AARTI INDUSTRIES LTD, MUMBAI V. ASST CIT RG 10(3), MUMBAI

ITA 285/MUM/2012

• Counselvise Citation: 28519914 RSA 2012
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R N DSOUZA
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Bad and doubtful debts; Block assessment; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 5(2); 234B; 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI . . , ! '' , # BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER /. ITA NOS.7415, 7427 & 7414 /M/2010 ( & ' & ' & ' & ' / ASSESSMENT YEARS; 1999-2000, 2005-06 &2006-07) M/S. AARTI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (WEST), MUMBAI 400 080 PAN: AABCA2787L & & & & / VS. ADDL. CIT RG 10(3) MUMBAI ( () / APPELLANT) ( *+() / RESPONDENT) /. ITA NO.7670/M/2010 ( & ' & ' & ' & ' / ASSESSMENT YEAR; 2005-06) ADDL. CIT RG 10(3) MUMBAI & & & & / VS. M/S. AARTI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (WEST), MUMBAI 400 080 PAN: AABCA2787L ( () / APPELLANT) ( *+() / RESPONDENT) /. ITA NO.285/M/2012 ( & ' & ' & ' & ' / ASSESSMENT YEAR; 2007-08) M/S. AARTI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (WEST), MUMBAI 400 080 PAN: AABCA2787L & & & & / VS. ADDL. CIT RG 10(3) MUMBAI ( () / APPELLANT) ( *+() / RESPONDENT) ITANO.7670,7414,7427/M/2010 &285,01/M/2012 2 /. ITA NO.01/M/2012 ( & ' & ' & ' & ' / ASSESSMENT YEAR; 2007-08) ADDL. CIT RG 10(3) MUMBAI & & & & / VS. M/S. AARTI INDUSTRIES LTD. 71, 2 ND FLOOR, UDYOG KSHETRA, MULUND GOREGAON LINK ROAD, OFF LBS ROAD, MULUND (WEST), MUMBAI 400 080 PAN: AABCA2787L ( () / APPELLANT) ( *+() / RESPONDENT) ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI R.N. DSOUZA & , -. / DATE OF HEARING : 02.12.2014 /0' , -. / DATE OF PRONOUNCEMENT : 06 .02.2015 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED CROSS APPEALS PREFERRED BY THE AS SESSEE AS WELL AS BY THE REVENUE RELEVANT TO DIFFERENT ASSESSMENT YEARS HAVE BEEN DIRECTED AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME T AX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] DATED 26.08.2010 & 31.10 .2011. SINCE THE COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS HENCE, THE SAME ARE TAKEN TOGETHER FOR DISPOSAL BY THIS COMMON ORDER. FIRST, WE TAKE UP AS SESSEES APPEAL I.E. ITA NO.7415/M/2010 FOR THE ASSESSMENT YEAR 1999-2000. ITA NO.7415/M/2010 FOR ASSESSMENT YEAR 1999-2000:- 2. THE SOLE GROUND TAKEN BY THE ASSESSEE IN THIS AP PEAL IS RELATING TO THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) IN RESTRICTING THE DEDUCTION U/S.80HHC OF THE I.T. ACT BY INVOKING PROVISIONS OF SECTION 80IA (9) OF THE ACT, WHILE GIVING ITANO.7670,7414,7427/M/2010 &285,01/M/2012 3 EFFECT TO THE ORDER OF THE ITAT. IT HAS BEEN CONTEN DED THAT THE LD. AO HAS EXCEEDED HIS JURISDICTION WHILE DOING SO. THE LD. C OUNSEL FOR THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE FACT THAT EARLIER THE MATTER ON THE ISSUE HAD TRAVELLED TO THIS TRIBUNAL AND THE TRIBUNAL WHILE D ECIDING THE ISSUE UNDER CONSIDERATION HAD ACCEPTED THE CONTENTION OF THE AS SESSEE REGARDING NETTING OF THE EXPENDITURE INCURRED IN RELATION TO THE INCOME OF THE ASSESSEE WHILE COMPUTING DEDUCTION U/S.80HHC. THE TRIBUNAL VIDE OR DER DATED 25.01.2008 PASSED IN ITA NO.6036/M/04 HAS RESTORED THIS ISSUE TO THE FILE OF THE AO TO EXCLUDE ONLY NET OTHER INCOME AFTER EXAMINING THE N EXUS BETWEEN THE EXPENDITURE INCURRED IN THE EARNING OF OTHER INCOME S AND GIVING AN ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE TO SUBSTANTI ATE ITS CLAIM BY SUBMITTING NECESSARY EVIDENCES. THE LD. AO, WHILE GIVING EFFEC T TO THE ORDER OF THE TRIBUNAL, OBSERVED THAT THE ASSESSEE COULD NOT FURN ISH THE DETAILS OF EXPENDITURE INCURRED IN RELATION WITH EARNING SUCH OTHER/RENTAL INCOME. SO HE DISALLOWED THE CLAIM OF THE ASSESSEE FOR NETTING OF F EXPENDITURE IN RELATION TO OTHER INCOME FOR COMPUTATION OF DEDUCTION U/S.80HHC . 3. HE, HOWEVER, WHILE DOING SO, FURTHER DISALLOWED A SUM OF RS.1,95,82,150/- BY WAY OF INVOKING SECTION 80IA AN D BY WAY OF RELYING ON THE DECISION OF THE LARGER BENCH OF THE ITAT IN THE CASE OF ACIT VS. ROGINI GARMENTS . THE LD. COUNSEL HAS SUBMITTED THAT THE AO HAS GOT NO JURISDICTION TO MAKE ANY FURTHER DISALLOWANCE WHILE GIVING EFFEC T TO THE ORDER OF THE ITAT RELATING TO THE NETTING OF THE EXPENDITURE IN RELAT ION TO OTHER INCOME. 3.1 WE FIND FORCE IN THE CONTENTION OF THE LD. COUN SEL. IT IS THE ASSESSEE WHO HAD PREFERRED THE APPEAL BEFORE THE TRIBUNAL FO R CLAIM OF NETTING OF THE EXPENDITURE IN RELATION TO OTHER INCOME. THE TRIBUN AL HAD REMANDED THE MATTER TO THE AO FOR THE LIMITED PURPOSE OF VERIFYING THE CLAIM OF THE ASSESSEE. IN THIS RESPECT, THE AO HAS OBSERVED THAT ASSESSEE HAS FAIL ED TO FURNISH CONVINCING ITANO.7670,7414,7427/M/2010 &285,01/M/2012 4 EVIDENCES, UNDER SUCH CIRCUMSTANCES, THE PROPER COU RSE FOR THE AO WAS TO MAKE/UPHOLD THE DISALLOWANCE TO THAT EXTENT ONLY. T HERE WAS NO JURISDICTION TO THE AO TO FURTHER ENHANCE THE INCOME OF THE ASSESSE E ON SOME OTHER GROUND WHILE COMPUTING THE DEDUCTION U/S.80HHC. THE ISSUE RELATING TO THE DEDUCTION EXCEPT ON THE GROUND AGITATED BY THE ASSESSEE BEFOR E THE TRIBUNAL, HAD BECOME FINAL. HENCE THE ACTION OF THE AO ENHANCING THE INC OME ON SOME OTHER ISSUE, WHILE GIVING EFFECT TO THE ORDER OF THE ITAT, WAS N OT JUSTIFIED. BY DOING SO, THE AO IN THIS CASE HAS EXCEEDED HIS JURISDICTION. HENC E THE ENHANCEMENT OF THE INCOME OF THE ASSESSEE ON THIS ISSUE IS HEREBY SET ASIDE. ITA NO.7427/M/2010 FOR ASSESSMENT YEAR 2005-06 (AS SESSEES APPEAL);- 4. IN THIS APPEAL THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL; 1. RE: DISALLOWANCE OF CLAIM OF WEIGHTED PORTION U/S. 35(2AB) OF RS. 58,22,807/- 1 .1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS 'THE LEARNED CIT(A)] ERRED IN UPHOLDING THE DISALLOWANCE OF THE WEIGHTED PORTION OF THE DEDUCTION U/S 35(2AB) OF RS. 58,22,807/- ON TECHNICAL GROUND THAT THE AGR EEMENT IS NOT ENTERED INTO BETWEEN THE APPELLANT AND DSIR, WITHOUT APPRECIATING THAT THE A PPELLANT HAD ALREADY ENTERED INTO THE SAID AGREEMENT. 2. RE: DISALLOWANCE OF DEPRECIATION ON ASSETS PURCHASED FROM PRAVIN METAL CORPORATION RS. 57,666/- 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CITA) ERRED IN DISALLOWING THE DEPRECIATION OF RS. 57,666/- ON THE ASSETS PURCHASED FROM M/S PRAVIN METAL CORPORATION. 3. RE: DISALLOWANCE U/S. 14A OF RS. 1,09,69,810/- 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING DISALLOWANCE U/S 14A READ WITH RULE 8D AMOUNTING TO RS. 1,09,69,810/-. 3.2 THE LEARNED CITA) OUGHT TO HAVE CONSIDERED THAT THE APPELLANT HAD SUFFICIENT OWN / INTEREST FREE FUNDS AND AN INVESTMENT MADE OUGHT TO HAVE BEEN CONSIDERED AS MADE OUT OF OWN INTEREST FREE FUNDS. 3.3 WITHOUT PREJUDICE TO THE ABOVE, THE DISALLOWANC E U/S. 14A OUGHT TO BE SUBSTANTIALLY REDUCED. 4. RE: DISALLOWANCE OF DEPRECIATION CLAIMED UNDER RULE 5 (2) RS. 2,60,79,911/-: 4.1 THE ASSESSING OFFICER GROSSLY ERRED IN DISALLOW ING DEPRECIATION BENEFIT UNDER RULE 5(2) OF INCOME TAX RULES TO THE TUNE OF RS. 2,60,79 ,911/- ON THE TECHNICAL GROUND THAT THE APPELLANT WAS NOT ABLE TO PRODUCE THE CERTIFICATE F ROM DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR). 5. RE: LEVY OF INTEREST U/S 234B IN RESPECT OF 14A DIS ALLOWANCE: ITANO.7670,7414,7427/M/2010 &285,01/M/2012 5 5.1 THE LEARNED CITA) GROSSLY ERRED IN NOT ADJUDICATING PROPERLY GROUND PERTAINING TO LEVY OF INTEREST U/S 234B IN RESPECT OF DISALLOWANC E U/S 14A READ WITH RULE SD, WHICH HAS BEEN PRESCRIBED SUBSEQUENT TO THE FILING OF THE RETURN OF INCOME BY THE APPELLANT. GROUND NO.1- DISALLOWANCE OF WEIGHTED DEDUCTION U/S .35(2AB) OF THE ACT:- 5. THE LD. COUNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR ATTENTION THAT IN THE OWN CASE OF THE ASSESSEE RELEVANT TO ASSESSMENT YEAR 20 01-02 AND 2002-03 PASSED IN ITA NO.8387/M/04 AND OTHERS, WHILE ADJUDICATING THE ISS UE OF CLAIM OF DEDUCTION U/S.35(2AB) FOR THE WEIGHTED DEDUCTION OF ONE AND O NE HALF TIMES OF EXPENDITURE INCURRED IN THE RESEARCH AND DEVELOPMENT FACILITY A ND THE ASSESSEE COMPANY BEING ALREADY GRANTED RECOGNITION CERTIFICATE FROM THE DE PARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH GOVERNMENT OF INDIA (DSIR) IN R ESPECT OF ITS R & D UNITS AT VAPI AND TURBHE, THE TRIBUNAL HAS HELD THAT CUT-OF F DATE MENTIONED IN THE CERTIFICATE ISSUED BY THE DSIR WOULD BE OF NO RELEVANCE. ONCE A CERTIFICATE BY DSIR IS ISSUED AND IT IS PROVED THAT THE ASSESSEE IS INDULGING IN R&D ACTIVITY AND HAD INCURRED THE EXPENDITURE THEREUPON, THEN THE ASSESSEE IS ENTITLE D TO DEDUCTION U/S.35(2AB). THE LD. COUNSEL HAS FURTHER INVITED OUR ATTENTION TO TH E ANOTHER ORDER OF THE ITAT DATED 12.09.2012 IN ITA NO.370/M/09 RELEVANT TO ASSESSMEN T YEAR 2003-04 WHERE IN THE TRIBUNAL WHILE ADJUDICATING THE IDENTICAL ISSUE HAS OBSERVED THAT THE ASSESSEE SINCE THEN HAS GOT FORMAL APPROVAL FROM DSIR IN FORM 3CM, IN RESPECT OF VAPI UNIT, HAS BEEN RECEIVED ON 5 TH AUGUST 2011 AND HENCE THE ASSESSEE HAS BEEN ENTITL ED FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) FOR SAID U NIT. IT HAS ALSO BEEN DIRECTED THAT SINCE CERTIFICATE HAS BEEN RECEIVED AFTER PASS ING OF ORDERS OF THE CIT(A), THEREFORE, THE MATTER HAS BEEN REMANDED TO THE AO F OR THE LIMITED PURPOSE OF VERIFICATION OF THE CERTIFICATE. AS REGARDS THANE U NIT, SINCE NO SUCH ORDER OF APPROVAL IN FORM NO. 3CM WAS AVAILABLE WITH THE ASSESSEE, TH EREFORE, DISALLOWANCE OF THE WEIGHTED DEDUCTION UNDER SECTION 35(2AB) WITH RESPE CT TO THANE UNIT HAS BEEN UPHELD. 6. THE LD. COUNSEL HAS BROUGHT OUR ATTENTION TO THE COPY OF THE CERTIFICATE DATED 5 TH AUGUST 2011 WHEREIN A COMPOSITE APPROVAL FOR THE P URPOSE OF SECTION 35(2AB) HAS BEEN ISSUED BY THE DEPARTMENT FROM 06.07.2001 T O 31.03.2012 FOR THE VAPI UNIT. ITANO.7670,7414,7427/M/2010 &285,01/M/2012 6 IN VIEW OF ABOVE WE ACCORDINGLY RESTORE THE MATTER TO THE AO FOR THE LIMITED PURPOSE OF VERIFICATION OF THE ABOVE STATED CERTIFICATED DA TED 05.08.2011 AND IF VERIFIED TO BE CORRECT, THE AO TO ALLOW THE CLAIM OF THE ASSESSEE ACCORDINGLY. SINCE NO SUCH CERTIFICATE IS AVAILABLE FOR THE THANE UNIT HENCE, THE CLAIM FOR THANE UNIT ON THIS ISSUE IS NOT ALLOWABLE. GROUND NO.2: DEPRECIATION ON ASSETS PURCHASED FROM PRAVIN METAL CORPORATION :- 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS STATED AT BAR THAT FOR THE EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEARS 1999-2000, 2 000-01 IN ITA NO.6036/M/04 AND OTHR., ORDER DATED 25.01.2008 AND FURTHER FOR A SSESSMENT YEARS 2001-02 AND 2002-03 IN ITA NO.8387/M/04 AND ANOTHER ORDER DATED 30.03.2012 AND FURTHER FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.370/M/09 ORDE R DATED 12.9.2012 THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO TO DECIDE I T A FRESH. THE OPERATING PART OF THE ORDER DATED 12.09.2012, FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER; 13. GROUND NO.3, RELATES TO DISALLOWANCE OF DEPREC IATION RS.1,36,889, ON THE ASSET PURCHASED FROM PRAVIN METAL CORP. 14. BEFORE US, BOTH THE PARTIES AGREE THAT THIS ISS UE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2001-02, WH EREIN THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER. ON PERUSAL OF THE ORDER O F THE TRIBUNAL, WE FIND THAT AN IDENTICAL ISSUE HAD BEEN DECIDED BY THE TRIBUNAL IN AN APPEAL PREFERRED BY THE REVENUE IN ASSESSEE'S OWN CASE. THE RELEVANT FINDINGS GIVEN IN PARAS-24 T O 28, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE:- '24. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DU RING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE HAS FAI LED TO ESTABLISH THE PURCHASE OF FIXED ASSETS FROM M/S PRAVIN METAL CORPORATION, HEN CE THE AO KEEPING IN VIEW THE FINDING RECORDED IN THE PRECEDING YEARS DISALLOWED THE CLAIM OF DEPRECIATION ON SUCH ASSETS. 25. ON APPEAL , THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO CONFIRMED THE DISALLOWANCE MADE BY THE AO. 26. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL IN THE ASSESSEE'S OWN CASE IN AARTI INDUSTRIES LIMITED V/S ACIT AND VICE- VERSA (SUPRA), THEREFORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. 27. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDE R OF THE AO AND THE LD. CIT(A). 28. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL IN THE ASSESSEE'S OWN ITANO.7670,7414,7427/M/2010 &285,01/M/2012 7 CASE FOR THE ASSESSMENT YEARS 1999-2000 AND 2000-01 (SUPRA) VIDE PARAGRAPH 19 OF ITS ORDER WHILE OBSERVING THAT THE FACTS ARE NOT EX PLICITLY CLEAR ON THIS ASPECT, RESTORED THE ISSUE TO THE FILE OF THE AO TO RE-EXAM INE THIS ISSUE AND DECIDE THE SAME AFRESH AFTER GIVING AN ADEQUATE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE SAME AFRESH IN TH E LIGHT OF THE DIRECTION OF THE TRIBUNAL (SUPRA) AND ACCORDING TO LAW AFTER PROVIDI NG REASONABLE OPPORTUNITY TO THE ASSESSEE. THE GROUND NO.5 TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES.' 15. KEEPING IN VIEW THE AFORESAID DECISION OF THE C O-ORDINATE BENCH OF THE TRIBUNAL, IN ASSESSEE'S OWN CASE CITED SUPRA, THIS ISSUE IS REST ORED TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF T HE DIRECTIONS GIVEN IN THE SAID ORDER OF THE TRIBUNAL AND AFTER PROVIDING DUE AND EFFECTIVE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN VIEW OF THE ABOVE DIRECTIONS OF THE TRIBUNAL GIVEN IN EARLIER YEARS, THE ISSUE FOR THIS YEAR IS ACCORDINGLY RESTORED TO THE FILE O F THE AO TO DECIDE IT IN THE LIGHT OF THE DIRECTIONS AS REPRODUCED ABOVE AND AFTER PROVID ING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.3 - DISALLOWANCE U/S.14A OF THE ACT:- 9. THE LD. COUNSEL HAS BROUGHT OUR ATTENTION OF THE FACT THAT IN THE EARLIER ASSESSMENT YEARS I.E. A.Y.1999-2000, 2001-02 & 2002 -03 AND A.Y. 2005-06 DISALLOWANCES HAVE BEEN RESTRICTED BY THE TRIBUNAL TO 2% OF DIVIDEND INCOME RECEIVED BY THE ASSESSEE. THE RELEVANT YEAR BEFORE US BEING 2005-06, RULE 8D OF THE INCOME TAX RULES IS NOT APPLICABLE FOR THIS YEAR AS HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MF G. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) THAT THE SAME IS APPLICABLE FROM A SSESSMENT YEAR 2008-09 ON WORDS. IN VIEW OF THE CONSISTENT FINDING OF THE TR IBUNAL FOR EARLIER ASSESSMENT YEARS, RESTRICTING DISALLOWANCE U/S.14A TO THE EXTENT OF 2 % OF DIVIDEND INCOME, WE ACCORDINGLY RESTRICT THE DISALLOWANCE OF THE EXPEND ITURE U/S.14A TO 2% OF DIVIDEND INCOME ACCORDINGLY. GROUND NO.4 - DEPRECIATION CLAIMED UNDER RULE 5(2) :- 10. THE A.O. AND CIT(A) HAVE DISALLOWED THE CLAIM O F ADDITIONAL DEPRECIATION SOLELY ON THE GROUND THAT NO CERTIFICATE WAS PRODUC ED AS REQUIRED UNDER RULE 5(2). THE ITANO.7670,7414,7427/M/2010 &285,01/M/2012 8 SAID CERTIFICATE DATED 10.10.2011 HAS NOW BEEN RECE IVED BY THE ASSESSEE FROM DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (D SIR). THE MATTER IS