DCIT, New Delhi v. M/s. Lifetree Cyberworks Pvt. Ltd, Gurgaon

ITA 3436/DEL/2009 | 2006-2007
Pronouncement Date: 31-05-2010 | Result: Dismissed

Appeal Details

RSA Number 343620114 RSA 2009
Assessee PAN AAACL8480A
Bench Delhi
Appeal Number ITA 3436/DEL/2009
Duration Of Justice 9 month(s) 27 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Lifetree Cyberworks Pvt. Ltd, Gurgaon
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-05-2010
Date Of Final Hearing 05-05-2010
Next Hearing Date 05-05-2010
Assessment Year 2006-2007
Appeal Filed On 04-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `D: NEW DELHI BEFORE SHRI C.L.SETHI JM & SHRI K.D. RANJAN AM I.T. A. NO.3436/DEL OF 2009 ASSESSMENT YEAR: 2006-07 DCIT CIRCLE 4(1) M/S LIFETREE CYBERWORKS P. LTD. NEW DELHI. VS DLF BUILDING NO.9 TOWER A 2 ND FLOOR PHASE-III DLF CYBER CITY NEW DELHI . PAN : AAACL8480A APPELLANT RESPONDENT APPELLANT BY: SHRI DEVENDER SINGH SR. DR RESPONDENT BY: SHRI SANJEEV SAPRA CA ORDER PER C.L. SETHI JM: THE ONLY ISSUE INVOLVED IN THIS APPEAL FILED BY THE REVENUE AGAINST ORDER DATED 12.5.2009 PASSED BY THE CIT(A) PERTAINI NG TO THE ASSTT. YEAR 2006-07 IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING TH E ADDITION OF RS.10 30 500/- MADE BY AO TREATING THE PAYMENT TO DERPOL AS CAPITAL EXPENDITURE TAKING THE VIEW THAT IT WAS REVENUE EXPENDITURE. ACCORDING TO THE SCOPE OF WORK DEFINED IN AGREEMENT AND OTHER DOCUMENTS THE NATURE OF 2 EXPENSES INCURRED BY THE ASSESSEE COMPANY IS OF ENDURING/CAPITAL IN NATURE. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND DEPLOYMENT. IT FILED ITS RETURN OF INCOME ON 30.11.2006 DECLARING TOTAL LOSS OF RS.11 29 655/- FOR THE RELE VANT ASSESSMENT YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF EXPENSES OF RS.10 30 500/- BEING THE PAYMENT MADE TO ONE M/S DERPOL INVESTMENT LTD. THE ASSESSEE COMPANY FURNISHED THE COPY OF BILL AND CONSULTANCY AGREEMEN T ENTERED INTO WITH M/S DERPOL INVESTMENT LTD. IT WAS NOTICED BY THE AO TH AT THE AGREEMENT WAS MADE EFFECTIVE FROM 3 RD DAY OF JANUARY 2006 FOR A PERIOD OF 12 MONTHS AN D A LUMPSUM CONSIDERATION OF RS.41 22 000/- WAS PAYAB LE BY THE ASSESSEE AGAINST THE INVOICE RAISED BY M/S DERPOL INVESTMENT LTD. THE SCOPE OF HE WORK DEFINING IN THE AGREEMENT WAS THAT THE ASSESSE E COMPANY HAD ENGAGED M/S DERPOL INVESTMENT LTD. TO PROVIDE TECHNICAL ADV ISORY SERVICES AND ASSISTANCE FOR THE DESIGNING AND DEVELOPMENT OF THE SOFTWARE PRODUCT OF THE ASSESSEE COMPANY. IN REPLY TO THE QUERY RAISED BY THE AO THE ASSESSEE SUBMITTED ITS REPLY VIDE LETTER DATED 25.11.2008 EX PLAINING THE NATURE OF SOFTWARE CONSULTANCY SERVICES PROVIDED BY M/S DERPO L INVESTMENT LTD. TO THE ASSESSEE COMPANY. THE ASSESSEES EXPLANATION H AS BEEN REPRODUCED BY 3 THE AO IN HIS ORDER. IN THE REPLY THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAD UNDERTAKEN CERTAIN WORK FROM M/S SPICE COMMUNIC ATION P. LTD. AND TO PERFORM AND EXECUTE SUCH WORK THE ASSESSEE AVAILED THE SERVICES OF M/S DERPOL INVESTMENT LTD. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE SERVICES PROVIDED BY M/S DERPOL INVESTMENT P. LTD. WERE IN THE NATURE OF CONSULTANCY SERVICES AND HAVE BEEN UTILIZED TO EXEC UTE THE WORK TAKEN FROM M/S SPICE COMMUNICATION P. LTD. HOWEVER THE AO ST ATED THAT THE REVENUE GENERATED FROM M/S SPICE COMMUNICATION P. LTD. HAD NO CONNECTION TO THE SERVICES PROVIDED BY M/S DERPOL INVESTMENT LTD. INA SMUCH AS ASSESSEE HAS STARTED AVAILING THE SERVICES OF M/S DERPOL INVESTM ENT LTD. ONLY FROM JANUARY 2006 THOUGH THE RECEIPTS FROM M/S SPICE CO MMUNICATION P. LTD. WERE PERTAINING TO THE PERIOD PRIOR TO THE DATE OF EXECUTION OF THE AGREEMENT WITH M/S DERPOL INVESTMENT LTD. THE AO EVEN OTHERW ISE HAD TAKEN A VIEW THAT THE EXPENSES INCURRED BY THE ASSESSEE HAD RESU LTED INTO A BENEFIT OF ENDURING NATURE TO THE ASSESSEE AND HENCE HELD TO BE A CAPITAL EXPENDITURE. HE THEREFORE DISALLOWED THE DEDUCTION OF RS.10 33 500/- AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME. 3. ON AN APPEAL THE ASSESSEE SUBMITTED A DETAILED EXPLANATION AND SUBMISSIONS BEFORE THE CIT(A) WHICH HAS BEEN REPRO DUCED IN CIT(A)S ORDER AT PAGE 2 TO 6. AFTER CONSIDERING THE AOS O RDER AND THE ASSESSEES 4 SUBMISSIONS AND THE FACTS OF THE CASE THE LEARNED CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: RIVAL CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. AFTER CONSIDERING THE RIVAL SUBMISSIONS I FIND THAT THE PAYMENT OF RS.10 30 500/- HAS ACTUALLY BEEN MADE WHICH IS IN THE NATURE OF TECHNICAL TESTING AND MAKING AMENDMENTS IN THE SOFTWARE PROGRAMS AS REQUIRED BY ITS CLIENTS NAMELY M/S SPICE COMMUNICATION P. LTD. IT WAS ONLY AFTER FINDING THE SUCCESSFUL AMENDMENTS AND TESTING IN THE SOFTWARE AS REQUIRED BY ITS CLIENTS AN AGREEMENT DATED 3.1.2006 WAS EXECUTED WITH M/S DERPOL INVESTMENT LTD. AS PER THIS AGREEMENT THESE SOFTWARE CONSULTANCY SERVICES WERE REQUIRED TO BE PAID ONLY FOR ONE YEAR COMMENCING FROM 3/1/2006 FOR THE CONSIDERATION OF RS/41 22 000/-. THEREFORE THE RELEVANT EXPENDITURE OF RS.10 30 500/- PERTAINING TO THREE MOTHS FALLING IN THE YEAR UNDER CONSIDERATION WERE DEBITED IN THE CURRENT YEARS PROFIT AND LOSS ACCOUNT. THE BALANCE EXPENDITURE WERE BOOKED IN THE PROFIT AND LOSS ACCOUNT OF THE SUCCESSIVE YEAR. A CAREFUL STUDY OF THE AGREEMENT NATURE OF THE SERVICES TENURE OF THE SERVICES TO B E PROVIDED BY M/S DERPOL INVESTMENT LTD. TO THE APPELLANT. I AM OF THE VIEW THAT SUCH EXPENDITURE ARE REVENUE IN NATURE AS THEY ARE NEITHER ENDURING NOR ANY ASSET HAS COME INTO EXISTENCE. IT IS SIMPL Y THE ADVISORY SERVICES OBTAINED BY THE APPELLANT FROM M/S DERPOL INVESTMENT LTD. TO MODIFY THE SYSTEM TO MEET THE REQUIREMENT OF ITS CLIENTS NAMELY M/S SPICE COMMUNICATION P. LTD. IN TOTALITY OF ALL THESE FACTS AND CIRCUMSTANCES I HAV E NO HESITATION TO UPHOLD THAT THE EXPENSES CLAIMED BY THE APPELLANT OF RS.10 30 500/- ARE REVENUE EXPENSES ONLY AND DIRECTED TO BE ALLOWED. 4. HENCE THE DEPARTMENT IS IN APPEAL BEFORE US. 5 5. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE CAREFULLY PERUSED THE MATERIAL PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. 6. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD ENTER ED INTO AN AGREEMENT ON 3 RD DAY OF JANUARY 2006 WITH M/S DERPOL INVESTMENT LT D. UNDER WHICH M/S DERPOL INVESTMENT LTD. HAD TO PROVIDE TECHNICAL ADV ISORY SERVICES AND ASSISTANCE FOR THE DESIGNING AND DEVELOPMENT OF THE SOFTWARE PRODUCT OF THE ASSESSEE COMPANY. THE LUMPSUM CONSIDERATION FOR A PERIOD OF ONE YEAR WAS FIXED AT RS.41 22 000/-. THE AGREEMENT WAS TO BE E NFORCED FOR A PERIOD OF 12 MONTHS UNLESS TERMINATED EARLIER IN ACCORDANCE W ITH THE PROVISIONS CONTAINED IN THE AGREEMENT. IT IS NOBODYS CASE TH AT THE AGREEMENT WAS TERMINATED AT A TIME EARLIER THAN THE EXPIRY OF 12 MONTHS FROM THE DATE OF THE AGREEMENT. IT IS ALSO NOT IN DISPUTE THAT THE ASSE SSEE AVAILED THE TECHNICAL ADVISORY SERVICES AND ASSISTANCE FROM M/S DERPOL IN VESTMENT LTD. SINCE THE MONTH OF JANUARY 2006. THE ASSESSEE HAS CLAIMED P ROPORTIONATE CHARGES PERTAINING TO THE PERIOD FROM JANUARY 2006 TO MARC H 2006 AMOUNTING TO RS.10 30 500/- IN THE YEAR UNDER CONSIDERATION. FROM THE AGREEMENT AND THE NATURE OF THE SERVICES PROVIDED BY M/S DERPOL I NVESTMENT LTD. IT IS NOT AT ALL ESTABLISHED THAT THE ASSESSEE HAD ACQUIRED A NY ASSET OF CAPITAL IN NATURE. THE AO HAS ALLEGED THAT THE EXPENSES INCURRED BY TH E ASSESSEE COMPANY ARE 6 OF ENDURING NATURE BUT HE HAS FAILED TO POINT OUT A S TO HOW AND IN WHAT MANNER THE EXPENSES INCURRED BY THE ASSESSEE FOR A VAILING THE SERVICES OF M/S DERPOL INVESTMENT LTD. CAN SAID TO BE OF ENDURI NG IN NATURE. IT IS AN ADMITTED POSITION THAT THE ASSESSEE COMPANY IS THRO UGH OUT THE YEAR ENGAGED IN THE BUSINESS OF RENDERING SOFTWARE SERVICES TO I TS CLIENTS. SINCE NO CAPITAL ASSETS WAS ACQUIRED NOR ANY BENEFIT OF ENDURING NAT URE SO AS TO TREAT THE EXPENDITURE AS OF CAPITAL IN NATURE HAS BEEN ACQUIR ED BY THE ASSESSEE AND SINCE ASSESSEE HAS AVAILED THE SERVICES OF M/S DERP OL INVESTMENT LTD. IN THE COURSE OF CARRYING ON ITS BUSINESS OF SOFTWARE DEVE LOPMENT AND DEPLOYMENT AND THE PAYMENT IS RELATED TO THE SERVICES RENDERED DURING THE PERIOD FROM JANUARY 2006 TO MARCH 2006 WE ARE OF THE CONSIDE RED VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE ALLOW ED AS REVENUE EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER ANY REVENUE HAS BE EN GENERATED FROM THOSE SERVICES OR NOT WHEN PARTICULARLY THE EXPENDITURE HAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS OF SOFTWARE DEVELOPMENT AND DEPLOYMENT. WE ARE THEREFORE IN FULL AGREEME NT WITH LEARNED CIT(A) IN HOLDING THAT THE EXPENSES CLAIMED BY THE ASSESSE E ARE OF REVENUE IN NATURE AND ARE THUS TO BE ALLOWED AS REVENUE DEDUCTION. THE ORDER OF CIT(A) IS THUS UPHELD. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. 7 18. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2010 (K.D. RANJAN) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST MAY 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-VII NEW DELHI 5. DR ASSISTANT REGISTRAR