Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: due date for vat payment :: list of goods taxed at 4% :: TDS :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: VAT RATES :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: articles on VAT and GST in India :: VAT Audit :: form 3cd :: Central Excise rule to resale the machines to a new company
 
 
From the Courts »
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21

DCIT, Circle 11(1), New Delhi. Vs. M/s Eicher Motors Limited (erstwhile Eicher Goodearth Investment Ltd.) 3rd Floor, Select City Walk, A-3 Dist. Centre Saket New Delhi
November, 24th 2014
                IN THE INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH: `B ': NEW DELHI

           BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
                                AND
            SHRI GEORGE GEORGE K., JUDICIAL MEMBER

                             ITA No.5453 /Del /2011
                           Assessment Year: 2006-2007

DCIT, Circle 11(1),            Vs.      M/s Eicher Motors Limited
New Delhi.                             (erstwhile Eicher Goodearth Investment Ltd.)
                                       3rd Floor, Select City Walk,
                                       A-3 Dist. Centre Saket
                                       New Delhi

                                   ITA No.5089 /Del /2011
                                   Assessment Year : 2006-2007

M/s Eicher Motors Ltd. (erstwhile Vs.              ACIT, Range II
Eicher Goodearth Investment Ltd. )                 New Delhi
3rd Floor, Select City Walk
A-3, Dist. Centre, Saket,
New Delhi-110017.




  (Appellant)                                     (Respondent)

                Appellant by   :     Smt. Parminder Kaur, Sr. D.R.
                                     Shri Ajay Vohara, Sr. Advocate
                Respondent by:       Ms. Gaurav Jain, Advocate.

                                        ORDER

  PER SHRI GEORGE GEORGE K, JM:


  1.    These are cross appeals directed against the CIT (A)'s order dated

  14.09.2011. The relevant Assessment Year is 2006-07.
                                                              ITA No.5453&5089/Del /2011      2
                                                                Assessment Year : 2006-2007



2.    We shall first take up Revenue's appeal for adjudication. In Revenue's

appeal, the following effective grounds are raised:-

      i).    On the facts and circumstances of the case and in law, the CIT(A)
             has erred in deleting the addition of Rs.4,48,01,000/- made on
             account of disallowance of expenses under the heads
             manufacturing, trading and other expenses.

      ii)    On the facts and circumstances of the case and in law, the CIT(A)
             has erred in restricting the addition of Rs.33,23,000/- to
             Rs.1,26,710/- made u/s 14A read with Rule 8D of the I.T. Rules,
             1962."

3.    The facts in relation to the first ground are as follows:-

       The assessee, a limited company, was engaged in the business of trading

various furnishing items through its retail outlets. In the trading division, the

assessee's total sale was Rs.1285.85 lakhs, against which, net profit declared

was Rs.456.15 lakhs. The Assessing Officer, in the course of scrutiny

assessment, compared the profit of the aforesaid trading division with net profit

achieved by other business carried on by the assessee, namely, manufacturing

and trading of maps and guides and export business. Since there was a low profit

in trading business, the Assessing Officer raised various queries to the assessee

to justify its low profit in the trading division. The assessee filed details

comprising of purchases made during the year, justification of low net profit on

account of heavy indirect expenses and division-wise profit and loss account for

the relevant year ending. The Assessing Officer was not satisfied with the reply

of the assessee and sought to verify the profit ability of trading division through

furnishing of purchase and sale vouchers of each single item traded in the
                                                             ITA No.5453&5089/Del /2011      3
                                                               Assessment Year : 2006-2007



trading division. Since the assessee could not furnish the details as required by

the Assessing Officer, the AO made an ad-hoc disallowance @ 10% of the total

expenses incurred by the assessee during the year including expenses incurred in

the other divisions, namely, manufacturing and sale of Map and guides and the

export division. Accordingly, out of the total expenses of Rs.4480.11 lakhs the

AO disallowed Rs.4.48 crores.

4.      On appeal, the CIT (A) deleted the disallowance of the Assessing Officer.

The relevant findings of the CIT (A) reads as under:-

     "3.6 I have carefully considered the assessment order,contentions
     raised by the appellant in the submissions and the documents
     available on record. In the assessment order, the assessing officer has
     drawn adverse inferences mainly on the ground of net loss (after
     excluding other income) suffered by the trading division during the
     year and also due to failure on, the part of assessee in not furnishing
     item-wise details of sale-purchase during the course of assessment
     proceedings. In addition to above, the assessing officer also observed
     that the assessee did not file details of expenses. I find the
     observations of the assessing officer that no details of
     expenses were filed to be incorrect inasmuch as the assessee had filed
     details of' major expenses during the course of assessment
     proceedings and no defect in same has been pointed out by the
     assessing officer in the assessment order. The main reason for
     disallowing expenses was, thus, low profitability and non-furnishing of
     item-wise sale-purchase vouchers. It is seen that the assessee deals in,
     approximately 25,000 items and for that reason could not furnish the
     details as desired by the assessing officer during the course of
     assessment proceedings within the short available time. However, the
     assessee has filed the aforesaid details on sample basis during the
     appeal proceedings, which were even sent to the assessing officer for
     comments/verification. Since the main reason of the assessing officer
     for disallowing the expenses is on the aforesaid ground only, in the
     interest of justice it is necessary to admit the aforesaid details filed by
     the assessee in the appeal proceedings. In view thereof, the aforesaid
     evidences are admitted and are considered hereunder for adjudication
     of the ground of appeal as above.
                                                            ITA No.5453&5089/Del /2011      4
                                                              Assessment Year : 2006-2007




     3.7 I have found that the assessee has earned gross profit of 31.57%
     from sale-purchase of goods in the trading division during the
     relevant previous year. This substantiates the assertion of the
     appellant that the goods were sold by the assessee at profit only. The
     loss has been suffered by the assessee due to incurring of various
     indirect expenses in the nature of heavy rent of retail outlets opened
     at posh localities and at prominent locations commanding higher
     rent, other indirect expenses in the nature of salaries, advertisements,
     routine management and administration expenses aggregating to
     407.22 lacs. The details of these expenses incurred during the year
     were also submitted by the assessee during the course of assessment
     proceedings. The assessing officer has not raised any doubt on same
     or has not even pointed out a single instance of unvouched/ inflated
     expenditure. The results of the trading division have been arrived at
     on the basis of books of account which are duly audited and no
     adverse inference in maintenance thereof has been pointed out by the
     auditors. The assessing officer has also not pointed out any defect in
     maintenance of books of account nor rejected the same and has
     finally _completed the assessment on the basis of such accounts itself.
     Under these circumstances, in my view, there was no basis for the
     assessing officer to doubt the profit declared by the trading division
     and disallow the expenses incurred during the year on ad-hoc basis.

           In view of the discussion as above, I am inclined to accept the
     profit declared by the assessee in the trading division and therefore
     the ad-hoc disallowance of expenses made by the assessing officer is
     directed to be deleted. The appellant succeeds in this ground".


5.      The Revenue, being aggrieved, is in appeal before us. The ld. D.R. relied

on the order of the Assessing Officer. On the other hand, the ld. A.R. reiterated

the submission made before the Income Tax authorities.

6.      We have heard rival submission and perused the material on record. The

A.O. disallowed on ad-hoc basis 10% of the total expenditure for the reason that

the assessee could not furnish item-wise details of purchase and sale of goods.

The contention of the assessee is that it is dealing in various items of goods
                                                             ITA No.5453&5089/Del /2011      5
                                                               Assessment Year : 2006-2007






(more than 25000 items) and details sought for by the Assessing Officer could

not be furnished fully due to paucity of time (details called on 26.12.2007 and

the assessment was completed on 31.12.2007).             However, in appellate

proceedings, on queries raised by the CIT(A), the assessee had furnished item

wise details of the trading division along with vouchers for purchase and sale

thereof on sample basis, vide letter dated 30.03.2010. The details furnished by

the assessee as per the CIT (A) direction was forwarded to the AO for his

comments. The AO furnished a report vide his letter dated 30.04.2010. In the

report, the Assessing Officer did not raise any objection to the assessee's case on

merits but technical objections were raised by placing reliance on Rule 46A of

the I.T. Rules, 1962. Admittedly, in this case, the books of account were

accepted by the Assessing Officer and no adverse inference in maintenance

thereof was pointed out. The entire expenses incurred during the year was duly

vouched and supported by necessary documents. The Assessing Officer could

not have made any ad-hoc disallowances without pointing out even a single

instance of inflation of expenditure. Another reason, for making the above said

disallowance was on account of low profit in trading division. As mentioned

earlier, the gross margin was worked out on the basis of books of account which

were duly audited and accepted as correct and complete. The gross profit with

regard to sale and purchase of goods in the trading division was at rate of

31.57% and there were various in direct expenses in the nature of high rental for

retail outlets in prominent location. This had pushed down the net profit rate.
                                                          ITA No.5453&5089/Del /2011      6
                                                            Assessment Year : 2006-2007



The CIT (A) has categorically found gross profit earned from the trading

division of the assessee is reasonable and has also examined the vouchers of

purchase and sale of goods made by the assessee on a sample basis and has

found same is to be correct. These     findings of the CIT (A) has not been

dispelled by the Revenue placing any material/ documents. Therefore, we see no

reason to interfere with the order of the CIT (A). Accordingly, we dismiss this

ground of the Revenue.

7.    As regards the second ground, namely reducing the addition u/s 14A to

Rs.1,26,710/- from Rs.33,23,000/-. The facts in brief are as follows. In the

computation statement filed along with the return of income, it was noticed by

AO that assessee has earned dividend income of Rs.4,47,30,053/-, which has

been claimed as exempt u/s 10(33) of the IT Act. The assessee was asked to

explain why disallowance u/s 14A should not be made on exempted dividend

income. The assessee has submitted that no part of the interest expenditure and

administrative expenses has been incurred in relation to earning of dividend

income. It was submitted that investment in shares on which dividend has been

received, were made in earlier years, out of interest free owned funds and no

part of the borrowed funds were used in earlier years for the same. It was also

submitted that no fresh investment in shares have been made during the previous

year relevant to AY 2006-07 and increase in the amount of investment is

pursuant to Scheme of Amalgamation of subsidiary company of the assessee. It

was further submitted that amount borrowed during the years were used for the
                                                           ITA No.5453&5089/Del /2011      7
                                                             Assessment Year : 2006-2007



purpose of business of the assessee as is evident from the cash flow statement

attached along with the return. The assessee has further submitted that

disallowance of notional interest and administrative expenses u/s 14A made in

AY 2004-05 has already been deleted by the CIT(A)-XIII, New Delhi. The

assessee has relied on various case laws in support of its contention and stated

that no disallowance u/s 14A is applicable in the case of the assessee. The AO,

however, rejected the contentions of the assessee. The Assessing Officer applied

the provision of Section 14A of the Act and computed the disallowance of

Rs.33.23 lakhs out of the total interest and administrative expenses incurred in

the current assessment year. The amount disallowed was arrived at by applying

the following method:

      i)    Interest expense was apportioned in the ratio of investment on
            which exempt dividend income was received during the year to
            total funds available for investment;
      ii)   Administrative expenses were apportioned in the ratio of 0.5%
            percent of the average value of investment which had resulted in
            exempt dividend income.

8.    The calculation of disallowance made by the AO is as under:-

(A)   Interest paid (Rs.75.17 lacs)                     Rupees in lakhs
      Dividend                                                 447.30
      Amount invested in shares to earn such dividend (A)    2,942.47
      Share capital + Reserve surplus                        7,925.48
      Loans (secured + unsecured)                            2,833.54

      Total Funds available (B)                                 10,759.02

      Interest paid                                                   75.17

Interest related to dividend income
(75.17x2,942.47/10,759.02)                                            20.56
                                                             ITA No.5453&5089/Del /2011      8
                                                               Assessment Year : 2006-2007




(B)     Administrative expenses @ 0.5% of average value of
        Investment in shares (2,534.21X0.5%)                            12.67
                                                                       ________
                     Total disallowance                                 33.23 lakhs

9.      Aggrieved by the disallowance of interest and administrative expenses,

the assessee filed an appeal before the CIT(A). The CIT (A) reduced the

disallowance made u/s 14A to Rs.1,26,710/- being 0.05% of the average value

of the investment in shares. The relevant finding of the CIT (A) reads as

follows:-

     "5.3. I have carefully considered the assessment order as well as the
     contentions raised by the appellant in the written submission. The
     appellant has contended that no borrowed funds was used for the
     investments and moreover the investments were made in earlier years
     and the increase in investment in shares was by virtue of shares of
     certain companies which vested with the appellant co on
     amalgamation. The A.O has also riot established any nexus between
     the investment and borrowed funds. On the basis of cash flow
     statement, it is observed that the appellant has enough interest free
     funds in the form of reserves and surplus. The additional investment
     during the year is only Rs.7.02 lacs. Therefore after consideration of
     the entire facts of the case, am unable to confirm the addition of
     interest apportioned to dividend income by the A.O of Rs.20,56,000/-.
               As regards the apportionment of administrative expenses, it
     is nobody's case that no expenses have been incurred and the
     investments were automatically made without anybody taking a
     decision to make the investment. The Bombay High Court in the case
     of Godrej and Boyce in 234 CTR 1 while ruling that Rule 8D was
     applicable from AY 08-09, however, held that even in earlier years the
     expenditure incurred for earning exempt income would have to be
     apportioned and disallowed. The appellant has also submitted that the
     only expenditure which may have some relation with the exempt
     income would be the salary paid to Deputy GM Finance. However, I
     am unable to agree with this view. The decision for investment even
     for controlling stakes would be taken by the management. After
     consideration of the case in its totality, it would be fair and reasonable
     to restrict the disallowance to .05% of the average value of
                                                            ITA No.5453&5089/Del /2011      9
                                                              Assessment Year : 2006-2007



     investments in shares (2,534.21X0.05%) which works out to
     Rs.1,26,710/. Therefore, the addition to this extent is confirmed."


10      The Revenue, being aggrieved, is in appeal before us.

11.     We have heard both the parties and perused the material on record.

Admittedly, the dividend which is exempt from taxation is earned on account of

investment made in share in the earlier years. The additional shares allotted to

the assessee's company in the current assessment year were on account of

amalgamation of subsidiary companies. Therefore, no portion of the interest

expenses incurred was in relation to investments in shares. As rightly pointed

out by the CIT (A), the AO has not established any nexus between the

investment and the borrowed funds. On the facts and circumstances of the case

and perusal of the cash flow statement, the CIT(A) has categorically found that

the assessee had enough interest free funds in the form of reserves and surplus

and there was no relation between the interest expenditure and the dividend

income. Therefore, disallowance of interest expenditure, by invoking the

provision of Section 14A, was uncalled for and, hence, we confirm the CIT(A)'s

order on this aspect.

11.2 As regards the disallowance of administrative expenditure, the CIT(A),

following the judgment of the Hon'ble Bombay High Court in the case of

Godrej and Boyce reported in 234 CTR 1, held           that the Rule 8D is not

retrospective and applicable for and from A.Y. 2008-09. The CIT (A) had,

however, held that some administrative expenditure is relatable for earning of
                                                             ITA No.5453&5089/Del /2011      10
                                                               Assessment Year : 2006-2007



dividend income. The CIT (A) calculated the disallowance at 0.05% of the

average value of investments in shares (2,534.21X.05%) which works out to

Rs.1,26,710/-. This estimation of administrative expenses relatable to the

earning of dividend income is reasonable and justifiable on the facts and

circumstances of this case. Therefore, we find no infirmity in the order of the

CIT (A), warranting our interference. It is ordered accordingly.

       Assessee's appeal - ITA No. 5089/12

      The effective revised grounds raised by the assessee read as follows:

       i)    That the Commissioner of Income Tax (Appeals)-V, New Delhi has
             grossly erred on facts and in law in confirming the disallowance of
             repair and maintenance expenses related to building and office
             equipment to the tune of Rs. 19,94,640/- alleging the same (as)
             capital expenditure.

       ii)   That the Commissioner of Income Tax (Appeals)-V, New Delhi has
             grossly erred on facts and in law in confirming the disallowance
             u/s 14A to the tune of Rs. 1,26,710/- being 0.05% of the average
             value of investments in shares.

12.    With reference to the first revised ground raised by the assessee, the brief

facts are as follows:


       During the relevant previous year, the assessee had incurred an

expenditure of Rs. 85,65,757/- under the head `repairs and maintenance' which

was claimed as revenue expenditure. However, the AO treated the same as

capital in nature on the ground that the details of such expenses could not be

verified. On further appeal, the CIT (A) confirmed the disallowance of following

expenses, aggregating to Rs. 19,94,640/-:
                                                                                          ITA No.5453&5089/Del /2011      11
                                                                                            Assessment Year : 2006-2007



              Repair & Maintenance Expenses ­ Building

              Particulars                                                         Amount in Rs.

              Amount of Painting and Repair Work at Ballabgarh                       76,419

              Repair of meter room                                                   92,995

              Renovation at Ballabgarh                                              1,01,985

              Renovation at Ballabgarh                                              1,16,197

              Renovation at Ballabgarh                                              1,46,908

              Painting work at Ballabgarh                                           1,50,000

              Sub-Total                                                             6,84,504



              Repair & Maintenance Expenses ­ Office Equipment
Particulars                                                                                            Amount in Rs.

Annual Maintenance Charges                                                                                1,10,200

Up-gradation Charges                                                                                      1,14,535

Fee paid for installation of licenses for additional users in existing software                            89,482

Fee paid for installation of licenses for additional users in existing software                            96,777

Fee paid for installation of licenses for additional users in existing software                           1,45,600

Bandwidth usage charges                                                                                   2,43,542

License fee for Citrix Presentation Software                                                              1,02,000

Fee paid for installation of licenses for additional users in existing software                           4,08,000

Sub-total                                                                                                13,10,136

Gross Total                                                                                              19,94,640


    13.                As regards the expenses of Rs. 6,84,504/- incurred towards repairs
    of existing factory building at Ballabgarh, the CIT(A) sustained the
    disallowance on the ground that the expenditure was incurred on complete
    overhauling of the existing factory involving overhaul of the main-hall, meter
    room, main gate, demolition of front wall, etc., which cannot be said to be a
    routine repair and maintenance expenditure, for being allowed as revenue
                                                               ITA No.5453&5089/Del /2011      12
                                                                 Assessment Year : 2006-2007



expenditure. In respect of Rs. 19,94,640 incurred towards up-gradation of
existing soft-wares, annual maintenance charges for such soft-wares or
purchasing additional licenses for additional users of existing software, as per
details above, the same was disallowed by relying on the decision of the Special
Bench of Tribunal in the case of Amway India Enterprises: 111 ITD 112 (SB)
on the ground that the expenditure incurred on acquisition of licenses for
software has been held to be capital expenditure in the said decision.

14.            The contentions/submissions of the assesse before us, briefly, are as
under:

      Ø That the factory building was constructed way back in 1981 and since the
        building was in continuous use during the course of business activity for
        over two decades, certain repairs and alterations required to be effected
        for smooth functioning of the existence business operation. Accordingly,
        a sum of 6.84 lakhs was incurred on the building which was quite nominal
        and the same required to be allowed as revenue expenses;

         With regard to the expenses on soft-ware licenses, it was contended that ­

      Ø It was for up-gradation of existing soft-ware or purchasing of new
        licenses for additional users of existing soft-wares

15.            In view of the above, it was submitted that the expenses claimed

being legitimate revenue expenses, the same is required to be allowed as

deduction.     On the other hand, the learned DR supported the stand of the

authorities below in rejecting the assessee's claim.


16.             We have carefully considered the rival submissions. It is a fact that

the assessee had acquired the land at Ballabgarh in the year 1979 on which

factory building was constructed and, accordingly, capitalized in the books on

the year ending 31.3.1981 for an aggregate amount of Rs. 85,99,124/-. It was
                                                              ITA No.5453&5089/Del /2011      13
                                                                Assessment Year : 2006-2007






also a fact that since then the building was put to use in the course of business

carried on by the assessee and for the continuous use of the building for a long

period of over 20 years, the factory building had naturally required certain

repairs and alterations for uninterrupted and smooth operations of the business

in the said building. Considering the life of the building and the total amount of

expenditure of Rs. 6,84,504/- incurred on repair of the aforesaid factory during

the year was nominal compared to the total construction cost of building of Rs.

85,99,124/- in the year 1981. As argued by the learned AR during the course of

hearing, the aforesaid expenses were incurred towards repair and renovation of

the existing factory building which did not result in acquisition of any new

capital asset nor increase in production capacity of the factory. The aforesaid

repair expenses at the factory building only facilitated smooth functioning of the

existing operations carried out at the factory. Therefore, we are of the view that

the said expenditure cannot be said to be capital in nature. Under the provisions

of the Act, an expenditure incurred on repair of building for the purposes of

business, which is not capital in nature is allowable deduction under section 30

or 37(1) of the Act. Expenditure in the nature of current repairs of building is

allowable deduction under section 30 of the Act. If the repair expenditure, which

is incurred for the purposes of business, does not fall within the nature of

expenses specified in, inter alia, section 30, and not being in the nature of capital

expenditure, is allowable deduction under section 37(1) of the Act. The Hon'ble

Supreme Court in the cases of (i) CIT v. Sarvana Spinning Mills P. Ltd.: 293
                                                              ITA No.5453&5089/Del /2011      14
                                                                Assessment Year : 2006-2007



ITR 201 (SC) & (ii) Ramaraju Surgical Cotton Mills: 294 ITR 328 (SC) has

held that if a repair expenditure does not fall within the meaning of `current

repair' under section 30, but does not result in acquisition of any new capital

asset, can be allowed as revenue expenditure under the residuary provision of

section 37(1) of the Act. Expenditure is regarded as capital expenditure, if the

same results in (i) acquisition of capital assets; or (ii) benefit of enduring nature

in the capital field or adds to the profit earning apparatus of an assessee. Since

the expenditure incurred by the present assessee on the existing factory building

did not - (i) result in acquisition of any new capital asset, in as much as, the

building was old and had already stood capitalized in the books for the year

ending 31.3.1981 and (ii) even add to the profit earning capacity of the factory

since the renovation in the factory had no bearing on increase in the profit

earning capacity; such renovation only facilitated smooth functioning of the

existing operations or profit earning capacity of the factory building, we are of

the view that the expenditure being not capital in nature and having been

incurred for the purpose of business, is allowable as revenue expenditure under

section 30 or 37(1) of the Act. For the above proposition, we rely on the

judgments of the Hon'ble Supreme court in the cases of (i) Assam Bengal

Cement Co. Ltd. v. CIT: 27 ITR 34 (SC); (ii) Empire Jure Co. Ltd. v. CIT: 124

ITR 1 (SC); (iii) CIT v. Associated Cement Companies Ltd.: 172 ITR 257 (SC);

and (iv) Alembic Chemcial Works Co. Ltd. v. CIT: 177 ITR 377 (SC ).
                                                            ITA No.5453&5089/Del /2011      15
                                                              Assessment Year : 2006-2007



17.          In respect of expenditure on Software Licenses, we find that the

CIT (A) had held that such expenditure to be capital expenditure on the ground

that the assessee had acquired capital asset, viz., soft-ware by relying on the

decision of the Special Bench of this Tribunal in the case of Amway India

Enterprises v. DCIT reported in 111 ITD 112. In this connection, we would like

to point out that the said finding of the Special Bench has since been modified

by the Hon'ble jurisdictional High Court in the case of CIT vs. Asahi India

Safety Glass Ltd.: 346 ITR 329 (Del). In that case, the Hon'ble Court had held

that the expenditure incurred towards purchase of application software, which

does not add to the profit-earning apparatus of an assessee, nor vests ownership

rights to an assessee and further considering that the same has to be up-dated

from time to time, cannot be said to be an expenditure incurred on capital

account. Thus, the Court held that expenditure on purchase of software is

allowable revenue expenditure. Various High Courts have also taken a similar

view on the issue. To illustrate further, in the following cases, the Hon'ble

Courts have held similar view:


         (i) CIT v. Amway India Enterprises: 346 ITR 341 (Del.)
         (ii) CIT vs Varinder Agro Chemicals Ltd.: 309 ITR 272 (P&H)
         (iii)CIT vs G.E. Capital Services Ltd.: 300 ITR 420 (Del.)
         (iv)CIT vs Kotak Securities Ltd. (No. 1): 346 ITR 349 (Bom.)
         ( v)CIT vs Raychem RPG Ltd.: 346 ITR 138 (Bom.)
18.           Deriving strength from the aforesaid decisions, we are of the view

that the ratio laid down by the said Courts is squarely applicable to the facts of
                                                               ITA No.5453&5089/Del /2011      16
                                                                 Assessment Year : 2006-2007



the case under consideration. In the present case, the assessee is engaged in the

business of manufacturing/ publishing and sale of city maps, manufacturing and

trading of furnishing items, etc.      Thus, the assessee is not engaged in the

business of manufacturing software or rendering services, through use of soft-

wares. The soft-wares, if any, acquired by the assessee during the relevant year

or up-gradation of existing software acquired in the earlier year, were merely

application of soft-wares which enabled the assessee to execute tasks in the field

of accounting, purchases, inventory maintenance, etc. and, thus, facilitating

smooth carrying on of the business operations. In other words, such application

of software, in our view, did not result in creation of any new profit-earning

apparatus or source of income for the assessee. Further, considering that the

assessee only acquired license to use the soft-wares, it did not amount to have

any ownership right in such software, and that the assessee cannot even be said

to have acquired any capital asset to consider such licence fee paid as capital

expenditure.


19.            In overall consideration of the facts of the issue, we are of the view

that the expenditure incurred on up-gradation of existing soft-wares or payment

of license fee for new soft-wares for additional users cannot be said to be capital

in nature.     In substance, the claim of the assesse is an allowable revenue

expenditure. It is ordered accordingly.
                                                             ITA No.5453&5089/Del /2011      17
                                                               Assessment Year : 2006-2007



20.          With reference to ground No. 2 namely disallowance by confirming
provisions u/s 14A we find no merits in the contentions raised by the assesee in
view of reasoning in paragraph 11 and 11.1 of this order. Hence, revised ground
No. 2 raised is dismissed.

21.     In the result, (i) the Revenue's appeal is dismissed; &
                      (ii) the assessee's appeal is partly allowed.

      The decision was pronounced in the open court on 21st November, 2014.

    Sd/-                                                         Sd/-
 (J.S. REDDY)                                         (GEORGE GEORGE K.)
Accountant Member                                       Judicial Member

Dated: November, 21st ,2014.
Aks/-
Copy forwarded to
1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
                                                Asst. Registrar, ITAT, New Delhi

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Privacy Policy

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions