NATIONAL SECURITIES DEPOSITORY LTD, MUMBAI V. ADDL CIT RG 7(1), MUMBAI

ITA 3373/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7865 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 06-12-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.3373/MUM/2012 (AY. 2006-07) NATIONAL SECURITIES DEPOSITARY LIMITED, TRADE WORLD, 4 TH FLOOR, KAMLA MILLS COMPOUND, LOWER PAREL, MUMBAI 400 013. PAN:AAACN 2082N ...... APP ELLANT VS. THE ADDL. CIT, RANGE 7(1), AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020. .... RESPONDENT APPELLANT BY : SHRI NIRAJ SHETH RESPONDENT BY : SHRI M.C. OMI NI NGSHEN DATE OF HEARING : 30/03/2017 DATE OF PRONOUNCEMENT : 31/03/2017 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTA INING TO ASSESSMENT YEAR 2011-12 IS DIRECTED AGAINST AN ORDER PASSED BY CIT(A)-20, MUMBAI DATED 02/02/2012, WHICH IN TURN, ARISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCO ME TAX ACT, 1961(IN SHORT THE ACT), DATED 24/12/2008. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- THE GROUNDS SET OUT BELOW ARE WITHOUT PREJUDICE T O ONE ANOTHER: 2 ITA NO.3373/MUM/2012 (AY. 2006-07) 1. THE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEPRECIATION ON COMPUTER SOFTWARE, PURCHASED AN D FORMING PART OF THE HEAD 'DEPOSITORY SYSTEM' @ 25% ONLY BEING THE RATE APPLI CABLE TO 'INTANGIBLE ASSETS', INSTEAD OF @60%, WHICH IS THE RATE OF DEPRECIATION ADMISSIBLE ON COMPUTERS AND COMPUTER SOFTWARE, AS CLAIMED BY THE APPELLANT IN I TS RETURN OF INCOME. 2. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE U NDER SECTION 14A TO THE EXTENT OF RS.I0,39,345/- BEING 2% OF THE EXEMPT INCOME. 3. THE CIT(A) ERRED IN NOT ADJUDICATING THE FOLLOWI NG GROUNDS OF APPEAL RAISED BEFORE HIM: I. THE ACIT ERRED IN NOT DETERMINING THE BROUGHT FO RWARD AS WELL AS THE CURRENT YEAR'S SHORT TERM CAPITAL LOSS TO BE CARRIED FORWAR D FOR SET-OFF AGAINST INCOME IN THE SUBSEQUENT YEARS. THE APPELLANT THEREFORE SUBMITS THAT THE ACIT BE DI RECTED TO DETERMINE THE SHORT TERM CAPITAL LOSS FOR SET-OFF IN FUTURE AGAINST THE TAXABLE INCOME OF SUBSEQUENT YEARS. II.. THE ACIT ERRED IN CONSIDERING THE DEPRECIATION CLAIMED BY THE APPELLANT AT RS. 36,77,71,210 INSTEAD OF RS. 29,06,77,389, WHILE COM PUTING THE ASSESSED INCOME. THE APPELLANT THEREFORE PRAYS THAT THE ACIT BE DIRE CTED TO CONSIDER THE CORRECT AMOUNT OF DEPRECIATION CLAIMED BY THE APPELLANT IN THE RETURN OF INCOME WHILE COMPUTING THE ASSESSED INCOME. III. THE ACIT ERRED IN DISALLOWING THE DEPRECIATION ON DEPOSITORY SYSTEM (NOW KNOWN AS CENTRAL SYSTEM) AMOUNTING TO RS.3,29,00,95 0/- TWICE, WHILE COMPUTING THE ASSESSED INCOME. THE APPELLANT THEREFORE PRAY THAT THE ACIT BE DIREC TED TO DELETE THE DOUBLE DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON DEPOSITO RY SYSTEM. IV. THE ACIT ERRED IN ALLOWING DEPRECIATION ON VOLT AGE REGULATOR @ 60% INSTEAD OF 80%. THE APPELLANT THEREFORE PRAYS THAT THE ACIT BE DIRE CTED TO COMPUTE DEPRECIATION AS PER THE CORRECT RATE OF DEPRECIATION PROVIDED IN APPENDIX I OF THE RULES APPLICABLE FOR AY 2006-07. 3. IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELL ANT BEFORE US IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF PROVIDIN G DEPOSITORY SERVICES. FOR ASSESSMENT YEAR 2006-07, IT FILED A RETURN OF INCOM E DECLARING THE TOTAL INCOME AT RS.45,95,35,519/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT, WHEREBY THE TOTAL INCOME HAS BEEN ASSESSED AT RS.50 ,60,55,400/- AFTER MAKING CERTAIN ADDITION/DISALLOWANCES. THE CIT(A) HAS ALLOWED PARTIAL RELIEF AND NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A ) ASSESSEE IS IN FURTHER APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPE AL. 3 ITA NO.3373/MUM/2012 (AY. 2006-07) 4. IN SO FAR AS, GROUND OF APPEAL NO.1 IS CONCERNED , THE SAME RELATES TO THE RATE OF DEPRECIATION ALLOWABLE ON COMPUTER SOFT WARE. IN THE RETURN OF INCOME ASSESSEE HAD CLAIMED DEPRECIATION ON COMPUTE R SOFTWARE @60%, WHEREAS THE ASSESSING OFFICER HAS ALLOWED IT @25%. AS PER THE ASSESSING OFFICER, THE RATE OF 60% IS APPLICABLE IN CASES OF SOFTWARE WHICH HAS BEEN ACQUIRED AS AN INTEGRAL PART OF THE COMPUTER HARDWA RE. IN THE PRESENT CASE, ACCORDING TO THE ASSESSING OFFICER ASSESSEE HAD CL UBBED ACQUISITION OF ALL KINDS OF SOFTWARE WITH THE CENTRAL COMPUTER SYSTEM, EVEN THOUGH THE ACQUISITION OF SOFTWARE DID NOT FORM INTEGRAL PART OF THE COMPUTER HARDWARE. THE CIT(A) HAS ALSO AFFIRMED THE STAND OF THE ASSES SING OFFICER, AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE TIME OF HEARING, LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT IN ASSESSMENT YEAR 2004-05 VIDE ORDER IN I TA NO.2728/MUM/2013 DATED 20/02/2017, THE TRIBUNAL HAS ALLOWED THE DE PRECIATION ON COMPUTER SOFTWARE @ 60% AND, THEREFORE, IN THIS YEAR TOO SIM ILAR DECISION BE TAKEN. THOUGH THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTED THE FACTUAL MATRIX, BUT REITERATED THE STAND OF THE ASSESSING O FFICER, WHICH WE HAVE NOTED IN THE EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 6. IN THE LIGHT OF THE PRECEDENT IN THE ASSESSEES OWN CASE, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON COMPUTER SOFTWARE @ 60%. ACCORDINGLY, ON THIS ISSU E ASSESSEE SUCCEEDS. 7. IN SO FAR AS GROUND OF APPEAL NO.2 IS CONCERNED, THE SAME RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT IN R ELATION TO THE EXEMPTED INCOME. THE ORDER OF THE AUTHORITIES BELOW REVEAL THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD RECEIVED EXEMPT IN COME COMPRISING OF INTEREST ON TAX FREE BONDS OF RS.5,19,57,250/-. TH E ASSESSING OFFICER NOTICED 4 ITA NO.3373/MUM/2012 (AY. 2006-07) THAT SINCE ASSESSEE HAD RECEIVED EXEMPT INCOME DURI NG THE YEAR, THE PROVISIONS OF SECTION 14A OF THE ACT WERE ATTRACTED SO AS TO DISALLOW THE EXPENDITURE INCURRED IN RELATION TO EARNING OF SUCH INCOME. THE ASSESSING OFFICER NOTICED THAT IN PRECEDING ASSESSMENT YEARS OF 2002-03 TO 2005-06, 2% OF THE CONCERNED EXEMPT INCOME WAS TREATED AS A N EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INCOME AND ACCORDINGLY DISALLOWED UNDER SECTION 14A OF THE ACT. HOWEVER, AS PER THE ASSESS ING OFFICER, THE COMPUTATION IN THIS YEAR IS LIABLE TO BE DETERMINED IN TERMS OF RULE 8D OF THE INCOME TAX RULES,1962( IN SHORT THE RULES) AND HE ACCORDINGLY DETERMINED A SUM OF RS.47,20,663/- AS AN AMOUNT DISALLOWABLE IN TERMS OF RULE 8D(20(II) OF THE RULES. THE CIT(A) FOLLOWING THE J UDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. VS. DCIT, 328 ITR 81(BOM) NOTICED THAT RULE 8D OF THE RULES WAS NOT APPLICABLE FOR THE INSTANT ASSESSMENT YEAR AND THAT THE SAME WAS APPLICABLE PR OSPECTIVELY FROM ASSESSMENT YEAR 2008-09 ONWARDS AND, THEREFORE, HE DISAGREED WITH THE ACTION OF THE ASSESSING OFFICER. HOWEVER, CIT(A) H AS DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO2% OF THE EXEMPTED INCOME, WHICH CAME TO RS.10,39,345/-. NOT BEING SATISFIED WITH THE DECISION OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. THE ONLY PLEA OF THE ASSESSEE BEFORE US IS TO TH E EFFECT THAT THE DISALLOWANCE COMPUTED @2% OF THE EXEMPT INCOME WAS EXCESSIVE. 9. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE POINTED OUT THAT IN THE EARLIER YEARS, THE DISALLOWANCE HAS BEEN WOR KED OUT @ 2% AS NOTED BY THE ASSESSING OFFICER. 5 ITA NO.3373/MUM/2012 (AY. 2006-07) 10. HAVING CONSIDERED THE RIVAL SUBMISSION, IN OUR VIEW, THE ESTIMATION OF AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT, A S MADE BY THE CIT(A) IS QUITE REASONABLE AND, THEREFORE, NO INTERFERENCE IS CALLED FOR, HENCE ON THIS GROUND ASSESSEE FAILS. 11. IN SO FAR AS GROUND OF APPEAL NO.3 IS CONCERNED , THE SAME IS WITH REGARD TO THE ISSUES WHICH WERE RAISED BY THE ASSES SEE BEFORE CIT(A), BUT THE SAME HAVE NOT BEEN ADJUDICATED BY HIM. ON THIS ASPECT, THE LIMITED PLEA OF THE ASSESSEE WAS THAT THE MATTER BE RESTORED BAC K TO THE FILE OF CIT(A) FOR AN ADJUDICATION AFRESH AS PER LAW. THE LD. DEPART MENTAL REPRESENTATIVE HAS NOT OPPOSED THE AFORESAID PLEA OF THE ASSESSEE. 12. AFTER CONSIDERING THE RIVAL STANDS, WE DEEM IT FIT AND PROPER TO RESTORE THE ISSUE RAISED IN GROUND NO.3 BACK TO THE FILE OF CIT(A), WHO SHALL EXAMINE THE SAME AND, THEREAFTER ADJUDICATE IN ACCORDANCE W ITH LAW. NEEDLESS TO MENTION THAT THE CIT(A) SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AND THEREAFTER PASS AN ORDER AFRES H ON THE AFORESAID LIMITED ASPECTS AS PER LAW. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES ONLY. 13. RESULTANTLY, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2017 SD/- SD/- (AMARJIT SINGH ) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 31/03/2017 VM , SR. PS 6 ITA NO.3373/MUM/2012 (AY. 2006-07) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI