M/s.Bajaj Consumer Care Ltd., Hyderabad V. Dy. Commissioner of Income Tax, Hyderabad

ITA 1367/HYD/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3069 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 16-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 17-10-2013
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Keywords: Business income; Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND S HRI S .S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1 36 7/HYD/201 3 ASSESSMENT YEAR: 200 6 - 0 7 M/S. BAJAJ CONSUMER CARE LIMITED, (NOW KNOWN AS BAJAJ RESOURCES LIMITED) HYDERABAD [PAN: AA ACD8001D ] VS DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1 ( 3 ), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SANDEEP JHANWAR , AR FOR REVENUE : SMT. VASUNDHARA SINHA, DR DATE OF HEARING : 1 6 - 0 2 - 201 6 DATE OF PRONOUNCEMENT : 19 - 0 2 - 201 6 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - V, HYDERABAD DT. 31 - 07 - 2013. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: I . T . A . NO. 1367 / HYD / 201 3 : - 2 - : 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE ORDER PASSED U/S. 143(3) R.W.S. 147/148 IS BAD IN LAW AND THE LD. CIT(A) HAS ERRED IN NOT QUASHING THE SAME. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE LD. COMMISS IONER OF INCOME TAX (APPEALS) - V, HYDERABAD HAS ERRED IN CONFIRMING THAT THE F OLLOWING SUMS TOTALING RS. 7,16,650/ - DEBITED UNDER THE HEAD SOFTWARE MAINTENANCE AND DEVELOPMENT EXPENSES ARE OF CAPITAL NATURE: I. PAID TOWARDS PURCHASE OF CITRIX RS. 3,08,400/ - II. PAID FOR WINDOWS SERVER STD.2003 RS. 4,08,650/ - AND THEREBY CONFIRMING THEIR DISALLOWANCE IN RE - ASSESSMENT OF TOTAL INCOME. 3. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE LD. COMMISSIONER OF INCOME TAX (APPEALS) - V, HYDERABAD HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 9,33,339/ - IN RESPECT OF DEPRECIATION ON BUILDING. HE HAS ALSO ERRED IN GIVING THE FINDING THAT THE ASSESSEE HAD AGREED BEFORE THE AO FOR THE SAID DISALLOWANCE IN THE COURSE OF ASSESSMENT PROCEEDINGS. 2. IN THE COURSE OF PRESENT HEARING, LD. COUNSEL HAS NOT PRESSED GROUND NO.1 ON THE ISSUE OF JURISDICTION. A CCORDINGLY, THE SAME IS TREATED AS WITHDRAWN. 3. GROUND NO. 2 PERTAINS TO THE ISSUE OF TREATING SOFTWARE PURCHASED AS CAPITAL EXPENDITURE. ASSESSING OFFICER (AO) NOTICED THAT ASSESSEE HAS PURCHASED CERTAIN SOFTWARE AMOUNTING TO RS. 7,16,6 50/ - AND TREATED THE SAME AS CAPITAL EXPENDITURE BUT ALLOWED DEPRECIATION THEREON . THEREF ORE, THE NET DISALLOWANCE MADE WA S TO THE EXTENT OF RS. 5,01,655/ - . IT WAS CONTENDED BEFORE THE LD. CIT(A) THAT THE EXPENDITURE IS OF REVENUE NATURE A ND IS NOT OF CAPITAL NATURE AND PARTICULARLY , THESE ARE USED ON THE EXISTING PACKAGES AND SO ACTION OF THE AO IS NOT CORRECT. LD. CIT(A) HOWEVER, CONSIDERED THAT ASSESSEE HAS NOT BROUGHT ANY EVIDENCE TO ADDUCE THE SAME WERE IN FACT REVENUE IN NATURE. CONSEQUENTLY, HE UPHELD THE SAME. ASSESSEE IS AGGRIEVED. I . T . A . NO. 1367 / HYD / 201 3 : - 3 - : 3.1 . LD. COUNSEL SUBMITTED THAT ASSESSEE HAS PURCHASED CITRIX PACKAGE FOR ALLOWING ACCESS TO ACCOUNTING SOFTWARE THROUGH THE INTERNET. IT WAS SUBMITTED THAT LIFE OF CITRIX PACKAGE IS VERY SHORT AND IT REQUIRES TO BE UPDATED FROM TIME TO TIME. THE OTHER SOFTWARE PURCHASED I S WINDOWS SERVER STD.2003 WHICH HAS REPLACED THE EARLIER OPERATING SOFTWARE AND IT WAS ALSO SUBMITTED THAT WINDOWS SERVER STD.2003 SOFTWARE ITSELF WAS UPDATED IN THE NEXT YEAR BY PURCHASE OF W INDOWS 200 7. IN ADDITION TO THE FACTUAL MATRIX, LD. COUNSEL ALSO RELIED ON THE CO - ORDINATE BENCH DECISION IN THE CASE OF K.L. HI TECH SECUR E PRINT LTD., VS. JCIT [61 TAXMANN.COM 449] AND JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN TH E CASE OF CIT VS. AMWAY INDIA ENTERPRISES [22 TAXMANN.COM 22 ]. LD. DR HOWEVER, RELIED ON THE ORDER OF THE AO AND CIT(A). 3. 2 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND EXAMINED THE DETAILS ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT TH AT THESE TWO SOFTWARES ARE USED ON EXISTING SOFTWARE AND LIFE OF THEM IS VERY SHORT. NO NEW ASSET HAS BEEN CREATED BY PURCHASE OF THESE SOFTWARE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE EXPENDITURE IS REVENUE IN NATURE. MOREOVER, WE ALSO NOTICED THAT ON A SIMILAR DISALLOWANCE MADE IN EARLIER AY. 2004 - 05, THE LD. CIT(A) FOLLOWING THE VARIOUS DECISIONS CONSIDERED THAT EACH AND EVERY SOFTWARE PURCHASED NEED NOT BE A CAPITAL EXPENDITURE AND ON THE FACTS OF THE CASE, AS ASSESSEE SPENT AN AMOUNT TOWARD S PURCHASE/DEVELOPMENT OF SOFTWARE , ALLOWED THAT TO BE REVENUE IN NATURE. THIS ORDER OF CIT(A) WAS NOT CONTESTED BY THE REVENUE. SINCE THERE ARE VARIOUS DECISIONS , NOT ONLY RELIED ON BY ASSESSEE ABOVE BUT ALSO FROM VARIOUS CO - ORDINATE BENCHES AS WELL AS F ROM THE HIGH COURTS, WE ARE OF THE OPINION THAT THE UP - I . T . A . NO. 1367 / HYD / 201 3 : - 4 - : GRADATION OF TECHNOLOGY IN PURCHASE OF SOFTWARE FOR BETTER USE OF THE EXISTING SOFTWARE CANNOT BE CONSIDERED AS CAPITAL IN NATURE. FOLLOWING THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH OF ITAT IN THE CASE OF CIT VS. AMWAY INDIA ENTERPRISES [22 TAXMANN.COM 22] (SUPRA), AS UPHELD BY THE HON'BLE DELHI HIGH COURT, WE ARE OF THE OPINION THAT THE EXPENDITURE CLAIMED IS REVENUE IN NATURE. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE PURCHASE OF SOFTWAR E DURING THIS YEAR BY ASSESSEE CANNOT BE TREATED AS CAPITAL IN NATURE AND THEREFORE, WE DIRECT THE AO TO ALLOW THE SAME AS REVENUE IN NATURE . WHATEVER DEPRECIATION WAS ALLOWED HA S TO BE WITHDRAWN. THIS GROUND IS ACCORDINGLY ALLOWED. 4. THE NEXT ISSU E PERTAINS TO THE CLAIM OF DEPRECIATION ON A BUILDING WHICH WAS LET OUT. ASSESSEE HAS LET OUT A PROPERTY WHICH WAS USED FOR BUSINESS PURPOSES IN EARLIER YEARS AND OFFERED THE INCOME UNDER THE HEAD HOUSE PROPERTY. AO NOTICED THAT ASSESSEE CLAIMED DEPREC IATION OF RS. 9,33,339/ - ON THE LET OUT PROPERTY IN THE DEPRECIATION SCHEDULE OUT OF THE BUSINESS INCOME. WHEN POINTED OUT, ASSESSEE AGREED FOR DISALLOWANCE OF THE ABOVE AMOUNT. HOWEVER, IN APPEAL, IT WAS CONTENDED THAT THE DEPRECIATION CANNOT BE DISALLOW ED , SINCE THE ASSET HAS BECOME PART OF BLOCK OF ASSETS AND THEREFORE, ASSESSEE WAS CORRECT IN CLAIMING THE DEPRECIATION. LD. CIT(A) HOWEVER, DISMISSED ASSESSEES CONTENTIONS ON THE REASON THAT ASSESSEE IN FACT AGREED FOR THE ABOVE ADDITION IN THE COURSE O F ASSESSMENT PROCEEDINGS. 4.1 . BEFORE US, LD. COUNSEL SUBMITTED THAT BUILDING HAS BECOME PART OF THE BLOCK OF ASSET AND ONCE IT BECOMES PART OF THE BLOCK OF ASSET S , THE IDENTITY HAS BEEN LOST AND ASSESSEE IS CORRECT IN CLAIMING THE DEPRECI ATION. WHEN SP ECIFICALLY ASKED WHETHER THE I . T . A . NO. 1367 / HYD / 201 3 : - 5 - : SAID ASSET WAS USED FOR THE PURPOSE OF BUS INESS, I T WAS FAIRLY ADMITTED THAT THE BUILDING WAS USED FOR THE PURPOSE OF LET OUT, WHOSE INCOME WAS ASSESSED UNDER THE HEAD HOUSE PROPERTY. LD. DR PLACED ON RECORD THE ORDER SHEET COPY WHEREIN ASSESSEE HAS FAIRLY AGREED FOR DISALLOWANCE OF THE ABOVE AMOUNT VIDE ENTRY DT. 30 - 11 - 2011 AND FURTHER SUBMITTED THAT SINCE THE ASSET WAS NOT USED FOR THE PURPOSE OF BUSINESS, DEPRECIATION CANNOT BE ALLOWED. 4.2 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS TRUE THAT WHILE COMPUTING THE BUSINESS INCOME, DEPRECIATION HA S TO BE ALLOWED ON THE BLOCK OF ASSETS AND THERE IS CONSIDERABLE CASE LAW ON THE SUBJECT THAT ONCE AN ASSET BECOME S PART OF THE BLOCK OF ASSET I NDIVIDUAL USE OF THE ASSET IS NOT REQUIRED TO BE CONSIDERED WHILE ALLOWING DEPRECIATION. HOWEVER, THOSE PRINCIPLES LAID DOWN SO RELIED UPON BY ASSESSEE , DOES NOT APPLY TO THE FACTS OF THE CASE. THERE IS NO DOUBT THAT THIS ASSET HAS BECOME PART OF THE BLOCK TILL LAST YEAR, BUT ASSESSE E HAS LET OUT THE SAME DURING THE YEAR AND OFFERED INCOME THEREON UNDER THE HEAD HOUSE PROPERTY. WHILE COMPUTING THE INCOME UNDER HOUSE PROPERTY, NO DEPRECIATION ON BUILDING IS SPECIFICALLY ALLOWED, BUT A DEDUCTION TOWARDS REPAIRS AND OTHERS WAS ALLOW ED AT A FIXED PERCENTAGE (I.E., 25 TO 33 1/3 %). THEREFORE, SINCE ASSESSEES COMPUTATION OF INCOME ON THE LEASED PROPERTY IS UNDER THE HEAD HOUSE PROPERTY, THE DEPRECIATION ON T HE BUILDING CANNOT BE ALLOWED UNDER THE BUSINESS HEAD. MOREOVER, ASSESSEE A LSO AGREED THE SAME BEFORE THE AO. LD. COUNSELS CONTENTION THAT THE ASSET CANNOT BE SEGREGATED OUT OF THE BLOCK HAS NO RATIONALE AS EACH OF THE ASSET IN THE BLOCK CAN BE IDENTIFIED AND THE VALUE THEREON CANNOT BE EXCLUDED , IN THE EVENT OF PARTICULAR ASSE T WAS NO LONGER USED FOR THE PURPOSE OF BUSINESS OR SOLD, TRANSFERRED, DISCARDED ETC . IN VIEW OF THIS, WE SEE NO I . T . A . NO. 1367 / HYD / 201 3 : - 6 - : REASON TO INTERFERE WITH THE ORDER OF THE AO AND CIT(A). ASSESSEES GROUND ON THIS ISSUE IS DISMISSED. 5 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRU ARY , 201 6 SD/ - SD/ - (S.S. VISWANETHRA RAVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 19 TH FEBRUARY, 2016 TNMM COPY TO : 1. M/S. BAJAJ CONSUMER CARE LIMITED (NOW KNOWN AS BAJAJ RESOURCES LIMITED) C/O. M/S. O.P. BANG & CO., CHARTERED ACCOUNTANTS, 102, 1 ST FLOOR, LAXMI ARCADE, VITTALWADI X ROAD, NARAYANGUDA, HYDERABAD. 2 . DY. COMMISSIONER OF INCOME TAX, CIRCLE - 1 (3) , HYDERAB AD. 3. CIT(A) - V , HYDERABAD. 4. THE CIT - I, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.