DCIT, V. M/s Mecon Limited,

ITA 216/RAN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0424 (ITAT-RANCHI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 16-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK RAOUSHAN SR SC
• Assessee Lawyers: S K PODDAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI CIRCUIT BENCH, RANCHI BEFORE SHRI N.S. SAINI, HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 216/RAN/2014 (ASST. YEAR : 2006-07) DCIT, CIRCLE-2, RANCHI. VS. M/S. MECON LTD., DORANDA, RANCHI. PAN NO. AACCM 2119 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.K. PODDAR ADV. DEPARTMENT BY : SHRI DEEPAK RAOUSHAN SR.SC DATE OF HEARING : 02/11/2015. DATE OF PRONOUNCEMENT : 02/11/2015. O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), RANCHI, DATED 26/03/2014. 2. GROUND NO.1 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE A DDITION OF RS.10,11,000/- MADE BY THE ASSESSING OFFICER BY DIS ALLOWING SOFTWARE EXPENSES AS REVENUE EXPENDITURE. 3 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE O RDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT THE ASSES SEE HAS CLAIMED EXPENSES ON SOFTWARE AMOUNTING TO RS. 10,11,000/-. THE ASSESSING 2 ITA NO. 216/RAN/2014 OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) OB SERVED THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. G.E. CAPITAL SERVICES LTD. [164 TAXMAN 46 (DELHI)] HAS HELD THAT EXPENDITURE INCURRED BY THE COMPANY ON COMPUTER SOFTWARE, WHICH WAS NOT CUSTOMI ZED SOFTWARE AND SAID SOFTWARE REQUIRED FREQUENT UP-GRADATION AN D HENCE, IT WAS HELD AS REVENUE EXPENDITURE. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THAT THE HON'BLE MADRAS HIGH COURT IN TH E CASE OF CIT VS. SOUTHERN ROADWAYS LTD. [288 ITR 15 (MAD.)] HELD THAT UP-GRADATION OF COMPUTERS BY CHANGING CERTAIN PARTS THEREBY ENHANCI NG THE CONFIGURATION OF THE COMPUTERS FOR IMPROVING THEIR EFFICIENCY WITHOUT MAKING ANY STRUCTURAL ALTERNATIONS IS NOT CHANGE OF AN ENDURING NATURE. HE ALSO OBSERVED THAT IN ASSESSEES OWN CASE, THIS BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 IN ITA NO. 17/RAN/20013 & ITA NO.05/RAN/2013 HAS HELD THAT IF THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR UP-GRADATION OF THE SOFTWARE, THE EXPENDITURE HAS TO BE ALLOWED AS A REVENUE EXPENDITURE AND IF THE EXPE NDITURE HAS BEEN INCURRED FOR THE FIRST TIME FOR ACQUIRING THIS SOFT WARE, THE EXPENDITURE IS TO BE TREATED AS CAPITAL EXPENDITURE, THEREFORE, HE DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTE D BEFORE US THAT THE APPEALS FILED BY THE REVENUE IN ASSESSMENT YEAR 2007-08 BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NOS. 37 TO 39/2013, WERE DISMISSED VIDE ITS ORDER DATED 27/04/ 2015. HE SUBMITTED THAT THE FACTS IN THE YEAR UNDER APPEAL A RE IDENTICAL TO THE FACTS IN THE ASSESSMENT YEAR 2007-08 AND HENCE, FOL LOWING THE ORDER OF THE HON'BLE HIGH COURT IN THE CASE OF ASSESSEE ITSE LF, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 3 ITA NO. 216/RAN/2014 6 . DEPARTMENTAL REPRESENTATIVE AGREED WITH THE SUBMI SSIONS OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. 7 . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF T HE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF IN COME TAX (APPEALS) WHICH IS INCONFORMITY WITH THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT AND HENCE, THE GROUND OF APPEAL OF THE REVENU E IS DISMISSED IN THE YEAR UNDER CONSIDERATION. 8 . GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE E XCESS INTEREST OF RS. 46,12,758/- MADE BY THE ASSESSING OFFICER. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORD ERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, FACTS OF THE CASE ARE THAT THE ASSESSING OFFI CER OBSERVED THAT THE INTEREST WAS PAID BY THE ASSESSEE @ 9.06% WHEREAS T HE ASSESSEE COMPANY CHARGED INTEREST @ 5.13% ON THE DEPOSITS/AD VANCES. ACCORDINGLY, THE ASSESSING OFFICER TAKING AVERAGE R ATE AT 5.13% P.A. WHICH WAS NON-BUSINESS DIVERSION OF FUNDS AND ADDED THE DIFFERENCE OF AMOUNT AT 3.93% ON RS. 1173.73 LAC AND MADE THE ADD ITION OF RS.46,12,758/- TO THE INCOME OF THE ASSESSEE ON ACC OUNT OF EXCESS INTEREST CLAIMED TOWARDS NON-BUSINESS UTILIZATION A ND DIVERSION OF FUNDS. 10 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) O BSERVED THAT THE ASSESSEE COMPANY WAS AVAILING LOAN AND OVERDRAF T FACILITY FROM BANKS AND FINANCIAL INSTITUTIONS FOR WORKING CAPITA L REQUIREMENT FOR RUNNING THE BUSINESS. FOR IMPLEMENTING VRS IN THE COMPANY, THE ASSESSEE HAD TAKEN LOAN FROM BANK AMOUNTING TO RS. 50 CRORES AGAINST THE GOVERNMENT OF INDIA GUARANTEE AND WITH THE APPR OVAL OF GOVERNMENT OF INDIA. THE ASSESSEE COMPANY ALSO RA ISED FUNDS BY WAY OF ISSUING NON-CONVERTIBLE BONDS AGAINST GOVERNMENT OF INDIA GUARANTEE 4 ITA NO. 216/RAN/2014 FOR THE PURPOSE OF IMPLEMENTATION OF VRS IN THE COM PANY. THE GOVERNMENT OF INDIA ALSO SANCTIONED COMPUTER LOAN O F RS. 10 CRORES TO THE ASSESSEE FOR THE PURPOSE OF PURCHASE OF COMPUTE RS AND FOR BUSINESS. THEREFORE, THE ASSESSEE WAS ENTITLED TO RECEIVE 50% INTEREST SUBSIDY FROM THE GOVERNMENT OF INDIA ON GOVERNMENT OF INDIA GUARANTEED VRS LOAN. IT IS SEEN FROM THE ACCOUNTS OF THE FINANCIAL YEAR 2005-06 THAT THE ASSESSEE EARNED INTEREST ON DEPOSI TS WITH BANKS RS.3.96 CRORES, INTEREST FROM INCOME-TAX DEPARTMENT RS. 8.42 CRORES AND INTEREST ON ADVANCE TO EMPLOYEES RS. 0.07 CRORE S. THE ASSESSEE HAS UTILIZED THE LOAN FUNDS FOR THE SPECIFIC PURPOS E, FOR WHICH LOAN WAS OBTAINED AS AND WHEN REQUIRED FOR THE PURPOSE OF WO RKING CAPITAL FOR RUNNING THE DAY TO DAY OPERATION OF BUSINESS; FOR T HE PURPOSE OF IMPLEMENTATION OF VRS AS APPROVED BY THE GOVERNMENT OF INDIA AND FOR THE PURPOSE OF PURCHASE OF COMPUTERS AS APPROVED BY THE GOVERNMENT OF INDIA. THE COMMISSIONER OF INCOME TAX (APPEALS ) THEREFORE, HELD THAT THERE IS NO NON-BUSINESS UTILIZATION OF FUND A ND DIVERSION OF FUND PROVED WHICH THE ASSESSING OFFICER HAD ALLEGED IN T HE ASSESSMENT ORDER WITHOUT ANY BASIS. THE INTEREST DEBITED IN THE PRO FIT & LOSS ACCOUNT AND CLAIMED BY THE ASSESSEE IS GENUINE AND FOR THE PURP OSE OF BUSINESS ONLY SINCE THE INTEREST IS PAID OR PAYABLE TO THE BANK O R FINANCIAL INSTITUTIONS OF GOVERNMENT OF INDIA OR BOND HOLDERS. AS PER THE TERMS AND CONDITIONS OF THE LOAN AGREEMENT EXECUTED BY THE AS SESSEE-COMPANY WAS FOR THE PURPOSE OF BUSINESS ONLY. THEREFORE, H E DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 11 . DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER O F THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). 12 WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE DEPARTMENTAL REPRESENTATIVE TO CONTROVERT THE FINDI NG OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT NO NON-BU SINESS UTILIZATION 5 ITA NO. 216/RAN/2014 OF THE LOAN FUND OR DIVERSION WAS PROVED BY THE ASS ESSING OFFICER AND DISALLOWANCE OF INTEREST MADE WAS WITHOUT ANY BASIS . IN ABSENCE OF ANY MATERIAL BEING BROUGHT ON RECORD, WE FIND NO GOOD R EASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEALS) WHICH IS AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE OF T HE ASSESSEE. HENCE, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 13 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING ON MONDAY, THE 2 ND DAY OF NOVEMBER, 2015 AT RANCHI. SD/- SD/- (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 02 ND NOVEMBER, 2015. VR/- COPY TO: 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., RANCHI 6 ITA NO. 216/RAN/2014 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 02/11/2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 03/11/2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 03/11/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 03/11/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 03/11/2015 SR.PS 6. DATE OF PRONOUNCEMENT 02/11/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 03/11/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER