Case Law Details
DCIT Vs M/s Sapient Corporation Pvt Ltd. (ITAT Delhi) – It is by now well-settled that if the expenditure incurred by the taxpayer is of revenue nature, the same is entirely deductible even if there accrues an advantage of enduring nature in favor of the taxpayer as a result of the said expenditure. This is because going by the very nature of the expenditure being revenue, it operates in the revenue field leaving the capital field untouched. The enduring benefit resulting from the said expenditure may justify the action of the taxpayer to write off the said expenditure in his books of account over a period of more than one year. However, such accounting treatment by itself is not conclusive to decide the nature of the relevant expenditure, whether capital or revenue. In the case of Amar Raja Batteries Ltd. v. Dy. CIT [2004] 91 I. T.D. 280. Hyderabad Bench of ITAT has held after taking into consideration the decision of Hon ’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. (supra) that even though the taxpayer had written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred if it was the revenue expenditure and if it was wholly and exclusively incurred for the purposes of its business.
In the present case, there is no dispute that the expenditure in question incurred by the taxpayer company on training of its employees was wholly and exclusively incurred for the purpose of its business. As regards the nature of the said expenditure, the submission of the taxpayer company before the authorities below as well as before us has been that the said expenditure was incurred for the purpose of imparting training to its employees in order to increase their efficiency in day-to-day working and there is nothing brought on record on behalf of the revenue to controvert/rebut this position. In the case of Hindustan Aluminum Corpn. Ltd. (supra) cited by the learned counsel for the taxpayer, the expenditure incurred on practical training and experience of its employees by the taxpayer company in order to achieve efficient running of factory for getting 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 taxes 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, reversed and the Assessing Officer is directed to allow the said expenditure in full.
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCH “G” DELHI ]
I.T. A. No. 1856 (Del) of 2010
Assessment year : 2005-06
Dy. Commissioner of Income-tax Vs. M/s. Sapient Corporation Pvt. Ltd.
ORDER.
PER K. D. RANJAN, AM :
This appeal by the Revenue for assessment year 2005-06 arises out of order of the ld. CIT (Appeals)–X, New Delhi.
2. The grounds of appeal raised by the Revenue are reproduced as under :-
” 1. Ld. Commissioner of Income-tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 1,03,78,657/- made by the AO on account of recruitment and training expenses;
2. Ld. Commissioner of Income-tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 60,06,344/- made by the AO on account of sales promotion expenses;
3. Ld. Commissioner of Income-tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 1,12,61,787/- made by the AO on account of depreciation on computers.
3. The first issue for consideration relates to deleting the addition of Rs. 1,03,78,657/- made by the assessing officer on account of recruitment and training expenses. The assessing officer while completing the assessment disallowed 2/3rd of recruitment and training expenses claimed by the assessee on the ground that the expenditure incurred on training provided enduring benefit to the assessee as its benefit did not restrict to only one year. There was no doubt that pursuant to the training imparted to the employees, the qualitative changes are affected in the working of the employees, which bring efficiency in the over-all working of the company. Therefore, the expenditure incurred was in the nature of capital expenditure.
4. On appeal the ld. CIT (Appeals) observed that in assessment year 2004-05 the issue of allow ability of recruitment and training expenses as revenue expenditure was examined by his predecessor in detail. He had allowed the expenditure incurred on training as revenue expenditure. The ld. CIT (A) following the decision for AY 2004-05 deleted the addition on account of recruitment and training expenses.
5. Before us the ld. AR of the assessee submitted that the assessing officer had disallowed 2/3rd of recruitment and training expenses of Rs.1,03,65,985/-. The ld. AR of the assessee further submitted that similar dis allowance was made in AY 2004-05, which was deleted by the ld. CIT (A). The Department had accepted the finding of the ld. CIT (A) with respect to dis allowance to recruitment and training expenses. Since no appeal to the Tribunal was filed, the decision of the ld. CIT (A) on the issue has become final. In view of these facts, it has been submitted that training and recruitment expenses are revenue in nature. On the other hand, the ld. CIT – DR supported the order of the assessing officer.
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 of employees. Such expenditure was incurred in the ordinary course of business and no capital asset has been 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-going process and does not bring into existence any capital asset. The ITAT, Delhi Bench, in the case of Sony India (P.) Ltd. Vs. DCIT (supra) in para 83 has held as under :-
“ 83. We have considered the rival submissions and also perused the relevant material on record. It is by now well-settled that if the expenditure incurred by the taxpayer is of revenue nature, the same is entirely deductible even if there accrues an advantage of enduring nature in favour of the taxpayer as a result of the said expenditure. This is because going by the very nature of the expenditure being revenue, it operates in the revenue field leaving the capital field untouched. The enduring benefit resulting from the said expenditure may justify the action of the taxpayer to write off the said expenditure in his books of account over a period of more than one year. However, such accounting treatment by itself is not conclusive to decide the nature of the relevant expenditure, whether capital or revenue. In the case of Amar Raja Batteries Ltd. v. Dy. CIT [2004] 91 I. T.D. 280. Hyderabad Bench of ITAT has held after taking into consideration the decision of Hon ’ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. (supra) that even though the taxpayer had written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred if it was the revenue expenditure and if it was wholly and exclusively incurred for the purposes of its business. In the present case, there is no dispute that the expenditure in question incurred by the taxpayer company on training of its employees was wholly and exclusively incurred for the purpose of its business. As regards the nature of the said expenditure, the submission of the taxpayer company before the authorities below as well as before us has been that the said expenditure was incurred for the purpose of imparting training to its employees in order to increase their efficiency in day-to-day working and there is nothing brought on record on behalf of the revenue to controvert/rebut this position. In the case of Hindustan Aluminum Corpn. Ltd. (supra) cited by the learned counsel for the taxpayer, the expenditure incurred on practical training and experience of its employees by the taxpayer company in order to achieve efficient running of factory for getting 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 taxes 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 disallow- -ance made by the Assessing Officer to the extent of 50 per cent on this issue is, therefore, reversed and the Assessing Officer is directed to allow the said expenditure in full. ”
7. Since the issue is squarely covered by the decision of the ITAT in the case of Sony India (P.) Ltd. Vs. DCIT (supra), we do not find any infirmity in the order passed by the ld. CIT (Appeals) deleting the addition.
8. The next issue for consideration relates to deleting the addition of Rs.60,06,344/- made by the Assessing Officer on account of sales promotion expenses. The assessee in the return of income claimed expenditure of Rs.90,09,516/- on account of advertisement and sales promotion. The AO disallowed 2/3rd of the expenses on the ground that advertisement and sales promotion expenses have resulted in the benefit of enduring nature. On appeal the ld. CIT (A) deleted the addition by observing that in earlier years there was no dis allowance on account of sales promotion expenses.
9. Before us the ld. AR of the assessee submitted that the expenses on sales promotion included in the aggregate expenses of advertisement and sales promotion of Rs.90,09,516/- [other than sponsorship expenses] has rightly been allowed by the ld. CIT (A). On the other hand, the ld. CIT – DR supported the order of the AO.
10. We have heard both the parties and perused the material available on record. The AO had disallowed 2/3rd of the sales promotion expenses. In earlier years, as held by the ld. CIT (A) there was no dis allowance on account of sales promotion expenses. The AO had not pointed out any expenditure which was not incurred for the purpose of the business. In the absence of any such findings, the deletion of dis allowance made by the ld. CIT (A) is justified. Hence we do not find any infirmity in the order of the ld. CIT (A) deleting the addition.
11. The next issue for consideration relates to deleting the addition of Rs. 1,12,61,787/- on account of depreciation on computers. The AO had restricted the dis allowance of depreciation to 25 per cent treating it as plant and machinery for the Software Development Unit of the assessee.
On appeal the ld. CIT (A) following the order passed by the ld. CIT (A) for AY 2004-05 has allowed depreciation at the rate of 60 per cent.
12. Before us the ld. AR of the assessee submitted that the ITAT, Delhi Bench G, New Delhi, in assessee’ s own case for AY 2004-05 in ITA. No. 427 (Del) of 2008 dated 08th October, 2010 has confirmed the order of the ld. CIT (A) allowing 60% of depreciation on computers. On the other hand, the ld. CIT – DR supported the order of the AO.
13.1 We have heard both the parties. ITAT, Delhi Bench – G, New Delhi, in assessee’s own case for AY 2004-05 has confirmed the order of the ld. CIT (A) by observing as under :-
“ 22. We have heard the rival submissions and have gone through the material available on record. We find that the dispute is regarding rate of depreciation to be allowed on computers. The AO has allowed depreciation to the assessee on computers at the rate of 25 per cent treating it as plant and machinery for the software development unit of the assessee. The ld. CIT (A) has held that although computer including computer software also falls under the head ‘machinery and plant’, but as per item 5 of appendix 1 of Rule 5 of I. T. Rules, which is a special provision as per which depreciation on computer is allowable at the rate of 60 per cent. On this basis, he directed the assessing officer to allow 60 per cent depreciation on the computers as claimed by the assessee. By now, it is a settled position of law that depreciation is allowable on computers including peripheral such as printers etc. at the rate of 60 per cent and hence, we do not find any reason to interfere in the order of the ld. CIT (A) on this issue. Ground No. 3 of the Revenue’s appeal is also rejected. ”
13.2 Since the issue is squarely covered by the decision of the ITAT for AY 2004-05, respectfully following the precedent, it is held that computers and their peripherals will be eligible for depreciation at the rate of 60 per cent. Accordingly we do not find any infirmity in the order of the ld. CIT (A) allowing depreciation @ 60% on computers and their peripherals.
14. In the result, the appeal filed by the Revenue is dismissed.
The order was pronounced in the open court on 08th April, 2011.
