Diamond Cables Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 4459/AHD/2007

• Counselvise Citation: 445920514 RSA 2007
• Duration Of Justice: 4 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-01-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 18-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVINDRA KUMAR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI BHAVNESH SAINI - JM AND SHRI A K GARODIA, AM ITA NO.4459/AHD/2007 (ASSESSMENT YEAR:-2002-03) DIAMOND CABLES LTD., 5/12, GIDC, GORWA, BARODA V/S THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), BARODA PAN: AAACD 8043 K [APPELLANT] [RESPONDENT] ITA NO.3551/AHD/2007 (ASSESSMENT YEAR:-2002-03) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), BARODA V/S DIAMOND CABLES LTD., 5/12, GIDC, GORWA, BARODA [APPELLANT] [RESPONDENT] ASSESSEE BY :- NONE REVENUE BY:- SHRI RAVINDRA KUMAR, CIT DR DATE OF HEARING:- 24-01-2012 DATE OF PRONOUNCEMENT:- 23-03-2012 O R D E R PER A K GARODIA (AM) :- THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-I, BARODA DATED 21-09-2007 FOR ASSES SMENT YEAR 2002-03. BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 2 2 ON VARIOUS DATES, HEARING OF THESE TWO APPEALS WE RE ADJOURNED ON THE REQUEST OF THE ASSESSEE OR THE LEA RNED AR OF THE ASSESSEE. ON 14-12-2011, ON THE BASIS OF APPLICATIO N FILED BY THE ASSESSEE, HEARING WAS ADJOURNED TO 29-02-2012 AND T HIS WAS LAST OPPORTUNITY GRANTED TO THE ASSESSEE IN VIEW OF VARI OUS ADJOURNMENTS GRANTED IN THE PAST. THEREAFTER, THE H EARING WAS PREPONED TO 24-01-2012 IN VIEW OF SPECIAL DRIVE TO DISPOSE OF OLD APPEALS. NOTICE OF HEARING FIXED ON 24-01-2012 WAS DULY SERVED ON THE ASSESSEE. ON THIS DATE, THE ASSESSEE AGAIN MOVED AN APPLICATION FOR SEEKING ADJOURNMENT BY STATING THAT THE ASSESSEE NEEDS SOME MORE TIME TO PREPARE THE SUBMISSIONS ON THE GROUNDS OF APPEAL IN CONSULTATION WITH TAX CONSULTANT. SINC E THIS IS NOT A VALID GROUND FOR SEEKING ADJOURNMENT PARTICULARLY W HEN THESE ARE OLD APPEALS AND VARIOUS ADJOURNMENTS WERE EARLIER G RANTED TO THE ASSESSEE, THIS APPLICATION FOR ADJOURNMENT WAS REJE CTED AND THESE APPEALS WERE HEARD EX-PARTE QUA THE ASSESSEE. SO F AR AS THE ASSESSEES APPEAL IS CONCERNED, IT IS INFERRED THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE APPEAL. THEREFORE, I N VIEW OF THE HON'BLE MADHYA PRADESH HIGH COURT DECISION IN THE C ASE OF TUKOJIRAO HOLKAR 223 ITR 480 AND THE DELHI TRIBUNAL DECISION IN THE CASE OF MULTIPLAN INDIA PVT. LTD. 38 ITD 320, W E DISMISS THE APPEAL OF THE ASSESSEE FOR NON-PROSECUTION . 3 REGARDING THE REVENUES APPEAL, THE GROUNDS RAISE D BY THE REVENUE ARE AS UNDER:- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWING DEDUCTION FOR RS.13,40 ,0007-, BEING 1/3RD OF SOFTWARE DEVELOPMENT EXPENSES, WHICH WERE 3 ADMITTEDLY INCURRED IN THE PRECEDING ACCOUNTING AND HENCE DID NOT CONSTITUTE ALLOWABLE EXPENDITURE IN THIS YEAR U NDER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE. [2] WITHOUT PREJUDICE, THE CIT(A) FAILED TO APPRECI ATE THAT THE EXPENSES ON SOFTWARE DEVELOPMENT GIVING ENDURING AD VANTAGE CONSTITUTED EXPENDITURE ON THE ACQUISITION OF AN IN TANGIBLE ASSET WHICH ARE EXPRESSLY TREATED AS CAPITAL EXPENDITURE UNDER THE SCHEME OF THE INCOME-TAX ACT MORE CLEARLY REFLECTED IN SECTION 32(1) OF THE ACT AS AMENDED W.E.F. 01-04-1999, I.E. BEFORE THE DATE OF ACQUISITION OF THE RELEVANT SOFTWARE. [3] THE ID. CIT(A) ERRED IN ALLOWING THE EXPENDITUR E IN THIS YEAR WHEN IT WAS NOT ALLOWABLE EITHER AS REVENUE EXPENDI TURE IN VIEW OF HAVING BEEN INCURRED IN THE PRECEDING YEAR OR AS CAPITAL EXPENDITURE IN VIEW OF THE PROHIBITION CONTAINED IN SECTION 37(1) [4] THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(A) TO THE ABOVE EXTENT MAY BE SET ASIDE AND THAT OF THE A.O BE RESTORED. 4 THE BRIEF FACTS ARE THAT IT IS NOTED BY THE AO AT PAGES 7 AND 8 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLA IMED RS.13,40,000/- ON ACCOUNT OF SOFTWARE DEVELOPMENT C HARGES WRITTEN OFF WHICH ARE INCLUDED UNDER THE HEAD WRIT TEN OFF EXPENSES IN THE P&L ACCOUNT. THE AO HAS FURTHER NO TED THAT TOTAL AMOUNT OF RS.40,20,000/- WAS INCURRED BY THE ASSESSEE DURING FY 2000-01 ON DEVELOPMENT OF SAP SOFTWARE FO R CONTROL OF INVENTORY ACCOUNTS AND OTHER MANAGERIAL INPUTS A ND THE ASSESSEE SPREAD THIS AMOUNT AS DEFERRED REVENUE EXP ENDITURE OVER A PERIOD OF THREE YEARS AND CLAIMED 1/3 RD I.E. RS.13,40,000/- DURING THE AY 2001-02 AND EQUAL AMOUNT IS CLAIMED I N THE 4 PRESENT YEAR. HE HAS FURTHER NOTED THAT THE AMOUNT WAS NOT ALLOWED AS EXPENSE DURING AY 2001-02. THEREAFTER, T HE AO DISALLOWED THIS CLAIM OF THE ASSESSEE. BEING AGGRIE VED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LE ARNED CIT(A) WHO DELETED THE DISALLOWANCE AND NOW THE REVENUE IS IN APPEAL BEFORE US. 5 IT WAS SUBMITTED BY THE LEARNED DR ON BEHALF OF T HE REVENUE THAT THE EXPENDITURE WAS DISALLOWED IN AY 2 001-02 ALSO AS HAS BEEN NOTED BY THE AO IN THE ASSESSMENT ORDER AND THEREFORE, NO DEDUCTION IS ALLOWABLE IN THE PRESENT YEAR. HE SUBMITTED THAT THE ORDER OF THE LEARNED CIT(A) ON T HIS ISSUE SHOULD BE REVERSED AND THAT OF THE AO BE RESTORED. 6 WE HAVE HEARD THE SUBMISSIONS MADE BY THE LEARNED DR AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. WE FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY THE AO IN TH E ASSESSMENT ORDER THAT THE EXPENDITURE WAS INCURRED IN AY 2001- 02 AND ALTHOUGH ONLY 1/3 RD AMOUNT WAS CLAIMED IN THAT YEAR AS REVENUE EXPENDITURE, BUT EVEN THAT WAS NOT ALLOWED IN THAT YEAR. HE HAS DISALLOWED THE CLAIM OF THE ASSESSEE IN THE PRESENT YEAR ON THE BASIS THAT EVEN IF ENTIRE EXPENDITURE OF RS.40,20,0 00/- IS CONSIDERED AS REVENUE EXPENDITURE, THE SAME IS ALLO WABLE IN AY 2001-02 AND NO PART OF THIS CAN BE ALLOWED IN THE P RESENT YEAR. THERE IS NO FINDING GIVEN BY THE LEARNED CIT(A) REG ARDING THE BASIS ON WHICH THIS EXPENDITURE WAS DISALLOWED IN A Y 2001-02. HE HAS SIMPLY DELETED THE DISALLOWANCE ON THE BASIS THAT THE SAID EXPENDITURE WAS NOT IN THE CAPITAL NATURE AND THERE FORE, THE DISALLOWANCE MADE IS CANCELLED. IN OUR CONSIDERED O PINION, THIS 5 ORDER OF THE LEARNED CIT(A) IS NOT SUSTAINABLE BECA USE THE REASONING GIVEN BY HIM IS NOT PROPER AND ACCEPTABLE . WHEN THE EXPENDITURE WAS INCURRED IN AY 2001-02 AND IT WAS N OT A CAPITAL EXPENDITURE AND WAS NOT ALLOWED AS REVENUE EXPENDIT URE IN THAT YEAR, NO ALLOWANCE CAN BE MADE IN THE PRESENT YEAR UNLESS IT IS ESTABLISHED THAT FOR A VALID REASON, THE EXPENDITUR E WAS NOT ALLOWABLE IN AY 2001-02 AND THE SAME IS ALLOWABLE I N THE PRESENT YEAR. SUCH VALID BASIS CAN BE THAT THE SOFTWARE IN QUESTION WAS ALTHOUGH ACQUIRED IN AY 2001-02 BUT WAS NOT PUT TO USE IN THAT YEAR AND WAS PUT TO USE IN THE PRESENT YEAR. THIS I S NOT A CASE MADE OUT BY THE ASSESSEE AT ANY STAGE AND THIS IS N OT A FINDING OF THE LEARNED CIT(A). UNDER THESE FACTS, WE REVERSE T HE ORDER OF THE LEARNED CIT(A) AND RESTORE THAT OF THE AO. 7 IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED AND THE REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 23-03-2012 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A K GARODIA) ACCOUNTANT MEMBER DATE : 23-03-2012 MRV COPY OF THE ORDER FORWARDED TO: 1. DIAMOND CABLES LTD., 5/12, GIDC, GORWA, BARODA 2. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-1(1 ), BARODA 3. CIT CONCERNED 4. CIT(A)-I, BARODA 6 5. DR, ITAT, AHMEDABAD BENCH-, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD