DCIT, New Delhi V. M/s. ICRA Ltd., New Delhi

ITA 1478/DEL/2011

• Counselvise Citation: 147820114 RSA 2011
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 24-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMIR KUDSIA CAS; BIPIN AGRAW AL
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 43B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NOS. 1629 & 1478 (DEL)2011 ASSESSMENT YEARS: 2003-04 & 2004-05 DY.COMMISSIONER OF INCOME TAX, M/S.ICRA LTD., 1105,11 TH FLOOR, CIRCLE 11(1), NEW DELHI. V. KAILASH BLDG. KG MARG, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ALOK SINGH, SR. DR RESPONDENT BY: S/SHRI BIPIN AGRAW AL & SAMIR KUDSIA, CAS ORDER PER A.D. JAIN, J.M . THESE ARE DEPARTMENTS APPEALS FOR THE ASSESSMENT Y EARS 2003-04 & 2004-05. 2. GROUND GROUND NO. 1 IS COMMON TO BOTH THE APPEAL S. AS PER THE DEPARTMENT, THE LEARNED CIT(A) HAS ERRED IN DELETIN G THE ADDITION OF ` 37,17,473/- FOR THE ASSESSMENT YEAR 2003-04 AND AT ` 46,92,770/- FOR THE ASSESSMENT YEAR 2004-05, MADE BY THE AO DISALLOWING THE EXPENDITURE ON TECHNICAL KNOW-HOW FEES. ITA NOS. 1478 & 1629(DEL)2011 2 3. IN THIS REGARD, A CHART HAS BEEN FILED BY THE LE ARNED COUNSEL FOR THE ASSESSEE, POINTING OUT THAT FOR THE ASSESSMENT YEAR S 2000-01 TO 2002-03, AND 2005-06 TO 2007-08, THE CLAIM OF THE ASSESSEE REGAR DING EXPENSES ON TECHNICAL KNOW-HOW FEES WAS ALLOWED BY THE AO HIMSE LF. 4. IN THE YEARS UNDER CONSIDERATION, THE LD. CIT(A) DELETED THE DISALLOWANCE ON ACCOUNT OF TECHNICAL KNOW-HOW FEE P AID, AGREEING WITH THE STAND TAKEN BY THE ASSESSEE ON THE BASIS OF THE AGR EEMENT OF THE ASSESSEE WITH MOODYS(USA), IN WHICH, VARIOUS SERVICES TO BE RENDERED BY MOODYS WAS GIVEN. THE LD. CIT(A) HELD THAT THE SAID SERV ICES WERE IN THE NATURE OF TRAINING, ADVISING, HOLDING SEMINARS ON VARIOUS MAT TERS RELATING TO RATING AND OTHER FINANCIAL MATTERS, IN WHICH MOODYS HAD GIVEN INTERNATIONAL EXPOSURE. THE LD. CIT(A) HELD THE EXPENDITURE TO BE OF REVENU E NATURE AND THAT IT HAD HELPED THE ASSESSEE TO ENHANCE PROFESSIONAL COMPETE NCE. IT WAS HELD THAT THE SAID EXPENDITURE HAD NOT BEEN INCURRED FOR ACQUIRIN G ANY TECHNOLOGY FOR CAPITAL ASSETS AND HAD LATER BEEN INCURRED CONDUCTI NG THE BUSINESS OF THE ASSESSEE MORE EFFICIENTLY BY PROVIDING TRAINING AND OTHER INFORMATION TO ITS EMPLOYEES, EVEN THOUGH THIS EXPENDITURE HAD BEEN TE RMED AS TECHNICAL KNOWHOW FEE. THE LD. CIT(A) FURTHER HELD THAT TH IS EXPENDITURE ALSO DID NOT GIVE ANY ADVANTAGE OF ENDURING NATURE AND SO, I T COULD NOT BE CONSIDERED AS A CAPITAL EXPENDITURE. ITA NOS. 1478 & 1629(DEL)2011 3 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER BESIDES RELYING ON T HE CHART. IT HAS BEEN REITERATED THAT THE EXPENDITURE HAD BEEN INCURRED F OR BUSINESS NECESSITIES AND HAD NOT BROUGHT ANY ENDURING ADVANTAGE TO THE ASSES SEE; THAT IT WAS EXPENDED IN CONSEQUENCE WITH THE AGREEMENT WITH MOO DYS FOR VARIOUS SERVICES RENDERED BY THEM TO THE ASSESSEE IN THE FO RM OF TRAINING, ADVISING, HOLDING SEMINARS ON VARIOUS MATTERS RELATING TO RAT ING AND OTHER FINANCIAL MATTERS, IN WHICH, MOODYS HAD INTERNATIONAL EXPOSUR E. 6. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED O N THE AOS ORDERS. 7. THE AO HAD MADE THE DISALLOWANCE SINCE ACCORDING TO HIM, AS PER THE ASSESSEES OWN ADMISSION, THE EXPENDITURE HAD BEEN INCURRED ON IMPARTING TECHNICAL KNOW-HOW AND TECHNICAL COMPETENCE TO ITS WORK FORCE, WHICH, IN THE OPINION OF THE AO, CREATED AN ASSET IN THE HUMA N RESOURCES. HOWEVER, NOTHING HAS BEEN BROUGHT ON RECORD TO REFUTE THE CA TEGORICAL FINDING OF FACT RECORDED BY THE LD. CIT(A) TO THE EFFECT THAT THIS EXPENDITURE DID NOT BRING ANY ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE CO MPANY. THE PAYMENT WAS MADE UNDER AN AGREEMENT OF THE ASSESSEE WITH MO ODYS,USA, FOR DIFFERENT KINDS OF SERVICES TO BE RENDERED BY MOOD YS, I.E., THE SERVICES IN THE NATURE OF TRAINING, ADVISING, TO HOLD SEMINARS ON V ARIOUS MATTERS RELATING TO ITA NOS. 1478 & 1629(DEL)2011 4 RATING AND OTHER FINANCIAL MATTERS, IN WHICH, UNDIS PUTEDLY, MOODYS HAD INTERNATIONAL EXPOSURE. THE LD. CIT(A), IN THESE FACTS, HAS CORRECTLY HELD THAT THE EXPENDITURE WAS REVENUE EXPENDITURE INCURR ED FOR THE BUSINESS EXISTENCE OF THE ASSESSEE COMPANY, EVEN THOUGH IT W AS CALLED TECHNICAL KNOW-HOW FEE . IT IS SETTLED THAT THE TERMINOLOG Y ACCORDED IS NOT DETERMINATIVE OF THE NATURE OF THE EXPENDITURE. T HE EXPENDITURE HERE HAD NOT BEEN INCURRED FOR ACQUIRING ANY TECHNOLOGY FOR THE CAPITAL ASSETS, BUT IT WAS FOR PROVIDING TRAINING AND OTHER INFORMATION TO THE ASSESSEES EMPLOYEES. HOWEVER, IN THE EARLIER YEARS AS WELL AS THE SUBSEQUENT YEARS, I.E., ASSESSMENT YEARS 2000-01 TO 2002-03 AND 2005- 06 TO 2007-08, THE AO HAD HIMSELF ALLOWED THIS CLAIM OF THE ASSESSEE. 8. THEREFORE, FINDING NO MERIT THEREIN, THIS GROUND RAISED IN BOTH THE APPEALS BY THE DEPARTMENT IS REJECTED. 9. GROUND NO.2 IN ITA NO. 1478 (DEL)2011 FOR THE AS SESSMENT YEAR 2004-05 CONTENDS THAT THE LD. CIT(A) HAS ERRED IN D ELETING THE ADDITION OF ` 10,91,739/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE AO MADE THE DISALLOWANCE, OBSERVING THAT NO EVIDENCE HAD BEEN B ROUGHT BY THE ASSESSEE TO PROVE THE PAYMENT OF SUM FORMING PART OF THE PRI OR PERIOD EXPENSES. THE ASSESSEE HAD CONTENDED THAT IN THE COMPUTATION OF T AXABLE INCOME, THE DIFFERENCE ARISING ON ACCOUNT OF PRIOR PERIOD ADJUS TMENTS HAD NOT BEEN ITA NOS. 1478 & 1629(DEL)2011 5 FACTORED IN. THE AO FOUND THIS NOT TO BE TRUE SIN CE ACCORDING TO HIM, FROM THE COMPUTATION OF INCOME, IT WAS OBSERVED THAT A S UM OF ` 9,64,779/- STOOD DEDUCTED FROM THE TAXABLE PROFITS ON ACCOUNT OF SER VICE TAX ON INFORMATION AND ADVISORY SERVICES DIVISION FOR THE PERIOD FROM 16.8.2002 TO 31.3.2003, DEPOSITED IN 2003-04, ALLOWED U/S 43 B OF THE I.T. ACT. THIS HAS OBSERVED BY THE AO, FOUND PART OF THE AMOUNT SHOWN AS PRIOR PERIOD EXPENSES, I.E. ` 10,91,739/-. THE AO OBSERVED THAT THE AUDITORS OF THE ASSESSEE, IN COLUMN 22(B) OF THE TAX AUDIT REPORT, HAD STATED THAT THE ENTIRE SUM OF ` 10,91,739/- HAD BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. 10. WHILE DELETING THE ADDITION, THE LD. CIT(A) OBS ERVED, INTER ALIA, THAT THE LIABILITY OF PAYMENT OF THE EXPENDITURE HAD ARI SEN AND THE SAME HAD ALSO BEEN PAID DURING THE YEAR UNDER CONSIDERATION. 11. THE LD. DR HAS CONTENDED THAT WHILE WRONGLY DEL ETING THE ADDITION CORRECTLY MADE, THE LD. CIT(A) HAS FAILED TO CONSID ER THAT BEFORE THE AO, NO EVIDENCE HAD BEEN BROUGHT BY THE ASSESSEE SUPPORTIN G THE PAYMENT OF THE AMOUNT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS STRONGLY RELIED ON THE ORDER OF THE LD. CIT(A) IN THIS REGAR D, CONTENDING THAT IN THE INCOME TAX RETURN, NET PROFIT FOR THE PURPOSE OF CO MPUTATION HAD BEEN TAKEN AT ` 1,10,596.63 AND IN THE ORIGINAL ASSESSMENT ALSO, I T WAS THE SAME PROFIT ITA NOS. 1478 & 1629(DEL)2011 6 WHICH WAS CONSIDERED; THAT AS SUCH, IT IS EVIDENT T HAT THE DEDUCTION FOR THE PRIOR PERIOD ADJUSTMENT HAD NOT BEEN TAKEN INTO ACC OUNT WHILE MAKING THE COMPUTATION, AS THE PROFIT HAD BEEN TAKEN ONLY AFTE R TAX, BUT BEFORE PRIOR PERIOD ADJUSTMENT; THAT SO, WHILE REOPENING THE COM PLETED ASSESSMENT, THE AO WENT WRONG IN OBSERVING THAT THE ASSESSEE COMPAN Y HAD NOT DISALLOWED THE SAID AMOUNT OF PRIOR PERIOD EXPENSES OF ` 10,91,739/-; THAT WHILE MAKING THE ASSESSMENT U/S 148 OF THE ACT, HOWEVER, THE AO FURTHER MENTIONED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 43B OF THE A CT, AMOUNTING TO ` 9,64,779/- IN THE COMPUTATION OF INCOME, WHICH WAS INCLUDED IN THE PRIOR PERIOD EXPENSES OF ` 10,91,739/-; THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD CLAIMED A SUM OF ` 9.65 LAKHS AS DEDUCTION U/S 43 B OF THE ACT, FOR PAYMENT OF SERVICE TAX ON INFORMATION AND ADVIS ORY SERVICES DIVISION FOR THE PERIOD FROM 16.8.02 TO 31.3.03, DEPOSITED I N F.Y. 2003-04, RELEVANT TO THE ASSESSMENT YEAR 2004-05, I.E., THE YEAR UNDE R CONSIDERATION; THAT THE ASSESSEE HAD NOT MADE ANY PROVISION IN THE EARLIER YEAR FOR THE SAID AMOUNT AND THE SAME HAD BEEN REFLECTED AS PRIOR PERIOD EXP ENSES OF ` 10,91,739/-, FOR THE FINANCIAL YEAR ENDING ON 31.3.2004; THAT IN THE COMPUTATION OF INCOME, HOWEVER, DEDUCTION U/S 43 B OF THE ACT WAS CLAIMED AT ` 9,64,779/-, THOUGH THE PROFIT HAD BEEN CONSIDERED TO BE THE PR IOR PERIOD EXPENSES, SINCE ITA NOS. 1478 & 1629(DEL)2011 7 THE AMOUNT HAD BEEN PAID DURING THE ASSESSMENT YEAR UNDER CONSIDERATION; AND THAT THE EVIDENCE OF PAYMENT STOOD SHOWN ALONG WITH THE DETAILS OF PRIOR PERIOD EXPENSES OF ` 10,91,739/-. 13. IN THIS REGARD, IT IS SEEN THAT IN THE ASSESSME NT ORDER, THE AO HAS HIMSELF OBSERVED THAT THE LIABILITY FOR THE PAYMENT OF EXPENDITURE HAD ARISEN DURING THE YEAR. IT HAS BEEN NOTED AS SUCH BY THE LD. CIT(A) IN THE IMPUGNED ORDER. THIS OBSERVATION HAS NOT BEEN DISPUTED BEF ORE US. NOW, SINCE UNDISPUTEDLY THE LIABILITY FOR PAYMENT OF THE EXPEN DITURE HAD ARISEN DURING THE YEAR, OBVIOUSLY, THE EXPENDITURE COULD NOT BE D ISALLOWED. THE PAYMENT, AGAIN UNDISPUTEDLY, HAD BEEN MADE DURING THE YEAR U NDER CONSIDERATION. THEREFORE, THE LD. CIT(A) CANNOT AT ALL BE SAID TO HAVE ERRED IN ANY MANNER WHATSOEVER IN DELETING THE ADDITION MADE BY THE AO. HENCE, GROUND NO. 2 RAISED BY THE DEPARTMENT IN ITA NO. 1478 (DEL)2011 FOR THE ASSESSMENT YEAR 2004-05 ALSO HAS NO FORCE AND IS, AS SUCH, REJ ECTED. 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE DE PARTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.03.2012. SD/- SD/- (G.D. AGRAWAL) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 23.03.2012. ITA NOS. 1478 & 1629(DEL)2011 8 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR