M/s. Federal Mogul Automotive Products India Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1728/DEL/2012

• Counselvise Citation: 172820114 RSA 2012
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKAS K SURYAWANSHI
• Keywords: Depreciation; Wrong claim; Tax effect; Revenue expenditure; Capital expenditure
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.1728/DEL/2012 ASSESSMENT YEAR : 2006-07 FEDERAL MOGUL AUTOMOTIVE PRODUCTS INDIA PVT. LTD., 7870-77, F-1, ROSHNARA PLAZA BUILDING, ROSHNARA ROAD, NEW DELHI. PAN : AAACF4128M VS. ITO, WARD 11 (2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRADEEP DINODIA, CA REVENUE BY : SHRI VIKAS K. SURYAWANSHI, SR.DR ORDER PER A.D. JAIN, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07 AGAINST THE ORDER DATED 14.02.2012 PASSED BY T HE CIT (A)-XIII, NEW DELHI. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW ON THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE IN CONFIRMING THE PENALTY OF RS.2,10,000/- UNDER SECTIO N 271 (1)(C) LEVIED BY THE LD. A.O. 2. THAT THE ORDER PASSED BY COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW. 3. THAT THE CIT (A) HAS GROSSLY ERRED IN HOLDING THAT ASSE SSEE HAS FURNISHED INACCURATE PARTICULARS WHILE CLAIMING SOFTWARE EXPENSES AS REVENUE IN NATURE. ITA NO.1728/DEL/2012 2 4. THAT THE LD. CIT (A) FAILED TO APPRECIATE THAT THE ISSUE AS TO WHETHER SOFTWARE EXPENSES ARE REVENUE OR OF CAPITAL NA TURE WAS HIGHLY DEBATABLE ISSUE AND PENALTY U/S 271 (1)(C) COU LD NOT BE LEVIED ON SUCH DEBATABLE ISSUE. 5. THAT THE CIT (A) HAS ERRED IN LAW AND ON THE FACTS AND IN CIRCUMSTANCES OF THE ASSESSEES CASE IN HOLDING THAT THE INTENTION OF THE APPELLANT WAS TO DEFRAUD THE INTEREST OF THE REVENUE. 2. THE BRIEF FACTS OF THE CASE ARE THAT VIDE ASSESSMENT O RDER DATED 29.12.2009, PASSED U/S 143 (3) OF THE IT ACT, THE INCO ME OF THE ASSESSEE WAS ASSESSED AT NIL AFTER ADJUSTING BROUGHT FORWARD LOSSES. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED EXACT GLOBE-2003 SOFTWARE PURCHASE EXPENSES OF ` 15,15,140/- AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE ASSESSEE S CLAIM HOLDING THE EXPENSES TO BE CAPITAL IN NATURE. 3. AGAINST THE AFORESAID DISALLOWANCE, NO APPEAL WAS P REFERRED BY THE ASSESSEE. 4. IN THE PENALTY ORDER, THE ASSESSING OFFICER OBSERVED THAT THERE WAS EXPRESS PROVISIONS OF ALLOWABILITY OF DEPRECIATION @ 60% ON SOFTWARE; THAT THE ASSESSEE HAD MADE CLAIM OF SUCH EXPENSE S IN THE PROFIT & LOSS ACCOUNT, DISREGARDING THE SAID PROVISIONS OF THE ACT, THEREBY THE ASSESSEE HAD FURNISHED INACCURATE PARTICULAR S OF ITS INCOME AND HAD CONCEALED A PART OF ITS INCOME; AND THAT ALSO , THE ASSESSEE HAD NOT FILED ANY APPEAL AGAINST THE DISALLOWANCE MAD E IN THE ASSESSMENT. 5. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) CONFIRMED THE LEVY OF PENALTY. 