DCIT, New Delhi V. M/s. Sapient Corporation Pvt. Ltd., New Delhi

ITA 1856/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4274 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 14-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAJANAND MEENA
• Assessee Lawyers: NEERAJ K JAIN; PINKY KAPOOR
• Keywords: Capital asset; Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJ AN, AM I. T. A. NO. 1856 (DEL) OF 2010 ASSESSMENT YEAR : 2005-06. DY. COMMISSIONER OF INCOME-TAX, M/S. SAPIENT CORPORATION PVT. LTD., 104 ASHOKA ESTATE, C I R C L E : 7 (1), VS. 24 BARAKHAMBA ROAD, CONNAUGHT PLACE, N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAE CS 6286 M. ( APPELLANT ) ( RE SPONDENT ) ASSESSEE BY : SHRI NEERAJ K. JAIN, ADV.; & MS. PINKY KAPOOR, A DV.; DEPARTMENT BY : SHRI GAJANAND MEENA [CIT] D. R .; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 5-06 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)X, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER :- ' 1. LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRE D, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDI TION OF RS.1,03,78,657/- MADE BY THE AO ON ACCOUNT OF RECRUITMENT AND TRAINING EX PENSES; 2 I. T. A. NO. 1856 (DEL) OF 2010 2. LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDI TION OF RS.60,06,344/- MADE BY THE AO ON ACCOUNT OF SALES PROMOTION EXPENSES; 3. LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDI TION OF RS.1,12,61,787/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON COMPUTERS. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1,03,78,657/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED 2/3 RD OF RECRUITMENT AND TRAINING EXPENSES CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE EXPENDITURE INCURRED ON TRAINING PROVIDED ENDURING BENEFIT TO THE ASSESSEE AS ITS BENEFIT DID NOT RESTRICT TO ONLY ONE YEAR. THERE WAS NO DOUBT THAT PURSUANT TO THE TRAINING IMPARTED TO THE EMPLOYEES, THE QUAL ITATIVE CHANGES ARE AFFECTED IN THE WORKING OF THE EMPLOYEES, WHICH BRING EFFICIENCY IN THE OVER-A LL WORKING OF THE COMPANY. THEREFORE, THE EXPENDITURE INCURRED WAS IN THE NATURE OF CAPITAL E XPENDITURE. 4. ON APPEAL THE LD. CIT (APPEALS) OBSERVED THAT IN ASSESSMENT YEAR 2004-05 THE ISSUE OF ALLOWABILITY OF RECRUITMENT AND TRAINING EXPENSES A S REVENUE EXPENDITURE WAS EXAMINED BY HIS PREDECESSOR IN DETAIL. HE HAD ALLOWED THE EXPENDI TURE INCURRED ON TRAINING AS REVENUE EXPENDITURE. THE LD. CIT (A) FOLLOWING THE DECISIO N FOR AY 2004-05 DELETED THE ADDITION ON ACCOUNT OF RECRUITMENT AND TRAINING EXPENSES. 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSING OFFICER HAD DISALLOWED 2/3 RD OF RECRUITMENT AND TRAINING EXPENSES OF RS.1,03,65 ,985/-. THE LD. AR OF THE ASSESSEE FURTHER SUBMITTED THAT SIMILAR DISALLOWANCE WAS MAD E IN AY 2004-05, WHICH WAS DELETED BY THE LD. CIT (A). THE DEPARTMENT HAD ACCEPTED THE FINDI NG OF THE LD. CIT (A) WITH RESPECT TO DISALLOWANCE TO RECRUITMENT AND TRAINING EXPENSES. SINCE NO APPEAL TO THE TRIBUNAL WAS FILED, THE DECISION OF THE LD. CIT (A) ON THE ISSUE HAS BECOME FINAL. IN VIEW OF THESE FACTS, IT HAS BEEN 3 I. T. A. NO. 1856 (DEL) OF 2010 SUBMITTED THAT TRAINING AND RECRUITMENT EXPENSES AR E REVENUE IN NATURE. ON THE OTHER HAND, THE LD. CIT - DR SUPPORTED THE ORDER OF THE ASSESSING O FFICER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IN ASSESSMENT YEAR 2004-05 THE LD. CIT (A) HAS DELETED THE ADDITION BY HOLDING THAT THE EXPENDITURE INCURRED ON RECRUITMENT AND TRAINING WAS REVENUE IN NATURE. THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE ITAT CHALLENGING THE DELETION OF THE ADDITION ON RECRUITMENT AND TRAINING. FURTHER, THE ASSESSING OFFICER HAD NOT DOUBTED THE GENUINENESS OF THE EXPENSES INCURRED ON RECRUITMENT AND TRAINING OF OF EMPLOYEES. SUCH EXP ENDITURE WAS INCURRED IN THE ORDINARY COURSE OF BUSINESS AND NO CAPITAL ASSET HAS BEEN ACQUIRED. THE RECRUITMENT AND TRAINING EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE TO FACILITATE ITS BUS INESS OPERATIONS MORE PROFITABILITY AND EFFICIENTLY. THE RECRUITMENT IS AN ON-GOING PROCES S AND DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSET. THE ITAT, DELHI BENCH, IN THE CASE OF SONY INDIA (P.) LTD. VS. DCIT (SUPRA) IN PARA 83 HAS HELD AS UNDER :- 83. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS BY NOW WELL-SETTLED THAT IF THE EXPENDITURE INCURRED BY THE TAXPAYER IS OF REVENUE NATURE, THE SAME IS ENTIRELY DEDUCTIBLE EVEN IF THERE ACCRUES AN ADVANTAGE OF ENDURING NATURE IN FAVOUR OF THE TAXPA YER AS A RESULT OF THE SAID EXPENDITURE. THIS IS BECAUSE GOING BY THE VERY NATU RE OF THE EXPENDITURE BEING REVENUE, IT OPERATES IN THE REVENUE FIELD LEAVING THE CAPITA L FIELD UNTOUCHED. THE ENDURING BENEFIT RESULTING FROM THE SAID EXPENDITURE MAY JUSTIFY THE ACTION OF THE TAXPAYER TO WRITE OFF THE SAID EXPENDITURE IN HIS BOOKS OF ACCOUNT OVER A PER IOD OF MORE THAN ONE YEAR. HOWEVER, SUCH ACCOUNTING TREATMENT BY ITSELF IS NOT CONCLUSI VE TO DECIDE THE NATURE OF THE RELEVANT EXPENDITURE, WHETHER CAPITAL OR REVENUE. I N THE CASE OF AMAR RAJA BATTERIES LTD. V. DY. CIT [2004] 91 I.T.D. 280. HYDERABAD B ENCH OF ITAT HAS HELD AFTER TAKING INTO CONSIDERATION THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. (SUPRA) THAT EVEN THOUGH THE TAXPAYER HAD WRITTEN OFF THE EXPENDITURE IN ITS BOOKS OF ACCOUNT OVER A PERIOD OF FIVE YEARS, IT MUST BE 4 I. T. A. NO. 1856 (DEL) OF 2010 ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT WAS INCURRED IF IT WAS THE REVENUE EXPENDITURE AND IF IT WAS WHOLLY AND EXCLUSIVELY IN CURRED FOR THE PURPOSES OF ITS BUSINESS. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE EXPENDITURE IN QUESTION INCURRED BY THE TAXPAYER COMPANY ON TRAINING OF ITS EMPLOYEES WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF ITS BUSINES S. AS REGARDS THE NATURE OF THE SAID EXPENDITURE, THE SUBMISSION OF THE TAXPAYER COMPANY BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US HAS BEEN THAT THE SAID EXPENDITUR E WAS INCURRED FOR THE PURPOSE OF IMPARTING TRAINING TO ITS EMPLOYEES IN ORDER TO INC REASE THEIR EFFICIENCY IN DAY-TO-DAY WORKING AND THERE IS NOTHING BROUGHT ON RECORD ON B EHALF OF THE REVENUE TO CONTROVERT/REBUT THIS POSITION. IN THE CASE OF HIN DUSTAN ALUMINIUM CORPN. LTD. (SUPRA) CITED BY THE LEARNED COUNSEL FOR THE TAXPAY ER, THE EXPENDITURE INCURRED ON PRACTICAL TRAINING AND EXPERIENCE OF ITS EMPLOYEES BY THE TAXPAYER COMPANY IN ORDER TO ACHIEVE EFFICIENT RUNNING OF FACTORY FOR GETTING OPTIMUM PRODUCTION WAS HELD TO BE A REVENUE EXPENDITURE BY THE HONBLE CALCUTTA HIGH CO URT OBSERVING THAT THE SAME WAS DIRECTLY LINKED TO PROFIT EARNING PROCESS. IN THE C ASE OF ASSOCIATED CEMENT CO. LTD. (SUPRA), THE ADVANTAGE SECURED BY THE TAXPAYER BY I NCURRING THE EXPENDITURE WAS ABSOLUTION OR IMMUNITY FROM LIABILITY TO PAY MUNICI PAL RATES OR TAXES FOR A PERIOD OF FIFTEEN YEARS AND AS THE SAID LIABILITY WAS ON REVE NUE ACCOUNT, IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE EXPENDITURE INCURRED WAS OF REVENUE NATURE AS THE ADVANTAGE SECURED WAS IN THE FIELD OF REVENUE A ND NOT CAPITAL. IN THE PRESENT CASE, THE EXPENDITURE INCURRED BY THE TAXPAYER COMP ANY ON IMPARTING TRAINING TO ITS EMPLOYEES IN ORDER TO INCREASE THEIR EFFICIENCY IN DAY-TO-DAY WORKING WAS IN THE REVENUE FIELD AND THIS BEING SO AND KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, W E HOLD THAT THE SAME WAS ENTIRELY DEDUCTIBLE IN THE YEAR UNDER CONSIDERATION AS RIGHTLY CLAIMED BY THE TAXPAYER. THE IMPUGNED ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISALLOW- -ANCE MADE BY THE ASSESSING OFFICER TO THE EXTENT O F 50 PER CENT ON THIS ISSUE IS, THEREFORE, REVERSED AND THE ASSESSING OFFICER I S DIRECTED TO ALLOW THE SAID EXPENDITURE IN FULL. 5 I. T. A. NO. 1856 (DEL) OF 2010 7. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECIS ION OF THE ITAT IN THE CASE OF SONY INDIA (P.) LTD. VS. DCIT (SUPRA), WE DO NOT FIND ANY INFI RMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION. 8. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION OF RS.60,06,344/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALES PROMOT ION EXPENSES. THE ASSESSEE IN THE RETURN OF INCOME CLAIMED EXPENDITURE OF RS.90,09,516/- ON ACC OUNT OF ADVERTISEMENT AND SALES PROMOTION. THE AO DISALLOWED 2/3 RD OF THE EXPENSES ON THE GROUND THAT ADVERTISEMENT A ND SALES PROMOTION EXPENSES HAVE RESULTED IN THE BENEFIT OF ENDURING N ATURE. ON APPEAL THE LD. CIT (A) DELETED THE ADDITION BY OBSERVING THAT IN EARLIER YEARS THERE W AS NO DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES. 9. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE EXPENSES ON SALES PROMOTION INCLUDED IN THE AGGREGATE EXPENSES OF ADVERTISEMENT AND SALES PROMOTION OF RS.90,09,516/- [OTHER THAN SPONSORSHIP EXPENSES] HAS RIGHTLY BEEN ALLOWED BY THE LD. CIT (A). ON THE OTHER HAND, THE LD. CIT DR SUPPORTED THE ORDER OF THE A O. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE AO HAD DISALLOWED 2/3 RD OF THE SALES PROMOTION EXPENSES. IN EARLIER YEARS , AS HELD BY THE LD. CIT (A) THERE WAS NO DISALLOWANCE ON ACCOUNT OF SALES PROMO TION EXPENSES. THE AO HAD NOT POINTED OUT ANY EXPENDITURE WHICH WAS NOT INCURRED FOR THE PURP OSE OF THE BUSINESS. IN THE ABSENCE OF ANY SUCH FINDINGS, THE DELETION OF DISALLOWANCE MADE BY THE LD. CIT (A) IS JUSTIFIED. HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) DELETING THE ADDITION. 11. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.1,12,61,787/- ON ACCOUNT OF DEPRECIATION ON COMPUTERS. THE AO HAD R ESTRICTED THE DISALLOWANCE OF DEPRECIATION TO 25 PER CENT TREATING IT AS PLANT AND MACHINERY FOR THE SOFTWARE DEVELOPMENT UNIT OF THE ASSESSEE. 6 I. T. A. NO. 1856 (DEL) OF 2010 ON APPEAL THE LD. CIT (A) FOLLOWING THE ORDER PASSE D BY THE LD. CIT (A) FOR AY 2004-05 HAS ALLOWED DEPRECIATION AT THE RATE OF 60 PER CENT. 12. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTE D THAT THE ITAT, DELHI BENCH G, NEW DELHI, IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA . NO. 427 (DEL) OF 2008 DATED 08 TH OCTOBER, 2010 HAS CONFIRMED THE ORDER OF THE LD. CIT (A) ALL OWING 60% OF DEPRECIATION ON COMPUTERS. ON THE OTHER HAND, THE LD. CIT DR SUPPORTED THE ORDE R OF THE AO. 13.1 WE HAVE HEARD BOTH THE PARTIES. ITAT, DELHI BENCH G, NEW DELHI, IN ASSESSEES OWN CASE FOR AY 2004-05 HAS CONFIRMED THE ORDER OF THE LD. CIT (A) BY OBSERVING AS UNDER :- 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE DISPUTE IS R EGARDING RATE OF DEPRECIATION TO BE ALLOWED ON COMPUTERS. THE AO HAS ALLOWED DEPREC IATION TO THE ASSESSEE ON COMPUTERS AT THE RATE OF 25 PER CENT TREATING IT AS PLANT AND MACHINERY FOR THE SOFTWARE DEVELOPMENT UNIT OF THE ASSESSEE. THE LD. CIT (A) HAS HELD THAT ALTHOUGH COMPUTER INCLUDING COMPUTER SOFTWARE ALSO FALLS UND ER THE HEAD MACHINERY AND PLANT, BUT AS PER ITEM 5 OF APPENDIX 1 OF RULE 5 O F I. T. RULES, WHICH IS A SPECIAL PROVISION AS PER WHICH DEPRECIATION ON COMPUTER IS ALLOWABLE AT THE RATE OF 60 PER CENT. ON THIS BASIS, HE DIRECTED THE ASSESSING OFFICER TO ALLOW 60 PER CENT DEPRECIATION ON THE COMPUTERS AS CLAIMED BY THE ASS ESSEE. BY NOW, IT IS A SETTLED POSITION OF LAW THAT DEPRECIATION IS ALLOWABLE ON C OMPUTERS INCLUDING PERIPHERAL SUCH AS PRINTERS ETC. AT THE RATE OF 60 PER CENT AN D HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. GROUND NO. 3 OF THE REVENUES APPEAL IS ALSO REJECTED. 7 I. T. A. NO. 1856 (DEL) OF 2010 13.2 SINCE THE ISSUE IS SQUARELY COVERED BY THE DEC ISION OF THE ITAT FOR AY 2004-05, RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD TH AT COMPUTERS AND THEIR PERIPHERALS WILL BE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60 PER CEN T. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (A) ALLOWING DEPRECIATION @ 60% ON COMPUTERS AND THEIR PERIPHERALS. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON : 08 TH APRIL, 2011 . SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08 TH APRIL, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.