DCIT, CHENNAI V. Aditya Birla Money Ltd., CHENNAI

ITA 1452/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9363 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 08-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-06-2015
• Court: TRIBUNAL
• Department Lawyers: M; SASI KUMAR JCIT I T A NO
• Assessee Lawyers: ANAND DEVKUMAR
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB; 32

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1162 /MDS/2015 / ASSESSMENT YEAR :20 1 0 - 11 M/S. ADITYA BIRLA MONEY LTD., [FORMERLY KNOWN AS M/S. APOLLO SINDHOORI CAPITAL INVESTMENTS LTD.], NO. 55, ALI TOWER S , GREEMS ROAD, CHENNAI 600 006. [PAN: A AAC A74 72K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX , COMPANY CIRCLE 1(1), 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM CHENNAI 600 034 . ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO. 1452/MDS/2015 / ASSESSMENT YEAR :2010 - 11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI 600 034. VS. M/S. ADITYA BIRLA MONEY LTD., NO. 55, ALI TOWERS, GREEMS ROAD, THOUSAND LIGHTS, CHENNAI 600 006. ( / APPELLANT ) ( / RESPONDENT ) I.T.A. NOS. 1745, 1746 , 1747, 1748 AND 1749/MDS/2013 ASSESSMENT YEARS: 2003 - 04, 04 - 05, 05 - 06, 06 - 07 AND 2007 - 08 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 1(1), CHENNAI 600 034. VS. M/S. APOLLO SINDHOORI CAPITAL INVESTMENTS LTD. [NOW KNOWN AS M/S. ADITYA BIRLA M ONEY LTD.], NO. 55 (OLD NO. 22), GREEMS ROAD, ALI TOWERS, CHENNAI 600 006. ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : SHRI ANAND DEVKUMAR, C.A. DEPARTMENT BY : SHRI SASI KUMAR, JCIT I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 2 / DATE OF HEARING : 0 9 . 02 .201 6 / DATE OF P RONOUNCEMENT : 10 .05 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 , C HENNAI , DATED 2 5 . 0 2 .20 1 5 RELEVANT TO THE ASSESSMENT YEAR 2 0 1 0 - 11 . T HE REVENUE HAS ALSO FILED APPEALS FOR THE ASSESSMENT YEARS 2003 - 04, 2004 - 05, 2005 - 06, 2006 - 07 AN 2007 - 08 AGAINST DIFFERENT ORDERS OF THE LD. CIT(A) VI, CHENNAI. FIRST, WE SHALL PROCEED TO ADJUDICATE THE APPEALS FILED BY THE REVENUE FOR THE ASSESSM ENT YEARS 2003 - 04 TO 2007 - 08 , WHEREIN, THE FIRST COMMON GROUND RAISED IS WITH REGARD TO ALLOWABILITY OF 60% DEPRECIATION ON V - SAT EQUIPMENT . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF STOCK BROKING WITH MEMBERSHIP ON NATIONAL STOCK EXCHANGE WITH BRANCHES ALL OVER THE COUNTRY. FOR THE ASSESSMENT YEAR 2003 - 04, THE ASSESSEE HAS FILED ITS RETURN ADMITTING INCOME OF .12,17,832/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] ON 31.12.2003. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS D ULY SERVED ON THE ASSESSEE. THE ASSESSEE FILED ALL DETAILS AS REQUIRED BY THE ASSESSING OFFICER. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 3 3. AGAINST THE CLAIM OF DEPRECIATION OF 60% ON V - SAT EQUIPMENT, THE ASSESSING OFFICER HAS RESTRICTED THE DEPRECIATION AT 25% AND COMPLETED THE ASSESSMENT UN DER SECTION 143(3) OF THE ACT BY DETERMINING THE INCOME OF THE ASSESSEE AT .30,97,639/ - UNDER NORMAL PROVISIONS AND UNDER SECTION 115JB OF THE ACT, THE INCOME OF THE ASSESSEE WAS WORKED OUT TO .1,19,19,881/ - . 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , THE LD. CIT( A ) ALLOWED THE CLAIM OF DEPRECIATION OF 60% ON V - SAT EQUIPMENTS FOR BOTH THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. SIMILARLY, FOR THE ASSESSMENT YEARS 2005 - 06, 2006 - 07 AND 2007 - 08 ALSO THE LD. CIT(A) HAS ALLOWED THE CLAIM OF DEPRECIATION OF 6 0% ON V - SAT EQUIPMENTS. 5. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL FOR ALL THE ASSESSMENT YEARS WITH REGARD TO ALLOWANCE OF 60% DEPRECIATION ON V - SAT EQUIPMENTS. THE LD. DR BY RELYING ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ANAGRAM CAPITAL LTD. V. ACIT IN I.T.A. NO. 1801/AHD/2008 FOR THE ASSESSMENT YEAR 2005 - 06 VIDE ORDER DATED 15.02.2011 SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 6. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE, BY RELYING ON THE DECISION OF HYD ERABAD BENCH OF THE TRIBUNAL IN THE CASE OF USHODAYA ENTERPRISES LTD. V. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 4 DCIT IN I.T.A. NOS. 676/HYD/2009 & 411/HYD/2010 FOR THE ASSESSMENT YEARS 2005 - 06 & 2006 - 07, SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD BOTH SIDES, PERUSED THE M ATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER HAS RESTRICTED THE CLAIM OF DEPRECIATION OF 60% ON V - SAT EQUIPMENTS TO 25%. WHILE CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) ALLOWED THE CLAIM OF DE PRECIATION OF 60% BY OBSERVING AS UNDER: 8. THUS, IT CAN BE SEEN THAT THE AO HAS OBSERVED THAT THE V - SAT EQUIPMENT IS ONLY A TRANSMISSION EQUIPMENT WHEREAS THE APPELLANT HAS RELIED UPON RULE 5 OF THE INCOME TAX RULES, SEC. 2 OF THE INFORMATION TECHNOLOGY ACT, EXPLANATION TO CLAUSE (II) OF SECTION 36 OF THE INCOME TAX ACT WITH THE HELP OF DEFINITIONS EXTRACTED ABOVE. AS PER THE DEFINITION OF 'COMPUTER' AND 'COMPUTER NET WORK' UNDER INCOME TAX ACT, IT IS ARGUED THAT V - SAT 'EQUIPMENTS FORM AN INTEGRAL PART O F THE COMPUTER AND THE ASSESSEE COMPANY, WITHOUT THESE THE SERVERS AND REMOTE COMPUTERS WOULD NOT RECEIVE DATA AND CONSEQUENTLY WOULD NOT FUNCTION. IT IS ALSO ARGUED THAT THE DEFINITION OF THE COMPUTER IN THE COPYRIGHT ACT IS NOT RELEVANT HERE. EXPLAINING THE FUNCTIONING OF THE V - SAT IN MAINTAINING THE INTRANET OF THE ASSESSEE COMPANY, IT IS STATED THAT THE ASSESSEE BEING A MEMBER AN NSE, DEALS WITH THE NSE AN ONE SIDE AND SERVER, COMPUTERS AND REMOTE COMPUTERS IN THE HEAD OFFICE AS WELL AS THE BRANCHES ON THE OTHER END. ALL THESE COMPUTERS HAVE TO BE ACTIVELY CONNECTED TO THE SERVER OF THE NSE AND TO GIVE REAL TIME ADVANTAGE OF EXECUTING THE VARIOUS TRADE ORDERS IN DEALING WITH THE EQUITIES. THUS, THE V - SAT PLAYS A VERY VITAL ROLE IN BRINGING ALL THE COMPUT ERS LIVE AND HOOKED ON TO THE NSE SERVERS. HE HAS ALSO RELIED UPON THE FOLLOWING CASE LAWS. (I) AN AC FITTED IN A BUS SHOULD BE ALLOWED DEPRECIATION APPLICABLE TO A BUS. [DELHI AIRPORT SERVICES 255 ITR 91 DELHI]. (II) MATERIALS USED FAR MEASUREMENT OF ELECTRICITY USED IN THE INDUSTRY FOR GENERATION AND TRANSMISSION OF ELECTRICITY WILL BE TREATED AS ELIGIBLE FAR HIGHER DEPRECATION [SIMCA METERS LTD. 251 ITR 46]. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 5 9. ON PERUSAL OF THE DEFINITION OF 'COMPUTER SYSTEM' UNDER THE EXPLANATION TO CLAUSE (IX) OF SECTION 36, IT, CAN BE NOTICED THAT DEVICES SUPPORTING COMMUNICATIONS ARE ALSO INCLUDED IN THE DEFINITION. FURTHER, THE SEC. 2 OF INFORMATION TECHNOLOGY ACT OF 2000 HAS EXPLICITLY LAID DAWN THAT A 'COMPUTER' INCLUDES 'COMPUTER NETWORK', THE LATTER ALSO DEFINED AS A MULTITUDE OF COMPUTERS CONNECTED THROUGH COMMUNICATION MEDIA. BY VIRTUE OF READING BATH THE DEFINITIONS UNDER INCOME TAX ACT 1960 AND INCOME TAX ACT, 2000, THE V - SAT EQUIPMENT AS THE COMMUNICATION DEVICE CONNECTING THE COMPUTERS INTO A COMPUTE R NETWORK AND THUS, IS ELIGIBLE TO BE TREATED AS A COMPUTER. THUS, IT CAN BE SEEN THAT THE V - SAT IS CONNECTING ALL THE COMPUTERS AT DIFFERENT LOCATIONS AND DIFFERENT ENDS TO BRING THE ENTIRE INTRANET INTO ACTIVE OPERATION. BY RELYING UPON THE RATIOS IN THE ABOVE DEFINITIONS AND CASE LAWS, IT IS HELD THAT THE V - SAT IS AN INTEGRAL PART OF THE COMPUTER IN WORK AND HENCE, IS ELIGIBLE FOR DEPRECIATION AT 60%. THE AO IS DIRECTED TO MODIFY THE DEPRECIATION ACCORDINGLY. THIS GROUND IS ALLOWED IN AYS 2003 - 04 AND 200 4 - 05. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE BY RELYING ON TO THE FACTS IN THE CASE OF USHODAYA ENTERPRISES LTD. V. DCIT, WHEREIN , THE AO WAS OF THE OPINION THAT COMPUTERS USED FOR PHOTO TRANSMISSION EQUIPMENT, DECODING EQUIPMENT V - SAT, DATA PROCESSING EQUIPMENT ARE ELIGIBLE FOR DEPRECIATION @ 60% WHEREAS THE OTHER PERIPHERALS LIKE PRINTERS, SCANNERS, MODEMS, SWITCHES, PHOTO/EDIT/ EQUIPMENT UPS, NETWORK CABLES AND SOFTWARE FORM PART OF PLANT AND MACHINERY, ON WHICH, DEPRECIATION IS ALLOWABLE @ 25% ONLY , ADVANCED HIS ARGUMENT THAT THE DEPARTMENT CANNOT HAVE DIFFERENT STANDS AT DIFFERENT STATES. HE FURTHER ARGUED THAT IF THE DEPARTMENT CAN ALLOW 60% DEPRECIATION ON V - SAT AT HYDERABAD, WHY NOT IT IS APPLICABLE IN TAMIL NADU. WE DO NOT FIND FOR CE IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. THOUGH IT WAS THE FINDINGS OF THE ASSESSING OFFICER IN THAT PARTICULAR CASE AND , OF COURSE, NOT DISPUTED, BUT IT CANNOT BE HELD AS IF IT IS A RULING. MOREOVER, THERE IS NO CONCRETE FINDING OF ANY I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 6 TRI BUNAL OR HIGHER COURT TO ALLOW THE CLAIM OF DEPRECIATION OF 60% ON V - SAT EQUIPMENTS. HOWEVER, IN AN IDENTICAL FACTS ON SIMILAR ISSUE, IN THE CASE OF ANAGRAM CAPITAL LTD. V. ACIT FOR THE ASSESSMENT YEAR 2005 - 06 VIDE ORDER DATED 15.02.2011, THE AHMEDABAD BEN CH OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2. THE ASSESSEE CLAIMED DEPRECIATION @ 60% ON VSAT EQUIPMENTS PURCHASED DURING THE YEAR AND ALSO VSAT EQUIPMENTS PURCHASED DURING THE EARLIER ASSESSMENT YEARS. THE AO HELD THAT VSAT EQUIPMENTS ARE COMMUN ICATION EQUIPMENTS, HENCE ENTITLED FOR DEPRECIATION AT NORMAL RATE OF 25% AS AGAINST 60% CLAIMED BY THE ASSESSEE. THE AO DISALLOWED THE DEPRECIATION CLAIMED @ 60% AND ALLOWED DEPRECIATION @ 25%. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE RELIED UPON THE STATEMENT OF FACT AND ADDITION MAY BE DELETED. THE LEARNED CIT(A) HOWEVER, NOTED THAT HIS PREDECESSOR IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2003 - 04 VIDE ORDER DATED 10 - 08 - 2006 HELD THAT VSAT EQUIPMENTS ARE NOT COMPUTER BUT CO MMUNICATION EQUIPMENTS FOR WHICH DEPRECIATION RATE APPLICABLE TO THE MACHINERY SHOULD BE APPLIED. THE LEARNED CIT(A) ALSO NOTED THAT THE FACTS OF THIS CASE ARE SAME AS IS CONSIDERED IN EARLIER YEARS. THE ORDER OF THE AO WAS ACCORDINGLY CONFIRMED AND THE AP PEAL OF THE ASSESSEE WAS DISMISSED. 3. THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY CONCEDED THAT IN THE PRECEDING ASSESSMENT YEAR 2003 - 04 THE ASSESSEE DID NOT PREFER ANY APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE LEARNED CIT(A) AND AS SUCH THE ORDER OF THE LEARNED CIT(A) IN ASSESSMENT YEAR 2003 - 04 HAS BECOME FINAL. HE HAS HOWEVER, RELIED UPON THE ORDER OF ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS DATACRAFT INDIA LTD., 40 SOT 295 AND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORI TIES BELOW. 4. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND THE MATERIAL AVAILABLE ON RECORD. THE QUESTION BEFORE THE ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF DATACR AFT INDIA LTD. (SUPRA) WAS WHETHER ROUTERS AND SWITCHES CAN BE CLASSIFIED AS COMPUTER ENTITLED TO DEPRECIATION AT 60 PER CENT OR HAVE TO BE CLASSIFIED AS GENERAL PLANT AND MACHINE ENTITLED TO DEPRECIATION ONLY AT 25 I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 7 PER CENT. THE SPECIAL BENCH IN VIEW OF THE DECISION MADE IN THE ORDER STATED THAT IT CAN BE SAID THAT ROUTERS AND SWITCHES CAN BE CLASSIFIED AS COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH COMPUTER. IN OTHER WORDS, WHEN A DEVICE IS USE D AS A PART OF THE COMPUTER IN ITS FUNCTION, THEN IT WOULD BE TERMED AS COMPUTER. IT WAS HELD THAT ROUTERS AND SWITCHES IN THE CIRCUMSTANCES OF THE CASE WERE TO BE INCLUDED IN THE BLOCK OF COMPUTER, ENTITLED TO DEPRECIATION @ 60%. 6. THE ABOVE DECISION IS CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEE S CASE. THE AO HAS GIVEN A SPECIFIC FINDING THAT VSAT EQUIPMENTS ARE COMMUNICATION EQUIPMENTS USED FOR TRANSFER OF DATA THROUGH OVER LARGER DISTANCES AND AS SUCH THIS EQUIPMENTS CAN UNDER NO CIRCUMS TANCES BE CATEGORIZED AS COMPUTER AND SOFTWARE. THE AO FURTHER NOTED THAT THE ASSESSEE ALSO AGREED UPON BY THE ORDER OF THE LEARNED CIT(A) IN ITS OWN CASE FOR ASSESSMENT YEAR 2003 - 04 AND ACCORDINGLY CLAIM OF THE ASSESSEE WAS DISALLOWED. IT WOULD, THEREFORE , PROVE THAT FACTS OF THE CASE ARE SIMILAR AS WERE CONSIDERED IN THE PRECEDING ASSESSMENT YEAR 2003 - 04. THE SIMILAR FINDING OF FACTS HAVE REACHED FINALITY IN ASSESSMENT YEAR 2003 - 04 BECAUSE THE ASSESSEE DID NOT CHALLENGED THE ORDER OF THE LEARNED CIT(A) BE FORE THE TRIBUNAL IN ASSESSMENT YEAR 2003 - 04. SINCE THE FACTS ARE IDENTICAL AS HAS BEEN CONSIDERED IN THE EARLIER YEAR IN WHICH IT WAS HELD THAT THE VSAT EQUIPMENTS CANNOT BE CATEGORIZED AS COMPUTER SOFTWARE, THERE IS NO MATERIAL ON RECORD TO DISPUTE THE F INDINGS OF THE AUTHORITIES BELOW. NOTHING IS BROUGHT TO OUR NOTICE ON FACTS TO DISTINGUISH THE FACTS CONSIDERED IN EARLIER YEAR AS NOTED ABOVE. ONLY, THE DECISION OF SPECIAL BENCH, ITAT MUMBAI IN THE CASE OF DATACRAFT INDIA LTD. (SUPRA) WAS RELIED UPON WHI CH WE FIND IS CLEARLY DISTINGUISHABLE. WE, THEREFORE, DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE ON GROUND NO.1. 9. THERE IS NO RULING OF ANY HIGHER COURT HAVING MODIFIED OR REVERSED THE ABOVE DECISION OF THE TRIBUNAL AND ACCORDINGLY THE SAME I S BINDING ON US. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESPECTFULLY FOLLOWING THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL, WE CONCUR WITH THE FINDINGS OF THE ASSESSING OFFICER. THUS, THE GROUND RAISED BY THE REVENUE FOR ALL THE ABOVE ASSESSMENT YEARS ARE ALLOWED. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 8 10. THE NEXT COMMON ISSUE RAISED IN THE APPEALS OF THE REVENUE IS WITH REGARD TO DELETING THE DISALLOWANCE OF ROC FEES PAID TO REGISTRAR OF COMPANIES FOR INCREASING THE SHARE C APITAL FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08. 11. IN THE ASSESSMENT YEAR 2005 - 06, THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF .5,00,000/ - AND . 4,00,000/ - FOR THE ASSESSMENT 2007 - 08 UNDER RATES AND TAXES PAID TO REGISTRAR OF COMPANIES [ROC] TOWARDS ENHANCING THE AUTHORISED SHARE CAPITAL AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE CLAIM OF THE A SSESSEE IN VIEW OF THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. HINDUSTAN INSECTICIDES LTD. 250 ITR 338, WHEREIN, THE HON BLE HIGH COURT HAS OBSERVED THAT THE MATTER IS SQUARELY CONCLUDED IN FAVOUR OF THE REVENUE BY TWO DECISIONS OF T HE HON BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED V. CIT 225 ITR 792 AND IN THE CASE OF BROOKE BOND INDIA LTD . V. CIT 225 ITR 798. 12. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS HELD THAT SINCE THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF ENHANCING THE WORKING CAPITAL OF THE COMPANY, THE FEES PAID TO THE ROC WILL BE ELIGIBLE TO BE TREATED AS REVENUE EXPENDITURE FOR BO TH THE ASSESSMENT YEARS. 13. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 9 14. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS OF AUTHORITIES BELOW. THE POINT AT ISSUE IS WHETHER THE FEES PAID TO REGISTRAR OF COMPANIES FOR E NHANCING THE WORKING CAPITAL OF THE COMPANY SHOULD BE TREATED AS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. WE HAVE PERUSED THE ORDER OF THE HON BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED V. CIT (SUPRA), WHERE IN, THE HON BLE SUPREME COURT HAS HELD THAT THE FEE PAID TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WAS DIRECTLY RELATED TO CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSIN ESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT MAKING, IT STILL RETAINS THE CHARACTER OF CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE EXPANSION OF CAPITAL BASE OF THE COMPANY AND THUS IT WAS NOT AN EXPENSE IN THE NATURE OF REVENUE . 15. SIMILAR ISSUE HAS BEEN RAISED BEFORE THIS TRIBUNAL AND THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF B.T.P. INDIA LIMITED V. ACIT IN I.T.A. NO.1573/MDS/2008 FOR THE ASSESSMENT YEAR 2004 - 05 ORDER DATED 16.02.2009, BY FOLLOWING THE ABOVE DECISI ON OF THE HON BLE SUPREME COURT, DECIDED THE ISSUE IN FAVOUR OF THE REVENUE. 16. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED V. CIT (SUPRA) AND ALSO FOLLOWING THE JUDICIAL PRECEDENTS OF THE COORDINATE BENCH OF THE I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 10 TRIBUNAL, WE REVERSE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR BOTH THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08. 17. THE NEXT COMMON ISSUE RAISED IN THE APPEAL S OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF LEASE RENTALS MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 . 18. THE FOLLOWING LEASE RENTAL EXPENSES WER E CLAIMED BY THE ASSESSEE AND DISALLOWED BY THE ASSESSING OFFICER: ASST. YEAR CLAIMED ( .) DISALLOWED ( .) 2005 - 06 NELCO 21,81,591/ - NELCO 21,81,591/ - HCL COMNET 62,95,392/ - HCL COMNET 29,16,640/ - TOTAL 84,76,983/ - TOTAL 50,98,231/ - 2006 - 07 NELCO 15,35,040/ - NELCO 15,35,040/ - HCL COMNET 71,91,971/ - HCL COMNET 3,60,000/ - TO TAL 87,27,011/ - TOTAL 18,95,040/ - FROM THE ABOVE, THE AMOUNT CLAIMED AS LEASE RENTALS PAID TO NELCO HAS BEEN DISALLOWED BY THE ASSESSING OFFICER STATING THAT THE LIABILITY HAS NOT BEEN CRYSTALLIZED. THE LEASE RENTALS AMOUNTING TO .21,81,591/ - IN THE ASS ESSMENT YEAR 2005 - 06 AND .15,35,040/ - IN THE ASSESSMENT YEAR 2006 - 07 PAID TO NELCO WERE CLAIMED BY THE ASSESSEE, AS SUBMITTED IN ITS LETTER DATED 23.12.2007 FOR THE ASSESSMENT YEAR 2005 - 06 BEFORE THE ASSESSING OFFICER IS REPRODUCED AS UNDER: (A) .2,66,43 6/ - RELATED TO FINANCIAL YEAR 2003 - 04 BUT PAID LATE DURING 2004 - 05 ON 21.09.2004 DUE TO DISPUTE WITH THE PARTY AS EXPLAINED ABOVE ON PAYMENT BASIS, AS DISPUTE GOT RESOLVED LATE. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 11 (B) .16,75,155/ - BEING LEASE RENT PAID DURING THE FINANCIAL YEAR 2004 - 05 AND RELATED TO FINANCIAL YEAR 2004 - 05 RELEVANT TO 2005 - 06. (C) .7.17,600/ - BEING AMOUNT DUE AS ON 31.03.2005 IN RESPECT OF FINANCIAL YEAR 2004 - 05 ON ACCRUAL BASIS. NOTE: UPFRONT ADVANCE LEASE RENT PAYMENT COMPONENT IS 40 X .6,000/ - AMOUNTING TO . 2,40,000 / - AND THEREFORE THE SAME IS NOT CLAIMED AS DEDUCTION. 19. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE LEASE RENTALS RELATING TO EARLIER YEARS WERE CRYSTALLIZED TO BE APID IN THIS FINANCIAL YEAR DUE TO THE V - SATS LEASED FROM THEM HAD CONNECTIVI TY PROBLEMS IN THE EARLIER YEARS DUE TO BAD WEATHER, HEAVY RAINS AND HEAVY CLOUDS AND AFTER PROTRACTED COMPLAINTS AND DISPUTES, THE MATTER HAS BEEN SETTLED. SUBSEQUENTLY, IN THE FINANCIAL YEAR 2005 - 06, THE LEASED V - SAT EQUIPMENTS WERE UPGRADED AND ALL THE V - SATS WERE PURCHASED OUTRIGHT BY THE ASSESSEE BY TERMINATING THE LEASE AGREEMENT WITH M/S. NELCO. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED AS UNDER: I. THE ASSESSEE HAS NOT FOLLOWED THE ACCOUNTING STAND ARD AS19 IN RESPECT OF THE SAID LEASED ASSETS AS IS BEING FOLLOWED IN RESPECT OF LEASE TRANSACTIONS WITH HCL COMNET LTD. II. NEITHER THE FINANCE CHARGES WERE DEBITED TO THE BOOKS OF ACCOUNT NOR THE LEASE RENTALS HAVE BEEN CAPITALIZED. III. LEASE RE NTALS HAVE NOT BEEN DEBITED TO THE BOOKS OF ACCOUNT AND I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 12 IV. THE DEDUCTION IS CLAIMED ONLY IN THE MEMO OF INCOME. 20. WITH REGARD TO LEASE TRANSACTIONS WITH M/S. HCL COMNET LTD., THE ASSESSING OFFICER HAS OBSERVED FROM THE BOOKS OF THE ASSESSEE THAT T HE SAID ASSETS ARE SHOWN AS PART OF FIXED ASSETS. THE OPENING COST OF BLOCK WAS .60,50,000/ - AND AN AMOUNT OF .1,01,20,000/ - WAS CAPITALIZED DURING THE YEAR AND THE GROSS BLOCK WAS .1,61,70,000/ - . AS AGAINST THIS, THE ASSESSEE HAD CLAIMED EXPENDITURE AS LEASE RENTAL FOR AN AMOUNT OF .62,95,392/ - . AFTER VERIFICATION OF LEDGER COPY, COMPARISON OF THE LEASED ASSET WITH THE OWN ASSET OF THE ASSESSEE, USAGE OF V - SAT, ETC., THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF .29,16,640/ - AS IT IS NOT RELATING TO T HE PAYMENT OF LEASE RENTALS AGAINST THE CLAIM OF .62,95,392/ - . SIMILARLY, FOR THE ASSESSMENT YEAR 2006 - 07, AGAINST THE CLAIM OF .71,91,971/ - , THE ASSESSING OFFICER HAS DISALLOWED . 3,60,000/ - . 21. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE L D. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE WITH REGARD TO LEASE RENTALS FOR BOTH THE ASSESSMENT YEARS. 22. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BE FORE THE TRIBUNAL. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 13 23. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: 34. I HAVE GONE THROUGH THE RIV AL CONTENTIONS. AS NARRATED BY THE AR, VIDE HIS LETTER DATED 23.12.2007 FILED BEFORE THE AO, IT IS A FACT THAT THE PAYMENTS WERE WITH HELD IN THE EARLIER YEARS BUT WERE ALL CRYSTALLIZED IN THIS FY 2004 - 05 AND 2005 - 06 FOLLOWING THE SETTLEMENT OF THE DISPUTE S, COMPLAINTS AND GRIEVANCES WITH NELCO. THE LATER EVENT OF PURCHASING THE V - SAT EQUIPMENTS FROM NELCO WOULD NOT MAKE LIABILITY A CONTINGENT ONE. THE MERE FACT THAT THE PAYMENTS HAVE BEEN MADE AFTER THE DISPUTES ARE SETTLED WOULD MAKE THE AMOUNTS CRYSTALLI ZED IN THIS SAME YEAR. FURTHER, IT IS IMMATERIAL WHETHER THE SAID AMOUNTS WERE DEBITED TO THE BOOKS OR CLAIMED IN THE COMPUTATION MEMO. THE CLAIMS WOULD BE ELIGIBLE FOR DEDUCTION FOLLOWING THE RATIO IN THE CITED CASE. HENCE, THE AMOUNTS CLAIMED AT .26,59, 191/ - AND .15,35,040/ - IN BOTH THE AYS RESPECTIVELY ARE DIRECTED TO BE ALLOWED. 35. COMING TO THE DISALLOWANCES ON ACCOUNT OF LEASE RENTALS PAID TO HCL COMNET, PERUSAL OF THE AMOUNTS DISALLOWED IN AY 2005 - 06 INDICATE THAT ALL THE ADVANCE PAYMENTS WERE DOWN PAYMENTS TOWARDS LEASE RENTALS BUT ARE NOT TOWARDS PURCHASE OF THE V - SATS. SIMILARLY, .3,60,000 PAID IN AY 2006 - 07 WAS ALSO TOWARDS DOWN PAYMENTS OF LEASE RENTALS. THE MOOT POINT HERE IS THE DOWN PAYMENTS WERE MADE TOWARDS THE LEASE TRANSACTION AS PE R THE TERMS AGREED. A MERE DOWN PAYMENT DO NOT MAKE THE TRANSACTION A SALE. NOR THE AMOUNT CAN BE TREATED AS REFUNDABLE DEPOSIT WITHOUT ANY BASIS. HENCE, THESE AMOUNTS ARE ELIGIBLE FOR DEDUCTION AS A REVENUE ITEM. THE BAND WIDTH CHARGES PAID AT .3,75,045/ - , SHIFTING CHARGERS AND AMC AT .21,600/ - WOULD ALSO BE TREATED AS REVENUE ITEMS ONLY AND HENCE ELIGIBLE FOR DEDUCTION. 24. THE MAIN ARGUMENT OF THE LD. A R IS THAT THE LEASE RENTAL WAS CRYSTALLIZED DURING THE ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 AND TH E SAME WAS CLAIMED IN THESE YEARS. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IT IS MANDATORY ON THE PART OF THE ASSESSEE TO MAKE NECESSARY PROVISION FOR ALL EXPENSES AT THE END OF EACH FINANCIAL YEAR AND CLAIM THE SAME I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 14 AS BUSINESS EXPENDITURE IN EACH ASSESSMENT YEAR. THE EXPENDITURE RELATING ONE ASSESSMENT YEAR CANNOT BE CLAIMED IN ANOTHER ASSESSMENT YEAR SINCE EACH ASSESSMENT YEAR IS AN INDEPENDENT ASSESSABLE UNIT. THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF AC COUNTING AND THE EXPENSES NOT RECORDED IN RELEVANT ASSESSMENT YEAR, THE SAME CANNOT BE ALLOWED AS DEDUCTION BECAUSE REMEDY DOES NOT LIE ON THE NEXT ASSESSMENT YEAR. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT IT WOULD BE APPROPRIATE TO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER WITH REGARD TO LEASE RENTALS P AID TO NELCO TO ALLOW RENTAL ACCRUED IN THE RELEVANT ASSESSMENT YEAR ONLY. THE ASSESSING OFFICER SHALL EXCLUDE PRIOR PERIOD OF LEASE RENTALS WHILE CONSIDERING THE S AME. WITH THESE OBSERVATIONS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO WORK OUT THE ALLOWABLE DEDUCTION IN ACCORDANCE WITH LAW. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES . WITH REGARD TO THE LEASE TRANSACTIONS WITH HCL COMNET LTD., THE LD. CIT(A) HAS OBSERVED THAT THE ADVANCE PAYMENTS WERE DOWN PAYMENTS TOWARDS LEASE RENTALS FOR BOTH THE ASSESSMENT YEARS. IT IS A FACT THAT A MERE DOWN PAYMENT DOES NOT MAKE THE TRANSACTIO N A SALE NOR THE AMOUNT CAN BE TREATED AS REFUNDABLE DEPOSIT WITHOUT ANY BASIS. THEREFORE, THESE EXPENDITURES SHOULD BE CONSIDERED AS REVENUE EXPENDITURE. FURTHER, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING TO DISALLOW THE BAND WIDTH CHARGES FOR 256 K BPS AND LEASE RENTAL I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 15 CHARGES PAID TO VARIOUS FRANCHISEES AS WELL AS V - SAT SHIFTING CHARGES. THOUGH BOTH THE ITEMS ARE NOT PROVIDED IN THE BOOKS OF ACCOUNTS, BUT THE ASSESSEE HAS MADE THE CLAIM IN THE COMPUTATION OF INCOME STATEMENTS, WHICH IS FOUND TO BE I N ORDER IN VIEW OF THE JUDGEMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. PRUTHVI BROKERS AND SHAREHOLDERS P. LTD. 349 ITR 336. THEREFORE, THE LD. CIT(A) HAS RIGHTLY HELD THAT BOTH THE CHARGES WOULD BE TREATED AS REVENUE ITEMS AND ELIGIBLE FO R DEDUCTION. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 25. IN THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2010 - 11, THE REVENUE HAS RAISED T HREE EFFECTIVE GROUNDS, VIZ., THE FIRST GROUND RELATES TO ALLOWABILITY OF DEPRECIATION ON V - SAT. SINCE WE HAVE ALREADY DECIDED THE ISSUE IN FAVAOUR OF THE REVENUE FOR EARLIER ASSESSMENT YEARS HEREINABOVE AT PARA 9 OF THIS ORDER, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO THE G ROUND RAISED BY THE REVENUE IS ALLOWED. 26. THE SECOND GROUND RAISED IN THIS APPEAL IS WITH REGARD TO ALLOWABILITY OF DEPRECIATION ON OFFICE EQUIPMENTS. 27. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTICED FROM THE DEPRECIATION STATEMENT THA T THE ASSESSEE HAS CLAIMED DEPRECIATION ON OFFICE EQUIPMENTS AT 15% INSTEAD OF APPLICABLE RATE OF 10% . MOREOVER, THE ASSESSEE HAS ALSO CLAIMED DEPRECIATION ON THE DELETIONS MADE TO THIS BLOCK IN THE SECOND I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 16 HALF OF THE YEAR. THE ASSESSING OFFICER HAS FURTHE R OBSERVED THAT THE PROVISO TO SECTION 32(1)(II) OF THE ACT IS APPLICABLE ONLY TO THE ASSETS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE WDV WITHIN THE MEANING OF SECTION 43(6)(C) OF THE ACT. THEREF ORE, THE ASSESSING OFFICER HAS RESTRICTED THE DEPRECIATION AND THE EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 28. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION AT 15% ON OFFICE EQUIPMENTS. 29. ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 30. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST THE RESTRICTION OF DEPRECIATION ON OFFICE EQUIPMENTS FROM 15% TO 10% BY THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THE FOLLOWING SUBMISSIONS BEFORE THE LD. CIT(A). AS PER APPENDIX - I TO RULE 5 OF INCOME TAX RULES, 1962, BLOCK III(I), THE DEPRECIATION RATE IS 15% FOR OFFICE EQUIPMENTS. DEPRECIATION RATE OF 10% IS APPLICABLE FOR FURNITURE AND FITTINGS FALLING IN BLOCK II TO THE ABOVE APPENDIX - I. OFFICE EQUIPMENTS OBVIOUSLY AND APPARENTL Y FALLING UNDER BLOCK III ARE ENTITLED TO 15% DEPRECIATION RATE. THE CONTENTION OF THE ASSESSING OFFICER THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 10% IS INCORRECT, ARBITRARY AND ILLEGAL AND THEREFORE, LIABLE TO BE DISMISSED AS BASELESS AND FRIVOLOUS . HENCE, THE ASSESSEE PRAYS FOR DIRECTIONS TO THE ASSESSIN G OFFICER TO ALLOW THE DEPRECIATION @ 15% ON OFFICE EQUIPMENTS AND RENDER JUSTICE AND OTHER CONTENTIONS OF THE ASSESSING OFFICER IN THIS CONNECTION ARE DEALT WITH AS FOLLOWS. IN THE CASE OF ASSETS A CQUIRED BY THE I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 17 ASSESSEE DURING THE PREVIOUS YEAR, PROVISO TO SECTION 32 OF THE INCOME TAX ACT, 1961 PERMITS 50% OF THE APPLICABLE RATE OF DEPRECIATION. HENCE, THE ASSESSEE HAS CLAIMED 50% OF APPLICABLE RATE OF DEPRECIATION AS PER THE ABOVE PROVISO AND COMP LIED WITH THE PROVISIONS OF SECTION 43(6)(C) OF THE INCOME TAX ACT, 1961 APPLICABLE TO BLOCK OF ASSETS AND THERE IS NO VIOLATION OF ANY OF THE ABOVE PROVISIONS OF INCOME TAX ACT, 1961 QUOTED BY THE ASSESSING OFFICER. AFTER CONSIDERING THE ABOVE SUBMISSI ONS OF THE ASSESSEE, THE LD. CIT(A) WAS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE SEEMS TO BE IN ORDER. HE ALSO OBSERVED THAT A S PER APPENDIX - I TO RULE 5 OF INCOME TAX RULES, 1962, BLOCK III(I), THE DEPRECIATION RATE IS 15% FOR OFFICE EQUIPMENTS. DEPR ECIATION RATE OF 10% IS APPLICABLE FOR FURNITURE AND FITTINGS FALLING IN BLOCK II TO THE ABOVE APPENDIX - I. OFFICE EQUIPMENTS OBVIOUSLY AND APPARENTLY FALLING UNDER BLOCK III ARE ENTITLED TO 15% DEPRECIATION RATE. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFI CER TO ALLOW THE DEPRECIATION @ 15% ON OFFICE EQUIPMENTS. IN VIEW OF THE ABOVE FINDINGS OF THE LD. CIT(A), WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 31. THE THIRD GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO ALLOWABILITY OF DEPRECIATION ON PRINTERS AND SCANNERS. 32. THE ASSESSEE HAS CLAIMED DEPRECIATION AT 60% ON PRINTERS AND SCANNERS UNDER THE HEAD COMPUTERS . THE ASSESSING OFFICER HAS R ESTRICTED THE DEPRECIATION TO 15% AND THE EXCESS DEPRECIATION WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 18 33. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF BSES YAMUNA POWERS LTD. IN IT APPEAL NO. 1267 OF 2010 DATED 31.08.2010, THE LD. CIT(A) HAS HELD THAT THE PRINTERS AND SCANNERS ARE PART OF THE COMPUTER SYSTEM AND ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 34. AGGRIEVED, THE REVENUE IS IN AP PEAL BEFORE THE TRIBUNAL AND THE ONLY CONTENTION OF THE DEPARTMENT IS THAT ON SIMILAR ISSUE, THE DEPARTMENT HAS PREFERRED APPEAL IN THE CASE OF IOB FOR A.Y. 2008 - 09 BE FOR E HON BLE HIGH COURT. 35. AFTER HEARING BOTH SIDES, WE FIND THAT THE HON BLE DELHI H IGH COURT IN THE CASE OF BSES YAMUNA POWERS LTD. (SUPRA) HAS HELD THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC. FORMED AN INTERNAL PART OF THE COMPUTER SYSTEM AND, IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CAN NOT BE USED WITHOUT THE COMPUTER. THE HON'BLE HIGH COURT THUS HELD THAT THEY ARE THE PART OF THE COMPUTER SYSTEM AND ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AN D THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 36. COMING TO THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11, THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 19 CONFIRMATION OF DIS ALLOWANCE OF .5,12,455/ - UNDER SECTION 14A OF THE ACT. THE ASSESSEE HAS ACCOUNTED AN AMOUNT OF .5,41,699/ - AS DIVIDEND FROM MUTUAL FUNDS/SHARES AND LTCG OF .7,65,145/ - DURING THE YEAR AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34)/10(38) OF THE ACT . THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS RECEIVED EXEMPT INCOME BUT NOT DISALLOWED ANY EXPENDITURE RELATABLE TO EARNING OF SUCH INCOME EVEN THOUGH IT HAS DEBITED SEVERAL EXPENSES IN P & L ACCOUNT IN EARNING INCOME DURING THE YEAR. THE ASS ESSING OFFICER WAS OF THE OPINION THAT SOME EXPENDITURE, DIRECT OR INDIRECT, MUST HAVE BEEN INCURRED AND SUCH EXPENDITURE SHOULD BE DISALLOWED AS PER SECTION 14A OF THE ACT. THUS, T HE ASSESSEE WAS ASKED TO CLARIFY AS TO WHY THE DISALLOWANCE SH OULD NOT BE M ADE UNDER SECTION 14A R.W. RULE 8 D . THE ASSESSEE VIDE ITS REPLY DATED 15.2.2013 STATED THAT NO DISALLOWANCES IS CALLED FOR AS THE ABOVE AMOUNTS ALREADY SUFFERED TAX BY WAY OF DDT/STT. THE CONTENTION OF THE ASSESSEE WA S NOT ACCEPT ED AND WORKED OUT THE DISAL LOWANCE UNDER SECTION 14A R.W. RULE 8 D AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 37. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO BY CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS, THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. 38. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 20 39. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER MADE THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D FOR THE FOLLOWING REASONS: I. THE ASSESSEE HAS INCURRED AN AMOUNT OF .2,61,38,850/ - AS INTEREST AND OTHER FINANCE EXPENSES DURING THE YEAR. THOUGH THE ASSESSEE CLAIMED THAT SUCH BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS, IT COULDN'T CLEARLY ESTABLISH THE SAME. FUNDS FOR A COMPANY COME IN A COMMON KITTY AND IT COMPRISES OF BORROWED FUNDS, SHARE CAPITAL AND RETAINED EARNINGS (RESERVES & SURPLUS). THEREFORE, TO ARGUE THAT NO PORTION OF THE INTEREST PAID RELATES TO INVESTMENT IS NOT VALID. II. A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY - TO - DAY ANALYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES/UNITS OF MUTUAL FUNDS AT THE MOST APPROPRIATE TIME. THEY REQUIRE HUGE INVESTMENT IN SHARES/MUTUAL FUNDS AND CONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN THAT CAPITAL HAS COST AND THAT ELEMENT OF COST IS REPRESENTED BY INTEREST. BESIDES, INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF THE BOARD OF DIRECTORS FOR WHICH ADMINISTRATIVE EXPENSES ARE INCURRED. IT IS THEREFORE NOT CORRECT TO SAY THAT DIVIDEND INCOME CAN BE EARNED BY INCURRING NO OR NOMINAL EXPENDITURE. III. IT IS LOGICAL TO CONCLUDE THAT A PORTION OF THE ROUTINE EXPENDITURE TO MAINT AIN ITS ESTABLISHMENT AND ADMINISTRATION CAN BE ATTRIBUTABLE TOWARDS THE ACTIVITY OF MAKING INVESTMENTS TO EARN DIVIDEND. FURTHER, IT IS A FACT THAT THE MANAGERIAL STAFF AND THE DIRECTORS ARE INVOLVED IN MAKING DECISIONS ON INVESTMENTS. HENCE, A PORTION OF THIS MANAGERIAL REMUNERATION AND DIRECTORS REMUNERATION DEFINITELY BE ATTRIBUTABLE TOWARDS EARNING SUCH EXEMPT INCOME. IV. FOR THE REASONS STATED ABOVE, THE UNDERSIGNED IS SATISFIED THAT WITHOUT ANY AMBIGUITY AND WITH CERTAINTY, IT CAN BE STATED THAT T HE ASSESSEE WOULD HAVE DEFINITELY INCURRED EXPENSES TOWARDS EARNING EXEMPT INCOME. V. TO DETERMINE THE EXPENSES ATTRIBUTABLE TO EARNING SUCH EXEMPT INCOME, THE FINANCE ACT, 2006 HAD BROUGHT IN THE PROVISIONS OF SECTION 14A(2) WHICH REQUIRES THE ASSESSIN G OFFICER TO DETERMINE THE EXPENSES RELATING TO EXEMPT INCOME IN ACCORDANCE WITH RULE 8 D . RELIANCE IS PLACED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. DCIT, WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UNDER SEC. 14A IS 'FAIR AND REASONABLE'. I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 21 40. AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. IN THIS CASE, THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT FOR ITS INVESTMENTS IN MUTUAL FUNDS/SHARES. MOREOVER, THE ASSESSEE HAS INCURRED AN AMOUNT OF .2,61,38,850/ - AS INTEREST AND OTHER FINANCE EXPENSES DURING THE YEAR. T HE ASSESSEE HAS ALSO CLAIMED THAT BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS. THE ASSESSING OFFICER HAS OBSERVED THAT THE F UNDS FOR THE COMPANY COME IN A COMMON KITTY AND I T COMPRISES OF BORROWED FUNDS, S HARE C APITAL AND RETAINED EARNINGS (RESERVES & SURPLUS). THEREFORE, HE HELD THAT BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENT IN MUTUAL FUNDS/SHARES . 41. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGL Y CONTENDED THAT THE SHARE CAPITAL PLUS FREE RESERVE OF THE ASSESSEE IS .54.92 CRORES, WHEREAS THE TOTAL INVESTMENTS ITSELF IS .2.019 CRORES AND OUT OF WHICH, THE INVESTMENT IN SUBSIDIARY ACCOUNT FOR .2.00 CRORES AND THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE GOT SUFFICIENT FUNDS TO COVER TH E INVESTMENTS AND THERE IS NO NEXUS OF INTEREST EXPENDITURE. WE FIND FORCE IN THE ARGUMENT ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE. HOWEVER, WE ARE OF THE OPINION THAT T HE INVESTMENTS W OULD DEFINITELY INVOLVE CERTAIN ADMINISTRATIVE AND ESTABLISHMENT C OST SINCE THE DECISION TO MAKE INVESTMENTS, TRACK INVESTMENTS, SALE OF SUCH INVESTMENTS AND FOLLOW - UP OF THE RECEIPT OF INCOME, SALE PROCEEDS ETC HAVE TO BE UNDERTAKEN WHICH ENTAILS DEFINITE COSTS. IT IS FOR THIS PURPOSES THAT I.T.A. NO . 1162 & 1452 /M/ 15 & 1745 TO 1749/M/13 22 R ULE 8D(2)(III) PROVIDES THAT ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENTS WILL BE DEEMED TO BE EXPENDITURE INCURRED FOR THE SAME. WHEN THE ACT HAS SPECIFIED A DEFINITE FORMULA FOR WORKING OUT THE EXPENDITURE TO BE DISALLOWED , THE ASSESSING OFFICER SHOULD HAVE DISALLOWED % OF AVERAGE VALUE OF THE INVESTMENTS AS PER RULE 8D(2)(III) AS EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DISALLOW UNDER RULE 8D(2)(III) ALONE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 42 . IN THE RESULT, THE APPEAL S FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2003 - 04 , 2004 - 05 , 2007 - 08 AND 2010 - 11 ARE ALLOWED; WHEREAS, FOR THE ASSESSMENT YEARS 2005 - 0 6 AND 2006 - 07 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 10 TH MAY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 10 . 0 5 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.