ITO, Ward-16(2), Hyderabad V. M/s. Performica Software Pvt.Ltd., Hyderabad

ITA 1128/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69771 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R LAKSHMAN
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation
• Section: 43B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1015/HYD/2012 ASSESSMENT YEAR: 2007-08 M/S PERFORMICA SOFTWARE PVT. LTD., APPELLANT HYDERABAD. (PAN AACCP1378F) VS. DY. COMMISSIONER OF INCOME TAX, RESPON DENT CIRCLE 16(3), HYDERABAD. ITA NO. 1128/HYD/2012 ASSESSMENT YEAR: 2007-08 DY. COMMISSIONER OF INCOME TAX, APPEL LANT CIRCLE 16(3), HYDERABAD. VS. M/S PEFORMICA SOFTWARE PVT. LTD., RESPONDENT HYDERABAD. (PAN AACCP1378F) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SHRI R. LAKSHMAN DATE OF HEARING : 19/08/2013 DATE OF PRONOUNCEMENT : 13/09/2013 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE ORDER OF CIT(A)-V, HYDERABAD DATED 07/05/2012 FOR THE ASSES SMENT YEAR 2007-08. 2 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF COMPUTER SOFT WARE AND IT ENABLED SERVICES. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION O N 29/10/2007 ADMITTING TOTAL INCOME OF RS. 30,11,432/ -. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(4) OF THE ACT DETERMINING THE TOTAL INCOME OF T HE ASSESSEE AT RS. 40,82,249/-. WHILE DOING SO, THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLAIM O F EXEMPTION U/S 10A OF THE ACT ON ACCOUNT OF INTERNET CHARGES OF RS. 12,59,538/- AND TELEPHONE CHARGES OF RS. 1,51,655/-. THE ASSESSING OFFICER ALSO DISALLOWED T HE DEPRECIATION CLAIM OF THE ASSESSEE COMPANY. 3. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE ITAT, HYDERABAD IN CASE OF PATNI TELECOM PVT. LTD. VS. IT) [2008] 22 SOT 26 (HYD) HELD THAT THE EXPENDITURE INCURRED TOWARD INTERNET CHARGES AND TELEPHONE CHAR GES FOR DELIVERY OF SOFTWARE SHOULD BE EXCLUDED FROM TH E EXPORT TURNOVER AND FROM TOTAL TURNOVER. 4. AS REGARDS DISALLOWANCE OF DEPRECIATION, THE CIT (A) OBSERVED THAT IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE MAJOR PORTION OF THE DEPRECIATION AMOUNTING TO RS. 4,89,074/- HAD BEEN DISALLOWED BECAUSE THE ASSESSEE DID NOT PRESENT ADEQUATE PROOF REGARDING THE AFOREMENTI ONED ADDITIONS TO THE FIXED ASSETS. REGARDING THE CONTEN TION OF THE ASSESSEE THAT ENOUGH TIME WAS NOT GIVEN TO PRES ENT THE SAID EVIDENCE, THE CIT(A) HELD THAT INSPITE OF SEVERAL OPPORTUNITIES GIVEN DURING APPEAL PROCEEDINGS, THE ASSESSEE DID NOT PRESENT REQUIRED EVIDENCE, THEREFO RE, 3 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN DI SALLOWING THE DEPRECIATION. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. 6. THE REVENUE IN ITS APPEAL RAISED A GROUND THAT T HE CIT(A) ERRED IN ALLOWING EXPENDITURE ON ACCOUNT OF INTERNET CHARGES AND DELIVERY OF SOFTWARE WHICH IS AGAINST THE PROVISIONS OF SECTION 10A OF THE IT ACT, 1961. 7. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY TH E DECISION OF THE COORDINATE BENCH IN THE CASE OF PAT NI COMPUTERS LTD. (SUPRA) AND ALSO SPECIAL BENCH OF TH E CHENNAI TRIBUNAL IN THE CASE OF ITO VS SAKSOFT LTD (313 ITR AT 353) WHEREIN IT WAS HELD THAT EXPENSES EXCL UDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM T HE TOTAL TURNOVER. THE HONBLE KARNATAKA HIGH COURT H AS ALSO TAKEN SIMILAR VIEW IN THE CASE OF CIT VS. TATA ELXS I LTD. & OTHERS, 247 CTR 334 (KAR.). RESPECTFULLY FOLLOWING THE SAID DECISION CITED SUPRA WE UPHOLD THE ORDER OF TH E CIT(A) IN HOLDING THAT THE EXPENDITURE INCURRED TOW ARDS INTERNET CHARGES AND TELEPHONE CHARGES FOR DELIVERY OF SOFTWARE SHOULD BE EXCLUDED FROM THE EXPORT TURNOVE R AND FROM TOTAL TURNOVER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IN THIS REGARD IS DISMISSED. 8. IN THE ASSESSEES APPEAL, THE ASSESSEE HAS RAISE D 4 GROUNDS OF APPEAL, THE SUM AND SUBSTANCE OF WHICH I S REGARDING DISALLOWANCE OF DEPRECIATION ON ADDITIONS MADE TO FIXED ASSETS. IN ADDITION, THE ASSESSEE HAS RAIS ED THE FOLLOWING ADDITIONAL GROUNDS: 4 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT RECOMPUTED BUSINESS PROFIT AFTER MAKING THE ADDITIO NS FOR DISALLOWANCES WILL QUALIFY FOR EXEMPTION U/S 10 A OF THE ACT. IN THIS CONNECTION, THE ASSESSEE PLACES ITS RELIANC E ON THE CASE LAW OF JURISDICTIONAL IN THE CASE OF M/S BATRONICS INDIA LTD. VIDE ITA NOS. 2188-89/HYD/2011 BY ORDER DATED 31/05/2012. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN T HE BUSINESS OF COMPUTER SOFTWARE AND IT ENABLED SERVIC ES. DURING THE FY 2006-07 RELEVANT TO AY 2007-08 THE COMPANY HAD MADE ADDITIONS TO THE FIXED ASSETS WHIC H ARE ESSENTIAL FOR THE BUSINESS AND ALSO SUBMITTED DETAI LS PERTAINING TO ADDITIONS MADE TO FIXED ASSETS: 1. COMPUTERS 3,26,500/- 2. FURNITURE & FITTINGS 39,750/- 3. UPS 1,18,948/- 4. CISCO ROUTER 86,160/- 5. EPBX SYSTEM 60,840/- 6. SOFTWARE 2,68,250/- 10. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE COMPANY CLAIMED DEPRECIATION ON ADDITIONS MADE TO F IXED ASSETS IN ACCORDANCE WITH THE PROVISIONS OF THE IT ACT, 1961 WHEREAS THE CIT(A) HAD CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING ASSESSEES CLAIM O F DEPRECIATION ON ADDITIONS MADE TO FIXED ASSETS WITH OUT CONSIDERING THE FACTS AVAILABLE ON RECORD, WHICH IS NOT CORRECT, NOT JUSTIFIED AND NOT VALID. THE LEARNED C OUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAD CLAIMED 5 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. DEPRECIATION @ 60% ON UPS WHICH IS AN ESSENTIAL COMPONENT OF A COMPUTER SYSTEM AND ENSURES DATA INTEGRITY THROUGH UNINTERRUPTED SUPPLY OF POWER. TH E ACTION OF THE REVENUE AUTHORITIES IS WRONG IN ALLOW ING DEPRECIATION @ 15% AS AGAINST THE ASSESSEES CLAIM OF DEPRECIATION @ 60% ON THE GROUND THAT THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION. 11. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. THE CIT(A) HAS OBSERVED THAT IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE MAJOR PORTI ON OF THE DEPRECIATION AMOUNTING TO RS. 4,89,074/- HAS BE EN DISALLOWED BECAUSE THE ASSESSEE DID NOT PRESENT ADE QUATE PROOF REGARDING THE ADDITIONS TO THE FIXED ASSETS. THE ASSESSEES COUNSEL SUBMITTED THAT ENOUGH TIME WAS N OT GIVEN TO THE ASSESSEE TO PRODUCE SUFFICIENT EVIDENC E AND THE SAME HAS BEEN MENTIONED IN THE WRITTEN SUBMISSI ONS ALSO. IN THESE CIRCUMSTANCES, WE DEEM IT FIT AND P ROPER TO REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R WITH A DIRECTION TO DECIDE THE ISSUE ON EXAMINING THE EVID ENCE, WHICH WILL BE SUBMITTED BEFORE HIM BY THE ASSESSEE. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE THE DETAILS OF THE ADDITIONS TO THE FIXED ASSETS IN SUPPORT OF HIS CLA IM. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 2 RAISED BY THE ASSESSEE THAT, THE C IT(A) HAS ALLOWED DEPRECIATION @ 15% ON UPS AND TREATING THE 6 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. REMAINING PORTION OF DEPRECIATION AS EXCESS DEPRECI ATION CLAIMED AND DISALLOWED, IS MISCONCEIVED AS THE CIT( A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATIO N RATE AT 60% ON UPS BY OBSERVING AS UNDER: THE APPELLANT HAD CLAIMED DEPRECIATION @ 60% WHILE THE ASSESSING OFFICER ALLOWED ONLY 15%. UPS IS AN ESSENTIAL COMPONENT OF A COMPUTER SYSTEM AND ENSURES DATA INTEGRITY THROUGH UNINTERRUPTED SUPPLY OF POWER. THIS IS A DEDICATED SYSTEM FOR COMPUTERS ONLY. THEREFORE, THE DEPRECIATION RATE TO BE ALLOWE D IS 60%. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 14. IN VIEW OF THE OBSERVATIONS OF THE CIT(A), WE D ISMISS THE GROUND RAISED BY THE ASSESSEE AND CONFIRM THE O RDER OF THE CIT(AP ON THIS ISSUE. 15. WITH RESPECT TO THE GROUND NO. 3 REGARDING LIBR ARY BOOKS, THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATIO N AT 100% ON LIBRARY BOOKS, WHICH COMES TO RS. 3329/-, W HICH IS LESS THAN RS. 5,000/-. THE ASSESSING OFFICER ALL OWED 60% DEPRECIATION AND THE CIT(A) CONFIRMED THE SAME. WE ARE OF THE OPINION THAT SINCE THE COST OF THE BOOKS IS LESS THAN RS. 5,000/- 100% DEPRECIATION CLAIMED BY THE ASSESSEE IS TO BE ALLOWED. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. THIS GROUND IS ALLOWED. 16. AS REGARDS THE ADDITIONAL GROUND RAISED BY THE ASSESSEE THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT RECOMPUTED BUSINESS PROFIT AFTER MAKING T HE ADDITIONS FOR DISALLOWANCES WILL QUALIFY FOR EXEMPT ION U/S 10A OF THE ACT, WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL , HYDERABAD IN CASE OF M/S BARTRONICS INDIA LTD., IN ITA NOS. 7 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. 2188/HYD/2011 AND 2189/HYD/2011 FOR AY 2006-07 AND 2007-08 VIDE ORDER DATED 31/05/2012 WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE ADDITIONS MADE WHILE CALCULATING DEDUCTION U/S 10B. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO RE COMPUTE THE DEDUCTION AFTER TAKING INTO ACCOUNT DISALLOWANC ES MADE. WHILE COMING TO THE SAID CONCLUSION, THE TRIB UNAL PLACED RELIANCE IN CASE OF M/S INTERNATIONAL GOLD C O. LTD. VS. ITO, 2010-TIOL-652-ITAT-MUM WHEREIN IT WAS HELD THAT EVEN IF THE DISALLOWANCE IS SUSTAINED, IT WILL ONLY GO TO INCREASE THE BUSINESS PROFITS OF THE ASSESSEE WHICH IS EXEMPT U/S 10A AS PER THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF GEMPLUS JEWELLERY INDIA L TD., 233 CTR (BOM). THE HONBLE BOMBAY HIGH COURT IN CAS E OF GEMPLUS JEWELLERY INDIA LTD. (SUPRA) HELD AS FOLLOW S: EXEMPTION U/S 10A PROFITS AND GAINS DERIVED FROM EXPORTS ADDITION ON ACCOUNT OF DISALLOWANCE OF EMPLOYERS AND EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC DISALLOWANCE OF THE PF/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PROVISIONS I.E. SECTION 43B IN THE CASE OF THE EMPLOYERS CONTRIBUT ION AND SECTION 36(1)(V) R.W.S. 2(24)(X) IN THE CASE OF THE EMPLOYEES CONTRIBUTION WHICH HAVE BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE PLAIN CONSEQUENC E OF THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MADE BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE EXEMPTION U/S 10 A IS ALLOWABLE WITH REFERENCE TO SUCH ENHANCED INCOME . 17. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING O FFICER TO WORK OUT EXEMPTION U/S 10A AFTER RECOMPUTING THE BUSINESS PROFITS AFTER MAKING ADDITIONS FOR DISALLO WANCES IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUP RA). 8 ITA NOS. 1015 & 1128/HYD/12 M/S PERFORMICA SOFTWARE PVT. LTD. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE AS SESSEE IS ALLOWED . 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 19. TO SUM UP, APPEAL OF THE REVENUE BEING ITA NO. 1128/HYD/2012 IS DISMISSED AND THE APPEAL OF THE ASSESSEE BEING ITA NO. 1015/HYD/2012 IS PARTLY ALLO WED FOR STATISTIC AL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 13/09/2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAV AN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 13/09/2013. KV COPY TO:- 1. M/S PERFORMICA SOFTWARE PVT. LTD., C/O P. MURALI & CO., CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYD- 500 082. , HYDERABAD. 2. ITO, CIRCLE 16(3), HYDERABAD. 3. CIT(A)-V, HYDERABAD. 4. CIT IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A. T., HYDERABAD.