Sundaram Fasteners Limited, CHENNAI V. DCIT, CHENNAI

ITA 688/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7860 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 06-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Transfer pricing; Additional depreciation; Wholly owned subsidiary; Notional interest; Revised return; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 688/MDS/2015 ( )( / ASSESSMENT YEAR : 2010-11 M/S SUNDARAM FASTENERS LTD., 98-A, 7 TH FLOOR, DR. RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI - 600 004. PAN : AAACS 8779 D V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(2), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : SH. PATHLAVATH PEERYA, CIT 1 / 2% / DATE OF HEARING : 07.01.2016 3') / 2% / DATE OF PRONOUNCEMENT : 04.03.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER, CONSEQUENT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL, FOR THE ASSESSMENT YEAR 2010-11. 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS WITH REGARD 2 I.T.A. NO.688/MDS/15 TO TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE LO AN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY. THE LD.COUNSEL SUBMITT ED THAT THE ASSESSING OFFICER MADE ADDITION ON NOTIONAL BASIS I N RESPECT OF THE LOAN ADVANCED TO THE ASSOCIATE ENTERPRISE. THE TRA NSFER PRICING OFFICER FOUND THAT NOTIONAL INTEREST SHOULD BE CHAR GED ON THE LOAN ADVANCED BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY BY APPLYING LIBOR RATE. ACCORDING TO THE LD. COUNSEL, THE TRAN SACTION BETWEEN THE ASSESSEE AND THE SUBSIDIARY COMPANY IS IN THE N ATURE OF INTER- CORPORATE LOAN WHICH WAS GRANTED TO PROTECT THE WHO LLY OWNED SUBSIDIARY OF THE ASSESSEE. ACCORDING TO THE LD. C OUNSEL, THE LOAN ADVANCED BY THE ASSESSEE TO ITS WHOLLY OWNED SUBSID IARY IS FOR BUSINESS PURPOSE. THEREFORE, THE TRANSFER PRICING OFFICER AS WELL AS THE DISPUTE RESOLUTION PANEL COMMITTED AN ERROR IN INTERPRETING THE FINANCIAL RELATIONSHIP BETWEEN THE HOLDING AND SUBSIDIARY COMPANY AS A LENDER AND BORROWER. ACCORDING TO THE LD. COUNSEL, THERE IS NO RELATIONSHIP AS LENDER AND BORROWER. T HE INVESTMENT MADE IS ONLY FOR BUSINESS PURPOSE, THEREFORE, THERE IS NO QUESTION OF CHARGING ANY INTEREST ON NOTIONAL BASIS. 3. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE LOA N ADVANCED BY 3 I.T.A. NO.688/MDS/15 THE ASSESSEE TO A UK COMPANY WAS FREE OF INTEREST. IN FACT, THE ASSESSEE BORROWED LOAN IN INDIA AND PAYING INTEREST . HOWEVER, THE MONEY WAS DIVERTED TO A NON-RESIDENT COMPANY AND TH E EXPENDITURE INCURRED FOR PAYING THE INTEREST ON THE BORROWED LO AN IS CLAIMED AS ALLOWANCE IN COMPUTATION OF INCOME. HOWEVER, THE A SSESSEE HAS NOT CHARGED ANY INTEREST ON THE MONEY ADVANCED TO U K COMPANY. ACCORDING TO THE LD. D.R., WHEN THE BORROWED FUNDS WERE ADVANCED TO A NON-RESIDENT COMPANY, THAT TOO WITHOUT INTERES T, THE ASSESSEE IS SHIFTING THE TAX BASE TO A FOREIGN COMPANY BY REDUC ING THE INCOME IN INDIA. ACCORDING TO THE LD. D.R., WHEN THE ASSESSE E IS CLAIMING THE INTEREST PAYMENT AS EXPENDITURE IN INDIA, THE INCOM E OF THE ASSESSEE AS INDIAN COMPANY IS LOST TO THAT EXTENT. THE LD. D.R. FURTHER SUBMITTED THAT THE MONEY ADVANCED TO THE UK COMPANY IS FOR THE BUSINESS OF THAT COMPANY AND NOT FOR THE AS SESSEE- COMPANY. MERELY BECAUSE THE UK COMPANY APPEARS TO BE 100% SUBSIDIARY COMPANY OF THE ASSESSEE, ACCORDING TO TH E LD. D.R., THE ASSESSEE CANNOT BE ALLOWED TO EVADE THE TAX LIABILI TY IN INDIA. ACCORDING TO THE LD. D.R., THE VERY OBJECT AND PURP OSE OF TRANSFER PRICING PROVISION IN INCOME-TAX ACT IS TO PREVENT T HE ASSESSEE TO TRANSFER ITS PROFITS FROM INDIA TO A FOREIGN COMP ANY. ACCORDING TO THE LD. D.R., MONEY HAS VALUE AND IT IS CAPABLE OF EARNING INCOME 4 I.T.A. NO.688/MDS/15 IN VARIOUS FORMS. TRANSFERRING MONEY TO A FOREIGN COMPANY EITHER BY WAY OF LOAN OR ADVANCE, A BENEFIT TO THE RECIPIE NT COMPANY. PLACING RELIANCE ON THE DECISION OF THIS BENCH OF T HE TRIBUNAL IN SIVA INDUSTRIES HOLDING LTD. V. DCIT (95 ITD 182), THE L D. D.R. SUBMITTED THAT THE ASSESSEE HAS TO CHARGE INTEREST ON THE COR PORATE LOAN GIVEN TO THE ASSOCIATE ENTERPRISE BY APPLYING LIBOR RATE OF INTEREST. THEREFORE, THE DISPUTE RESOLUTION PANEL HAS CORRECT LY FOUND THAT THE NOTIONAL INTEREST HAS TO BE CHARGED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ADVANCED A CORPOR ATE LOAN OF ` 13.17 CRORES TO ITS ASSOCIATE ENTERPRISE M/S CRAMLI NGTON PRECISION FORGE LTD., A UK COMPANY. THE ASSESSEE HAS NOT CHA RGED ANY INTEREST ON THE SAID CORPORATE LOAN EXTENDED TO THE ASSOCIATE ENTERPRISE. THE ASSESSEE CLAIMED BEFORE THE TRANSF ER PRICING OFFICER AND DISPUTE RESOLUTION PANEL THAT THE LOAN WAS ADVANCED FROM THE INTEREST-FREE SUBSIDY FUNDS AVAILABLE WITH THE ASSESSEE, THEREFORE, THERE IS NO NEED FOR CHARGING ANY INTERE ST. THE TRANSFER PRICING OFFICER, HOWEVER, FOUND THAT THE ASSOCIATE ENTERPRISE IS LOCATED IN UK AND LIABLE FOR TAXATION IN UK JURISDI CTION. THEREFORE, 5 I.T.A. NO.688/MDS/15 THE PROFITS TO THE EXTENT OF LOAN ADVANCED TO THE A SSOCIATE ENTERPRISE ON ACCOUNT OF INTEREST-FREE LOAN ARE DEE MED TO HAVE BEEN SHIFTED TO FOREIGN JURISDICTION. THEREFORE, T HE DISPUTE RESOLUTION PANEL FOUND THAT LIBOR RATE OF INTEREST HAS TO BE APPLIED. 5. THE MAIN OBJECT OF TRANSFER PRICING ADJUSTMENT P ROVIDED UNDER THE SCHEME OF INCOME-TAX ACT IS TO PREVENT TH E ASSESSEE FROM ERODING THE TAX BASE IN ONE COUNTRY AND SHIFTI NG THE PROFIT TO OTHER COUNTRY. IN THE CASE BEFORE US, IF THE ASSES SEE HAS INCURRED ANY EXPENDITURE ON THE LOAN ADVANCED TO THE ASSOCIA TE ENTERPRISE IN UK, THEN NATURALLY THE ASSESSEE IS SHIFTING THE PROFIT EARNED IN INDIA TO A FOREIGN JURISDICTION BY REDUCING THE TAX ABLE INCOME IN INDIA. IN OTHER WORDS, IF THE ASSESSEE BORROWED LO AN IN INDIA AND THE ENTIRE BORROWED LOAN OR PART OF THE BORROWED LO AN WAS ADVANCED TO THE FOREIGN COMPANY, WITHOUT CHARGING ANY INTERE ST, THE ASSESSEE IS REDUCING THE PROFIT IN INDIA TO THE EXTENT OF IN TEREST PAID OR PAYABLE ON THE BORROWED FUNDS. IN CASE THE ASSESSEE HAS SU RPLUS INTEREST- FREE FUNDS AFTER MEETING ALL STATUTORY OBLIGATIONS, INCLUDING PAYMENT OF INCOME-TAX ON THE INCOME, THEN THE ASSESSEE IS O PEN TO INVEST THE SAME IN ANY MANNER AS IT LIKES. THEREFORE, IT NEEDS TO BE 6 I.T.A. NO.688/MDS/15 VERIFIED WHETHER THE ASSESSEE HAS ANY SURPLUS FUNDS AFTER MEETING ALL STATUTORY LIABILITIES IN INDIA. IN THE CASE BE FORE US, THE DETAILS OF LOAN BORROWED AND THE DETAILS OF AVAILABLE SURPLUS FUNDS ARE NOT AVAILABLE ON RECORD. HOWEVER, THE REVENUE CLAIMS T HAT BORROWED FUNDS WERE DIVERTED. THE ASSESSEE CLAIMS THAT SURP LUS FUNDS WERE AVAILABLE FOR ADVANCING THE CORPORATE LOAN TO THE A SSOCIATE ENTERPRISE. THEREFORE, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE FACTUAL SITUATION NEEDS TO BE VERIFIED. IN OTH ER WORDS, IT HAS TO BE VERIFIED WHETHER THE ASSESSEE HAD SUFFICIENT SUR PLUS FUNDS FOR ADVANCING THE CORPORATE LOAN TO THE ASSOCIATE ENTER PRISE IN UK. IT HAS TO BE VERIFIED WHETHER THERE WAS ANY NEXUS BETW EEN BORROWED FUNDS AND ADVANCE MADE BY THE ASSESSEE TO THE ASSOC IATE ENTERPRISE IN UK. SINCE SUCH AN EXERCISE WAS NOT D ONE BY THE LOWER AUTHORITIES, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ASSESSING OFF ICER IS DIRECTED TO VERIFY THE ACTUAL SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE. IT ALSO NEEDS TO BE VERIFIED WHETHER THE ASSESSEE HAD BORRO WED LOAN AND WHETHER THERE WAS ANY NEXUS BETWEEN THE BORROWED LO AN AND ADVANCE SAID TO BE MADE BY THE ASSESSEE TO THE ASSO CIATE ENTERPRISE IN UK. IT IS OPEN TO THE ASSESSING OFFI CER TO REFER THE 7 I.T.A. NO.688/MDS/15 MATTER ONCE AGAIN TO DISPUTE RESOLUTION PANEL IN AC CORDANCE WITH PROVISIONS OF THE ACT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO RE- EXAMINE THE MATTER IN THE LIGHT OF THE OBSERVATION MADE ABOVE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH AFTE R GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 7. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE HAS EARNED ` 11,35,049/- AS DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. THE AS SESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE SAID DIVID END INCOME. ACCORDING TO THE LD. COUNSEL, WHEN THE INVESTMENT W AS MADE FROM SUCH DIVIDEND INCOME EARNED AND OUT OF AVAILABLE SU RPLUS FUNDS IN THE EARLIER ASSESSMENT YEAR, THEN THERE IS NO QUEST ION OF ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. 8 I.T.A. NO.688/MDS/15 8. ON THE CONTRARY, SH. PATHLAVATH PEERYA, LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT RULE 8D OF INCOME-TA X RULES, 1962 IS MANDATORY FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION. THE ASSESSEE-COMPANY INVESTED ` 2206.57 LAKHS IN SHARES/FUNDS AS ON 31.03.2010 AND EARNED DIVIDEND INCOME OF ` 11,35,049/-. THE DIVIDEND INCOME EARNED BY THE ASSESSEE WAS EXEMPTED FROM TAXATION UNDER SECTION 10(34) OF THE ACT. HOWEVER, THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING THE DIV IDEND INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THEREFOR E, THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CLAIM OF THE ASS ESSEE AND BY FOLLOWING THE PROCEDURE LAID DOWN IN RULE 8D, COMPU TED THE DISALLOWANCE. THE LD. D.R. FURTHER SUBMITTED THAT THE ASSESSEE IS NOT MAINTAINING ANY SEPARATE BOOKS OF ACCOUNT FOR I NVESTMENT IN SHARES/FUNDS. THOUGH THE ASSESSEE CLAIMS THAT SUBS TANTIAL INTEREST- FREE FUNDS WERE AVAILABLE, BUT NO MATERIAL IS AVAIL ABLE ON RECORD TO SHOW THAT THE INTEREST-FREE/OWN FUNDS WERE USED FOR MAKING THE INVESTMENT. THE LD. D.R. FURTHER POINTED OUT THAT ALL THE FUNDS WERE IN A COMMON POOL. THEREFORE, IT IS VERY DIFFICULT TO SEGREGATE THE OWN FUNDS AND THE BORROWED FUNDS. THE FACT THAT TH E ASSESSEE BORROWED FUNDS ON PAYMENT OF INTEREST IS NOT IN DIS PUTE. IN THE ABSENCE OF ANY NEXUS BETWEEN THE OWN FUNDS AND THE INVESTMENT 9 I.T.A. NO.688/MDS/15 MADE FOR EARNING THE EXEMPTED INCOME, THE ASSESSING OFFICER, ACCORDING TO THE LD. D.R., HAS RIGHTLY APPLIED THE PROVISIONS OF RULE 8D. THEREFORE, THE DISPUTE RESOLUTION PANEL HAS RI GHTLY FOUND THAT DISALLOWANCE HAS TO BE MADE IN RESPECT OF THE DIVID END INCOME EARNED WHICH DOES NOT FORM PART OF TOTAL INCOME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING OF INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME CANNOT BE ALLOWE D AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME. IN THIS CASE, AD MITTEDLY, THE ASSESSEE HAS EARNED ` 11,35,049/- AS DIVIDEND INCOME ON THE INVESTMENT OF ` 2206.57 LAKHS. THOUGH THE ASSESSEE CLAIMS THAT THE BORROWED FUNDS WERE NOT USED FOR MAKING INVESTMENT, THE FACT REMAINS THAT THE ASSESSEE BORROWED THE FUNDS AND TH E INTEREST-FREE FUNDS AND BORROWED FUNDS WERE PUT IN A COMMON POOL. THEREFORE, IT IS VERY DIFFICULT TO IDENTIFY WHICH PART OF THE FUN DS WAS USED FOR MAKING INVESTMENT FOR EARNING DIVIDEND INCOME. MOR EOVER, THE ASSESSEE-COMPANY IS NOT IN THE BUSINESS OF INVESTME NT. THEREFORE, IT HAS TO NECESSARILY INCUR CERTAIN EXPENDITURE ON THE MANAGERIAL LEVEL FOR TAKING DECISION FOR INVESTING THE FUNDS I N A RIGHT COMPANY. 10 I.T.A. NO.688/MDS/15 THEREFORE, THE ASSESSEE HAS TO NECESSARILY INCUR EX PENDITURE WITH REGARD TO MANAGERIAL DECISION THAT WAS TAKEN FOR MA KING INVESTMENT. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RULE 8D IS APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, THE DISPUTE RESOLUTION PANEL HAS RIGHTLY FOUND THAT RULE 8D HAS TO BE FOLLOWED. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO EXP ENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE. 11. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSEE HAS INCURRED A SUM OF ` 3,33,786/- ON SOFTWARE. ACCORDING TO THE LD. COUNSEL, THE EXPEND ITURE WAS INCURRED ON THE SOFTWARE WHICH NEEDS TO BE RENEWED AND UPDATED BY THE ASSESSEE EVERY YEAR. THEREFORE, THE EXPENDI TURE INCURRED BY THE ASSESSEE IS IN THE NATURE OF REVENUE EXPENDITUR E. 12. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE EXP ENDITURE CLAIMED BY THE ASSESSEE INCLUDED FEE FOR SOFTWARE L ICENSES, COST OF 11 I.T.A. NO.688/MDS/15 PURCHASE OF APPLICATION SOFTWARE, ANNUAL MAINTENANC E CONTRACT CHARGES, SOFTWARE DEVELOPMENT AND MAINTENANCE CHARG ES AND COST OF UPGRADATION OF SOFTWARE. ACCORDING TO THE LD. D .R., THE MAINTENANCE CHARGES AND UPGRADATION CHARGES ARE REV ENUE EXPENSES. THEREFORE, IT HAS TO BE ALLOWED IN THE Y EAR IN WHICH IT WAS INCURRED. IN THE CASE OF PURCHASE OF SOFTWARE LICENSES, THERE ARE TWO TYPES OF LICENCES ONE TYPE OF LICENSE IS PERMANENT LICENSE AND ANOTHER TYPE OF LICENSE IS ANNUAL LICENSE. IN THE CASE OF ANNUAL LICENSE, THE ENTIRE LICENSE FEE IS ALLOWABLE AS REV ENUE EXPENDITURE IN THE YEAR IN WHICH IT WAS INCURRED AS THE USE OF SOF TWARE IS FOR THAT YEAR ONLY. HOWEVER, IN THE CASE OF PERMANENT LICEN SE, THE USE OF SOFTWARE IS OVER A PERIOD OF YEAR, THEREFORE, IT GI VES AN ENDURING BENEFIT TO THE ASSESSEE. THE COST OF PERMANENT LIC ENSE WILL BE A CAPITAL EXPENDITURE AND THE ASSESSEE IS ENTITLED FO R DEPRECIATION ONLY. THE LD. D.R. FURTHER POINTED OUT THAT IN THE CASE OF PURCHASE OF APPLICATION SOFTWARE, THE ASSESSING OFFICER IS R EQUIRED TO SEE WHETHER THE SOFTWARE IS A TEMPORARY ONE OR FOR A LO NG PERIOD. IF THE SOFTWARE IS PURCHASED FOR LONGER PERIOD, IT WILL AM OUNT TO CAPITAL EXPENDITURE. IN THE CASE BEFORE US, ACCORDING TO T HE LD. D.R., THERE ARE SEVERAL TYPES OF SOFTWARE EXPENSES. THEREFORE, THE DISPUTE RESOLUTION PANEL DIRECTED THE ASSESSING OFFICER TO SEGREGATE THE 12 I.T.A. NO.688/MDS/15 CAPITAL EXPENDITURE AND THOSE OF REVENUE IN NATURE. ACCORDINGLY, THE ASSESSING OFFICER CLASSIFIED ` 3,23,270/- AS REVENUE EXPENDITURE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. D.R., THE ASSESSEES CLAIM OF EXPENDITURE INCLUDED FEE FOR SOFTWARE LICENSES, COST OF APPLICA TION SOFTWARE, ANNUAL MAINTENANCE CONTRACT, SOFTWARE DEVELOPMENT A ND MAINTENANCE CHARGES. THE ANNUAL MAINTENANCE CHARGE S AND COST OF UPGRADATION CHARGES ARE HELD TO BE REVENUE IN NA TURE BY THE DISPUTE RESOLUTION PANEL AND IT HAS TO BE ALLOWED I N THE YEAR IN WHICH IT WAS INCURRED. IN RESPECT OF SOFTWARE LICE NSES, THE DRP FOUND THAT THERE ARE TWO TYPES OF LICENSES ONE IS ANNUAL LICENSE AND ANOTHER ONE IS PERMANENT LICENSE. IN RESPECT O F ANNUAL LICENSE, THE DISPUTE RESOLUTION PANEL FOUND IT TO BE AS REVE NUE EXPENDITURE AND TO BE ALLOWED IN THE YEAR IN WHICH IT WAS INCUR RED. AS FAR AS PERMANENT LICENSE IS CONCERNED, THE DISPUTE RESOLUT ION PANEL FOUND THAT THERE WAS ENDURING BENEFIT TO THE ASSESS EE. WHEN THE ASSESSEE BOUGHT THE SOFTWARE PERMANENTLY, THE INITI AL PURCHASE OF SOFTWARE HAS TO BE ON THE CAPITAL FIELD SINCE THE A SSESSEE EARNED THE RIGHT OVER THE SOFTWARE. EVEN THOUGH IT WAS LI CENSED TO USE, THE 13 I.T.A. NO.688/MDS/15 LICENSE GIVEN TO THE ASSESSEE IS EXCLUSIVELY FOR TH E ASSESSEE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE DISPUTE RESOLUTION PANEL HAS RIGHTLY FOUND THAT THE PERMANE NT LICENSE IS IN THE CAPITAL FIELD. AS FAR AS APPLICATION OF SOFTWA RE IS CONCERNED, AGAIN WE HAVE TO SEE WHETHER IT WAS TEMPORARY ONE O R FOR LONG PERIOD. IF THE APPLICATION SOFTWARE IS ONLY FOR A SHORT PERIOD, THEN IT HAS TO BE TREATED AS REVENUE EXPENDITURE AND IT HAS TO BE ALLOWED IN THE YEAR IN WHICH IT WAS INCURRED. IF THE APPLICAT ION SOFTWARE IS FOR A LONGER PERIOD, THEN IT WILL HAVE AN ENDURING BENEFI T. THEREFORE, AS RIGHTLY FOUND BY THE DISPUTE RESOLUTION PANEL, THE EXPENDITURE HAS TO BE CAPITALIZED. THE DISPUTE RESOLUTION PANEL DI RECTED THE ASSESSING OFFICER TO VERIFY THE NATURE OF EXPENDITU RE AND THEREAFTER TO DECIDE THE ISSUE. THEREFORE, THIS TRIBUNAL DO N OT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 14. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADDITIONAL DEPRECIATION IN RESPECT OF MACHINERY INS TALLED. 15. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSEE CLAIMED ADDITIONAL DEPR ECIATION ON THE PLANT AND MACHINERY PURCHASED IN THE SECOND HALF OF FINANCIAL YEAR. 14 I.T.A. NO.688/MDS/15 THE ASSESSING OFFICER ALLOWED 10% OF THE DEPRECIATI ON. THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION FOR THE YE AR UNDER CONSIDERATION IN RESPECT OF THE PLANT AND MACHINERY WHICH WERE PUT TO USE IN THE EARLIER ASSESSMENT YEAR FOR LESS THAN 180 DAYS. PLACING RELIANCE ON THE DECISION OF COCHIN BENCH OF THIS TRIBUNAL IN APOLLO TYRES LTD. V. ACIT (2014) 64 SOT 203, THE LD .COUNSEL SUBMITTED THAT THE ASSESSEE IS ENTITLED FOR ADDITIO NAL DEPRECIATION. 16. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ADD ITIONAL DEPRECIATION HAS TO BE ALLOWED IN THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE. SINCE THE ASSESSEE PUT TO USE THE MACHINERY FOR LESS THAN 180 DAYS, THE ASSESSING OFFICER ALLOWED 5 0% OF THE ADDITIONAL DEPRECIATION, I.E. AT THE RATE OF 10%. THERE IS NO PROVISION IN THE INCOME-TAX ACT TO CARRY FORWARD THE REMAININ G PART OF DEPRECIATION IN THE SUBSEQUENT YEAR. THEREFORE, AC CORDING TO THE LD. D.R., THE DISPUTE RESOLUTION PANEL HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CLAIM OF ADDITIONAL DEPRECIATION WAS CONSIDERED BY THE COCHI N BENCH OF THIS 15 I.T.A. NO.688/MDS/15 TRIBUNAL IN APOLLO TYRES LTD. (SUPRA). AFTER CONSI DERING THE RELEVANT DECISIONS AND JUDGMENTS ON THE SUBJECT, THE COCHIN BENCH FOUND THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPREC IATION IN THE SUBSEQUENT YEAR SINCE THE MACHINERY WAS PUT TO USE FOR 180 DAYS IN THE EARLIER ASSESSMENT YEAR. IN VIEW OF THE DECISI ON OF THE COCHIN BENCH OF THIS TRIBUNAL, THE ASSESSEE IS ENTITLED FO R THE BALANCE 10% DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING O FFICER IS DIRECTED TO ALLOW THE BALANCE 10% ADDITIONAL DEPRECIATION DU RING THE YEAR UNDER CONSIDERATION. 18. THE NEXT GROUND OF APPEAL IS WITH REGARD TO REC ORDING OF TOTAL INCOME. 19. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY TA KEN THE TOTAL INCOME AT ` 65,92,20,452/- INSTEAD OF ` 62,47,03,090/- AS PER REVISED RETURN FILED ON 22.03.2012. 20. WE HAVE HEARD SH. PATHLAVATH PEERYA, THE LD. DE PARTMENTAL REPRESENTATIVE ALSO. THE MISTAKE IN RECORDING THE TOTAL INCOME HAS TO BE VERIFIED BY THE ASSESSING OFFICER IN THE LIGH T OF THE MATERIAL 16 I.T.A. NO.688/MDS/15 AVAILABLE ON RECORD. IF THERE IS ANY MISTAKE IN TH E TOTAL INCOME, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MIST AKE NEEDS TO BE RECTIFIED. ACCORDINGLY, THIS ISSUE IS REMITTED BAC K TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. THE ASSESSI NG OFFICER SHALL RE-EXAMINE THE MATTER AFTER GIVING REASONABLE OPPOR TUNITY TO THE ASSESSEE, TO FIND OUT WHETHER THERE WAS ANY ERROR I N COMPUTING THE TOTAL INCOME. IF THERE IS ANY ERROR, THE ASSESSING OFFICER SHALL RECTIFY THE SAME AND RECORD THE CORRECT TOTAL INCOME. 21. THE NEXT ISSUE IS WITH REGARD TO CREDIT FOR TDS AND TCS. 22. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE TAX DEDUCTED AT SOURCE AS PER FO RM 16A AND THE TAX COLLECTION CERTIFICATE IN FORM 27D HAVE NOT BEE N CONSIDERED PROPERLY BY THE ASSESSING OFFICER. ACCORDING TO TH E LD. COUNSEL, THE ASSESSEE CLAIMED TDS AND TCS TO THE EXTENT OF `78,91,044/- . HOWEVER, THE ASSESSING OFFICER HAS TAKEN THE CREDIT TO THE EXTENT OF ` 43,32,509/-. THIS ERROR NEEDS TO BE RECTIFIED. 23. WE HEARD SH. PATHLAVATH PEERYA, THE LD. DEPARTM ENTAL REPRESENTATIVE ALSO. THE DISPUTE RESOLUTION PANEL DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESS EE WITH REGARD TO 17 I.T.A. NO.688/MDS/15 TDS AND TCS TO ALLOW NECESSARY CREDIT ON THE BASIS OF THE MATERIAL FURNISHED IN SUPPORT OF THE CLAIM OF THE ASSESSEE. IN VIEW OF THE RIGHT DIRECTION GIVEN BY DRP TO THE ASSESSING OFFIC ER, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON 4 TH MARCH, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 4 TH MARCH, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. SECRETARY TO THE DRP, CHENNAI 4. 1 92 /CIT, CHENNAI-VI, CHENNAI 5. DIT, TRANSFER PRICING, CHENNAI 5. 7: -2 /DR 6. ( ; /GF.