NSDL E-GOVERNANCE INFRASTRUCTURE LIMITED, MUMBAI V. DCIT, CIRCLE - 7(1), MUMBAI

ITA 2728/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8447 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 06-12-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2013
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI AMIT SHUKLA JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER I.T.A. NO. 2728/MUM/2013 (ASSESSMENT YEAR: 2004-05) NSDL E - GO VERNANCE INFRASTRUCTURE LIMITED, TRADE WORLD, 4 TH FLOOR, KAMALA MILLS, COMPOUND, LOWER PAREL, MUMBAI- 400013 V S THE ADDL. COMMISSIONER OF INCOME TAX 7 (1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI- 400020 PAN : AAACN2082N (APP ELLANT ) (RESPONDENT) APP ELLANT BY SHRI ARVIND SONDE (AR) RESPONDENT BY SHRI M.C. OMI NINGSHEN (DR) I.T.A. NO. 2008/MUM/2011 (ASSESSMENT YEAR: 2005-06) NSDL E - GO VERNANCE INFRASTRUCTURE LIMITED, TRADE WORLD, 4 TH FLOOR, KAMALA MILLS, COMPOUND, LOWER PAREL, MUMBAI- 400013 VS THE ADDL. COMMISSIONER OF INCOME TAX 7 (1), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI- 400020 PAN : AAACN2082N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ARVIND SONDE (AR) REVENUE BY SHRI M.C. OMI NINGSHEN (DR) DATE OF HEARING : 18/01/2017 DATE OF ORDER : 20/02/2017 O R D E R PER ASHWANI TANEJA, AM: THESE APPEALS PERTAIN TO THE SAME ASSESSEE FOR TWO DIFFERENT YEARS INVOLVING IDENTICAL ISSUES, THEREFORE, THESE WERE H EARD TOGETHER AND BEING DISPOSED BY THIS COMMON ORDER. 2 NSDL FIRST WE SHALL TAKE UP APPEAL IN ITA NUMBER 2728/MU M/2013 FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSI ONER OF INCOME TAX (APPEALS)-13, MUMBAI (HEREINAFTER CALLED AS LD. CIT (A) IN SHORT) DATED 21.12.2012 PASSED AGAINST THE ASSESSMENT ORDE R OF THE AO DATED 30.11.2011 U/S 143 (3) R.W.S. 254 OF THE INCO ME TAX ACT, 1961 (IN SHORT ACT) FOR ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS: 1:0 RE: DISALLOWANCE OF SOFTWARE EXPENSES- RS. 41,5 1,768/- : 1:1 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS E RRED IN UPHOLDING THE VIEW OF THE ASSESSING OFFICER THAT AN AMOUNT OF RS. 41,51,768/- BEING INCURRED BY THE APPELLANT DURING THE YEAR ON OF SOFTWARE IS A CAPITAL EXPENDITURE. 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, THE EXPENDITURE OF RS. 41,51,768/- INCURRED DURING THE YEAR FOR ACQUISITION OF SOFTWARE WAS A REVENUE EXPENDITURE A ND THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 1:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO ALLOW THE EXPENDITURE OF RS. 41,51,768/- IN COMP UTING ITS TOTAL INCOME AND TO RE-COMPUTE ITS TAX LIABILITY FOR THE YEAR ACCORDINGLY. 2:0 RE: GENERAL 2:1 THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , SUBSTITUTE AND/OR MODIFY IN ANY MANNER WHATSOEVER ALL OR ANY O F THE FOREGOING OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 2. GROUND NO1: IN THIS GROUND, ASSESSEE IS AGGRIEVED WITH THE ACTI ON LOWER AUTHORITIES IN TREATING EXPENDITURE INCURRED OF SOFTWARE AS CAPITAL EXPENDITURE. DURING THE COURSE OF HEARING IT WAS ST ATED AT THE OUTSET THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE TRI BUNAL AGAINST THE ASSESSEE IN ITS ORDER FOR AY 2001 TO 2003-04 VIDE O RDER DATED 30.07.2009. 2.1. WE HAVE GONE THROUGH THE ORDER PASSED BY THE LOWER AUTHORITIES. IT IS NOTED THAT IN AY 2003-04, HONBLE ITAT HAD SET A SIDE THIS ISSUE TO THE FILE OF THE AO FOR DECIDING IT AFRESH AS PER DE CISIONS OF ITAT SPECIAL 3 NSDL BENCH, DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES . IN PURSUANCE OF ITAT DIRECTIONS, THE AO PASSED AFRESH ASSESSMENT OR DER FOR AY 2003- 04, WHEREIN THE SOFTWARE EXPENSES INCURRED BY THE A SSESSEE HAVE BEEN TREATED AD CAPITAL IN NATURE. 2.2. IN THE YEAR BEFORE US, LD. CIT (A) ANALYSED THE NA TURE OF EXPENSES AND HELD THAT NATURE OF EXPENSES WAS IDENTICAL AS W AS IN AY 2003-04 AND THEREFORE FOLLOWING THE DECISION OF AMWAY INDIA ENTERPRISES, SUPRA, LD. CIT (A) HELD WITH IMPUGNED EXPENDITURE IS A CAP ITAL EXPENDITURE ENTITLED FOR DEPRECIATION @ 60%. DURING THE COURSE OF HEARING BEFORE US, NOTHING WRONG COULD BE POINTED OUT IN LAW OR IN FAC TS IN THE FINDINGS OF LD. CIT (A). THEREFORE, WE UPHOLD THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 3. AS A RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. NOW, WE SHALL TAKE UP APPEAL IN ITA NO. 2008/M/2011 FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A) DATED 26. 10.2010 PASSED AGAINST THE ASSESSMENT ORDER OF AO DATED 17.12.2007 U/S 143 (3) OF THE INCOME TAX ACT, 1961 FOR AY 2005-06 ON THE F OLLOWING GROUNDS: 1. THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE A SSESSING OFFICER IN RESTRICTING THE DEPRECIATION ON COMPUTER SOFTWARE, PURCHASED AND FORMING PART OF THE HEAD DEPOSITORY SYSTEM @ 25% ONLY BEING THE RATE APPLICABLE TO INTANGIBLE A SSETS, INSTEAD OF @ 60% WHICH IS THE RATE OF DEPRECIATION ADMISSIBLE ON COMPUTERS AND COMPUTER SOFTWARE, AS CLAIMED BY THE APPELLANT IN ITS RETURN OF INCOME AND THEREBY DISALLOWING DEP RECIATION OF RS. 3,03,33,614/- ON DEPOSITORY SYSTEM. 2. THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF THE FOLLOWING SOFTWARE EXPENSES OF RS. 3,41,604/- DATE NAME OF PARTY AMOUNT DESCRIPTION 05/10/2004 STARCOM SOFTWARE P LTD 90,000 SPEED E STRESS TESTING PROJECT AND FOR DEV OF SOFTWARE FOR PAN CARD APPLICATION 4 NSDL TDS 5.13% 21/12/2004 STARCOM SOFTWARE P LTD 90,000 SPEED E STRESS TESTING PROJECT AND FOR DEV OF SOFTWARE FOR PAN CARD APPLICATION TDS 5.13% 20/04/2004 PC TECHNOLOGY CENTRE 35,554 100% FULL DELIVERY FOR PROCUREMENT OF MICROSOFT PROJECT PRO 2003 WIN 32 ENGLISH (PO 377) 07/05/2004 STARCOM SOFTWARE P LTD 10,000 SPEED E STRESS TESTING PROJECT AND FOR DEV OF SOFTWARE FOR PAN CARD APPLICATION TDS 5.13% 04/06/2004 QUESTA SOFTWARE SYSTEM LTD 116,050 INSTALL/ACCEPT OF 40 NOS STAR OFFICE LICENCE 7.0 AND 10 NO STAR OFFICE LICENCE 7.0 (PO NSDL/QUESTA/2004 /408 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) ERRED I N NOT ALLOWING DEPRECIATION ON THE ABOVE @ 60% WHICH IS THE RATE O F DEPRECIATION ADMISSIBLE ON COMPUTERS AND COMPUTER S OFTWARE. 3.1 THE CIT (A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER OF MAKING A DISALLOWANCE U/S 14A OF THE ACT . 3.2 THE CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U/S 14A ON THE BASIS OF 0. 5% OF THE MONTHLY WEIGHTED AVERAGE OF INVESTMENTS IN TAX FREE SECURITIES. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT CONTE NDS THAT, IN THE FACTS OF ITS CASE, NO EXPENDITURE HAS BEEN INCU RRED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME AND, ACCORDING LY, NO EXPENDITURE IS REQUIRED TO BE ALLOCATED, AS HAVING BEEN INCURRED IN RELATION TO THE INCOME CLAIMED EXEMPT FROM TAX. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE AO BE AME NDED TO GRANT RELIEFS CLAIMED ABOVE. 5 NSDL 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER OR AMEN D, ANY OF THE FOREGOING GROUNDS OF APPEAL, IF AND WHEN NECESSARY . 4. GROUND NOS. 1 & 2: IN THESE GROUNDS THE GRIEVANCE OF THE ASSESSEE IS THAT DEPRECIATION SHOULD BE GRANTED @ 60% AS AGA INST 25% GRANTED BY THE AO. IN THIS REGARD, OUR ATTENTION IS BROUGHT TO THE ORDER OF THE LD. CIT (A) FOR AY 2004-05, WHEREIN DEPRECIATION HA S BEEN GRANTED @ 60%. IT IS BROUGHT TO OUR NOTICE THAT IN AY 2004-05 , LD. CIT (A) HAS GRANTED DEPRECIATION @ 60% ON THESE ITEMS. THE ORDE R OF LD. CIT (A) HAS BEEN ACCEPTED BY THE REVENUE. THEREFORE, AS A MATTE R OF CONSISTENCY WE DIRECT THE AO TO GRANT THE DEPRECIATION @ 60% IN AY 2005-06. WITH THESE DIRECTIONS THESE GROUNDS ARE ALLOWED. 5. GROUND NO.3: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED WITH DISALLOWANCE MADE BY THE AO U/S 14A. DURING THE COU RSE OF HEARING, IT WAS STATED THAT IDENTICAL ISSUE HAS BEEN RESTORED B ACK TO THE FILE OF THE AO BY THE ITAT VIDE ITS ORDER DATED 23.07.2014 FOR AY 2009-10. WE HAVE GONE THROUGH THE ORDER PASSED BY THE LOWER AUT HORITY AND ORDER OF THE TRIBUNAL FOR AY 02.09.2010 PASSED IN THE OWN CA SE OF ASSESSEE. IT IS NOTED THAT THE TRIBUNAL HAS RESTORED THIS MATTER BA CK TO THE FILE OF THE AO WITH FOLLOWING OBSERVATIONS: WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIA L ON RECORD. THE ENTIRE DISALLOWANCE IS UNDER RULE 8D (2)(III), I.E. AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT, RECKONED AT ONE HA LF OF THE BOOK VALUE OF INVESTMENTS (YIELDING TAX-EXEMPT INCOME), AS AT THE BEGINNING AND THE CLOSE OF THE YEAR. THE LD. CIT(A) HAS OBSERVED OF SUBSTANTIAL ACTIVITY, EVEN AS MERE HOLDING OF IN VESTMENT, AS WHERE IN STOCKS AND SHARES, SUBJECT TO MARKET VOLAT ILITY IN RESPONSE TO VARIOUS ECONOMIC-MACRO AND MACRO, FACTO RS, MAY REQUIRE DECISION MAKING AT, AND THUS INVOLVEMENT, O F THE HIGHER MANAGEMENT, ENTAILING INCURRING COST. IN FACT, AS W E OBSERVE, THERE IS NOT MUCH DIFFERENCE BETWEEN THE OPENING AN D THE CLOSING VALUE OF THE INVESTMENT AND, TWO, THE BULK OF THE T AX EXEMPT INCOME ARISING BY WAY OF INTEREST ON TAX-FREE BONDS . THE REVENUE, IN OUR VIEW, OUGHT TO HAVE REQUIRED THE AS SESSEE TO SUBSTANTIATE ITS CLAIM OF THE WORKING OF SUO MOTU D ISALLOWANCE U/S. 14A WITH REFERENCE TO ITS ACCOUNTS, AND WHICH WOULD INCLUDE THE UNDERLYING VOUCHERS AS WELL. THE A.O. U PON MAKING SUCH ENQUIRY AS HE DEEMS FIT AND PROPER IN THE MATT ER, IS TO FORM 6 NSDL HIS OPINION, EXPRESSING HIS SATISFACTION OR DISSATI SFACTION, AS THE CASE MAY BE, IN THE MATTER. THIS EXAMINATION AND PR OCESS, AS APPARENT, HAS NOT BEEN UNDERTAKEN, WHICH, AS EXPLAI NED BY THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF GODR EJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), IS MAN DATORY, FORMING, IN FACT, PART OF BOTH, THE LAW- PER SECTIO N 14A, WHICH IS A COMPLETE CODE IN ITSELF, AS WELL AS THE DELEGATED L EGISLATION IN THE FORM OF RULE 8D. WE, ACCORDINGLY, RESTORE THIS MATT ER BACK TO THE FILE OF THE A.O. TO ALLOW THE ASSESSEE AN OPPORTUNI TY TO SUBSTANTIATE ITS CLAIM QUA THE SUO MOTU DISALLOWANC E BY IT, DECIDING THE MATTER AFRESH IN ACCORDANCE WITH LAW, OBSERVING THE PROCEDURE AS EXPLAINED, AND PROCEED IN THE MATTER F OLLOWING THE EXPRESS PROVISION OF SECTION 14(A)(2) OF THE ACT. W E DECIDE ACCORDINGLY. 5.1. IT WAS JOINTLY STATED THAT SAME DECISIONS MAY BE G IVEN IN THIS YEAR. THEREFORE, RESPECTIVELY FOLLOWING THE ORDER OF THE TRIBUNAL, WE RESTORE THIS ISSUE BACK TO FILE OF THE AO WITH THE SAME DIR ECTIONS AS HAVE BEEN GIVEN IN AY 2009-10. THE AO IS DIRECTED TO FOLLOW O RDER FOR AY 2009-10 WHILE ADJUDICATING THIS GROUND. ADEQUATE OPPORTUNIT Y OF HEARING SHALL BE GRANTED TO THE ASSESSEE WHILE DECIDING THIS GROU ND. 6. AS A RESULT, THIS APPEAL IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 20/02/2017 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 7 NSDL 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI