M/s. Jay Chem, Ahmedabad V. The ACIT.,Circle-10, Ahmedabad

ITA 1975/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80569 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 09-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Principle of natural justice; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA.NO.1975/AHD/2011 (ASSESSMENT YEAR:2002-03) M/S JAY CHEM 803, SHILP BUILDING, C.G.ROAD, NAVRANGPURA, AHMEDABAD APPELLAN T VS. ACIT, CIRCLE-10, AHMEDABAD RESPONDENT PAN: AACFJ1932F /BY APPELLANT : SHRI S. N. SOPARKAR, A.R. /BY RESPONDENT : SHRI ROOP CHAND, SR.D.R. !' /DATE OF HEARING : 17.12.2014 #$% !' /DATE OF PRONOUNCEMENT : 22.12.2014 I.T.A. NO. 1975/AHD/2011 A.Y. 2002-03 (M/S JAY CHEM VS. ACIT) PAGE 2 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XVI, AHMEDABAD, DATED MAY 27, 2011 FOR A.Y. 2002-03 ON T HE FOLLOWING GROUNDS: 1. LD. CIT (A) ERRED IN LAW AND ON FACTS IN CONFIR MING THE ACTION OF AO IN TREATING COMPUTER SOFTWARE EXPENSES AS CAPITAL EXPENDITURE HOLDING THE SAME TO HAVE LONG LASTING USE AND ENDURING BENEFIT. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THE FACT THAT THE EXPENSES INCURRED WERE ON OBTAINING OPERATIONAL SOFTWARE THAT WOULD NOT OPERATE ON STANDALONE BASIS . LD. CIT (A) OUGHT TO HAVE ALLOWED THE SAME AS REVEN UE EXPENDITURE AS CLAIMED BY THE APPELLANT. 2. LD. CIT (A) FURTHER ERRED IN LAW AND ON FACTS IN TREATING ERP SOFTWARE A TANGIBLE PROPERTY AS A PLANT ENTITLE D TO CLAIM OF DEPRECIATION @ 25 % ONLY THOUGH DEPRECIATI ON @ 60 % WAS ALLOWED IN THE ORIGINAL AS WELL IN THIS SET ASIDE PROCEEDINGS. LD. CIT (A) INSTEAD OF CORRECTLY APPLYING THE RATIO OF THE SPECIAL BENCH DECISION, TRAVELLED BEYOND THE DIRECTIONS OF THE HON'BLE ITAT BY REDUCING THE DEPRECIATION @ 60% ALREADY GRANTED TO THE APPELLANT. THIS ACTION OF LD. CIT (A) BEING ARB ITRARY AND AGAINST PRINCIPLES OF NATURAL JUSTICES DESERVES TO BE QUASHED. 3. LEVY OF INTEREST UNDER SECTION 234A/B/C/D OF THE ACT IS NOT JUSTIFIED. 4. INITIATION OF PENALTY U/S 271(L)(C) OF THE ACT I S NOT JUSTIFIED. I.T.A. NO. 1975/AHD/2011 A.Y. 2002-03 (M/S JAY CHEM VS. ACIT) PAGE 3 2. THE ISSUE BEFORE US IS WITH REGARDS TO NATURE AN D USE OF ERP SYSTEM. COMPUTER SOFTWARE IS CALLED AS ENTERPR ISE RESOURCE PLANNING (ERP). ENTERPRISE RESOURCE PLANN ING (ERP) IS AN INTEGRATED COMPUTER BASED APPLICATION USED TO MANAGE INTERNAL AND EXTERNAL RESOURCES, INCLUDING TANGIBLE ASSETS, FINANCIAL RESOURCES, MATERIALS AND HUMAN RESOURCES AND OTHER MULTIFARIOUS USE AS DISCUSSED BY ASSESSING OFFICER IN PARA-4.1 OF ITS ORDER. ASSESSING OFFICER HELD THE SAME AS C APITAL EXPENDITURE, WHICH WAS CONFIRMED BY CIT(A). 2.2 BEFORE US, LD. AUTHORIZED REPRESENTATIVE POINTE D OUT THAT THIS ISSUE CAME UP BEFORE HONBLE BOMBAY HIGH COURT IN CASE OF COMMISSIONER OF INCOME-TAX VS. RAYCHEM RPG LTD.[ 2012] 346 ITR 138 (BOMBAY), WHEREIN ISSUE OF ALLOWABILITY OF ENTERPRISE RESOURCE PLANNING (ERP) HAS BEEN HELD AS REVENUE EXPENDITURE BY OBSERVING AS UNDER: 2. AS REGARDS THE FIRST QUESTION. TRIBUNAL RELYING UPON ITS ORDER IN THE ASSESSEE'S OWN CASE RELATING TO ASST. YR. 2001- 02 HELD THAT THE SOFTWARE EXPENDITURE WAS A REVENUE EXPENDITURE. THE APPEAL FILED BY THE REVENUE FOR TH E ASST. YR. 2001-02 HAS BEEN DISMISSED FOR WANT OF REMOVAL OF OFFICE OBJECTIONS AND THUS THE ORDER PASSED BY THE TRIBUNA L FOR THE ASST. YR. 2001-02 HAS ATTAINED FINALITY. MOREOVER, THE TRIBUNAL IN ITS ORDER RELATING TO THE ASST. YR. 200 1-02 HAS ALLOWED EXPENDITURE AS REVENUE EXPENDITURE BY RECOR DING THUS: '7. WHEN WE APPLY THIS FUNCTIONAL TEST SUGGESTED BY THE SPECIAL BENCH OF THE TRIBUNAL, WE FIND THAT IMPUGNED SOFTWARE DOES NOT FORM PART OF THE PROFIT- MAKING APPARATUS OF THE ASSESSEE AND HENCE THE SAME IS TO BE DISALLOWED AS REVENUE EXPENDITURE. WE HOLD SO I.T.A. NO. 1975/AHD/2011 A.Y. 2002-03 (M/S JAY CHEM VS. ACIT) PAGE 4 BECAUSE WE FIND THAT THE BUSINESS OF THE ASSESSEE COMPANY IS THAT OF MANUFACTURING OF TELECOMMUNICATION AND POWER CABLE ACCESSORIES AND TRADING IN OIL RETRACING SYSTEM AND OTHER PRODUCTS AND IMPUGNED SOFTWARE IS AN ENTERPRISES RESOURCES PLANNING (ERP) PACKAGE AND HENCE IT FACILITATES THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY BUT IT IS NOT IN THE NATURE OF PROFIT-MAKING APPARATUS. WE, THEREFORE, DECIDE T HIS ISSUE ALSO IN FAVOUR OF THE ASSESSEE AND WE HOLD TH AT THIS EXPENDITURE OF RS. 20.60 LAKHS IS REVENUE EXPENDITURE. WE HOLD SO BY FOLLOWING THE JUDGMENT O F THE SPECIAL BENCH OF THE TRIBUNAL RELIED UPON BY TH E LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE.' 3. IN OUR VIEW, NO FAULT CAN BE FOUND IN THE AFORES AID ORDER OF TRIBUNAL HOLDING THAT SOFTWARE EXPENDITURE WAS A LLOWABLE AS REVENUE EXPENDITURE. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE, FACT S BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ALLOW THE EXPENDITURE OF ENTERPRISE RESOURCE PLANNING (ERP) AS BUSINESS E XPENDITURE BECAUSE ERP HELP A SSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY BUT IT IS NOT IN THE NATURE OF P ROFIT-MAKING APPARATUS. SO, ASSESSING OFFICER IS DIRECTED TO AL LOW THIS EXPENDITURE AS REVENUE. ONCE, WE HAVE HELD THE EXP ENDITURE IN QUESTION AS REVENUE. THE ISSUE OF PERCENTAGE OF DE PRECIATION GOES ACADEMIC AND ISSUE OF LEVY OF INTEREST U/S. 234A/B/ C/D IS CONSEQUENTIAL AND ISSUE OF PENALTY U/S. 271(1)(C) A S RAISED IN GROUND NO.4 OF ASSESSEES APPEAL IS PREMATURE. SAM E IS DISMISSED. I.T.A. NO. 1975/AHD/2011 A.Y. 2002-03 (M/S JAY CHEM VS. ACIT) PAGE 5 3. AS A RESULT, APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 22 ND DAY OF DECEMBER, 2014. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR Y ADAV) ACCOUNTANT MEMBER JUDICIAL MEM BER TRUE COPY S.K.SINHA & & & & ' ' ' ' ('% ('% ('% ('% / COPY OF ORDER FORWARDED TO:- 1. +, / REVENUE 2. / ASSESSEE 3. // 0 / CONCERNED CIT 4. 0- / CIT (A) 5. '45 , , / DR, ITAT, AHMEDABAD 6. 589 :; / GUARD FILE. BY ORDER / & ,