ACIT 14(2)(2), MUMBAI V. ORIX AUTO INFRASTRUCTURE SERVCIES LTD, MUMBAI

ITA 2106/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8709 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2017
• Appeal Filed By: Department
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: D V LAKHANI
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H , BENCH MUMBAI BEFORE SHRI AMIT SHUKLA , J M & SHRI ASHWANI TANEJA , A M ITA NO. 2106/MUM/2015 ( ASSESSMENT YEAR : 201 0 - 1 1 ) ACIT - 14(2)(2), MUMBAI VS. M/S ORIX AUTO INFRASTRUCTU RE SERVICES LTD., PLOT NO. 904, MAROL CO - OP INDUSTRIAL ESTATE ANDHERI - KURLA ROAD, ANDHERI EAST, MUMBAI 400 059 PAN/GIR NO. AAA CO2563P APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI M.C. OMI NINGSHEN ASSESSEE BY SHRI D.V. LAKHAN I DATE OF HEARING 17 / 01 /2017 DATE OF PRONOUNCEMENT 17 / 01 /201 7 / O R D E R PER AMIT SHUKLA ( J .M) : THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 12 .01. 2015 , PASSED BY LD. CIT(A PPEALS ) - 22, MUMBAI FOR T HE QUANTUM OF ASSESSMENT PASSED U/S.143(3) OF THE IT ACT FOR THE A.Y.2010 - 11. 2. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS: - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE (IT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF RS. 5,07,605 / - MADE BY THE ASSESSING OFFICER U/S. 14A R.W.R 8D BY NOT FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 2 OF GODREJ & BOYCE MFG . CO LTD & WRONGLY RELYING ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES REPORTED IN 313 ITR 340 WHICH WAS APPLICABLE IN T HE CONTEXT OF DISALLOWANCE OF INTEREST U/S. 36(1)(III) OF THE ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE EXCESS CLAIM OF DEPRECIA TION ON SOFTWARE LICENSE, & IGNORING THE FACT THAT THE HON'BLE ITA T IN THE CASE OF SONY INDIA PVT. LTD. VS CIT HAS HELD THAT SOFTWARE LICENSE IS ELIGIBLE FOR CLAIM OF DEPRECIATION @ 2 5 % NOT @ 60% AS THE SAME IS AN INTANGIBLE ASSET.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE EXCESS CLAIM OF DEPRECIATION ON PRINTERS & IGNORING THE FACT THAT THE HON'BLE ITAT IN THE CASE OF S.T. REDDIAR & SONS VS . DCIT REPORTED IN 49 DTR 326 HAS HELD THAT PRINTER IS A PLANT & MACHINERY - & IS ELIGIBLE FOR CLAIM OF DEPRECIATION @15% & NOT 60%. 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN HOLDING THAT THE DISALLOWANCE MADE U/S. 14A, SHALL NOT BE INCLUDED IN BOOK PROFIT U/S. 115JB, IGNORING THE F ACT THAT CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB MANDATES THAT THE NET PROFIT BE INCREASED BY THE DISALLOWANCE U/S 14A TO ARRIVE AT THE BOOK PROFIT U/S. 115JB OF THE I.T. ACT, 1961.' 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTIT UTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE BRIEF FACTS QUA THE ISSUE RAISED IN GROUND NO.1 ARE THAT , ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCH ASE AND RENTING OF CARS. APART FROM THESE ACTIVITIES, ASSESSEE ALSO CARRIED OUT THE BUSINESS OF GRANTING LOANS AND PROVIDING OTHER SERVICES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE L EARNED ASSESSING OFFICER NOTED THAT ASSESSEE HAS MADE INVESTMENT I N EQUITY SHARES AMOUNTING TO RS.2,24,98,700/ - AND HENCE, DISALLOWANCE U/S 14A IS CALLED FOR. IN RESPONSE TO THE SHOW - CAUSE NOTICE, AS TO WHY DISALLOWANCE U/S.14A READ WITH RULE ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 3 8D SHOULD NOT BE MADE, T HE ASSESSEE SUBMITTED THAT IT HAS MADE SUO - MOTO DISALLO WANCE OF INDIRECT EXPENDITURE U/S.14A OF RS. 62,49 5 / - . THE LEARNED ASSESSING OFFICER HELD THAT SINCE THESE INVESTMENTS ARE KEPT FOR THE PURPOSE OF EARNING EXEMPT INCOME, THEREFORE, DISALLOWANCE U/S.14A READ WITH RULE 8D HAS TO BE MADE. ACCORDINGLY, HE COMPU TED DISALLOWANCE OF RS.5,70,100/ - WHICH MAINLY COMPRISED OF DISALLOWANCE OF INTEREST UNDER RULE 8D (2)(II) , INCLUDING INDIRECT EXPENDITURE U/R 8D (2)(III) OF RS.62,495/ - AS SHOWN BY THE ASSESSEE . THUS, THE ONLY DISPUTE BEFORE THE FIRST APPELLATE AUTHORITY WAS WITH REGARD TO DISALLOWANCE OF INTEREST EXPENDITURE. BEFORE THE LD. CIT (A), IT WAS SUBMITTED THAT ASSESSEE HAD HUGE S URPLUS FUNDS IN THE FORM OF RESERVES AND SURPLUS , OPERATING PROFIT AND S HARE CAPITAL WHICH FAR EXCEEDED THE INVESTMENTS MADE BY THE ASSESSEE. THE AVAILABILITY OF FUNDS AND INVESTMENTS MADE IN THE FINANCIAL YEAR 2009 - 10 HAD BEEN INCORPORATED BY THE CIT (A) AT PAGES 2 & 3 OF THE APPELLATE ORDER. 4 . LEARNED CIT(A), AFTER EXAMINING THE AVAILABILITY OF FUNDS AND FOLLOWING THE DECISION S OF HONBLE JURISDICTIONAL HIGH COURT DELETED THE INTEREST DISCOUNT AFTER OBSERVING AND HOLDING AS UNDER: - 3.2. I HAVE CONSIDERED THE APPELLANT'S SUBMISSIONS. ON VERIFICATION OF THE APPELLANT'S BOOKS OF ACCOUNTS, IT IS SEEN THAT THAT THE SHARE CAPITAL OF T HE APPELLANT IS OF RS. 64,28,00,000/ - AND RESERVES IS RS. 82,74,00,000/ - AND INVESTMENT OF RS. ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 4 2,24 , 98,700/ - . ON EXAMINING THE ABOVE FACTS, IT IS CLEAR THAT THE SHARE CAPITAL AND RESERVES ARE MORE THAN THE INVESTMENTS. HENCE NO INTEREST DISALLOWANCE CAN BE LEVIED. INTEREST DISALLOWANCE CANNOT BE UPHELD IN VIEW OF THE DECISION OF BOMBAY HE IN THE CASE' OF CIT VS RELIANCE UTILITIES 313 ITR 340 AND SIMILAR VIEW IN THE CASE CIT VS . HDFC LIMITED 330 ITR 212 HC BOMBAY IN WHICH IT IS HELD THAT IF FUNDS ARE MORE TH AN INVESTMENTS, IT IS TO BE TREATED AS INVESTMENT FROM OWN FUNDS AND NO DISALLOWANCE OF INTEREST EXPENSES UNDER SEC. 14A OF THE ACT. FOLLOWING THE JURISDICTIONAL HC'S DE CISION, AO'S DISALLOWANCE FOR INTEREST EXPENSE IS DELETED. 'HOWEVER AS APPELLANT HAD HI MSELF DISALLOWED 0.5% OF THE AVERAGE INVESTMENT, NO FURTHER DISALLOWANCE IS REQUIRED. HENCE GROUND OF APPEAL IS PARTLY ALLOWED . 5 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE LEARNED CIT (A) HAS EXAMINED THE A VAILABILITY OF SURPLUS FUNDS AND THE INVESTMENTS MADE BY THE ASSESSEE. THE RESERVES AND SURPLUS OF ASSESSEE AS ON 31/03/2010 IT SELF WAS RS.82.74 CRORES WHEREAS THE INVESTMENT MADE BY THE ASSESSEE WAS ONLY RS. 2.25 CRORES. IN VIEW OF SUCH AVAILABILITY OF SU RPLUS INTEREST FREE FUNDS, THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HDFC LIMITED IS SQUARELY APPLICABLE . MORE OVER, THIS DECISION I S REITERATED BY THE HONBLE HIGH COURT IN THE SUBSEQUENT DECISION IN THE CASE OF HDFC BANK ITS ELF, SINCE REPORTED IN 3 7 3 ITR 529. THUS, WE D O NOT FIND ANY REASON TO DEVIATE FROM THE FINDING OF THE CIT(A) AS IT IS BASED ON APPRECIATION OF FACTS AND LAW AS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT. ACCORDINGLY , G ROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 5 6 . AS REGARDS THE ISSUE OF EXCESS CLAIM OF DEPRECIATION OF SOFTWARE LICENSE, THE ONLY DISPUTE IS , WHETHER THE RATE OF DEPREC IATION SHOU LD BE 25% OR 6 0%. THE LEARNED ASSESSING OFFICER HE LD THAT THE SOFTWARE LICENSE HA S TO BE ALLOWED @25% AS IS APPLICABLE FOR INTANGIBLE ASSETS. ON THE OTHER HAND T HE LEARNED CIT(A) HELD THAT THE DEPRECIATION OF SOFTWARE HAS TO BE ALLOWED @60% . H IS RELEVANT FINDING IN THIS REGARD READS AS UNDER: - 5.3. I HAVE CONSIDERED THE FACTS OF THE CASE. THE ISSUE INVOLVE D IS APPELLANT HAD CLAIMED SOFTWARE 60% DEPRECIATION FOR MORE THAN 180 DAYS AND 30% DEPRECIATION FOR LESS THAN 180 DAYS. THE AO HAD ALLOWED DEPRECIATION @20% FOR THE USE OF COMPUTER SOFTWARE ABOVE 180 DAYS AND @12.5% DEPRECIATION FOR THE USE OF COMPUTER SO FTWARE LESS THAN 180 DAYS. HOWEVER, WHEN WE PERUSED THE INC OME TAX RULES OF 1962 APPENDIX I WITH RESPECT TO 2005 PROVIDES COMPUTER SOFTWARE HAS TO BE ALLOWED DEPRECIATION @60% IF IT IS USED FOR MORE THAN 180 DAYS AND @30% IF IT IS USED FOR LESS THAN 180 DA YS. IN VIEW OF THE AMENDMENT OF THE IT ACT, AO IS DIRECTED TO ALLOW COMPUTER SOFTWARE @60% DEPRECIATION FOR THE USE OF SOFTWARE FOR MORE THAN 180 DAYS AND @30% DEPRECIATION FOR THE USE OF SOFTWARE FOR LESS THAN 180 DAYS. 7 . AFTER HEARING BOTH THE PART IES, WE FIND THAT THE ORDER OF LEARNED CIT(A) IS IN CONSONANCE WITH THE VARIOUS JUDICIAL PRECEDENCE INCLUDING THAT OF THE ITAT SPECIAL BENCH IN THE CASE OF AMWAY LTD, REPORTED IN 111 ITD 112. ACCORDINGLY THE ORDER OF CIT(A) IS UPHELD. 8 . REGARDING T HE ISSUE RAISED IN G ROUND NO.3 , WHETHER THE RATE OF DEPRECIATION O N PRINTER AND SCANNER SHOULD BE TAKEN AT 15% OR HAS TO BE TAKEN AS PART OF COMPUTER SO THAT THE RATE OF DEPRECIATION ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 6 APPLICABLE WOULD BE 60% , T HE BRIEF FACTS OF THE ISSUE A RE THAT ASSESSEE H AS PURCHASED PRINTERS FOR RS.18,19,469 / - , OUT OF WHICH RS.6,49,533/ - WAS USED FOR MORE THAN 180 DAYS AND RS.11,69,936/ - WAS USED FOR LESS THAN 180 DAYS. THE ASSESSEE HAS CLAIMED DEPRECIATION @60% FOR THE PRINTERS USED FOR MORE THAN 180 DAYS AND 30% WHICH I S LESS THAN 180 DAYS. ON THE OTHER HAND, THE AO HAS ALLOWED THE RATE OF DEPRECIATION @ 15% AND @ 7.5% RESPECTFULLY. LEARNED CIT(A) FOLLOWING THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD., AND THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. BSES YAMUNA POWER LTD., DIRECTED THE AO TO ALLOW THE DEPRECIATION @60%. THE RELEVANT OBSERVATION OF LEARNED CIT (A) IN THIS REGARDS READS AS UNDER: - 6.3. I HAVE CONSIDERED THE FACTS OF THE CASE. DURING THE YEAR UNDER CONSIDERATIO N, THE APPELLANT HAD PURCHASED PRINTERS WORTH RS.18,19,469/ - OUT OF WHICH RS.6,49,533/ - WERE USED FOR MORE THAN 180 DAYS AND RS.11,69,936/ - WERE USED FOR LESS THAN 180 DAYS. THE APPELLANT HAD CLAIMED DEPRECIATION @60% AND ALLOWED IT AT 60% IF PRINTERS WERE USED FOR MORE THAN 180 DAYS AND @7.5% IF IT IS USED FOR LESS THAN 180 DAYS THOUGH APPELLANT CLAIMED DEPRECIATION @30%. THIS ISSUE WAS EXAMINED BY ITAT SPECIAL BENCH IN ITAT MUMBAI SPECIAL BENCH IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD (2011) 9 ITR (T RI B ) 712 (MUM)(SB) WHEREIN IT IS HELD THAT ROUTERS AND SWITCHES AND ANY ELECTRONIC OR HIGH SPEEDY PROCESSING DEVICE WHICH PERFORMS LOGICAL, ARITHMETIC AND MEMORY FUNCTIONS ON DATA AND INCLUDES ALL INPUT AND OUTPUT DEVICES WHICH ARE CONNECTED TO OR RELATED TO COMPUTER IS PART OF COMPUTER, AND HENCE, ENTITLED TO DEPRECIATION @60% AND THE SAME VIEW IS HELD BY THE DELHI HC IN THE CASE OF CIT VS. BSES YAMUNA POWER LTD., (2013) 358 ITR 47 (DEL). HENCE FOLLOWING THE ABOVE DECISION, AO IS DIRECTED TO ALLOW DEPRECIATI ON @60% DEPRECIATION IF ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 7 IT IS USED FOR MORE THAN 180 DAYS AND @30% IF IT IS USED FOR LESS THAN 180 DAYS. THEREFORE, GROUND OF APPEAL IS ALLOWED . 9 . SINCE THE AFORESAID FINDING OF THE LEARNED CIT(A) IS BASED ON THE PRINCIPLE LAID DOWN BY THE ITAT SPEC IAL BENCH AND HONBLE DELHI HIGH COURT, WE DO NOT FIND ANY REASON TO DEVIATE FROM SUCH FINDING NO CONTRARY DECISION HAS BEEN BROUGHT BEFORE US TO COUNTER THE CONCLUSION OF LD. CIT(A) . ACCORDINGLY, THE GROUND RAISED BY THE DEPARTMENT WAS DISMISSED. 10 . AS REGARD THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A WHILE COMPUTING THE BOOK PROFIT U/S.115JB , IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT WHATEVER DISALLOWANCE IS SUSTAINED U/S.14A, SAME SHOULD BE ADDED BACK TO THE BOOK PROFIT. HERE IN THIS CAS E, THE ASSESSEE HAS ACCEPTED THE DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENDITURE OF RS.62,495/ - , THEREFORE, SAME W OULD BE ADDED BACK TO THE BOOK PROFIT. ACCORDINGLY GROUND NO. 4 IS PARTLY ALLOWED. 11 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDE R PRONOUNCED IN THE OPEN COURT ON THIS 17 / 01 /2017 SD/ - ( ASHWANI TANEJA ) SD/ - ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED 20 / 01 /201 7 ITA NO.2106/MUM/2015 M/S. ORIX INFRASTRUCTURE SERVICES LTD., 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//