DCIT Circle 18 (1), V. Wogo & Controls (I) Ltd,

ITA 457/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2272 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 25-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH K GUPTA
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL I.T.A. NO. 457/DEL/2008 ASSESSMENT YEAR: 2004-05 DEPUTY COMMISSIONER OF IT, VS. M/S. WAGO & CONTROL S (P) LTD., CIRCLE-18(1), 222- OKHLA INDUSTRIAL ESTATE, NEW DELHI. NEW DELHI-1100 02 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJESH K. GUPTA, DR RESPONDENT BY: SHRI ANIL BHALLA , CA ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LEARNED CIT(APPEALS) DATED 16.11.2007 PASSED FOR ASSESSMENT YEAR 2004-05. IN THE FIRST GROUND OF APPEAL, IT IS PLEADED BY THE REVENU E THAT LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.36,74,261 WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER BY MAKING A DISALLOWANCE UNDE R SEC.40A(2)(B) OF THE INCOME-TAX ACT, 1961. 2. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE OUT OF THE COMMISSION PAID BY THE ASSESSEE TO THE ASSOCIATE CONCERN IN ASSESSMENT YEAR 2003-04 . THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 2003-04 WAS SATISFI ED WITH THE COMMISSION PAID BY THE ASSESSEE AND DELETED THE DISALLOWANCE M ADE BY THE ASSESSING 2 OFFICER. THE APPEAL FILED BY THE REVENUE BEFORE THE ITAT IN ITA NO.509/DEL/07 HAS BEEN DISMISSED. THUS, THE ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN THE PRECEDING YEAR. LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. 3. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORDS CAREFULLY. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENGAGED IN MANUFACTURING OF ELECTRICAL CONNECTION SYSTEM. I T HAS FILED ITS RETURN OF INCOME ON 30 TH OCTOBER, 2004 DECLARING AN INCOME OF RS.1,64,20,96 7. ON SCRUTINY OF THE ACCOUNTS, ASSESSING OFFICER FOUND T HAT ASSESSEE HAS PAID A COMMISSION OF RS.73,48,522 TO ITS ASSOCIATE ENTERPR ISES, NAMELY, M/S. CONTROL & SWITCHGEAR CO. LTD. LEARNED ASSESSING OFF ICER DID NOT MAKE ANY INDEPENDENT DISCUSSION ON THE FACTS AND CIRCUMSTANC ES IN THIS YEAR, HE SIMPLY REFERRED THE ASSESSMENT ORDER IN ASSESSMENT YEAR 2003-04 AND CONCLUDED THAT 50% OF THE COMMISSION PAID TO THE AS SOCIATE CONCERN WAS DISALLOWED IN ASSESSMENT YEAR 2003-04, THEREFORE, I T DESERVES TO BE DISALLOWED IN THIS ASSESSMENT YEAR ALSO. ACCORDINGL Y, A DISALLOWANCE OF RS.36,74,261 OUT OF COMMISSION PAID HAS BEEN MADE. ON APPEAL, LEARNED CIT(APPEALS) FOLLOWING THE ORDER OF HIS PREDECESSOR DELETED THE 3 DISALLOWANCE. ON PERUSAL OF THE ITATS ORDER IN ITA NO.509/DEL/07, WE FIND THAT THIS WAS THE SOLITARY ISSUE BEFORE THE IT AT AND A DETAILED DISCUSSION HAS BEEN MADE WHEREIN THE ITAT HAS REPRODUCED THE N OTE SUBMITTED BY THE ASSESSEE EXHIBITING THE NATURE OF SERVICES PROVIDED BY THE ASSOCIATE CONCERN. ACCORDING TO THE ITAT, ASSESSING OFFICER WAS SATISF IED WITH REGARD TO THE SERVICES PROVIDED BY THE ASSOCIATED CONCERNS BUT HE WAS NOT SATISFIED THE RATE AT WHICH SUCH SERVICES WERE PROVIDED TO THE ASSESSE E. IN THE OPINION OF THE ASSESSING OFFICER, THE COMMISSION PAID BY THE ASSES SEE WAS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF S UCH SERVICES. HE MADE A REFERENCE TO THE CASE OF ONE ASSESSEE WHO HAS BEEN ASSESSED IN THE SAME CIRCLE WHEREIN COMMISSION WAS PAID @ 5% OF THE NET SALES. THE ITAT FOUND A DIFFERENCE IN THE SERVICES PROVIDED IN THE CASE O F THAT ASSESSEE VIS--VIS THE PRESENT ASSESSEE AND CONCLUDED THAT THERE CANNOT BE ANY UNIFORM RATE OF COMMISSION REQUIRED TO BE PAID TO BOTH BY THE ASSES SEES. TAKING INTO CONSIDERATION THE DETAILED FINDING OF THE ITAT, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(APPEALS). 4. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF R EVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.25,027 OUT OF DEDUCTION CLAIMED UNDER SEC. 80-HHC OF THE ACT. THE LEARNED COUNSEL FOR 4 THE ASSESSEE AT THE VERY OUTSET POINTED OUT THAT TH E GRIEVANCE OF THE REVENUE IS IN RESPECT OF EXCLUSION OF EXCISE DUTY FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION ADMISSIBLE UNDER SEC. 80-HH C. LEARNED CIT(APPEALS) HAS HELD THAT EXCISE DUTY IN THE TOTAL TURNOVER CANNOT BE INCLUDED AND IF IT IS EXCLUDED THEN THE DISALLOWANC E MADE BY THE ASSESSING OFFICER OUT OF THE DEDUCTION CLAIMED UNDER SEC. 80- HHC IS TO BE DELETED. HE FURTHER SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COU RT RENDERED IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667. LEARNED DR WAS UNABLE TO CONTROVERT THE CONTENTIONS RAISED BY THE LEARNED CO UNSEL FOR THE ASSESSEE. 5. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES, WE ARE OF THE OPINION THAT THE ISSUE IN DISPUTE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF LAXMI MACHINE WORKS. THE EXCISE DUTY IS BEING COLLECTED BY THE AS SESSEE IN FIDUCIARY CAPACITY. THERE IS NO ELEMENT OF PROFIT IN SUCH REC EIPT AND, THEREFORE, IT CANNOT BE INCLUDED IN THE TOTAL TURNOVER. LEARNED CIT(APPEALS) HAS RIGHTLY EXCLUDED THIS AMOUNT AND COMPUTED THE DEDUCTION ADM ISSIBLE UNDER SEC.80- HHC OF THE ACT. THIS WORKING LED THE DELETION OF DI SALLOWANCE OF RS.25,027. IN VIEW OF THE ABOVE DISCUSSION, THIS GROUND OF APP EAL IS REJECTED. 5 6. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF REVEN UE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN ALLOWING THE SOFTWARE EXP ENSES AMOUNTING TO RS.1,47,750 AS REVENUE EXPENSES. LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND CONTENDED THAT THE EXPENSES I NCURRED ON PURCHASE OF SOFTWARE DESERVES TO BE TREATED AS CAPITAL IN NATUR E BECAUSE SOFTWARE WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT BY PURCHASE OF THE SE SOFTWARE NO ENDURING BENEFIT HAD ACCRUED TO THE ASSESSEE. THE COMPUTERS ARE INSTALLED IN THE OFFICE OF THE ASSESSEE FOR THE BETTER FUNCTIONING AND THES E WERE UPGRADED. THE ASSESSEE WAS HAVING COMPUTERS ALREADY IN ITS OFFIC E. REFERRING TO THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF AM-WAY IN DIA ENTERPRISES VS. DCIT REPORTED IN 111 ITD 112, HE SUBMITTED THAT THE SPECIAL BENCH OF THE ITAT HAS LAID DOWN THREE TESTS FOR DECIDING AN ISSU E WHETHER EXPENSES INCURRED BY THE ASSESSEE ON COMPUTER SOFTWARE IS TO BE TREATED AS CAPITAL OR REVENUE IN NATURE. THE ONE OF THE TESTS LAID DOWN B Y THE SPECIAL BENCH IS OF FUNCTIONAL TEST WHEREIN THE ITAT HAS OBSERVED THAT IF AN ADVANTAGE WHICH AN ASSESSEE DERIVED FROM USE OF COMPUTER SOFTWARE IS I N CAPITAL FIELD THEN SAME WOULD BE CAPITAL EXPENDITURE AND IF ADVANTAGE CONSI STS MERELY IN FACILITATING ASSESSEES TRADING OPERATION OR ENABLING MANAGEMENT TO CONDUCT THE 6 ASSESSEES BUSINESS MORE EFFICIENTLY OR MORE PROFIT ABLY WHILE LEAVING FIXED CAPITAL UNTOUCHED, EXPENDITURE WOULD BE ON REVENUE ACCOUNT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HA D INCURRED A SMALL AMOUNT OF RS.1,47,750 FOR UPGRADATION OF COMPUTERS, THESE COMPUTERS WERE NOT USED FOR EARNING OF INCOME RATHER THEY WERE USED FOR ADM INISTRATIVE PURPOSES IN THE OFFICE WHICH ENABLE THE MANAGEMENT TO RUN THE A DMINISTRATION MORE EFFICIENTLY. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT(APPE ALS) BECAUSE THE ASSESSEE WAS ALREADY HAVING COMPUTERS IN ITS OFFICE. HE HAS INCURRED RS.1,47,750 FOR UPGRADATION OF THOSE COMPUTERS WHEREBY WINDOW/XP AN D MS OFFICE WERE INSTALLED. IF WE APPLY THE FUNCTIONAL TESTS PROPOUN DED BY THE SPECIAL BENCH OF THE ITAT IN THE CASE OF AM-WAY (SUPRA) THEN INCU RRENCE OF SUCH EXPENSES ARE TO BE ALLOWED AS REVENUE EXPENSES. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON .12 .2009 ( K.G. BANSAL ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: /12/2009 MOHAN LAL 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR:ITAT ASSISTANT REGISTRAR