DCIT Circle 9 (1), V. Sumi Motherson Innovative Engineering Ltd,

ITA 1164/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8278 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2001-2002
• Appeal Filed On: 02-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S VENKATESWARLU
• Assessee Lawyers: Y K SHARMA
• Keywords: Capital asset; Depreciation; Royalty expenses; Capital expenditure
• Section: 43B; 139(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE HONBLE SR. VICE PRESIDENT SHRI R.P. GARG A ND HONBLE JUDICIAL MEMBER, SHRI RAJPAL YADAV ITA NO.1164/DEL./2008 (ASSESSMENT YEAR : 2001-02) DCIT, CIRCLE 9(1), VS. M/S SUMI MOTHERSON INNOVATI VE ENGG. LTD., NEW DELHI. 43, COMMUNITY CENTRE, NEW FRIENDS COLONY, NEW DELHI. (PAN/GIR NO.AACCM3941P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI Y.K. SHARMA, C.A., REVENUE BY : SHRI S. VENKATESWARLU, CIT( DR) ORDER PER R.P. GARG, SR.VP THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) FOR AY 2001-02. THE FOLLOWING SEVEN GROUNDS ARE RAISED IN THIS APPE AL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.1,70,162 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF LATE PAYMENTS OF EMPLOYEES CONTRIBUTION TO PF, SINCE THE SAME IS TAX ABLE U/S 2(24)(X) IN VIEW OF NON FULFILLMENT OF CONDITIONS SPECIFIED U/S 36(1)(VA). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.2,92,880 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF COMPUTER/COMPUTER SOFTWARE EXPENSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.1,36,319 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DEPRECIATION ON VEHICLES WHICH WERE PENDING FOR TRANSFER OF REGISTR ATION IN THE NAME OF THE ASSESSEE. ITA NO.164/DEL./2008 (A.Y. : 2001-02) 2 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.8,20,000 MADE BY THE ASSESSING OFFICER ON ACCOUN T OF CHANGE IN ACCOUNTING POLICY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.64,49,286 MADE BY THE ASSESSING OFFICER ON ACCOU NT OF ROYALTY EXPENSES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.10,00,591 MADE BY THE ASSESSING OFFICER ON ACCOU NT OF DEPRECIATION ON ADDITION TO THE COST OF FIXED ASSETS ON ACCOUNT OF EXCHANGE RATE FLUCTUATIONS. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD.COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.2,29,09,730 MADE BY THE ASSESSING OFFICER ON ACC OUNT OF NOTIONAL FOREIGN EXCHANGE GAIN ON OUTSTANDING LOAN. 2. THE FIRST DISPUTE IS WITH REGARD TO THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER U/S ON ACCOUNT OF EMPLOYEES AND EMPLOYERS CONTRIB UTION TOWARDS PF WITHIN THE GRACE PERIOD OF 5 DAYS ALLOWED UNDER THE RELEVANT STATUE. IT WAS SUBMITTED BY THE LD.AR THAT GROUND NO.1 REGARDING DISALLOWANCE OF RS.1,70,162 O N ACCOUNT OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION OF PROVIDENT FUND IS COVE RED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY VARIOUS DECISIONS OF THE APP ELLATE AUTHORITIES I.E. BY HONBLE DELHI HIGH COURT IN THE CASE OF PM ELECTRONICS LTD., 313 ITR 161 WHEREIN IT IS HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM BENEFIT U/S 43B FOR THE PERIOD PARTICULARLY IN VIEW OF THE FACT THAT IT HAD CONTRIBUTED TO PF BEFORE FILING OF THE RETURN. IN THAT CASE, THE PAYMENTS WERE MADE BY THE ASSESSEE AFTER DUE DATE U/S 36(1)( VA) OF THE ACT. HENCE, FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF DHARMENDRA SHARMA, 297 ITR 320 AND OF HONBLE SUPREME COURT IN THE CASE OF VIN AY CEMENT LTD., 213 CTR 268 (SC) & CIT VS. NEXUS COMPUTER P. LTD. 313 ITR 144 (MAD.) , THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER SHOULD BE DIRECTED TO ALLOW THE C LAIM OF THE ASSESSEE AS THE PAYMENTS HAVE BEEN MADE NOT ONLY WITHIN GRACE PERIOD BUT ALS O WITHIN FINANCIAL YEAR BEFORE THE DUE DATE OF THE FILING OF THE RETURN. ITA NO.164/DEL./2008 (A.Y. : 2001-02) 3 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOTICED THAT THIS ISSUE IN APPEAL HAS ALSO BEEN DECIDED BY THIS TRIBUNAL IN THE CASE OF M/S. KUBER HINGES PVT. LTD., NEW DELHI IN ITA NO.1654/DEL./2007 DATED 20/03/08 FOR T HE ASSESSMENT YEAR 2001-02 AND ALSO DECIDED THIS ISSUE BY FOLLOWING THE DECISION O F THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. SABARI ENTERPRISES REPORTED IN 298 ITR 141 (KAR.), WHEREIN THIS TRIBUNAL HAS HELD AS FOLLOWS:- WE HAVE CONSIDERED THE RIVAL CONTENTIONS. FRO M THE RECORD, WE FOUND THAT ASSESSING OFFICER HAS DISALLOWED THE EMPLOYER S CONTRIBUTION AND EMPLOYEES CONTRIBUTIONS, WHICH ARE DEPOSITED BEYOND THE DUE D ATE AS PROVIDED UNDER SEC. 36(1)(VIA) OF THE ACT, BY OBSERVING THAT EMPLOYEES CONTRIBUTION WAS TO BE TREATED AS INCOME OF THE ASSESSEE WITHIN THE MEANING OF SECTIO N 2(24)(X) OF THE ACT. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF HONBLE SUPREME COURT AND HONBLE HIGH COURT AS REFERRED ABOVE AND FOUND THAT BEFORE THE KARNATAKA HIGH COURT WAS WITH RESPECT TO CLAIM OF DEDUCTION UNDER SEC. 36(1) (VA), READ WITH SEC. 2(24) WHICH PERTAINS TO EMPLOYEES CONTRIBUTION WHICH WAS NOT PA ID BY THE ASSESSEE BEFORE THE STATUTORY DATE PROVIDED UNDER THE PF ACT, BUT BEFOR E THE DUE DATER FOR FURNISHING RETURN OF INCOME UNDER SEC. 139(1) OF THE ACT. THE DISALLOWANCE MADE BY INVOKING THE PROVISIONS OF SEC. 43-B PERTAINS TO DEDUCTION C LAIMED WITH REFERENCE TO EMPLOYERS CONTRIBUTION. AFTER DISCUSSION IN DETAI L THE HISTORY OF PROVISIONS O9F SEC. 2(24)(X) READ WITH SEC. 36(1)(VA) AND 43B OF T HE ACT, AND THE AMENDMENT BROUGHT THEREIN BY VARIOUS FINANCE ACTS, THE HIGH C OURT OBSERVED AS UNDER: AFTER HEARING THE LEARNED COUNSEL FOR THE PAR TIES, WE HAVE CAREFULLY EXAMINED THE ABOVE STATUTORY PROVISIONS OF THE ACT INCLUDING DEFINITION OF SEC. 2(24)(X) AND SEC. 36(1)(VA) AND 43B(B), WHICH READS THUS: 2(24)(X) INCOME INCLUDES- ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PROVIDENT FUND OR SUPER-ANNUATION FUND OR ANY FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANC E ACT, 1948 EMPLYEES. 36(1). THE DEDUCTION PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THERE IN IN COMPUTING THE INCOME REFERRED TO IN SEC. 28. (VA) ANY SUM RECEIVED BY THE ASSESSEE FRO M ANY OF HIS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SEC. 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. ITA NO.164/DEL./2008 (A.Y. : 2001-02) 4 EXPLANATION: FOR THE PURPOSE OF THIS CLAUSE, DUE DATE MEAN S THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT A N EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND UNDER ANY A CT, RULE, ORDER OR NOTIFICATION, AWARD, CONTRACT OF SERVICE OR OTHERWISE. THIS CLAUSE IS INSERTED BY THE FINANCE ACT WITH EFF ECT FROM 1.4.1988. EXPLANATION TO THIS CLAUSE IS READ VERY CAREFULLY DUE DATE HA S BEEN EXPLAINED STATING THAT MEANS THE DATE BY WHICH THE ASSESSEE IS REQUI RED AS AN EMPLOYER TO CREDIT CONTRIBUTION TO THE EMPLOYEES ACCOUNT IN TH E RELEVANT FUND UNDER ANY AC, RULE OR ORDER OR NOTIFICATION ISSUED THEREU NDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHER WISE. PRIOR TO THE ABOVE CLAUSE WAS INSERTED TO SECTION SEC. 36 GIVING STATUTORY DEDUCTIONS OF PAYMENT OF TAX UNDER THE PROVISIONS OF THE ACT, SEC TION 43B(B) WAS INSERTED BY FINANCE ACT, 1983 WHICH CAME INTO FORCE WITH EFFECT FROM 1.4.19084. THEREFORE, AGAIN THE PROVISION OF SEC. 43B(B) CLEARLY PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN OTHER PR OVISIONS OF THE ACT INCLUDING SEC. 36(1) OF CLAUSE (VA) OF THE ACT, EVE N PRIOR TO THE INSERTION OF THAT CLAUSE THE ASSESSEE IS ENTITLED TO GET STATUTO RY BENEFIT OF DEDUCTION OF PAYMENT OF TAX FROM THE REVENUE. IF THAT PROVISION IS READ ALONGWITH THE FIRST PROVISO OF THE SAID SECTION WHICH WAS INSERTE D BY FINANCE ACT, 1987 WHICH CAME INTO EFFECT FROM 1.4.1988, THE LETTERS N UMBERED AS CLAUSE (A), OR CLAUSE (C) OR CLAUSE (D) OR CLAUSE (E) OR CLAUSE (F) ARE OMITTED FROM THE ABOVE PROVISO AND THEREFORE DEDUCTION TOWARDS THE E MPLOYERS CONTRIBUTION PAID CAN BE CLAIMED BY THE ASSESSEE. THE EXPLANATI ON CLAUSE (VA) OF SEC, 36 OF THE I.T., ACT FURTHER MAKES IT VERY CLEAR THA T THE AMOUNT ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABL E IN THIS CASE AT THE TIME OF SUBMITTING RETURNS OF INCOME U/S 139 OF THE ACT TO THE REVENUE IN RESPECT OF THE PREVIOUS YEAR CAN BE CLAIMED BY THE ASSESSEE FOR DEDUCTION OUT OF THEIR GROSS INCOME. THE ABOVE SAID STATUTOR Y PROVISIONS OF THE I.T. ACT ABUNDANTLY MAKES IT CLEAR THAT, THE CONTENTION URGED ON BEHALF REVENUE THAT DEDUCTION FROM OUT OF GROSS INCOME FOR PAYMENT OF TAX AT THE TIME OF SUBMISSION OF RETURNS UNDER SEC. 139 IS PERMISSIBLE ONLY IF STATUTORY LIABILITY OF PAYMENT OF PF OR OTHER CONTRIBUTION FU NDS REFERRED TO IN CLAUSE (B) ARE PAID WITHIN THE DUE DATE UNDER THE RESPECTI VE STATUTORY ENACTMENTS BY THE ASSESSEE AS CONTENDED BY THE LEARNED COUNSEL FOR THE REVENUE IS NOT TENABLE IN LAW AND THEREFORE THE SAME CANNOT BE ACC EPTED BY US. 4. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE C ONSIDERED VIEW THAT GROUND NO.1 RAISED BY THE REVENUE IN THIS APPEAL DESERVES TO BE DISMISSED, AND WE DO SO. 5. LD.AR FOR THE ASSESSEE SUBMITTED THAT GROUND NO .2 REGARDING EXPENSES OF RS.2,92,880 ON ACCOUNT OF COMPUTER/COMPUTER SOFTWAR E IS COVERED VIDE PARA.8 OF THE ORDER OF DELHI BENCH OF THE TRIBUNAL FOR A.Y. 2002- 03 IN CROSS APPEALS IN ITA NOS.2323/DEL./2006 AND 2349/DEL./2006 DATED 11.07.2 008, WHICH READS AS UNDER: ITA NO.164/DEL./2008 (A.Y. : 2001-02) 5 8. GROUND NO.7 IS IN RESPECT OF DISALLOWANCE OF EXP ENDITURE OF RS.6,04,526/- INCURRED ON PURCHASE OF SOFTWARE BY HOLDING IT TO B E AN EXPENDITURE OF CAPITAL NATURE. IT WAS A COMMON CASE OF BOTH THE PARTIES B EFORE US THAT THE ISSUE HAS TO BE DECIDED IN THE LIGHT OF THE ORDER OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES V/S DCIT (2008) 21 SOT 1, I N WHICH TESTS WERE LAID DOWN FOR FINDING OUT WHETHER SUCH AN EXPENDITURE WA S ON CAPITAL ACCOUNT OR REVENUE ACCOUNT. SUCH EXERCISE WAS NOT CONDUCTED B Y THE LOWER AUTHORITIES. THEREFORE, IT WAS STATED THAT THE MATTER MAY BE RES TORED TO THE FILE OF ASSESSING OFFICER FOR DE-NOVO ADJUDICATION IN THE MATTER. WE FIND THAT TRIBUNAL HAS LAID DOWN TESTS TO FIND OUT WHETHER THE EXPENDITURE WILL BE CAPITAL OR REVENUE IN NATURE AND FOR DOING SO THE NATURE OF EACH EXPENDITURE HAS TO BE EXAMINED. THE CONCLUSIONS ARE MENTIONED IN PARA 59 OF THE ORDER, WHICH IS REPRODUCED BELOW: OUR CONCLUSIONS ON THE ISSUE UNDER CONSIDERATION T HUS CAN BE SUMMARIZED AS UNDER : (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER THE LICENSE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBL E ASSET AND BECOMES OWNER THEREOF AS HELD ABOVE RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TCS (SUPRA). (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOM ES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A S HORT SPAN OF TIME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOF TWARE IS SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDI TURE. ANY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEY OND YEARS CAN BE CONSIDERED AS ACCRUAL OF BENEFIT OR ENDURING NATURE . HOWEVER, THEY BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SO FTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE A LSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENE FIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER S OFTWARE IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF IT S UTILITY TO A BUSINESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTI ONAL ROLE IT PLAYS IN HIS BUSINESS. IN OTHER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT AND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOU CHING EITHER CAPITAL OR REVENUE FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVENUE FIELD. IN VIEW OF THE AGREED POSITION OF BOTH THE PARTIES THAT THE MATTER REQUIRES FURTHER EXAMINATION, THE MATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO DO SO AND DECIDE THE MATTER DE-NOVO KE EPING IN MIND THE CONCLUSIONS OF THE TRIBUNAL MENTIONED ABOVE. THUS, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.164/DEL./2008 (A.Y. : 2001-02) 6 6. THE FACTS BEING SIMILAR, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL CITED SUPRA, GROUND NO.2 RAISED IN THIS APPEAL IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. 7. IT WAS SUBMITTED BY THE LD.AR OF THE ASSESSEE TH AT GROUND NO.3 IN RESPECT OF DEPRECIATION ON VEHICLES PENDING FOR TRANSFER OF RE GISTRATION IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE PARA.11 OF TH E ORDER DELHI BENCH OF THE TRIBUNAL CITED SUPRA, WHICH READS AS UNDER: 11. GROUND NO.1 IS TO THE EFFECT THAT THE LD. CIT(A ) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON VEHICLE WHICH WAS NOT REGISTERED IN THE NAME OF THE ASSESSEE DURING THE YEAR, THEREBY DELET ING THE DISALLOWANCE OF RS.1,59,920/-. IN THIS CONNECTION, IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE FIXED ASSETS, SHOWN IN THE BALANCE SHEET, INCLUDED VEHICLES OF THE VALUE OF RS.7,99,597/-, WHICH WERE PENDING FOR TRANSFER OR R EGISTRATION IN THE NAME OF THE COMPANY. IN VIEW THEREOF, THE CLAIM OF DEPRECIATIO N ON THESE VEHICLES, AMOUNTING TO RS.1,59,920/-, WAS DISALLOWED. THE MATTER WAS A GITATED IN APPEAL. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V/S PODAR CEMENTS PVT. LTD., 226 ITR 625, IN WHICH IT WAS HEL D THAT OWNERSHIP SHOULD BE TAKEN TO MEAN BENEFICIAL OWNERSHIP. THUS, IT WAS C LAIMED THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION OF THE DEPRECIATION. FOL LOWING THE AFORESAID DECISION, THE LD. CIT(A) DELETED THE DISALLOWANCE. BEFORE US, TH E LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER, WHILE THE LD. COUNSEL FOR THE AS SESSEE RELIED ON THE ORDER OF THE LD. CIT(A). WE HAVE CONSIDERED THE FACTS OF THE C ASE AND RIVAL SUBMISSIONS. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSE E HAD PURCHASED THE VEHICLES IN THE SENSE THAT PROPERTY IN THEM HAD PASSED TO THE A SSESSEE AND THAT IS WHY THE ASSETS WERE SHOWN IN THE SCHEDULE OF THE FIXED ASSE TS. THE AMOUNTS WERE NOT SHOWN AS ADVANCES TO THE SELLERS. THUS, THE ASSESS EE ENJOYED BENEFICIAL OWNERSHIP OVER THE VEHICLES. THEREFORE, WE AGREE WITH THE LD . CIT(A) THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF DEPRECIATION ON THESE ASSE TS. THUS, THIS GROUND IS DISMISSED. 8. AFTER PERUSING THE ABOVE CONCLUSION OF THE ORDER , WE ARE OF THE CONSIDERED OPINION THAT THE GROUND RAISED BY THE REVENUE IN THIS APPEA L DESERVES TO BE DISMISSED. THIS GROUND IS, THEREFORE, DISMISSED. 9. GROUND NO.4 REGARDING ADDITIONS ON CHANGE OF ACC OUNTING POLICY IS ALSO COVERED VIDE PARA.12 OF THE ORDER OF THE DELHI BENCH OF TH E TRIBUNAL CITED ABOVE, WHICH IS REPRODUCED AS UNDER: 12. GROUND NO.2 TAKES OFFENCE AGAINST THE FINDINGS OF THE LD. CIT(A) IN WHICH DISALLOWANCE OF DEPRECIATION OF LOOSE TOOLS A ND DIES, AMOUNTING TO RS.3,78,571/-, MADE BY THE ASSESSING OFFICER, DUE T O THE CHANGE IN ACCOUNTING POLICY, WAS DELETED. IN THIS CONNECTION, IT WAS ME NTIONED IN THE ASSESSMENT ORDER THAT TILL LAST YEAR THE ASSESSEE WAS WRITING OFF TH E LOOSE TOOLS OVER A PERIOD OF TWO ITA NO.164/DEL./2008 (A.Y. : 2001-02) 7 YEARS. THIS METHOD WAS CHANGED IN THIS YEAR AND TH E LOOSE TOOLS WERE WRITTEN OFF FULLY IN ONE YEAR OF THEIR PROCUREMENT. THE CHANGE IN THE ACCOUNTING POLICY HAD AN IMPACT ON PROFITS AMOUNTING TO RS.3,78,571/-. I T WAS EXPLAINED THAT THE CHANGE WAS MADE FOR BETTER PRESENTATION OF ACCOUNTING STAT EMENTS. THIS EXPLANATION WAS NOT FOUND TO BE SATISFACTORY BY THE ASSESSING OFFIC ER FOR THE PURPOSE OF CHANGE IN ACCOUNTING POLICY. THEREFORE, A DISALLOWANCE OF RS .3,78,571/- WAS MADE. BEFORE THE LD. CIT(A), IT WAS EXPLAINED THAT THE ACCOUNTIN G POLICY NOW ADOPTED WAS LESS COMPLEX THAN THE EARLIER POLICY. THIS CHANGE DOES NOT LEAD TO ANY LOSS TO THE REVENUE AS EVEN THE ASSESSED INCOME GOT ADJUSTED AG AINST THE BROUGHT FORWARD LOSSES. LD. CIT(A) CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BEFORE HIM. IT WAS POINTED OUT BY HIM THAT ACCOUNT ING STANDARD (AS) ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANT (ICAI) LAYS DOWN THAT WHERE USEFUL LIFE OF AN ASSET IS LESS THAN 12 MONTHS, THE ASSET SHOULD BE W RITTEN OFF IN ONE YEAR AND IF IT IS MORE THAN ONE YEAR, IT SHOULD BE WRITTEN OFF OVER T HE PERIOD OF ITS USEFUL LIFE. LOOSE TOOLS DIES, SUCH AS MICROMETER STAND, HOLDING FIXTURE, LOW FORCE CALIPER, SCRAPPING TOOLS, GAUGES, ETC. ARE NOT LIKELY TO LAS T FOR MORE THAN 12 MONTHS. THEREFORE, HE AGREED WITH THE ASSESSEE AND DELETED THE DISALLOWANCE OF RS.3,78,571/-. BEFORE US, LD. DR RELIED ON THE ORD ER OF THE ASSESSING OFFICER AND THE LD. COUNSEL RELIED ON THE ORDER OF THE LD. CIT( A). HAVING CONSIDERED THE SUBMISSIONS MADE BEFORE US, WE DO NOT FIND ANY SUCH ERROR IN THE ORDER OF LD. CIT(A) WHICH REQUIRES ANY CORRECTION FROM US, WHEN HE HELD THAT LOOSE TOOLS COULD BE WRITTEN OFF IN ONE YEAR AS THE USEFUL LIFE OF THE TOOLS WAS NOT MORE THAN ONE YEAR. THE ACCOUNTING STANDARD IS NOT MANDATORY ON INCOME TAX AUTHORITIES, BUT IT REPRESENTS AN EXPERT VIEW IN THE MATTER. FAC TUALLY, THE TOOLS HAD SHORT LIFE AND, THEREFORE, THE STANDARD COULD BE APPLIED. THE REFORE, THIS GROUND IS ALSO DISMISSED. 10. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L, WE DISMISS GROUND NO.4 RAISED BY THE REVENUE IN THIS APPEAL. 11. IN REGARD TO GROUND NO.5, LD.AR OF THE ASSESSEE SUBMITTED THAT THIS GROUND RAISED BY THE REVENUE IN THIS APPEAL IS COVERED VIDE PARA S.16, 16.1 & 16.2 OF THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL CITED SUPRA, WHICH READ S AS UNDER: 16. GROUND NO.6 IS AGAINST THE HOLDING OF THE LD. CIT(A) THAT ROYALTY EXPENDITURE OF RS.61,56,763/- IS REVENUE IN NATURE. IN THIS CONNECTION, IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE INCURRED IMPUGNED EXPENDITURE IN RESPECT OF ROYALTY PAYABLE TO M/S SU MITOMO WIRING SYSTEMS LTD. UNDER A TECHNICAL COLLABORATION AND JOINT VENTURE A GREEMENT. THIS EXPENDITURE WAS HELD TO BE CAPITAL EXPENDITURE IN THE IMMEDIATE LY PRECEDING YEAR IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF SOUTHERN SWITCH GEAR LTD. V/S CIT (1983) 232 ITR 359. THEREFORE, THIS EX PENDITURE WAS HELD TO BE CAPITAL EXPENDITURE IN THIS CONNECTION ALSO. THE M ATTER WAS AGITATED IN APPEAL. IT WAS POINTED OUT THAT IN ASSESSMENT YEAR 2001-02, TH E DISALLOWANCE WAS MADE ON ITA NO.164/DEL./2008 (A.Y. : 2001-02) 8 THE GROUND THAT THE ASSESSEE DERIVED BENEFIT OF END URING NATURE FROM THE EXPENDITURE INCURRED BY IT. THE ASSESSEE WAS GIVEN NON-EXCLUSIVE RIGHT AND LICENSE TO MANUFACTURE PRODUCTS AND TO SELL THEM WI THIN THE SALES TERRITORY. M/S SUMITOMO WIRING SYSTEMS LTD. UNDERTOOK TO PROVIDE A LL TECHNICAL INFORMATION, AND TO TRAIN THE ENGINEERS OF THE ASSESSEE COMPANY. IT WAS FURTHER POINTED OUT THAT RELIANCE PLACED ON THE DECISION IN THE CASE OF SOUT HERN SWITCH GEAR LTD. (SUPRA) WAS RATHER MISPLACED. IN TERMS OF THE COLLABORATIO N AGREEMENT IN THAT CASE, THE ASSESSEE RECEIVED TECHNICAL KNOWLEDGE, WHICH REMAIN ED WITH ASSESSEE EVEN AFTER TERMINATION OF THE AGREEMENT. HOWEVER, IN THE CASE OF THE ASSESSEE, M/S SUMITOMO DID NOT PROVIDE ANY EXCLUSIVE RIGHT TO MAN UFACTURE AND ON TERMINATION OF AGREEMENT, THE RIGHTS AND LICENSE GRANTED TO THE ASSESSEE CEASED AND TERMINATED. THE PAYMENT OF ROYALTY WAS BY WAY OF LUMP SUM FEES AND PERCENTAGE OF SALES. THE INSTANT CLAIM WAS CALCULATED AS PERCENTAGE OF S ALE, THEREFORE, THE EXPENDITURE WAS IN THE REVENUE FIELD. THE LD. CIT(A) CONSIDERE D THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. IT WAS POINTED OUT THAT ARTICLE 5 OF THE AGREEMENT PLACED THE DURATION AT 5 YEARS FROM THE DATE OF COMMERCIAL PRO DUCTION. ARTICLE 18 PROVIDED FOR TERMINATION OF AGREEMENT BY ANY OF THE PARTIES BY WAY OF WRITTEN NOTICE. THE ASSESSEE WAS NOT GRANTED ANY EXCLUSIVE RIGHT BUT ON LY A NON-EXCLUSIVE RIGHT AND LICENSE TO MANUFACTURE AND SELL THE PRODUCTS WITHIN THE SALES TERRITORY. THUS, THE FACTS WERE DISTINGUISHABLE. THE FACTS WERE SIMILAR TO THE FACTS TO THE CASE OF CIT V/S IAEC PUMPS LTD. (1998) 232 ITR 316 (SC). IN VI EW THEREOF THE DISALLOWANCE WAS DELETED. 16.1 BEFORE US LD. DR RELIED ON THE ORDER OF ASSESS ING OFFICER, WHILE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 16.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE AGREEMENT IS PLACED IN PAPER BOOK-I ON PAGES 158-16 5. IT IS SEEN THAT THE ASSESSEE WAS GRANTED A NON-EXCLUSIVE RIGHT AND LICENSE TO MA NUFACTURE THE PRODUCTS IN THE MANUFACTURING TERRITORY AND TO SELL THE PRODUCTS IN THE SALES TERRITORY. AT THE SAME TIME IT BECOME ENTITLED TO TRAINING FACILITIES BY M UTUAL CONSENT FOR WHICH EXPENSES WERE TO BE BORNE BY THE ASSESSEE. THE ASSESSEE ALS O BECOME ENTITLED TO THE TECHNICAL ASSISTANCE FROM THE ENGINEERS OF M/S SUMI TOMO, THE EXPENDITURE FOR WHICH WAS TO BE BORNE BY THE ASSESSEE. THE ASSESSE E WAS NOT ENTITLED TO ANY RIGHT OR LICENSE TO USE THE NAME OF M/S SUMITOMO OR ANY T RADEMARK OWNED BY M/S SUMITOMO ETC. THE ASSESSEE WAS TO PAY A LUMP SUM C ONSIDERATION OF US DOLLARS 50,000/- IN THREE INSTALLMENTS AND A RUNNING ROYALT Y OF 3% OF NET SELLING PRICE IN RESPECT OF SALES TO SWS GROUP OR SAHGAL FAMILY CONC ERNS AND 5% IN CASE OF OTHER SALES. THE TERM OF THE AGREEMENT WAS FIXED AT 5 YE ARS. THE EFFECT OF THE TERMINATION WAS THAT ALL RIGHTS AND LICENSES WILL C EASE IMMEDIATELY, BUT THE ASSESSEE WAS PERMITTED TO DISPOSE OFF THE PRODUCTS IN THE INVENTORIES OVER A PERIOD OF 150 DAYS AND M/S SUMITOMO WAS ENTITLED TO ROYALT IES ON SUCH SALES AS IF THE SALES WERE MADE PRIOR TO THE TERMINATION OF THE AGR EEMENT. ON THE BASIS OF THESE PROVISIONS, IT BECOMES CLEAR THAT THE ASSESSEE WAS NOT LEFT WITH ANY ASSET OR RESIDUARY RIGHT ON TERMINATION OF AGREEMENT AND EVE N INVENTORIES WERE TO BE SOLD WITHIN 150 DAYS. IN THE CASE OF SOUTHERN SWITCH GE AR LTD. (SUPRA), THE HONBLE ITA NO.164/DEL./2008 (A.Y. : 2001-02) 9 COURT FOUND THAT THE ASSESSEE DERIVED BENEFIT OF EN DURING NATURE BECAUSE IT WAS LEFT WITH THE TECHNICAL INFORMATION. HOWEVER, IN T HE CASE OF IAEC PUMPS LTD. (SUPRA), IT WAS POINTED OUT THAT GENERAL TESTS APPL ICABLE IN THIS MATTER HAVE TO BE APPLIED, NAMELY, WHETHER (I) THERE WAS ANY ACQUIS ITION OF ANY CAPITAL ASSETS, (II) WHETHER ANY BENEFIT OF ENDURING NATURE ENNURED TO T HE ASSESSEE, OR (III) THE EXPENDITURE WAS IN CAPITAL FIELD. LOOKING TO THE T ERMS OF AGREEMENT, WE DO NOT FIND THAT ANY OF THESE TESTS WAS SATISFIED IN THE I NSTANT CASE. THEREFORE, WE ARE OF THE VIEW THAT THE LD. CIT(A) RIGHTLY HELD THAT THE EXPENDITURE TO BE REVENUE IN NATURE. THUS, THIS GROUND IS ALSO DISMISSED. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E DECISION OF THE DELHI BENCH OF THE TRIBUNAL CITED SUPRA, AND ARE OF THE VIEW THAT THIS ISSUE NEEDS TO BE DISMISSED BEING THE FACTS AND CIRCUMSTANCES THE CASE SIMILAR TO A BOVE. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED 13. THE LD.AR OF THE ASSESSEE SUBMITTED THAT BOTH GROUND NOS.6 & 7 IN RESPECT OF DEPRECIATION ON ACCOUNT OF EXCHANGE RATE FLUCTUATIO N AND TREATMENT OF EXCHANGE RATE FLUCTUATION ARE COVERED BY PARA.7 OF THE ORDER OF T HE DELHI BENCH OF THE TRIBUNAL CITED ABOVE, WHICH READS AS UNDER: 7. GROUND NO.6 IS TO THE EFFECT THAT LD. CIT(A) ER RED IN UPHOLDING THE DECISION OF THE ASSESSING OFFICER, IN WHICH AN ADDI TION OF RS.14,55,769/- WAS MADE IN RESPECT OF FLUCTUATION IN RATE OF FOREIGN E XCHANGE BY HOLDING THAT IT WAS A NOTIONAL LIABILITY. IT WAS THE COMMON GROUND OF BO TH THE PARTIES BEFORE US THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V/S WOODWARD GOVERNOR INDIA PVT. LTD (2007) 294 ITR 451, IN A CASE WHERE THE ASSESSEE FOLLOWS MERCA NTILE SYSTEM OF ACCOUNTING. IT WAS HELD THAT THE REVENUE LIABILITY ARISING ON ACCO UNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE, REMAINING PAYABLE ON THE LAST DAY OF PREVIOUS YEAR, IS NOT NOTIONAL OR CONTINGENT LIABILITY. RESPECTFULLY FOL LOWING THIS DECISION, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCT THIS AMOUNT IN COMPUTATION OF INCOME. THUS, THIS GROUND IS ALLOWED. 14. AFTER GOING THROUGH DISCUSSION MADE IN THE ABO VE PARA. OF THE ORDER OF THE TRIBUNAL AND ALSO THE ARGUMENTS OF BOTH THE PARTIES PLACED BEFORE US, WE FARE SATISFIED THAT BOTH THE LAST GROUNDS RAISED BY THE REVENUE IN THIS APPEAL DESERVES TO BE DISMISSED, AND WE DO SO. ITA NO.164/DEL./2008 (A.Y. : 2001-02) 10 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. 16. ORDER PRONOUNCED IN OPEN COURT ON 15.06.2009. (RAJPAL YADAV) (R.P. GARG) JUDICIAL MEMBER SR. VICE PRESIDENT DATED: JUNE 15, 2009. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XII, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT