MUNCIPAL CO OP BANK LTD, MUMBAI V. DCIT (OSD) 1(1), MUMBAI

ITA 4297/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1134 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH CHHEDA
• Assessee Lawyers: SUMAN KUMAR
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B MUMBAI BEFORE SHRI D.T.GARASIA , JM AND SHRI RAJESH KUMAR, AM I.T.A. NO. 4297 /MUM/20 1 3 ( / ASSESSMENT YEAR : 20 07 - 08 ) MUNICIPAL CO - OPERATIVE BANK LTD., MUNICIPAL BANK BHAVAN, 245,P D MELLO ROAD, FORT, MUMBAI - 400001 / VS. DY. COMMISSIONER OF INCOME TAX - (OSD) - 1(1), MUMBAI . ./ PAN : AAAAT3942P ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAJESH CHHEDA / ASSESSEE BY : SHRI SUMAN KUMAR / DATE OF HEARING : 13.2. 2017 / DATE OF PRONOUNCEMENT : 25. 4. 201 7 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE A SSESSEE AGAINST THE ORDER DATED 28.1.2013 PASSED BY THE LD.CIT(A) - 7 , MUMBAI FOR THE ASSESSMENT YEAR 20 07 - 08. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UNDER : BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE APPELLANT BEGS TO PREFER THE PRESENT APPEAL ON THE FOLLOWING GROUNDS : I ) DELETE THE DISALLOWANCE OF RS.14,15,836.00 WITH RESPECT TO EXPENDITURE INCURRED ON REPAIR AND MAINTENANCE; II ) DELETE THE ADDITION OF RS.44,72,579.00 ON ACCOUNT OF UNCLAIMED CREDIT BALANCES; 2 ITA NO. 4297 /M/201 5 III ) DELETE THE ADDITION OF RS.23,14 ,000.00 ON ACCOUNT OF ADVANCES PAID 3 . THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.1 IS AGAINST THE CONFIRMATION OF ADDITION OF RS.14,15,836 / - BY THE LD.CIT(A) IN RESPECT OF REPAIRS AND MAINTENANCE DISALLOWED BY THE AO. 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO - OPERATIVE BANK AND HAS TAKEN ON LEASE PREMISES ON VARIOUS LOCATIONS FOR THE PURPOSES OF CARRYING OUT ITS BUSINESS THROUGH ITS BRANCHES AND THE ASSESSEE INCURRED EXPENDITURES TO REPAIR AND MAINTAIN THESE PREMISES FOR MAKING THESE P REMISES SUITABLE FOR BUSINESS AND NO NEW ASSETS HAVE BEEN CREATED BY INCURRING SAID EXPENSES. THE AO FOUND DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS EXPENDED RS.45,69,240/ - ON ACCOUNT OF REPAIRS AND RENOVATION PERTAINING TO FURNITUR E AND FIXTURES AND BUILDING OUT OF WHICH AN AMOUNT OF RS.31,53,404/ - HAVE BEEN CAPITALISED SPENT ON FURNITURE AND FIXTURES WHICH WERE DULY CAPITALISED AND RS.14,15,836/ - SPENT ON BUILDINGS AND OTHER WORKS HAS BEEN CLAIMED AS A REVENUE EXPENDITURE. ACCOR DING TO THE AO , THE SAID EXPENSES WERE INCURRED ON THE DEMOLITION AND CONSTRUCTION OF WALL, CONSTRUCTION OF NEW PLUMBING WORK, CONSTRUCTION TELEPHONIC OPERATOR CABIN, CONSTRUCTION OF NEW WATER SUPPLY PIPES, TELEPHONIC NETWORKS ETC, WHICH WAS OF THE CAPITAL NATURE AND ACCORDINGLY HE DISALLOWED AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AND ALLOWED 3 ITA NO. 4297 /M/201 5 DEPRECIATION AT THE RATE OF 7.5%. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A). 5 . IN THE APPEAL PROCEEDINGS, THE LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT THE DETAILS SUBMITTED DURING THE APPELLATE PROCEEDINGS COULD NOT BE PROVE THAT THE EXPENSES WERE OF REVENUE IN NATURE BUT IT WA S CAPITAL IN NATURE. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE ASSESSEE IS A COOPERATIVE BANK CARRYING ITS BUSINESS ON DIFFERENT PLACES FOR WHICH IT HAS TAKEN VARIOUS PREMISES AT DIFFERENT LOCATION S WHICH WERE REPAI RED AND RENOVATED IN ORDER TO RUN THE BUSINESS SMOOTHLY AND INCURRED EXPENDITURES FOR DEMOLITION AND CONSTRUCTION OF WALL, CONSTRUCTION OF NEW PLUMBING WORK, CONSTRUCTION TELEPHONIC OPERATOR CABIN, CONSTRUCTION OF NEW WATER SUPPLY PIPES, TELEPHONIC MAINTE NANCE ETC AND ACCORDINGLY ASSESSEE CLAIMED SAID EXPENDITURES AS REVENUE EXPENDITURES ON THE GROUND THAT NO NEW ASSET WAS CREATED . IN OUR OPINION, THE LD.CIT(A) IS NOT CORRECT, IN VIEW OF THE FACTS THAT THE PREMISES IN WHICH THE REPAIRS AND MAINTENANCE WERE CARRIED OUT BY THE ASSESSEE WERE TAKEN ON RENT AND IT WOULD BE AGAINST THE BASIC PRINCIPLE OF ACCOUNTANCY AND PROVISION OF LAW TO TREAT THE SAID EXPENDITURES INCURRED ON REPAIRING AND MAINTENANCE AS CAPITAL NATURE. WE, 4 ITA NO. 4297 /M/201 5 THEREFORE, SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION. GROUND NO.1 IS ALLOWED. 7. IN GROUND NO.2, THE ASSESSEE RAISED THE ISSUE OF CONFIRMING THE ADDITION OF RS.44,72, 579/ - ON ACCOUNT OF UNCLAIMED CREDIT BALANCES BY THE LD.CIT(A) AS MA DE BY THE AO. 8. A PERUSAL OF PAGE 18 OF THE PAPER BOOK REVEALS THAT THE ASSESSEE HAS RECEIVED UNPAID INSURANCE CLAIM, RECOVERIES FROM SURETY AND EXCESS RECOVERY. THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY HOLDING THAT THE BALANCES APPEARING IN VARIOUS ACCOUNT AS STATED BELOW ARE SLOW MOVING ACCOUN T S : S.NO. ACCOUNT HEAD AMOUNT OUTSTANDING 31.3.2006 IN RS. AMOUNT OUTSTANDING 31.3.2007 IN RS. AMOUNT PAID TILL DATE: IN RS. 1 UNPAID INSURANCE CLAIM 9 , 71,100 10,65,444 33, 379 2 RECOVERIES FROM SURETY 12 , 72,893 12,09,394 42,328 3 EXCESS RECOVERY. 23,08,205 21,97,741 1,48,609 9. WE FIND MERIT IN THE ARGUMENTS OF THE LD.AR THAT THE SAID ADVANCES WERE REVENUE NATURE WHICH ARE APPEARING IN THE BALANCE SHEET OF THE ASSESS EE. THAT THE AMOUNTS WERE RECEIVED IN ONE YEAR AND ADJUSTED IN THE SUBSEQUENT YEARS AND THEREFORE THE ACTION OF THE AO IN ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE BY STATING THE SAME AS UNCLAIMED CREDIT BALANCES IS NOT CORRECT. THE ACTION OF T HE AO MAKING ADDITION AND CONFIRMED BY THE LD.CIT(A) BY HOLDING THAT 5 ITA NO. 4297 /M/201 5 BALANCES IN THESE SLOW MOVING ACCOUNTS WERE TO BE TREATED AS INCOME. THE LD. AR SUBMITTED BEFORE US THAT THE SAID AMOUNTS WERE TO BE ADJUSTED IN THE SUBSEQUENT YEA R S AND WERE ACTUALLY A DJUSTED AND THEREFORE SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN OUR OPINION, THIS MATTER REQUIRES FRESH VERIFICATION AT THE END OF THE AO AND THEREFORE THE SAME IS BEING REMANDED TO THE FILE OF THE AO DECIDE THE ISSUE AS PER FACTS AND LAW. BUT IF THESE BALANCES ARE ADJUSTED IN SUBSEQUENT YEARS , T HE AO IS DIRECTED NOT TO MAKE ANY ADDITION ON THIS SCORE IN THE SET ASIDE ASSESSMENT . IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . 10 . THE ISSUE RAISED IN THE THIRD GROUND O F ASSESSEES APPEAL IS AGAINST THE CONFIRMATION OF RS.23,14,000/ - BY THE LD.CIT(A) AS MADE BY THE AO IN RESPECT OF DISALLOWANCES OF CLAIM OF ADVANCES WRITTEN OFF UNDER THE HEAD COMPUTER EXPENSES , AS NON RECOVERABLE WHICH WERE GIVEN FOR DEVELOPMENT FOR SOFT WARE. THE AO DISALLOWED AND ADDED THE SAME BY OBSERVING THAT THE ASSESSEE HAS GIVEN ADVANCES FOR DEVELOPMENT OF SOFTWARE WHICH WAS CAPITAL ASSET AND LOSS ON ACCOUNT OF ADVANCE WOULD BE A CAPITAL LOSS AND MOREOVER THE ASSESSEE ALSO DID NOT MAKE ANY EFFO RT TO RECOVER THE SAME AND HENCE THE SAME WAS NOT ALLOWABLE. 11 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) ALSO DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 6.4 HAVING CONSIDERED THE AOS ORDER AS WELL AS THE APPELLANTS SUBM ISSION, I FIND THAT THE SAID PAYMENT OF RS.23,14,000/ - WAS MADE BY T HE APPELLANT COMPANY FOR IMPLEMENTATION OF MODERNIZATION OF THE APPELLANT BANK I.E. COMPUTERISATION SO THAT 3 ENTIRE BANKING OPERATION OF 6 ITA NO. 4297 /M/201 5 THE APPELLANT BANK CHANGE FROM MANUAL TO COMPUTE T HE ENTIRE BANKING OPERATION OF THE APPELLANT BANK CHANGE FROM MANUAL TO COMPUTER BASED . HOWEVER I DO NOT FIND ANY JUSTIFICATION IN THE APPELLANT'S CLAIM OF ALLOWANCE OF DEDUCTION IN ABSENCE OF ANY SATISFACTORY EXPLANATION FROM APPELLANT BANK. IT IS ALS O N OT ADDUCED BY THE APPELLANT BANK THAT WHAT WAS THE EXERCISE OR EFFORTS WE RE UNDERTAKEN BY THE APPELLANT BANK, WHILE SELECTING THE VENDOR FOR SUCH MAJOR WOR K WHICH WAS GOING TO CHANGE THE FACE OF THE APPELLANT BANK TOWARDS ITS CUSTOMER. N O PROOF OR ANY EVID ENCE ADDUCE THAT WHAT EFFORTS HAVE BEEN TAKEN BY THE APPELLANT B ANK FOR GETTING WORK CARRIED OUT. WHETHER THE BANK HAS EXERCISE IN ASCERTAINING THIS FAC T PRIOR TO GIVING THE CONTRACT TO SUCH VENDOR THAT WHETHER THE SAID VENDOR WA S COMPETENT ENOUGH TO EXECU TE SUCH IMPORTANT TECHNICAL WORK. IN ABSENCE OF ANY SUC H DOCUMENTATION, THE CLAIM OF THE APPELLANT IS COMPLETELY APPEARS TO BE MADE WITHOU T SUBSTANCE OR ANY BASIS OF DOCUMENTATION, WHICH IS MERELY HAVING BASE OF HAVING CLAIM MADE OF 'BAD ADVANCE' OR BAD DE BT. EVEN THIS CLAIM IS ALSO NOT SUSTAINABLE A S THE APPELLANT'S OWN ACT SUGGESTS THAT THE APPELLANT HAS FILED ARBITRATION TOWARDS THE SAID AMOUNT BEFORE THE ARBITRATOR, WHICH IS EVIDENT FROM THE ANNEXURE VI OF T HE APPELLANT SUBMISSION. IN THESE ALL FACTS AN D SUBMISSION AVAILABLE ON RECORD, I CONSI DER IT PROPER AND APPROPRIATE TO HOLD THAT THE A.O. 'S ACTION WAS COMPLETELY JUSTIFIED AND CORRECT, WHILE MAKING THE AFORESAID ADDITION. ACCORDINGLY APPELLANTS THIS GROUND OF APPEAL IS DISMISSED 12 . WE HAVE CAR EFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS. WE FIND THAT THE ASSESSEE HAS GIVEN ADVANCES FOR PURCHASE OF COMPUTER SOFTWARE WHICH WAS TO BE USED BY THE ASSESSEE FOR THE PURPOSE OF CARRYIN G IS BUSINESS SMOOTHLY AND MORE EFFICIENTLY. WE FIND THAT NOW IT IS SETTLED LEGAL POSITION OF LAW THAT ANY ADVANCES OR ANY EXPENDITURE INCURRED ON COMPUTER SOFTWARE TO BE USED FOR THE PURPOSE OF BUSINESS WERE TO BE IN THE NATURE OF BUSINESS EXPENDITURE A ND HAS TO BE WRITTEN OF IN THE YEAR OF PURCHASES. FOR THE SAKE OF HOLDING THIS VIEW WE ARE TAKING SUPPORT OF FOLLOWING CASE LAW: 7 ITA NO. 4297 /M/201 5 IN THE CASE OF NATIONAL SECURITIES CLEARING CORPORATION LTD. V/S ADDL. COMMISSIONER OF INCOME - TAX IN ITA NO. 3650/MUM/2013 (A Y - 2007 - 08) DATED 15.04.2016, THE CO - ORDINATE BENCH OF THE TRIBUNAL VIDE PARA 5 OF THE ORDER, IT HAS BEEN OBSERVED AND HELD AS UNDER: 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE EXPENSES REL ATE TO COMPUTER SOFTWARE. FROM THE DETAILS OF THE EXPENSES IT IS CLEAR THAT THESE SOFTWARE EXPENSES ARE INCURRED BY NSEIL FOR THE COMMON BENEFIT OF NSEIL AND THE ASSESSEE AND BOTH HAVE SHARED THESE EXPENSES. WE FURTHER FIND THAT ALL SUCH EXPENSES ARE PERIO DICAL IN NATURE AND MAINLY INCURRED FOR SOFTWARE UPGRADATION CHARGES, SUBSCRIPTION, ANNUAL LICENCE FEE ETC. THESE SOFTWARE EQUIPMENTS HAS SHORT LIFE SPAN HAVING NO ENDURING BENEFIT AND IT REQUIRES OFTEN CHANGE AND IN SUCH CIRCUMSTANCES, THE EXPENDITURE INC URRED FOR PURCHASE OF THESE SOFTWARE IS CALLED AS REVENUE EXPENDITURE AND NOT CAPITAL IN NATURE. THIS ISSUE IS COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RAYCHEM RPG LTD. (2012) 346 ITR 138 (BOM), WHEREIN IT HAS BEEN HELD A S UNDER: HELD, (I) THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 HAD ALLOWED THE SOFTWARE EXPENDITURE AS REVENUE EXPENDITURE FINDING THAT SOFTWARE DID NOT FORM PART OF THE PROFIT - MAKING APPARATUS OF THE ASSESSEE. FURTHER, IT HELD THAT THE BUSINESS OF THE ASSESSEE WAS THAT OF MANUFACTURING OF TELECOMMUNICATION AND POWER CABLE ACCESSORIES AND TRADING IN OIL RETRACING SYSTEM AND OTHER PRODUCTS AND THE SOFTWARE WAS AN ENTERPRISE RESOURCE PLANNING PACKAGE AND, HENCE, IT FACILITA TED THE ASSESSEE'S TRADING OPERATIONS OR ENABLED THE MANAGEMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY TAXPUNDIT.ORG 4 ITA NO. 3650/MUM/2013 NATIONAL SECURITIES CLEARING CORPN.LTD. ASST. YEAR 2007 - 08 BUT IT WAS NOT IN THE NA TURE OF PROFIT - MAKING APPARATUS. THEREFORE, THE EXPENDITURE WAS TO BE ALLOWED. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION CITED SUPRA, WE ALLOW THIS ISSUE OF ASSESSEES APPEAL 8 ITA NO. 4297 /M/201 5 13 . THEREFORE, WE ARE NOT IN AGREEMENT WITH THE OBSERVATI ONS AND DECISION TAKEN BY THE LD.CIT(A) ON THIS ISSUE THAT THE ADVANCES GIVEN FOR THE DEVELOPMENT OF THE COMPUTER SOFTWARE IS CAPITAL IN NATURE AND REQUIRE D TO BE DISALLOWED IN THE COMPUTATION OF BUSINESS INCOME. IN VIEW OF THESE LEGAL POSITION AND FACTS AS EMERGED FROM THE RECORD, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ALLOW THE GROUND TAKEN BY THE ASSESSEE. 14 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH APRIL , 2017 . S D SD ( D.T.GARASIA ) ( RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 25 . 4 .2017 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT (A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI