Sudarshan Chemical Industries Ltd., Pune V. ACIT, Pune

ITA 1199/PUN/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7547 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 18-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Capital receipt; Capital expenditure
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 1199/PN/07 (ASSTT. YEAR 2003-04) SUDARSHAN CHEMICAL INDUSTRIES LTD. 162 WELLESLEY ROAD, PUNE-411 001 PAN NO. AABCS4223P .... APPELLANT VS. ACIT, CIRCLE-6, PUNE . RESPONDENT APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI HARESHWAR SHARMA ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT-II, PUNE DATED 17/07/2007 FOR THE ASSESSMENT YEAR 2004-05 . AT THE VERY OUTSET, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT ALL THE GROUN DS ARE EITHER COVERED IN FAVOUR OF THE REVENUE OR IN FAVOUR OF THE ASESSSEE BY THE DECISION OF THIS BENCH IN THE ASSESSEES OWN CASE. LD. COUNSEL FILED THE C HART ENLISTING THE GROUNDS AND THE MANNER THEY ARE COVERED THE SAME READS AS UNDER:- GR. NO. ISSUE INVOLVED REMARKS 1,2 CIT(A) ERRED IN- CONFIRMING THE TREATMENT OF THE LICENSE FEES OF RS. 77,72,720/- PAID ON ACCOUNT OF ACQUIRING ADDITIONAL LICENSES TO USE SOFTWARE AS CAPITAL EXPENDITURE AS LAID DOWN IN S. 32(1)(II) COVERED AGAINST THE ASSESSEE BY PARA 4 TO 18 OF PAGE 3 TO 12 OF ITAT ORDER OF A.Y. 2000-01 PAPER BOOK PAGE NO. 19 TO 28 3 CONFIRMING THE RATE OF DEPRECIATION ON OPENING WDV OF ERP LICENSE FEES TO 25% BY TREATING IT AS INTANGIBLE ASSET U/S. 23(1)(II) COVERED AGAINST THE ASSESSEE BY PARA 5 TO 9 OF PAGE 3,4 OF ITAT ORDER FOR A.Y 2002-03. PAPER BOOK PAGE NO. 34 TO 35. ITA NO. 1199/PN/07 A.Y: 2004-05 PAGE 2 OF 5 4,5, 6,7 CONFIRMING THE DISALLOWANCE OF INTEREST PAID OF RS. 6,66,315/- BY APPLYING THE PROVISIONS OF SEC. 14A, WHEN INTEREST CLAIMED DURING THE YEAR HAD NO NEXUS WITH THE OLD INVESTMENTS. COVERED AGAINST THE ASSESSEE BY PARA 16 TO 19 OF PAGE 6 TO 19 OF ITAT ORDER FOR A.Y 2002-03- PAPER BOOK PAGE NO. 37 TO 40 8 CONFIRMING THE DISALLOWANCE OF 5% OF EXEMPTED INCOME I.E. RS. 22,745/- TOWARDS THE EXPENDITURE FOR EARNING THE EXEMPTED INCOME. COVERED IN FAVOUR OF THE ASSESSEE BY PARA 20 TO 22 OF PAGE 9,10 OF ITAT ORDER FOR A.Y. 2002-03 PAPER BOOK PAGE NO. 40 TO 41 9 CONFIRMING THE ADDITION OF RS. 20,38,668/- ON ACCOUNT OF REBATE ON PREPAYMENT OF SALES TAX INCENTIVE BY TREATING AS INCOME FROM BUSINESS AND PROFESSION INSTEAD OF HOLDING IT AS CAPITAL RECEIPT. COVERED IN FAVOUR OF THE ASSESSEE BY ITT SPECIAL BENCH IN CASE OF SUZLON INDUSTRIES LIMITED 10 DEDUCTION OF 80HHC U/S. CLAUSE(BAA) TO EXPLANATION 1- FOR THE PURPOSE OF REDUCTION OF 90% OF THE FOLLOWING INTEREST INCOME- 1. TREATMENT OF THE INTEREST RECEIVED ON INCOME TAX REFUND. 2. INTEREST ON SALES TAX REFUND 3. INTEREST ON OVERDUE FROM CUSTOMERS LINKED WITH BUSINESS ACTIVITY ALTERNATIVELY, CIT(A) OUGHT TO HAVE CONSIDERED NET INTEREST INCOME FOR THE PURPOSE OF REDUCTION OF 90% OF INTEREST INCOME UNDER CLAUSE (BAA) OF SEC. 80HHC. I) COVERED IN FAVOUR OF THE ASSESSEE BY PARA 22,23 OF PAGE 13,14 OF ITAT FOR A.Y 2000-01 IN RESPECT OF INTEREST RECEIVED ON OVERDUE A/C FROM CUSTOMERS PAPER BOOK PAGE NO. 29 TO 30. 2. TAKING THE CUE FROM THE ABOVE, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE GROUND 1, 2 4 TO 7 ARE COVERED AGAINST THE AS SESSEE BY THE DECISIONS OF THIS BENCH FOR THE A.Y 2000-01 AND 2002-03. FAIRLY, H E ADMITTED THAT FOR THIS YEAR ALSO, THE SAID FINDINGS OF THE TRIBUNAL HOLDS REL EVANT AND ARE IN FAVOUR OF THE ITA NO. 1199/PN/07 A.Y: 2004-05 PAGE 3 OF 5 REVENUE. IN FACT, LD. DR WANTED THE SAME AND THE GROU NDS MUST BE DISMISSED AND IN FAVOUR OF THE REVENUE. CONSIDERING THE CONCURREN CE OF BOTH THE PARTIES ON THIS GROUND WE ARE OF THE OPINION THAT GROUNDS 1 & 2 AND 4 TO 7 HAVE TO BE DISMISSED AND IN FAVOUR OF THE REVENUE. 3. REGARDING GROUND NO. 3, LD. COUNSEL MENTIONED THAT THE ISSUE RELATES TO THE ISSUE OF CORRECT RATE OF DEPRECIATION ON OPENING WDV OF ERP LICENSE FEES. IN THIS REGARD LD. COUNSEL MENTIONED THAT THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION IN THE C ASE OF AMWAY INDIA ENTERPRISES 114 TTJ (DEL)(SB) 476 AND PARA 61 IS RELEVA NT WHICH READS AS FOLLOWS:- 61. WE HAVE ALREADY DISCUSSED AS TO HOW COMPUTER S OFTWARE IS A TANGIBLE PROPERTY. THOUGH A LICENSEE, THE PERSON PUR CHASING THE DISK OR OTHER MEDIUM CONTAINING THE SOFTWARE IS OWNER TO TH E EXTENT OF THE RIGHTS COMPRISED IN THE LICENSE. THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF TCS (SUPRA) SUPPORTS THE VIEW THAT SOFT WARE CONTAINED IN A DISK IS TANGIBLE PROPERTY BY ITSELF. THE USE BY TH E ASSESSEE OF SUCH SOFTWARE IN HIS BUSINESS IS ENOUGH TO ALLOW THE CLA IM FOR DEPRECIATION. THE RIGHTS WHICH AN ASSESSEE ACQUIRES BY PURCHASING THE DISK OR MAGNETIC MEDIUM CONTAINING THE COMPUTER SOFTWARE WITH LIMITE D OR ABSOLUTE RIGHT TO USE THE SAME BY ITSELF WOULD SATISFY THE REQUIREMEN TS OF THE PLANT. THE ASSESSEES OWNERSHIP OF LIMITED RIGHT OVER THE TANG IBLE ASSET IS SUFFICIENT TO CONCLUDE THAT THE ASSESSEE IS THE OWNER OF THE PLAN T. THERE IS THEREFORE NO DIFFICULTY IN ALLOWING DEPRECIATION CLAIM AT 25 PER CENT UNDER S. 32(1)(I) R/W APPENDIX I, PART A DIVISION III(1) TO THE IT RULES, 1962. WITH EFFECT FROM 1 ST APRIL, 2003, COMPUTER SOFTWARE HAS BEEN CLASSIFIED AS A TANGIBLE ASSET UNDER THE HEADING PLANT IN APPENDIX TO THE IT RUL ES ENTITLED TO DEPRECIATION AT 60 PERCENT . THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION AT 60 PERCENT FROM 1 ST APRIL, 2003. 4. LD. DR MENTIONED THAT IT IS NOT MERE A LICENSE, I T IS A ADDITIONAL LICENSE BUT ON CONSIDERING THE PARA 61 WE FIND THAT IT DOES NOT M AKE ANY DIFFERENCE AND ASSESSEE IS ENTITLED TO DEPRECIATION ON THE RATE OF 6 0% W.E.F 01/04/2003 ONWARDS AND THE A.Y UNDER CONSIDERATION RELATE TO A.Y 2004-05. THUS, GROUND NO. 3 HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. ACCORDINGLY, THE GROUND 3 IS ALLOWED . 5. REGARDING GROUND NO. 8, LD. COUNSEL MENTIONED THA T IT RELATES TO DISALLOWANCE OF 5% OF THE EXEMPT INCOME RELATABLE TO THE EXPENDITURE FOR EARNING THE EXEMPT INCOME. IN THIS REGARD, LD. COUNSEL MENTIONED THAT THE SAID ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER OF THIS TRIBUNAL FOR A.Y. 2002-03. LD. COUNSEL HAS LEFT THIS ISSUE TO TH E DISCUSSION OF BENCH AND SO IS THE LD. DR CONSIDERING THE SMALLNESS OF THE AMOUNT W E ARE OF THE OPINION THAT ITA NO. 1199/PN/07 A.Y: 2004-05 PAGE 4 OF 5 THE ORDER OF THE CIT(A) DOES NOT CALL FOR INTERFERENCE O N THIS ISSUE. ACCORDINGLY, GROUND NO. 8 IS DISMISSED . 6. GROUND NO. 9 RELATES TO CONFIRMATION OF THE ADDITION OF RS 20,38,668/-. IN THIS REGARD, LD. COUNSEL MENTIONED THAT THE SAID I SSUE HAS TO BE DECIDED AS PER SPECIAL BENCH DECISION IN THE CASE OF SULZON INDUSTRIES LIMITED (MUM) BOTH THE PARTIES MENTIONED THAT THIS ISSUE MAY GO TO THE FILES OF THE A.O FOR CONSIDERING THE FACTS OF THIS CASE AND DECIDING THE ISSUE IN THE LIGHT OF THE SAID SPECIAL BENCH DECISION IN THE CASE OF SULZON INDUST RIES LIMITED (SUPRA). 7. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OPINION THAT THE PROPOSAL MADE BY THE PARTIES IS ACCEPTED. ACCORDINGLY, THE MA TTER IS SET ASIDE TO THE FILES OF THE A.O. A.O SHALL DECIDE THE ISSUE AFTER HEARING THE ASSESSEE IN THE LIGHT OF THE SAID SPECIAL BENCH DECISION. ASSESSEE IS DIRECTE D TO FILED COPY OF THE SAID ORDER DURING THE SET ASIDE PROCEEDINGS BEFORE THE AO, WH O SHALL NECESSARILY GRANT AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 9 IS SET ASIDE . 8. GROUND NO. 10, RELATES TO THE DEDUCTION U/S. 80HHC VIS--VIS THE TREATMENT OF THE INTEREST RECEIVED ON I.T. REFUNDS AND INTEREST ON SALES TAX REFUNDS. IN THIS REGARD, LD. COUNSEL MENTIONED THAT TH IS ISSUE ARE NOT PRESSED. ACCORDINGLY, ON FINDING THE NO OBJECTION FROM THE LD. DR THE SAME ARE DISMISSED AS NOT PRESSED. GROUND NO. 10 HAS ANOTHER LIMB FOR ADJU DICATION AND IT RELATES TO THE ALLOWABIITY OF THE DEDUCTION U/S. 80HHC ON THE INTEREST RECEIPTS OVERDUE TRADING CUSTOMERS. IN THIS REGARD, LD. COUNSEL MENTIONE D THAT THE SAID ISSUE IS ALSO COVERED BY THE ASSESSEES OWN CASE BY THIS BENC H FOR A.Y 2000-01 IN FAVOUR OF THE ASSESSEE. ON PERUSAL OF THE SAME, WE FIND AS SESSEE MUST SUCCEED ON THIS ISSUE. ACCORDINGLY, THIS PART OF THE GROUND 10 IS ALLOWED IN FAVOUR OF THE ASSESSEE 9. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF FEBRUARY, 2011. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 21 ST FEBRUARY, 2011 R ITA NO. 1199/PN/07 A.Y: 2004-05 PAGE 5 OF 5 COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. ACIT, CIRCLE-2, PUNE 3. CIT(A)-II, PUNE 4. CIT-III, PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE