ACIT, CHENNAI V. M/s. Pentamedia Graphics Ltd., CHENNAI

ITA 144/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51872 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J SREE VIDYA; G VADHINI
• Keywords: Depreciation
• Section: 10B; 10; 154

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI.U.B.S. BEDI, J.M. & SHRI. N.S. SAINI, A .M. I.T.A. NO. 144/MDS/2011 ASSESSMENT YEAR: 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI 34. VS. M/S. PENTAMEDIA GRAPHICS LTD., NO.1, FIRST MAIN ROAD, UNITED INDIA COLONY, CHENNAI 600 024. [PAN:AAACP1647B] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB, SR. DR ASSESSEE BY : M/S. G. VADHINI & J. SREE VIDYA ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) V, CHENNAI DATED 20.10.2010 RELEVANT TO THE ASSESSMENT YEAR 2007-08, WHEREBY THE DEPARTMENT HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN ALLOWING THE ASSESSEES APPEAL CLAIMING ALLOWANCE OF DEPRECIATIO N BY ADOPTING THE RATE OF 60% IN RESPECT OF DIGITAL CONTENT, WHEN CLAIM WAS MADE IN RESPECT OF RIGHTS ACQUIRED TO BROADCAST DIGITAL MOVIES AND AS PER NEW APPENDIX I TO THE IT RULES, 60% DEPRECIATION IS AVAILABLE IN RESPECT OF COMPUTERS I NCLUDING COMPUTER SOFTWARE. COMPUTER SOFTWARE IS DEFINED IN NOTE 7 TO THE APPEN DIX AS A COMPUTER PROGRAM RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTH ER INFORMATION STORAGE DEVICE, WHEREAS A DIGITAL MOVIE IS NOT A COMPUTER PROGRAM T HOUGH IT MAY BE RECORDED IN A MEDIA DEFINED IN THE NOTES MENTIONED. I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 2 2. FACTS INDICATE THAT THE ASSESSEE FILED RETURN O F INCOME AT NIL AFTER CLAIMING DEDUCTION OF ` .2,49,45,920/- UNDER SECTION 10B OF THE INCOME TAX ACT AND SET OFF OF BROUGHT FORWARD LOSS OF ` .48,89,413/- FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION. THE ASSESSING OFFICER, AFTER SCRUTINY OF THE RETURN DISALLOWED THE CLAIM OF DEDUCTION OF ` .2,49,45,920/- UNDER SECTION 10B, SET OFF OF BROUGH T FORWARD LOSS, DISALLOWANCE UNDER SECTION 40(A)(IA) FOR NON-DEDUCTION OF TDS ON CONTRACT PAYMENT AND DISALLOWANCE OF DEPRECIATION OF ` .29,59,934/- BY ADOPTING RATE OF 25% IN RESPECT OF INTANGIBLE ASSETS AS AGAINST 60% CLAIMED BY THE ASS ESSEE BY DETERMINING THE TAXABLE INCOME AT ` .1,16,16,082/-. BUT THE ASSESSING OFFICER IS STATED TO HAVE NOT DISCLOSED ANY REASON FOR THE AFORESAID DISALLOWANCE EXCEPT FOR 40(A)(IA). SUBSEQUENTLY, THE ASSESSMENT ORDER WAS RECTIFIED UN DER SECTION 154 DATED 16.04.2010 AND TAXABLE INCOME WAS DETERMINED AT ` .3,29,34,860/-. IT IS ALSO NOTED THAT THE ASSESSING OFFICER IS STATED TO HAVE NOT CO NSIDERED THE DEDUCTION OF ` .42,62,400/- TO BE ALLOWED UNDER SECTION 35DDA OF T HE ACT IN PURSUANCE OF REASSESSMENT ORDER DATED 08.12.2006 FOR THE ASSESSM ENT YEAR 2004-05 AND ` .4,14,24,000/- FOR THE ASSESSMENT YEAR 2003-04 VIDE REASSESSMENT ORDER DATED 31.12.2008. 3. THE ASSESSEE FILED APPEAL AND CHALLENGED THE AC TION OF THE ASSESSING OFFICER FOR NOT ALLOWING DEDUCTION UNDER SECTION 10 B, BUT DURING THE COURSE OF APPEAL PROCEEDINGS, STATED THAT SINCE TAX HOLIDAY P ERIOD HAS EXPIRED BY THE ASSESSMENT YEAR 2006-07, SO NO SUCH DEDUCTION IS AV AILABLE HENCE THIS GROUND WAS WITHDRAWN BY THE ASSESSEE AND DISMISSED BY THE FIRST APPELLATE AUTHORITY. I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 3 3.1 AS REGARDS GROUND NO.2, WHICH PERTAINS TO RESTR ICTION OF CLAIM OF DEPRECIATION AT 60% IN RESPECT OF DIGITAL CONTENT A CQUIRED BY THE ASSESSEE FOR BROADCASTING FEATURE FILMS AND ALLOWING 25% DEPRECI ATION, THE ASSESSEE IN APPEAL, CONTENDED THAT SUCH PART DISALLOWANCE MADE BY THE A SSESSING OFFICER IS NEITHER PROPER NOR JUSTIFIED BECAUSE THE ASSESSEE IS ENTITL ED TO DEPRECIATION AT THE RATE OF 60% BECAUSE THE ABOVE ITEM IS COVERED BY ITEM III(5 ) [I.E. COMPUTERS INCLUDING COMPUTER SOFTWARE] OF ARTICLE A (TANGIBLE ASSETS) O F APPENDIX I TO INCOME TAX RULES, DEPRECIATION RATE OF 60% IS GIVEN AGAINST SU CH ITEM AND IN THE NOTES UNDER APPENDIX L TO R, THE DIGITAL COMPONENTS COVERS IN I TS DEFINITION AS COMPUTER SOFTWARE RECEIVED BY IT FOR ITS BUSINESS ACTIVITY FOR BROADC AST DIGITAL MOVIES. THEREFORE, THE ASSESSEE HAS DEBITED THE COST OF SUCH COMPUTER SOFT WARE RECEIVED BY IT FOR ITS BUSINESS ACTIVITY OF BROADCASTING AS A TANGIBLE FIX ED ASSET AND CLAIMED DEPRECIATION AT 60% AS PER IT RULES. HENCE, THE ASSESSING OFFICE R MAY BE REQUIRED TO DIRECT TO TREAT THE RIGHT ACQUIRED IN THE FORM DIGITAL CONTEN TS AS A TANGIBLE FIXED ASSET AND ALLOW DEPRECIATION AT 60% AS APPLICABLE TO COMPUTER SOFTWARE. REFERENCE WAS ALSO GIVEN TO RELEVANT CLAUSES OF ACCOUNTING STANDARD (A S) 26 ON THE SUBJECT OF INTANGIBLE ASSET ARE NOTEWORTHY AND COULD NOT REFER S TO SUCH CLAUSES, IT WAS SUBMITTED THAT AN ASSET MAY INCORPORATE BOTH TANGIB LE AND INTANGIBLE ELEMENTS AND IT IS THE PREDOMINANT ELEMENT THAT DECIDES THE CHAR ACTER OF THE ASSET TO BE TANGIBLE OR INTANGIBLE. MOREOVER, AN INTANGIBLE ASSET MAY BE CONTAINED IN A PHYSICAL SUBSTANCE TOO. IF THAT PHYSICAL SUBSTANCE IS SIGNIF ICANT WITHOUT WHICH THE ACTIVITY CANNOT BE CARRIED ON TO REAP FUTURE BENEFITS, THEN IT LOSES ITS CHARACTER OF INTANGIBLE ASSET AND BECOMES TANGIBLE. IT WAS THUS, SUBMITTED BEFORE THE FIRST APPELLATE I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 4 AUTHORITY THAT THE DEPRECIATION AS PER IT ACT HAS B EEN WORKED OUT TO BE ` .2,18,30,403/- AS PER TAX AUDIT REPORT. HOWEVER, DE PRECIATION OF ` .2,01,98,665/- ONLY HAS BEEN CLAIMED MISTAKENLY IN THE COMPUTATION OF TOTAL INCOME FILED WITH THE RETURN. HENCE, ADDITIONAL ALLOWANCE OF ` .16,31,738/- ALSO TO BE ALLOWED DUE TO THIS MISTAKE APPARENT ON RECORD. IT WAS, THUS REQUESTED TO DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME. 4. THE LD. CIT(A), WHILE CONSIDERING AND ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO ALLOW THE GROUNDS AS RAISED IN THE APPEAL AS WELL AS ADDITIONAL CLAIM MADE DURING THE ARGUMENTS AS PER PARA 8.2, WH ICH READS AS UNDER: 8.2 I FIND THAT DEPRECIATION @ 60% FOR DIGITAL CON TENTS HAS BEEN ALLOWED BY THE ASSESSING OFFICER AS PER GIVING EFFECT OF IT AT ORDER BY ASSESSING OFFICER DATED 3.7.2008 FOR THE ASSESSMENT YEAR 2002 -03. FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION HAVE NOT CHANGED. T HE DEPRECIATION @ 60% HAS BEEN ALLOWED ALL THESE YEARS. THE ASSESSING OFF ICER HAS MISDIRECTED HIMSELF IN REAGITATING A SETTLED ISSUE. THEREFORE I AM OF THE OPINION THAT DIGITAL CONTENT S CLASSIFIED AS FIXED ASSETS BY THE STATUTORY AUDITORS IN THE ANNUAL STAT EMENT OF ACCOUNTS, IS AN ASSET HAVING BOTH TANGIBLE AND INTANGIBLE ELEMENTS, BUT VIRTUALLY THE TANGIBLE ELEMENT IS MOST PREDOMINANT IN THE FORM DIGITAL VID EO TAPE, WITHOUT WHICH POSSESSION MERE RIGHT FOR BROADCASTING IS OF NO USE . THEREFORE THIS DIGITAL CONTENTS IS A TOOL OR PLANT OR MACHINERY WHICH IS A TANGIBLE ASSET AND IS IN THE FORM OF COMPUTER SOFTWARE. THEREFORE, THE ASSES SEES CLAIM FOR DEPRECIATION AT 60% AS PER IT RULES IS FULLY JUSTIF IED. FURTHER, THE MUMBAI SPECIAL BENCH OF THE ITAT IN I TS ORDER DATED 9.7.2010 IN DCIT (V) DATA CRAFT INDIA LTD. (2010) T IOL 473 ITAT MUM(SB) HAS HELD THAT EVEN ROUTS AND SWITCHES ARE P ART OF COMPUTER HARDWARE ELIGIBLE FOR DEPRECIATION @ 60%. HENCE THE APPEAL ON THIS GROUND IS ALLOWED. 5. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE DEPARTMENT HAS COME UP IN APPEAL AND WHILE RELYING UPON THE ORDER OF THE ASSE SSING OFFICER, IT WAS PLEADED FOR SETTING ASIDE THE ORDER OF THE LD. CIT(A) AND RESTO RING THAT OF THE ASSESSING OFFICER, I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 5 BECAUSE THE ITEM ON WHICH 60% DEPRECIATION HAS BEEN CLAIMED, IT IS NOT ENTITLED TO CLAIM SUCH HIGHER DEPRECIATION FOR THE REASON THAT THE DIGITAL COMPONENT IS NOT A COMPUTER NOR COMPUTER SOFTWARE, SO, THE RATE OF DEP RECIATION AT 25% AS RESTRICTED BY THE ASSESSING OFFICER IS APPLICABLE RATE OF DEPR ECIATION ON SUCH ITEM AND TO SUPPORT THE PLEA, THE LD. DR HAS RELIED UPON COCHIN BENCH DECISION IN WHICH SCREEN PRINTING IS HELD TO BE NOT COMPUTER OR COMPU TER SOFTWARE AND IN THE CASE REPORTED IN 129 ITD 475, THE LD. DR FURTHER SUBMITT ED THAT SIMILARLY, THE ATM MACHINES ARE HELD TO BE NOT COMPUTER OR COMPUTER SO FTWARE IN THE CASE OF HDFC BANK LTD. (FORMERLY) LORD KRISHNA BANK LTD., CENTUR ION BANK OF PUNJAB LTD.) 2011- TIOL-101-ITAT-MUM ORDER DATED 07.01.2010 AND IT WAS PLEADED FOR REVERSAL OF THE ORDER OF THE LD. CIT(A) AND RESTORING THAT OF THE A SSESSING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DIGITAL CONTENTS IS A SOFTWARE ENTERED IN THE RELEVANT SCHEDULE REFERS TO COMPUTER INCLUDING COMPUTER SOFTWARE AND THE HONBLE SUPREME COURT IN THE CASE OF THE ASSESSEE THOUGH UNDER CENTRAL EXCISE MATTER, INFORMATION TECHNOLOGY SOFTW ARE AND DOCUMENT OF TITLE CONVEYING THE RIGHT TO USE INFORMATION TECHNOLOGY S OFTWARE, VIDE ORDER DATED 09.05.2006, HAS HELD THAT THE GOODS UNDER IMPORT AR E ADMITTEDLY DATA RECORDED ON TAPES AND UNDER THE EXISTING NOTIFICATION NO. 20/99 ANY KIND OF DATA IN A MACHINE READABLE FORM AND CAPABLE OF BEING MANIPULATED BY M EANS OF AN AUTOMATIC DATA PROCESSING MACHINE WOULD BE COVERED BY THE TERM IN FORMATION TECHNOLOGY SOFTWARE AND FOR THE DETAILED REASON GIVEN IN THE S AID JUDGEMENT, THE HONBLE SUPREME COURT IN ASSESSEES OWN CASE REPORTED IN 2 006-TIOL-44-SC-CUS HAS CONCLUDED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE. SO FAR AS TRIBUNALS I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 6 DECISIONS CITED BY THE LD. DR ARE CONCERNED, THOSE ARE NOT RELEVANT AT ALL, THEREFORE NOT APPLICABLE. IT WAS THUS PLEADED FOR CONFIRMATIO N OF THE IMPUGNED ORDER. 7. THE LD. DR, IN ORDER TO COUNTER THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE CITATION OF THE HONB LE SUPREME COURT GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE ACTUALLY RELATES TO IN TERPRETATION OF MOTION CAPTURE ANIMATION FILE IMPORTED BY THE ASSESSEE COULD BE CL ASSIFIED UNDER THE HEADING 85.24 TO CLAIM EXEMPTION OF PAYMENT OF CUSTOM DUT Y UNDER NOTIFICATION NO.20/99- CUS, WHEREAS, IN THE CASE OF THE ASSESSEE, ENTRY FO R DEPRECIATION PURPOSE OF COMPUTER AND COMPUTER SOFTWARE, SO THERE IS VAST DI FFERENCE BETWEEN THESE TWO SITUATIONS AND INTERPRETATION PLACED BY THE HONBLE APEX COURT IN RESPECT OF DIFFERENT ENTRY/ITEM CANNOT BE IMPORTED HERE FOR TH E PURPOSE OF INCOME TAX ACT/RULES. THEREFORE, THE ORDER OF THE LD. CIT(A) S HOULD BE REVERSED AND THAT OF THE ASSESSING OFFICER SHOULD BE UPHELD AND IN ALTERNATI VE IT WAS PLEADED THAT THE ORDERS OF AUTHORITIES BELOW CAN BE SET ASIDE AND MA TTER CAN BE REMITTED BACK ON THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATI ON AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 8. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIAL ON RECORD AS WELL AS PRECEDENT RELIED UPON BY BOTH THE SIDES. THE ASSESS ING OFFICER HAS, IN THE ASSESSMENT ORDER HAS SIMPLY DISALLOWED THE EXCESSIV E DEPRECIATION TO THE TUNE OF ` .29,59,934/-, BUT THERE IS NO DISCUSSION OR CONSIDE RATION OF RELEVANT PROVISIONS IN THE ORDER OF THE ASSESSING OFFICER. WHEREAS, THE LD . CIT(A) HAS DISCUSSED AND PASSED ELABORATE ORDER WITHOUT ASSOCIATING THE ASSE SSING OFFICER WITH SUCH PROCEEDINGS OR SEEKING REMAND REPORT WHILE CONSIDER ING THE DECISION OF THE I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 14 44 44 44 4/MDS/1 /MDS/1 /MDS/1 /MDS/11 11 1 7 HONBLE SUPREME COURTS DECISION WITHOUT GIVING APP ROPRIATE BASIS AND REASONING IN ORDER TO BRING THE CASE OF THE ASSESSEE TO BE CO VERED BY SUCH DECISION. THEREFORE, IN THE INTEREST OF JUSTICE AND TO HAVE A FAIR PLAY IN THE MATTER, WE FIND IT JUST AND APPROPRIATE TO SET ASIDE THE ORDERS OF AUT HORITIES BELOW IN THIS REGARD AND RESTORE THE MATTER BACK ON THE FILE OF THE ASSESSIN G OFFICER WITH THE DIRECTION TO REDECIDE THE ISSUE AFRESH AFTER OBTAINING NECESSARY FURTHER DETAILS FROM THE ASSESSEE AND CONSIDERING RELEVANT PROVISIONS, CASE LAW, ETC. BY PASSING A SPEAKING ORDER IN RELATION TO DEPRECIATION CLAIMED ON DIGITAL CONTENT IMPORTED BY THE ASSESSEE AFTER GIVING DUE OPPORTUNITY TO THE ASSESS EE. WE HOLD AND DIRECT ACCORDINGLY. 9. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 09.09.2011 SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI, DATED, THE 09.09.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.