ACIT, CHENNAI V. Computer Age Management Services (P) Ltd., CHENNAI

ITA 1240/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81278 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 14A; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS- MENT YEAR APPELLANT RESPONDENT 1236 & 1240/MDS/2014 2006-07 & 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, LTU-I, CHENNAI-34. M/S. COMPUTER AGE MANAGEMENT SERVICES (P)LTD. NEW NO.10, OLD NO.178, MGR SALAI, NUNGAMBAKKAM, CHENNAI-34. PAN:AAACC3035G 1259 TO 1261/MDS/2014 2008-09 TO 2010-11 M/S. COMPUTER AGE MANAGEMENT SERVICES (P)LTD. NEW NO.10, OLD NO.178, MGR SALAI, NUNGAMBAKKAM, CHENNAI-34. PAN:AAACC3035G ASSISTANT COMMISSIONER OF INCOME TAX, LTU-I, CHENNAI-34. REVENUE BY : MR. A.V.SREEKANTH, JCIT ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 29 TH OCTOBER, 2014 /DATE OF PRONOUNCEMENT : 28 TH NOVEMBER, 2014 / O R D E R PER BENCH: THESE APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDERS OF COMMISSIONER OF INCOM E TAX (APPEALS), LTU, CHENNAI DATED 30.1.2014 AND 21.2.20 14 FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 TO 2010-1 1. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMM ON, THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 ITA NOS.1236 & 1240/MDS/2014 (A.Y.2006-07 & 2008-09): 2. THESE TWO APPEALS ARE FILED BY THE REVENUE FOR T HE ASSESSMENT YEARS 2006-07 AND 2008-09. THE ONLY ISSU E IN BOTH THESE APPEALS IS THAT COMMISSIONER OF INCOME T AX (APPEALS) ERRED IN ALLOWING DEPRECIATION ON UPS AT 60% AS AGAINST 15% ALLOWED BY THE ASSESSING OFFICER. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL HAS BEEN CONSIDERED BY THIS TRIBUNAL IN THE CASE OF DCIT VS. INDIAN OVERSEAS BANK IN ITA NOS. 1803 & 1815/MDS/2011 DATED 2.4.2013 AND DECIDED THAT UPS I S ELIGIBLE FOR DEPRECIATION AT 60%. COUNSEL PLACING RELIANCE ON THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL REQUESTS FOR SUSTAINING THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS). 3. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE ASSESSING OFFICER. 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISION OF THIS TRIBUNAL RELIED ON IN THE CASE OF DCIT 3 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 VS. INDIAN OVERSEAS BANK (SUPRA). THE CO-ORDINATE B ENCH CONSIDERED A SIMILAR ISSUE AND HELD THAT UPS IS ELI GIBLE FOR DEPRECATION AT 60% OBSERVING AS UNDER:- 7. THE LAST GROUND OF APPEAL OF THE ASSESSEE RELATE S TO DEPRECIATION ON UPS. THE AR FOR THE ASSESSEE SUBMI TTED THAT UPS IS A PART OF THE COMPUTER AND ENERGY SAVIN G DEVICE AND THEREFORE, DEPRECIATION SHOULD BE ALLOWED @ 80% . ON THE OTHER HAND, THE DR SUBMITTED THAT THE UPS IS NE ITHER POWER SAVING DEVICE NOR PART OF A COMPUTER AND THE CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE TRIBUNAL I N THE CASE OF NESTLE INDIA LTD. VS. DCIT., REPORTED AS 111 TTJ 49 8. 8. WE FIND THAT THIS ISSUE HAS ALREADY BEEN ADJUDIC ATED BY US IN ITA NO.818/MDS/2010 RELEVANT TO THE ASSES SMENT YEAR 2007-08. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL IN ITA NO.818/MDS/2010 IS REPRODUCED HEREI N BELOW:- THE NEXT GROUND OF APPEAL RELATES TO CLAIM FOR DEP RECIATION ON UPS AT 80%. THE AR SUBMITTED THAT THE CIT(A) HAS FAILED TO APPRECIATE THAT UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPRECIATION @ 80% SHOULD HAVE BEEN ALLOWED. HOWEVE R, HE ALSO RELIED ON THE JUDGEMENT OF THE HONBLE DELHI H IGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES LTD., R EPORTED AS 56 DTR (DEL) 397, WHEREIN THE HONBLE HIGH COURT HA S ALLOWED DEPRECIATION @ 60% ON UPS TREATING IT AS P ART OF COMPUTER HARDWARE. ON THE OTHER HAND, LEARNED DR R ELIED ON THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF NESTLE INDIA VS. DCIT., REPORTED AS 111 TTJ 498 WHE REIN THE TRIBUNAL HAS HELD UPS AT PAR WITH PLANT AND MACHINE RY AND REJECTED THE CONTENTION OF ASSESSEE TO TREAT IT AS PART OF COMPUTER. 28. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE AR THAT THE UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPR ECIATION @ 80% SHOULD BE GRANTED. HOWEVER, WE ARE IN CONSONA NCE WITH THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF ORIENT CERAMICS & INDUSTRIES LTD. (SUPRA), WHEREIN THE HONBLE COURT HAS GRANTED DEPRECIATION @ 60% BY TRE ATING UPS AS PART OF COMPUTER HARDWARE. ACCORDINGLY, WE ALLOW DEPRECIATION @ 60% ON UPS AND PARTLY ALLOW THE GROU ND OF APPEAL OF THE ASSESSEE. 4 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 FOR THE REASONS RECORDED ABOVE, WE HOLD THAT THE AS SESSEE IS ENTITLED TO CLAIM DEPRECIATION @ 60% ON THE UPS . ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 5. RESPECTFULLY FOLLOWING THE SAID DECISION OF THIS TRIBUNAL, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) IN ALLOWING DEPRECIATION ON UPS AT 60% A S AGAINST 15% ALLOWED BY THE ASSESSING OFFICER. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REJECTED. ITA NOS.1259 TO 1261/MDS/2014: (A.Y.2008-09 TO 2010-11) : 6. THESE THREE APPEALS ARE FILED BY THE ASSESSEE F OR THE ASSESSMENT YEARS 2008-09 TO 2010-11. THE ONLY ISSUE IN ALL THESE THREE APPEALS IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF E XPENDITURE UNDER SECTION 14A READ WITH RULE 8D(2)(III) OF THE ACT. 7. IN ALL THESE THREE ASSESSMENT YEARS, THE ASSESSI NG OFFICER DISALLOWED 0.5% OF AVERAGE INVESTMENTS AS EXPENDITURE ATTRIBUTABLE FOR EARNING DIVIDEND INCOM E INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)( III) SINCE THE ASSESSEE CLAIMED DIVIDEND INCOME ON EQUITY AND MUTUAL 5 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 FUNDS AS EXEMPT UNDER SECTION 10 OF THE ACT. THE SUBMISSION OF THE ASSESSEE BEFORE THE ASSESSING OFF ICER WAS THAT THEY HAVE NOT INCURRED ANY EXPENDITURE IN RESP ECT OF THEIR INVESTMENTS AND INVESTMENTS WERE MADE OUT OF THEIR OWN FUNDS AND THERE WERE NO BORROWING COST. THE ASSESS ING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE TH AT IT HAD NOT INCURRED ANY EXPENDITURE IN RESPECT OF INVESTM ENTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE AS SESSEE INVESTED SUBSTANTIAL AMOUNT AROUND ` 129.61 CRORES AS ON 31.3.2008, ` 120.68 CRORES AS ON 31.3.2009 AND ` 135.78 CRORES AS ON 31.3.2010 IN EQUITY AND MUTUAL FUNDS, IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED ANY EXPE NSES FOR MANAGING THESE INVESTMENTS. THEREFORE, INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(III) THE ASSESSING OFFICER DISALLOWED 0.5% OF AVERAGE INVEST MENT AS EXPENDITURE ATTRIBUTABLE FOR EARNING DIVIDEND INCOM E. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE AFTER CONSIDERING ALL TH E SUBMISSIONS OF THE ASSESSE. 6 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE ENGAGED INTO THE BUSINESS OF REGISTRARS AND SHARE T RANSFER AGENT AND DATA PROCESSING. COUNSEL SUBMITS THAT C OMPANY HAS POLICY ON INVESTMENTS LAYING DOWN GUIDELINES TO BE FOLLOWED WHILE MAKING INVESTMENTS OF SURPLUS FUNDS IN MUTUAL FUNDS. THE COUNSEL SUBMITS THAT ASSESSEE HAS APPOI NTED WEALTH ADVISORS (INDIA) PVT. LTD., WHO ARE WEALTH A DVISOR OF THE ASSESSEE COMPANY AND THEY MANAGED THE PORTFOLIO OF THE INVESTMENTS OF THE ASSESSEE. COUNSEL SUBMITS THAT A SSESSEE COMPANY IS NOT INCURRING ANY EXPENSES / ANY PAYMENT IN RESPECT OF THEIR SERVICES UPTO THE FINANCIAL YEAR 2 012-13. COUNSEL SUBMITS THAT REMUNERATION OR ANY FEE FOR SE RVICES RENDERED BY WEALTH ADVISORS WERE ALL PAID BY MUTUA L FUND COMPANIES IN WHICH INVESTMENTS WERE PLACED BY THE ASSESSEE. COUNSEL SUBMITS THAT THERE WERE NO EXPENS ES INCURRED BY THE ASSESSEE COMPANY TO MANAGE INVESTME NTS IN EQUITY/ MUTUAL FUNDS. THEREFORE RULE 8D(2)(III) HAS NO APPLICATION IN ITS CASE. COUNSEL FOR THE ASSESSEE P LACING RELIANCE ON THE DECISION OF THE KOLKATTA BENCH OF T HIS TRIBUNAL IN REI AGRO LTD. VS. DCIT (144 ITD 141) SUBMITS THA T ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHA LL BE 7 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANC E UNDER RULE 8D(III). COUNSEL SUBMITS THAT ENTIRE INVESTMEN TS APPEARING IN THE BALANCE SHEET CANNOT BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D(III ). 9. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 10. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIO N RELIED ON. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE NOT IN AGREEMENT WITH THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN MANAGI NG THE PORTFOLIO OF THE ASSESSEE. THE ASSESSEE COMPANY IS INTO THE BUSINESS OF REGISTRARS AND SHARE TRANSFER AGENT. IT IS NOT IN DISPUTE THAT MANAGEMENT OF THE ASSESSEE COMPANY PERIODICALLY MONITORS THROUGH ITS BOARD OF DIRECTOR S ABOUT THE INVESTMENTS. IN SUCH CIRCUMSTANCES, IT CANNOT BE SA ID THAT ASSESSEE HAS NOT AT ALL INCURRED ANY EXPENSES IN MA NAGING ITS PORTFOLIOS. 8 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 11. THE KOLKATA BENCH OF THIS TRIBUNAL IN REI AG RO LTD. VS. DCIT (SUPRA) HELD THAT DISALLOWANCE UNDER SECTI ON 14A READ WITH RULE 8D CAN BE MADE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENTS WHICH HAS GIVEN RISE TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- 8. IN RESPECT OF PROVISIONS OF RULE 8D(2)(III) WHICH IS THE SUBJECT MATTER OF THE ASSESSEES APPEAL IN THE ASSESSEES HAND, A PERUSAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER RULE 8D(2)(III) IS THE AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF THE INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDER SUB-CLAUSE (III) WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(II). AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(II) OF THE ACT. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III) WHICH IS ISSUE IN THE ASSESSEES APPEAL IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FO R RECOMPUTATION IN LINE WITH THE DIRECTION GIVEN 9 ITA NOS.1236 & 1240/MDS/2014 & 1259 TO 1261/MDS/2014 ABOVE. NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(II) AND (II) CAN BE MADE IN THIS CASE. 12. FOLLOWING THE SAID DECISION, WE DIRECT THE ASSE SSING OFFICER TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D (2)(III) BY TAKING THE AMOUNT EQUAL TO PERCENTAGE OF THE A VERAGE VALUE OF THE INVESTMENT WHICH HAS GIVEN RISE TO TH E INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 13. IN THE RESULT, ALL THESE THREE APPEALS OF THE A SSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND BOT H THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 28 TH DAY OF NOVEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ! ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) # / ACCOUNTANT MEMBER % # / JUDICIAL MEMBER /CHENNAI, ' /DATED 28 TH NOVEMBER, 2014 SOMU !%*+ -+ /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. . () /CIT(A) 4. . /CIT 5. + !%%1 /DR 6. 4 /GF .