6. AGGRIEVED, THE ASSESSEE IS IN APPEAL. ITA NO.1728/DEL/2012 3 7. CHALLENGING THE IMPUGNED ORDER, THE LEARNED COUN SEL FOR THE ASSESSEE HAS CONTENDED THAT IN THE RETURN OF INCOME FILE D, THE ASSESSEE HAD DECLARED NIL INCOME AFTER ADJUSTING THE BRO UGHT FORWARD LOSSES; THAT THE ASSESSING OFFICER, IN THE ASSESSMENT PROCEED INGS, DISALLOWED THE ASSESSEES CLAIM OF EXPENDITURE ON PURCHASE/UPGRADATION OF COMPUTER SOFTWARE AMOUNTING T O ` 15,15,140/-, AS CAPITAL EXPENDITURE; THAT THE ASSESSING OFFICER, HOWEVER, ALLOWED DEPRECIATION @ 60% BEING THE RATE APPLICABLE TO COMPUTER HARDWARE, WHICH RESULTED INTO A NET ADDITIO N OF ` 6,06,056/-; THAT IN SPITE THEREOF, THE TAXABLE INCOME WAS DETERM INED AT NIL AND THE TAX WAS HELD TO BE PAYABLE UNDER THE PROVISIONS OF MAT , U/S 115JB OF THE ACT; THAT THE AMOUNT INVOLVED BEING SMALL AND IT REPRESENTING A SHIFT IN THE TIMING OF ALLOWABILITY OF EXPENDITURE I NCURRED BY THE ASSESSEE, AS IT WAS TO BE ALLOWED OVER A PERIOD OF 3 TO 4 YEARS THROUGH DEPRECIATION, INSTEAD OF ALLOWING THE CLAIM IN THE Y EAR UNDER CONSIDERATION, AND CONSIDERING , BESIDES THE TAX EFFECT INVOLVED, THE HIGH COST OF LITIGATION, IT WAS DECIDED NOT TO FILE ANY APPEAL IN THE QUANTUM PROCEEDINGS; THAT THE ASSESSEE HAS PAID THE TAX ON BOOK PROFITS U/S 115JB OF THE ACT; THAT THE DISALLOWANCE OF THE SOFTWARE EXPENSES WAS UNDER THE NORMAL PROVISIONS OF THE ACT, HAV ING NO EFFECT ON THE TAXES PAID BY THE ASSESSEE; THAT THE ASSESSEE HAVING SO PAID THE TAX, THERE REMAINS NO TAX SOUGHT TO BE EVADED D UE TO WHICH THE PROVISIONS OF SECTION 271 (1)(C) ARE NOT ATTRACTED; T HAT UNDENIABLY, NO ADDITION WAS MADE TO THE BOOK PROFITS OF THE ASSESSEE AND THEREFORE, THERE IS NO DIFFERENCE BETWEEN THE RETURNED BOOK PRO FITS AND THE ASSESSED BOOK PROFITS; THAT THIS BEING SO, THE ADDITION MA DE BY THE ASSESSING OFFICER DOES NOT GIVE RISE TO ANY TAX DIFFERENT IAL, CLEARLY INDICATING THAT THERE WAS NO WILLFUL ACT OR DELIBERA TENESS ON THE PART OF THE ASSESSEE TO EVADE PAYMENT OF TAX; THAT IN THIS REGAR D, RELIANCE WAS BEING PLACED ON CIT VS. NALWA SONS INVESTMENTS LTD., 327 ITR 543 (DEL), CIT VS. CENTRAL WAREHOUSING CORPORATION, 201 2-TIOL-312-HC- ITA NO.1728/DEL/2012 4 DEL-IT (COPY PLACED ON RECORD ALONG WITH THE SYNOPSIS FILED) AND S.V. KALYANAM, 327 ITR 477 (MAD); THAT THE ISSUE AS TO WHE THER A PARTICULAR ITEM OF EXPENDITURE IS CAPITAL EXPENDITUR E OR REVENUE EXPENDITURE HAS ALWAYS BEEN A DEBATABLE ONE; THAT IT WAS IN AMWAY INDIA ENTERPRISES VS. DCIT, 114 TTJ 476 (DEL) (SB) TH AT VARIOUS TESTS FOR DETERMINING THE NATURE OF SOFTWARE EXPENSES HAVE BEEN LAID DOWN, HOLDING THAT THIS ISSUE SHOULD BE DECIDED FROM THE PRAC TICAL AND BUSINESSMEN POINT OF VIEW IN ACCORDANCE WITH THE SOUND ACCOUNTANCY PRINCIPLES KEEPING IN CONSIDERATION THE TESTS OF ENDURI NG BENEFIT, OWNERSHIP AND FUNCTIONALITY TEST; IN AMWAY INDIA EN TERPRISES (SUPRA), IT HAS BEEN LAID DOWN THAT IF THE TESTS OF END URING BENEFIT ARE SATISFIED, THE QUESTION AS TO WHETHER THE EXPENDITURE O N COMPUTER SOFTWARE IS CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILITY TO A BUSINESS MAN AND AS TO HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN THE BUSINESS AND THAT IN EA CH CASE THE ASSESSING OFFICER WILL HAVE TO CONSIDER THE NATURE OF TH E SOFTWARE AND ITS FUNCTIONAL USE TO THE ASSESSEE AND THEN DECIDE WHETHE R THE EXPENDITURE IS CAPITAL OR REVENUE; THAT THIS VERY VIE W HAS ALSO BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. KRISHNA MAURTI LTD. 2011-TIOL-13-HC-DEL-IT; THAT IT IS ON THE BASIS OF FUNCTIONAL ASPECT OF THE SOFTWARE INVOLVED, THAT THE ASSESSEE TREATED THE SOFTWARE EXPENSES AS REVENUE IN NATURE, IN ITS BOOKS OF ACCOUNT; THAT THIS VIEW FIND SUPPORT FROM CIT VS. ASAHI INDIA SAFETY GLASS LTD., 2011-TIOL-705-HC-IT AND CIT VS. RAYCHEM RPG LTD., 2011 (7) TMI 953 (HC) RENDERED BY THE HONBLE BOMBAY HIGH COURT; AND THAT THE LD. CIT (A) HAS FAILED TO APPRECIATE THIS ASPECT OF THE MA TTER AND HAS WRONGLY UPHELD THE LEVY OF PENALTY. 8. THE LD. COUNSEL OF THE ASSESSEE HAS FURTHER SOUGHT TO P LACE RELIANCE ON: ITA NO.1728/DEL/2012 5 (I) CIT VS. RELIANCE PETROPRODUCTS PVT. LTD., 20 10-TIOL-21- SC; AND (II) CIT VS. BRAHMAPUTRA CONSORTIUM LTD., 2011-TIOL-470 - HC-DEL-IT 9. THEN, FOR THE PROPOSITION THAT CONCEALMENT PENALT Y CANNOT BE LEVIED MERELY ON THE GROUND THAT THE CLAIM OF THE A SSESSEE HAS BEEN NEGATED BY THE ASSESSING OFFICER, RELIANCE HAS BEEN PL ACED ON THE FOLLOWING CASE LAWS:- 1. DCIT VS. SARAYA INDUSTRY LTD., 101 TTJ 213 (DEL); 2. ITO VS. KULDEEP SOOD ENTERPRISES, 103 TTJ 573 (CH.); 3. CIT VS. HONEYWELL DACE INDIA LTD., 292 ITR 169 (DE L); 4. CIT VS. INTERNATIONAL AUDIO VISUAL CO., 288 ITR 5 70 (DEL); 5. CIT VS. NATH BROS. EXIM INTERNATIONAL LTD., 288 I TR 670 (DEL); 6. CIT VS. EICON INTERNATIONAL PVT. LTD., 166 ITR 12 (DEL); AND 7. CIT VS. VIDEON, 301 ITR 260 (DEL) 10. THE LD. DR, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER, CONTENDING THAT THE ASSESSEE HAD CLAIME D AN EXPENDITURE WHICH WAS NOT ALLOWABLE AS A REVENUE EXPE NDITURE, SINCE THE SAME WAS IN THE NATURE OF CAPITAL EXPENDITURE; TH AT THE STAND TAKEN BY THE ASSESSEE REGARDING NON-FILING OF APPEAL IN THE Q UANTUM PROCEEDINGS HAS RIGHTLY BEEN NEGATED BY THE LD. CIT ( A), SINCE UNDENIABLY, THERE WAS NO GROUND AVAILABLE TO THE ASSESSE E TO FILE THE APPEAL, AS THE SOFTWARE EXPENSES STAND CLEARLY DEFINED AS A CAPITAL EXPENDITURE IN THE ACT AND DEPRECIATION THEREON HAS BEEN PROVIDED @ 60% AND THE ASSESSEE DID NOT EVEN HAVE ANY EXPLANATION TO OFFER FOR HAVING CLAIMED SUCH EXPENSES IN THE PROFIT & LOSS ACCOU NT AND MERELY MAINTAINING THAT NO PENALTY IS CALLED FOR ON SOME ADD ITIONS; THAT THE ITA NO.1728/DEL/2012 6 LD. CIT (A) HAS CORRECTLY HELD THAT SINCE THE ASSESSEE RE MAINS UNABLE TO EXPLAIN THE REASONS FOR MAKING THE WRONG CLAIM, T HE ADDITION MADE ON THE BASIS OF SUCH WRONG CLAIM DEFINITELY ATTRACTS P ENALTY; THAT RELIANCE PETROPRODUCTS (SUPRA), AS RIGHTLY NOTED BY THE LD. CIT (A) DOES NOT HELP THE CASE OF THE ASSESSEE, ITS CLAIM BEING AB INITIO WRONG AND CONTRARY TO THE PROVISIONS OF LAW, ABOUT WHICH, N O TWO OPINIONS EXIST; THAT THE EXPENDITURE CLAIMED, I.E., SOFTWARE EXPENSES IS NOT A ROUTINE DISALLOWANCE AND THE ASSESSEES CLAIM THAT NO PEN ALTY CAN BE LEVIED FOR ROUTINE DISALLOWANCES, HAS RIGHTLY BEEN RE JECTED; THAT IN UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 (SC), IT HAS BEEN HELD THAT THE OBJECT BEHIND THE ENACTMEN T OF SECTION 271 (1) (C) OF THE ACT READ WITH ITS EXPLANATIONS, INDICA TES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE, THAT THE PENALTY U/S 271(1)(C) IS A CIVIL LIABILITY A ND THAT WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACT ING CIVIL LIABILITY; THAT IN THE PRESENT CASE, BY WRONGLY CLAIMING THE SOFT WARE EXPENSES AS REVENUE EXPENDITURE, THE ASSESSEE CAUSED LOSS TO THE REVEN UE AND SO, THE CONCEALMENT PENALTY WAS RIGHTLY LEVIED AND UPHEL D; THAT IN CIT VS. ZOOM COMMUNICATIONS PVT. LTD., 191 TAXMAN 179 (DEL) , IT HAS BEEN HELD THAT IF THE ASSESSEE MADE A CLAIM NOT ONLY INCORRE CT IN LAW, BUT ALSO WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED B Y THE ASSESSEE WAS NOT FOUND TO BE BONA FIDE, EXPLANATION 1 TO SECT ION 271 (1)(C) OF THE ACT WOULD COME INTO PLAY AND THE ASSESSEE WOULD BE LIABLE FOR PENALTY; THAT THIS DECISION IS SQUARELY APPLICABLE TO T HE PRESENT CASE AND HAS RIGHTLY BEEN APPLIED BY THE LD. CIT (A); THA T THE EXPLANATION OF THE ASSESSEE HAS RIGHTLY BEEN HELD NOT TO BE A BONA FIDE EXPLANATION AND IT HAS RIGHTLY BEEN HELD THAT THE CLAIM MADE BY THE ASSESSEE WAS WITH THE INTENTION TO DEFRAUD THE INTEREST OF THE RE VENUE AND HAD THE CASE OF THE ASSESSEE NOT BEEN SELECTED FOR SCRUTINY, THE C LAIM OF THE ASSESSEE WOULD HAVE GONE UNNOTICED AND THE ASSESSEE WOULD H AVE SUCCEEDED IN EVADING THE TAX; AND THAT THEREFORE, NO FAULT WHATSOEVER ITA NO.1728/DEL/2012 7 CAN BE FOUND WITH THE ORDER OF THE LD. CIT (A), WHI CH BE UPHELD DISMISSING THE APPEAL FILED BY THE ASSESSEE. 11. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MA TERIAL ON RECORD. FIRSTLY, IT IS SEEN THAT AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE, THERE IS NO DIFFERENCE BETWEEN THE RETURNED IN COME AND THE ASSESSED INCOME. IN NALWA SONS INVESTMENTS LTD. (SUPRA) , IT HAS BEEN HELD THAT WHERE THE TOTAL INCOME COMPUTED UNDE R THE REGULAR PROVISIONS OF THE ACT IS LESS THAN THE BOOK PROFITS, AND THE ASSESSMENT IS MADE U/S 115JB OF THE ACT, CONCEALMENT PENALTY CAN NOT BE LEVIED. 12. THEN, IN ASAHI INDIA SAFETY GLASS LTD. (SUPRA), I T HAS BEEN HELD BY THE HONBLE JURISDICTIONAL HIGH COURT THAT THE EX PENDITURE INCURRED ON ACCOUNT OF APPLICATION SOFTWARE IS A REVENUE EXPEN DITURE, ALLOWABLE IN THE COMPUTATION OF INCOME. 13. THEN, THE CLAIM OF THE ASSESSEE HAS NOT BEEN SHOWN TO BE A FALSE CLAIM. THE VIEW OF THE ASSESSEE IS A PLAUSIBLE VIEW, ON WHICH, TWO OPINIONS MIGHT BE HELD. 14. FURTHER, IN KRISHNA MAURTI LTD (SUPRA), IT WAS H ELD THAT THE CLAIM MADE BY THE ASSESSEE THAT EXPENSES INCURRED WERE RE VENUE IN NATURE, WAS DEBATABLE AND THEREFORE, IT COULD NOT AT TRACT PENALTY. 15. IN VIEW OF THE ABOVE, WE DO NOT FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE LD. CIT (A) AND THE SAME IS HEREBY C ANCELLED. ACCORDINGLY, THE PENALTY LEVIED ON THE ASSESSEE IS DELET ED. ITA NO.1728/DEL/2012 8 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.08.20 12. SD/- SD/- [T.S. KAPOOR] [A.D. JAIN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 24.08.2012. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES