Kawasaki Microelectronics Inc, Bangalore V. DDIT International Taxation, Bangalore

ITA 1512/BANG/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9770 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Keywords: Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. (I.T.) A. NO.1512/BANG/2010 (ASSESSMENT YEAR : 2007-08) M/S. KAWASAKI MICROELECTRONICS, INC. INDIA BRANCH, 17 TH FLOOR, CONCORDE BLOCK, UB CITY, VITTAL MALLYA ROAD, BANGALORE-560 001 PAN AACCK 7495E VS. DY. DIRECTOR OF INCOME TAX, (INTERNATIONAL TAXATION) CIRCLE 1(1), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI CHAVALI NARAYAN, C.A. RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT (D .R) DATE OF HEARING : 17.6.2015. DATE OF PRONOUNCEMENT : 26-0 6-2015 O R D E R PER SHRI VIJAY PAL RAO,JM. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DT.16.10.2010 PASSED UNDER SECTION 143(3) RWS 144C(B) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IN PURSU ANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) DT.22.9.2010 PAS SED UNDER SECTION 144C(5) OF THE ACT FOR ASSESSMENT YEAR 2007-08. 2 IT(I.T)A NO.1512/BANG/2010 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THE ORDER OF THE LEARNED AO AND DIRECTION OF TH E HONBLE DRP ARE BASED ON INCORRECT INTERPRETATION OF LAW AND TH EREFORE ARE BAD IN LAW. 2. BASED ON DIRECTIONS OF DRP, THE LEARNED AO ERRED IN ASSESSING THE TOTAL INCOME AT RS.1,029,574/- AS AGAINST RETUR NED LOSS OF RS.718.133 COMPUTED BY THE APPELLANT. GROUNDS OF APPEAL; 3. THE LEARNED AO HAS ERRED IN LAW BY HOLDING THAT THE PAYMENT MADE TO CADENCE SYSTEMS IRELAND LTD. (CADE NCE) FOR PURCHASE OF SOFTWARE (SOFTWARE WAS CAPITALIZED IN T HE ASSESSEES ACCOUNTS), AMOUNTS TO ROYALTY UNDER THE ACT AND THE INDIA- IRELAND TAX TREATY AND THEREFORE, TAX WAS REQUIRED TO BE DE DUCTED AT SOURCE ON THE SAID PAYMENT. 4. THE LEARNED AO HAS ERRED IN LAW BY HOLDING THAT SINCE TAX WAS NOT DEDUCTED AT SOURCE FROM THE PAYMENT MADE TO WARDS PURCHASE OF SOFTWARE, TAX DEPRECIATION CLAIMED ON C OMPUTER SOFTWARE AMOUNTING TO RS.1,747.680 IS NOT ALLOWABLE AS A DEDUCTION UNDER SECTION 40(A)(I) OF THE ACT. 5. THE LEARNED AO HAS ERRED IN LAW BY NOT CONSIDER ING THAT EVEN IF THE TAX DEPRECIATION IS DISALLOWED RESULTIN G IN AN INCOME, KAWASAKI INDIA, BEING A UNIT REGISTERED UNDER THE S OFTWARE TECHNOLOGY PARKS OF INDIA (STPI) SCHEME AND HAVING SATISFIED THE CONDITIONS PRESCRIBED UNDER SECTION 10A OF THE ACT, IS ELIGIBLE TO CLAIM DEDUCTION UNDER THE AFORESAID SECTION. 6. THE LEARNED AO ERRED IN LEVYING INTEREST OF RS. 115.197 UNDER SECTIONS 234B OF THE ACT. 3 IT(I.T)A NO.1512/BANG/2010 THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUN DS IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. THE ONLY ISSUE RAISED FOR OUR CONSIDERATION AND ADJUDICATION IS REGARDING DISALLOWANCE OF DEPRECIATION BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT IN RESPECT OF THE PAYME NTS MADE FOR PURCHASE OF SOFTWARE AND CAPITALIZED BY THE ASSESSEE. THE A SSESSING OFFICER FOUND THAT THE ASSESSEE MADE THE PAYMENT OF RS.49,42,300 FOR PURCHASE OF SOFTWARE FROM CADENCE SYSTEMS IRELAND LIMITED (IN S HORT CADENCE). THE SOFTWARE SO PURCHASED HAS BEEN CAPITALIZED BY THE A SSESSEE UNDER THE BLOCK OF COMPUTER AND DEPRECIATION WAS CLAIMED BY T HE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE H AS NOT DEDUCTED THE TAX AT SOURCE WHILE MAKING PAYMENT TO CADENCE AND A CCORDINGLY ASKED THE ASSESSEE AS TO WHY THE PAYMENT SHOULD NOT BE DI SALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. TH E ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE DEPRECIATION CANNOT BE ALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THE ASS ESSING OFFICER HAS HELD THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO A NON- RESIDENT ON WHICH THE TDS IS TO BE DEDUCTED AT SOURCE BUT THE ASSESSE E HAS NOT DEDUCTED THE TAX NOR HAS BEEN PAID. THE PAYMENT WHICH WAS I N THE NATURE OF ROYALTY IS CHARGEABLE UNDER THE ACT AND THEREFORE C OVERED UNDER SECTION 4 IT(I.T)A NO.1512/BANG/2010 40(A)(I) OF THE ACT. ACCORDINGLY, THE ASSESSING OF FICER PROPOSED TO DISALLOW THE DEPRECIATION OF RS.17,49,680 CLAIMED B Y THE ASSESSEE IN RESPECT OF THE SOFTWARE PURCHASED WHICH WAS CAPITAL IZED. THE ASSESSEE RAISED THE OBJECTION AGAINST THE DEPRECIATION PROPO SED TO BE DISALLOWED BY THE ASSESSING OFFICER BEFORE THE DRP, BUT COULD NOT SUCCEED. 4. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT SINCE THE EXPENDITURE IS CAPITAL IZED BY THE ASSESSEE, THEREFORE, THE PROVISIONS OF SECTION 40(A)(I) CANNO T BE INVOKED FOR DISALLOWANCE OF THE DEPRECIATION ON THE CAPITALIZED AMOUNT. IT IS NOT THE CASE OF THE CLAIM OF ANY EXPENDITURE BY THE ASSESSE E BUT THE EXPENDITURE WHICH HAS ALREADY CAPITALIZED AND CONSEQUENTLY THE PROVISIONS OF SECTION 40(A)(I) HAS NO ROLE TO PLAY. IN SUPPORT OF HIS CO NTENTION, HE HAS RELIED UPON THE DECISION OF MUMBAI BENCH, ITAT IN THE CASE OF SKOL BREWERIES LTD. VS. ACIT 142 ITD 49 (MUM) AS WELL AS THE DECI SION OF THE DELHI BENCH OF ITAT IN THE CASE OF SMS DEMANG (P.) LTD. V DCIT (2010) 38 SOT 496. THE LEARNED AUTHORISED REPRESENTATIVE HAS CON TENDED THAT THE ISSUE OF DISALLOWANCE OF DEPRECIATION BY APPLYING T HE PROVISIONS OF SECTION 40(A)(I) OF THE ACT IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE ABOVE SAID DECISIONS OF THE TRIBUNAL. 5 IT(I.T)A NO.1512/BANG/2010 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE HAS SUBMITTED THAT THERE IS NO DISPUTE THAT THE ASS ESSEE HAS MADE THE PAYMENT FOR PURCHASE OF SOFTWARE WHICH IS IN THE NA TURE OF ROYALTY AND THEREFORE THE PROVISIONS OF SECTION 195 ARE APPLICA BLE ON SUCH PAYMENT FOR DEDUCTION OF TAX AT SOURCE. HE HAS FURTHER SUB MITTED THAT IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS NOT DEDUCTED T HE TDS IN RESPECT OF THE PAYMENT IN QUESTION AND THEREFORE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 195 OF THE ACT AND CONSEQUENT LY, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE APPLICABLE IN THE C ASE UNDER CONSIDERATION. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS CONTEND ED THAT THERE IS AN INTRICABLE LINK BETWEEN THE PROVISIONS OF SECTIONS 40, 195 & 201 OF THE ACT. ONCE THE ASSESSEE HAS FAILED TO COMPLY WITH T HE PROVISIONS OF SECTION 195, THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE APPLICABLE. HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS LIMITED ONLY WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION BY INVOKING THE PR OVISIONS OF SECTION 40(A)(I) OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE PAYMENT IN QUESTION TO A NON-RESIDENT FOR PURCHASE OF SOFTWARE AND THE SAID PAYMENT HAS BEEN CAPITALIZED BY THE ASSESSEE I N THE BLOCK OF 6 IT(I.T)A NO.1512/BANG/2010 COMPUTER ASSET. ONCE THE ASSESSEE CAPITALIZED THE PAYMENT AND HAS NOT CLAIMED THE SAME AS AN EXPENDITURE AGAINST THE PROF ITS OF THE BUSINESS OF THE ASSESSEE, THEN, THE QUESTION ARISES WHETHER THE DEPRECIATION WHICH IS A STATUTORY DEDUCTION AS PER THE SECTION 32 OF THE ACT CAN BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF T HE ACT. AT THE OUTSET, IT IS TO BE NOTED THAT ON THE SIMILAR SET OF FACTS AN IDENTICAL ISSUE HAS BEEN DEALT BY THE ITAT, MUMBAI BENCH IN THE CASE OF SKO L BREWERIES LTD. (SUPRA), WHEREIN IT WAS HELD IN PARAS 16.1 TO 16.4 AS UNDER :- 16.1 AS REGARDS THE ALTERNATIVE PLEA OF THE LD SR COUNS EL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HAS NOT CL AIMED THE ENTIRE AMOUNT AS REVENUE EXPENDITURE; BUT HAS CAPITALIZED THE SAME AND CLAIMED ONLY DEPRECIATION U/S 32(1)(II); THEREFORE, PROVISIONS OF SEC. 40(A)((I) SHALL NOT APPLY. SECTION 40(A)(I) CONTEMPLATES THAT ANY INTER EST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUM CH ARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA AS I T IS RELEVANT FOR THE CASE IN HAND ON WHICH TAX IS DEDUC TIBLE AT SOURCE UNDER CHAPTER XVII -B AND SUCH TAX HAS NOT B EEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID, TH E AMOUNT OF INTEREST, ROYALTY, FEE FOR TECHNICAL SERV ICES AND OTHER SUM SHALL NOT BE DEDUCTED IN COMPUTING THE IN COME CHARGEABLE UNDER THE HEAD 'PROFITS & GAINS OF BUSIN ESS OR PROFESSION'. THIS CONDITION OF DEDUCTIBILITY HAS BE EN STIPULATED U/S 40 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38 OF THE ACT. SEC. 40 BE GINS WITH NON-OBSTANTE CLAUSE; THEREFORE, IT IS AN OVERR IDING EFFECT T THE PROVISIONS OF SEC. 30 TO 38 OF THE I T ACT. THE QUESTION ARISES IS WHETHER ANY AMOUNT PAID OUTSIDE INDIA OR TO THE NON RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS CAPITALIZED THE SAME IN THE FI XED ASSETS AND CLAIMED ONLY DEPRECIATION IS SUBJECTED T O THE 7 IT(I.T)A NO.1512/BANG/2010 PROVISIONS OF SEC. 40(A)(I) OR NOT ?. WE QUOTE THE PROVISIONS OF SEC. 40(A)(I) AS UNDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCT ED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION', IN THE CASE OF ANY ASSESSEE [( I ) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), RO YALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDE R THIS ACT, WHICH IS PAYABLE, OUTSIDE INDIA; OR IN INDIA TO A NON - RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSE QUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSE QUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOW ED AS A 8 IT(I.T)A NO.1512/BANG/2010 DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; 16.2 IT IS MANIFEST FROM THE PLAIN READING OF PROVISION S OF SEC. 40(A)(I) THAT AN AMOUNT PAYABLE TOWARDS INTERE ST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUMS C HARGEABLE UNDER THIS ACT SHALL NOT BE DEDUCTED WHILE COMPUTIN G THE INCOME UNDER THE HEAD PROFIT AND GAIN OF BUSINESS O R PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE; BU T SUCH TAX HAS NOT BEEN DEDUCTED. THE EXPRESSION 'AMOUNT PAYABLE' WHICH IS OTHERWISE AN ALLOWABLE DEDUCTION REFERS TO THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSI NESS OF THE ASSESSEE AND THEREFORE, THE SAID EXPENDITURE IS A DEDUCTIBLE CLAIM. THUS, SECTION 40 REFERS TO THE OU TGOING AMOUNT CHARGEABLE UNDER THIS ACT AND SUBJECT TO TDS UNDER CHAPTER XVII-B. THERE IS A DIFFERENCE BETWEEN THE EXPENDITURE AND OTHER KIND OF DEDUCTION. THE OTHER KIND OF DEDUCTION WHICH INCLUDES ANY LOSS INCIDENTAL TO CAR RYING ON THE BUSINESS, BAD DEBTS ETC., WHICH ARE DEDUCTIB LE ITEMS ITSELF NOT BECAUSE AN EXPENDITURE WAS LAID OU T AND CONSEQUENTIALLY ANY SUM HAS GONE OUT; ON THE CONTRA RY THE EXPENDITURE RESULTS A CERTAIN SUMS PAYABLE AND GOES OUT OF THE BUSINESS OF THE ASSESSEE. THE SUM, AS CONTEM PLATED UNDER SEC. 40(A)(I) IS THE OUTGOING AMOUNT AND THER EFORE, NECESSARILY REFERS TO THE OUTGOING EXPENDITURE. DEPRECIATION IS A STATUTORY DEDUCTION AND AFTER THE INSERTION OF EXPLANATION 5 TO SEC. 32, IT IS OBLIGA TORY ON THE 9 IT(I.T)A NO.1512/BANG/2010 PART OF THE ASSESSING OFFICER TO ALLOW THE DEDUCTIO N OF DEPRECIATION ON THE ELIGIBLE ASSET IRRESPECTIVE OF ANY CLAIM MADE BY THE ASSESSEE. THEREFORE, DEPRECIATION IS A MANDATORY DEDUCTION ON THE ASSET WHICH IS WHOLLY OR PARTLY OWNED BY THE ASSESSEE AND USED FOR THE PURPO SE OF BUSINESS OR PROFESSION WHICH MEANS THE DEPRECIATION IS A DEDUCTION FOR AN ASSET OWNED BY THE ASSESSEE AND US ED FOR THE PURPOSE OF BUSINESS AND NOT FOR INCURRING OF AN Y EXPENDITURE. 16.3 THE DEDUCTION U/S 32 IS NOT IN RESPECT OF THE AMOU NT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTORY DEDUCTION ON AN ASSET WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION OF DEPRECATION. DEPRECIATION IS NOT A N OUTGOING EXPENDITURE AND THEREFORE, THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT ARE NOT ATTRACTED ON SUCH DEDUC TION. THIS VIEW HAS BEEN FORTIFIED BY THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MARK AUTO INDUSTRIES LTD. ( SUPRA ) IN PARS 5 & 6 AS UNDER: '5. ADVERTING TO QUESTIONS (II) AND (III), THE ISSU E WHICH ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE CO ULD BE DISALLOWED CLAIM FOR DEPRECIATION UNDER SECTION 40( A)(I) OF THE ACT ON THE GROUND THAT THE PAYMENTS MADE FOR TECHNICAL KNOW-HOW WHICH HAD BEEN CAPITALIZED, NO T AX DEDUCTION AT SOURCE HAS BEEN MADE THEREON. THE TRIB UNAL WHILE ACCEPTING THE PLEA OF THE ASSESSEE, IN PARA 3 , HAD NOTICED AS UNDER: '3. GROUND NO. 4 IS AGAINST DELETION OF AN ADDITION OF RS. 6,88,1751- MADE BY THE AO ON ACCOUNT OF DEDUCTION O F DEPRECIATION ON TECHNICAL KNOW-HOW AS THE ASSESSEE FAILED TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISION CONT AINED IN SECTION 40(A)(I). THE FINDING OF THE LEARNED CIT (A) WAS THAT THE ASSESSEE HAD INCURRED, EXPENDITURE BY WAY OF TECHNICAL KNOW-HOW, WHICH WAS CAPITALIZED AMOUNT AS MADE IN THE RETURN OF INCOME. SINCE THE ASSESSEE HA D NOT CLAIMED DEDUCTION FOR THE AMOUNT PAID, THE PROVISIO NS CONTAINED IN SECTION 40(A) (I) WERE NOT ATTRACTED. THE 10 IT(I.T)A NO.1512/BANG/2010 LEARNED DR COULD NOT FIND ANY FAULT WITH THIS DIREC TION OF THE CIT(A) ALSO ALTHOUGH SHE REFERRED TO PAGE 4 OF THE ASSESSMENT ORDER, WHERE IT WAS MENTIONED THAT THE T AX DEDUCTED IN RESPECT OF THE PAYMENT WAS MADE OVER TO THE GOVERNMENT IN THE SUBSEQUENT YEAR AND, THEREFORE, DEPRECIATION COULD NOT BE DEDUCTED ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. IN REPLY, THE LEARNED COUNSEL POINTED OUT THAT THE EXPENDITURE BY WAY OF TECHNICAL KNOW-HOW WAS CAPITALIZED AND IT WAS NOT CLAIMED AS REVENUE EXPENDITURE. THEREFORE, THERE WA S ALSO NO REASON TO DISALLOW DEPRECIATION ON SUCH CAPITALI ZED AMOUNT AS THE AFORESAID PROVISION DOES NOT DEAL WIT H DEDUCTION OF DEPRECIATION. HAVING CONSIDERED ARGUME NTS FROM BOTH THE SIDES, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) WHICH REQU IRES CORRECTION FROM US. THUS, THIS GROUND IS ALSO DISMI SSED.' 6. LEARNED COUNSEL FOR THE REVENUE WAS UNABLE TO SUBSTANTIATE THAT IN THE ABSENCE OF ANY REQUIREMENT OF LAW FOR MAKING DEDUCTION OF TAX OUT OF THE EXPENDITURE ON TECHNICAL KNOW HOW WHICH WAS CAPITALIZED AND NO AMO UNT WAS CLAIMED AS REVENUE EXPENDITURE, THE DEDUCTION C OULD BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, NO INFIRMITY COULD BE FOUND IN THE ORD ER PASSED BY THE TRIBUNAL WHICH MAY WARRANT INTERFEREN CE BY THIS COURT. THUS, BOTH THE QUESTIONS ARE ANSWERED A GAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE.' 16.4 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FOLLOWI NG THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH C OURT, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11 IT(I.T)A NO.1512/BANG/2010 7. AS IT IS CLEAR FROM THE ABOVE DECISION THAT THE TRIBUNAL HAS DISCUSSED AND ANALYSED THE PROVISIONS OF SECTION 40 (A)(I) IN DETAIL IN THE CONTEXT OF DISALLOWANCE OF DEPRECIATION. THE LEARNE D D.R. HAS SUBMITTED THAT ONCE THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 195, THEN, EVEN THE EXPENDITURE IS CAPITALIZED BY THE ASSESSEE , THE PROVISIONS OF SECTION 40(A)(I) ARE APPLICABLE FOR DISALLOWANCE OF DEPRECIATION ON SUCH CAPITALIZED EXPENDITURE. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED D.R, BECAUSE A REMEDY FOR VIOLATION OF PROV ISIONS OF SECTION 195 IS AVAILABLE WITH THE ASSESSING OFFICER UNDER SECTI ON 201 & 201A OF THE ACT. THE PROVISIONS OF SECTION 40(A) IS ONLY AN A DDITIONAL MEASURE TO ENFORCE THE COMPLIANCE OF CHAPTER XVIIB OF THE ACT, BY DISALLOWING AN EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE QUESTION OF DISALLOWANCE UNDER SECTI ON 40(A) ARISES ONLY WHEN AN EXPENDITURE IS CLAIMED BY THE ASSESSEE WITH OUT DEDUCTING THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER-XVII B OF THE ACT, 1961. IN THE CASE ON HAND, WHEN THE ASSESSEE HAS NOT CLAIMED , THE SAID PAYMENT AS AN EXPENDITURE THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT ARISE. THE ONLY REMEDY WHICH MIG HT HAVE BEEN RESORTED TO BY THE ASSESSING OFFICER IS THE ACTION UNDER SEC TION 201 AND 201A OF 12 IT(I.T)A NO.1512/BANG/2010 THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE DELH I BENCH OF THE TRIBUNAL IN THE CASE OF SMS DEMANG (P) LTD. (SUPRA) IN PARA 8 AS UNDER :- 8. AS REGARDS THE CLAIM OF ASSESSEE FOR DEPRECIATI ON ON ASSETS CAPITALIZED, DEPRECIATION CANNOT BE DISAL LOWED ON THE GROUND THAT AT THE TIME OF REMITTANCE, NO TAX W AS DEDUCTED AT SOURCE. PROVISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE FOR CLAIM FOR DEDUCTION UNDER SECTION 32 OF THE ACT. ACCORDINGLY, IN OUR CONSIDERED OPINION, THE AO WAS NOT JUSTIFIED IN DISALLOWING 50 PERCENT OF DEPRECIATION ON THE GROUND THAT PROVISIONS OF SECTION 40(A)(I) WERE APP LICABLE. HOWEVER, THE AO WILL VERIFY THE FACT WHETHER THE AS SETS IN RESPECT OF WHICH EXPENDITURE HAS BEEN CAPITALIZED H AVE BEEN USED IN BUSINESS FOR PERIOD MORE THAN 180 DAYS . IF THE ASSETS HAVE BEEN USED FOR MORE THAN 180 DAYS, T HE AO WILL ALLOW FULL DEPRECIATION, AS CLAIMED BY THE ASS ESSEE. THE AO IS DIRECTED ACCORDINGLY. 8. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS BY FOLLOWING THE DECISIONS OF THE CO-ORDINATE BENCH ES OF THE ITAT, WE ARE OF THE OPINION THAT ONCE THE ASSESSEE HAS CAPITALIZ ED THE PAYMENT IN QUESTION THOUGH THE ASSESSEE HAS NOT DEDUCTED THE T AX AT SOURCE ON SUCH PAYMENT, SECTION 40(A)(I) CANNOT BE INVOKED FO R DISALLOWANCE OF DEPRECIATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND THE ADDITION MADE BY THE ASSESSING OFFICE R IS DELETED. 13 IT(I.T)A NO.1512/BANG/2010 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2015. SD/- SD/- (JASON P BOAZ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER *AM DATED: PLACE: COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE