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TMI Blog2012 (7) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... idy received to the acquisition of asset. The subsidy in this case has been received for encouraging investment in backward area, even if computed with reference to cost of investment in fixed assets, will not be reduced from the cost of assets - the payment of subsidy is not related to the actual acquisition of assets and subsidy is granted on capital investment on land, building and machinery, then it cannot be reduced from the value of asset (WDV) - in favour of assessee. Disallowance of software maintenance / software development expenses - Held that:- The expenditure on computer software was incurred with the view to increasing efficiency of the operations and maintenance of vital data, which was necessary for carrying on the business more efficiently. CIT(A) gave a finding that the amount involved has actually been paid towards monthly license user fee. It is neither a technology up-gradation nor a capital expenses which gives enduring benefit in subsequent years. That as per details and supporting documents provided by assessee, the said expenses are revenue in nature, hence were to be allowed fully - in favour of assessee. Disallowance on account of brokerage and comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YAHYA: AM These appeals by the Assessee and Revenue are directed against the separate orders of the Ld. CIT(A). Since some of the issues are common and the appeals were heard together and these are being consolidated by this common order for the sake of convenience. 2. The grounds raised in assessee s appeal in ITA No. 2002/Del/2008 (A.Y. 2003-04) read as under:- (i) That the Ld. CIT(A) erred on facts and in law in directing the AO to reduce on proportionate basis, from the written down value of the respective block of assets, the sales tax subsidy received during the relevant assessment year for the purposes of computing depreciation allowance under the IT Act, 1961. (ii) That the Ld. CIT(A) erred on facts in law in upholding the disallowance in respect of software maintenance / software development expenses amounting to Rs. 12,60,475/- holding the same to be in the nature of capital expenditure. (iii) That the Ld. CIT(A) erred on facts and in law in holding that for computing book profit under section 115JB of the Act, the adjustment of the amount eligible for deduction under section 80HHC of the Act, in terms of clause (iv) of Explanation thereto, has to be calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. 6. One common issue raised in Revenue appeals pertains to deletion of addition on account of sales tax subsidy by treating it as capital receipt. 7. Assessee in these cases claimed that sales tax subsidy received by the assessee was capital receipt not exigible to tax. Before the AO assessee also substantiated the same with the decision of ITAT (Spl. Bench), Mumbai in the case of CIT Vs Reliance Industries Ltd. 88 ITD 273 (Mum). AO on the other hand, found that the claim is unacceptable for the following reasons: i) The subsidy was not intended to be a contribution towards capital outlay of the industrial unit. Further it was given with the object of enabling the assessee to carry on its business, although the purpose behind it was to encourage industrialization. ii) Also, it was well settled that where subsidies granted were given by the Government to assist a trader in his business, they were generally speaking, payments of a revenue nature. They were supplementary trade receipts and not capital payments, although they might be called advances or might be subject to cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed. Ld. CIT(A) held that one cannot say that subsidy was granted for carrying on its business operation in day to day manner. Before the Ld. CIT)A assessee also cited the case law of C.I.T. vs. Ponni Sugars and Chemicals Ltd. 306 ITR 392 (SC). In this case the Hon ble Apex court held that the character of the receipt in the hands of the assessee company has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases one has to apply the purpose test . The point of time when the subsidy is paid is not relevant. The source is immaterial; the form of subsidy is also immaterial. 8.2 Ld. CIT(A) observed that the Special Bench of the Tribunal (Reliance Industries Ltd. (supra) relying on the principles laid down by Supreme Court in the case of Sahney Steel Press Works Ltd. (supra) came to the conclusion that since the incentives were given for bringing about addition to necessary infrastructure in processing/developing the backward area, it would be in the nature of capital receipt not liable to tax. Ld. CIT(A) further gave a finding that the aforesaid decision of the Special Bench has been rendered on identical facts and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we uphold the same. 11. Another ground raised in Revenue s appeal ITA No. 967/Del/2010 is that Ld. CIT(A) erred in deleting the disallowance of Rs. 6,45,300/- on account of brokerage and commission. 12. In this case AO had made the disallowance stating that details and relevant papers pertaining to brokerage payment were not in order. AO referred to the claim of Brokerage Commission of Rs.6,45,300/. Thereafter he observed that it is seen that the details and relevant papers pertaining to M/s Siddhi Vinayak relating to brokerage payments for material supplied for amounting to Rs. 6,45,300/- were not in order and hence the amount claimed as deduction was added back. 13. Before the Ld. CIT(A) assessee submitted that the company was facing a lot of problem in realizing old debts from certain debtors. Since the defaulting parties failed to make payment even after the institution of criminal proceedings against them, the assessee engaged services of "recovery agents" M/s Siddhi Vinayak Enterprises for bringing parties on settlement terms. A fixed percentage of the settlement amount agreed between the assessee and the defaulting parties pursuant to engaging such service was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venu s appeal in ITA No. 967/Del/2010 is that the Ld. CIT(A) erred in deleting the disallowance of Rs.19,91,124/- on account of software maintenance expenses. 17. On this issue AO observed that the expenditure of Rs. 19,91,124/- cannot be allowed as revenue expenditure for the following reasons:- - As per Accounting Standards 26 issued by the Institute of Chartered Accountants of India an Intangible Asset is defined as follows; An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others or for administrative purposes". Therefore, an intangible asset is a non-monetary asset, it has no physical substance and it can be held for own use or for providing services. - The intangible asset as per this definition should, therefore, satisfy the conditions of only have, identifiably; control over a resource; and expectation of future economic benefit flowing to the enterprises. - The Accounting Standards 26 (issued 2002) has in para 7, 9 and 10 given specific examples of computer software whether developed internally or acquired externally, as intangible assets of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a base management can be implemented in knowing the different parameters of the company in real time basis. The computer memory is used to preserve the data and feed it to the management for necessary action at the time of requirement. Therefore, Ld. CIT(A) held that the SAP program cannot be overlooked and for such industry it is a necessity and not luxury. Ld. CIT(A) further found that the monthly expenditure incurred in running such program has to be allowed as revenue expenditure like land, telephone, electricity and other monthly expenditure incurred by the company. 19. Against the above order the Revenue is in appeal before us. 20. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that the assessee has been paying Rs. 19,91,124/- per annum towards SAP end user license-fee since 1998-99 when the agreement for using SAP software was entered into. Ld. CIT(A) has given a finding that it is neither for technology up-gradation nor a capital expenses which gives enduring benefit in subsequent years. Ld. CIT(A) held that the said expenses are revenue in nature and hence have to be allowed fully. We do not find any infirmity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us. 25. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that Ld. CIT(A) has given a finding that provision for gratuity in this case has been made on the basis of actuarial valuation. In that view of the matter, the liability can be said to be ascertained, accordingly, no disallowance in this regard is called for. Assessee in this regard has placed reliance upon the following case laws:- - CIT vs. ILPEA Paramount P. Ltd. 336 ITR 54 (Del). - DCM Engineering Ltd. vs. ACIT 134 TTJ 715 (Del.) - CIT vs. Hewlett Packard India (P) Ltd. 314 ITR 55/222 CTR 378 (Del.) - CIT vs. Bechtel India (P) Ltd. 2007 TIOL 675 HC Del - Dresser Value India P Ltd. vs. ACIT 2009 30 SOT 495 (Mum) - CIT vs. Echjay Forgings Pvt. Ltd. 251 ITR (Bom). 25.1 The above cited case laws duly support the plea of the assessee. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) and hence, we uphold the same. 26. Another ground raised in assessee s appeal in ITA No. 2002/Del/2008 is that ld. CIT(A) erred in directing the AO to reduce on proportionate basis, from the written down value of the respective block of assets, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by the Government to industries, does not partake of the incidents which attract the conditions for their deductibility from actual cost . Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the actual cost. Reliance was further placed on the decision of Vishakapatnam Bench of Tribunal in the case of Sasisri Extractions Ltd. vs. ACIT 307 ITR 127 (AT), wherein after considering the provisions of Explanation 10 to Section 43(1) of the Act, it was held that subsidy received for encouraging investment in backward area, even if computed with reference to cost of investment in fixed assets, will not be reduced from the cost of assets by applying the provisions of aforesaid Explanation. To the similar effect are the following decisions: - Inventaa Chemicals Ltd. vs. ACIT : 42 SOT 249 (Hyd) - CIT vs. Ellora Time Pvt. Ltd. Tax Appeal No. 1011 of 2010 (Guj). - Soham Electroplast Pvt. Ltde. Vs. ITO ?ITA No. 1578/P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Accounting Standards 26 issued by the ICAI which includes as per the definition above, computer software whether developed internally or acquired externally. AO further relied upon the case laws in the case of CIT vs. Aravalli Construction Company 259 ITR 30; ITAT, Delhi Bench decision in the case of Maruti Udyog Ltd. vs. DCIT 92 TTJ 987 and Apex Court decision in the case of Assam Begal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34. The AO held that software maintenance and development expense are capital expenditure and therefore are only to be allowed depreciation @ 60% as against the assessee s claim of revenue expenditure. 32. Upon assessee s appeal ld. CIT(A) upheld the action of the AO. 33. Against the above order the assessee is in appeal before us. 34. Assessee s submission in this are as under:- The assessee during the year paid yearly license fees in respect of existing computer software which were already loaded on the computers and for purchasing certain other application software required for facilitation of more efficient and profitable day to day management and trading operations. The Special bench of the Tribunal in the case of Amway India Enterprises v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount eligible for deduction under section 80HHC of the Act, in terms of clause (iv) of Explanation thereto, has to be calculated after reducing unabsorbed depreciation from profits of business and not the amount of deduction calculated on the profit disclosed in the profit and loss account. 38. At the outset, on this issue, ld. Counsel of the assessee submitted that the issue involved is covered in favour of the assessee by the decision of the Delhi Tribunal in assessee s own case for A.Y. 2002-03. Ld. Counsel of the assessee further placed reliance upon the following case laws: - Ajanta Pharma Ltd. vs. CIT : 327 ITR 305 (SC) - DCIT vs. Glenamark Laboratories Ltd. 127 TTJ 719 (Mum). - CIT vs. Magna Electro Castings Ltd. : Tax Case (Appeal) No. 247 of 2009 (Mad.) - Ambika Cotton Mills Ltd. and Ors. (2010) 33 DTR 183 (Mad.) - DCIT vs. Ors. Vs. Syncome Formulations India Ltd., Crystal Granite and Marble Ltd., Bhushan Steel and Strips Ltd., Thirumalai Chemicals Ltd. : 292 ITR 144 (Mum) (SB). - ITO vs. Amalgamated Bean Coffee Trading Co. P Ltd (2007) 19 SOT 1 (Bang.). - ITO vs. Godrej Soaps Ltd. : 114 TTJ 950- (Mum) - CIT vs. GTN Textiles : 248 ITR 372 (Ker.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) reversed the decision of the assessing officer and allowed reduction of aforesaid provisions while computing 'book profits' . Against the order of the CIT(A), the Revenue has filed appeal before the Tribunal. Subsequently, the provisions of section 115JB of the Act were retrospectively amended by the Finance (No.2) Act, 2009, with effect from 01.04.2001. As per the said amendment, the assessee is required to increase its 'book profits' by the amounts set aside as provision for diminution in value of any assets. In view of the aforesaid retrospective amendment, the assessee has, in fairness, surrendered the aforesaid claim of provision for diminution in value of investment and provision for doubtful debts, which were decided by the CIT(A) in favour of assessee. It is respectfully submitted that additions to 'book profits' of assessee on account of retrospective amendment in law, should not result in levy of interest under section 234B of the Act, in view of the legal position discussed hereunder: Submissions It is respectfully submitted that the assessee cannot be held to be in default in payment of advance tax under sections 208 to 210 of the Act, as the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was any default on the part of the assessee in payment of advance tax in accordance with the provisions of sections 208 to 210 of the Act. In view of the aforesaid, it is respectfully submitted that since there was no failure/ default on the part of the assessee in payment of advance tax, no interest is leviable under section 234B of the Act. Reliance in this regard is placed on the decision of the Calcutta High Court in the case of Emami Ltd. V. CIT: 337 ITR 470. In that case, their Lordships held that the fact that interest was payable by the assessee pn account of retrospective amendment, which was not even in the knowledge of the assessee at the time of payment of advance tax and therefore, the assessee could not be expected to have paid advance tax on something which would not even have been in his contemplation. 44. Ld. D.R. could not controvert the aforesaid submissions of the assessee. 45. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that the assessee in this case became liable for advance tax due to the retrospective amendment made by the Finance Act, 2008. In this regard assessee s submission is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the AO himself did not charge interest under ss. 234B and 234C of the Act Further, it has been time and again held that where the assessee is under a bona fide belief and based his estimate of income as per the law prevailing at the relevant time, no interest under ss. 234B and 234C of the Act is leviable. This is the position settled under col. 1 p. 3 of the CIT(A)'s order: Aero Leather (P) Ltd. vs. Union of India (1992) 194 ITR 7 (Del); Asstt CIT vs. Jindal Irrigation Systems Ltd. (1996) 56 ITD 164 (Hyd); Sant Lal vs. Union of India (1996) 134 CTR (P H) 581 : (1996) 222 ITR 375 (P H); A.M. Sainalabdeen Musaliar vs. Union of India Ors. (1999) 155 CTR (Ker) 647: (2000) 242 ITR 400 (Ker); CBDT Order No. F. 400/234/95-IT(B) dt 21st May, 1996 and amended on 30th Jan., 1997; CIT vs Anand Prakash (2009) 224 CTR (Del) 72: (2009) 20 DTR (Del) 259: (2009) 316 ITR 141 (Del); Priyanka Overseas Ltd. vs. Dy. CIT (supra); and CIT vs. Satish Traders (2001) 166 CTR (MP) 80: (2001) 247 ITR 119 (MP). Obviously, no one can be forced to perform impossibility. In view of the above, the learned CIT(A) cannot at all be said to have erred in holding that interest under ss. 234B and 234C of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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