ADDL CIT 6(3), MUMBAI V. MAERSK INDIA P.LTD, MUMBAI

ITA 2530/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84653 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 31-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIVEKANAND PREMPURNA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 2864/MUM/2011 ASSESSMENT YEAR: 2006-07 M/S. APM TERMINAL INDIA PVT. LTD. (FORMERLY KNOWN AS MAERSK INDIA PVT. LTD) 13 TH FLOOR, TOWER A, URMI ESTATE, 95, GANPATRAO KADAM MARG LOWER PAREL, MUMBAI 400 013 PAN:AAACM 8741 P VS. ADDL. CIT RANGE 6(3) R. NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI- 400 020 (APPELLANT) (RESPONDENT) ITA NO. 2530/MUM/2011 ASSESSMENT YEAR: 2006-07 ADDL. CIT RANGE 6(3) R. NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI- 400 020 VS. M/S. APM TERMINAL INDIA PVT. LTD. (FORMERLY KNOWN AS MAERSK INDIA PVT. LTD) 13 TH FLOOR, TOWER A, URMI ESTATE, 95, GANPATRAO KADAM MARG LOWER PAREL, MUMBAI 400 013 PAN:AAACM 8741 P (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI VIVEKANAND PREMPURNA REVENUE BY : SHRI NIRAJ SHETH DATE OF HEARING : 04 . 12 . 2014 DATE OF ORDER : 19 . 1 2 .2014 ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 2 O R D E R PER AMIT SHUKLA, JM: THESE CROSS APPEALS HAVE BEEN PREFERRED BY THE AS SESSEE AS WELL AS REVENUE, AGAINST ORDER DATED 10.12.2010, P ASSED BY THE LD.CIT(A) -12 MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2006-07. WE WILL FIRST TAKE UP ASSESSEES APPEAL BEING ITA NO. 2864/M/2011. 2. IN GROUND NO. 1 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.95,43,308/- ON ACCOUNT OF SOFTWARE EXPENSES. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHIPPING AGENT AND AL SO PROVIDES CONTAINER FREIGHT STATION(CFS) SERVICES, AND CREWING SERVICES . IT HAS DEBITED SOFTWARE EXPENSES TOWARDS SOFTWARE LICENSE COST, SO FTWARE UPRADATION CHARGES, SERVER SUPPORT CHARGES, ON CALL SERVICES, ENGINEERING CHARGES, SOFTWARE DEVELOPMENT MAINTENANCE COST, SOFTWARE INS TALLATION CHARGES, ETC. FOR SUMS AGGREGATING RS.1,06,83,574/-. BEFORE THE ASSESSING OFFICER, THE ASSESSEE ADMITTED THAT SUCH EXPENSES ARE CAPITA L IN NATURE EXCEPT FOR CERTAIN EXPENSES AGGREGATING RS.11,40,266/- WHI CH ARE REVENUE IN NATURE. HOWEVER, ASSESSING OFFICER TREATED THE ENTI RE EXPENDITURE AS CAPITAL EXPENSES. LD.CIT(A) DELETED THE EXPENDITURE TO THE EXTENT OF RS.11,40,266/- TREATING IT TO BE REVENUE EXPENDITUR E AND THE BALANCE WAS CONFIRMED ON THE GROUND THAT ASSESSEE ITSELF HA S AGREED BEFORE THE AO THAT THEY ARE CAPITAL EXPENDITURE. 3. NOW BEFORE US, THE LEARNED COUNSEL HAS SUBMITTED THAT VARIOUS DECISIONS OF THE HIGH COURT HAVE COME, WHEREIN IT H AS BEEN HELD THAT SOFTWARE EXPENSES ARE IN THE NATURE OF REVENUE EXPE NDITURE. THEREFORE THESE ADDITIONS WERE CONTESTED BEFORE FIRST APPELLA TE AUTHORITY ARE NOW ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 3 BEFORE THE TRIBUNAL. IN SUPPORT OF HIS CONTENTION, RELIANCE WAS PLACED ON THE DECISIONS OF DELHI HIGH COURT IN CIT VS. M/S. AMWAY INDIA REPORTED IN (2012) 346 ITR 341 AND CIT VS. ASAHI INDIA SAFETY GLASS REPORTED IN (2011) 64 DTR (DEL) 63. THUS HE SUBMITTED THAT IN VIEW OF THESE DECISIONS, THE SOFTWARE EXPENSES SHOULD BE TREATED AS REVENUE EXPENDITURE. ALTERNATIVELY, HE SUBMITTED THAT DEPRE CIATION SHOULD BE ALLOWED TO THE ASSESSEE WHICH ISSUE, HAS BEEN RAISE D GROUND NO. 2. 4. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD.CIT(A) AND SUBMITTED THAT, ONCE THE ASSESSEE AS ITSELF HAS ADMITTED TO BE CAPITAL EXPENDITURE, THEN ASSESSEE IS PRECLUD ED FROM RAISING THIS ISSUE AT THE APPELLATE STAGE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING OF THE AO AS WELL AS LD.CIT(A). SOFTWARE EX PENSES ARE GENERALLY REVENUE IN NATURE, BECAUSE THEY ARE USED IN RUNNING OF THE BUSINESS IN A MORE EFFICIENT MANNER. IT DOES NOT RESULT INTO CREA TION OF A FIXED CAPITAL OR GIVING ANY ENDURING BENEFIT FOR A LONGTIME, AS T HESE SOFTWARE LICENSES AND PROGRAMS KEEPS ON CHANGING AND ARE UPDATED FROM TIME TO TIME AS PER THE REQUIREMENT AND THE GROWING NEEDS OF THE BU SINESS. THE SOFTWARE DOES NOT BRING FORTH ANY NEW SOURCE OF INC OME, ALBEIT ENABLE THE PROFIT MAKING STRUCTURE TO WORK IN A MORE EFFIC ACIOUS MANNER. HOWEVER, IN THIS CASE THOUGH THE ASSESSEE CLAIMED I T AS REVENUE EXPENDITURE, BUT BEFORE THE AO IT HAS ITSELF ACCEPT ED THAT MOST OF THE SOFTWARE EXPENSES CAN BE TREATED AS CAPITAL EXPENDI TURE. SUCH AN ADMISSION HAS BEEN RETRACTED BY CHALLENGING THIS IS SUE BEFORE THE LD.CIT(A) AS WELL AS BEFORE US. IT IS A TRITE LAW T HAT MERE ADMISSION OR ACQUIESCENCE BY THE ASSESSEE CANNOT THE FOUNDATION OF THE ASSESSMENT, ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 4 IF LATER ON THE ASSESSEE POINTS OUT THAT SUCH AN AD MISSION WAS AGAINST THE FACTS OR PROVISION OF LAW. IT IS NOT A CASE HER E THAT ON ACCOUNT OF ADMISSION BY THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS, THE AO WAS PRECLUDED TO MAKE FURTHER ENQUIRY OR INVESTIGAT ION OF FACTS. HERE FACTS AND MATERIAL FOR DECIDING THE ISSUE IS ALREAD Y ON RECORD. THUS IN OUR OPINION, THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO DEAL AND DECIDE THIS ISSUE AFRESH AFTER EXAMINING T HE DETAILS AND NATURE OF SOFTWARE EXPENSES AND IN ACCORDANCE WITH THE JUD ICIAL PRECEDENCE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS T REATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6. IN GROUND NO. 2 THE ASSESSEE HAS CHALLENGED THE ALTERNATIVE CLAIM OF DEPRECIATION, IN CASE SOFTWARE EXPENDITURE ARE T REATED AS CAPITAL EXPENDITURE. THIS GROUND AT THIS STAGE HAS BECOME P URELY ACADEMIC AND CONSEQUENTIAL TO GROUND NO. 1, BECAUSE IF SOFTWARE EXPENSES ARE TREATED AS CAPITAL EXPENDITURE THEN ONLY THE ISSUE OF DEPRE CIATION WILL COME. THE AO WHILE DECIDING THE ISSUE RAISED IN GROUND NO. 1, WILL DECIDE THE ISSUE ACCORDINGLY. THUS GROUND NO. 2 IS TREATED AS INFRU CTUOUS. 7. IN GROUND NO. 3 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.57,39,710/- U/S 145A. THE ASSESSEE HAD UNUTILIZE D CENVAT CREDIT OF RS.57,39,710/- WHICH REPRESENTED SERVICE TAX CREDIT . THE ASSESSING OFFICER HELD THAT THE UNUTILIZED PORTION OF CENVAT CREDIT HAS TO BE INCLUDED IN THE CLOSING STOCK AND CANNOT BE TAKEN T O THE BALANCE SHEET AS DONE BY THE ASSESSEE. ACCORDINGLY HE ADDED THE S AID AMOUNT U/S 145A, WHICH HAS BEEN CONFIRMED BY THE LD.CIT(A). 8. BEFORE US, LEARNED COUNSEL SHRI NIRAJ SHETH SUBM ITTED THAT SECTION 145A DOES NOT APPLY TO SERVICE TAX, BUT ONLY ON VAL UATION OF PURCHASE ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 5 AND SALE OF GOODS AND INVENTORY. IT HAS NO APPLICAB ILITY IN THE CASES OF SERVICES. IN SUPPORT OF HIS CONTENTION HE STRONGLY RELIED UPON THE DECISION OF CO-ORDINATE BENCH OF ITAT MUMBAI, IN TH E CASE OF M/S. PHARMA SEARCH VS. ACIT ITA NO. 7303/M/2010 . 9. ON THE OTHER HAND LD. DR STRONGLY RELIED UPON TH E ORDER OF THE LD.CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PE RUSED THE RELEVANT FINDING OF THE AO AS WELL AS LD.CIT(A). THE AMOUNT OF UNUTILIZED CENVAT CREDIT OF RS.57,39,710/- PERTAINS TO SERVICE TAX, WHICH WAS PAYABLE ON ACCOUNT OF SERVICES RENDERED BY THE ASSE SSEE. AS PER THE SERVICE TAX LAW, THE SERVICE TAX IS PAYABLE AS AND WHEN THE PAYMENT/FEES FOR UNDER LYING SERVICES PROVIDED BY T HE ASSESSEE ARE REALIZED. THE CENVAT CREDIT IS AVAILABLE ONLY ON AC COUNT OF LAWS LAID DOWN UNDER CENTRAL EXCISE ACT. HERE THERE IS NO VAL UATION OF STOCK OF GOODS. SECTION 145A IS A NON OBSTANTE CLAUSE TO SEC TION 145 AND PROVIDES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSE OF DETERMINING THE INCOME CHARGEABL E UNDER THE HEAD PROFIT AND GAINS HAS TO BE ADJUSTED SO AS TO INCLUD E THE AMOUNT OF ANY TAX, DUTY, CESS, OR FEE PAID OR INCURRED BY THE ASS ESSEE TO BRING THE GOODS AS ON THE DATE OF VALUATION. THIS SECTION ONL Y APPLIES TO PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSE OF VALUATION OF STOCK ON THE DATE OF VALUATION. IN THE NORMAL CIRCUMSTANCES IT IS AT THE TIME OF VALUATION OF CLOSING STOCK AND NOT FOR THE VALUATIO N OF SERVICE CONTRACTS. IF THE PROVISION OF SECTION 145A IS NOT APPLICABLE ON SERVICES, THEN THE ACTION OF THE AO IN INVOKING THE PROVISIONS OF SECT ION 145A TO MAKE THE ADDITION IS LEGALLY NOT CORRECT. ACCORDINGLY ON THI S REASON, THE ORDER OF ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 6 THE LD.CIT(A) IS SET ASIDE AND THE ADDITION MADE BY THE AO IS DELETED. IN THE RESULT GROUND NO. 3 IS TREATED AS ALLOWED. 11. IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED THE ADDITION/ DISALLOWANCE OF REVERSAL OF PROVISIONS OF RS.71,48, 625/-. THE LEARNED COUNSEL POINTED OUT THAT THE ASSESSEE HAD MADE A PR OVISION OF CUSTOMERS CLAIM OF RS.71,48,625/- IN THE A.Y. 2005- 06. THIS PROVISION WAS SUO MOTU DISALLOWED BY THE ASSESSEE IN ITS COMP UTATION OF INCOME FILED ALONG WITH RETURN OF INCOME FOR THE A.Y. 2005 -06. AT THAT TIME THE ASSESSEE WAS MAERSK LOGISTIC INDIA PVT. LTD. WHICH WAS MERGED WITH THE PRESENT ASSESSEE UNDER THE SCHEME OF THE AMALGA MATION W.E.F. 01.04.2005. THE PRESENT ASSESSEE REVERSED THE AFORE SAID PROVISION IN ITS ACCOUNT FOR THE YEAR ENDING 