DCIT, CHENNAI V. M/s. Ma Foi Consulting Solutions Ltd., CHENNAI

ITA 1869/CHNY/2010

• Counselvise Citation: 186921714 RSA 2010
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: T BANUSEKAR
• Keywords: Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI B E F O R E DR. O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER .. ITA NO.1868 & 1869(MDS)/2010 ASSESSMENT YEARS: 2005-06 & 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE IV(1), CHENNAI. VS. M/S. MA FOI CONSULTING SOLUTIONS LTD., NEW NO.8, KHADER NAWAZ KHAN ROAD, NUNGAMBAKKAM, CHENNAI-6. PAN AADCM5547J. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KEB RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY: SHRI T.BANUSEKAR, C.A. DATE OF HEARING : 1 1 TH AUGUST, 2011 DATE OF PRONOUNCEMENT : 18TH AU GUST, 2011 - - ITA NOS.1868 &1869 OF 2010 2 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THESE TWO APPEALS ARE FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEARS ARE 2005-06 AND 2006-07. THE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE COMM ISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI DATED 5-8-2010. T HE APPEALS ARISE OUT OF THE ASSESSMENTS COMPLETED UNDER SECTIO N 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE FIRST ISSUE COMMON FOR BOTH THE ASSESSMENT YEARS, RAISED BY THE REVENUE, IS THAT THE COMMISSIO NER OF INCOME-TAX(APPEALS) HAS ERRED IN DELETING THE DISAL LOWANCE OF DEPRECIATION MADE BY THE ASSESSING AUTHORITY ON SOF TWARE. THE DISALLOWANCE AMOUNTED TO ` 3,12,000/- AND ` 6,71,053/- FOR THE ABOVE TWO ASSESSMENT YEARS RESPECTIVELY. THE DISPU TED SOFTWARE WAS PURCHASED BY THE ASSESSEE FROM M/S.TOP SYS SOLUTIONS PRIVATE LIMITED VIDE THEIR INVOICE NO.103 DATED 30 TH MARCH, 2005. THE CLAIM OF DEPRECIATION WAS TURNED DOWN BY THE ASSESSING AUTHORITY ON THE GROUND THAT THE ASSESSEE HAD NOT - - ITA NOS.1868 &1869 OF 2010 3 PRODUCED ANY PROOF TO SHOW THAT THE SOFTWARE WAS PU T TO USE IN THE PREVIOUS YEARS RELEVANT TO THE IMPUGNED ASSESSM ENT YEARS ITSELF. BUT THE COMMISSIONER OF INCOME-TAX(APPEALS ) FOUND THAT THE ASSESSEE HAD GIVEN A DETAILED REPLY TO THE QUER IES RAISED BY THE ASSESSING AUTHORITY IN RESPECT OF THIS ISSUE, T HROUGH ITS LETTER DATED 29 TH NOVEMBER, 2007. THE MINUTES OF THE MEETING THE ASSESSEE HAD WITH THE SUPPLIER ON 16-2-2005 WAS ALS O PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. IN T HE LIGHT OF THESE EXPLANATIONS AND EVIDENCES, THE COMMISSIONER OF INCOME- TAX(APPEALS) CAME TO THE CONCLUSION THAT THE INTEGR ATION OF THE MODULES AND CHANGE IN THE INPUT AND REPORTING FORMA T AS A RESULT OF THE INSTALLATION OF THE NEW SOFTWARE HAVE BEEN C OMPLIED WITH BEFORE 31-3-2005 AND THEREFORE THERE IS NO DISPUTE THAT THE SOFTWARE WAS PUT TO USE IN THE RELEVANT PREVIOUS YE AR ITSELF. ACCORDINGLY THE DISALLOWANCE OF DEPRECIATION MADE B Y THE ASSESSING AUTHORITY FOR BOTH THE ASSESSMENT YEARS H AS BEEN DELETED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). 3. ON CONSIDERATION OF THE DETAILS AVAILABLE FROM THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THE A SSESSING OFFICER WAS PROCEEDING ON A HAIR-SPLIT ARGUMENT ON FACTS. FIRST OF ALL IT IS - - ITA NOS.1868 &1869 OF 2010 4 TO BE SEEN THAT INTEGRATION OF A NEW SOFTWARE PACKA GE INTO THE EXISTING SYSTEM IS NOT SOMETHING LIKE PUTTING TO US E HUGE PLANT AND MACHINERY OF A FACTORY OR COMPLETION OF A HUGE STRUCTURE LIKE THAT. IF THE SOFTWARE IS COMPATIBLE, IT CAN BE INT EGRATED EVEN WITHIN A VERY SHORT TIME. THEREFORE, THERE IS NO N EED OF LONG TIME SPAN FOR SOFTWARE TO BE INTEGRATED INTO AN OPERATIN G SYSTEM. THE DETAILS FURNISHED BY THE ASSESSEE SHOWED THAT THE S OFTWARE HAS BEEN INSTALLED BEFORE 31-3-2005 AND INTEGRATION OF THE MODULES HAD BECOME FUNCTIONAL BY THAT DATE WHICH RESULTED I N THE DESIRED CHANGE IN THE INPUT AND REPORTING FORMAT. THEREFOR E WE FIND THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) IS JUSTIFIE D IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY OF DEPRECIATION ON SOFTWARE. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 4. THE NEXT ISSUE RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN ALLOWING LOSS ON TRANSFER OF ASSETS OF ` 86,377/- AS SHORT TERM CAPITAL LOSS. IT IS THE CA SE OF REVENUE THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FA ILED TO APPRECIATE THAT THE ASSESSEE HAD STATED BEFORE THE ASSESSING - - ITA NOS.1868 &1869 OF 2010 5 OFFICER THAT THE LOSS WAS ON ACCOUNT OF DELETION OF VEHICLES FROM THE FIXED ASSET SCHEDULE AND ALSO THE ASSESSEE HAS NOT PROVIDED THE DETAILS WITH REGARD TO THE SALE CONSIDERATION R EALIZED. 5. THE CONTENTION OF THE ASSESSING AUTHORITY WAS T HAT THE LOSS WAS IN THE NATURE OF CAPITAL LOSS. AS RIG HTLY POINTED OUT BY THE COMMISSIONER OF INCOME-TAX(APPEALS), WHAT HA S BEEN CLAIMED BY THE ASSESSEE AS LOSS WAS THE EXCESS OF T HE WRITTEN DOWN VALUE OF THE VEHICLES SOLD, AS REFLECTED IN TH E BLOCK OF ASSETS. SUCH LOSS IS IN THE NATURE OF SHORT TERM C APITAL LOSS UNDER SECTION 50(2) OF THE ACT. A PARTICULAR CLASS OF ASSETS HAS BEEN DELETED FROM THE BLOCK OF ASSETS AND THEREFORE ANY RESIDUAL EXCESS OR RESIDUAL SHORTAGE HAS BEEN TREATED AS SHO RT TERM IN NATURE. THE COMMISSIONER OF INCOME-TAX(APPEALS) HA S RIGHTLY DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING AUTHORITY. THIS ISSUE IS DECIDED AGAINST THE REVENUE. 6. THE NEXT ISSUE RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF SALARIES AND WAGES OF ` 1,18,46,576/-. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, DETAILS OF EXPENSES OF SALARIES AND WA GES WERE - - ITA NOS.1868 &1869 OF 2010 6 CALLED FOR BY THE ASSESSING AUTHORITY. THE DETAILS WERE SUBMITTED BY THE ASSESSEE COMPANY ON 29-12-2008. THE ASSESSI NG AUTHORITY WAS OF THE OPINION THAT PAYMENTS MADE UND ER THE HEAD SALARIES AND WAGES WERE EXCESSIVE. BUT THE ASSESSE E EXPLAINED THAT UNLIKE IN MANUFACTURING INDUSTRY, WHERE THE MA JOR COST ELEMENT WOULD BE OF RAW MATERIALS, IN SERVICE INDUS TRY THE PRINCIPAL COST ELEMENT IS SALARY PAID TO THE STAFF FOR THE TECHNICAL SUPPORT AND SERVICES. THE ASSESSEE ALSO FURNISHED YEARWISE COMPARISON OF SALARY EXPENDITURE ALONGWITH THE CORR ESPONDING GROSS REVENUE OF THE ASSESSEE. ON A COMPARISON OF THE DETAILS FILED BY THE ASSESSEE, IT WAS ESTABLISHED THAT THE RATIO OF SALARY TO THE TOTAL TURNOVER IS WITHIN THE RANGE OF 49 TO 53 PER CENT ON AN AVERAGE AND FOR THE IMPUGNED PREVIOUS YEAR THE RATI O COMES TO 50.75 PER CENT, WHICH IS WITHIN THE REASONABLE LIMI T. THE ASSESSEE ALSO EXPLAINED BEFORE THE COMMISSIONER OF INCOME- TAX(APPEALS) THAT THE ASSESSING OFFICER HAS NOT MAD E ANY SIMILAR DISALLOWANCE EITHER FOR THE EARLIER ASSESSMENT YEAR OR FOR THE SUBSEQUENT ASSESSMENT YEAR. CONSIDERING ALL THESE ASPECTS THE COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT THE D ISALLOWANCE WAS NOT CALLED FOR. - - ITA NOS.1868 &1869 OF 2010 7 7. IT IS SEEN THAT THE ASSESSEE GROUP HAS MORE THA N 2,000 EMPLOYEES ON THEIR ROLLS. IN THE ASSESSEES UNIT ITSELF 558 EMPLOYEES WERE SERVING IN THE RELEVANT PREVIOUS YEA R. THE APPOINTMENT LETTERS AND OTHER EVIDENCES ARE VERY MU CH AVAILABLE WITH THE ASSESSEE COMPANY. THE ASSESSEE IS HAVING EIGHT BRANCHES, WHICH CALLS FOR SUBSTANTIAL MAN-POWER. I N THESE CIRCUMSTANCES WE DO NOT FIND ANY SPECIFIC GROUND TO SUPPORT THE VIEW TAKEN BY THE ASSESSING AUTHORITY. APART FROM POINTING OUT THE NON AVAILABILITY OF PARTICULARS IN RESPECT OF A MINISCULE OF THE EMPLOYEES WORKING WITH THE ASSESSEE COMPANY, THERE ARE NO OTHER SERIOUS DEFECTS POINTED OUT BY THE ASSESSING AUTHORITY. THEREFORE IT IS NOT REASONABLE TO MAKE A DISALLOWAN CE ON THE GROUND THAT THE SALARY BILL OF THE ASSESSEE COMPANY WAS ON THE HIGHER SIDE. IT IS TO BE SEEN THAT THE MAN-POWER E MPLOYED BY THE ASSESSEE IS NOT GENERAL LABOUR, BUT QUALIFIED PERSO NNEL. THEREFORE IT IS QUITE NATURAL THAT THEIR WAGE BILL WOULD BE LARGER. WE AGREE WITH THE ORDER OF THE COMMISSIONER OF INCO ME- TAX(APPEALS) AND CONFIRM THE DELETION OF THE DISALL OWANCE OF SALARIES AND WAGES MADE BY THE ASSESSING AUTHORITY. THIS ISSUE IS DECIDED AGAINST THE REVENUE. - - ITA NOS.1868 &1869 OF 2010 8 8. THE NEXT ISSUE RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 IS THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION ` 9,90,000/- REPRESENTING ASSETS WRITTEN OFF IN THE COURSE OF SHIFTING OF OFFICE PREMISES OF THE ASSESS EE. IT IS THE CASE OF THE REVENUE THAT THE LOSS SHOULD BE TREATED AS CAPITAL IN NATURE. THE REVENUE HAS ALSO RELIED ON THE JUDGMEN T OF THE HONBLE KERALA HIGH COURT IN THE CASE OF M/S. COCHI N MALABAR ESTATES & INDUSTRIES VS. CIT, 325 ITR 129. THE ASS ESSEE HAD SHIFTED ITS OFFICE FROM EGMORE TO MOUNT ROAD IN THE IMPUGNED PREVIOUS YEAR. IN THAT PROCESS, THE ASSESSEE HAD T O LEAVE SOME OF ITS MOVABLE ASSETS AT THE EGMORE OFFICE ITSELF, AS THOSE ASSETS WERE NOT WORTHY OF INSTALLING AT THE NEW OFFICE PRE MISES BECAUSE OF ITS OLD AGE AS WELL AS DIFFICULTY IN DISMANTLING AND TRANSPORTATION. THOSE ASSETS DID NOT HAVE ANY RESA LE VALUE EITHER. ALSO, THE DISMANTLING COST WOULD BE MORE T HAN THE SALVAGE VALUE OF THE ASSETS. THEREFORE, THE WRITTE N DOWN VALUE OF THOSE ASSETS WAS WRITTEN OFF BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR. WITHOUT MUCH DISCUSSION, IT IS POSS IBLE TO UNDERSTAND THAT THIS WRITE OFF SHOULD BE IN THE NAT URE OF REVENUE - - ITA NOS.1868 &1869 OF 2010 9 LOSS. THE ORDER OF THE COMMISSIONER OF INCOME-TAX( APPEALS) IS THEREFORE JUST AND PROPER. 9. WE HAVE CONSIDERED ALL THE GROUNDS RAISED BY TH E REVENUE FOR BOTH THE ASSESSMENT YEARS 2005-06 AND 2 006-07 AND HELD THAT THE DECISIONS ARRIVED AT BY THE COMMI SSIONER OF INCOME-TAX(APPEALS) ON ALL THE DISPUTED POINTS ARE JUST AND PROPER. 10. IN RESULT THESE TWO APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 18 TH DAY OF AUGUST, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 18 TH AUGUST, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.