Income Tax Appellate Tribunal - Delhi
Sapient Corporation Pvt. Ltd., Gurgaon vs Assessee on 23 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: "G" NEW DELHI
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND
SHRI K.D.RANJAN , ACCOUNTANT MEMBER
ITA No: 4977/Del/2011
A.Y. : 2007-08
Sapient Corporation P.Ltd. vs. ACIT, Circle 7(1)
Sapient Tower New Delhi
DLF Cyber Greens
DLF Phase III, Sector 25A
Gurgaon 122 022
PAN/GIR No: AAECS 6286M
(Appellant) (Respondent)
Appellant by : Sh. Neeraj Jain, C.A.
Respondent by : Sh.Krishna, CIT, D.R.
ORDER
PER DIVA SINGH, JUDICIAL MEMBER
The present appeal has been moved by the assessee against the assessment order dt. 28.9.2011 pertaining to A.Y. 2007-08 on the following grounds.
"1. That the A.O. erred on facts and in law in completing assessment u/s 144C/143(3) of the Income Tax Act, 1961 ('the Act') at an income of Rs.4,48,13,480/- as against the income of Rs.1,03,02,705/- returned by the appellant.
2. The A.O./DRP erred on facts and in law in making disallowance of Rs.3,45,10,774/- out of the expenditure on 'recruitment and training expenses' of Rs.4,60,14,365/- holding that such expenditure led to enduring benefits for the business of the appellant and hence constitutes expenditure of capital nature.
The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing."2
2. Ld.A.R. inviting attention to the assessment order pages 5 to 9 considering the claim on expenditure of Rs.4,60,14,365/- on account of recruitment and training. The A.O. relying upon Madras Industrial Development Corporation vs CIT 225 ITR 802; Hindustan Aluminium Corporation vs. CIT (1983) 144 ITR 474; Assam Bengal Cement Co.Ltd. vs CIT, 27 ITR 34; Taparia Tools Ltd. Vs JCIT 126 Taxman 544 ; Empire Jute Co.Ltd. vs CIT 124 ITR 1 (S.C.) and referring to the directions given by the DRP-2 allowed 25% of the expenditure thereby making an addition of 3,45,10,774/- observed as under.
The aforesaid directions of the DRP have been noted and the factual position is that for the A.Y. 2005-06 & 2006- 07 the order of the Tribunal on these issue is not accepted considering the fact that on similar issue SLP has been filed before the Hon'ble Supreme Court in various cases including Samsung Electronics...., further appeal u/s 260A has been proposed. Since, there is time for actually deciding filing appeal in these years and as the matter of passing final order in this case is getting barred by limitation, the addition is being made considering the recommendation of appeal in A.Y. 2005-06 & 206-07.
In view of aforesaid facts, the above said expenditure leads to an enduring benefit to the assessee company. Accordingly, only 25% of the expenditure of Rs.
4,60,14,365/- i.e. amounting to Rs. 1,15,03,591/- is allowed and balance amount of Rs. 3,45,10,774/- is hereby disallowed and added to the total Income of the assessee company. Since, I am satisfied that assessee has not filed its accurate particular of the Income, therefore, penalty proceedings u/s 271(1)(c) are initiated separately.
Addition of Rs. 3,45,10,774/-
2.1. The Ld.A.R. referring to pages 68 to 81 which is a copy of order dt. 6th May, 2011 in the case of the assessee for A.Y. 2006-07 in ITA 5263/Del/2010 considered an identical name of the assessee wherein 3 relying upon 2004-05 the claim of the assessee was allowed. As such the issue is covered in favour of the assessee. It was his submission that the said order has been accepted by the department as no appeal on the said order had been filed. Inviting attention to the decision for 2005-06 wherein also an identical issue travelled to the Tribunal which was disposed by the Coordinate Bench on 8th April,2011 in ITA 1856/Del/2010 copy of which is placed at pages 88 to 82 of the paper book it was submitted that the Tribunal had considered the same vide paras 3 to 6 wherein taking into consideration the past decision in the case of the assessee namely that the CIT's order for 2004-05 has been accepted by the department and the judgement of Delhi bench in Soni India P.Ltd. vs DCIT wherein at para 83 the judgement of the Coordinate Bench in the case of Amar Batteries 91 ITD 280 (Hyderabad) had been considered as such the action of the CIT(A) in deleting the addition made by the A.O. was upheld. The specific directions given by the DRT contained at page 7 and directions u/s 144C(v) dt. 23.8.2011 at page 7 para 11.3 were referred. For ready reference they read as under.
"11.3. We observe that this addition has past history. In the A.Ys 2005-06, 2006-07, similar addition was made by the A.O. It is pointed out by the ld.counsel of the tax payer that the issue has been decided in favour of the assessee by ITAT.
Therefore, we direct the A.O. to delete this addition, if the decision of ITAT on this ground has been accepted by the department. If the decision is not accepted on this ground and an appeal has been filed against the order of ITAT, then we are of the opinion that since the matter is sub-judice before the Hon'ble High Court, to keep the issue alive, the addition 4 proposed by AO is necessary to be made. The A.O. will act accordingly after recording his reason for addition/deleting addition on account of 'recruitment & training expenses' on the decision taken by the department on filing of appeal u/s 260A against the order of ITAT on this ground.
The A.O. is directed to act as per directions given above.' 2.2. The ld.A.R. relied upon the following judgements.
i. Empire Jute Co.Ltd. vs CIT, 124 ITR 1 (S.C.); ii. CIT vs. Associated Cement Companies Ltd. 172 ITR 257 (SC); iii. Alembic Chemical Works Co.Ltd. vs CIT, 177 ITR 377 (SC); iv. CIT vs. Berger Paints (India) Ltd. (No.2) 254 ITR 503; v. CIT vs. Sakthi Soyas Ltd. 283 ITR 194 (Mad.);
vi. DCIT vs. Core Healthcare Ltd. 308 ITR 263;
vii. CIT vs. Brilliant Tutorials P.Ltd. 292 ITR 399 (Mad.);
viii. CIT vs. Jai Parabolic Springs Ltd., 306 ITR 42 (Delhi) (SLP
dismissed by the SC);
ix. Silicon Graphics System Ltd. Vs DCIT, 106 TTJ 1153 (Del);
x. Guruji Entertainment Network Ltd. Vs ACIT, 108 TTJ 180 (Del);
xi. Sony India P.Ltd. vs DCIT, 114 ITD 448;
xii. Hindustan Commercial Bank Ltd. 21 ITR 353 (All.)
3. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same it is seen that it is an accepted fact that in the case of the assessee who is stated to be a subsidiary of M/s Sapient Corporation USA which had set up under the Software Technology Park Scheme of Government of India.
The primary activities undertaken by company as per page 2 of the assessment order are as under:
(a) Rendering services to group companies essentially in the form of building customized software applications to enable group companies in rendering technology consultancy services to their clients; and 5
(b) Rendering post-sales IT enabled support services in relation to the software which have been developed either by Sapient group, or by third parties, and primarily including fixing of allocation bugs, compatibility checks in case of third party software upgrades, software enhancement etc.
3.1. It has been canvassed before the A.O. that the assessee is in the business of customized software and IT services. As such it was contended that the major of the business needs specialized employees accordingly depending upon the nature of software required the employees profiles keep changing. Therefore cost of advertising in order to attract suitably talent has to be borne by the company on a regular basis. This argument on facts had not been accepted by the Revenue. Accordingly on facts the reliance placed upon the judgement of Apex Court in Madras Industrial Development Corporation vs CIT 225 ITR 802 is misplaced. The issue is clinched in favour of assessee under the case of by virtue of judgement of Apex Court 124 ITR 1 SC page 7 para 11.2 wherein it has been extracted:
"....It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assssee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future..."6
4. This fact has been taken note of by the DRP also. The fact that the addition was made by the A.O. in order to keep the interest alive so as to move the Hon'ble Apex Court cannot be sufficient reason for making the addition, relying upon the orders of the Tribunal in assessee's own case and the principle laid down by the Coordinate Bench in Soni India P.Ltd. vs DCIT, 114 ITD 448, the ground raised by assessee is allowed
5. In the result the appeal filed by the assessee is allowed.
Pronounced in the open court on 23rd March, 2012.
Sd/- Sd/-
(K.D.RANJAN) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 23rd March, 2012
*manga
Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Dy. Registrar // C o p y //