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TMI Blog2019 (4) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the assessee that it was constrained to capitalize the expenses due to application of Accounting Standards (AS) and amortize it over a period of time, even though the nature of those expenses is Revenue in nature. Further, as was held in Kedarnath Jute Manufacturing Co. Ltd., Vs. CIT [1971 (8) TMI 10 - SUPREME COURT], relied upon by the CIT(A), the entitlement of the assessee to a particular deduction will depend upon the provisions of the Income Tax Act, 1961 and not on the entries in the Books of Account. The expenditure in question, is incurred in the form of salaries / training of employees and IRSE assessment cost, which are purely in the Revenue field. There is also no dispute that the said expenditure has been expended wholly and exclusively for the purposes of the assessee’s business. There is nothing on record to controvert the contention that these expenses are incurred for imparting skill to employees to enhance their knowledge. The findings rendered by the CIT(A) in this regard have not been controverted before us. The only contention raised by Revenue in the grounds of appeal is that the assessee itself has capitalized these expenses; which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Others (supra), we condone the delay of 51 days on the part of Revenue in filing this appeal before the Tribunal and admit its appeal for Assessment Year 2008-09 for consideration / adjudication. ORDER 3. Briefly stated, the facts of the case are as under:- 3.1 The assessee, a company, engaged in the business of providing signaling systems solutions to the Railways, filed its return of income for Assessment Year 2008-09 on 01.10.2008 declaring loss of (-)Rs.2,02,01,133/- under normal provisions and Book Profits under MAT provisions at ₹ 4,98,44,075/-. The assessee filed a revised return of income on 19.01.2009. The case was selected for scrutiny for this Assessment Year. In the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had claimed certain items of expenditure as deduction in the computation of income even though it had capitalized the same as intangible assets in its books of account. On being queried in this regard, the assessee submitted that it had incurred huge expenses on training and salaries of employees and related certifications to meet with international standards. Since the benefit from these expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets, in view of the requirements of Accounting Standards 26 and placed reliance on the decision of the Hon ble Apex Court in the case of Kedarnath Jute Manufacturing Ltd., Vs. CIT (81 ITR 363) (SC). The CIT(A) was of the view that the AO s categorization of these assets as intangible depreciable assets is not in tune with the definition of intangible assets as contained in section 32(1) of the Act. The CIT(A) also noted that the similar issue was decided in the assessee s favour by his predecessor CIT(A) in the case on hand for the earlier Assessment Year 2007-08. Revenue s appeal in ITA No.2122/Bang/2016 Assessment Year 2008-09 4.1 Revenue, being aggrieved by the order of CIT(A)-4,Bangalore dated 27.07.2016 for Assessment Year 2008-09, has filed this appeal before the Tribunal wherein it has raised the following grounds:- 1. The Order of the Ld.CIT (A) is opposed to the law and facts of the case. 2. On the facts and circumstances of the case, the Ld.CIT (A) was right in treating the expenditure incurred on intangible assets as Revenue in nature without appreciating the fact that any expenditure incurred for bringing into existence any asset of enduring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Bar, the learned AR of the assessee confirmed that the assessee had shown these amounts as intangible assets and the Notes on Accounts have incorporated the same. As directed by the Bench, the learned AR placed on record, copy of the Notes on Accounts related to intangible assets, the computation of income and the copy of AS-26 relating to the accounting treatment of intangible asset. 6.3.1 We have considered the rival contentions, perused the material on record and examined the issue of treatment of the aforesaid expenditure. As observed by the CIT(A), the various heads of the aforesaid expenditure are IRSE assessment cost, salaries and training cost. It is not in dispute that these expenditures have been capitalized and shown under the head intangible assets . In the assessee s books of account, admittedly, expenditure amounting to ₹ 98,88,226/- has been shown as capitalized under Intangible Assets ; as also in the Notes on Accounts, it has been mentioned that the unamortized amount on account of intellectual property in the form of employee knowledge enhancement developed through various programmes and supported by employees agreements, are to be amortized equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure is in the capital field or Revenue field. In this regard, the decision relied on by the assessee; of the ITAT Delhi Bench in the case of DCIT Vs. M/s. Sapient Corporation Pvt. Ltd., in ITA No.1856/Del/2010 dated 08.11.2011 applies squarely to the facts of the case on hand. The relevant portion of the aforementioned decision of the ITAT Delhi Bench (supra) at paras 6 and 7 thereof is extracted hereunder:- 6. We have heard both the parties and perused the material available on record. In assessment year 2004-05 the ld. CIT (A) has deleted the addition by holding that the expenditure incurred on recruitment and training was revenue in nature. The Department has not filed any appeal before the ITAT challenging the deletion of the addition on recruitment and training. Further, the assessing officer had not doubted the genuineness of the expenses incurred on recruitment and training of employees. Such expenditure was incurred in the ordinary course of business and no capital asset has acquired. The recruitment and training expenditure had been incurred by the assessee to facilitate its business operations more profitability and efficiently. The recruitment is an on- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting optimum production was held to be a revenue expenditure by the Hon'ble Calcutta High Court observing that the same was directly linked to profit earning process. In the case of Associated Cement Co. Ltd. (supra), the advantage secured by the taxpayer by incurring the expenditure was absolution or immunity from liability to pay municipal rates or faxes for a period of fifteen years and as the said liability was on revenue account, it was held by the Hon'ble Supreme Court that the expenditure incurred was of revenue nature as the advantage secured was in the field of revenue and not capital. In the present case, the expenditure incurred by the taxpayer company on imparting training to its employees in order to increase their efficiency in day-to-day working was in the revenue field and this being so and keeping in view the legal position emanating from the judicial pronouncements discussed above, we hold that the same was entirely deductible in the year under consideration as rightly claimed by the taxpayer. The impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer to the extent of 50 per cent on this issue is, therefore, reverse ..... 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