DCIT, New Delhi V. M/s ERM India P Ltd., New Delhi

ITA 5394/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3894 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: R P MUNJAL
• Keywords: Revenue expenditure

Judgement Text

ITA NO. 5394/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 5394/DEL/2010 A.Y. : 2006-07 DCIT, CIRCLE 11(1), C.R. BUILDING, NEW DELHI VS. M/S ERM INDIA P LTD., B-1/1770, VASANT KUNJ, NEW DELHI (PAN/GIR NO. : AAACE1502C) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. R.P. MUNJAL, CA DEPARTMENT BY : MS. Y. KAKKAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 23.9.2 010 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN TREATING THE EXPENDITURE OF ` 33 ,27,750/- AS REVENUE EXPENDITURE AND THEREBY DELETING THE ADDITION OF ` 33,27,750/-. 3. IN THIS CASE, THE ASSESSEE IS A COMPANY ENGAGED I N THE BUSINESS OF RENDERING OF CONSULTANCY SERVICES IN THE FIELD OF ENVIRONMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSIN G OFFICER NOTED THAT ASSESSEE HAS DEBITED A SUM OF ` 30 LACS AS SOF TWARE EXPENSES. ASSESSING OFFICER NOTED THAT FROM THE INVOICE, IT W AS FOUND THAT THE ASSESSEE HAS PURCHASED A SOFTWARE WHICH HAS BEEN IN STALLED AND PUT TO USE INCLUDING TRAINING PROVIDED TO THE STAFF FOR IT S USER. ASSESSING ITA NO. 5394/DEL/2010 2 OFFICER OPINED THAT THE PURCHASE OF SOFTWARE IS, G OING TO GIVE ENDURING BENEFITS TO THE ASSESSEE. HENCE, HE CAPITALIZ ED THE AMOUNT AND ALLOWED THE DEPRECATION @ 30%. 4. AGAINST THIS ORDER THE ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THE ASSESSEES SUBMISSION IN THIS R EGARD AS UNDER:- (A) THE CONFIRMATION DATED 23.9.09 OF ERM EUROP E LTD., WHEREIN IT HAS SUBMITTED THAT ERM EURPOE LTD. HAS PRO VIDED TRAINING TO VARIOUS EMPLOYEES OF ERM INDIA P LTD. ON THE USAGE OF GMS (GLOBAL MANAGEMENT SYSTEM) ON ENTERPRISE RESOURCE PLANNING (ERP) SOFTWARE WHICH IS OWNED BY B ST CONSULTANT INC. AND LICENSED TO ERM EUROPE LTD. TO BE USED BY ERM GROUP ENTITIES. ERM EUROPE HAS PROVIDE THIS TRAINING TO IMPROVE AND STANDARDIZE THE QUANTITY OF PROJECT MANAGEMENT, FINANCIAL MANAGEMENT AND FINANCIAL REPORTING THROUGH OUT THE ERM GROUP. FOR PROVIDING THIS TRAINING ERM EUROPE LTD. HAS CHAR GED USD 75000 VIDE ITS INVOICE NUMBER E2005-302 DATED 11 TH NOVEMBER, 2005. THE SAID TRAINING DOES NOT RESULT INTO CREATION OR TRANSFER OF ANY RIGHT OR ASSET IN FAVO UR OF ERM INDIA PRIVATE LTD. IN WHAT SO EVER MANNER. (B) THE FACT THAT THE OWNERSHIP OF THE ERP (ENTERPRI SE RESOURCE PLANNING) SOFTWARE IS WITH BST CONSULTANTS INC. (C) THAT BST CONSULTANTS INC. HAS LICENSED THE SOFT WARE TO ERM EUROPE LTD. TO BE USED BY ERM GROUP ENTITIES. ITA NO. 5394/DEL/2010 3 (D) THAT ERM EUROPE HAS PROVIDED AND CHARGED USD 75000/- FROM THE APPELLANT FOR PROVIDING THE TRAININ G TO IMPROVE AND STANDARDIZE THE QUANTITY OF PROJECT MANAGEMENT, FINANCIAL MANAGEMENT AND FINANCIAL REPORT ING THROUGHOUT ERM GROUP WHICH INCLUDES ERM INDIA P. LTD ., THE APPELLANT. (E) THE INVOICE DATED 11.11.05 BEARING PROJECT TITLE : INDIA GMS IMPLEMENTATION COST NOVEMBER, 2005 HAS BEEN BROKEN INTO DIFFERENT PARTS OF THE TRAINING MODULE AND THE CONSULTANCY RATE PER DAY HAS BEEN FURTHER MULTIPLIE D WITH NUMBER OF DAYS SPENT FOR THE CONSULTANCY. FROM THE DESCRIPTION OF THE VARIOUS ITEMS OF CONSULTANCY IT I S OBSERVED THAT THESE INTER ALIA RELATE TO PRE-PLANNI NG LONDON / EXTON; PLANNING, DATA CLEANSING; PROJECT MANAGEMENT TRAINING; DATA CONVERSION; FINANCE TRAINING; BILLING TRAINING; ONE TO ONE PM TRAINING; POST GO LIVE SUPPO RT. (F) IN VIEW OF THE ABOVE FACTS TAKEN TOGETHER IT I S OBSERVED THAT THE ENTIRE EXPENSES IS FOR PROVIDING ADVANTAGE TO THE APPELLANT IN FACILITATING ITS BUSI NESS OPERATIONS OR ENABLING THE MANAGEMENT TO CARRY OUT ITS BUSINESS OPERATION MORE EFFICIENTLY OR MORE PROFITAB LY, WHILE HAVING THE FIXED CAPITAL UNTOUCHED AND THEREFORE IS AN REVENUE EXPENDITURE, EVEN THOUGH THE ADVANCE MAY ENDURE FOR AN INDEFINITE FUTURE. 5.1 FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THE FOLLOWING DECISIONS:- - EMPIRE JUTE CO. LTD. VS. C.I.T. 124 ITR 1 ITA NO. 5394/DEL/2010 4 - GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. VS. ACI T 112 TTJ 94. - ITAT, DELHI C BENCH IN THE CASE OF ACIT VS ASA HI INDIA SAFTEY GLASS 6 SOT 656 (2006) 6. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IMPUGNED EXPENDITURE TOWARDS TRAINING COST IS ALLOWABLE EXPENDITURE. ACCORDINGLY, THE ADDITION OF ` 33,27,750/- WAS DIRECTED TO BE DELETED. 7. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFO RE US. 8. LD. DEPARTMENTAL REPRESENTATIVE INTER-ALIA SUBMITT ED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS)S POWER IS CO-T ERMINUS WITH THAT OF THE ASSESSING OFFICER AND LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT PROPERLY CONSIDERED THE ISSUE IN THE CORRECT PROSPECTIVE AND HENCE, THE MATTER SHOULD GO BACK TO HIM. 8.1 LD. COUNSEL OF THE ASSESSEE ON THE OTHER HAND, SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN VERY COGENT AND SPEAKING ORDER AND THE SAME NEEDS TO BE UPHELD. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT AS PER THE INVOICE IN THIS REGARD THE DESCRIPTION OF THE PAYMENT MADE TO THE FOLLOWING :- DESCRIPTION CONSULTANCY RATE PER DAY US$ NO. OF DAYS TOTAL COST US$ PRE-PLANNING LONDON /EXTON 1500 2 3000 PLANNING 1500 3 4500 DATA CLEANSING 1500 5 7500 ITA NO. 5394/DEL/2010 5 PROJECT MANAGEMENT TRAINING 1500 10 15000 DATA CONVERSION 1500 9 13500 FINANCE TRAINING 1500 3 4500 BILLING TRAINING 1500 2 3000 ONE TO ONE PM TRAINING 1500 7 10500 POST GO LIVE SUPPORT 1500 9 13500 TOTAL CONSULTANCY DAYS 50 75000 TOTAL IMPLEMENTATION COSTS 75000 VAT @ 0.00% 0.00 GRAND TOTAL 75000 9.1 FROM THE ABOVE, THERE IS CONSIDERABLE COGENCY IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IT IS ONLY TRAI NING COST WHICH HAS BEEN INCURRED BY THE ASSESSEE AND THE SAME IS NOT L IABLE TO BE CAPITALIZED AS SOFTWARE EXPENSES. AS NOTED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERM EURPOE LTD. HAS PROVIDED TRAINING TO VARIOUS EMPLOYEES OF ERM INDIA P LTD. ON THE USAGE O F GMS (GLOBAL MANAGEMENT SYSTEM) ON ENTERPRISE RESOURCE PLANNING (E RP) SOFTWARE WHICH IS OWNED BY BST CONSULTANT INC. AND LICENSED TO ERM EUROPE LTD. TO BE USED BY ERM GROUP ENTITIES. ERM EUROPE HAS PR OVIDE THIS TRAINING TO IMPROVE AND STANDARDIZE THE QUANTITY OF PROJECT MANAGEMENT, FINANCIAL MANAGEMENT AND FINANCIAL REPO RTING THROUGH OUT THE ERM GROUP. FOR PROVIDING THIS TRAINING ERM EUROPE LTD. HAS ITA NO. 5394/DEL/2010 6 CHARGED USD 75000. THUS, LD. COMMISSIONER OF INCOME T AX (APPEALS) FOUND THAT THIS TRAINING DOES NOT RESULT INTO CREAT ION OR TRANSFER OF ANY RIGHT OR ASSET IN FAVOUR OF ERM INDIA PRIVATE LTD. I N WHAT SO EVER MANNER. IT HAS ALSO BEEN NOTED THAT THE OWNERSHIP O F THE ERP (ENTERPRISE RESOURCE PLANNING) SOFTWARE IS WITH BST CONSULTANTS INC. THE BST CONSULTANTS INC. HAS LICENSED THE SOFTWARE TO ERM EUROPE LTD. TO BE USED BY ERM GROUP ENTITIES. 10. IN THIS BACKGROUND, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS PASSED A REASONABLE ORDE R. IN OUR CONSIDERED OPINION, IT DOES NOT NEED ANY INTERFEREN CE. ACCORDINGLY, WE UPHOLD THE SAME. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/5/2011. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 27/5/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3.CIT 4.CIT (A) 5. DR, IT AT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES