DCIT, Ludhiana V. M/s Hero Cycles Ltd., Ludhiana

ITA 1168/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6921 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 11-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR GULSHAN RAI
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1168/CHD/2016 (ASSESSMENT YEAR : 2001-02) THE D.C.I.T., VS. M/S HERO CYCLES LTD., CIRCLE-5, G.T. ROAD, HEO NAGAR, LUDHIANA. LUDHIANA. PAN: AAACH4073P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DR.GULSHAN RAI, DR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 17.08.2017 DATE OF PRONOUNCEMENT : .09.2017 O R D E R PER ANNAPURNA GUPTA, A.M. : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER PASSED BY THE LD.CIT(APPEALS)-2, LUDHIANA DAT ED 01.08.2016 RELATING TO ASSESSMENT YEAR 2000-01. 2. AT THE OUTSET IT MAY BE STATED THAT AN APPLICATI ON REQUESTING ADJOURNMENT OF THE CASE WAS FILED BY THE CIT DR FOR THE REASON THAT MORE TIME WAS REQUIRED TO REMOV E THE DEFECTS POINTED OUT BY THE BENCH. THE SAID APPLICA TION WAS REJECTED FOR THE REASON THAT VIDE LETTER DATED 14.8 .2017 THE RECTIFIED FORM NO.36 HAD ALREADY BEEN FILED AND THE DEFECTS REMOVED. THEREAFTER THE CASE WAS PROCEEDED TO BE H EARD WITH. 3. THE REVENUE IN THE PRESENT APPEAL HAS RAISED A SOLITARY GROUND CHALLENGING THE ACTION OF THE 2 LD.CIT(APPEALS) IN ALLOWING SOFTWARE EXPENSES AS RE VENUE EXPENSES. 4. BRIEF FACTS RELEVANT TO THE CASE ARE THAT DURIN G THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD CLAIM ED SOFTWARE EXPENSES OF RS.41,42,773/- AS REVENUE EXPE NSES DEBITING THE SAME UNDER THE HEAD COMPUTER EXPENSES . THE ASSESSING OFFICER DISALLOWED THE SAME HOLDING THAT THE SAID EXPENSES WERE CAPITAL IN NATURE FOR THE REASON THAT THE SOFTWARE WAS BEING USED YEAR AFTER YEAR WITH ONLY S OME MINOR ADJUSTMENTS/MODIFICATIONS. THE ASSESSING OFF ICER ALSO OBSERVED THAT THE EXPENSES INCURRED ON PURCHAS E, DEVELOPMENT, DESIGNING AND INSTALLATION OF COMPUTER SOFTWARE WERE NOT REVENUE IN NATURE AND PLACED RELI ANCE ON THE DECISION OF VARIOUS HIGH COURTS IN SUPPORT. ACCORDINGLY, SOFTWARE EXPENSES AMOUNTING TO RS.41,42,773/- WERE TREATED AS CAPITAL EXPENSES UND ER THE HEAD PLANT AND AFTER ALLOWING DEPRECIATION ON IT @ 12.5% FOR SIX MONTHS AMOUNTING TO RS.5,17,846/-, AN ADDIT ION OF RS.36,24,926/- WAS MADE TO THE INCOME OF THE ASSESS EE. 5. AN APPEAL AGAINST THE SAID ORDER WAS FILED TO TH E LD.CIT(APPEALS) WHO VIDE HIS ORDER DATED 22.11.2005 PARTLY ALLOWED THE ASSESSEES APPEAL. AGAINST THE SAID OR DER OF THE LD.CIT(APPEALS) AN APPEAL WAS FILED BEFORE THE HON 'BLE I.T.A.T. WHO VIDE THEIR ORDER DATED 17.1.2008 IN IT A NOS.200 & 201/CHD/2006 RESTORED THE MATTER TO THE F ILE OF THE CIT(APPEALS) WITH THE DIRECTION TO DECIDE THE I SSUE AFRESH ACCORDING TO LAW. IN PURSUANCE TO THE SAID DIRECTION 3 THE MATTER WAS ADJUDICATED AFRESH BY THE CIT(APPEAL S). THE LD.CIT(APPEALS) ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF THE I.T.A.T. IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 1999-2000 AND 200 0-01. 6. AGGRIEVED BY THE SAME THE REVENUE HAS COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING BEF ORE US THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING O FFICER AND STATED THAT THE EXPENDITURE INCURRED ON SOFTWAR E WAS A ONE TIME EXPENDITURE AND THE SOFTWARE WAS BEING USE D YEAR AFTER YEAR WITH ONLY SOME MINOR ADJUSTMENTS OR MODIFICATIONS. THE LD. DR CONTENDED THAT THE SOFTWA RE WAS OF ENDURING USAGE AND, THEREFORE, RIGHTLY HELD AS C APITAL EXPENDITURE. 7. THE LD. COUNSEL FOR ASSESSEE, ON THE OTHER HAND, STATED THAT THE I.T.A.T. HAD RIGHTLY HELD THE AFORESAID EX PENDITURE AS REVENUE SINCE IDENTICAL EXPENDITURE HAD BEEN SO HELD BY THE I.T.A.T. IN THE CASE OF THE ASSESSEE FOR ASSESS MENT YEARS 1999-2000 AND 2000-01 ALSO. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE AUTHORITIES BELOW. BEFORE ADJUDICATING THE ISSUE AT HAND, IT WOULD BE RELEVANT TO REPRODUCE THE DIRECTI ONS OF THE I.T.A.T. WHILE RESTORING THE MATTER BACK TO THE LD.CIT(APPEALS) IN THE PRESENT CASE. THE SAME READ S AS UNDER : 13 THE FIRST GROUND OF THIS APPEAL READS AS UNDER: LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.36,24,926 MADE BY THE ASSESSING OFFICE R 4 ON ACCOUNT OF SOFTWARE EXPENSES CONSIDERED AS CAPI TAL EXPENSES UNDER THE HEAD 'PLANT 14. DURING THE COURSE OF HEARING LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING CASE LAWS: CIT V. SOUTHERN ROADWAYS LTD. (2007) 288 ITR 15 (MAD) SUMITOMO CORP INDIA (P) LTD ( 2005) 1 SOI 91 (DELHI) BANK OF PUNJAB LTD V JCIT (2002) 122 TAXMAN 235 IBM INDIA V CLT (A) (2007) 103 ITD 1 (BANG) AJITKUMAR C. KAMDAR V DCIT (2005) 1 SOT 183 (MUM) ACIT V. ABHISHEK INDUSTRIES. LUDHIANA ITA NO.395/CHANDI/2006 FOR ASSESSMENT YEAR 2001-02 ORDER DATED 28.2.2007 ACIT V. HIGHWAY INDUSTRIES LTD. ITAS NO.730 TO 732/CHANDI/2006 ASSESSMENT YEARS 200001 TO 2002-03 ORDER DATED 17.7.2007 ACIT V, JASPER INVESTMENTS LTD (2007) 109 TTJ (MUM) 530 JCIT V. CITI CORP OVERSEAS SOFTWARE LTD (2004 ) 85 TTJ 87 (MUM) 15. IN HER RIVAL SUBMISSIONS, LO D R. FOR THE REVENUE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT CHANDIGARH BENCH 'A IN I.T.A NO. 98/CHANAI/20 06 FOR ASSESSMENT YEAR 2000-01 VIDE ORDER DATED 20.7.2 007 IN THE CASE OF ACIT-I, LUDHIANA V VARINDER AGRO CHEMICA LS, LUDHIANA. 16. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAS BEEN ADJUDICATED IN THE AFORESAID CASE OF ACIT-I, LUDH IANA V VARINDER AGRO CHEMICALS. LUDHIANA (SUPRA) WHEREIN RELE VANT FINDINGS HAVE BEEN GIVEN AT PARAS NO. 17 & 18 OF TH E SAID ORDER WHICH READ AS UNDER: 17. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, IN OUR CONSIDERED VIEW, WHETHER THE SOFTWARE EXPENSES QUALIFY FOR DEDUCTION AS REVENUE EXPENDITURE OR THE SAME IS TO BE TREATED AS CAPITAL EXPENDITURE DEPENDS UPON(HO NATURE OF THE EXPENSES AND THE FACTS AND CIRCUMSTANCES OF EACH CASE. DECISIONS HAVE BEEN CITED ON BEHALF OF THE R EVENUE AS WELL AS ON BEHALF OF THE ASSESSEE TO SUPPORT THE IR RIVAL CONTENTIONS. SO HOWEVER THE FACTS IN THIS CASE ARE DISPUTED INSOFAR AS THE AO HAS TREATED THE EXPENDITURE OF MORE THAN RS.40 LACS ON CAPITAL ACCOUN T ON THE GROUND THAT THE EXPENDITURE HAD BEEN INCURRED FOR DEVELOPMENT OR ENABLING SOFTWARE TO RU N THE COMPUTERS PURCHASED DURING THE YEAR IN 5 CONSIDERATION FOR ABOUT SEVENTY LAKH RUPEES THE CIT (A) HAS BLINDLY RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF BANK OF PUNJAB LTD. (SUPRA. ON GOING THROUGH THE ORDER OF THE TRIBUNAL IN THAT CASE, IT IS OBSERVED THAT MOST OF THE EXPENDITURE I S ON ACCOUNT OF BUSINESS SUPPORT AND IMPLEMENTATION OF SOFTWARE ETC. IN THE CASE OF ESCORTS LTD. V. ACIT,1 02 TTJ 522 (DELHI. THE DELHI BENCH OF THE TRIBUNAL HAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE ON ACQUISITION OF DRP BUSINESS SOFTWARE BY WAY OF OUTRIGHT PURCHASE IS TO BE TREATED AS CAPITAL EXPENDITURE. IT HAS FURTHER BEEN HELD THAT IN THE C ASE OF UPGRADATION OF AN EXISTING SOFTWARE, THE EXPENDITURE MAY BE ALLOWED AS REVENUE EXPENDITURE. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MARUTI UDHYOG LTD. V DCIT, 92 ITD 119(DEL). 18. COMING TO THE FACTS OF THE PRESENT CASE, IT IS OBSERVED THAT THE ASSESSEE HAD DEBITED THE ENTIRE EXPENDITURE UNDER THE HEAD SOFTWARE DEVELOPMENT EXPENSES. SO HOWEVER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS CLAIMED BY THE ASSESSEE THAT TH E ASSESSEE WAS TO PAY M/S TRIDENT INFOTECH CORPORATION LTD. A COMPANY BELONGING TO THE SAME GROUP AS THAT OF ASSESSEE IN TERMS OF CONTRACT DATE D 5.3.1999 W.E.F. 1.4.99 120% OF THE GROSS SALARY PAI D BY TICL TO PERSONS WHO ARE DEPUTED FOR EDP SERVICES TO THE ASSESSEE COMPANY. TICL WAS ALSO TO GET 5% SERVICE CHARGES ON PURCHASE OF COMPUTERS HARDWARE. THE COPY OF THE AGREEMENT HAS NOT BEEN PROVIDED TO US. THE AO HAD ASKED THE ASSESSEE TO ESTABLISH THA T THE ASSESSEE HAD EARLIER PURCHASED ENABLING SOFTWARE TO RUN THE COMPUTERS. SO, HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. IT IS ALSO NOT CLEAR FROM THE MATERIAL ON RECORD AS TO WHETHER THE TICL HAD DEPUTED EMPLOYEES TO DEVELOP SOFTWARE TO RUN THE COMPUTERS. THE CIT(A) HAS BLINDLY APPLIED THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF BAN K OF PUNJAB