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. 11th 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),
11th Floor, DLF Tower-A, New Delhi.
Jasola District Centre,
New Delhi.
(PAN: AAACN0780H)
(Appellant) (Respondent)
Appellant by: Shri BRR Kumar, 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:
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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 addition 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 Assessing
Officer on account of capitalization of various expenses 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 payment of Rs.2,08,000 was
capital in nature instead of Revenue expenses as claimed by the assessee.
3. We have heard and considered the arguments advanced by the parties
in view of orders of the authorities below and material available on record.
4. Ground No.1 (Revenue) & Objection in C.O. (Assessee):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 was 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 balance Rs.5,09,645 was
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booked in earlier years. The assessee had also purchased 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 profit 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 the head `software'. The
balance amount of Rs.1,91,629 was added to the income of the assessee. The
Learned CIT(Appeals) was thus not justified in granting the relief to the
extent of Rs.1,08,429 (40% of Rs.2,71,072) and restricting 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 disallowance of Rs.83,200
instead of deleting the full disallowance of Rs.1,99,629 made by the
Assessing Officer. He also tried to justify the relief given by the Learned
CIT(Appeals) with this submissions that supply of software worth
Rs.4,79,072 purchased from two parties was in order to be further supplied
to Bharat Petroleum Corporation Ltd. with whom a contract 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 directly to BPCL, Mumbai
although the relevant invoice has been billed to the assessee company. Copy
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of the terms and conditions for implementation of the retail stores
management system entered into by the assessee with BPCL was filed. "in
and out stored" are retail outlets for household provisions located in select
BPCL Petrol Pumps for which a customized software was 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 customized 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 trading/contract cost of the
assessee company, the Learned CIT(Appeals) has rightly 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 purchase of software from
F.I. Info Tech is concerned, the Learned AR submitted that the item in
question was a `data modeling software-erwin is a tool provided by C.A.
Erwin which is used to design the database model, it 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 capital assets on the basis
that the item was purchased with two years maintenance facility and it has
been used by the assessee company for its own purpose and not for the
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purpose of the sales to BPCL. The Learned CIT(Appeals) was thus not
justified in treating the same as capital assets and sustaining 40%
disallowance thereof after affording allowability of depreciation @ 60%
thereupon.
7. Considering the above submission, we find that the Learned
CIT(Appeals) was justified in accepting the expenses 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 further sold away as per the
contract with BPCL, hence, it constituted part of the 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 of software. This action of
the Learned CIT(Appeals) is upheld. So far as expenditure of Rs.2,08,000
incurred towards purchase of software from F.I. Info Tech is concerned, we
find that the Learned CIT(Appeals) has observed that 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 assessee. The Learned
CIT(Appeals) noted further that as per the description of the invoice, the
item in question was purchased with two years maintenance facility, thus, it
was used by the assessee company for its own purpose and not for the
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purpose of sale of the BPCL. He held further that the data model acquired by
the assessee falls into the description of the computer 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 find 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 find 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 objection 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 opinion that the claimed
expenditure led to the creation of assets which bring enduring benefit to the
assessee, hence, it is capital expenditure and allowed depreciation @ 25%
thereupon resulting into the addition of Rs.32,99,211. The Learned
CIT(Appeals) has, however, accepted the claimed expenditure as Revenue in
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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 related paragraphs of the
assessment order at page Nos. 5 to 7 of the assessment order. The Learned
AR on the other hand tried to justify the First Appellate Order on the issue.
He reiterated the submissions made in this regard before 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 issue. We concur with the
finding of the Learned CIT(Appeals) that the claimed expenditure was of
Revenue in nature as the expenditure incurred under the head "recruitment
expenses" were yearly subscriptions paid to staff hiring sites like Moon
Stor.com and Naukri.com (page Nos. 4 to 38 of the paper 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 of the paper book). So far
as HR Consultancy is concerned, the assessee does not have a HR Division.
They have hired the services of a consultant who visits the office
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periodically and carries on all HR works (page Nos.52 to 54 of the paper
book). Regarding the expenditure incurred on project 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 independent testing of the
software before export to customers, the expenditure was incurred has not
been rebutted. The contention of the assessee in this regard remained that all
software prepared by the assessee are required to be tested and certified by
an independent agency before the same is accepted as final. The copy of
bills produce supports the above submission of the assessee that the
expenditure was incurred for testing of software and 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 upheld. The ground No. 2 is
accordingly rejected.
11. In result, both the appeal and the cross objection 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
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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 30.04.2015
member
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.
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