DCIT, Circle - 3, Kolkata, Kolkata V. M/s. R. Piyarelall Import & Export Ltd., Kolkata

ITA 952/KOL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4821 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 08-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Court: TRIBUNAL
• Department Lawyers: PRABAL C HOUDHURY
• Assessee Lawyers: R N RUSTOGI
• Keywords: Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Transactions in derivatives; Speculation loss; Difference of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 80G; 43(5); 28

Judgement Text

ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI P. M. JAGTAP, A.M. & SHRI S.S.VISWANET HRA RAVI, J.M.) ITA NO. 952/KOL/2010 : ASSTT. Y EAR : 2006-2007 DCIT, CIRCLE-3 KOLKATA VS M/S R. PIYARELALL IMPORT & EXPORT LTD. PAN: AABCR2695G (APPELLANT) (RESPONDENT) C.O. NO. 71/KOL/2010 : ASSTT. YEAR : 2006-2007 (ARISING OUT OF ITA NO.952/KOL/2010) M/S R. PIYARELALL IMPORT & EXPORT LTD. PAN: AABCR2695G VS DCIT, CIRCLE-3 KOLKATA (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY : SHRI PRABAL CHOUDHURY, JCIT, S R.DR ASSESSEE BY : SHRI R.N.R USTOGI, FCA DATE OF HEARING : 08.03.2016 DATE OF PRONOUNCEMENT : 27-05-2016 ORDER PER SHRI S.S.VISWANETHRA RAVI, J.M . THE APPEAL IN ITA NO. 952/KOL/2010 BY THE REVENUE AND C.O. NO. 71/KOL/2010 BY THE ASSESSEE ARE ARISING OUT OF THE COMMON ORDER DATED 12.02.2010 PASSED BY THE CIT(A)-I, KOLKATA FOR THE ASSESSMENT YEAR 2006-07. 2. FIRST WE SHALL TAKE UP THE REVENUES APPEAL AND THE REVENUE RAISED THE FOLLOWING GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER OF THE CIT(A) IS ERRONEOUS DUE TO TREATING OF THE SPECULATIVE LOS S OF RS.1,77,91,478/- AS BUSINESS LOSS, IGNORING THE FACT THAT IN COURSE O F ASSESSMENT ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 2 PROCEEDINGS, THE ASSESSEE FAILED TO ESTABLISH NEXUS OF DERIVATIVE TRANSACTIONS WITH PHYSICAL TRANSACTIONS. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER OF THE CIT(A) IS ERRONEOUS DUE TO THE FACT THAT IT PRIMARILY BASED O N THE SUBMISSION OF THE ASSESSEE WITHOUT GOING INTO THE MERIT OF THE CASE. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE CIT(A) IS ERRED IN TREATING THE EXPENSES OF RS.1,40,000/- RELATED TO C OMPUTER MAINTENANCE AS BUSINESS EXPENSES. 4. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY, REC TIFY, ALTER, AMEND OR REVISE ANY OF THE AFORESAID GROUNDS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF IMPORT OF FOODGRAINS I.E RICE, WHEAT, P ULSES ETC... THE RETURN OF INCOME WAS FILED ON 30-11-2006 DISCLOSING THE TOTAL INCOME OF RS.1,06,67,427/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT AND THE AO DETERMINED INCOME AT RS.2,89,72,142/- FOR THE YEAR UNDER CONSI DERATION. 4. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,77,91,478/- ON ACCOUNT OF LOSS F ROM DERIVATIVE TRANSACTION. THE ASSESSEE SUBMITTED THAT IT WAS A BUSINESS LOSS, THA T IN ORDER TO SAFE GUARD ITS BUSINESS THAT IT MAY FACE LOSSES DUE TO PRICE FLUCTUATIONS I N FUTURE, THE SAID TRANSACTIONS WERE CARRIED OUT ONLY ON THE ITEMS WHICH DEALT BY IT IN THE ORDINARY COURSE OF BUSINESS. THE AO OBSERVED THE ASSESSEE ALSO INVOLVED INTO ANOTHER COMMODITY TRANSACTION WHICH S NOT IN ANY WAY ASSOCIATED WITH ITS REAL BUSINESS. T HE AO WAS OF THE VIEW THAT THE SAID SEPARATE TRANSACTION WAS NOT CONNECTED WITH THE ACT UAL BUSINESS ACTIVITY AND THE PROVISO TO SEC. 43(5) OF THE ACT IS NOT APPLICABLE AS IT WAS A DELIBERATE ATTEMPT BY THE ASSESSEE TO SHOW AS A SPECULATION LOSS UNDER THE GA RB OF BUSINESS LOSS WITHOUT ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 3 PRODUCING ANY DETAILS IN THAT REGARD. ACCORDINGLY T HE CLAIM OF RS.1,77,91,478/- WAS DISALLOWED BY THE AO. 5. AS AGGRIEVED ABOVE THE ASSESSEE CONTENDED THAT IT ENTERED INTO DIFFERENT CONTRACTS TO SUPPLY ITS GOODS IN FUTURE FOR A PRICE ON THE DATE OF CONTRACT OR TO PAY THE DIFFERENCE BY WAY OF WITHDRAWL OF DELIVERY OF GOODS THROUGH REGISTERED BROKER I.E., NATIONAL COMMODITY AND DERIVATIVE EXCHANGE LIMITED. THE CIT-A FOUND THAT THE ASSESSEE WAS UNABLE TO SUPPLY ITS GOODS DUE TO HEAV Y RISE IN PRICES OF COMMODITIES AND TO OBLIGE ITS FORWARD CONTRACTS THE ASSESSEE HA D TO PAY DAMAGES FOR THE BREACH OF CONTARCT AND FURTHER OPINED THAT IT IS ACTUAL LOSS INCURRED BY THE ASSESSEE DURING ITS ORDINARY COURSE OF BUSINESS AND OBSERVATION OF WHIC H REPRODUCED AS UNDER : I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE AR GUMENTS BOTH WRITTEN AND VERBAL. HOWEVER I FIND THAT THE AO IN COURSE OF ASS ESSMENT PROCEEDINGS FAILED TO APPLY HIS MIND PROPERLY TO THE FACTS AND CIRCUMS TANCES WITH NATURE THEREOF THE CASE AND ALSO FAILED TO APPRECIATE THE RELATIVE DOCUMENTS FURNISHED. MOREOVER IT IS CRYSTAL CLEAR FROM THE PAPER AND THE RECORDS FILED THAT THE APPELLANT COMPANY ENTERED INTO DERIVATIVE TRANSACTI ON IN ORDER TO GUARD AGAINST BUSINESS LOSS IN ITS HUGE HOLDING OF STOCKS THROUGH PRICE FLUCTUATIONS AND IN TERMS OF THE PROVISION OF SEC43(5)(B) OF THE INCOME TAX IT SHOULD NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS CONCLUDED THAT THE CLAIM OF BUSINESS LOSS AMOUNTING TO RS.1,77,91,478/- SHOULD BE ALLOWED. TH E AO IS DIRECTED TO GIVE EFFECT ACCORDINGLY. 6. BEFORE US REGARDING GROUND NO.1 THE LEARNED DR S UBMITS THAT IT IS A CASE OF DIFFERENCE OF OPINION BETWEEN AO AND CIT-A. GROUND NO.1 INVOLVES A POINT OF SPECULATIVE LOSS IN NATURE AS PER AO IN HIS ORDER A T PAGE NO.2. CIT-A BY RELYING ON SOME PAPERS AS DISCUSSED IN ITS ORDER AT PG.15 WERE NOT AVAILABLE WITH AO. THE LEARNED DR ALSO POINTED OUT THAT THE CERTIFICATE IS SUED THEREIN WHICH IS PLACED AT PG NO.87 OF THE PAPER BOOK IS IN GENERAL NATURE AND A PAPER APPEARS TO BE WEB GENERATED ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 4 WHERE IT SHOWS ASSESSEE DEALT THE SAID BUSINESS REG ULARLY AND AOP IS NOTHING TO DO WITH DEALS OF THE ASSESSEE. 7. IN REPLY THE LEARNED AR SUBMITS THAT ALL THE DET AILS REGARDING THE CLAIM WERE PRODUCED BEFORE THE AO AND CIT-A WHICH ARE AT PG.NO 48 TO 60 IN THE PAPER BOOK AND NO ADDITIONAL DOCUMENTS WHAT SO EVER FILED BEFORE T HE CIT-A. THE AO HAVING EXAMINED ALL THE DETAILS FOUND THE ASSESSEE HAS INV OLVED SEPARATELY COMMODITY TRANSACTION HAVING NO CONNECTION WITH ITS ACTUAL BU SINESS AND PROVISO TO SEC43(5) OF THE ACT IS NOT APPLICABLE WHICH IS INCORRECT AND BA SED ON PRESUMPTION AND RELIED ON ORDER OF CIT-A. 8. HEARD BOTH SIDES AND PERUSED WITH ALL THE RELEVA NT MATERIAL AVAILABLE ON THE RECORD. THE QUESTION TO BE DECIDED IN THIS ISSUE IS AS TO WHETHER THE LOSS CLAIMED BY THE ASSESSEE FALLS FOR CONSIDERATION U/S 43(5)(B) O F THE ACT OR NOT. IN THIS REGARD WE MAY REFER TO THE PROVISO (B) SUB SEC (5) OF SEC 43 OF THE ACT. DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FRO M PROFITS AND GAINS OF BUSINESS OR PROFESSION. 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS T HE CONTEXT OTHERWISE REQUIRES (5) 'SPECULATIVE TRANSACTION' MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN B Y THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS: PROVIDED THAT FOR THE PURPOSES OF THIS CLAUSE (A) OR (B) A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTE RED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDI NGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS; OR (C). OR ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 5 (D ). OR] 7 [(E) SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION . 9. A PLAIN READING OF SUB SEC (5) SPEAKS THAT ANY STOCKS AND SHARES SETTLED WITHOUT ACTUAL DELIVERY OR TRANSFER OF SUCH COMMODITY OR SC RIPS AS THE CASE MAY BE UNDER CONTRACT IS A SPECULATIVE TRANSACTION AND PROVISO ( B) TO SUB SEC (5) OF SEC 43 OF THE ACT, THE BENEFIT IS PROVIDED TO THE DEALER OR THE I NVESTOR AS THE CASE MAY BE TO PROTECT HIS BUSINESS FROM ANY LOSS IN FUTURE DUE TO PRICE F LUCTUATIONS CAN BE SETTLED OTHERWISE THAT BY THE ACTUAL DELIVERY OR TRANSFER OR SCRIPS. IN THE PRESENT CASE THE ASSESSEE INVOLVED IN THE EXPORT BUSINESS HAVING ESTABLISHED IN 1981 ENTERED INTO CONTRACTS TO SUPPLY ITS KEY PRODUCTS BUT HOWEVER DUE TO HIGH RIS E IN FLUCTUATION OF PRICES OF ITS KEY PRODUCTS THE ASSESSEE COULD NOT DELIVER ITS PRODUCT S TO ITS PURCHASER UNDER CONTRACT THEREBY IT SETTLED BY WAY OF PAYING DAMAGES TO ITS PURCHASERS. TO SUPPORT ITS CASE, THE ASSESSEE FILED STATEMENT OF COMMODITY OF FUTURE TRA NSACTION AND PHYSICAL STOCK PLACED AT PG NOS.48 TO60 IN PAPER BOOK. DURING THE COURSE OF THE ARGUMENTS THE LEARNED AR POINTED THAT THIS DOCUMENTS DETAILING THE PHYSICAL STOCK WERE SUBMITTED BEFORE THE AO AND THE CIT-A HAVING EXAMINED THE SAME GAVE RELI EF TO THE ASSESSEE. THE LEARNED AR ALSO POINTED AT PAGE NO.46 OF PAPER BOOK TO SHOW THAT THE ASSESSEE INCURRED LOSS DUE TO PRICE FLUCTUATION OF ITEM CHANA WHERE IT PU RCHASED FOR RS. 1,672,500 /- ON 7-2- 2006 AND IT SOLD THE SAME ITEM AT PRICE RS.1,699,49 0/- ON 9-2-2006. THEREBY IT SHOWS TO ESTABLISH A LOSS OF RS.2,06,990/-. HOWEVER, AS R IGHTLY POINTED OUT BY THE LD. D.R., IT APPEARS THAT THE RELEVANT DETAILS FILED BY THE ASSE SSEE AND RELIED UPON BY THE LD. CIT(A) WERE NOT AVAILABLE BEFORE THE AO AS THERE IS NO MENTION OF THE SAME IN THE ASSESSMENT ORDER. THE ONUS TO ESTABLISH THAT HIS CA SE IS COVERED BY THE PROVISO TO SECTION 43(5) IS ON THE ASSESSEE AND HE HAS TO DISC HARGE THE SAME BY ESTABLISHING THE CO-RELATION BETWEEN THE TRANSACTIONS IN QUESTION AN D HIS REGULAR BUSINESS TRANSACTIONS SO AS TO PROVE THAT THE SAME ARE ENTERED INTO TO GU ARD AGAINST LOSS IN HIS HOLDINGS OF ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 6 STOCKS AND SHARES THROUGH PRICE FLUCTUATION. WE, TH EREFORE, SET ASIDE THE IMPUGNED ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE M ATTER TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER EXAMINING ALL THE RE LEVANT FACTS AND FIGURES AND AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. ACCORDINGLY GROUND NO.1 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN VIEW OF THE DISCUSSION AND FINDING THEREON I N GROUND NO-1, IN OUR OPINION, THE ADJUDICATION OF GROUND NO-2 IS NOT NECESSARY, T HEREFORE THE SAME IS DISMISSED. 11. GROUND NO-3 INVOLVING RS.1,40,000/- AS DISALLO WED BY THE AO BEING 40% OF RS.7,10,738/- AS CLAIMED BY THE ASSESSEE TOWARDS CO MPUTER MAINTENANCE. THE ASSESSEE CONTENDED THAT IT INCURRED SAID EXPENSES F OR THE PURPOSE OF BUSINESS. THE ASSESSEE ALSO RELIED ON THE CASE LAWS IN SOUTHERN R OADWAYS LTD REPORTED IN 288 ITR 15 (MAD) AND JANAKIRAM MILLS LTD REPORTED IN 275 IT R 403, BUT, HOWEVER, THE AO FOUND THAT THE CASE LAWS REFERRED ABOVE ARE VERY OL D AND THE RATIO THEREIN CAN NOT BE APPLIED IN THE PRESENT CASE, BUT, RELYING ON CURREN T GUIDELINE DISALLOWED 40% AND ADDED TO THE INCOME OF THE ASSESSEE. BEFORE CIT-A, THE AR CONTENDED THAT THE ASSESSEE INCURRED SAID EXPENSES FOR UPGRADATION OF SOFTWARE FOR IMPROVEMENT AND TO ENABLE EXISTING SYSTEM TO RUN EFFICIENTLY AND TO KE EP PEACE WITH THE LATEST TECHNOLOGY AND RELIED ON CASE LAW IN IBM INDIA LTD VS CIT REPO RTED IN 105 ITD 1 (BANG) PASSED BY THE TRIBUNAL OF BANGALORE BENCHES. AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE, CIT-A DELETED THE ADDITION MADE ON ACCOUN T OF DISALLOWANCE AT 40% AGAINST THE CLAIM OF THE ASSESSEE. 12. HEARD BOTH SIDES AND PERUSED WITH ALL THE RELEV ANT MATERIAL AVAILABLE ON THE RECORD. WE FIND THAT THE ASSESSEE DEBITED RS.7,10,7 38/- TO PROFIT AND LOSS A/C TOWARDS ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 7 UPGRADATION OF THE EXISTING COMPUTER SYSTEM. IN TH IS REGARD WE MAY REFER TO THE ORDER RELIED ON BY THE ASSESSEE IN SUPPORT OF ITS CASE. 13. THE BANGALORE 'B BENCH OF TRIBUNAL IN THE CAS E OF IBM INDIA LTD. VS. COMMISSIONER OF INCOME TAX REPORTED IN (2007) 105 I TD 0001, WHEREIN THE FACTS IN THE SAID DECISION ARE THAT THE ASSESSEE TH EREIN ACQUIRED CERTAIN APPLICATION SOFTWARE FOR A SUM OF RS. 33,14,298 AND CLAIMED THE SAME AS REVENUE EXPENDITURE. THE AO HELD THAT SINCE THESE RESULT IN ENDURING BEN EFIT TO THE ASSESSEE, IT IS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. CIT(A) HEL D THAT IN ABSENCE OF ANY MATERIAL TO DECIDE THE LIFESPAN OF SAID SOFTWARE AND ALSO HE LD THAT THE DEPRECIATION ON NON- TANGIBLE ASSET IS ALLOWABLE UNDER S. 32(1)(II) IMPL YING THAT SOFTWARE WHICH IS AN INTANGIBLE ASSET CAN ALSO BE A CAPITAL ASSET AND TH E SAME AMOUNTS TO CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. THE TRIBUN AL EXAMINED IS AS TO WHETHER THE TREATMENT OF PURCHASE OF SOFTWARE AMOUNTING TO RS. 33,14,298 IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE AND HELD AS FOLLOWS: 3.5 WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS, AR GUMENTS ADVANCED AND THE DECISIONS CITED. FOR DETERMINING THE NATURE AS TO WHETHER THE EXPENSES ARE CAPITAL OR REVENUE, THE SAME CAN BE WI TH REGARD TO FACTS OF EACH CASE, AS NO ONE TEST OR PRINCIPLE OR CRITERIA IS PARAMOUNT OR CONCLUSIVE OR OF UNIVERSAL APPLICATION. WHEN EXPEND ITURE IS MADE NOT ONLY ONCE AND FOR ALL BUT ALSO WITH A VIEW TO BRING ING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT, THE SAME CAN BE PROPERLY CLASSIFIED AS CAPITAL EXPENDITURE. AT THE SAME TIME, EVEN THOUGH THE EXPENSES ARE ONCE AND FOR ALL AND MAY GIVE AN ADVAN TAGE FOR ENDURING BENEFIT BUT IS NOT WITH A VIEW TO BRINGING INTO EXI STENCE ANY ASSET, THE SAME CANNOT BE ALWAYS CLASSIFIED AS CAPITAL EXPENDI TURE . THE TEST TO BE APPLIED IS, IS IT A PART OF COMPANYS WORKING EXPEN SES OR IS IT EXPENDITURE LAID OUT AS A PART OF PROCESS OF PROFIT EARNING. IS IT ON THE CAPITAL LAYOUT OR IS IT AN EXPENDITURE NECESSARY FOR ACQUISITION O F PROPERTY OR OF RIGHTS OF A PERMANENT CHARACTER, POSSESSION OF WHICH IS CO NDITION ON CARRYING ON A TRADE AT ALL. HONBLE SUPREME COURT IN THE CAS E OF ALEMBIC CHEMICAL CO. (SUPRA) HELD THAT THE CONCEPT OF PAYME NT MADE ONCE AND FOR ALL AND OF ENDURING BENEFIT MUST RESPOND TO THE CHANGING ECONOMIC REALITIES OF THE BUSINESS. IT IS ALSO OBSERVED THAT 'ONCE FOR ALL' PAYMENT ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 8 TEST IS ALSO INCONCLUSIVE. IN A GIVEN CASE, THE TES T OF 'ENDURING BENEFIT' MIGHT BREAK DOWN. IN THE LIGHT OF ABOVE PRINCIPLE, LET US EXAMINE THE FACTS OF THE PRESENT CASE. THE ASSESSEE IN THE COUR SE OF ITS BUSINESS ACQUIRED CERTAIN APPLICATION SOFTWARE. IT IS MADE C LEAR THAT THE AMOUNT IS PAID FOR APPLICATION SOFTWARE AND NOT SYSTEM SOFTWA RE. THE APPLICATION SOFTWARE ENABLES THE ASSESSEE TO CARRY OUT ITS BUSI NESS OPERATION EFFICIENTLY AND SMOOTHLY. HOWEVER, SUCH SOFTWARE IT SELF DOES NOT WORK ON STAND ALONE BASIS. THE SAME HAS TO BE FITTED TO A C OMPUTER SYSTEM TO WORK. SUCH SOFTWARE ENHANCES THE EFFICIENCY OF THE OPERATION. IT IS AN AID IN MANUFACTURING PROCESS RATHER THAN THE TOOL ITSEL F. THUS, FOR PAYMENT OF SUCH APPLICATION SOFTWARE, THOUGH THERE IS AN ENDUR ING BENEFIT, IT DOES NOT RESULT INTO ACQUISITION OF ANY CAPITAL ASSET. THE SAME MERELY ENHANCES THE PRODUCTIVITY OR EFFICIENCY AND HENCE T O BE TREATED AS REVENUE EXPENDITURE. THE DECISION OF HONBLE RAJAST HAN HIGH COURT IN THE CASE OF ARAWALI CONSTRUCTION CO. (SUPRA) IS DIS TINGUISHABLE ON THE FACTS. BY PAYING THE SUM, THE ASSESSEE DOES NOT ACQ UIRE ANY TECHNICAL KNOW-HOW BUT MERELY RIGHT TO USE SUCH SOFTWARE AND HENCE, THE DECISION OF HONBLE RAJASTHAN HIGH COURT WILL NOT APPLY. WE ACCORDINGLY HOLD THAT THE AMOUNT PAID IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. 14. IN THE PRESENT CASE THE ASSESSEE CLAIMED RS.7,1 0,738/- TOWARDS COMPUTER MAINTENANCE AND CONTENDED THAT IT INCURRED SAID EXP ENSES FOR THE PURPOSE OF BUSINESS FOR IMPROVEMENT AND TO ENABLE EXISTING SYSTEM TO RU N EFFICIENTLY AND TO KEEP PACE WITH THE LATEST TECHNOLOGY AND THE AO WAS OF THE VI EW THAT THE CASE LAWS RELIED ON BY THE ASSESSEE IN THE CASE OF CIT VS SOUTHERN ROADWAYS LTD REPORTED IN 288 ITR 15 (MAD) AND CIT VS. JANAKIRAM MILLS LTD (2005) 196 CTR (MAD) 551 : (2005) 275 ITR 403 (MAD) ARE VERY OLD AND CANNOT BE RELIED. LET US EXAMINE THE CASE LAW IN CIT VS SOUTHERN ROADWAYS LTD WHERE QUESTION BEFORE THE HONBLE COURT WAS TH AT WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRI BUNAL WAS RIGHT IN HOLDING THAT THE EXPENDITURE INCURRED ON THE UPGRADATION OF SOFTWARE IS REVENUE EXPENDITURE? THE HONBLE COURT HELD THAT IN VIEW OF THE RATIO LAID D OWN IN CIT VS. JANAKIRAM MILLS LTD (2005) 275 ITR (MAD), WE HOLD THAT THE EXPENDITURE ON REPLACEMENT OF MACHINERY IS REVENUE EXPENDITURE AND THEREFORE, THE TRIBUNAL WAS RIGHT IN ALLOWING THE CLAIM OF THE ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 9 ASSESSEE. TO BE CLEARER FOR THAT MATTER THAT THE HO NBLE COURT IN THE CASE OF CIT VS. JANAKIRAM MILLS HELD THAT ALL PLANT AND MACHINERY PUT TOGETHER AMOU NT TO A COMPLETE SPINNING MILL WHICH IS CAPABLE OF MANUFACTURING YAR N AND HENCE EACH REPLACED MACHINE COULD NOT BE CONSIDERED AS AN INDEPENDENT O NE AND NO INTERMEDIATE MARKETABLE PRODUCT WAS PRODUCED. THEREFORE IN VIEW OF THE DECISIONS SUPRA THE ASSESSEE DID NOT GET ANY ASSET ON PAYMENT OF RS.7,1 0,738/- NOR CREATE ANY SEPARATE PRODUCT, AS THE HONBLE HIGH COURT OF MADRAS RIGHTL Y HELD THAT PLANT AND MACHINERY PUT TOGETHER AMOUNT TO A COMPLETE SPINNING MILL, IN THE SAME WAY IN THE PRESENT CASE ALSO THAT THE AMOUNT IS PAID FOR UPGRADATION OF APP LICATION SOFTWARE TO ENABLE EXISTING SYSTEM TO RUN EFFICIENTLY AND NOT FOR COMPUTER ITSE LF AS WHOLE, THUS WE HOLD THAT THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS SOUTHERN ROADWAYS LTD REPORTED IN 288 ITR 15 (MAD) AND CIT V S. JANAKIRAM MILLS LTD IN (2005) 275 ITR 403 (MAD) AND ORDER OF BANGALORE BEN CH OF TRIBUNAL SUPRA ARE APPLICABLE TO THE FACTS OF THE CASE. RESPECTFULLY F OLLOWING THE SAME, WE DISMISS THE GROUND NO-3 RAISED BY THE REVENUE. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. C.O. NO.71/KOL/2010 16. THE CROSS OBJECTION FILED BY THE ASSESSEE IN C. O. 71/KOL/2010 QUESTIONING THE ORDER OF THE CIT-A WHERE THE CIT-A OUGHT TO HAVE AL LOWED THE WHOLE AMOUNT AS CLAIMED BY THE ASSESSEE UNDER SECTION 80G OF THE AC T. IN RESPONSE TO THE CLAIM OF RS.3,16,625/-, THE ASSESSEE PRODUCED ALL THE DETAIL S BEFORE THE AO AND HE DISALLOWED TO THE EXTENT OF RS.1,58,313/- FOR NON PRODUCTION O F NO EXEMPTION CERTIFICATE. IN APPEAL, THE CIT-A DIRECTED THE AO T O ALLOW THE CLAIM OF THE ASSESSEE ON PRODUCTION OF THE REQUISITE CERTIFICATE S. THE LD.AR SUBMITTED THAT THE C.O. MAY BE REMANDED TO AO FOR VERIFICATION OF CERTIFICA TES REQUIRED FOR CLAIMING DEDUCTION UNDER SECTION 80G OF THE ACT. ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 10 17. HEARD BOTH PARTIES. IT IS NOTICED FROM THE ORDE RS OF BOTH THE LOWER AUTHORITIES THAT THE ASSESSEE COULD NOT PRODUCE THE SAID CERTIF ICATES BEFORE THE AO NOR BEFORE THE CIT-A IN FULL AND CONSIDERING THE SUBMISSIONS OF TH E BOTH THE REPRESENTATIVES, IN THE INTEREST OF JUSTICE, WE REMAND THE ISSUE IN C.O. TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE CERTIFICATE AND TO PASS ORDER IN ACCORDA NCE WITH LAW. THE ASSESSEE IS AT LIBERTY TO FILE ALL RELEVANT DETAILS AND DOCUMENTS THAT MAY BE RELIED TO CLAIM THE EXEMPTION U/S 80G OF THE ACT. ACCORDINGLY, THE SOL E ISSUE RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION IS ALLOWED FOR STATISTICAL PURP OSES. 18. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED PARTLY FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION FILED BY THE ASSES SEE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.05.2016 SD/- SD/- (P. M. JAGTAP) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27.05.2016 TALUKDAR (SR.PS) COPY OF THE ORDER FORWARDED TO: 1. M/S R. PIYARELALL IMPORT & EXPORT LTD., 12, GOVT . PLACE (EAST), KOLKATA 700 069 2 DCIT, CIRCLE-3, 8/2, ESPLANADE EAST, DWARLI HOUSE , 2 ND FLOOR, KOLKATA 700 069. 3. THE CIT-I, 4. THE CIT(A)-I, 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASSISTANT REGISTRAR, ITAT, KOLKATA BENCHES, KOLKATA ITA NO.952/KOL/10 & C.O.NO.71/KOL/2010 M/S. R. PIYARELA LL IMPORT & EXPORT LTD. 11