ACIT, New Delhi v. M/s. Snap- on Business Solution (India) Pvt. Ltd., New Delhi

ITA 3294/DEL/2012 | 2007-2008
Pronouncement Date: 30-04-2015 | Result: Dismissed

Appeal Details

RSA Number 329420114 RSA 2012
Assessee PAN AAACN0780H
Bench Delhi
Appeal Number ITA 3294/DEL/2012
Duration Of Justice 2 year(s) 10 month(s) 1 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Snap- on Business Solution (India) Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 30-04-2015
Date Of Final Hearing 30-04-2015
Next Hearing Date 30-04-2015
Assessment Year 2007-2008
Appeal Filed On 28-06-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI INTURI RAMA RAO ITA NO. 3294 /DEL/2012 ASSESSMENT YEAR: 2007-08 ASSISTANT CIT VS. SNAP-ON BUSINESS SOLUTION CIRCLE-7(1) (INDIA) PVT. LTD. NEW DELHI. 11 TH FLOOR DLF TOWER-A JASOLA DISTRICT CENTRE NEW DELHI. (PAN: AAACN0780H) (APPELLANT) (RESPONDENT) CROSS OBJ. NO. 311 /DEL/2012 ASSESSMENT YEAR: 2007-08 SNAP-ON BUSINESS SOLUTION ASSISTANT CIT (INDIA) PVT. LTD. CIRCLE 7(1) 11 TH FLOOR DLF TOWER-A NEW DELHI. JASOLA DISTRICT CENTRE NEW DELHI. (PAN: AAACN0780H) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI BRR KUMA R SR. DR RESPONDENT BY: SHRI SANJIV RAI MEHRA CA DATE OF HEARING : 30.04.2015 DATE OF PRONOUNCEMENT: 30:04.2015 ORDER PER I.C. SUDHIR: JUDICIAL MEMBER THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS: 2 1. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS OF THE CASE IN GIVING A RELIEF OF RS.1 08 492 ON ACCOUNT OF ADDITI ON MADE BY THE ASSESSING OFFICER UNDER THE HEAD SOFTWARE EXPENSES TO THE TUNE OF RS.4 79 072 TREATING THE SAME AS CAPITAL EXPENSES. 2. THE LEARNED CIT(APPEALS) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.32 99 211 MADE BY THE A SSESSING OFFICER ON ACCOUNT OF CAPITALIZATION OF VARIOUS EXP ENSES CLAIMED IN PROFIT AND LOSS ACCOUNT. 2. THE ASSESSEE ON THE OTHER HAND HAS OBJECTED THE FIRST APPELLATE ORDER IN ITS CROSS OBJECTION THAT THE LEARNED CIT(APPEALS ) HAS ERRED IN SUSTAINING DISALLOWANCE OF RS.83 200 BY HOLDING THAT THE PAYME NT OF RS.2 08 000 WAS CAPITAL IN NATURE INSTEAD OF REVENUE EXPENSES AS CL AIMED BY THE ASSESSEE. 3. WE HAVE HEARD AND CONSIDERED THE ARGUMEN TS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW AND MATE RIAL AVAILABLE ON RECORD. 4. GROUND NO.1 (REVENUE) & OBJECTION IN C.O. (ASSESSE E) :IN SUPPORT OF THE GROUNDS THE LEARNED DR TRIED TO JUSTIFY THE ASSESSMENT ORDER ON THE ISSUE. HE SUBMITTED THAT THE ASSESSEE HAD PURCHASED FIVE LICENSES FROM M.S.S. GLOBAL/I.T. RETAIL INK. THE TOTAL PAYMENT WA S MADE AT RS.7 80 717 AND OUT OF THE ABOVE RS.2 71 072 PERTAINED TO THIS YEAR ONLY WHICH WAS BOOKED TO SOFTWARE EXPENSES DURING THE YEAR. THE BA LANCE RS.5 09 645 WAS 3 BOOKED IN EARLIER YEARS. THE ASSESSEE HAD ALSO PURC HASED DATA BASE CONTROLLING SOFTWARE FROM F-I INFOTECH FOR RS.2 08 000. THE ASSESSEE HAD CLAIMED RS.4 79 072 AS SOFTWARE EXPENSES IN THE PRO FIT AND LOSS ACCOUNT. SINCE THE AMOUNT SPENT ON SOFTWARE IS ELIGIBLE FOR DEPRECIATION UNDER SEC. 32 OF THE ACT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE AMOUNT AND ALLOWED DEPRECIATION @ 60% I.E. RS.2 87 443 UNDER T HE HEAD SOFTWARE. THE BALANCE AMOUNT OF RS.1 91 629 WAS ADDED TO THE INCO ME OF THE ASSESSEE. THE LEARNED CIT(APPEALS) WAS THUS NOT JUSTIFIED IN GRAN TING THE RELIEF TO THE EXTENT OF RS.1 08 429 (40% OF RS.2 71 072) AND REST RICTING THE ADDITION TO THE EXTENT OF RS.83 200 (RS.1 91 629 RS.1 08 429 ). 5. THE LEARNED AR ON THE OTHER HAND SUBMITTED THAT THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN SUSTAINING THE DI SALLOWANCE OF RS.83 200 INSTEAD OF DELETING THE FULL DISALLOWANCE OF RS.1 9 9 629 MADE BY THE ASSESSING OFFICER. HE ALSO TRIED TO JUSTIFY THE REL IEF GIVEN BY THE LEARNED CIT(APPEALS) WITH THIS SUBMISSIONS THAT SUPPLY OF S OFTWARE WORTH RS.4 79 072 PURCHASED FROM TWO PARTIES WAS IN ORDER TO BE FURTHER SUPPLIED TO BHARAT PETROLEUM CORPORATION LTD. WITH WHOM A CO NTRACT FOR SUPPLY OF 150 NUMBERS OF RETAIL SOFTWARE TO BE USED IN THEIR IN AND OUT STORES HAD BEEN ENTERED INTO. THE PRODUCTS WERE SHIPPED DIRECT LY TO BPCL MUMBAI ALTHOUGH THE RELEVANT INVOICE HAS BEEN BILLED TO TH E ASSESSEE COMPANY. COPY 4 OF THE TERMS AND CONDITIONS FOR IMPLEMENTATION OF T HE RETAIL STORES MANAGEMENT SYSTEM ENTERED INTO BY THE ASSESSEE WITH BPCL WAS FILED. IN AND OUT STORED ARE RETAIL OUTLETS FOR HOUSEHOLD PR OVISIONS LOCATED IN SELECT BPCL PETROL PUMPS FOR WHICH A CUSTOMIZED SOFTWARE W AS TO BE SUPPLIED BY THE ASSESSEE WHICH IN TURN HAS BEEN ACQUIRED FROM M/S. I.T. RETAIL INKS. THEREFORE SO FAR AS ACQUISITION OF 50 NUMBERS OF C USTOMIZED SOFTWARE FROM I.T. RETAILS INK IS CONCERNED THE SAME HAVING BEEN FURTHER SOLD AWAY AS PER THE CONTRACT WITH BPCL CONSTITUTES PART OF THE TRA DING/CONTRACT COST OF THE ASSESSEE COMPANY THE LEARNED CIT(APPEALS) HAS RIGH TLY HELD THAT THE EXPENDITURE WOULD QUALIFY AS REVENUE EXPENDITURE EVEN THOUGH IT RELATES TO ACQUISITION OF SOFTWARE. 6. REGARDING THE BALANCE RS.2 08 000 TOWARDS PURCHA SE OF SOFTWARE FROM F.I. INFO TECH IS CONCERNED THE LEARNED AR SUBMITT ED THAT THE ITEM IN QUESTION WAS A DATA MODELING SOFTWARE-ERWIN IS A T OOL PROVIDED BY C.A. ERWIN WHICH IS USED TO DESIGN THE DATABASE MODEL I T DOES NOT MATTER WITH DATA BASE YOU ARE USING. THE LEARNED CIT(APPEALS) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SOFTWARE AS C APITAL ASSETS ON THE BASIS THAT THE ITEM WAS PURCHASED WITH TWO YEARS MAINTENA NCE FACILITY AND IT HAS BEEN USED BY THE ASSESSEE COMPANY FOR ITS OWN PURPO SE AND NOT FOR THE 5 PURPOSE OF THE SALES TO BPCL. THE LEARNED CIT(APPEA LS) WAS THUS NOT JUSTIFIED IN TREATING THE SAME AS CAPITAL ASSETS AN D SUSTAINING 40% DISALLOWANCE THEREOF AFTER AFFORDING ALLOWABILITY O F DEPRECIATION @ 60% THEREUPON. 7. CONSIDERING THE ABOVE SUBMISSION WE FIND THAT T HE LEARNED CIT(APPEALS) WAS JUSTIFIED IN ACCEPTING THE EXPENSE S OF RS.2 71 072 INCURRED BY THE ASSESSEE FOR THE ACQUISITION OF 50 NUMBERS OF CUSTOMIZED SOFTWARE FROM I.T. RETAIL INK AS THE SAME WAS FURTH ER SOLD AWAY AS PER THE CONTRACT WITH BPCL HENCE IT CONSTITUTED PART OF T HE TRADING/CONTRACT COST OF THE ASSESSEE COMPANY. THUS THERE WAS NO ANY REASON TO DOUBT THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE EXPENDITURE WOULD QUALIFY AS REVENUE EXPENDITURE EVEN THOUGH IT RELATES TO ACQUISITION O F SOFTWARE. THIS ACTION OF THE LEARNED CIT(APPEALS) IS UPHELD. SO FAR AS EXPEN DITURE OF RS.2 08 000 INCURRED TOWARDS PURCHASE OF SOFTWARE FROM F.I. INF O TECH IS CONCERNED WE FIND THAT THE LEARNED CIT(APPEALS) HAS OBSERVED THA T THE SOFTWARE WAS USED AS TOOL FOR DESIGNING OF THE DATA BASE MODEL OF THE ASSESSEE COMPANY AND THE SAME WAS NOT SOLD OUT TO BPCL AS CLAIMED BY THE ASS ESSEE. THE LEARNED CIT(APPEALS) NOTED FURTHER THAT AS PER THE DESCRIPT ION OF THE INVOICE THE ITEM IN QUESTION WAS PURCHASED WITH TWO YEARS MAINT ENANCE FACILITY THUS IT WAS USED BY THE ASSESSEE COMPANY FOR ITS OWN PURPOS E AND NOT FOR THE 6 PURPOSE OF SALE OF THE BPCL. HE HELD FURTHER THAT T HE DATA MODEL ACQUIRED BY THE ASSESSEE FALLS INTO THE DESCRIPTION OF THE COMP UTER SOFTWARE AS PER RULE 5 APPENDIX-I PART III (5). IN ABSENCE OF REBUTTAL OF THESE FACTUAL FINDINGS OF THE LEARNED CIT(APPEALS) BY THE ASSESSEE WE DO NOT FIN D REASON TO INTERFERE WITH THE DECISION OF THE LEARNED CIT(APPEALS) THAT THE DATA MODEL ACQUIRED BY THE ASSESSEE WAS CAPITAL ASSETS AND THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION @60%. UNDER THESE FACTS WE DO NOT FIN D REASON TO INTERFERE WITH THE SUSTENANCE OF DISALLOWANCE OF RS.83 200 BY THE LEARNED CIT(APPEALS) (40% OF RS.2 08 000). THE GROUND NO.1 OF THE APPEAL PREFERRED BY THE REVENUE IS THUS REJECTED AND OBJEC TION RAISED BY THE ASSESSEE IN ITS CROSS-OBJECTION IS ALSO REJECTED. 8. GROUND NO.2 (REVENUE) : THE ASSESSING OFFICER DISALLOWED THE CLAIMED REVENUE EXPENDITURE INCURRED ON ACCOUNT OF RECRUITMENT EXPENSES (RS.20 12 648) TRAINING EXPENSES (RS.1 89 332) H. R. CONSULTANCY (RS.5 32 010) AND PROJECT CONSULTANCY (RS.16 64 959 ) TOTALING TO RS.43 98 949. THE ASSESSING OFFICER WAS OF THE OPIN ION THAT THE CLAIMED EXPENDITURE LED TO THE CREATION OF ASSETS WHICH BRI NG ENDURING BENEFIT TO THE ASSESSEE HENCE IT IS CAPITAL EXPENDITURE AND ALLO WED DEPRECIATION @ 25% THEREUPON RESULTING INTO THE ADDITION OF RS.32 99 2 11. THE LEARNED CIT(APPEALS) HAS HOWEVER ACCEPTED THE CLAIMED EXP ENDITURE AS REVENUE IN 7 NATURE. THIS ACTION OF THE LEARNED CIT(APPEALS) HAS BEEN QUESTIONED BY THE REVENUE BEFORE THE ITAT. 9. IN SUPPORT OF THE GROUND LEARNED DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER. HE REFERRED THE CONTENTS OF THE R ELATED PARAGRAPHS OF THE ASSESSMENT ORDER AT PAGE NOS. 5 TO 7 OF THE ASSESSM ENT ORDER. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIFY THE FIRST APP ELLATE ORDER ON THE ISSUE. HE REITERATED THE SUBMISSIONS MADE IN THIS REGARD B EFORE THE AUTHORITIES BELOW. 10. AFTER HAVING GONE THE ORDERS OF THE AUTHORITIES BELOW WE DO NOT FIND ANY INFIRMITY IN THE FIRST APPELLATE ORDER ON THE I SSUE. WE CONCUR WITH THE FINDING OF THE LEARNED CIT(APPEALS) THAT THE CLAIME D EXPENDITURE WAS OF REVENUE IN NATURE AS THE EXPENDITURE INCURRED UNDER THE HEAD RECRUITMENT EXPENSES WERE YEARLY SUBSCRIPTIONS PAID TO STAFF H IRING SITES LIKE MOON STOR.COM AND NAUKRI.COM (PAGE NOS. 4 TO 38 OF THE P APER BOOK) WHICH ARE ANNUAL CHARGES AND NOT OF ANY ENDURING NATURE. THE EXPENSE ALSO INCLUDES TRAVELING EXPENSES FOR INTERVIEWS ETC. THE TRAINING EXPENSES ARE PAYMENTS TO OUTSIDE CONSULTANTS TO UPDATE THE KNOWLEDGE SCHEME OF THE EMPLOYEES WHICH IS A PERIODICAL PAYMENT (PAGE NOS. 39 TO 49 O F THE PAPER BOOK). SO FAR AS HR CONSULTANCY IS CONCERNED THE ASSESSEE DOES N OT HAVE A HR DIVISION. THEY HAVE HIRED THE SERVICES OF A CONSULTANT WHO VI SITS THE OFFICE 8 PERIODICALLY AND CARRIES ON ALL HR WORKS (PAGE NOS. 52 TO 54 OF THE PAPER BOOK). REGARDING THE EXPENDITURE INCURRED ON PROJEC T CONSULTANCY (PAGE NOS. 55 TO 85 OF THE PAPER BOOK) THE SUBMISSION OF THE ASSESSEE AND FINDING OF THE LEARNED CIT(APPEALS) THAT THE ASSESSEE IS A 100% EOU SUPPLYING CUSTOMIZE BUSINESS APPLICATION SOFTWARE AND FOR IND EPENDENT TESTING OF THE SOFTWARE BEFORE EXPORT TO CUSTOMERS THE EXPENDITUR E WAS INCURRED HAS NOT BEEN REBUTTED. THE CONTENTION OF THE ASSESSEE IN TH IS REGARD REMAINED THAT ALL SOFTWARE PREPARED BY THE ASSESSEE ARE REQUIRED TO B E TESTED AND CERTIFIED BY AN INDEPENDENT AGENCY BEFORE THE SAME IS ACCEPTED A S FINAL. THE COPY OF BILLS PRODUCE SUPPORTS THE ABOVE SUBMISSION OF THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED FOR TESTING OF SOFTWARE AN D THUS WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY ACCEPTED IT AS REVENUE IN NATURE. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UP HELD. THE GROUND NO. 2 IS ACCORDINGLY REJECTED. 11. IN RESULT BOTH THE APPEAL AND THE CROSS OBJECT ION ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 30.04.2015 SD/- SD/- ( INTURI RAMA RAO ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30 /04/2015 MOHAN LAL 9 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON COMPUTER 30.04.2015 DRAFT PLACED BEFORE AUTHOR 30 .04.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 30.04.2015 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 30.04.2015 KEPT FOR PRONOUNCEMENT ON 30.04.2015 FILE SENT TO THE BENCH CLERK 30.04.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.