DCIT, CHENNAI V. Cholamandalam Investment and Finance Company Limited, CHENNAI

ITA 1431/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9525 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2001-2002
• Appeal Filed On: 22-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MADHUKAR BHUSARI
• Assessee Lawyers: MILIND S KOTHARI
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Reasonable cause; Tangible material; Difference of opinion; Revised return; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 14A; 32; 147; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.1180, 1181, 1182, 1183 & 1184/MDS/2014 # % &% / ASSESSMENT YEARS : 2005-06, 2006-07, 2007-08, 2008-09 & 2009-2010 M/S. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED, DARE HOUSE,, 1 ST STREET, 2, N.S.C. BOSE ROAD, CHENNAI 600 001. [PAN AAACC 1226H] /APPELLANT ) VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI. ( /RESPONDENT ) ./ I.T.A. NOS.1412, 1413 & 1432, 1431 /MDS/2014 # % &% / ASSESSMENT YEARS : 2007-08, 2008-09, 2009-2010 & 2001- 2002. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI. ( '( /APPELLANT ) VS. M/S. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED, DARE HOUSE,, 1 ST STREET, 2, N.S.C. BOSE ROAD, CHENNAI 600 001. [PAN AAACC 1226H ] ( )*'( /RESPONDENT ) ITA NO. 1180, 1181 & OTHERS :- 2 -: C.O.NO.82/MDS/2014 (IN ITA NO.1431/MDS/2014) / ASSESSMENT YEARS : 2001-2002. M/S. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LIMITED, DARE HOUSE,, 1 ST STREET, 2, N.S.C. BOSE ROAD, CHENNAI 600 001. [PAN AAACC 1226H ] ( '( /APPELLANT ) VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI. ( )*'( /RESPONDENT ) DEPARTMENT BY : SHRI. MADHUKAR BHUSARI, CIT. ASSESSEE BY : SHRI. MILIND S. KOTHARI, C.A ! + , / DATE OF HEARING : 21-03-2016 -.& + , / DATE OF PRONOUNCEMENT : 28-04-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE CROSS APPEALS FILED BY THE ASSESSEE AND REV ENUE RESPECTIVELY AND CROSS OBJECTION BY ASSESSEE ARISE FROM DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-I, C HENNAI FOR THE ABOVE ASSESSMENT YEARS PASSED U/S.143(3) AND 250 O F THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE AC T). 2. FIRST WE TAKE UP DEPARTMENTAL APPEAL IN ITA NO.1431/MDS/2014 OF ASSESSMENT YEAR 2001-2002 FOR A DJUDICATION :- ITA NO. 1180, 1181 & OTHERS :- 3 -: 2.1 THE SOLE SUBSTANTIVE GROUND RAISED BY THE DEPARTM ENT THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN QUASHING THE RE-ASSESSMENT ORDER HOLDING THAT ASSESSEE HAS DISCLOSED FULLY AND TRUE MATERIALS AVAILABLE FOR ASSESSMENT AND THERE I S NO INCOME CHARGEABLE TO TAX THAT HAS ESCAPED ASSESSMENT AND T HE ASSESSEE HAS NOT AMORTIZATED THE EXPENSES IN EARLIER YEARS AND A SSESSEE HAS NOT FILED A VALID RETURN. 2.2 THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS A NON- BANKING FINANCIAL COMPANY ENGAGED IN THE BUSINESS O F FINANCING. FOR THE AY 2001--02, FILED ITS ORIGINAL RETURN OF INCOM E ON 30.10.2001 DECLARING INCOME OF B15,26,12,754/- AND FILED REVI SED RETURN OF INCOME ON 29.9.03 AND 24.12.03 DECLARING INCOME OF B14,68,46,439. THE REVISED RETURN FILED ON 24.12.03 WAS PROCESSED U/S.143(1) ON 10.1.2002. THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 31.3.2004 DETERMINING THE TOTAL INCOME AT B14,79,51 ,390/-. SUBSEQUENTLY, THE CASE WAS REOPENED U/S.147 FOR THE REASONS RECORDED AND NOTICE U/S.148 DATED 28.3.2008 WAS ISSUED. ASSE SSEE FILED A LETTER REQUESTING TO TREAT THE RETURN OF INCOME FILED ON 2 4.12.2003 AS A RETURN FILED IN RESPONSE TO THE NOTICE. NOTICE U/S. 143(2) WAS ISSUED ON 7.5.2008 AND REASSESSMENT WAS COMPLETED ON 24.12.2008 ITA NO. 1180, 1181 & OTHERS :- 4 -: DETERMINING THE TOTAL INCOME AT B 22,49,39,590/- AF TER MAKINQ ADDITIONS/DISALLOWANCES. 2.3 THE LD. ASSESSING OFFICER REOPENED THE ASSESSME NT U/S.147 OF THE ACT AND THE REASONS FOR REOPENING THE ASSESS MENT IS THAT THE THE ASSESSEE COMPANY IN THE SCHEDULE 18 NOTES TO ACCOUNTS, VIDE PARA 6.6 STATED THAT 'PROFIT ON SALE OF INVESTMENTS IS NET OF LOSS ON REDEMPTION OF INVESTMENTS IN AN EQUITY BASED MUTUAL FUND SCHEME B 267.21 LAKHS'. IN SCHEDUEL-14 OF P&L ALC FILED THE ASSESSEE COMPANY ADMITTED A SUM OF RS. 15.74 LAKHS AGAINST 'PROFIT ON SALE OF INVESTMENTS (NET). BY ADMITTING ONLY THE NET AMOUNT ON PROFIT ON SALE OF INVESTMENTS, THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT, THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE REVI SED RETURN WAS FILED BY THE ASSESSEE ON 24.12.2003. UNDER SEC. 139(5), ANY PERSON HAVING FURNISHED A RETURN UNDER SUB-SECTION (1) OF SEC. 139 DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT THEREIN, HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPL ETION OF ASSESSMENT WHICHEVER IS EARLIER. IN THIS CASE, THE REVISED RETURN WAS FILED ON 24.12.2003, I.E. WELL BEYOND ONE YEAR TIME LIMIT FIXED. THEREFORE, THE REVISED RETURN OF INCOME FILED ON 24.12.2003 IS NOT ITA NO. 1180, 1181 & OTHERS :- 5 -: VALID IN LAW. THEREFORE, THE ASSESSMENT MADE U/S.14 3(3) ON 31.3.2004 BASED ON THE REVISED RETURN AND EXCESS ALLOWANCE OF LOSS REQUIRES TO BE WITHDRAWN'. THE AO HAS DONE THE RE- ASSESSMENT ON THE ORIGINAL RETURN OF INCOME BASED O N THE LETTER OF ASSESSEE DATED 22.12.03 ADMITTING A MISTAKE WITH RE GARD TO CAPITAL GAIN OFFERED FOR TAXATION AND HELD THAT THE ASSESSE E HAS NOT DISCLOSED THE TRUE AND FULL FACTS IN THE ORIGINAL RETURN OF I NCOME. THE LD. ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT ASSESSMENT DONE ON AN INVALID RETURN OF INCOME IS NOT VALID AND IGN ORED THE ASSESSMENT PASSED U/S 143(3) OF THE ACT ON THE REVISED RETURN OF INCOME FILED ON 24.12.03. AGGRIEVED BY THE ASSESSING OFFICER ORDER , THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS). 2.4 IN THE APPELLATE PROCEEDINGS, THE LD. AR VEHEME NTLY ARGUED THAT IN THE ORIGINAL RETURN OF INCOME FILED ON 30.1 0.2001 FOR THE AY 2001-02, ASSESSEE HAS CLEARLY GIVEN DETAILS OF PROF IT ON SALE OF INVESTMENTS OF B3,81,07,719/- AND LOSS ON SALE OF INVESTMENTS OF B 3,65,34,213/- SEPARATELY IN THE COMPUTATION OF TOTAL INCOME FOR T HE YEAR ENDED 31.3.2001, BY ADDING BACK THE LOSSES TO THE PROFITS AS PER PROFIT AND LOSS ACCOUNT' I.E. LOSS AS PER BOOKS HAS BEEN DISALLOWED AND REDUCED PROFIT ON SALE OF INVESTMENTS FROM THE PROFIT AS PER PROFIT AND LOSS ACCOUNT TO CONSIDER THESE PROFITS SEPARATELY U NDER THE HEAD ITA NO. 1180, 1181 & OTHERS :- 6 -: 'CAPITAL GAINS'. THE NET AMOUNT OF PROFIT ON SALE OF INVESTMENTS AFTER DEDUCTING THE LOSS ON SALE OF INVESTMENTS OF B 3,65,34,213/- FROM THE PROFIT ON SALE OF INVESTMENT OF B 3,81,07,719/- COMES TO B15,73,506/-. FROM THE ABOVE FACTS, IT IS CLEAR THA T THE ASSESSEE COMPANY HAS NOT DISCLOSED ONLY TILE NET AMOUNT(BUT ALSO DISCLOSED GROSS FIGURES), HENCE THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI ALS NECESSARY FOR ASSESSMENT AND THERE IS NO INCOME CHA RGEABLE TO TAX HAS ESCAPED ASSESSMENT. REGARDING THE REVISED RETUR N OF INCOME FILED BELATEDLY, IT IS SUBMITTED THAT THE ASSESSMENT ORDE R PASSED U/S.143(3) WAS ON THE BASIS OF REVISED RETURN OF INCOME AND THE REVISED COMPUTATION OF TOTAL INCOME SUBMITTED BY THE ASSESS EE. HAVING ACCEPTED THE REVISED RETURN AND THE REVISED COMPUTA TION AND ALSO AFTER PASSING AN ORDER ON THE BASIS OF THE SAME, THE AO CANNOT NOW CLAIM THAT THE REVISED RETURN WAS BARRED BY LIMITATION. H ENCE THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. REOPENING OF ASSESSMENT ON THE SAME SET OF FACTS WOULD AMOUNT TO CHANGE OF OPINION. 2.5 AS PER THE FIRST PROVISO TO SEC. 147, NO ACTION CAN BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN THE PRESENT CASE, THE ASSESSEE HAD FILED/DISCLOS ED ALL MATERIAL FACTS ITA NO. 1180, 1181 & OTHERS :- 7 -: AT THE TIME OF ORIGINAL ASSESSMENT WHICH WAS ACCEPTED BY THE AO WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF THE A CT. HENCE THE REOPENING OF ASSESSMENT BEYOND FOUR YEARS FROM THE RELEVANT AY I S INVALID AND BAD IN LAW AND AMOUNTS TO CHANGE OF OPINION. FURTHER, THE ASSESSEE BROUGHT ON RECORD THE REASONS TO SUBSTANTI ATE THAT RE- ASSESSMENT PROCEEDINGS ARE BAD IN LAW:- THE OBJECTION OF THE ASSESSEE SHOULD HAD BEEN DISPO SED OFF SEPARATELY AND BEFORE THE PASSING OF THE ASSESSMEN T ORDER U/S. 143(3) R. W.S.14 7. THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED BE YOND A PERIOD OF FOUR YEARS DESPITE THE FACT THAT ALL THE MATERIAL FACTS WERE TRULY DISCLOSED AT THE TIME OF ORIGINAL ASSESSMENT; POWER CONFERRED BY SEC; 147 DOES NOT PROVIDE A FRESH OPPORTUNITY TO THE AO TO CORRECT AN INCORRECT ASSESSMENT. THAT THE NOTICE ISSUED BY THE AO WAS NOTHING BUT CH ANGE IN OPINION; THE AO HAD ISSUED NOTICE FOR REASSESSMENT ON TOTALLY IRRELEVANT AND NON EXISTING REASONS. THERE WAS NO NEW TANGIBLE MATERIAL BEFORE THE AO TO FORM BELIEF THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT ; THAT TILE REASSESSMENT PROCEEDINGS WERE JUST ENQUIR Y OR VERIFICATION OF THE ASSESSMENT PROCEEDINGS ALREADY COMPLETED ; AND RELIED ON APEX COURT AND VARIOUS HIGH COURT ORD ERS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON PERUSAL OF THE ORIGINAL RETURN OF INCOME FILED ON 30.10.2001 FOR THE AY 200 1-02, WERE THE ASSESSEE HAS CLEARLY GIVEN DETAILS OF PROFIT ON SAL E OF INVESTMENTS OF B3,81,07,719/- AND LOSS ON SALE OF INVESTMENTS OF B 3,65,34,213/- SEPARATELY IN THE COMPUTATION OF TOTAL INCOME FOR T HE YEAR ENDED ITA NO. 1180, 1181 & OTHERS :- 8 -: 31.3.2001, BY ADDING BACK THE LOSSES TO THE PROFITS AS PER PROFIT AND LOSS ACCOUNT I.E. LOSS AS PER BOOKS HAS BEEN DISALL OWED AND REDUCING PROFIT ON SALE OF INVESTMENTS FROM THE PROFIT AS PE R PROFIT AND LOSS ACCOUNT TO CONSIDER THESE PROFITS SEPARATELY UNDER THE HEAD 'CAPITAL GAINS'. THE NET AMOUNT OF PROFIT ON SALE OF INVESTM ENTS AFTER DEDUCTING THE LOSS ON SALE OF INVESTMENTS OF B3,65 ,34,213/- FROM THE GROSS PROFIT ON SALE OF INVESTMENT OF B3,81,07,719/- COMES TO B 15,73,506/-. IT IS ALSO NOTICED THAT THE ASSESSEE H AS SUBMITTED ITS EXPLANATION TO THE ASSESSING OFFICER DURING THE RE -ASSESSMENT PROCEEDINGS ON THE ORIGINAL RETURN OF INCOME. THE A O SHOULD HAVE REFRAINED FROM GOING AHEAD IN CONCLUDING THE RE-ASSESSMENT. F URTHER, DOING ON REVISED RETURN OF INCOME WHEN THERE IS ALR EADY AN ASSESSMENT DONE ON REVISED RETURN OF INCOME WOULD AMOUNT TO DOING TWO ASSESSMENTS FOR THE SAME ASSESSMENT YEAR ON TWO SETS OF RETURNS OF THE SAME ASSESSEE WHICH IS AGAIN NOT PROPER. I T IS CLEAR THAT THE ASSESSEE COMPANY HAS DISCLOSED NOT ONLY THE NET AMOUNT, BUT ALSO THE GROSS FIGURES AND THERE IS NO FAILURE ON THE PA RT OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIALS NECESSARY FO R ASSESSMENT AND THERE IS NO INCOME CHARGEABLE TO TAX HAS ESCAPED A SSESSMENT. THEREFORE, FROM THE FACTUAL POINT OF VIEW, REDOING OF ASSESSMENT ON THE ORIGINAL RETURN OF INCOME IS BAD IN LAW. AGGRIE VED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE H AS ASSAILED AN ITA NO. 1180, 1181 & OTHERS :- 9 -: APPEAL BEFORE THE TRIBUNAL. 2.6 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT NOTICE U/S.147 OF THE ACT IS VALID AND RELIED ON TH E FINDINGS OF THE ASSESSING OFFICER WERE THE ASSESSING OFFICER HAS CO NSIDERED JUSTIFICATION OF REOPENING DEALT IN PARA 2 AND 3 OF HIS ORDER AND LD. COMMISSIONER OF INCOME TAX (APPEALS) THOUGH CONSIDE RED IN PARA 4.1.2 OF HIS ORDER, THE ASSESSMENT IS RIGHTLY REOPE NED, THE COMMISSIONER OF INCOME TAX (APPEALS) BASED ON THE R EDOING OF ASSESSMENT IN THE ORIGINAL RETURN IS BAD IN LAW. T HE LD. DEPARTMENTAL REPRESENTATIVE FURTHER AGITATED THAT THERE IS INHE RITANT REASONS FOR ISSUE OF NOTICE IN ASSESSMENT, THERE IS NO FRESH EV IDENCE FOUND IN RESPECT OF REOPENING AND PRAYED FOR SET ASIDE OF CO MMISSIONER OF INCOME TAX (APPEALS) ORDER. 2.7 CONTRA, LD. AUTHORISED REPRESENTATIVE OF THE AS SESSEE RELIED ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ( APPEALS). 2.8 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE ONLY CONTE NTION OF THE LD. DEPARTMENTAL REPRESENTATIVE BEING THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS QUASHED THE REASSESSMENT PROCEEDINGS WITHOUT CONSIDERING THE MATERIAL FACTS AND EVIDENCES. THE A SSESSING OFFICER ITA NO. 1180, 1181 & OTHERS :- 10 -: HAS MADE ASSESSMENT BASED ON THE ORIGINAL ASSESSME NT WERE ALL MATERIALS FACTS WERE DISCLOSED AND ALSO REVISED RET URN WAS FILED BASED ON THE INFORMATION AND THE LETTER WAS FILED EXPLA INING THE REASONS AND OBJECTION. THE ASSESSING OFFICER HAS CONSIDERED TH E VALID REASON FOR REOPENING OF ASSESSMENT REFERRED AT PAGE 3 OF THE A SSESSMENT ORDER AND ALSO THE ASSESSING OFFICER HAS PROVIDED THE REA SONS FOR REOPENING OF ASSESSMENT REFERRED AT PAGE 218 OF PAPER BOOK B Y LETTER DATED 08.05.2008 GIVING REASONS FOR REOPENING OF THE ASSE SSMENT AND THE ASSESSEE FILED OBJECTIONS AND DETAILS AGAINST THE REOPENING IN LETTER DATED 16.12.2008. CONSIDERING THE FACTS AND ALSO T HE REASONS RECORDED BY THE ASSESSING OFFICER THERE SEEMS TO BE A JUSTIFICATION IN REOPENING OF ASSESSMENT AS ASSESSEE WAS PROVIDED AN OPPORTUNITY FOR THE PURPOSE OF FILING OBJECTIONS AND ALSO IN THE AS SESSMENT PROCEEDINGS. SO, CONSIDERING THE PROVISIONS OF LAW AND FACTS OF THE CASE, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REMIT THE ENTIRE FILE TO THE COMMISSI ONER OF INCOME TAX (APPEALS) TO PASS THE ORDER ON MERITS AND ASSESSEE SHALL BE PROVIDED ADEQUATE OPPORTUNITY OF BEING HEARD. 2.9 IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN ITA NO.1431/MDS/2014 OF ASSESSMENT YEAR 2001-02 IS PART LY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1180, 1181 & OTHERS :- 11 -: 3. C.O.NO.82/MDS/2014 (IN ITA NO.1431/MDS/2014), ASSESSMENT YEAR 2001-02: THE ASSESSEE HAS FILED C ROSS-OBJECTION AND THERE IS A DELAY OF 12 DAYS IN FILING CROSS-OBJ ECTION BY THE ASSESSEE. AT THE TIME OF HEARING, THE LD. COUNSEL HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS FOR DELAY AND THE LD. DR HAS NO SERIOUS OBJECTIONS FOR CONDONATION OF DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SATISFIED WITH SUFFICIENT AND REASONABLE CAUSE FOR FILING THE CROSS- OBJECTION BELATEDLY AND WE THEREFORE CONDONE THE DELAY AND ADMIT THE CROSS-OBJECTION. 3.1 SO FAR AS, THE CROSS-OBJECTION IS CONCERNED, SI NCE WE HAVE REMITED THE ISSUE TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS), FOR DENOVA CONSIDERATION, THE CROSS-OBJE CTION FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 3.2 IN THE RESULT, THE CROSS-OBJECTION FILED BY TH E ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 4. NOW, WE TAKE UP ASSESSEE APPEAL IN ITA NO.1181/M DS/2014 OF ASSESSMENT YEAR 2006-07:- 4.1 THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT ITA NO. 1180, 1181 & OTHERS :- 12 -: YEAR 2006-07 ON 29.11.2006 DISCLOSING INCOME OF B37 ,58,94,721/- AND THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 11.10.2007 AND THE ASSESSMENT WAS COM PLETED U/S.143(3) DETERMINING TOTAL INCOME OF B40,32,80,62 0/- BY MAKING ADDITIONS IN RESPECT OF DEPRECIATION ON LEASED ASSE T, TREASURY OPERATIONS CONSIDERED AS BUSINESS INCOME AS AGAINST STCG, COLLECTION EXPENSES AND INFORMATION TECHNOLOGY EXPENSE. 4.2 THE FIRST GROUND RAISED BY THE ASSESSEE THAT TH E COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE EXP ENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PROPERTY, THE EXPENDITURE BEING WOODEN PARTITIONS, FALSE CEILINGS, CARPET, OTHER WO ODEN STRUCTURE, INTERIOR WORK RENOVATION AND IMPROVEMENT OF LEASED PREMISES AND IN THE NATURE OF TEMPORARY STRUCTURES WERE DEPRECATION WAS RESTRICTED TO 10% AS AGAINST 100% CLAIMED B22,00578/-. 4.3. THE LD. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN WDV FOR DEPRECIATION PURPOSE OF B. 62,59,332/- AND CLAIMED DEPRECIATION OF B. 31,29,666/- AS IMPROVEMENT ON LEASE HOLD BUILDING @ 100% AND 50% AS APPLICABLE DEPENDING ON THE DATE OF ACQUISITION. THE LD.AO OBSERVED THAT ALL THE EXPENSES WERE INCU RRED TOWARDS INTERIOR WORKS AT VARIOUS PLACES ACROSS THE COUNTRY IN THE LEASE HOLD ITA NO. 1180, 1181 & OTHERS :- 13 -: PREMISES WHERE BRANCHES OF THE ASSESSEE COMPANY OPE RATE. THE ASSESSEE CLAIMED THE ENTIRE EXPENDITURE AS DEDUCTIO N AS THERE WAS NO BENEFIT OF ENDURING NATURE AND WERE ONLY TEMPORARY IN NATURE. THE LD. ASSESSING OFFICER HELD THAT THESE EXPENSES CAN NEIT HER BE TREATED AS TEMPORARY WOODEN STRUCTURES NOR ALLOWED AS REPAIRS AND NEED ONLY TO BE CAPITALIZED AND RELIED ON THE FOLLOWING CASE L AWS :- 1. M/S. INDIAN METAL & METALLURGICAL LTD (141 ITR 40) 2. MLS. EMPIRE JUTE MILLS 124 ITR 1 (SC) 3. CIT VS. SARAVANA SPINNING MILLS PRIVATE LIMITED (293 ITR 201) (SC) 4. BIGJO'S INDHA LLD VS. CIT (2931TR 170) THE ASSESSING OFFICER TREATED THE WOODEN PARTITION, INTERIOR WORKS IN RENOVATION AND IMPROVEMENT IN THE LEASED PREMISES A ND ALSO NO PROOF OF LEASE PERIOD WAS PROVIDED AND THE EXPENDITURE H AS BEEN INCURRED FOR THE IMPROVEMENT FOR LEASEHOLD PROPERTIES TO GET A NEW ADVANTAGE AND ASSESSING OFFICER DISALLOWED THE EXPENDITURE AN D ALLOWED DEPRECIATION @10%. AGGRIEVED BY THE ASSESSING OFF ICER ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) 4.4 IN THE APPELLATE PROCEEDINGS, T HE ID.AR HAS ARGUED THAT THE EXPENDITURE IS ON LEASE-HOLD BUILDING AND IS TEMPORARY IN NATURE. EXPENDITURE LIKE FALSE-CEILING , PARTITION, CARPETS, WOODEN ITA NO. 1180, 1181 & OTHERS :- 14 -: STRUCTURES ETC WERE INCURRED TO MAKE THE PREMISES H ABITABLE AND HENCE ARE NOT ASSET OF ENDURING NATURE AND AS SUCH THE EXPEND ITURE IS ALLOWABLE AS REVENUE AND RELIED ON SEVERAL JUDICIAL DECISIONS. THE EXPENDITURE INCURRED WAS FOR THE PURPOSE OF PARTITION, FALSE CEILINGS, C ARPETING AND WOODEN STRUCTURES. EXPLANATION 1 TO SEC.32 STATES AS FOLLO WS:- 'EXPLANATION L.-WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY H IM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHE R RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED B Y THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAI D STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE.' THUS, THERE WAS NO DISTINCTION BETWEEN A LEASEHOLD BUILDING AND OWN BUILDING SO FAR AS THE ALLOWABILITY OF DEPRECIATION IS CONCERNED. THE ASSESSEE HAS MADE PARTITIONS AND OTHER WORKS IN LEASE HOLD P REMISES BY WAY OF RENOVATION OR IMPROVEMENT AND IS, THEREFORE, SQUARE LY COVERED BY EXPLANATION 1 TO SEC. 32 OF THE ACT. IN THE CASE OF INDIAN METAL & METALLURGICAL LTD, REPORTED IN 141 ITR 40, EVEN THE PARTITION WORKS AND FALSE CEILINGS WERE CONSIDERED AS CAPITAL ASSETS. IN THE PRESENT CASE, , THE ASSESSEE HAS PUT UP WOODEN PARTITIONS AND OTHER INT ERIOR WORKS BY WAY OF RENOVATION AND IMPROVEMENT IN THE LEASED PREMISES. SINCE IT IS AN IMPROVEMENT ON THE BUILDING, IT IS CAPITAL IN NATUR E. THERE IS NO ODD AND FAST RULE THAT ALL THE EXPENDITURE ON LEASEHOLD PREMISES WILL PARTAKE THE CHARACTER OF REVENUE EXPENDITURE. THE EXPENDITURE INCURRED BY THE ASSESSEE IS ITA NO. 1180, 1181 & OTHERS :- 15 -: DEFINITELY FOR IMPROVING THE LEASED PREMISES, MAKIN G IT FIT FOR CARRYING OUT ITS BUSINESS. FURTHER THE IMPROVEMENTS CARRIED OUT BY T HE ASSESSEE ON THE LEASED PREMISES ARE NOT MEANT FOR DISMANTLING IN TH E SAME YEAR OR IN THE NEXT YEAR. IN VIEW OF THE ABOVE, THE DECISIONS RELI ED ON BY THE LD. ASSESSING OFFICER ARE QUITE APPROPRIATE AND THE AO IS JUSTIF IED IN DISALLOWING THE SAME AS CAPITAL EXPENDITURE AS PER EXPLANATION 1 TO SEC. 32 AND ALLOWING DEPRECIATION ON THE SAME AND ACCORDINGLY THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) DISMISSED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 4.5 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) AND ARGUED THA T THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION BASED ON T HE DECISION OF MADRAS HIGH COURT IN THE CASE OF INDIAN METAL & METALLURGICAL LTD (SUPRA) , THE SAID EXPENDITURE INCURRED BY THE ASSESSEE I S NOT ON TEMPORARY STRUCTURES AND SAME CANNOT BE DISMANTLED AND ALSO RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS. SARAVANA SPINNING MILLS PRIVATE LTD. 293 ITR 201. T H E ASSESSEE IS ELIGIBLE FOR 100% DEPRECIATION FOR PURELY TEMPORARY STRUCTURES AS PER SR.NO.4 OF PART A IN THE NEW APPENDIX I TO INCOME TAX RULES, 1 962 AND RELIED ON ITA NO. 1180, 1181 & OTHERS :- 16 -: THE FINDINGS OF THE HYDERABAD TRIBUNAL IN THE CASE OF SHALIVAHANA CONSTRUCTIONS LTD VS. DCIT (2007) 12 SOT46 , WERE THE ASSESSEE IS A TENANT AND EXPENDITURE IS INCURRED ON PARTITIONS, F ALSE CEILINGS, CARPETS, WOODEN STRUCTURES ONLY TO MAKE IT FIT FOR BUSINESS OF THE ASSESSEE COMPANY AND RELIED ON THE FOLLOWING DECISIONS :- (I) THIRU AROORAN SUGARS LTD (2013) 31 TAXMANN.COM 3 (MAD) (II) AYESHA HOSPITALS (P) LTD (2007) 291 ITR 266 (MAD) (III) CIT VS. MADRAS AUTO SERVICE (P) LTD 233 ITR 468 (MAD). (IV) CIT VS. AMRUTANJAN FINANCE LTD (2011) 15 TAXMANN.COM 392 (MAD) AND PRAYED FOR ALLOWING THE APPEAL. 4.6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GRO UND OF THE ASSESSEE. 4.7 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISION CITED. THE LD. AUTHORI SED REPRESENTATIVE CONTENTION THAT IMPROVEMENT OR LEASE ASSETS ARE PU RELY IN THE NATURE OF TEMPORARY STRUCTURE CONSISTING OF FALSE CEILINGS , CARPET AND OTHER WOODEN STRUCUTRES AND HAS BEEN INCURRED ONLY FOR THE IMPROVEMENT OF BUSINESS BUT ON PERUSAL OF THE ASSESSMENT ORDE R THE EXPENDITURE INCURRED BY THE ASSESSEE ON YEARLY BASIS. THE LD. A R SUBMITTED THAT ITA NO. 1180, 1181 & OTHERS :- 17 -: MATERIALS UTILISED DOES NOT HAVE RESALE VALUE AND A FTER REMOVAL THERE WILL NOT FETCH ANY VALUE AND ADDITIONAL COST HAS TO BE INCURRED FOR REMOVAL. THE FACT THAT ASSESSING OFFICER HAS CONSI DERED THE IMPROVEMENTS SHALL HAVE A NEW ADVANTAGE AND IMPRO VING ASSETS. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THEE COMMISSIONER OF INCOME TAX (APPEALS) ORDER WERE IT IS OBSERVED THAT IMPROVEMENT OF THE BUILDING AND THE TYPE OF EXPENDI TURE INCURRED IS OF CAPITAL IN NATURE. WE ON PERUSAL OF THE ASSESSMENT ORDER COULD NOT ESTABLISH, WHETHER THE ASSESSEE HAS PROVIDED LIST OF LEASED PREMISES AND ALSO RENTAL AGREEMENTS ENTERED DURING THE FINAN CIAL YEAR. WHEN SUBSTANTIAL EXPENDITURE HAS BEEN INCURRED ON LEASE D PREMISES AND NO PRUDENT BUSINESS ORGANISATION SHALL DISMANTLE THE T EMPORARY STRUCTURE AND INCUR ADDITIONAL EXPENDITURE EVERY YEAR. THE ASSESSEE HAS SUPPORTED THE COST INCURRED ON IMPROVEMENT OF LEASE HOLD PREMISES BUT THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO VERIFY WHETHER THE LEASE PERIOD IS FOR ONE YEAR, TWO YEARS, FIVE YEARS , EIGHT YEARS FOR MORE THAN EIGHT YEARS. IF THE LEASE PERIOD IS FOR A LO NGER PERIOD DEFINITELY SUCH EXPENDITURE IS GOING TO PROVIDE ADDITIONAL BEN EFIT OF ENDURING NATURE. THEREFORE, CONSIDERING THE FACTS AND CIRCU MSTANCES, JUDICIAL DECISIONS AND ALSO TYPE OF EXPENDITURE INCURRED, W E SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) A ND REMIT THE ENTIRE ISSUE TO THE FILE OF THE ASSESSING OFFICER F OR VERIFICATION AND ITA NO. 1180, 1181 & OTHERS :- 18 -: GENUINESS OF EXPENDITURE, LEASE AGREEMENTS ENTERED IN RESPECT OF LEASED PROPERTIES AND WE ALSO RELY ON THE DECISION OF INDIAN METAL & METALLURGICAL LTD (SUPRA) TO GRANT HIGHER RATE OF DEPRECIATION FOR PARTITION WORKS AND FALSE CEILING WORKS FALLS UNDER THE EXPRESSION FITTINGS AT 15% IS TO BE ALLOWED AND ON THE REM AINING EXPENDITURE, THE ASSESSING OFFICER SHALL GET SATISFIED WITH THE PERIOD OF LEASE AND BIFURCATION OF EXPENDITURE INCURRED TOWARDS LABOUR MATERIAL BASED ON MATERIAL EVIDENCE AND INVOICE COPY AND ASSESSEE SHO ULD CO-OPERATE IN FURNISHING THE INFORMATION AND LD. ASSESSING OFFICE R SHALL PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD BEFORE PASSING THE ORDER. 4.8 THE SECOND GROUND RAISED BY THE ASSESSEE IS THA T COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISAL LOWING THE COLLECTION EXPENSES WHICH WERE NOT AVAILABLE AT THE TIME OF FINALIZATION OF ACCOUNTS AND WAS RECEIVED DURING THE FINANCIAL Y EAR PERTAINING TO ASSESSMENT YEAR 2005-06. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY HAS CRYSTALLIZED ONLY IN THE ASSESSMENT YEAR 2006-07 B41,54,054/-. 4.9. THE ASSESSEE HAS CLAIMED COLLECTION EXPENSES AND DURING EXAMINATION, THE LD. ASSESSING OFFICER FOUND THAT AN AMOUNT OF B41,54,054/- PERTAINS TO ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS ITA NO. 1180, 1181 & OTHERS :- 19 -: PRODUCED DETAILS OF EXPENDITURE IN THE ASSESSMENT A S THE LD. ASSESSING OFFICER FOUND THAT ASSESSEE IS MAINTAINING MERCANTI LE SYSTEM OF ACCOUNTING AND DISALLOWED THE SAME ON THE GROUND O F EARLIER PERIOD EXPENDITURE. AGGRIEVED BY THE ORDER, THE ASSESSEE F ILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4.10 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AN D OBSERVED THAT EXPENSES ARE RELATED TO INCENTIVE GIVEN TO EMPLOYEE S FOR COLLECTION OF DUES AND SINCE ASSESSEE IS MAINTAINING BOOKS OF ACC OUNTS IN MERCANTILE BASIS AND EXPENDITURE DOES NOT PERTAIN TO CURRENT F INANCIAL YEAR AND UPHELD THE ORDER OF THE ASSESSING OFFICER. AGGRIEVE D BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 4.11 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE R EITERATED THE SUBMISSIONS MADE IN ASSESSMENT PROCEEDINGS AND APPE LLATE PROCEEDINGS AND BASIC CONDITION THAT THE EXPENDITUR E IS OF COLLECTION EXPENSES WHICH ARE NOT RECEIVED BY THE ASSESSEE BE FORE FINALIZATION OF ACCOUNTS AND ALSO SUCH EXPENDITURE WAS NOT PROVIDED IN THE BOOKS OF ACCOUNTS OF EARLIER YEARS AND ARE CRYSTALLIZED ONL Y DURING THE CURRENT ITA NO. 1180, 1181 & OTHERS :- 20 -: FINANCIAL YEAR. THEREFORE SUCH EXPENDITURE IS ELIG IBLE FOR DEDUCTION AND PRAYED FOR ALLOWING THE GROUND. 4.12 CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GRO UNDS. 4.13. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD. THE NATURE OF EXPENDITURE BEING HANDLED B Y THE AGENTS IN RESPECT OF COLLECTIONS. THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE THAT IT PERTAINING TO ASSESSMENT YEA R 2005-06 AND BILLS ARE NOT RECEIVED IN FINALISATION OF ACCOUNTS FOR TH E RELEVANT FINANCIAL YEAR AND THERE IS NO DISPUTE ABOUT THE GENUINESS OF EXPENDITURE BY THE ASSESSING OFFICER EXCEPT MENTIONING THAT EXPENDITUR E PERTAINING TO EARLIER YEARS. THE LD. AUTHORISED REPRESENTATIVE D REW OUR ATTENTION TO THE PAPER BOOK AT PAGE 12 TO 22 WERE THE COLLECTION EXPENSE ALONGWITH DATE, INVOICE NO. AND NAME OF THE PARTY AND NARRAT ION WAS PROVIDED WHICH GIVES THE CLEAR PICTURE THAT PAYMENTS ARE INC URRED BY THE ASSESSEE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BUT THE QUESTION ARISES WHETHER SUCH EXPENDITURE WAS PROVIDED IN THE BOOKS OF ACCOUNTS FOR THE ASSESSMENT YEAR 2005-06. PRIME FA CIE IT LOOKS THAT THE EXPENDITURE HAS CRYSTALLISED ONLY DURING THE AS SESSMENT YEAR 2006- ITA NO. 1180, 1181 & OTHERS :- 21 -: 07 AND THE VERY PURPOSE OF MERCANTILE SYSTEM OF ACC OUNTING IS TO DEVICE CORRECT AND CLEAR FINANCIAL STATEMENTS. IT IS DESIRABLE TO MAKE PROVISIONS FOR EXPENSES AS ASCERTAINED LIABILITY AT THE END OF THE FINANCIAL YEAR AND THE NATURE OF EXPENDITURE BEING PRIOR PERIOD. THE COMPANY FOLLOWING MERCANTILE ACCOUNTING SYSTEM AND EXPENSES NOT RECORDED IN EARLIER YEAR, THOUGH CRYSTALLISED IN T HE CURRENT FINANCIAL YEAR AND SAME CANNOT BE ALLOWED AS DEDUCTION BECAUS E REMEDY DOES NOT LIE IN THE CURRENT ASSESSMENT YEAR. CONSIDERIN G THE APPARENT FACTS AND ACCOUNTING ASPECTS, WE UPHELD THE ORDER OF COMM ISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ORDER OF THE LD. ASSESSING OFFICER AND DISMISS THE GROUND OF THE ASSESSEE. 4.14. THE THIRD GROUND RAISED BY THE ASSESSEE THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORD ER OF ASSESSING OFFICER AND TREATING THE INCOME EARNED FROM TREASUR Y OPERATIONS AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE. 4.15 THE BRIEF FACTS OF THE ISSUE IN DISPUTE THAT T HE ASSESSEE COMPANY HAS ADMITTED SHORT TERM CAPITAL GAINS OF B3 5,47,497/- AND ITA NO. 1180, 1181 & OTHERS :- 22 -: FURNISHED THE TRANSACTION STATEMENT OF SALE AND PUR CHASE OF UNITS. THE LD. ASSESSING OFFICER OBSERVED THAT THE TRANSACTION S WERE IN THE NATURE OF PURCHASE AND SALE OF UNITS AND MUTUAL FUNDS. ALL TH E SALES WERE EFFECTED WITHIN 2 DAYS OF PURCHASE. THE TOTAL DIVIDEND EARNE D BY THE ASSESSEE DURING THE YEAR WAS AT B 1,33,00,099/- OUT OF WHICH ONLY B 1,600/- HAS BEEN RECEIVED FROM MUTUAL FUND WHICH SHOWS THERE WAS NO INTENTION OF THE ASSESSEE TO EARN CAPITAL APPRECIATION OR DIVIDEND BUT TO DEAL I N TRADING. RELYING ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. REWASHANKAR A. KOTHARI (206) (283 ITR 338 (GUJ) AND ALSO THE BOARD'S CIRCULAR NO.412007 DATED 15.6.2007 THE LD. AO TREATED THE PROFITS RECEIVED FROM THE TRANSACTIONS AS INCOME FROM BUSINESS AND TAXED AT N ORMAL RATES. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE T HE TRIBUNAL. 4.16 IN THE APPEAL PROCEEDINGS, THE LD. AUTHORI SED REPRESENTATIVE SUBMITTED THAT T HE ASSESSEE HAS INVESTED ITS SURPLUS FUNDS IN SHARE S AND MUTUAL FUNDS. IT WAS THE INTENTION OF THE ASSESSEE TO MAKE INVESTMENT IN SHARES AND MUTUAL FUNDS AND NEVER THE INTENTION TO DO AS BUSINESS. THE ASSESSEE HAS ADMITTED ITS INCOME FROM BUSINESS AS BUSINESS INCOME AND THE INCOME FROM SALE AND PURCHASE OF SHA RES AS CAPITAL GAINS. MERELY THE QUANTUM AND FREQUENCY OF BUYING A ND SELLING OF SHARE ARE MORE, IT CANNOT BE TREATED AS NATURE OF B USINESS. THE TRANSACTION WISE DETAILS ARE FILED BEFORE ASSESSIN G OFFICER WHICH SHOWS ITA NO. 1180, 1181 & OTHERS :- 23 -: THAT THE INCOME FROM THE TREASURY DEPLOYMENT B35,4 7,4961- IS FROM SALE OF INVESTMENTS IN THE MUTUAL FUNDS. THE CIRCUL AR RELIED ON BY THE ASSESSING OFFICER IS NOT APPLICABLE IN THE CASE OF ASSESSEE AS THE ASSESSEE HAS HELD THESE SHARES AS INVESTMENTS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT LARGE NUMBERS OF UNITS HAVE BEEN PURCHASED AND SOLD WITHIN TWO DAYS DURING THE YEAR. TRADING IN UNITS HAS BEEN UND ERTAKEN AS AN ACTIVITY TO MAXIMIZE ITS PROFITS WHICH PROVE THAT THE ASSESSEE H AS TECHNICAL AND FINANCIAL STRENGTH AND RELYING ON THE DECISION OF ITAT, AHMED ABAD, IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX, V SMT. DEEPABEN AMITBHAI SHAH [2006] 991TD 219 (AH D.,) UPHELD THE FINDINGS OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 4.17 BEFORE US, THE LD. AUTHORISED REPRESENTATI VE REITERATED THE SUBMISSIONS BEFORE ASSESSMENT AND APPELLATE PROCEED INGS AND FILED EXPLANATIONS THAT THE INCOME ON SALE OF SHORT TERM INVESTMENTS IN MUTUAL FUNDS IS OFFERED TO TAX AS SHORT TERM CAPITAL GAIN S AND THESE TRANSACTIONS ARE MADE FROM TEMPORARY SURPLUS AND THEY ARE INVESTED BY THE ASSESSEE IN THE DEBT FUNDS OF MUTUAL FUNDS AND INTENTION OF THE ASS ESSEE AT THE TIME OF ACQUISITION OF SAME TO HOLD THEM AS INVESTMENTS AN D LIQUIDATE THEM AS AND WHEN THERE IS A NECESSITY AND IT IS DIFFERENT ACTIV ITY AND SUBJECT TO SOME RISK. ITA NO. 1180, 1181 & OTHERS :- 24 -: THE INVESTMENTS IN MUTUAL FUNDS ARE MADE OUT OF OWN FUNDS WITH MINIMUM RISK AND ALSO SUBMITTED HIS ARGUMENTS WITH THE DECI SIONS OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P) LTD (82 I TR 586), TRINETRAM CONSULTANTS (P) LTD VS. DCIT 34 TAXMAN.COM 39, JAN AK RANGWALLA VS. ACIT 11 SOT 627 AND PRAYED FOR TREATING THE SUCH INCOME AS SHORT T ERM CAPITAL GAIN. 4.18. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED TO THE GROUND OF THE ASSESSEE. 4.19 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE ONLY DISPU TED ISSUE IN RESPECT OF TAXABILITY OF INCOME TO BE TREATED AS SHORT TERM CAPITAL GAIN OR BUSINESS INCOME. THE LD. AUTHORISED REPRESENTATIVE EMPHASIZED THAT ASSESSEE INVESTED EXCESS TEMPORARY SURPLUS INTO MUT UAL FUNDS AND LIQUIDS FUNDS AND THIS BEING A FINANCE COMPANY THE MONEY CANNOT BE KEPT IDLE AS INTEREST HAS TO PAID ON BORROWINGS A ND SUCH ACTIVITIES CANNOT BE TERMED AS BUSINESS INCOME. THE LD. AUTH ORISED REPRESENTATIVE DREW OUR ATTENTION TO THE PROFIT OF TREASURY DEPLOYMENT WERE PURCHASE AND SALE OF MUTUAL FUNDS UNITS AND LI QUID FUND WERE TRANSACTED AND HOLDING PERIOD IS LESS THAN FOUR DA YS. FURTHER WE ITA NO. 1180, 1181 & OTHERS :- 25 -: FOUND THAT THE ASSESSEE IS PARKING THE FUNDS ONLY F OR THE CAPITAL APPRECIATION AND LIQUIDATE AS PER THE REQUIREMENT W ITHIN DAY OR TWO WITHOUT DISTURBING THE BASIC BUSINESS OPERATIONS AN D SUCH INVESTMENTS ARE DISCLOSED IN THE BALANCE SHEET. CONSIDERING THE NATURE OF INVESTMENT STRATEGY AND UTILIZATION OF THE FUNDS, W E ARE OF THE OPINION THAT THE STRATEGY OF SYSTEMATIC INVESTMENT IS ONLY FOR THE TEMPORARY ACCOMMODATING OF INVESTMENT IN LIQUID FUNDS AND IN COME FROM TREASURY OPERATION ARE TO BE TREATED AS SHORT TERM CAPITAL GAINS CONSIDERING THE APPARENT FACTS, WE SET ASIDE THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO TREAT THE INCOME AS SHORT TERM CAPITAL G AINS AND ALLOW THE GROUND OF THE ASSESSEE. 4.20. THE LAST GROUND RAISED BY THE ASSESSEE IN THI S APPEAL IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING DISALLOWANCE OF INFORMATION TECHNOLOGY EXPENSES PER TAINING TO ASSESSMENT YEAR 2005-06. 4.21 THE BRIEF FACTS OF THE ISSUE IS THAT THE ASSES SEE HAS CLAIMED INFORMATION TECHNOLOGY EXPENSES OF B4,60,270/- PERT AINING TO ASSESSMENT YEAR 2005-06. SINCE THE ASSESSEE IS MAI NTAINING BOOK OF ACCOUNTS ON MERCANTILE BASIS, THE LD. ASSESSING OFF ICER DISALLOWED THE EXPENDITURE IN CURRENT ASSESSMENT YEAR. AGGRIEVED BY THE ORDER, THE ITA NO. 1180, 1181 & OTHERS :- 26 -: ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4.22 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORIS ED REPRESENTATIVE MADE SUBMISSIONS THAT THE EXPENDITUR E PERTAINING TO ASSESSMENT YEAR 2005-06 WAS CLAIMED AS THE BILLS WE RE NOT AVAILABLE AT TIME OF THE FINALIZATION OF ACCOUNTS FOR ASSESSMENT YEAR 2005-2006 AND THE SAME WAS PROVIDED IN THE ASSESSMENT YEAR 2006-0 7 AND ALSO NO PROVISION FOR EXPENSES WAS MADE IN THE BOOKS OF AC COUNTS AS ON 31.03.2005. THE CONTENTION OF THE ASSESSEE BEING SU CH EXPENDITURE RELATED TO EARLIER YEARS AND LIABILITY HAS ACCRUED AND CRYSTALLIZED IN THE YEAR AND CLAIM IN THE CURRENT ASSESSMENT YEAR BUT LD COMMISSIONER OF INCOME TAX (APPEALS) CONCURRED WITH THE FINDINGS OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 4.23. BEFORE US, THE LD. AUTHORISED REPRESENTATIV E REITERATED THE SUBMISSIONS MADE IN ASSESSMENT PROCEEDINGS AND APPE LLATE PROCEEDINGS AND THE BASIC CONDITIONS THAT THE EXPEN DITURE IN THE NATURE OF TECHNOLOGY EXPENSES ARE NOT RECEIVED BY THE ASSESSEE BEFORE FINALIZATION OF ACCOUNTS AND SUCH EXPENDITU RE WAS NOT PROVIDED IN THE BOOKS OF ACCOUNTS OF EARLIER YEARS AS THEY W ERE CRYSTALLIZED ONLY ITA NO. 1180, 1181 & OTHERS :- 27 -: DURING THE CURRENT FINANCIAL YEAR AND ELIGIBLE FOR DEDUCTION AND PRAYED FOR ALLOWING THE GROUND. 4.24 CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GRO UNDS. 4.25 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE M ATERIAL ON RECORD AND THE EXPENDITURE OF INFORMATION TECHNOLOG Y. THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE AS IT PERTAIN TO ASSESSMENT YEAR 2005-06 WERE BILLS ARE NOT RECEIVED BEFORE FINALISATION OF ACCOUNTS FOR THE FINANCIAL YEAR AND THERE IS NO DISPUTE ABOUT THE GENUINESS OF PAYMENTS AND EXPENDITURE BY THE ASSESS ING OFFICER EXCEPT MENTIONING THAT EXPENDITURE PERTAINING TO EA RLIER YEARS AND THE VERY PURPOSE OF MERCANTILE SYSTEM OF ACCOUNTING IS TO DERIVE CORRECT AND CLEAR FINANCIAL STATEMENTS. IT IS DESIRABLE TO MAKE PROVISION FOR EXPENSES AS ASCERTAINED LIABILITY AT THE END OF THE FINANCIAL YEAR AND THE NATURE OF EXPENDITURE BEING PRIOR PERIOD. THE COMPANY FOLLOWING MERCANTILE ACCOUNTING SYSTEM AND INFORMATION TECHNO LOGY EXPENSES NOT RECORDED IN EARLIER YEAR, THOUGH CRYSTALLISED I N THE CURRENT FINANCIAL YEAR AND SAME CANNOT BE ALLOWED AS DEDUCTION BECAUS E REMEDY DOES NOT LIE IN THE CURRENT ASSESSMENT YEAR. CONSIDERIN G THE APPARENT FACTS AND ACCOUNTING ASPECTS, WE UPHELD THE ORDER OF COMM ISSIONER OF ITA NO. 1180, 1181 & OTHERS :- 28 -: INCOME TAX (APPEALS) IN CONFIRMING THE ORDER OF THE LD. ASSESSING OFFICER AND DISMISS THE GROUND OF THE ASSESSEE. 4.26 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.1181/MDS/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 5 NOW, WE TAKE UP ITA NO.1180/MDS/2014 OF 2005-06: - THE FIRST GROUND RAISED BY THE ASSESSEE THAT THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS UPHELD THE EXPENDITURE INCURRED O N IMPROVEMENT OF LEASEHOLD PROPERTY, THE EXPENDITURE BEING WOODEN PA RTITIONS, FALSE CEILINGS, CARPET, OTHER WOODEN STRUCTURE, INTERIOR WORK RENOVATION AND IMPROVEMENT OF LEASED PREMISES AND THE NATURE OF TE MPORARY STRUCTURE WERE DEPRECATION WAS RESTRICTED TO 10% AS AGAINST 1 00% AMOUNTING TO B16,16,450/-. 5.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPRESENTATIVE WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 5.6, AND W E PARTLY ALLOW THE GROUND OF THE ASSESSEE. ITA NO. 1180, 1181 & OTHERS :- 29 -: 5.2. THE SECOND GROUND RAISED BY THE ASSESSEE IS T HAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ORDER OF ASSESSING OFFICER AND TREATING THE INCOME EARNED FROM TREASURY OPERATIONS HAS BUSINESS INCOME AS AGAINST SHORT TER M CAPITAL GAINS CLAIMED BY THE ASSESSEE TO THE TUNE OF B65,77,380/ - 5.3 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS MA DE OF LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPRESEN TATIVE WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE ASSESSM ENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 4.19 AND WE ALLOW THE GROUND OF THE ASSESSEE. 5.4 THE LAST GROUND RAISED BY THE ASSESSEE WITH RES PECT TO ALLOWABILITY OF DEDUCTION U/S.80G OF THE ACT B7,00, 000/-. 5.5 THE LD. COUNSEL SUBMITTED THAT DONATION IS TOWA RDS TSUNAMI RELIEF AND ELIGIBLE FOR 100% DEDUCTION. AT THE TIME OF HEARING, THE LD. COUNSEL HAS NOT PRESSED THE GROUND AND MADE A ENDOR SEMENT IN THE APPEAL PETITION AND ACCORDINGLY, WE TREAT THE GROUN D AS DISMISSED. 5.6 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.1180/MDS/2014 OF ASSESSMENT YEAR 2005-06 IS PART LY ALLOWED. ITA NO. 1180, 1181 & OTHERS :- 30 -: 6. NOW, WE TAKE UP ITA NO.1182/MDS/2014 OF 2007-08 :- THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COM MISSIONER OF INCOME TAX (APPEALS) HAS UPHELD THE EXPENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PROPERTY, THE EXPENDITURE BEING WOODEN PA RTITIONS, FALSE CEILINGS, CARPET, OTHER WOODEN STRUCTURE, INTERIOR WORK RENOVATION AND IMPROVEMENT OF LEASED PREMISES AND THE NATURE OF TE MPORARY STRUCTURE WERE DEPRECATION WAS RESTRICTED TO 10% AS AGAINST 1 00% AMOUNTING TO B4,15,36,787/-. 6.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS MA DE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE, WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE ASSESSM ENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 4.7 AND WE PARTLY ALLO W THE GROUND OF THE ASSESSEE. 6.2 THE NEXT GROUND RAISED BY THE ASSESSEE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ORDER OF ASSESSING OFFICER IN DISALLOWANCE U/S.14A OF THE ACT. 6.3 THE BRIEF FACTS OF THE ISSUE THAT THE ASSESSEE COMPANY HAS RECEIVED EXEMPTED INCOME OF B1,03,58,726/- AS DIVI DEND ON SHARES. ITA NO. 1180, 1181 & OTHERS :- 31 -: THE DIVIDEND INCOME HAS BEEN RECEIVED OUT OF INVEST MENTS MADE IN TAX FREE SECURITIES. THE LD. ASSESSING OFFICER FOUND T HAT THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE INCURRED ON EARNING SUCH INCOME AND MADE DISALLOWANCE U/S.14A OF THE ACT APPLYING RULE 8D AND MADE A ADDITION OF B96,03,800/-. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS). 6.4 IN THE APPELLATE PROCEEDINGS, THE ASSESSEE RAIS ED THE GROUNDS THAT ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE FOR EARNING DIVIDEND INCOME AND NO EXPENDITURE WAS ESTI MATED AND CLAIMED AS DEDUCTION. THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) CONSIDERING THE SUBMISSIONS AND UPHELD THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE ASSAILED AN APPEAL BEFORE T RIBUNAL. 6.5 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE RE ITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT PROCEEDING AND A PPELLATE PROCEEDING. DISALLOWANCE OF EXPENDITURE BY APPLYIN G RULE 8D IS NOT CORRECT. THE PROVISION OF RULE 8D ARE APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AS PER THE BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT 194 TAXMANN 20 3 AND THE ITA NO. 1180, 1181 & OTHERS :- 32 -: ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN EARNIN G EXEMPT AND NO DISALLOWANCE U/S.14A R.W. RULE 8D IS VALID. 6.6 CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RE LIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GRO UNDS. 6.7 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE M ATERIAL ON RECORD AND JUDICIAL DECISION CITED. THE ASSESSEE IS IN THE BUSINESS OF FIANC AND LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT THE PROVISIONS OF SEC. 14A R.W.S RULE 8D ARE NOT APPLICABLE AND NO DISALLOWANCE IS WARRANTED. ON PERUSING THE ASSESSMENT ORDER, THE A SSESSEE HAS CALCULATED THE DISALLOWANCE UNDER RULE 8D BY APPLY ING THE PROVISIONS OF RULE 8D(2)(I)(II)(III). NO DOUBT THE FACTS OF T HE CASE ARE SIMILAR TO ANY FINANCE COMPANY WERE INVESTMENT STRATEGY APPLY. THE PROVISIONS OF RULE 8D HAS COME INTO EFFECT BY FINANCE ACT, 200 8 FROM 24.03.2008, THE CURRENT ASSESSMENT YEAR IS PRIOR TO THE APPLICA BILITY OF PROVISIONS UNDER RULE 8D WHICH HAS COME INTO OPERATION FROM A SSESSMENT YEAR 2008-09. CONSIDERING THE AMENDMENT CRITERIA AND JUR ISDICTIONAL HIGH COURT DECISION IN THE CASE OF SIMPSON AND CO. LTD VS. DCIT IN TAX T.C.(A) NO.2621 OF 2006 DATED 15.10.2012 HELD TO DISALLOW 2% OF EXEMPTED INCOME AS DISALLOWANCE U/S.14A OF THE ACT. ACCORDINGLY BY ITA NO. 1180, 1181 & OTHERS :- 33 -: APPLYING RATIO, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPTED INCOME AND PARTLY ALLOW THE GROUND OF THE ASSESSEE. 6.8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1182/MDS/2014 OF ASSESSMENT YEAR 2007-08 IS PART LY ALLOWED. 7. ITA N0.1412/MDS/2014 OF ASSESSMENT YEAR 2007-08 :- THE APPEAL IS FILED BY THE REVENUE THAT THE COMMISSIONER OF INCOM E TAX (APPEALS) ERRED IN ALLOWING THE DEPRECATION AT 60% ON UPS AS AGAIN ST ALLOWED BY THE ASSESSING OFFICER @15% OF THE VALUE AND THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS NOT FOLLOWED THE DECISION OF DELHI TR IBUNAL IN THE CASE OF NESTLE INDIA LTD VS. DCIT 111 TTJ 498 WHERE UPS IS NOT TREATED AS INTEGRAL PART OF COMPUTER SYSTEMS AND HIGHER DEPRECATION IS ALLOWED. 7.1 THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE R ATE OF 60% ON UPS BATTERY, STABILIZERS AS THE INTEGRAL PART OF COM PUTER BLOCK. BUT THE LD. ASSESSING OFFICER OBSERVED THAT COMPUTERS CAN WORK WITHOUT STABILIZER AND BATTERY AND THUS INSTRUMENTS ARE ONLY REGULATING TH E VOLTAGE AND UNINTERRUPTED POWER SUPPLY AND CANNOT BE ELIGIBLE F OR HIGHER DEPRECIATION AND ALLOWED DEPRECATION @15% AND DISALLOWED B23,39 ,932/- AS EXCESS DEPRECIATION. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). ITA NO. 1180, 1181 & OTHERS :- 34 -: 7.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) C ONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND GROUNDS AND RELIED ON THE DECISION OF ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-20 07 WERE UPS, BATTERY AND STABILISER ARE INCLUDED IN THE BLOCK OF THE COM PUTER. WITHOUT THESE GADGETS COMPUTER CANNOT BE OPERATED AND ARE CONSID ERED AS INTEGRAL PART OF COMPUTER AND THEY ARE ESSENTIAL FOR WORKING AND DI RECTED THE ASSESSING OFFICER TO ALLOW DEPRECATION @60%. AGGRIEVED BY TH E ORDER, THE REVENUE ASSAILED AN APPEAL BEFORE US. 7.3 BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE RELI ED ON THE GROUNDS AND ARGUED THAT UPS CANNOT BE CONSIDERED AS INTEGRAL PART OF COMPUTER AND HAVE SEPARATE IDENTITY AND ELIGIBLE FO R DEPRECATION @15% ONLY. 7.4 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED T O THE GROUNDS OF THE REVENUE. 7.5 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISION CITED. THE ASSESSEE C OMPANY CONSIDERED BATTERIES, STABILIZERS AS PART OF COMPUT ER BLOCK AND ITA NO. 1180, 1181 & OTHERS :- 35 -: CLAIMED THE DEPRECATION. THE FACT THAT COMPUTER AL ONE CANNOT WORK WITHOUT THE SUPPORT OF UPS, BATTERIES AND STABILIZE RS. NO DOUBT THEY ARE REGULATING THE VOLTAGE STABILITY OF THE ELECTRI CITY. IF THERE IS POWER FLUCTUATION WITHOUT THESE USAGE GADGETS THE C OMPUTER WILL MALFUNCTION AND THE DATA WILL BE LOST. SO, CONSIDE RING THE USAGE AND ESSENTIALITY OF THE PRODUCT BEING INTEGRAL PART OF COMPUTER, WE UPHELD THE ORDER OF COMMISSIONER OF INCOME TAX (APP EALS) IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECATIO N @60% AND DISMISS THE GROUND OF THE REVENUE. 7.6 IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1412/MDS/2014 IS DISMISSED. 8. ITA NO.1183/MDS/2014 OF ASSESSMENT YEAR 20 08-2009: THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIO NER OF INCOME TAX (APPEALS) HAS UPHELD THE EXPENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PROPERTY, THE EXPENDITURE BEING WOODEN PARTITIONS, FALSE CEILINGS, CARPET, OTHER WOODEN ST RUCTURE, INTERIOR WORK RENOVATION AND IMPROVEMENT OF LEASED PREMISES AND THE NATURE OF TEMPORARY STRUCTURE WERE DEPRECATION WAS RESTRICTED TO 10% AS AGAINST 100% AMOUNTING TO B8,99,76,815/-. ITA NO. 1180, 1181 & OTHERS :- 36 -: 8.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS MA DE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE, WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 4.7, WE PAR TLY ALLOW THE GROUND OF THE ASSESSEE. 8.2 THE SECOND GROUND RAISED BY THE ASSESSEE THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ORDER OF ASSESSING OFFICER AND TREATING THE INCOME EARNED FROM TREASURY OPERATIONS HAS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE B2,04,45,542 /-. 8.3 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS MA DE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE, WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 5.18, WE PA RTLY ALLOW THE GROUND OF THE ASSESSEE. 8.4. THE LAST GROUND RAISED BY THE ASSESSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORD ER OF ASSESSING OFFICER IN DISALLOWING U/S.14A OF THE ACT B8,32,63 ,000/-. THE ASSESSEE EARNED EXEMPTED DIVIDEND OF B4,12,381/- AN D THE ITA NO. 1180, 1181 & OTHERS :- 37 -: ASSESSEE MADE AGGREGATE INVESTMENTS IN TAX FREE SEC URITIES B1,73,93,41(000)/-. 8.5 IN THE ASSESSMENT PROCEEDINGS, THE AUTHORIZED REPRESENTATIVES COMPUTED AND PROVIDED THE QUANTUM O F DISALLOWANCE U/S. 14A READ WITH RULE 8D AND ARRIVED AT B2.2 LAKHS. THE COMPUTATION IS FOUND TO BE INCORRECT AS THE ASS ESSEE HAS TO CONSIDER THE ENTIRE INTEREST OUTFLOW. THE VERY PURP OSE OF DISALLOWANCE OF INTEREST CORRESPONDING TO THE TAX-F REE INVESTMENT ARE IN PROPORTION TO THE OVERALL INVESTMENT. THE CONCEPT OF DIRECT AND INDIRECT EXPENSES FOUND IN RU LE 8D IS A MEASUREMENT FOR DIRECT COST TOWARDS TRANSACTION IN THESE INVESTMENTS LIKE STT PAYMENTS, DEMAT CHARGES AND IN DIRECT COST WOULD INCLUDE ALL COSTS TOWARDS HOLDING SUCH INVEST MENTS. FURTHER, THE ASSESSEE HAD CONSIDERED THE INVESTMENT OF B129, 39,(000) ONLY BEING THE INVESTMENT IN LONG TERM NON-TRADED UNQUOT ED SHARES AND HAD FAILED TO CONSIDER (A) CURRENT NON-TRADE UNQUOT ED INVESTMENTS, AND (B) LONG TERM INVESTMENT IN SUBSIDIARIES UNQUOT ED. THE ONLY EXCLUSION THAT CAN BE PROVIDED IS THAT OF LONG TERM NON-TRADE QUOTED INVESTMENTS IN GOVERNMENT SECURITIES SINCE T HE RETURN ON ITS INCOME IS OFFERED TO TAXATION WHILE IN THE CASE OF THE REST, THE DIVIDEND REMAINS TAX-FREE. THE MAGNITUDE OF THE TRA NSACTIONS IN ITA NO. 1180, 1181 & OTHERS :- 38 -: THE MUTUAL FUNDS DURING THE YEAR CLEARLY EXHIBITS T HAT A SPECIALIZED ATTENTION BY A DEDICATED TEAM OF PROFESSIONALS NEED TO BE DEPLOYED EITHER IN FULL OR PART SO AS TO EARN SUCH HIGH DIVIDEND INCOME. THIS EXERCISE SHOULD NECESSARILY H AVE A INTRINSIC COST WHICH GETS HIDDEN IN THE OVERALL COSTS OF THE COMPANY. IT IS IMPROBABLE TO DEDUCT A SPECIFIC AMOUNT OF EXPENDITU RE TO THIS SPECIALIZED EXERCISE AND HENCE, PROPORTIONATE DISA LLOWANCE OF THE TOTAL COST ATTRIBUTABLE TO THE INVESTMENTS AND OPER ATION OF EARNING TAX FREE INCOME NEEDS TO BE ESSENTIALLY PROPOSED. T HE ASSESSING OFFICER HAD REASONS TO BELIEVE THAT THE COMPANY HA S TO INCUR A MINOR EXPENDITURE EMBEDDED IN THE INDIRECT EXPENDIT URE OF THE ASSESSEE TOWARDS MAINTAINING THESE INVESTMENTS. THE DELHI ITAT IN THE CASE OF ESCORTS LTD., VS ACIT REPORTED IN 102 TTJ 522 H AD HELD THAT INDIRECT MANAGEMENT AND ADMINISTRATIVE EXPENSE S QUALIFY FOR DISALLOWANCE U/S 14A. THEREFORE, ON THIS COUNT ALSO , DISALLOWANCE U/S 14A BECOMES MANDATORY. THE KERALA HIGH COURT IN THE CASE OF SMT. LEENA RAMACHANDRAN RECENTLY HELD THAT IN SUCH A SIMILAR SITUATION AS DESCRIBED ABOVE, DISALLOWANCE U/S 14A IS A MUST AND HENCE ASSESSING OFFICER INVOKED THE PROVISION OF S EC.14A. FROM THE P&L ACCOUNT IT COULD BE VERIFIED THAT THERE ARE NO EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE INVESTMENTS. INTEREST OUTGO FOR THE YEAR IS B3,19,65,47,(000) WHICH INCLUDES INTEREST ON DEB ENTURES, ITA NO. 1180, 1181 & OTHERS :- 39 -: INTEREST ON FIXED LOANS, INTEREST ON OTHER LOANS AN D OTHER FINANCING EXPENSES. ALL THESE FINANCE CHARGES HAVE BEEN EXPEN DED TO OBTAIN LOAN FUNDS FOR THE COMPANY AND SUCH INTEREST ON LOA NS IN PROPORTION TO INVESTMENT IN TAX-FREE TERRITORY IS A LONE FOUND TO BE ARITHMETICALLY CORRECT AND REITERATED THAT INDIREC T COST MEANS COST TOWARDS FUNDING THE INVESTMENT AND THE DIRECT COST MEANS COST INCURRED IN HOLDING INVESTMENT AND RULE 8D IS ENFO RCEABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND MADE DISALLOWAN CE OF B8,32,63,000/-. AGGRIEVED BY THE ORDER, THE ASSESS EE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 8.6 IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEAL S), THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 8.7 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND APPELLATE PROCEEDINGS AND EXPLAINED THE PROVISIONS OF SECTION 14A R.W.R. 8D ARE NOT APPLICABLE TO THE ASSESSEE COMPAN Y AND THE RULE 8D CAME INTO EFFECT FROM 23.03.2008 IF AT ALL ANY DISALLOWANCE HAS TO BE MADE RETROSPECTIVELY FOR EIGHT DAYS ONLY. WH EREAS THE ITA NO. 1180, 1181 & OTHERS :- 40 -: ASSESSING OFFICER CALCULATED THE RULE 8D(I) NIL, RU LE 8D(II)B7,78,46,000/- AND RULE 8D(III) B54,17,000/-. THE DISALLOWANCE OF EXPENDITURE SHOULD ONLY BE IN RES PECT OF INCOME DOES NOT FORM PART OF TOTAL INCOME. THE ASSESSEE H AS MADE INVESTMENTS IN GROUP SUBSIDIARIES AND IN SHORT TERM MUTUAL FUNDS AND THE ASSESSEE INVESTED B10 CRORES IN SUBSIDIARY COMPANIES, WHICH WERE FUNDED THROUGH THE RIGHT ISSUE OF EQUITY SHARES AND OTHER INVESTMENTS ARE TAXABLE TO TAX. THE ASSESSE E WHILE FINALIZING THE ACCOUNTS MADE DISALLOWANCE U/S.14A O F THE ACT TO THE EXTENT OF B2.2 LAKHS AND PRAYED THAT THE DISALLOWAN CE SHALL BE RESTRICTED AND PRAYED FOR ALLOWING THE APPEAL. 8.8 ON OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GROUND OF THE REVENUE. 8.9. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD, PROVISIONS OF SEC.14A OF THE ACT APPLICABL E TO THE ASSESSEE COMPANY IN RESPECT OF EXPENDITURE INCURRED ON EARNI NG EXEMPTED INCOME WEREAS RULE 8D HAS COME INTO EFFECT FROM 23. 03.2008 FOLLOWING THE JURISDICTIONAL HIGH COURT DECISION, T HE RULE 8D PROVISIONS ARE APPLICABLE. BUT THE QUESTION IS WHE THER THREE LIMBS ITA NO. 1180, 1181 & OTHERS :- 41 -: OF CALCULATION BY ASSESSING OFFICER APPLICABLE TO T HE ASSESSEE WERE INVESTMENT IS MADE IN SUBSIDIARY COMPANIES, SHORT T ERM MUTUAL FUND AND RIGHTS ISSUE AND THERE IS ADEQUATE FUNDS A VAILABLE WITH THE COMPANY TO MAKE INVESTMENTS WHICH ARE NOT INTEREST BEARING. AT THE TIME OF HEARING THE LD. AUTHORISED REPRESENTATI VE DREW OUR ATTENTION TO THE ANNUAL ACCOUNTS OF THE ASSESSEE CO MPANY AND ALSO REFERRED TO THE SCHEDULE OF INVESTMENTS MADE BY THE ASSESSEE COMPANY. ON PERUSING THE SCHEDULE, THE ASSESSEE HA S MADE INVESTMENTS IN GOVERNMENT SECURITIES, BODY CORPORAT E AND MUTUAL FUNDS. FURTHER, THE ASSESSEE HAS SUBMITTED THAT TH E INVESTMENTS HAS BEEN MADE IN SUBSIDIARY COMPANIES AGGREGATING T O B62.55 CRORES AND THIS INVESTMENT IN SUBSIDIARY COMPANY IS MADE NOT TO EARN ANY EXEMPT INCOME BUT FOR FUTURE PROFIT ON COM MERCIAL EXPEDIENCY. FURTHER ON COMPARISON WITH THE INVESTM ENTS WITH EARLIER YEARS THERE IS INCREASE IN INVESTMENT PATTE RN. THE LD. COUNSEL ARGUED THAT THE INCOME FROM INVESTMENTS WHI CH YIELD TAXABLE INCOME AND OFFERED TO TAX SHALL BE EXCLUDED FOR THE PURPOSE AND RELIED ON THE FOLLOWING JUDICIAL DECISIONS. (I) CIT VS. WINSOMETEXTILE INDUSTRIES LTD (200 9)319 ITR 204 (P & H) (II) DCIT VS. MAHARASHTRA SEAMLESS LTD (2011) 48 SOT 160 (DEL) ITA NO. 1180, 1181 & OTHERS :- 42 -: AND LD. AUTHORISED REPRESENTATIVE DREW ATTENTION TO THE SCHEDULE XIV OF PROFIT AND LOSS ACCOUNT AT PAGE 14 OF ANNUAL REPORT WEREAS AS PER SCHEDULE THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF B4.12 LAKHS WHEREAS DISALLOWANCE MADE BY THE ASSESSING OFFICER IS B8,32,63,000/-. FURTHER THE INVESTMENTS IS MADE OUT OF COMMON KITTY OF INTEREST FREE OWN FUNDS AND INVESTMENTS IN SUBSIDIARY COMPANY CANNOT BE SUBJECT OF DISALLOWANCE UNDER RULE 8D AND APPLY THE RATIO OF D ECISION IN THE CASE OF CIT VS. HERO CYCLES 323 ITR 518 HELD AS UNDER:- IF THE INVESTMENT IN SHARES IS OUT OF THE NON-INT EREST BEARING FUNDS, DISALLOWANCE U/S. 14A IS NOT SUSTAINABLE; THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDI RECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S. 14A CANNOT BE ACCEPTED DISALLOWANCE U/S. 14A REQUIRES A FINDING OF INCURRI NG OF EXPENDITURE. IF IT IS FOUND THAT FOR EARNING EXEMPT ED INCOME, NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S. 14A CANNOT STAND; THE CONTENTION OF THE REVENUE THAT EVEN IF THE ASSE SSEE HAS MADE INVESTMENT IN SHARES OUT OF ITS OWN FUNDS, THE SAID OWN FUNDS ARE MERGED WITH THE BORROWED FUNDS IN A COMMO N KITTY AND, THEREFORE, THE DISALLOWANCE U/S. 14A CAN BE MA DE, IS ALSO NOT JUSTIFIES. THE ASSESSING AUTHORITY CONSIDERED THE SUBMISSIONS AND DISALLOWED THE EXPENDITURE AS PER PROVISIONS OF SEC. 14A R.W.R ULE 8D OF INCOME TAX RULES AND THE DECISION OF M/S. LAKSHMI RING TRAVELLERS IN ITA NO.2083/MDS/2011, DATED 02.03.2012 AND PRADE EP KAR VS. ACIT (319 ITR 416) ARE APPLICABLE CONSIDERING THE FACTS AND CIRCUMSTANCES, DIVIDEND INCOME AND INVESTMENTS PATT ERN OF THE ITA NO. 1180, 1181 & OTHERS :- 43 -: COMPANY IN SUBSIDIARY COMPANY AND OTHER BODY CORPOR ATE. WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R WHO SHALL RE- EXAMINE AND CALCULATE THE DISALLOWANCE. 8.10 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.1183/MDS/2014 IS PARTLY ALLOWED. 9. ITA NO.1413/MDS/2014, ASSESSMENT YEAR 2008- 09:- THE APPEAL IS FILED BY THE REVENUE THAT THE COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE DEPRECATION AT 60% ON UPS AS AGAINST ALLOWED BY THE ASSESSING OFFICER @15% OF THE VALUE AND THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT FOLLOW ED THE DECISION OF DELHI TRIBUNAL IN THE CASE OF NESTLE INDIA LTD VS. DCIT 111 TTJ 498 WHERE UPS IS NOT TREATED AS INTEGRAL PART OF COMPUTER SYS TEMS AND HIGHER DEPRECATION IS ALLOWED. 9.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE, WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2007-08 IN DEPARTMENTAL APPEAL IN ITA NO.1412/MDS/ 2014 AT PARA 7.5, AND DISMISS THE GROUND OF THE REVENUE. ITA NO. 1180, 1181 & OTHERS :- 44 -: 9.2 IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1413/MDS/2014 IS DISMISSED. 10. ITA NO.1184/MDS/2014, ASSESSMENT YEAR 2009-10: THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT COMMISS IONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF ASSE SSING OFFICER IN DISALLOWING U/S.14A OF THE ACT B6,75,25,000/-. 10.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS MADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE, WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2008-09 IN ASSESSEE APPEAL IN ITA NO.1183/MDS/2014 AT PARA 8.9, AND WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSES SING OFFICER WHO SHALL PASS THE ORDER AS PER LAW. 10.2 THE NEXT GROUND RAISED BY THE ASSESSEE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE EXP ENDITURE INCURRED ON IMPROVEMENT OF LEASEHOLD PROPERTY, THE EXPENDITURE BEING WOODEN PARTITIONS, FALSE CEILINGS, CARPET, OT HER WOODEN STRUCTURE, INTERIOR WORK RENOVATION AND IMPROVEMENT OF LEASED PREMISES AND THE NATURE OF TEMPORARY STRUCTURE WERE DEPRECATION WAS RESTRICTED TO 10% AS AGAINST 100% AMOUNTING B2, 04,92,311/-. ITA NO. 1180, 1181 & OTHERS :- 45 -: 10.3 WE HAVE CONSIDERED THE FACTS AND SUBM ISSIONS MADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR 2006-07 IN ITA NO.1181/MDS/2014 AT PARA 5.6, WE PAR TLY ALLOW THE GROUND OF THE ASSESSEE. 10.4 IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO.1184/MDS/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 11. ITA NO.1432/MDS/2014 OF ASSESSMENT YEAR 2009-20 10:- THE APPEAL IS FILED BY THE REVENUE THAT THE COMMISSIONE R OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE DEPRECATION AT 60% ON UPS AS AGAINST ALLOWED BY THE ASSESSING OFFICER @15% OF THE VALUE AND THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT FOLLOW ED THE DECISION OF DELHI TRIBUNAL IN THE CASE OF NESTLE INDIA LTD VS. DCIT 111 TTJ 498 WHERE UPS IS NOT TREATED AS INTEGRAL PART OF COMPUTER SYS TEMS AND HIGHER DEPRECATION IS ALLOWED. 11.1 WE HAVE CONSIDERED THE FACTS AND SUBMISSIONS M ADE BY THE LD. AUTHORISED REPRESENTATIVE AND DEPARTMENTAL REPR ESENTATIVE WERE SIMILAR ISSUE WAS ADJUDICATED BY US FOR THE AS SESSMENT YEAR ITA NO. 1180, 1181 & OTHERS :- 46 -: 2007-08 IN ITA NO.1412/MDS/2014 AT PARA 7.5, WE DIS MISS THE GROUND OF THE REVENUE. 11.2 THE SECOND GROUND RAISED BY THE DEPARTMENT THA T THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISAL LOWING SOFTWARE EXPENSES TO THE TUNE OF B 18,42,169/-. 11.3 THE ASSESSEE COMPANY HAS INCURRED AN AMOU NT OF B4,57,98,871/- TOWARDS INFORMATION TECHNOLOGY CHARG ES. ON PERUSAL THE LD. ASSESSING OFFICER FOUND MAJOR EXPENSES RELA TING TO MAINTENANCE OF SOFTWARE AND HARDWARE INSTALLED BY T HE COMPANY. THE LD. ASSESSING OFFICER FOUND FROM THE NARRATION OF EXPENDITURE, CERTAIN ITEMS DO NOT QUALIFY AS REVENUE EXPENDITURE BECAUSE OF ITS ENDURING NATURE. DATE PARTICULARS AMOUNT (B) <180 DAYS >180 DAYS 09.04.08 DATA SOFT COMPUTERS SERVICE CHARGES OF NETWORK ENHANCEMENT PROJECT 488670 293202 09.04.08 DATA SOFT COMPUTERS SERVICE CHARGES OF NETWORK ENHANCEMENT PROJECT 11330 6798 21.08.08 NUCLEAR SOFTWARE EXPORTS LTD FINNONE ENHANCEMENT PROJECT 1139587 683752 21.08.08 NUCLEAR SOFTWARE EXPORTS LTD FINNONE 145613 87368 ITA NO. 1180, 1181 & OTHERS :- 47 -: ENHANC E MENT PROJECT 24.09.08 NUCLEAR SOFTWARE EXPORTS LTD NUCLEUS SUPPORT MIGRATION VERSION 3.2 TO 3.4 744800 446880 07.11.08 ADRENAIN E - SYSTEMS L TD IMPLEMENTATION CHARGES 114000 34200 31.03.09 NUCLEUS CHARGES ENHANCEMENT 1071956 321587 3715956 355787 1518000 THE LD. ASSESSING OFFICER OBSERVED THAT THE EXPENDI TURE INCURRED AMOUNTING TO B37,15,956/- CANNOT BE ALLOWED AS REVE NUE EXPENDITURE SINCE IT RESULTS IN CREATING OF AN ASSET WHOSE UTIL ITY, FALLS IN TWO FINANCIAL YEARS. THE LD. ASSESSING OFFICER RELIED ON THE DEC ISION OF THE SPECIAL BENCH OF DELHI ITAT IN THE CASE OF AMWAY ENTERPRISE S AND CAPITALISED THE SAME. THE LD. ASSESSING OFFICER DISALLOWED B18 ,42,169/- AND ADDED TO THE TAXABLE INCOME. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPE ALS). 11.4 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND RELIED O N THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LD (304 ITR 84 ) HELD AS UNDER:- THAT EXPENDITURE INCURRED ON SOFTWARE PACKAGES WAS REVENUE EXPENDITURE AND THAT SUCH SOFTWARE ENHANCES THE EFFICIENCY OF THE OPERATION AND WAS NOT AN AID IN THE MANUFACTURING PROCESS AND THEREFORE THERE IS NO END URING BENEFIT OR ACQUISITION OF ANY CAPITAL ASSET BY AN ASSESSEE. THE CONCEPT OF ENDURING BENEFIT MUST RESPOND TO THE CHANGING ECONOMIC REALITIES OF THE BUSINESS. THE ITA NO. 1180, 1181 & OTHERS :- 48 -: EXPENSES INCURRED BY INSTALLATION OF SOFTWARE PACKAGES IN THE PRESENT COMPUTER WORLD, WHICH REVOLVES ON THE M ODEM COMMUNICATION TECHNOLOGY, ENABLES THE ASSESSEE TO C ARRY ON ITS BUSINESS OPERATIONS EFFECTIVELY, EFFICIENTLY , SMOOTHLY AND PROFITABLY. HOWEVER, SUCH SOFTWARE ITSELF DOES NOT WORK ON A STAND ALONE BASIS. IT HAS TO BE FITTED TO A COMPUTER SYSTEM TO WORK. SUCH SOFTWARE ENHANCES THE EFFICIENCY OF THE OPERATION. IT IS AN AID IN THE MANUFACTURING PROCESS RATHER THAN THE TOOL ITSELF. THEREFORE, THE PAYMENT FOR SUCH APPLICATION SOFTWARE, THOUGH THERE IS AN ENDURING BENEFIT, DOES NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSET AND IT MERELY ENHANCES THE PRODUCTIVI TY OR EFFICIENCY AND HENCE, HAS TO BE TREATED AS REVENUE EXPENDITURE MOREOVER, THESE ARE PAID ON A YEARLY BASIS AND THER EFORE THEY ARE TOWARDS MAINTENANCE OF THE SOFTWARE AND TDS WAS ALSO DULY D EDUCTED AND PAID. AS THE EXPENDITURE IS REVISION IN NATURE AND HAS TO B E TREATED AS REVENUE EXPENDITURE. ON THE BACKGROUND OF THE FACTUAL POSITION AND JUDICIAL PRECEDENTS, LD. COMMISSIONER OF INCOME TAX (APPEAL S) ALLOWED THE GROUND OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE ASSAILED AN APPEAL BEFOR E TRIBUNAL. 11.5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF SOFTWARE EXPENSES B18,42,169/- AS R EVENUE EXPENDITURE AND DECISION RELIED BY THE MADRAS HIGH COURT IN THE CASE OF SOUTHERN ROADWAYS LTD 304 ITR 84 HAS NOT ATTAINED FINALITY AND DEPARTMENT HAS FILED AN SLP IN APEX COURT AND PRAYED FOR ALLOWING THE APPEAL. ITA NO. 1180, 1181 & OTHERS :- 49 -: 11.6 CONTRA, THE LD. AR HAS RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND OPPOSED THE GROUND. 11.7 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISION RELIED. THE LD. AUTHO RISED REPRESENTATIVE CONTENTION BEING THAT THE ASSESSEE COMPANY INCURRED EXPENSES OF SOFTWARE TECHNOLOGY AND MAJOR PORTION RELATES TO M AINTENANCES OF SOFTWARE AND HARDWARE. WE ON PERUSAL OF THE ASSESS ING OFFICER ORDER AT PARA 6.1, THE ASSESSEE HAS CLAIMED B37,15,956/- AS ANNUAL MAINTENANCE CONTRACT AND PREPAID CONTRACT CHARGES B UT THERE IS NO CLARITY WHETHER THE VALIDITY OF SOFTWARE IS FOR ONE YEAR PERIOD OR MORE AS OPERATIONAL SOFTWARE AND LICENCE FEE. THEREFORE, WE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND REMIT T HE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE CHARACTERIST IC OF SOFTWARE EXPENDITURE WHETHER IT PERTAIN TO INSTALLATION EXPE NSE OR MAINTENANCE EXPENSES OR LICENCE FEE OR OPERATIONAL FEES AND ALL OW THE EXPENDITURE IF ITS USAGE IS LESS THAN ONE YEAR AND BALANCE TO BE CAPITALISED AND ALLOW DEPRECATION. 11.8 IN THE RESULT, THE APPEAL OF THE REVENUE IN I TA NO.1432/MDS/2014 OF ASSESSMENT YEAR 2009-2010 IS PA RTLY ALLOWED. ITA NO. 1180, 1181 & OTHERS :- 50 -: 12. (I) ITA NO.1431/2014, ASSESSMENT YEAR 2001-02, PARTLY ALLOWED FOR STATISTICAL PURPOSE. (II) C.O.NO.82/2014, PARTLY ALLOWED FOR STATISTICA L PURPOSE. (III) ITA NO.1181/2014, ASSESSMENT YEAR 2006-07, P ARTLY ALLOWED FOR STATISTICAL PURPOSE. (IV) ITA NO.1180/2014, ASSESSMENT YEAR 2005-06, PA RTLY ALLOWED. (V) ITA NO.1182/2014, ASSESSMENT YEAR 2007-08, PAR TLY ALLOWED. (VI) ITA NO.1412/2014, ASSESSMENT YEAR 2007-08, DISMISSED (VII) ITA NO.1183/2014, ASSESSMENT YEAR 2008-09, P ARTLY ALLOWED. (VIII) ITA NO.1413/2014, ASSESSMENT YEAR 2008-09, DISMISSED, (IX) ITA NO.1184/2014, ASSESSMENT YEAR 2009-10, PA RTLY ALLOWED FOR STATISTICAL PURPOSE. (X) ITA NO.1432/2014, ASSESSMENT YEAR 2009-10, PAR TLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 28TH DAY OF APRIL, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) # $ /JUDICIAL MEMBER / CHENNAI 0 / DATED:28.04.2016 KV 1 + )#,23 43&, / COPY TO: 1 . '( / APPELLANT 3. ! 5, () / CIT(A) 5. 3 89 )#,# / DR 2. )*'( / RESPONDENT 4. ! 5, / CIT 6. 9% : / GF