Income Tax Appellate Tribunal - Pune
B.G.Shirke Consturcion Technology ... vs Assessee on 11 July, 2012
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IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav Judicial Member
and Shri R.K. Panda Accountant Member
ITA NO. 1430/PN/2010
(Assessment Year 2006-07)
B.G. Shirke Construction Technology Pvt. Ltd.,
72-76 Mundhawa Industrial Estate,
Pune 411 038. .. Appellant
PAN No.AAACB 7293D
Vs.
Addl. Commissioner of Income Tax-1,
Pune. .. Respondent
Assessee by : Sri Nikhil Pathak
Department by : Ms. Ann Kapthuama
Date of Hearing : 11-07-2012
Date of Pronouncement : 17-07-2012
ORDER
PER R.K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 26-02- 2010 of the CIT(A)-I, Pune, Aurangabad relating to the Assessment Year 2006-07.
2. Ground of appeal No. 1 by the assessee relates to the order of the CIT(A) in confirming disallowance of Foreign Travelling expenses amounting to Rs. 2,70,131/- by the Managing Director of the company.
3. Facts of the case, in brief, are that the travelling and conveyance expenses of Rs. 1,63,96,578/- claimed by the assessee includes an amount of Rs. 7,69,213/- towards Directors travelling expenses. On further verification of the details of the expenses, the AO noted that an amount of Rs. 2,70,131/- relates to travelling expenses of Sri Vijay Shirke, one of the Directors of the company to London. On being questioned by the AO it was submitted that tour was carried out for exploring export market as part of the business necessity. However, the AO was 2 not satisfied with the explanation given by the assessee on the ground that the assessee failed to satisfy that such expenditure was incurred wholly and exclusively for the purpose of business. He accordingly disallowed the expenditure of Rs. 2,70,131/-.
4. Before the CIT(A) it was submitted that the Director Mr. Vijay Shirke had gone to London for exploring export market and other business purposes. It was submitted that the assessee was awarded a contract to construct indoor cricket academy and indoor club for Mumbai Cricket Association and the Managing Director had visited the Lords Stadium at London to inspect the various facilities therein which will help the company in construction of the indoor cricket academy and indoor club. Therefore, the expenses incurred are for the business of the company. It was further argued that since the company had paid fringe benefit tax on the aforesaid foreign travelling expenses, therefore, no disallowance could have been made.
5. However, the learned CIT(A) also was not convinced with the explanation given by the assessee. Relying on the decision of Hon'ble Bombay High Court in the case of Cooper Engineering Ltd. reported in 135 ITR 597 he upheld the disallowance made by the AO. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
6. The learned counsel for the assessee reiterated the same submissions as made before the AO and the CIT(A). Referring to the decision of the Mumbai Bench of the Tribunal in the case of Hansraj Mathuradas Vs. ITO vide ITA No. 2397/M/2010 order dated 16-09-2011 he submitted that no disallowance of the expenses can be made where fringe benefit tax has been paid by the assessee on the said expenses. The learned DR on the other hand heavily relied on the order of the AO and the CIT(A).
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7. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find although the assessee had not stated before the AO regarding the payment of fringe benefit tax he has argued before the learned CIT(A) that no disallowance could be made when fringe benefit tax has been paid on account of such travelling expenses. The submission of the assessee before the learned CIT(A) that fringe benefit tax has been paid by the company on the foreign travelling expenses remains uncontroverted by the department. It has been held by the Mumbai Bench of the Tribunal in the case of Hansraj Mathurdas Vs ITO (Supra) that Circular No. 8/2005 dated 29-08-2005 issued by the CBDT explaining the provisions regarding the fringe benefit tax makes it clear that fringe benefit tax is levied on the expenses incurred by the employer irrespective of whether the same are incurred for official or personal purposes. Once fringe benefit tax is levied on such expenses it follows that the same are treated as fringe benefits treated by the assessee as employer to its employees and the same have to be properly allowed as expenses incurred wholly and exclusively for the purpose of business. Respectfully following the decision of the Mumbai Bench of the Tribunal in the decision cited (supra) and in absence of any contrary decision brought to our notice by the learned DR against the above decision, we set-aside the order of the learned CIT(A) and direct the AO to delete the disallowance. Ground of appeal No. 1 by the assessee is accordingly allowed.
8. Ground of appeal No. 2 by the assessee reads as under :
"2. The learned Commissioner of Income Tax (A)-I, Pune erred in confirming that expenditure on Computer software of Rs. 4,40,500/- (comprising of Rs. 1,48,500/- towards upgradation of "Staad" Software and Rs. 2,92,000/- towards licence of Autodesk Autocad Revit Series 8 & Commercial License Pack of 3 and Auto Desk Autocad L T 2006 pack of 5 4 software) is capital expenditure on which depreciation will be allowed @60%.
9. Facts of the case, in brief, are that during the assessment proceedings the AO noted that assessee has debited software expenses of Rs. 4,96,970/- under Miscellaneous Expenses. According to the AO such expenses are basically capital expenditure since depreciation has been specifically provided in respect of same in the depreciation schedule appended to Income Tax Rules. The submission of the assessee that he had only licence to use the software and that it was mere upgradation of the software and therefore the expenditure is in the nature of Revenue expenditure was rejected by the AO. He accordingly disallowed the expenditure claimed at Rs. 4,96,970/-. He, however, allowed depreciation on the same at Rs. 1,49,091/-.
10. Before the CIT(A), the assessee furnished the details of software expenses which are as under :
Sr. Name of the Party Particulars
No.
1 Prabha Consulting Engineers Upgradation from Staad III to 22-11-2005 1,48,500/-
Staad Pro 2005 copy of Staad
suit comprising of staad pro
2005 + staad. Etc. + section
wizard
2 Aura Software Pvt. Ltd. Autodesk Autocad Revit 08-11-2005 2,92,000/-
Series & Commercial License
pack of 3 and autodesk
autocad L T 2006 pack of 5
3 Logix Consultance Group Mcafee Active Virus Scan 16-01-2006 32,749/-
Pvt. Ltd., Suite
4 Mayuresh Infotech Pvt. Ltd. Upgradation of Shree Lipi 3.0 19-01-2006 4,721/-
to Devrat Universal 6.0
5 Pavan Computers Pvt. Ltd., Ram Hard Disk 28-02-2006 13,000/-
6 Winsoft Tech India Pvt. Ltd., Safexim Digital Signature 21-03-2006 6,000/-
Software Solution
Total 4,96,970/-
11. Relying on the decision of the Special Bench of the Tribunal in the case of Amway India Enterprises Vs. DCIT reported in 111 ITD 112 (Special Bench) it was submitted that the expenditure should be allowed as Revenue expenditure. Various other decisions were also relied on by the assessee. 5 11.1 However, the learned CIT(A) was not convinced with the explanation given by the assessee and upheld the disallowance made by the AO. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
12. The learned counsel for the assessee filed a copy of the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Raychem RPG Ltd. vide ITA No.4176 of 2009 order dated 04-07-2011. Referring to the said decision he submitted that the appeal filed by the Revenue challenging the decision of the Tribunal in deleting the addition in respect of disallowance of software expenditure to the extent of Rs. 23,62,368/- treating the same as Revenue in nature has been dismissed by the Hon'ble Bombay High Court. He drew the attention of the Bench to Para No. 2 and 3 of the order which reads as under :
"2. As regards the first question, ITA relying upon its order in the assessee's own case relating to Assessment Year 2001-02 held that the software expenditure was a revenue expenditure. The appeal filed by the Revenue for the assessment year 2001 and 2002 has been dismissed for want of removal of office objections and thus the order passed by the ITAT for the Assessment Year 2001-02 has attained finality. Moreover, the Tribunal in its order relating the assessment year 2001-02 has allowed expenditure as revenue expenditure by recording thus :
"7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit making apparatus of the assessee and hence the same is to be disallowed a revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an Enterprises Resources Planning (ERP) package and hence it facilitate the assessee's trading operations or enabling the management to conduct the assessee's business more efficiently or more profitably but it is not in the nature of profit making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs. 20.60 lakhs is of revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the LD AR of the assessee.
3. In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure".
12.1 Referring to the above he submitted that since the software expenditure incurred by the assessee is for running the business more efficiently, therefore, in view of the decision of the Jurisdictional High Court the expenditure should be treated as Revenue in nature.
612.2 The learned DR on the other hand heavily relied on the order of the AO and the CIT(A).
13. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the decision of the Jurisdictional High Court in the case of Raychem RPG Ltd. (Supra). We find merit in the submission of the learned counsel for the assessee that the expenditure on account of software does not form part of the profit making apparatus of the assessee and the same is to enable the management to conduct the assessee's business more efficiently or more profitably. In view of the above and respectfully following the decision of the Jurisdictional High Court in the case of Raychem RPG Ltd. (Supra) we set-aside the order of the CIT(A) and direct the AO to allow the software expenditure as Revenue in nature. Ground raised by the assessee is accordingly allowed.
14. Ground of appeal No. 3 by the assessee reads as under :
"3. The learned Commissioner of Income Tax (A)-I, Pune erred in confirming disallowance of rent paid for quarry land taken on lease for extracting stones, etc. amounting to Rs. 7,18,463/- u/s. 40(a)(ia) of the Income Tax Act, 1961.".
15. Facts of the case, in brief, are that the AO disallowed an amount of Rs. 7,18,463/- u/s. 40(a)(ia) on the ground that tax has not been deducted on payment of lease rent of Rs. 7,18,463/-. In appeal, the learned CIT(A) upheld the action of the AO by relying on the decision of the Hon'ble Delhi High Court in the case of United Airlines Vs. CIT reported in 287 ITR 281 on the ground that the lease rent paid by the assessee amounts to rent and therefore the assessee was liable to deduct the tax at source u/s. 194I. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
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16. The learned counsel for the assessee at the outset drew the attention of the Bench to the copy of the lease agreement along with relevant English Translation which is placed at Paper Book Page Nos. 12 to 28 and submitted that the entire lease rent of Rs. 8,45,250/- has been paid on 20-05-2005. Referring to the decision of the Visakhapatnam Special Bench of the Tribunal in the case of Merilyn Shipping and Transport reported in 136 ITD 23 (SB) he submitted that provisions of section 40(a)(ia) are applicable only to amounts of expenditure which are payable as on 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year without deduction of TDS. He accordingly submitted that no disallowance u/s.40(a)(ia) can be made in the instant case. The learned DR on the other hand heavily relied on the order of the CIT(A).
17. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The submission of the learned counsel for the assessee that the entire lease rent of Rs. 8,45,250/- has been paid on 20-05-2005 could not be controverted by the learned DR. Since no amount of the lease rent is payable as on 31-03-2006, therefore, in view of the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport (Supra), no disallowance u/s. 40(a)(ia) can be made. In this view of the matter, we set-aside the order of the CIT(A) and the ground raised by the assessee is allowed.
18. In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on this 17th the day of July 2012 Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: the 17th July 2012
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satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A) Aurangabad
4. The D.R, "A" Pune Bench
5. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune