DCIT, New Delhi V. M/s. IFFCO Tokio General Insurance Company Ltd., Gurgaon

ITA 4489/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0307 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-02-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 08-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Revenue expenditure; Capital expenditure; Set aside
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.4489/DEL/2010 ASSESSMENT YEAR : 2003-04 DCIT, CIRCLE 11 (1), NEW DELHI. VS. M/S IFFCO TOKIO GENERAL INSURANCE COMPANY LTD., IFFCO TOWER, 4 TH & 5 TH FLOOR, PLOT NO.3, SECTOR 29, GURGAON 122001. PAN : AACI7573H (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SMT. MONA MOHANTY, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIRECT ED AGAINST THE ORDER OF THE CIT (A) DATED 27 TH AUGUST, 2010 FOR ASSESSMENT YEAR 2003- 04. GROUNDS OF APPEAL READ AS UNDER:- 1. THE ORDER OF LD. CIT (A) IS WRONG, PERVERSE, IL LEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,24,39,896/- ON ACCOUNT OF IT EXPENSES. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. ITA NO.4489/DEL/2010 2 2. THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN THE BUSIN ESS OF GENERAL INSURANCE. THE RETURN OF INCOME WAS FILED AT ` 6,17,55,245/-. IT WAS EARLIER ASSESSED VIDE ORDER DATED 14 TH FEBRUARY, 2006 AT AN INCOME OF ` 6,17,55,245/-. NOTICE U/S 148 WAS ISSUED O N 31 ST MARCH, 2008. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT A SUM OF ` 1,24,39,896/- W AS CLAIMED BY THE ASSESSEE BY WAY OF INFORMATION AND TECHNOLOGY EXPEN SES ON ACCOUNT OF COMPUTERIZATION EXPENSES WHICH WERE ALLOWE D AS REVENUE EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THESE EXPENSES HAVE GIVEN AN ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THEY SHOULD NOT BE DISALLOWED. THE REPLY OF THE ASSESSEE AS FILED BEFORE TH E ASSESSING OFFICER IS AS UNDER:- THE I.T. EXPENSES OF RS.1,24,39,896/- HAVE BEEN IN CURRED AT HEAD OFFICE AS ALSO AT VARIOUS BRANCHES. NATURE OF E XPENSES ARE AS UNDER: CALL CENTRE CHARGES SOFTWARE MAINTENANCE POST WARRANTY MAINTENANCE DR SITE PROF CHARGES LEASE LINE LICENCE FEE FIRE WALL ACCESS CONTROL MS OFFICE LICENCE. ALL THE EXPENSES INCURRED ARE OF REVENUE NATURE WHICH HAVE CORRECTLY BEEN DEBITED TO IT EXPENSES AND EXAMINED DUR ING THE ASSESSMENT PROCEEDINGS U/S 143 (3) BY THE THEN ASSESSI NG AUTHORITY. 3. THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE AND TREATED THE SAID AMOUNT AS CAPITAL EXPENDITU RE AND THE SAME WAS ADDED TO THE RETURNED INCOME OF THE ASSESSEE. I N THE PRESENT CASE THE ASSESSMENT HAS BEEN FRAMED AT AN INCOME O F ` 7,41,95,140/- AGAINST THE RETURNED INCOME OF ` 6,17, 55,245/-. THE ITA NO.4489/DEL/2010 3 SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERAT ED BEFORE THE CIT (A). IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE THE DIFFERENCE BETWEEN THE COMPUTERIZATI ON WHICH IS ONE TIME AND RECURRING EXPENSES OF INFORMATION AND TECHNO LOGY WHICH IS A REVENUE EXPENSE. IT WAS SUBMITTED THAT REVIEW OF SCHED ULE OF FIXED EXPENSE WOULD REVEAL THAT THE ASSESSEE HAS CAPITALIZED TH E FOLLOWING EXPENSES TOWARDS COMPUTERIZATION:- ADDITIONS ADDITIONS ADDITIONS ADDITIONS PARTICULARS MORE THAN 180 DAYS LESS THAN 180 DAYS COMPUTER RS.208,95,881/- RS.77,72,670/- COMPUTER SOFTWARE RS.37,98,536/- RS.12,75,000/- 4. THUS, IT WAS PLEADED THAT THE EXPENSES RELATING TO C ALL CENTER CHARGES, SOFTWARE MAINTENANCE, POST WARRANTY MAINTENAN CE, DR SITE PROFESSIONAL CHARGES, LEASE LINE, LICENCE FEE, FIRE WAL L, ACCESS CONTROL AND MS OFFICE LICENCE WERE IN THE NATURE OF REVENUE EXPENSES. IT WAS SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GE NERAL INSURANCE AND BESIDES REGISTERED OFFICE AND CORPORATE O FFICE, THE ASSESSEE ALSO HAD BRANCHES THROUGHOUT INDIA AND HAS INCURR ED THESE EXPENDITURES UNDER THE HEAD INFORMATION AND TECHNOL OGY EXPENSES. THE VOUCHERS WERE PRODUCED BEFORE THE ASSESSING OFFICER AND WERE PRODUCED BEFORE THE CIT (A) ALSO. IT WAS SUBMITTED TH AT THE EXPENSES INCURRED DURING THE YEAR ARE ON ACCOUNT OF CALL CEN TER, ANNUAL MAINTENANCE CHARGES OF COMPUTER INSTALLED AT DIFFEREN T OFFICES OF THE ASSESSEE COMPANY ALL OVER INDIA, ANNUAL FEE OF REVENUE NATURE AND OTHER MISCELLANEOUS EXPENSES. ALL THE VOUCHERS WERE ALSO FILED TO SHOW THAT THESE WERE ANNUAL PAYMENTS. AFTER GOING THR OUGH ALL THESE SUBMISSIONS, LEARNED CIT (A) HAS GIVEN A FINDING THAT TH E ASSESSEE HAS FILED DETAILED BREAK UP OF BRANCH-WISE INFORMATION A ND TECHNOLOGY EXPENSES AND HAS ALSO ENCLOSED AND PRODUCED THE VOUCHERS WITH ITA NO.4489/DEL/2010 4 RESPECT TO INFORMATION AND TECHNOLOGY EXPENSES AND THE Y ALL RELATED TO CALL CENTER CHARGES, IMPLEMENTATION CHARGES FOR CALL CENTER, SERVICE CHARGES TOWARDS FACILITY MANAGEMENT SERVICE, SERVICE CH ARGES FOR TELEPHONE LINES, CHARGES FOR ANNUAL MAINTENANCE OF SYST EMS, POST WARRANTY MAINTENANCE, UPGRADATION CHARGES FOR INTERN ET, LEASE LINE CONNECTION, CHARGES FOR MAINTENANCE OF LEASE LINES LIC ENCE, FIRE WALL CHARGES, LICENCE CHARGES, QUALITY EVALUATION AND SYSTEM S CHARGES FOR SITE, ANNUAL LICENCE FEE FOR INSURANCE SOFTWARE OF THE COMPANY AND CHARGES FOR PROFESSIONAL SERVICES RELATING TO MAINTENAN CE AND REPAIR OF INSURANCE SOFTWARE BEING USED BY THE ASSESSEE AND, THUS, HE OBSERVED THAT THESE ARE REVENUE IN NATURE. LEARNED CIT (A) H AS REFERRED TO THE FUNCTIONAL TEST ENUNCIATED IN THE SPECIAL BENCH DECI SION IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT 301 ITR (AT) 1 DELHI WHEREIN IT WAS OBSERVED THAT THE NATURE OF ADVANTAGE WAS TO BE SEEN I N COMMERCIAL SENSE. IF THE ADVANTAGE IS IN THE CAPITAL FIELD, THEN , THE SAME WILL BE CAPITAL EXPENDITURE AND IF THE ADVANTAGE CONSISTS MERE LY IN FACILITATING THE ASSESSEES TRADING OPERATIONS AND ENABLING THE MANAGE MENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EF FICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNT OUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT AND APPLYIN G THESE TESTS, HE HAS HELD THAT THE AFOREMENTIONED EXPENDITURE WAS REVE NUE IN NATURE, HENCE, HE HAS DELETED THE ADDITION AGAINST WHICH THE REVENUE IS AGGRIEVED, HENCE, IN APPEAL. 5. NOTICE OF HEARING WAS SENT TO THE ASSESSEE, HOWEVER, N ONE WAS PRESENT ON BEHALF OF THE ASSESSEE. THEREFORE, WE PROCEE DED TO DECIDE THE PRESENT APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARI NG LEARNED DR. 6. LEARNED DR RELYING UPON THE ASSESSMENT ORDER PLEADED THAT THESE EXPENDITURE WERE CAPITAL IN NATURE AS THEY HAVE GIVEN ENDURING ITA NO.4489/DEL/2010 5 BENEFIT TO THE ASSESSEE AND, THUS, SHE PLEADED THAT THE O RDER OF THE CIT (A) SHOULD BE SET ASIDE AND THAT OF ASSESSING OFFICER BE R ESTORED. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE L EARNED DR AND HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER OF THE CIT (A). LEARNED CIT (A) HAS RECORDED A FINDING OF FACT THAT ALL THESE EXPENDITURES WERE RECURRING EXPENDITURE INC URRED IN THE DUE COURSE OF BUSINESS AND THE INCURRING OF THESE EXPENDITUR E HAS FACILITATED THE ASSESSEES BUSINESS OPERATION WHILE LEAVING THE FIXED CAPITAL UNTOUCHED. THE NATURE OF EXPENDITURE AS DESC RIBED IN THE ORDER OF THE CIT (A) WILL REVEAL THAT THESE ARE EXPENDITUR E INCURRED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS. WITHOUT HAVING INCURRED SUCH EXPENDITURE, THE ASSESSEE COULD NOT HAVE EFFICIENTL Y CARRIED OUT ITS BUSINESS, WHICH IS IN ADVANCED STAGE. IT HAS BEEN FOU ND BY LEARNED CIT (A) THAT THESE ARE EITHER ANNUAL EXPENSES OR RELAT ED TO MAINTENANCE AND REPAIR OF INSURANCE SOFTWARE, ETC. A LL THE VOUCHERS WERE ALSO PRODUCED BEFORE THE CIT (A) FROM WHERE HE HAS VERIFIED SUCH FACTS. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THESE FINDINGS OF FACTS RECORDED BY THE CIT (A). THEREFORE, WE FIND NO MERIT IN THE APPEAL FILED BY THE REVENUE AND WE DECLINE TO INTERFERE IN THE ORDER OF THE CIT (A) VIDE WHICH IT HAS BEEN HELD THAT THESE EXPENDITURES WERE IN THE NATURE OF REVENUE EXPE NDITURE. 8. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.03.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 04.03.2011. DK ITA NO.4489/DEL/2010 6 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES ITA NO.4489/DEL/2010 7 DATE OF DICTATION 24.02.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 25.02.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH