Sapient Corporation Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 4977/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58926 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Keywords: Capital expenditure
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: G NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI K.D.RANJAN , ACCOUNTANT MEMBER ITA NO: 4977/DEL/2011 A.Y. : 2007-08 SAPIENT CORPORATION P.LTD. VS. ACIT, CIRCLE 7(1) SAPIENT TOWER NEW DELHI DLF CYBER GREENS DLF PHASE III, SECTOR 25A GURGAON 122 022 PAN/GIR NO: AAECS 6286M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. NEERAJ JAIN, C.A. RESPONDENT BY : SH.KRISHNA, CIT, D.R. O R D E R PER DIVA SINGH, JUDICIAL MEMBER THE PRESENT APPEAL HAS BEEN MOVED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DT. 28.9.2011 PERTAINING TO A.Y. 2 007-08 ON THE FOLLOWING GROUNDS. 1. THAT THE A.O. ERRED ON FACTS AND IN LAW IN COMP LETING ASSESSMENT U/S 144C/143(3) OF THE INCOME TAX ACT, 1 961 (THE ACT) AT AN INCOME OF RS.4,48,13,480/- AS AGA INST THE INCOME OF RS.1,03,02,705/- RETURNED BY THE APPELLAN T. 2. THE A.O./DRP ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF RS.3,45,10,774/- OUT OF THE EXPENDI TURE ON RECRUITMENT AND TRAINING EXPENSES OF RS.4,60,14,3 65/- HOLDING THAT SUCH EXPENDITURE LED TO ENDURING BENEF ITS FOR THE BUSINESS OF THE APPELLANT AND HENCE CONSTITUTES EXPENDITURE OF CAPITAL NATURE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT T HE TIME OF HEARING. 2 2. LD.A.R. INVITING ATTENTION TO THE ASSESSMENT ORD ER PAGES 5 TO 9 CONSIDERING THE CLAIM ON EXPENDITURE OF RS.4,60,14, 365/- ON ACCOUNT OF RECRUITMENT AND TRAINING. THE A.O. RELYING UPON MA DRAS INDUSTRIAL DEVELOPMENT CORPORATION VS CIT 225 ITR 802; HINDUS TAN ALUMINIUM CORPORATION VS. CIT (1983) 144 ITR 474; ASSAM BENGA L CEMENT CO.LTD. VS CIT, 27 ITR 34; TAPARIA TOOLS LTD. VS JCIT 126 TAXMAN 544 ; EMPIRE JUTE CO.LTD. VS CIT 124 ITR 1 (S.C.) AND REFERRING TO THE DIRECTIONS GIVEN BY THE DRP-2 ALLOWED 25% OF THE EXPENDITURE THEREBY MAKING AN ADDITION OF 3,45,10,774/- OBSERVED AS UNDER. THE AFORESAID DIRECTIONS OF THE DRP HAVE BEEN NOTED AND THE FACTUAL POSITION IS THAT FOR THE A.Y. 2005- 06 & 2006- 07 THE ORDER OF THE TRIBUNAL ON THESE ISSUE IS NOT ACCEPTED CONSIDERING THE FACT THAT ON SIMILAR ISSUE SLP HAS BEEN FILED BEFORE THE HONBLE SUPREME COURT IN VARIOUS CASES I NCLUDING SAMSUNG ELECTRONICS., FURTHER APPEAL U/S 260A HAS BEEN PROPOSED. SINCE, THERE IS TIME FOR ACTUALLY DECIDI NG FILING APPEAL IN THESE YEARS AND AS THE MATTER OF PASSING FINAL ORDER IN THIS CASE IS GETTING BARRED BY LIMITATION, THE ADDITION IS BEING MADE CONSIDERING THE RECOMMENDATION OF APP EAL IN A.Y. 2005-06 & 206-07. IN VIEW OF AFORESAID FACTS, THE ABOVE SAID EXPENDI TURE LEADS TO AN ENDURING BENEFIT TO THE ASSESSEE COMPAN Y. ACCORDINGLY, ONLY 25% OF THE EXPENDITURE OF RS. 4,60,14,365/- I.E. AMOUNTING TO RS. 1,15,03,591/- I S ALLOWED AND BALANCE AMOUNT OF RS. 3,45,10,774/- IS HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE COMPANY. SINCE, I AM SATISFIED THAT ASSESSEE HAS N OT FILED ITS ACCURATE PARTICULAR OF THE INCOME, THEREFORE, P ENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATED SEPARATELY. ADDITION OF RS. 3,45,10,774/- 2.1. THE LD.A.R. REFERRING TO PAGES 68 TO 81 WHICH IS A COPY OF ORDER DT. 6 TH MAY, 2011 IN THE CASE OF THE ASSESSEE FOR A.Y. 200 6-07 IN ITA 5263/DEL/2010 CONSIDERED AN IDENTICAL NAME OF THE ASSESSEE WHEREIN 3 RELYING UPON 2004-05 THE CLAIM OF THE ASSESSEE WAS ALLOWED. AS SUCH THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. IT WAS HIS SUBMISSION THAT THE SAID ORDER HAS BEEN ACCEPTED BY THE DEPARTMENT AS N O APPEAL ON THE SAID ORDER HAD BEEN FILED. INVITING ATTENTION TO THE DE CISION FOR 2005-06 WHEREIN ALSO AN IDENTICAL ISSUE TRAVELLED TO THE TR IBUNAL WHICH WAS DISPOSED BY THE COORDINATE BENCH ON 8 TH APRIL,2011 IN ITA 1856/DEL/2010 COPY OF WHICH IS PLACED AT PAGES 88 T O 82 OF THE PAPER BOOK IT WAS SUBMITTED THAT THE TRIBUNAL HAD CONSIDE RED THE SAME VIDE PARAS 3 TO 6 WHEREIN TAKING INTO CONSIDERATION THE PAST DECISION IN THE CASE OF THE ASSESSEE NAMELY THAT THE CITS ORDER FO R 2004-05 HAS BEEN ACCEPTED BY THE DEPARTMENT AND THE JUDGEMENT OF DEL HI BENCH IN SONI INDIA P.LTD. VS DCIT WHEREIN AT PARA 83 THE JUDGEME NT OF THE COORDINATE BENCH IN THE CASE OF AMAR BATTERIES 91 ITD 280 ( HYDERABAD) HAD BEEN CONSIDERED AS SUCH THE ACTION OF THE CIT(A) IN DELE TING THE ADDITION MADE BY THE A.O. WAS UPHELD. THE SPECIFIC DIRECTIONS GI VEN BY THE DRT CONTAINED AT PAGE 7 AND DIRECTIONS U/S 144C(V) DT. 23.8.2011 AT PAGE 7 PARA 11.3 WERE REFERRED. FOR READY REFERENCE THEY READ AS UNDER. 11.3. WE OBSERVE THAT THIS ADDITION HAS PAST HISTO RY. IN THE A.YS 2005-06, 2006-07, SIMILAR ADDITION WAS MADE BY THE A.O. IT IS POINTED OUT BY THE LD.COUNSEL OF THE TAX PAYE R THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY ITAT. THEREFORE, WE DIRECT THE A.O. TO DELETE THIS ADDIT ION, IF THE DECISION OF ITAT ON THIS GROUND HAS BEEN ACCEPTED B Y THE DEPARTMENT. IF THE DECISION IS NOT ACCEPTED ON THI S GROUND AND AN APPEAL HAS BEEN FILED AGAINST THE ORDER OF ITAT, THEN WE ARE OF THE OPINION THAT SINCE THE MATTER IS SUB-JUDICE BEFORE THE HONBLE HIGH COURT, TO KEEP THE ISSUE ALIVE, THE A DDITION 4 PROPOSED BY AO IS NECESSARY TO BE MADE. THE A.O. W ILL ACT ACCORDINGLY AFTER RECORDING HIS REASON FOR ADDITION /DELETING ADDITION ON ACCOUNT OF RECRUITMENT & TRAINING EXPE NSES ON THE DECISION TAKEN BY THE DEPARTMENT ON FILING OF APPEA L U/S 260A AGAINST THE ORDER OF ITAT ON THIS GROUND. THE A.O. IS DIRECTED TO ACT AS PER DIRECTIONS GIVEN ABOVE. 2.2. THE LD.A.R. RELIED UPON THE FOLLOWING JUDGEM ENTS. I. EMPIRE JUTE CO.LTD. VS CIT, 124 ITR 1 (S.C.); II. CIT VS. ASSOCIATED CEMENT COMPANIES LTD. 172 ITR 25 7 (SC); III. ALEMBIC CHEMICAL WORKS CO.LTD. VS CIT, 177 ITR 377 (SC); IV. CIT VS. BERGER PAINTS (INDIA) LTD. (NO.2) 254 ITR 5 03; V. CIT VS. SAKTHI SOYAS LTD. 283 ITR 194 (MAD.); VI. DCIT VS. CORE HEALTHCARE LTD. 308 ITR 263; VII. CIT VS. BRILLIANT TUTORIALS P.LTD. 292 ITR 399 (MAD .); VIII. CIT VS. JAI PARABOLIC SPRINGS LTD., 306 ITR 42 (DEL HI) (SLP DISMISSED BY THE SC); IX. SILICON GRAPHICS SYSTEM LTD. VS DCIT, 106 TTJ 1153 (DEL); X. GURUJI ENTERTAINMENT NETWORK LTD. VS ACIT, 108 TTJ 180 (DEL); XI. SONY INDIA P.LTD. VS DCIT, 114 ITD 448; XII. HINDUSTAN COMMERCIAL BANK LTD. 21 ITR 353 (ALL.) 