ACCORDINGLY RESTORED BACK TO THE FILE OF THE AO FOR LIMITED PUR POSE OF VERIFICATION OF CERTIFICATE AND IF VERIFIED TO BE CORRECT, TO ALLOW THE CLAIM A CCORDINGLY. ITA NO.7670/M/2010 FOR ASSESSMENT YEAR 2005-06 (DEP ARTMENT APPEAL):- 11. THE ONLY ISSUE TAKEN BY THE DEPARTMENT IN THIS APPEAL IS IN RELATION TO BAD DEBTS. THE LD. AO HAD DISALLOWED THE CLAIM OF THE A SSESSEE IN RELATION TO BAD DEBTS OBSERVING THAT THE ASSESSEE HAD FAILED TO PROVE THA T THE DEBTS HAVE ACTUALLY BECOME BAD. THE LD. CIT(A) DELETED THE DISALLOWANCE MADE B Y THE AO RELYING ON HIS OWN ORDER FOR ASSESSMENT YEAR 2004-05. THE LD. COUNSEL HAS SUBMITTED THAT THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE FOR ASSESSMENT YEAR 2004-05. WE FIND THAT THE LD. CIT(A ) HAS DELETED THE DISALLOWANCE ON ACCOUNT OF BAD DEBTS WHILE RELYING ON THE DECISI ON BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT 323 ITR 397, W HEREIN THE HONBLE SUPREME COURT HAS HELD THAT IT IS NOT NECESSARY FOR THE ASS ESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH, IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WE ARE ALSO IN AGR EEMENT WITH THE FINDING OF THE CIT(A) THAT IT IS THE ASSESSEE WHO AS A PRUDENT BUS INESS MAN HAS TO DECIDE AS TO WHETHER THERE ARE ANY CHANCES OF THE RECOVERY OF DE BTS OR THE SAME HAS ACTUALLY BECOME BAD. IN VIEW OF THIS, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS APPEAL OF THE REVENUE IS ACCORDING LY DISMISSED. ITA NO.7414/M/2010 FOR ASSESSMENT YEAR 2006-07 (ASS ESSEES APPEAL):- 12. THE GROUNDS, TAKEN BY THE ASSESSEE IN THIS APPE AL ARE IDENTICAL TO THE GROUND NO.1 TO 4 TAKEN BY THE ASSESSEE IN ITS APPEAL ITA N O.7427/M/10 RELEVANT TO ASSESSMENT YEAR 2005-06. IN VIEW OF OUR FINDINGS GI VEN ABOVE, ALL THE FOUR ISSUES FOR THIS YEAR ARE DECIDED ACCORDINGLY. ITANO.7670,7414,7427/M/2010 &285,01/M/2012 9 ITA NO.285/M/2012 FOR ASSESSMENT YEAR 2007-08 (ASSE SSEES APPEAL):- GROUND NO.1 - TREATMENT OF COMPUTER SOFTWARE EXPENSES AS CAPITAL IN NATURE:- 13. THE AO NOTED THAT THE ASSESSEE DEBITED COMPUTER SOFTWARE EXPENSES OF RS.10,99,800/- TO ITS P&L ACCOUNT AND CLAIMED IT AS REVENUE EXPENDITURE. THE AO, HOWEVER, TREATED THE SAME AS CAPITAL EXPENDITURE AN D ALLOWED THE DEPRECIATION AT THE RATE OF 60% THEREUPON. THE LD. CIT(A) ALSO HELD THA T THE SOFTWARE PURCHASED BY THE ASSESSEE WAS FOR USE ON LONG TERM BASIS, GIVING EN DURING BENEFIT TO THE ASSESSEE. HE, THEREFORE, UPHELD THE FINDING OF THE AO IN THIS RES PECT. THE ASSESSEE HAS THUS COME IN APPEAL BEFORE US ON THIS ISSUE. 14 WE HAVE HEARD THE RIVAL CONTENTIONS. THE LD. AR OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE RELEVANT INVOICE DATED 07.09.0 6 WHEREIN DESCRIPTION IS MENTIONED AS : SAP POST IMPLEMENTATION SUPPORT CHARGES FROM 7 TH SEPT. 06 TO 6 TH OCT. 06 (A) AMOUNT IN 75000.00 (INR) + SERVICE TAX (12.24%)(B)- 9180.00, GRAND TOTAL (A+B)= 84180(INR). HE HAS FURTHER INVITED OUR ATTE NTION TO THE INVOICE DATED 3 RD JULY 2006 : ECAN CORPORATE EDITION SEVER CLIENT VE RSION FOR 1 YEAR AUTO UPDATES RS.8000.00 + VAT @4%-320.00, TOTAL AMOUNT =8,320.00 15. A PERUSAL OF THE ABOVE DESCRIPTION MENTIONED ON THE BILLS REVEALS THAT SOFTWARE PURCHASED WAS OF USE FOR A LIMITED PERIOD. THE SOFTWARE PURCHASED VIDE/BILL DATED 7.9.06 WAS VALID FROM 7 TH SEPT. 06 TO 6 TH OCT. 06, WHEREAS, THE SOFTWARE PURCHASED VIDE INVOICE DATED 31 ST JULY 2006 WAS FOR ONE YEAR AUTO UPDATES. THE LD. COUNSEL HAS FURTHER INVITED OUR ATTENTION TO OTHER BILLS TO SHOW THAT THE RELEVANT SOFTWARE EXPENSES, IN FACT, WERE FOR THE ANNUAL OR MONTHLY SUPPORT SERVICES AND THUS WERE PERIODICAL EXPENDITURE. IT WAS NOT FOR LONG TE RM HAVING ENDURING BENEFIT. EVEN OTHERWISE, IT IS COMMONLY KNOWN THAT NOW A DAYS, T HE SOFTWARE VERSION HAS SHORT DURATION VALUE, AS THE MOMENT, NEW SOFTWARE COMES I NTO MARKET, OLD SOFTWARE LOSES ITS VALUE IN THIS DEVELOPING SCENARIO ESPECIALLY IN THE SOFTWARE MARKET. IT CANNOT BE SAID THAT SAID EXPENSES INCURRED BY THE ASSESSEE WE RE ON LONG TERM BASIS GIVING ENDURING BENEFIT. IN VIEW OF ABOVE, THIS GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE AND IT IS DIRECTED THAT THE SOFTWARE EXPENSES BE TR EATED AS REVENUE IN NATURE. ITANO.7670,7414,7427/M/2010 &285,01/M/2012 10 GROUND NO.2 DEPRECIATION CLAIMED UNDER RULED 5(2) :- 16. THIS GROUND IS IDENTICAL TO GROUND NO.4 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06. THE ASSESSEE HAD RECEIVED THE CERTIFI CATE IN QUESTION DURING THE COURSE OF APPELLATE PROCEEDING BEFORE THE CIT(A). THE ASSE SSEE IN THE MEAN TIME HAD ALSO MOVED AN APPLICATION U/S.154 OF THE ACT TO THE AO T O ALLOW THE SAID DEPRECIATION. HOWEVER, THE SAME HAS NOT BEEN DISPOSED OFF BY THE AO TILL DATE. THE LD. COUNSEL HAS STRESSED THAT THE AO, BE DIRECTED TO DISPOSE OF F THE SAID APPLICATION AT THE EARLIEST POSSIBLE. IN THE EARLIER ASSESSMENT YEAR AS OBSERV ED ABOVE, WE HAVE DIRECTED THE AO TO VERIFY THE GENUINENESS OF THE CERTIFICATE AND AL LOW THE CLAIM ACCORDINGLY. FOR THE YEAR UNDER CONSIDERATION, WE DIRECT ACCORDINGLY. IF ANY APPLICATION HAS BEEN MOVED BY THE ASSESSEE U/S.154 OF THE ACT IN THIS RESPECT, THE SAME BE ALSO DECIDED WHILE GIVING EFFECT TO OUR ABOVE DIRECTIONS. GROUND NO.3: DISALLOWANCE OF WEIGHTED DEDUCTION U/S .35(2AB) OF THE ACT :- 17. THIS GROUND IS IDENTICAL TO GROUND NO.1 TAKEN BY THE ASSESSEE RELEVANT TO ASSESSMENT YEAR 2006-06. THE AO HAS DISALLOWED THE CLAIM OF DEDUCTION U/S 35(2AB) OF THE ACT ON THE GROUND THAT NO APPROVAL W AS OBTAINED FROM THE PRESCRIBED AUTHORITY IN FORM NO.3CL AND 3CM. THE SAID FORMS WE RE RECEIVED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS AND WERE SUBMITTED TO THE CIT(A). AT THE SAME TIME, ASSESSEE FILED AN APPLICATION U/S.154 OF THE ACT WITH THE AO TO ALLOW THE SAID DEPRECATION. HOWEVER, THE SAME HAS NOT BEEN DI SPOSED OFF BY THE AO. IN VIEW OF OUR FINDING GIVEN ABOVE, THIS GROUND IS DECIDED ACCORDINGLY. IF THE ASSESSEE HAS MOVED ANY APPLICATION U/S.154 ON THIS ISSUE, THE AO WILL DISPOSE OFF THE SAID APPLICATION ALSO WHILE GIVING EFFECT TO OUR ORDER O N THIS ISSUE. GROUND NO.4 - DISALLOWANCE U/S.14A OF THE ACT:- 18. THIS GROUND IS IDENTICAL TO GROUND NO.3 TAKEN BY THE ASSESSEE IN ITA NO.7427/M/10 FOR ASSESSMENT YEAR 2005-06. IN VIEW O F OUR FINDINGS GIVEN ABOVE, THE DISALLOWANCE ON THIS ISSUE IS RESTRICTED TO 2% OF T HE DIVIDEND INCOME ACCORDINGLY. GROUND NO.5 - DEPRECIATION ON ASSETS PURCHASED FROM PRAVIN METAL ITANO.7670,7414,7427/M/2010 &285,01/M/2012 11 CORPORATION:- 19. THIS GROUND IS IDENTICAL TO GROUND NO.2 OF THE ASSESSEES APPEAL IN ITA NO.7427/M/10 FOR ASSESSMENT YEAR 2005-06. IN VIEW O F OUR FINDINGS GIVEN ABOVE, THIS ISSUE IS ACCORDINGLY RESTORED TO THE FILE OF T HE AO. ITA NO.01/M/2012 FOR ASSESSMENT YEAR 2007-08 (REVEN UES APPEAL):- GROUND NO.1 - DISALLOWANCE U/S. 14A OF THE ACT:- 20. THIS ISSUE HAS ALSO BEEN DISCUSSED IN ASSESSEE S APPEAL AND DISALLOWANCE HAS BEEN RESTRICTED TO 2% OF DIVIDEND INCOME. THIS GROU ND IS DECIDED ACCORDINGLY. GROUND NO.2 - INTEREST ON LOANS AND ADVANCES GIVEN TO SUBSIDIARY COMPANY:- 21. THE AO HAD OBSERVED THAT THE ASSESSEE HAD GIVEN LOANS AND ADVANCES TO SUBSIDIARY COMPANY. HE THEREFORE, ADDED NOTIONAL IN TEREST INCOME TO THE INCOME OF THE ASSESSEE. THE CIT(A) HAS DELETED THE DISALLOWAN CE BY RELYING ON HIS OWN ORDER FOR A.Y.S 2003-04 TO A.Y. 2006-07. THE DEPARTMENT H AS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE FOR A.Y.S 2003-0 4 TO 2006-07. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT ASSESSEE HAD ITS OWN SUFFICI ENT FUNDS TO COVER UP THE ADVANCES MADE TO SUBSIDIARY COMPANY; EVEN THE ADVANCES WERE MADE OUT FOR COMMERCIAL EXPEDIENCY. 22. THE LD. COUNSEL HAS FURTHER RELIED UPON THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES [313 I TR 340 (BOM)], WHEREIN THE HONBLE BOMBAY HIGH COURT HAS HELD THAT IF THE ASSE SSEE HAS ITS OWN FUNDS MORE THAN THE INVESTMENT MADE THEN THE PRESUMPTION WILL BE THAT THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS. IN VIEW OF THE ABOVE STATED LEGAL POSITION, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THIS DISALLOWANCE. THIS ISSUE IS ACCORDINGLY DECIDED AGAINST THE REVENUE. ITANO.7670,7414,7427/M/2010 &285,01/M/2012 12 23. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PART LY ALLOWED FOR THE STATISTICAL PURPOSES AND THE APPEALS OF THE REVENUE ARE DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.02.2015. , /0' 1 2&3 06.02.2015 0 , ' SD/- SD/- ( . . / R.C.SHARMA ) ( ! '' / SANJAY GARG) / ACCOUNTANT MEMBER / JUDICIAL MEMBER /MUMBAI ; 2& / DATED .02.2015 * PATEL , *-4 54'- , *-4 54'- , *-4 54'- , *-4 54'-/ COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+() / THE RESPONDENT. 3. 6 ) ( / THE CIT(A)- 4. 6 / CIT 5. 49' *-& , , / THE DR CONCERNED BENCH , 6. ': ; / GUARD FILE. & & & & / BY ORDER, +4- *- //TRUE COPY// < << < / // / = = = = ! ! ! ! ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI