Danfoss Industries Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 962/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64346 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; International transaction; Revenue expenditure
• Section: 143(3); 142(1); 263; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 962/MDS/2012 (ASSESSMENT YEAR : 2006-07) M/S DANFOSS INDUSTRIES PVT. LTD., 296, OLD MAHABALIPURAM ROAD, SHOLINGANALLUR, CHENNAI - 600 119. PAN : AABCD0321M (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(4), CHENNAI - 600 119. (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, CA RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 10.09.2012 DATE OF PRONOUNCEMENT : 27.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : ASSESSEE IN THIS APPEAL ASSAILS AN ORDER DATED 27 .3.2012 PASSED BY COMMISSIONER OF INCOME TAX, CHENNAI-I, UN DER SECTION 263 OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). AS PER THE ASSESSEE, THERE WAS NO ERROR OR PREJUDICE CAUSED TO THE REVEN UE IN THE ORDER OF THE ASSESSING OFFICER WARRANTING INVOCATION OF SECT ION 263 OF THE ACT. I.T.A. NO. 962/MDS/12 2 2. FACTS APROPOS ARE THAT ASSESSEE, MANUFACTURING A ND MARKETING REFRIGERATION AND AIR-CONDITIONING CONTROLS AND ALS O ENGAGED IN SERVICING OF SUCH PRODUCTS, HAD FILED ITS RETURN FO R IMPUGNED ASSESSMENT YEAR ON 22.11.2006 DECLARING AN INCOME O F ` 10,37,48,890/-. IN THE COURSE OF ASSESSMENT PROCEE DINGS, IT WAS NOTED BY THE A.O. THAT ASSESSEE HAD INTERNATIONAL T RANSACTION WITH ITS ASSOCIATE ENTERPRISE, VALUE OF WHICH EXCEEDED ` 15 CRORES AND ACCORDINGLY A REFERENCE WAS MADE TO TRANSFER PRICIN G OFFICER (TPO) UNDER SECTION 92 OF THE ACT. TPO, VIDE HER ORDER D ATED 28.10.2009, OPINED THAT NO ADJUSTMENT WAS REQUIRED TO THE VALUE OF INTERNATIONAL TRANSACTIONS REPORTED BY THE ASSESSEE. THEREAFTER, THE ASSESSMENT WAS COMPLETED ACCEPTING THE INCOME RETURNED, EXCEPT FOR A DISALLOWANCE OF ` 26,222/- FOR AN EXCESS CLAIM MENTIONED IN THE AUDI T REPORT IN FORM NO.3CD FILED ALONG WITH RETURN OF IN COME. 3. LATER, CIT ISSUED A NOTICE UNDER SECTION 263 OF THE ACT ASKING THE ASSESSEE TO EXPLAIN WHY THE SAID SECTION SHOULD NOT BE INVOKED WITH REGARD TO A CLAIM OF ` 2,13,72,000/- MADE BY THE ASSESSEE TOWARDS SOFTWARE EXPENSES, WHICH WAS ALLOWED BY THE ASSESSING OFFICER. AS PER THE CIT, THE ASSESSING OFFICER HAD CONSIDERED IT AS REVENUE EXPENDITURE IGNORING NEW APPENDIX-I UNDER I NCOME-TAX RULES, 1962 APPLICABLE FROM ASSESSMENT YEAR 2003-04 ONWARDS, I.T.A. NO. 962/MDS/12 3 WHICH SPECIFIED A DEPRECIATION RATE OF 60% FOR COMP UTER SOFTWARE. CIT ALSO NOTED THAT A CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF ONE M/S ASCO (INDIA) LTD. (I.T.A. NO. 43/MDS/2007 A ND 121/MDS/2007 DATED 17.11.2008) HAD HELD COMPUTER SOFTWARE TO BE A CAPITAL ASSET. AS PER THE CIT, ASSESSING OFFICER DID NOT GO INTO T HESE ASPECTS BEFORE ALLOWING THE CLAIM OF THE ASSESSEE, BUT HAD ON THE OTHER HAND, ACCEPTED SUCH A CLAIM WITHOUT PROPER ENQUIRY. 4. IN RESPONSE TO THE NOTICE ISSUED ON THE ABOVE LI NES, REPLY OF THE ASSESSEE WAS THAT THE CONDITIONS REQUIRED FOR INVOC ATION OF SECTION 263 OF THE ACT WERE NOT SATISFIED. AS PER THE ASSE SSEE, ASSESSING OFFICER HAD TAKEN ONE VIEW OF TWO POSSIBLE VIEWS. JUST BECAUSE SUCH A VIEW WAS BENEFICIAL TO THE ASSESSEE, JURISDICTION UNDER SECTION 263 OF THE ACT COULD NOT BE ASSUMED. AS PER THE ASSESS EE, EXPENDITURE INCURRED ON SOFTWARE WAS A REVENUE OUTGO. ASSESSEE ALSO ARGUED BEFORE CIT THAT IT HAD FURNISHED A BREAK-UP OF EXPE NDITURE, COPIES OF INVOICES AND LEDGER EXTRACT IN SUPPORT OF ITS CLAIM AND ASSESSING OFFICER HAD ALLOWED THE CLAIM AFTER TAKING DUE COGN IZANCE OF SUCH RECORDS. 5. HOWEVER, CIT WAS NOT IMPRESSED. ACCORDING TO HI M, FOR ASSESSMENT YEAR 2004-05 ALSO THERE WAS A SIMILAR CL AIM MADE BY THE I.T.A. NO. 962/MDS/12 4 ASSESSEE, WHICH WAS ALLOWED BY THE ASSESSING OFFICE R. CIT HAD INVOKED SECTION 263 OF THE ACT FOR THAT YEAR ALSO A ND ON ASSESSEES APPEAL, IT WAS HELD BY THIS TRIBUNAL THAT ASSESSING OFFICERS ORDER ALLOWING SOFTWARE EXPENSES, WAS ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF REVENUE. AS PER CIT, THE FACTS AND CI RCUMSTANCES FOR IMPUGNED ASSESSMENT YEAR WERE IDENTICAL TO THAT OF ASSESSMENT YEAR 2004-05 AND THEREFORE, HE WAS HAVING POWERS UNDER S ECTION 263 FOR MAKING A REVISIONARY ORDER. CIT NOTED FROM THE ASS ESSMENT RECORDS THAT ASSESSING OFFICER HAD NOT CALLED FOR IMPORTANT DETAILS LIKE COPIES OF INVOICES AND OTHER SUPPORTING DOCUMENTS WHICH, A CCORDING TO HIM, WERE NECESSARY FOR VERIFYING THE CLAIM OF SOFTWARE EXPENDITURE. AS PER CIT, ASSESSING OFFICER DID NOT GO INTO THE ISSU E WHETHER SOFTWARE EXPENSES CLAIMED WERE CAPITAL OR REVENUE IN NATURE, BUT HAD GONE BY THE BREAK-UP OF EXPENSES GIVEN BY THE ASSESSEE. CI T ALSO NOTED THAT IN THE ASSESSING OFFICERS ORDER SHEET FOR IMPUGNED ASSESSMENT YEAR, THERE WAS NO REFERENCE AT ALL TO THE CLAIM OF SOFTW ARE EXPENDITURE. HE THUS CAME TO A CONCLUSION THAT ASSESSING OFFICER, D ESPITE OBTAINING THE BREAK-UP OF SOFTWARE EXPENSES, DID NOT GO INTO THE IMPORTANT ASPECT WHETHER SUCH CLAIM COULD BE ALLOWED AS REVEN UE OUTGO OR WHETHER IT WAS CAPITAL IN NATURE. THOUGH THE ASSES SEE RELIED ON VARIOUS DECISIONS LIKE THAT OF HONBLE APEX COURT I N THE CASE OF I.T.A. NO. 962/MDS/12 5 MALABAR INDUSTRIAL CO. LTD. V. CIT (243 ITR 83), TH AT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GABRIAL IND IA LTD. (203 ITR 108), THAT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD. (282 ITR 379) AND DECISION O F SPECIAL BENCH OF THIS TRIBUNAL IN AMWAY INDIA ENTERPRISES V . DCIT (111 ITD 112). CIT WAS OF THE OPINION THAT NONE OF THESE CA SES WOULD HELP THE ASSESSEE BECAUSE EXPENDITURE INCURRED BY THE ASSESS EE INCLUDED COST OF NEW SOFTWARE AND IT WAS NOT THE QUESTION OF UPGRADATION OF ANY EXISTING SOFTWARE. IN ANY CASE, ACCORDING TO H IM, ASSESSING OFFICER HAVING NOT CALLED FOR ANY DETAILS NOR GONE INTO THE DETAILS OF EXPENDITURE, THE ORDER OF ASSESSING OFFICER WAS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HE, THERE FORE, SET ASIDE THE ORDER OF ASSESSING OFFICER AND DIRECTED HIM TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. 6. NOW BEFORE US, LEARNED A.R., AT THE OUTSET, POIN TED OUT THAT SIMILAR ORDERS WERE PASSED BY THE CIT UNDER SECTION 263 OF THE ACT, FOR ASSESSMENT YEAR 2004-05 AS WELL AS 2005-06. AC CORDING TO HIM, ASSESSEE HAD MOVED IN APPEALS, FOR BOTH THESE YEARS , BEFORE THIS TRIBUNAL. THIS TRIBUNAL IN THE APPEAL OF THE ASSES SEE FOR ASSESSMENT YEAR 2004-05, HAD UPHELD THE ORDER OF CIT UNDER SEC TION 263 OF THE I.T.A. NO. 962/MDS/12 6 ACT. HOWEVER, ACCORDING TO HIM, THE ORDER OF CIT W AS UPHELD FOR A REASON THAT RECORDS RELATING TO THE ISSUE WERE NOT AVAILABLE BEFORE THE A.O. LEARNED A.R. POINTED OUT THAT ON A SIMILAR OR DER OF CIT FOR ASSESSMENT YEAR 2005-06, THIS TRIBUNAL HAD HELD THA T ONCE ASSESSING OFFICER HAD OBTAINED THE EVIDENCE FOR PURCHASE OF S OFTWARE AND DETAILS WERE AVAILABLE BEFORE ASSESSING AUTHORITY, REVISIONARY ORDER OF CIT COULD NOT BE SUSTAINED. ACCORDING TO HIM, THIS TRIBUNAL IN ITS ORDER FOR ASSESSMENT YEAR 2005-06 PLACED AT PAPER-B OOK (CONTAINING CASE LAWS) PAGES 197-201, AT PARA 2 ONWARDS HAD DEA LT WITH THE ISSUE REGARDING CLAIM OF SOFTWARE EXPENSES, EXTENSI VELY. IT WAS HELD BY THIS TRIBUNAL THAT SOFTWARE EXPENDITURE CLAIMED WAS REVENUE IN NATURE AND ASSESSING OFFICER HAVING OBTAINED EVIDEN CE FOR SUCH SOFTWARE EXPENSES, CIT COULD NOT INVOKE REVISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT. AS PER LEARNED A.R., ORDER OF THIS TRIBUNAL, FOR ASSESSMENT YEAR 2004-05, PLACED AT PA PER-BOOK PAGES 192-196, COULD NOT BE FOLLOWED BECAUSE THE ORDER OF CIT UNDER SECTION 263 FOR THAT YEAR CLEARLY SHOWED THAT THERE WAS NO INDICATION WHATSOEVER IN THE ASSESSMENT ORDER THAT ASSESSING O FFICER HAD CONSIDERED THE CLAIM OF SOFTWARE EXPENSES DURING TH E COURSE OF ASSESSMENT PROCEEDINGS. ACCORDING TO HIM, FOR THAT YEAR, ASSESSING OFFICER HAD NOT TAKEN ANY VIEW AT ALL BECAUSE THE A LLOWABILITY OF THE I.T.A. NO. 962/MDS/12 7 CLAIM MADE BY THE ASSESSEE WAS NOT CONSIDERED AT AL L. ON THE OTHER HAND, THE ORDER OF CIT UNDER SECTION 263 OF THE ACT , FOR ASSESSMENT YEAR 2005-06, WAS FOR DIFFERENT REASONING SINCE THE CIT HAD NOT QUESTIONED THE PURCHASE OF SOFTWARE. THE CIT HIMSE LF STATED THAT HIS ONLY CONCERN WAS REGARDING THE NATURE OF EXPENDITUR E AS TO WHETHER THEY WERE CAPITAL OR REVENUE AND WHETHER ASSESSEES CLAIM WAS ALLOWED WITHOUT EXAMINING THIS ASPECT. ACCORDING T O THE LEARNED A.R., IMPUGNED ORDER OF CIT WAS VERY SIMILAR TO HIS ORDER FOR ASSESSMENT YEAR 2005-06, WHICH WAS QUASHED BY THIS TRIBUNAL ON ASSESSEES APPEAL. HERE ALSO, THE CIT HAD NOT QUES TIONED THE EXPENDITURE INVOLVED, BUT HAD HELD THAT ASSESSING O FFICER HAD NOT EXAMINED THE NATURE OF CLAIM WHETHER IT WAS IN THE CAPITAL FIELD OR REVENUE FIELD. 7. LEARNED A.R. THEN BROUGHT TO OUR ATTENTION THE O RDER OF THIS TRIBUNAL IN A MISCELLANEOUS PETITION FILED BY THE R EVENUE AGAINST ITS ORDER FOR ASSESSMENT YEAR 2005-06. ACCORDING TO HI M, THIS TRIBUNAL HAD BROUGHT OUT THE DIFFERENCE BETWEEN THE REVISION ARY ORDERS OF CIT FOR ASSESSMENT YEAR 2004-05 AND 2005-06, AND THE RE ASON WHY IT HAD TAKEN A DIFFERENT VIEW FOR ASSESSMENT YEAR 2005-06. ACCORDING TO HIM, CLAIM OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEAR, BEING AKIN I.T.A. NO. 962/MDS/12 8 TO ITS CLAIM FOR ASSESSMENT YEAR 2005-06, TRIBUNAL ORDER FOR ASSESSMENT YEAR 2005-06, HAD TO BE FOLLOWED. 8. PROCEEDING FURTHER, LEARNED A.R. SUBMITTED THAT ASSESSEE WAS, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, REQUIR ED BY THE A.O. BY HIS LETTER DATED 24 TH AUGUST, 2009 (PAPER-BOOK PAGE 49) TO FURNISH LEDGER ACCOUNTS OF EXPENSES, WHICH INTER ALIA INCLU DED SOFTWARE EXPENSES ALSO. ASSESSEE HAD THEREUPON, VIDE ITS LE TTER DATED 7 TH SEPTEMBER, 2009 PLACED AT PAPER-BOOK PAGES 22-25, G IVEN A DETAILED NOTE WHICH AT PARA 7, GAVE A BREAK-UP OF THE EXPEND ITURE WHICH INTER ALIA INCLUDED EXPENDITURE RELATING TO SOFTWARE ALSO . ACCORDING TO HIM, ANNEXURE 9 TO THIS LETTER (PAPER-BOOK PAGE 25) GAVE THE FULL BREAK-UP OF EXPENSES FOR SOFTWARE. THEREAFTER, ON 9 TH DECEMBER, 2009, THE NATURE OF EXPENDITURE WAS FURTHER EXPLAINED (PAPER- BOOK PAGES 26- 28) AND IT WAS SUBMITTED TO THE ASSESSING OFFICER T HAT SOFTWARE EXPENSES WERE PAID TO ITS ASSOCIATE ENTERPRISE, NAM ELY, M/S DANFOSS A/S DANFOSS IT NORDBORG, DENMARK (IN SHORT DANFOSS DENMARK), FOR VARIOUS SERVICES RENDERED BY THEM. ACCORDING TO HI M, DANFOSS STANDARD INFRASTRUCTURE WAS A SOFTWARE PROVIDED BY M/S DANFOSS DENMARK AND CREATED A BASIC ADMINISTRATIVE WORKPLAC E ENVIRONMENT WHICH ENABLED ITS EMPLOYEES TO SHARE INFORMATION ON LINE AND ALSO FOR TROUBLESHOOTING ERRORS AND FAILURES. LEARNED A.R. MADE SPECIFIC I.T.A. NO. 962/MDS/12 9 REFERENCE TO THE LETTER DATED 21 ST DECEMBER, 2009 (PAPER-BOOK PAGES 29-30) WRITTEN BY THE ASSESSEE TO THE ASSESSING OFF ICER, WHERE JUSTIFICATION FOR THE CLAIM OF SOFTWARE EXPENDITURE WAS GIVEN IN DETAIL. ACCORDING TO HIM, ASSESSEE HAD PLACED RELIANCE ON T HE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. SOUTHERN ROADWAYS LTD. (282 ITR 379), THAT OF SPECIAL BENCH OF THIS TRIBUNAL IN AMWAY INDIA ENTERPRISES V. DCIT (111 ITD 112), B ANGALORE BENCH OF THIS TRIBUNAL IBM INDIA LIMITED V. CIT (105 ITR 001) AND CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF L&T RAMBOLL CONSULTING ENGINEERS LTD. V. ACIT IN I.T.A. NO. 886/MDS/2006, IN SUPPORT OF ITS CLAIM THAT SOFTWARE EXPENDITURE COULD BE CONSIDERED ONLY AS A REVENUE OUTGO. IT WAS AFTER CONSIDERING ALL SUCH C ASE LAWS, ASSESSING OFFICER DECIDED TO ALLOW THE CLAIM. ACCO RDING TO HIM, ON THE FACE OF THESE SUBMISSIONS MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, JUST FOR A REASON THAT ASSESSING OFFICER HAD NOT MADE ANY SPECIFIC MENTION REGARDING THE CLAIM IN THE ASSESSMENT ORDER, NON-APPLICATION OF MIND BY THE AS SESSING OFFICER COULD NOT BE INFERRED. HAVING CALLED FOR ALL THE D ETAILS AND HAVING SUBMITTED ALL SUCH DETAILS BEFORE THE ASSESSING OFF ICER, IT COULD NOT BE PRESUMED THAT ASSESSING OFFICER HAD ALLOWED THE CLA IM WITHOUT CONSIDERING THE RECORDS AND WITHOUT APPLYING HIS MI ND. I.T.A. NO. 962/MDS/12 10 9. THUS, ACCORDING TO THE LEARNED A.R., CIT WAS ONL Y TRYING TO SUBSTITUTE HIS VIEW TO A LAWFUL VIEW TAKEN BY THE A SSESSING OFFICER. FURTHER, HE POINTED OUT THAT UNDER COVER OF ITS LET TER DATED 1 ST OCTOBER, 2009, ASSESSEE HAD EVEN FILED A COPY OF THE AGREEME NTS WHICH IT HAD ENTERED WITH M/S DANFOSS DENMARK, FOR VARIOUS IT SE RVICES RENDERED BY THE SAID ASSOCIATE ENTERPRISE (PAPER-BOOK PAGES 35-48). THE PAYMENT OF SOFTWARE EXPENSES WERE IN ACCORDANCE WIT H THE BILLS RAISED BY M/S DANFOSS DENMARK, BASED ON SUCH CONTRA CTS, AND ASSESSING OFFICER HAD CONSIDERED SUCH AGREEMENTS AL SO BEFORE ALLOWING THE CLAIM OF THE ASSESSEE. ACCORDING TO H IM, ALL THESE ASPECTS WERE BROUGHT BEFORE THE CIT ALSO DURING THE COURSE OF PROCEEDINGS UNDER SECTION 263 OF THE ACT. IN ADDIT ION, ASSESSEE HAD ALSO FILED COPIES OF INVOICES RAISED BY M/S DANFOSS DENMARK FOR THE SOFTWARE SERVICE RENDERED BY THEM. IT WAS CLEAR AN D EVIDENT FROM VARIOUS INVOICES (PLACED AT PAPER-BOOK PAGES 6-14) THAT THE EXPENDITURE DID NOT GIVE ANY ENDURING BENEFIT TO TH E ASSESSEE. ASSESSEE DID NOT ACQUIRE ANY SOFTWARE BUT, HAD ONLY RECEIVED LICENSES FOR USING THE SOFTWARE FACILITIES MADE AVA ILABLE BY M/S DANFOSS DENMARK, FOR ONE YEAR. DESPITE ALL SUCH RE CORDS BEING PRODUCED, CIT HAD UNJUSTIFIABLY HELD THAT ORDER OF ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF R EVENUE. RELIANCE I.T.A. NO. 962/MDS/12 11 WAS PLACED ON THE FULL BENCH DECISION OF DELHI HIGH COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD. (256 ITR 1) FOR ARGUING THAT SECTION 114(E) OF INDIAN EVIDENCE ACT WOULD APPLY AND A PRE SUMPTION HAD TO BE TAKEN THAT ALL JUDICIAL AND OFFICIAL ACTS WERE R EGULARLY PERFORMED. 10. EVEN ON MERITS, AS PER LEARNED A.R., CLAIM OF T HE ASSESSEE THAT SOFTWARE EXPENSES WERE ALLOWABLE AS REVENUE OUTGO, COULD NOT BE ASSAILED BY VIRTUE OF THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF CIT V. SUNDARAM CLAYTON LTD. (321 IT R 69). ACCORDING TO HIM, HONBLE JURISDICTIONAL HIGH COURT HAD FOLLO WED ITS OWN DECISION IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD. (282 I TR 379) AND THESE DECISIONS WERE CITED BEFORE THE ASSESSING OFF ICER DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. SPECIFI C RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD. (2011) 64 DTR 63 WHICH, ACCORDING TO HIM, HAD CLEARLY HELD THAT EVEN EXPENS ES INCURRED FOR ACQUISITION OF SOFTWARE APPLICATION, WHICH ENABLED EXECUTION OF A TASK IN THE FIELD OF ACCOUNTING, WOULD STILL BE CONSIDER ED AS REVENUE OUTGO ONLY. THUS, ACCORDING TO HIM, THE SITUATION FOR TH E IMPUGNED ASSESSMENT YEAR WAS UNLIKE THAT OF ASSESSMENT YEAR 2004-05, BUT MORE LIKE OF ASSESSMENT YEAR 2005-06. THE SITUATIO N HERE WAS THAT ASSESSEE HAD PROVIDED ALL DETAILS ON ITS CLAIM REGA RDING SOFTWARE AND I.T.A. NO. 962/MDS/12 12 ASSESSING OFFICER HAD CONSIDERED SUCH CLAIM. CIT W AS ONLY TRYING TO SUBSTITUTE HIS VIEW WITH A LAWFUL VIEW TAKEN BY THE ASSESSING OFFICER. THEREFORE, ACCORDING TO HIM, ORDER OF CIT HAD TO BE QUASHED. 11. PER CONTRA, LEARNED D.R., SUBMITTED THAT IT MIG HT BE TRUE THAT ASSESSEE HAD GIVEN A BREAK-UP OF SOFTWARE EXPENSES. ACCORDING TO HIM, THE ISSUE WAS NOT WHETHER THE ASSESSEE HAD GIV EN A BREAK-UP OF SOFTWARE EXPENDITURE, BUT THE ISSUE WAS WHETHER ASS ESSING OFFICER HAD CONSIDERED THE ASPECT WHETHER SUCH EXPENDITURE WAS REVENUE OUTGO OR CAPITAL OUTGO. NO EXAMINATION WAS DONE AS TO THE LIABILITY FOR DEDUCTING TAX AT SOURCE ON SUCH EXPENDITURE. THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER REGARDING CLAIM OF SOFTWARE EXPENDITURE MADE BY THE ASSESSEE AND HOW IT WAS CON SIDERED. INVOICES PRODUCED BEFORE CIT FOR SOFTWARE EXPENDITU RE WERE NEVER PRODUCED BEFORE THE ASSESSING OFFICER. MAY BE, THE ASSESSING OFFICER WAS GIVEN COPIES OF AGREEMENT ENTERED BY TH E ASSESSEE, WITH M/S DANFOSS DENMARK. HOWEVER, ASSESSEE COULD NEVER LINK SUCH AGREEMENT WITH THE INVOICES RAISED BY THE SAID CONC ERN, NOR DID ASSESSING OFFICER MAKE A FURTHER EXAMINATION OF SUC H AGREEMENT VIS- -VIS THE CLAIM OF SOFTWARE EXPENDITURE. JUST BECA USE ASSESSEE HAD PRODUCED A LEDGER, A PRESUMPTION COULD NOT BE TAKEN THAT EXPENSES SHOWN IN SUCH LEDGER WERE REVENUE IN NATURE. ASSES SING OFFICER WAS I.T.A. NO. 962/MDS/12 13 DUTY BOUND TO VERIFY SUCH CLAIM AND HAVING NOT DONE SO, THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS INSOFAR AS IT WAS P REJUDICIAL TO THE INTERESTS OF REVENUE. 12. AS FOR THE RELIANCE PLACED ON THE ORDER OF THIS TRIBUNAL IN THE MISCELLANEOUS PETITION FILED BY THE REVENUE, FOR AS SESSMENT YEAR 2005-06, LEARNED D.R. SUBMITTED THAT THIS TRIBUNAL HAD GIVEN A CLEAR FINDING THAT ASSESSEE HAD FILED ALL DETAILS BEFORE ASSESSING OFFICER FOR ASSESSMENT YEAR 2005-06, WHEREAS, IT HAD NOT FILED ANY SUCH DETAILS FOR ASSESSMENT YEAR 2004-05. ACCORDING TO HIM, FOR THE IMPUGNED ASSESSMENT YEAR ALSO, ASSESSEE HAD NOT FILED DETAIL S BY WAY OF INVOICES RAISED BY M/S DANFOSS DENMARK IN SUPPORT O F ITS CLAIM FOR SOFTWARE EXPENDITURE. ASSESSING OFFICER HAD JUST G ONE BY THE BREAK- UP GIVEN BY THE ASSESSEE. FURTHER, ACCORDING TO LEA RNED D.R., EVEN THE BREAK-UP CLEARLY SHOWED THAT ONE OF THE ITEMS O F EXPENDITURE MENTIONED THEREIN, NAMELY, EDP EXPENSES FOR FOCUS ( ACCOUNTING SOFTWARE) COMING TO ` 1,10,45,000/- WAS FOR ACQUIRING AN ACCOUNTING SOFTWARE AND AT LEAST THIS AMOUNT WAS NOTHING BUT A CAPITAL OUTGO. LEARNED D.R. ALSO POINTED OUT THAT THE CIT HAD DULY CONSIDERED DEPRECIATION TABLE SHOWN UNDER RULE 5 OF INCOME-TAX RULES, 1962, AS APPLICABLE FOR ASSESSMENT YEAR 2003-04 AND AS APPLI CABLE FOR ASSESSMENT YEAR 2006-07, WHEREIN THERE IS A SPECIFI C RATE OF I.T.A. NO. 962/MDS/12 14 DEPRECIATION PRESCRIBED FOR COMPUTER SOFTWARE. THI S CLEARLY SHOWED THAT EXPENDITURE FOR COMPUTER SOFTWARE, WAS IN THE NATURE OF CAPITAL OUTGO. OMISSION TO CONSIDER THE RELEVANT RULE AND ALLOWING THE CLAIM OF THE ASSESSEE, JUST GOING BY ITS CLAIM, RENDERED ORDER OF THE A.O. ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. IN ASSESSMENT YEAR 2005-06, FOR WHICH ASSESSEE HAD OBTAINED A FAV OURABLE ORDER FROM THIS TRIBUNAL, THERE WAS A CLEAR FINDING THAT ASSESSING OFFICER HAD RECEIVED EVIDENCE FOR PURCHASE OF SOFTWARE. ON THE OTHER HAND, HERE ADMITTEDLY, ASSESSEE HAD NOT FURNISHED ANY SUC H EVIDENCE BEFORE ASSESSING OFFICER. IN ANY CASE, ACCORDING T O HIM, QUESTION OF THE MERITS OF A CLAIM COULD NOT BE GONE INTO BY THI S TRIBUNAL ON AN APPEAL AGAINST AN ORDER UNDER SECTION 263, BY VIRTU E OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. EAST ERN MEDIKIT LTD. (337 ITR 56). FURTHER RELIANCE WAS PLACED ON THE D ECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. INFOSYS TECHNOLOGIES LTD. (341 ITR 290) FOR ARGUING THAT REASONS FOR ALLOWING A CLAIM OF THE ASSESSEE SHOULD BE FORTHCOMING FROM THE ASSESSMENT ORDER. LEARNED D.R. ALSO PLACED RELIANCE ON THE DECISION O F HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SRM SYSTEM S & SOFTWARE PVT. LTD. V. ACIT [T.C.(A) NO.824 OF 2010 DATED 31 ST AUGUST, 2010] FOR ARGUING THAT WHERE ASSESSING OFFICER HAD NOT VERIFI ED THE DOCUMENTS I.T.A. NO. 962/MDS/12 15 RELATING TO A CLAIM OF ASSESSEE, ASSESSMENT ORDER F RAMED WITHOUT SUCH VERIFICATION, WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. FURTHER, ACCORDING TO LEARNED D.R., CIT H AD ONLY REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER AND THERE WAS NO PREJUDICE CAUSED TO THE ASSESSEE FOR SIMPLE REASON THAT IF THE CLAIM OF THE ASSESSEE WAS JUSTIFIED, IT COULD STILL GET I T ALLOWED. 13. AD LIBITUM, SUBMISSION OF THE LEARNED A.R. WAS THAT JUST BECAUSE THE CIT HAD SET ASIDE THE ASSESSMENT ORDER GIVING THE ASSESSING OFFICER A FREE HAND TO PROCEED IN ACCORDA NCE WITH LAW, WOULD NOT MEAN THAT THERE WAS NO PREJUDICE CAUSED T O THE ASSESSEE. ACCORDING TO HIM, SETTING ASIDE OF AN ORDER BY ITSE LF EFFECTED THE RIGHTS OF AN ASSESSEE, WHEN IT WAS NOT DONE IN ACCORDANCE WITH LAW. FURTHER, ACCORDING TO HIM, SUBMISSION OF LEARNED D. R. THAT DEDUCTIBILITY OF TAX WAS NOT CONSIDERED BY THE ASSE SSING OFFICER, WAS A FRESH ISSUE RAISED AND THIS WAS NEVER IN CONTEMPL ATION OF CIT IN THE PROCEEDINGS UNDER SECTION 263 OF THE ACT. AGAIN, A CCORDING TO THE LEARNED A.R., LEDGER PAGES WERE INDEED PRODUCED BEF ORE THE A.O. AND CLAIM OF THE CIT THAT LEDGER PAGES BY ITSELF WO ULD NOT SHOW THE NATURE OF EXPENDITURE, WAS INCORRECT SINCE GROUPING OF EXPENDITURE WAS DONE BASED ON LEDGER ONLY. VARIOUS FOLIOS WERE GROUPED TOGETHER FOR PROPER REFLECTION IN THE PROFIT & LOSS ACCOUNT. INSOFAR AS I.T.A. NO. 962/MDS/12 16 BREAK-UP OF SOFTWARE EXPENDITURE WAS CONCERNED, LEA RNED A.R. SUBMITTED THAT THIS HAD TO BE READ ALONG WITH VARIO US SUBMISSIONS MADE BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS WHICH, INTER ALIA, GAVE FULL DETAILS. IN ANY CASE, ACCORDING TO HIM, DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SO UTHERN ROADWAYS LTD. (SUPRA) WAS CITED BEFORE ASSESSING OFFICER AND ASSESSING OFFICER HAD ALLOWED THE CLAIM AFTER CONSIDERING SUCH SUBMIS SIONS OF THE ASSESSEE. AS FOR THE RELIANCE PLACED BY LEARNED D. R. ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF EASTERN MEDIKIT LTD. (SUPRA), LEARNED A.R. SUBMITTED THAT NO ENQUIRY WHA TSOEVER WAS MADE BY THE ASSESSING OFFICER IN THAT CASE AND IT W AS FOR THAT REASON THAT THE ASSESSMENT ORDER WAS CONSIDERED ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. SIMILAR WAS THE CASE BEFORE HONBLE KARNATAKA HIGH COURT IN THE CASE OF INFOSYS TECHNOL OGIES LTD. (SUPRA) ALSO. AS FOR THE RELIANCE PLACED ON THE DE CISION IN THE CASE OF SRM SYSTEMS & SOFTWARE PVT. LTD. (SUPRA) OF HONBLE JURISDICTIONAL HIGH COURT WAS CONCERNED, LEARNED A.R. SUBMITTED TH AT THE FACTS THERE WERE ENTIRELY DIFFERENT AND WAS NOT AT ALL CO MPARABLE WITH THAT OF ASSESSEES CASE. 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. FIRST ISSUE TO BE DECIDED IS WHETHER WE HAVE TO FOL LOW THE ORDER OF I.T.A. NO. 962/MDS/12 17 TRIBUNAL FOR ASSESSMENT YEAR 2004-05 OR THAT FOR AS SESSMENT YEAR 2005-06. FOR BOTH THESE YEARS, THERE WERE PROCEEDI NGS UNDER SECTION 263 BY CIT. WITH REGARD TO ASSESSMENT YEAR 2004-05, FINDING OF THIS TRIBUNAL IN I.T.A. NO. 702/MDS/2010 DATED 23 RD DECEMBER, 2010, ON ASSESSEES APPEAL WAS AS UNDER:- 8. IN REGARD TO THE ISSUE OF THE SOFTWARE EXPENSES IT IS NOTICED THAT THE LEARNED CIT HAS GIVEN A SPECIFIC F INDING THAT EITHER IN THE ORDER SHEET NOTING OR IN THE ASSESSME NT ORDER THERE IS NO DISCUSSION MADE BY THE ASSESSING OFFICE R. TRUE, IN THE 142(1) NOTICE AT CLAUSE (6) THE ISSUE HAS BEEN RAISED BY THE ASSESSING OFFICER AND THE ASSESSEE HAS FILED A REPL Y DATED 2.3.2007 AS PER THE PAPER-BOOK FILED. HOWEVER, WHE N THE LEARNED CIT HAS GIVEN A SPECIFIC FINDING OF FACT AN D THIS FINDING OF FACT HAS NOT BEEN DISTURBED BY FILING OF THE NEC ESSARY AFFIDAVIT AS ALSO ON ACCOUNT OF THE FACT THAT THE R ECORDS ARE NOT BEFORE US, WE ARE UNABLE TO FIND ANY ERROR IN THE D IRECTION GIVEN BY THE LEARNED CIT IN REGARD TO THE ISSUE OF SOFTWA RE EXPENSES. I THE CIRCUMSTANCES, THE DIRECTION OF THE LEARNED C IT IN REGARD TO THE SOFTWARE EXPENSES IS UPHELD. IN THE CIRCUMS TANCES, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE OR DER OF THE LEARNED CIT PASSED U/S 263 STANDS CONSEQUENTLY MODI FIED. FOR ASSESSMENT YEAR 2005-06, THIS TRIBUNAL IN I.T.A . NO. 612/MDS/2011 DATED 9 TH MAY, 2012, HELD AT PARAS 3 AND 4, AS UNDER:- 3. WE HEARD BOTH SIDES IN DETAIL. THE COMMISSIONER OF INCOME TAX HAS FAIRLY STATED IN THE LAST PARAGRAPH OF THE REVISION ORDER THAT THE ASSESSING OFFICER HAS OBTAI NED THE EVIDENCE FOR PURCHASE OF SOFTWARE EXPENSES. HE HAS ALSO FAIRLY STATED IN THE ORDER THAT HE HAS NOT AT ALL QUESTION ED THE VERY PURCHASE OF SOFTWARE. HAVING THE BASIC FACTS SO AC CEPTED, LET US GO TO THE DETAILS OF THE EXPENDITURE WHICH TOTALED TO ` 61,32,795/-. THIS IS AVAILABLE IN THE DETAILS FILE D BEFORE THE ASSESSING AUTHORITY. THE SAME HAS BEEN PLACED BEFO RE US BY THE I.T.A. NO. 962/MDS/12 18 LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSE SSEE IN PAGE 4 OF THE PAPER-BOOK FILED BY HIM ON 11.11.2011. AS PER THE DETAILS AVAILABLE ON RECORDS, THE EXPENDITURE OF ` 61,32,79 5/- CONSISTED THE FOLLOWING: S.NO. PARTICULARS AMOUNT (IN ` ) 1. CONSUMABLES & OTHERS 178,311 2. IT HELP DESK CHARGES 4,690,583 3. INTERNET 996,364 4. SERVICING 223,338 5. TRAINING FEES 35,428 6. OTHERS ___ 8,721 6,132,795 4. ON PERUSAL OF THE ABOVE COMPONENTS OF SOFTWARE E XPENSES, IT IS CLEAR THAT THE ASSESSEE HAS SPENT THE AMOUNTS FOR RUNNING ITS SOFTWARE SYSTEM AND NOT FOR ACQUIRING ANY NEW S YSTEM. CONSUMABLES AND OTHERS WERE PURCHASED FOR SERVICING THE EXISTING NET WORK. THIS IS THE SAME WHICH GOES WIT H THE SERVICING AS WELL. ANOTHER ITEM IS INTERNET CHARGES AND SMAL L EXPENDITURE EXPENDED ON TRAINING. THE MAJOR AMOUNT IS SPENT FO R IT HELP DESK. IT IS TO BE SEEN THAT NONE OF THESE EXPENSES WAS INCURRED FOR ACQUIRING ANY NEW SYSTEM OR FACILITY OF ENDURIN G NATURE. BY THE NATURE OF THE EXPENDITURE ITSELF, IT IS CLEAR O N THE FACE OF THE RECORDS THAT THE EXPENSES INCURRED WERE IN THE NATURE OR REVENUE EXPENDITURE. THEREFORE, WE FIND THAT ASSES SING OFFICER HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. AS SUCH, THE FINDING OF THE COMMISSIONER, IS UNTENABLE. ACCORDI NGLY, THE REVISION ORDER IS SET ASIDE. 15. TO RESOLVE THE ISSUE WHETHER TO FOLLOW ONE OR O THER OF THE ABOVE DECISIONS, WE HAVE TO GO INTO ORDERS OF THE CIT FOR RESPECTIVE YEARS. FOR ASSESSMENT YEAR 2004-05, THE ORDER OF CIT INSOF AR AS IT RELATED TO ISSUE REGARDING SOFTWARE EXPENDITURE, READ AS UNDER :- COMING TO THE EXPENDITURE ON SOFTWARE INCURRED BY T HE ASSESSEE, IT IS TO BE NOTED THAT THERE HAS BEEN NO DISCUSSION I.T.A. NO. 962/MDS/12 19 MADE BY THE ASSESSING OFFICER EITHER IN THE ORDER S HEET NOTING OR IN THE ASSESSMENT ORDER. IN FACT, IT IS SEEN TH AT THERE WAS AN OMISSION ON THE PART OF THE ASSESSING OFFICER TO EX AMINE THE QUESTION OF ALLOWABILITY OF THE SOFTWARE EXPENDITUR E CLAIMED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S MALABAR INDUSTRIAL COMPANY LTD. VS. CIT (2000) 243 ITR 83 (SC) CANNOT BE CONSI DERED AS APPLICABLE TO THE FACTS OF THIS CASE AT ALL. WHEN THE ASSESSING OFFICER HAS FAILED TO CONSIDER THE ALLOWABILITY OF CLAIM MADE BY THE ASSESSEE, THE QUESTION OF TWO VIEWS AND THE ASS ESSING OFFICER ADOPTING ONE OF THE VIEWS ETC. DOES NOT ARI SE. THUS WITH REGARD TO THE ALLOWABILITY OF SOFTWARE EXPENDITURE, THE ORDER PASSED BY THE ASSESSING OFFICER IS CLEARLY ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE GUJAR AT HIGH COURT IN THE CASE OF ADDL. CIT VS. MUKUR CORPORATION (197 8) 111 ITR 312 (GUJ) HAS HELD THAT IF THE ASSESSING OFFICER HA D ALLOWED A CLAIM OF THE ASSESSEE WITHOUT PROBING INTO THE SAME , THE COMMISSIONER IS JUSTIFIED IN INVOKING THE PROVISION S OF 263. SIMILARLY, THE MADRAS HIGH COURT IN THE CASE OF IND IAN TEXTILES VS. CIT (1986) 157 ITR 112 (MAD) HAD ALSO HELD THAT IF THE ASSESSING OFFICER ALLOWED A CLAIM OF THE ASSESSEE W ITHOUT VERIFICATION, THEN THE COMMISSIONER CAN INTERVENE U /S.263. DRAWING SUPPORT FROM THESE TWO DIFFERENT DECISIONS, I WOULD HOLD THE VIEW THAT THE ORDER PASSED BY THE ASSESSING OFF ICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE WITH REGARD TO THE CLAIM OF THE ASSESSEE IN RESPECT OF SOFTWARE EXPENDITURE. ON THE MERITS OF THE ISSUE RELATING TO SOFTWARE EXPENDITURE, THE ASSESSEE HAD RELIED UPON THE FOLLO WING CASE LAWS ALSO. (A) ASSAM BENGAL CEMENT CO. LTD. V. CIT (1955) 27 ITR 3 4 (SC) (B) CIT VS. SOUTHERN ROADWAYS LTD. (2006) 282 ITR 379 (MAD) (C) AMWAY INDIA ENTERPRISES VS. DCIT & SQL STAR INTERNATIONAL LTD. VS. ACIT (2008) 111 ITD 112 (DEL HI-SB) AS REGARDS THE DECISION AT (A), THE ASSESSEE HAS RE LIED UPON THIS DECISION TO HIGHLIGHT THE GENERAL PROPOSI TION THAT AN I.T.A. NO. 962/MDS/12 20 OUTLAY CAN BE CONSIDERED AS CAPITAL ONLY WHEN IT IS INCURRED WITH A VIEW TO BRING INTO EXISTENCE, ANY ASSET WHICH PROVI DES ENDURING BENEFIT AND HAS ENOUGH DURABILITY TO JUSTIFY ITS CA PITALIZATION. THIS DECISION CANNOT BE CONSIDERED AS APPLICABLE ON ALL FOURS TO THE FACTS OF THIS CASE INASMUCH AS THE POINT HERE I S THAT THE ASSESSING OFFICER DID NOT EXAMINE THE NATURE OF EXP ENDITURE AT ALL AND ONLY THEN THE QUESTION AS TO WHETHER THE AS SESSEE HAD DERIVED ENDURING BENEFIT ETC. COULD HAVE BEEN CONSI DERED. SINCE THERE WAS TOTAL FAILURE ON THE PART OF THE ASSESSIN G OFFICER TO CALL FOR THE DETAILS AND EXAMINE THE NATURE OF EXPE NSES INCURRED BY THE ASSESSEE, THE ORDER PASSED BY THE ASSESSING OFFICER IS CLEARLY ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IT IS ALSO TO BE NOTED THAT THIS DECISION OF THE SUPRE ME COURT RELIED UPON BY THE ASSESSEE WAS RENDERED IN THE YEAR 1955 AND THE CONCEPT OF SOFTWARE WAS ALIEN DURING THE PERIOD. T HE STATUTE ITSELF ALLOWS 60% OF DEPRECIATION ON COMPUTER / SOF TWARE WHICH SHOWS THAT THE ENDURING BENEFIT NEED NOT BE SPREAD OVER FOR MANY YEARS. IN FACT, IN THE CASE OF M/S EMPRE JUTE COMPANY LTD. (1980) (124 ITR 1) (SC), THE HONBLE SUPREME C OURT THEMSELVES HAVE MADE OBSERVATIONS TO THE EFFECT THA T THE QUESTION OF DECIDING AN EXPENDITURE AS CAPITAL OR R EVENUE IN NATURE NEED NOT NECESSARILY DEPEND UPON THE ENDURIN G BENEFITS DERIVED BY THE ASSESSEE. THIS ONLY SHOWS THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S ASSAM BENGAL C EMENT CO. LTD. VS. CIT (1955) 27 ITR 34 (SC) CANNOT BE CONSID ERED APPLICABLE TO THE FACTS OF THIS CASE IN THE PRESENT AGE OF COMPUTERS AND SOFTWARE. FOR ASSESSMENT YEAR 2005-06, THE ORDER OF CIT UNDER SECTION 263 OF THE ACT ON THE ISSUE REGARDING SOFTWARE EXPENDITURE , READ AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. IN THIS CONNECTION AT THE OUTSET, I WANT TO EMPHASIZE THE FACT THAT IN EARLIER ASSESSMENT YEARS (2004-05) , THE HONBLE ITAT HAS VIRTUALLY UPHELD THE ORDER PASSED BY THE C IT U/S. 263 ON THE ISSUE OF SOFTWARE EXPENSES AND IT IS ONLY IN RESPECT OF THE ISSUE RELATING THE PROVISION FOR WARRANTY, THE HON BLE ITAT ALLOWED RELIEF TO THE ASSESSEE. THUS ON THIS COUNT ALONE, THE I.T.A. NO. 962/MDS/12 21 ASSESSEES OBJECTION THAT I CANNOT INTERFERE U/S. 2 63 ON THE ISSUE OF SOFTWARE EXPENSES FALLS. IT IS NOT CLEAR AS TO WHY THE ASSESSEE WANTS AN OPP ORTUNITY TO FILE AN AFFIDAVIT IN RESPECT OF THE FACTS STATED BY THEM, WHEN I AM NOT DISPUTING THAT THE ASSESSEE HAS FURNISHED THE DETAILS OF COPIES OF INVOICES, BEAK UP OF EXPENDITURE AND LEDG ER EXTRACTS OF SOFTWARE EXPENSES BEFORE THE ASSESSING OFFICER. TH E HONBLE ITAT IN THEIR ORDER DATED 23.12.2010 HAS OBSERVED T HAT WHEN THE CIT HAS GIVEN A SPECIFIC FINDING OF FACT THAT E ITHER IN THE ORDER SHEET NOTING OR IN THE ASSESSMENT ORDER, THER E IS NO DISCUSSION IN THE ORDER PASSED BY THE ASSESSING OFF ICER ON THE ISSUE OF SOFTWARE EXPENSES AND WHEN THIS FINDING HA S NOT BEEN DISTURBED BY FILING NECESSARY AFFIDAVIT, AS ALSO ON ACCOUNT OF THE FACT THAT THE RECORDS ARE NOT BEFORE THEM, THEY ARE UNABLE TO FIND ANY ERROR IN THE DIRECTION GIVEN BY THE CIT IN REGARD TO THE ISSUE OF SOFTWARE EXPENSES. PROBABLY, BASED UPON T HIS OBSERVATION THE ASSESSEE HAS NOW SOUGHT FOR A FURTH ER OPPORTUNITY TO FILE AN AFFIDAVIT. I AM OF THE VIEW THAT THERE IS NO NEED FOR THE ASSE SSEE TO FILE AN AFFIDAVIT BEFORE ME. I DONT BASICALLY DEN Y THE ASSESSEES CONTENTION THAT THE ASSESSEE HAS FURNISHED COPIES O F INVOICES, BREAK UP OF EXPENDITURE AND LEDGER EXTRACTS OF SOFT WARE EXPENSES BEFORE THE ASSESSING OFFICER. MY ONLY POI NT IS THAT IT CAN BE SEEN FROM THE ORDER SHEET NOTING AS WELL AS THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER DID NOT GO INTO THE ISSUE OF ALLOWABILITY OF SOFTWARE EXPENSES AS CAPIT AL OR REVENUE IN NATURE. FROM THE ORDER SHEET NOTING IN THE MR FOR THE ASSESSMENT YEAR 2005-06, IT IS CLEAR THAT ON 23.10. 2008, THE ASSESSING OFFICER, INTER ALIA, CALLED FOR EVIDENCE OF SOFTWARE PURCHASES. AS PER THE ORDER SHEET NOTING DATED 5.1 2.2008 IN THE MR IT IS SEEN THAT DETAILS HAVE BEEN FILED BY THE A SSESSEE AS CLAIMED BY THEM. THE ASSESSING OFFICER HAD ALSO CO MPLETED THE ASSESSMENT ACCEPTING THE INCOME RETURNED BY THE ASS ESSEE ON 5.12.2008. IN THE RELEVANT ORDER SHEET NOTING, IT WAS SPECIFICALLY REMARKED BY THE ASSESSING OFFICER AS UNDER:- IT IS SEEN THOUGH PROVISION TERM USED, ACTUALLY THEY COME UNDER EXPENSES. THIS FACT VERIFIED. THEY H AVE BEEN PAID I.T.A. NO. 962/MDS/12 22 IN APRIL AND TDS DEDUCTED AND PAID IN MAY. ASSESSM ENT IS COMPLETED ACCEPTING RETURNED INCOME. IT IS ALSO WORTH NOTING THAT IN THE ASSESSMENT ORDE R PASSED, THERE IS NO DISCUSSION AND THE ASSESSING OF FICER HAS COMPLETED THE ASSESSMENT ACCEPTING THE INCOME ADMIT TED. IT MAY BE THUS SEEN THAT WHILE THE ASSESSING OFFICE R OBTAINED THE EVIDENCE FOR PURCHASE OF SOFTWARE EXPE NSES, SHE DID NOT GO INTO THE ASPECT AS TO WHETHER THE SOFTWA RE EXPENSES IS ALLOWABLE AS REVENUE EXPENSES OR CAPITAL IN NATU RE. AT THIS STAGE, I AM NOT QUESTIONING THE VERY PURCHASE OF SO FTWARE. MY ONLY CONCERN IS THAT THE ASSESSING OFFICER DID NOT EXAMINE THE ASPECT OF THE NATURE OF SOFTWARE EXPENSES I.E. WHET HER THEY ARE CAPITAL OR REVENUE IN NATURE AND THE ASSESSEES CLA IM HAS BEEN ALLOWED WITHOUT EXAMINING THIS ASPECT OF THE MATTER . FROM THE ORDER SHEET NOTINGS, REFERRED TO ABOVE AS WELL AS T HE ASSESSMENT ORDER THIS FACT REMAINS. HENCE I AM OF THE VIEW TH AT THE ORDER PASSED BY THE ASSESSING OFFICER ON THE ISSUE OF SOF TWARE EXPENSES IS CLEARLY ERRONEOUS AND PREJUDICIAL TO TH E INTERESTS OF REVENUE. I AM ALSO OF THE OPINION FOR THE ASSESSIN G OFFICER, THE ASSESSEE CANNOT FILE ANY AFFIDAVIT AND THUS NO USEF UL PURPOSE WOULD BE SERVED BY ALLOWING A FURTHER OPPORTUNITY F OR FILING ANY AFFIDAVIT. IN THE ABOVE CIRCUMSTANCES, I SET ASIDE THE ASSESSM ENT ORDER PASSED BY THE ASSESSING OFFICER ON 5.12.2008 AND DIRECT HIM TO PASS A FRESH ORDER IN ACCORDANCE WITH LAW KE EPING IN MIND THE ABOVE POINTS. 16. A READING OF ORDERS OF CIT FOR ASSESSMENT YEARS 2004-05 AND 2005-06 WOULD SHOW THAT THOUGH THE ISSUES FOR BOTH YEARS WERE RELATED TO SOFTWARE EXPENDITURE, THE BASIS FOR REAC HING THE RESPECTIVE CONCLUSIONS WERE DIFFERENT. FOR ASSESSMENT YEAR 20 04-05, THERE WAS A CLEAR FINDING BY THE CIT THAT ASSESSING OFFICER D ID NOT EXAMINE THE NATURE OF EXPENDITURE, NOR THE QUESTION OF ALLOWABI LITY OF THE CLAIM. I.T.A. NO. 962/MDS/12 23 THERE WAS NO DISCUSSION ON THESE ASPECTS BY THE ASS ESSING OFFICER IN THE ORDER SHEET NOTING OR IN THE ASSESSMENT ORDE R. THUS, CIT CAME TO A CONCLUSION THAT THE ASSESSING OFFICER HAD ALLO WED THE CLAIM WITHOUT PROBING INTO IT. THERE WAS ALSO A FINDING THAT THERE WAS A TOTAL FAILURE ON THE PART OF THE ASSESSING OFFICER TO CAL L FOR THE DETAILS AND TO EXAMINE THE NATURE OF SOFTWARE EXPENSES CLAIMED BY THE ASSESSEE. ON THE OTHER HAND, A LOOK AT THE ORDER FOR ASSESSME NT YEAR 2005-06 WOULD SHOW THAT THE CIT HAD GIVEN A CLEAR FINDING T HAT ASSESSEE HAD FURNISHED DETAILS LIKE COPIES OF INVOICES, BREAK-UP OF EXPENDITURE, LEDGER EXTRACT, ETC BEFORE THE ASSESSING OFFICER. IT WAS ALSO MENTIONED BY THE CIT THAT ON 23.10.2008, ASSESSING OFFICER HAD, INTER ALIA, CALLED FOR EVIDENCE OF SOFTWARE PURCHAS ES AND THE ORDER SHEET ALSO MENTIONED THAT SUCH DETAILS WERE FILED B Y THE ASSESSEE. DESPITE THESE, CIT HELD THE ORDER OF THE A.O. FOR T HAT YEAR TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. REASON GIVEN WAS THAT ASSESSING OFFICER DID NOT GO INTO THE ASPE CT OF NATURE OF EXPENDITURE, BUT, WAS ON THE OTHER HAND, SATISFIED BY THE EVIDENCE FOR SOFTWARE EXPENSES. NO DOUBT, WE CAN SAY THAT THE O RDERS OF TRIBUNAL FOR BOTH THESE YEARS WERE JUSTIFIED ON THE FACTS FO R THE RESPECTIVE YEARS. FOR ASSESSMENT YEAR 2005-06, ASSESSEE HAD P RODUCED EVIDENCE FOR SOFTWARE EXPENDITURE AND THE ORDER OF CIT CLEARLY I.T.A. NO. 962/MDS/12 24 MENTIONED THAT DETAILS REGARDING CLAIM OF ASSESSEE WERE PRODUCED BEFORE THE ASSESSING OFFICER, WHEREAS, FOR ASSESSME NT YEAR 2004-05, THERE WAS NOTHING SIMILAR COMING OUT OF THE ORDER O F COMMISSIONER OF INCOME TAX WHAT CAN BE DISCERNED FROM THIS IS THAT EACH ASSESSMENT YEAR IS INDEPENDENT AND EVEN IF THE HEAD OF EXPENDITURE LOOKS TO BE THE SAME, A DECISION HAS TO BE REACHED ON FACTS AVAILABLE FOR A GIVEN ASSESSMENT YEAR AND NOT SIMPLY BASED ON PRECEDENTS WHICH WERE BASED ON DIFFERENT SET OF FACTS. 17. NOW TAKING AN INDEPENDENT LOOK ON THE FACTS AS AVAILABLE FOR IMPUGNED ASSESSMENT YEAR, WHAT WE CAN FIND IS THAT ASSESSEE HAD FILED THREE LETTERS DATED 7 TH SEPTEMBER, 2009 (PAPER-BOOK PAGE 22 TO 25), ANOTHER DATED 9 TH DECEMBER, 2009 (PAPER-BOOK PAGES 26 TO 28) AND A THIRD ONE DATED 21 ST DECEMBER, 2009 (PAPER-BOOK PAGES 29 TO 30), ALL OF WHICH GAVE SOME DETAILS REGARDING ITS C LAIM OF SOFTWARE EXPENDITURE. IN THE FIRST LETTER MENTIONED ABOVE, ASSESSEE HAD GIVEN A BREAK-UP OF THE SOFTWARE EXPENDITURE, WHICH READS AS UNDER:- PARTICULARS AMOUNT IN 000S EDP EXPENSES FOR FOCUS (ACCOUNTING SOFTWARE) TOTAL 11,045 ERP SEAL PRICE TOTAL 583 INTERNAL DSD CHARGES TOTAL 6,114 INTERNAL DSI CHARGES TOTAL 1,988 I.T.A. NO. 962/MDS/12 25 MATFLOW (ACCOUNTING SOFTWARE) LICENCE FEE TOTAL 2,603 GRAND TOTAL 22,333 LESS : REVERSALS 961 AMOUNT AS PER FINANCIALS 21,372 IN THE SECOND LETTER DATED 9 TH DECEMBER, 2009, ASSESSEE HAD GIVEN A NOTE ON THE SOFTWARE COST, WHICH READS AS UNDER:- IT SERVICES COSTS CONSISTS OF DANFOSS STANDARD INF RASTRUCTURE SERVICES (DSI) AND DANFOSS ERP SERVICES, DANFOSS SA LES AND DISTRIBUTION SERVICES. DANFOSS STANDARD INFRASTRUCTURE (DSI): THIS IS THE BASIC STANDARD ADMINISTRATIVE WORKPLACE ENVIRONMENT WITH DECIDED TOOLS SUCH AS EMAIL, INTRANET AND INTERNET ACCESS, MICROSOFT OFFICE, GROUP DRIVE AND PERSONAL DRIVE AND HELP DES K 24 X 7. IT ENABLES EMPLOYEES TO CO-OPERATE AND SHARE INFORMATI ON IN AN ONLINE ENVIRONMENT. IT INCLUDES MAINTENANCE AND SUPPORT ON THE DECIDED TOOLS AND INFRASTRUCTURE. WHEN A USER EXPERIENCES AN ERROR O R FAILURE SITUATION WHERE EXISTING SYSTEMS, HARDWARE, SOFTWAR E OR SERVICES FAIL TO PERFORM AS USUAL OR AS THEY SHOULD IT IS IN CLUDED IN THE DSI SERVICE IDENTIFIED AS IN INCIDENT. WHEN A USER WANTS DANFOSS IT TO PROVIDE A SERVICE T HAT IS NOT RELATED TO A FAILURE SITUATION IT WILL BE IDENTIFIE D AS A SERVICE REQUEST AND CHARGED ON AN HOURLY BASIS. ERP SEATS AGREEMENT: THESE ARE USER CHARGES AND SUPPORT CHARGES FOR THE ERP SYSTEM, FOR ALL EMPLOYEES. THI S INCLUDES TROUBLESHOOTING AS WELL. AN EXAMPLE WILL BE PROBLE M IN GENERATING SALES TAX/CENTRAL EXCISE REGISTER ETC. I.T.A. NO. 962/MDS/12 26 DANFOSS SALES & DISTRIBUTION (DSD): DANFOSS GLOBAL LY USES STANDARDIZED TEMPLATES IN BUSINESS PROCESSES SUCH A S STANDARD SALE & DISTRIBUTION TEMPLATES TO INTEGRATE SALES, F INANCE & LOGISTICS OPERATIONS. THIS DSD TEMPLATE ENSURES ON E WAY OF WORKING WORLD WIDE AND PROVIDES IMPROVEMENT IN PROV IDING AVAILABLE DATA BOTH IN RESPECT OF SALES, AS WELL AS FINANCE. THIRD LETTER DATED 21 ST DECEMBER, 2009 WAS AGAIN REGARDING CLAIM OF SOFTWARE EXPENDITURE AND THIS READ AS UNDER:- WE REFER TO THE ABOVE. IN THIS CONNECTION AND UND ER INSTRUCTIONS FROM AND ON BEHALF OF OUR CLIENT, PLEASE FIND OUR S UBMISSIONS IN RELATION TO THE NATURE OF SOFTWARE COST INCURRED. AS SUBMITTED EARLIER, SOFTWARE COSTS PRIMARILY COMP RISE MAINTENANCE AND SUPPORT SOFTWARE TO SUPPLEMENT ROUT INE OPERATIONS, USER AND SUPPORT CHARGES FOR THE ERP SY STEM, AND COSTS INCURRED FOR THE PURPOSE OF GENERATING STANDA RDIZED TEMPLEATES WHICH INTEGRATES BUSINESS FUNCTIONS. FOR INSTANCE, THESE COSTS INCLUDE EXPENSES INCURRED TOWARDS A COMMON URL, INTRANET ACCESS, 24*7 HELP DESK, ETC. W HICH AID EMPLOYEES TO ACCESS AND SHARE INFORMATION IN AN ONL INE ENVIRONMENT. FURTHER COSTS ARE INCURRED TOWARDS STANDARD TEMPLAT ES VIZ. STANDARD SALE & DISTRIBUTION TEMPLATES TO INTEGRATE SALES, FINANCE & LOGISTICS OPERATIONS. THESE EXPENSES FACILITATE ROUTINE BUSINESS FUNCTION S, AND DO NOT PROVIDE ANY ENSURING BENEFIT, AND THUS HAVE BEEN CL AIMED AS REVENUE EXPENDITURE. THE COMPANY ALSO RELIES ON THE FOLLOWING JUDICIAL P RECEDENTS IN SUPPORT OF ITS CONTENTION. I.T.A. NO. 962/MDS/12 27 A. CIT V. SOUTHERN ROADWAYS LTD. [288 ITR 15 AND TC(A) NOS 700 TO 704 OF 2007] IN THIS CASE, THE MADRAS HC HAD CONSIDERED WHETHER ACQUISITION OF COMPUTER SOFTWARE WOULD BE IN THE NATURE OF REVENUE EXPENDITURE. THE MADRAS HIGH COURT RULED THAT PAYMENT FOR APPLIC ATION SOFTWARE DOES NOT RESULT IN ACQUISITION OF ANY CAPI TAL ASSET AND HENCE, HAS TO BE TREATED AS REVENUE EXPENDITURE. B. AMWAY INDIA ENTERPRISES V. DCIT & SQL STAR INTERNATIONAL LTD. V. ACIT [2008] 111 ITD 112 (DELHI SB) IN THIS JUDGEMENT, IN RELATION TO AY 1998-99 AND AY 2001-02, THE SPECIAL BENCH OF THE DELHI TRIBUNAL HAD DEALT WITH THE QUESTION OF WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF COMPUTER SOFTWARE WAS OF REVENUE NATURE OR CAPITAL NATURE. THE BENCH CONSIDERED THE EXISTING PRECEDENTS ON THE SUBJECT EXHAUSTIVELY, AND HELD THAT THE ISSUE OF CAPITAL OR REVENUE SHOULD BE DECIDED FOR EACH SOFTWARE TAKING INTO ACCOUNT TH REE TESTS (OWNERSHIP, ENDURING BENEFIT AND FUNCTIONAL). THE BENCH FURTHER HELD THAT WHERE THE LIFE OF THE SOFTWARE IS SHORT, SAY 2 YEARS, IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWAR E WITH LIFE OF GREATER THAN 2 YEARS WOULD BE A CAPITAL ASSET, IF T HE TEST OF ENDURING BENEFIT IS SATISFIED. THE BENCH REITERATE D THE PRINCIPLE THAT THE POINT OF VIEW OF THE BUSINESSMAN AND THE F UNCTIONAL ROLE PLAYED BY THE SOFTWARE NEEDS TO BE CONSIDERED BEFOR E CLASSIFYING THE SAME AS CAPITAL OR REVENUE. C. IBM INDIA LIMITED V. CIT [2006] 290 ITR 183 (BANG.) IN THIS PRECEDENT, THE BANGALORE TRIBUNAL HAS HELD THAT THE EXPENDITURE INCURRED IN ACQUIRING APPLICATION SOFTW ARE TO ENABLE THE ASSESSEE TO CARRY ITS BUSINESS MORE EFFICIENTLY WOULD BE ALLOWABLE AS BUSINESS EXPENDITURE EVEN IF SOME ENDU RING BENEFIT RESULTED BY USE OF SOFTWARE. D. L&T RAMBOLL CONSULTING ENGINEERS LTD. V. ACIT [2008] ITA NO.886/MDS/2006 I.T.A. NO. 962/MDS/12 28 IN THIS JUDGEMENT RELATING TO AY 2002-03, BENCH B OF THE ITAT, CHENNAI REMANDED THE MATTER BACK TO THE ASSESSING O FFICER TO JUDGE WHETHER HAVING REGARD TO THE NATURE OF THE SO FTWARE; THE SAME WOULD BE CAPITAL OR REVENUE IN NATURE. IN PRO NOUNCING ITS JUDGEMENT, THE CHENNAI ITAT RELIED UPON THE DECISIO NS OF THE JURISDICTIONAL HC IN SOUTHERN ROADWAYS CASE AND THE DELHI ITAT IN THE AMWAY CASE MENTIONED SUPRA. GIVEN THE ABOVE, THE COMPANY SUBMITS THAT EXPENDITU RE ON SOFTWARE WAS PURELY REVENUE IN NATURE, AND THEREFOR E, NO PART OF THE SAME CAN BE SUBJECT TO CAPITALIZATION. WE REQUEST YOU TO TAKE THE ABOVE INFORMATION ON REC ORD. IN CASE YOU HAVE ANY RESERVATIONS, OR REQUIRE ANY E XPLANATIONS / CLARIFICATIONS, KINDLY PROVIDE US WITH A FURTHER OP PORTUNITY TO PRESENT OUR CASE AND MAKE SUBMISSIONS. 18. ASSESSING OFFICER IN HIS LETTER DATED 24 TH OCTOBER, 2009 (PAPER- BOOK PAGE 49), IN THE FIRST INSTANCE, HAD REQUIRED THE ASSESSEE TO FURNISH LEDGER COPIES FOR THE CLAIM OF THE SOFTWARE EXPENSES AND ALL THE ABOVE RECORDS WERE SUBMITTED BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS THEREOF. DESPITE THE LETTER S AND RECORDS PROVIDED BY THE ASSESSEE, THERE IS NOT EVEN A WHISP ER IN THE ASSESSMENT ORDER REGARDING HOW THE A.O. HAD CONSIDE RED CLAIM OF SOFTWARE EXPENDITURE. WHAT WE NOTE IS THAT ASSESSE E HAD NOT PRODUCED AT ANY POINT OF TIME INVOICES RAISED BY M/ S DANFOSS DENMARK ON IT FOR VARIOUS SOFTWARE SERVICES RENDERE D BY THE SAID ASSOCIATE ENTERPRISE. AT THE SAME TIME, IT NEEDS T O BE MENTIONED THAT ASSESSEE HAD INDEED PRODUCED BEFORE THE ASSESS ING OFFICER I.T.A. NO. 962/MDS/12 29 COPIES OF VARIOUS AGREEMENTS ENTERED BY IT WITH SAI D M/S DANFOSS DENMARK. ORDINARILY, IN SUCH A SITUATION, NORMAL I NFERENCE THAT COULD BE DRAWN IS THAT ASSESSING OFFICER HAD APPLIED HIS MIND AND CAME TO A CONCLUSION THAT EXPENDITURE ON SOFTWARE WERE ALLO WABLE AS REVENUE OUTGO, DESPITE HIS CRYPTIC ORDER, WHICH WAS SILENT ON THE ASPECT. AS MENTIONED BY THE LEARNED A.R., PRESUMPTION UNDER SE CTION 114(E) OF INDIAN EVIDENCE ACT CAN BE RAISED AND ORDINARILY IT HAS TO BE ASSUMED THAT ASSESSING OFFICER HAD APPLIED HIS MIND . BUT, THERE IS A CERTAIN PECULIAR FACT SITUATION HERE WHICH TAKES TH IS CASE OUT OF APPLICATION OF SUCH RULE OF PRESUMPTION. FIRST IS THAT ASSESSEE HAD NEVER PRODUCED INVOICE COPIES BEFORE ASSESSING OFFI CER. SECOND IS THAT ASSESSING OFFICER HAD NEVER MADE ANY EFFORT FO R VERIFYING THE AGREEMENTS PRODUCED BY THE ASSESSEE FOR THE SERVICE RENDERED BY M/S DANFOSS DENMARK, TO IT FOR VARIOUS SOFTWARE SER VICES, VIS--VIS THE INVOICES RAISED BY THE SAID COMPANY. IN OTHER WORDS, THE CLAIM, THOUGH MADE BY THE ASSESSEE AND THOUGH JUSTIFIED BY IT BY ITS LETTER DATED 21 ST DECEMBER, 2009 REPRODUCED BY US ABOVE, WAS NEVER CONSIDERED BY THE ASSESSING OFFICER IN THE PROPER P ROSPECTIVE. THE QUESTION WHETHER THE EXPENDITURE INCURRED BY THE AS SESSEE WAS CAPITAL OR REVENUE IN NATURE, IN OUR OPINION, WAS N EVER GIVEN A THOUGHT BY THE ASSESSING OFFICER, SINCE HE HAD COMP LETED THE I.T.A. NO. 962/MDS/12 30 ASSESSMENT WITHOUT VERIFYING THE INVOICES RAISED ON THE ASSESSEE BY THE SERVICE PROVIDER. RECORDS PRODUCED BY THE ASSE SSEE IN THE NATURE OF VARIOUS AGREEMENTS IT HAD WITH M/S DANFOS S DENMARK, WOULD MAKE LITTLE SENSE, WITHOUT VERIFYING IT WITH INVOICES RAISED BY THE SAID PARTY. ADMITTEDLY, SUCH INVOICES WERE FIRST P RODUCED BY THE ASSESSEE BEFORE CIT DURING THE COURSE OF PROCEEDING S UNDER SECTION 263 ONLY. THESE WERE NEVER BEFORE ASSESSING OFFIC ER. IN OTHER WORDS, THE FACT SITUATION IS ENTIRELY DIFFERENT FRO M THAT OF ASSESSMENT YEAR 2005-06 WHERE THERE WAS A CLEAR FINDING BY THE CIT THAT ASSESSEE HAD PROVIDED EVIDENCE FOR THE SOFTWARE EXP ENDITURE. HERE, ON THE OTHER HAND, ASSESSEE DID NOT PROVE THE EXPEN DITURE FOR THE SOFTWARE SERVICE BEFORE THE ASSESSING OFFICER BY PR ODUCING INVOICES RAISED BY M/S DANFOSS DENMARK ON IT. IT MAY BE TRU E THAT THE TRANSACTIONS WITH M/S DANFOSS DENMARK, WERE A PART OF THE TRANSFER PRICING PROCEEDING BEFORE TPO AND NO REVISION IN TH E VALUE OF INTERNATIONAL TRANSACTIONS WAS RECOMMENDED BY THE T PO IN SUCH PROCEEDINGS. BUT, THIS WOULD NOT BY ITSELF ESTABLI SH THAT THE SOFTWARE EXPENDITURE INCURRED BY ASSESSEE WAS ONLY A REVENUE OUTGO AND NOT A CAPITAL OUTGO. NOR COULD IT SHOW THAT THE ASSESS ING OFFICER HAD EXERCISED HIS MIND ON THIS ASPECT. NO DOUBT, VARIO US CASE LAWS RELIED ON BY THE ASSESSEE INCLUDING SOUTHERN ROADWAYS LTD. (SUPRA) WOULD I.T.A. NO. 962/MDS/12 31 CLEARLY SHOW THAT EXPENDITURE INCURRED FOR UPGRADAT ION OF EXISTING COMPUTER SYSTEM FOR IMPROVING ITS EFFICIENCY WAS A REVENUE OUTGO. LETTER DATED 21 ST DECEMBER, 2009 OF THE ASSESSEE ADDRESSED TO THE ASSESSING OFFICER, WHERE IT HAD PLACED RELIANCE ON THIS DECISION OF HONBLE JURISDICTIONAL HIGH COURT, DID NOT IN ANY W AY JUSTIFY ITS CASE BY MAKING A CLAIM THAT SOFTWARE EXPENDITURE INCURRED W ERE ONLY FOR UPGRADATION. EVEN IN THE CASE OF AMWAY INDIA ENT ERPRISES (SUPRA), WHAT WAS HELD BY SPECIAL BENCH WAS THAT THE ISSUE O F CAPITAL OR REVENUE SHOULD BE DECIDED CONSIDERING EACH SOFTWARE , TAKING INTO ACCOUNT ASPECTS LIKE OWNERSHIP, BENEFITS AND FUNCTI ONALITY. THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSING OFFICER HA D APPLIED HIS MIND ON THE CLAIM OF THE ASSESSEE IN THE LINES OF V ARIOUS DECISIONS OF JURISDICTIONAL HIGH COURT OR THE SPECIAL BENCH OF T HIS TRIBUNAL. ASSESSEE HAD GIVEN SOME BREAK-UP AND SOME INFORMATI ON AND THIS WAS IN TOTO ACCEPTED BY THE ASSESSING OFFICER WITHO UT ANY DISCUSSION. IN FACT, THERE IS NOTHING ON RECORD TO SHOW THAT AS SESSING OFFICER HAD MADE ANY ENQUIRY AT ALL. IN THE LETTER ISSUED BY H IM ON 24 TH AUGUST, 2009, WHICH IS CITED BY LEARNED A.R. AS THE GENESIS OF THE ENQUIRY CONDUCTED BY THE A.O., OUT OF THE 13 NUMBER OF CLAR IFICATIONS SOUGHT AT SL.NO.12, IS THE REQUIREMENT TO GIVE LEDGER ACCO UNT COPIES OF THE FOLLOWING EXPENSES:- I.T.A. NO. 962/MDS/12 32 12. PLEASE FURNISH LEDGER ACCOUNT COPY OF THE FOL LOWING EXPENSES: (A) TRAINING & RECRUITMENT EXPENSES (B) RENT (C) STAFF WELFARE (D) LEGAL & PROFESSIONAL CHARGES (E) RATES & TA XES (F) SOFTWARE EXPENSES (G) TRAVELLING & CONVEYANCE (H) SALES PROMOTION (I) REPAIRS, MAINTENANCE (J) COMMISSION & INCENTI VES (K) INSURANCE (L) MISCELLANEOUS EXP. (M) FOREIGN EXCHANGE LOSS 19. IT IS CLEAR FROM THE ABOVE THAT IN A LONG LIST OF 13 ITEMS, SOFTWARE EXPENSES WAS ONE OF THE ITEMS FOR WHICH LEDGER COPI ES WERE CALLED FOR BY THE ASSESSING OFFICER. ASSESSEE MIGHT HAVE CONTINUOUSLY GIVEN ASSESSING OFFICER VARIOUS EXPLANATIONS AND DE TAILS, BUT, IN OUR OPINION, UNLESS AND UNTIL ASSESSEE COULD SHOW THAT IT HAD MADE A MEANINGFUL LINKING OF SUCH DETAILS WITH THE EVENTUA L CLAIM OF SOFTWARE EXPENSES, IT CANNOT BE CONSIDERED AS A PROPER AND S UFFICIENT SUBMISSION OF DETAILS, ENABLING A RATIONAL DECISION TO BE REACHED REGARDING THE ALLOWABILITY OF ITS CLAIM. WHEN THER E IS NO SUCH LINKABLE CHAIN DISCERNIBLE FROM THE RECORDS PRODUCED BY THE ASSESSEE, WHICH COULD SHOW THAT THE CLAIM WAS DULY MADE AND CONSIDE RED BY THE ASSESSING OFFICER, IN THE COURSE OF ORIGINAL ASSESS MENT PROCEEDINGS, THE ONLY CONCLUSION THAT CAN BE REACHED IS THAT THE RE WAS NON- APPLICATION OF MIND BY THE ASSESSING OFFICER. WHEN THERE IS NON APPLICATION OF MIND BY THE ASSESSING OFFICER, WE CA N DEFINITELY SAY THAT SUCH ORDER OF ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO I.T.A. NO. 962/MDS/12 33 THE INTERESTS OF REVENUE. WHAT THE CIT DID WAS ONL Y TO DIRECT THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH IN A CCORDANCE WITH LAW, SINCE HE HAD OMITTED TO CONSIDER WHETHER THE C LAIM OF THE ASSESSEE WAS ALLOWABLE AS REVENUE OUTGO OR CAPITAL OUTGO. IN ANY CASE, AS HELD BY HONBLE DELHI HIGH COURT IN THE CA SE OF EASTERN MEDIKIT LTD. (SUPRA), MERITS OF THE CASE CANNOT BE GONE INTO BY THIS TRIBUNAL IN APPEAL AGAINST AN ORDER UNDER SECTION 2 63 AND THE ONLY QUESTION THAT NEED TO BE ANSWERED IS WHETHER CIT WA S JUSTIFIED IN INVOKING SECTION 263 OF THE ACT, I.E. WHETHER THERE WAS ANY ERROR IN THE ORDER OF ASSESSING OFFICER AND WHETHER SUCH ORD ER CAUSED PREJUDICIAL TO THE INTERESTS OF REVENUE. IN OUR OP INION, NON- APPLICATION OF MIND ON DETAILS SUBMITTED BY THE ASS ESSEE, IS WRIT LARGE IN THE ASSESSMENT ORDER. FAILURE TO FORM AN OPINIO N IS CLEAR AND THIS HAS RESULTED IN THE ORDER BEING ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE REVENUE. 20. DECISION OF HONBLE APEX COURT IN THE CASE OF K ELVINATOR OF INDIAS CASE (SUPRA) WAS RENDERED IN THE CONTEXT OF A REOPENING ATTEMPTED WHERE ORIGINAL PROCEEDINGS WERE COMPLETED UNDER SECTION 143(3) OF THE ACT. HONBLE APEX COURT AFFIRMED THE HONBLE DELHI HIGH COURT FULL BENCH DECISION IN SAME ASSESSEES C ASE, AND HONBLE DELHI HIGH COURT HAD INDEED MADE A SPECIFIC REFERENCE TO I.T.A. NO. 962/MDS/12 34 SECTION 114(E) OF INDIAN EVIDENCE ACT, REGARDING PR ESUMPTION OF OFFICIAL ACTS TO HAVE BEEN DULY PERFORMED. IN OUR OPINION, IT IS TO ADDRESS A SITUATION, WHERE EVENTS WHICH UNFOLDED DU RING THE ASSESSMENT PROCEEDINGS GIVE RISE TO A STRONG SIGNAL THAT THERE WAS NO APPLICATION OF MIND, WHICH A REASONABLE MAN SITT ING IN THE CHAIR OF A REVENUE OFFICER SHOULD HAVE DONE, OR IN OTHER WOR DS, WHERE THERE IS AN OMISSION TO APPLY THE MIND IN A MANNER A REAS ONABLE MAN WOULD HAVE DONE, CAUSING DETRIMENT TO THE REVENUE, THAT SECTION 263 HAS BEEN PROVIDED FOR IN THE ACT. AS ALREADY MENTI ONED BY US, ASSESSEE HAD GIVEN A BREAK-UP OF THE SOFTWARE EXPEN SES, AND THE AGREEMENTS BASED ON WHICH BILLS WERE RAISED ON IT B Y M/S DANFOSS DENMARK, FOR THE SOFTWARE SERVICES PROVIDED BY IT. THE BREAK-UP GIVEN AT LEAST HAD ONE MAJOR ITEM IN IT WHICH PRIMA FACIE WAS FOR ACQUIRING A SOFTWARE WHICH GAVE THE ASSESSEE AN END URING BENEFIT. AT LEAST THIS OUGHT HAVE MOTIVATED THE ASSESSING OF FICER TO PROBE FURTHER TO ASCERTAIN THE EXACT NATURE OF THE OUTGO. A FAILURE TO DO SO DOES SHOW A NON-APPLICATION OF MIND. THE A.O. FAIL ED TO OBTAIN AND VERIFY THE INVOICES RAISED BY M/S DANFOSS DENMARK O N THE ASSESSEE. SINCE PROPER VERIFICATION OF CLAIM OF THE ASSESSEE WAS NOT DONE, WE ARE OF THE OPINION THAT CIT WAS JUSTIFIED IN INVOKI NG SECTION 263 OF THE ACT AND DIRECTING THE A.O. TO PASS A FRESH ORDER IN ACCORDANCE WITH I.T.A. NO. 962/MDS/12 35 LAW AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE. W E DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT. 21. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 27 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 27 TH SEPTEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-I, CHENNAI (4) D.R. (5) GUARD FILE