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME IT IS SEEN THAT IT IS AN ACCEPTED FACT THAT IN THE CASE OF THE ASSESSEE WHO IS STATED TO BE A SUBSIDIARY OF M/S SAPIENT CORPORATION USA WHICH HAD SET UP UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME OF GOVER NMENT OF INDIA. THE PRIMARY ACTIVITIES UNDERTAKEN BY COMPANY AS PER PAGE 2 OF THE ASSESSMENT ORDER ARE AS UNDER: (A) RENDERING SERVICES TO GROUP COMPANIES ESSENTIAL LY IN THE FORM OF BUILDING CUSTOMIZED SOFTWARE APPLICATIONS TO ENABLE GROUP COMPANIES IN RENDERING TECHNOLOGY CONSULTANCY SERVICES TO THEIR CLIENTS; AND 5 (B) RENDERING POST-SALES IT ENABLED SUPPORT SERVICE S IN RELATION TO THE SOFTWARE WHICH HAVE BEEN DEVELOPED EITHER BY SAPIEN T GROUP, OR BY THIRD PARTIES, AND PRIMARILY INCLUDING FIXING OF ALLOCATI ON BUGS, COMPATIBILITY CHECKS IN CASE OF THIRD PARTY SOFTWARE UPGRADES, SO FTWARE ENHANCEMENT ETC. 3.1. IT HAS BEEN CANVASSED BEFORE THE A.O. THAT THE ASSESSEE IS IN THE BUSINESS OF CUSTOMIZED SOFTWARE AND IT SERVICES. A S SUCH IT WAS CONTENDED THAT THE MAJOR OF THE BUSINESS NEEDS SPEC IALIZED EMPLOYEES ACCORDINGLY DEPENDING UPON THE NATURE OF SOFTWARE R EQUIRED THE EMPLOYEES PROFILES KEEP CHANGING. THEREFORE COST OF ADVERTISING IN ORDER TO ATTRACT SUITABLY TALENT HAS TO BE BORNE BY THE C OMPANY ON A REGULAR BASIS. THIS ARGUMENT ON FACTS HAD NOT BEEN ACCEPTE D BY THE REVENUE. ACCORDINGLY ON FACTS THE RELIANCE PLACED UPON THE J UDGEMENT OF APEX COURT IN MADRAS INDUSTRIAL DEVELOPMENT CORPORATION VS CIT 225 ITR 802 IS MISPLACED. THE ISSUE IS CLINCHED IN FAVOUR OF A SSESSEE UNDER THE CASE OF BY VIRTUE OF JUDGEMENT OF APEX COURT 124 ITR 1 S C PAGE 7 PARA 11.2 WHEREIN IT HAS BEEN EXTRACTED: .IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQ UIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIP LE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDIT URE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEES TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSSS EES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPE NDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE FOR AN INDEFINITE FUTURE 6 4. THIS FACT HAS BEEN TAKEN NOTE OF BY THE DRP ALSO . THE FACT THAT THE ADDITION WAS MADE BY THE A.O. IN ORDER TO KEEP THE INTEREST ALIVE SO AS TO MOVE THE HONBLE APEX COURT CANNOT BE SUFFICIENT RE ASON FOR MAKING THE ADDITION, RELYING UPON THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE AND THE PRINCIPLE LAID DOWN BY THE COORDINATE BENCH IN SONI INDIA P.LTD. VS DCIT, 114 ITD 448, THE GROUND RAISED BY ASSESSEE IS ALLOWED 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2012. SD/- SD/- (K.D.RANJAN) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD MARCH, 2012 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CI T(A); 5.DR; 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //