Bogue Vestures Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1199/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8636 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S.NAMBIRAJAN
• Keywords: Capital asset; Depreciation; Non-deduction of tax; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 40(a)(ia); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B E NGAL U R U BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1199 / BANG/20 16 (ASSESSMENT YEAR: 20 10 - 11 ) M/S.VOGUE VESTURES PVT. LTD. NO.75 G, HULKUL COMPLE X, 1 ST FLOOR, LALBAGH ROAD, BENGALURU - 560027. PAN:AABCV8253 G VS. APPELLANT DEPUTY COMMISSIONER OF INCOME - TAX, OLD CIRCLE 12(5), NEW CIRCLE 7(1)(2) BENGALURU. RESPONDENT APPELLANT BY : SHRI SUMAN LUNKAR, CA. RE SPONDENT BY : SHRI S.NAMBIRAJAN, ADDL.CIT(DR) DATE OF HEARING : 26/09/2017 DATE OF PRONOUNCEMENT : 26 /12/2017 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISS IONER OF INCOME - TAX (APPEALS) - 7, BENGALURU,[CIT(A)] DATED 01/03/2016 FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO . 1199 /BANG/201 6 PAGE 2 OF 5 ITA NO . 1199 /BANG/201 6 PAGE 3 OF 5 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED U NDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND DISTRIBUTION OF READY - MADE GARMENTS, ACCESSORIES AND TEXTILE GOODS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 WAS FILED ON 16/10/2010 DECLARING IN COME OF RS.67,49,960/ - . AGAINST SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 12(5), BENGALURU [HEREINAFTER REFERRED TO AS AO ] VIDE ORDER DATED 14/03/2013 AT TOTAL INCOME OF RS.71,77,490/ - . WHILE DO ING SO, THE AO HAS DISALLOWED THE CLAIM OF DEPRECIATION OF RS. 4,27,530/ - ON PURCHASE OF SOFTWARE OF RS.7,12,550/ - INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] HOLDING THAT THE AS SESSEE HAD FAILED TO DEDUCT TAX ON PURCHASE OF SOFTWARE WHICH IS CAPITALIZED IN THE BOOKS OF ACCOUNT AND ON WHICH DEPRECIATION WAS CLAIMED. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A), WHO VIDE IMPUGNED ORDER UPHELD THE ACTION OF THE A O IN THE LIGHT OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. (2011) 203 TAXMAN 477(KAR). 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IA) HAVE NO APPLICATION IN CASE OF PURCHASE OF CAPITAL ASSETS. RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS: ITA NO . 1199 /BANG/201 6 PAGE 4 OF 5 I. SKOL BREWERIES LTD. VS. ACIT (2013) ( 29 TAXMANN.COM 111)(MUMBAI - TRIB.) II. DY.CIT VS. SMS DEMAG (P) LTD. (ITA NO.3636/DEL/2008(ITAT DELHI) III. CIT VS. MARK AUTO INDUSTRIES LTD. (2013) 40 TAXMANN.COM 482 (P&H) IV. SUBEX VS. DY.CIT (68 TAXMANN.COM 233)(BANG) ON THE OTHER HAND, T HE LD. ADDL.CIT(DR) PLACED RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES. 7. W E HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN PRESENT APPEAL IS WHETHER THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE TO THE PURCHASE OF CAPITAL ASSETS. UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PURCHASED SO FTWARE WHICH IS CAPITALIZED IN THE BOOKS OF ACCOUNT AND CLAIMED DEPRECIATION THEREON. THE ASSESSING OFFICER DENIED DEPRECIATION HOLDING THAT THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE. THIS ISSUE IS NOW COVERED BY THE DECISION OF THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MARK AUTO INDUSTRIES LTD. (2013) 40 TAXMANN.COM 482 (P&H) WHEREIN THE HON BLE HIGH COURT HELD THAT IN ABSENCE OF ANY REQUIREMENTS IN LAW FOR MAKING DEDUCTION OF TAX AT SOURCE ON EXPENDITURE INCURRED ON TECHNICAL K NOW - HOW WHICH WAS CAPITALIZED, DISALLOWANCE UNDER THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE MADE. THE RELEVANT PARAGRAPH OF THE JUDGMENT IS AS U N DER: 5. ADVERTING TO QUESTIONS (II) AND (III), THE ISSUE WHICH ARISES FOR CONSIDERATION IS WHETHER THE ASS ESSEE COULD BE DISALLOWED CLAIM FOR DEPRECIATION UNDER SECTION 40(A)(I) OF THE ACT ON THE GROUND THAT THE PAYMENTS MADE FOR TECHNICAL KNOW - HOW WHICH HAD BEEN CAPITALIZED, NO TAX DEDUCTION AT SOURCE HAS BEEN MADE THEREON. THE TRIBUNAL WHILE ACCEPTING THE PL EA OF THE ASSESSEE, IN PARA 3, HAD NOTICED AS UNDER: '3. GROUND NO.4 IS AGAINST DELETION OF AN ADDITION OF RS. 6,88,175/ - MADE BY THE AO ON ACCOUNT OF DEDUCTION OF DEPRECIATION ON TECHNICAL KNOW - HOW AS THE ASSESSEE FAILED TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISION CONTAINED IN SECTION 40(A)(I). THE FINDING OF THE LEARNED CIT(A) WAS THAT THE ASSESSEE HAD INCURRED EXPENDITURE BY WAY OF TECHNICAL KNOW - HOW, WHICH WAS CAPITALIZED AMOUNT AS MADE IN THE RETURN OF INCOME. SINCE THE ASSESSEE HAD NOT CLAIMED DED UCTION FOR THE ITA NO . 1199 /BANG/201 6 PAGE 5 OF 5 AMOUNT PAID, THE PROVISIONS CONTAINED IN SECTION 40(A) (I) WERE NOT ATTRACTED. THE LEARNED DR COULD NOT FIND ANY FAULT WITH THIS DIRECTION OF THE CIT(A) ALSO ALTHOUGH SHE REFERRED TO PAGE 4 OF THE ASSESSMENT ORDER, WHERE IT WAS MENTIONED THA T THE TAX DEDUCTED IN RESPECT OF THE PAYMENT WAS MADE OVER TO THE GOVERNMENT IN THE SUBSEQUENT YEAR AND, THEREFORE, DEPRECIATION COULD NOT BE DEDUCTED ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. IN REPLY, THE LEARNED COUNSEL POINTED OUT THAT THE E XPENDITURE BY WAY OF TECHNICAL KNOW - HOW WAS CAPITALIZED AND IT WAS NOT CLAIMED AS REVENUE EXPENDITURE. THEREFORE, THERE WAS ALSO NO REASON TO DISALLOW DEPRECIATION ON SUCH CAPITALIZED AMOUNT AS THE AFORESAID PROVISION DOES NOT DEAL WITH DEDUCTION OF DEPREC IATION. HAVING CONSIDERED ARGUMENTS FROM BOTH THE SIDES, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) WHICH REQUIRES CORRECTION FROM US. THUS, THIS GROUND IS ALSO DISMISSED.' THE CASES RELIED ON BY THE LEARNED AR OF THE ASSE SSEE ALSO REITERATED THE SAME POSITION OF LAW. IN THE LIGHT OF THIS, WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE U/S 40(A)(IA) ON ACCOUNT OF ALLEGED FAILURE TO DEDUCT TAX AT SOURCE ON PURCHASE OF SOFTWARE CAPITALIZED IN BOO KS OF ACCOUNT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH DEC EMBER , 201 7 S D/ - SD/ - ( VIJAY PAL RAO ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D ATE : 26 / 1 2 /2017 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE