M/S. H V AXLES LTD, MUMBAI V. THE ACIT (OSD) 2(1), MUMBAI

ITA 4596/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2119 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 13-05-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 18-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: DINESH VYAS
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003- 2004 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR AND SHRI V.D. RAO ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003-2004 H V AXLES LTD., .APPELLANT 3 RD FLR., NANAVATI MAHALAYA, 18, HOMI MODY STREET, FORT, MUMBAI 400 001. VS. ACIT (OSD) 2(1) AAYAKAR BHAVAN, M.K. RD., MUMBAI 400 020. . RESPONDENT APPELLANT BY : SHRI DINESH VYAS RESPONDENT BY : SHRI KESHAVE SAXENA O R D E R PER PRAMOD KUMAR: 1. THIS APPEAL IS FILED BY THE ASSESSEE AND IS DIRE CTED AGAINST THE ORDER DATED 14 TH FEBRUARY, 2007, PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASS ESSMENT YEAR 2003-2004. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE:- ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003- 2004 PAGE 2 OF 5 GROUND NO.1 EXPENDITURE INCURRED TO UPGRADE EXISTING MESSAGING SYSTEM. THE LEARNED CIT(A) ERRED ON FACTS IN HOLDING THAT T HE APPELLANT HAS INCURRED EXPENDITURE ON LICENSE TO US E THE SAP SOFTWARE WITHOUT APPRECIATING, BASED ON THE DETAILS AND FACTS SUBMITTED, THAT THE APPELLANT HAS INCURRED EXPENDITURE TO UPGRADE THE EXISTING MESSAGING SYSTEM AND NOT ON LICENSE TO USE THE SAP SOFTWARE. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN TREATING UP-GRADATION EXPENDITURE AS CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION U/S.32. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE EXPENDITURE INCURRED TO UPGRADE THE EXISTING MESSAGING SYSTEM IS AN REVENUE EXPENDITURE ALLOWABLE U/S.37(1). 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED AN EXPENDITU RE OF RS.1,60,471/- ON CERTAIN COMPUTER SOFTWARE, AND CLAIMED DEDUCTION IN RESPECT OF THE SAME. THE ASSESSING OFFICER, HOWEVER, REJECTED THE CLAIM ON THE GROUND THAT BY INCURRING THE EXPENSE OF RS.1,60,471/-, THE ASSESSE E HAS OBTAINED LICENCE FOR LONG TERM USE OF SOFTWARE AND THUS OBTAINED ADVANTA GE OF ENDURING NATURE AND TREATED THE SAME AS CAPITAL EXPENDITURE. AGG RIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS NOT SATISFIED, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE OAS ALSO THE APPLICABLE LEGAL POSITION. 5. WE HAVE NOTED THAT THE EXPENDITURE ON SOFTWARE P ERTAINS TO ONE UNIT OF MS WINDOWS SERVER UPGRADE @ RS.21,518/- FORTY SI X UNITS OF MS EXCHANGE CAL UPGRADE @ RS.1,468 EACH AND EIGHTY THREE UNITS OF MS WINDOWS CAL ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003- 2004 PAGE 3 OF 5 UPGRADE @ RS.860 EACH. CONSIDERING THE FACT THAT THE EXPENDITURE IS INCURRED ONLY FOR UP GRADATION IN THE SOFTWARE SYST EM, WHICH HAVE AN INHERENTLY SHORT TERM UTILITY DUE TO FREQUENCY OF U PGRADE, AND CONSIDERING THE SMALLNESS OF AMOUNTS, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED EXPENDITURE CAN BE TREATED AS REVENUE EXPENDITURE. THE UP-GRADATION EXPENSES ARE GENERALLY OF RECURRING NATURE AND HELP PRESERVE UTILITY OF SOFTWARE AND SAFEGUARD THE SAME AGAINST OBSOLESCENC E. IN ANY CASE, LOOKING TO THE SMALLNESS OF AMOUNT, NO USEFUL PURPOSE WILL BE SERVED BY REMITTING THE MATTER TO THE ASSESSING OFFICER FOR FURTHER PRO BE INTO NATURE OF EXPENDITURE. WE THEREFORE, UPHOLD THE CLAIM OF TH E ASSESSEE. 6. GROUND NO.1, IS THUS ALLOWED. 7. IN GROUND NO.2, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE: GROUND NO.2 DEDUCTION OF EMPLOYEE SEPARATION COST U/S.35DDA. A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE DEDUCTION U/S.35DDA IS INADMISSIBLE ON TOTAL LIABILITY INCURRED AT THE TIM E OF VOLUNTARY RETIREMENT AND THAT DEDUCTION IS ADMISSIBLE ONLY OF THE AMOUNT ACTUALLY PAID DURING THE YEAR. THE LEARNED CIT(A) ERRED IN HOLDING THA T PAID USED IN SECTION 35DDA MEANS ACTUALLY PAID AND AS SUCH PAID AS DEFINED IN SECTION 43(2) WHIC H INCLUDE LIABILITY INCURRED HAS NO APPLICATION FOR THE PURPOSE OF SECTION 35DDA. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS INCURRED THE TOTAL LIABILITY AT T HE TIME OF VOLUNTARY RETIREMENT WHICH HAD BEEN DETERMINED ON AN ACTUARIAL BASIS AND HENCE THE APPELLANT IS ENTITLED TO 1/5 TH DEDUCTION OF THE TOTAL LIABILITY INCURRED AS PER SECTION 35DDA. THE LEARNED CIT(A) ALSO ERRED IN LAW AND ON FACTS I N OVER EMPHASIZING ON THE MODE OF PAYMENT FOR THE PURPOSE OF DETERMINING WHETHER THE TOTAL LIABILITY HAS BEEN INCURRED DURING THE YEAR OR NOT. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IN TERMS OF ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003- 2004 PAGE 4 OF 5 EMPLOYEE SEPARATION SCHEME, ENTIRE LIABILITY HAS BEEN INCURRED BY THE APPELLANT AT THE TIME OF VOLUNTARY RETIREMENT IN RESPECT OF SEPARATED EMPLOYEES IN THE YEAR OF SEPARATION AND THAT MODE OF PAYMENT IS IRRELEVANT FOR THE PURPOSE. B) THE LEARNED CIT(A) ALSO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT HAS NOT FILED OBJECTION ON ARGUMENTS AGAINST THE ORDER OF THE ASSESSING OFFICER OR OF CIT(A)S ORDER FOR ASSESSME NT YEAR 2001-2002 WHICH HAD BEEN RELIED UPON BY THE ASSESSING OFFICER AND LEARNED CIT(A) FOR THE YEAR WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HA S GIVEN REASONS IN THE GROUNDS OF APPEAL FIELD AND AL SO PUT FORTH DURING THE COURSE OF THE APPELLATE PROCEEDINGS THE ARGUMENTS AS AFORESAID REGARDING ALLOWABILITY OF 1/5 TH DEDUCTION OF THE TOTAL LIABILITY U/S.35DDA. 8. THE SHORT POINT OF DISPUTE ON THIS ISSUE IS WHET HER THE DEDUCTION U/S.35DDA IS TO BE COMPUTED WITH REFERENCE TO TOTAL LIABILITY MEASURED AT THE TIME OF VOLUNTARY RETIREMENT, OR ONLY WITH REFE RENCE TO ACTUAL AMOUNT PAID. THE AUTHORITIES BELOW HAVE PROCEEDED TO COMP UTE THE AFORESAID DEDUCTION ON THE BASIS OF ACTUAL AMOUNT PAID. 9. LEARNED REPRESENTATIVE FAIRLY AGREE THAT THE ABO VE ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE, BY TRIBUNALS D ECISION DATED 20.02.2009 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 -2002. WE ARE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN T HE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWING THE CO- ORDINATE BENCH, WE HOLD THAT THE DEDUCTION U/S.35DDA IS ADMISSIBLE ON THE T OTAL LIABILITY INCURRED, AND CANNOT BE RESTRICTED TO ONLY THE AMOUNT ACTUALL Y PAID. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 10. GROUND NO.2 IS THUS ALLOWED. ITA NO. 4596/MUM/2007 ASSESSMENT YEAR 2003- 2004 PAGE 5 OF 5 11. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNC ED IN THE OPEN COURT TODAY ON 14 TH DAY OF MAY, 2010. SD/- SD/- ( V.D. RAO) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 14 TH DAY OF MAY, 2010. JANHAVI COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT , MUMBAI 4. THE COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE - H BENCH, MUMBA I 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI