GROUP M MEIDA INDIA P.LTD, MUMBAI V. ADDL CIT RG 7(3), MUMBAI

ITA 6519/MUM/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3334 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 02-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITIN R WAGHMODE
• Assessee Lawyers: MRS ARATI VISSANJI
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, JM & SHRI ASHWANI TANEJA , A M ./ ITA NO. 6519 / MUM/20 1 2 ( / ASSESSMENT YEAR :20 09 - 201 0 ) GROUP M ME DIA INDIA PRIVATE LIMITED, COMMERZ, 8 TH FLOOR, INTERNATIONAL BUSINESS PARK, OBEROI GARDEN CITY, OFF. WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI - 400063 VS. AD.CIT, RANGE - 7(3), MUMBAI ./ ./ PAN/GIR NO. : A A CCM 7365 H ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : MRS. ARATI VISSANJI /REVENUE BY : SHRI NITIN R. WAGHMODE / DATE OF HEARING : 20/01/2016 / DATE OF PRONOUNCEMENT 20/01 /2016 / O R D E R PER SAKTIJIT DEY(JM) THE INSTANT APPEAL OF THE ASSESSEE IS AGAINST THE ORDER DATED 16 - 8 - 2012 OF THE CIT(A) - 13 , MUMBAI FOR THE ASSESSMENT YEAR 20 09 - 201 0 . 2. IN GROUND NO.1.1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF SOFTWAR E LICENCE COST OF RS.1,10,387/ - AS CAPITAL EXPENDITURE. 3. BRIEFLY FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF M EDIA P LANNING, EXECUTING AND BUYING IN THE FIELD OF ADVERTISING AND MARKETING AND OTHER RELATED SERVICES. FOR THE ASSES SMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 - 9 - 2009 DECLARING TOTAL INCOME OF RS.51,87,55,160/ - . THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND IN COURSE OF ASSESSMENT PROCEEDING, THE AO AFTER EXAMINING THE DETAILS OF SOFTWARE EXPENSES ITA NO. 6519/12 2 CLAIMED BY THE ASSESSEE FOUND THAT OUT OF THE TOTAL EXPENDITURE CLAIMED OF RS. 2,86,85,419/ - , AN AMOUNT OF RS.1,10,387/ - REPRESENTING SOFTWARE LICENCE COST IS OF CAPITAL NATURE, HENCE, CANNOT BE ALLOWED AS REVENUE EXPENDITURE AN D ACCORDINGLY DISALLOWED THE SA ME WHILE COMPLETING ASSESSMENT. LEARNED CIT(A) ALSO SUSTAINED THE DISALLOWANCE BY CONFIRMING THE VIEW OF THE ASSESSING OFFICER. 4. LEARNED COUNSEL REITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES SUBMITTED THA T THE SOFTWARE LICENCE COST IS FOR USE OF SOFTWARE FOR ITS DAY - TO - DAY BUSINESS REQUIREMENT. IT WAS SUBMITTED THAT AS THESE SOFTWARE ARE UPGRADED FROM TIME TO TIME AND DID NOT HAVE USEFUL LIFE FOR A LONG PERIOD AND BECOMES OBSOLETE AT ONE POINT OF TIME, THE Y CANNOT BE CONSIDERED TO BE OF ENDURING IN NATURE SO AS TO CONSTITUTE CAPITAL EXPENDITURE. LEARNED COUNSEL SUBMITTED THAT THE ISSUE IS EVEN OTHERWISE DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 561/MU M/2012, ORDER DATED 6 - 11 - 2015 FOR A.Y.2008 - 09 AND ITA NO.1306/MUM/2011, ORDER DATED 26 - 6 - 2015 FOR A.Y.2006 - 07. 5. LEARNED DR WITHOUT CONTROVERTING THE AFORESAID FACTUAL POSITION HAS SOUGHT TO RELY UPON THE ORDER OF THE CIT(A) AND THE ASSESSING OFFICER. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IT IS SEEN FROM THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A) THAT THEY HAVE CONSIDERED THE SOFTWARE LICENCE COST OF RS.1,10,387/ - AS CAPITAL IN NATURE WITHOUT E XAMINING IN DETAIL AS TO WHETHER SUCH EXPENDITURE HAS CREATED ANY ASSET OF ENDURING BENEFIT TO ITA NO. 6519/12 3 THE ASSESSEE OR IT IS FOR ACQUISITION OF SOFTWARE FOR DAY - TO - DAY USE OF THE ASSESSEE HAVING LIMITED LIFE SPAN. IT IS FURTHER OBSERVED THAT IN THE PRECEDING ASSES SMENT YEARS I.E. 2006 - 07 & 2008 - 09 , SIMILAR DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) WERE ALSO AGITATED BEFORE THE TRIBUNAL. THE TRIBUNAL CONSIDERING THE FACT THAT THE SOFTWARE LICENSE COST ARE FOR USING OF SOFTWARE FOR DAY - TO - DAY BUSINESS R EQUIREMENT OF THE ASSESSEE WHICH DO NOT HAVE VERY LONG LIFE AND BECOMES OBSOLETE WITHIN SHORT SPAN, ALLOWED SUCH EXPENDITURE AS REVENUE. THEREBEING NO MATERIAL DIFFERENCE IN FACT BROUGHT TO OUR NOTICE, WE RESPECTFULLY FOLLOW THE ORDERS OF THE COORDINATE BE NCH ON THE ISSUE IN ASSESSEES OWN CASE AND ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE THEREBY DELETING THE ADDITION OF RS. 1,10, 387/ - . 7. THE ISSUE RAISED IN GROUND NOS.1.2 & 1.3, RELATES TO DISALLOWANCE OF AN AMOUNT OF RS. 62,3 8 ,582/ - BEING PROVISION M ADE FOR PAYMENT TO REGIONAL OFFICE OF GROUP - M FOR SOFTWARE AND RS.10,11,964/ - TOWARDS LICENCE COST OF COMPUTER SOFTWARE PAID TO THE REGIONAL OFFICE. THE AO DISALLOWED TH ESE AMOUNT S FOR NON - DEDUCTION OF TAX AT SOURCE BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WHILE DOING SO THE AO ALSO REJECTED ASSESSEES CONTENTION THAT THE AMOUNT OF RS. 10,11,964/ - IS BY WAY OF A PROVISION WHICH IS REVERSED IN THE SUBSEQUENT YEAR AND OFFERED TO TAX. BEING AGGRIEVED BY SUCH ADDITIONS/DISALLOWANCES, THE ASSESSEE CHALLENGED THE SAME IN APPEAL. L EARNED CIT(A) SUSTAINED THE DISALLOWANCE SIMPLY ON THE REASONING THAT ASSESSES APPEAL AGAINST SUCH ITA NO. 6519/12 4 DISALLOWANCE WAS DECIDED AGAINST HIM IN THE APPELLATE ORDER PASSED BY THE CIT(A) FOR ASSESSMENT YEAR 2008 - 09 . 8. LEARNED COUNSEL SUBMITTED BEFORE US THAT A S FAR AS ASSESSMENT YEAR 2008 - 09 IS CONCERNED, THE ASSESSEE CHALLENGED THE DISALLOWANCE MADE BEFORE THE ITAT AND THE ITAT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND NATURE OF PAYMENT HELD THAT THE PAYMENTS MADE ARE NOT IN THE NATURE OF ROYALTY R EQUIRING DEDUCTION OF TAX AT SOURCE, HENCE, THE DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT WAS DELETED. LEARNED COUNSEL FURTHER SUBMITTED THAT AS FAR AS AMOUNT OF RS. 10 ,11,964/ - IS CONCERNED, SAME BEING MERE LY IN THE NATURE OF A PROVISION , WHICH WAS SUBS EQUENTLY REVERSED AND OFFERED TO TAX IN THE SUBSEQUENT YEAR, NO DISALLOWANCE SHOULD HAVE BEEN MADE. 9. ON THE OTHER HAND, LD.DR RELIED UPON THE ORDER OF CIT(A) AND THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED TH E ORDER OF THE DEPARTMENTAL AUTHORITIES AS WELL AS OTHER MATERIAL ON RECORD. AS COULD BE SEEN FROM THE ORDER OF THE CIT(A) HE HAS SUSTAINED THE DISALLOWANCE BY MERELY FOLLOWING THE ORDER PASSED BY THE CIT(A) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09. HOWEVER, IT IS OBSERVED AGAINST THE ORDER PASSED BY THE CIT(A) IN ASSESSMENT YEAR 2008 - 09, THE ASSESSEE PREFERRED APPEAL BEFORE THE ITAT. THE ITAT WHILE DISPOSING OFF THE APPEAL OF THE ASSESSEE IN ITA NO. 561/MUM/2012, DATED 6 - 11 - 2015, CONSIDERING SIMIL AR PAYMENT MADE TO THE GROUP COMPANY M/S ITA NO. 6519/12 5 MIND SHARE ASIA PACIFIC, HELD THAT THE PAYMENT MADE IS ON ACCOUNT OF REIMBURSEMENT OF COST INCURRED BY THE PARENT COMPANY OR ANY OTHER GROUP COMPANY IN PROVIDING SOFTWARES WHICH WERE NOT DEVELOPED BY THEM. IT WAS, THEREFORE, HELD THAT THE PAYMENT MADE IS NOT IN THE NATURE OF ROYALTY, HENCE, THERE IS NO REQUIREMENT FOR DEDUCTION OF TAX AT SOURCE, THEREBY DIRECTING DELETION OF ADDITION MADE UNDER SECTION 40(A)(IA) FOR NON - COMPLIANCE TO THE TDS PROVISION. 11. LEARNED DR HAS NOT BR OUGHT TO OUR NOTICE ANY MATERIAL DIFFERENCE IN FACTS AS FAR AS THE IMPUGNED ASSESSMENT YEAR IS CONCERNED. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 , AS REFERRED ABOVE, WE DELETE THE ADDI TION MADE BY THE AO AND SUSTAINED BY THE CIT(A). GROUNDS RAISED ARE, THEREFORE, ALLOWED. 12. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 19,77,659/ - CLAIMED TOWARDS EXPENDITURE INCURRED FOR REPLACEMENT OF MONITORS AND OTHER PARTS OF THE COMPUTER SYSTEM. 13. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTIC ING THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 19,77,659/ - TOWARDS REPLACEMENT OF MONITORS AND SOME OTHER PARTS OF COMPUTER DISALLOWED THE SAME BY HOLDING THAT IN ABSENCE OF NECESSA RY DETAILS, THE EXPENDITURE CLAIMED CANNOT BE ALLOWED. HOWEVER, THE AO CAPITLISED THE AMOUNT OF RS. 19,77,659/ - TO THE COST OF COMPUTER AND OFFICE EQUIPMENTS. BEING AGGRIEVED BY SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFORE THE ITA NO. 6519/12 6 CIT(A). THE CIT(A) SUST AINED THE DISALLOWANCE HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT BY WAY OF CURRENT REPAIRS BUT TOWARDS ACQUISITION OF NEW ASSETS, HENCE, IN THE NATURE OF CAPITAL EXPENDITURE. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUS ED THE MATERIALS ON RECORD. IT IS OBSERVED THAT IDENTICAL DISPUTE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09. THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL IN ITA NO. 561/MUM/2012 , ORDER DATED 6 - 11 - 2015, ALLOWED EXPENDITURE CLAIMED FOR REPLACEMENT OF NEW MONITORS AND OTHER PARTS OF THE COMPUTER BY TREATING THEM AS CURRENT REPAIR. THE OBSERVATION OF THE TRIBUNAL IS EXTRACTED HEREUNDER : - 14. AFTER HEARING THE RIVAL CONTENTIONS AND ALSO ON PERUSAL OF THE IMPUGNED ORDER, WE FI ND THAT SO FAR AS, REPLACEMENT OF COMPUTER MONITOR IS CONCERNED, WE AGREE WITH THE CONTENTION OF LD. COUNSEL THAT IT IS MERE CHANGING OF A PART OF THE COMPUTER AND NOT A COMPUTER AS A WHOLE. THERE IS NO INCREASE EITHER IN THE CONFIGURATION OR IN THE EFFICI ENCY OF THE WORKING OF THE COMPUTER. THUS, REPLACEMENT OF OLD MONITORS OF COMPUTER CANNOT BE RECKONED AS CREATION OF A NEW ASSET OR ANY OF ASSETS OF ENDURING BENEFIT. THEREFORE, AMOUNTS SPEND FOR REPLACEMENT OF OLD MONITOR IS TO BE TREATED AS REVENUE EXPEN DITURE. SO FAR AS THE EXPENDITURE INCURRED ON ARTIFICIAL CARPET CHARGES, AGAIN IT CANNOT BE HELD THAT THESE ARTIFICIAL CARPETS HAVE A VERY LONG ENDURING LIFE CREATING ANY LONG-TERM ASSET. THE CONSTANT USE LEADS TO WEAR AND TEAR AND ANY CHARGES INCURRED FOR REPLACEMENT / REPAIRING CANNOT BE HELD TO BE CAPITAL EXPENDITURE. HENCE, EXPENDITURE INCURRED ON ARTIFICIAL CARPET ALSO IS TO BE HELD AS REVENUE EXPENDITURE. ACCORDINGLY, GROUND NO.1.3 IS TREATED AS ALLOWED. THEREBEING NO MATERIAL DIFFERENCE IN FACT, RE SPECTFULLY FOLLOW ING THE AFORESAID OBSERVATION OF THE TRIBUNAL, WE ALLOW ASSESSEES CLAIM OF EXPENDITURE BY DELETING THE ADDITION. ITA NO. 6519/12 7 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 20/01/ 201 6 . S D/ - ( ASHWINI TANEJA ) SD/ - ( SAKTIJIT DEY ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 20/01/2016 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//