GROUP M MEDIA INIDA P. LTD, MUMBAI V. ADDL CIT RG 7(3), MUMBAI

ITA 1306/MUM/2011

• Counselvise Citation: 130619914 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 24-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-02-2011
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA N O. 1306 / MUM/20 1 1 ( / ASSESSMENT YEAR : 200 6 - 07 ) GROUP M MEDIA INDIA PRIVATE LIMITED , COMMERZ, 8 TH FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF. WESTERN EXPRESS HIGHWAY, GOREGAON (EAST) , MUMBAI - 63 VS. ADCIT, RANGE - 7(3), MUMBAI ./ ./ PAN/GIR NO. : A A CC M 7365 H ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : MS. ARATI VISSANJI /REVENUE BY : SHRI VIJAY KUMAR BORA / DATE OF HEARIN G : 05 /0 5 / 2015 / DATE OF PRONOUNCEMENT 26/06 /2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 13 , MUMBAI , DATED 27 - 10 - 2010 FOR THE ASSESSMENT YEAR 200 6 - 07 IN THE MATTER OF ORDER PASSED U/S.14 3 (3) OF THE I.T.ACT . 2 . THE ASSESSEE IS AGGRIEVED FOR CONFIRMING DISALLOWANCE OF SOFTWARE EXPENSES BY CIT(A) HOLDING THE SAME AS CAPITAL IN NATURE. WE HAVE GONE THROUGH THE NATURE OF EXPENDITURE INCURRED AND FOUND THAT EXPENSE S INCURRED ON REGISTRATION OF DOMAIN RS. 45,000/ - WAS DISALLOWED BY THE AO ITA NO. 1306 /1 1 2 ON THE PLEA THAT SAME IS CAPITAL IN NATURE . IT W AS NOT PRESSED BY THE LD. AR, THEREFORE, THE SAME IS DISMISSED IN LIMINE. 4. WE FOUND THAT THE ASSESSEE HAS PAID RS. 58,760/ - TOWARDS D EVELOPMENT OF SOFTWARE, THE SAME IS REVENUE IN NATURE . THE EXPENDITURE OF RS.17,686/ - WAS PAD TOWARDS PURCHASE OF CARTRIDGES, WHICH IS ESSENTIAL LY RECURRING IN NATURE. THUS, THERE IS NO JUSTIFICATION FOR DISALLOWING SUCH RECURRING EXPENSES. OUR VIEW IS ALS O SUPPORTED BY THE DECISION REPORTED AT 246 ITR 183 & 357 ITR 88. 5. THE AO HAS ALSO DISALLOWED PURCHASE OF MICROSOFT SOL SERVER, WHICH IS AN OFF THE SHELF SOFTWARE LIKE MICROSOFT WINDOWS XP, WINDOW 2003, WHICH USED TO STORE LARGE NUMBER OF FILES/DATA IN A PARTICULAR FORMAT. DISALLOWANCE WAS ALSO MADE IN RESPECT OF PURCHASE OF ARCSERVE SOFTWARE, WHICH IS AN OFF THE SHELF SOFTWARE WHICH IS USED TO TAKE BACK UP OF THE DATA INTO A MEDIA. THE SOFTWARE ALLOWS THE FLEXIBILITY TO RESTORE A SINGLE FILE/DATA FROM TH E TAPE. THE AO DISALLOWED ON THE PLEA THAT THE SOFTWARE EXPENDITURE SO INCURRED ARE CAPITAL IN NATURE. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG LTD., 346 ITR 138 (BOM) , HAS HELD THAT SOFTWARE DID NOT FORM PART OF THE PROFIT - MAKING APPARATUS , IT FACILITATE THE ASSESSEES TRADING OPERATIONS OR ENABLE THE MANAGEMENT TO CONDUCT THE ASSESSEES BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY BUT IT WAS NOT IN THE NATURE OF PROFIT - MAKING APPARATUS. THEREFORE, EXPENDITURE ON SOFTWARE IS TO BE ALLOWED A S REVENUE EXPENDITURE . 6. SIMILARLY, HON BLE DELHI HIGH COURT IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD., 346 ITR 329 (DELHI) , HAS HELD THAT SOFTWARE EXPENDITURE IS ITA NO. 1306 /1 1 3 INCURRED NOT TO CREATE NEW ASSET OR A NEW SOURCE OF INCOME BUT TO UPGRADE THE SYSTEM. EV EN THE EXTENT OF EXPENDITURE IS NOT A DECISIVE FACTOR IN DETERMINING ITS NATURE. IT WAS HELD THAT SOFTWARE EXPENDITURE SO INCURRED IS REVENUE IN NATURE. 7. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF VARINDER AGRO CHEMICALS LIMITED, 309 ITR 272 (P& H), HELD THAT SINCE TECHNOLOGY IS FAST CHANGING AND DAY - BY - DAY SYSTEMS ARE BEING DEVELOPED IN A NEW WAY, SOFTWARE MAY BE NEEDED LIKE RAW MATERIAL. ACCORDINGLY COMPUTER SOFTWARE EXPENSES ARE ESSENTIALLY REVENUE IN NATURE. 8 . IN VIEW OF THE ABOVE DISCUSSIO N, FOLLOWING THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT AND OTHER HIGH COURTS AS DISCUSSED ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR TREATING SOFTWARE EXPENSES AS CAPITAL IN NATURE. ACCORDINGLY, THE A O IS DIRECTED TO ALLOW SOFTWARE EXPENSES AS REVENUE EXPENDITURE. 9 . THE ASSESSEE IS ALSO AGGRIEVED FOR DISALLOWANCE OF REPAIRS AND MAINTENANCE, RENOVATION EXPENSES BY TREATING THE SAME AS CAPITAL. THE ASSESSEE INCURRED FOLLOWING EXPENDITURE : - SR.NO. PAR TICULARS AMOUNT(RS.) (I) RAM PURCHASED 22,100/ - (II) HARD DISK DRIVE & SWITCH FOR COMPUTER 16,000/ - (III) INTERIOR WORK AT BANGALORE OFFICE 6,20,428/ - (IV) INTERIOR WORK AT BANGALORE OFFICE 50,000/ - TOTAL 7,08,528/ - ITA NO. 1306 /1 1 4 THE CONTENTION OF AO WAS THAT T HE SAID EXPENSES ADD ON THE COST OF THE SYSTEM AND IN TURN GIVES BENEFIT OF ENDURING NATURE TO THE ASESSEES BUSINESS. 10 . WE HAVE CONSIDERED RIVAL CONTENTION AND FOUND THAT T HE AMOUNT INCURRED ON PURCHASE OF RAM AND HARD DISK DRIVE AMOUNTING TO RS.22,100 / - AND RS.16,000/ - IS RECURRING IN NATURE AND NO ADVANTAGE OF ENDURING BENEFIT IS ACHIEVED BY THE ASSESSEE. ACCORDINGLY, THERE IS NO JUSTIFICATION FOR TREATING THE SAME AS CAPITAL EXPENDITURE. IN REGARD TO THE EXPENDITURE INCURRED ON INTERIOR WORK DONE AT BANGALORE OFFICE NO NEW ASSET WAS CREATED BUT EXPENDITURE WAS MADE TO HAVE A BETTER LOOK AND FACILITATE EFFICIENT WORKING IN THE OFFICE OF THE RENTED PREMISES. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES FOR TREATING THESE EXPENSES AS CAPITAL IN NATURE. 1 1 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26/06 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 26/06 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//