ACIT, CHENNAI V. TNQ Books & Journals Pvt Ltd., CHENNAI

ITA 1368/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8203 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLIJCITD R
• Assessee Lawyers: V RAV ICHANDRANC A
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHEN NAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.752 /MDS/2015 ( ' ' / ASSESSMENT YEAR :2010-11) M/S.TNQ BOOKS & JOURNALS PVT. LTD., NO.4/600, 4/197 PHASE II, VSI ESTATE,KOTTIVAKKAM, CHENNAI 600 041. VS. THE ASSI STANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI 600 034. PAN : AABCT 3050 B ( / APPELLANT ) ( / RESPONDENT ) & ./ I.T.A.NO.1368 /MDS/2015 ( ' ' / ASSESSMENT YEAR :2010-11) THE ASSISTANT C OMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI-600 034. VS. M/S.TNQ BOOKS & JOURNALS PVT. LTD., NO.4/600, 4/197 PHASE II, VSI ESTATE,KOTTIVAKKAM, CHENNAI 600 041. PAN AABCT 3050 B ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : MR. V.RAV ICHANDRAN,C.A REVENUE BY : MR . A.B.KOLI ,JCIT, D.R & ( / DATE OF HEARING : 19.11. 201 5 & ( /DATE OF PRONOUNCEMENT : 20 .01.2016 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND T HE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 2 TAX(A)-11, CHENNAI IN ITA NO.1889/2013-14 ORDER DA TED 30.12.2014 PASSED UNDER SEC.143(3), READ WITH SECTION 250 OF T HE ACT FOR THE ASSESSMENT YEAR 2010-11. 2. THE CONCISED GROUNDS RAISED IN THESE TWO APPEAL S ARE LISTED HERE-IN-BELOW FOR ADJUDICATION. 2.A ASSESSEES APPEAL : (I) THE LD. CIT(A) HAS ERRED IN CONFIRMING THE D ISALLOWANCE OF INTEREST PAID ON THE LOAN TO THE EXTENT IT WAS APPL IED FOR ACQUISITION OF THE LAND UNTIL THE DATE OF CONSTRUCTION OF THE BUIL DING WAS COMPLETED BY HOLDING THAT THE SAME HAS TO BE CAPITALIZED. 2.B. REVENUES APPEAL: (II) THE LD. CIT(A) HAS ERRED BY HOLDING THAT DE PRECIATION IS ALLOWABLE TO SOFTWARE LICENSE @ 60% WHEREAS DEPRECI ATION IS ONLY ALLOWABLE @ 25%. 3. THE ASSESSEE IS A COMPANY, ENGAGED IN THE BUSIN ESS OF DATA PROCESSING,PRE-PRESS SERVICES AND EXPORT OF SOFTWAR E, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 26.09. 2010 ADMITTING INCOME OF RS.13,92,75,530/-. SUBSEQUENTLY, THE RET URN WAS SELECTED ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 3 FOR SCRUTINY UNDER CASS AND THE LD. ASSESSING OFFIC ER COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 28.03.2013 WHE REIN HE RESTRICTED THE CLAIM OF DEPRECIATION. 4. GROUND NO.1 - DISALLOWANCE OF DEPRECIATION UNDER SECTION 36(1)(III) OF THE ACT:- IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THA T ASSESSEE HAD CAPITALIZED INTEREST EXPENDITURE IN THE CASE OF VSI PROPERTY FOR RS.13,93,971/- BEING THE INTEREST PAID ON THE BANK LOAN FOR CONSTRUCTION OF BUILDING AMOUNTING TO RS.2,08,18,30 8/-. HOWEVER, IT WAS OPINED BY THE LEARNED ASSESSING OFFICER THAT IN TEREST EXPENSES INCURRED FOR ACQUISITION OF LAND HAS ALSO TO BE CAP ITALIZED TILL THE DATE OF COMPLETION OF THE BUILDING AGGREGATING TO RS 54, 25,120/-. ON QUERY, THE ASSESSEE HAD SUBMITTED AS FOLLOWS:- THE LAND AT PLOT NO.4/600, 4/197, PHASE II DR.VIK RAM SARABHAI INSTRONIC ESTATE, KOTTIVAKKAM, TIRUVANMIYUR, CHENNA I-600 041 WAS PURCHASED BY US FOR A PRICE OF RS. 5,33,37,600/- B Y SALE DEED DATED 29 TH APRIL, 2009. THE STAMP DUTY, REGISTRATION FEE ETC. WAS RS.48,44,092/-. THE LAND WAS HAND OVER TO US ON THE SAME DAY. PURSUANT TO A BUILDERS AGREEMENT, ARIHANT FOUNDATI ON 7 HOUSING LTD. CONSTRUCTED THE BUILDING FOR US. THE BUILDING WAS HANDED OVER TO US ON 31 ST AUGUST, 2009. THEREAFTER WE FITTED OUT THE BUILDIN G AND OCCUPIED IT ON 5 TH DECEMBER, 2009. IN ORDER TO FINANCE THE ACQUISITION, WE TOOK TWO MEDIUM TERM LOANS FROM CIT I BANK VIA MITL 421397 FOR RS. 5.5 CRORES AND MITL 421489 FOR RS .2.4 CRORES. THE LOANS WERE REPAID IN FULL AHEAD OF SCHEDULE ON 25.0 3.2010 AND 22.02.2010. THE LEDGER ACCOUNTS OF THESE TWO LOAN A CCOUNTS ARE ENCLOSED. THE INTEREST PAID ON THESE LOANS AND THE COMPUTATIONS ARE ENCLOSED. YOU WILL NOTE THAT TO THE EXTENT OF THE I NTEREST PAID ON THE LOAN AMOUNT APPLIED FOR THE BUILDING UNTIL 7 TH DECEMBER, 2009 HAS BEEN CAPITALIZED. ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 4 THE ASSESSEES CONTENTIONS WERE REJECTED BY THE LEA RNED ASSESSING OFFICER. THEREAFTER, HE DISALLOWED INTEREST EXPENDI TURE OF RS.40,31,149/- AS ALLOWABLE DEDUCTION SINCE IT WAS TO BE CAPITALIZED. WHILE DOING SO, HE MADE THE FOLLOWING OBSERVATION:- LAND AND BUILDINGS ARE CAPITAL ASSETS AND IN THE C ASE OF ANY CAPITAL ASSET, ALL SUCH COSTS INCURRED TILL THE DATE OF CAP ITALIZATION / PUT TO USE ARE TO BE ADDED TO THE COST OF SUCH CAPITAL ASSET. IN THE INSTANT CASE, THE ASSESSEE HAS CHOSEN TO CAPITALIZE THE INTEREST IN THE CASE OF THE BUILDING (A DEPRECIABLE ASSET) AND ON THE OTHER HA ND, CLAIM THE INTEREST EXPENDITURE INCURRED FOR THE ACQUISITION O F LAND (NON- DEPRECIABLE ASSET) AS REVENUE EXPENDITURE. SUCH DOU BLE STANDARDS ARE NEITHER ADMISSIBLE NOR PERMISSIBLE UNDER THE AC COUNTING STANDARDS OF THE INCOME TAX ACT, 1961. FURTHER FOR OBVIOUS REASONS THE DATE OF PUT TO USE IN THE CASE OF LAND HAS TO B E TAKEN AS THE SAME AS THAT OF THE BUILDING. HENCE, THE ENTIRE INTEREST EXPENDITURE TILL SUCH DATE OF PUTTING INTO USE I.E. 07.12.2009 HAS TO BE NECESSARILY CAPITALIZED AND THUS, ADDED TO THE ACTUAL COST OF L AND. THE CASES LAWS RELIED ON BY THE ASSESSEE ARE NOT APPLICABLE A S THEY RELATE TO THE THEN UN-AMENDED PROVISIONS OF SUB-SECTION (II) OF SECTION 36 OF THE ACT. BASED ON THE ABOVE DISCUSSIONS, I HOLD TH AT THE INTEREST EXPENDITURE FOR THE ACQUISITION OF LAND AMOUNTING T O RS.40,31,149/- IS CAPITAL IN NATURE AND ACCORDINGLY THE SAME IS ADDED TO THE COST OF LAND. 5. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ORDE R OF THE LEARNED ASSESSING OFFICER BY HOLDING AS UNDER:- IT IS THE SUBMISSION OF THE APPELLANT THAT THE LAN D AND BUILDING AT VSI ESTATE WAS RELATED TO THE EXISTING BUSINESS OF THE COMPANY. PROVISO TO SECTION 36(1)(III) IS T HEREFORE APPLICABLE TO THE CASE OF THE APPELLANT. THE PROVIS O STIPULATES THAT INTEREST PAID ON CAPITAL BORROWED F OR ACQUISITION OF AN ASSET TILL THE DAY THE ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCTION. AS PER THE APPELLANTS SUBMISSIONS THE LAND WAS PUT TO USE BY THE APPELLANT ALONG WITH THE BUILDINGS AND THE APPELLAN T OCCUPIED IT ON 5.12.2009. TAKING POSSESSION OF THE LAND ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 5 AND HANDLING IT OVER TO THE CONTRACTOR FOR CONSTRUC TING A BUILDING CANNOT BE TREATED AS PUT TO USE FOR THE PU RPOSE OF BUSINESS BY THE APPELLANT. AS FAIRLY OBSERVED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER THE DATE OF FIRST USE OF LAND CAN BE TAKEN AS DATE ON WHICH THE BUILD ING CONSTRUCTED ON THE LAND WAS FIRST PUT TO USE. AS TH E FACTS OF THE CASE OF THE APPELLANT ARE SQUARELY COVERED BY T HE PROVISO TO SECTION 36(1)(III) THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.40,31,149/- MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS SUSTAINED. THE G ROUNDS ARE DISMISSED. 6. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED BEFORE US THAT IMMEDIATELY AFTER THE LAND WAS ACQUIRED IT WAS HANDED OVER FOR CONSTRUCTION ON THE VERY SAME DAY AND THEREFORE IT SHOULD BE CONSTRUED THAT THE LAND WAS PUT TO USE. IT WAS THER EFORE PLEADED THAT INTEREST ATTRIBUTABLE FOR PURCHASE OF LAND HAS TO B E ALLOWED AS BUSINESS EXPENDITURE AND NOT TO BE CAPITALIZED. THE LEARNED DR, ON THE OTHER HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE MATERIALS ON RECORD. WE FIND FORCE IN THE CONTENTIO N OF THE LEARNED AR. SINCE THE LAND WAS HANDED OVER FOR CONSTRUCTION ON THE VERY SAME DAY IT WAS PURCHASED, IT IS OBVIOUS THAT THE L AND WAS PUT TO USE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HENCE THE INTEREST ATTRIBUTABLE FOR PURCHASE OF THE LAND SHOULD BE TRE ATED AS ALLOWABLE ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 6 BUSINESS EXPENDITURE AND NEED NOT BE CAPITALIZED. T HEREFORE WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELE TE THE ADDITION MADE BY HIM ON THIS COUNT. 8. GROUND NO.2 - RESTRICTION OF EXCESS DEPRECIATION CLAIMED ON SOFTWARE:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON PURCHASE OF SOFTWARE OF RS.1,28,45, 163/- @ 60%. HOWEVER, FOLLOWING THE DECISIONS IN THE CASE OF SON Y INDIA VS. ADDITIONAL. CIT (ITAT., DELHI) REPORTED IN 56 DTR 1 56), THE LD. ASSESSING OFFICER ALLOWED DEPRECIATION @ 25%. ON AP PEAL, THE LEARNED CIT RELYING ON THE DECISION IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT HELD THAT THE ASSESSEE WOULD B E ENTITLED FOR DEPRECIATION @ 60% SINCE COMPUTER SOFTWARE FALLS IN THE CATEGORY OF PLANT. ON PERUSING THE FACTS OF THE CASE, WE FIN D THE DECISION OF LEARNED CIT(A) TO BE JUSTIFIED BECAUSE THE SPECIAL BENCH OF THE TRIBUNAL (SUPRA) HAS CATEGORICALLY HELD THAT WITH E FFECT FROM 01.04.2003 COMPUTER SOFTWARE HAS TO BE CLASSIFIED AS TANGIBLE ASSET UNDER THE HEADING PLANT AS MENTIONED IN AP PENDIX I TO ITA NOS.752 & 1368 /MDS/2015 TNQ BOOKS & JOURNALS P LTD. 7 INCOME TAX RULES, 1962. THEREFORE WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE CIT (A) ON THIS ISS UE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 20 TH JANUARY, 2016 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH JANUARY, 2016 . K S SUNDARAM. & *+, -, /COPY TO: 1. / /APPELLANT 2. *0/ /RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. , *5 /DR 6. ' /GF