Dy. CIT, Circle 1(1), Pune V. CC Engineers Pvt. Ltd., Pune

ITA 575/PUN/2013

• Counselvise Citation: 57524514 RSA 2013
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S B WALIMBE
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.575/PN/2013 (ASST. YEAR: 2008-09) DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE APPELLANT VS. CC ENGINEERS PVT. LTD., 1087, B, HARE KRISHNA MANDIR ROAD, MODEL COLONY, SHIVAJI NAGAR, PUNE - 411016. PAN:AAACC7557P RESPONDENT C.O NO.78/PN/2013 (ARISING OUT OF ITA NO.575/PN/2013) (ASST. YEAR: 2008-09) CC ENGINEERS PVT. LTD., 1087, B, HARE KRISHNA MANDIR ROAD, MODEL COLONY, SHIVAJI NAGAR, PUNE - 411016. PAN:AAACC7557P CROSS OBJECTOR VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), PUNE APPELLANT DEPARTMENT BY : SHRI S.B. WALIMBE ASSESSEE BY : SHRI S.N. PURANIK DATE OF HEARING : 28.11.2013 DATE OF PRONOUNCEMENT : 29.11.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM: THIS APPEAL HAS BEEN FILED BY REVENUE AND CROSS OB JECTIONS BY ASSESSEE ARISING FROM THE ORDER OF CIT(A)-I, PUN E DATED 24-12- 2012 FOR THE A.Y. 2008-09 ON THE FOLLOWING GROUNDS. 2 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN DECIDING THE APPEAL IN RELATION TO THE ASS ESSEE'S ALLEGED CLAIM OF RS.21,75,076/- UNDER THE HEAD PROD UCT DEVELOPMENT EXPENSES, IN ITS FAVOUR WITHOUT APPRECI ATING THAT THE ASSESSEE HAD NOT MADE THE ABOVE CLAIM IN THE RETURN OF INCOME AND, INSTEAD, HAD ADDED BACK T HE SUM OF RS.21,75,076/- TO ITS INCOME. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN ALLOWING RELIEF ON AN ISSUE WHICH DID NOT FORM PART OF THE GROUNDS OF APPEAL AND WHICH ALSO DID NOT EME RGE FROM THE GROUNDS OF APPEAL IN ANY MANNER. 4. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) GRO SSLY ERRED IN GRANTING THE ASSESSEE RELIEF IN EXCESS OF THE RELIEF CLAIMED BY THE ASSESSEE. 5. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ALSO GROSSLY E RRED IN NOT TAKING COGNIZANCE OF THE FACTS THAT THE ASSESSE E HAD NOT SHOWN ANY ASSET SUCH AS THE ASSEMBLER EITHER IN THE BLOCK OF ASSETS OR IN THE BALANCE-SHEET AND, THEREF ORE, THE ASSESSING OFFICER HAD CORRECTLY DISALLOWED THE ASSE SSEE'S CLAIM OF DEPRECIATION ON THE SAID ASSET. 6. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX(APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY OR ALL THE GROUNDS OF APPEAL. 2. AT THE OUTSET OF HEARING, LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVER ED BY ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 AN D 2006-07 TRIBUNAL IN A.Y. 2006-07 HAS DECIDED THIS ISSUE BY OBSERVING AS UNDER: 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE FIND THAT THE SUBSTANTIVE ISSUE RAISED BY THE ASSES SEE HAS BEEN A SUBJECT-MATTER OF CONSIDERATION BY OUR CO-OR DINATE BENCH IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEA R 2004- 05 WHEREIN THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE 3 ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL AS CONTAINED IN PARA 7 OF THE ORDER (SUPRA) ARE EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE AND BREVITY: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. IN THIS CASE, THE FACTUAL ASPECTS OF THE EXPENDITURE DEARLY BRING OUT THAT THE ASSEMBLER PROGRAM IS BEING USED BY THE ASSESSEE TO CREATE E- LEARNING PRODUCTS, WHICH IT IS ULTIMATELY SELLING IN THE MARKET. EVIDENTLY, THE ASSEMBLER PROGRAM IS NOT A P ART OF THE SOFTWARE WHICH IS SOLD TO THE CUSTOMER, BUT IT IS A PROGRAM DEVELOPED BY THE ASSESSEE SO AS TO MANUFACTURE OR, CREATE ITS END PRODUCTS, WHICH ARE SOLD TO THE CUSTOMERS. IT IS ALSO EVIDENT THAT THE ASSES SEE IS INVOLVED IN THE ACTIVITIES IN THE FIELD OF COMPUTER BASED E-LEARNING PRODUCT DEVELOPMENT OR IN OTHER WORDS I N DEVELOPING AND SELLING E-LEARNING PRODUCTS. THE DI SPUTE RELATES TO THE EXPENDITURE INCURRED BY THE ASSESSE E IN DEVELOPING THE ASSEMBLER PROGRAM WHICH IT USES TO CREATE AND MANUFACTURE THE ULTIMATE E-LEARNING PROD UCT BEING SOLD IN THE MARKET. THE ASSESSES INCURRED A S UM OF RS. 1,08,75,377/- ON DEVELOPMENT OF ASSEMBLER PROGRAM AND SUCH EXPENDITURE WAS INCURRED OVER A PERIOD OF TIME. THE ASSESSEE STARTED USING THE ASSEMBLER PROGRAM DURING THE YEAR UNDER CONSIDERATION. SINCE THE SAID PROGRAM DOES NOT OU TLIVE ITS UTILITY WITHIN THE INSTANT ASSESSMENT YEAR, ASS ESSEE CLAIMED PROPORTIONATE DEDUCTION OF THE EXPENDITURE OUT OF THE TOTAL EXPENDITURE RELATABLE TO THE PERIOD UN DER CONSIDERATION. AS PAR THE ASSESSES, THE EXPENSES ON ASSEMBLER PROGRAM WAS TO BE WRITTEN OFF OVER A PERI OD OF 60 MONTHS. THE FIRST AND FOREMOST QUESTION TO B E EXAMINED IS WHETHER THE EXPENDITURE ON DEVELOPMEN T OF THE ASSEMBLER PROGRAM IS A REVENUE EXPENDIT URE OR CAPITAL EXPENDITURE. AS PER THE COMMISSION ER OF INCOME-TAX (APPEALS), THE ASSEMBLER PROGRAM HAS PROVIDED AN ENDURING BENEFIT AND SUCH BENEFIT IS I N CAPITAL FIELD AND, THEREFORE, EXPENDITURE INCURRED ON ITS DEVELOPMENT IS CAPITAL EXPENDITURE. NO DOUBT THE EXPENDITURE INCURRED ON DEVELOPMENT OF ASSEMBLER PROGRAM PROVIDES A BENEFIT TO THE ASSESSEE OVER A P ERIOD OF TIME EXTENDING BEYOND THE INSTANT ASSESSMENT YEA R. SO, HOWEVER, IN OUR CONSIDERED OPINION, SUCH BENEFI T IS IN THE REVENUE FIELD UND NOT IN THE CAPITAL FIELD. AS CONTENDED, THE ASSEMBLER PROGRAM IS BEING USED BY T HE ASSESSEE IN THE COURSE OF DEVELOPING THE E-LEARNING PRODUCTS, WHICH ARE ULTIMATELY BEING SOLD TO THE CUSTOMERS. THUS, THE ASSEMBLER PROGRAM FACILITATES THE TRADING ACTIVITY AND THE BENEFIT ACCRUES TO THE ASS ESSES 4 FROM SUCH PROGRAM IS TO BE SEEN IN THE REVENUE FIEL D. THEREFORE, IN SUCH A SITUATION FOLLOWING THE JUDGME NT OF THE HON'BLE SUPREME COURT IN THE CASE OF EMPIRE JUT E COMPANY LTD. 124 ITR 1 (SC) WHERE THE EXPENDITURE I S OF ENDURING NATURE, BUT THE SAME IS IN THE REVENUE FIELD, SUCH EXPENDITURE IS ALLOWABLE AS A REVENUE EXPENDIT URE. FOLLOWING THE PARITY OF REASONING, THE EXPENDITURE IN QUESTION IS LIABLE TO BE REGARDED AS A REVENUE EXPENDITURE. WE MAY ALSO REFER TO THE JUDGMENT OF T HE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V BHOR INDUSTRIES LTD. 264 ITR 180 (BOM) FOR THE PROPOSITION (HAT SUCH EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS TO BE ALLOWED,, NOTWITHSTANDING THAT THE ASSESSEE HAS WRITTEN IF OFF IN THE BOOKS OF ACCOUNT OVER A PERIO D OF YEARS. FOLLOWING THE AFORESAID PRECEDENTS, AND HAVI NG REGARD TO THE NATURE OF THE EXPENDITURE IN QUESTION , WE UPHOLD THE CLAIM OF THE ASSESSEE OF TREATING THE IMPUGNED EXPENDITURE AS A REVENUE EXPENDITURE DEDUCTIBLE WHILE COMPUTING THE BUSINESS INCOME. ACCORDINGLY, THE ASSESSEE SUCCEEDS ON THIS ASPECT.' IN VIEW OF THIS ADMITTED POSITION AND IN VIEW OF TH E FACT THAT THE SAID DECISION OF THE TRIBUNAL CONTINUES TO HOLD THE FIELD, FOLLOWING THE PRECEDENT, WE UPHOLD THE C LAIM OF THE ASSESSES OF TREATING THE IMPUGNED EXPENDITUR E AS A REVENUE EXPENDITURE DEDUCTIBLE WHILE COMPUTING TH E BUSINESS INCOME. ACCORDINGLY, THE ASSESSEE SUCCEEDS ON THIS ASPECT. 4. SINCE THE ASSESSES HAS SUCCEEDED ON ITS MAIN ASPECT OF THE DISPUTE, THE ALTERNATIVE PLEA REGARDI NG THE CLAIM OF DEPRECIATION ON SUCH EXPENDITURE IS RENDER ED ACADEMIC AND IS, THEREFORE, DISMISSED AS INFRUCTUOU S. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . 3. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REAS ONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF CIT( A) WHO HAS ALLOWED ASSESSEES CLAIM OF RS.21,75,076/- UNDER TH E HEAD PRODUCTION DEVELOPMENT EXPENSES. THUS, WE UPHOLD T HE CLAIM OF THE ASSESSEE TREATING IMPUGNED EXPENSES AS REVENUE EXPENDITURE DEDUCTIBLE WHILE COMPUTING BUSINESS INCOME. ACCORD INGLY, THE APPEAL OF REVENUE IS DISMISSED. 5 4. CROSS OBJECTIONS ARISING FROM THE ABOVE APPEAL I S NOTHING BUT SUPPORTING THE ORDER OF CIT(A) WHICH HAS BEEN D ECIDED BY US IN FOREGOING PARAS AS DISCUSSED ABOVE, SO SAME IS D ISMISSED BEING INFRUCTUOUS. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE D ISMISSED AND CROSS OBJECTIONS FILED BY ASSESSEE IS DISMISSED BEI NG INFRUCTUOUS. PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF NOVEMBER, 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED 29 TH NOVEMBER, 2013 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-I, PUNE 4) THE CIT-I, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY ITAT PUNE BENCHES, PUNE