ACIT, CHENNAI V. Shri N.K.V.Krishna, CHENNAI

ITA 1642/CHNY/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68754 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 22-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNEEL VERMA
• Assessee Lawyers: S DEEPA
• Keywords: Capital asset; Depreciation; Transfer pricing; Capital expenditure
• Section: 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1642/MDS/2012 (ASSESSMENT YEAR : 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XIII, CHENNAI - 600 034. (APPELLANT) V. SHRI N.K.V. KRISHNA, 27, CHALLAMMAL STREET, SHENOY NAGAR, CHENNAI - 600 030. PAN : AGIPK 3079 R (RESPONDENT) I.T.A. NO. 1615/MDS/2012 (ASSESSMENT YEAR : 2009-10) SHRI N.K.V. KRISHNA, 27, CHALLAMMAL STREET, SHENOY NAGAR, CHENNAI - 600 030. (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XIII, CHENNAI - 600 034. (RESPONDENT) ASSESSEE BY : MS. S. DEEPA, CA REVENUE BY : SH. SUNEEL VERMA, CIT DATE OF HEARING : 05.09.2013 DATE OF PRONOUNCEMENT : 26.09.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS OF THE REVENUE AND ASSESS EE RESPECTIVELY, DIRECTED AGAINST AN ORDER DATED 23.5. 2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, CHENNAI. I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 2 2. REVENUE HAS RAISED FIVE GROUNDS IN ITS APPEAL, O UT OF WHICH, GROUNDS 1 AND 5 ARE GENERAL NEEDING NO ADJUDICATION . 3. GROUND NO.2 ASSAILS DELETION OF AN ADDITION OF ` 6,68,95,536/- MADE BY THE ASSESSING OFFICER UNDER THE HEAD SHORT TERM CAPITAL GAINS. IN ITS GROUND NO.3, REVENUE IS AGGRIEVED O N A DIRECTION GIVEN BY LD. CIT(APPEALS) TO THE ASSESSING OFFICER, TO TR EAT E-STORE SOFTWARE EXPENDITURE OF ` 62,22,250/- AND DIGITALIZATION DEVELOPMENT CHARGES OF ` 65,62,250/- AS CAPITAL EXPENDITURE, THEREBY ALLOWI NG DEPRECIATION AT THE RATE OF 60%. IN ITS GROUND NO. 4, GRIEVANCE OF THE REVENUE IS ON DIRECTIONS OF THE CIT(APPEALS) TO SCA LE DOWN THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES FROM 20 % TO 10%. 4. AS AGAINST ABOVE, ASSESSEE IN ITS CROSS APPEAL I S AGGRIEVED THAT E-STORE SOFTWARE EXPENDITURE AND DIGITALIZATIO N DEVELOPMENT CHARGES CLAIMED AS REVENUE OUTGO WAS NOT ALLOWED. ASSESSEE IS ALSO AGGRIEVED ON THE SUSTENANCE OF THE DISALLOWANC E ON BUSINESS PROMOTION EXPENSES AT 10% BY LD. CIT(APPEALS). 5. GROUND NO.1 OF THE REVENUE ON SHORT TERM CAPITAL GAINS IS TAKEN UP FIRST FOR DISPOSAL. I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 3 6. FACTS APROPOS ARE THAT ASSESSEE HAD ACQUIRED 2.5 ACRES OF AGRICULTURAL LAND IN SURVEY NOS.206/1, 212/3, 212/4 , 212/5, 212/6, 214/2A, 214/3, 214/4, 214/7 AND 204/8 AT UTHANDI VI LLAGE, TAMBARAM TALUK IN KANCHEEPURAM DISTRICT OF TAMIL NADU ON 29. 3.2006 FOR A TOTAL CONSIDERATION OF ` 81,04,464/-. THESE WERE SOLD BY THE ASSESSEE ON 24.12.2007 THROUGH AN AGREEMENT FOR SAL E. A REGISTERED POWER OF ATTORNEY WAS ALSO EXECUTED ON 5.12.2007. THE CONSIDERATION, AS PER AGREEMENT, WAS ` 7,50,00,000/-. ASSESSEE IN HIS RETURN OF INCOME CLAIMED THAT THE GAINS ARISING ON THE SALE COULD NOT BE TAXED AS CAPITAL GAINS SINCE WHAT WAS SOLD W AS AGRICULTURAL LAND NOT FALLING WITHIN THE DEFINITION OF CAPITAL ASSET UNDER SECTION 2(14) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ASSESSING OFFICER REQUIRED THE ASSESSEE TO FILE THE SALE DEED FOR THE LAND AND ALSO DOCUMENTS IN SUPPORT OF HIS CLAIM. ASSESSEE FILED A CERTIFICATE DATED 31.12.2008 OF VILLAGE ADMINISTRATIVE OFFICE WHICH, INTER ALIA, CONFIRMED THAT THE LAND SOLD WAS AGRICULTURAL LAND. THOUGH THE ASSESSEE WAS REQUIRED TO FURNISH CERTIFICATE FROM M UNICIPALITY WITH REGARD TO THE DISTANCE OF THE LAND SOLD FROM THE MU NICIPAL LIMITS, AS PER THE A.O., THIS WAS NOT FURNISHED. THE A.O., HO WEVER, COLLECTED INFORMATION WHICH SHOWED THAT UTHANDI WAS A PART OF WARD NO.119 IN SHOLINGANALLUR OF CHENNAI MUNICIPAL CORPORATION. A SSESSING OFFICER I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 4 WAS OF THE OPINION THAT THE LAND FELL WITHIN CHENNA I MUNICIPAL CORPORATION. HE DID NOT ACCEPT THE CLAIM OF THE AS SESSEE THAT SURPLUS ON SALE THEREOF WAS EXEMPT. SUCH SURPLUS OF ` 6,68,95,536/- WAS TREATED IT AS SHORT TERM CAPITAL GAINS. 7. ON HIS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT COPIES OF THE REVENUE RECORD IN THE FORM O F ADANGAL CLEARLY SHOWED THAT WHAT WAS SOLD WAS AGRICULTURAL LAND. F URTHER, AS PER ASSESSEE, THE LAND SOLD WAS SITUATED BEYOND 8 KMS D ISTANCE FROM THE NEAREST MUNICIPAL CORPORATION, WHICH WAS CORPOR ATION OF CHENNAI. AS PER ASSESSEE, VILLAGE UTHANDI BECAME P ART OF WARD NO.119 OF SHOLINGANALLUR ZONE OF CHENNAI MUNICIPAL CORPORATION, WHEN THE CORPORATION LIMITS OF CHENNAI WERE EXPANDE D IN THE YEAR 2011 VIDE G.O. NO.97 DATED 19.7.2011. ARGUMENT OF THE ASSESSEE WAS THAT THE GOVERNMENT ORDER EXPANDING THE LIMITS OF CHENNAI MUNICIPAL CORPORATION, SUBSEQUENT TO THE DATE OF SA LE, COULD NOT BE TAKEN INTO ACCOUNT WHILE DETERMINING THE STATUS OF THE LAND, AT THE POINT WHEN IT WAS SOLD. 8. LD. CIT(APPEALS), BASED ON THE ABOVE SUBMISSIONS , AND AFTER CONSIDERING SECTION 2(14) OF THE ACT, HELD AS UNDER :- I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 5 (I) AGRICULTURAL LAND COULD NOT BE CONSIDERED AS A CAPI TAL ASSET, UNLESS IT FELL WITHIN THE JURISDICTION OF A MUNICIPALITY OR CANTONMENT BOARD OR A MUNICIPAL CORPORATION OR A NOTIFIED AREA COMMITTEE OR TOWN AREA COMMITTEE OR TOWN COMMITTEE. (II) AGRICULTURAL LAND, OTHER THAN WHAT WAS COVERED BY ( I) ABOVE COULD BE CONSIDERED AS A CAPITAL ASSET ONLY I F IT FELL WITHIN A DISTANCE OF 8 KMS FROM THE LOCAL LIMITS OF MUNICIPALITY OR CANTONMENT BOARD PROVIDED , FOR WHICH A NOTIFICATION WAS ISSUED BY THE CENTRAL GOVERNMENT. IN OTHER WORDS, AS PER LD. CIT(APPEALS), IF AN AGRI CULTURAL LAND WAS LOCATED OUT OF JURISDICTION OF A MUNICIPALITY, CANT ONMENT BOARD, THEN IT WOULD NOT BE A CAPITAL ASSET UNLESS IT WAS SITUATED WITHIN A LIMIT OF 8 KMS FROM A MUNICIPALITY OR CANTONMENT BOARD WHICH W AS NOTIFIED FOR THIS PURPOSE. AS PER LD. CIT(APPEALS), LAND SOLD B Y THE ASSESSEE WAS LOCATED AT A DISTANCE OF MORE THAN 18 KMS FROM OUTE R LIMITS OF TAMBARAM MUNICIPALITY AND MORE THAN 8 KMS OUTSIDE T HE LIMIT OF CHENNAI MUNICIPAL CORPORATION. LD. CIT(APPEALS) NO TED THAT THERE WERE NO OTHER MUNICIPALITIES OR CANTONMENTS NEARER TO THE LOCATION OF THE LANDS OTHER THAN TAMBARAM MUNICIPALITY OR CHENN AI MUNICIPAL CORPORATION. LD. CIT(APPEALS) HELD THAT A.O. FELL IN ERROR IN RELYING ON NOTIFICATION ISSUED BY THE GOVERNMENT ON 19.7.2011, WHICH EXPANDED THE LIMITS OF CHENNAI CORPORATION ON A SUBSEQUENT D ATE. AS PER THE LD. CIT(APPEALS), THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSING I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 6 OFFICER BY THE ASSESSEE ON 30.12.2011 ITSELF. THUS HE HELD THAT THE LAND, WHICH WAS CERTIFIED AS AGRICULTURAL LAND BY T HE REVENUE AUTHORITIES IN THE ADANGAL RECORD AND WHICH FELL BE YOND 8 KMS OF A MUNICIPALITY OR MUNICIPAL CORPORATION, SQUARELY FEL L WITHIN THE DEFINITION OF AGRICULTURAL LAND. THEREFORE, AS P ER CIT(APPEALS), IT COULD NOT BE CONSIDERED AS CAPITAL ASSET. HE THERE FORE HELD THE GAINS ARISEN ON SALE WAS NOT TAXABLE. THE ADDITION MADE BY THE A.O. WAS DELETED. 9. NOW BEFORE US, SHRI SUNEEL VERMA, APPEARING FOR THE REVENUE, STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMI TTED THAT ASSESSEE COULD NOT SHOW ANY AGRICULTURAL ACTIVITIES TO HAVE BEEN CARRIED OUT IN THE 2.5 ACRES OF LAND SOLD. AS PER LEARNED D.R., A SSESSEE HAD NOT OFFERED ANY AGRICULTURAL INCOME FROM ANY AGRICULTUR AL ACTIVITIES. UTHANDI FELL WITHIN SHOLINGANALLUR ZONE OF CHENNAI MUNICIPAL CORPORATION. AS PER LEARNED D.R., EVEN IT WAS AN A GRICULTURAL LAND, IT FELL WITHIN THE DEFINITION OF CAPITAL ASSET. CONTI NUING HIS ARGUMENT, LEARNED D.R. SUBMITTED THAT REVENUE RECORDS WERE NO T GENERALLY UPDATED. CERTIFICATES GIVEN BY THE REVENUE OFFICER S COULD NOT BE RELIED UNLESS THERE WAS A PHYSICAL VERIFICATION DON E. ASSESSING OFFICER WAS JUSTIFIED IN CONSIDERING THE AREA TO BE FALLING WITHIN THE I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 7 LIMITS OF GREATER CHENNAI CORPORATION. ASSESSEE CO ULD NOT SHOW THAT THE NATURE OF LAND SOLD WAS AGRICULTURAL. THEREFOR E, AS PER LEARNED D.R., THE A.O. WAS JUSTIFIED IN TREATING THE SURPLU S ON SALE AS SHORT TERM CAPITAL GAINS, AND CIT(APPEALS) FELL IN ERROR IN REVERSING THIS POSITION. 10. PER CONTRA, MS. S. DEEPA, CA, APPEARING FOR THE ASSESSEE, RELYING ON LETTERS DATED 28 TH DECEMBER, 2011AND 30 TH DECEMBER, 2011, ADDRESSED TO THE A.O., PLACED AT PAPER-BOOK P AGES 3 TO 7, AND 9 TO 10 RESPECTIVELY, SUBMITTED THAT ASSESSEE HAD G IVEN FULL EXPLANATION WITH REGARD TO THE NATURE OF THE LAND S OLD. ACCORDING TO HER, A CERTIFICATE DATED 10.1.2009 FROM THE VILLAGE ADMINISTRATIVE OFFICER, CONFIRMING THE NATURE OF THE LAND, AND ITS LOCATION WAS ALSO PRODUCED. ASSESSEE HAD EXECUTED A REGISTERED POWER OF ATTORNEY FOR SELLING THE AGRICULTURAL LAND IN FAVOUR OF ONE SHRI RAJKUMAR SETHUPATHY, DIRECTOR, SOUTHERN RESORTS AND MOTELS ( P.) LTD. VIDE DOCUMENT NO.2220/2007 AND ALSO ENTERED INTO AN AGRE EMENT FOR SALE WITH HIM ON 24 TH DECEMBER,, 2007. AT THE TIME OF SALE, THELAND WAS PURELY AGRICULTURE IN NATURE. THIS WAS CERTIFIED B Y THE VILLAGE ADMINISTRATIVE OFFICER. THE LAND WAS LOCATED MORE THAN 18 KMS AWAY FROM THE LIMITS OF TAMBARAM MUNICIPALITY. ACCORDIN G TO HER, IN THE I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 8 LETTER DATED 30 TH DECEMBER, 2011 FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, COPY OF WHICH HAS BEEN PLACED AT PAPER-BOOK PAGES 9 & 10, IT WAS EXPLAINED THAT UTHANDI WAS INC LUDED IN CHENNAI CORPORATION ONLY IN JULY, 2011 BY GOVERNMENT ORDER NO.97 DATED 19.7.2011. IT WAS AFTER SUCH EXPANSION, UTHANDI VI LLAGE FELL WITHIN ST. THOMAS MOUNT TALUK, KANCHEEPURAM DISTRICT. PRIOR T O THIS, IT WAS NOT WITHIN CHENNAI MUNICIPAL CORPORATION. THAT UTHANDI WAS NOT WITHIN THE LIMITS OF CHENNAI DISTRICT OR CHENNAI MUNICIPAL ITY WAS CERTIFIED BY THE VILLAGE ADMINISTRATIVE OFFICER BY HIS CERTIFICA TE DATED 10.1.2009 PLACED AT PAPER-BOOK PAGE 8. DESPITE ALL THESE REC ORDS, THE A.O. HELD THAT THE LAND WAS AGRICULTURE IN NATURE. FURT HER, AS PER THE LEARNED A.R., ASSESSEE HAD IN HIS RETURN OF INCOME SHOWED AGRICULTURAL INCOME OF ` 52,500/-, WHICH WAS NOT DISPUTED BY THE DEPARTMENT. ASSESSING OFFICER HAVING ACCEPTED THE AGRICULTURAL INCOME COULD NOT SAY THAT THE LAND WAS NOT AGRICULT URAL. THEREFORE, ACCORDING TO HER, THE CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT GAINS ARISEN OUT OF SALE OF SUCH LAND COULD NOT BE CONSID ERED AS EXIGIBLE TO TAX. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. REVENUE HAS NOT DISPUTED THAT ASSESSEE HAD FILED A CERTIFICATE DATED I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 9 10.1.2009 FROM VILLAGE ADMINISTRATIVE OFFICER, WHIC H CERTIFIED THAT THE LAND INCLUDED SURVEY NOS. 206/1, 212/3, 212/4, 212/ 5, 212/6, 214/2A, 214/3, 214/4, 214/7 AND 214/8 IN ALL MEASURING 2.5 ACRES, AT UTHANDI WERE AGRICULTURAL IN NATURE. ASSESSING OFFICER HIM SELF HAS STATED THAT ASSESSEE HAD FILED A CERTIFICATE CONFIRMING THE LAN D TO BE AGRICULTURE IN NATURE. IN FACT, ASSESSING OFFICER AT PARA 2 OF HIS ORDER SAYS THAT ASSESSEE SOLD AN AGRICULTURAL LAND MEASURING 2.50 A CRES AT UTHANDI VILLAGE FOR ` 7,50,00,000/-. ASSESSEE HAD IN HIS LETTER DATED 30.12.2011 (PLACED AT PAPER-BOOK PAGES 9 TO 10) ADD RESSED TO THE ASSESSING OFFICER SPECIFICALLY MENTIONED THAT CULTI VATION IN THE LAND WAS CASURINA AND FLOWERS. AN AGRICULTURAL INCOME O F ` 52,500/- WAS RETURNED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMEN T YEAR, WAS NOT DISTURBED BY THE ASSESSING OFFICER. ASSESSING OFFI CER HAD NOT QUESTIONED THE NATURE OF CULTIVATION NOR DISPUTED T HE AGRICULTURAL INCOME RETURNED BY THE ASSESSEE. IT IS ALSO NOT DI SPUTED THAT THE ADANGAL RECORD SHOWED THE NATURE OF THE LAND TO BE AGRICULTURAL. THE MAIN REASON WHY THE A.O. TREATED IT AS A CAPITAL AS SET WAS THAT IT FELL WITHIN CHENNAI MUNICIPAL CORPORATION LIMITS. HENCE , IN OUR OPINION, THE QUESTION BOILS DOWN TO THE ISSUE WHETHER THE LA ND WAS SITUATED WITHIN THE LIMITS OF MUNICIPAL CORPORATION OF CHENN AI OR NOT OR WITHIN 8 KMS LIMIT OF A NOTIFIED MUNICIPALITY OR MUNICIPAL C ORPORATION OR I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 10 CANTONMENT BOARD. UTHANDI VILLAGE CAME WITHIN THE CORPORATION LIMITS BY VIRTUE OF GOVERNMENT ORDER NO.97DATED 19. 7.2011 AND THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER BY THE ASSESSEE IN HIS LETTER DATED 30.12.2011 (PLACED AT PAPER-BOOK P AGE 10). REVENUE HAS ALSO NOT DISPUTED THE FINDING OF LD. CIT(APPEAL S) THAT LAND SOLD WAS LOCATED AT A DISTANCE OF MORE THAN 18 KMS AWAY FROM THE OUTER LIMITS OF NEAREST MUNICIPALITY, WHICH WAS TAMBARAM MUNICIPALITY. IT WAS ALSO LOCATED MORE THAN 8 KMS AWAY FROM THE OUTE R LIMITS OF CHENNAI CORPORATION. SECTION 2(14) IS RELEVANT, WH ICH IS REPRODUCED HEREUNDER:- SEC.2(14) CAPITAL ASSETMEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE - (I) (II) (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND SITUATED - (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURISDICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 11 FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE THAN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITEM (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF, AND SCOPE FOR, URBANIZATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE; 12. ONCE AN AGRICULTURAL LAND IS LOCATED BEYOND 8 K MS FROM THE LOCAL LIMITS OF NEAREST MUNICIPALITY OR CORPORATION , THEN IT WOULD AUTOMATICALLY GO OUT OF DEFINITION OF CAPITAL ASSE T. LD. CIT(APPEALS) HAD GIVEN A CLEAR FINDING, AFTER GOING THROUGH THE GOVERNMENT ORDER NO.97 DATED 19.7.2011, THAT IN THE YEAR IN WHICH AS SESSEE SOLD THE LAND, IT WAS NOT WITHIN CHENNAI MUNICIPAL CORPORATI ON LIMITS. NO DOUBT, THE PRICE FIXED BY THE ASSESSEE ON SALE OF T HE LAND, WHICH CAME TO ` 7,50,00,000/- WAS MUCH HIGHER THAN THE COST OF ` 81,04,464/-. HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAJA D. SESHAYYAMMA GARU V. CIT (156 ITR 820) HAD HELD THAT PRICE ELEMENT WOULD NOT ALWAYS OFFER A DEPENDABLE TEST FOR ASCERT AINING THE CHARACTER AND NATURE OF THE SUBJECT MATTER OF THE B ARGAIN. IN THE CASE I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 12 OF M.S. SRINIVASA NAICKER AND OTHERS V. ITO (292 IT R 481), HON'BLE JURISDICTIONAL HIGH COURT HELD THAT ASSESSEE HAVING ADMITTED USE OF LAND IN QUESTION FOR AGRICULTURAL PURPOSES TILL ITS SALE, IT HAS TO BE TREATED NOT AS CAPITAL ASSET IRRESPECTIVE OF THE FA CT THAT PURCHASER INTENDED TO PUT THE LAND FOR TOTALLY DIFFERENT USE. WE ARE THUS OF THE OPINION THAT THERE IS NO GOOD REASON TO INTERFERE W ITH THE ORDER OF CIT(APPEALS) DELETING THE ADDITION UNDER THE HEAD CAPITAL GAINS. 13. GROUND NO.2 OF THE REVENUE STANDS DISMISSED. 14. REVENUE IN ITS GROUND NO.3 AND ASSESSEE IN ITS GROUNDS 1 TO 3 ARE ON THE SAME ISSUE REGARDING A CLAIM OF E-STORE SOFTWARE EXPENDITURE OF ` 62,22,250/- AND DIGITALIZATION OF DEVELOPMENT CHARGES OF ` 65,62,250/-. 15. FACTS APROPOS ARE THAT ASSESSEE HAD CLAIMED THE ABOVE AMOUNTS AS REVENUE OUTGO IN HIS ACCOUNTS. A.O. NOT ED THAT THESE WERE SOFTWARE PURCHASED FROM ASSESSEES OWN GROUP C OMPANY, CALLED M/S ASSOCIATED ENTERPRISES. AS PER THE A.O. , EVIDENCE PRODUCED DID NOT FACILITATE A CROSS VERIFICATION. ASSESSING OFFICER REFUSED TO CONSIDER THE CLAIM AND DISALLOWED IT. I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 13 16. IN HIS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT HE WAS IN THE BUSINESS OF SALE AND DISTRIB UTION OF RELIGIOUS BOOKS, CDS, ETC. WITH A TURNOVER EXCEEDING ` 5 CRORES. AS PER THE ASSESSEE, FOR CONTINUOUS MONITORING OF PRODUCTION, SALES AND STOCK, IT BECAME NECESSARY TO USE AN APPROPRIATE COMPUTER SOF TWARE. ORDER WAS PLACED WITH M/S RAISING SOLUTIONS P. LTD. FOR D EVELOPING OF THE SOFTWARE. ASSESSING OFFICER HAD ERRONEOUSLY CONSID ERED THE PAYMENT TO HAVE BEEN MADE TO M/S ASSOCIATED ENTERPRISES. M /S RAISING SOLUTIONS P. LTD. DEVELOPED AN E-STORE SOFTWARE AND HELPED THE ASSESSEE IN CARRYING OUT THE DIGITALIZATION WORK. IT RAISED BILL FOR ` 62,22,250/- FOR E-STORE SOFTWARE AND ` 65,62,250/- FOR DIGITALIZATION WORK. ACCORDING TO ASSESSEE, THESE COULD ONLY BE C ONSIDERED AS REVENUE OUTGO. 17. CIT(APPEALS), AFTER HEARING THE ASSESSEE, HELD THAT THE INVOICES PRODUCED BY THE ASSESSEE DID SHOW DIGITALIZATION WO RK AS WELL AS ACQUISITION OF SOFTWARE FROM M/S RAISING SOLUTIONS P. LTD. AS PER THE CIT(APPEALS), JUST BECAUSE THE WORK WAS DONE BY A G ROUP CONCERN, IT COULD NOT BE CONSIDERED AS NOT GENUINE. NEVERTHELE SS, ACCORDING TO HIM, IT COULD ONLY BE CONSIDERED AS CAPITAL EXPENDI TURE. AS PER LD. CIT(APPEALS), THE PAYMENT RESULTED IN ACQUISITION O F AN INTANGIBLE I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 14 ASSET IN THE NATURE OF COMPUTER SOFTWARE. HE HELD THAT ASSESSEE WAS ENTITLED FOR DEPRECIATION AT 60%. THUS, WHILE UPHO LDING THE DISALLOWANCE, HE DIRECTED THE A.O. TO GIVE THE BENE FIT OF DEPRECIATION AT 60%. 18. NOW BEFORE US, REVENUE IS AGGRIEVED ON THE DIRE CTIONS OF CIT(APPEALS) TO GIVE 60% DEPRECIATION CONSIDERING T HE EXPENDITURE AS RESULTING IN ACQUISITION OF SOFTWARE, WHEREAS, A SSESSEE IS AGGRIEVED THAT THE AMOUNTS SPENT WERE NOT ALLOWED A S REVENUE OUTGO. 19. LEARNED D.R., STRONGLY ASSAILING THE ORDER OF C IT(APPEALS), SUBMITTED THAT ASSESSEE COULD NOT SHOW THAT ANY SOF TWARE WAS ACQUIRED FROM M/S RAISING SOLUTIONS P. LTD. FURTHE R, ACCORDING TO LEARNED D.R., THE PURCHASE WAS MADE FROM A RELATED PARTY. 20. PER CONTRA, AND IN SUPPORT OF THE GROUNDS RAISE D, LEARNED A.R. PLACED RELIANCE ON A LETTER DATED 28 TH DECEMBER, 2011 FILED BEFORE THE ASSESSING OFFICER, PLACED AT PAPER-BOOK PAGES 3 TO 7. SHE POINTED OUT THAT SECTION 40A(2)(B) COULD NOT BE APPLIED SIN CE ASSESSEE WAS HOLDING ONLY 0.07% EQUITY SHARES OF M/S RAISING SOL UTIONS P. LTD. FURTHER, AS PER LEARNED A.R., THE SOFTWARE INVOLVED DID NOT GIVE ANY I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 15 ENDURING BENEFIT. ON THE OTHER HAND, ACCORDING TO HER THE TECHNOLOGY WAS CONTINUALLY CHANGING. RELIANCE WAS PLACED ON T HE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. SOUTHERN ROADWAYS LTD. (304 ITR 84). 21. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WHAT WE FIND IS THAT ASSESSEE HAD, WITHOUT DOUBT, A CQUIRED A SOFTWARE CALLED E-STORE SOFTWARE FROM M/S RAISING S OLUTIONS P. LTD. THAT M/S RAISING SOLUTIONS P. LTD. CANNOT BE CONSID ERED AS RELATED PARTY IS CLEAR SINCE ASSESSEE HAD ONLY 0.07% SHAREH OLDING THEREIN. ASSESSEE HIMSELF HAS ADMITTED THAT THE SOFTWARE WAS USED TO REPLACE THE MANUAL SUPERVISION OF PRODUCTION, SALE AND MOVE MENT OF STOCK. THE SOFTWARE THUS REPLACED THE PROCESS OF MANUAL SU PERVISION OF WORK BY AN AUTOMATED SYSTEM. ASSESSEE WAS THUS SUB STITUTING A MANUAL SYSTEM BY A MORE EFFICIENT AUTOMATED SYSTEM FOR CONTROL OF HIS PRODUCTION, SALE AND MOVEMENT OF STOCK. WHERE THE INSTALLATION OF A SOFTWARE PACKAGE ENABLED AN ASSESSEE TO CARRY ON HIS BUSINESS OPERATION EFFECTIVELY, EFFICIENTLY, SMOOTHLY AND PR OFITABLY, IT COULD ONLY BE CONSIDERED AS AN AID IN THE MANUFACTURING PROCES S AND NOT A TOOL BY ITSELF. IN SUCH A SITUATION, EVEN IF THE SOFTWA RE GIVES AN ENDURING BENEFIT, IT WOULD NOT RESULT IN ACQUISITION OF CAPI TAL ASSET, AS HELD BY I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 16 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SO UTHERN ROADWAYS LTD. (SUPRA). THERE IS NO CASE FOR THE REVENUE THA T WHAT WAS ACQUIRED BY THE ASSESSEE WAS A SYSTEM SOFTWARE. WH AT WAS ACQUIRED BY THE ASSESSEE WAS ONLY AN APPLICATION SO FTWARE. PROCUREMENT OF A SYSTEM SOFTWARE MIGHT GIVE AN ENDU RING BENEFIT, BUT APPLICATION SOFTWARE, WHICH HAS TO BE CONTINUOUSLY MODIFIED AND UPDATED, CAN AT THE BEST, BE CONSIDERED ONLY AS A T OOL ENABLING BETTER AND EFFICIENT OPERATION OF THE BUSINESS OF THE ASSE SSEE. DIGITALIZATION WORK DONE BY THE ASSESSEE ALSO CANNOT BE CONSIDERED AS CREATION OF AN ASSET WHICH GAVE THE ASSESSEE AN ENDURING BENEFI T. IN SUCH A SITUATION, WE ARE OF THE OPINION THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING THE OUTGO AS REVENUE IN NATURE AND NOT TRE ATING IT AS CAPITAL EXPENDITURE. WE ARE, THEREFORE, INCLINED TO ACCEP T THE GROUNDS RAISED BY THE ASSESSEE. 22. SINCE WE ARE ALLOWING THE CLAIM OF ASSESSEE FOR REVENUE OUTGO, GROUNDS RAISED BY THE REVENUE IN THIS REGARD HAVE B ECOME INFRUCTUOUS. 23. GROUND NO.3 OF THE REVENUE STANDS DISMISSED, WH EREAS, GROUNDS 1,2 AND 3 OF THE ASSESSEE ARE ALLOWED. I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 17 24. THE LAST ISSUE IN THESE APPEALS IS ON BUSINESS PROMOTION EXPENDITURE. ASSESSING OFFICER HAD DISALLOWED 20% OF THE CLAIM, WHEREAS CIT(APPEALS) SCALED DOWN THE DISALLOWANCE T O 10%. ASSESSEE IS AGGRIEVED ON SUSTENANCE OF 10%, WHEREAS , REVENUE IS AGGRIEVED ON THE SCALING DOWN OF THE DISALLOWANCE T O 10%. 25. DISALLOWANCE OF 20% ON BUSINESS PROMOTION EXPEN DITURE WAS MADE BY THE ASSESSING OFFICER FOR A REASON THAT PRO PER EVIDENCE WAS NOT PRODUCED BY THE ASSESSEE. TOTAL CLAIM FOR BUSI NESS PROMOTION EXPENSES WAS ` 40,19,830/-. LD. CIT(APPEALS) CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE AND VOLUME OF HI S TURNOVER, GAVE A FINDING THAT 20% DISALLOWANCE MADE WAS EXCESSIVE AND UNREASONABLE. HE SCALED DOWN IT TO 10%. 26. WE FIND NO GOOD REASON TO INTERFERE WITH THE OR DER OF CIT(APPEALS) SINCE LD. CIT(APPEALS) HAD GIVEN THE R ELIEF CONSIDERING THE TURNOVER OF THE ASSESSEE AND ITS NATURE OF BUSI NESS. THEREFORE, GROUND NO.4 OF THE REVENUE AS WELL AS GROUNDS 4 TO 6 OF THE ASSESSEE ARE DISMISSED. 27. TO SUMMARIZE THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED, WHEREAS, THAT OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO. 1642/MDS/12 I.T.A. NO. 1615/MDS/12 18 ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 26 TH OF SEPTEMBER, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 26 TH SEPTEMBER, 2013. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)-XII, CHENNAI-34 (4) CIT-X, CHENNAI (5) D.R. (6) GUARD FILE