GALA PRECISION TECHNOLOGY P. LTD, THANE V. ASST CIT 6(3), MUMBAI

ITA 3353/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87958 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 05-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 30-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 10B

Judgement Text

, TH THTH TH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - G BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.3353/MUM/2013, ' ' ' ' # # # # / ASSESSMENT YEAR-2008-09 GALA PRECISION TECHNOLOGY PVT. LTD. 102-A, ORION BUSINESS PARK, NEAR CINE WONDER, GHODBUNDER ROAD, MAJIWADA, THANE(W)-400607 PAN:AAACG1777F VS ACIT 6(3), MUMBAI. ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI VIJAY MEHTA + * / REVENUE BY : SHRI R.N. D'SOUZA ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 05.01.2015 -.# + ), / DATE OF PRONOUNCEMENT : 16-01-2015 ' ' ' '1961 1961 1961 1961 + + + + 254 254 254 254( (( (1 11 1) )) ) )7) )7) )7) )7) 8 8 8 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 30.01.2013 OF THE CIT(A )-12, MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEALS: THE APPELLANT SUBMITS THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. ADDITION OF UNUTILIZED MODVAT CREDIT OF RS. 15,14,1 10/-: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE CONTENTION OF THE ASSESSING OFFICER B Y ADDING CLOSING BALANCE OF MODV AT CREDIT OF RS. 15,14,110/ - TO THE CLOSING STOCK WITHOUT AP PRECIATING THE FACT THAT THE PROVISIONS OF S. 145A ARE TAX NEUTRAL. 2. DISALLOWANCE OF SAP EXPENDITURE OF RS. 1,24,37,364/ -: 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENSE ON SAP BY TREATING IT AS CAPITAL EXPENDITUR E WITHOUT CONSIDERING THE FACT THAT THE SAID EXPENSES WERE INCURRED FOR BUSINESS PURPOSE AND SHO ULD BE TREATED AS REVENUE IN NATURE. 2.2 WITHOUT PREJUDICE TO THE ABOVE, THE EXPENSES INCURRED ON IMPLEMENTATION OF SAP (OT HER THAN ACQUISITION OF THE LICENSE) OUGHT TO BE ALLOWED AS REVENUE IN NATURE 3. DISALLOWANCE OF DEDUCTION U/S 10B: 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN NOT GIVING CLEAR DIRECTION THAT THE DEDUCTION U/S 10B O UGHT TO BE INCREASED ON ACCOUNT OF DISALLOWANCE /ADDITION MADE BY THE ASSESSING OFFICER. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, A MEND OR WITHDRAW ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THIS APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING MARKETING OF ENGINEERING PRODUCTS, FILED ITS RETURN OF INCOME ON 30.9.2008 DECLARING T OTAL INCOME OF RS. 1,13,40,062/.ASSESSING OFFICER(AO)COMPLETED THE ASSESSMENT U/S.143(3)OF TH E ACT ON 21.12.2010,DETERMINING THE INCOME OF THE ASSESSEE AT RS.2,33,51,880/-. 2. FIRST GROUND OF APPEAL IS ABOUT ADDITION OF UNUTILI SED MODVAT CREDIT OF RS. 15.14 LAKHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DIRECTED THE ASSESSEE TO SUBMIT THE WORKING OF STOCK AS PER SECTION 145A OF THE ACT. I.E. BY FO LLOWING AN INCLUSIVE METHOD OF ACCOUNTING. AFTER 2 ITA NO. 3353/M/2013 GALA PRECISION TECHNOLOGY PVT. LTD. CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT SECTION 145A PRESCRIBED INCLUSIVE METHOD OF ACCOUNTING FOR VALUATION OF STOCK, THAT T HE ASSESSEE HAD BEEN FOLLOWING AN EXCLUSIVE METHOD OF VALUATION,THAT SAME WAS CONTRARY TO THE P ROVISIONS OF SECTION 145A OF THE ACT. AS A RESULT,HE ADDED AN AMOUNT OF RS. 15,14,410/- UNDER THE HEAD UNUTILIZED MODVAT CREDIT, IN RESPECT OF CLOSING STOCK OF RAW MATERIAL. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM THE ASSESSEE STATED THAT TRIBUNAL HAD IN ITS OWN CASE FOR THE AY 2001- 02,2002-03 AND 2003-04 HAD DECIDED THE ISSUE IN ITS FAVOUR. THE ASSESSEE ALSO REFERRED TO THE MATTER OF DYNA VISION LTD. DELIVERED BY THE SUPREME COURT OF INDIA ON 30.08.2012 (CIVIL APPEAL NO. 257 OF 2005).AFTER CONSIDERING THE ASSESSMENT O RDER AND THE SUBMISSION OF THE ASSESSEE, THE FAA HELD THAT THE ASSESSEE HAD NOT FOLLOWED THE MET HOD OF ACCOUNTING AS PRESCRIBED U/S 145A OF THE ACT, THAT IT HAD RELIED UPON THE GUIDELINES PRE SCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA,THAT IT HAD NOT FOLLOWED INCLUSIVE METHOD OF ACCOUNTING,THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE AO.THE FAA REFERRED TO THE ORDERS OF M AHAVIR ALUMINIUM LTD. (297 ITC 77 AND MAHALAXMI CLASS WORKS (P) LTD. (318 ITC 116), THAT THE TRIBUNAL HAS SET-ASIDE THE ISSUE FOR RECONSIDERATION STATING THAT CORRECT PROCEDURE AS P RESCRIBED IN SECTION 145A WAS TO BE FOLLOWED. REGARDING THE QUANTUM OF ADDITION MADE, THE FAA HEL D THAT IN THE PRECEDING YEARS THE AO HAD MADE ADDITION ON ACCOUNT OF UNUTILISED MODVAT CREDI T, THAT THE TRIBUNAL WHILE CONSIDERING THE APPEAL OF THE ASSESSEE HAD RESTORED THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AND RECOMPUTE THE ADDITION, IF ANY, BY FO LLOWING THE GUIDELINES GIVEN IN THE CASE OF HAWKINS COOKERS LTD.(ORDER DATED 19.05.2009)AND BY KEEPING IN MIND THE DECISIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF MAHAVIR ALUMINIUM L TD. (297 ITC 77). FOLLOWING THE DIRECTION OF THE TRIBUNAL, THE FAA INSTRUCTED THE AO TO TAKE SIMILAR ACTION. 4. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) STATE D THAT IDENTICAL ISSUE HAD BEEN RESTORED BACK BY THE TRIBUNAL TO THE FILE OF THE AO FOR EARLIER A Y.S..HE REFERRED TO THE ORDERS OF THE TRIBUNAL FOR THE AY 2005-06, 2001-02 AND 2002-03. DEPARTMENTAL R EPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY 2002-03 AND 2001-02 (ITA NO. 5760/MUM/05 AND 1834/MUM/05) ON 19.05.2009 THE TRIBUNAL HAD HELD AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY 2002-03 AND 2001-02 (ITA NO. 5760/MUM/05 AND 1834/MUM/05) ON 19.05.2009 THE TRIBUNAL HAD HELD AS UNDER: 7.2 THE CBDT HAS CLARIFIED THAT WITH A VIEW TO PUT AN END TO THIS POINT OF LITIGATION, BOTH THE OPENING AND CLOSING STOCK SHOULD REFLECT THE CORREC T VALUE AND THAT IS WHY SECTION 145A WAS INSERTED TO THE STATUTE BOOK. IT IS FURTHER STATED THAT THE VALUATION SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (B Y WHATEVER NAME CALLED), ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. THE DELHI HIGH COURT IN THE CASE OF C IT VS. MAHAVIR ALLUMINIUM LTD., 168 TAXMAN 27 (DELHI) HAS HELD THAT CORRESPONDING ADJUSTMENT M UST BE MADE IN OPENING STOCK SUBJECT; HOWEVER, TO A CONDITION THAT SUCH ADJUSTMENT SHOULD NOT RESULT IN DOUBLE DEDUCTION FOR SAME EXPENDITURE. THE DELHI HIGH COURT JUDGMENT IS THE O NLY HIGH COURT JUDGMENT AVAILABLE ON THE ISSUE. IN SUCH CIRCUMSTANCE THE JUDICIAL PROPRIETAR Y DEMANDS THAT WE ARE TO FOLLOW THE ABOVE JUDGMENT OF THE HIGH COURT. SINCE WE FOLLOW THE JUD GMENT OF THE DELHI HIGH COURT THEREFORE THE DECISIONS OF TRIBUNAL RELIED UPON BY THE LD DR DOES NOT HELP TO REVENUE. THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT V INDO NIPPON CHEMICALS CO . LTD.261 ITR 275(SC), CITED BY THE LD DR IS DISTINGUISHABLE ON FACTS AS THE SAID CASE DECIDED B Y THE APEX COURT CONSIDERING THE FACTS OF THAT CASE. THE APEX COURT IN THAT CASE HELD THAT ADOPTIN G GROSS METHOD FOR PURCHASES AND NET METHODS FOR UNCONSUMED STOCK AT THE END OF YEAR IS NOT PERM ISSIBLE. 7.3 ON CONSIDERATION OF SECTION 145A, ABOVE MEMORAN DUM AND CBDT CIRCULAR EXPLAINING THE PROVISIONS OF SECTION 145A AND ABOVE JUDGMENT OF TH E DELHI HIGH COURT WE NOTED THAT WHEN THE ADJUSTMENTS ARE MADE IN THE VALUATION OF, INVENTORI ES, THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. WHATEVER ADJUSTMENT IS MADE IN THE V ALUATION OF CLOSING STOCK, THE SAME WILL BE REFLECTED IN THE OPENING STOCK ALSO IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME 3 ITA NO. 3353/M/2013 GALA PRECISION TECHNOLOGY PVT. LTD. FOR TAX PURPOSES. WE FURTHER NOTICED THAT SECTION 1 45A STARTS WITH THE NON-OBSTANTE CLAUSE 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145'. THEREFORE, TO GIVE EFFECT TO SECTION 145A., THE OPENING STOCK AS ON 1.4.98 WILL HAVE TO BE INCREASED BY ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED WITH REFERENCE TO SUCH ST OCK IF THE SAME HAS NOT BEEN ADDED FOR THE PURPOSE OF VALUATION IN THE ACCOUNTS. THE AO IS DIR ECTED TO GIVE THE EFFECT OF SECTION 145A AS PER ABOVE DISCUSSION'. 6. IN VIEW OF THE RATIO LAID DOWN BY THE IT AT IN T HE CASE OF HAWKINS COOKERS LTD. (SUPRA) AND SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF HAWKINS COOKERS LTD., WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WI TH A DIRECTION TO DECIDE THE ISSUE BY FOLLOWING THE GUIDELINES GIVEN IN HAWKINS COOKERS LTD. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. WHILE DECIDING THE APPEAL FOR AY 2005-06 THE TRIBUN AL (ITA NO. 5511/M/11 AND 5468/M/11 DT. 21.02.2014) HAS HELD AS UNDER: 9. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO AD DITION OF MDDVAT OF RS.32,43,539/- UNDER SECTION 145A. WE FOUND THAT EXACTLY SIMILAR ISSUE W AS DECIDED BY THE TRIBUNAL IN AFOREMENTIONED ORDER DATED 30-7-2010, WHEREIN THE MATTER WAS RESTO RED TO THE FILE OF AD WITH THE FOLLOWING OBSERVATIONS :- '7. THE NEXT GROUND WAS WITH RESPECT TO ADDITION OF CLOSING BALANCE OF MODVAT CREDIT OF RS. 4,78,3621- AS A PART OF THE CLOSING STOCK THE L D. CIT(A) UPHELD THE CONTENTION OF THE AO BY ADDING CLOSING BALANCE OF MODVAT CREDIT OF RS. 4 ,78,3621- TO THE CLOSING STOCK. 8. WE FIND THAT THE ISSUE IS COVERED IN ASSESSEE'S OWN CASE IN ITA NO5760/M/2005 FOR THE A. Y. 2003-04 WHEREIN IT HAS BEEN HELD AS FOLLOWS : - 'SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL T O THAT OF HAWKINS COOKERS LTD. IN ITA NO. 505/M/04 VIDE ORDER DTD. 11.8.2008, WE R EMIT THE MATTER BACK TO THE FILE OF THE AD WITH A DIRECTION TO DECIDE THE ISSUE BY FOLLOWING THE GUIDELINES GIVEN IN HAWKINS COOKERS' LTD. THUS THIS GROUND OF THE AP PEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES' RESPECTFULLY FOLLOWING THE EARLIER YEAR ORDER WE RE MIT BACK THE ISSUE TO THE FILE OF THE AD AND REDO THE WORKING IN THE LIGHT OF THE DECISION OF HAWKINS COOKERS LTD.(SUPRA).' WE HAVE CONSIDERED RIVAL CONTENTIONS. AS FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE THE SAME AS DISCUSSED BY THE TRIB UNAL IN ITS ORDER DATED 30-7-2010, THEREFORE, WE RESTORE THIS GROUND WITH REGARD TO ADDITION ON A CCOUNT OF MDDVAT TO THE FILE OF THE AD FOR DECIDING AFRESH IN TERMS OF DIRECTION GIVEN BY THE TRIBUNAL AS QUOTED ABOVE. 7. RESPECTFULLY, FOLLOWING THE ABOVE MENTIONED ORDER O F THE TRIBUNAL, WE RESTORED BACK THE ISSUE TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH IN TERMS OF THE DIRECTION GIVEN BY THE TRIBUNAL. GROUND NO.1 IS ALLOWED IN FAVOUR OF THE ASSESSEE, I N PART. 8 .GROUND NO.2 IS ABOUT DISALLOWANCE OF SAP EXPENDITU RE OF RS.1.24 CRORES.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD REDU CED THE SAP EXPENSES AMOUNTING TO RS.1, 24, 37,364/- CLAIMING IT TO BE REVENUE EXPENSES.HE DIRE CTED THE ASSESSEE TO PRODUCE DETAILS IN THIS REGARD.IN ITS REPLY THE ASSESSEE STATED THAT THOSE WERE SOFTWARE LICENSES PURCHASED DURING THE YEAR AND WERE UTILISED BY IT FOR ACCOUNTING PURPOSES. HE DIRECTED THE ASSESSEE TO PRODUCE THE AGREEMENTS AND OBSERVED THAT THE LICENSES PURCHASED BY THE ASSESSEE COULD BE USED FOR A NUMBER OF YEARS,THAT THE WARRANTY WAS PROVIDED FOR 5 YEARS , THAT THE EXPENSES INCURRED BY IT PROVIDED ENDURING BENEFIT AND HENCE WERE CAPITAL IN NATURE.H OWEVER, THE AO ALLOWED DEPRECATION FOR THE SOFTWARE PURCHASED. 9. THE ASSESSEE FILED AN APPEAL BEFORE THE FAA AND MAD E ELABORATE SUBMISSIONS BEFORE HIM. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, THE FAA HELD THAT THE AO HAD SCRUTINISED THE EXPENSES FURNISHED BY THE ASSES SEE, THAT HE HAD FOUND THAT THERE WERE A NUMBER OF ITEMS WHICH COULD NOT BE TREATED AS REVENUE EXPE NSES, THAT THEY HAD ENDURING QUALITY. REFERRING TO THE CASE OF AMWAY INDIA ENTERPRISES,DELIVERED BY THE SPECIAL BENCH OF THE TRIBUNAL,THE FAA HELD THAT FOR DECIDING THE NATURE OF EXPENDITURE IN CURRED ON SOFTWARE ONE HAD TO EXAMINE THE QUESTION OF OWNERSHIP, THE TIME SPENT OF EXISTENCE AND THE FUNCTIONAL TESTS, THAT ASSESSEE HAD ADMITTED THAT THE EXPENDITURE INCURRED BY IT HAD RE DUCED MANUAL WORKING,MAINTAINING COST, ACCOUNTING DATE,THAT THE SOFTWARE HAD BEEN USED BY THE ASSESSEE FOR MORE EFFICIENT BUSINESS 4 ITA NO. 3353/M/2013 GALA PRECISION TECHNOLOGY PVT. LTD. FUNCTIONING,THAT SOFTWARE CONCERNED WAS EXPENSIVE E NOUGH TO BE CONSIDERED AS ASSET HAVING ENDUR -ING BENEFIT,THAT THE SOFTWARE EXPENDITURE INCURRED BY IT COULD NOT BE TREATED AS REVENUE EXPENSES, THAT THE SOFTWARE WAS AS PER THE SPECIFIC REQUIREME NT OF THE ASSESSEE AND THEREFORE CUSTOMIZED TO SUIT ITS NEEDS, THAT THE CUSTOMISATION OF STANDARD SAP WAS LONG TERM BENEFIT AND WAS THEREFORE A CAPITAL EXPENDITURE. FINALLY, HE UPHELD THE ACTION OF THE AO. 10. WITH REGARD TO THE ADDITIONAL GROUND RAISED BY THE ASSESSEE HE OBSERVED THAT THE ASSESSEE HAD STATED THAT EXPENSES IN THE NATURE OF PROFESSIONAL CHARGE, RENT, HOTEL STAY, EMPLOYEE TRAINING INCURRED IN RELATION TO IMPLEMENTATION OF SAP, AMOU NTING TO RS. 65.91 LAKHS, SHOULD BE TREATED AS REVENUE EXPENSES, THAT THOSE EXPENSES WERE OTHER TH AN THE EXPENSES INCURRED FOR ACQUISITION OF LICENSE, THAT THERE WERE RECURRING IN NATURE INCURR ED TO UPGRADE THE SYSTEM. HE HELD THAT IT WAS TRUE THAT EXPENSES INCURRED ON UPGRADATION OF SOFTWARE W OULD NOT NECESSARILY QUALIFIED AS CAPITAL EXPENDITURE, THAT THE ASSESSEE HAD NOT BEEN ABLE TO EXPLAIN THE NEXUS BETWEEN THE EXPENDITURE CLAIMED AS OBSERVED OF SOFTWARE WITH THE TOTAL AMOU NT SPENT ON THE PURCHASE OF LICENSE, THAT THE ASSESSEE HAD SHOWN DEPRECIATION IN RESPECT OF SALAR IES AT RS. 55.77 LAKHS, THAT THESE EXPENSES WERE NOT INCURRED FOR PURCHASE OF SOFTWARE LICENSE. HE DISMISSED THE ALTERNATIVE GROUND RAISED BY THE ASSESSEE. 11 .BEFORE US,AUTHORISED REPRESENTATIVE (AR) STATED TH AT ERP WAS A CONCEPT AND SAP WAS AN ERP TOOL,THAT SAP HAD BECOME SYNONYMOUS TO ERP, THA T IT HAD BEEN WIDELY USED IN AROUND 26 INDUSTRIES.HE REFERRED TO THE JUDGMENT OF RAYCHEM R PG LTD. DELIVERED BY THE HON'BLE JURISDICTION -AL HIGH COURT(346 ITR 138).HE ALSO RELIED UPON THE ORDER OF THE PUNE TRIBUNAL IN CASE OF FINOLEX CABLES LTD.(ITA NO. 961/PN/02-AY 1998-99 DT. 06.03. 12), JET AIRWAYS (INDIA) LTD. (ITA NO. 3685/M/11-AY 2006-07 DT. 05.04.13, KSB PUMPS LTD. ( ITA NO. 8482/M/10-AY 2004-05 DT. 08.08.13. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTE D THE ORDER OF THE FAA. 12 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT HON'BLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG LTD. ( SUPRA)HAD DECIDED THE ISSUE OF SOFTWARE EXPENDITURE IN FAVOUR OF THE ASSESSEE BASED ON THE FACTS OF THE CASE.FOLLOWING THE ABOVE ORDER OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF FINOLE X CABLES LTD., A BENCH OF PUNE TRIBUNAL HELD AS UNDER: 99. IN SO FAR AS THE EXPENDITURE IS CONCERNED, IN A SOMEWHAT SIMILAR SITUATION NE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S RAYCHEM RPG LTD. MUMB AI (SUPRA), HAS APPROVED THE ORDER OF THE TRIBUNAL IN HOLDING THE SAME TO BE A REVENUE EXPEND ITURE. IN THE CASE OF M/S RAYCHEM RPG LTD. (SUPRA). THE TRIBUNAL FOUND THAT ERP PACKAGE FACILI TATED ASSESSEE'S TRADING OPERATIONS AND ENABLED THE MANAGEMENT TO CONDUCT BUSINESS MORE EFF ICIENTLY. THUS, THE SAID EXPENDITURE WAS ALLOWED AS A REVENUE EXPENDITURE. IN THE PRESENT CA SE, THERE IS NO DISPUTE TO THE ASSERTION OF THE ASSESSEE THAT THE NEW SOFTWARE WAS INTENDED TO BENE FIT THE QUALITY AND EFFICIENCY OF THE INFORMATION SYSTEMS AND IN THAT VIEW OF THE MATTER, IT IS EVIDE NT THAT THE SOFTWARE WOULD FACILITATE CARRYING ON THE BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY AN D THE SAME CANNOT BE RECKONED AS IN THE NATURE OF THE PROFIT MAKING APPARATUS ITSELF. THEREFORE, W E ARE UNABLE TO ACCEPT THE PROPOSITION OF THE REVENUE THAT THE EXPENDITURE IS CAPITAL IN NATURE. THE ARGUMENT OF THE ASSESSING OFFICER THAT THE EXPENDITURE WILL GIVE 'LONG TERM BENEFIT' TO THE AS SESSEE IS NOT DETERMINATIVE OF THE EXPENDITURE BEING CAPITAL IN NATURE BECAUSE IT IS QUITE CLEAR T HAT SUCH BENEFIT IS IN THE REVENUE FIELD, I.E. RESULTING IN CONDUCT OF BUSINESS MORE PROFITABLY OR MORE EFFICIENTLY. IT IS QUITE WELL-SETTLED THAT EVEN WHERE BENEFIT OF AN EXPENDITURE ACCRUES OVER A LONG PERIOD OF TIME, YET IT CANNOT BE CONSTRUED AS A CAP CAPITAL EXPENDITURE SO LONG AS THE BENEFIT ACCRUES IN THE REVENUE FIELD AND FOR THE SAID PROPOSITION, A GAINFUL REFERENCE CAN BE MADE TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASED OF EMPIRE JUTE CO. V. CIT 120 ITR 1 (SC). 100. IN SO FAR AS THE OTHER OBJECTION OF THE ASSESS ING OFFICER THAT THE AMOUNT HAS BEEN CAPITALIZED IN THE ACCOUNT BOOKS IS CONCERNED, THE SAME IN OUR VIEW IS NOT RELEVANT TO DECIDE THE NATURE OF THE EXPENDITURE WHICH IS TO BE DECIDED ON THE BASIS OF THE PREVAILING LEGAL POSITION. IN THE OTHER CASES REFERRED TO BY THE AR, SIMILAR V IEW HAS BEEN TAKEN. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG LTD. (SUPRA) WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 13 .GROUND NO.3 IS ABOUT DISALLOWANCE OF DEDUCTION U/S 10B OF THE ACT.DURING THE COURSE OF 5 ITA NO. 3353/M/2013 GALA PRECISION TECHNOLOGY PVT. LTD. ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSES SEE HAD CLAIMED DEDUCTION U/S 10B,IN RESPECT OF THE ELIGIBLE UNDERTAKING,OF RS. 7.44 LAKHS.HE MA DE CERTAIN ADDITIONS/DISALLOWANCES WHILE COMPLETING THE ASSESSMENT ORDER AND AS A RESULT OF PROFIT AND GAIN FROM BUSINESS HAD INCREASED. AS PER THE ASSESSEE,THE AO HAD NOT GIVEN EFFECT IN COM PUTING THE PROFITS/GAINS OF THE ELIGIBLE UNDER - TAKING U/S 10B OF THE ACT. THE ASSESSEE AGITATED TH E ISSUE BEFORE THE FAA. HE HELD THAT GROUND OF APPEAL RAISED BY THE ASSESSEE WAS CONSEQUENTIAL IN NATURE.HE DIRECTED THE AO TO TAKE NECESSARY ACTION STRICTLY AS PER THE PROVISIONS OF THE ACT RE GARDING GRANT OF DEDUCTION U/S 10B OF THE ACT. 14 .BEFORE US,AR STATED THAT THE AO HAD NOT CARRIED OU T THE ORDERS OF THE FAA. HE MADE A REFERENCE TO THE MATTER OF GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175).DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. AFTER CONSIDERING THE SUBMISSIONS OF BOTH SIDES,WE ARE OF THE OPINION THAT NO INTERFERENCE IS REQUIRED FROM OUR SIDE,AS THE FAA HAD DIRECTED THE AO TO PASS THE ORDER WITH REGARD TO THE CLAIM MADE U/S 10B OF THE ACT BY THE ASSESSEE.IF THE AO H AS NOT PASSED THE ORDER GIVING EFFECT TO THE INSTRUCTION OF THE FAA,HE IS DIRECTED TO TAKE NECES SARY STEPS TO PASS APPEAL GIVING EFFECT ORDER WITHIN TWO WEEKS OF THE RECEIPT OF OUR ORDER. GROUN D NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ( 9 '() + 8): ; + ) <=. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH, JANUARY,2015 . 8 + -.# ? @' 16 TUOJH TUOJH TUOJH TUOJH , 201 5 . + 7 A SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER , / MUMBAI, @' /DATE: 16.01 . 2015. SK 8 8 8 8 + ++ + &) &) &) &) B #) B #) B #) B #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR G BENCH, ITAT, MUMBAI / E7 &)' , . . . 6. GUARD FILE/ 7 F ') ') ') ') &) &)&) &) //TRUE COPY// 8' / BY ORDER, G / < DY./ASST. REGISTRAR , /ITAT, MUMBAI