Case Law Details
Make My Trip (India) Pvt. Ltd. Vs DCIT (ITAT Delhi)
Expenditure incurred on the software is eligible for depreciation @60%, depreciation on the block of assets of website development cost eligible @ 60%: Re: appeal A.Y. 2006-07 of Make My Trip (India) Pvt. Ltd.
Recently, in Make My Trip (India) Pvt. Ltd. vs. DCIT [ITA No. 6055/Del/2010 A.Y.: 2006-07, decided on 30.07.2018], one of the issue was in respect of the disallowances/additions to the income amounting to INR 3,714,202 undertaken by the AO which was claimed to be bad in law on the following grounds:
- On the facts and in the circumstances of the case, the AO has erred in disallowing the entire amount of Rs 3,714,202, being the additions made to the website development cost, assuming it as depreciation on website development cost instead of depreciation amount of Rs 1,917,661.
- On the facts and in the circumstances of the case, the AO has erred in proposing and the Hon’ble DRP has further erred in disallowing depreciation on Website Development Cost incurred during the year amounting to Rs 3,714,202 ignoring the fact that it qualifies as ‘Software’ within the meaning of Section 32 of the Act read with Appendix I of the Rules and eligible for depreciation @ 60%.
- On the facts and in the circumstances of the case, the AO has erred in proposing and the Hon’ble DRP, has further erred in not allowing the alternate claim of allowing depreciation at the rate of 25% applicable to ‘Intangible assets’ even after confirming that CIT (A) – IX in its order for A.Y. 2004-05 has allowed depreciation on website development cost at the rate of 25%, holding it as ‘Intangible assets’.
- On the facts and in the circumstances of the case, the AO has erred in proposing and the Hon’ble DRP has further erred in disallowing the depreciation on Website Development Cost ignoring the fact that the Revenue had, in A.Y. 2001-02, examined at length the issue and allowed depreciation on website development and the same has not been challenged in the A.Y.s 2002-03 and 2003-04. The Hon’ble DRP has grossly erred in holding that the Revenue’s stand has been substantially upheld by CIT(A) while passing the order for A.Y. 2004-05 whereas the CIT(A) has allowed depreciation at the rate of 25% as ‘Intangible Assets’ on website development cost, which has not been followed in the order of the AO/ Hon’ble DRP.
- Without prejudice to the above grounds, on the facts and in the circumstances of the case, the AO has erred in proposing and the Hon’ble DRP has further erred in not considering the jurisdictional High Court decision in the case of Commissioner of Income-tax IV vs. India Visit.com private Limited (219 CTR 603) wherein the expenditure on website have been allowed as revenue expenses under Section 37(1) of the Act. The AO has erred in placing reliance on the case of Goetze India Ltd vs. CIT (284 ITR 323) and holding that no claim can be made at the time of assessment which have not been made at the time of return ignoring the fact that:
- Website development cost as revenue expenditure was submitted as an alternate plea, without prejudice to the original contention of the assessee, in case the depreciation is not allowed on website development cost as ‘Software’.
- The captioned decision in the case of Commissioner of Income-tax IV vs. Indiavisit.com Private Limited (Supra) was pronounced by jurisdictional High Court after the return for the year had already been filed.
The learned Members of the Delhi ITAT found that the issue is squarely covered by the decision of Co-ordinate Bench in the case of assessee itself (supra) for the preceding A.Y. 2005-06. With respect to Website expenses, the Tribunal has observed as under :
“4. In so far as the claim of depreciation on website development cost is concerned, the assessee had claimed depreciation on the written down value of Rs.48,25,879/- as well as on the additions made during the year of Rs.94,000/- @60% treating the same to be software, whereas the AO in the order of the assessment has held that on the cost incurred no depreciation is allowable as the expenditure incurred on the website development cost is capital expenditure. In the first appeal, ld. CIT(A) however held that expenditure incurred on the website development is the cost incurred on acquisition of an intangible asset and would thus qualify depreciation @25%. It has been pointed out by the assessee’ learned Counsel that the aforesaid issue came up for consideration in the assessee’s own case for the immediately preceding assessment year i.e. AY 2004-05 in ITA No. 3916 & 4087/Del/2009 and the Tribunal by its order dated 09.03.2012 has held that the assessee is entitled to claim of depreciation @ 25% being the depreciation allowable on intangible asset. In view of the aforesaid, the ground of appeal filed by the revenue that the assessee is not eligible to the claim of depreciation does not survive and hence is rejected.
5. However, in so far as the claim of the assessee that it is eligible for the claim of depreciation @ 60% instead of 25% as allowed in the preceding year, learned Senior Counsel of the assessee has submitted that assessee has incurred expenditure on the website development cost and website is nothing “but software and since the software has been included in Appendix-I {item (5) under Item-111 under the Machinery & Plant}, and rate of depreciation on the software has been provided 60%, as such, assessee has claimed depreciation @60% in the return of : income. It has further been submitted that the issue stands fully covered by the order of Special Bench in the case of Amway India Enterprises vs. DCIT reported in [2008] 114 TTJ 476 (Delhi) (SB), wherein it has been held that expenditure incurred on the software is eligible for depreciation @60% and aforesaid order of the Tribunal has also been affirmed by the Hon’ble High Court of Delhi and is reported in [2012] 346 ITR 341 (Delhi). In view thereof, we hold accordingly.
6. It may further be stated here that AO had disallowed the claim of depreciation of Rs. 56,000/- on the cost of acquisition of the software of Rs.94,000/-. However, from the perusal of the depreciation chart, it is apparent that opening WDV of block of asset of website development cost was Rs. 48,25,879/- and during the assessment year, an addition of Rs.94,000/- was made and on the total block of asset, depreciation cost was Rs.48,25,879/- and during the assessment year, an addition of Rs.94,000/- was made and on the total block of asset, depreciation @ 60% was claimed of Rs.29,51,927/- (including depreciation on the addition made during the year of Rs. 94,000/- @60%). The AO has disallowed a sum-of Rs. 56,000/– being the depreciation on the additions made during the year, however he has not disputed the depreciation claimed on the block of asset of website development cost of Rs. 48,25,879/-. In view thereof, once the AO himself has accepted the allowance of depreciation on the block of assets of website development cost @ 60% as such, disallowance made on the additions made during the year is unjustified in law and accordingly, it is held that on the website development cost, assessee is entitled to claim of depreciation @ 60%, we order accordingly. The ground Nos. 1 to 3 of the appeal of the assessee are allowed and connected ground Nos. 3 and 3.1 of the appeal of the Revenue are rejected.”
In view of the aforesaid decision, the learned Members of the ITAT, Delhi allowed the issue in favour of the assessee and against the Revenue.
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