DCIT, New Delhi V. M/s. CMYK Printech Ltd., New Delhi

ITA 1550/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3525 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANISH GUPTA
• Assessee Lawyers: VAID JAIN
• Keywords: Depreciation; Business expenditure; Deemed to accrue or arise in india; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH-B, NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A.NOS.1549 & 1550/DEL/2010 ASSESSMENT YEARS 2003-04 & 2004-05 DY. COMMISSIONER OF INCOME TAX, VS. C.M.Y.K. PRINTE CH LTD. CIRCLE-3 (1), H.NO.33A, LANE NO.10-C, NEW DELHI. SAINIK FARMS, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANISH GUPTA, SR. D.R. RESPONDENT BY : CA VAID JAIN & MS RANO JAIN O R D E R PER SHAMIM YAHYA, AM: THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE COMMON ORDER OF CIT(A)-VI, NEW DELHI DATED 5.1.2010 PERTAI NING TO ASSESSMENT YEARS 2003-04 AND 2004-05. SINCE ISSUES INVOLVED AR E COMMON AND INTERCONNECTED, THESE WERE HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. ONE COMMON ISSUE RAISED PERTAINS TO DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION O N WEBSITE. 3. ON THIS ISSUE THE AO OBSERVED THAT ASSESSEE HAD CAPITALIZED WEBSITES AND CLAIMED DEPRECIATION @ 60% ON WRITTEN DOWN BASIS. HE ITA NOS.1549 & 1550/DEL/2010 2 OPINED THAT INCOME-TAX ACT DID NOT PROVIDE FOR TREA TMENT OF EXPENSES ON WEBSITES. ASSESSEE SUBMITTED VIDE LETTER DATED 03. 03.2006 BEFORE THE AO AS UNDER:- THAT THE ASSESSEE CO. IS ENGAGED IN THE BUSINESS O F PUBLICATION OF DAILY ENGLISH NEWS PAPER NAMELY THE PIONEER A FAMOUS DAILY ENGLISH NEWSPAPER FOR THE L AST 140 YEARS. THE CO. INCURRED AN AMOUNT OF RS.2,07,76,91 1/- RELATING TO THE EXPENSES OF DEVELOPMENT WEBSITE, NA MED WWW.DAILVPIONEER.COM IN THE PREVIOUS YEAR AND SHOWN WIP, HAS BEEN CAPITALIZED UNDER THE HEAD COMPUTER, DURIN G THE YEAR UNDER ASSTT. WHICH IS EVIDENT FROM THE DETAIL S OF ADDITION TO FIXED ASSETS FILED BEFORE YOUR HONOUR EARLIER. AS PER THE GUIDANCE NOTE ISSUED BY THE ICAI REGARDING TREATMEN T OF EXPENSES (REVENUE) OF WEBSITE THERE ARE TO BE AMORT ISED OVER A PERIOD OF TWO YEARS I.E. 50% OF IT I.E. RS.1,03,8 8,455/- IS TO BE ALLOWED AS THE EXPENSES OF THIS YEAR. THE ASSES SEE HAS CAPITALIZED THE SAID EXPENSES UNDER THE HEAD COMPUT ER AND CLAIMED DEPRECIATION @ 60% I.E. A SUM OF RS.1,24,66 ,146/- HAS BEEN CLAIMED. AO ANALYSED THE EFFECT OF BOTH THE TREATMENTS AND O BSERVED AS UNDER:- AS PER GUIDANCE NOTE AS PER CLAIMED BY A NET EFFECT AY 03-04(31.03.03) 10388455 12466146 2077691 EXCESS CLAIMED AY 04-05(31.03.04) 10388456 4986458 5401998 LESS CLAIMED AY 05-06(31.03.05) NIL 1994583 1994583 EXCESS CLAIMED ASSESSEE FURTHER SUBMITTED THAT THESE EXPENSES WERE IN THE NATURE OF PREPARATION OF FEASIBILITY REPORT, MARKET SURVEY BY PROFESSIONAL GROUPS, DEVELOPMENT OF SOFTWARE, DRAFTING OF LEGAL DOCUMENT S FOR REGISTRATION OF PORTALS, PRINTING AND OTHER RELATED EXPENSES, MARKE TING EXPENSES OF PORTAL ITA NOS.1549 & 1550/DEL/2010 3 ETC. AND ACCORDINGLY REQUESTED TO TREAT THE ABOVE A MOUNT AS DEFERRED REVENUE EXPENDITURE AND FURTHER REQUESTED TO ALLOW DEDUCTION U/S 35D OF THE ACT. ASSESSEE ALSO FURNISHED DETAILS OF THE EX PENDITURE 4. FROM THE ABOVE, AO OBSERVED THAT THE ASSESSEE OU T OF THE TOTAL EXPENSES AMOUNTING TO RS.2,08,93,164/- HAS INCURRED ONLY RS.58,07,758/- ON PORTAL DEVELOPMENTS AND BALANCE WAS INCURRED ON PERSONAL EXPENSES, INTEREST AND FINANCIAL EXPENSES, EDITORIAL EXPENSES , ADMINISTRATIVE EXPENSES AND DEPRECIATION. AO FOUND THAT IT WAS SE EN FROM THE DETAILS FURNISHED THAT THESE EXPENSES WERE NOT COVERED U/S 35D OF THE ACT AND HENCE NOT ALLOWABLE. AO FURTHER OBSERVED THAT ASSE SSEE VIDE LETTER DATED 13.3.2006 HAD STATED THAT DEVELOPMENT OF PORTALS WA S AN INTEGRAL PART OF THE STRATEGY OF EXPANSION OF BUSINESS OF THE ASSESS EE-COMPANY AND HENCE SHOULD BE ALLOWED TO BE TREATED AS A PLANT. AO WAS OF THE OPINION THAT THE SAME CANNOT BE TREATED AS PLANT. AO OPINED THAT AS SESSEE HAD ADOPTED TWO YARDSTICKS ON ONE SIDE SUBMITTED GUIDELINES I SSUED BY THE ICAI WHEREIN IT WAS MENTIONED THAT THE COST ON WEBSITE SO ACCUMULATED SHOULD BE SHOWN AS DEFERRED REVENUE EXPENDITURE UNDER THE HEAD MISCELLANEOUS EXPENSES AND SHOULD BE AMORTIZED ON A SYSTEMATIC A ND RATIONAL BASIS OVER A PERIOD NOT EXCEEDING TWO YEARS AND ON THE OT HER SIDE THE ASSESSEE ITSELF HAS NOT ADOPTED THESE GUIDELINES AND TREATED THE WEBSITE UNDER BLOCK COMPUTER AND ACCORDINGLY CLAIMED 60% DEPRECIATION O N THE SAME. THE AO FURTHER OPINED THAT THE DEFINITION OF COMPUTE AN D SOFTWARE DOES NOT INCLUDE WEBSITE AND HENCE DEPRECIATION WAS NOT ALLO WABLE. ITA NOS.1549 & 1550/DEL/2010 4 5. UPON ASSESSEES APPEAL, THE LD. CIT(A) ELABORATE LY CONSIDERED THE ISSUE AND CONCLUDED AS UNDER:- IT IS EVIDENT FROM THE ABOVE THAT THE TERM COMPU TER SOFTWARE HAS A VAST APPLICATION AND IT TAKES INTO ITS AMBIT ANY COMPUTER PROGRAMME RECORDED ON ANY INFORMATION STORAGE DEVIC E. LOOKING INTO THE FACTS OF THE PRESENT CASE, THE COMPOSITE C OMPUTER SOFTWARE OF DAILYPIONEER.COM IS A COMPUTER SOFTWARE ENTITL ED FOR DEPRECIATION U/S 32 OF I.T. ACT. HENCE, THE ASSESSING OFFICER I S DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT AFTEER MAKING NECESSARY VERIFICATION OF THE AMOUNTS CAPITALIZED. AGAINST THE ABOVE ORDER, REVENUE IS IN APPEAL BEFOR E US. 6. LD. D.R. RELIED UPON ORDERS OF AUTHORITIES BELOW . 7. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO 60% DEPRECIATION ON COMPUTER SOFTWARE INASMUCH A S WEBSITE IS NOTHING BUT A COMPUTER PROGRAMME RECORDED ON A STORAGE DEVI CE AND AS SUCH COVERED WITHIN THE MEANING OF SOFTWARE AND ELIGIBLE DEDUCTION. HE HAS FURTHER CONTENDED THAT IN CASE THE CONTENTION OF TH E REVENUE THAT WEBSITE IS NOT COVERED WITHIN THE MEANING OF SOFTWARE, EXPENDI TURE ON WEBSITE WILL BE REVENUE EXPENDITURE ON WHICH 100% IS ALLOWABLE IN T HE VERY FIRST YEAR AS PER DELHI HIGH COURT ORDER IN THE CASE OF CIT V. IN DIAN VISIT.COM (P) LTD., (2008) 13 DTR 258 (DEL). 8. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT HON'BLE DELHI HI GH COURT IN THE DECISION, CITED SUPRA, HAS HELD AS UNDER:- ITA NOS.1549 & 1550/DEL/2010 5 BUSINESS EXPENDITURE-CAPITAL OR REVENUE EXPENDITUR E- EXPENDITURE ON DEVELOPMENT OF WEBSITE-ALTHOUGH THE WEBSITE MAY PROVIDE AN ENDURING BENEFIT TO AN ASSESSEE, THE INT ENT AND PURPOSE BEHIND DEVELOPMENT OF A WEBSITE IS NOT TO CREAT5E A N ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE INFORMATIO N ABOUT THE ASSESSEE AMONG ITS CLIENTS-THE SAME PURPOSE COULD B E ACHIEVED AND WAS IN FACT ACHIEVED BY ASSESSEE IN THE PAST BY PRINTING TRAVEL BROCHURES AND OTHER PUBLISHED MATERIALS AND PAMPHLE TS-MERE ENDURING BENEFIT, DE HORS ANY ACCRETION TO FIXED CA PITAL, WOULD NOT MAKE AN EXPENDITURE A CAPITAL EXPENDITURE. IN THE LIGHT OF ABOVE, IT IS CLEAR THAT EXPENDITURE ON DEVELOPMENT OF WEBSITE IS AN ALLOWABLE BUSINESS EXPENDITURE. HOWEVER, LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY AGREED THAT IN VIEW OF THE AMEN DMENT BROUGHT OUT TO APPENDIX A W.E.F. ASSESSMENT YEAR 2003-04 BY INCL UDING SOFTWARE ELIGIBLE FOR DEPRECIATION @ 60%, ASSESSEE SHOULD BE ALLOWED DEPRECIATION @ 60% AND THE CLAIM AS SUCH IS VALID. UPON CAREFUL CONSIDERATION WE FIND THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT( A). ACCORDINGLY, WE UPHOLD THE SAME. THIS ISSUE RAISED BY THE REVENUE ACCORDI NGLY STANDS DISMISSED. 9. ANOTHER ISSUE RAISED FOR ASSESSMENT YEAR 2003-04 IS AS UNDER:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING ADDITION OF RS.142801/- MADE BY THE AO ON ACCOUNT OF OUTSTANDIN G SUNDRY CREDITORS IGNORING THE FACT THAT THE ASSESSE E ITSELF AGREED DURING THE ASSESSMENT PROCEEDINGS THAT THE LIABILITY WAS OUTSTANDING FOR MORE THAN 3 YEARS. 10. ON THIS ISSUE THE AO OBSERVED THAT DETAILS OF S UNDRY CREDITORS WERE CALLED FOR FROM THE ASSESSEE. HE FOUND THAT SOME CR EDITORS TOTALING RS.1,42,801/- COMPRISING 31 PARTIES WERE OUTSTANDIN G FOR MORE THAN THREE ITA NOS.1549 & 1550/DEL/2010 6 YEARS. AO ASKED THE ASSESSEE AS TO WHY THESE CREDI T BALANCES SHOULD NOT BE TREATED AS DEEMED INCOME OF THE ASSESSEE U/S 41( 1). ASSESSEE SUBMITTED THAT IN THE INITIAL YEARS OF OPERATION OF THE COMPANY, IT SUFFERED LOSSES AND HENCE WAS NOT IN A POSITION TO MAKE PAYM ENTS TO ALL THE CLIENTS IN TIME. IT WAS FURTHER SUBMITTED THAT ASSESSEE HA D ALSO WRITTEN BACK CREDIT BALANCES AS AND WHEN IT BECAME CLEAR THAT THEY HAD NOT TO BE PAID. IN THIS REGARD, ASSESSEE FURNISHED DETAILS OF AMOUNTS WRITT EN BACK AS UNDER:- ASSTT. YEAR AMOUNT 2003-04 2,75,055 2004-05 2,71,683 2005-06 6,036 CONSIDERING THE ABOVE, THE AO HELD THAT THE ASSESSE E HAD ITSELF AGREED THAT SOME LIABILITY WAS DUE FOR MORE THAN THREE YEA RS. AO HELD THAT THESE WERE EXPENSES WHICH HAD ALREADY BEEN CLAIMED BY TH E ASSESSEE BUT FOR SOME REASONS THESE WERE OUTSTANDING. AO REFERRED T O THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. SUNDRAM I YANGAR, 222 ITR 344 (SC), FOR THE PROPOSITION THAT THERE HAS TO BE SOME LIMIT IN TERMS OF TIME FOR WHICH CREDIT BALANCE SHOWN SHOULD BE ALLOWED TO BE CARRIED FORWARD, HENCE HE TREATED THE ABOVE AMOUNT AS DEEMED INCOME OF THE ASSESSEE U/S 41(1) OF THE INCOME-TAX ACT. 11. UPON ASSESSEES APPEAL, LD. CIT(A) NOTED THAT T HERE IS NO REMISSION OR CESSATION OF LIABILITIES. IN SUCH CIRCUMSTANCES , AO WAS NOT JUSTIFIED IN ITA NOS.1549 & 1550/DEL/2010 7 INVOKING THE PROVISIONS OF SECTION 41(1). AGAINST T HIS ORDER REVENUE IS IN APPEAL BEFORE US. 12. THE REVENUE HAS CONTENDED THAT LD. CIT(A) HAS I GNORED THE FACT THAT ASSESSEE ITSELF HAD AGREED DURING THE ASSESSMENT PR OCEEDINGS THAT THE LIABILITY WAS OUTSTANDING FOR MORE THAN THREE YEARS . 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THERE IS NO RULE THAT LIABILITY OUTSTANDING FOR MORE THAN THREE YEAR S NEED NOT BE PAID AND THE SAME BECOMES INCOME OF THE ASSESSEE. DECISION O F HON'BLE APEX COURT RELIED UPON BY THE AO WAS ON DIFFERENT FACTS. IN THAT CASE, THE CLAIM OF DEPOSITS BY THE CUSTOMERS HAD BECOME BARRED BY L IMITATION AND THE ASSESSEE ITSELF HAS TREATED THE MONEY AS ITS OWN MO NEY AND TAKEN THE AMOUNT TO PROFIT & LOSS ACCOUNT. IN THAT CONTEXT, HON'BLE APEX COURT HAS HELD THAT THE AMOUNT WAS ASSESSABLE AS INCOME. HE RE IT IS NOT THE CASE THAT AO HAS ISSUED SUMMONS TO THE CREDITORS AND HAS OBTAINED INFORMATION THAT THESE AMOUNT WERE NO LONGER PAYABLE. ASSESSEE S CASE IS THAT DUE TO CASH CRUNCH, IT HAS NOT BEEN ABLE TO CLEAR OFF SOME CREDITORS AND THE ASSESSEE IS EVALUATING THE AMOUNT ACTUALLY PAYABLE AND WRITING BACK AS AND WHEN IT BECOME EVIDENT THAT THE AMOUNT IS NO LO NGER PAYABLE. UNDER SUCH CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN THIS REGARD AND ACCORDINGLY WE CONFIRM THE SAME. ITA NOS.1549 & 1550/DEL/2010 8 14. ANOTHER ISSUE RAISED FOR ASSESSMENT YEAR 2004-0 5 IS REGARDING ALLOWABILITY OF 60% DEPRECIATION ON COMPUTER PERIPH ERALS AND ACCESSORIES WHEREAS AS PER IT RULES 60% DEPRECIATION IS ALLOWED ONLY ON COMPUTER SOFTWARE. 15. ON THIS ISSUE, AO HELD THAT ONLY THE COMPUTERS AND COMPUTER SOFTWARE ARE ELIGIBLE FOR DEPRECIATION @ 60% AND TH E SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS. AO, THEREFORE, RESTRICTED THE DEPRECIATION @ 25%. 16. UPON ASSESSEES APPEAL, LD. CIT(A) REFERRED TO ITAT, KOLKATTA IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR, 98 ITD 119, AND H ELD THAT COMPUTER ACCESSORIES AND PERIPHERALS ARE INTEGRAL PART OF TH E COMPUTER. HENCE, HE DIRECTED THE AO TO ALLOW DEPRECIATION @ 60%. AGAIN ST THIS ORDER, REVENUE IS IN APPEAL BEFORE US. 17. LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF SPECIAL BENCH OF THE TRIBUNAL, MUMBAI IN THE CASE OF DCIT V S. DATACRAFT INDIA LTD. IN I.T.A. NO.7462 & 754/MUM/2007 VIDE ORDER DATED 9 JULY 2010, WHEREIN IT HAS BEEN HELD THAT INTERNAL HARDWARE PARTS OF A COM PUTER ARE OFTEN REFERRED TO AS COMPONENTS WHILE EXTERNAL HARDWARE DEVICES ARE USUALLY CALLED PERIPHERALS. TOGETHER, THEY ALL FALL UNDER THE C ATEGORY OF COMPUTER HARDWARE. IT WAS HELD THAT IT WAS NOT ONLY THE EQU IPMENT WHICH PERFORMS ITA NOS.1549 & 1550/DEL/2010 9 SUCH FUNCTIONS WHICH CAN BE CALLED AS COMPUTER. AL L THE INPUT AND OUTPUT DEVICES WHICH SUPPORT IN THE RECEIPT OF INPUT AND O UTFLOW OF THE OUTPUT ARE ALSO PART OF COMPUTER. THE BENCH AGREED WITH THE V IEW TAKEN BY THE KOLKATTA BENCH IN THE CASE OF SAMIRAN MAJUMDAR, CIT ED SUPRA, AND HELD THAT DEPRECIATION @ 60% WAS ALLOWABLE ON ROUTERS AN D SWITCHES. RESPECTFULLY FOLLOWING THE DECISIONS ABOVE, WE UPHO LD THE ORDER OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESS EE. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.07.2010. SD/- SD/- ( A.D. JAIN ) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 23 RD JULY, 2010. VSK COPY TO: 1. APPELLANT-REVENUE 2. RESPONDENT-ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR ITA NOS.1549 & 1550/DEL/2010 10