ACIT, CHENNAI V. M/s. Seawind Logistics, CHENNAI

ITA 214/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0929 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-01-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 214/MDS/2012 (ASSESSMENT YEAR : 2008-09) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE V, CHENNAI - 600 034. (APPELLANT) V. M/S SEAWIND LOGISTICS, FLAT NO.F, 3 RD FLOOR, NITYASHREE APARTMENTS, NO.9 & 11, 6 TH CROSS STREET, CHENNAI - 600 090. PAN : ABDFS 3404 Q (RESPONDENT) APPELLANT BY : SHRI GURU BASHYAM, JCIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 07.01.2013 DATE OF PRONOUNCEMENT : 10.01.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT ADDITION OF A SUM OF ` 31.5 LAKHS MADE BY THE ASSESSING OFFICER, DISALLOWING A CLAIM OF SOFTWARE IMPLEMENTATION EXPE NDITURE, WAS DELETED BY THE CIT(APPEALS) ON ASSESSEES APPEAL. I.T.A. NO. 214/MDS/12 2 2. FACTS APROPOS ARE THAT ASSESSEE, ENGAGED IN THE BUSINESS OF PROCUREMENT OF SOFTWARE AND COMMISSION AGENCY, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING AN INCOM E OF ` 1,28,25,962/-. DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAD DE BITED A SUM OF ` 31,50,000/- FOR SOFTWARE IMPLEMENTATION. AS PER TH E A.O., SUCH EXPENDITURE WAS INCURRED FOR DEVELOPING SOFTWARE FO R SPATIAL MAPPING FOR DETECTING AREAS RICH FOR ORE, BY MAKING USE OF GPS TECHNOLOGY. FURTHER, AS PER THE A.O., SUCH DEVELOPMENT RESULTED IN AN ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE, CLAIM OF EXP ENDITURE COULD BE CONSIDERED ONLY AS A CAPITAL OUTGO. SHE MADE AN AD DITION OF ` 31,50,000/- RELYING ON SECTION 37(1) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT THE A.O. FAILED TO DISTINGUISH BETWEEN COS T OF SOFTWARE AND SOFTWARE IMPLEMENTATION CHARGES. AS PER THE ASSESS EE, SOFTWARE IMPLEMENTATION CHARGES WERE REVENUE OUTGO. THE EXP ENDITURE INCURRED HAD TO BE DISTINGUISHED FROM COST OF SOFTW ARE. SOFTWARE IMPLEMENTATION CHARGES WERE DIFFERENT FROM COST INC URRED IN PURCHASE I.T.A. NO. 214/MDS/12 3 AND DEVELOPMENT OF SOFTWARE. SUCH EXPENSES WERE PU RELY REVENUE OUTGO. 4. LD. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENT IONS OF ASSESSEE. ACCORDING TO HIM, COMPUTER SOFTWARE AS DEFINED IN PART A OF NEW APPENDIX I PRESCRIBED UNDER RULE 5 OF INCO ME-TAX RULES, 1962, CLEARLY STATED THAT SOFTWARE HAD TO BE A PROG RAMME RECORDED ON ANY DISC OR PERFORMATED MEDIA OR OTHER INFORMATI ON STORAGE DEVICE. ACCORDING TO CIT(APPEALS), ASSESSING OFFIC ER HAD NOT EXAMINED THE NATURE OF EXPENDITURE AND HAD TREATED SOFTWARE IMPLEMENTATION CHARGES AS COST OF COMPUTER SOFTWARE . IN THIS VIEW OF THE MATTER, HE DELETED THE ADDITION MADE BY THE ASS ESSING OFFICER. 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT EXPENDITURE INCURRED B Y THE ASSESSEE WAS FOR DEVELOPING A SOFTWARE FOR ENABLING SPATIAL MAPPING. SUCH SOFTWARE DEVELOPMENT WAS A TOOL IN THE HANDS FO THE ASSESSEE. RELYING ON EXPLANATION 4 TO SECTION 32(1)(II) OF TH E ACT, LEARNED D.R. SUBMITTED THAT THE EXPENDITURE INCURRED WOULD CLEAR LY COME WITHIN THE MEANING OF KNOW-HOW. ASSESSEE HAD DEVELOPED A TE CHNIQUE WHICH ASSISTED IN THE WORKING OF MINES OR HELPING FOR DIS COVERY OR TESTING OF ORE DEPOSITS. THUS, ACCORDING TO HIM, THE EXPENDIT URE INCURRED BY THE I.T.A. NO. 214/MDS/12 4 ASSESSEE, EVEN IF NOT TREATED AS COMPUTER SOFTWARE, WAS NOTHING BUT KNOW-HOW WHICH WAS ACQUIRED AND HAD TO BE CAPITAL IZED. THEREFORE, AS PER THE LEARNED D.R., CIT(APPEALS) FE LL IN ERROR IN DELETING THE ADDITION MADE BY THE A.O. TREATING IT AS CAPITAL OUTGO. RELIANCE WAS PLACED ON THE DECISION OF HONBLE RAJA STHAN HIGH COURT IN THE CASE OF CIT V. ARAWALI CONSTRUCTIONS CO. (P. ) LTD. (259 ITR 30) AND THAT OF PUNE BENCH OF THIS TRIBUNAL IN THE CASE OF SUDARSHAN CHEMICAL INDUSTRIES LTD. V. ACIT (110 ITD 171) AND ALSO ON THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF AMWAY INDIA ENTERPRISES V. DCIT, (2008) (111 ITD 112). 6. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING TH E ORDER OF CIT(APPEALS), SUBMITTED THAT THE AMOUNT INCURRED WA S NOT FOR DEVELOPING ANY SOFTWARE. THE EXPENSES INCURRED WER E ONLY FOR IMPLEMENTING THE SOFTWARE. THESE WERE PER SE REVEN UE IN NATURE. DISALLOWANCE DONE BY THE A.O. WAS RIGHTLY DELETED B Y THE CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSEES CLAIM ALL ALONG WAS THAT THE EXPENDITURE INCURRED WAS FOR IMPLEMENTING SOFTWARE FOR SPATIAL MAPPING BY MAKING USE OF GPS TECHNOLOGY. AS PER THE ASSESSEE, IT WAS NOT TOWARD S DEVELOPING ANY I.T.A. NO. 214/MDS/12 5 SOFTWARE FOR SPATIAL MAPPING. CONTENTION OF LEARNE D A.R. THAT COST OF SOFTWARE PURCHASE WAS ALREADY CAPITALIZED AND DEPRE CIATION THEREON WAS ALSO ALLOWED BY THE ASSESSING OFFICER, HAS NOT BEEN DISPUTED BY THE LEARNED D.R. IN OUR OPINION, EXPENDITURE INCUR RED FOR IMPLEMENTING A SOFTWARE ACQUIRED BY THE ASSESSEE CA NNOT BE TREATED AT PAR WITH COST OF SOFTWARE. IN OUR OPINION, THER E IS A FORCE IN THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE OF A RE VENUE NATURE HAD TO BE INCURRED IN IMPLEMENTATION OF SOFTWARE PURCHA SED AND SUCH EXPENDITURE COULD NOT BE CONSIDERED AS SOMETHING WH ICH RESULTED IN ACQUISITION OF A COMPUTER SOFTWARE OR A KNOW-HOW. AS FOR THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CAS E OF ARAWALI CONSTRUCTIONS CO. (P.) LTD. (SUPRA), THE QUESTION T HERE WAS REGARDING TREATMENT OF EXPENDITURE FOR ACQUIRING SOFTWARE. T HE PAYMENT MADE WAS FOR ACQUISITION OF A COMPUTER SOFTWARE. AS AGA INST THIS, HERE IT WAS FOR IMPLEMENTATION OF A SOFTWARE ALREADY ACQUIR ED BY THE ASSESSEE. IN THE CASE OF SUDARSHAN CHEMICAL INDUST RIES LTD. (SUPRA) DECIDED BY PUNE BENCH OF THIS TRIBUNAL, EXPENDITURE WAS FOR ACQUISITION OF A LICENCE FOR COMPUTER SOFTWARE. CO MING TO THE DECISION OF AMWAY INDIA ENTERPRISES (SUPRA) DECIDED BY SPECIAL BENCH OF THIS TRIBUNAL, IT WAS CLEARLY HELD THAT JU ST BECAUSE THE SOFTWARE FACILITATED ASSESSEES TRADING OPERATION, AND MANAGEMENT I.T.A. NO. 214/MDS/12 6 BY ENABLING IT TO CONDUCT ITS BUSINESS IN A MORE EF FICIENT AND MORE PROFITABLE MANNER, IT COULD NOT BE CONCLUDED THAT E XPENDITURE RESULTED IN ACQUISITION OF AN ASSET. WE ARE OF THE OPINION THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF AMWAY INDIA ENTERPRISE S (SUPRA) GOES IN FAVOUR OF ASSESSEE. LD. CIT(APPEALS) HAD ALLOWE D THE CLAIM AFTER CONSIDERING THE FACT THAT EXPENDITURE INCURRED WAS ONLY FOR IMPLEMENTATION OF SOFTWARE AND NOT FOR DEVELOPING A SOFTWARE AS SUCH. WE ARE OF THE OPINION THAT THE ADDITION MADE WAS RIGHTLY DELETED BY THE CIT(APPEALS). NO INTERFERENCE IS RE QUIRED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE TENTH OF JANUARY, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH JANUARY, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-VIII, CHENNAI / CIT-VI, CHENNAI-34/D.R./GUARD FILE