M/s. Nippo Batteries Company Limited, CHENNAI V. ACIT, CHENNAI

ITA 1917/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0863 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-01-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 29-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI
• Keywords: Depreciation; Revenue expenditure
• Section: 142(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1917/MDS/2012 (ASSESSMENT YEAR: 2003-04) M/S NIPPO BATTERIES COMPANY LTD. POTTIPATTI PLAZA, 4 TH FLOOR, 77, N.H.ROAD, CHENNAI-600 034. PAN: AAACI2291L VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4) CHENNAI-600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. VIKRAM VIJAYARAGH AVAN, ADVOCATE RESPONDENT BY : MR. ANIRUDH RAI, CIT DR DATE OF HEARING : 10 TH JANUARY, 2013 DATE OF PRONOUNCEMENT : 22 ND FEBRUARY, 2013 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF THE CIT(A)-VI, CHENNAI DATED 20.03.201 2 RELEVANT TO THE ASSESSMENT YEAR 2003-04. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003 -04 ON 27.11.2003 DECLARING TOTAL INCOME OF ` 29,46,21,362/- . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 142(1) DATED 10.01.2006 WAS SERVED O N THE ITA NO.1917/MDS/2012 2 ASSESSEE. THE ASSESSING OFFICER VIDE ORDER DATED 29 .3.2006 MADE CERTAIN ADDITIONS IN THE INCOME RETURNED BY T HE ASSESSEE. 3. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) INTER-ALIA ON THE FOLLOWING GROUNDS:- I) DISALLOWANCE OF EXCESS DEPRECIATION ON MOULDS. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 40% WHEREAS THE ASSESSING OFFICER RESTRICTED IT TO 25%; II) DISALLOWANCE OF EXPENSES ON PURCHASE OF SOFTWARES HOLDING IT TO BE CAPITAL IN NATURE. THE ASSESSEE HAS CLAIMED THE SAME AS REVENUE EXPENDITURE; AND III) RESTRICTION ON CLAIM UNDER SECTION 80IA. THE ASSESSEE HAS CLAIMED INTEREST INCOME AS ELIGIBLE FOR DEDUCTION U/S.80IA. THE A.O. REJECTED THE SAME. THE CIT(A) REJECTED ALL THE AFOREMENTIONED GROUNDS OF THE ASSESSEE AND UPHELD THE ORDER OF THE ASSESSING OFFI CER ON THE ISSUES. ITA NO.1917/MDS/2012 3 AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE ASS ESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. MR. VIKRAM VIJAYARAGHAVAN APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE FIRST GROUND OF APPEAL I.E. DEPRECIATION ON MOULDS AMOUNTING TO ` 10,36,177/- HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSM ENT YEARS 1999-2000, 2002-03 AND 2004-05 AGAINST THE AS SESSEE IN ITA NOS.1436 TO 1438/MDS/2007 VIDE ORDER DATED 7 TH JULY, 2008. 5. GROUND NO.2 RELATES TO DISALLOWANCE OF EXPENSES ON PURCHASE OF SOFTWARE. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT CAPITALIZATION OF EXPENSES RELATING TO PURCHASE OF SOFTWARE IS INCORRECT. THE COUNSEL SUBMITTED THA T EXPENSES INCURRED BY THE ASSESSEE ON DIFFERENT SOFTWARES VIZ ., BIO- METRIC SOFTWARE ` 12,73,000/-, ORACLE `4,03,150/- AND INTRANET APPLICATION SOFTWARE ` 5,17,705/- ARE REVENUE IN NATURE AS SOFTWARES ARE ALWAYS SUBJECT TO CHANGE AN D BECOME OBSOLETE VERY FAST. THEREFORE, FOR UPGRADATI ON OF THE EXISTING SOFTWARE, THE ASSESSEE INCURRED EXPENDITUR E. IT IS NOT ITA NO.1917/MDS/2012 4 THE CASE WHERE THE ASSESSEE HAS PURCHASED NEW SOFT WARES, ONLY EXISTING SOFTWARES HAVE BEEN UPGRADED. IN ORD ER TO SUPPORT HIS SUBMISSIONS, THE AR HAS RELIED ON THE J UDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD. REPORTED AS 346 ITR 329(DEL ). 6. THE THIRD GROUND ON WHICH THE ORDER OF THE CIT(A ) HAS BEEN ASSAILED IS WITH REGARD TO DEDUCTION UNDER SE CTION 80IA. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS AGAI NST THE CLAIM OF ` 4,60,70,449/- ONLY A SUM OF ` 4,30,13,538/- HAS BEEN ALLOWED. THE COUNSEL SUBMITTED THAT THE ASSES SING OFFICER HAS ERRED IN EXCLUDING INTEREST ON DEPOSITS WITH BANKS AND INTEREST RECEIVED FROM DEALERS FOR EXCEEDING TH E CREDIT PERIOD FROM THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. THE ASSESSEE IS ENTITLED FOR THE BENEFIT ON T HE SAID INTEREST INCOME UNDER THE PROVISIONS OF SECTION 80I A AS WELL. IN ORDER TO SUPPORT HIS CONTENTIONS, THE COUNSEL RE LIED ON THE JUDGEMENTS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS MOTORS REPORTED AS 257 ITR 60(MAD) AND IN T HE CASE OF INDO MATSUSHITA CARBON COMPANY REPORTED AS 286 I TR 201 (MAD). ITA NO.1917/MDS/2012 5 7. ON THE OTHER HAND, SHRI ANIRUDH RAI APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT THE ISSUE NO.1 IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE CO -ORDINATE BENCH OF THE TRIBUNAL PASSED IN ITA NO.1436 TO 1438/MDS/2007 DECIDED ON 7.7.2008. 8. ON ISSUE NO.2, THE D.R. SUBMITTED THAT THE ASSES SEE HAS ACQUIRED SOFTWARES AS OUTRIGHT PURCHASES AND N OT AS UPGRADATION OF EXISTING SOFTWARE. THEREFORE, EXPEND ITURE INCURRED ON OUTRIGHT PURCHASE OF SOFTWARE HAS TO BE CAPITALIZED. HOWEVER, THE ASSESSEE IS ENTITLED FOR DEPRECIATION @ 60% ON THE COST OF THE SOFTWARE. HE CONTENDED THA T THE JUDGEMENT REFERRED TO BY THE COUNSEL FOR THE ASSESS EE IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD., IS NOT APPLI CABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. ON THE CONTRARY, THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ESCORTS LTD., VS. ACIT REPORTED AS 104 ITD 427 AND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SUDARSHAN CHEMICAL INDUSTR IES LTD., VS. ACIT., REPORTED AS 110 ITD 171. IN ORDER TO SUP PORT HIS CONTENTIONS, THE D.R. ALSO RELIED ON THE JUDGEMENT OF THE ITA NO.1917/MDS/2012 6 HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. ARAWALI CONSTRUCTIONS CO. P. LTD., REPORTED AS 259 ITR 30(R AJ). 9. WITH REGARD TO ISSUE NO.3, THE DR SUBMITTED THAT THE AMOUNT OF INTEREST IS A HUGE AMOUNT AND IT RELATES TO INTEREST ON BANK DEPOSITS AND INTEREST RECEIVED FROM DEALER S FOR EXCEEDING THE CREDIT PERIOD ON SALE OF GOODS. THE DETAILS OF SUCH DEBTORS WERE NOT MADE AVAILABLE EITHER BEFORE THE ASSESSING OFFICER OR CIT(A). NEITHER THE DETAILS HA VE BEEN MADE AVAILABLE BEFORE THE TRIBUNAL. THEREFORE, HE S TRONGLY SUPPORTED THE ORDER OF THE CIT(A). THE DR PRAYS FOR DISMISSAL OF THE GROUND OF APPEAL OF THE ASSESSEE. FURTHER, I N ORDER TO FORTIFY HIS SUBMISSIONS, THE DR RELIED ON THE JUDGE MENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF INDIAN ADD ITIVES LTD. VS. DCIT., REPORTED AS 67 DTR (MAD) 389 WHEREI N IT HAS BEEN HELD THAT DEDUCTION U/S.80IB IS NOT ALLOWABLE IN RESPECT OF COMPENSATION RECEIVED FROM SUNDRY DEBTORS FOR DE LAYED PAYMENTS. 10. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES. WE HAVE ALSO PERUSED THE ORDERS OF THE AUT HORITIES BELOW AND THE JUDGEMENTS/ORDERS REFERRED TO BY BOTH THE ITA NO.1917/MDS/2012 7 SIDES. THE COUNSEL FOR THE ASSESSEE HAS FAIRLY CO NCEDED WITH REGARD TO DEPRECIATION ON MOULDS, THAT THE ISSUE HA S ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE ASSESSMENT YEARS 1999-2000, 2002-03 AND 2004-0 5 AGAINST THE ASSESSEE IN ITA NOS.1436 TO 1438/MDS/20 07 RESPECTIVELY. A PERUSAL OF THE SAID ORDER OF THE TR IBUNAL PLACED ON RECORD SHOWS THAT THE TRIBUNAL HAS HELD THAT TH E ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION @ 25% INSTEAD OF 40% ON THE MOULDS. RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL ON THE ISSUE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. THE DEPRECIATION IS TO BE ALLOWED TO THE ASSESSEE @ 25% AS AGAINST 40% CLAIMED BY THE ASSESSEE. 11. THE SECOND ISSUE IS WITH RESPECT TO PURCHASE OF SOFTWARES. THE CONTENTION OF THE COUNSEL FOR THE AS SESSEE IS THAT PURCHASE OF SOFTWARE IS ONLY UPGRADATION OF EX ISTING SOFTWARES AND NOT PURCHASE OF NEW SOFTWARE. ON THE OTHER HAND, THE DR SUBMITTED THAT EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE HAS TO BE CAPITALIZED AND IT CANNOT BE TREATED AS REVENUE IN NATURE. ITA NO.1917/MDS/2012 8 12. THE HONBLE DELHI HIGH COURT IN THE CASE OF ASA HI INDIA SAFETY GLASS LTD. (SUPRA) HAS HELD AS UNDER:- 9. THE REVENUE IN SUPPORT OF ITS STAND HAS TAKEN RECOURSE TO THE TEST OF ENDURING BENEFIT. IT IS IN OUR VIEW NOW SOMEWHAT TRITE TO SAY THAT THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR A CONCLUSIV E TEST WHICH THE COURTS CAN APPLY ALMOST BY ROTE. WHAT IS REQUIRED TO BE SEEN IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION OF FIXED CAPITAL FO R THE ASSESSEE. IT IS IMPORTANT TO BEAR IN MIND THAT WHAT IS REQUIRED TO BE SEEN IS NOT WHETHER THE ADVANTAGE OBTAINED LASTS FOREVER BUT WHETHER THE EXPENSE INCURRED DOES AWAY WITH A RECURRING EXPENSE(S) DEFRAYED TOWARDS RUNNING A BUSINESS AS AGAINST AN EXPENSE UNDERTAKEN FOR THE BENEFIT OF THE BUSINESS AS A WHOLE. IN OTHER WORDS, THE EXPENDITURE WHICH IS INCURRED, WHICH ENABLES THE PROFIT-MAKING STRUCTURE TO WORK MORE EFFICIENTLY LEAVING THE SOURCE OF THE PROFIT MAKING STRUCTURE UNTOUCHED WOULD IN OUR VIEW BE EXPENSE IN THE NATURE OF REVENUE EXPENDITURE. FINE TUNING BUSINESS OPERATIONS TO ENABLE THE MANAGEMENT TO RUN ITS BUSINESS EFFECTIVELY, EFFICIENTLY AND PROFITABLY, LEAVING THE FIXED ASSETS UNTOUCHED WOULD BE AN EXPENDITURE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH THE ADVANTAGE MAY LAST FOR AN INDEFINITE PERIOD. TEST OF ENDURING BENEFIT OR ADVANTAGE WOULD THUS COLLAPSE IN SUCH LIKE CASES. IT WOULD IN OUR VIEW BE ONLY TRUER IN CASES WHICH DEAL WITH TECHNOLOGY AND SOFTWARE APPLICATION WHICH DO NOT IN ANY MANNER SUPPLANT THE SOURCE ITA NO.1917/MDS/2012 9 OF INCOME OR ADD TO THE FIXED CAPITAL OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT WITH THE AFOREMENTIONE D OBSERVATIONS AND AFTER CONSIDERING CATENA OF JUDGEM ENTS INCLUDING ARAWALI CONSTRUCTIONS CO .P. LTD. (SUPRA) HAS HELD THAT EXPENDITURE INCURRED ON PURCHASE OR UPGRADATIO N OF SOFTWARE IS REVENUE IN NATURE. THE HONBLE HIGH COU RT IN THE SAID JUDGEMENT HAS APPROVED THE VIEW OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRI SES VS. DCIT., REPORTED AS 301 ITR (AT) 1 (SB). 13. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T VS. SUNDARAM CLAYTON LTD. REPORTED AS 321 ITR 69(MAD) HAS ALSO HELD THAT EXPENDITURE INCURRED RELATING TO PUR CHASE OF SOFTWARE IS REVENUE IN NATURE. 14. IN VIEW OF THE AFORESAID JUDGEMENTS AND THE FAC TS OF THE PRESENT CASE, WE ARE OF THE CONSIDERED VIEW THAT TH E EXPENDITURE INCURRED BY THE ASSESSEE IN PURCHASE/UPGRADATION OF SOFTWARE IS ALLOWABLE AS RE VENUE EXPENDITURE. WE THEREFORE ALLOW THIS GROUND OF APPE AL OF THE ASSESSEE. ITA NO.1917/MDS/2012 10 15. THE THIRD GROUND OF APPEAL OF THE ASSESSEE IS DISALLOWANCE OF INTEREST INCOME FOR GRANT OF DEDUCT ION UNDER SECTION 80IA OF THE ACT. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT REPOR TED AS 262 ITR 278 HAS CATEGORICALLY HELD THAT INTEREST IN COME DOES NOT FORM PART OF INCOME OF UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH. THE PROVISIONS OF SECTION 80HH AND SECTION 80IA ARE PARI MATERIA WITH RESPECT TO THE P HRASE GROSS TOTAL INCOME OF THE ASSESSEE INCLUDES ANY PR OFITS AND GAINS DERIVED FROM ANY BUSINESS. THE HONBLE APEX COURT HAS HELD THAT THE WORD DERIVED FROM IN SECTION 80 HH OF THE INCOME TAX ACT, 1961 MUST BE UNDERSTOOD AS SOMETHI NG WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE ASSESS EES INDUSTRIAL UNDERTAKING (BUSINESS IN THE INSTANT C ASE) . THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN ADDITIVES LTD. (SUPRA) HAS HELD THAT COMPEN SATION (INTEREST) RECEIVED FROM SUNDRY DEBTORS FOR DELAYED PAYMENT IS NOT ALLOWABLE AS DEDUCTION U/S.80IB. THE HONBLE C OURT FURTHER OBSERVED THAT BY USING THE EXPRESSION DERI VED FROM IN ITA NO.1917/MDS/2012 11 SECTION 80IB, PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. 16. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT T HE INTEREST INCOME WHICH THE ASSESSEE HAS EARNED FROM DEPOSITS IN THE BANK AND FROM THE INTEREST ON EXTENDED CREDI T PERIOD ALLOWED TO ITS DEBTORS DOES NOT CONSTITUTE INCOME E LIGIBLE FOR DEDUCTION UNDER SECTION 80IA. A PERUSAL OF THE ORDE R OF THE CIT(A) SHOWS THAT THIS ISSUE HAS ALREADY BEEN ADJU DICATED BY THE TRIBUNAL AGAINST THE ASSESSEE IN ITA NOS.1 436 TO 1438/MDS/2007 VIDE ORDER DATED 7.7.2008 BY FOLLOWI NG THE LAW LAID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF PANDIAN CHEMICALS LTD. (SUPRA). ACCORDINGL Y, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 22 ND DAY OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 22 ND FEBRUARY, 2013. SOMU ITA NO.1917/MDS/2012 12 COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.