DCIT, New Delhi V. M/s Technovate eSolutions Pvt. Ltd., New Delhi

ITA 135/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3661 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 20-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Revision of order; Depreciation; Revenue expenditure; Capital expenditure
• Section: 10B; 263

Judgement Text

ITA NO. 135/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 135/DEL/2011 A.Y. : 2003-04 DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI VS. M/S TECHNOVATE ESOLUTIONS PVT. LTD., 34-36, OKHLA INDUSTRIAL AREA, PHASE-III, NEW DELHI 110 020 (PAN : AABCT 4147 K) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : NONE DEPARTMENT BY : MS. MONA MOHANTY, D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 21.10. 2010 PERTAINING TO ASSESSMENT YEAR 2003-04. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN ALLOWING THE CLAIM OF ASSESSEE O F EXEMPTION U/S. 10A OF THE IT ACT. ITA NO. 135/DEL/2011 2 3. IN THIS CASE THE ASSESSEE COMPANY CLAIMED EXEMPTIO N U/S 10A OF THE ACT AMOUNTING TO ` 1,18,05,695/-. THE ASSESSE E COMPANY ALSO FURNISHED COPY OF REGISTRATION ISSUED BY THE SOFTW ARE TECHNOLOGY PARKS OF INDIA (STPI) IN SUPPORT OF THE SAID EXEMPTION . THE ASSESSING OFFICER REJECTED THE CLAIM U/S. 10A OF THE ACT O N THE GROUND THAT APPROVAL FROM STPI IS NOT A PROPER APPROVAL FROM S PECIFIED AUTHORITY. THE ASSESSING OFFICER WAS OF THE OPINION THAT ONLY THE INTER MINISTERIAL STANDING COMMITTEE IS THE BODY COMPETENT TO GRANT APP ROVAL TO UNITS OF STPS FOR THE PURPOSE OF DEDUCTION U/S. 10 OF TH E IT ACT. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED THE TRIBUNALS DECISION IN THE CASE OF DCIT V. VALIANT COMMUNICATION LTD. [2010]-TIOL-452-ITAT-DEL) AND OBS ERVED THAT ON SIMILAR SET OF FACTS, THE TRIBUNAL HAD OBSERVED AS UNDER:- 6. AS PER ABOVE ORDER OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS), WE FIND THAT THIS ISSUE HAS BEEN DECIDE D BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE BASI S OF INSTRUCTION NO. 1 DATED 31.3.2006 ISSUED BY CBDT AND MINUTES OF INDUSTRIAL MINISTERIAL COMMUNICATION VIDE LETTER DATED 23.3.2006 ISSUED BY THE MINISTRY OF COMMUNICATI ON AND TECHNOLOGY. REGARDING THE TRIBUNAL DECISION IN THE CASE OF INFOTECH ENTERPRISES PVT. LTD. (SUPRA) IT IS OBSE RVED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THIS DE CISION HAS NO APPLICATION IN THE PRESENT CASE BECAUSE THAT TRIBUNAL ITA NO. 135/DEL/2011 3 DECISION WAS RENDERED PRIOR TO INSTRUCTION NO. 1 DA TED 31.3.2006 ISSUED BY THE CBDT. BEFORE US, RELIANCE WAS PLACED ON THE TRIBUNAL DECISION RENDERED IN CASE OF ITO VS REGANCY CREATIONS LTD. IN ITA NO. 4006/DEL/2006 DAT ED 13.4.2006 AND COPY OF THIS TRIBUNAL DECISION HAS BEEN SUBMITTED. IN THIS TRIBUNAL DECISION, IT WAS HELD THAT REGISTRATION GRANTED BY STPI FOR SETTING UPTO OF 100 % EOU UNDER SOFTWARE TECHNOLOGY PARK SCHEME IS VALID FOR ALLOWING DEDUCTION U/S 10B. THE RELEVANT PARA OF T HIS TRIBUNAL DECISION IS PARA NO. 5 WHICH IS REPRODUCED BELOW:- WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT THE ASSESSEE HAS ESTABLISHED A SOFTWARE DIVISION UNDER THE NAME AND STYLE OF MAXTECH SOLUTIONS WHICH WAS APPROVED AND REGISTERED WITH THE STPI, A UNIT OF MINISTRY OF INFORMATION AND TECHNOLOGY. THIS IS A NODAL AGENCY FOR GRANT OF APPROVAL FOR ESTABLISHMENT OF 100% EXPORT ORIENTED SOFTWARE. AS PER THE PERMISSION LETTER DATED 7 TH NOVEMBER, 2006 AS PLACED ON THE RECORD, WE FOUND THAT STPI HAD GRANTED REGISTRATION TO THE ASSESSEE VIDE LETTER DATED 5.12.2000 FOR SETTING UP OF A 100% EOU UNDER SOFTWARE TECHNOLOGY PARK SCHEME WHICH WAS VALID FOR 5 YEARS. THE ASSESSEE WAS GRANTED EXTENSIONS TO CONTINUE THE OPERATIONS UNDER SOFTWARE TECHNOLOGY PARK SCHEME UPTO 31.3.2009. CBDT IN ITS CIRCULAR NO. 149/194/2004/TPL DATED 6.1.2005 AND CIRCULAR ITA NO. 135/DEL/2011 4 NO. 200/20/2006/INCOME TAX ACT, 1961 DATED 31.3.2006 HAS DIRECTED TO TREAT THE GRANT OF REGISTRATION BY STPI AS VALID AGENCY FOR PURPOSES OF SECTION 10B. SINCE THE FACTS ARE IDENTICAL IN THE PRESENT CASE , THIS TRIBUNAL DECISION RENDERED IN THE CASE OF REGENCY CREATIONS LTD. (SUPRA) IS DIRECTLY APPLICABLE IN THE PRESENT CASE AND RESPECTFULLY FOLLOWING THIS TRIBUNAL DECIS ION, WE HOLD THAT THE STPI REGISTRATION GRANTED TO THE ASSES SEE ON 16.11.1998 IS VALID FOR ALLOWING DEDUCTION TO THE A SSESSEE U/S 10B AND HENCE WE DO NOT FIND ANY REASON TO INT ERFERE IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. WE WOULD ALSO LIKE TO P OINT OUT THAT IN AN EARLIER YEAR I.E. ASSESSMENT YEAR 2004-05 , THE ASSESSING OFFICER HIMSELF HAS ALLOWED DEDUCTION U /S 10B TO THE ASSESSEE IN A SCRUTINY ASSESSMENT. IT IS ALSO NO T BROUGHT ON RECORD BY THE REVENUE THAT THIS ORDER IS REVI SED U/S 263 OR REOPENED U/S 147. UNDER THESE FACTS, WE FEEL TH AT HAVING DECIDED IN ASSESSMENT YEAR 2004-05 THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B, IT CANNOT BE DENIE D IN THIS SUBSEQUENT YEAR ON THE BASIS THAT THE ASSESSEE IS N OT AN 100% EOU FOR THE REASON THAT NECESSARY APPROVAL IS NOT WITH THE ASSESSEE. THIS IS AGAINST THE RULE OF CONS ISTENCY. FOR THIS REASON ALSO, WE DECLINE TO INTERFERE IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ITA NO. 135/DEL/2011 5 4.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT ASSESSEE WAS ELIGIBLE FOR DEDUC TION U/S. 10A. 5. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E. NONE APPEARED ON BEHALF OF THE ASSESSEE. 7. UPON CAREFUL CONSIDERATION, WE FIND THAT THE MATT ER CAN BE DISPOSED OF BY HEARING THE LD. DEPARTMENTAL REPRESENT ATIVE. 7.1 LD. DEPARTMENTAL REPRESENTATIVE IN THIS CONNECT ION COULD NOT CONTROVERT THE FINDING OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS) THAT ON IDENTICAL ISSUE AS IN THIS CASE THE TRIBUNA L HAS GRANTED RELIEF TO THE ASSESSEE IN THE CASE OF CITED ABOVE. SHE ONLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER . 7.2 UPON CAREFUL CONSIDERATION, WE FIND THAT THE IS SUE INVOLVED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS DECISION CITED ABOVE. RESPECTFULLY, FOLLOWING THE PRECEDENT, W E DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS), HENCE, WE CONFIRM THE SAME. 8. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF ` 11,80,232/- TREATED ITA NO. 135/DEL/2011 6 BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE O N PURCHASE OF SOFTWARE. 9. DURING THE PRESENT FINANCIAL YEAR THE ASSESSEE CO MPANY INCURRED EXPENDITURE ON PURCHASE OF SOFTWARE AMOUNTING TO ` 85,17,232/- OUT OF WHICH EXPENDITURE INCURRED ON PURCHASE OF SOFTWA RE LIKE ERP PACKAGE, ARC SERVE, CAL LICENSE ETC., AMOUNTED TO ` 73,37,020/-. SINCE THESE SOFTWARE SUPPORT BUSINESS OPERATIONS O F THE ASSESSEE, ASSESSEE CAPITALIZED THE WHOLE AMOUNT PERTAINING TO THESE SOFTWARES. THE BALANCE AMOUNT OF ` 11,80,232/- WAS BOOKED AS REVENUE EXPENDITURE AS THIS AMOUNT WAS USED TO PURCHASE THE SOFTWARE THAT ARE SUPPORTIVE ONLY FOR RUNNING THE MAIN SOFTWARE. THE ASSESSING OFFICER TREATED THIS EXPENDITURE AMOUNTING TO ` 1 180232/- AS CAPITAL EXPENDITURE AND ADDED BACK TO SOFTWARE EXPENDITURE AMOUNTING TO ` 4,72,092/- AFTER PROVIDING DEPRECIATION ON THE SOFT WARE @60%. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION O F THE ASSESSEE THAT THESE SOFTWARES WERE SUPPORTIVE ONLY FOR RUNNING TH E MAIN SOFTWARE AND NOT USED FOR RUNNING THE BUSINESS APPLICATION AND THESE SOFTWARE HAS NO ROLE IN THE OPERATION OF BUSINESS. 10. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL S), IT WAS SUBMITTED THAT THE EXPENDITURE IN QUESTION WERE SUPPORTIVE ONLY FOR RUNNING THE MAIN SOFTWARE. THE EXPENDITURE WAS N OT INCURRED FOR ITA NO. 135/DEL/2011 7 ACQUIRING AN ASSET. THE EXPENDITURE WAS INCURRED TO KEEP THE SERVICES GOING ON. THE EXPENDITURE WAS INCURRED TO KEEP PACE WITH THE TECHNOLOGICAL DEVELOPMENT IN THIS FIELD. 10.1 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOM E TAX (APPEALS) REFERRED THE DECISION IN THE CASE OF C. I.T. VS. GE CAPITAL SERVICES LTD. WHEREIN THE HONBLE HIGH C OURT HAS OBSERVED AS UNDER:- 3. THE ONLY QUESTION THAT HAS ARISEN IN THIS CASE PERTAINING TO THE ASSESSMENT YEAR 1997-98 IS THAT EXPENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE WA S TREATED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. THE TRIBUNAL WAS OF THE VIEW THAT DUE TO TECHNOLOGICAL CHANGES AND THE NEED TO UPGRADE THE SOFTWARE ON A REGULAR BASIS IT CANNOT BE SAID THAT THE SOFTWARE WAS OF AN ENDURING NATURE. 4. WE ARE INFORMED THAT THE SOFTWARE FOR WHICH THE EXPENDITURE WAS INCURRED WAS MS OFFICE, WHICH IS NO T A CUSTOM BUILT SOFTWARE FOR THE ASSESSEE AND IT IS COMMON KNOWLEDGE THAT THIS SOFTWARE REQUIRES REGULAR UPGRADATION. 5. WE CAN UNDERSTAND THAT WHERE CUSTOMIZED SOFTWARE IS PREPARED, THEN IT COULD BE OF AN ENDURING NATURE, B UT IN THIS CASE MS OFFICE IS NOT CUSTOMIZED SOFTWARE AN D ITA NO. 135/DEL/2011 8 IT CANNOT BE SAID THAT THE SOFTWARE DOES NOT REQUI RE FREQUENT UPGRADATION. 10.2 CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCO ME TAX (APPEALS) HELD THAT AFTER GOING THROUGH THE EXPENDI TURE, NATURE OF BUSINESS AND THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT AS CITED ABOVE, THE ENTIRE EXPENDITURE IS TO BE CONSIDERE D AS REVENUE EXPENDITURE. THE ACTION OF THE ASSESSING OFFICER IN TREATING A PART OF THE EXPENDITURE AS CAPITAL EXPENDITURE IS NOT APPRO VED. 11. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BE FORE US. 12. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATI VE. NONE APPEARED ON BEHALF OF THE ASSESSEE. 12.1 LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTR OVERT THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND T HE CASE LAW RELIED UPON BY HIM. SHE ONLY RELIED UPON THE ORDER O F THE ASSESSING OFFICER IN THIS REGARD. 12.2 UPON CAREFUL CONSIDERATION, WE FIND THAT THE L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT THE NATURE OF EXPENDITURE AND THE NATURE OF ASSESSEES BUSINESS EXHIBIT THAT THE EXPENDITURE DID NOT BRING INTO EXISTENCE ANY CAPITA L ASSET. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY OR ILLEG ALITY IN THE ORDER OF ITA NO. 135/DEL/2011 9 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND HENC E, WE UPHOLD THE SAME. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/6/2011 UPO N CONCLUSION OF HEARING. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 20/6/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES