ITO, New Delhi V. M/s. ACL Wireless Ltd., New Delhi

ITA 4743/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2740 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.4743/DEL/2012 4743/DEL/2012 4743/DEL/2012 4743/DEL/2012 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2008 2008 2008 2008- -- -09 0909 09 INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, CO.WARD CO.WARD CO.WARD CO.WARD- -- -1(2), 1(2), 1(2), 1(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. VS. VS. VS. VS. M/S ACL WIREL M/S ACL WIREL M/S ACL WIREL M/S ACL WIRELESS LIMITED, ESS LIMITED, ESS LIMITED, ESS LIMITED, 104 104 104 104- -- -107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 019. 110 019. 110 019. 110 019. PAN : PAN : PAN : PAN : AACCA7370G. AACCA7370G. AACCA7370G. AACCA7370G. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BHIM SINGH, SR.DR. RESPONDENT BY : SHRI R.S.SINGHVI, CA. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF LEARNED CIT(A)-IV, NEW DELHI DATED 11 TH JULY, 2012 FOR THE AY 2008-09. 2. GROUND NO.1 OF THE REVENUES APPEAL READS AS UNDER: - THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION AMOUNTING TO ` 19,20,127 ON A/C OF CAPITALIZATION OF SOFTWARE EXPENSES. 3. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTS OF THE CASE, WE FIND THIS ISSUE TO BE COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF ITAT IN EARLIER YEARS. IN AY 2003-04, TH E SUM OF ` 90,37,605/- CLAIMED BY THE ASSESSEE AS PRODUCT IMPROVEME NT EXPENSES WAS TREATED AS CAPITAL EXPENDITURE BY THE REVE NUE. LEARNED ITA-4743/DEL/2012 2 CIT(A) ALLOWED THE RELIEF, AGAINST WHICH, REVENUE WA S IN APPEAL. HOWEVER, THE ITAT, VIDE ORDER DATED 28 TH AUGUST, 2012 RENDERED IN ITA NO.1619 TO 1621/DEL/2010, UPHELD THE ORDER OF THE C IT(A) AND DISMISSED THE REVENUES APPEAL. SIMILAR VIEW IS FOLLOWE D IN AY 2004- 05, 2005-06 & 2006-07 AND THEREAFTER, IN AY 2007-08 . IN VIEW OF THE ABOVE ORDERS OF THE ITAT IN PRECEDING FIVE YEARS, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF LEARNED CIT(A) IN THIS REGARD. THE SAME IS SUSTAINED AND GROUND NO.1 OF THE REVENUES APPEAL IS REJECTED. 4. GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: - THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLO W DEDUCTION OF ` 88,87,668/- OF THE EXPENSES, FOR WHICH ASSESSEE HAS NOT DEDUCTED TDS, AFTER VERIFICATION IF THE ASSESSEE HAS REVERSED THE ENTRY IN LATER YEARS. THE CIT( A) HAS IGNORED THE LEGAL POSITION THAT DISALLOWANCE U/S 40(A)(IA) IS MANDATORY IN THE YEAR WHEN TDS WAS DEDUCTIBLE BUT HAS NOT BEEN DEDUCTED. THERE IS NO QUESTION OF NOT MAKING DISALLOWANCE FOR THE REASON THA T EXPENDITURE HAS BEEN REVERSED IN LATER YEAR. 5. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY T HE LEARNED COUNSEL THAT THIS GROUND IS REVENUE NEUTRAL BECAUSE IN THE SUBSEQUENT YEAR, THIS AMOUNT HAS BEEN OFFERED AS INCOME BY REVER SING THE ENTRY IN THE SUBSEQUENT YEAR. LEARNED CIT(A) HAS ALSO DIRECTED THE ASSESSING OFFICER TO ALLOW THE RELIEF AFTER VERIFICATION OF T HE REVERSAL OF THE ENTRY IN THE SUBSEQUENT YEAR. HE FURTHER STATED THAT IN THE YEAR UNDER CONSIDERATION, THERE IS AN ASSESSED LOSS AND, THEREFORE, E VEN AFTER THE ADDITION OF THIS AMOUNT, THE INCOME OF THE ASSESSEE WOUL D BE IN LOSS. HE, THEREFORE, SUBMITTED THAT GROUND NO.2 OF THE REV ENUES APPEAL SHOULD BE DISMISSED BEING INFRUCTUOUS. ITA-4743/DEL/2012 3 6. LEARNED DR, ON THE OTHER HAND, STATED THAT EVERY YEAR IS AN INDEPENDENT YEAR AND ALLOWABILITY OF THE EXPENDITUR E IS TO BE JUDGED ON THE FACTS OF THE ASSESSEES CASE OF THE YEAR IN WHICH THE EXPENDITURE IS CLAIMED. AN ASSESSEE CANNOT BE PERMITTED TO CLAIM THE EXPENDITURE IN ONE YEAR AND REVERSE THE ENTRY IN THE NEXT YEAR. HE SUBMITTED THAT IF THE ADDITION IS REVENUE NEUTRAL, WHY THE ASSESSEE CONTEST ED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). HE, THEREFORE , SUBMITTED THAT THE ADDITION SHOULD BE SUSTAINED IN THIS YEAR. 7. IN THE REJOINDER, IT IS STATED BY THE LEARNED COUN SEL THAT IF THE ADDITION IS SUSTAINED IN THIS YEAR, THEN IT WOULD AMOUN T TO DOUBLE ADDITION BECAUSE IN THE SUBSEQUENT YEAR, BY REVERSING T HE ENTRY, THE ASSESSEE HAS OFFERED THE SUM OF 88,87,668/- AS ITS INCOME. HE, THEREFORE, SUBMITTED THAT HE HAS NO OBJECTION IF THE ADDITION IS SUSTAINED IN THIS YEAR WITH A DIRECTION TO THE ASSESSING OFFICER THAT THE INCOME OFFERED BY THE ASSESSEE IN THE SUBSEQUENT YEAR BY REVERSAL OF THE ABOVE ENTRY SHOULD NOT BE ASSESSED IN THE SUBSEQUENT Y EAR. 8. LEARNED DR HAS NO OBJECTION TO THE ISSUE OF SUCH DIR ECTION TO THE ASSESSING OFFICER. 9. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AN D THE FACTS OF THE CASE, WE ARE UNABLE TO UPHOLD THE ORDER OF LE ARNED CIT(A). MERELY BECAUSE THE ASSESSEE HAS REVERSED THE ENTRY OF THE EXPENDITURE CLAIMED IN ONE YEAR IN THE SUBSEQUENT YEA R WOULD BE NO GROUND FOR ALLOWABILITY OF SUCH EXPENDITURE IN THE YEAR IN WHICH DEDUCTION IS CLAIMED. FOR ALLOWABILITY OF THE EXPEN DITURE, THE ASSESSEE HAS TO ESTABLISH THAT THE EXPENDITURE WAS INCURRED DURI NG THE YEAR UNDER CONSIDERATION WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. WHETHER THE CLAIM OF SUCH EXPENDITURE IS REVERSED IN T HE SUBSEQUENT ITA-4743/DEL/2012 4 YEAR WOULD NOT BE A RELEVANT FACT FOR ALLOWABILITY OF THE EXPENDITURE IN THE FIRST YEAR. IN THIS CASE, THE ASSESSEE HAS NOT ESTABLIS HED HOW THE EXPENDITURE IS ALLOWABLE IN THE YEAR UNDER CONSIDERAT ION EXCEPT ARGUING THAT THE ENTRY FOR THE CLAIM OF EXPENDITURE HAS BEEN REVERSED IN THE SUBSEQUENT YEAR. IN VIEW OF THE ABOVE, WE REV ERSE THE ORDER OF LEARNED CIT(A) ON THIS POINT AND HOLD THAT THE DEDUC TION FOR THE EXPENDITURE OF ` 88,87,668/- WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. HOWEVER, ONCE THE DISALLOWANCE OF THE EXPEN DITURE IS SUSTAINED IN THIS YEAR, THE REVERSAL OF THE CLAIM OF E XPENDITURE IN THE SUBSEQUENT YEAR CANNOT BE TREATED AS INCOME OF THE ASSESSE E, OTHERWISE, IT WOULD AMOUNT TO DOUBLE TAXATION. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO VERIFY THE ASSESSEES CONTENTION TH AT IN THE SUBSEQUENT YEAR, THE INCOME OF ` 88,87,668/- HAS BEEN OFFERED BY WAY OF REVERSAL OF THE ENTRY OF EXPENDITURE. IF IT IS SO, HE WILL GIVE THE CONSEQUENTIAL EFFECT I.E., SUCH REVERSAL WOULD NOT BE TREATED AS INCOME OF THE ASSESSEE IN THAT YEAR. WITH THIS DIRECTION, GROU ND NO.2 OF THE REVENUES APPEAL IS ALLOWED. 10. GROUND NO.3 OF THE REVENUES APPEAL READS AS UNDER :- THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION AMOUNTING TO ` 10,79,660/- CAPITALIZATION OF LICENCE FEE PAID TO M/S NUANCE COMMUNICATION. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL PLACED BEFORE US. LEARNED CIT(A) HAS RECORDED THE FINDING T HAT THE ASSESSEE MADE THE PAYMENT OF LICENSE FEE OF ` 10,79,660/- TO M/S NUANCE COMMUNICATION, A BELGIAN COMPANY, AS PER THE AGREEME NT FOR PROCURING LICENSE FOR USE OF ITS VOICE SOFTWARE AND TH E AGREEMENT WAS OPERATIVE FOR ONE YEAR ONLY . THE ABOVE FACTUAL FINDING RECORDED BY LEARNED CIT(A) IN PARAGRAPH 10.1 IN HIS ORDER HAS NOT BEEN ITA-4743/DEL/2012 5 CONTROVERTED BY THE REVENUE. ONCE THE LICENSE FEE W AS PAID ONLY FOR ONE YEAR, BY NO STRETCH OF IMAGINATION, IT CAN BE TR EATED AS CAPITAL EXPENDITURE. ACCORDINGLY, THE ORDER OF LEARNED CIT (A) ON THIS POINT IS SUSTAINED. GROUND NO.3 IS REJECTED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2013. SD/- SD/- ( (( (A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JU JUJU JUDICIAL DICIAL DICIAL DICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 31.07.2013 VK. COPY FORWARDED TO: - 1. APPELLANT : INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, CO.WARD CO.WARD CO.WARD CO.WARD- -- -1(2), NEW DELHI. 1(2), NEW DELHI. 1(2), NEW DELHI. 1(2), NEW DELHI. 2. RESPONDENT : M/S ACL WIRELESS LIMITED, M/S ACL WIRELESS LIMITED, M/S ACL WIRELESS LIMITED, M/S ACL WIRELESS LIMITED, 104 104 104 104- -- -107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 107, HEMKUNT TOWER, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, 98, NEHRU PLACE, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 019. 110 019. 110 019. 110 019. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR