreciation in respect of the same. 13.3 Not being satisfied by the partial relief granted by the CIT(A), the Assessee is now before us. It has been contended on behalf of the Assessee that Enhancement & Customization Expenses of INR 27,05,493/- incurred by the Assessee were revenue in nature since the same have been incurred for maintain the software used by the Assessee for the purpose of its business and the CIT(A) fell in error in not allowing deduction for the same. 13.4 We have heard the rival contention and perused the material on record including the judicial precedents cited during the course of hearing. We note that during the course of assessment proceedings, the Assessee has submitted a ledger account of Enhancement & Customization Expenses supporting claim for deduction of INR 27,05,493/- as revenue expenditure. On perusal ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 14 of the ledger placed at page 153 of the paper book, we find that payment of Enhancement & Customization Charges Expenses has been made to various parties, including TCS. While majority of the payments have been made to TCS, the corresponding invoices are not on record. In response to query from the Bench, the Ld. Authorised Representative for the Assessee submitted that the Assessee was not granted sufficient opportunity to present its case and in this regard also referred to Ground No. I raised in the present appeal. It was submitted that Enhancement & Customization Expenses were incurred by the Assessee on annual basis for maintenance of the software. Vide order, dated 16/04/2018, passed in appeal for the Assessment Year 2011-12 [ITA No. 738/Mum/2016], the Tribunal had deleted the disallowance of Enhancement & Customization Expenses and allowed deduction for identical annual maintenance expenses paid/payable to TCS as revenue expenditure. In view of the aforesaid, the Ld. Authorised Representative for the Assessee submitted that deduction for Enhancement & Customization Expenses of INR 27,05,493/- be allowed to the Assessee as revenue expenditure. Per contra, it was submitted by the Ld. Departmental Representative that no prejudice was caused to the Assessee by the order passed by CIT(A) remanding the issue back to the file of the Assessing Officer with the directions to allow deduction for Enhancement & Customization Expenses after verifying that the same do not result in any enduring benefit to the Assessee. 13.5 We have considered the rival submissions and perused the material on record. We note that the underlying invoices/agreements on the basis of which deduction for Enhancement & Customization ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 15 Expenses have been claimed as by the Assessee as revenue expenditure are not on record. The Assessee has only filed ledger account and provided details/break-up of the expenses. It is also the contention of the Assessee that sufficient opportunity was not granted by the CIT(A) to the Assessee to present its case. In view of the aforesaid, we concur with the order passed by CIT(A) to the extent the CIT(A) has remanded the issue back to the file of Assessing Officer for adjudication after verifying the nature of expenses incurred by the Assessee as Enhancement & Customization Expenses before allowing/disallowing deduction as revenue expenditure. However, keeping in view the rival submissions, we direct the Assessee to file all relevant documents/details to support the claim or deduction for Enhancement & Customization Expenses before the Assessing Officer who is directed to take the same into consideration before deciding the issue. We also direct the Assessing Officer to grant a reasonable opportunity of being heard to the Assessee and to take in to consideration the decision of the Tribunal in the case of the Assessee for the Assessment Year 2011-12 [ITA No. 738/Mum/2016, dated 16/04/2018] while adjudicating the issue allowance/disallowance of Enhancement & Customization Expenses as revenue expenditure. In terms of the aforesaid, Ground No. IV raised by the Assessee is treated as partly allowed. Ground No. V 14 Ground No. V raised by the Assessee pertains to net disallowance of INR 97,62,600/- made by the Assessing Officer in respect of Facility Management Charges of INR 1,30,16,800/- debited to the Profit & Loss Account. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 16 14.1 While framing the assessment, the Assessing Officer disallowed deduction for Facility Management Charges holding that the same provided enduring benefit to the Assessee. The Assessing Officer held the Facility Management Charges of INR 1,30,16,800/- to be capital in nature and after allowing depreciation @25% on the same made net disallowance of INR 97,62,600/-. 14.2 In appeal before CIT(A), it was pointed out that the Facility Management Charges consisted of INR 1,16,42,400/- and INR 13,86,000/- paid/payable to Wipro Limited and Magnus Telecommunication Private Limited. It was submitted that the aforesaid expenses are being incurred right from the inception and were being allowed as revenue expenditure. These expenses were incurred for maintaining the existing setup at all location of the Assessee in terms of hardware and linkage as well as running of the hardware. However, CIT(A) remanded the issue back to the file of the Assessing Officer with the directions to allow deduction for expenses not yielding any enduring benefit to the Assessee after verifying the supporting documents/details. 14.3 Having heard the rival submission, we note that, as was the situation in the case of Enhancement & Customization Expenses, only ledger account along with details/break-up was before the authorities below. During the course of hearing it was contended by the Learned Authorised Representative, the Assessee was not able to place the relevant documents on record as the order was passed by the CIT(A) without granting sufficient opportunity. Per contra, the Learned Departmental Representative placed reliance on the assessment order and submitted that the Assessee had failed to substantiate the claim of Facility Management Expenses being ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 17 revenue in nature. On perusal of record we find that the supporting document were not on record, and therefore, we concur with the order passed by CIT(A) to the extent the CIT(A) has remanded the issue back to the file of Assessing Officer for adjudication after verifying the nature of expenses incurred by the Assessee as Facility Management Charges before allowing/disallowing deduction as revenue expenditure. However, keeping in view the rival submissions, we direct the Assessee to file all relevant documents/details to support the claim or deduction for Facility Management Charges before the Assessing Officer who is directed to take the same into consideration before deciding the issue. All the rights and contentions of the Assessee are left open. The Assessing Officer is directed to the Assessee a reasonable opportunity of being heard. In terms of the aforesaid, Ground No. V raised by the Assessee is treated as partly allowed. Appeal by Revenue: : ITA No. 1986/MUM/2023 15 We would now take up grounds raised by the Revenue in the cross- appeal. Ground No. 1 16 Ground No. 1 raised by the Revenue pertains to deletion of disallowance of Data Circuit/Bandwidth Charges of INR 5,13,285/- made by the Assessing Officer under Section 40(a)(ia) of the Act. 16.1 During the assessment proceedings, the Assessing Officer noted that the Assessee had debited INR 5,13,285/- as Data Circuit/Broadband Charges. 16.2 The details of Data Circuit/Broadband Charges furnished by the ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 18 Assessee were as under: SNo. Particulars of Vendors Amount (INR) 1. Mahangar Telephone Nigam Limited, Mumbai 1,28,879 2. Vodafone 83,496 3. Airtel 48,780 4. Mahanagar Telephone Nigam, Delhi 14,633 5. 7 Eleven Communications 3,100 6. NSE Ltd 2,652 7. Jayprakash Dhanraj Chandak – Charges for putting up antenna for the MPLS poll 10,000 8. Reimbursement of Internet Pack to Employees 2,20,696 9. Sistema Shyam Teleservices Ltd. 1,049 Total 5,13,285 16.3 Since tax was not deducted at source from the above payments, the Assessee was asked to explain why disallowance of INR 5,13,285/- should not be made under Section 40(a)(ia) of the Act on account of failure of the Assessee to deduct tax at source under Section 194J of the Act. In response, the Assessee filed submissions, dated 12/01/2016, explaining the nature of charges debited to the Profit & Loss Account. It was contended that the Assessee was not liable to deduct tax from the aforesaid payments under Section 194J of the Act and therefore, disallowance under Section 40(a)(ia) of the Act was not warranted. Without prejudice, persons to whom the payment/charges were made by the Assessee had offered the same as to tax as income and discharge their respective tax liability. Therefore, no disallowance could be made in the hands of the Assessee in terms of Section 40(a)(ia) of the Act. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 19 However, the Assessing Officer was not convinced with the explanation furnished by the Assessee and concluded that the Assessee was liable to deduct tax at source from the same under Section 194J of the Act. Rejecting the contentions of the Assessee, the Assessing Officer observed that the Assessee had failed to furnish the copy of relevant agreements during the assessment proceedings. Further, the Assessee had itself deducted tax at source from similar payments of data circuit/bandwidth charges paid to other parties (such as BSE, HCL Comnet, HCL Infite and HDFC Bank Limited). 16.4 In appeal preferred by the Assessee on this issue, the CIT(A) deleted the disallowance of INR 5,13,285/- made under Section 40(a)(ia) of the Act. 16.5 The Revenue is now in appeal before us on this issue. 16.6 The primary contention of the Revenue was that the CIT(A) had deleted the addition without even carrying out basic verification. The agreement in terms of which payments were made by the Assessee was not examined by the CIT(A) despite specific finding by the Assessing Officer that the aforesaid agreements were not filed during the assessment proceedings. Per contra, the Learned Authorized Representative for the Assessee submitted that identical disallowances was deleted by the Mumbai Bench of the Tribunal in appeal for the Assessment Year 2010-11 [ITA No. 3137/Mum/2014] following the decision of the Pune Bench of the Tribunal in the case of iGate Computer System Limited (67 SOT 296). Following the aforesaid decision for Assessment Year 2010-11, the Mumbai Bench of the Tribunal has also decided similar issue in the favour of the ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 20 Assessee in appeal for Assessment Year 2011-12 [ITA No. 716/Mum/2016]. The Learned Authorised Representative for the Assessee submitted that nature of payments was identical and therefore, there was no change in the facts and circumstances of the case. 16.7 We have heard the rival submissions and perused the material on record. 16.8 On perusal of the details of Data Circuit/Broadband Charges furnished by the Assessee we find that the same includes following payments of less than INR 30,000/-: SNo. Particulars of Vendors Amount (INR) 1. Mahanagar Telephone Nigam, Delhi 14,633 2. 7 Eleven Communications 3,100 3. NSE Ltd 2,652 4. Jayprakash Dhanraj Chandak – Chares for putting up antenna for the MPLS poll. 10,000 5. Sistema Shyam Teleservices Ltd. 1,049 Total 31,434/- 16.9 On perusal of the provision of Section 194J of the Act it is clear that the same are not attracted in case of payments less than the threshold limit of INR 30,000/-. Therefore, the question of making disallowance under Section 40(a)(ia) of the Act in respect of the abovesaid payments aggregating to INR 31,434/- does not arise. Therefore, we confirm the order of CIT(A) deleting disallowance under Section 40(a)(ia) of the Act in respect of the aforesaid payments aggregating to INR 31,434/- albeit for different reasons ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 21 stated hereinbefore. 16.10 As regards, disallowance of balance amount of INR 4,81,851/- made by the Assessing Officer under Section 40(a)(ia) of the Act which was deleted by the CIT(A), on perusal of record, we find that the Assessing Officer has returned a finding that the Assessee had failed to bring on record the relevant agreements. Admittedly, the relevant agreements and invoices are not on record. Therefore, there was no basis for the finding returned by the CIT(A). The CIT(A) proceeded to conclude that the services availed by the Assessee were standard facilities not requiring any human intervention which could not be classified as managerial, technical, or consultancy services without verifying the underlying facts. Therefore, in our view, the order passed by the CIT(A) deleting the disallowance of INR 5,13,285/- made under Section 40(a)(ia) of the Act cannot be sustained. In the cross-appeal filed by the Assessee it was contended that the order was passed by the CIT(A) without giving sufficient opportunity to the Assessee. This also explains why the relevant agreement/invoices supporting Assessee‟s claim for deduction for Data Circuit/Broadband Charges were not on record. Given the facts and circumstances of the present case we deem it appropriate to remand this issue back to the file of the Assessing Officer for adjudication with the direction to examine the nature payments of data circuit/bandwidth charges of INR 4,81,851/- in respect of which deduction was claimed by the Assessee as revenue expenditure. The Assessee is directed to file all relevant documents/details on which the Assessee wishes to place reliance in support of claim of deduction of the aforesaid expenses. The Assessing Officer is directed to take into consideration the decision of the Tribunal in the case of the Assessee for the Assessment Year ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 22 2010-11 and 2011-12 while making the adjudication on this issue. The Assessing Officer shall decide the issue as per law in terms of the aforesaid binding decision of the Tribunal and grant a reasonable opportunity of being heard to the Assessee who shall be free to raise all contention before the Assessing Officer. In terms of the aforesaid, Ground No. 1 raised by the Revenue is allowed for statistical purposes. Ground No. 2 17 Ground No. 2 pertains to deletion of disallowance of various expenses on ad-hoc basis amounting to INR 1,78,59,453/-. 17.1 We have heard the rival submissions and perused the material on record. On perusal of the aforesaid, we find that the Assessing Officer had made adhoc disallowances @ 25% of expenses aggregating to INR 1,78,59,453/- of the following : SNo. Particulars Amount (in INR) 1 Conveyance 1,94,72,592 2 Travelling Fare 32,19,430 3 Travel – Lodging and boarding expenses 75,11,984 4 Staff Training and Welfare 4,12,33,805 Total 7,14,37,811 17.2 The Assessing Officer has, on verification of details furnished by the Assessee, recorded that it was found that the expenses were not fully supported by proper bills/vouchers and expenses were supported by self made voucher (in cash). Further, the Assessing Officer was of the view that the Assessee had failed to establish that the expenses were incurred wholly and exclusively for the purpose of business and that the presence of element of personal expenditure could not be ruled out. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 23 17.3 In appeal before CIT(A), the Assessee filed sample bills and vouchers pertaining to various expenses. We note that CIT(A) deleted the disallowances made by the Assessing Officer observing that the Assessing Officer has failed to specify expenses which are to be disallowed and has made the disallowances on ad-hoc basis. The observation of the Assessing Officer that expenses incurred may involve personal element was without any basis. Further, the Assessing Officer has also not quantified the element of personal expenses. 17.4 Before us, it was contended by the Ld. Departmental Representative that it was the duty of the Assessee to substantiate the expenses claimed during the course of assessment proceedings. The Assessee had failed to establish the expenses were incurred wholly and exclusively for the purpose of business. Since the Assessee failed to discharge this duty, the Assessing Officer was justified in disallowing the expenses. 17.5 We are not convinced with the submissions advanced by the Ld. Departmental Representative. The Assessee has furnished details of various expenses and had explained the nature and purpose of such expenditure. Without specifying or identifying the infirmity in these specific invoices, bills and vouchers pertaining to expenses, the Assessing Officer proceeded to make a general observation that certain expenses were not supported by proper bills and vouchers. We concur with the CIT(A) that disallowance made on ad-hoc basis cannot be sustained in the facts of the present case. The Assessing Officer has moved on the presumption that the expenses involved personal element without identifying or quantifying such personal ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 24 expenses. Accordingly, we do not find any infirmity in the order passed by CIT(A) deleting ad-hoc disallowance of INR 1,78,59,453/- made by the Assessing Officer under Section 37(1) of the Act. Accordingly, Ground No. 2 raised by the Revenue is dismissed. Assessment Year 2014-15 18 We would now take up appeal preferred by the Assessee for the Assessment Year 2014-15. The Assessee has raised following grounds of appeal in ITA No. 1888/Mum/2023: “GROUND NO. I: ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IS BAD-IN-LAW: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in passing the impugned order without giving a fair and reasonable opportunity of hearing to the Appellant in respect of addition made in the order and thereby violated the principles of natural justice. 2. Hon’ble CIT(A) further erred in not appreciating that non- consideration of additional evidence results in violation of principles of natural justice. 3. The Appellant, therefore, prays that the impugned order passed in violation of the principles of natural justice, be quashed. WITHOUT PREJUDICE TO GROUND NO. I,- GROUND NO. II: VIOLATION OF DOCTRINE OF JUDICIAL PRECEDENCE: 1. On the facts and circumstances of the case and in law, Hon'ble CIT(A) erred in not following the binding decisions of the Hon'ble Jurisdictional Tribunal in the Appellant's own case. 2. The Appellant prays that the order, qua the additions made in ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 25 of judicial precedents, be quashed. WITHOUT PREJUDICE TO GROUND NO. I & II.- GROUND NO. III: DISALLOWANCE OF NET ENHANCEMENT AND CUSTOMISATION EXPENSES AMOUNTING TO RS. 70,05,096/- (AFTER ALLOWING DEPRECIATION AT THE RATE OF 25% ON TOTAL EXPENSE OF RS. 93,40,128/- DEBITED TO PROFIT AND LOSS ACCOUNT 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in remanding the issue to the AO to verify whether the said expenses are of enduring nature or not. 2. The Appellant prays that the disallowance of enhancement and customization charges amounting to Rs. 70,05,096/- be deleted. 3. Without prejudice to the above, even if the said expenses are treated to be capital in nature, depreciation @ 60% ought to be allowed. GROUND NO. IV: GENERAL:- The Appellant craves leave to add, amend, alter, and/or delete any/all of the above grounds of appeal. Ground No. I, II & III 19 Ground No. 1 raised by the Assessee challenged the validity of the order impugned on the ground of violation of the principles of natural justice. By way of Ground No. II the Assessee had raised the issue of violation of the doctrine of judicial precedence. Both the aforesaid grounds, though raised as independent grounds, also support the Ground III raised by the Assessee. Therefore, Ground No. I & II are not adjudicated separately and would be taken into consideration along with the Ground III raised hereinafter. ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 26 19.1 Ground No. III pertains to net disallowance of INR 70,05,096/- made by the Assessing Officer in respect of Enhancement & Customization Expenses of INR 93,40,128/- debited to the Profit & Loss Account. 19.2 The Assessing Officer denied deduction for Enhancement & Customization Expenses as revenue expenditure observing that the Assessee has failed to provide any details regarding the validity of software, and that the Assessee has failed to furnish cogent documentary evidence and explanation to show that the benefit drawn by the Assessee from Enhancement & Customization Expenses is not enduring in nature. In appeal before the CIT(A), the Assessee filed application for admission of additional evidence vide letter dated 12/02/2019 along with additional evidence running into 264 pages containing, inter alia, various supporting invoices. Vide order dated, 30/03/2023, the CIT(A) remitted the issue to the file of Assessing Officer with directions. The relevant extract of the decision of the CIT(A) reads as under: “6.3 The learned AO disallowed sum of Rs.70,05,096/- on account of enhancement and customization expenses incurred by the appellant on its software. 6.4 The appellant explained that such expenses are incurred towards maintenance of existing software, therefore the same are allowable expenditure. The appellant submitted supporting invoices and copy of agreement wherein it is observed that the total amount paid includes amount towards AMC charges as well which is allowable expenditure. The amount paid also comprises of license charges which would provide enduring benefits to the appellant and shall be capitalised instead of expensed out. 6.5 In view of the same the learned AO is directed to allow the expenses towards AMC charges and license charges which do not ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 27 provide enduring benefit after due verification of claim of appellant along with supporting evidences thereto. Learned AO shall not allow the expenses providing enduring benefit and the same shall be capitalised and depreciation shall be allowed thereto as per provisions of I.T. Act. 6.6 Accordingly, Ground 2 of the appellant is partly allowed.” 19.3 The Assessee is now in appeal before us. 19.4 The primary contention of the Assessee is that the Enhancement & Customization Expenses of INR 93,40,128/- incurred by the Assessee were revenue in nature since the same have been incurred for maintain the software used by the Assessee for the purpose of its business and the CIT(A) fell in error in not allowing deduction for the same. Reliance was also placed on the decision of the Tribunal in the case of the Assessee for the Assessment Year 2011-12 [ITA No. 738/Mum/2016, dated 16/04/2018]. The aforesaid contention was supported by the additional evidence filed by the Assessee before the CIT(A). However, the CIT(A) neglected to consider the same. Per contra, the Ld. Departmental Representative submitted that the additional evidence filed by the Assessee during the appellate proceedings before CIT(A) would require verification. It was contended that no prejudice was caused to the Assessee by the order passed by CIT(A) as the issue has been remanded to the file of the AO with the directions to allow deduction Enhancement & Customization Expenses incurred by the Assessee not leading to benefit of enduring nature. 19.5 We have considered the rival submissions and perused the records. It emerges that the Assessee had filed various invoices as additional evidence before CIT(A) for substantiating the claim of ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 28 deduction for Enhancement & Customization Expenses of INR 93,40,128/-. These invoices were not before the Assessing Officer and have also not been examined by the CIT(A). Therefore, we remand this issue back to the file of CIT(A) for adjudication after taking into consideration the additional evidence furnished by the Assessee. Keeping in view the rival submissions, we direct the CIT(A) to grant a reasonable opportunity of being heard to the Assessee and to take in to consideration the decision of the Tribunal in the case of the Assessee for the Assessment Year 2011-12 [ITA No. 738/Mum/2016, dated 16/04/2018] while adjudicating the issue allowance/disallowance of Enhancement & Customization Expenses as revenue expenditure. In terms of the aforesaid, Ground No. III raised by the Assessee is treated as partly allowed while Ground No. I & II are disposed off as being infructuous. Ground No. IV 20 Ground No. IV raised by the Assessee is disposed of as being general in nature. 21 In result, the appeal preferred by the Assessee is allowed and the appeal preferred by the Revenue is partly allowed. Order pronounced on 11.03.2024 Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 11.03.2024 Alindra, PS ITA No.1887-1888 & 1986//Mum/2023 Assessment Years: 2013-14 & 2014-15 29 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai