ASSISTANT COMMISSIONER OF INCOME TAX v. JASPER INVESTMENTS LTD
[Citation -2006-LL-1109-2]

Citation 2006-LL-1109-2
Appellant Name ASSISTANT COMMISSIONER OF INCOME TAX
Respondent Name JASPER INVESTMENTS LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 09/11/2006
Assessment Year 1989-90
Judgment View Judgment
Keyword Tags 100 per cent depreciation • plant and machinery • revenue expenditure • capital expenditure • colourable device • leasing business • lease agreement • monthly rent • lease rent • sales-tax
Bot Summary: The Department is objecting in allowing the claim of the assessee of 100 per cent depreciation on account of 32 steel rollers purchased from M/s S.P. Engineering Works and in allowing the business expenses at Rs. 14,13,312 by treating the same as revenue expenditure against capital expenditure treated by the AO. Regarding the purchase of 32 steel rollers from M/s S.P. Engineering Works, Bakura Howrah, the briefly stated facts are that the assessee purchased these rollers for a sum of Rs. 25,62,000. The details of purchases and orders from M/s SPEW for the purchase of rollers, delivery certificate, dt. The CIT(A) has discussed the issue in detail and then found that the purchases made by the assessee were genuine and depreciation claimed on account of leased out the assets to Usha Rectifiers is allowable. The purchaser from whom the material is purchased is assessed to tax regularly and the payments were made material is purchased is assessed to tax regularly and the payments were made through broker. The CIT(A) has considered all the aspects in regard to purchase of rollers as well as leased them out to Usha Rectifiers. We further noted that use of each and every roller was taken into consideration by the CIT(A) and after ascertaining the factual position then only arrived at conclusion that the purchases were genuine and the assessee has in fact leased these rollers to Usha Rectifiers on monthly basis. The expenses incurred by the assessee were incurred on computer software and not for purchase of new software.


This is appeal filed by Department against order of CIT(A) relating to asst. yr. 1989-90. Department is objecting in allowing claim of assessee of 100 per cent depreciation on account of 32 steel rollers purchased from M/s S.P. Engineering Works and in allowing business expenses at Rs. 14,13,312 by treating same as revenue expenditure against capital expenditure treated by AO. Regarding purchase of 32 steel rollers from M/s S.P. Engineering Works (SPEW), Bakura Howrah, briefly stated facts are that assessee purchased these rollers for sum of Rs. 25,62,000. These rollers were leased out to M/s Usha Rectifiers Corpn. (India) Ltd., Gauriganj (Usha Rectifiers) Sultanpur, UP. During course of assessment proceedings AO inquired into genuineness of purchases of rollers. AO summarized results of his inquiry that Mrs. Sarmishta Ganguli, proprietor of M/s SPEW is housewife. M/s SPEW do not have sales-tax number/Central Sales-tax number. suppliers of rollers to M/s SPEW also do not have ST/CST numbers. Inquiries were also made from such suppliers. One of them stated that he had given blank bills with his signature to M/s SPEW. Another party stated that he simply signed bill without filling any particulars. It was also mentioned that parties were not traceable at address given in bills. By observing this observation, AO treated purchase of rollers as bogus and depreciation claimed @ 100 per cent on account of leased out impugned asset was negated by AO. While negating claim of assessee, AO has also observed in his order that orders for supply of rollers were placed on 10th March, 1989 and dispatches were made from Calcutta on 13th March, 1989. Since M/s SPEW had not done any business in past, it is not feasible for them to have executed order in such short time. There is no proof of payment of freight or octroi duty. M/s SPEW had started purchasing rollers from November, 1988 onwards. These rollers were made to specific design numbers. It has not been explained how M/s SPEW could have access to specific designs and why purchases were made without any order on hand as order was placed by assessee on 10th March, 1989 only. Accordingly, it was observed by AO that purchases made by assessee are not genuine. It was submitted before CIT(A) that assessee company was engaged in business of finance. However, board of directors decided to commence leasing business w.e.f. 24th June, 1988. It was further submitted that Mani Management Consultant (P) Ltd., 306, Churchgate Chambers, Bombay, vide their letter dt. 28th July, 1988 to assessee company introduced themselves and offered that "it should be possible for us to submit lease proposals to you on regular basis from well reputed public limited companies. assets acquired under lease are plant and machinery eligible for normal depreciation and even depreciation @ 100 per cent in very first year of installation. lease period is normally for five years. At present, we shall be in position to offer you lease proposals for acquisition of plant and machinery eligible for 100 per cent depreciation in very first year from M/s Tata Chemicals Ltd. as well as Mangalam Cement Ltd." There was series of correspondence between assessee company and consultant, which finally culminated in assessee agreeing to extend lease finance facility to Usha Rectifiers for purchase of rollers on terms and conditions enumerated in lease agreement. Copies of correspondence and lease agreement were filed before CIT(A). details of purchases and orders from M/s SPEW for purchase of rollers, delivery certificate, dt. 27th March, 1989 from Usha Rectifiers regarding installation were filed before CIT(A). Attention of CIT(A) was also drawn on delivery certificate wherein lessee confirmed having taken delivery of equipment on behalf of assessee company. They further certified that they inspected equipment and found that same were in accordance with specifications given by them and that equipment conformed to their requirements. It was further certified by lessee that equipments are installed at their galvanized steel division, Gauriganj, Sultanpur, UP. lessee further reported that equipments have been put to use on 23rd March, 1989. In view of these facts, it was argued that these evidences could not be controverted by AO as these details were before him also. On query from CIT(A), it was replied that AO has mentioned in his order that during course of assessment proceedings, correspondence filed regarding purchase of rollers was not produced. But, all details regarding installation of rollers at premises of Usha Rectifiers and other details were available to AO. Attention of CIT(A) was also drawn on letter dt. 24th March, 1992 filed before AO. After considering details and remand report, CIT(A) found that there was no justification in not allowing claim of assessee. CIT(A) has discussed issue in detail and then found that purchases made by assessee were genuine and, therefore, depreciation claimed on account of leased out assets to Usha Rectifiers is allowable. Accordingly, he allowed claim of assessee. learned Departmental Representative, who appeared before Tribunal, firstly, placed reliance on order of CIT(A). It was further submitted that delivery letter was dt. 27th March, 1989 and further submitted that assets were put to use on 23rd March, 1988. In this background, it is impossible to install assets for use on 23rd March, 1989 whereas delivery was made on 27th March, 1989. Accordingly, it was submitted that there was no material available with assessee and AO was correct in treating purchase as bogus. In reply, learned counsel of assessee kly placed reliance on order of CIT(A). It was further submitted that delivery was not taken on 27th Aug., 1988, but this is certificate issued by Usha Rectifiers that delivery was taken prior to 23rd March, 1989. assets were put to use on 23rd March, 1989. attention of Bench was drawn on copy of certificate and copy of letter in regard to use of assets by Usha Rectifiers and copy of certificate certifying that they have received assets and have put to use also. It was further submitted that assets were leased out on basis of month to month and lease rent was received in advance. It was further submitted that even during assessment proceedings and during appellate proceedings before CIT(A), assessee has received monthly lease rent regularly. Attention of Bench was also drawn on copy of lease rent placed on record. It was further submitted that no enquiry had been made by Department directly from M/s SPEW or from Usha Rectifiers from whom rollers were purchased and were leased out, respectively. It was further submitted that all details in regard to purchase and leased out of assets were filed before AO as well as before CIT(A). purchaser from whom material is purchased is assessed to tax regularly and payments were made material is purchased is assessed to tax regularly and payments were made through broker. It was further submitted that on later stage these assets have been sold and they have been disclosed in books of account. Attention of Bench was drawn on p. 54 of paper book where copy of sale bill is placed. It was further submitted that assets were identified and delivered to Usha Rectifiers. Copy of delivery certificate is also placed on record. After considering submissions and perusing relevant material available on record, we do not find any infirmity in findings of CIT(A). CIT(A) has considered all aspects in regard to purchase of rollers as well as leased them out to Usha Rectifiers. CIT(A) has taken into consideration payment details, delivery of rollers and installation and use of rollers at premises of Usha Rectifiers as well as monthly rent on account of lease of rollers. It has been seen by CIT(A) that assets in question were delivered at premises of Usha Rectifiers who has used them for its business purposes. Experts of Usha Rectifiers examined assets and they have certified that assets in question are in good condition and they are fit for use for business purposes. payments of monthly rents were also taken into consideration by CIT(A). We further noted that use of each and every roller was taken into consideration by CIT(A) and after ascertaining factual position then only arrived at conclusion that purchases were genuine and assessee has in fact leased these rollers to Usha Rectifiers on monthly basis. In this background, CIT(A), in our considered view, was justified in allowing claim of assessee. findings of CIT(A) neither could be controverted by learned Departmental Representative nor any evidence to prove that purchases were bogus or assets were not leased out to Usha Rectifiers were brought on record on behalf of Department. Without bringing any positive evidence claim of assessee cannot be disallowed. We further noted that no enquiry was made by AO either from M/s SPEW or Usha Rectifiers who have used assets and they paid monthly leased rent regularly. No prudent businessman will enter into agreement on monthly rent. If transactions are of colourable device then lease rent always is paid in advance or after claiming deduction. In present case, monthly rent is paid even after two years, which shows that leased assets were genuine. In view of above facts and circumstances of case, and in view of reasoning given by CIT(A), we confirm his order in this regard. Regarding second issue i.e. treating software expenses as revenue expenditure, briefly stated facts are that assessee claimed Rs. 14,13,312 on account of software expenses as revenue expenditure. However, AO treated them as capital expenditure. CIT(A), after taking into consideration that software expenses on computer hardware are revenue in nature because computer hardware is capital expenditure and any expenditure on computer hardware has to be treated as revenue expenditure. learned Departmental Representative placed reliance on order of AO. Further reliance was placed on decision in case of Maruti Udyog vs. Dy. CIT (2005) 92 TTJ (Del) 987: (2005) 92 ITD 119 (Del). On other hand, learned counsel of assessee stated that software expenses are revenue expenditure as it is license and not new software. Further reliance w s placed on decision in Jt. CIT vs. Citicrop Overseas Softwares Ltd. (2004) 85 TTJ (Mumbai) 87. After considering submissions and perusing relevant material on record we find that CIT(A) was justified in treating expenses as revenue expenditure. expenses incurred by assessee were incurred on computer software and not for purchase of new software. Even in case of Maruti Udyog (supra), Delhi Bench has held that on account of expenditure on computer software they have to be treated as revenue in nature. Various Benches of Tribunal are taking consistent view that where software are in nature of license and not in nature of new softwares, then those expenses have to be treated as revenue in nature. In view of these facts and circumstances, we confirm order of CIT(A) on this issue also. In result, appeal filed by Department is dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. JASPER INVESTMENTS LTD.
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