ITO, Ward - 12(1), Kolkata V. M/s. Prachar Communications Ltd., Howrah

ITA 1219/KOL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54492 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 16-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K ROY
• Assessee Lawyers: R SALARPURIA
• Keywords: Capital asset; Gift; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE . . , ! '# '# '# '# /AND ' # , ! ) [BEFORE HONBLE SHRI S. V. MEHROTRA, AM & HONBLE S RI MAHAVIR SINGH, JM] #$ #$ #$ #$ / I.T.A NO. 1219/KOL/2009 %& ''( %& ''( %& ''( %& ''(/ // / ASSESSMENT YEAR: 2004-05 INCOME-TAX OFFICER, WD-12(1), KOLKATA VS. M/S. PRA CHAR COMMUNICATIONS LTD. (PAN-AABCP 5657 L) (*+ /APPELLANT ) (,-*+/ RESPONDENT ) & C.O. NO.61/KOL/2009 IN #$ #$ #$ #$ / I.T.A NO. 1219/KOL/2009 %& ''( %& ''( %& ''( %& ''(/ // / ASSESSMENT YEAR: 2004-05 M/S. PRACHAR COMMUNICATIONS LTD. VS. INCOME-TAX OF FICER, WD-12(1), KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE REVENUE: SHRI S. K. ROY FOR THE ASSESSEE: SHRI R. SALARPURIA . / ORDER PER MAHAVIR SINGH, JM ( ' # ' # ' # ' #, , , , ! ! ! ! ) THE APPEAL BY REVENUE AND CROSS OBJECTION BY ASSESS EE ARE ARISING OUT OF ORDER OF CIT(A)-XXXII, KOLKATA IN APPEAL NO. 66/CIT(A)-XXXII /ITO/12(4)/08-09/KOL VIDE DATED 27.03.2009. ASSESSMENT WAS FRAMED BY INCOME-TAX OFF ICER, WD-12(4), KOLKATA FOR ASSESSMENT YEARS 2004-05 U/S. 143(3) INCOME TAX ACT, 1961(HERE INAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29.12.2006. FOR THE SAKE OF BREVITY AND CLARITY, WE DISPOSE OF BOTH THESE APPEAL AND CROSS OBJECTION BY THIS CONSOLIDATED ORDER. 2. FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING DISALLOWANCE OF COMMISSION PAYMENT. FOR THIS, REVENUE RAISED FO LLOWING GROUND NO.1: 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS CORRECT IN HOLDING THAT THE COMMISSION PAYMENT OF RS.17,28, 996/- IS ALLOWABLE DESPITE THE FACT THAT NOTHING WAS FILED OR PRODUCED BY THE ASSESSEE TO SUBSTANTIATE THAT ACTUAL SERVICE WAS RENDERED BY THE COMMISSION AGENT FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. 3. THE BRIEF FACTS ARE THAT ASSESSING OFFICER DISAL LOWED COMMISSION PAYMENT OF RS.14,70,353/- PAID TO MAHANANDA SECURITIES LTD. AN D RS.2,58,643/- PAID TO M/S. JAIN TRADING 2 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 COMPANY ON THE BASIS THAT THE ASSESSEE HAS FILED SA ME DETAILS, WHICH WERE FILED BEFORE DDIT (INV.), MUMBAI AT THE TIME OF VERIFICATION ENQUIRY PROCESS. ACCORDING TO ASSESSING OFFICER, NO DETAILS WERE FILED EXCEPT FILED BEFORE DDIT (INV.), MUMBAI, HENCE HE DISALLOWED ABOVE TWO COMMISSIONS PAYMENTS AMOUNTING TO RS.17,28,996/- BY HOLDING THAT THESE ARE NOT RELATED FULLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSIN ESS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE VI DE PARA 7 OF HIS APPELLATE ORDER AS UNDER: 7. I HAVE PERUSED THE ASSESSMENT ORDER, THE SUBMIS SION PREFERRED BEFORE ME BY THE APPELLANT AND THE JUDICIAL PRONOUNCEMENTS RELIED UP ON. IT IS FOUND THAT SIMILAR PAYMENTS OF COMMISSION HAS BEEN ALLOWED BY CIT(A) IN APPEAL FOR ASSESSMENT YEARS 2001-02 AGAINST WHICH THE DEPA RTMENT HAS GONE IN FOR APPEAL AND SUCH APPEAL OF THE DEPARTMENT HAS BEEN DISMISSED BY THE HONBLE ITAT IN APPEAL NO. 1550/KOL/05 DATED 24.3.2006. WHILE IN THE ASSESSME NT YEAR 2003-04 SIMILAR ADDITION HAS BEEN ALSO DELETED BY CIT(A)-XII, KOLKATA IN APP EAL NO. 78/CIT(A)-XII/12(1)/06-07 AND PAYMENT OF COMMISSION TO JAIN & CO. HAS BEEN FU LLY DELETED BY THE HONBLE ITAT, KOLKATA FOR ASSESSMENT YEARS 2001-02 AND 2002-03. COPIES OF ALL SUCH ORDER HAVE BEEN ANNEXED BY THE APPELLANT ALONG WITH ITS WRITTEN SUB MISSION. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. AS FAR AS COMMISSION PAID TO M/S. JAIN TRADING COMP ANY, LD. SR. D. R. AS WELL AS LD. COUNSEL FAIRLY AGREED THAT ISSUE WAS CONSIDERED IN EARLIER YEARS EVEN BY TRIBUNAL AND DELETED THE ADDITION FOR ASSESSMENT YEAR 2001-02 AND 2002-03 EX ACTLY ON SAME FACTS. CONSIDERING THE ABOVE POSITION IN RESPECT TO COMMISSION PAID TO M/S . JAIN TRADING COMPANY, WE CONFIRM THE ORDER OF CIT(A). THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. NOW COMMISSION PAID TO MAHANANDA SECURITIES LTD AMOUNTING TO RS.14,17,353/-, LD. COUNSEL AS WELL AS LD. SR. D. R. FAIRLY AGREED THAT DOCUMENTS PRODUCED BEFORE CIT(A) WAS NEVER BEFORE ASSESSING OFFICER. EVEN ASSESSING OFF ICER NOTED THAT IN ABSENCE OF DOCUMENTARY EVIDENCES COMMISSION IS DISALLOWED. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT ASSESSEE SHOULD GO BACK TO ASSESSING OFFICER AND FI LE THESE DETAILS AS FILED BEFORE CIT(A) AND ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH ACCO RDING TO LAW. THIS ISSUE OF ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER A ND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING DISALLOWANCE OF SALARY, WAGES AND BONUS. FOR THIS, REVENUE HAS R AISED FOLLOWING GROUND NO.2: 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS.6,33,881/- M ADE ON ACCOUNT OF SALARY, WAGES AND BONUS DESPITE THE FACT THAT THE ASSESSEE FAILED TO EVEN FILE ANY CORROBORATIVE EVIDENCE OR DETAILS TO SUBSTANTIATE A SHARP RISE OF EXPENDITURE WITHOUT ANY REASON. 3 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 7. BRIEF FACTS ARE THAT ASSESSING OFFICER DURING AS SESSMENT PROCEEDING DISALLOWED SALARY & WAGES PAYMENT OF RS.6,33,881/- OUT OF THE TOTAL SAL ARY AND WAGES AND ADMINISTRATIVE EXPENSES DEBITED BY THE ASSESSEE AT RS.34,17,170/-. ASSESSI NG OFFICER DISALLOWED BY OBSERVING THAT GROSS TURNOVER OF ASSESSEE IN THE ASSESSMENT YEAR 2 004-05 IS RS.53,85,80,407/- AS AGAINST TURNOVER OF RS.51,10,64,272/- IN ASSESSMENT YEAR 20 03-04, THEREBY GIVING RISE TO INCREASE IN TURNOVER OF RS.2,75,16,135/- ONLY. ACCORDING TO AS SESSING OFFICER, ASSESSEE IS ENGAGED IN THE SAME LINE OF BUSINESS OVER YEARS AND INCREASE IN AD MINISTRATIVE, SALARY AND WAGES EXPENSES IS NOT JUSTIFIED AND NOT RELATED TO ASSESSEES BUSINES S EXCLUSIVELY. ACCORDINGLY, HE DISALLOWED 1/3 RD OF EXPENSES UNDER THE HEAD SALARY AND WAGES AT RS. 6,33,881/- OUT OF TOTAL EXPENDITURE OF RS.19,01,644/-. AGGRIEVED, ASSESSEE PREFERRED APPE AL BEFORE CIT(A), WHO RELYING ON THE DECISION CIT(A) FOR ASSESSMENT YEAR 2003-04, ALLOW ED THE CLAIM OF ASSESSEE VIDE PARA 11 OF HIS APPELLATE ORDER AS UNDER: 11. I HAVE PERUSED THE ASSESSMENT ORDER, THE SUBMI SSION OF THE APPELLANT. I FOUND THAT THIS ISSUE HAS BEEN SQUARELY DECIDED IN FAVOUR OF THE APPELLANT FOR THE IMMEDIATELY PRECEDING PREVIOUS YEAR ENDED 31.3.2003, RELEVANT T O THE ASSESSMENT YEAR 2003-04 BY THE LEARNED CIT(A)-XII, IN THE APPELLANTS OWN CASE , A COPY OF WHICH HAS BEEN PLACED ON RECORDS. RESPECTFULLY, FOLLOWING THE REFERRED AP PELLATE ORDER, PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2003-04, THE ADDITIO N OF RS.6,33,881/- ON ACCOUNT OF PAYMENT OF SALARY OF RS.6,33,881/- IS DELETED. 8. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER FAILED TO TAKE INTO CONSIDERATION EARLIER YEAR FROM WHICH COMPARISON HAS BEEN MADE, WHEREBY ASSESSEE HAS INCU RRED EXPENDITURE OF RS.21,00,000/- PAID TO M/S. JAIN TRADING CO. WITH RESPECT TO MAINTENANC E CHARGES AND HENCE, TOTAL SALARY PAYMENT DURING ASSESSMENT YEAR 2003-04 AMOUNTING TO RS.36,1 5,526/- WHICH COMPRISED OF RS.15,15,526/- DIRECTLY INCURRED IN RESPECT OF SALA RY, WAGES AND BONUS AND RS.21,00,000/- IN RESPECT TO MAINTENANCE CHARGES, COMPARING RS.34,17, 170/- INCURRED IN THE ASSESSMENT YEAR 2004-05, I.E. RELEVANT ASSESSMENT YEAR, WHICH IS MO RE THAN ASSESSMENT YEAR 2003-04. IT IS ALSO ADMITTED FACT THAT ASSESSEES TURNOVER HAS ALSO INC REASED CONSIDERABLY TO THE EXTENT OF RS.2,75,16,135/-. IN VIEW OF THE ABOVE FACTS, WE A RE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF ASSESSEE AND EVEN IN EARLIER Y EAR DISALLOWANCE WAS DELETED BY CIT(A). WE CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF RE VENUES APPEAL IS DISMISSED. 9. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN RETAINING THE ADDITI ON AT RS.3,48,334/- INSTEAD OF ENTIRE DISALLOWANCE OF RS.6,96,666/-. FOR THIS, REVENUE H AS RAISED THE FOLLOWING GROUND NO.3 AND ASSESSEE HAS RAISED FOLLOWING GROUND NO.1: 4 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 REVENUES GROUND : 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF RS.6,96,666/- MADE ON A CCOUNT OF SOFTWARE DEVELOPMENT CHARGE DESPITE THE FACT THAT DEVELOPMENT OF SOFTWAR E GIVEN RISE TO BENEFIT OF ENDURING NATURE AND SO THE EXPENDITURE WAS DEFERRED AND HELD AS ALLOWABLE FOR THREE ASSESSMENT YEAR. ASSESSEES GROUND : 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN DELETING ONLY RS.3,48,334/ - INSTEAD OF DELETING THE ENTIRE DISALLOWANCE OF RS.6,96,666/- MADE IN THE ASSESSMEN T @ 2/3 RD OF RS.10,45,000/- INCURRED ON A/C OF SOFTWARE DEVELOPMENT CHARGES. T HE ACTION OF THE LD. CIT(A) WAS WHOLLY UNREASONABLE, UNCALLED FOR AND BAD IN LAW. EVEN OTHERWISE AND WITHOUT PREJUDICE THE DISALLOWAN CE MADE IN THE ASSESSMENT WAS HIGHLY EXCESSIVE AND WHOLLY UNREASONABLE. 10. BRIEF FACTS ARE THAT ASSESSING OFFICER DISALLOW ED SOFTWARE DEVELOPMENT EXPENSES OF RS.3,48,334/- OUT OF TOTAL SOFTWARE EXPENSES INCURR ED BY ASSESSEE AT RS.10,45,000/- FOR THE PURPOSE OF AD FILMS AND CLIPPINGS FOR AND ON BEHALF OF ITS CLIENT. ASSESSING OFFICER HELD THAT THIS EXPENDITURE IS CAPITAL IN NATURE AND NEED TO B E AMORTISED AND ALLOWED IN PART FOR CONSECUTIVE FEW YEARS. THE ASSESSING OFFICER ACCOR DINGLY, CONSIDERED REASONABLE PERIOD FOR THREE YEARS FOR WHICH ASSESSEE COULD EXPLOIT AND EN JOY BENEFIT OF ADVERTISEMENT SOFTWARE. ACCORDINGLY, HE DISALLOWED A SUM OF RS.4,71,666/- A ND ALLOWED DEPRECIATION ON THE SAME, THEREBY EFFECTIVE DISALLOWANCE WAS RS.3,48,344/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RELYING ON EARLIER ORDER OF CIT(A) IN A SSESSMENT YEAR 2002-03 ALLOWED THE CLAIM OF ASSESSEE VIDE PARA 15 OF HIS APPELLATE ORDER AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER, THE SUBMISSIO N PREFERRED BY THE A.O. AND THE JUDICIAL PRONOUNCEMENTS RELIED UPON. IT IS OBSERVED THAT SIMILAR DISALLOWANCES MADE BY THE A.O. IN ASSESSMENT FOR THE ASSESSMENT YEAR 2003 -04 HAD BEEN FULLY DELETED BY THE LD. CIT(A)-XII, KOL IN HIS APPELLATE ORDER FOR THE ASSE SSMENT YEAR 2003-04. RESPECTFULLY FOLLOWING THE DECISION OF THE LEARNED CIT(A)-XII, KOLKATA IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2003-04, THE ADDIT ION OF RS.3,48,334/- IN RESPECT OF SOFTWARE CHARGES IS DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE US. 11. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSING OFFICER HIMSELF HAS ACCEPTED THIS EXPENDITURE TO BE REVENUE BUT PROCEEDED TO TREAT IT AS DEFERRED REVENUE EXPENDITU RE. THUS, ALLOWED 1/3 RD OF EXPENDITURE IN RELEVANT YEAR AND THE BALANCE WAS DISALLOWED BY HOL DING THAT EXPENDITURE TO BE CARRIED FORWARD 5 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 FOR ADJUSTMENT IN NEXT TWO ASSESSMENT YEARS. WE FI ND THAT ASSESSEE PAID THIS AMOUNT OF RS.10,45,000/- I.E. RS.90,000/- TO M/S. SHREEJI INF OTECH FOR MANAGERIAL CONSULTANCY CHARGES FOR ACCOUNTING SOFTWARE AND RS.9,55,500/- TO M/S. OMINI TECH INFOSOLUTION LTD. FOR MEDIA DATA MANAGEMENT FOR REPORTS ETC FOR 49 CUSTOMERS. ASSE SSEE CONTENDED THAT THIS EXPENDITURE IS REVENUE IN NATURE AND INCURRED DURING THE YEAR, HEN CE SAME IS ALLOWABLE DURING THIS YEAR AND HE CITED CIT(A)S ORDER FOR ASSESSMENT YEAR 2003-04, W HEREBY THE ENTIRE EXPENDITURE WAS ALLOWED AS REVENUE EXPENDITURE. WE FIND THAT ON THI S ISSUE SPECIAL BENCH OF TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT (2008) 11 1 ITD 112 (DEL.)(SB), WHEREIN CERTAIN PRINCIPLES WERE LAID DOWN AS UNDER (FROM HEAD NOTES ): BUT THE QUESTION WHETHER EXPENDITURE FOR ACQUISITI ON OF COMPUTER SOFTWARE IS CAPITAL OR REVENUE CANNOT BE DECIDED ON THE BASIS OF THE OW NERSHIP TEST ALONE BUT FROM THE POINT OF ITS UTILITY TO A BUSINESSMAN AND HOW IMPOR TANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS, BECAUSE OF THE PECULIAR N ATURE OF A COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS. THE FA CT THAT GENERALLY COMPUTER SOFTWARE IS ACQUIRED ON A LICENCE BY ITSELF WILL NOT BE SUFFICI ENT TO CONCLUDE THAT THE EXPENDITURE IS REVENUE EXPENDITURE, IF IT IS FOUND THAT THE EXPEND ITURE OPERATES TO CONFER A BENEFIT IN THE CAPITAL FIELD. ON THE OTHER HAND, SOME COMPUTER SOFTWARE MAY HAVE A VERY LIMITED ECONOMIC LIFE SO AS TO BE TREATED AS CAPITAL EXPEND ITURE, THOUGH OWNED BY AN ASSESSEE. FOR ASCERTAINING AS TO WHETHER EXPENDITURE ON COMPU TER SOFTWARE GIVES AN ENDURING BENEFIT TO AN ASSESSEE, THE DURATION OF TIME FOR WH ICH THE ASSESSEE ACQUIRES RIGHT TO USE THE SOFTWARE BECOMES RELEVANT. HAVING REGARD TO THE FACT THAT SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEM ENT WITHIN A SHORT 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 EXPENDITURE. A NY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSI DERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT M AKE THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TE ST AS DISCUSSED ABOVE ALSO NEEDS TO BE SATISFIED. THE PERIOD OF ADVANTAGE IN THE CONTEX T OF COMPUTER SOFTWARE SHOULD NOT BE VIEWED FROM THE POINT OF VIEW OF DIFFERENT ASSETS O R ADVANTAGE LIKE TENANCY OR USE OF KNOW-HOW BECAUSE SOFTWARE IS A BUSINESS TOOL ENABLI NG A BUSINESSMANS ABILITY TO RUN HIS BUSINESS. THE NATURE OF THE ADVANTAGE WHICH THE ASSESSEE DERI VES HAS TO BE SEEN IN A COMMERCIAL SENSE. SOFTWARE NORMALLY FUNCTIONS AS A TOOL ENABLI NG BUSINESS TO BE CARRIED ON MORE EFFICIENTLY. THE SCOPE, POWER, LONGEVITY OF SUCH A TOOL AND ITS CENTRALITY TO THE FUNCTIONS OF THE BUSINESS WILL ALL BEAR ON ITS TREATMENT. WHERE THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINE SS OF SOFTWARE DEVELOPMENT AS WELL AS RUNNING A TRAINING CENTRE TO IMPART SPECIAL IZED TRAINING TO THE STUDENTS IN SOFTWARE TECHNOLOGY, IF THE SOFTWARE IS USED IN SUC H BUSINESS TO IMPART TRAINING TO THE STUDENTS, IT WOULD BE PART OF THE PROFIT-MAKING APP ARATUS OF THE ASSESSEE AND CONSEQUENTLY EXPENDITURE ON SOFTWARE, CAPITAL. WHERE THE SAID SOFTWARE HELPS IN COMPRESSION OF SIZ E OF E-MAILS AND IT INCLUDES LICENCES FOR 150 USERS AND IT IS LIMITED TO FACILITATE MEREL Y AN EFFECTIVE AND FAST COMMUNICATION IN ORDER TO INCREASE IN ITS ORGANIZATIONAL EFFICIEN CY, IT CANNOT BE TREATED AS FORMING PART OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE. ON THE OTHER HAND, IF SUCH SOFTWARE IS BEING USED BY AN ASSESSEE ENGAGED IN THE BUSINESS O F PLACEMENT AGENCY WHERE THE APPLICATIONS FROM PERSONS SEEKING JOBS ARE INVITED THROUGH E-MAIL AND ARE ALSO 6 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 FORWARDED TO THE CONCERNED CLIENTS THROUGH E-MAIL, IT MAY FORM PART OF THE PROFIT- MAKING APPARATUS OF THE ASSESSEES BUSINESS OF PLAC EMENT AGENCY AND CAN BE TREATED AS A CAPITAL ASSET. AS A GENERAL RULE THE MORE EXPENSIVE THE COMPUTER S OFTWARE THE MORE IT IS LIKELY TO BE A CENTRAL TOOL OF THE BUSINESS AND THE MORE ENDURING IS LIKELY TO BE ITS EFFECT ADDING TO THE PROFIT EARNING APPARATUS. IF THERE IS ASSOCIATED CA PITAL EXPENDITURE LIKE PURCHASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE SOFTWARE DEV ELOPED UNDER A PROJECT, IT CAN BE CONSIDERED AS CAPITAL EXPENDITURE. THIS IS ESPECIAL LY THE CASE WHERE THE NEW HARDWARE IS NOT MERELY DESIRABLE BUT NECESSARY FOR THIS PURP OSE. SIMILARLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED OUT AS A RESULT OF THE COMPUTER SOFTWARE, FOR EXAMPLE, SAVIN GS IN THE NUMBER, AND CHANGES IN THE LOCATION, OF STAFF USED TO PROVIDE SERVICES TO CUST OMERS WILL HAVE A BEARING. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THAT THE EXPEN DITURE WILL BE CAPITAL. THESE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIONS PREVI OUSLY CARRIED ON MANUALLY ARE COMPUTERIZED. THE PRESENCE OF AN ELEMENT OF UPGRADING WILL NOT NE CESSARILY CAUSE THE EXPENDITURE IN QUESTION TO BE CAPITAL. WITH EFFECT FROM APRIL 1, 1999, COMPUTERS WERE TREA TED AS A DIFFERENT CLASS OF ASSET FALLING WITHIN THE DESCRIPTION OF PLANT AND DEPRECI ATION WAS ALLOWED AT 60 PER CENT. WITH EFFECT FROM APRIL 1, 2003, COMPUTER SOFTWARE W AS ALSO INCLUDED ALONG WITH COMPUTERS. THE AMENDMENT IS PROSPECTIVE. IT IS NOT CLARIFICATORY FOR THE REASON THAT COMPUTER AND COMPUTER SOFTWARE ARE TWO DIFFERENT IT EMS OF ASSETS. IF THE LEGISLATURE WANTED TO ALLOW DEPRECIATION AT 60 PER CENT. WITH E FFECT FROM APRIL 1, 1999, ON COMPUTER SOFTWARE, IT WOULD HAVE SAID SO SPECIFICAL LY BY MAKING THE PROVISIONS RETROSPECTIVE. DEPRECIATION CAN BE ALLOWED AT 25 PE R CENT. UNDER SECTION 32(1)(I) READ WITH APPENDIX I, PART A, DIVISION III(1) TO THE INC OME-TAX RULES, 1962 AND WITH EFFECT FROM APRIL 1, 2003, COMPUTER SOFTWARE HAVING BEEN C LASSIFIED AS A TANGIBLE ASSET UNDER THE HEADING PLANT IN APPENDIX I TO THE RULES, IS ENTITLED TO DEPRECIATION AT 60 PER CENT. MARUTI UDYOG LTD. V. DEPUTY CIT [2005] 92 ITD 119 ( DELHI) FOLLOWED. [THE TRIBUNAL RESTORED THE MATTERS TO THE FILE OF T HE ASSESSING OFFICER TO EXAMINE THE QUESTION WHETHER EXPENDITURE ON COMPUTER SOFTWARE W AS CAPITAL OR REVENUE IN THE LIGHT OF THE CRITERIA LAID DOWN IN THE ORDER AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEES. IF ON SUCH EXAMINATION, THE ASSESSING OF FICER CAME TO THE CONCLUSION THAT THE EXPENDITURE WAS CAPITAL EXPENDITURE, THE QUESTION R EGARDING DEPRECIATION WAS TO BE DECIDED IN ACCORDANCE WITH THE PRINCIPLES LAID DOWN BY THE TRIBUNAL.] IN VIEW OF THE ABOVE, SPECIAL BENCH HAS SUMMARIZED THE ISSUE OF EXPENDITURE ON COMPUTER SOFTWARE, WHETHER CAPITAL OR REVENUE, AND LAID DOWN FOLLOWING PRINCIPLES: (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER THE LICENSE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF. (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOME S OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF T IME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILIT Y TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS, CAN BE CONSIDERED AS ACCRUAL OF B ENEFIT OF ENDURING NATURE. 7 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITU RE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENE FIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER SOFTWARE I S CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILITY TO A BUS INESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINES S. 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 TOUCHING EITHER CAPITAL OR REVENUE FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVENUE FIELD. AO IS DIRECTED TO FIND OUT FACTS IN VIEW OF THE ABO VE PRINCIPLES AND DECIDE THE ISSUE. THIS ISSUE OF ASSESSEES APPEAL IS SET ASIDE TO THE FILE OF AO AND ALLOWED FOR STATISTICAL PURPOSES. 12. NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING DISALLOWANCE OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES. FOR THIS, THE REVENUE HAS RAISED FOLLOWING GROUND NO.4: 4) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS CORRECT IN DELETING THE ADDITION OF RS.7,70,480/- M ADE ON ACCOUNT OF ADVERTISEMENT & BUSINESS PROMOTION EXPENSES DESPITE THE FACT THAT A SSESSEE FAILED TO PROVE HOW THESE EXPENSES RELATED TO BUSINESS AND TO WHOM SUCH PAYME NTS/GIFTS WERE MADE. 13. BRIEF FACTS LEADING TO ABOVE ISSUE ARE THAT ASS ESSING OFFICER DISALLOWED ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES OF RS.7,70,480/- OU T OF THE TOTAL EXPENSES DEBITED AT RS.27,98,468/-. THE ASSESSEE HAS DEBITED THIS AMOU NT INCLUDES MAJOR EXPENSES INCURRED FOR THE PURPOSE OF SILVER GLASS AND FRAMES, ORNAMENTS AND S ILVER BOWLS AMOUNTING TO RS.23,11,439/-. THE ASSESSEE PRODUCED COPIES OF RELATED BILLS AND E XPLAINED AS TO WHOM SAID ITEMS WERE GIFTED/DISTRIBUTED AND CLAIMED THAT ENTIRE EXPENDIT URE RELATES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. ASSESSING OFFICER DID NOT ACCEPT EXPLANATION OF THE ASSESSEE AND DISALLOWED 1/3 RD OF THE EXPENDITURE AS NOT RELATED TO THE ASSESSEE S BUSINESS AND THEREBY MAKING ADDITION OF RS.7,70,488/-. AGGRIEVED, ASSES SEE PREFERRED APPEAL BEFORE CIT(A), WHO RELYING ON TRIBUNALS DECISION FOR ASSESSMENT YEAR 2002-03 DELETED THE ADDITION BY OBSERVING AS UNDER: IT IS OBSERVED THAT THIS GROUND OF APPEAL IS SQUAR ELY COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF THE LEARNED CIT(A)-XII, F OR THE ASSESSMENT YEARS 2002-03 AND 2003-04. FURTHER, THE HONBLE ITAT, KOLKATA IN APPEAL OWN CASE IN ITA NO. 748/KOL/07 FOR ASSESSMENT YEAR 2002-03 HAS UPHELD S UCH DECISION OF THE LEARNED CIT(A)-XII, KOLKATA AND HAS DISMISSED THE APPEAL PR EFERRED BY THE DEPARTMENT. RESPECTFULLY, FOLLOWING THE DECISION OF THE HONBLE ITAT (SUPRA) AND ALSO THAT OF THE LEARNED CIT(A)-XII DECIDED IN THE APPELLANTS OWN C ASE, THE ADDITION OF RS.7,70,480/- IS DELETED. 8 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 14. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CAS E EXACTLY ON SIMILAR FACTS HAS TAKEN A VIEW, HENCE, WE CANNOT INTERFERE WITH THE FINDING O F CIT(A) AND UPHOLD THE SAME. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 15. NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING DISALLOWANCE OF FOREIGN TRAVEL EXPENSES. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.5: 5)ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN ALLOWING RS.2,60,930/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES BY THE DIRECTOR AND THE MEMBERS OF HIS FAMILY WHICH WAS NOT WHOLLY RELATED FOR THE PUR POSE OF BUSINESS. 16. BRIEF FACTS ARE THAT ASSESSING OFFICER DISALLOW ED 50% OF EXPENSES INCURRED BY ASSESSEE ON FOREIGN TRAVEL AT RS.5,21,861/-. THE ASSESSEE C OMPANY INCURRED FOREIGN TRAVEL EXPENSES ON ACCOUNT OF VISIT OF RAJESH JAIN, MS. VINEETA JAIN A ND MASTER V. JAIN AND RAKESH JAIN AND HIS FAMILY. IT WAS CLAIMED BY ASSESSEE THAT THESE PERS ONS VISITED FOREIGN LOCATIONS FOR THE PURPOSE OF SHOOTING OF ADVERTISEMENT FILM WERE EITHER DIREC TORS OR EMPLOYEES OF THE COMPANY. ASSESSING OFFICER NOTING THIS FACT THAT ON BOTH OCC ASIONS DIRECTOR ACCOMPANIED FAMILY MEMBERS CONSISTING OF WIFE AND MINOR CHILDREN, FOREIGN TRAV EL EXPENSES CANNOT BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ACCORDING LY, HE DISALLOWED 50% NOT RELATED TO ASSESSEES BUSINESS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RELYING ON EARLIER YEARS DECISION OF CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING IN PARA 23 OF HIS APPELLATE ORDER AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBMIS SION OF THE APPELLANT. IT IS FOUND THAT THE APPELLANTS CASE IS SQUARELY COVERED IN IT S OWN CASE BY THE LD. CIT(A)-XII, FOR THE ASSESSMENT YEAR 2003-04. RESPECTFULLY, FOLLOWING THE DECISION OF THE LD. CIT (A)-XII, PASSED IN THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2003-04, THE ADDITION OF RS .2,60,930/- MADE IS DELETED. ACCORDINGLY, THE GROUND NO. 5 OF THE APPELLANT IS A LLOWED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 17. WE FIND THAT FINDINGS OF ASSESSING OFFICER IS V ERY CLEAR AND CATEGORICAL THAT DIRECTORS OF ASSESSEE COMPANY WAS ACCOMPANIED WITH FAMILIES CONS ISTING OF WIVES AND MINOR CHILDREN AND EXPENSES IS ALSO INCURRED INCLUDING WIVES AND MINOR CHILDREN OF DIRECTORS. EVEN BEFORE US, ASSESSEE COULD NOT REBUT THIS FINDING. IN VIEW OF THE ABOVE, WE RESTORE THE ORDER OF ASSESSING OFFICER AND ALLOW THIS ISSUE OF REVENUES APPEAL. 9 ITA 1219/K/2009 & CO . 63/K/2009 PRACHAR COMMUNICATIONS LTD. A.Y.04-05 18. NEXT ISSUE IN THIS CROSS OBJECTION OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING DISALLOWANCE OF DONATIONS. FOR THIS, ASSESSEE HAS R AISED FOLLOWING GROUND NO.2: 2. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSING OFFICER WAS WHOLLY WRONG AND UNJUSTIFIED IN DISALLOWING THE DEDUCTION OF DONATION OF RS.1,64,705/- WITHOUT ASSIGNING ANY REASON FOR SUCH DISALLOWANCE AND WITHOUT CONSIDERING THE FACTS THAT IT WAS A REVENUE EXPENDI TURE INCURRED FOR AND IN CONNECTION WITH SMOOTH RUNNING OF THE BUSINESS AND NOT IN THE NATURE OF DONATION. THE LD. CIT(A) WAS EQUALLY WRONG AND UNJUSTIFIED IN CONFIRMING THE DISALLOWANCE IN ABSENCE OF DETAILS. ACTIONS OF BOTH THE A.O. AND THE LD. CIT(A) WERE WH OLLY UNREASONABLE, UNCALLED FOR AND BAD IN LAW. 19. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THERE IS NO DISCUSSION IN THE ASSESSME NT ORDER ON THIS ISSUE AND EVEN THE CIT(A) HAS NOTED THAT NO DETAILS IN RESPECT TO DONATIONS W ERE FILED BY ASSESSEE, BUT ASSESSEE IN HIS WRITTEN SUBMISSION MENTIONED THAT THE DETAILS WERE FILED. TO REMOVE THIS AMBIGUITY, LET THIS ISSUE BE EXAMINED BY AO AFRESH AND ASSESSEE IF WANT TO FILE DETAILS HE CAN FILE IN RESPECT OF DONATION. THE AO WILL ALSO DECIDE THE NATURE OF EXP ENDITURE. 20. IN THE RESULT, APPEAL OF REVENUE AND CO OF ASSE SSEE, ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. 21. ORDER PRONOUNCED IN OPEN COURT ON 12.8.2011 SD/- SD/- . . , ! ' '' ' # # # # , ! (S. V. MEHROTRA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( / / / /) )) ) DATED 12TH AUGUST, 2011 '01 %23 4' JD.(SR.P.S.) . 5 ,6 76'8- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT ITO, WARD-12(1), KOLKATA. 2 ,-*+ / RESPONDENT, M/S. PRACHAR COMMUNICATIONS LTD., 79, UPENDRA MITRA LANE, SALKIA, HOWRAH-711 106. 3 . .% ( )/ THE CIT(A), KOLKATA 4. .% / CIT, KOLKATA 5 . '> ,% / DR, KOLKATA BENCHES, KOLKATA -6 ,/ TRUE COPY, .%?/ BY ORDER, #3 /ASSTT. REGISTRAR .