Chandigarh Housing Board, Chandigarh V. DCIT, Chandigarh

ITA 386/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63998 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: ALOK MITTAL
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37(1); 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 386/CHD/2012 ASSESSMENT YEAR : 2008-09 CHANDIGARH HOUSING V D.C.I.T. C-1(1) BOARD, 8, JAN MARG CHANDIGARH SECTOR 9D, CHANDIGARH AAALC 0132 H ITA NO. 549/CHD/2012 ASSESSMENT YEAR : 2008-09 A.C.I.T V CHANDIGARH HOUSING C-1(1), CHANDIGARH BOARD, CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALOK MITTAL RESPONDENT BY SMT. JYOTI KUMARI DATE OF HEARING 17.10.2012 DATE OF PRONOUNCEMENT 30.10.2012 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AND ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A), CHANDIGARH DATED 15.3.2012. ITA NO. 386/CHD/2012 APPEAL OF THE ASSESSEE IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING G ROUNDS: 1. THAT THE ORDER PASSED BY THE CIT (A) IS ERRONE OUS BOTH IN LAW AND FACTS. 2 THAT THE CIT (A) HAS FALLEN IN ERROR WHILE UPHOLD ING THE ADDITION OF RS. 35,00,54,820/- IN THE HANDS OF THE ASSESSEE/AP PELLANT ON ACCOUNT OF INTEREST RECEIVED FROM INVESTMENT OF FUNDS RECEIVE D AS BID MONEY FROM RGCTP HABITAT PROJECT IN AS MUCH AS THE SAID AMOUNT BELONGED TO THE CHANDIGARH ADMINISTRATION AND THE ASSESSEE APPELLAN T WAS MERELY ACTING AS A NODAL AGENCY DULY APPOINTED BY THE CHAN DIGARH ADMINISTRATION. THE ORDER PASSED BY THE CIT(A) IS C ONTRARY TO THE PROVISIONS OF SECTION 20, 23, 63 OF THE HARYANA HOU SING BOARD ACT AS EXTENDED TO THE UNION TERRITORY OF CHANDIGARH. 2 THAT STRICTLY IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE GROUND:- 3. THAT THE CIT(A) HAS FALLEN IN ERROR IN SUSTAINING THE ADDITION OF RS.35,00,54,820/-ON ACCOUNT OF INTEREST RECEIVED FROM INVESTMENT OF FUNDS RECEIVED AS BID MONEY FROM RGCT P HABITAT PROJECT. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO CONSIDER THE EXPLICIT PROVISIONS OF THE DEVELOPMENT AGREEMENT DATED 6.10.2006 IN WHICH IT HAS BEEN STATED CLEARLY THAT THE CHANDIGARH HOUSING BOARD IS ACTING AS A NODAL AGENCY ON BEHALF OF THE CHANDIGARH ADMINISTRATION FOR DEVELOPMENT OF RAJIV GANDHI CHANDIGARH TECHNOLOGICAL PARK PROJECT. 5. THAT THE CIT APPEALS HAD FALLEN IN E RROR IN DISALLOWING THE SUM OF RS.4,98,02,610/- BEING BANK INTEREST ON OVERDRAFTS OBTAINED AGAINST FDRS FOR EARNING HIGH R ATE OF INTEREST. 2. GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 3. GROUNDS NO. 2 TO 4 THROUGH THESE GROUNDS THE DISPUTE RAISED IS AGAINST THE CONFIRMATION OF ADDITION BY T HE LD. CIT(A) AMOUNTING TO RS. 35,00,54,820/- ON ACCOUNT OF INTE REST RECEIVED FROM INVESTMENT OF FUNDS WHICH WERE RECEIV ED FROM RGCTP HABITAT PROJECT. 4. BRIEF FACTS OF THE CASE ARE THAT THERE WERE SOME SLUM AREAS IN THE CITY OF CHANDIGARH AND WITH A VIEW TO DEVELOP SUCH SLUM AREAS, CHANDIGARH CITY ADMINISTRATION INVITED SCHEME UNDER WHICH ONE ROOM RESIDENTIAL FLAT WERE TO BE AL LOTTED TO POOR /SLUM DWELLERS ON MONTHLY LICENCE FEE. IN ORD ER TO DEVELOP THIS PROJECT THE FUNDS FOR THE SAID SCHEME, IT WAS DECIDED TO DEVELOP RAJIV GANDHI CHANDIGARH TECHNOLO GY PARK (RGCTP) ON PUBLIC PRIVATE PARTNERSHIP BASIS. TO FA CILITATE THE DEVELOPMENT OF RGCTP THE ASSESSEE PURCHASED SOME LA ND FROM CHANDIGARH ADMINISTRATION AND AFTER NECESSARY FORMALITIES SOME OF THE PLOTS WERE AUCTIONED AND THROUGH BIDDIN G M/S PASARWNATH DEVELOPERS WERE SELECTED AS DEVELOPER OF RGCTP. CERTAIN FUNDS WERE RECEIVED FROM THE DEVELOPER WHIC H HAVE BEEN INVESTED IN THE FORM OF FDR ETC. ON WHICH THE ASSESSEE EARNED INTEREST. THE CONTENTION OF THE ASSESSEE WA S THAT IT WAS ACTING AS AGENCY ON BEHALF OF THE CHANDIGARH ADMINISTRATION THEREFORE, INCOME FROM INTEREST ON THESE FUNDS 3 BELONG TO CHANDIGARH ADMINISTRATION AND THAT IS WHY INCOME WAS NOT ACCOUNTED FOR IN THE INCOME-TAX RETURN. TH IS PLEA WAS NOT ACCEPTED BY THE AO AND ACTION OF THE AO WAS CON FIRMED BY THE LD. CIT(A). 5 BOTH THE PARTIES WERE HEARD IN DETAIL. 6 AFTER HEARING BOTH THE PARTIES WE FIND THAT IDENT ICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN AY 20 07-08 IN ITA NO. 1075/CHD/2010 AND 1198/CHD/2010 IN ASSESSEES O WN CASE. THIS ISSUE WAS ADJUDICATED VIDE PARAS 44 AND 45 WHICH ARE AS UNDER:- 44. THE ID. CIT(A) HAS DEALT WITH THE AFORESA ID ISSUE IN PARA 32 AND 33 OF HER ORDER AS UNDER: '32. THE ISSUE INVOLVED IN THIS GROUND IS AS TO WHE THER INTEREST INCOME OF RS.9,01,57,799/- ON FDR CREATED FROM FUND S RECEIVED FROM RGCTP HABITAT PROJECT AND CONVERSION OF INDUST RIAL PLOTS TO COMMERCIAL PLOTS BELONG TO THE CHANDIGARH ADMINISTR ATION OR THE APPELLANT. THE APPELLANT SUBMITTED THAT A SUM OF R S.7,04,29,365/- WAS BANK INTEREST THAT ACCRUED ON THE FUNDS GENERAT ED FROM THE RGCTP HABITAT PROJECT AND BALANCE RS.1,97,28,435/- WAS ACCRUED ON THE FUNDS THAT RELATED TO CONVERSION FEE ON ACCO UNT OF CONVERSION OF INDUSTRIAL PLOTS TO COMMERCIAL PLOTS. 33. REGARDING THE BANK INTEREST THAT ACCRUED ON THE FUNDS GENERATED FROM RGCTP HABITAT PROJECT, THE APPELLANT IN ITS SU PPORT SUBMITTED THAT THESE FDRS BELONGED TO CHANDIGARH ADMINISTRATI ON AND, THEREFORE, THE INCOME THEREIN ALSO BELONGED TO CHAN DIGARH ADMINISTRATION. I HAVE ALREADY ADJUDICATED THE ISS UE AS TO WHETHER THE INCOME FROM RGCTP HABITAT PROJECT BELONGED TO T HE CHANDIGARH ADMINISTRATION OR TO THE APPELLANT IN GROUND NO. 2. AS PER MY FINDINGS AND CONCLUSIONS IN GROUND NO. 2, I HAVE HELD THAT T HE RGCTP HABITAT PROJECT BELONGED TO THE APPELLANT AND IT IS THE APPELLANT WHO SOLD THE LAND TO THE DEVELOPER AND EARNED THE I NCOME FROM THE SALE OF LAND AND OTHER SHARED REVENUE AND THERE FORE, THE FUNDS GENERATED FROM SUCH TRANSACTIONS BELONGED TO THE AP PELLANT AND THE APPELLANT DID NOT ACT AS AN AGENT/NODAL AGENCY OF C HANDIGARH ADMINISTRATION. IN VIEW OF MY FINDINGS AND CONCLUSI ONS IN GROUND NO. 2, THE INTEREST INCOME ON SUCH FUNDS IS THE INC OME OF THE APPELLANT NOT THE INCOME OF CHANDIGARH ADMINISTRATI ON. 45. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE HAS NOT CREDITED THE IMPUGNED INTEREST INCOME ON FDRS TAKEN OUT OF FUNDS LYING IN THE RGCTP PRO JECT A/C ON THE PLEA THAT THE ASSESSEE WAS A MERE AGENT O F THE CHANDIGARH ADMINISTRATION IN SO FAR AS THE RGCTP PR OJECT WAS CONCERNED AND HENCE BOTH THE INTEREST INCOME AS WELL AS THE PRINCIPAL AMOUNT ON WHICH THE IMPUGNED INTEREST WAS RECEIVED BELONGED TO THE CHANDIGARH ADMINIST RATION. WE HAVE CONFIRMED THE FINDING OF THE CIT(A) THAT THE A SSESSEE WAS NOT AN AGENT OF THE CHANDIGARH ADMINISTRATION. IN T HIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) WITH REGARD TO 4 TAXABILITY OF THE IMPUGNED INTEREST IS ALSO CONFIRMED. GROUND NO.5 IS DISMISSED. 7 SINCE THE FACTS IN THE CURRENT YEAR ARE IDENTICAL , THEREFORE, FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 8 GROUND NO. 5 THROUGH THIS GROUND THE ASSESSEE HAS RAISED THE ISSUE THAT THE LOWER AUTHORITIES HAVE ER RED IN NOT ALLOWING INTEREST AMOUNTING TO RS. 4,98,02,610/- BE ING BANK INTEREST ON OVER DRAFT OBTAINED AGAINST FDRS FOR E ARNING HIGH RATE OF INTEREST. 9 AFTER HEARING BOTH THE PARTIES WE FIND THAT THIS ISSUE HAS ALSO BEEN CONSIDERED IN ITAS NO. 1075/CHD/2010 AND 1198/CHD/2010 IN ASSESSEES OWN CASE BY THE TRIBUNA L IN ABOVE NOTED ITAS FOR AY 2007-08 THROUGH PARA 46 AND THE MATTER WAS DECIDED BY THE TRIBUNAL IN PARAS 47 TO 4 9 WHICH READS AS UNDER:- 47. THE ID. CIT(A) HAS DEALT WITH THE AFORESAID I SSUE IN PARA 38 AND 39 OF HER ORDER AS UNDER: '38. THE ISSUE INVOLVED IS THAT THE AO DISALLOWED A SUM OF RS. 6,45,33,684/- BEING BANK INTEREST ON OVERDRAFT OBTA INED AGAINST FDR AND TAKEN TO THE BALANCE SHEET UNDER THE HEAD WORK- IN-PROGRESS. THE APPELLANT SUBMITTED THAT THE ORIGINAL FDRS WERE MAD E AT 6% INTEREST. DURING THE YEAR UNDER CONSIDERATION, THE RATE OF IN TEREST OF FDRS INCREASED FROM 10% TO 11%. THE APPELLANT AVAILED OV ERDRAFT AGAINST THE OLD FDRS @ 1% ABOVE FDR RATES I.E. AROU ND 7% AND INVESTED THE FUNDS SO RAISED IN THE FRESH FDRS BEARING HIGHER RATE OF INTEREST OF 10%-11%. THE APPELLANT S UBMITTED THAT IT ACTED AS A PRUDENT PERSON AND THE EXCESS IN TEREST SO EARNED HAD BEEN OFFERED FOR TAX. ON THE OTHER HAND THE AO MADE AN OBSERVATION THAT THE APPELLANT DID NOT PROVIDE THE BALANCE STATEMENT, CASH FLOW STATEMENT, BANK CERTIFICATE, AND OTHER RE LEVANT DOCUMENTS IN ITS SUPPORT. THE AO FURTHER MADE A FIN DING THAT INITIALLY THE APPELLANT HAD TAKEN A PLEA THAT OVERD RAFT AGAINST FDRS WAS RAISED FOR UTILIZATION ON VARIOUS ONGOING PROJE CTS OF THE APPELLANT, BUT LATER CHANGED ITS STAND THAT THE OVE RDRAFT AGAINST THE OLD FDRS WAS UTILIZED TO MAKE FRESH FDRS FOR EA RNING HIGHER RATE OF INTEREST. HOWEVER, THE AO MADE A FINDING TH AT THE APPELLANT DID NOT FILE ANY DOCUMENT IN ITS SUPPORT AND FURTHE R THAT THE WORK IN PROGRESS OF THE APPELLANT HAD INCREASED FROM RS. 76,79,01,913/- TO RS. 1,06,96,32,995/- DURING THE YEAR. DUE TO IN CREASE, THE APPELLANT HAD CREATED ADDITIONAL WORK IN PROGRESS A MOUNTING TO RS. 30.17 CRORES. 39. I DO NOT FIND ANY MERIT IN THE CONTENTIONS OF T HE APPELLANT IN THE ABSENCE OF ANY EVIDENCE OR MATERIAL ON RECOR D. IT IS A FACT 5 THAT DURING THE YEAR ADDITIONAL WORK IN PROGRESS AM OUNTING TO RS.30.17 CRORES WAS CREATED AND THERE WOULD BE CORR ESPONDING INFLOW OF FUNDS TO FUND THIS ADDITIONAL WORK IN PRO GRESS. IN VIEW OF THE ABOVE THIS GROUND OF APPEAL IS DISMISSED.' 48. WE HAVE HEARD BOTH THE PARTIES. THE CASE OF THE ASSESSEE AS INITIALLY MADE OUT BEFORE THE DEPARTMENTAL AUTHO RITIES WAS THAT THE AMOUNTS TAKEN FROM THE OVERDRAFT A/C WERE UTILIZED TO FUND THE ON-GOING PROJECTS. THE SAID STAND WAS LATE R CHANGED BY THE ASSESSEE AND IT WAS SUBMITTED ORIGINAL FDRS CAR RIED INTEREST @ 6% WHILE THE RATE OF INTEREST HAD GONE UP TO 10-1 1% IN THE YEAR UNDER APPEAL. IN ORDER TO MAXIMIZE THE INTERES T INCOME, THE ASSESSEE CLAIMED TO HAVE TAKEN OVERDRAFT AGAINST TH E OLD FDRS WITH THE RESULT THAT IT HAD TO PAY INTEREST WHICH W AS 1% HIGHER THAN THE RATE OF INTEREST CARRIED BY THE OLD FDRS. ACCORDING TO THE ASSESSEE, THE OVERDRAFT SO TAKEN WAS UTILIZED F OR INVESTMENT IN THE NEW FDRS WHICH CARRIED HIGHER RATE OF INTEREST. THE ASSESSEE CLAIMED BEFORE THE DEPARTMENTAL AUTHORITIE S THAT IT HAD ACTED WISELY AND DECIDED TO PAY INTEREST ON OVERDRA FT IN ORDER TO INVEST THE SAME IN THE NEW FDRS CARRYING HIGHER RAT E OF INTEREST. ACCORDING TO THE ASSESSEE, IT HAS OFFERED THE EXCES S INTEREST SO EARNED TO TAX. 49. PERUSAL OF PARA 28.9 OF THE ASSESSMENT ORDER S HOWS THAT THE ASSESSEE HAD FIRST SUBMITTED BEFORE THE AO THAT THE FUNDS OVERDRAWN WERE UTILIZED FOR FUNDING VARIOUS W ORKS. THE ASSESSEE CHANGED ITS STAND LATER AND SUBMITTED THAT THE FUNDS OVERDRAWN WERE UTILIZED FOR INVESTMENTS IN NEW FDRS . PERUSAL OF PARA 38 OF THE APPELLATE ORDER PASSED BY T HE CIT(A) SHOWS THAT NEITHER RELEVANT DETAILS IN SUPPORT O F THE CLAIM WERE PROVIDED BY THE ASSESSEE TO THE AO NOR DID IT SUBSTANTIATE ITS CLAIM BEFORE HIM. BOTH THE AO AND THE CIT(A) HAVE RECORDED A FINDING OF FACT THAT ADDITIONAL WORK-IN-PROGRESS UNDERTAKEN BY THE ASSE SSEE IN THE YEAR UNDER APPEAL WOULD HAVE REQUIRED CORRESPONDING INFLOW OF FUNDS, MEANING THEREBY THAT THE AMOUNTS DRAWN FROM THE OVERDRAFT ACCOUNT WERE UTILIZED FOR MEETING THE EXP ENSES ON ADDITIONAL WORK-IN-PROGRESS. IT IS NOT THAT THE AO HAS DISALLOWED INTEREST PAYMENTS. HE HAS CARRIED THE SA ME TO THE WORK-IN-PROGRESS A/C AS PER THE REGULAR METHOD OF A CCOUNTING FOLLOWED BY THE ASSESSEE. IN THIS VIEW OF THE MATTE R, THE ORDER PASSED BY THE CIT(A) IN THIS BEHALF IS CONFIRMED. G ROUND NO.6 IS DISMISSED. 10 SINCE THE FACTS ARE IDENTICAL THEREFORE, THIS I SSUE IS ALSO DECIDED AGAINST THE ASSESSEE. 11 IN THE RESULT, APPEAL IN ITA NO. 386/CHD/2010 FI LED BY THE ASSESSEE IS DISMISSED. ITA NO. 549/CHD/2012 REVENUES APPEAL 6 12 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 3,03,51,231/- WHICH WAS MADE BY THE AO ON ACCOUNT O F ACCRUED INTEREST ON THE FUNDS RELATING TO CONVERSIO N FEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS. 74,06,921/- AND IN NOT TREATING THE EXPENDIT URE OF RS. 79,00,904/- AS CAPITAL EXPENDITURE THOUGH IT W AS INCURRED ON COMPUTERIZATION OF OFFICE YIELDING ENDU RING BENEFITS TO THE ASSESSEE. 13 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT THIS ISSUE WAS ALSO CONSIDERED AS GROUND NO. 1 OF DEPARTMENTS APPEAL IN ITA NO. 1198/CHD/2010 AND TH E ISSUE WAS ADJUDICATED VIDE PARAS 51 TO 56. 14 BOTH THE PARTIES HAD AGREED THAT THE FACTS OF TH IS CASE ARE IDENTICAL TO THE FACTS INVOLVED IN ITA NO. 1198/CHD /2010, THEREFORE, FOLLOWING THE ABOVE ORDER, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER BACK TO HIS F ILE FOR FRESH ADJUDICATION IN TERMS OF THE OBSERVATIONS MADE BY T HE TRIBUNAL FOR AY 2007-08. `15 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS CLAIMED A SUM OF RS. 96,42,839/- TOWAR DS COMPUTERIZATION. OUT OF THIS A SUM OF RS. 79,00,90 4/- WAS UNDER THE HEAD COMPUTERIZATION OF CHB OFFICE AND RS. 17,41,931/- WAS UNDER THE HEAD CONSULTANCY CHARGES . IN RESPONSE TO THE QUERY THE ASSESSEE SUBMITTED WRITTE N SUBMISSIONS DATED 20.10.2010 WHICH HAVE BEEN REPROD UCED AT PARA 9.2 OF AOS ORDER AND READS AS UNDER: 9.2 IN RESPONSE TO THIS ASSESSEE VIDE ITS REPLY D ATED 20.10.2010 HAS SUBMITTED THE WRITTEN SUBMISSIONS ON THIS ISSUE WHICH RE REPRODUCED BELOW: 1. THE COPY OF ACCOUNT HEAD COMPUTERIZATION OF CHB OFFICE IS ENCLOSED AS FLAG 2. THIS EXPENDITURE REPRESENTS DATA ENTRY CHARGES OF COMPLETE RECORDS O F OVER 40,000 ALLOTTEES OF CHANDIGARH HOUSING BOARD BY AXI S BANK. 7 IT IS SUBMITTED THAT EARLIER THE CHANDIGARH HOUSING BOARD USED TO PEN SEPARATE BANK ACCOUNT FOR COLLECTION OF INSTALLMENTS FROM ALLOTTEES OR EACH OF THE HOUSING SCHEME SEPARATELY. ON MONTHLY BASIS THE STAFF OF CHB USED TO PROCURE STATEMENTS OF ACCOUNT OF EACH HOUSING SCHEM E FROM THE BANKS AND POST THE RELEVANT INSTALLMENTS I N THE LEDGER ACCOUNT OF EACH ALLOTTEE MANUALLY. HOWEVER, IN ORDER TO TAKE ADVANTAGE OF THE LATEST TECHNOLOGY AND SIMPLY THE VOLUMINOUS WORK, IT WAS DECIDED THAT THE ACCOUNTS OF ALL ALLOTTEES OF DWELL ING UNITS OF CHB BE GOT COMPUTERIZED AND THAT INSTEAD OF SEVE RAL BANKS ONLY ONE BANK BE AUTHORIZED TO RECEIVE THE MO NTHLY INSTALLMENTS FROM ALL ALLOTTEES OF ALL THE HOUSING SCHEMES. THEREAFTER, AXIS BANK PERFORMED THE TASK OF COMPUTERIZATION OF TOTAL RECORDS OF OVER 40,000 ALL OTTEES OF DWELLING UNITS SPREAD OVER VARIOUS SECTORS IN CHANDIGARH. BESDIES, SPIC (SOCIETY FOR PROMOTION OF INFORMATION TECHNOLOGY IN CHANDIGARH) A UNIT OF CHANDIGARH ADMINISTRATION WAS ENGAGED FOR DEVELOPMENT AND INSTALLATION OF THE RELEVANT SOFTWARE TO BE USED BY AXIS BANK FOR COLLECTION OF INSTALLMENTS FROM THE ALLOTT EES. THE EXPENDITURE OF RS. 79,00,904/- REPRESENTS THE DATA ENTRY CHARGES PAID TO AXIS BANK AND SOFTWARE DEVELOPMENT CHARGES PAID TO SPIC. 5. THE COPY OF HEAD OF ACCOUNT CONSULTANCY EXPENSE S IS ENCLOSED AS FLAG-5. THE CHANDIGARH HOUSING BOAR D APPOINTED 3I INFOTECH, AN IT COMPANY AS CONSULTANT FOR DEVELOPMENT AND IMPLEMENTATION OF THE RELEVANT SOFT WARE FOR COLLECTION OF INSTALLMENTS FROM ALLOTTEES BY AX IS BANK AS WELL AS TO OVERSEE THE WORK OF COMPUTERIZATION O F ALLOTTEES RECORDS BY AXIS BANK. BESIDES THE SUM OF RS. 17,41,935/- WAS PAID TO M/S FEED BACK VENTURES WHO WERE ENGAGED IN ORDER TO SUGGEST IMPROVEMENT IN THE WORK AND PROCEDURES BEING DEPLOYED BY CHANDIGARH HOUSING BOARD VIZ., PREPARATION AND FINALIZATION OF PROJECT BUDGET, COST MONITORING, ASSISTANCE IN FINALIZATION OF PROCUREMENT STRATEGY AND WORKS PACKAGING, PREPARATI ON AND DISTRIBUTION OF PQ DOCUMENTS, PREPARATION OF GE NERAL AND SPECIAL CONDITIONS OF CONTRACT AND OTHER RELAT ED WORKS. 16 AFTER CONSIDERING THE SUBMISSIONS THE AO OBSERVE D THAT THE ABOVE CLAIM OF THE ASSESSEE HAD THREE COMPONENT S NAMELY CONSULTANCY CHARGES PAID 3I INFOTECH (II) DATA ENTR Y CHARGES PAID, AXIS BANK AND SOFTWARE DEVELOPMENT PAID TO SP IC. ACCORDING TO THE AO WHOLE EXPENDITURE WAS OF CAPITA L NATURE AND AFTER DISCUSSING THE CASE LAWS PARTICULARLY THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. MADRAS AUTO SERVICE (P) LTD., 233 ITR 468 AND ARVIND MILLS LTD., V. CIT , 197 ITR 8 422, THE EXPENDITURE WAS HELD TO BE OF CAPITAL NATU RE AND ONLY DEPRECIATION OF 25% WAS ALLOWED. 17 ON APPEAL, SIMILAR SUBMISSIONS WERE MADE BEFORE THE LD. CIT(A). 