Unifi Capital (P) Ltd., CHENNAI V. ACIT, CHENNAI

ITA 184/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6026 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 19-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI
• Assessee Lawyers: NITHYA SANKARAN
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.184/MDS/2017 ( / ASSESSMENT YEAR: 2009-10) M/S. UNIFI CAPITAL (P) LTD., 11, KAKANI TOWERS, 15, KHADER NAWAZ KHAN ROAD, CHENNAI 600 006. VS THE ACIT, COMPANY CIRCLE III(3), CHENNAI PAN: AAACU5196J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MS. NITHYA SANKARAN, CA /RESPONDENT BY : SHRI ASISH TRIPATHI, JCIT /DATE OF HEARING : 31.08.2017 /DATE OF PRONOUNCEMENT : 04.10.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-10, CHENNAI DATED 13.10.2016 IN ITA NO.497/2013-14/CIT( A)-11 FOR THE ASSESSMENT YEAR 2009-10 PASSED U/S.250(6) R.W.S .143(3) OF THE ACT. 2 ITA NO.184/MDS/2017 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL, HOWEVER THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- (I) THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO WHO HAD DISALLOWED SOFTWARE EXPENSES AMOUNTIN G TO RS.8,37,461/- BY HOLDING IT TO BE CAPITAL EXPEND ITURE. (II) THE LD.CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF THE LD.AO WHO HAD DISALLOWED RS.1,73,022/- BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF STOCK BROKING, PORTFOLIO MANAGEMENT DEALING IN SHARES, SE CURITIES ETC., FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 29.09.2009, ADMITTING TOTAL INCOME OF RS.3,74,47,05 5/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND FINALLY ASSE SSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 19.12.2011, WHE REIN THE LD.AO HAD MADE THE ABOVE MENTIONED ADDITIONS / DISA LLOWANCES. 3 ITA NO.184/MDS/2017 4. GROUND NO. 2(I) : DISALLOWANCE OF COMPUTER SOFTW ARE EXPENSES: DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD CLA IMED EXPENDITURE OF RS.8,37,461/- BEING PURCHASE OF COMP UTER SOFTWARE. THE LD.AO OPINED THAT THE ABOVE EXPENDITU RE IS CAPITAL IN NATURE AND THEREFORE DISALLOWED THE SAME, HOWEVE R HE GRANTED DEPRECIATION. 4.1 BEFORE THE LD.CIT(A), ASSESSEE FURNISHED THE DE TAILS OF THE SOFTWARE PURCHASED AS FOLLOWS:- S.NO. PARTICULARS AMOUNT (RS.) 1 PURCHASE OF ANTI-VIRUS SOFTWARE 17,000 2 MS WINDOWS / SQL 1,31,806 3 BSE FRONT END TRADING LICENSE 88,820 4 LICENSE FEE SHARE PRO SOFTWARE 3,12,912 5 PAIR TRADING SOFTWARE 2,10,000 6 NSE BSE PROJECT WORK 75,625 7 MAIL MERGE TOOL 1,298 8,37,461 THE LD.AR FURTHER MADE THE FOLLOWING SUBMISSIONS BE FORE THE LD.CIT(A) :- 4 ITA NO.184/MDS/2017 (I) THE EXPENDITURE INCURRED BY THE ASSESSEE FOR AC QUIRING THE LICENSE IS FOR THE PERIOD OF ONE YEAR, THEREAFT ER IT IS RENEWABLE ON YEARLY BASIS. (II) THEREFORE THE ASSESSEE HAS NOT DERIVED ANY BEN EFIT OF ENDURING NATURE. (III) RELIANCE WAS PLACED IN THE CASE EMPIRE JUTE CO LTD. VS. CIT REPORTED IN 124 ITR 1(SC), WHEREIN THE HONBLE APEX COURT HELD IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING T HE ASSESSEES TRADING OPERATIONS OR ENABLING THE MANAG EMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FI XED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCO UNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE F UTURE. (IV) RELIANCE WAS PLACED IN THE DECISION OF THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE M/S. AMWAY INDIA ENTERP RISES VS. DCIT REPORTED IN 111 ITD 0112. (V) RELIANCE WAS PLACED IN THE DECISION OF THE DELH I BENCH OF THE TRIBUNAL IN THE CASE INDO RAMA SYNTHETICS INDIA LTD. VS. DCIT REPORTED IN 28 CCH 0044 (DELHI TRIB), WHER EIN IT WAS HELD THAT YEARLY LICENSE FEE IN RESPECT OF EXIS TING COMPUTER SOFTWARE WHICH WERE ALREADY LOADED ON THE 5 ITA NO.184/MDS/2017 COMPUTERS AND FOR PURCHASING CERTAIN OTHER APPLICAT ION SOFTWARE REQUIRED FOR FACILITATION OF MERE EFFICIEN T AND PROFITABLE DAY TO DAY MANAGEMENT AND TRADING OPERAT IONS WERE REVENUE IN NATURE. (VI) THEN THE LD.AR FURTHER PLACED RELIANCE ON VARI OUS OTHER DECISION WHICH ARE CITED IN THE ORDER OF THE LD.CIT (A). 4.2 AFTER ANALYZING THE SUBMISSIONS OF THE LD.AR, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO BECAUSE IN THE INCOME TAX RULES, IT WAS SPECIFICALLY MENTIONED THA T WITH EFFECT FROM 01.04.2003 DEPRECIATION WILL BE ALLOWED ON COM PUTER SOFTWARE AS PER THE PRESCRIBED RATE. SINCE THE LD. AO HAD GRANTED DEPRECIATION ON THE COMPUTER SOFTWARE PURCH ASE BY THE ASSESSEE AS PER THE INCOME TAX RULES FOR THE RELEVA NT ASSESSMENT YEAR, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO. 4.3 BEFORE US, THE LD.AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) WHILE AS THE LD.DR ARGUED IN S UPPORT OF THE ORDERS OF THE LD.REVENUE AUTHORITIES. 6 ITA NO.184/MDS/2017 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD.AR HAD T AKEN THE PLEA THAT THE SOFTWARE PURCHASED BY THE ASSESSEE COULD B E USED BY THE ASSESSEE ONLY FOR THE PERIOD OF ONE YEAR AND TH EREAFTER IT IS RENEWABLE ON YEARLY BASIS BY FURTHER PAYMENT. THES E FACTS ARE NEITHER NEGATED BY THE LD.REVENUE AUTHORITIES NOR D ISPUTED. THE LD.REVENUE AUTHORITIES HAD ARRIVED AT THE DECISION FOR GRANTING DEPRECIATION TO THE ASSESSEE ONLY BECAUSE DEPRECIAT ION WAS PRESCRIBED IN THE INCOME TAX RULES. FURTHER THE LD .REVENUE AUTHORITIES DID NOT EXAMINE THE SCOPE OF THE USAGE OF THE SOFTWARE PURCHASED BY THE ASSESSEE I.E., AS TO WHET HER THE EXPENDITURE IS INCURRED ONLY FOR THE PERIOD OF ONE YEAR OR FOR MORE NUMBER OF YEARS. IF THE SOFTWARE IS USED YEAR AFTE R YEAR WITHOUT MAKING ANY FURTHER PAYMENT, THEN IT COULD BE SAID T HAT AN ASSET IS CREATED WHICH HAS ENDURING BENEFIT. IN THAT CASE T HE PROVISIONS OF THE INCOME TAX RULE WILL BE APPLICABLE AND THE A SSESSEE WOULD BE ELIGIBLE TO CLAIM DEPRECIATION ON PURCHASE OF SUCH SOFTWARE. BUT IN THE CASE OF THE ASSESSEE, IT APPE ARS THAT THE SOFTWARE PURCHASED COULD BE USED ONLY FOR ONE YEAR AND THEREAFTER ON FURTHER PAYMENT IT COULD BE USED FOR ANOTHER YEAR SO ON AND SO FORTH. IN THIS SITUATION, IT IS APPAR ENT THAT THE 7 ITA NO.184/MDS/2017 EXPENDITURE INCURRED BY THE ASSESSEE ON PURCHASE OF COMPUTER SOFTWARE IS REVENUE IN NATURE AND THEREFORE SUCH EX PENDITURE CANNOT BE CAPITALIZED. FOR THE ABOVE SAID REASONS, WE ARE OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRED FOR P URCHASE OF SOFTWARE BY THE ASSESSEE IS REVENUE IN NATURE AND T HEREFORE WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION MADE FOR RS.8,37,461/- TOWARDS PURCHASE OF COMPUTER SOFTWARE . 5. GROUND NO. 2(II) : DISALLOWANCE U/S.14A OF THE ACT: - DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD DISCLOSED IN ITS BALANCE SHEET INVESTMENTS TO THE TUNE OF RS.5,49,25,362/- A S ON 31.03.2009 AND RS.4,20,63,960/- AS ON 01.04.2008. IT WAS FURTHER OBSERVED BY THE LD.AO THAT THE ABOVE INVEST MENTS WERE MADE BY THE ASSESSEE FOR EARNING EXEMPT INCOME. TH EREFORE THE LD.AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D(2)(III) AND THEREBY COMPUTED THE DISALLOWAN CE AT HALF PERCENT ON THE AVERAGE INVESTMENT OF RS.4,84,94,661 /- [(RS.5,49,25,362 + RS.4,20,63,960)/2] WHICH WORKS O UT TO RS.2,42,473/-. 8 ITA NO.184/MDS/2017 5.1 ON APPEAL THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO BY HOLDING THAT THE LD.AO HAD CORRECTLY WORKED OUT THE DISALLOWANCE AS PER THE PROVISIONS OF THE ACT AND R ULE 8D(2)(III) OF THE RULES BY RELYING IN THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE GODREJ & BOYCE MFG CO. LTD. REPO RTED IN 328 ITR 81, ITAT, DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE M/S. LAKSHMI RING TRAVELLERS VS. ACIT IN I TA 2083 (MDS) DT. 02.11.2012 AND IN THE CASE DCIT VS. K HO N'BLE ARVIND PVT. LTD. 5.2 BEFORE US THE LD.AR REITERATED THE LENGTHY SUBM ISSIONS MADE BEFORE THE LD.CIT(A) FOR DELETING THE ADDITION MADE U/S.14A OF THE ACT WHILE AS THE LD.DR ARGUED IN SUP PORT OF THE ORDERS OF THE LD.REVENUE AUTHORITIES. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. EVEN AT THIS ST AGE BEFORE US THE ASSESSEE HAS NOT FURNISHED ANY MATERIALS TO SUG GEST THAT IT HAD NOT INCURRED ANY EXPENDITURE TOWARDS MANAGING T HE INVESTMENT MADE WHICH EARNS INCOME THAT IS EXEMPT F ROM TAX. IN THIS SITUATION, WE FIND THE ACTION OF THE LD.REVENU E AUTHORITIES TO 9 ITA NO.184/MDS/2017 BE APPROPRIATE BECAUSE THEY HAVE ONLY FOLLOWED THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D(2)(III) OF THE R ULES. HENCE, WE DO NOT FIND IT NECESSARY TO INTERFERE IN THE ORD ERS OF THE LD.REVENUE AUTHORITIES ON THIS ISSUE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 04 TH OCTOBER, 2017 AT CHENNAI. 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