DCIT 10(1), MUMBAI V. ONWARD E SERVICES LTD, MUMBAI

ITA 5606/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2520 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 05-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DARSI SUMAN RATNAM
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 5606/MUM/2014 ASSESSMENT YEAR: 2008-09 THE DCIT - 10(1), 455, 4 TH FLOOR, AAYKAR BHAVAN, M.K.MARG, MUMBAI- 400 020. VS. M/S. ONWARD E - SERVICES LTD. STERLING CENTRE, 2 ND FLOOR, DR. A.B. MARG, WORLI, MUMBAI- 400 018. PAN- AAACO6297N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. DR.DARSI SUMAN RATNAM RESPONDENT BY : SHRI. PARESH SHAPARIA DATE OF HEARING: 09/06/2016 DATE OF PRONOUNCEMENT: 20/07/2016 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST ORDER DATED 26/06/2014 PASSED BY THE LD. CIT (APPEALS)-21, MUMB AI FOR THE ASSESSMENT YEAR 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE E NGAGED IN THE BUSINESS OF DEVELOPMENT AND TRADING IN SOFTWARE, HARDWARE, ALLI ED SOFTWARE AND IT ENABLED SERVICES, FILED ITS RETURN OF INCOME DECLARING THE TOTAL INCOME AS NIL. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE ALSO SUBMIT TED REVISED STATEMENT OF TOTAL INCOME DURING THE ASSESSMENT PROCEEDINGS. 2 ITA NO. 5606/MUM/2014 ASSESSMENT YEAR: 2008-09 3. AFTER VERIFICATION, IN THE LIGHT OF THE SUBMI SSIONS OF THE ASSESSEE, THE AO INTER ALIA MADE DISALLOWANCE OF RS. 2,30,08,887/-, CAPITALIZE D BY THE ASSESSEE UNDER THE HEAD R & D EXPENDITURE AND CLAIMED AS DEDUCTION U/S 35(1)(I) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT), IN T HE COMPUTATION OF INCOME AND ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS. 3, 40,73,336/-. ACCORDINGLY, THE AO IMPOSED MINIMUM PENALTY OF RS. 78,20,721/-. THE PENALTY ORDER WAS CHALLENGED BEFORE THE CIT(A). THE LD. CIT (A), FOLL OWING THE ORDER OF THE LD. CIT(A) PASSED IN ASSESSEES OWN CASE FOR THE A.Y. 2 007-08, CANCELLED THE PENALTY AFORESAID. THE REVENUE IS IN APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLLOWING EFFECTIVE GROUND OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING PENALTY AMOUNTING TO R S. 78,20,721/- LEVIED BY THE A.O. U/S 271(1)(C) OF THE I.T. ACT, 1961 ON THE DISALLOWANCE BEING, R&D EXPENDITURE OF RS. 2,30,08, 887/- 4. BEFORE US THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE LD. CIT(A) WRON GLY CANCELLED THE PENALTY IMPOSED BY THE AO. THE AUTHORIZED REPRESENTATIVE (A R) ON THE OTHER HAND SUBMITTED THAT SINCE THE LD. CIT(A) HAS PASSED THE IMPUGNED ORDER FOLLOWING THE ORDER PASSED BY THE CIT(A) IN ASSESSEES OWN CA SE FOR THE ASSESSMENT YEAR 2007-08 AND THE SAID ORDER HAS BEEN CONFIRMED BY TH E ITAT IN ITA NO 5331/ M/2013, THEREFORE, THE APPEAL FILED BY THE REVENUE IS LIABLE TO BE DISMISSED. 5. WE HAVE HEARD THE RIVAL CONTENTION AND GONE TH ROUGH THE ENTIRE MATERIAL PLACED ON RECORD. WE NOTICE THAT IN PENALTY APPEAL ITA NO. 5331/MUM/2013 FOR THE A.Y. 2007-08 FILED BY THE REVENUE IN ASSESS EES OWN CASE HAS BEEN DISMISSED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL HOLDING AS UNDER:- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. FACTUALLY SPEAKING, THE EXPENDITURE OF RS. 2,93,13,061/- WAS INCURRED BY 3 ITA NO. 5606/MUM/2014 ASSESSMENT YEAR: 2008-09 THE ASSESSEE ON DEVELOPMENT OF SOFTWARE UTILIZED FO R THE PURPOSE OF PROVIDING SERVICES TO ITS CLIENTS. IT HAS A HOST OF SOFTWARE PRODUCTS IN THE TOTAL BRANCH AUTOMATION (TBA) AND C ORE BANKING ACTIVITIES. IT WAS EXPLAINED THAT SUCH TBA APPLICAT IONS WHICH ARE DEVELOPED BY THE ASSESSEE ARE SUCCESSFULLY RUNNING ACROSS 4000 BRANCHES OF VARIOUS BANKS. THE ENRICHMENT OF SUCH P RODUCT IS AN ONGOING PROCESS IN TERMS OF WHICH ASSESSEE REVIEWS VARIOUS FEATURES AND MODULES OF THE SOFTWARE SO AS TO MODIF Y/UPDATE THEM. THE ASSESSEE IDENTIFIED THE COST INCURRED ON SUCH EXERCISE AT RS. 2,93,13,061/- AND CAPITALIZED THE SAME AS R &D EXPENDITURE PROVIDED BENEFITS IN THE FORM OF INCRE ASED REVENUES IN THE CURRENT AS WELL AS FUTURE YEARS. SO HOWEVER, THE ASSESSEE EXPLAINED THAT IN THE INCOME TAX RETURN THE SAME WA S CLAIMED AS REVENUE EXPENDITURE BECAUSE NO NEW ASSET CAME INTO EXISTENCE BY INCURRENCE OF SUCH EXPENDITURE. IT WAS ALSO POIN TED OUT, AND WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) IN HIS ORDER IN PARA 2.2, THAT SUCH EXPENDITURES BEING SALARIES, BOOKS A ND PERIODICALS, TRAVELLING, STAFF WELFARE, TELEPHONE E XPENSES, ETC. WERE IN THE NATURE OF REVENUE EXPENDITURE ENTITLED FOR DEPRECIATION @ 60% AND IN THE PRESENT WE ARE NOT CO NCERNED WITH THE MERITS OF THE CLAIM OF THE ASSESSEE OF SUCH EXP ENDITURE BEING REVENUE IN NATURE. THE ONLY ASPECT THAT IS TO BE AD DRESSED IS AS TO WHETHER PENALTY UNDER SECTION 271(1)(C) OF THE A CT IS ATTRACTED OR NOT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1 IN THIS CONTEXT, IT IS NOTICEABLE THAT THE AREA OF DIFFERENCE BETWEEN ASSESSEE AND THE REVENUE IS MERELY THE NATU RE OF EXPENDITURE I.E. WHETHER IT IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. THE FACTUAL MATRIX OF THE CASE CLEARLY BRINGS OUT THAT SO FAR AS THE FURNISHING OF THE PARTICULARS OF EXPE NDITURE IS CONCERNED NONE WAS FOUND TO BE FALSE OR OTHERWISE W RONG. 4 ITA NO. 5606/MUM/2014 ASSESSMENT YEAR: 2008-09 THEREFORE, IN OUR VIEW UNLESS THE PARTICULARS WITH RESPECT TO THE CLAIM MADE BY THE ASSESSEE ARE FOUND TO BE FALSE, I T WOULD BE IMPROPER TO BRING SUCH A CLAIM WITHIN THE PURVIEW O F SECTION 271(1)(C) OF THE ACT ON ACCOUNT OF FURNISHING INACC URATE PARTICULARS. THE AFORESAID PROPOSITION IS WELL SUPP ORTED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF R ELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158(SC). IT IS ALSO A WELL SETTLED PROPOSITION THAT THE ASSESSMENT PROCEEDINGS AND THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ARE INDEPENDENT PROCEEDINGS AND THAT THE FINDING IN THE COURSE OF ASSESSMENT PROCEEDINGS WOULD NOT IPSO-FACTO DETERMINE THE LEVI ABILITY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT ALTHOUGH SUCH A FINDING MAY CARRY PERSUASIVE VALUE. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEES CLAIM OF TREATING THE EXPENDITURE AS REV ENUE EXPENDITURE HAS MERELY BEEN DIFFERED WITH BY THE RE VENUE AND IT IS NOT A CASE WHERE THE CLAIM OF THE ASSESSEE WAS F OUND TO BE INGENUINE. MOREOVER, LD. CIT(A) HAS ALSO REFERRED TO VARIOUS DECISIONS TO POINT OUT THAT THE ISSUE WHETHER SOFTW ARE EXPENDITURE IS TO BE REGARDED AS REVENUE OR CAPITAL EXPENDITURE DEPENDS ON FACTS AND CIRCUMSTANCES OF A PARTICULAR CASE AND IS A DEBATABLE ISSUE WHICH DOES NOT JUSTIFY THE IMPOSITI ON OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS ASPECT OF THE MATTER IS QUITE WELL APPRECIATED BY LD. CIT(A). 6.2 CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTA NCES OF THE CASE AND THE AFORE SAID DISCUSSION, WE HEREBY AFFIR M THE ORDER OF LD. CIT(A) DELETING THE PENALTY LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE ACT. 6. SINCE, IN THE IDENTICAL ISSUE IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2007-08, THE FINDINGS OF THE LD. CIT(A) HAS BEEN UP HELD BY THE COORDINATE 5 ITA NO. 5606/MUM/2014 ASSESSMENT YEAR: 2008-09 BENCH AND THE IMPUGNED ORDER PASSED BY THE LD. CIT( A) IS IN ACCORDANCE WITH THE DECISION RENDERED BY THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08 AFORESAID, THERE IS NO SCOPE TO INTERFERE WITH THE IMPUGNED ORDER. IN OUR CONSIDERED OPINION THE ORDER PASSED BY THE LD. CIT (A) DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. HENCE, RESPECTFULLY FOLLOWING THE DECISION RENDERED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2007-08, WE UPHOLD THE IMPUGNED ORDER AND DISMISS THE APPEAL FI LED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE FOR THE ASST. YEAR 2008-09 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COUR T ON 20 TH JULY, 2016 SD/- SD/- ( B.R.BASKARAN ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED: 20/07/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA