DCIT 10(1), MUMBAI v. ONWARD E SERVICES LTD, MUMBAI

ITA 5331/MUM/2013 | 2007-2008
Pronouncement Date: 31-07-2015 | Result: Dismissed

Appeal Details

RSA Number 533119914 RSA 2013
Assessee PAN AAACO0629N
Bench Mumbai
Appeal Number ITA 5331/MUM/2013
Duration Of Justice 1 year(s) 11 month(s) 30 day(s)
Appellant DCIT 10(1), MUMBAI
Respondent ONWARD E SERVICES LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 31-07-2015
Date Of Final Hearing 18-06-2015
Next Hearing Date 18-06-2015
Assessment Year 2007-2008
Appeal Filed On 01-08-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . BEFORE SHRI G.S.PANNU ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEMBER . / ITA NO.5331/MUM/2013 / ASSESSMENT YEAR 2007-08 THE DCIT -10(1) 455 4 TH FLOOR AAYKAR BHAVAN MK ROAD MUMBAI 400020 / VS. M/S. ONWARD E SERVICES LTD. 2 ND FLOOR STERLING CENTRE WORLI MUMBAI 400018 ! ./ ./ PAN/GIR NO. : AAACO0629N ( !# / APPELLANT ) .. ( $%!# / RESPONDENT ) APPELLANT BY SHRI PREMANAND J RESPONDENT BY SHRI PARESH SHAPARIA ' ( / DATE OF HEARING : 18/06/2015 ' ( / DATE OF PRONOUNCEMENT : 31/07/2015 / O R D E R PER G.S.PANNU A.M: THE PRESENT APPEAL IS PREFERRED BY THE REVENUE A ND IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 21/05/2013 OF THE CIT(A) -21 MUMBAI PERTAINING TO THE ASSESSMENT YEAR 2007-08 WITH REF ERENCE TO THE PENALTY ORDER DATED 28/12/2012 PASSED IN TERMS OF SECTION 271(1)( C) OF THE INCOME TAX ACT 1961 (THE ACT). 2. IN THIS APPEAL THE ONLY GRIEVANCE OF THE REVENU E IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE PENALTY OF RS.98 66 766/- LEVIED UNDER SECTION 271(1)(C) OF THE ACT. . / ITA NO.5331/MUM/2013 / ASSESSMENT YEAR 2007-08 2 3. BRIEFLY STATED THE RELEVANT FACTS ARE THAT THE RESPONDENT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE SERV ICES MAINLY TO BANKING SECTOR DEVELOPMENT OF SOFTWARE FOR BANKING SECTOR AND TRADING IN SOFTWARE AND HARDWARE. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAD CAPITALIZED AN AMOUNT OF RS.2 93 13 06 1/- UNDER THE HEAD R&D EXPENDITURE IN THE BOOKS OF ACCOUNTS WHEREAS IN T HE COMPUTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME ENTIRE EXPEN DITURE WAS CLAIMED AS A REVENUE EXPENDITURE. THE AO DISALLOWED THE CLAIM O F THE ASSESSEE AND INSTEAD TREATED IT AS A CAPITAL EXPENDITURE PRIMARILY ON TH E GROUND THAT THERE WAS NO EVIDENCE TO JUSTIFY ALLOWABILITY OF SUCH EXPENDITUR E UNDER SECTION 35(1) OF THE ACT AS A RESEARCH EXPENDITURE OR UNDER SECTION 37(1 ) OF THE ACT. THE SAID ACTION OF THE AO HAS ALSO BEEN AFFIRMED BY THE TRIB UNAL VIDE ITS ORDER DATED 9/5/2012. INSTEAD OF THE CLAIM OF THE ASSESSEE FOR TREATING THE EXPENDITURE AS REVENUE IN NATURE THE ASSESSEE HAS BEEN ALLOWED DE PRECIATION @ 60% ON THE AFORESAID AMOUNT. 3.1 SUBSEQUENTLY VIDE ORDER DATED 28/12/2012 THE AO HELD THE ASSESSEE GUILTY FOR FURNISHING INACCURATE PARTICULARS OF I TS INCOME QUA THE AFORESAID AMOUNT WITHIN THE MEANING OF SECTION 271(1)(C) OF T HE ACT. AS A CONSEQUENCE THE AO LEVIED A PENALTY OF RS.98 66 776/- BEING 100 % OF THE TAX SOUGHT TO BE EVADED ON THE INCOME OF RS.2 93 13 061/- BEING THE AMOUNT DISALLOWED AS A CAPITAL EXPENDITURE. THE LEVY OF SUCH PENALTY HAS SINCE BEEN SET ASIDE BY THE LD. CIT(A) AND THE REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US LD. DR SUBMITTED THAT THE ASSESSMENT PROCEEDINGS CLEARLY DEMONSTRATE THAT ASSESSEE COULD NOT FURNISH ANY SU BSTANTIVE EVIDENCE IN SUPPORT OF ITS CLAIM OF SAID R&D EXPENDITURE WITH REFERENCE TO EITHER SECTION 35(1) OR SECTION 37(1) OF THE ACT AND THEREFORE I T COULD NOT BE SAID THAT THE CLAIM OF THE ASSESSEE WAS BONAFIDE. SECONDLY LD. DR POINTED OUT THAT IN THE BOOKS OF ACCOUNT ASSESSEE HAD TREATED SUCH EXPENDIT URE AS A CAPITAL EXPENDITURE AND THEREFORE THERE WAS NO JUSTIFICAT ION FOR CLAIMING IT AS REVENUE . / ITA NO.5331/MUM/2013 / ASSESSMENT YEAR 2007-08 3 EXPENDITURE IN THE RETURN OF INCOME. ON THIS BASIS IT WAS SOUGHT TO BE CONTENDED THAT THE PENALTY HAS BEEN WRONGLY DELETED BY LD. CIT(A). 5. ON THE OTHER HAND LD. REPRESENTATIVE FOR THE ASSESSEE HAS PRIMARILY RELIED UPON THE REASONING GIVEN BY LD. CIT(A) IN SU PPORT OF THE CASE OF THE ASSESSEE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. FACTUALLY SPEAKING THE EXPENDITURE OF RS.2 93 13 061/- WAS INCURRED BY THE ASSESSEE ON DEVELOPMENT OF SOFTWARE UTILIZED FOR THE PURPOSES OF PROVIDING SERVICES TO ITS CLIENTS. IT HAS A HOST OF SOFTWARE PRODUCTS IN TH E TOTAL BRANCH AUTOMATION(TBA) AND CORE BANKING ACTIVITIES. IT WA S EXPLAINED THAT SUCH TBA APPLICATIONS WHICH ARE DEVELOPED BY THE ASSESSEE AR E SUCCESSFULLY RUNNING ACROSS 4000 BRANCHES OF VARIOUS BANKS. THE ENRICH MENT OF SUCH PRODUCT IS AN ONGOING PROCESS IN TERMS OF WHICH ASSESSEE REVIE WS VARIOUS FEATURES AND MODULES OF THE SOFTWARE SO AS TO MODIFY/UPDATE THEM . THE ASSESSEE IDENTIFIED THE COST INCURRED ON SUCH EXERCISE AT RS.2 93 13 0 61/- AND CAPITALIZED THE SAME AS R&D EXPENDITURE IN THE BOOKS OF ACCOUNT SI NCE THE ASSESSEE PERCEIVED THAT SUCH EXPENDITURE PROVIDED BENEFITS I N THE FORM OF INCREASED REVENUES IN THE CURRENT AS WELL AS FUTURE YEARS. SO HOWEVER THE ASSESSEE EXPLAINED THAT IN THE INCOME TAX RETURN THE SAME WA S CLAIMED AS A REVENUE EXPENDITURE BECAUSE NO NEW ASSET CAME INTO EXISTENC E BY INCURRENCE OF SUCH EXPENDITURE. IT WAS ALSO POINTED OUT AND WHICH H AS BEEN REPRODUCED BY THE LD. CIT(A) IN HIS ORDER IN PARA 2.2 THAT SUCH E XPENDITURES BEING SALARIES BOOKS AND PERIODICALS TRAVELLING STAFF WELFARE TELEPHONE EXPENSES ETC. WERE IN THE NATURE OF REVENUE EXPENDITURE. BE THAT AS I T MAY THE EXPENDITURE HAS BEEN HELD TO BE A CAPITAL EXPENDITURE ENTITLED FOR DEPRECIATION @ 60% AND IN THE PRESENT WE ARE NOT CONCERNED WITH THE MERITS OF THE CLAIM OF THE ASSESSEE OF SUCH EXPENDITURE BEING REVENUE IN NATURE. THE ONLY ASPECT THAT IS TO BE . / ITA NO.5331/MUM/2013 / ASSESSMENT YEAR 2007-08 4 ADDRESSED IS AS TO WHETHER PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS ATTRACTED OR NOT IN THE FACTS AND CIRCUMSTANCES O F THE CASE. 6.1 IN THIS CONTEXT IT IS NOTICEABLE THAT THE AREA OF DIFFERENCE BETWEEN ASSESSEE AND THE REVENUE IS MERELY THE NATURE OF EX PENDITURE I.E. WHETHER IT IS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. THE FA CTUAL MATRIX OF THE CASE CLEARLY BRINGS OUT THAT SO FAR AS THE FURNISHING O F THE PARTICULARS OF EXPENDITURE IS CONCERNED NONE WAS FOUND TO BE FALSE OR OTHERWISE WRONG. THEREFORE IN OUR VIEW UNLESS THE PARTICULARS WITH RESPECT TO THE CLAIM MADE BY THE ASSESSEE ARE FOUND TO BE FALSE IT WOULD BE IMP ROPER TO BRING SUCH A CLAIM WITHIN THE PURVIEW OF SECTION 271(1)(C) OF THE ACT ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS. THE AFORESAID PROPOSITION IS WELL SUPPORTED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF R ELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158(SC). IT IS ALSO A WELL SETTLED PR OPOSITION THAT THE ASSESSMENT PROCEEDINGS AND THE PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT ARE INDEPENDENT PROCEEDINGS AND THAT THE FINDING IN THE COURSE OF ASSESSMENT PROCEEDINGS WOULD NOT IPSO-FACTO DETERMINE THE LEV IABILITY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT ALTHOUGH SUCH A FIN DING MAY CARRY PERSUASIVE VALUE. IN THE PRESENT CASE WE FIND THAT THE ASSE SSEES CLAIM OF TREATING THE EXPENDITURE AS A REVENUE EXPENDITURE HAS MERELY BEE N DIFFERED WITH BY THE REVENUE AND IT IS NOT A CASE WHERE THE CLAIM OF THE ASSESSEE WAS FOUND TO BE INGENUINE. MOREOVER LD. CIT(A) HAS ALSO REFERRED TO VARIOUS DECISIONS TO POINT OUT THAT THE ISSUE WHETHER SOFTWARE EXPENDITURE IS TO BE REGARDED AS REVENUE OR CAPITAL EXPENDITURE DEPENDS ON FACTS AND CIRCUMS TANCES OF A PARTICULAR CASE AND IS A DEBATABLE ISSUE WHICH DOES NOT JUST IFY THE IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS ASPECT OF THE MATTER IS QUITE WELL APPRECIATED BY LD. CIT(A). . / ITA NO.5331/MUM/2013 / ASSESSMENT YEAR 2007-08 5 6.2 CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTA NCES OF THE CASE AND THE AFORE SAID DISCUSSION WE HEREBY AFFIRM THE ORDER O F LD. CIT(A) DELETING THE PENALTY LEVIED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/2015 ' - ./ 31/07/2015 ' SD/- SD/- ( / AMIT SHUKLA ) ( . . / G.S.PANNU ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; . DATED 31/07/2015 ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. 34 $56 ( 56 / DR ITAT MUMBAI 6. 7 / GUARD FILE. / BY ORDER %3 $ //TRUE COPY// / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI . . ./ VM SR. PS