DCIT, New Delhi V. Sietz Technologies India Pvt. Ltd., New Delhi

ITA 2267/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7501 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 24-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR SENIOR
• Assessee Lawyers: A K BHATIA; R M MEHTA
• Keywords: Capital asset; Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2267/DEL./2012 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 8 (1), VS. M/S. SIETZ TECHNOLOGIES IN DIA PVT. LTD., NEW DELHI. 202, 1 ST FLOOR OKHLA INDUSTRIAL ESTATE, PHASE III, NEW DELHI 110 020. (PAN : AAACN0153A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.M. MEHTA, ADVOCATE AND SHRI A.K. BHATIA, AR REVENUE BY : SHRI B.R.R. KUMAR, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XI, NEW DELHI DATED 07.02.2012 FOR THE AS SESSMENT YEAR 2008- 09. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RING OF PU FOAM, SEAT ASSEMBLY AND OTHER AUTOMOBILE COMPONENTS, SUCH AS, AIR CLEANERS, CLUTCH ASSEMBLY, STEERING KNUCKLE, ETC. THE RETURN OF INCOME WAS FILED DECLARING INCOME AT RS.1,28,70,078/- ON 23.09.2008. THE ASSESSING ITA NO.2267/DEL./2012 2 OFFICER MADE VARIOUS ADDITIONS WHICH HAVE BEEN DELE TED BY THE CIT (A). NOW, THE REVENUE IS IN APPEAL BEFORE US BY TAKING T HE FOLLOWING GROUNDS :- 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.8,12,322/- MADE BY THE AO ON AC COUNT OF DIES & TOOLS. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.2,75,000/- MADE BY THE AO ON AC COUNT OF SOFTWARE EXPENSES. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.5,03,611/- MADE BY THE AO ON AC COUNT OF RECRUITMENT AND TRAINING OF THE STAFF. 4. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,24,132/- MADE BY THE AO ON AC COUNT OF TRAVELLING/ CONVEYANCE. 5. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.2,18,158/- MADE BY THE AO ON ACC OUNT OF PRINTING & STATIONERY. 6. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE H EARING OF THIS APPEAL. 3. IN THE GROUND NO.1, THE ISSUE INVOLVED IS DELETI NG THE ADDITION OF RS.8,12,322/- MADE BY ASSESSING OFFICER ON ACCOUNT OF DIES AND TOOLS. 4. LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY T HE ORDER OF ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 AN D 200708 IN ITA NOS.651 & 3080/DEL/2010 DATED 21.01.2011. LD. DR W AS ALSO NOT HAVING ANY OTHER OPINION IN THIS REGARD. 5. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E ITAT HAS DECIDED THIS ISSUE IN ASSESSEES OWN CASE VIDE ORDER DATED 21.01.2011, CITED SUPRA, IN PARAS 11 TO 13 WHICH ARE REPRODUCED AS UNDER :- ITA NO.2267/DEL./2012 3 11. WITH REGARD TO GROUND NO.3, DURING THE YEAR, T HE ASSESSEE EXPENDED RS.4,66,390/- ON DYES AND TOOLS. IN THIS R EGARD ALSO, THE AO WAS OF THE OPINION THAT THE EXPENSES ON TOOLS AND D YES PROVIDED A BENEFIT OF ENDURING NATURE TO THE ASSESSEE. THE LD. CIT(A) AGAIN DELETED THE ADDITION. THE ARGUMENT OF THE DEPARTMENT IS SIMILAR TO THOSE RAISED FOR GROUND NOS. 1&2. THE LEARNED COUNSEL FOR THE ASSESS EE HAS AGAIN RELIED ON THE IMPUGNED ORDER. 12. HERE ALSO, THE EXPENDITURE IS INCURRING. IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE EXPENDITURE ON DYES AND TOOLS WAS OF RS.2,01,688/-. THE EXPENDITURE INCLUDES, AS OBSERV ED, BY THE LD. CIT(A), REPAIRING OF MOULDS AND BENCHING DYES. THE ASSESSEE MANUFACTURES SEAT ASSEMBLING AND AUTOMOBILE COMPONENTS, ETC. UNDISPUT EDLY, IN SUCH ACTIVITY, EXPENSES ON DYES AND TOOLS ARE NORMAL EXP ENSES INCURRED FOR THE PURPOSE OF MANUFACTURE. 13. IN THESE FACTS, THE GRIEVANCE OF THE DEPARTMENT BY WAY OF GROUND NO.3 IS ALSO REJECTED. FACTS BEING THE SAME, RESPECTFULLY FOLLOWING THE AF ORESAID ORDER OF THE ITAT, WE DISMISS THIS GROUND OF REVENUES APPEAL. 6. IN THE GROUND NO.2, THE ISSUE INVOLVED IS REGARD ING DELETING THE ADDITION OF RS.2,75,000/- MADE BY ASSESSING OFFICER ON ACCOUNT OF SOFTWARE EXPENSES. 7. LD. AR SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, CITED SUPRA, AND THE RELEVANT PARAS ARE 17 TO 23. LD. DR WAS ALSO NOT HAVING ANY OTHER VIEW I N THIS REGARD. 8. AFTER HEARING BOTH THE SIDES, WE HOLD THAT THIS ISSUE IS COVERED BY THE DECISION OF THE ITAT, CITED SUPRA, AND THE RELE VANT PARAS 17 TO 23 ARE REPRODUCED AS UNDER : 17. APROPOS GROUND NO.2, THE ASSESSEE DEBITED RS.7 ,62,080/- TO ITS PROFIT AND LOSS ACCOUNT, REPRESENTING SOFTWARE EXPE NSES. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THESE EXPENSES BE NOT TREATED AS CAPITAL EXPENSES AS IN THE EARLIER YEAR, SINCE THEY PROVIDED THE ASSESSEE COMPANY WITH A BENEFIT OF ENDURING NATURE. THE ASSE SSEE SUBMITTED THAT ITA NO.2267/DEL./2012 4 THE SOFTWARE EXPENSES HAD BEEN INCURRED TOWARDS USE R CHARGES FOR SOFTWARE AND ALSO SERVICES AND SUPPORT CHARGES PAID TO VARIOUS PARTIES FOR MAINTENANCE OF THE SOFTWARE; AND THAT THE EXPENSES WERE OF REVENUE NATURE. THE AO, HOWEVER, REJECTED THIS EXPLANATION, OBSERVING THAT THE LICENCE CHARGES PAID FOR PROCUREMENT OF LICENCE OF SOFTWARE; AND THAT LICENCE SOFTWARE IS DEFINED IN SCHEDULE 1, FOR DE PRECIATION, IS A CAPITAL ASSET. THE AO ACCORDINGLY TREATED THE EXPENSES AS C APITAL EXPENSES. DEPRECIATION WAS ALLOWED AS PER THE EXISTING RATE. 18. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEE H AD GIVEN THE NEW BREAK UP OF EXPENSES ON COMPUTER SOFTWARE OF RS .7,62,086/-; THAT RS.2,50,000/- WAS TOWARDS ANNUAL MAINTENANCE CONTRA CT; THAT RS.72,000/- WAS FOR LICENCE FEES FOR INTEGRAL ERP SOFTWARE; THA T ALL THE OTHER EXPENSES WERE OF SUCH A NATURE AS TO PROVIDE AN ENDURING BEN EFIT TO THE ASSESSEE. RS.3,00,000/- WAS PAID FOR THE ACCOUNTING SOFTWARE THE BENEFIT WHEREOF SPILL OVER TO THE SUBSEQUENT YEARS ALSO; THAT RS.82 ,086/- WAS FOR ANTI VIRUS PROTECTION SOFTWARE, WHICH WOULD ALSO PROVIDE AN EN DURING BENEFIT TO THE ASSESSEE; RS.58,000/- WAS FOR MODIFICATION APPLICAT ION, WHICH WAS ALSO OF A LASTING NATURE; THAT, THEREFORE, IN VIEW OF AMWA Y INDIA ENTERPRISES V. DCIT 301 ITR (AT)1 (DEL), WHEREIN THREE TESTS HAVE BEEN PROVIDED TO DECIDE AS TO WHETHER A PARTICULAR EXPENDITURE IS CA PITAL OR REVENUE, I.E., TEST OF ENDURING BENEFIT, OWNERSHIP TEST AND FUNCTI ONAL TEST, THE DISALLOWANCE OUGHT TO BE RELATED TO THE ITEM OF RS. 4,40,086/- AND DEPRECIATION WAS TO BE PROVIDED @ 30% AS SUCH ITEMS WERE USED FOR LESS THAN 180 DAYS. ACCORDINGLY, THE LD. CIT(A) RESTRICT ED THE DISALLOWANCE TO RS.3,08,060/-, GIVING RELIEF OF RS.2,25,396/- TO TH E ASSESSEE. 19. IN THIS REGARD, BOTH THE PARTIES ARE IN RESPECT IVE APPEALS. 20. THE LEARNED DR HAS CONTENDED THAT THE LD. CIT(A ) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.5,33,456/- MADE BY THE AO ON ACCOUNT OF SOFTWARE EXPENSES TO RS.3,08,060/-, DESPITE THE FACT THAT THE EXPENSES INCURRED HAD PROVIDED THE ASSESSEE COMPANY WITH AN ENDURING BENEFIT. 21. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS CONTENDED THAT THE LD. CIT(A) HAS TREATED THE EXPEN DITURE AS PART CAPITAL AND PART REVENUE IN NATURE; THAT THE SOFTWARE INVOL VED WAS A VIRUS PROTECTION SOFTWARE, WHICH IS NOT LASTING IN NATURE ; THAT THE MODIFICATION OF EXISTING IS ALSO NOT LASTING IN NATURE; THAT BOT H OF THESE EXPENSES DO NOT PROVIDE ANY BENEFIT OF ENDURING NATURE TO THE ASSES SEE; THAT IT IS THESE TWO ITEMS WHICH HAVE BEEN DECIDED AGAINST THE ASSESSEE BY THE LD. CIT(A); THAT THE REST OF THE ITEMS HAVE RIGHTLY BEEN ALLOWE D BY THE LD. CIT(A) AS ITEMS OF REVENUE EXPENDITURE. 22. THE LEARNED DR HAS, ON THE OTHER HAND, REITERAT ED THE CIT(A)S RELIANCE ON AMWAY(SUPRA), SO FAR AS REGARDS THE T HREE TESTS LAID DOWN THEREIN, SO AS TO ENABLE DECISION ON THE ISSUE OF T HE NATURE OF THE EXPENSES. ITA NO.2267/DEL./2012 5 23. IN THIS REGARD, AMWAY (SUPRA), THE HONBLE DE LHI HIGH COURT HAS PROVIDED THAT THE TEST FOR ASCERTAINING THE NAT URE OF THE EXPENDITURE, WHETHER REVENUE OR CAPITAL, ARE TEST OF ENDURING BENEFIT, OWNERSHIP TEST AND 9 ITA 651, 3080 & 2592 FUNCTIONAL TEST. IN THE PRESENT CASE, RS.3,00,000/- WAS PAID FOR ACCOUNTING SOFTWARE. RS. 82,086/- WAS SPENT FOR VIRUS PROTECTION SOFTWARE AND RS.58,000/- WAS S PENT FOR MODIFICATION APPLICATION. IT HAS NOT BEEN SHOWN AS TO HOW THIS E XPLANATION PROVIDED AN ENDURING BENEFIT TO THE ASSESSEE. WE DO NOT FIND AN Y JUSTIFICATION IN THE ACTION OF THE LD. CIT(A) IN DISALLOWING THE EXPENDI TURE IN PART, AS CAPITAL IN NATURE. SO FAR AS REGARDS THE GROUND RAISED BY T HE DEPARTMENT, THERE IS NO MERIT THEREIN AND THE SAME IS REJECTED. FACTS BEING THE SAME, RESPECTFULLY FOLLOWING THE AF ORESAID ORDER OF THE ITAT, WE DISMISS GROUND NO.2 OF REVENUES APPEAL. 9. GROUND NO.3 IS WITH REGARD TO THE DELETION OF AD DITION OF RS.5,03,611/- MADE BY ASSESSING OFFICER ON RECRUITM ENT AND TRAINING OF THE STAFF. 10. LD. AR SUBMITTED THAT THIS GROUNDS IS ALSO COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, CITED SUPRA, AND THE RELEVANT PARAS ARE 7 TO 10. LD. DR WAS ALSO NOT HAVING ANY OTHER VIEW I N THIS REGARD. 11 AFTER HEARING BOTH THE SIDES, WE HOLD THAT THIS ISSUE IS COVERED BY THE DECISION OF THE ITAT, CITED SUPRA, AND THE RELE VANT PARAS 7 TO 10 ARE REPRODUCED AS UNDER : 7. SO FAR AS REGARDS GROUND NO.2, HERE ALSO, THE A O OBSERVED THAT THE RECRUITMENT AND TRAINING EXPENSES INCURRED BY T HE ASSESSEE ON ITS STAFF PROVIDED A BENEFIT OF ENDURING NATURE TO THE ASSESS EE. THE LEARNED CIT(A) DELETED THE ADDITION OF RS.6,39,960/-. 8. THE LEARNED DR HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) CONTENDING, AS FOR GROUND NO.1, THAT THE RECRUITMEN T AND TRAINING EXPENSES PROVIDED A BENEFIT OF ENDURING NATURE TO T HE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE IMPU GNED ORDER. 9. THE LEARNED CIT(A) HAS OBSERVED THAT AS PER THE FURTHER BREAK UP OF RECRUITMENT EXPENSES GIVEN BY THE ASSESSEE, R S.1,75,226/- WAS ITA NO.2267/DEL./2012 6 REGARDING RECRUITMENT EXPENSES OF 14 PARTIES, WHERE AS RS.4,64,734/- WAS SPENT ON TRAINING EXPENSES ON THE STAFF. SUCH EXPEN SES WERE INCURRED BY THE ASSESSEE REGULARLY IN THE EARLIER YEARS ALSO. N O DISALLOWANCE WAS MADE. DURING THE YEAR, THERE WERE ABOUT 400 EMPLOYE ES/WORKERS IN THE COMPANY. 10. HERE ALSO, SINCE SIMILAR EXPENDITURE MADE IN TH E EARLIER YEARS HAS BEEN ACCEPTED BY THE DEPARTMENT, THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES, FOR THE YEAR UNDER CONSIDERATION , NO ADDITION ON THIS COUNT IS CALLED FOR. THE ORDER OF THE LD. CIT(A) IN THIS REGARD IS, THUS, CONFIRMED. FACTS BEING THE SAME, RESPECTFULLY FOLLOWING THE AF ORESAID ORDER OF THE ITAT, WE DISMISS GROUND NO.3 OF REVENUES APPEAL. 12. GROUND NO.4 IS WITH REGARD TO THE DELETION OF A DDITION OF RS.4,01,723/- MADE BY ASSESSING OFFICER ON ACCOUNT OF TRAVELLING/ CONVEYANCE. 13. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E ASSESSING OFFICER FOUND THAT THE TRAVELLING AND CONVEYANCE EXPENSES H AVE INCREASED FROM RS.25,73,656.50 IN THE PRECEDING YEAR TO RS.40,17,2 31.64 FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ALSO NO TED THAT THE ASSESSEE HAS NOT CORROBORATED ITS CLAIM WITH THE SUPPORTING DOCUMENTS SUCH AS BILLS AND VOUCHERS AND ALSO FAILED TO JUSTIFYING THE INC REASE OF SUCH EXPENDITURE AND FOR BUSINESS PURPOSES, HENCE 10% OF THE TOTAL E XPENSES WERE DISALLOWED. THE CIT (A) HAS GRANTED THE RELIEF BY RECORDING AS UNDER :- FINDING : BEFORE ME THE APPELLANT HAS SUBMITTED DETAILS OF THE EXPENDITURE INCURRED ON FOREIGN TRAVEL. THE EXPEND ITURE WAS INCURRED FOR THE BUSINESS OF THE APPELLANT AND WAS ALLOWABLE AS EXPENDITURE INCURRED IN THE NORMAL COURSE OF BUSINESS. THE ADDITION OF RS.4,01,723/- IS DELETED. AS A RESULT THE GROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. ITA NO.2267/DEL./2012 7 THE CIT (A) HAS RECORDED THAT BEFORE HIM, THE ASSES SEE HAS SUBMITTED DETAILS REGARDING EXPENDITURE INCURRED FOR FOREIGN TRAVELLING AND HE HAS MENTIONED THAT THE EXPENDITURE WAS INCURRED FOR THE BUSINESS OF THE ASSESSEE AND WAS AN ALLOWABLE EXPENDITURE INCURRED IN THE NORMAL COURSE OF BUSINESS. LD. DR WAS NOT ABLE TO CONTROVERT THE FINDINGS RECORDED BY THE CIT (A). THEREFORE, IN OUR CONSIDERED VIEW, TH ERE IS NO MERIT IN THIS GROUND OF REVENUES APPEAL. ACCORDINGLY, WE DISMIS S THIS GROUND. 14. IN THE GROUND NO.5, THE ISSUE INVOLVED IS AGAIN ST DELETING THE ADDITION OF RS.2,18,158/- MADE ON ACCOUNT OF PRINTING AND ST ATIONERY. 15. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E ASSESSING OFFICER FOUND THAT COMPARATIVELY, THERE WAS AN INCREASE IN THE EXPENDITURE IN COMPARISON TO THE PRECEDING YEAR UNDER THE HEAD PR INTING & STATIONERY. IT WAS ALSO RECORDED BY ASSESSING OFFICER THAT THE ASSESSEE HAS NOT CORROBORATED ITS CLAIM WITH BILLS AND VOUCHERS AND ASSESSEE FAILED TO EXPLAIN INCREASE IN THE EXPENDITURE AND BUSINESS PU RPOSE. THEREFORE, 10% OF THE TOTAL EXPENDITURE WAS DISALLOWED. THE CIT ( A) HAS GRANTED THE RELIEF BY HOLDING AS UNDER :- FINDINGS : BEFORE ME THE APPELLANT HAS GIVEN ALL DETAILS OF THE EXPENDITURE INCURRED ON A/C OF PRINTING AND STATION ERY. THE EXPENSES ARE INCURRED IN DAY TO DAY REQUIREMENTS OF BUSINESS AND ARE CLEARLY ALLOWABLE AS REVENUE EXPENDITURE. THE ADDITION ON THIS A/C I S DELETED. THIS GROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. THUS, THE CIT (A) HAS CATEGORICALLY STATED THAT THE EXPENSES ARE INCURRED IN DAY-TO-DAY REQUIREMENT OF BUSINESS AND CLEARLY ALLO WABLE AS REVENUE ITA NO.2267/DEL./2012 8 EXPENDITURE. THE REVENUE HAS FAILED TO CONTROVERT THIS FINDING OF THE CIT (A). IN VIEW OF THESE FACTS, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE CIT (A) ON THIS ISSUE AND ACCORDINGLY, WE DISMISS GROUND NO.5 TAKEN BY THE REVENUE IN THE APPEAL. 16. GROUND NO.6 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF DECEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 29 TH DAY OF DECEMBER, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI. ITA NO.2267/DEL./2012 9