QRUIZE TECHNOLOGIES PVT. LTD., CHENNAI V. ACIT, CORPORATE CIRCLE - 5 (2), CHENNAI

ITA 1900/CHNY/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3472 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-09-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 24-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ ITA NO.1900/CHNY/2019 ( / ASSESSMENT YEAR: 2015-16) M/S. QRUIZE TECHNOLOGIES PVT . LTD. OLD NO.37, NEW NO.57, 53 RD STREET, 9 TH AVENUE, ASHOK NAGAR, CHENNAI -600 083. / VS. A CIT CORPORATE CIRCLE-5(2), CHENNAI. ./ ./ PAN/GIR NO. AAACQ-2835-N ( - / APPELLANT ) : ( 01- / RESPONDENT ) - / APPELLANT BY : SHRI K.B.MURALIDHARAN- LD. AR 01- / RESPONDENT BY : SHRI G.JOHNSON LD. SR. DR / DATE OF HEARING : 12/10/2021 / DATE OF PRONOUNCEMENT : 12/10/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THIS APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2015-16 ARISES OUT OF THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI [CIT(A)] DATED 25/04/2019 IN THE MATTER OF ASSESSMENT FRAMED BY LD. ASSESSING OFFICER [AO] U/S 143(3) OF THE ACT ON 27/12/2017. IN THIS APPEAL, THE GRIEVANCE OF THE ASSESSEE IS TWO-FOLD (I) R & D EXPENDITURE TREATED AS CAPITAL EXPENDITURE; (II) ADDITION ON AC COUNT OF DISCREPANCY IN 2 DIRECTORS REMUNERATION. HAVING CONSIDERED RIVAL SU BMISSIONS, OUR ADJUDICATION WOULD BE AS UNDER: - 2. TREATMENT OF RESEARCH & DEV. (R&D) EXPENDITURE A S CAPITAL EXPENDITURE 2.1 THE ASSESSEE IS INTO SOFTWARE DEVELOPMENT AND S ERVICES. IT DEBITED R&D EXPENDITURE OF RS.81.99 LACS. HOWEVER, LD. AO O PINED THAT THE SAME WOULD BE CAPITAL EXPENDITURE IN THE NATURE OF INTANGIBLE ASSETS WHICH WOULD BE ELIGIBLE FOR DEPRECIATION. THE ASSES SEE SUBMITTED THAT THE EXPENDITURE WAS NOT IN CONNECTION WITH DEVELOPM ENT OF END-PRODUCTS BUT TO IMPROVE THE SERVICES IN THE AREA OF TESTING, SHORT-CUTS IN CODING ETC. THE EXPENDITURE WAS INCURRED FOR IMPROVING EXP ERTISE IN TECHNOLOGY AND THE PURPOSE WAS TO INCREASE THE REVENUE. HOWEVE R, THE SAME COULD NOT CONVINCE LD. AO WHO TREATED THE EXPENDITURE TO BE CAPITAL IN NATURE. THE LD. CIT(A) UPHELD THE STAND OF LD. AO, INTER-AL IA, BY OBSERVING THAT THE EXPENDITURE WOULD BRING ENDURING BENEFIT TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 2.2 UPON PERUSAL OF IMPUGNED EXPENDITURE AS PLACED ON PAGE NO.21 OF THE PAPER BOOK, IT COULD BE SEEN THAT THE EXPENDITU RE IS MOSTLY IN THE NATURE OF SALARIES, CONTRIBUTION TO PF, BUSINESS PR OMOTION, WEB SERVICES EXPENSES, CONSULTANCY CHARGES AND TRAINING OF EMPLO YEES ETC. THESE ARE MOSTLY REVENUE IN NATURE AND INCURRED IN THE AR EA OF TESTING, SHORT- CUTS IN CODING ETC. THE EXPENDITURE WAS NOT INCURRE D ON CREATION OF END PRODUCTS BEING DEVELOPED BY THE ASSESSEE BUT TO INC REASE EXPERTISE IN TECHNOLOGY TO INCREASE THE REVENUE. BY INCURRING SU CH EXPENDITURE, THE ASSESSEE MAY GET ENDURING BENEFIT IN FUTURE, NEVERT HELESS, THE SAME WOULD NOT RESULT INTO CREATION OF ANY NEW CAPITAL A SSET. THEREFORE, SUCH EXPENDITURE, IN OUR CONSIDERED OPINION, WOULD BE FU LLY ALLOWABLE BEING 3 REVENUE IN NATURE AS HELD BY PUNE TRIBUNAL IN OPUS SOFTWARE SOLUTIONS PVT. LTD. V/S ACIT (26 TAXMANN.COM 47) ON SIMILAR FACTUAL MATRIX. WE ORDER SO. THE DEPRECATION GRANTED BY LD. AO WOULD STAND REVERSED. THE GROUND THUS RAISED STAND ALLOWED. 3. REMUNERATION TO DIRECTORS 3.1 THE ASSESSEE PAID REMUNERATION OF 12.00 LACS EA CH TO FOUR OF ITS DIRECTORS. UPON PERUSAL OF DETAILS AND FORM NO.16 A S ISSUED BY THE ASSESSEE TO THE DIRECTORS, IT TRANSPIRED THAT THE C OMPONENT OF RS.12 LACS INCLUDE MEDICAL ALLOWANCE AND TRAVEL / EXPENDITURE REIMBURSEMENT WHICH WAS NOT SHOWN IN FORM NO.16 AND NOT OFFERED TO TAX BY THE DIRECTORS. THOUGH LD. AO ACCEPTED ASSESSEES EXPLANATION REGAR DING MEDIAL ALLOWANCE, HOWEVER, LD. ADDED THE AMOUNT OF TRAVEL / EXPENDITURE REIMBURSEMENT TO THE INCOME OF THE ASSESSEE ON THE GROUND THAT SUCH COMPONENT SHOULD HAVE BEEN INCLUDED IN THE SALARY. THE STAND OF LD. AO, UPON CONFIRMATION BY LD. CIT(A), IS IN FURTHER CHALLENGE BEFORE US. 3.2 UPON DUE CONSIDERATION OF MATERIAL FACTS, WE FI ND THAT THE ONLY REASON TO MAKE IMPUGNED ADDITION IS THE OPINION OF LD. AO THAT REIMBURSEMENTS SHOULD HAVE BEEN INCLUDED IN SALARY COMPONENT IN FORM NO.16. HOWEVER, THERE ARE NO FINDINGS THAT THE EXPENDITURE WAS NOT GENUINE. THESES REIMBURSEMENTS ARE PART OF OFFE R LETTERS ISSUED BY THE ASSESSEE TO RESPECTIVE DIRECTORS (PAGE NOS. 100 TO 107 OF PAPER- BOOK). UPON PERUSAL OF THE SAME, WE FIND THAT THE D IRECTORS WERE REIMBURSED TELEPHONE EXPENSES, PETROL / OTHER EXPEN SES WHICH ARE DULY REFLECTED IN PAY-SLIP ISSUED BY THE ASSESSEE. FURTH ER, THERE ARE NO FINDINGS BY LOWER AUTHORITIES THAT THESE REIMBURSEM ENTS WERE TAXABLE. NEVERTHELESS THIS FACT WOULD NOT JEOPARDIZE ASSESSE ES CLAIM OF EXPENDITURE U/S 37(1) SINCE THE ASSESSEE HAS INCURR ED THE EXPENDITURE. 4 THEREFORE, THE IMPUGNED ADDITION IS NOT SUSTAINABLE . WE ORDER SO. THIS GROUND STAND ALLOWED. 4. THE APPEAL STAND ALLOWED. ORDER PRONOUNCED ON 12 TH OCTOBER, 2021. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER < CHENNAI ; DATED : 12/10/2021 SOMASUNDER 57 / COPY OF THE ORDER FORWARDED TO : 1. - / THE APPELLANT 2. 01- / THE RESPONDENT 3. C ( ) / THE CIT(A) 4. C / CIT CONCERNED 5. 0 , , < / DR, ITAT, CHENNAI 6. H / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , < / ITAT, CHENNAI