DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS), MUMBAI V. DCIT(IT)2(1)(1), MUMBAI

ITA 3067/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7288 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 27-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Assessee Lawyers: VIRENDRA SINGH KHURANA
• Keywords: Capital asset; Depreciation; Reasonable cause; Revenue expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER , AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ./ I.T.A. NO. 3067 /MUM/201 6 ( / ASSESSMENT YEAR : 2 01 1 - 12 ) DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) EQUINOR BUSINESS PARK TOWER 3, 6 TH FLOOR OFF BANDRA - KURLA COMPLEX, LBS MARG, KURLA (WEST), MUMBAI - 400 070. / VS. THE DCIT (INTL. TAXN.) , 2(1)(1) AIR INDIA BUILDING, 17 TH FLOOR, NARIMAN PO INT, MUMBAI - 400 021. ./ PAN : AABCD 9812 F ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI VIRENDRA SINGH KHURANA - AR / RESPONDENT BY : SHRI H.N. SINGH - CIT - DR / DATE OF HEARING : 22/02 /2018 / DATE OF PRONOUNCEMENT : 02/05/2018 / O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF DI SPUTE RESOLUTION PANEL - I (DRP - I) DATED 17/01/2016 . IT PERTAINS TO ASSESSMENT YEAR 201 1 - 12. 2. THE GROUNDS OF APPEAL READ AS UNDER : - THE APPELLANT SUBMITS THE FOLLOWING GROUNDS OF APPEAL WHICH ARE SEPARATE/ALTERNATIVE AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. TREATMENT OF SOFTWARE EXPENDITURE AS CAPITAL - RS.1,20,60,089 / - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN TREATING THE SOFTWARE EXPENDITURE OF RS. 1,2,060,089 AS OF CAPITAL NATURE INSTEAD OF ALLOWING THE SAME AS REVENUE EXPENDITURE, AS CLAI MED BY THE APPELLANT. THE APPELLANT PRAYS THAT THE SOFTWARE EXPENDITURE OF RS. 1,20,60,089 BE ALLOWED AS OF REVENUE NATURE AS IT DOES NOT BRING INTO EXISTENCE ANY CAPITAL ASSET NOR DOES IT RESULT IN ANY ENDURING BENEFIT TO THE APPELLANT, AS IS SO HELD IN T HE APPELLANT'S OWN CASE BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2008 - 09 BY ITS ORDER DATED 29 FEBRUARY 2016 IN I TA NO. 200/MUM/2 0 14. 2. INTEREST ON DELAYED PAYMENT OF TDS - RS. 54,054 ITA NO. 3067 /MUM/201 6 DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E LEARNED AO ERRED IN DISALLOWING RS. 54,054, BEING INTEREST PAID BY THE APPELLANT ON DELAYED PAYMENT OF TDS. THE APPELLANT PRAYS THAT THE INTEREST OF RS. 54,054 PAID BY THE APPELLANT ON DELAYED PAYMENT OF TDS BE ALLOWED TO THE APPELLANT. 3. OTHER/CO NSEQUENTIAL RELIEFS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT PRAYS YOUR HONOURS TO GRANT SUCH OTHER AND/OR FURTHER AND/OR CONSEQUENTIAL RELIEFS AS MAY BE DEEMED FIT AND AS PER LAW. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL AT OR BEFORE HEARING OF THIS APPEAL. AT THE OUTSET WE NOTE THAT THERE WAS A DELAY OF 35 DAYS IN FILING THE APPEAL. THE REASONABLE CAUSE FOR THE DELAY HAS BEEN ATTRIBUTED TO AN OVERSIGHT AND INADVERTENT ERROR ON THE PART OF THE CONSULTANT WHO HAS GIVEN AN ACCEPTANCE OF THE SAME. ACCORDINGLY AFTER HEARING BOTH THE COUNSEL AND PERUSING THE RECORDS WE CONDONE THE DELAY. 2.1. APPROPOS GROUND NO.1 2.2. O N THIS ISSUE THE ASSESSING OFFIC ER NOTED THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS. 1,20,60,089/ - TOWARDS SOFTWARE CHARGES. ASSESSEE EXPLAINED THAT THESE WERE NOT PAYMENT FOR OBTAINING THE BENEFIT OF ENDURING NATURE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE SUBMISSIONS WERE AS U NDER : - ASSESSEE VIDE ITS LETTER DATED 26/02/2015 SATED AS REPRODUCED BELOW: THE PAYMENTS MADE ON ACCOUNT OF CLAIM OF SOFTWARE EXPENSES AS REVENUE IN NATURE BE ALLOWED BASED ON THE FOLLOWING SUMMARISED REASONS: THE PAYMENTS ARE MADE ANNUALLY FOR USE O F LICENSE. THE PAYMENTS ARE MADE ON THE BASIS OF THE NUMBER OF USERS USING THE SOFTWARE. THE PAYMENTS DO NOT CREATE AN ASSET OF AN ENDURING NATURE. ...' 2.2. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED. HE HELD THE IMPUGNED EXPENDITURE TO BE CAPITAL I N NATURE, THEN HE ALLOWED DEPRECIATION THEREON. 2.3. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEAL . 2.4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IDENTICAL ISSUE WAS DECLARED BY THIS ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 29/02/2016 (ITA NO.200/MUM/2014 ) . THE TRIBUNAL HAS HELD AS UNDER : - ITA NO. 3067 /MUM/201 6 DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) 3 18. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, IT IS SUFFICIENT TO TAKE NOTE OF THE FACT THAT, DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HIMSELF NOTED THAT THE SOFTWARE EXPENSES REPRESENT MICROSOFT LICENCE FEES WHICH IS CHARGEABLE ON ANNUAL BASIS , YET HE DISALLOWED THE EXPENSES AS CAPITAL EXPENSES THOUGH HE ALLOWED DEPRECIATI ON THEREON. IN APPEAL, LEARNED CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 19. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE FIND THAT SINCE IT IS AN ANNUAL PAYMENT BY THE AS SESSEE AND SINCE THE BENEFIT OF THIS PAYMENT DOES NOT GO BEYOND THE YEAR, IT IS INHERENTLY A REVENUE EXPENSE IN NATURE, AND ALLOWABLE, AS SUCH, TO THE ASSESSEE. THE QUESTION OF SOFTWARE EXPENSES BEING IN THE NATURE OF CAPITAL ASSET IS RELEVANT ONLY WHEN TH E PAYMENT IS FOR ACQUIRING THE SOFTWARE. THAT IS NOT THE CASE HERE. IT IS A PAYMENT FOR THE ANNUAL LICENCE FEES, AND NOT THE SOFTWARE ITSELF. THE EXPENSE IS, THEREFORE, CLEARLY REVENUE IN NATURE. WE, ACCORDINGLY, DELETE THE IMPUGNED DISALLOWANCE. AS THE RE LIEF HAS BEEN ALLOWED AS REVENUE EXPENDITURE, THE ASSESSEE WILL NOT BE ENTITLED TO ANY DEPRECIATION ON SOFTWARE. WITH THIS OBSERVATION, GRIEVANCE OF THE ASSESSEE IS UPHELD. 2.5. THE LD . COUNSEL FURTHER SUBMITTED THAT THE DISPUTE RESOLUTION PANEL (DRP) F OR SUBSEQUENT YEARS HAS DIRECTED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND SUBSEQUENTLY THE DEPARTMENT HAS ALLOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 2. 6. UPON CAREFUL CONSIDERATION WE NOTE THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT AND THE DEPARTMENT HAS ALLOWED IT SUBSEQUENTLY . HENCE, WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE . 3. APPROPOS GROUND NO.2. ON THIS ISSUE THE ASSESSING OFFICER HAS DENIED INTEREST PAID ON DELAYED PAYMENT OF TDS AS ALLOWABLE EXPENDITURE. THE DRP HAS UPHELD THE ASSESSING OFFICERS ACTION. AGAINST THIS ORDER ASSESSEE IS IN APPEAL BEFORE US. 3.1. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF TH E REVENUE BY THE DECISION OF HON'BLE APEX COURT IN THE CASE OF BHARAT COMMERCE & INDUSTRIES LTD. VS. CIT (230 ITR 733) . IN THIS CASE THE HONBLE APEX COURT HAS EXPOUNDED AS UNDER : - HELD WHEN INTEREST IS PAID FOR COMMITTING A DEFAULT IN RESPECT OF A S TATUTORY LIABILITY TO PAY ADVANCE TAX, THE AMOUNT PAID AND THE EXPENDITURE INCURRED IN THAT CONNECTION IS IN NO WAY CONNECT ED WITH PRESERVING OR PROMOTING THE BUSINESS OF THE ASSESSEE. THIS IS NOT EXPENDITURE WHICH IS INCURR ED AND WHICH HAS TO BE TAKEN INT O ACCOUNT BEFORE THE PROFITS OF THE BUSINESS ARE CALCULATED . THE LIABILITY IN THE ITA NO. 3067 /MUM/201 6 DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) 4 CASE OF PAYMENT OF INCOME - TAX AND INTEREST FOR DELAYED PAYMENT OF INCOME - TAX OR TAX ARISES ON THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS. THE TAX WHICH IS PAYABLE IS ON THE ASSESSEE'S INCOME AFTER THE INCOME IS DETERMINED. THIS CANNOT, THEREFORE, BE CONSIDERED AS AN . EXPENDITURE FOR THE PURPOSE OF EARNING ANY INCOME OR PROFITS. INTEREST WHICH IS PAID FOR DELAYED PAYMEN T OF ADVANCE TAX ON SUCH INCOME CANNOT BE CONSID ERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY PURPOSE OF BUSINESS. UNDER THE ACT, THE PAYMENT OF SUCH INTEREST IS INEXTRICABLY CONNECTED WITH THE ASSESSEE'S TAX LIABILITY. IF INCOME - TAX ITSELF IS NOT PERMISSIBLE DEDUCTION UNDER SECTION 37, ANY INTEREST PAYABL E FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARGING HIS STATUTORY OBJECTION ACT, WHICH IS CALCULATED WITH REFERENCE TO THE TAX ON INCOME, CANNOT BE ALLOWED AS A DEDUCTION. 3.2. EXAMINING THE PRESENT ISSUE ON THE TOUCHSTONE OF ABOVE SAID DECISION WE FI ND THAT THE INTEREST ON DELAYED PAYMENT OF TDS CANNOT BE CONSIDERED AS EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE PAYMENT OF TDS IS NOT A PERMISSIBLE DEDUCTION U/S. 37 , AS ANY INTEREST PAYABLE FOR DEFAULT COMMITTED BY THE ASSESSEE IN DISCHARGING A STATUTORY OBJECTION UNDER THE ACT CANNOT BE ALLOWED AS A DEDUCTION. HENCE, WHEN THE ASSESSEE DEDUCTED TDS BUT FAILED TO DEPOSIT THE SAME IN THE GOVERNMENT EXCHEQUER, THE ASSESSEE WAS USING GOVERNMENT MONEY FOR ITS OWN PURPOSE AND HENCE, IN TEREST ON LATE PAYMENT OF TDS CANNOT BE HELD TO BE AN ALLOWABLE EXPENSE . S IMILAR VIEW WAS ALSO EXPRESSED IN THE CASE OF EAST INDIA PHARMACEUTICALS WORKS LTD. BY THE HON'BLE APEX COURT (224 ITR 627) . 3.3. IN THE BACKGROUND OF AFORESAID DISCUSSION AND P RECEDENTS WE DONOT FIND ANY INFIRMITY IN ORDER OF THE AUTHORITIES BELOW ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE SAME. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 2/5/2018 . 2 , SD/ - SD/ - ( AMARJIT SINGH ) ( SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 02/05/ 201 8 JV , SR. PS / COPY OF THE O RDER FORWARDED TO : / BY ORDER, ITA NO. 3067 /MUM/201 6 DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) 5 //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI DATE INITIALS INITIAL 1. DRAFT DICTATED ON - DICTATION SHEETS ATTACHED/DIRECT ON PC 17/4/18 2. DRAFT PLACED BEFORE AUTHOR 17/4/18 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER ITA NO. 3067 /MUM/201 6 DNV GL AS (FORMERLY KNOWN AS DET NORSKE VERITAS AS) 6 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO THE SR.PS 6. KEPT FOR PRONOUNCEMENT 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLER K 8. DATE ON WHICH FILE GOES TO THE A.R. FOR SIGNATURE OF THE ORDER 9. DATE OF DISPATCH OF THE ORDER