DCIT, Circle - 11(2), Kolkata , Kolkata V. M/s. Tractors India Private Limited , Kolkata

ITA 999/KOL/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6508 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 14-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAI SONI A
• Keywords: Capital expenditure
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA (BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA, JUDICIAL MEMBER) I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD...............................................................APPELLANT (NOW, GAINWELL COMMONSALES PVT. LTD.) GODREJ WATERSIDE TOWER-II 7 TH FLOOR SALT LAKE CITY SECTOR-V KOLKATA 700 091 [PAN : AABCT 1656 K] VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRLE-11(2), KOLKATA..............................RESPONDENT I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME TAX, CIRLE-11(2), KOLKATA................................APPELLANT VS. M/S.TRACTORS INDIA PVT. LTD...........................................................RESPONDENT (NOW, GAINWELL COMMONSALES PVT. LTD.) GODREJ WATERSIDE TOWER-II 7 TH FLOOR SALT LAKE CITY SECTOR-V KOLKATA 700 091 [PAN : AABCT 1656 K] APPEARANCES BY: SHRI JAI SONI, A.C.A., APPEARED ON BEHALF OF THE ASSESSEE. SHRI ALTAF HUSSAIN, JCIT, SR. DR. , APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 22 ND , , 2019 DATE OF PRONOUNCING THE ORDER : JULY 31 ST , 2019 ORDER PER J. SUDHAKAR REDDY, AM :- THESE ARE CROSS-APPEALS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 4, KOLKATA, (HEREINAFTER THE LD.CIT(A)), PASSED U/S. 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 20/02/2018, FOR THE ASSESSMENT YEAR 2013-14. 2 I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD 2. WE HAVE HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 3. WE FIRST TAKE UP THE ASSESSEES APPEAL IN I.T.A. NO. 687/KOL/2018. 4. THE ONLY ISSUE THAT ARISES IN THE ASSESSEES APPEAL IS REGARDING THE DISALLOWANCE U/S 43B(F) OF THE ACT. WE FIND THAT UNDER SIMILAR CIRCUMSTANCE, THIS BENCH OF THE TRIBUNAL IN THE CASE OF INTEGRATED COAL MINING LTD. VS. DCIT IN ITA NO. 18/KOL/2018, ASSESSMENT YEAR 2010-11, DT. 09/01/2019 , HELD AS FOLLOWS:- UNDER THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE FOLLOW THE DECISION OF THE KOLKATA C BENCH OF THE ITAT, IN ITA NO.1146 & 1138/KOL/2012; ASSESSMENT YEAR 2008-09; DT. 30/11/2015, AND RESTORE THIS ISSUE OF DISALLOWANCE U/S 43B(F) OF THE ACT, TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW BASED ON THE OUTCOME OF THE APPEAL ON MERITS BY THE HONBLE SUPREME COURT IN THE CASE OF UOI VS. EXIDE INDUSTRIES LTD. IN SLP PROCEEDINGS IN CC 12060/2008, DT. 08/09/2008 AND IN CC 22889/2008, ORDER DT. 08/05/2009. 4.1. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION BASED ON THE OUTCOME OF THE ORDER OF THE HONBLE SUPREME COURT IN THE MATTER. 5. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. NOW WE TAKE UP THE REVENUES APPEAL IN I.T.A. NO. 999/KOL/2018. 7. GROUND NO. 1 IS AGAINST THE DELETION OF DISALLOWANCE OF CONTRIBUTION TO ESI BY THE LD. CIT(A). THE UNDISPUTED FACT IS THAT CONTRIBUTION TO ESI WAS DULY DEPOSITED TO THE ESI FUND BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT. UNDER THESE CIRCUMSTANCES, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) AND RELIANCE PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSION LTD. [2009] 319 ITR 306 (SC) WHILE DELETING THE ADDITION. WE UPHOLD THE SAME AND DISMISS GROUND NO. 1 OF THE REVENUE. 8. GROUND NO. 2 IS AGAINST THE DELETION OF DISALLOWANCE OF WARRANTY EXPENSES BY THE LD. CIT(A). 8.1. THE LD. CIT(A) WHILE ADJUDICATING THE ISSUE HELD AS FOLLOWS:- 3 I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD FROM THE SUBMISSIONS AND THE FACTS OF THE CASE, I UNDERSTAND THAT PURSUANT TO THE AGREEMENT ENTERED BETWEEN THE CATERPILLAR AND THE APPELLANT, THE APPELLANT IS ENTITLED TO CLAIM REIMBURSEMENT OF WARRANTY EXPENSES FROM CATERPILLAR CLAIMED BY ITS CUSTOMERS. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT INCURRED WARRANTY COST OF RS. 3,112,525 CLAIMED AS REIMBURSEMENT FROM CATERPILLAR. THE AFORESAID WARRANTY CLAIM WAS DENIED BY THE CATERPILLAR. THE APPELLANT IN ITS BOOKS OF ACCOUNTS HAS DEBITED THE UNRECOVERED WARRANTY COST OF RS. 3,112,525. THE APPELLANT HAS NOT VIOLATED ANY RULES SET BY THE MANUFACTURER. SINCE THE MANUFACTURER DENIED THE CLAIM MADE BY THE APPELLANT, THE APPELLANT HAS DEBITED THE WARRANTY COST INCURRED IN ITS BOOKS OF ACCOUNTS. FURTHER, THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE APPELLANT BY MY PREDECESSOR FOR AY 2011-12 AND AY 2012-13. THERE BEING NO CHANGE IN THE FACTUAL MATRIX OF THE CASE OF THE APPELLANT AS COMPARED TO THE PRECEDING ASSESSMENT YEARS ON THE ISSUE IN DISPUTE. IN VIEW OF THE ABOVE AND THE DECISION OF MY PREDECESSOR IN EARLIER AYS 2011-12 AND 2012-13, THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT AND THEREFORE THE ADDITION MADE IN THIS REGARD AMOUNTING TO RS. 3,112,525 IS DIRECTED TO BE DELETED. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 8.2. WE FIND THAT THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ON THESE FACTS HAS ALLOWED THE CLAIM OF THE ASSESSEE ON ACCOUNT OF WARRANTY EXPENSES IN ITA NOS. 1371 & 1372/KOL/2015; DCIT VS. GAINWELL COMMONSALES PVT. LTD., ORDER DT. 04/06/2019, BY HOLDING AS FOLLOWS:- 22.WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE COMPANY IS A DEALER OF CATERPILLAR AND SELLS EQUIPMENT MANUFACTURED BY IT. THE SALES AND SERVICE AGREEMENT ENTERED BETWEEN THE ASSESSEE COMPANY AND CATERPILLAR PROVIDES THAT THE ASSESSEE COMPANY IS LIABLE TO INCUR WARRANTY COST IN RESPECT OF EQUIPMENT SOLD BY IT WHICH CAN BE CLAIMED AS RE- IMBURSEMENT FROM CATERPILLAR. ASSESSEE SUBMITTED A COPY OF THE SALES AND SERVICE AGREEMENT. WE NOTE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED TOTAL WARRANTY COST OF RS.15,99,76,159/-, WHICH WAS BACK TO BACK CLAIMED AS REIMBURSEMENT FROM CATERPILLAR. HOWEVER, OUT OF THE TOTAL CLAIM MADE BY THE ASSESSEE OF RS.15,99,76,159/-, CATERPILLAR ACCEPTED WARRANTY CLAIM OF RS. 15,17,74, 140/- AND DENIED BALANCE CLAIM FOR REIMBURSEMENT OF RS. 82,02,019/- AS NOT LIABLE TO BE COVERED UNDER WARRANTY. 22. WE NOTE THAT PURSUANT TO THE AGREEMENT ENTERED INTO BETWEEN THE CATERPILLAR AND THE ASSESSEE, THE ASSESSEE IS ENTITLED TO CLAIM REIMBURSEMENT OF WARRANTY EXPENSES FROM CATERPILLAR CLAIMED BY ITS CUSTOMER. AT THE COST OF REPETITION, WE STATE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED TOTAL WARRANTY COST OF RS.15,99,76,159/- CLAIMED AS REIMBURSEMENT FROM CATERPILLAR OUT OF WHICH WARRANT ONLY CLAIM OF RS. 15,17,74,140/- WAS ACCEPTED BY THE CATERPILLAR. BALANCE WARRANTY CLAIM OF RS. 82,02,019/- WAS DENIED BY THE CATERPILLAR AND WAS NOT REIMBURSED TO THE ASSESSEE. THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAS NOT DEBITED THE FULL AMOUNT OF WARRANTY EXPENSES BUT WHAT HAS BEEN DEBITED IS ONLY THE UNRECOVERED WARRANTY COST OF RS. 82,02,019/-. IN THIS REGARD, WE FIND NO MERITS IN THE CONTENTION OF THE AO THAT THE ASSESSEE HAS VIOLATED THE PRINCIPLE OF ACCOUNTING BY ONLY RECORDING THE EXPENSE WITHOUT ANY CREDIT. SINCE WARRANTY CLAIM OF RS.82,02,019/- IS THE NET AMOUNT DEBITED TO PROFIT AND LOSS ACCOUNT, HENCE, THERE IS NO QUESTION OF CREDITING IN THE PROFIT AND LOSS ACCOUNT. SINCE THE UNRECOVERED WARRANTY COST REPRESENTED BUSINESS EXPENSE OF THE ASSESSEE, THE SAME WAS DEBITED TO PROFIT AND LOSS ACCOUNT AND IN VIEW OF THE ABOVE, SINCE THE EXPENDITURE IS INCURRED FOR BUSINESS PURPOSE, WARRANTY EXPENSES SHOULD BE ALLOWED. 4 I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD THAT BEING SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A), HIS ORDER ON THIS ISSUE IS HEREBY UPHELD AND GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 9. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 10. GROUND NOS. 3 & 4 RAISED BY THE REVENUE ARE REGARDING THE ALLOWABILITY OF PAYMENT MADE IN RESPECT OF TECHNICAL SERVICES TO THE TUNE OF RS.1,19,75,335/-, ON THE GROUND THAT THESE ARE INCURRED IN THE CAPITAL FIELD. 10.1. WE FIND THAT THIS ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR , WHEREIN THE TRIBUNAL HAS HELD AS FOLLOWS:- 12.WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE ASSESSEE IS A DEALER OF CATERPILLAR INC., USA (CATERPILLAR). CATERPILLAR INC. MAINTAINS A COMMON WEB BASED INTERFACE WHICH PROVIDES A COMMON PLATFORM TO ALL ITS DEALERS (INCLUDING THE ASSESSEE) TO RECORD BUSINESS TRANSACTIONS. IN CONNECTION TO THE ABOVE, ACCENTURE LLP (ACCENTURE) AND CATERPILLAR HAVE ENTERED INTO A SERVICE AGREEMENT DATED 1STJUNE, 2009, VIDE WHICH ACCENTURE HAS BEEN GRANTED AN EXCLUSIVE RIGHT TO LICENSE CATERPILLAR'S DBS / DBSI INTEGRATED SOFTWARE PACKAGE (SOFTWARE) TO CATERPILLAR'S DEALERS ON GLOBAL BASIS TO ALLOW CATERPILLAR'S DEALER TO ACCESS AND BENEFIT OUT OF THE LICENSED SOFTWARE. PURSUANT TO SUCH GLOBAL AGREEMENT, THE ASSESSEE COMPANY (BEING A DEALER OF CATERPILLAR) ENTERED INTO A SOFTWARE MAINTENANCE & SUPPORT AGREEMENT DATED 1ST JULY, 2009 WITH ACCENTURE VIDE WHICH THE ASSESSEE COMPANY HAS BEEN GRANTED A NON-EXCLUSIVE AND NON-TRANSFERABLE LICENSE TO USE THE SOFTWARE FREE OF COST AND AVAIL ONGOING SUPPORT AND MAINTENANCE SERVICES FROM ACCENTURE REQUIRED TO ACCESS THE SAID SYSTEM FOR AN ANNUAL FEES OF RS. 36,87,594/-. UNDER THE SAID AGREEMENT, ACCENTURE INTERALIA PROVIDES THE ASSESSEE COMPANY WITH AVAILABLE IMPROVEMENTS TO DBS / DBSI SOFTWARE INCLUDING UPDATES, ENHANCEMENTS, IMPROVEMENTS TO CORRECT ANY MALFUNCTIONS, DEFICIENCIES, INCOMPATIBILITIES, DEFECTS, ERRORS OR BUG AND ANY NEW RELEASES RELATING TO THE SOFTWARE ALONG WITH SUPPORT SERVICES IN THE NATURE OF TELEPHONE, EMAIL OR OTHER CUSTOMER SUPPORT. WE NOTE THAT THE SAID AGREEMENT DOES NOT GRANT ANY RIGHT, TITLE OR INTEREST IN THE SOFTWARE AND THE RIGHT OF THE ASSESSEE IS LIMITED TO USING THE SOFTWARE IN CONNECTION WITH ITS DEALERSHIP BUSINESS WITH CATERPILLAR. APART FROM ABOVE, THE ASSESSEE COMPANY HAS ALSO SEPARATELY ENTERED INTO A SERVICE AGREEMENT AND A HOSTING SERVICE SCHEDULE DATED 1STAPRIL 2009 WITH ACCENTURE FOR AVAILING HOSTING SERVICES, PRODUCTION SERVICES AND BUSINESS RECOVERY SERVICES WITH ACCENTURE. 13. AFTER GOING THROUGH THE DETAILS/AGREEMENTS FILED BEFORE US, WE ARE OF THE VIEW THAT THE PAYMENTS MADE BY THE ASSESSEE WERE NOT FOR SECURING ANY RIGHT IN SOFTWARE OR FOR PURCHASE OF COPYRIGHT IN SOFTWARE BUT FOR AVAILING MAINTENANCE 5 I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD AND SUPPORT SERVICES. IT IS OBSERVED THAT THE PAYMENT WAS MADE FOR MAINTENANCE/HOSTING SERVICES AND THERE WAS NO ACQUISITION OF RIGHT IN SOFTWARE AS SPELT OUT IN PARA 7(A) OF SOFTWARE MAINTENANCE & SUPPORT AGREEMENT DATED 1STJULY, 2009. WE FIND THAT THE AO HAS MISUNDERSTOOD THE FACTS OF THE CASE. THE PAYMENT MADE BY THE ASSESSEE HAS NOT RESULTED IN ANY ENDURING BENEFIT AND ARE ONLY FOR ANNUAL MAINTENANCE AND SUPPORT SERVICES. THE SAME SERVICES HAS BEEN AVAILED BY THE ASSESSEE IN FUTURE YEARS ALSO WHICH SUGGESTS THAT THE SAME WERE AVAILED ON ANNUAL BASIS AND WAS NOT A ONE-TIME PAYMENT. HENCE, WE DO NOT FIND ANY POSSIBLE REASON TO TREAT THE EXPENSE AS CAPITAL EXPENDITURE SINCE THE PAYMENT IS MADE ONLY FOR MAINTENANCE AND SUPPORT SERVICES, NECESSARY FOR USING THE APPLICATION EFFICIENTLY. THAT BEING SO, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A), HIS ORDER, ON THIS ISSUE IS HEREBY UPHELD AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 11. CONSISTENT WITH THE VIEW TAKEN THEREIN WHILE ADJUDICATING THE IDENTICAL ISSUE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND WE DISMISS GROUND NOS. 3 & 4 OF THE REVENUE. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 31 ST DAY OF JULY, 2019. SD/- SD/- [S.S. VISWANETHRA RAVI] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31.07.2019 {SC SPS} 6 I.T.A. NO. 687/KOL/2018 ASSESSMENT YEAR: 2013-14 I.T.A. NO. 999/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S.TRACTORS INDIA PVT. LTD COPY OF THE ORDER FORWARDED TO: 1. M/S. TRACTORS INDIA PVT. LTD (NOW, GAINWELL COMMONSALES PVT. LTD.) GODREJ WATERSIDE TOWER-II 7 TH FLOOR SALT LAKE CITY SECTOR-V KOLKATA 700 091 2 . ASSTT. COMMISSIONER OF INCOME TAX, CIRLE-11(2), KOLKATA 3 . DEPUTY COMMISSIONER OF INCOME TAX, CIRLE-11(2), KOLKATA 5. CIT(A)- 6. CIT- , 7. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES