ACIT-4(1)(1), MUMBAI V. HDFC SECURITIES LTD, MUMBAI

ITA 1985/MUM/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 4874 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2024
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 08-02-2024
• Assessment Year: 2012-2013
• Appeal Filed On: 28-05-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice; Rule of consistency; Additional evidence; Revenue expenditure
• Section: 143(3); 40(a)(ia); 37(1); 143(1); 191; 194J

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 1886/MUM/2023 (Assessment Year: 2012-13) 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. 1985/MUM/2023 (Assessment Year: 2012-13) 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, L-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 Date Conclusion of hearing Pronouncement of order : : 09.02.2024 28.02.2024 ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 2 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These cross-appeals pertaining to Assessment Year 2012-13 arising from the order, 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)‟], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 27/02/2015, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟). 2. The Assessee has raised following grounds of appeal in ITA No. 1886/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- adjudication of additional ground filed, and non-consideration of additional evidence results in a 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, ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 3 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.64,39,586/- 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. 64,39,586/- 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 64,39,586/- be deleted. WITHOUT PREJUDICE TO GROUND NO. I & II, GROUND NO. IV: DISALLOWANCE OF NET ENHANCEMENT AND CUSTOMISATION EXPENSES AMOUNTING TO RS. 1,25.08.875/- (AFTER ALLOWING DEPRECIATION AT THE RATE OF 25% ON TOTAL EXPENSE OF RS. 1,66,78,500/- 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. 1,25,08,879/- 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 ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 4 EXPENSES AMOUNTING TO RS. 72,45,000/- (AFTER ALLOWING DEPRECIATION AT THE RATE OF 25% ON TOTAL EXPENSE OF RS. 96,60,000/- 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. 72,45,000/- 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 & II, GROUND NO. VI: DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS. 5,46,479/- 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 said expenses ought to be allowed u/s 31 of the Act. 3. Without prejudice to the prayer at 3 above, the said expense ought to be allowed u/s 37(1) of the Act. 4. Without prejudice to the prayers at 3 and 4 above, even if the said expenses are treated to be capital in nature, depreciation @ 10% ought to be allowed. GROUND NO. VII: GENERAL:- The Appellant craves leave to add, amend, alter, and/or delete any/all of the above grounds of appeal. 3. The Revenue has raised the following grounds of appeal in ITA No. 1985/Mum/2023: ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 5 “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. 1,75,16,000/- 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. 1,67,67,179/-(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.” 4. 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 2012-13 on 28/09/2021 declaring total income of INR 75,62,88,720/-. 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 27/02/2015, at assessed total income of INR 81,73,11,839/- after making, inter alia, following additions/disallowances: (i) Disallowance of INR 1,75,16,000/- under Section 40(a)(ia) of the Act in respect of Data Circuit, Broadband, Multi-Protocol Label Bandwidth Charges (ii) Disallowance of lease rent expenses of INR 64,39,538/- ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 6 (iii) Aggregate Disallowance of INR 1,97,53,875/- in respect of enhancement and customization charges (INR. 1,66,500/-), and facility management expenses of (INR. 96,60,000/-). The Assessing Officer made aggregating disallowance of INR. 2,63,38,500/- treating the same to be capital in nature. However, after allowing depreciation @ 25% from the same, the Assessing Officer made net disallowance of INR 1,97,53,875/-. (iv) Repair and maintenance expenses pertaining office/office equipment etc. aggregating to INR 5,46,479/- holding the same to be capital in nature. (v) Disallowance of INR 1,67,67,179/- 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. 6,70,68,715/- 5. Being aggrieved, the Assessee preferred appeal against the Assessment Order, dated 27/02/2015, 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 made by the Assessing Officer of INR 1,75,16,000/- under Section 40(a)(ia) of the Act and the disallowance of INR 1,67,67,179/- in respect of various expenses. As regards other additions/disallowances made by the Assessing Officer, the CIT(A) confirmed the disallowance of lease rent expenses, and the repair & maintenance expenses, while in relation to net enhancement & customization expenses and ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 7 facility management the CIT(A) granted partial relief and issued directions to the Assessing Officer. 6. Now, both, the Assessee as well as the Revenue are in appeal before the Tribunal on the grounds reproduced in paragraph 2 to 4 above. 7. We would first take up grounds raised by the Assessee in its appeal. Appeal by Assessee : ITA No. 1886/Mum/2023 Ground No. I & II 8. 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 Appellant. 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 9. Ground No. III pertains to disallowance of provisions for Lease Rent Expenses of INR 64,39,586/-. 10. In the computation of income the Assessee had claimed deduction for INR 64,39,586/- being provisions for Lease Rent created by the ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 8 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 64,39,586/- represented prepaid rental expenses which should have been claimed by the Assessee in the relevant financial year to which the same belong to. 11. 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 64,39,586/- could not be allowed during the relevant previous year and declined to grant any relief in this issue. 12. 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. 13. 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 Tribunal has, in Assessee‟s own case in appeal pertaining to Assessment Years 2010-11 and 2011-12, 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 and 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). 14. We have heard the rival submissions and perused the material on record. 15. On perusal of Accounting Standard - 19 we find that the said ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 9 accounting standard deals with the accounting for financial leases as well as operation lease. Further, it deals with recognition of lease 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. 16. During the course of hearing, heavy reliance was also placed 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 held 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 ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 10 premises used for the purpose of business or profession deduction shall be allowed in respect of the rent paid for such premises. Section 43(2) of the Act defines rent „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. ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 11 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, 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.” 17. On perusal of the above it emerges that, though the Revenue 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 127 operational leases [placed at pages 136 to 139 of the paper-book], we find that, both, upward as well as downward adjustment of lease rental expenses has been 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 aforesaid decision of the Tribunal in the case of the Assessee for the Assessment Year 2010-11 which has also been followed while deciding cross-appeals for the Assessment Year 2011-12 [ITA ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 12 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 64,39,586/- 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 & V 18. Ground No. IV pertains to net disallowance of INR 1,25,08,875/- in respect of Enhancement & Customization Expenses of INR 1,66,78,500/- debited to the Profit & Loss Account, while Ground No. V pertains to net disallowance of INR 72,45,000/- in respect of Facility Management Charges of INR 96,60,000/- debited to the Profit & Loss Account. 19. While framing the assessment, the Assessing Officer disallowed deduction for Enhancement & Customization Expenses as well as Facility Management Charges holding that the same were not revenue in nature. However, the Assessing Officer allowed depreciation @25% holding that the aforesaid expenditure were capital in nature and that the Assessee was entitled to claim depreciation on the same. Thus, the Assessing Officer made aggregate disallowance of INR 1,97,53,875/-. 20. In appeal before CIT(A), it was pointed out that the Enhancement & Customization Expenses paid/payable to Tata Consultancy Services Limited were different form the Facility Management Charges paid/payable to Wipro Limited. However, CIT(A) considered both the disallowance together and decided the grounds raised by the ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 13 Assessee granting partial relief to the Assessee holding as under: “5.13 The learned AO disallowed sum of Rs. 1,97,53,879/- on account of enhancement and customization expenses incurred by the appellant on its software. The learned AO also disallowed sum of Rs.72,45,000/- towards facility management expenses incurred on account of maintenance of existing hardware. Also, the learned AO disallowed sum of Rs.5,46,479/- on account of maintenance expenses by treating them capital in nature. 5.14 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. 5.15 In view of the same the learned AO is directed to allow the expenses towards AMC charges and license charges which do not provide enduring benefit after due verification of claim of appellant along with supporting evidences thereto. Learned AO 2 shall not allow the expenses providing enduring benefit and the same capitalised and depreciation shall be allowed thereto as per provisions of I.T. Act. 5.16 Accordingly, Ground 4, 5 & 6 of the appellant is partly allowed.” 21. Against the above order/directions of the CIT(A), the Assessee in now in appeal before us. 22. We have heard both the sides on this issue and perused the material on record in relation to Ground No. IV and V raised by the Assessee. 23. We would first take up Ground IV pertaining to Enhancement & Customization Expenses. 24. On perusal of record, it emerges that the Assessee had contended ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 14 that Tata Consultancy Services Limited (for short „TCS') had developed the trading platform for the Assessee which was commissioned/installed in 2005. It is stated that the aforesaid trading platform, on one hand, allowed the investors to use the technology to execute the trade orders on one hand and on the other hand, enabled the Assessee to process the executed trade orders for settlement at the back-office. TCS had charged a maintenance fees for the said software, and the Assessee had made payment of INR 1,66,78,500/- to TCS during the relevant previous year as annual maintenance charges. The Assessing Officer was of the view that the aforesaid maintenance charges were not revenue in nature and therefore, disallowed deduction for the same. However, the Assessing Officer held that the expenses were capital in nature and the Assessee was allowed to claim deduction at the rate of 25% on the same. 25. In appeal on this issue, the CIT(A) issued directions to the Assessing Officer to allow deduction for expenses not providing enduring benefit to the Assessee which are reproduced in paragraph 14 above. 26. Before us, it was vehemently contended on behalf the Assessee that the annual maintenance charges paid to TCS were recurring in nature and had been incurred for smooth functioning of business activities and therefore, cannot be treated as enhancement and customization charges of capital nature. In order to meet the regulatory requirements and business needs that software developed by TCS needs minor modification/customization. 27. On the other hand, the Learned Departmental Representative relied ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 15 upon the order passed by the Assessing Officer and submitted that the modifications/customizations result in enduring benefit to the Assessee and therefore, Assessing Officer was correct in holding the same as capital in nature. The Assessing Officer has fairly allowed depreciation at the rate of 25% and therefore, the Assessee was not entitled to any further relief. The CIT(A) has gone a step further any directed the Assessing Officer to allow deduction for expenses not providing enduring benefit after verification and therefore, no further relief could be granted to the Assessee. 28. Having considered the rival submissions, we find merit in the submissions advanced by the Learned Authorised Representative for the Assessee. The Assessee is engaged in the business of stock broking. The annual maintenance expenses have been incurred by the Assessee for keeping the software in line with the regulatory requirements and business requirements. The Assessee has been incurring the annual maintenance charges on a recurring basis for smooth functioning of business. 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. We are not persuaded to take a view, different from the aforesaid view taken by the Tribunal in appeal for the Assessment Year 2011-12. Accordingly, in view of the aforesaid, we direct the Assessing Officer to allow deduction for annual maintenance expenses of INR 1,66,78,500/- paid/payable to TCS as revenue expenditure; delete the disallowance of INR 1,25,08,875/- and direct the Assessing Officer to reverse the depreciation @ 25% granted to the Assessee. In terms of the ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 16 aforesaid, Ground No IV raised by the Assessee is allowed. 29. We would next take up Ground V pertaining to Facility Management Charges. 30. During the relevant previous year, the Assessee had claimed deduction for payment on INR 96,60,000/- made by the Assessee to Wipro Limited [for short 'Wipro'] in respect of Facility Management Charges. The Assessing Officer disallowed the same as being capital in nature and allowed depreciation @25%. This resulted in net disallowance of INR 72,45,000/-. While doing so the Assessing Officer clubbed the aforesaid Facility Management Charges with Enhancement & Capitalization Expenses. 31. In appeal preferred before the CIT(A), while adjudicating the ground raised by the Assessee challenging rejection of claim of deduction of Facility Management Charges as revenue expenditure, the CIT(A) also adopted an approach similar to the Assessing Officer. The CIT(A) directed the Assessing Officer to identify the expenditure not providing enduring benefit to the Assessee and directed the Assessing Officer to allow deduction for the same as revenue expenditure. The relevant extract of the decision of the CIT(A) is reproduced in paragraph 14 hereinabove. 32. Since the Assessee was not satisfied with the partial relief granted by the CIT(A), the Assessee carried the issue in appeal before the Tribunal. 33. Before us, it was contended on behalf of the Assessee that the Facility Management Charges were incurred for maintaining the existing setup at all location of the Assessee in terms of hardware ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 17 and linkage as well as running of the hardware. This facilities management service was provided by Wipro by way of deployment of team of computer engineers to maintain connectivity between branches and centralized server, existing computer hardware and printer installations and to prevent malfunction, work- dislodgement, zero downtime, e-mail management, keeping records of installed machines etc. The expenses of the facilities management were regularly incurred right from the inception of the Assessee in order to facilitate the business operations and were also being allowed by the Revenue. No disallowance was made in respect of identical deduction claimed for the Assessment Years 2008-09 (INR 93,65,935/-), 2009-10 (INR 1,13,18,201/-) and 2010-11 (INR 88,06,270/-). Therefore, it was contended on behalf of the Assessee that no disallowance ought to have been made on the principles of consistency when there was no change in the facts or nature of the expense. It was also contended that the aforesaid expenses did not provide any benefit of enduring nature to the Assessee and hence, did not form part of profit earning apparatus of the Assessee. 34. Per contra, the Learned Departmental Representative placed reliance on the assessment order and submitted that the Assessee had failed to justify that the payments made to Wipro were revenue in nature. 35. Having considered the rival submission, we find merit in the submission made on behalf of the Assessee. We have perused the sample invoices and the letters dated 31/03/2011 and 19/10/2011 and find that the same support the stand of the Assessee. Wipro has agreed to provide facility management services to the Assessee ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 18 for a fixed fee and accordingly invoices were raised by Wipro on the Assessee for the facility management charges. We note that while making the disallowance, the Assessing Officer has not made any observations regarding the facility management charges. Therefore, order passed by the Assessing Officer holding Facility Management Charges as capital expenditure cannot be sustained. We note that even the CIT(A) has only made reference to „AMC Charges and License Charges‟ while adjudicating the relevant ground raised before the CIT(A). The findings/decision of CIT(A) does not contain any discussion on Facility Management Charges. On the other hand, the contention of the Assessee that no disallowances for Facility Management Charges incurred for the Assessment Year 2008-09, 2009-10 and 2010-11 has not been disputed by the Revenue. Keeping in view the overall facts and circumstances of the case, we overturn the decision of the Assessing Officer and direct the Assessing Officer to allow deduction for Facility Management Charges of INR 96,60,000/- as revenue expenditure; delete the disallowance of INR 72,45,000/- and reverse the depreciation @ 25% granted to the Assessee. In terms of the aforesaid, Ground No. V raised by the Assessee is allowed. Ground No. VI 36. Ground No. VI pertains to disallowance of Repairs & Maintenance Expenses of INR 5,46,479/-. 37. The Assessing Officer disallowed deduction for Repair & Maintenance Expenses of INR 5,46,479/- debited to the Profit & Loss Account holding the same to be capital in nature. 38. Before the CIT(A), the Assessee furnished the break-up of the ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 19 Repair & Maintenance Expenses along with details. However, the CIT(A), not being convinced, declined to grant any relief and confirmed the disallowance of INR 5,46,479/-. 39. Being aggrieved, the Assessee is now in appeal before us. 40. We have heard the rival submissions and perused the material on record. On perusal of the details of expenses furnished by the Assessee and corresponding invoices, it emerges that expenses were incurred for routine repair and maintenance activity for keeping the assets in working condition. (a) Amount aggregating to INR 2,92,585/- paid to Siddhi Office Solution, a multi-tasking labour contractor, to carry out all types of repairs of furniture, electrical and telephone & data lines and instruments, across all branch. The Assessee has placed on record the ledger account along with the relevant invoices. Majority of the expenses incurred pertain to supply in installation of networking products such as crone modules, voice cabling for work stations, supply and installation of key board trays connectors, data/voice/electrical cabling and electrical work incurred for keeping the working station in operating conditions. (b) Amount aggregating to INR 61,700/- was paid to Mahal Decorator, a carpenter carrying out petty repairs for the Assessee. The Assessee has provided following details during the assessment proceedings in relation to the same: SNo. Particulars of Expense Amount in INR 1 Payment against Bill Nos. 31, 32 &30 dtd.02.12.11 & 03.12.11 towards keyboard channel repair & carpentry 12,500 ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 20 work done for Malad, Borivali & Thane Branches. 2 Amount payables towards carpentry work done at Kanjurmarg Office vide bill dtd.09.02.12 & 11.02.12 & 22.02.12 for Andheri & Trade World 22,200 3 Towards dismantling charges of Server room at Prime Plaza vide bill dtd 07.02.12 10,000 4 Towards Bill No. 134 dtd. 21.03.12 towards amount paid for civil repairs work done at Prime Plaza Office at Elphinstone. 17,000 Total 61,700 (c) INR 1,01,458/- was paid to Magnus Telecommunications Pvt. Ltd. for repairing/replacing the telephone instrument, telephone lines and faulty cables, liaising with telephone service providers with respect to communication line. The Assessee has placed on record [at page 191 to 204 of the paper-book] various invoices raised by the Magnus Telecommunications Pvt. Ltd. to support the nature of expenses. (d) INR 60,736/- was paid to Nikita Decorator for electrical repairers. The Assessee has provided following details during the assessment proceedings in relation to the same: SNo. Particulars of Expense Amount in INR 1 Against Bill No.02 dtd.29.09.10 towards Earthing & Electrical work done at Noida Branch after the monsoon due to shock felt on electrical installations 12,500 2 Against Bill No.07 dtd 29.09.10 towards water storage tank, piping & interior & electrical work done at Bhikaji Cama Branch after the leakage and worn out wires were spotted. 22,200 Total 60,736 (e) INR 30,000/- was paid to Reliance Communications ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 21 Infrastructure Ltd. in relation to the MTNL MLDN mux connectivity extension for the Bangalore Branch from IDC-2 Mumbai (where the servers of the Assessee are kept) to IDC- 4 Mumbai (where web is hosted from the servers). 41. On perusal of Note-10 : „Fixed Assets (Net)‟, we find that the Assessee has reported additions to furniture and fixtures, office equipment and computer and peripherals aggregating to INR 3,60,00,000/-. On the other hand, the aggregate of the various expenditure under consideration which were treated by the Assessing Officer as being capital expenditure comes to INR 5,46,479/-. 42. Taking into consideration the totality of the facts and circumstances of the present case, given the nature and quantum of expenses claimed, we are of the view that expenses of INR 5,46,479/- are to be allowed as revenue expenditure. The aforesaid view, also draws strength from the decision of the Tribunal in the case of the Assessee for the Assessment Year Assessment Year 2011-12 [ITA No. 738 & 716/Mum/2016, order dated 16/04/2018], whereby the Tribunal had deleted similar disallowance of net repair and maintenance expenses. Accordingly, we overturn the decision of the Assessing Officer and direct the Assessing Officer to allow deduction for INR 5,46,479/- as revenue expenditure; delete the disallowance of INR 5,46,479/- and reverse the depreciation granted to the Assessee in relation to the same. In terms of the aforesaid, Ground No. VI raised by the Assessee is allowed. Appeal by Revenue: : ITA No. 1985/MUM/2023 43. We would now take up grounds raised by the Revenue in the cross- ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 22 appeal. Ground No. 1 44. Ground No. 1 pertains to deletion of disallowance of Data Circuit/Broadband/Multi-Protocol Label Bandwidth Charges under Section 40(a)(ia) of the Act. 45. During the assessment proceedings, the Assessing Officer noted that the Assessee had debited INR 175.16 Lakhs as Data Circuit/Broadband Charges to various parties consisting of the following – (a) Data Circuit Charges : INR 105.38 Lakhs, (b) MPLS Charges : INR 63.58 Lakhs; and (c) Data Circuit Charges : INR 6.20 Lakhs. However, tax was not deducted at source from the aforesaid payments. Therefore, the Assessee was asked to explain why disallowance of INR 1,75,16,000/- 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 29/10/2013, explaining the nature of charges debited to the Profit & Loss Account. Data Circuit Charges and MPLS Charges were incurred for transmitting and receiving data from one end to another end connected through dedicated line. In respect of Broadband Charges, it was submitted on behalf of the Assessee, that the same were paid for the uses of internet connectivity attached to the telephone lines uses by the various branches of the Assessee. The aforesaid telephone lines formed integral part of the business of the assessee and used to provide services to the customer. The Data Circuit Charges, MPLS Charges and Broadband Charges were payments for availing standard facility which did not require any human intervention. The payments were not for managerial, technical or consultancy ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 23 services. 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. 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. 46. In appeal preferred by the Assessee on this issue, the CIT(A) deleted the disallowance of INR 1,75,16,000/- made under Section 40(a)(ia) of the Act. 47. The Revenue is now in appeal before us on this issue. 48. 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] ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 24 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 Assessee in appeal for Assessment Year 2011-12 [ITA No. 716/Mum/2016]. The Learned Authorised Representative for Assessee submitted that the agreements in terms of which payments have been made continue to be the same and therefore, there is no change in the facts and circumstances of the case. 49. We have heard the rival submissions and perused the material on record. 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. As per the submission of the Assessee recorded by the CIT(A) on this issue, the Assessee had filed application for admission of additional evidence under Rule 46A of the Income Tax Rules, 1962 on 03/10/2013 and 14/08/2018. However, no remand report was called for in respect of the same or furnished to the Assessee. We note that in paragraph 5.3 the CIT(A) has deleted the disallowance holding as under: “5.3.1. The Appellant made a gross payment to Wipro Limited ('Wipro') of Rs. 96,60,000/- for maintaining the existing setup at all locations of the Appellant in terms of hardware and linkage and running of the hardware. This facilities management is provided by way of deployment of team of computer engineers to maintain connectivity between branches and centralized server, existing computer hardware and printer installations and prevent mal- function, work- dislodgement, zero downtime, e-mail management, keep records of installed machines etc. (Refer page 7 & 8 of Additional evidence paper book for copy of invoices). Further, the renewal letters for extension of Wipro FM service are at page 114 & 115 of Additional evidence paper book. ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 25 5.3.2 Responsibilities associated with facility management typically include wide range of support services like security, engineering services, e-mail and messenger services; records management; telecommunications and information systems; safety; and such other support duties, 5.3.3. As already discussed in Para's 4.3.5. to 4.3.8., expenditure to ensure smooth and efficient functioning of business, will be treated as revenue expenditure. 5.3.4. Since these facilities management expenses are incurred on a recurring basis in order to ensure smooth functioning of business activities they are ought be treated as revenue in nature. 5.3.5. In this regard, attention is invited to the decision of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat Urja Vikas Ltd. (229 Taxman 46) (Gujarat HC) (Refer pg no. 398 to 402 of the LPB-II) while dealing with fees paid for supporting LAN Network, IT Professional Facility Management Service, co- ordination with BSNL for internet connectivity, providing and upgrading internet bandwith held that the same do not have any enduring benefit and the said expenses are revenue in nature. Relevant extract of the same is reproduced as under: "Considering the principle of commercial trading, when the question is to be addressed, both the CIT [A] as well as the Tribunal rightly held it to be revenue in nature and the same cannot be said to be capital. It is quite apparent that the fees paid for support for LAN work, providing and upgradation of Internet Bandwidth, or for coordination with BSNL for internet connectivity, etc. are not having any enduring benefit. If any consultancy is required for the said purpose, the amount clearly would come under the head of Consultancy and that surely could not be considered as capital in nature. In the present form, the expenditure made was at the best for continuing the benefit for one year, Resultantly, such payment cannot be categorized as capital in nature as no asset is brought into existence on account of such payment," 5.3.6. In view of the foregoing submissions, the Appellant prays that the AO be directed to allow the entire amount of Rs. 96,60,000/- ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 26 incurred on account of facilities management under section 37(1) of the Act. 5.3.7. Lastly, facilities management expenses are regularly incurred right from the inception of the Appellant in order to facilitate its business operations and were also being allowed by the Department and, therefore no disallowance ought to be made on the principles of consistency when there is no change in the facts or nature of the expense. These expense does not give benefit of enduring nature hence does not form part of profit earning apparatus of the Appellant. 5.3.8. The details of expenses of facilities management services incurred in the previous years is as follows: F.Y. A.Y. Amount 2008-09 2009-10 93,65,935/- 2009-10 2010-11 1,13,18,201/- 2010-11 2011-12 88,06,270/- In this respect the Appellant relies on the proposition laid down in the following decisions which follows the rule of consistency: xx xx 5.3.10. Without prejudice to the above, even if the said expenses are treated to be capital in nature, the AO be directed to allow depreciation @ 60% under section 32 of the Act on the amount of addition, consistent with his own stand for similar disallowance in the Assessment Year 2011-12.” 50. On perusal of above, we find merit in the contention advanced on behalf of the Revenue that the CIT(A) had deleted the disallowance without examining the underlying facts. Therefore, in our view, the order passed by the CIT(A) deleting the disallowance of INR 1,75,16,000/- made under Section 40(a)(ia) of the Act cannot be sustained. Given the facts and circumstances of the present case we deem it appropriate to remand this issue back to the file of the ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 27 CIT(A) who shall adjudicate the same after calling for a remand report from the Assessing Officer in respect of additional evidence furnished by the Assessee as per law and after giving the Assessee opportunity to file response to the same. Further, the CIT(A) shall take into consideration the aforesaid decisions. of the Tribunal in the case of the Assessee for the Assessment Year 2010-11 and 2011-12. It is clarified that a reasonable opportunity of being head shall be granted to the Assessee who shall be free to raise all contention before the CIT(A). In terms of the aforesaid, Ground No. 1 raised by the Revenue is allowed for statistical purposes. Ground No. 2 51. Ground No. 2 pertains to deletion of disallowance of various expenses on ad-hoc basis amounting to INR 1,67,67,179/-. 52. We have heard 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 6,70,68,742/- of the following : SNo. Particulars Amount (INR) 1 Conveyance 2,01,91,456 2 Travel Expenses – Hotel Inland 2,327,388 3 Travel Expenses-Other 5,611,870 4 Staff Training and Welfare 3,89,38,000 Total 6,70,68,714 53. In the assessment order the Assessing Officer has, on verification of details furnished by the Assessee, recorded that the above said expenses were not fully supported by proper bills/vouchers and were supported by self made voucher (in cash). Further, the Assessing Officer was of the view that an element of personal ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 28 expenditure could not be ruled out. 54. 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. 55. 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. Since the Assessee failed to discharge this duty, the Assessing Officer was justified in disallowing the expenses. Per contra, the Learned Authorised Representative for the Appellant supported the order passed by the CIT(A). 56. Having considered the rival submission and on perusal of records, 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 the specific invoices, bills and vouchers pertaining to expenses furnished by the Assessee, 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 ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 29 of the present case. Further, the Assessing Officer has moved on the presumption that the expenses involved personal element without identifying or quantifying such expenses. Accordingly, we do not find any infirmity in the order passed by CIT(A) deleting ad- hoc disallowance of INR 1,67,67,179/- made by the Assessing Officer under Section 37(1) of the Act. Accordingly, Ground No. 2 raised by the Revenue is dismissed. 57. In result, the appeal preferred by the Assessee is allowed and the appeal preferred by the Revenue is partly allowed for statistical purposes. Order pronounced on 28.02.2024. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 28.02.2024 Alindra, PS ITA No.1985 & 1886//Mum/2023 Assessment Year 2012-13 30 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