ITO, New Delhi V. M/s. Software Technology Group International Ltd., New Delhi

ITA 427/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2757 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: VINOD KUMAR GARG
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH G, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 427/DEL/2015 ASSESSMENT YEAR: 2010-11 INCOME - TAX OFFICER, WARD 24(1), NEW DELHI. (APPELLANT) VS. SOFTWARE TECHNOLOGY GROUP INTERNATIONAL LTD., 1/26, GROUND FLOOR, LALITA PARK, LAXMI NAGAR, NEW DELHI (PAN: AAACS3551M) (RESPONDENT) A PPELLANT BY SHRI S.S. RANA, CIT/DR RE SPONDENT BY SHRI VINOD KUMAR GARG, ADVOCATE ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-12, NEW DELHI DATED 13.11.2014 FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING SOLITARY GROUND : 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS IN D ELETING THE ADDITION OF RS.41,92,068/- MADE BY THE A.O. BEING SOFTWARE EXPE NSES TREATING IT AS CAPITAL EXPENDITURE ESPECIALLY WHEN THE ASSESSEE HA S CAPITALIZED THE SAME IN ITS BOOKS OF ACCOUNTS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 15.10.2010 DECLARING NIL INCOME WHICH WAS REVISED O N 12.03.2012. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WER E ISSUED TO THE ASSESSEE. IN DATE OF HEARING 2 6 .03.2018 DATE OF PRONOUNCEMENT 27 .03.2018 ITA NO. 427/DEL./2015 2 THE REVISED BALANCE SHEET FILED BY THE ASSESSEE, IT WAS FOUND THAT HE CAPITALIZED THE SUM OF RS.1,04,80,171/- ON ACCOUNT OF SOFTWARE DEVELOPMENT EXPENDITURE UNDER THE HEAD COURSEWARE DEVELOPMENT/SOFTWARE DEV ELOPMENT. IN THE COMPUTATION OF INCOME, THE ASSESSEE CLAIMED IT AS R EVENUE EXPENDITURE. ON BEING ASKED, THE ASSESSEE SUBMITTED ONLY THE QUARTE RLY VERIFICATION OF THE ABOVE SOFTWARE EXPENSES, BUT NO JUSTIFICATION FOR T HE CLAIM WAS SUBMITTED. THEREFORE, THE ASSESSING OFFICER ALLOWED 60% DEPREC IATION ON SOFTWARE EXPENSES WHEREAS THE ENTIRE AMOUNT WAS CLAIMED AS R EVENUE EXPENDITURE. THEREFORE, THE BALANCE 40% OF THE SOFTWARE DEVELOPM ENT EXPENDITURE OF RS.41,42,068/- (RS.1,04,80,171 62,88,103) WAS DIS ALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF A SSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT IT WAS A REVENUE EXPENDITURE AND DELETED THE ADDITION. FEELING AGGRIEVED, THE REVENU E IS IN APPEAL BEFORE US. 3. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER AND SUBMITTED THAT SOFTWARE EXPENDITURE IS PART AND PAR CEL OF COMPUTER. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED TO T REAT IT AS A CAPITAL EXPENDITURE. ITA NO. 427/DEL./2015 3 4. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDE R OF THE LD. CIT(A) AND SUBMITTED THAT THE AO HAS WRONGLY TREATED THE SOFTW ARE EXPENDITURE AS CAPITAL EXPENDITURE. HE ALSO REITERATED THE SUBMISSIONS MAD E BEFORE THE LD. CIT(A). 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE MA TERIAL AVAILABLE ON RECORD, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY DEL ETED THE ADDITIONS MADE BY THE ASSESSING OFFICER BY HOLDING THAT IT WAS A REVE NUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. FINDING RECORDED BY THE LD. CIT(A) IN THE IMPUGNED ORDER READS AS UNDER : 1.2 THE APPELLANT HAS RAISED GROUND AGAINST THE DISALLOWANCE OF RS.41,92,068/- OF THE CLAIM OF THE EXPENDITURE UNDE R THE HEAD SOFTWARE DEVELOPMENT EXPENSES. THE ASSESSING OFFICER HAS DISA LLOWED THE AMOUNT HOLDING THAT THE EXPENDITURE INCURRED FOR SOFTWARE DEVELOPMENT IS 'COMPUTERS' WHICH FALL UNDER THE BLOCK OF ASSETS IN CLUDING SOFTWARE AND THERE IS PROVISION TO CLAIM DEPRECIATION @ 60% ONLY . ACCORDINGLY, THE ASSESSING OFFICER HAS, OUT OF THE ENTIRE AMOUNT DEB ITED TO P 8S L ACCOUNT, ALLOWED ONLY 60% AS DEPRECIATION AND THE BALANCE 40 % OF THE SOFTWARE DEVELOPMENT EXPENDITURE IS DISALLOWED. 1.3 THE AR OF THE APPELLANT STATED TO HAVE PRODU CED THE DETAILS BEFORE THE ASSESSING OFFICER, WHICH WERE SUBMITTED AS ANNE XURE-I OF THE WRITTEN SUBMISSION. IT IS A FACT THAT THE APPELLANT COMPANY IS ENGAGED IN SOFTWARE TRAINING AND DEVELOPMENT AND INCURS EXPENDITURE FOR SOFTWARE DEVELOPMENT WHICH CAN ONLY BE FOUND AS BUSINESS EXP ENDITURE. THE NATURE OF EXPENDITURE DOES NOT FORM THE BLOCK OF ASSETS AS 'COMPUTER'. IN VIEW OF THIS, THE CLAIM OF EXPENDITURE IS ALLOWABLE AS REVE NUE AND THE DISALLOWANCE OF RS.41,92,068/- DESERVES TO BE DELETED. GROUND RA ISED IN APPEAL IS ALLOWED. ITA NO. 427/DEL./2015 4 6. A PERUSAL OF THE AFORESAID FINDINGS, WE OBSERVE THAT THE LD. CIT(A) HAS DONE GOOD REASONED ORDER, WHICH DOES NOT REQUIRE AN Y INTERFERENCE IN ABSENCE OF ANY CONTRARY MATERIAL ON RECORD FROM THE SIDE OF REVENUE. ACCORDINGLY, WE FIND THAT THE LD. CIT(A) HAS RIGHTL Y DELETED THE IMPUGNED ADDITION. HENCE, THE APPEAL OF THE REVENUE DESERVES TO FAIL. 7. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2018 SD/- SD/- (BHAVNESH SAINI) ( L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH MARCH, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI