DCIT, New Delhi V. M/s. Vayam Technologies Ltd., New Delhi

ITA 4822/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3096 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 23-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P K KALYAL
• Keywords: Depreciation; Rule of consistency; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AN D SHRI M.L.MEENA, ACCOUNTANT MEMBER ITA NO.4822/DEL./2015, A.Y. 2006-07 D.C.I.T VS. VAYAM TECHNOLOGIES LTD. CIRCLE -26(1), 124, THA PAR HOUSE, ROOM NO. 192 JANPATH C.R.BUILDING NEW DELHI NEW DELHI PAN : AAACI8050R (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. P.K.KALYAL , CA REVENUE BY : SHRI RINKU SINGH, SR. DR DATE OF HEARING : 05.02.2019 DATE OF ORDER : 28 .02.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT DY. COMMISSIONER OF INCOME T AX, NEW DELHI (HEREINAFTER REFERRED TO AS 'THE REVENUE') BY FILIN G THE AFORESAID APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 27/03 /2015 PASSED BY LD. COMMISSIONER OF INCOME TAX(APPEALS)-IX, NEW DELHI QUA THE ASSESSMENT YEAR 2006-07 ON THE GROUNDS INTER ALIA THAT : ITA NO. 4822/DEL./2015 2 1. THE LD. CIT(A) HAS ERRED IN IGNORING ASSESSEES STAND DURING THE ASSESSMENT PROCEEDINGS (TAKEN VIDE ITS LETTER DATED 04.11.2010 QUOTED VERBATIM IN THE ASSESSMENT ORDER) THAT THE EXPENSES AS CLAIMED IN THE APPELLATE PROCE EDINGS. 2. THE LD. CIT(A) HAS ERRED IN IGNORING THE LINE EN TRY IN THE P& L A/C OF THE AUDITED ACCOUNTS OF THE ASSESSEE CO MPANY WHICH DESCRIBES THE SAID EXPENSES AS SOFTWARE DEVELOPMENT- OUTSOURCED. 3. NOT WITHSTANDING WITH THE ABOVE AS THE CIT(A) HA S ACCEPTED THE SAID EXPENSES AS AMC CHARGES A CONT ENTIO WHICH WAS NEVER ADVANCED AT THE ASSESSMENT STAGE, T HE ASSESSING OFFICER DID NOT GET THE OPPORTUNITY TO CO NSIDER THE ASSESSEES CHANGED STAND. AS SUCH, LD. CIT(A) HAS ERRED IN ACCEPTING FRESH/ADDITIONAL MATERIAL/EVIDENCE WITHOU T AFFORDING AN OPPORTUNITY TO THE AO TO REBUT THE SAM E. 4. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER OR ADD ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. BRIEFLY STATED THAT FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CHARGED SOFTWARE DEVELOPMENT CHARGES OF RS. 6,02,81 ,245/- TO THE P & L ACCOUNT DESPITE THE FACT THAT THE ASSESSEE HAS ALRE ADY CAPITALIZED SOFTWARE DEVELOPMENT CHARGES TO THE TUNE OF RS. 4,52,98,567/ - AND THUS CLAIMED DEPRECIATION ON THIS AMOUNT. AO DECLINING THE SUBMI SSION RAISED BY THE ASSESSEE THAT EXPENDITURE INCURRED ON DEVELOPMENT OF SOFTWARE FOR IN ITA NO. 4822/DEL./2015 3 HOUSE USE AND BUSINESS OF COMPANY IS CAPITALIZED AS IT IS RETAINED IN THE COMPANY FOR A PERIOD OF 3-6 YEARS. PROCEEDED TO CONCLUDE THAT SINCE THE ASSESSEE ITSELF HAS CAPITALIZED SOFTWARE DEVELOPMEN T EXPENSES AMOUNTING TO RS. 4,52,98,467/-, THERE CANNOT BE ANY JUSTIFICA TION FOR NON CAPITALIZATION OF THIS AMOUNT AND THEREBY DISALLOWE D THE SAME BEING CAPITAL IN NATURE AND MADE ADDITION OF RS. 6,02,81, 245/- TO THE TOTAL INCOME OF THE ASSESSEE. 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) BY WAY OF FILING THE APPEAL WHO HAS DELETED THE ADDITION BY PARTLY A LLOWING THE APPEAL. FEELING AGGRIEVED THE REVENUE HAS COME UP BEFORE TH E TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. DR FOR THE REVENUE AND GON E THROUGH THE ORDER PASSED BY THE LOWER REVENUE AUTHORITY. 5. IT IS CATEGORIC CASE OF THE ASSESSEE THAT THE AS SESSEE WAS ALSO ENGAGED IN PROVIDING ANNUAL MAINTENANCE CONTRACT (A MC), MANPOWER AND OTHER SERVICES TO VARIOUS COMPANIES VIZ., LIC , MTNL, BSNL, GAIL ETC. OUT OF WHICH SOME SERVICES IT HAS OUTSOURCED T O OTHER COMPANIES TO REDUCE THE COST OF PROVIDING THESE SERVICES AND EXP ENDITURE ON OUTSOURCES SERVICES HAD BEEN DEBITED TO P & L ACCOUNT. IT IS F URTHER CASE OF THE ASSESSEE THAT IT WAS ALSO DEVELOPING A NEW APPLICAT ION CALLED WBAMS (WEB BASED ACADEMIC MANAGEMENT SYSTEM) FOR ACADEMI C INSTITUTIONS ITA NO. 4822/DEL./2015 4 AND EXPENDITURE INCURRED FOR DEVELOPMENT OF THESE N EW APPLICATIONS SOFTWARE HAD BEEN CAPITALIZED. 6. BARE PERUSAL OF THE ASSESSMENT ORDER GOES TO PR OVE THAT AFORESAID TWO FOLD SUBMISSIONS HAVE NOT BEEN MADE BY THE ASSE SSEE BEFORE AO NOR IT IS GOT VERIFIED BY THE LD. CIT(A) FROM THE AO DU RING APPELLATE PROCEEDINGS IF CAPITALIZED SOFTWARE EXPENSES WERE D IFFERENT FROM REVENUE EXPENSES CLAIMED BY THE ASSESSEE. IN OTHER WORDS, I F THE ASSESSEE HAS DEVELOPED ANY NEW SOFTWARE APPLICATION CALLED WABMS . 7. WHEN THE ASSESSEE STATED TO HAVE FILED A CHART E XPLAINING THE CORRELATION BETWEEN SALES OF SERVICES AND SOFTWARE TO VARIOUS PARTIES AND THE EXPENSES CLAIMED IN RELATION TO SUCH SERVICES A ND SOFTWARE, WHICH OTHERWISE DOES NOT FIND ANY MENTION IN THE ASSESSME NT ORDER, THE AO WAS REQUIRED TO EXAMINE THE SAME BEFORE REACHING THE CO NCLUSION. 8. MOREOVER, IT IS CASE OF THE ASSESSEE THAT EXPEN DITURES HAS BEEN REGULARLY ALLOWED BY THE DEPARTMENT IN EARLIER YEA RS AND THE ASSESSEE HAS BEEN FOLLOWING SAME ACCOUNTING TREATMENT IN CONFORM ITY WITH STANDARD BUSINESS PRACTICES. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT AO TO ALLOW THESE EXPENSES AFTER VERIFYING THE FACTS AS TO WHAT HAS BEEN MADE BY THE ASSESSEE FOR ITS IN HOUSE USE, IF SO, THE SAME IS TO BE CAPITALIZED AND WHAT IS MADE FOR THE CUSTOMER, THEN THE SAME IS TO BE TREATED AS REVENUE EXPENDITURE. SO, AO TO ALLOW THE EXPENSES AFTER VERIFYING THE FACT THAT IF THE EXPENDITURE INCURRED BY THE ASSESSEE ARE QUA ITA NO. 4822/DEL./2015 5 DEVELOPMENT OF NEW APPLICATION OF SOFTWARE NAMELY W ABMS MADE FOR CUSTOMERS VIZ. LIC, MTNL, BSNL, GAIL ETC. BY FOLLO WING THE PRINCIPLE OF CONSISTENCY. CONSEQUENTLY, APPEAL FILED BY THE R EVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH FEBRUARY, 2019. SD/- SD/- (M.L.MEENA) (K ULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER D ATED 28 /02/ 2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXVI, NEW DELHI. 5. CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI ITA NO. 4822/DEL./2015 6 DATE OF DICTATION 18.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 28.02.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 28.02.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 28.02.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER