M/s. Rachitech Engineering P. Ltd., New Delhi V. ACIT, Faridabad

ITA 1661/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4749 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 24-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: DEEPESH GARG S
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.1661/DEL/2015 ASSESSMENT YEAR: 2010-11 RACHITECH ENGINEERING P. LTD., C/O M/S RRA TAX INDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI. PAN : AAACR7762F VS. ACIT, CIRCLE-II, FARIDABAD. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOMIL AGARWAL & SHRI DEEPESH GARG, ADVOCATES RESPONDENT BY: SHRI RAVI KANT GUPTA, SR.DR DATE OF HEARING : 09.08.2018 DATE OF PRONOUNCEMENT: 10.08.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 27.02.2015 IN RELATION TO A SSESSMENT YEAR 2010-11. ITA NO.1661/DEL/2015 2 2. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF ADDITION OF RS.6,36,211/- MADE UNDER PROVISO TO SECTION 36(1)(I II) OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS.44.10 LAC. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSER VED THAT `BUILDING UNDER CONSTRUCTION AS APPEARING IN THE A SSESSEES BALANCE SHEET STOOD AT RS.27,62,666/-. HE FURTHER N OTICED THAT THE ASSESSEE HAD SHOWN AN ADVANCE GIVEN FOR LAND AMOUNT ING TO RS.61,92,392/-. SINCE SUCH BUILDING WAS UNDER CONS TRUCTION, THE ASSESSING OFFICER OPINED THAT PROVISO TO SECTION 36 (1)(III) WAS ATTRACTED AND, HENCE, THE INTEREST RELATABLE TO THE LOANS UTILIZED IN CONSTRUCTION OF BUILDING, WAS TO BE CAPITALIZED. H E CALCULATED THE PROPORTIONATE AMOUNT OF INTEREST ATTRIBUTABLE TO `L AND AND BUILDING UNDER CONSTRUCTION AND ADVANCE FOR LAND AT RS.6,36 ,211/-. SUCH DISALLOWANCE WAS CONFIRMED IN THE FIRST APPEAL. ITA NO.1661/DEL/2015 3 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS SEEN FROM THE SCHEDULE OF FIXED ASSETS, A COPY OF WHICH IS PLACED AT PAGE 13 OF THE PAPER BOO K, THAT THE BALANCE UNDER THE HEAD BUILDING UNDER CONSTRUCTION AS ON 01.04.2009 STOOD AT RS.27,62,666/-. NO ADDITION WA S MADE DURING THE YEAR AND, THUS, THE OPENING BALANCE BECAME THE CLOSING BALANCE AS WELL. IN SO FAR AS THE AMOUNT OF RS.61,92,392/- IS CONCERNED, THE SAME IS A LOAN ADVANCED. SCHEDULE I TO THE ASSESSE ES BALANCE SHEET SHOWS THE OPENING AS WELL AS CLOSING BALANCE AT RS. 61.92 LAC. IT IS, THEREFORE, CLEAR THAT THE AMOUNT OF RS.61.92 LAC WA S ADVANCED IN THE PRECEDING YEARS AND NOT IN THE YEAR UNDER CONSI DERATION. THIS SHOWS THAT THE ASSESSEE DID NEITHER INCUR ANY EXPEN DITURE ON CONSTRUCTION NOR GAVE ANY FRESH ADVANCE OF LAND DU RING THE YEAR, WHICH IMPLIES THAT THE ENTIRE AMOUNT WAS SPENT/GIVE N IN EARLIER YEARS. IN THE SCRUTINY ASSESSMENT FOR THE IMMEDIAT ELY PRECEDING ASSESSMENT YEAR, NAMELY, 2009-10, THE AO DID NOT MA KE ANY DISALLOWANCE ON ACCOUNT OF INTEREST UNDER PROVISO T O SECTION ITA NO.1661/DEL/2015 4 36(1)(III) OF THE ACT, BY IMPLIEDLY ACCEPTING THAT SUCH INVESTMENT WAS NOT MADE OUT OF INTEREST BEARING FUNDS. DISALL OWANCE OF INTEREST WAS MADE IN THE ASSESSMENT FOR THE ASSESSM ENT YEAR 2007- 08. HOWEVER, THE LD. CIT(A) DELETED THE SAME VIDE HIS ORDER DATED 21.07.2011 AND THE DEPARTMENT HAS ACCEPTED SUCH ORD ER WITHOUT PREFERRING ANY FURTHER APPEAL. THIS SHOWS THAT THE REVENUE ACCEPTED THE POSITION THAT INVESTMENT IN CONSTRUCTI ON OF BUILDING UNDER PROGRESS AND ADVANCE FOR PURCHASE OF LAND WER E MADE OUT OF OWN FUNDS IN THE PRECEDING YEARS. AS NO EXPENDITUR E WAS INCURRED IN CONSTRUCTION OF BUILDING ETC. DURING THE YEAR UN DER CONSIDERATION, OBVIOUSLY, THERE CAN BE NO QUESTION OF ANY DISALLOW ANCE IN TERMS OF PROVISO TO SECTION 36(1)(III). THIS GROUND IS, THE REFORE, ALLOWED. 5. THE ONLY OTHER GROUND RAISED IN THIS APPEAL IS A GAINST CONFIRMATION OF DISALLOWANCE OF SOFTWARE EXPENSES A MOUNTING TO RS.67,600/- TREATED AS CAPITAL EXPENDITURE. ITA NO.1661/DEL/2015 5 6. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THA T THE ASSESSEE CLAIMED DEDUCTION OF RS.67,600/- FOR PURCHASE OF GE AR BOX SOFTWARE AS REVENUE EXPENDITURE. ON BEING CALLED U PON TO EXPLAIN AS TO WHY THIS AMOUNT WAS NOT CAPITALIZED, THE ASSE SSEE SUBMITTED THAT THE GEAR BOX SOFTWARE WAS AN APPLICATION SOFTW ARE PURCHASED FOR DESIGNING A FEW SPECIFIC GEAR BOXES IN THE CRAN ES WHICH WERE MANUFACTURED DURING THE YEAR AND SUCH SOFTWARE WAS NOT OF PERMANENT USE. NOT CONVINCED WITH THE ASSESSEES C ONTENTION, THE ASSESSING OFFICER TREATED THE AMOUNT AS CAPITAL EXP ENDITURE ELIGIBLE FOR DEPRECIATION @ 30%. THIS IS HOW, ADDITION OF RS.47,320/- WAS MADE ON THIS COUNT. THE LD. CIT(A) SUSTAINED THE S AME. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS FOUND FROM THE ASSESSMEN T ORDER ITSELF THAT THE ASSESSEE CATEGORICALLY STATED THAT THE GEAR BOX SOFTWARE, AN APPLICATION SOFTWARE, WAS PURCHASED BY THE ASSESSE E FOR DESIGNING A FEW SPECIFIC GEAR BOXES IN THE CRANE WHICH WERE M ANUFACTURED ITA NO.1661/DEL/2015 6 DURING THE YEAR ITSELF AND SUCH SOFTWARE BECAME USE LESS THEREAFTER. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. ASAHI INDIA SAFETY GLASS LTD., (2012) 346 ITR 329 (DEL) , HAS HELD THAT AN EXPENDITURE INCURRED BY THE ASSESSEE ON APPLICATION SOFTWARE CA NNOT BE TREATED AS CAPITAL EXPENDITURE. AS THE SOFTWARE PURCHASED B Y THE ASSESSEE, FOR WHICH DISALLOWANCE HAS BEEN MADE, IS, ADMITTEDL Y, AN APPLICATION SOFTWARE AND NOT A SYSTEM SOFTWARE, RES PECTFULLY FOLLOWING THE PRECEDENT, WE HOLD THAT THE SAME SHOU LD HAVE BEEN TREATED AS A REVENUE EXPENDITURE. THE DISALLOWANCE SO MADE IS DELETED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 10.08.2018. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED:10.08.2018 DK ITA NO.1661/DEL/2015 7 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI