Asst. Comminssioner of Income Tax, Circle -16(2), Hyderabad V. Ushodya Enterprises Limited, Hyderabad

ITA 1297/HYD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6229 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 02-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 31-08-2012
• Court: TRIBUNAL
• Department Lawyers: P CHANDRA SEKHAR
• Keywords: Depreciation; Additional evidence; Bad and doubtful debts; Deemed dividend
• Section: 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 12 21 /HYD/201 2 200 9 - 1 0 USHODAYA ENTERPRISES PRIVATE LIMITED HYDERABAD [PAN: AAACU2690P] INCOME TAX OFFICER, WARD-16(1), HYDERABAD 1 297 /HYD/201 2 200 9 - 1 0 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD USHODAYA ENTERPRISES LIMITED, HYDERABAD [PAN: AAACU2690P] FOR REVENUE : SHRI P. CHANDRA SEKHAR, CIT-DR FOR ASSESSEE : SHRI RAJAN VORA, AR DATE OF HEARING : 31-08-2016 DATE OF PRONOUNCEMENT : 21-09-2016 O R D E R PER B. RAMAKOTAIAH, A.M. : THESE TWO ARE CROSS-APPEALS AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERAB AD DATED 06-06-2012 FOR THE AY. 2009-10. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIVATE L IMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF NEWSPAPER PUBLICATION, TELECASTING AND MANUFACTURE AND SALE OF FOOD PRODUCT S. ASSESSEE FILED RETURN OF INCOME ADMITTING LOSS OF RS. 260.47 CR ORES UNDER THE NORMAL PROVISIONS OF THE ACT AND FILED REVISED RE TURN ON I.T.A. NOS. 1221 & 1297/HYD/2012 :- 2 -: 30-03-2011 RESTRICTING THE LOSS TO RS. 257.52 CRORES. IN THE SCRUTINY ASSESSMENT COMPLETED U/S. 143(3) VIDE ORDER DT. 29-12-2011, THE TOTAL INCOME WAS DETERMINED AT RS. 52,90,40,793/- BY MAKING THE FOLLOWING SIX DISALLOWANCES/ADDITIONS : DISALLOWANCE/ADDITIONS AMOUNT (RS) DISALLOWANCE U/S. 40(A)(IA) ON ACCOUNT OF NON - DEDUCTION OF TAX AT SOURCE ON DISCOUNT GIVEN TO ADVERTISING CONSULTANTS ON SALE OF AD SPACE IN NEWSPAPERS AND TELEVISION TIME SLOTS 99,96,09,726 DEPRECIATION ALLOWANCE ON COMPUTER ACCESSORIES RESTRICTED TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE 18,49, 582 ADDITION U/S. 2(22)(E) ON ACCOUNT OF SECURITY PROVIDED BY MARGADARSI CHITS PRIVATE LTD., CHENNAI (MARGADARSI CHENNAI) AND MARGADARSI CHIT FUNDS PRIVATE LTD., HYDERABAD (MARGADARSI HYDERABAD) TO UTI BANK 8,28,59,470 DISALLOWANCE OF PRIOR PERIOD EX PENSES DEBITED TO PROFIT AND LOSS ACCOUNT 50,32,981 DISALLOWANCE OF DEPRECIATION ALLOWANCE ON NON - COMPETE FEE PAID BY THE APPELLANT TO PROMOTERS OF USHA KIRON MOVIES (UKM) AND USHA KIRAN TELEVISION (UKT) 1,46,56,25,000 DEPRECIATION ON SOFTWARE LIBRARY RE STRICTED TO 15% INSTEAD OF 25% CLAIMED BY THE ASSESSEE CONSIDERING THE SAME AS AN INTANGIBLE ASSET 57,88,28,125 3. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). LD.CIT(A) AFTER CONSID ERING THE WRITTEN SUBMISSIONS, GAVE PARTIAL RELIEF IN THE APPEAL, WHER EIN HE HAS HELD AS UNDER: NO TAX IS REQUIRED TO BE DEDUCTED U/S. 194H ON THE DIS COUNT ALLOWED BY ASSESSEE TO ADVERTISING CONSULTANTS BASED ON ORDER PASSED BY THE CIT(A) IN ASSESSEES OWN CASE FO R THE AY. I.T.A. NOS. 1221 & 1297/HYD/2012 :- 3 -: 2006-07 AND ACCORDINGLY, DIRECTED THE LD. AO TO DELE TE THE SAID ADDITION; PRINTERS, SCANNERS AND MODEMS ETC., ARE A PART OF COMP UTER SYSTEMS AND ARE ELIGIBLE FOR DEPRECIATION @ 60%. TH E CIT(A) HAS RELIED ON THE ORDER PASSED BY THE CIT(A) IN ASSE SSEES OWN CASE FOR THE AY. 2006-07; DELETED THE DISALLOWANCE MADE U/S. 2(22)(E) STATING THA T NO AMOUNTS HAVE ACTUALLY GONE TO THE SHAREHOLDERS, WHICH IS A REQUIREMENT AS PER SECTION 2(22)(E) OF THE ACT; UPHELD THE DISALLOWANCE OF PRIOR PERIOD EXPENSES; UPHELD THE DEPRECIATION ON NON-COMPETE FEE PAID BY A SSESSEE TO USHA KIRON MOVIES AND USHA KIRAN TELEVISION; UPHELD THE RESTRICTION OF THE DEPRECIATION TO 15% ON THE SOFTWARE LIBRARY POSSESSED BY ASSESSEE CONSIDERING THE SAME AS PLANT; 4. AGGRIEVED BY THE ABOVE, ASSESSEE PREFERRED THE AP PEAL ON THE FOLLOWING ITEMS: DISALLOWANCE OF PRIOR PERIOD EXPENDITURE; DEPRECIATION CLAIM ON NON COMPETE FEE; AND DEPRECIATION AT 25% ON SOFT WARE LIBARY; 4.1. REVENUE HAS PREFERRED THE APPEAL ON THE RELIEF GRANTED BY THE CIT(A) ON THE ISSUE OF: I.T.A. NOS. 1221 & 1297/HYD/2012 :- 4 -: ADDITION U/S. 40(A)(IA) DEPRECIATION ON COMPUTER PERIPHERALS AND DELETION OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT. THESE ARE DEALT WITH AFTER HEARING THE LD. COUNSEL A ND LD. DR AND PERUSING THE WRITTEN SUBMISSIONS AND PAPER BOOK FILED IN THIS REGARD. APPEAL OF ASSESSEE IN ITA NO. 1221/HYD/2012: 5. THE ISSUE WITH REFERENCE TO THE DISALLOWANCE OF PR IOR PERIOD EXPENDITURE OF RS. 50,32,981/-, CONTESTED IN G ROUND NOS. 1 TO 3, IS THAT ASSESSEE HAS RAISED BILLS TOWARDS ADVERTIS EMENT AGAINST CERTAIN CUSTOMERS. THE SAME WAS RECOGNISED A S REVENUE IN THE YEAR OF RAISING THE BILL. HOWEVER, IN FINAN CIAL YEAR RELEVANT FOR AY. 2009-10, ASSESSEE CAME TO KNOW THAT IN CERTAIN BILLS ERRORS WERE COMMITTED IN EARLIER YEARS BY EXCESS BILLING. S INCE SUCH EXCESS BILLING WAS OFFERED AS INCOME IN EARLIER Y EARS, THE SAME WAS CREDITED TO CUSTOMERS ACCOUNT AND WAS DEBITED TO P&L A/C UNDER THE HEAD PRIOR PERIOD ITEMS DURING THE YEAR UNDER CO NSIDERATION. AO DISALLOWED THE AMOUNT CONSIDERING THE SAME AS PRIO R PERIOD EXPENSES. LD.CIT(A) UPHELD THE CONTENTIONS AND CONFI RMED THE DISALLOWANCE. 5.1. IT WAS SUBMITTED THAT THIS ISSUE IS COVERED IN FA VOUR OF ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR AY. 2007-08 & 2008-09, WHEREIN RELIEF WAS GRANTED BY ALLOWING THE DEDUCTION U/S. 36(1)(VII) OF THE ACT. THE CO-ORDINATE BENCH OF ITAT ON IDENTICAL FACTS HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND HELD AS UNDER: I.T.A. NOS. 1221 & 1297/HYD/2012 :- 5 -: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES. THOUGH IN PRINCIPLE, WE ARE AGREEMENT WITH THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES, WE FI ND MERIT IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE. INASMUCH AS IF AN AMOUNT OF RS. 2,11,34,759 OUT OF TOTAL AMOUNT OF RS. 2,38,85,000 WAS ALREADY OFFERED TO TAX IN THE EARLIER YEARS, THE PRIOR PERIOD ADJUSTME NT MADE IN THAT BEHALF BY THE ASSESSEE, ON ACCOUNT OF THE CONCERNED PARTIES D ECLINING TO MAKE THE PAYMENTS DUE TO DISCREPANCIES IN THE BILLING, THE S AME SHOULD BE ALLOWED AS DEDUCTION AS BAD DEBTS. WE THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE CIT (A) AND DIRECT THE ASSESSING OFFICER ACCORD INGLY TO RESTRICT THE DISALLOWANCE MADE. ASSESSEE'S GROUNDS ON THIS ISSUE ARE PARTLY ALLOWED. ' SIMILAR VIEW WAS TAKEN IN ITA NO. 26/HYD/2011 DT. 2 2 ND OCT. 2014 FOR AY. 2008-09 : 'WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OT HER MATERIALS ON RECORD. THERE IS NO DISPUTE SO FAR AS THE FACTUAL ASPECT OF THE ISSUE IS CONCERNED THAT THE AMOUNTS WRITTEN OFF WERE DECLARED AS INCOM E IN EARLIER ASSESSMENT YEARS. THE AO AS WELL AS CIT(A) HAVE DIS ALLOWED ASSESSEE'S CLAIM OF DEDUCTION MAINLY ON THE GROUND THAT IT IS BEING IN THE NATURE OF PRIOR PERIOD EXPENSES CANNOT BE ALLOWED IN THE IMPU GNED A Y AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. HOWEVER, IT IS A FACT ON RECORD THAT WHILE CONSIDERING IDENTICAL ISS UE IN ASSESSEE'S OWN CASE FOR AY 2007-08 A COORDINATE BENCH OF THIS TRIB UNAL IN ITA NO. 1535/HYD/2010 DATED 10/05/2013 ALLOWED ASSESSEE'S C LAIM OF DEDUCTION ON THE FOLLOWING FINDING: 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES. THOUGH IN PRINCIPLE, WE ARE AGRE EMENT WITH THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES, WE FIND MERIT IN T HE ALTERNATIVE CONTENTION OF THE ASSESSEE. INASMUCH AS IF AN AMOUNT OF RS. 2,11, 34,759 OUT OF TOTAL AMOUNT OF RS. 2,38,85,000 WAS ALREADY OFFERED TO TAX IN TH E EARLIER YEARS, THE PRIOR PERIOD ADJUSTMENT MADE IN THAT BEHALF BY THE ASSESS EE, ON ACCOUNT OF THE CONCERNED PARTIES DECLINING TO MAKE THE PAYMENTS DU E TO DISCREPANCIES IN THE BILLING, THE SAME SHOULD BE ALLOWED AS DEDUCTION AS BAD DEBTS. WE THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE CIT (A) AND DIRECT THE ASSESSING OFFICER ACCORDINGLY TO RESTRICT THE DISALLOWANCE MADE. ASSE SSEE'S GROUNDS ON THIS ISSUE ARE PARTLY ALLOWED. ' 5.2. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING TH E SAME, THE ORDERS OF AO AND CIT(A) ON THIS ISSUE ARE SET ASID E AND WE DIRECT THE AO TO ALLOW THE AMOUNT AS CLAIMED. IN VIEW OF ALLOWANCE OF THE ABOVE AMOUNT, THE ALTERNATE CLAIM THAT THE SAME SH OULD BE I.T.A. NOS. 1221 & 1297/HYD/2012 :- 6 -: ALLOWABLE AS TRADING LOSS U/S. 28 OF THE ACT BECOMES ACADEMIC IN NATURE. GROUND NOS. 1 TO 3 ARE TREATED AS ALLOWED. 6. GROUND NOS. 4 TO 7 PERTAIN TO ISSUE OF DISALLOWAN CE OF DEPRECATION OF RS. 1,46,56,25,000/- ON NON-COMPETE F EE PAID BY ASSESSEE TO THE PROMOTERS OF USHA KIRON MOVIES AND USH A KIRAN TELEVISION. ASSESSEE HAS MADE PAYMENT TO PROMOTERS OF USHA KIRON MOVIES AND USHA KIRAN TELEVISION IN EARLIER YEARS FOR ACQUIRING CERTAIN EXCLUSIVE RIGHTS OVER THE BUSINESS A CQUIRED AND TO RESTRAIN THE PROMOTERS FROM CONTINUING THE SAME BUSIN ESS. ASSESSEE HAS CONSIDERED THE SAID PAYMENT AS INTANGIBL E ASSET AND CLAIMED DEPRECIATION AT 25%. AO DISALLOWED THE DEPREC IATION ON NON-COMPETE FEE STATING THAT THE PAYMENT TOWARDS NON-COMP ETE FEE IS NOT GENUINE AND IT CANNOT BE CONSIDERED AS INTANGIB LE. LD.CIT(A) UPHELD THE CONTENTION OF AO. 6.1. IT WAS FAIRLY SUBMITTED THAT THIS ISSUE HAS ARISEN IN ASSESSEES OWN CASE IN AY. 2008-09, WHEREIN ITAT HA S RESTORED THE MATTER TO THE FILE OF AO, TO CONSIDER THE ISSUES OF GENU INENESS OF NON-COMPETE FEE PAID AND ELIGIBILITY OF DEPRECIATION ON NON- COMPETE FEE. THE DIRECTIONS OF ITAT ARE AS UNDER: GENUINENESS OF THE NON-COMPETE FEE PAID: 'PARA 28 .THEREFORE, WHEN THE NON-COMPETE FEE PAID BY ASSESSEE HAS BEEN ACCEPTED AT THE HANDS OF SHRI RAM OJI RAO HUF AND ALLOWED TO BE SET OFF AGAINST THE BROUGHT FORWARD L OSSES, IT NEEDS TO BE EXAMINED WHETHER STILL THE PAYMENT OF NONCOMPETE FE E MADE BY THE ASSESSEE TO SHRI RAMOJI RAO HUF CAN BE HELD TO BE E ITHER NON-GENUINE OR NOT NECESSARY. THEREFORE, CONSIDERING THE TOTALI TY OF THE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT AS THE IMPACT OF ACQUISITION OF 39% OF EQUITY SHARES BY MIS EQUATOR TRADING ENTERPR ISES PVT. LTD. HAS NOT AT ALL BEEN EXAMINED BY AO AT THE TIME OF ASSES SMENT PROCEEDING OR BY THE LEARNED CIT(A) WHILE DISPOSING OF ASSESSE E'S APPEAL AND I.T.A. NOS. 1221 & 1297/HYD/2012 :- 7 -: FURTHER AS THE ADDITIONAL EVIDENCES PRODUCED BEFORE US WERE NOT EXAMINED EITHER BY THE AO OR BY CIT(A), WHICH CERTA INLY HAVE A CRUCIAL BEARING ON THE ISSUE AS TO WHETHER THE PAYMENT OF N ON-COMPETE FEE IS GENUINE AND NECESSARY, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH. ' ELIGIBILITY OF THE DEPRECIATION ON THE NON-COMPETE FEE: 'PARA 28.. ONLY AFTER THE ISSUE RELATING TO GEN UINENESS OF NON- COMPETE FEE PAID AND NECESSITY TO PAY SUCH FEE IS R ESOLVED, AO WILL DECIDE THE ALLOWABILITY OF DEPRECIATION CLAIMED ON SUCH NON-COMPETE FEE BY KEEPING IN VIEW THE STATUTORY PROVISION AS WELL AS THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO HEREINABOVE AND A NY OTHER DECISION BROUGHT TO HIS NOTICE. IT IS NEEDLESS TO MENTION TH AT AO MUST AFFORD A FAIR OPPORTUNITY OF HEARING TO ASSESSEE IN THE MATT ER BEFORE DECIDING THE ISSUE. THIS GROUND IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES.' 6.2. SINCE THE ISSUE HAS ARISEN IN EARLIER YEAR, WH ERE THE AO HAS TO EXAMINE THE ISSUE, THERE IS NO NEED TO ADJUDICA TE AFRESH ABOUT THE CONTENTIONS MADE BY ASSESSEE IN THE WRITTEN SUBMISSIONS. SUFFICE TO SAY THAT THIS BEING A CLAIM O N WDV, WHATEVER DECISION IS TAKEN IN THE VERY FIRST YEAR OF C LAIM WILL AUTOMATICALLY APPLY TO THIS YEAR. AO IS DIRECTED TO C ONSIDER THE CLAIM OF DEPRECIATION BASED ON THE FINDINGS GIVEN IN EARLIER YEARS AND CONSISTENT TO THE STAND TAKEN ON GENUINENESS AND ELI GIBILITY IN EARLIER YEAR. ACCORDINGLY, THESE GROUNDS ARE CONSID ERED ALLOWED FOR STATISTICAL PURPOSES. 6.3. GROUND NO. 8 PERTAIN TO ALTERNATE CLAIM THAT THE ABOVE SAID EXPENDITURE (NON COMPETE FEE) IS FOR BUSINESS P URPOSES U/S. 37(1) AND SHOULD BE ALLOWED AS DEFERRED REVENUE EX PENDITURE PROPORTIONATELY. THIS WOULD ARISE ONLY IF THE OTHER CO NTENTIONS ARE NOT ACCEPTED. AO IS DIRECTED TO KEEP THIS IN MIND WH ILE DECIDING THE ISSUE. THIS GROUND IS TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. I.T.A. NOS. 1221 & 1297/HYD/2012 :- 8 -: 7. THE NEXT ISSUE CONTESTED BY ASSESSEE IS WITH REFE RENCE TO THE DISALLOWANCE OF DEPRECIATION ON SOFTWARE LIBRAR Y RAISED IN GROUND NOS. 9 TO 11. ASSESSEE OWNS CERTAIN SOFTWARE LIBRARY CONTAINING FILMS AND OTHER TV PROGRAMMES AND ALSO OW NS EXCLUSIVE TELECASTING RIGHTS OF SUCH FILMS AND TV PROGRAMMES FO R A SPECIFIED PERIOD OF TIME. SUCH SOFTWARE LIBRARIES ALONG WITH TELECASTING RIGHTS HAVE BEEN TREATED BY ASSESSEE AS INTANGIBLE ASSETS A ND DEPRECIATION AT 25% HAS BEEN CLAIMED ON THE SAME. AO WAS OF THE OPINION THAT THE SAID SOFTWARE LIBRARY IS IN THE NATUR E OF PLANT & MACHINERY ELIGIBLE FOR DEPRECIATION AT 15% AND ACCORD INGLY MADE THE PROPORTIONATE DISALLOWANCE OF THE DEPRECIATION. LD. CIT(A) UPHELD THE AOS CONTENTIONS. 7.1. AT THE OUTSET, IT WAS SUBMITTED THAT ITAT IN ASSESSEE S OWN CASE FOR AY. 2007-08 AND AY. 2011-12 & 2012-13 HAS ALLOWED ASSESSEES CONTENTIONS AND CONSIDERED THE SOFTWARE LIB RARY TO BE INTANGIBLE. THE RELEVANT PARA OF ITAT IN THE ORDER FOR AY. 2007-08 IS AS UNDER: 'PARA 11.1IN THE CASE BEFORE US, THE FILMS AN D TV PROGRAMMES ARE ESSENTIAL FOR THE ASSESSEE COMPANY T O CARRY ON ITS BUSINESS OF TELECASTING OF FILMS AND OTHER PROGRAMM ES, BUT THERE IS NO CAVEAT THAT THE ASSESSEE COMPANY HAS TO TELECAST ON LY THESE FILMS AND PROGRAMMES AND NONE OTHER FOR ASSESSEE'S BUSINESS. FURTHER, NOT ONLY THE FILMS AND PROGRAMMES IN THE 'FILM SOFTWARE LIBRARY' , BUT THE ASSESSEE MAY ALSO TELECAST ANY OTHER PROGRAMMES OR FILMS ON ITS CHANNELS. BY PURCHASING THE LIBRARY, THE ASSESSEE IS GAINING EXC LUSIVE RIGHT OVER THE ASSET BUT THIS LIBRARY CANNOT BE HELD AS A TOOL FOR CARRYING ON OF ITS BUSINESS AS ASSESSEE CAN CARRY ON ITS BUSINESS EVEN WITHOUT THE 'FILM SOFTWARE LIBRARY'. THE SAID LIBRARY ONLY ASSISTS IN DETERMINING THE CONTENT OF THE TELECAST, BUT DOES NOT LIMIT THE TELECAST AN D IS NOT ESSENTIAL FOR THE OPERATIONS OF THE ASSESSEE'S BUSINESS AND THEREFORE CANNOT BE TERMED AS THE TOOL OF THE TRADE. THUS, IT FAILS THE FUNCTIONA L TEST ADOPTED BY THE ASSESSING OFFICER. THEREFORE, WE HOLD THAT THE ASSE T WHICH CONSISTS OF 'COPYRIGHTED FILMS AND PROGRAMMES' IS AN 'INTANGIBL E ASSET' ELIGIBLE FOR I.T.A. NOS. 1221 & 1297/HYD/2012 :- 9 -: DEPRECIATION AT THE RATE OF 25%. THUS, THE GROUND O F APPEAL NO.3 OF THE REVENUE IS REJECTED. AO IS DIRECTED TO ALLOW THE CLAIM. 7.2. ONE OF THE GROUNDS IS THAT AO HAS EXCESS DISALLO WED THE AMOUNT UNDER THIS HEAD. IT WAS SUBMITTED THAT ASSESSEE OR IGINALLY CLAIMED DEPRECIATION AT RS. 1,44,70,70,313/- IN THE ORIGINAL RETURN OF INCOME AND HAS SUBSEQUENTLY REVISED THAT CLAIM TO RS . 1,27,14,84,375/-. IT IS THE CONTENTION THAT AO DISALLOWED THE EXCESS DEPRECIATION BASED ON THE CLAIM MADE IN THE ORI GINAL RETURN AND HAS NOT CONSIDERED THE REVISED CLAIM. AO IS DIR ECTED TO EXAMINE THIS ASPECT, NOT ONLY THE CLAIM MADE IN THIS YE AR BUT ALSO WDV OF EARLIER YEARS CONSEQUENT TO THE DIRECTIONS OF THE ITAT AND THEN DETERMINE THE CORRECT AMOUNT TO BE ALLOWED TO ASSES SEE WITH ELIGIBLE DEPRECIATION AT 25%. WITH THESE DIRECTIONS, THE GROUNDS ARE CONSIDERED ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. APPEAL OF REVENUE IN ITA NO. 1297/HYD/2012: 9. REVENUE HAS RAISED FIVE GROUNDS ON THREE ISSUES WHICH ARE ALLOWED BY THE CIT(A). THE FIRST ISSUE IS WITH RE FERENCE TO DISALLOWANCE U/S. 40(A)(IA) FOR NON-DEDUCTION OF TA X ON COMMISSION PAID TO AD- AGENCIES. ASSESSEE HAS RECEIVED ADVERTIS EMENT REVENUE, NET OF EXPENDITURE INCURRED TOWARDS AGENTS CO MMISSION PAID TO ADVERTISING CONSULTANT FOR SALE OF SPACE FOR A DVERTISEMENT IN NEWS PAPERS AND TIME SLOTS FOR TELEVISION BROADCASTING . IT WAS THE I.T.A. NOS. 1221 & 1297/HYD/2012 :- 10 -: CONTENTION THAT THE EXPENSES PAID TO AD AGENCIES ARE DISCOUNTS AND NOT COMMISSION. AO DISALLOWED THE SAID EXPENSES STATIN G THAT SAME IS IN THE NATURE OF COMMISSION AND PROVISIONS OF SECTION 194H ARE APPLICABLE. IN THE ABSENCE OF TDS U/S. 194 H, THE AMOUNT IS DISALLOWABLE U/S. 40(A)(IA). LD.CIT(A) FO LLOWING HIS ORDER FOR AY. 2006-07, HAS GRANTED RELIEF TO ASSESSEE. HEN CE REVENUE IS AGGRIEVED. 9.1. IT WAS SUBMITTED THAT ON AN IDENTICAL ISSUE IN ASSESSEES OWN CASE IN AN APPEAL AGAINST THE DEMAND RAISED U/S. 201 AND 201(1A) OF THE ACT FOR AYS. 2004-05, 2005-06 & 2006-07 IN ITA NOS. 1706-1708/HYD/2008, ITAT HAS HELD THAT A SSESSEE IS NOT LIABLE TO DEDUCT TAXES U/S. 194H OF THE ACT. THE SAM E DECISION HAS BEEN FOLLOWED BY THE ITAT IN DECIDING THE ISSUE FOR AYS. 2005- 06 AND 2006-07 IN ITA NO. 701/HYD/2009 AND 426/HYD/ 2010 AND FOR AY. 2007-08 IN ITA NO. 1535/HYD/2010 AND ALSO I N AY. 2008- 09 IN ITA NO. 100/HYD/2012. THE EXTRACT OF THE ORDER OF ITAT IN AY. 2008-09 IS AS UNDER: 'WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS O F REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. A T THE OUTSET, BOTH THE LEARNED AR AND LEARNED DR AGREED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE ITA T, HYD ERABAD IN ASSESSEE'S OWN CASE FOR A YS 2004-05, 2005-06, 2006 -07 AND 2007-08. ON A PERUSAL OF THE ORDER PASSED BY THE IT A T IN ITA NO. 1706 TO 1708/HYD/2008 DATED 22103/2012, IT IS OBSER VED THAT FOR AY 2004-05 TO 2006-07 WHEN THE AO RAISED DEMAND U/S 201 AND 201(1A) AGAINST ASSESSEE FOR NOT DEDUCTING TAX AT S OURCE U//S 194H ON COMMISSION PAID TO AGENTS ON SALE OF SPACE FOR A DVERTISEMENT IN NEWSPAPERS AND TELEVISION TIME SLOT, THE ASSESSEE C HALLENGED THE SAME BEFORE CIT(A). AFTER THE CIT(A) DELETED THE DE MAND RAISED U/S 201 AND 201(1A), THE DEPARTMENT CAME IN APPEAL BEFO RE THE TRIBUNAL. THE TRIBUNAL, HOWEVER, UPHELD THE DECISIO N OF THE CIT(A) BY HOLDING THAT THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX U/S 194H ON SUCH PAYMENTS. FOLLOWING THE AFORESAID DECI SION, THE ITAT IN ASSESSEE'S OWN CASE FOR AY 2005-06 AND 2006-07 I N ITA NO. I.T.A. NOS. 1221 & 1297/HYD/2012 :- 11 -: 701/HYD/09 AND 426/HYD/10 DATED 09/07/12 AND FOR AY 2007- 08 IN ITA NO. 1535/HYD/10 DATED 10/05/13 WHILE DECI DING THE ISSUE OF DISALLOWANCE MADE BY AO U/S 40(A)(IA) FOR NOT DEDUCTING TAX AT SOURCE U/S 194H ON COMMISSION PAYMENTS MADE TO AGENTS UPHELD THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY AO. AS THE VIEW TAKEN BY THE LEARNED CIT(A) IN THE PRESENT CASE IS IN CONFORMITY WITH THE DECISIONS OF THE TRIBUNAL IN AS SESSEE'S OWN CASE FOR PRECEDING ASSESSMENT YEARS, WE UPHOLD THE SAME. ACCORDINGLY, GROUND RAISED IS DISMISSED'. 9.2. IN VIEW OF THIS, WE DO NOT SEE ANY MERIT IN REV ENUES CONTENTIONS AS THE LD.CIT(A) FOLLOWED THE ORDERS OF IT AT ON THE ISSUE. THE GROUND IS ACCORDINGLY REJECTED. 10. GROUND NO. 2 PERTAINS TO DELETION OF DEPRECIATION CLAIMED ON COMPUTER PERIPHERALS. DURING THE YEAR, ASSESSEE HAD SHOWN ADDITIONS TO FIXED ASSETS UNDER THE HEAD COMPUTE RS, MAINLY CERTAIN COMPUTER ACCESSORIES AND CLAIMED DEPRE CIATION APPLICABLE TO COMPUTERS. AO CONTENDED THAT ONLY COMPUTER S AND COMPUTER SOFTWARE IS ELIGIBLE FOR DEPRECIATION AT 60% AND ACCESSORIES LIKE PRINTERS, SCANNERS, MODEMS AND ROUTE RS COME UNDER THE HEAD PLANT & MACHINERY AND THEREFORE, DEPREC ATION RATE APPLICABLE IS 15%. LD.CIT(A) HOWEVER, CONSIDERED TH AT THE COMPUTER SYSTEM FUNCTIONS AS AN INTEGRATED UNIT CONSIS TING OF CPU PLUS PERIPHERALS, THEREFORE, DEPRECIATION AT 60% IS T O BE ALLOWED. LD.CIT(A) FOLLOWED HIS OWN ORDER IN AY. 2006-07 ON AN IDENTICAL ISSUE. 10.1. IT WAS SUBMITTED THAT IN ASSESSEES OWN CASE FOR AY. 2005-06 IN ITA NO. 701/HYD/2009 AND AY. 2006-07 IN ITA NO. 426/HYD/2010, THE ITAT HAS RULED IN FAVOUR OF ASSESS EE AND HELD THAT ENTIRE COMPUTER SYSTEM FUNCTIONS AS A UNIT AND PERI PHERALS I.T.A. NOS. 1221 & 1297/HYD/2012 :- 12 -: ARE PART OF COMPUTERS. THE RELEVANT EXTRACT OF THE ITAT S ORDER IS AS UNDER: PARA 19. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES AND PERUSING THE RECORDS, WE ARE OF THE VIE W THAT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DE LETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF DEPRECIAT ION ON COMPUTER ACCESSORIES AND PERIPHERALS AS THE ORDER O F THE CIT(A) IS IN CONSONANCE WITH THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ASST.CIT VS. AMADEUS INDIA (P) LTD., ( IN ITA 938/2011) WHEREIN THE HON'BLE HIGH COURT HELD THAT THE TERM C OMPUTER SOFTWARE SHOULD BE INTERPRETED LIBERALLY, BROADLY A ND IN CONSONANCE WITH THE INTENT OF THE LEGISLATION AND WORKING OF T HE ENTIRE SYSTEM AS A WHOLE. THEREFORE, WE CONFIRM THE ORDER OF THE CI T(A) ON THIS ACCOUNT AND DISMISS THE GROUND OF APPEAL OF THE REV ENUE. FURTHER, IN AY. 2007-08 & 2008-09, THE ABOVE ORDERS F OLLOWED. 10.2. IN THE COURSE OF ARGUMENTS, LD. CIT-DR HOWEVER , SUBMITTED THAT HONBLE KARNATAKA HIGH COURT IN THE CASE O F DIEBOLD SYSTEMS PVT. LTD., VS. COMMISSIONER OF COMMER CIAL TAXES (2006) [144 STC 59] (KAR) HAS HELD THAT ATM CANNOT BE CONSIDERED AS COMPUTER TERMINAL BUT CAN ONLY BE CONSIDERED AS ELECTRONIC GOODS. THEREFORE, RELYING ON THE ABOVE SAID DECIS ION, IT WAS SUBMITTED THAT THE ORDER OF CIT(A) REQUIRES RE-CONSIDERA TION. HE ALSO FILED THE DECISION OF CO-ORDINATE BENCH AT BANGA LORE IN THE CASE OF STATE BANK OF MYSORE ON ATMS ITSELF, FOLLOWING THE JURISDICTIONAL HIGH COURT IN THE CASE OF DIEBOLD SYS TEMS PVT. LTD., VS. COMMISSIONER OF COMMERCIAL TAXES (2006) [144 ST C 59] (KAR) (SUPRA). 10.3. AFTER CONSIDERING THE CONTENTIONS OF LD. DR, WE ARE NOT IN AGREEMENT WITH THE SAME. THE COMPUTER PERIPHERALS I N QUESTION ARE NOT ATMS WHICH WERE CONSIDERED BY THE HONBLE KAR NATAKA HIGH COURT. THE COMPUTER PERIPHERALS UNDER CONSIDERA TION ARE I.T.A. NOS. 1221 & 1297/HYD/2012 :- 13 -: PRINTERS AND SCANNERS ETC., WHICH CANNOT FUNCTION INDE PENDENTLY WITHOUT ITS CONNECTIVITY TO A COMPUTER SYSTEM. IN FACT THE INFORMATION TECHNOLOGY ACT, 2000 DEFINES COMPUTERS I N A VIDE MANNER AND THE HONBLE KARNATAKA HIGH COURT ITSELF HAS CONSIDERED THE SAME IN THE JUDGMENT IN PARA 27 OF THE O RDER AS UNDER: 27. THE INFORMATION TECHNOLOGY ACT, 2000, IS AN AC T TO PROVIDE LEGAL RECOGNITION FOR TRANSACTIONS CARRIED OUT BY MEANS OF ELECTRONIC DATA INTERCHANGE AND OTHER MEANS OF ELEC TRONIC COMMUNICATION, COMMONLY REFERRED TO AS ELECTRONIC COMMERCE, WHICH INVOLVE THE USE OF ALTERNATIVE TO PAPER-BASED METHODS OF COMMUNICATION AND STORAGE OF INFORMATION TO FACILIT ATE ELECTRONIC FILING OF DOCUMENTS WITH THE GOVERNMENT AGENCIES, E TC. IN THE DICTIONARY CLAUSE OF THE ACT, THE MEANING OF THE WO RD COMPUTER IS DEFINED TO MEAN ANY ELECTRONIC, MAGNETIC, OPTICAL O R OTHER HIGH SPEED DATA PROCESSING DEVICE OR SYSTEM WHICH PERFOR MS LOGICAL, ARITHMETIC AND MEMORY FUNCTIONS BY MANIPULATIONS OF ELECTRONIC, MAGNETIC OR OPTICAL IMPULSES AND INCLUDES ALL INPUT , OUTPUT, PROCESSING, STORAGE, COMPUTER SOFTWARE, OR COMMUNIC ATION FACILITIES WHICH ARE CONNECTED OR RELATED TO THE COMPUTER IN A COMPUTER SYSTEM OR COMPUTER NETWORK. THE COMPUTER NETWORK MEANS THE INTERCONNECTION OF ONE OR MORE COMPUTERS THROUGH TH E USE OF SATELLITE, MICROWAVE, TERRESTRIAL LINE, OR OTHER CO MMUNICATION MEDIA AND TERMINALS OR A COMPLEX CONSISTING OF TWO OR MOR E INTERCONNECTED COMPUTERS WHETHER OR NOT THE INTERCONNECTION IS CON TINUOUSLY MAINTAINED. 10.4. SINCE THE DEFINITION GIVEN IN THE INFORMATION TE CHNOLOGY ACT, 2000 ALSO INCLUDE ALL OTHER CONNECTED OR RELATED SYSTEMS, THE DECISION OF THE ITAT, ALLOWING DEPRECIATION AT 60% ON COMPUTER PERIPHERALS DOES NOT REQUIRE ANY RE-CONSIDERATION. IN VIEW OF THIS, THE ORDER OF CIT(A) IS UPHELD AND REVENUES GROUND I S REJECTED. 11. THE LAST ISSUE FOR CONSIDERATION IN REVENUES AP PEAL IS DELETION OF DEEMED DIVIDEND OF RS. 8,28,59,470/- MAD E BY THE AO INVOKING SECTION 2(22)(E) OF THE ACT. THE FACTS LEADIN G TO THE ABOVE ISSUE ARE THAT ASSESSEE HAD ACQUIRED CERTAIN LOAN FROM THE BANK I.T.A. NOS. 1221 & 1297/HYD/2012 :- 14 -: AND FOR PROCUREMENT OF LOAN FUNDS, MARGADARSI CHENNA I AND MARGADARSI HYDERABAD (GROUP COMPANIES) PLEDGED IMMO VABLE PROPERTIES WORTH RS. 8.28 CRORES AS SECURITY. ON THE STRENGTH OF THE SECURITY, THE BANK HAS PROVIDED THE LOAN. AO WAS OF THE OPINION THAT THE DIVIDEND NEED NOT BE DISTRIBUTED IN MONE Y AND IT MAY BE DISTRIBUTED BY DELIVERY OF PROPERTY OR RIGHT H AVING MONETARY VALUE. ACCORDINGLY, EXERCISE OF RIGHT TO MORTGAGE P ROPERTY BY MARGADARSI CHENNAI AND MARGADARSI HYDERABAD WAS WITHIN THE AMBIT OF SECTION 2(22)(E) OF THE ACT. HENCE, THE PROPER TY SECURED TOWARDS MORTGAGE WAS CONSIDERED AS DEEMED DIVIDEND . ON FURTHER APPEAL BY ASSESSEE, LD.CIT(A) EXAMINED THE AB OVE IN DETAIL AND HELD THAT FOR SECTION 2(22)(E) OF THE ACT TO APPLY, I T IS VERY IMPORTANT AND ESSENTIAL FOR THE RECIPIENT TO BE A SHAREHO LDER IN THE COMPANIES WHICH HAS GIVEN THE AMOUNT. HAVING COMMON DIRECTORS, IN THE COMPANIES WILL NOT SATISFY THE STATUTORY MANDATE. LD.CIT(A) GAVE A FINDING THAT ASSESSEE-USHA KIRON MO VIES IS NOT A SHAREHOLDER IN THE OTHER TWO COMPANIES, MARGADARSI CH ITS PVT. LTD., CHENNAI AND MARGADARSI CHITS PVT. LTD., HYDERABAD . HE HELD THAT THERE MAY BE COMMON DIRECTORS, BUT ASSESSEE-COMPANY IS NOT A SHAREHOLDER IN THE ABOVE MENTIONED COMPANIES. THER EFORE, AS PER THE DETAILED DISCUSSION MADE, HE HELD THAT THERE IS NO APPLICABILITY OF SECTION 2(22)(E) OF THE ACT IN THIS C ASE. ACCORDINGLY, THE ADDITION WAS DELETED. 11.1. IT WAS THE CONTENTION OF LD. DR THAT THE DEEMING SECTION 2(22)(E) WILL APPLY TO THE FACTS OF THE CASE. H E RELIED ON THE DECISION OF THE ITAT, DELHI BENCH, SMC IN THE CASE O F PUNEET BHAGAT VS. ITO [157 ITD 353] (DELHI-TRIB), WHEREIN ITAT UPHELD THE PROVISIONS OF DEEMED DIVIDEND. FURTHER, HE RELIED O N THE DECISION I.T.A. NOS. 1221 & 1297/HYD/2012 :- 15 -: OF HONBLE SUPREME COURT IN THE CASE OF KANTILAL MANI LAL AND ORS VS. CIT [41 ITR 275] TO SUBMIT THAT DIVIDEND NEED NOT BE DISTRIBUTED IN MONEY. IT MAY BE DISTRIBUTED BY DELIVERY OF PROPERTY OR RIGHT HAVING MONETARY VALUE. IT WAS HIS SUBMISSION THAT SINCE THE COMPANIES HAVE MORTGAGED THEIR ASSETS FOR THE BENEFI T OF ASSESSEE-COMPANY, AO IS CORRECT IN INVOKING THE PROV ISIONS OF SECTION 2(22)(E). 11.2. LD. COUNSEL IN REPLY SUPPORTED THE ORDER OF CI T(A). IT WAS THE SUBMISSION THAT THERE SHOULD BE A PAYMENT/ADVANC E OF ANY SUM OF MONEY IN THE FORM OF AN ADVANCE OR LOAN TO INVOKE THE PROVISIONS. HE RELIED ON THE DECISION OF HONBLE CA LCUTTA HIGH COURT IN THE CASE OF PRADIP KUMAR MALHOTRA VS. CIT [ 79 CCH 600] [338 ITR 538], AND CO-ORDINATE BENCH IN THE CASE OF A CIT VS. SMT. G. SREEVIDYA IN ITA NO. 1270/MDS/2011, DT. 28-06-201 2, MUMBAI. IT WAS FURTHER SUBMITTED THAT SAID SUM OF MONEY SHOULD BE ADVANCED TO A SHAREHOLDER OF THE COMPANY AND SINCE AS SESSEE IS NOT A SHAREHOLDER, THE PROVISIONS OF SECTION 2(22)(E) DOES NOT APPLY. HE RELIED ON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. C.P. SARTHY MUDALIAR [83 ITR 170] (SC) AN D DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICARE (P) LTD., [78 CCH 299] [324 ITR 263] AND SP ECIAL BENCH DECISION IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD., [118 ITD 1], MUMBAI. HE FURTHER CONTENDED THAT EVEN UNDER THE CO MPANIES ACT, SECTION 372A SPECIFICALLY MAKES A DISTINCTION BET WEEN LOAN AND A GUARANTEE. THEREFORE, A GUARANTEE CANNOT BE CON SIDERED AS ADVANCE OR A LOAN UNDER THE PROVISIONS OF SEC, 2 (22)(E). I.T.A. NOS. 1221 & 1297/HYD/2012 :- 16 -: 11.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE CASE LAW. EVEN THOUGH, LD. DR HAS RELIED ON THE C O-ORDINATE BENCH DECISION IN THE CASE OF PUNEET BHAGAT VS. ITO [1 57 ITD 353] (DELHI-TRIB) (SUPRA), FACTS IN THE SAID CASE ARE THAT TH E PERSONS WHO RECEIVED THE MONEY ARE SHAREHOLDERS IN THE COMPANY. IN THE PRESENT CASE, THERE IS NO SUCH FACT THAT ASSESSEE IS A SHAREHOLDER IN EITHER OF MARGADARSI COMPANIES. MOREOVER, A GUAR ANTEE GIVEN FOR OBTAINING A LOAN FROM THE BANK CANNOT BE CONSIDERED AS MONEY GIVEN FOR THE BENEFIT OF ASSESSEE. EVEN THE COMPANY LAW DISTINGUISHES BETWEEN A LOAN AND A GUARANTEE AS CAN BE SEEN FROM THE PROVISIONS OF SECTION 372A. THEREFORE A GUARANTEE GIVEN CANNOT BE CONSIDERED AS A LOAN. IN VIEW OF THAT, WE DO NOT SEE ANY REASON TO DIFFER FROM THE FINDINGS OF THE LD.CIT(A). ACCORDINGLY, THE GROUND RAISED BY REVENUE IS DISMISSED. REVENUES A PPEAL IS DISMISSED 12. TO SUM-UP, ASSESSEES APPEAL IS ALLOWED FOR STATI STICAL PURPOSES AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 21 ST SEPTEMBER, 2016 TNMM I.T.A. NOS. 1221 & 1297/HYD/2012 :- 17 -: COPY TO : 1. USHODAYA ENTERPRISES PRIVATE LIMITED, 6-3-570, E ENADU COMPLEX, SOMAJIGUDA, HYDERABAD. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16( 2), HYDERABAD. 3. THE INCOME TAX OFFICER, WARD-16(1), HYDERABAD. 4. CIT(APPEALS)-V, HYDERABAD. 5. CIT-IV, HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.