ANDROMEDA MARKETING P.LTD, MUMBAI V. DCIT 10(1), MUMBAI

CO 28/MUM/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7224 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 05-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: S K MUTSADDI
• Keywords: Capital asset; Depreciation; Opportunity of being heard
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI G.E.VEERABHADRAPPA, PRESIDENT AND SHRI V.DURGA RAO, JM ITA NO.6983/MUM/2010 : ASST. YEAR 2007-2008 THE ASSTT.COMMISSIONER OF INCOME-TAX RANGE 10(1) MUMBAI. M/S.ANDROMEDA MARKETING PVT.LTD. 123, CREATIVE INDUSTRIAL PREMISES KALINA, SANTACRUZ (EAST) MUMBAI 400 098. PAN : AADCA6983E. (APPELLANT) VS. (RESPONDENT) CO NO.28/MUM/2012 : ASST. YEAR 2007-2008 M/S.ANDROMEDA MARKETING PVT.LTD. 123, CREATIVE INDUSTRIAL PREMISES KALINA, SANTACRUZ (EAST) MUMBAI 400 098. THE ASSTT.COMMISSIONER OF INCOME-TAX RANGE 10(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) REVENUE BY : SHRI P.K.B.MENON ASSESSEE BY : SHRI S.K.MUTSADDI DATE OF HEARING : 29.03.2012 DATE OF PRONOUNCEMENT : 13.04.2012 O R D E R PER V.DURGA RAO, JM : THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION B Y THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS)-XXI ON 12.07.2010 RELATE TO THE ASSESSMENT YEAR 2007-2008. 2. THE FIRST GROUND RAISED BY THE REVENUE IS AGAINS T THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AND ESIC AMOUNTING TO ` 1,03,95,001. 3. BRIEF FACTS OF THIS GROUND ARE THAT THE ASSESSEE MADE THE PAYMENT TOWARDS CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO ` 1,03,95,001 BEYOND THE DUE DATE BUT WITHIN THE GRACE PERIOD, WHICH WAS DISALLOWED B Y THE ASSESSING OFFICER. HOWEVER, IN FIRST APPEAL THE LEARNED CIT(A) DELETED THIS ADDITION BY HOLDING ITA NO.6983/M/2010 & CO NO. 28/M/2012 M/S.ANDROMEDA MARKETING PVT.LTD. 2 THAT THE PAYMENT MADE WITHIN GRACE PERIOD SHOULD BE CONSIDERED AS PAYMENT MADE WITHIN THE DUE DATE AS PRESCRIBED IN THE RELEV ANT ACT. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE SAID CONTRIBUTION HAS BEEN ADMITTEDLY PAID WITHIN THE GRACE PERIOD. THE HONBL E MADRAS HIGH COURT IN CIT V. SHRI GANAPATHY MILLS COMPANY LIMITED [(2000) 243 ITR 879 (MAD.)] HAS HELD THAT NO DISALLOWANCE CAN BE MADE WHERE THE CONTRIBUTION IS DEPOSITED LATE BUT WITHIN THE GRACE PERIOD. BE THAT AS IT MAY , THE HONBLE SUPREME COURT IN CIT V. ALOM EXTRUSIONS LIMITED [(2009) 319 ITR 306 (SC)] HAS HELD THAT THE AMENDMENT TO SECOND PROVISO TO SECTION 43B BY THE F INANCE ACT, 2003 IS RETROSPECTIVE. SINCE THE AMOUNT IN QUESTION WAS AD MITTEDLY PAID BEFORE THE DUE DATE OF FILING THE RETURN U/S.139(1), IN OUR CONSID ERED OPINION, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION. THI S GROUND IS NOT ALLOWED. 5. THE SECOND GROUND RAISED BY THE REVENUE IS AGAIN ST THE ACTION OF THE LEARNED CIT(A) IN HOLDING THAT COMPUTER PERIPHERAL AND ACCESSORIES LIKE ROUTERS, SWITCHES ETC. ARE ENTITLED TO DEPRECIATION @ 60%, A S AGAINST 15% ALLOWED BY THE ASSESSING OFFICER ON SUCH ITEMS. 6. THE BRIEF FACTS OF THIS GROUND ARE THAT DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE VARIOUS ADDITIONS TO BLOCK OF COMPUTERS IN THE FIXED ASSETS SCHEDULE, SUCH AS ROUTERS, SWITCHES, CABLES, ETC. AMOUNTING TO ` 30,27,838, WHICH ACCORDING TO HIM WERE NOT IN THE NATURE OF COMPUTERS OR SOFTWARE. THE ASS ESSEE CLAIMED DEPRECIATION ON SUCH ITEMS @ 60% (I.E. ` 18,16,703), WHICH WAS RESTRICTED BY THE AO @ 15% (I.E. ` 4,54,176) AND DISALLOWED THE REMAINING AMOUNT OF ` 13,62,526. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LD. CIT(A). BEFORE THE LD.CIT(A) IT WAS SUBMITTED ON BEHALF OF ASSESSEE THAT DURING THE ITA NO.6983/M/2010 & CO NO. 28/M/2012 M/S.ANDROMEDA MARKETING PVT.LTD. 3 YEAR UNDER CONSIDERATION THE ASSESSEE HAD SPENT A S UM OF ` 30,27,838 ON COMPUTER PERIPHERALS, ON WHICH THE ASSESSEE IS ENTI TLE FOR DEPRECIATION @ 60%. IN SUPPORT OF HIS SUBMISSION HE RELIED ON ORDER OF THE CINCOM SYSTEM INDIA PVT. LTD. (2009) TIOL 371 I.T.A.T DELHI. AFTER CONSIDE RING SUBMISSIONS MADE BY THE ASSESSEE, THE LD.CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE BY OBSERVING IN PARA 6.3 AS UNDER : I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. IN THE CASE OF CIT VS. CINCOM SYSTEM INDIA PVT. LTD. THE ASSESSEE CLAIMED DEPRECIATION @ 60% ON COMPUTER PERIPHERAL AND ACCES SORIES. THE AO ALLOWED DEPRECATION @ 20% ONLY. THE HONBLE BENC H HELD THAT CIT(A) WAS RIGHT IN HOLDING THAT THE ROUTERS TRANSFERS DATA SPEED INTERNET CONNECTIVITY, DEPRECIATION @ 60% WAS ALLOWABLE. FOLLOWING THE DECISION OF THE HONBLE DELHI I.T.A.T , THE AO IS DIRECTLY TO ALLOW DEPRECIATION @ 60% IN RESPECT OF ROUTERS, SWITCHES AND CABLES WHICH WAS USED FOR CONNECTING C OMPUTERS. THIS GROUND OF APPEAL IS ALLOWED. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E US. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER PASSED BY THE AO WHEREAS THE LD. COUNSEL FOR THE ASSESSES ST RONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AND ALSO THE DECISION OF THE DELH I BENCH OF THE TRIBUNAL IN CINCOM SYSTEM INDIA PVT. LTD (SUPRA). 8. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECOR DS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE UNDER CONSID ERATION IS WHETHER OR NOT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 60% OR @ 15 % IN RESPECT OF ROUTERS, SWITCHES, CABLES, ETC. WHICH WAS USED FOR CONNECTIN G THE COMPUTERS. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE I.T.A.T DELHI BENCH IN THE CASE OF CINCOM SYSTEM INDIA PVT. LTD (SUPRA), WHEREIN THE T RIBUNAL HELD THAT COMPUTER PERIPHERAL AND ACCESSORIES LIKE ROUTERS, SWITCHES, ETC ARE ENTITLE FOR DEPRECIATION @ 60%, AS AGAINST THE NORMAL RATE OF DEPRECIATION A PPLICABLE TO PLANT & ITA NO.6983/M/2010 & CO NO. 28/M/2012 M/S.ANDROMEDA MARKETING PVT.LTD. 4 MACHINERY. SIMILARLY THE MUMBAI SPECIAL BENCH IN TH E CASE OF DCIT VS. DATACRAFT INDIA LTD. [(2011) 9 ITR (TRIB.) 712 (MUM.) (SB)] ALSO HELD T HAT ROUTER AND SWITCHES CAN BE CLASSIFIED AS A COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COMPUTER, AND IN OTHER WORDS WHEN A DEVICE IS USE D AS PART OF THE COMPUTER IN ITS FUNCTIONS, THEN IT WOULD BE TERMED AS A COMPUTE R. IN VIEW OF FOREGOING JUDICIAL PRONOUNCEMENTS, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE. THIS GROUND IS NOT ALLOWED. 9. THE FIRST GROUND OF THE ASSESSEES CROSS OBJECT ION IS AGAINST THE DISALLOWANCE U/S 14A AMOUNTING TO ` 3,10,405. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE U/S.14A OF THE ACT. IN FIRST APPEAL THE LEARNED CIT(A) DELETED THE ADDITION. BEFORE US BOTH THE PARTIES ARE FAIRLY CONCEDED THAT THE ISSUE SHOULD GO BACK TO THE AO FO R FRESH ADJUDICATION ON THE BASIS OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 ITR 81 (BOM)]. 10. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS NOTED THAT THE Q UESTION OF MAKING DISALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE LTD. MFG. CO.(SUPRA) HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIRCUMS TANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME `REASONABLE BASIS AND NOT RULE 8D. UNDER SUCH CIRC UMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE O F THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE, AS PER THE AFORE-NOTED JUD GMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ITA NO.6983/M/2010 & CO NO. 28/M/2012 M/S.ANDROMEDA MARKETING PVT.LTD. 5 11. GROUND NO. 2 OF THE ASSESSEES CROSS OBJECTION IS AGAINST THE CONFIRMATION OF DISALLOWANCE AMOUNTING TO ` 22,50,328 MADE ON ACCOUNT OF A.C. DUCTING CHARGES AS CAPITAL IN NATURE AS AGAINST THE CLAIM O F THE ASSESSEE OF SUCH AMOUNT AS REVENUE IN NATURE. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED REPAIRS AND MAINTENANCE EXPENSES IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS REVEN UE IN NATURE. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE AMOUNT ING TO ` 22,50,326 BY TREATING IT AS CAPITAL IN NATURE FOR THE REASON THA T IT WAS INCURRED FOR INSTALLATION OF / ADDITION TO FIXED ASSETS OR PURCHASE OF SOFTWA RE / FIXED ASSETS. HE FURTHER OBSERVED THAT BY DOING SO THE ASSESSEE HAS GOT ENDU RING BENEFIT. IN FIRST APPEAL, THE LD.CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS I SSUE. 13. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECO RDS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT IN THE PR ESENT CASE THE ASSESSEE TOOK THE PREMISES ON LEASE BASIS FOR THE PURPOSE OF ITS BUSINESS ACTIVITIES AND THEREAFTER THE ASSESSEE GOT INSTALLED THEREIN THE S PLIT A.C. THE ASSESSEES CASE WAS THAT THESE A.CS WERE TO BE CONSIDERED AS FIXED ASSETS / CAPITAL ASSETS, HOWEVER, ACCORDING TO THE LD.CIT(A) THOSE SPLIT UNI TS OF A.CS BY THEMSELVES WERE NOT READY TO BE USED UNLESS THOSE SPLIT UNITS WERE CONNECTED WITH EACH OTHER BY INSTALLING DUCTS. IT WAS FURTHER OPINED TH AT THE ASSESSEE COULD NOT HAVE AVAILED BENEFIT OF A.CS WITHOUT INCURRING OF SUCH EXPENDITURE ON INSTALLATION OF DUCTS, THEREFORE, THE DUCTS WERE PART AND PARCEL OR INSEPARABLE PART OF THE A.C. SYSTEM INSTALLED BY THE ASSESSEE. FURTHER BY INCURR ING SUCH EXPENDITURE THE ASSESSEE GOT BENEFIT OF ENDURING NATURE AND AN ASSE T AIR CONDITIONING SYSTEM WAS CREATED. IN VIEW OF THE FOREGOING DISCUSSION WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) IS JUSTIFIED IN TREATING SUCH EXPENDITURE AS CAPITAL IN NATURE. HIS ORDER, THUS, DOES NOT CALL FOR ANY INTE RFERENCE. THIS GROUND IS NOT ALLOWED. ITA NO.6983/M/2010 & CO NO. 28/M/2012 M/S.ANDROMEDA MARKETING PVT.LTD. 6 14. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D THAT OF THE ASSESSES CROSS OBJECTION IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED ON THIS 13 TH DAY OF APRIL, 2012. SD/- SD/- (G.E.VEERABHADRAPPA) (V.DURGA RAO) PRESIDENT JUDICIAL MEMBER MUMBAI : 12 TH APRIL, 2012. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XXI, MUMBAI 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.