Deputy Commissioner Of Income tax Circle - 7(1)(2), Bengaluru V. M/S Viteos Capital Market Services Ltd., Bengaluru

ITA 1435/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1309 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 04-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUDHIR PRABHU
• Keywords: Capital asset; Depreciation

Judgement Text

ITA.1435 & 1446/BANG/2018 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NOS.1435 & 1446/BANG/2018 (ASSESSMENT YEARS : 2013-14 & 2014-15) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 7 (1)(2), BENGALURU .. APPELLANT V. M/S. VITEOS CAPITAL MARKET SERVICES LTD, SITE NO.43, HOSUR ROAD, ELECTRONICS CITY, PHASE-II, BENGALURU 560 100 .. RESPONDENT PAN : AABCV3792J ASSESSEE BY : SHRI. SUDHIR PRABHU, CA REVENUE BY : DR. P. V. PRADEEP KUMAR, ADDL. CIT HEARD ON : 30.08.2018 PRONOUNCED ON : 07.09.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE SEPARATE ORDERS OF THE CIT (A) -7, DT.01.03.2018 & 02.03.3018, FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15 RESPECTIVE LY, ON THE FOLLOWING COMMON GROUNDS : ITA.1435 & 1446/BANG/2018 PAGE - 2 02. THE ISSUE INVOLVED IN THESE APPEALS IS WITH RES PECT TO DISALLOWANCE OF DEPRECIATION U/S.40(A)(IA) R.W.S. 3 2 OF THE ACT, AND THEREBY TREATING THE SOFTWARE AS A CAPITAL ASSET. I N THIS REGARD, IT IS SUFFICIENT TO NOTE THAT THE ASSESSEE HAS MADE THE P AYMENT IN QUESTION TO A NON-RESIDENT FOR PURCHASE OF SOFTWARE AND THEREAFTER THE SOFTWARE HAS BEEN CAPITALISED BY THE ASSESSEE I N THE BLOCK OF CAPITAL ASSETS. THE AO RECORDED IN THE ASSESSMENT IN PARA 4 TO THE FOLLOWING EFFECT : 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUSINESS PROCESS MANAGEMENT CONSISTING OF ACCOUNTIN G SERVICES & ASSET MANAGEMENT & FUND ADMINISTRATION. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AS SESSMENT IS COMPLETED AS UNDER. [GROUNDS OF ADDITION] [GROUND-1: DISALLOWANCE U/S 40(A)(IA) R.W.S 194J R.W.S 32 OF T HE ACT] THE ASSESSEE HAD MADE ADDITIONS TO SOFTWARE DURING AY 20 10- 11, AY 2011-12 , AY 2012-13 AND AY 2013-14 AMOUNTING TO RS. 13,869,218/-, RS. 1,951,711/-, RS. 59,611/- AND RS. 24,143,932/- RESPECTIVELY. THE ASSESSEE HAD NOT DED UCTED TDS ON THE PURCHASE OF SOFTWARE IN THOSE YEARS AND ACCORDINGLY THE DEPRECIATION CLAIM IN THE RESPECTIV E YEARS HAS BEEN DISALLOWED. ITA.1435 & 1446/BANG/2018 PAGE - 3 IN THE CURRENT YEAR, THE ASSESSEE IN VIEW OF THE CBDT NOTIFICATION 21/2012, REQUIRED TO DEDUCT TDS SINCE THE ASSESSEE HAS OBTAINED DECLARATION FROM THE TRANSFEREE THAT THE TAX HAS BEEN DEDUCTED EITHER UNDER SECTION 194J OR 195 ALONG WITH THE PAN OF THE TRANSFEREE, HENCE NO DISALLOWANCE HA S BEEN MADE DURING THE CURRENT ASSESSMENT YEAR. ACCORDINGLY, A PORTION OF THE DEPRECIATION CLAIMED BY THE ASSESSEE ON COMPUTER SOFTWARE DURING AY 2014-15 IS CONSIDERED FOR DISALLOWANCE FOR NON-DEDUCTION OF TD S ON PAYMENT MADE TOWARDS SUCH PURCHASES IN THE YEAR OF PURCHASE. CONSIDERING THE SAME VIEW, THE DEPRECIATI ON CLAIM ON THE WRITTEN DOWN VALUE (WDV) UPTO 3 1.03.2013 HA S BEEN DISALLOWED U/S 40(A)(IA) OF THE ACT R.W.S. 194 J IS COMPUTED CONSIDERING DISALLOWANCE MADE IN EARLIER A SSESSMENT YEARS AS UNDER:- (DISALLOWANCE : RS.58,68,754/-) 03. ON APPEAL, THE CIT (A) RELIED UPON THE DECISIO N OF THE COORDINATE BENCH IN THE MATTER OF M/S. KAWASAKI MIC ROELOECTRONIC ITA.1435 & 1446/BANG/2018 PAGE - 4 INC V. DDIT (INTL.TAXATION) [ITA.1512/BANG/2010 FOR AY 2007-08] HELD AS UNDER : 6. THIS ISSUE OF DISALLOWANCE OF DEPRECIATION ON SOFTWARE HAS ALSO BEEN DECIDED BY THE UNDERSIGNED I N CASE OF THE APPELLANT FOR AY 2013-14 VIDE ORDER DAT ED 01- 03-2018 WHERE IT HAS BEEN HELD THAT IN VIEW OF DECI SION OF THE JURISDICTIONAL ITAT, DISALLOWANCE OF DEPRECIATI ON FOR NON DEDUCTION OF TAX ULS 40(A)(IA) IS NOT SUSTAINAB LE. HOWEVER, IT HAS BEEN HELD THAT AS PER THE DECISIONS OF THE HONORABLE KARIATAKA HC IN CASE OF SAMSUNG ELECTRONI CS 203 TAXRNAN 477 AND ALSO IN THE CASE OF IBM LTD [20 14] 43 TAXMANN. COM 470, PURCHASE OF SOFTWARE IS REVENU E EXPENDITURE AND LIABLE FOR TDS AS THE PAYMENT IS IN THE NATURE OF ROYALTY. CONSEQUENTLY, THE ENTIRE PAYMENT AMOUNT WITHOUT TDS IS LIABLE FOR DISALLOWANCE U/S 40(A)(IA ). BUT IT IS OBSERVED THAT FOR THE YEAR UNDER CONSIDERATION, THE AO HAS DISALLOWED DEPRECIATION ON WDV OF SOFTWARE PURCHASE FOR THE EARLIER YEARS AND NOT FOR THE PURCHASE DURING THE C URRENT YEAR. ACCORDINGLY, THE DISALLOWANCE OF DEPRECIATION IDS 4 0(A)(IA) IS HELD TO BE NOT SUSTAINABLE. THE GROUND OF APPEAL IS ALLOWED. BEING AGGRIEVED THE REVENUE IS NOW IN APPEAL BEFORE US. 04. AT THE OUTSET, IT WAS SUBMITTED BY THE LD. DR T HAT THE REVENUE IS INTENDING TO WITHDRAW THE APPEAL, THEREF ORE A COMMUNICATION IS SENT TO THE AO ADVISING THE WITHDR AWAL OF APPEAL. IN VIEW THEREOF THE MATTER BE ADJOURNED TILL NECESS ARY COMMUNICATION IS RECEIVED BY THE DR OFFICE. FURTHER IT WAS SUBMITTED THAT ORDER ON THE PRESENT APPEAL SHOULD N OT AFFECT THE RIGHTS OF THE REVENUE ARISING OUT OF THE ORDER PASS ED BY THE CIT(A), WHICH ARE NOT CHALLENGED BY THE ASSESSEE . 05. ON THE OTHER HAND IT WAS THE SUBMISSION OF THE LD. AR THAT THE ISSUE IS COVERED BY THE DECISION OF THE COORDIN ATE BENCH IN THE ITA.1435 & 1446/BANG/2018 PAGE - 5 MATTER OF KAWASAKI MICROELECTRONICS INC (SUPRA), WH EREIN AT PARA 8 IT IS HELD AS UNDER : THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE AS WELL AS BY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHE S OF THE ITAT, WE ARE OF THE OPINION THAT ONCE THE ASSESSEE HAS CAPITALISED THE PAYMENT IN QUESTION THOUGH THE ASSE SSEE HAS NOT DEDUCTED THE TAX AT SOURCE ON SUCH PAYMENT, SECTION 40(A)(I) CANNOT BE INVOKED FOR DISALLOWANCE OF DEPRECIATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND THE ADDITION MADE BY THE ASSESSING OFFICER IS D ELETED. 05. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. SINCE NO APPLICATION IS FILED FOR WITHDRAWAL OF THE APPEAL, ONLY AN ORAL SUBMISSION WOULD NOT SUFFICE FOR WITHDRAWING T HE APPEAL BY THE REVENUE. AS THE NEEDFUL HAS NOT BEEN DONE, THEREFO RE THERE IS NO OCCASION FOR THE BENCH TO PASS ANY ORDER ON SUCH OR AL SUBMISSION FOR WITHDRAWAL OF APPEAL. WITH RESPECT TO SECOND ASPECT URGED BY THE DR, WE WOULD LIKE TO POINT OUT THAT WE WOULD ONLY B E DECIDING IN THE ISSUES RAISED BY THE REVENUE ONLY, NO FINDING I S GIVEN IN RESPECT TO ANY OTHER ISSUE INCIDENTALLY DECIDED BY THE CIT ( A) IN FAVOUR OF REVENUE, WHICH IS NOT THE SUBJECT MATTER OF PRESENT APPEAL. 06. FROM THE PERUSAL OF FACTS PRESENT CASE, IT IS A BUNDANTLY CLEAR THAT THE FACTS ARE SIMILAR TO THE FACTS ADJUDICATED BY THE COORDINATE BENCH IN THE MATTER OF KAWASAKI MICROELECTRONICS (S UPRA), WHEREIN IT WAS HELD THAT THE ASSESSEE IS ENTITLED TO DEPREC IATION ON THE PAYMENT CAPITALISED FOR PURCHASE OF SOFTWARE. THER EFORE, THE TRIBUNAL IS BOUND BY THE VIEW EXPRESSED BY THE COOR DINATE BENCH THEREIN. HENCE GROUNDS RAISED BY THE REVENUE BEFO RE US ARE DECIDED AGAINST THE REVENUE. ITA.1435 & 1446/BANG/2018 PAGE - 6 07. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7TH DAY OF SE PTEMBER, 2018. SD/- SD/- (JASON P. BOAZ) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 07/09/2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.