Honda Siel Cars India Ltd, Greater Noida V. ACIT (LTU), New Delhi

ITA 5674/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7872 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 19-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIS GILL
• Assessee Lawyers: RUPESH J AIN; SHIKSHA VERMA
• Keywords: Depreciation; Royalty expenses; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5674/DEL/2011 ASSESSMENT YEAR : 2007-08 HONDA SIEL CARS INDIA ACIT, LTD., A-1, SECTOR-40/41, LTU, SURAJPUR KASNA ROAD, NEW DELHI. GREATER NOIDA. V. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AACH AACH AACH AACH- -- -1765 1765 1765 1765- -- -Q QQ Q APPELLANT BY : SHRI RUPESH JAIN & MS. SHIKSHA VERMA, C.A. RESPONDENT BY : SHRI R.I.S.GILL, CIT-DR. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A), LTU, NEW DELHI. THE GROUNDS RAISED BY THE ASSESSE E ARE AS UNDER:- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT U/S 143(3) READ WITH SEC. 144 C OF THE INCOME TAX ACT, 1961 VIDE ORDER DATED 28.10.20 11 AT AN INCOME OF ` .5,37,66,96,176/- AS AGAINST INCOME OF ` .3,95,15,21,538/- RETURNED BY THE APPELLANT. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN TREATING THE EXPENDITURE OF ` .136,98,96,997/- INCURRED DURING THE YEAR ON ITA NO../DEL/ 2 ACCOUNT OF ROYALTY PAID TO HONDA MOTOR CO. JAPAN (H ONDA) IN ACCORDANCE WITH THE TECHNICAL COLLABORATION AGREEME NT (TCA) AS CAPITAL EXPENDITURE FOLLOWING THE ASSESSMENT ORDERS OF E ARLIER YEARS. 2.1. WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION IN RESPECT O F THE AFORESAID EXPENDITURE INCURRED ON ACCOUNT OF ROYALTY DISALLOWE D AS CAPITAL EXPENDITURE. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING THE AMOUNT OF ` ,3,43,10,141/- BEING PROVISION FOR WARRANTY AND SALES SERVICE DEBITED TO THE P&L A/C ALL EGING THE SAME TO BE AN UNASCERTAINED LIABILITY. 3.1. WITHOUT PREJUDICE THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT REDUCING THE AMOUNT BEING THE PROVISION F OR WARRANTY MADE IN THE EARLIER YEARS AND WRITTEN BACK DURING TH E RELEVANT PREVIOUS YEAR. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING AN AMOUNT OF ` .1,71,80,600/- BEING THE COST OF AIR TICKETS BOOKED BY THE APPELLANT FOR TECHNICIANS AND F ORMING PART OF TECHNICAL GUIDANCE FEE, ALLEGING THE SAME TO BE C APITAL EXPENDITURE. 4.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE EXPENSES ON TRAVEL OF TECHNICIANS WA S THE LIABILITY OF THE HONDA. 4.2. WITHOUT PREJUDICE THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT ALLOWING DEPRECIATION IN RESPECT OF THE A FOREMENTIONED EXPENSES TREATED AS CAPITAL EXPENDITURE. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF ` .4,25,398/- U/S 43B OF THE ACT IN RESPECT OF ITA NO../DEL/ 3 ENTRY TAX PAID UNDER PROTEST, ALLEGING THE SAME TO BE AN UNASCERTAINED LIABILITY. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF ` .84,03,756/- BEING THE EXPENDITURE INCURRED ON SOFTWARE EXPENSES ALLEGING THE SAME TO BE C APITAL NATURE. 7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN CHARGING INTEREST U/S 234B, 234C & 234D OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN MANUFACTURING OF CARS AND SALE THEREOF. THE ASSESSEE CO MPANY IS A SUBSIDIARY OF M/S HONDA MOTOR CAR CO. M/S HONDA MOTOR CAR CO. LTD. JAPAN IS ENGAGED INTER ALIA IN THE BUSINESS OF DEVELOP MENT, MANUFACTURE AND SALE OF AUTOMOBILES AND THEIR PARTS. THE ASSESSEE COMPANY WAS DESIROUS OF OBTAINING AND RECEIVING LICENSE AND TECHNICAL ASSISTANCE FROM HONDA MOTOR CAR CO. JAPAN FOR THE MANU FACTURE AND SALE OF CERTAIN AUTOMOBILES AND THE LATTER WAS WILLING TO GIVE THE SAME AND IN VIEW OF THEIR WILLINGNESS THEY ENTERED INTO AN AGREEMENT AND STARTED MANUFACTURING OF CARS IN INDIA. FOR THE ASSESSMEN T YEAR 2007- 08, THE RETURN OF INCOME WAS FILED ON 27.10.2007 WHI CH WAS LATER REVISED ON 31.3.2009. THE CASE WAS SELECTED FOR SCRUTINY AND THE ACIT MADE CERTAIN ADDITIONS ON THE BASIS OF ADDITIONS MADE B Y THE ASSESSING OFFICER IN RESPECT OF EARLIER ASSESSMENT YEARS. THE ASSESSMENT WAS COMPLETED AFTER MAKING THE FOLLOWING ADD ITIONS:- 1. ROYALTIES ` .136,98,96,997/- 2. PROVISION FOR WARRANTY. ` . 3,43,10,141/- 3. AIR FAIR UNDER TECHNICAL GUIDANCE ` .1,71,80,600/-. 4. ENTRY TAX ` .4,25,398/- ITA NO../DEL/ 4 5. SOFTWARE EXPENSES. ` .33,61,502/.- 3. THE ASSESSING OFFICER HAS BEEN MAKING ADDITION TO THE INCOME OF ASSESSEE FOR ALL THE YEARS STARTING FROM 2001-02 TO 2006- 07. AS PER LD AR THE ASSESSEE HAD BEEN OBTAINING FAVOURABLE JUDGMENT FROM ITAT DELHI ON SIMILAR TYPE OF ADDITIONS MADE IN THE EARLIE R YEARS. HOWEVER, THE DEPARTMENT HAS BEEN FILING APPEAL IN RESPECT OF A LL THESE YEARS WITH HON'BLE DELHI HIGH COURT. 4. THE ASSESSMENT FOR THE PRESENT YEAR HAS BEEN COMPLETED KEEPING IN VIEW THE ADDITION MADE IN EARLIER YEARS. THE ADDITION MADE DURING THE PRESENT YEAR VIS-A-VIS PREVIOUS YEAR ALONG W ITH THE FINDINGS OF HON'BLE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 AND OUR FINDINGS ARE DISCUSSED IN THE FOLLOWING PARAGRAPHS. 5. THE FIRST GROUND OF APPEAL IS GENERAL IN NATURE AN D DO NOT REQUIRE ADJUDICATION. ROYALTY OF ROYALTY OF ROYALTY OF ROYALTY OF ` ` ` ` .136,98,96,97/ .136,98,96,97/ .136,98,96,97/ .136,98,96,97/- -- -: :: : THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE IN HIS SECOND GROUND OF APPEAL. THE RELEVANT PORTION OF LD CIT, LTU IS REPRODUCED BELOW. ON PERUSAL OF THE P& L ACCOUNT, IT IS SEEN THAT ASSESSEE HAD PAID AN AMOUNT OF ` .136,98,96,997/- AS ROYALTY TO M/S HONDA CO. LTD., JAPAN FOR PROVIDING TECHNICAL KNOW HOW AND PR OVIDING ASSISTANCE IN PRODUCTION OF ITS PRODUCTS. SINCE THIS AMOU NT HAS BEEN PAID WITH RESPECT TO COLLABORATION AGREEMENT DA TED APRIL, 2005, THE PAYMENT APPEARED TO BE OF CAPITAL EXPENDI TURE AS AGAINST REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE. IN THE EARLIER YEAR, THIS PAYMENT HAS BEEN TREATED AS CAPI TAL ITA NO../DEL/ 5 EXPENDITURE IN VIEW OF THE FACTS MENTIONED IN DETAI LS IN THE ORDERS FOR EARLIER ASSESSMENT YEARS. ACCORDINGLY, THE ASSE SSEE WAS ASKED TO EXPLAIN AS TO WHY EXPENDITURE CLAIMED UND ER THE HEAD BE NOT TREATED AS CAPITAL EXPENDITURE. IN RESPON SE THE ASSESSEE SUBMITTED A NOTE ON IT AND CONTENDED THAT IT IS A REVENUE EXPENSE. THEREAFTER THE ASSESSEE FILED AN ORDER OF HON'BLE ITAT DATED 16.5.2008 FOR ASSESSMENT YEAR 2003- 04 IN ITS OWN CASE -------- WITH DUE REGARD TO THE FINDINGS OF THE ITAT THE DEPARTMENT HAS FILED AN APPEAL BEFORE HON'BLE HIGH C OURT AT ALLAHABAD ON 10.11.2008 AND NOW BEFORE HON'BLE DELH I HIGH COURT ALSO AGAINST THE ORDER OF ITAT FOR THE TREATMEN T OF ROYALTY EXPENSES AS REVENUE IN NATURE. CONSIDERING THE FACTS AS MENTIONED IN THE EARLIER YEAR IN THE CASE OF THE ASSESSE E AND NATURE OF PAYMENT TOWARDS ROYALTY MADE TO HMCL UNDER THE NEW TCA WHICH IS SIMILAR TO THE PAYMENTS MADE UNDER THE OL D TCA, THE EXPENSE IS TREATED AS CAPITAL IN NATURE. 6. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THIS TRIB UNAL. 7. THE LD AR ARGUED BEFORE US THAT THIS POINT IS COVE RED BY THE ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2006-07. IN THIS R ESPECT HE TOOK US TO PAGE 166-167 OF PAPER BOOK WHEREIN RELEVANT PA RAGRAPHS RELATING TO DELETION OF ADDITION ON THIS GROUND WERE PLACED. THE LD AR BROUGHT TO OUR NOTICE THAT AGREEMENT FOR EARLIER YE AR AND THIS YEAR ARE SAME AND THERE IS NO CHANGE IN THE FACTS AND THEREFORE THE DEDUCTION SHOULD BE ALLOWED AS IN THE PREVIOUS YEAR. 8. THE LD DR RELIED UPON THE ORDER OF ACIT. ITA NO../DEL/ 6 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2006-07 IN I.T.A. NO.2372/DEL/2011 DATED 22.7.2011, IT IS SEEN THAT GRO UND NO.1 RELATED TO DISALLOWANCE WITH RESPECT TO TECHNICAL KNOW HOW AN D ROYALTY, THE HON'BLE TRIBUNAL HAS FOLLOWED EARLIER TRIBUNAL ORDER RELATING TO ASSESSMENT YEAR 2001-02, 2002-03 & 2003-04 AND HAD DECI DED IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE CASE REMAIN SAME AS IN THE EARLIER YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, THE MATTER IS DECIDED AGAINST THE REVENUE IN THIS YEAR ALSO. THEREFORE, GROUND NO.2 IS DECIDED IN FAVOUR OF THE ASSESSEE. PROVISION FOR WARRANTY: PROVISION FOR WARRANTY: PROVISION FOR WARRANTY: PROVISION FOR WARRANTY: 10. THE THIRD GROUND OF APPEAL RELATES TO DISALLOWANC E OF AN AMOUNT OF ` .3,43,10,141/- BEING PROVISION FOR WARRANTY AND SALES SERVICES DEBITED TO THE P&L ACCOUNT ALLEGING THE SAME TO BE U N-ASCERTAINED LIABILITY. THE RELEVANT PORTION OF LD CIT, LTU IS R EPRODUCED BELOW. IT IS PERTINENT TO MENTION THAT HON'BLE ITAT HAD AL LOWED IT AS ASCERTAINED LIABILITY WHEREAS THE VIEW OF THE DEPARTM ENT IS THAT IT IS AN UN-ASCERTAINED LIABILITY. THEREFORE, WITH DU E REGARD TO THE FINDINGS OF ITAT, THE DEPARTMENT HAS FILED AN APPEAL BEFORE HON'BLE HIGH COURT AT ALLAHABAD ON 10.11.2008 AGAIN ST THE ORDER OF THE TRIBUNAL AND ALSO BEFORE HON'BLE DELHI HIGH C OURT IN SUBSEQUENT YEARS. THE ASSESSEE HAS IN HIS REPLY ALSO SUBMITTE D THAT INCREMENTAL PROVISION FOR THE RELEVANT ASSESSMENT Y EAR WORKS OUT AT ONLY ` .25,09,345/-. THE SUBMISSION OF THE ASSESSEE HAS BEEN EXAMINED IN DETAIL AND IT IS FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF ` .3,43,10,141/- IN THE P&L ACCOUNT AND THE ITA NO../DEL/ 7 CLAIM OF WORKING OF INCREMENTAL WARRANTY PROVISION I S A DEFERMENT OF TAX LIABILITY TO NEXT YEAR. HENCE, TH E SUBMISSION OF THE ASSESSEE IS NOT ACCEPTABLE. THE ADDITION OF ` .3,43,10,141/- WAS PROPOSED IN THE DRAFT ASSESSMENT ORDER U/S 144C OF T HE ACT AND THE DRP VIDE ITS ORDER DATED 14.9.2011 HAS DECLIN ED TO INTERFERE IN THIS MATTER. AS SUCH A SUM OF ` .3,43,10,141/- DEBITED TO THE P&L ACCOUNT IS ADDED TO THE TOTAL INCOME OF T HE ASSESSEE. THE LD AR ARGUED BEFORE US THAT THIS POINT IS COVERED BY THE HON'BLE TRIBUNAL ORDER FOR ASSESSMENT YEAR 2006-07. IN THIS RESPECT, HE TOOK US TO PAGE 168 OF THE PAPER BOOK WHE REIN RELEVANT PARAGRAPHS OF TRIBUNAL ORDERS WERE PLACED. THE LD AR BROUGHT TO OUR NOTICE THAT THE FACTS OF THE PRESENT CASE ARE SAME AS IN THE PRECEDING YEAR AND THEREFORE EARLIER ORDER OF THE TRIBUNAL SHOULD BE FOLLOWED. 11. THE LD DR RELIED UPON THE ORDER OF ACIT. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2006-07, IT IS SEEN THAT GROUND NO.4 RELATED TO DISALLOWANCE WITH RESPECT TO WARRANTY CLAIM. THE TRIBUNAL HAD FOLLOWED ITS EARLIER ORDER FOR ASSESSMENT Y EARS 2001-02 TO 2005-06 AND HAD DECIDED IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE PRESENT REMAIN THE SAME AS IN THE EARLIER YEAR. RESPECT FULLY FOLLOWING THE ORDER OF ITAT, THE MATTER IS DECIDED AGAINST THE REVENUE FOR THIS YEAR ALSO. THEREFORE, GROUND NO.3 IS DECIDED IN FAVOU R OF THE ASSESSEE. DISALLOWANCE OF AMOUNT OF DISALLOWANCE OF AMOUNT OF DISALLOWANCE OF AMOUNT OF DISALLOWANCE OF AMOUNT OF ` ` ` ` .1,71,80,600/ .1,71,80,600/ .1,71,80,600/ .1,71,80,600/- -- -. . . . 13. THIS GROUND HAS BEEN TAKEN BY THE ASSESSEE AS 4 TH GROUND OF APPEAL. THE ASSESSING OFFICER HAD DISALLOWED A SUM OF ` .1,71,80,600/- ITA NO../DEL/ 8 BEING COST OF AIR TICKET BOOKED BY THE APPELLANT FOR TECHNICIANS AND FORMING PART OF TECHNICAL GUIDANCE PE ALLEGING THE SAME TO BE OF CAPITAL EXPENDITURE. THE LD AR BROUGHT BEFORE OUR NOTICE PA GE 170 OF THE PAPER BOOK WHEREIN RELEVANT PARAGRAPHS OF ORDER OF T RIBUNAL FOR ASSESSMENT YEAR 2006-07 WAS PLACED. THE LD AR ARGUED THA T FACTS OF THE PRESENT CASE ARE SIMILAR AS IN THE PRECEDING YEAR A ND THEREFORE EARLIER ORDER OF TRIBUNAL SHOULD BE FOLLOWED. 14. THE LD DR RELIED UPON THE ORDER OF ACIT. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2006-07, IT IS SEEN THAT GROUND NO. 6 RELATED TO DISALLOWANCE OF AIR TICKET IN THE P RECEDING YEAR. THE HON'BLE TRIBUNAL HAD FOLLOWED ASSESSMENT YEAR 2005-06 AND HAD DECIDED IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE PRE SENT CASE REMAIN THE SAME AS IN THE EARLIER YEAR. RESPECTFULLY FOLLOWING THE ORDER OF THE ITAT, THE MATTER IS DECIDED AGAINST THE REVENUE IN THIS YEAR ALSO. THEREFORE, GROUND NO.4 IS DECIDED IN FAVOU R OF THE ASSESSEE. DISALLOWANCE OF DISALLOWANCE OF DISALLOWANCE OF DISALLOWANCE OF ` ` ` ` .4,25,398/ .4,25,398/ .4,25,398/ .4,25,398/- -- -.: .:.: .: 16. THE ASSESSING OFFICER HAD MADE THE ADDITION OF ABOV E AMOUNT CONSIDERING THE SAME TO BE UN-ASCERTAINED LIABILITY. T HE ASSESSEE HAD PAID THIS AMOUNT AS ENTRY TAX ON PROVISIONAL BASIS AND U NDER PROTEST. THIS POINT WAS PART OF CROSS OBJECTION FILED BY THE ASS ESSEE IN THE ASSESSMENT YEAR 2006-07. THE HON'BLE TRIBUNAL HAD HELD THAT THE ENTRY TAX PAID BY THE ASSESSEE UNDER PROTEST AND PROVISIO NAL IS IMMATERIAL BECAUSE IT HAS BEEN PAID ON THE BASIS OF RU LES AND REGULATIONS UNDER THE RELEVANT STATUTE. ACCORDINGLY, IT WAS HELD THAT ITA NO../DEL/ 9 THE ASSESSEE WAS ENTITLED TO DEDUCT THIS AMOUNT IN COMPUT ING INCOME. THE FINDINGS OF THE TRIBUNAL ARE PLACED AT PAGE 175 OF THE PAPER BOOK. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE ALSO HOLD THAT PAYMENT IS DEDUCTIBLE EXPENDITURE AND THEREFORE GROU ND NO.5 OF THE APPEAL IS ALLOWED. DISALLOWANCE OF DEDUCTION ON ACCOUNT OF SOFTWARE E XPENSES DISALLOWANCE OF DEDUCTION ON ACCOUNT OF SOFTWARE E XPENSES DISALLOWANCE OF DEDUCTION ON ACCOUNT OF SOFTWARE E XPENSES DISALLOWANCE OF DEDUCTION ON ACCOUNT OF SOFTWARE E XPENSES 17. THIS GROUND OF APPEAL HAS BEEN TAKEN BY THE ASSESSEE AS GROUND NO.6 OF APPEAL. THE ASSESSING OFFICER HAD DISALLOWED A SU M OF ` .33,61,502/- BEING EXPENSES INCURRED ON SOFTWARE ALLEG ING THE SAME TO BE CAPITAL NATURE. THE ADDITION WAS MADE AFTER DI SALLOWING EXPENDITURE OF ` .84,03,756/- AND TREATING IT AS CAPITAL EXPENDITURE AND THEN ALLOWING DEDUCTION @ 60%, THUS MAKING A NET DI SALLOWANCE OF ` .33,61,502/-. THE ADDITION WAS MADE FOR THE FOLLOWIN G REASONS:- A) THE SOFTWARE IS AN ASSET DEFINED IN APPENDIX-I OF INCOM E TAX RULES WHEREIN RATES OF DEPRECIATION ARE PROVIDED. B) THE SOFTWARE ONCE PURCHASED IS USED FOR A LONG TIME I.E . LOTUS WORD, PRO SIMILAR TO MS OFFICE SOFTWARE WAS PURCHASED BY INCOME TAX DEPARTMENT IN 1994 ALONG WITH NEW COMPUT ERS AND THE SAME WAS USED BY THE DEPARTMENT IN 2002. IT WAS ONL Y CHANGED WHEN NEW COMPUTERS WERE AGAIN ACQUIRED SINCE THEN THE DEPARTMENT IS USING THE SAME MS SOFTWARE. THIS SHOWS T HAT MS SOFTWARE IS NOT REQUIRED TO BE CHANGED FREQUENTLY AND GIVE BENEFIT OF ENDURING NATURE. C) THE ITAT IN THE CASE OF AM WAY INDIA ENTERPRISES (208 ) 111 ITD 112 (DEL.) HAS PRESCRIBED THREE CONDITIONS FOR TREATIN G THE SOFTWARE AS CAPITAL EXPENDITURE AND ALL THESE THREE C ONDITIONS VIS UTILITY TEST; OWNERSHIP TEST AND FUNCTIONAL TEST ARE SA TISFIED IN THE ITA NO../DEL/ 10 ASSESSEES CASE. DIRECTION OF DRP U/S 144(5) OF THE ACT DID NOT INTERFERE WITH THE PROPOSED ACTION OF ASSESSING OFFICER BECAUSE OF FOLLOWING REASONS:- 1) THE MS SOFTWARE IS OUT-RIGHT PURCHASE BY THE ASSESSEE FROM THE VENDOR AND IT HAS NOT A SHORT SPAN OF TWO YEA RS OR LESS. 2) THE SOFTWARE ACQUIRED FROM HMCL JAPAN ALSO DO NOT HAV E SHORT SPAN, IT WILL BE CONTINUED TO BE HELD BY THE A SSESSEE SO AS LONG AS THE AGREEMENT WITH HMCL JAPAN CONTINUED. 3) AS REGARDS THE OWNERSHIP, WE ARE OF THE VIEW THAT DURI NG CURRENCY OF THE AGREEMENT THE ASSESSEE IS THE CO-OWNER O F SOFTWARE ACQUIRED FROM HMCL JAPAN. SECTION 32(1)(II) AS ENVISAGED SUCH OWNERSHIP FOR WHICH DEPRECIATION IS ALLOWABLE UNDER THE ACT. 18. THE LD AR BROUGHT BEFORE OUR NOTICE A JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY G LASS LTD. 245 CTR 529 WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED ON APPELLANTS SOFTWARE IS AN ALLOWABLE REVENUE DEDUCTION. 19. THE LD DR RELIED ON THE ORDER OF ACIT. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PA RTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD AND THE CITATION RELIED UPON BY THE LD AR. THE HON'BLE HIGH COURT H AD OBSERVED THAT WHAT IS REQUIRED TO BE SEEN IS THE REAL INTENT AND PUR POSE OF EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CR EATION OF FIXED ASSETS FOR THE ASSESSEE. THE HON'BLE COURT FURTHER OBSERVE D THAT EXPENDITURE WHICH IS INCURRED AND WHICH ENABLES THE P ROFIT MAKING ITA NO../DEL/ 11 STRUCTURE TO WORK MORE EFFICIENTLY LEAVING THE SOURCE OF PROFIT MAKING UN-TOUCHED WOULD BE THE EXPENSE IN THE NATURE OF REV ENUE EXPENDITURE. THE HON'BLE COURT HELD THAT EXPENDITUR E INCURRED BY THE ASSESSEE ON SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE M ORE SO AS THE SOFTWARE PURCHASED BY THE ASSESSEE WAS AN APPLICATION SOFTWARE WHICH ENABLED IT TO EXECUTE TASK IN THE FIELD OF ACC OUNTING, PURCHASES AND INVENTORY MAINTENANCE. THE SAID EXPENDITURE CA NNOT BE TREATED AS CAPITAL EXPENDITURE MERELY FOR THE REASON THAT THE ASSESSEE HAD NOT WRITTEN OFF THE IMPUGNED EXPENSE IN ITS BOOKS OF ACCOU NTS IN THE FIRST YEAR AND HAS WRITTEN ONLY A PART OF THE EXPENSES IN TH E SUCCEEDING YEAR. RESPECTFULLY FOLLOWING THE ORDER OF HON'BLE DE LHI HIGH COURT WE ALSO HOLD THAT SOFTWARE EXPENSES INCURRED BY THE ASSESSEE A RE REVENUE IN NATURE AND THEREFORE GROUND NO.6 OF THE APPEAL I S ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 21. GROUND NO.7 WITH RESPECT TO CHARGING OF INTEREST U/S 234B, 234C & 234D ARE CONSEQUENTIAL IN NATURE AND DO NOT REQUIR E ADJUDICATION AT THIS POINT OF TIME. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED. 23. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15TH DAY OF JUNE, 2012. SD/- SD/- (R.P. TOLANI) (T.S. KAP OOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 15.6.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT ITA NO../DEL/ 12 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 17.5.2012 DATE OF DICTATION DATE OF TYPING 6..6.2012 DATE OF ORDER SIGNED BY 15.6.2012 BOTH THE MEMBERS & 25.6.2012 PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 25.6.2012 & SENT TO THE BENCH CONCERNED.