Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs M/S Gates India (P) Ltd., New Delhi on 31 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "I-2" : DELHI
BEFORE SHRI VIJAYPAL RAO, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A.No.75/Del./2011
Assessment Year 2002-2003
ACIT, Circle-12(1) M/s. Gates India (P) Ltd., 7-E,
New Delhi White House, Bhagwan Das
vs. Road, New Delhi.
PAN AAACA8125F
(Appellant) (Respondent)
For Revenue : Shri Sanjay Kumar Yadav, Sr.D.R.
For Assessee : Shri, S.D. Kapila, Sr.Advocate
Shri R.R. Maurya, Advocate &
Shri Sanjay Kumar, Advocate.
Date of Hearing : 24.07.2017
Date of Pronouncement : 31.07.2017
ORDER
PER VIJAYPAL RAO, J.M.
This appeal by the assessee is directed against the order of the Ld. CIT(A) dated 29.10.2010 for the A.Y. 2002-2003. The Revenue has raised the following grounds :
[[[" 1. "On the facts and circumstances of the case and in law, the order of the CIT(A) is erroneous, perverse, illegal and against the provisions of law which is liable to be set aside.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3,97,52,421/- made on account of difference of Arm's Length Price.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not affording any opportunity to the TPO before proceeding to compute the margins of the comparables and the assessee.
2ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1 ,43,65,596/- made by the AO on account of testing fees.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.4,39,592/- made by the AO on account of computer software expenses treated by the AO as capital in nature.
6. The appellant craves to leave, to add, alter or amend any ground of appeal raised above at the time of the hearing."
2. Ground No.1 is general in nature and does not require any specific adjudication. Ground Nos. 2 and 3 is regarding T.P. adjustment made by the TPO/A.O. which was deleted by the CIT(A).
3. Briefly stated, the assessee is a Private Limited Company and wholly owned subsidiary of Gates Rubber Company, US (GRC). The assessee is engaged in manufacture and trading of hose pipes. The assessee manufactures industrial and braided hydraulic hoses, which are used for pneumatic applications, apart from doing imports of spirals and braided hoses for resale in Indian market. The assessee has reported international transaction entered into during the year as reproduced by the TPO in para-3 as under :
S.No. International Transaction Method Value (in Rs.)
1. Impart of raw materials & CPM 1,69,96,713 spare parts
2. Import of Hoses CPM 4,53,00,251
3. Export of Hoses RPM 18,75,96,579
4. Import of capital goods CUP 19,27,934
5. Testing Charges paid Actual Cost 1,43,65,596 3.1. Thus, it is clear that assessee is having multiple international transactions with its A.E. The assessee applied different methods as most appropriate method for benchmarking its each international transactions.
The TPO rejected the methods adopted by the assessee and applied TNMM as most appropriate method for determining the ALP in respect of the international transactions of import of raw material and import of other goods from A.E. The TPO has also applied internal CUP for determining the 3 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
ALP in respect of export of goods by the assessee. The TPO while determining the ALP first applied TNMM on the entire turnover of the assessee and thereafter, for the purpose of determining the ALP in respect of export to A.E. the TPO applied internal CUP. Hence, the TPO proposed T.P. adjustment under section 92CA of the Act at Rs.3,97,52,421. The adjustment proposed by the TPO in respect of goods imported by the assessee from A.E. was set-off against the adjustment worked-out by the TPO in respect of the exports made by the assessee to the A.E. as the adjustment was more than the adjustment worked out in respect of the import of the goods from the A.E. Therefore, finally the TPO proposed adjustment to be added to the income of the assessee of Rs.3,97,52,421.
3.2. The assessee challenged the action of the TPO/A.O. before the CIT(A). The CIT(A) accepted the contention of the assessee that multiple T.P. adjustment cannot be made by applying two different methods for determination of ALP in respect of the international transactions entered into by the assessee with its A.E. Accordingly, the Ld. CIT(A) held that when the TNMM method is applied by the TPO for determination of ALP then, computing separate ALP under CUP method is a futile exercise. There are other objections raised by the assessee regarding certain adjustments in respect of computing mean margins which includes the exclusion of depreciation from the total cost/operating cost while computing the margins of the assessee as well as comparable companies. The Ld. CIT(A) also accepted the said claim of the assessee that the margins of the assessee as well as the comparables should be computed by excluding the depreciation. The Revenue is aggrieved by the impugned order of the Ld. CIT(A) and raised the impugned grounds.
4. The Ld. D.R. has submitted that the depreciation is essential and inseparable part of the operating cost/total cost for the purpose of computing the margins under TNMM. He has further contended that when TNMM was adopted as most appropriate method which was not disputed by the assessee then for the purpose of computing margins in respect of 4 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
international transactions the depreciation cannot be excluded from the operating cost/total cost. The Ld. D.R. submitted that assessee has not demonstrated any specific circumstances which could justify the exclusion of depreciation from the operating cost/total cost while computing the margins of the assessee as well as comparable companies. He has referred to the details of depreciation and the method of depreciation applied by the assessee as well as comparable companies and submitted that there is no dispute that the assessee has applied straight line method for the purpose of depreciation and in case of comparables the majority of the cases have also applied straight line method except one comparable which has applied the diminishing value method. Further, the Ld. D.R. has submitted that this is not the first year of commencement of the business of the assessee to justify the under utilisation of the capacity and therefore, the assessee could seek exclusion of depreciation for the purpose of computation of margin. He has also referred to the impugned order of the CIT(A) and submitted that the CIT(A) has also not given any specific reason or exceptional circumstances for exclusion of depreciation for the purpose of computing the margins of the assessee as well as the comparable companies. Thus, the Ld. CIT(A) has committed an error while directing the TPO/A.O. to exclude depreciation while computing the margins for determination of ALP.
4.1. As regards the application of CUP as most appropriate method in respect of export of goods to the A.E. the Ld. D.R. has submitted that when there is an internal direct CUP available in the case of the assessee being sale of the same goods to the unrelated party then the sale price of export to the A.E. has to be tested with the comparable uncontrolled price. He has further contended that when an internal CUP is available, then, there is no scope on adopting any other method as most appropriate method. The Ld. D.R. has further submitted that assessee has contended before the TPO that there are various differences which effects the lower price of export as compared to the domestic price and quantified those differences in percentage. He has referred to para-9 of the T.P. order and submitted that assessee itself has asked for allowing the adjustment in 5 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
respect of various incentives and benefits available to the assessee for making export to the A.E. The assessee sought the adjustment in respect of duty drawback of import duty @ 6.13%; market and selling expenses at 5.57% and loan working capital requirement on 1.13%. All these adjustments were granted by the TPO while computing the ALP under CUP and therefore, the TPO allowed the adjustment of 12.83% from average unrelated price of the commodities to determine the ALP of export made to the A.Es. The Ld. D.R. has submitted that once TPO accepted the quantified adjustment as claimed by the assessee while computing the ALP under CUP method in respect of the export made to the A.E. then the CIT(A) is not justified in deleting the adjustment proposed by the TPO and made by the A.O. in respect of these international transactions. He has relied upon the order of the TPO. The Ld. D.R. has relied upon the decision of the Mumbai Bench of the Tribunal in the case of Serdia Pharmaceutical P. Ltd., vs. ACIT 44 SOT 391. He has also relied upon the decision of the Delhi Bench of the Tribunal in the case of ACIT vs. Denso India Ltd., (2013) 33 taxmann.com 89 (Del.Trib.) and submitted that when internal CUP is available then the TPO was justified to apply the same for the purpose of computing ALP in respect of international transactions of export of goods to the A.E.
5. On the other hand, the Learned Counsel for the Assessee submitted that this is third or fourth year of operations of the assessee and further the assessee has set-up a plant for manufacturing of rubber hose pipes which are specifically used in mining process. He has further contended that assessee is manufacturing and selling more than 120 specified rubber products. It imports raw materials and capital equipments from its non-resident A.E. The assessee has imported state of art plan under EPCG scheme of Government and therefore, it was under obligation to export within next six years hose manufacture by it six times the value of customs/import duty save on import of capital equipment. The assessee sells its product in domestic market to unrelated party and in international market by way of export to the A.E. Learned Counsel for the Assessee has pointed out that export sales to A.E. constituted 42% of total sale. The A.R. 6 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
has contended that the domestic sale price cannot be applied as CUP in respect of export made by the assessee to A.E. because of different geography as well as the incentives in respect of the export which were not available in respect of domestic sales. Therefore, the domestic sale price cannot be considered as CUP for comparing the export sales. The Learned Counsel for the Assessee further contended that the TPO has selected only those transactions of export which were found less than the domestic sales price and he has not considered several transactions which are more than the ALP being domestic sale price. Thus, the action of TPO in picking-up selected transactions is not justified when all the transactions are made to the A.E. All the transactions were not taken into account by the TPO while considering the ALP of the international transactions. Further, when the TPO has already tested the composite transactions with the A.E. under TNMM then further computation of ALP in respect of the export by applying CUP is a futile exercise. The Learned Counsel for the Assessee has further contended that when sale/export of goods to the A.E. are not free from the import of raw material and other goods from the A.E. then the CUP cannot be applied in respect of the said transactions which are closely linked and inter-connected to each other and therefore, a composite data of international transactions has to be taken into account for the purpose of determining the ALP under TNMM. He has further pointed out that there are material differences between the transactions being compared and therefore, the CUP cannot be applied in such a situation where the price in the domestic market and an export price are having various components of difference. The CUP as can be applied only when there is complete comparability between the transactions and there is no difference of functions or risk analysis between the two transactions i.e., controlled transactions and uncontrolled transactions. Therefore, only when there is no scope of any difference between the controlled and uncontrolled transactions, it is appropriate to apply CUP except for minor differences for which an appropriate adjustment can be made. He has relied upon the series of decisions of this Tribunal in support of his contention on the point 7 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
that until and unless there is a high degree of comparability between the controlled transactions and uncontrolled transactions, CUP as the most appropriate method cannot be applied.
6. As regards the exclusion of depreciation while computing margins of the assessee as well as the comparables under TNMM the Learned Counsel for the Assessee has referred to the comparative details of depreciation and submitted that the comparable companies have provided the depreciation in respect of the plant and machinery which were under the use for more than 12 years in comparison to the assessee where the plant and machinery was under the use for three years only. Therefore, the assessee has provided depreciation at high in comparison to the comparables.
6.1. He has further referred to the repairs and maintenance cost of the comparables as well as assessee and submitted that even after having more than 12 years of use the comparable companies have shown very nominal/insignificant cost on repairs and maintenance. Whereas, assessee has claimed 5% as repair and maintenance cost to the total cost which shows that the depreciation to total cost ratio in respect of the assessee is 28.82% in comparison to the average depreciation to total cost ratio at 5% in respect of the comparables. Thus, the Learned Counsel for the Assessee has submitted that when there is a material difference in the claim of depreciation expenses and the depreciation cost of the assessee is many times more than the comparable then it is appropriate to exclude the depreciation and consider only the cash profits for the purpose of computing the margins of the assessee as well as comparables. The assessee has applied straight line method for estimated use of life as per the rates in Companies Act whereas in the case of one comparable namely Rungta Irrigation, the WDV (written down value) applied by the said company as per the I.T. Rules and the plant and machinery was for more than 12 years and therefore, the depreciation cost to the total cost was only 5.3% in respect of the said company. Whereas, the other comparable companies the 8 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
depreciation cost was much less even ranging from 3.22% to 5%. Thus the assessee has provided depreciation at much higher rate amounting to full amortisation of all assets other than building over 05 years. The Learned Counsel for the Assessee has thus argued that considering the varied rates and estimation of depreciation, it is fair and appropriate to exclude it altogether for the purpose of determining the mean margin as well as the margin of the assessee. He has supported the order of the Ld. CIT(A) as well as relied upon the following decisions
(i) Qual Core Logic Ltd., vs. DCIT (2012) 52 SOT 574 (Hyd.) (Tribu.),
(ii) BA Continuum India (P) Ltd., vs. ACIT (2013) 40 taxman.com 311 (Hyd.) (Tribu.),
(iii) Schefenacker Mothersohns Ltd., vs. ITO 2 ITR 196 (Del.) (Tribu.),
(iv) CIT vs. Sree Senhavalli Textiles P. Ltd., (2003) 259 ITR 77 (Madras) and
(v) CIT vs. Virtual Soft Systems Ltd., (2012) 341 ITR 593 (Del.) 6.2. Alternatively, the Learned Counsel for the Assessee submitted that in case depreciation is not excluded for the purpose of computing the margins of the assessee as well as comparables, atleast, adjustment must be given on account of difference of depreciation provided by the assessee as well as comparable companies.
7. We have considered the rival contentions and perused the material on record. The first issue arises in T.P. adjustment is regarding application of TNMM as well as CUP as most appropriate method in respect of two transactions of import of goods and sale of finished products to the A.E. As it is clear from the details of international transactions, the assessee is importing raw material from its A.E. and also making exports of the finished goods to the A.E. 9 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
Thus the import transaction as well as the export transactions are interconnected and closely linked. The price of export is not free from the impact of the import price. Therefore, the international transaction in respect of import of raw material has direct bearing on the export of goods to the A.E. The TPO has applied TNMM by taking the entire turnover of the assessee and then proposed an adjustment being the difference between the net margin of the assessee as well as the comparable price. Since these international transactions are closely linked and rather inter-depending having bearing on each other, therefore, for the purpose of determining the ALP it is appropriate to take the composite transaction and then apply TNMM as most appropriate method. CUP method is no doubt is a preferable method for determining the ALP as it leaves no scope of any possible variations in the process of computing the ALP. However, when the transactions are multiple and inter-related then if a particular transaction out of the composite transactions cannot be tested under CUP then it is not proper to apply separate methods for determining the ALP for each of the transaction, particularly, when the international transactions are closely linked and inter-depending having direct bearing on the price of each other. Therefore, we are of the considered opinion that in the given facts and circumstances of the case, the TNMM method would be the most appropriate method for determining the ALP of the international transactions entered into by the assessee. Hence, we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue. We, therefore, uphold the order of the Ld. CIT(A) on this issue.
8. The next aspect of the T.P. issue is exclusion of depreciation while computing the margins of the assessee as well as comparable companies to benchmark the international transactions.
10ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
There is no quarrel on the point that in the normal circumstances, the depreciation has to be part of the operating/total cost for the purpose of computing the margins under TNMM. The TNMM itself suggests that the net margin of the international transaction has to be compared with the net margins of the comparable companies. Therefore, depreciation being an inseparable part of the cost for computing net margin cannot be excluded in normal circumstances. Only in the specific and exceptional circumstances where the assessee has demonstrated that either in the case of the assessee or in the case of comparable companies there exists an exceptional circumstances under which the depreciation provided by the assessee is either excessive in comparison to the comparables or depreciation provided by the comparable companies is exceptionally very low. The cash profit can be considered under TNMM. In the case of the assessee, before us, it is claimed that assessee has set-up a new state of art technology plant which is imported from the A.E. and therefore, the depreciation cost of the assessee is very high in comparison to the comparables. We find from the details as provided at page-222 of the paper book that depreciation along with repair and maintenance cost in the case of the assessee is very high in comparison to the comparable companies. One shall keep in mind that the isolated data of depreciation and repair and maintenance may lead to unrealistic results if the other related facts are not taken into consideration. In this case, the assessee has claimed that assessee has set-up a state of art plant for production of the specified rubber products which means the assessee's manufacturing facility is highly automotive in comparison to the comparables. In otherwords, when a manufacturing facility is based on the latest technology and highly automotive then the corresponding cost of wages and salary will come down. Hence, comparing only the depreciation cost of assessee and comparables will 11 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
not serve the purpose as it will not gives the true and correct picture of the affairs. Hence, when high depreciation provided by assessee only on account of the new plant and machinery which is the state of art technology then the effect of reduction if any, in the cost of wages and salary has to be taken into consideration while comparing the depreciation cost of the comparable companies. Accordingly, on principle, we are of the view that if the assessee has brought on record a substantial difference in the cost of depreciation, then the depreciation has to be excluded to avoid the material difference. However, while undertaking this exercise of comparing the depreciation cost with the comparables, the other element and corresponding cost like wages and salary are also required to be taken into account. Accordingly, we set aside this issue to the record of the A.O./TPO for examining the same afresh in the light of above observations and then adjudicate the same. Needless to say that assessee be given adequate opportunity of being heard.
9. Ground No.4 is regarding disallowance made by the A.O. regarding testing fee by treating the same as capital in nature and further as FTS and by invoking the provisions of section 40(a)(ia). The A.O. during the course of assessment proceedings noted that assessee has debited to the P & L account a sum of Rs.1,43,65,596 on account of development charges. The corresponding figure for last year was NIL. The A.O. asked the assessee to furnish details of testing fees paid and also as to why it should not be disallowed in terms of Section 40(a)(ia) as no TDS has been deducted on it. Alternatively, the A.O. also asked the assessee to explain as to why the expenses are not to be disallowed as capital expenditure. The assessee explained before the A.O. that there was an agreement between the assessee and its A.E. dated 01.01.2002 and as per the terms of the agreement the 12 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
assessee has to get its product tested from the A.E. to ensure that any product needs with the laid down standards. Thus the assessee contended that the purpose of testing is not to develop new product or made improvement in the product. It was only a quality test of the product to meet the standards. Therefore, the assessee contended that the payment made on account of testing fee is neither a fee for technical services nor has any enduring benefit. The A.O. did not accept the contention of the assessee and disallowed this amount of Rs.1,43,65,596 by treating the same as fees for technical services as well as capital in nature. On appeal, the Ld. CIT(A) has allowed the claim of assessee and deleted the disallowance made by the A.O.
10. Before us, the Ld. D.R. has submitted that there was no such expenditure in the earlier years and only for the year under consideration the assessee has paid this fee to the A.E. The expenditure was incurred on testing of the product manufactured by the assessee makes it evident that the testing result would be used to improve or to maintain the standard of the product. Therefore, any expenditure which is incurred towards acquiring knowledge which would help the company to achieve the desired level of quality cannot be revenue expenditure and the assessee would certainly have an enduring benefit of this facility of testing its product which is part of the manufacturing process of the assessee. Further, the Ld. D.R. has referred to the agreement and submitted that under the terms of the agreement the A.E. of the assessee is under obligation to preserve all the test reports and records for future use which shows that the assessee has incurred this expenditure for acquiring and getting the knowledge which could be applied on the production process and whenever desired/suitable corrections are made in the process of manufacture to achieve the desired standards of products.
13ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
11. The Ld. D.R. has submitted that testing operations and process involves technical expertise and therefore, the services provided by the A.E. to the assessee is technical in nature and the payment made towards testing fee is fee for technical services as per the provisions of Section 9 as well as Article 12 of the DTAA. He has relied upon the orders of the A.O.
12. The Learned Counsel for the Assessee submitted that payment in question is nothing but only for testing of the quality of the product at the A.E. place and therefore, there is no transfer of any technology or knowledge much less the making available of any knowledge or technical service by the A.E. to the assessee. He has further submitted that even if the A.E. of the assessee is using its expertise and knowledge in the process of testing the product of assessee the same i.e., a test for quality purpose and therefore, it does not fall under the definition of fee for technical services either under the provisions of Section 9(1)(vii) or under Article 12 of the India-US DTAA. The Learned Counsel for the Assessee further contended that since assessee has not incurred any expenditure on the installing, any facility or acquiring any technology, therefore, this expenditure cannot be capital in nature. He has further contended that even if the services are utilised in India, it has not been rendered in India. Therefore, it will not fall under the definition of 'fee for technical services' or 'included services'. He has relied upon the decision of Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd., vs. Director of Income Tax, Mumbai (2007) 288 ITR 408 (SC). The Learned Counsel for the Assessee has further submitted that prior to the Amendment in the provisions of Section 9(1) by way of inserting Explanation, even this payment does not fall under the definition of 'fee for technical services'. The Amendment made in the provisions of 14 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
Section 9(1) cannot be applied in the case of the assessee when the transactions pertains prior to the said amendment under the statute. Thus the Learned Counsel for the Assessee submitted that the Doctrine of Impossibilities of Performance is applicable in the case of the assessee when the transaction was completed prior to the amendment in the statute. Assessee would not be expected to deduct the tax at source on the basis of subsequent amendment. He has relied upon the decision of the Tribunal in the case of Kerala Vision Ltd., vs. ACIT (2014) 35 ITR 81 (Tribu.) (ITAT-Coc.) as well as Raymond Ltd., vs. DCIT (2003) 86 ITD 791 (Mum.). The Learned Counsel for the Assessee has also relied on the decision of Hon'ble Delhi High Court in the case of Director of Income Tax vs. Nokia Networks OY (2013) 358 ITR 259 (Del.) (HC) and submitted that the Hon'ble Delhi High Court has held that the amendment in the statute cannot change the provisions of treaty. Therefore, when the treaty is having an overriding effect then the amendment in the statute becomes irrelevant.
13. We have considered the rival contentions as well as relevant material on record. The assessee has paid testing fee to its A.E. GRC-US in respect of testing of its rubber hose. The A.E. has raised debit note on the assessee in respect of costs/expenses incurred by the A.E. in respect of testing of the product of the assessee. Therefore, it is not a cash of any research and development facility provided by the A.E. to the assessee but it is simply a case of testing of the product of the assessee for quality purpose so as to meet the international standards and the requirement of exports. The assessee has explained that rubber hose pipes manufactured by the assessee are being used in mining process and therefore, there are certain standards of quality which are required to be met by the 15 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
product of the assessee. Thus the testing of the product at the facility of the A.E. does not amount of rendering any technical services by the A.E. to the assessee but simply it is an activity of quality test of the product which is carried out outside India. In the absence of any material to show that assessee is using any technical knowledge or services rendered by the A.E. in the manufacturing process of its goods it cannot be treated as any technical services rendered by the A.E. Therefore, we do not find any material or facts either discovered by the A.O. or otherwise available on record to show that assessee has paid the testing fee for acquiring any technical knowledge or receiving any technical services from the A.E. Thus, the payments of testing fee to the A.E. is not fee for technical services. Since A.E. of the assessee is not giving any permanent establishment in India, therefore, the said receipt/income in the hands of the A.E. is not taxable in India and consequently, the assessee was under obligation to deduct TDS at source.
13.1. As regards nature of expenditure being revenue or capital, we find that by incurring testing expenditure the assessee has not acquired any technology, advantage or enduring benefit but it is simply a quality test of its product. Therefore, it is part of the cost of the product and incurred only on the finished products of the assessee which has no connection with the manufacturing facility or plant of the assessee. Even otherwise, by incurring this expenditure, no new asset has come into existence and therefore, this expenditure cannot be categorised or classified as in capital field. Accordingly, we do not find any error or illegality in the order of the Ld. CIT(A) qua this issue.
14. Ground No.5 is regarding disallowance made on account of computer software expenses treating as capital in nature. The A.O. has disallowed a sum of Rs.4,39,592 incurred on application of 16 ITA.No.75/Del./2011 M/s. Gates India (P) Ltd., New Delhi.
software by treating the same as capital in nature. The Ld. CIT(A) deleted the said disallowance made by the A.O. by following the decision of the Special Bench of the Tribunal in the case of Amway India Enterprise vs. DCIT 114 TTJ 476.
15. We have considered the submissions of Ld. D.R. and Learned Counsel for the Assessee and perused the material on record. Undisputedly, the assessee has incurred total expenditure of Rs.6,27,988 under the head "Software Expenses". The A.O. has made the addition of Rs.4,39,592 on the ground that it is of capital in nature. At the outset, we note that the Ld. CIT(A) has decided this issue by following the decision of the Special Bench of the Tribunal in the case of Amway India Enterprise (supra) which has been upheld by the Hon'ble Delhi High Court reported in (2012) 346 ITR 341 (Del.) (HC). Therefore, when the software package are only for smooth functioning of the business and has not brought into existence any new asset, then, having regard to the facts and circumstances of the case, we do not find any error or illegality in the order of the Ld. CIT(A). We, therefore, uphold the order of the Ld. CIT(A) on this issue.
16. In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open Court.
Sd/- Sd/-
(O.P. KANT) (VIJAYPAL RAO)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 31st July, 2017
VBP/-
17
ITA.No.75/Del./2011
M/s. Gates India (P) Ltd., New Delhi.
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT "I-2" Bench
6. Guard File