M/s. Lampex Electronics Ltd., Hyd, Hyderabad v. DCIT, Circle-16(1),, Hyderabad

ITA 751/HYD/2012 | 2005-2006
Pronouncement Date: 07-11-2014 | Result: Allowed

Appeal Details

RSA Number 75122514 RSA 2012
Assessee PAN AAACL4134B
Bench Hyderabad
Appeal Number ITA 751/HYD/2012
Duration Of Justice 2 year(s) 5 month(s) 22 day(s)
Appellant M/s. Lampex Electronics Ltd., Hyd, Hyderabad
Respondent DCIT, Circle-16(1),, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 07-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 07-11-2014
Assessment Year 2005-2006
Appeal Filed On 16-05-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER ITA.NO.751/HYD/2012 ASSESSMENT YEAR 2005-2006 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. PAN AAACL4134B VS. DCIT CIRCLE 16(1) HYDERABAD (APPELLANT) (RESPONDENT) ITA.NO.1791/HYD/2013 ASSESSMENT YEAR 2006-2007 DCIT CIRCLE 16(1) HYDERABAD. VS. M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. PAN AAACL4134B (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. P.N. MOORTHY FOR REVENUE : MR. D. SUDHAKAR RAO DATE OF HEARING : 27.10.2014 DATE OF PRONOUNCEMENT : 07.11.2014 ORDER PER B. RAMAKOTAIAH A.M. THESE TWO APPEALS ARE BY ASSESSEE AND REVENUE FOR A.YS. 2005-06 AND 2006-07. IN A.Y. 2005-06 ASS ESSEE IS AGGRIEVED ON THE ORDER OF LD. CIT-IV HYDERABAD PAS SED UNDER SECTION 263 DATED 16.03.2012. IN A.Y. 2006-07 REV ENUE IS AGGRIEVED ON THE ORDER OF LD. CIT(A)-V HYDERABAD D ATED 30.09.2013. SINCE BOTH THE APPEALS ARE CONNECTED WI TH SAME ISSUE IN DIFFERENT YEARS THE APPEALS ARE HEARD TOG ETHER AND DECIDED BY THIS COMMON ORDER. 2 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. 2. BRIEFLY STATED ASSESSEE IS A CLOSELY HELD COMP ANY DOING BUSINESS OF MANUFACTURING LCD MODULES PRINTE R CONTROL PARTS PRINTERS AND ALSO EXPORTS SOFTWARE WHICH INC LUDES INDIRECT SOFTWARE EXPORTS AND ALSO EMBEDDED SOFTWAR E IN PROJECTS UNDERTAKEN AS PER THE CLIENTELE IN USA AND OTHER COUNTRIES. 3. FOR A.Y. 2005-06 ASSESSEE FILED RETURN BELATEDL Y DECLARING INCOME OF RS.1 25 50 328 AFTER CLAIMING E XEMPTION OF INCOME ON EXPORT OF SOFTWARE TO AN EXTENT OF RS.21 20 582 UNDER SECTION 10B. SINCE ASSESSEE FILED BELATED RET URN PROCEEDINGS UNDER SECTION 147 WERE INITIATED BY A.O . AND ORDER UNDER SECTION 143(3) READ WITH SECTION 147 WAS COMP LETED ON 30.11.2009 ACCEPTING THE RETURN OF INCOME. 4. LD. CIT NOTICING THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS.37 76 563 ON SOFTWARE PURCHASE AS REVE NUE EXPENDITURE ON THE REASON THAT CUSTOMIZED SOFTWARE GIVES ENDURING BENEFIT INITIATED PROCEEDINGS UNDER SECTIO N 263 BY ISSUING A SHOW CAUSE NOTICE. ASSESSEE EXPLAINED THA T THE SOFTWARE PURCHASED WAS UTILIZED IN ITS EXPORT OF SO FTWARE AND HENCE THE EXPENDITURE WAS CLAIMED AS REVENUE AND R EFERRED TO P & L ACCOUNT AUDITED REPORT UNDER SECTION 10(B) A ND ALSO EXPLAINED THE NATURE OF SOFTWARE PURCHASE AND THE N ATURE OF EXPORTS UNDERTAKEN BY IT. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS EARNED RS.90 48 207 AS INCOME FROM SOF TWARE DIVISION OUT OF WHICH RS.69 27 655 WAS EXPENDITURE INCURRED IN THAT DIVISION THEREBY EARNING PROFIT OF RS.21 2 0 552. EVEN THOUGH LD. CIT ALSO ISSUED SHOW CAUSE NOTICE ON TH E ALLOWANCE OF CLAIM UNDER SECTION 10(B) ON THE ABOVE INCOME HE DID NOT PURSUE THE CONTENTION AFTER ASSESSEES E XPLANATION THAT THE PROCEEDINGS ARE COMPLETED UNDER SECTION 14 3(3) READ 3 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. WITH SECTION 147 AND ASSESSEES CLAIM WAS VERIFIED AND ALLOWED BY A.O. WHILE ALLOWING INCOME UNDER SECTION 10B TH E LD. CIT WAS OF THE OPINION THAT THE PURCHASE OF SOFTWARE TO THE EXTENT OF RS.37 76 563 BEING CAPITAL EXPENDITURE A.O. DID NOT EXAMINE THE NATURE OF EXPENDITURE. THEREFORE DIREC TED THE A.O. TO DISALLOW AND ALLOW DEPRECIATION ON THE SAME BY T REATING IT AS CAPITAL EXPENDITURE. ASSESSEE IS AGGRIEVED ON THE A BOVE DIRECTION. 5. IN A.Y. 2006-07 CONSEQUENT TO THE ABOVE OBSERVATIONS OF LD. CIT A.O. HAS INITIATED PROCEED INGS UNDER SECTION 147 AND TREATED THE PURCHASE OF SOFTWARE TO AN EXTENT OF RS.55 15 032 AS CAPITAL EXPENDITURE BUT HOWEVER ALLOWED DEPRECIATION TO AN EXTENT OF RS.33 09 019 THEREBY M AKING DISALLOWANCE OF RS.22 06 013. LD. CIT(A) AFTER CONS IDERING THE SUBMISSIONS OF ASSESSEE HELD THE EXPENDITURE AS REV ENUE IN NATURE. THEREFORE REVENUE IS AGGRIEVED ON THE SAME . 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE DETAILED PAPER BOOK PLACED ON RECORD AL ONG WITH DETAILED SUBMISSIONS BY LD. COUNSEL. WE ARE UNABLE TO APPRECIATE THE ACTION OF LD. CIT-IV HYDERABAD IN T REATING THE EXPENDITURE AS CAPITAL IN NATURE JUST BECAUSE THE S AME IS TITLED AS SOFTWARE PURCHASE. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE IS A SOFTWARE EXPORT EITHER AS PART OF IT S MANUFACTURING ITEMS OR AS A SEPARATE PROJECT UNDERT AKEN BY IT. THERE IS ALSO NO DISPUTE THAT ASSESSEE HAS ESTABLIS HED A STP. UNIT FOR THE PURPOSE OF EXPORTS AND DEDUCTION UNDER SECTION 10B WAS ALLOWED BY REVENUE ON THE ABOVE AMOUNTS. AS SEEN FROM THE MANUFACTURING EXPENSES IN THE P & L ACCOUN T SCHEDULES IN AY 2005-06 ASSESSEE HAS CLAIMED MANUF ACTURING EXPENSES AS UNDER : 4 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. RAW MATERIAL CONSUMPTION AS AT 31.03.2005 OPENING STOCK 47 181 382 44 IMPORTED PURCHASES 107 141 591.00 INDIGENOUS PURCHASES 19 179 983.00 SOFTWARE PURCHASES 3 776 566.91 CLOSING STOCK 54 124 080.00 123 155 443.35 AS CAN BE SEEN FROM THE ABOVE SOFTWARE PURCHASES A RE PART OF RAW MATERIAL CONSUMPTION. ASSESSEE ALSO FILED A REP ORT UNDER SECTION 10B WHEREIN SOFTWARE DIVISION EXPENDITURE I S SEPARATELY CLAIMED AS UNDER : STATEMENT SHOWING THE EXPENSES/INCOMES OF SOFTWARE DIVISION FOR EXEMPTION U/S.10B OF THE INCOME TAX ACT UNDER SOFTWARE TECHNOLOGY PARK-HYDERABAD. INCOME OF SOFTWARE DIVISION 9 048 207 LESS: EXPENSES OF SOFTWARE DIVISION DEPRECIATION AS PER SCHEDULE 819 590 COMPONENTS 1 160 SALARIES 1 011 998 ELECTRICITY 246 522 BANK CHARGES & INTEREST 1 367 BUSINESS PROMOTION 8 523 PRINTING & STATIONERY 4 850 TELEPHONES & POSTAGE 39 181 PROVIDENT FUND & ESI 108 725 SOFTWARE PURCHASES 3 729 850 VEHICLE MAINTENANCE 28 119 REPAIRS & MAINTENANCE 9 076 MEMBERSHIP & SUBSCRIPTION 57 575 RENT FOR PREMISES 468 000 STAFF WELFARE 1 806 MDS REMUNERATION 228 784 CONSULTANCY CHARGES 150 000 TRAVELLING & CONVEYANCE EXPENSES 12 530 6 927 655 PROFIT FROM SOFTWARE DIVISION STP 2 120 552 NET PROFIT FROM STP 2 120 552 5 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. 7. THUS IN THE EXPORT OF SOFTWARE ACTIVITY ASSESS EE CLAIMED PURCHASE OF SOFTWARE AS REVENUE EXPENDITURE . WE ARE UNABLE TO UNDERSTAND HOW A SOFTWARE PURCHASE AS A R AW MATERIAL IN EXPORT OF SOFTWARE CAN BECOME CAPITAL E XPENDITURE. BOTH LD. CIT AND LD. CIT(A) WRONGLY CONSIDERED SOFT WARE PURCHASE ON THE CONCEPT OF ENDURING BENEFIT IN THE BUSINESS OF ASSESSEE. LD. CIT(A) EVEN THOUGH GAVE RELIEF IT IS ON THE LEGAL PRINCIPLE THAT THERE IS NO ENDURING BENEFIT IN THE FAST CHANGING TECHNOLOGY OF SOFTWARE. THOUGH LD. CIT(A) GAVE REL IEF ON THE BASIS OF VARIOUS CASE LAW THE BASIC FACT THAT ASSE SSEE UTILIZED THE SOFTWARE PURCHASE AS RAW MATERIAL IN BUSINESS O F EXPORTING SOFTWARE WAS NOT AT ALL NOTICED. SINCE ASSESSEE PUR CHASED SOFTWARE AS A RAW MATERIAL IN ITS BUSINESS OF EXPOR TS THE SAME CANNOT BE CONSIDERED AS CAPITAL IN NATURE AS THIS IS NOT ASSET IN ITS BUSINESS BUT AS A COMPONENT IN THE PROCESS O F MANUFACTURING/ EXPORT SOFTWARE. A CAR IF IT IS TRAD ED BY A DEALER IT WILL BE A REVENUE ITEM WHEREAS THE SAM E CAR USED BY A TAXI OPERATOR FOR THE BUSINESS OF TRANSPORTING PERSONS WILL BE A CAPITAL ASSET. JUST BECAUSE A CAR IS PURCHASED BY A DEALER THE SAME CANNOT BE CONSIDERED AS CAPITAL EXPENDITUR E. LIKEWISE SOFTWARE PURCHASED BY ASSESSEE FOR ULTIMA TE EXPORT EITHER AS EMBEDDED SOFTWARE OR AS PART OF PROJECT U NDERTAKEN BY IT CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE AS ASSESSEE IS NOT USING THE SOFTWARE AS AN ASSET OF THE BUSINE SS BUT AS RAW MATERIAL IN ITS BUSINESS. ON THIS REASON WE AR E NOT APPRECIATING THE ACTION OF CIT IN SETTING ASIDE THE ORDER OF A.O. THEREFORE THE ORDER U/S 263 IN AY 2005-06 CANNOT B E SUSTAINED. 8. NOT ONLY THAT AS SEEN FROM THE ABOVE COMPUTATI ON EXTRACTED THE PROFIT OF ASSESSEE ARRIVED AT RS.21 20 552 IS AFTER 6 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. CLAIM OF PURCHASE OF SOFTWARE AS AN EXPENDITURE TO AN EXTENT OF RS.37 29 850. ANY DISALLOWANCE THEREON WOULD AUTOM ATICALLY INCREASE THE PROFIT FROM SOFTWARE DIVISION. THERE I S NO DOUBT THAT THE PROFITS FROM SOFTWARE DIVISION BEING STP U NIT ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. ULTIMATEL Y THE ENTIRE AMOUNT GETS EXEMPTED UNDER SECTION 10B WITHOUT ANY TAX EFFECT ON THE OTHER INCOMES OFFERED BY ASSESSEE. TH ERE IS NO PREJUDICE CAUSED TO THE REVENUE. HOWEVER THIS IS A N ALTERNATE ARGUMENT ONLY TO CONSIDER THAT THE TWIN CONDITIONS REQUIRED FOR INITIATING PROCEEDINGS UNDER SECTION 263 ARE NOT SA TISFIED IN THIS CASE. BE THAT AS IT MAY SINCE THE RAW MATERIA L PURCHASED BY ASSESSEE IS DISALLOWED AS CAPITAL EXPENDITURE W E ARE UNABLE TO APPRECIATE THE STAND TAKEN BY CIT IN DISTURBING THE ORDER OF A.O. ACCORDINGLY THE ORDER UNDER SECTION 263 BY CI T IS HEREBY CANCELLED AND ORDER OF A.O. IS CONSEQUENTLY RESTORE D. 9. COMING TO THE A.Y. 2006-07 THE FACTS ARE THAT ASSESSEE HAS PURCHASED SOFTWARE TO AN EXTENT OF RS. 55 15 032 AND UTILIZED IN THE BUSINESS OF EXPORTS TO USA AND OTHER COUNTRIES OUTSIDE INDIA. AS DISCUSSED ABOVE A.O. C ONSIDERED IT AS CAPITAL EXPENDITURE AND DISALLOWED NET AMOUNT AF TER ALLOWING DEPRECIATION. LD. CIT(A) GAVE RELIEF. THER EFORE THE REVENUE IS AGGRIEVED. 10. FOR THE REASONS STATED THEREIN WE AGREE WITH THE ULTIMATE FINDINGS OF CIT EVEN THOUGH THE LOGIC IN ALLOWING IT THAT THE SOFTWARE IS NOT HAVING ENDURING BENEFIT IS NOT CORRECT. HOWEVER SINCE THE EXPENDITURE IS CLAIMED AS PART O F ITS MANUFACTURING ACTIVITY WE UPHOLD THE ORDER OF LD. CIT(A) IN GIVING RELIEF TO ASSESSEE. MOREOVER WHAT WE NOTICE D IS THAT THE A.O. DISALLOWED AND MADE AN ADDITION WITHOUT CONSID ERING THE SAME FOR ALLOWANCE UNDER SECTION 10B. EVEN ON THAT REASON 7 ITA.NO.751/H/2012 & 1791/H/2013 M/S. LAMPEX ELECTRONICS LTD. HYDERABAD. ASSESSEE DESERVES RELIEF. THERE IS NO MERIT IN REVE NUE APPEAL. ACCORDINGLY THE SAME IS DISMISSED. 11. IN THE RESULT ASSESSEES APPEAL IS IN AY 2005 -06 ALLOWED AND REVENUE APPEAL IN AY 2006-07 IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.11.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DATED 07 TH NOVEMBER 2015. VBP/- COPY TO 1. M/S. LAMPEX ELECTRONICS LTD. HYDERABAD C/O. MR. P.N. MOORTHY TAX CONSULTANT 1-8-514/16 CHIKKADPALLY HYDERABAD. 2. DCIT CIRCLE 16(1) HYDERABAD. 3. COMMISSIONER OF INCOME TAX-IV HYDERABAD + 1 COP Y. 4. ADDL. COMMISSIONER OF INCOME TAX RANGE-16 HYDE RABAD. 5. D.R. ITAT B BENCH HYDERABAD