31.03.2006. SINCE THE P ROVISION WAS ALREADY DISALLOWED IN THE EARLIER ASSESSMENT YEAR, THE ASSE SSEE INCLUDED THE REVERSAL IN ITS COMPUTATION OF INCOME FOR A.Y. 2006 -07. WHAT THE AO HAS DONE, IS THAT, HE HAS ADDED BACK THE REVERSAL MAINL Y ON THE GROUND THAT MATTER WAS SUB-JUDICE BEFORE THE APPELLATE FORUM. H OWEVER, THIS FACT IS NOT CORRECT, AS BEFORE THE LD.CIT(A) IT WAS CLEARLY MENTIONED THAT ASSESSEE HAD NOT PREFERRED ANY APPEAL ON THIS SCORE IN THE EARLIER YEAR AND THIS MATTER IS NOT SUB-JUDICE. IN A.Y. 2005-06 THE LD.CIT(A) HAS DECIDED ENTIRELY A DIFFERENT ISSUE WHICH RELATED TO PROVISION OF SERVICE TAX DEMAND OF RS.30 LAKHS. THUS THE FINDING OF THE LD.CIT(A) IN THIS YEAR THAT THIS ISSUE HAS BEEN DEALT BY THE EARLIER LD.CI T(A) IN A.Y. 2005-06 IS ABSOLUTELY INCORRECT AND HAS NO BEARING TO THE PRES ENT ISSUE, AS THE NATURE OF THE PROVISION WERE ENTIRELY DIFFERENT. 12. THE LD. DR SUBMITTED THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AS BOTH THE ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 7 AUTHORITIES BELOW HAVE NOT GIVEN ANY FINDING ON THE ISSUE RAISED AT THIS STAGE. 13. AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERU SAL OF THE RELEVANT FINDING OF THE AO AS WELL AS LD.CIT(A) AND THE FACT S OF THE CASE, WE FIND THAT THE ERSTWHILE ASSESSEE HAD MADE A PROVISION FO R CUSTOMER CLAIMS OF RS.71,48,625/- IN THE A.Y. 2005-06, WHICH WAS SUO M OTU DISALLOWED IN THE COMPUTATION OF INCOME OF THAT YEAR. IN A.Y. 200 6-07 THE ASSESSEE HAS INCLUDED THIS REVERSAL IN ITS COMPUTATION OF IN COME. THUS THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF RS.71,48, 625/-. THE AO HAS WRONGLY ADDED BACK THE SAID PROVISION ON SOME WRONG NOTION THAT MATTER WAS SUB-JUDICE IN THE EARLIER YEAR. IT HAS B EEN POINTED OUT BEFORE US THAT, THIS ISSUE WAS NOT SUB-JUDICE AT ALL. ACCO RDINGLY, WE RESTORE THIS MATTER BACK TO THE FILE OF THE AO TO VERIFY THE CON TENTION OF THE ASSESSEE AND DECIDE THE ISSUE ON FACTS. GROUND NO. 4 IS THUS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 14. NOW WE WILL TAKE UP REVENUES APPEAL BEING ITA NO. 2530/M/2011,VIDE WHICH FOLLOWING GROUNDS HAS BEEN R AISED BY THE REVENUE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE ISSUE OF CONSEQUENTIAL DEPRECIATION IGNORING THE FA CT THAT THE LD. CIT(A) HAS NOT POWER TO SET ASIDE ANY ISSUE. THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 15. THIS ISSUE IS SIMILAR TO GROUND NO. 2 OF THE AS SESSEES APPEAL. THE LD.CIT(A) HAS MAINLY DIRECTED THE AO TO VERIFY THE ISSUE OF CONSEQUENTIAL DEPRECIATION. SINCE WE HAVE ALREADY HELD THAT GROUN D NO. 2 IS MERELY ITA NO. 2864/MUM/2011 ITA NO. 2530/MUM/2011 M/S. APM TERMINAL INDIA PVT. LTD. ASSESSMENT YEAR: 2006-07 8 CONSEQUENTIAL TO THE ISSUE DECIDED IN GROUND NO. 1, THEREFORE, THE DEPARTMENT GROUND IS ALSO TREATED AS INFRUCTUOUS AN D HENCE DISMISSED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF DECEMBER, 2014. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.12.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.