Ninestars Information Technologies Ltd., CHENNAI V. ACIT, CHENNAI

CO 110/CHNY/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8217 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 24-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-01-2013
• Assessment Year: misc
• Appeal Filed On: 20-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: R VISWANATHAN
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1166/MDS/2012 (ASSESSMENT YEAR : 2005-06) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI - 600 034 . (APPELLANT) V. M/S NINE STAR INFORMATION TECHNOLOGIES LTD., ANURAG, NO.72, GREAMS ROAD, THOUSAND LIGHTS, CHENNAI - 600 034. PAN : AABCN 0949 B (RESPONDENT) C.O. NO. 110/MDS/2012 (IN I.T.A. NO. 1166/MDS/2012) (ASSESSMENT YEAR : 2005-06) M/S NINE STAR INFORMATION TECHNOLOGIES LTD., ANURAG, NO.72, GREAMS ROAD, THOUSAND LIGHTS, CHENNAI - 600 034. (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(4), CHENNAI - 600 034. (RESPONDENT) REVENUE BY : SMT. VIDISHA KALRA, CIT-DR ASSESSEE BY : SHRI R. VISWANATHAN , CA DATE OF HEARING : 16.01.2013 DATE OF PRONOUNCEMENT : 24.01.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : APPEAL BY THE REVENUE AND CROSS-OBJECTION BY THE A SSESSEE ARE DIRECTED AGAINST AN ORDER DATED 28.2.2012 OF CO MMISSIONER OF I.T.A. NO. 1166/MDS/12 C.O. NO. 110/MDS/12 2 INCOME TAX (APPEALS)-VI, CHENNAI. GRIEVANCE RAISED BY THE REVENUE IS THAT CIT(APPEALS) ALLOWED THE CLAIM OF ` 1,69,57,446/- AS REVENUE EXPENDITURE. 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN E-PU BLISHING, HAD FILED ITS RETURN OF INCOME FOR IMPUGNED ASSESSMENT YEAR, DECLARING AN INCOME OF ` 21,27,712/-, WHICH WAS ADJUSTED AGAINST BROUGHT FO RWARD LOSS OF EARLIER YEAR. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HA D SHOWN A SUM OF ` 2,13,57,595/- UNDER THE HEAD WORK-IN-PROGRESS. OUT OF THIS SUM, ` 1,95,68,110/- WAS PAID FOR R & D RELATING TO SOFTW ARE DEVELOPMENT. NEVERTHELESS, IN THE COMPUTATION STAT EMENT FILED ALONG WITH RETURN OF INCOME, ASSESSEE CLAIMED A SUM OF ` 1,69,57,446/- OUT OF THE ABOVE, AS EXPENSES NOT ELIGIBLE FOR CAPITAL IZATION. THOUGH ASSESSEE EXPLAINED THAT IT WAS IN RELATION TO DEVEL OPMENT SOFTWARE FOR COMMITTED ORDERS AND THESE WERE NOTHING BUT PERIOD COSTS, THIS CLAIM WAS NOT ACCEPTED. AN ADDITION OF ` 1,69,57,446/- WAS MADE. 3. APPEAL OF THE ASSESSEE BEFORE CIT(APPEALS) WAS S UCCESSFUL. ACCORDING TO CIT(APPEALS), THE AMOUNTS REPRESENTED EXPENDITURE, WHICH WERE ESSENTIALLY PERIOD COSTS RELATING TO O FFICE RENT, OFFICE MAINTENANCE, INTEREST CHARGES, ETC. AND ASSESSING O FFICER COULD NOT I.T.A. NO. 1166/MDS/12 C.O. NO. 110/MDS/12 3 SHOW ANY ENDURING BENEFIT DERIVED BY THE ASSESSEE O UT OF SUCH OUTGOES. HOWEVER, ACCORDING TO HIM, A SUM OF ` 1,37,84,706/- OUT OF THE TOTAL AMOUNT, WAS AN EXPENDITURE COMING UNDER T HE HEAD CONSULTANCY CHARGES. BUT FOR THIS AMOUNT, HE DIR ECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E. 4. WHEN THE MATTER CAME UP BEFORE US, LEARNED A.R. SUBMITTED THAT SIMILAR ISSUE HAD CROPPED UP IN REVENUES APPE AL FOR ASSESSMENT YEAR 2006-07. ACCORDING TO HIM, THIS TR IBUNAL REMITTED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFRESH. 5. LEARNED D.R. ALSO FAIRLY AGREED WITH LEARNED A.R . THAT THE MATTER REQUIRED A FRESH EXAMINATION BY THE ASSESSIN G OFFICER. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. FOR ASSESSMENT YEAR 2006-07 ALSO, THERE WAS A SIMIL AR CLAIM MADE BY THE ASSESSEE. THE SUM WAS SHOWN AS CAPITAL WORK -IN-PROGRESS IN THE BOOKS OF THE ASSESSEE. THIS TRIBUNAL, AFTER GO ING THROUGH THE FACTS, HELD IN PARA 6 OF ITS ORDER DATED 2 ND APRIL, 2012 IN I.T.A. NO. 1650/MDS/2011, AS UNDER:- I.T.A. NO. 1166/MDS/12 C.O. NO. 110/MDS/12 4 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE TOTAL AMOUNT OF EXPENSES CAPITALIZED BY THE ASS ESSEE IN ITS BOOKS OF ACCOUNTS AS PART OF WORK-IN-PROGRESS WAS ` 2,52,40,055/-. IT IS NOT DISPUTED THAT THE SUM OF ` 86,47,623/- CONSIDERED FOR DISALLOWANCE BY THE ASSESSING OFFICER WAS PART OF THE ABOVE AMOU NT. ASSESSEE WAS ADMITTEDLY ENGAGED IN THE BUSINESS OF ELECTRONIC PU BLISHING. ELECTRONIC PUBLISHING DEFINITELY REQUIRED DEVELOPME NT OF SOFTWARE AND SUCH SOFTWARE DEVELOPED BY ITS VERY NATURE WILL RES ULT IN ENDURING BENEFIT TO THE ASSESSEE. FOR DEVELOPMENT OF SUCH S OFTWARE, ASSESSEE HAD INCURRED EXPENSES AND SHOWN SUCH EXPENSES AS PA RT OF ITS CAPITAL WORK-IN-PROGRESS. THIS TREATMENT WAS APPARENTLY IN ACCORDANCE WITH ACCOUNTING STANDARDS IN RESPECT OF ACCOUNTING FOR S OFTWARE EXPENSES. HOWEVER, ASSESSEE CHOSE TO CLAIM A SUM OF ` 86,47,623/- AS A REVENUE OUTGO IN ITS COMPUTATION STATEMENT. CLAIM OF THE A SSESSEE WAS THAT THIS WAS RENT AND ELECTRICITY AND HAVING BEEN INCUR RED WHOLLY FOR THE PURPOSE OF BUSINESS WAS ALLOWABLE AS REVENUE OUTGO AND/OR UNDER SECTION 30 OF THE ACT. NO DOUBT, AS ARGUED BY THE ASSESSEE, TREATMENT IN THE BOOKS OF ACCOUNTS CANNOT BE A SOLE DETERMINANT FOR DECIDING ALLOWABILITY OF AN AMOUNT UNDER THE ACT. HOWEVER, IN OUR OPINION, TREATMENT IN THE BOOKS OF ACCOUNTS IS A PO INTER AS TO HOW THE ASSESSEE ITSELF TREATED THE OUTGO FOR THE PURPOSE O F ITS BUSINESS. HONBLE APEX COURT IN THE CASE OF CIT V WOODWARD GO VERNOR INDIA P.LTD (312 ITR 254), IN PARA 21 OF ITS ORDER, HAS H ELD AS UNDER:- 21. IN CONCLUSION, WE MAY STATE THAT IN ORDER TO FIND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUN TING FOLLOWED BY THE ASSESSEE IS MERCANTILE SYSTEM, WHIC H BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY D ISBURSED AND BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHE R THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VE RY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSE E HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY ACCRUE TO IT; (IV ) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DEFINI TE IN MAKING ENTRIES INTEREST HE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS; (V) WHETHER THE METHOD ADOPTED BY THE I.T.A. NO. 1166/MDS/12 C.O. NO. 110/MDS/12 5 ASSESSEE FOR MAKING ENTRIES IN THE BOOKS BOTH IN RE SPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED A CCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION. IT IS CLEAR FROM THE ABOVE DECISION OF HONBLE APE X COURT THAT TREATMENT IN THE BOOKS OF ACCOUNTS HAS A STRONG BEA RING ON DETERMINING WHETHER AN AMOUNT IS ALLOWABLE OR NOT. WE ARE OF THE OPINION THAT NONE OF THE AUTHORITIES BELOW CONSIDER ED THE RELEVANT ACCOUNTING STANDARDS AND NATURE OF BUSINESS OF THE ASSESSEE WHILE DECIDING THE ISSUE. LD. CIT(APPEALS) FELL IN ERROR IN GIVING ALLOWANCE TO THE ASSESSEE WITHOUT VERIFYING SUCH ASPECTS. IN OU R OPINION, THE MATTER REQUIRES A RE-VISIT BY THE A.O. WE, THEREFO RE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE REG ARDING ALLOWABILITY OF CLAIM OF THE ASSESSEE BACK TO THE FILE OF THE A. O. FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW AND AFTER CONS IDERING THE NATURE OF BUSINESS OF THE ASSESSEE. 7. IN THE LIGHT OF ABOVE DIRECTION, FOR IMPUGNED AS SESSMENT YEAR ALSO, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BE LOW AND THE ISSUE RELATING TO CLAIM OF THE ASSESSEE ON SOFTWARE EXPEN DITURE IS REMITTED BACK TO THE FILE OF A.O. FOR DISPOSAL IN ACCORDANCE WITH LAW. 8. CROSS-OBJECTION FILED BY THE ASSESSEE IS IN SUPP ORT OF THE ORDER OF CIT(APPEALS). SINCE WE HAVE SET ASIDE HIS ORDER AND REMITTED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR CONS IDERATION AFRESH, CROSS-OBJECTION HAS BECOME INFRUCTUOUS. I.T.A. NO. 1166/MDS/12 C.O. NO. 110/MDS/12 6 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES, WHEREAS, THE CROSS-OBJECTION FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 24 TH OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 24 TH JANUARY, 2013. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-VI, CHENNAI (4) CIT-III, CHENNAI (5) D.R. (6) GUARD FILE