18 THE LD. CIT(A) ALLOWED THE EXPENDITURE OF RS. 79 ,00,904/- VIDE PARA 5.3.1 WHICH READS AS UNDER: 5.3.1 THE EXPENDITURE UNDER THE HEAD COMPUTERIZATION OF CHB OFFICE REPRESENTS DATA ENT RY CHARGES AND SOFTWARE DEVELOPMENT CHARGES PAID FOR DIGITIZATION OF COMPLETE RECORDS OF OVER 40,000 ALL OTTEES OF CHB BY AXIS BANK. THE EXPENDITURE WAS INCURRED TO SIMPLIFY VOLUMINOUS WORK BY TAKING ADVANTAGE OF COMPUTERIZATION. THE APPELLANT HAS PRODUCED A COPY OF MASTER SERVICE AGREEMENT BETWEEN THE APPELLANT AND UTI BANK, THE PRINCIPAL BANKER FOR MANAGEMENT OF ALLOTT EE ACCOUNTS IN THE APPELLATE PROCEEDINGS. A PERUSAL O F THIS DOCUMENT REVEALS THAT THE CHARGES TO BE PAID PER RE CORD ARE ONLY RS. 435/- PER RECORD RECONCILED (INCLUSIVE OF TAXES), WHICH IS QUITE REASONABLE. IN MY CONSIDERE D VIEW, THE AO IS NOT RIGHT IN TREATING THIS EXPENDITURE AS CAPITAL EXPENDITURE, SINCE IT WAS INCURRED TOWARDS DATA ENT RY CHA4RGES FOR DIGITIZATION AND SOFTWARE DEVELOPMENT. MOREOVER THE EXPENSES MADE ON COMPUTERIZATION OF OF FICE RECORDS CANNOT BE TREATED AS CAPITAL EXPENDITURE. HENCE, THE ADDITION MADE OF RS. 79,00,904/- BY TREATING IT AS CAPITAL EXPENDITURE IS DELETED. 19 HOWEVER, THE EXPENDITURE ON ACCOUNT OF CONSULTA NCY CHARGES WAS HELD TO BE AS CAPITAL EXPENDITURE VIDE PARA 5.3.2 AND 5.3.3 WHICH READ AS UNDER: 5.3.2 REGARDING THE EXPENDITURE MADE OF RS. 17,41,935/- ON ACCOUNT OF CONSULTANCY CHARGES THE APPELLANT HAD ONLY PRODUCED A COPY OF AGREEMENT WIT H M/S FEEDBACK ADVENTURES. AS PER THIS AGREEMENT, M/S FEEDBACK ADVENTURES WAS ENGAGED TO SUGGEST IMPROVEMENT IN THE WORK AND PROCEDURE BEING DEPLOYE D BY THE APPELLANT. IT HAS SEEN THAT THE IMPROVEMENT TO BE SUGGESTED WERE IN RESPECT OF VARIOUS PROCEDURES DEPLOYED BY THE CHB AND SO THESE EXPENSES WOULD RES ULT INTO ENDURING BENEFITS TO THE APPELLANT. HENCE, IT IS HELD THAT THE AO HAS RIGHTLY TREATED THE EXPENDITURE INC URRED OF RS. 17,41,935/- ON ACCOUNT OF CONSULTANCY CHARGES AS CAPITAL EXPENDITURE AND HIS ACTION IN THIS REGARD I S UPHELD. 5.3.3 IN VIEW OF THE ABOVE, THE ADDITION CONFIRMED WOULD WORK OUT TO RS. 13,06,451/- (17,41,935 DEPRECIATION @ 25% OF RS. 4,35,484). THE APPELLANT GETS RELIEF OF RS. 61,00,470/- (74,06,921 13,06,451). GROUND OF APPEAL NO. 4 IS PARTLY ALLOWED. 9 20 BEFORE US THE LD. DR FOR THE REVENUE STRONGLY SU PPORTED THE ORDER OF AO AND SUBMITTED THAT VARIOUS COMPONEN TS OF THIS EXPENDITURE WILL HAVE ENDURING BENEFIT AND THEREFOR E, CONSULTANCY CHARGES HAVE RIGHTLY BEEN TREATED AS C APITAL EXPENDITURE OF AO. 21 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE EXPENDITURE OF RS. 79,00,904/- M AINLY CONSIST OF DATA ENTRY CHARGES AND SOFTWARE DEVELOPM ENT FOR THE SAME. HE POINTED OUT THAT EARLIER THE ASSESSEE WAS MAINTAINING SEPARATE BANK ACCOUNT FOR COLLECTION OF INSTALLMENT OF EACH ALLOTTEE AND LATER ON TO TAKE BENEFIT OF THE TECHNO LOGY IT WAS DECIDED TO DEVELOP A SOFTWARE AND THEN TO TRANSFORM MANUAL RECORDS OF THE ALLOTTEES INTO DIGITAL RECORD. FOR T HIS WORK OF DATA ENTRY FOR DIGITIZATION OF ACCOUNTS OF ALL ALLOTTEES WAS GIVEN TO AXIS BANK AND SOFTWARE FOR THE SAME WAS GOT DESIGNE D FROM SPIC. HE FURTHER SUBMITTED THAT DATA ENTRY CHARGES IN ANY CASE ARE REQUIRED TO BE TREATED AS REVENUE EXPENDITURE B ECAUSE NO SEPARATE BENEFIT WOULD ACCRUE TO THE ASSESSEE AND I T WOULD LEAD ONLY TO SAVINGS IN OVER HEADS. SIMILARLY SOFT WARE EXPENSES ARE TO BE TREATED AS REVENUE EXPENDITURE A ND IN THIS REGARD HE RELIED ON THE DECISION OF CIT V. AMWAY IN DIA ENTERPRISES, 346 ITR 341(DELHI). 22 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. AS FAR AS EXPENDITURE OF RS. 79,00,904/- IS CONCERNED, THE SA ME RELATES TO DEVELOPMENT OF SOFTWARE AND MAINTAINING OF ACCOU NTS OF ALLOTTEES IN A COMBINED FORM AS WELL AS DATA ENTRY CHARGES FOR SUCH ACCOUNTS. NO DOUBT AS FAR AS DATA ENTRY CHARG ES IS CONCERNED, IT HAS TO BE TREATED AS REVENUE EXPENDI TURE BECAUSE NO SEPARATE ENDURING BENEFIT WOULD ACCRUE T O THE ASSESSEE BECAUSE THESE ACCOUNTS WERE ALREADY BEING MAINTAINED MANUALLY WHICH REQUIRED LOT OF ADMINISTR ATIVE OVER HEADS AND WHICH HAS NOW BEEN DIGITIZED/COMPUTERIZED . THEREFORE, ENTRY OF DATA HAS TO BE TREATED AS REVEN UE EXPENDITURE AND TO THIS EXTENT WE AGREE WITH THE OR DER OF LD. CIT(A). HOWEVER, AS FAR AS SOFTWARE DEVELOPMENT CH ARGES ARE CONCERNED, THE SAME CANNOT BE HELD TO BE OF REVENUE NATURE. THERE WAS LOT OF CONTROVERSY REGARDING SOFTWARE CHA RGES WHETHER THE SAME SHOULD BE TREATED AS REVENUE EXPEN DITURE OR 10 CAPITAL EXPENDITURE. IN FACT A SPECIAL BENCH WAS C ONSTITUTED BY THE TRIBUNAL IN CASE OF AMWAY INDIA ENTERPRISES V D CIT, 111 ITD 112. IN THIS CASE IT WAS OBSERVED AS UNDER: HEAD NOTE - SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF - ASSESSMENT YEARS 1 998-99, 2001-02 AND 2002-03 - WHETHER IN ORDER TO DECIDE NATURE OF EXP ENDITURE AS TO WHETHER IT IS CAPITAL OR REVENUE, THREE TESTS , I.E., OWNERSHIP TEST, ENDURING BENEFIT TEST AND FUNCTION AL TEST HAVE TO APPLIED - HELD, YES - WHETHER BY APPLYING SAID, TES TS, EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE EITHER WHEN IT RESUL TS IN ACQUISITION OF CAPITAL ASSET BY ASSESSES AS OWNER THEREOF OR WHEN IT RESULTS IN ACCRUAL OF ADVANTAGE OF ENDURING NATURE TO ASSESSEE IN CAPI TAL FIELD - HELD, YES - WHETHER WHEN ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT M ATTER LICENCE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBL E ASSET AND BECOMES OWNER THEREOF BUT, QUESTION AS TO WHETHER E XPENDITURE ON ACQUIRING COMPUTER SOFTWARE IS CAPITAL OR REVENU E CANNOT BE DECIDED ON BASIS OF OWNERSHIP TEST ALONE BUT HAS TO BE SEEN FROM POINT OF ITS UTILITY TO BUSINESSMAN AND HOW IMPORTANT AN ECONOMI C OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS - HELD, YES - WHETHER SINC E COMPUTER SOFTWARE BECOMES OBSOLETE WITH TECHNOLOGICAL INNOVA TION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME, IT CAN BE SAID THAT WHERE LIFE OF COMPUTER SOFTWARE IS SHORTER (SAY LES S THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE; ANY SOFTWARE HAVING UTILITY TO ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSI DERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE, HOWEVER, THAT BY ITSELF WILL NOT MAKE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATU RE AND FUNCTIONAL TEST ALSO NEEDS TO BE SATISFIED - HELD, YES - WHETH ER FOR APPLICABILITY OF FUNCTIONAL TEST, ADVANTAGE WHICH AN ASSESSEE DER IVES FROM USE OF COMPUTER SOFTWARE HAS TO BE SEEN IN A COMMERCIAL SE NSE; IF ADVANTAGE IS IN CAPITAL FIELD, THEN SAME WOULD BE C APITAL AND, IF ADVANTAGE CONSISTS MERELY IN FACILITATING ASSESSEE S TRADING OPERATIONS OR ENABLING MANAGEMENT AND CONDUCT OF AS SESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY, WHILE LEAVING FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON RE VENUE ACCOUNT HELD, YES- WHETHER THESE CRITERIA ARE REQUIRED TO B E APPLIED TO DETERMINE EXACT NATURE OF EXPENDITURE INCURRED BY A N ASSESSEE FOR ACQUIRING DIFFERENT COMPUTER SOFTWARES HELD, YES. SECTION 32 OF THE INCOME TAX ACT, 1961 DEPRECIATI ON ALLOWANCE / RATE OF ASSESSMENT YEARS 1998-99, 2001-02 AND 200 2-03 WHETHER SINCE COMPUTER SOFTWARE CONTAINED IN A DISK IS TANG IBLE PROPERTY BY ITSELF, USE BY ASSESSEE OF SUCH SOFTWARE IN HIS BUS INESS IS ENOUGH TO ALLOW CLAIM FOR DEPRECIATION UNDER SECTION 32(1)(I) AT RATE OF 25 PER CENT HELD, YES WHETHER, HOWEVER, SINCE WITH EFF ECT FROM .4.2003, COMPUTER SOFTWARE HAS BEEN CLASSIFIED AS A TANGIBLE ASSET UNDER HEADING PLANT IN APPENDIX-I TO INCOME-TAX RULES, 1962, ASSESSEE WOULD BE ENTITLED TO DEPRECIATION AT RATE OF 60 PER CENT FROM SAID DATE HELD, YES WHETHER SAID AMENDMENT IS PROSPECTIVE AND NOT CLARIFICATORY HELD, YES. 23 THE ABOVE CLEARLY SHOWS THAT THERE WAS CONTROVER SY WHETHER THE USAGE OF SOFTWARE WOULD CONSTITUTE REVE NUE EXPENDITURE OR CAPITAL EXPENDITURE. IN THAT CASE T HE MATTER WAS 11 REMANDED TO THE FILE OF AO TO SEE WHAT KIND OF ADVA NTAGE WAS BEING DERIVED BY THE ASSESSEE. THIS MATTER TRAVELE D TO THE HON'BLE DELHI HIGH COURT AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE OBSERVATION THAT IT STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF CIT V. ASAHI INDIA SAFETY GLASS LT D., 346 ITR 329. LOOKING AT THE LATTER DECISION THE SAME SHOWS THAT THE SAME PERTAINS TO AY 1996-97 AND 1997-98. IT IS TO BE NOTED THAT APPENDIX I TO THE INCOME-TAX RULES WHICH PROVI DES RATES OF DEPRECIATION WAS AMENDED BY INCOME-TAX (24 TH AMENDMENT) RULES W.E.F .1.4.2003 EFFECTIVE FROM AY 2003-04. BY THIS AMENDMENT RATE OF DEPRECIATION FOR COMPUTERS WAS MA DE TO READ COMPUTERS INCLUDING COMPUTER SOFTWARE (SEE NO TE 7 OF THE TABLE). THE RELEVANT NOTE 7 OF THE TABLE READS AS UNDER:- COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAM RECORDED ON ANY DISC., TAPE, PERFORATED MEDIA OR OT HER INFORMATION STORAGE DEVICE. 24 FROM ABOVE IT IS CLEAR THAT LEGISLATURE ITSELF H AS RECOGNIZED THAT COMPUTER AS WELL AS SOFTWARE TECHNO LOGY IS CHANGING VERY FAST AND THAT IS WHY HIGH OR ACCELERA TED RATE OF 60% DEPRECIATION HAS BEEN PROVIDED. ONCE COMPUTER SOFTWARE STANDS COVERED WITH THE DEFINITION OF COMPUTER GIVE N IN APPENDIX I TO THE INCOME-TAX RULES THAT MEANS THE S AME HAS TO BE TREATED AS CAPITAL EXPENDITURE. HOWEVER, AT THE SAME TIME COMPUTER SOFTWARE DEPRECIATION HAS TO BE ALLOWED AT 60%. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO SEGREGATE COMPUTERIZATION OF CHB OFFICE INTO SEPARATE ITEMS I .E. THAT DATA ENTRY CHARGES AND COMPUTER SOFTWARE CHARGES. AS FA R AS DATA ENTRY CHARGES ARE CONCERNED SAME SHOULD BE ALLOWED AS PER OBSERVATIONS GIVEN EARLIER AND AS FAR AS SOFTWARE D EVELOPMENT CHARGES ARE CONCERNED, THEY SHOULD BE HELD TO BE CA PITAL NATURE AND DEPRECIATION SHOULD BE ALLOWED @ 60%. 25 AS FAR AS PAYMENT OF RS. 17,41,935/- FOR CONSULT ANCY CHARGES IS CONCERNED NEITHER ANY FURTHER ARGUMENTS WERE MADE BY THE LD. COUNSEL OF THE ASSESSEE NOR ANY DETAILS HAVE BEEN FILED, THEREFORE, WE ARE CONSTRAINED TO CONFIRMED THE ORDER OF THE LD. CIT(A). 12 26 IN THE RESULT, APPEAL IN ITA NO. 549/CHD/2012 OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 30.10.2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 30.10. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 13