Income Tax Appellate Tribunal - Bangalore
Bridgeco Technologies India Pvt. ... vs Deputy Commissioner Of Income Tax, ... on 24 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND SHRI MANJUNATHA G., ACCOUNTANT MEMBER
ITA No.1686/Bang/2016
Assessment year : 2011-12
Bridgeco Technologies India Vs. The Deputy Commissioner of
Pvt. Ltd., Income Tax,
(Presently merged with Circle 4(1)(2),
M/s. Microchip Technology India [formerly ITO, Ward 11(1)],
Pvt. Ltd.,), Bangalore.
No.149/B, EPIP Industrial Area,
1st Phase, Whitefield,
Bangalore - 560 066.
PAN: AADCB 5754G
APPELLANT RESPONDENT
Appellant by : Shri R. Sathyanarayana, CA
Respondent by : Shri B.R. Ramesh, Jt.CIT(DR)(ITAT)
Date of hearing : 21.08.2017
Date of Pronouncement : 24.08.2017
ORDER
Per Manjunatha G., Accountant Member
This appeal filed by the assessee is directed against the order of CIT(Appeals)-1, Bangalore dated 02.06.2016 and it pertains to assessment year 2011-12.
2. The brief facts of the case are that the assessee company engaged in the business of embedded software development, related marketing ITA No.1686/Bang/2016 Page 2 of 6 services and global financial operations filed its return of income for AY 2011-12 on 23.11.2011 declaring Nil income, after claiming deduction u/s. 10A of the Income-tax Act, 1961 ["the Act"]. The case was selected for scrutiny and accordingly notice u/s. 143(2) and 142(1) along with questionnaire calling for various details were issued. In response to the notices, the AR of assessee appeared from time to time and furnished the details as called for.
3. During the course of assessment proceedings, the AO noticed that as per Annexure-IV to the 3CD report, the assessee has debited a sum of Rs.16,35,272 to the profit & loss account towards capital expenditure debited to P&L account. However, the same has not been added to the income in the statement of total income. The AR of the assessee was made aware of this and he agreed for addition of the same to the total income. Accordingly, the AO made an addition of Rs.16,35,272 to the income under the normal provisions of the Act. A similar adjustment has been made towards book profit u/s. 115JB of the Act.
4. The assessee carried the matter in appeal challenging the adjustment made by the AO towards disallowance of capital expenditure on book profits computed as per the provisions of section 115JB of the Act. The CIT(Appeals) for the reasons recorded in his order dated 02.06.2016 dismissed the appeal filed by the assessee and upheld the additions made by the AO towards book profits u/s. 115JB of the Act on account of ITA No.1686/Bang/2016 Page 3 of 6 disallowance of capital expenditure debited to profit & loss account. Aggrieved by the CIT(A)'s order, the assessee is in appeal before us.
5. The ld. AR of the assessee submitted that the ld. CIT(Appeals) erred in upholding the adjustment made by the AO towards book profits computed u/s. 115JB without appreciating the fact that the amount represents computer software expenses and as per the audited financial statements and are prepared as per Schedule VI to the Companies Act, 1956 r.w. Accounting Standards u/s. 211(3C) of the Companies Act,1956. The ld. AR further referred to the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC) submitted that the AO does not have the jurisdiction to go behind the net profit shown in the profit & loss account, except to the extent provided in the Explanation to section 115J of the Act. The ld. AR further referred to the decision of the Hon'ble Delhi High Court in the case of CIT v. G.E. Power Services India Ltd. (2008) 171 Taxman 0010 and submitted that expenses incurred on software used in computers is a revenue expenditure and it cannot be said to be an asset of enduring nature to treat it as a capital expenditure.
6. The ld. DR strongly supported the order of CIT(Appeals) and submitted that the assessee itself has reported in the tax audit report that expenditure incurred towards software expenses is capital in nature which is not allowable as a deduction under the provisions of the Act. The AO has made additions towards total income under the normal provisions of ITA No.1686/Bang/2016 Page 4 of 6 the Act and a similar adjustment has been made towards book profits computed u/s. 115JB and hence the adjustment made by the AO towards book profits is in accordance with the law and the same should be upheld.
7. We have heard both the parties and considered the material available on record. The AO made the additions towards software expenses on the basis of tax audit report which categorically states that expenditure incurred towards software is capital in nature. According to the AO, the assessee's AR has agreed for the additions to the total income. The AO further observed that once addition is made towards capital expenditure under the normal provisions of the Act, a similar adjustment is required to be made towards book profit computed u/s. 115JB of the Act. The contention of the assessee is that the AO is not having jurisdiction to recompute the book profit computed as per the provisions of the Companies Act, 1956 and Accounting Standards referred to in section 211(3C) of the Companies Act, 1956, except to the extent provided in Explanation 1 to section 115JB. Since disallowance made towards capital expenditure is not an item of addition under the Explanation to section 115JB, the AO does not have any jurisdiction to alter the book profit computed as per the provisions of section 115JB of the Act.
8. Having heard both the sides, we find force in the arguments of the assessee for the reason that the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC) has considered a similar ITA No.1686/Bang/2016 Page 5 of 6 issue and observed that the AO while computing the income u/s. 115J has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO therefore has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the jurisdiction to go behind the net profit shown in the profit & loss account, except to the extent provided in the Explanation to section 115J of the Act. We further observe that the Hon'ble Delhi High Court in the case of v. G.E. Power Services India Ltd. (2008) 171 Taxman 0010 held that expenses incurred on software used in computers is a revenue expenditure. It is well known that software used in computers get obsolete in a short span of time and in any case needs to be updated from time to time. It, therefore, cannot be said to be an asset of enduring nature. The Tribunal was right in allowing the expenditure against the book profits.
9. In this view of the matter and also respectfully following the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), we are of the considered opinion that the AO does not have any jurisdiction to alter the net profit shown in the profit & loss account, except to the extent provided in the Explanation to section 115JB of the Act. Since the disallowance made towards capital expenditure is not an item of addition under the Explanation to section 115JB, the AO does not have any power to alter the book profit computed under the provisions ITA No.1686/Bang/2016 Page 6 of 6 of section 115JB of the Act. Therefore, we direct the AO to delete the addition made towards capital expenditure to book profits computed under the provisions of section 115JB of the Act.
10. In the result, the appeal filed by the assessee is allowed.
Pronounced in the open court on this 24th day of August, 2017.
Sd/- Sd/-
( VIJAY PAL RAO ) ( MANJUNATHA G.)
Judicial Member Accountant Member
Bangalore,
Dated, the 24th August, 2017.
/ Desai Smurthy /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.