LTD. (SUPRA). AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V SUN ENGINEERING WORKS PVT. LTD. 196 ITR297 (SC). THE DECISION OF AN Y COURT OF TRIBUNAL HAS GOT TO BE READ IN THE CONTEXT IN WHICH IT HAS BEEN RENDERED. THE OBSERVATIONS OF THE IR LORDSHIPS ON PAGE 299 ARE AS UNDER:- IT IS NEITHER DESIRABLE NOT PERMISSIBLE TO PICK OUT A WORD OR SENTENCE FROM THE JUDGMENT F THE SUPREME COURT DIVORCED FROM HE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THE COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. A DECISION OF THE SUPREME 6 COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISION TO A LATER CASE, COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF M/S VARINDER AGRO CHEMICALS (SUPRA), SO RESPECTFULLY FO LLOWING THE AFORESAID REFERRED TO ORDER DATED 20..7.07 OF I TAT CHANDIGARH BENCH A WE RESTORE THIS ISSUE BACK TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATION IN ACCORDA NCE WITH THE GUIDELINES AND DIRECTIONS GIVEN IN THE AFORESAI D REFERRED TO CASE ADJUDICATED BY THE TRIBUNAL. 9. IT IS EVIDENT FROM THE ABOVE THAT THE I.T.A.T. HAD DIRECTED THE LD.CIT(APPEALS) TO FIRST BRING OUT THE FACTUAL MATRIX RELATING TO THE SOFTWARE EXPENDITURE INCURRE D AND THEREAFTER APPLY THE LAW LAID DOWN BY THE TRIBUNAL AND OTHER COURTS ON THIS ISSUE. 10. ON PERUSING THE ORDER OF THE LD.CIT(APPEALS) WE FIND NO FINDING IN THE ENTIRE ORDER REGARDING THE FACTS RELATING TO SOFTWARE PURCHASED. IN FACT, WE FIND THAT THE LD.CIT(APPEALS) HAS MENTIONED THAT THE ISSUE TO BE CONSIDERED IS OF THE NATURE OF EXPENDITURE OF SOFTW ARE OF RS.55 LACS FOR THE SUPPLY OF INTEGRATED SYSTEM FOR BUSINESS MANAGEMENT WHICH WAS AN ONLINE APPLICATION SYSTEM SOFTWARE. THIS, WE FIND HAS BEEN COPIED FROM THE F ACTS OF THE CASE BEFORE THE I.T.A.T. IN THE CASE OF ASSESSE E FOR ASSESSMENT YEAR 1998-99 IN ITA NO.313/CHD/2013 DATE D 10.7.2013 REPRODUCED IN THE ORDER OF THE CIT(APPEAL S). IN FACT WE FIND THAT NEITHER THE ASSESSEE HAS DESCRIBE D THE NATURE OF THE SOFTWARE BEFORE THE ASSESSING OFFICER OR EVEN IN APPELLATE PROCEEDINGS BEFORE THE CIT(APPEALS) OR BEFORE THE I.T.A.T. THEREFORE, THE LD.CIT(APPEALS) HAS CL EARLY NOT 7 FOLLOWED THE DIRECTIONS OF THE I.T.A.T. IN THIS REG ARD, WE ARE PAINED THEREFORE TO RESTORE THE MATTER BACK T O THE CIT(APPEALS) FOR A SECOND TIME TO ADJUDICATE THE IS SUE, BRINGING OUT ALL FACTS PERTAINING TO THE NATURE OF THE SOFTWARE AND OTHER MATTERS CLEARLY ON RECORD AND TH EREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AS DIRECTED BY THE I.T.A.T. WE ARE CONSTRAINED TO ADD THAT THE ISSUE BE DECIDED WITHIN SIX MONTHS OF THE RECEIPT OF OUR ORD ER. 11. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 8 TH SEPTEMBER, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH