Income Tax Appellate Tribunal - Mumbai
Ogilvy & Mather P. Ltd, Mumbai vs Assessee on 25 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
Before Shri R.S.Syal, AM and Shri R.S.Padvekar, JM
ITA No.6177/Mum/2010 : Asst. Year 2007-2008
M/s.Ogilvy & Mather Private Limited The Addl.Commissioner of Income-tax
14th Floor, Commerz, International Circle 7(1)
Business park, Oberoi Garden City Mumbai.
Vs.
Off Western Express Highway
Goregaon (East), Mumbai - 400 063.
PAN : AAACO0427A.
(Appellant) (Respondent)
Appellant by : Smt.Aarti Vissanji & Shri Ajit C.Shah
Respondent by : Shri A.K.Nayak
Date of Hearing : 17.01.2012. Date of Pronouncement :25.01.2012
ORDER
Per R.S.Syal, AM :
This appeal by assessee is directed against the order passed by the Commissioner of Income-tax (Appeals) on 10.04.2010 in relation to the assessment year 2007-2008.
2. Ground no.3 about the confirmation of disallowance u/s 14A was not pressed by the learned A.R. The learned Departmental Representative did not raise any objection to it. We, therefore, dismiss this ground as not pressed.
3. Ground no.1 is against the sustenance of disallowance of software expenses of `8,31,160. Facts apropos this ground are that the assessee claimed deduction for `8.31 lakh towards software expenses. The Assessing Officer, relying on the judgment of the Rajasthan High Court in CIT Vs. Arawali Construction Co.P.Ltd. [(2003) 259 ITR 30 (Raj.)] held that the assessee cannot be allowed deduction towards software expenses. In this view of the matter, he treated such expenditure as capital in nature and allowed depreciation at the rate of 25%. No relief was allowed in the first appeal.
2 ITA No.6177/Mum/2010M/s.Ogilvy & Mather Private Limited.
4. We have heard the rival submissions and perused the relevant material on record. The special bench of the tribunal in Amway India Enterprises Vs. DCIT [(2008) 111 ITD 112 (Del.) (SB)] has laid down certain tests for the determination of nature of expenditure on software as revenue or capital. The learned A.R. has relied on the judgment of the Hon'ble Bombay High Court in CIT Vs. Raychem RPG Limited in IT Appeal No.4176 of 2009 in support of her contention that the deduction be allowed in entirety towards software expenses. We are unable to accept this contention for the reason that the Hon'ble jurisdictional High Court in this case reproduced the finding given by the Tribunal to the effect that the assessee passed the functional test suggested by the Special Bench of the Tribunal in the case of Amway India Enterprises (supra). In view of such finding given by the Tribunal the deduction was allowed towards software expenses which view has been upheld by the Hon'ble jurisdictional High Court. When we peruse the assessment order in the instant case it is found that there is no discussion worth the name about the nature of software and as such the Special Bench order in the case of Amway India Enterprises (supra) has not been considered. Even the order passed by the learned CIT(A) does not embark upon the consideration of the issues set out in Special Bench order in Amway India Enterprises (supra). The learned A.R. has placed on record certain details of the software purchased at page 1 of the paper book by mentioning that this page was submitted to the learned CIT(A) during the appellate proceedings, but admittedly it was not before the AO. Then page nos. 2 and 3 of the paper book have been pressed into service in an attempt to demonstrate that such software was to be considered as revenue expenditure. These pages have been admittedly downloaded from internet and neither were produced before the A.O. nor the first appellate authority. In view of the fact that the very nature of software in the light of the decision of the Special Bench in Amway India Enterprises (supra) has not been examined by the authorities below, in our considered opinion, the ends of justice will meet adequately if the 3 ITA No.6177/Mum/2010 M/s.Ogilvy & Mather Private Limited.
impugned order is set side and the matter is restored to the file of A.O. We order accordingly and direct him to decide this issue afresh as per law after allowing an opportunity of being heard to the assessee.
5. Ground no.2 is against depreciation of computer software amounting to `11,98,407. The assessee claimed depreciation at the rate of 60% on this amount which the A.O. restricted to 25%. The learned A.R. submitted that this aspect of the matter has also been discussed by the Special Bench of the Tribunal in the case Amway India Enterprises (supra) and it has been directed to allow depreciation at a higher rate. Since we are restoring the matter for considering the deductibility or otherwise of the software expenses, which is subject matter of ground no.1 to the file of A.O. for considering it in the light of the Special Bench order in the case of Amway India Enterprises (supra), it would be appropriate if the A.O. considers the same decision on this aspect in the light of details of software expenses on which the assessee claimed depreciation at the rate of 60% which is subject matter of ground no.2. The impugned order is set aside on this issue and the matter is remitted to the file of A.O. for fresh decision in above terms. Needless to say, the assessee will be allowed reasonable opportunity of being heard.
6. In the result, the appeal is partly allowed for statistical purposes.
Order pronounced on this 25th day of January, 2012.
Sd/- Sd/-
(R.S.Padvekar) (R.S.Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai : 25th January, 2012.
Devdas*
4 ITA No.6177/Mum/2010
M/s.Ogilvy & Mather Private Limited.
Copy to :
1. The Appellant.
2. The Respondent.
3. The CIT concerned
4. The CIT(A)-XIII, Mumbai.
5. The DR/ITAT, Mumbai.
6. Guard File.
TRUE COPY.
By Order
Assistant Registrar, ITAT, Mumbai.