Bosch Rexroth (India) Ltd., Ahmedabad V. The Dy.CIT.,(OSD)Range-1, Ahmedabad

ITA 879/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1736 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-03-2016
• Assessment Year: misc
• Appeal Filed On: 28-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NO. 879/AHD/2013 & 3189/AHD/2015 / ASSESSMENT YEAR: 2007-08 BOSCH REXROTH (INDIA) LIMITED, 206/2, 207, 214/P, SANAND VIRAMGAM HIGHWAY, MOUJE IYAVA, TALUKA SANAND, AHMEDABAD 382445 PAN : AAACM 9898 F VS. DY. COMMISSIONER OF INCOME- TAX (OSD), RANGE-1, AHMEDABAD [ / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI SANJAY R. SHAH, CA REVENUE BY : SHRI NARENDRA SINGH, SR. DR. ! '# / DATE OF HEARING : 21/03/2016 / DATE OF PRONOUNCEMENT: 02/05/2016 $%/ O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER: THESE TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE AS SESSEE. ITA NO.879/AHD/2013, RELATING TO QUANTUM ADDITION, IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-6, AHME DABAD DATED 06.02.2013, WHEREIN THE ASSESSMENT U/S 143(3) OF THE ACT FOR ASSE SSMENT YEAR 2007-08 WAS FRAMED ON 20.12.2010 BY DCIT (OSD), RANGE-1, AHMEDABAD AN D ITA NO.3189/AHD/2015, RELATING TO PENALTY U/S 271(1)(C) OF THE AC T, IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-1, AHMEDABAD DATED 31.08.2015 AND PENALTY ORDER U/S 271(1)(C) WAS FRAMED ON 21.03.2014 BY DCIT(OSD), RANGE-1, AHMEDABAD. AS THESE TWO APPEALS ARE RELATED TO THE SAME ASSESSEE IN RELATION TO QUANTUM ADDI TION AND PENALTY U/S 271(1)(C), THEY HAVE BEEN TAKEN UP TOGETHER FOR THE SAKE OF CONVENI ENCE. ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 2 2. FIRST WE WILL TAKE UP ITA NO.879/AHD/2013. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS ERRONEOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS AND THEREFORE REQUIRES TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO DONE NOW. 2. THE LEARNED COMMISSIONER HAS ERRED IN NOT ALLOWING THE DEDUCTION IN RESPECT OF SOFTWARE EXPENSES OF RS.L4,12,131 PAID IN RESP ECT OF PURCHASE OF OPERATING SOFTWARE ALLOWABLE AS REVENUE EXPENDITURE U/S 37 OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.1 LEARNED COMMISSIONER HAS ERRED IN NOT ALLOWING THE SAI D EXPENSES U/S 37 OF THE ACT BY WRONGLY RELYING UPON THE ORDER OF HON'BLE CI T(A) FOR A.Y. 2006- 07 WHICH WAS BASED ON WRONG INTERPRETATION OF FACTS THAT TH ESE SOFTWARE ARE PURCHASED AS PART OF COMPUTERS AND THEREFORE REQUIRES C APITALIZATION AND HENCE ELIGIBLE FOR DEPRECIATION. LEARNED COMMISSIONER HAS ERR ED IN NOT APPRECIATING THE FACT THAT THE SOFTWARE ARE APPLICATION SOFTWARE AND NOT SYSTEMS SOFTWARE. IT IS SUBMITTED IT BE SO HELD NOW. 2.2 LEARNED COMMISSIONER HAS ALSO ERRED IN RELYING UPON THE ORDER OF HON'BLE CIT(A) FOR A.Y. 2006-07 WHICH WAS BASED ON THE WRONG PREMISE T HAT DEPRECIATION SCHEDULE INCLUDES COMPUTER WHICH IN TURN INCL UDES COMPUTER SOFTWARE ON WHICH 60% DEPRECIATION IS ALLOWABLE AND THEREFO RE DEDUCTION OF SOFTWARE EXPENSES CANNOT BE ALLOWED. IT IS SUBMITTED IT BE SO HELD NO W. 2.3. LEARNED COMMISSIONER HAS ERRED IN NOT GIVING DIR ECTION TO THE LEARNED AO TO ALLOW THE DEPRECIATION AT THE RATE OF 60% ON THE S OFTWARE EXPENDITURE DISALLOWED IN THE AY 2006-07, WHILE COMPUTING TOTAL INCOM E FOR THE YEAR UNDER CONSIDERATION. 3. BRIEFLY STATED FACTS, AS CULLED OUT FROM THE ASSESSMENT REC ORDS, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN THE BUSINESS O F MANUFACTURE OF HYDRAULIC EQUIPMENTS AND PARTS. IT FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 29.10.2007 DECLARING TOTAL INCOME OF RS.29.67 CRORES. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND INCOM E WAS ASSESSED AT RS.30.08 CRORES, AFTER MAKING FOLLOWING ADDITIONS:- 1. SOFTWARE EXPENSES - RS.14,12,131.00 2. LIQUIDATED DAMAGES - RS. 6,95,481.00 3. DISALLOWANCE U/S 40(A)(IA) - RS.19,28,563.00 ------------------------ TOTAL RS.40,36,175.00 ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 3 4. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE ASSESSEES APPEAL BY DELETING THE ADDITION O F RS.6,95,481/- AND RS.19,28,563/- MADE TOWARDS LIQUIDATED DAMAGES AND DISALLOWANCE U/ S 40(A)(IA) OF THE ACT; AND ADDITION OF RS.14,12,131/- TOWARDS SOFTW ARE EXPENSES WAS CONFIRMED. 5. AGGRIEVED, THE ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUN AL. 6. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT DUR ING THE YEAR UNDER CONSIDERATION THE REVENUE EXPENDITURE OF RS.35,30,328/- WAS IN CURRED TOWARDS PURCHASING APPLICATION SOFTWARE AND ALSO TOWARDS UPGRADING THE EXISTING SOFTWARE. HOWEVER, DURING THE ASSESSMENT PROCEEDINGS, W HILE VERIFYING THESE DETAILS, LD. ASSESSING OFFICER FRAMED ASSESSMENT BY TRE ATING RS.35,30,328/- AS CAPITAL EXPENDITURE, ALLOWED DEPRECIATION ON THE SAME @ 60% AND THEREBY MAKING AN ADDITION OF RS.14,12,131/-. THE LD. AUTHORIZED REPRE SENTATIVE SUBMITTED THAT THE EXPENDITURE OF RS.35,30,328/- WAS INCURRE D FOR PURCHASING APPLICATION SOFTWARE AS WELL AS UPGRADATION OF THE EXISTI NG APPLICATION SOFTWARE AND THEY DID NOT WORK ON STANDALONE BASIS BUT REQUIRED TO BE FITTED TO A COMPUTER SYSTEM TO WORK AND THE SOFTWARE JUST ENHANCE D THE EFFICIENCY OF THE OPERATION AND THEREFORE, EVEN IF THE BENEFIT OF THE SA ME WAS AVAILABLE FOR MORE THAN A YEAR, BUT THEY DID NOT RESULT INTO ACQUISITION OF ANY CAPITAL ASSET NOR IT COULD BE SAID TO BE AN ENDURING BENEFIT LOOKING TO T HE RATE OF OBSOLESCENCE IN THE ELECTRONIC INDUSTRY. THE LD. AUTHORIZED REPRESEN TATIVE FURTHER SUBMITTED THAT THE RELEVANT TESTS TO DECIDE THE NATURE OF SOFTWAR E EXPENDITURE AS TO WHETHER IT IS CAPITAL OR REVENUE ARE THE TEST ENDURIN G BENEFIT AND FUNCTIONAL TEST. APPLYING THE SAID TESTS, EXPENDITURE IS TREATED AS CAPITAL EXPENDITURE WHEN IT RESULTS IN ACCRUAL OF ADVANTAGE OF ENDURING NAT URE TO THE ASSESSEE IN THE CAPITAL FIELD WHICH IS NOT THE CASE IN THE FACTS ON HAN D. FOR ASCERTAINING AS TO WHETHER EXPENDITURE ON COMPUTER SOFTWARE GIVES AN END URING BENEFIT TO AN ASSESSEE, THE DURATION OF TIME FOR WHICH THE ASSESSEE AC QUIRES RIGHT TO USE THE SOFTWARE BECOMES RELEVANT, BECAUSE THE SOFTWARE BECOMES OBSOLETE WITH ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 4 TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF TIME. IN THE CASE OF THE ASSESSEE, THE IMPUGNED SOFTWARE EXPENDITURE OF RS.35,30,328/- ARE EITHER IN THE FORM OF UP-GRADATION OF EXISTING APPLICAT ION SOFTWARE AVAILED BY THE APPELLANT OR ARE IN THE FORM OF PURCHASE OF APPLICATI ON SOFTWARE FOR THE PURPOSE OF OPERATIONAL EFFICIENCY IN THE OPERATING/REV ENUE FIELD AND THE SAME CANNOT BE CONSIDERED TO BE OF ENDURING BENEFIT AS THE RE ARE REGULAR UPGRADES ON AN ANNUAL OR EVEN OF A SHORTER PERIOD AND IN ANY CASE THES E ARE IN RELATION TO OPERATING SOFTWARE AND THEREFORE THE CAPITALIZATION IS UN CALLED FOR. THE LD. AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT AS FAR AS FUNCTIONAL TEST IS CONCERNED WITH RESPECT TO THE APPLICATION SOFTWARE, THE NATURE OF ADVANTAGE HAS TO BE SEEN IN A COMMERCIAL SENSE AND IF ADVANTAGE CONSIST S MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAGEM ENT AND CONDUCT OF ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT. ACCORDINGLY, THE RESULT OF THE ABOVE TESTS OF ENDURING BENEFIT AND FUNCTIONAL TEST, IT IS INDICATIVE THAT EXPENDITURE INC URRED BY THE ASSESSEE OF RS.35,30,328/- ARE REVENUE IN NATURE. 6. THE LD. AUTHORIZED REPRESENTATIVE FURTHER REFERRED AN D RELIED ON THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR 2006-07 IN ITA NOS. 1328 & 1310/AHD/2011, DATED 29.04.2014, AND ALSO RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD, REPORTED IN [2011] 16 TAXMANN.COM 382 (DELHI). 7. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MA TERIAL ON RECORD. THE SOLE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS AG AINST THE ACTION OF THE LD. CIT(A) IN TREATING THE EXPENDITURE OF RS.35,30,328/- TOWARDS P URCHASING AND UPGRADING SOFTWARE AS CAPITAL EXPENDITURE WHICH HAS BEEN CLAIMED BY THE ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 5 ASSESSEE AS REVENUE EXPENDITURE IN ITS RETURN OF INCO ME. THE ITEMIZE BREAK-UP OF THE IMPUGNED EXPENDITURE OF RS.35,30,328/- IS AS UNDER:- SR. NO. PARTICULARS AMOUNT (RS.) 1. SOFTWARE LICENSE 16,07,497 2. AUTO CAD LT-2007 59,280 3. AUTO CAD SOFTWARE 118,560 4. AUTO DESK SOFTWARE 1,274,624 5. SOFTWARE SUBSCT SER 306,400 6. SPC SOFTWARE 55,120 7. SOFTWARE CHARGES 93,847 8. SOFTWARE INSTALLED 15,0000 TOTAL 35,30,328 THE ABOVE REFERRED EXPENDITURE OF RS.35,30,328/- ARE MAINLY RELATING TO THE PURCHASE OF APPLICATION SOFTWARE AND UPGRADATION OF EX ISTING SOFTWARE. THE LD. ASSESSING OFFICER HAS TREATED THE IMPUGNED EXPENDI TURE OF RS.35,30,328/- AS CAPITAL EXPENDITURE ON THE ONLY FOOTING THAT THE ASSES SEE WILL RECEIVE THE BENEFIT FOR MORE THAN A YEAR AND HAS ALSO ALLOWED 60% DEPRECIATION ON THIS EXPENDITURE OF RS.35,30,328/- AND A DISALLOWANCE OF RS.14,21,131/- HAS BEEN MADE. HOWEVER, FROM GOING THROUGH THE SUBMISSIONS OF THE L D. AUTHORIZED REPRESENTATIVE, WE ARE ABLE TO UNDERSTAND THAT THE IMPUG NED EXPENDITURE OF RS.35,30,328/- HAS NOT BEEN INCURRED TO PURCHASE ANY NEW SOFTWAR E BUT THEY ARE EITHER APPLICATION SOFTWARE TO RUN THE EXISTING SOFTWAR E INSTALLED IN THE COMPUTERS AND ALSO THE EXPENDITURE HAS BEEN INCURRED T OWARDS UPGRADATION OF THE EXISTING APPLICATION SOFTWARE, BECAUSE IN THE FAST CHANGING TECHNOLOGY WORLD, THE SOFTWARE, WHICH WAS PURCHASED BY THE ASSESSE E IN THE PREVIOUS YEARS, NEEDS TO BE UPGRADED OR UPDATED SO AS TO BE SUITAB LE WITH THE CURRENT TECHNOLOGIES BROUGHT IN BY VARIOUS COMPETITORS AS WEL L AS REQUIRED FOR INCREASING THE OPERATIONAL EFFICIENCY OF THE ORIGINAL SOFTW ARE. 9. WE ALSO FIND THAT THE CO-ORDINATE BENCH HAS DEALT WITH THE SIMILAR ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA NOS. 1328 & 1310/AHD/2011, DATED 29.04.2014, DEALING WITH THE SOFTWARE EXPENDITURE OF ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 6 RS.8,73,485/- AS TO WHETHER IT IS A CAPITAL OR REVENUE EXPENDI TURE, ALLOWED THE ASSESSEES APPEAL BY OBSERVING AS UNDER:- 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATER IAL ON RECORD. IT IS AN ADMITTED FACT THAT ASSESSEE HAD INCURRED RS 8,73 ,485/- ON SOFTWARE EXPENSES AND WAS CLAIMED AS REVENUE EXPENSES. IT IS THE SUBMISSION OF THE ASSESSEE THAT THE EXPENSES WERE FOR THE PURCHASE OF SOFT WARE APPLICATION HAVING A SHORT LIFE SPAN. AO HAS CONSIDERED THE EXPENSES AS CAPIT AL EXPENDITURE AND ELIGIBLE FOR DEPRECIATION @60% AND GRANTED DEPRECIATION OF RS 5,24,091/- AND THEREBY MADE A DISALLOWANCE OF RS 3,49,384/-. IN THE PRESENT CASE, THE I NCURRING O F EXPENSES HAS NOT BEEN DISPUTED BY THE REVENUE. IT IS AL SO A FACT THAT THE MATTER PERTAINS TO AY 2006-07 AND IF THE IMPUGNED EXPENSES IS CONSIDERE D TO BE CAPITAL EXPENDITURE, THE ASSESSEE WILL HAVE TO BE GRANTED DEPRECI ATION @ 60% ON WDV BASIS IN A.Y. 06-07 AND ALSO IN SUBSEQUENT YEARS. THE DEPR ECIATION OF WDV FOR SUBSEQUENT YEARS WILL WORK OUT TO RS. 2,09,630/- (FOR A.Y .07-08), RS. 83,854 (FOR A.Y. 08-09), RS. 33,542(FOR A.Y. 09-10) AND SO ON. CONSIDERING THE TOTALITY OF THE FACTS, THE TOTAL TAXABLE INCOME OF RS 35.85 CRORE AS DET ERMINED BY THE AO, THE CHANGES THAT WOULD BE REQUIRED TO BE MADE IN SUBSEQUENT A SSESSMENTS ORDERS IF THE DEPRECIATION IS TO BE ALLOWED IN ALL SUBSEQUENT YEAR S AND THE PECULIAR FACTS OF THE CASE, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE BE ALLOWED I N THE PRESENT CASE. WE MAY HOWEVER ADD THAT THE ALLOWANCE OF THE EXPENDITUR E IN THE PRESENT CASE SHOULD NOT BE CONSIDERED AS A PRECEDENCE FOR ALLO WANCE OF THE EXPENDITURE. THUS THESE GROUNDS OF THE ASSESSEE ARE ALLOWED. 10. WE FURTHER OBSERVE THAT THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD (SUPRA) HAS ALSO DEALT WIT H THE SIMILAR ISSUE, WHEREIN THE ASSESSEE INCURRED REVENUE EXPENDITURE TO WARDS APPLICATION SOFTWARE TO BE RUN ON ORACLE APPLICATION AND THE DECIS ION WAS GIVEN IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR A CO NCLUSIVE TEST WHICH THE COURTS CAN APPLY ALMOST BY ROTE. WHAT IS REQUIRED TO BE SEEN IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION AFFIXED CAPITAL FOR THE ASSESSEE. IT IS IMPORTANT TO BE AR IN MIND THAT WHAT IS REQUIRED TO BE SEEN IS NOT WHETHER THE ADVANTAGE OBTAINED LASTS FOREVER BUT WHETHER THE EXPENSE INCURRED DOES AWAY WITH A RECURRING EXPEN SE(S) DEFRAYED TOWARDS RUNNING A BUSINESS AS AGAINST AN EXPENSE UNDER TAKEN FOR THE BENEFIT OF THE BUSINESS AS A WHOLE. IN OTHER WORDS, THE EXPENDITURE W HICH IS INCURRED, WHICH ENABLES THE PROFIT MAKING STRUCTURE TO WORK MORE E FFICIENTLY LEAVING THE SOURCE OF THE PROFIT MAKING STRUCTURE UNTOUCHED, WOULD BE AN EXPENSE IN THE NATURE OF REVENUE EXPENDITURE. FINE TUNING BUSINESS OP ERATIONS TO ENABLE THE MANAGEMENT TO RUN ITS BUSINESS EFFECTIVELY, EFFICIEN TLY AND PROFITABLY, LEAVING THE FIXED ASSETS UNTOUCHED, WOULD BE AN EXPENDITURE IN THE NAT URE OF REVENUE ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 7 EXPENDITURE EVEN THOUGH THE ADVANTAGE MAY LAST FOR AN INDEF INITE PERIOD. TEST OF ENDURING BENEFIT OR ADVANTAGE WOULD, THUS, COLLAPSE IN SUCH LIKE CASES. IT WOULD BE ONLY TRUER IN CASES WHICH DEAL WITH TECHNOLOGY AND SOFTWAR E APPLICATION, WHICH DO NOT IN ANY MANNER SUPPLANT THE SOURCE OF INCOME OR ADDED TO THE FIXED CAPITAL OF THE ASSESSEE. [PARA 9] THIS IS THE APPROACH WHICH THE SUPREME COURT HAS APPLIED EVE N IN CASES WHERE THERE IS A ONCE FOR ALL OR A LUMP SUM PAYMENT. WHAT IS TO BE SEEN IN THE FACTS OF THE INSTANT CASE, IS THAT THE ASSESSING OFFICER, AS A MATTER OF FACT, HAS RETURNED A FINDING THAT THE EXPENDITURE UNDERTAKEN WAS FOR OVERHAULIN G THE ACCOUNTANCY OF THE ASSESSEE AND TO EFFICIENTLY TRAIN THE ACCOUNTING ST AFF OF THE ASSESSEE. THE TRIBUNAL, WHICH IS DECIDEDLY THE FINAL FACT FINDING AUTHORIT Y, HAS AFTER NOTICING THE MATERIAL ON RECORD OBSERVED THAT THE EXPENDITURE WAS IN CURRED UNDER VARIOUS SUB-HEADS, WHICH INCLUDED LICENCE FEE, ANNUAL TECHNICAL SUP PORT FEE, PROFESSIONAL CHARGES, DATA ENTRY OPERATOR CHARGES, TRAINING CHARGES A ND TRAVELLING EXPENSES. THE FINAL FIGURE WAS A CONSOLIDATION OF EXPENSES INCUR RED UNDER THESE SUB-HEADS. THE TRIBUNAL RIGHTLY CAME TO THE CONCLUSION THAT NONE OF THESE RESULTED IN EITHER CREATION OF A NEW ASSET OR BROUGHT FORTH A NEW SOURCE OF INCOME FOR THE ASSESSEE. THE TRIBUNAL CLASSIFIED THE SAID EXPENSES AS BEING REC URRING IN NATURE TO UPGRADE AND/OR TO RUN THE SYSTEM. [PARA 9.1] IN THE BACKGROUND OF THE AFOREMENTIONED FINDINGS, IT CAN NOT BE SAID THAT THE EXPENSES BROUGHT ABOUT IN AN ENDURING BENEFIT TO THE A SSESSEE. THE ASSESSING OFFICER WAS PERHAPS SWAYED BY THE FACT THAT IN THE SUCCEEDIN G FINANCIAL YEAR, I.E., 1997-98 (ASSESSMENT YEAR 1998-99), THE AMOUNT SPENT WAS LARGE. FIRST OF ALL, THE EXTENT OF THE EXPENDITURE CANNOT BE A DECISIVE FACTOR I N DETERMINING ITS NATURE. AS OBSERVED BY THE TRIBUNAL, THE ASSESSEE IN THE RELEVAN T ASSESSMENT YEAR HAD A TURNOVER OF RS 150 CRORES AND THAT EVEN WITHOUT THIS EXPEN DITURE IT WOULD HAVE CONTINUED TO ACHIEVE THE SAID TURNOVER, THOUGH THE EXPENDIT URE IN ISSUE WOULD HAVE ENABLED IT TO RUN ITS BUSINESS MORE EFFICIENTLY. T HEREFORE, THE RATIONALE SUPPLIED BY THE ASSESSING OFFICER IN SUPPORT OF ITS OR DER IS FLAWED AND, HENCE, IT WOULD HAVE TO BE REJECTED. [PARA 10] SECONDLY, THE MERE FACT THAT THE ASSESSING OFFICER RECO RDS THAT THE EXPENDITURE, IN FINANCIAL YEAR 1997-98 (ASSESSMENT YEAR 1998-99), WAS INCURRED TOWA RDS WHAT HE TERMS AS AN 'ON-GOING PROJECT' WOULD NOT IPSO FACTO GIVE IT A COLOUR OF CAPITAL EXPENDITURE. A CAREFUL READING OF THE TRIBUNAL'S JUDGM ENT SHOWS THAT AFTER NOTICING THE SUBMISSION OF THE ASSESSEE THAT THE EXPENDI TURE INCURRED IN THE SAID ASSESSMENT YEAR WAS FOR REMOVING DEFICIENCIES WHICH WERE FOUND IN THE SOFTWARE INSTALLED IN THE EARLIER ASSESSMENT YEAR, AND THAT OU T OF A SUM OF RS. 1.71 CRORES, A SUM OF RS. 49 LAKHS WAS INCURRED TO MODIFY, CUSTOMIZE A ND UPGRADE THE SOFTWARE INSTALLED, WHILE THE BALANCE EXPENDITURE WAS US ED FOR DEVELOPMENT AND IMPLEMENTATION, IT RETURNED A FINDING THAT THE EXPENSES WERE INCURRED TO UPGRADE AND RUN THE SYSTEM. IN VIEW OF THESE FINDINGS, THE AS SESSING OFFICER DISCOVERED AN ERRONEOUS PRINCIPLE ON THE BASIS OF WHICH H E DENIED THE EXEMPTION TO THE ASSESSEE. [PARA 10.1] ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 8 SOFTWARE IS NOTHING BUI ANOTHER WORD FOR COMPUTER PROG RAMMES, I.E., INSTRUCTIONS, THAT MAKE THE HARDWARE WORK. SOFTWARE IS BRO ADLY OF TWO TYPES, I.E., THE SYSTEMS SOFTWARE, WHICH IS ALSO KNOWN AS THE OPERATING SYSTEM WHICH CONTROLS THE WORKING OF THE COMPUTER: WHILE THE OTHER BEING APPLICATIONS SUCH AS WORD PROCESSING PROGRAMS, SPREAD SHEETS AND DATABASE WHICH PERFORM THE TASKS FOR WHICH PEOPLE USE COMPUTERS. BESIDES THESE, THERE AR E TWO OTHER CATEGORIES OF SOFTWARE, THESE BEING: NETWORK SOFTWARE AND LANGUAGE SOF TWARE. THE NETWORK SOFTWARE ENABLES GROUPS OF COMPUTERS TO COMMUNICATE WITH EACH OTHER, WHILE LANGUAGE SOFTWARE PROVIDES WITH TOOLS REQUIRED TO WRITE PROGR AMMES. [PARA 11] THE AFORESAID WOULD SHOW THAT WHAT THE ASSESSEE ACQUIRED THRO UGH A WAS AN APPLICATION SOFTWARE WHICH ENABLED IT TO EXECUTE TASKS I N THE FIELD OF ACCOUNTING, PURCHASES AND INVENTORY MAINTENANCE. THE FACT THAT THE APPL ICATION SOFTWARE WOULD HAVE TO BE UPDATED FROM TIME TO TIME BASED ON THE RE QUIREMENTS OF THE ASSESSEE IN THE CONTEXT OF THE ADVANCEMENT OF ITS BUSINE SS AND/OR ITS DIVERSIFICATION, IF ANY; THE CHANGES BROUGHT ABOUT DUE TO STATUTORY AMENDMENTS BY LAW OR BY PROFESSIONAL BODIES LIKE THE INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA, WHICH ARE GIVEN THE RESPONSIBILITY OF CONCEIVING AND FORMULATING THE ACCOUNTING STANDARDS FROM TIME TO TIME, AND PERHAPS AL SO, BY REASON OF THE FACT THAT EXPENSES MAY HAVE TO BE INCURRED ON ACCOUNT OF CO RRUPTION OF THE SOFTWARE DUE TO UNINTENDED OR INTENDED INGRESS INTO THE SYSTEM - O UGHT NOT GIVE A COLOUR TO THE EXPENDITURE INCURRED AS ONE EXPENDED ON CAPITAL ACCOUNT. GIVEN THE FACT THAT THERE ARE MYRIAD FACTORS WHICH MAY CALL FOR EXPENSES T O BE INCURRED IN THE FIELD OF SOFTWARE I APPLICATIONS, IT CANNOT BE SAID THA T EITHER THE EXTENT OF THE EXPENSE OR THE EXPENSE BEING INCURRED IN CLOSE PROXIMI TY, IN THE SUBSEQUENT YEARS, WOULD BE CONCLUSIVELY DETERMINATIVE OF ITS NATURE . THE ASSESSING OFFICER HAS ERRED PRECISELY FOR THESE VERY REASONS. [PARA 12] THE CONTENTION OF THE REVENUE THAT IN THE BOOKS OF ACCO UNT, THE ASSESSEE HAD NOT WRITTEN OFF THE EXPENSE IN ISSUE, WHILE IN THE SUCCEEDING ASSESSMENT YEAR ONLY A PART OF THE EXPENSE HAD BEEN WRITTEN OFF AND, THEREFORE , THE ASSESSEE'S OWN UNDERSTANDING OF THE NATURE OF THE EXPENSE INVOLVED WAS THA T IT WAS EXPENDED ON CAPITAL ACCOUNT IS BE REJECTED. THE REASON BEING: THAT THE TREATMENT OF A PARTICULAR EXPENSE OR A PROVISION IN THE BOOKS OF ACCOUNT CAN NE VER BE CONCLUSIVELY DETERMINATIVE OF THE NATURE OF THE EXPENSE. AN ASSESSEE CANNOT BE DENIED A CLAIM FOR DEDUCTION WHICH IS OTHERWISE TENABLE IN LAW ON THE GROUN D THAT THE ASSESSEE HAD TREATED IT DIFFERENTLY IN ITS BOOKS. [PARA 13 & 13.1] THEREFORE, THE AFORESAID CONTENTION IS OF NO AVAIL TO THE REVENU E. [PARA 13.2] THEREFORE, THE TRIBUNAL WAS CORRECT IN LAW IN HOLDING T HAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF SOFTWARE AND PROF ESSIONAL EXPENSES WAS A REVENUE EXPENDITURE. [PARA 14] 11. APPLYING THE RATIO OF ABOVE DECISION OF HONBLE DEL HI HIGH COURT AS WELL AS DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE , WE ARE OF THE VIEW THAT ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 9 THE IMPUGNED EXPENDITURE OF RS.35,30,328/- INCURRED BY THE ASSESSEE IS REVENUE EXPENDITURE, BECAUSE THE SAME HAS BEEN INCURRED TOWARDS THE PURCHASE OF APPLICATION SOFTWARE AND UPGRADATION CHARGES WHICH WERE RE QUIRED TO RUN EFFICIENTLY THE EXISTING SOFTWARE AS WELL AS LICENSE C HARGES FOR USING THE EXISTING SOFTWARE UNINTERRUPTLY SO AS TO RUN THE BUSINESS EFFI CIENTLY. WE ARE, THEREFORE, OF THE VIEW THAT THE LD. CIT(A) WAS NOT CORRECT IN CONFI RMING THE DISALLOWANCE OF RS.14,21,131/- AND WE ACCORDINGLY DELETE THIS DISALLOWANCE. THUS, THE ASSESSEES APPEAL IS ALLOWED. 12. NOW WE TAKE UP ITA NO.3189/AHD/2015. THE ASSESSEE HAS FILE D THIS APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-1, AHMEDABAD DAT ED 31.08.2015 CONFIRMING THE PENALTY OF RS.4,78,355/- IMPOSED U/S 271(1)(C) BY THE LD. ASSESSING OFFICER ON THE ADDITION OF RS.14,12,131/-. AS WE HAV E ALREADY DELETED THE QUANTUM ADDITION OF RS.14,12,131/- WHILE DECIDING THE ASSESSEES APPEAL IN ITA NO.879/AHD/2013, THEN IN SUCH SITUATION, THE PE NALTY U/S 271(1)(C) WILL NOT SURVIVE AND WE ACCORDINGLY DELETE THE SAME. 13. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 2 ND MAY, 2016 AT AHMEDABAD. SD/- SD/- ( S.S. GODARA ) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER AHMEDABAD; DATED, 2/5/2016 $% ! &''( )$(*'/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ++ ' ,' / CONCERNED CIT 4. ,' ) ( / THE CIT(A)- 5. (/0 &'& , , 123 /DR,ITAT, AHMEDABAD, 6. 045 6 / GUARD FILE. $% / BY ORDER, TRUE COPY +1 (ASSTT.REGISTRAR) ITA NO. 879/AHD/2013 & 3189/AHD/2015 BOSCH REXROTH (INDIA) LIMITED VS. DCIT AY : 2007-08 - 10 ITAT, AHMEDABAD 1. DATE OF DICTATION 19.04.2016.. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER : 19.04.2016 3. OTHER MEMBER .. 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S . 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT .. 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./P.S . 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2/5/2016 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER