Sigma Electric Mfg. Corp. Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 82/PUN/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0443 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 19-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Depreciation; Opportunity of being heard; Wrong claim
• Section: 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.82/PN/2015 #& & / ASSESSMENT YEAR : 2004-05 SIGMA ELECTRIC MANUFACTURING CORPORATION PVT. LTD., FORMERLY KNOWN AS SEMCO ELECTRIC PVT. LTD., 151/1, 155 MAHALUNGE VILLAGE, POST CHAKAN, CHAKAN TALEGAON ROAD, CHAKAN, PUNE 410 501 PAN : AADCS9493H . / APPELLANT V/S DCIT, CIRCLE-10, PUNE . / RESPONDENT / APPELLANT BY : SHRI SHARAD SHAH / RESPONDENT BY : SHRI P.L. KUREEL / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 01-01-2014 OF THE CIT(A)-V, PUNE RELATING TO ASSESS MENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : ON FACTS AND IN LAW & WITHOUT PREJUDICE TO EACH OTH ER 1. THE LD. AO ERRED IN LEVYING PENALTY (AND LD.CIT( A) ERRED IN UPHOLDING) WHEN THERE IS NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS. / DATE OF HEARING :21.11.2016 / DATE OF PRONOUNCEMENT: 23 .11.2016 2 ITA NO.82/PN/2015 2. THE LD. AO ERRED IN LEVYING PENALTY (AND LD.CIT( A) ERRED IN UPHOLDING) IN RESPECT OF CLAIM OF DEPRECIATION WHERE , ASSESSEE HAD CLAIMED LESSER DEPRECIATION AND AO HAS ALLOWED MORE D EPRECIATION, THUS RESULTING IN REDUCTION IN INCOME RATHER THAN ADD ITION TO THE TAXABLE INCOME. 3. THE LD. AO HAS ERRED IN WORKING OUT (AND LD.CIT(A ) ERRED IN DIRECTING THE AO TO VERIFY THE WORKING AND MODIFY) TAX SOUGHT TO BE EVADED FOR THE PURPOSE OF COMPUTATION OF PENALTY. 4. THE APPELLANT CRAVES ITS RIGHT TO ADD TO OR ALTER THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE COURSE OF HE ARING OF THE CASE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRI C COMPONENT FOR INDUSTRIAL USE. IT FILED ITS RETURN OF INCOME ON 3 0-10-2004 DECLARING TOTAL INCOME OF RS.1,21,600/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED FROM THE DEPRECIATION SC HEDULE THAT THE ASSESSEE COMPANY HAS CLAIMED LESS DEPRECIATION I.E. @25% AS AGAINST THE ELIGIBLE RATE OF 60% ON COMPUTER SOFTWARE, FOR BOTH THE 10B UNITS, I.E. UNIT A1 AND UNIT A2. BECAUSE OF THIS CLAIM OF LESSER DEPRE CIATION ON COMPUTER SOFTWARE, THERE WAS LESS CLAIM OF DEPRECIATION TO T HE TUNE OF RS.91,07,813/- (RS.50,83,003/- FOR UNIT A1 AND RS.40,24,810/- FOR UNIT A2. IN OTHER WORDS, THIS HAS RESULTED IN OVER STATEMENT OF PROFIT TO TH IS EXTENT. THE ASSESSING OFFICER, THEREFORE, IN THE ORDER PASSED U/S.143(3) INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE ASSESSEE CHALLENGED THE SAME BEFORE CIT(A) BUT WAS WITHOUT ANY SUCCESS. 4. DURING PENALTY PROCEEDINGS THE ASSESSEE RELYING ON VARIOUS DECISIONS JUSTIFIED THE CLAIM OF DEPRECIATION @25% ON COMPUTER SOFTWARE. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE AND LEVIED PENALTY U/S.271(1)(C) OF THE ACT ON ACCOUNT OF SUCH LESSER CLAIM OF DEPRECIATION ON COMPUTER SOFTW ARE. 5. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO, HE OBSERVED THAT THE LESSER CLAIM O F DEPRECIATION AT 25% AS 3 ITA NO.82/PN/2015 AGAINST 60% APPLICABLE TO COMPUTER SOFTWARES ARE DR IVEN BY THE GREED OF THE ASSESSEE FOR CLAIMING HIGHER DEDUCTION U/S.10B OF T HE I.T. ACT. HE OBSERVED THAT WHAT THE ASSESSEE IS USING IS JUST A LICENSE S OFTWARE AND NOT ANY INTANGIBLE ASSET AS CLAIMED. THE SAME AUDITORS MAK E DEPRECIATION CLAIM @60% IN NON 10B CASES WHILE IN THE PRESENT CASE THE CLAIM HAS BEEN MADE @25% WHICH IS NOT CORRECT. THEREFORE, HE HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE CLAIM OF DEPRECIA TION AT 25% ON COMPUTER SOFTWARE BY THE ASSESSEE IS NOT A BONAFIDE ONE AND HAS BEEN MADE TO CLAIM HIGHER DEDUCTION. THIS ACCORDING TO HIM IS A CASE OF FILING OF INACCURATE PARTICULARS OF INCOME. RELYING ON THE D ECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TIME GUARANTEE LTD. VIDE ITA NO.1681/MUM/2007 FOR A.Y. 1993-93 ORDER DATED 10-10 -2014, WHEREIN THE TRIBUNAL HAS UPHELD THE LEVY OF PENALTY ON ACCOUNT OF WRONG CLAIM OF DEPRECIATION IN RESPECT OF FINANCIAL TRANSACTION CL AIMED TO BE LEASE TRANSACTION. THE CIT(A) UPHELD THE LEVY OF PENALTY BY THE ASSESSING OFFICER. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLE NGED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE ASSESSMENT YEAR INVOLVED IS A.Y. 2004- 05. REFERRING TO THE DECISION OF DELHI BENCH OF TH E TRIBUNAL IN THE CASE OF SONY INDIA PVT. LTD. VS. ADDL.CIT REPORTED IN 141 T TJ 432 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT LIC ENSE FOR USE OF COMPUTER SOFTWARE BEING AN INTANGIBLE ASSET AS PER PART-B OF APPENDIX-1 TO INCOME TAX RULES, IS ELIGIBLE FOR DEPRECIATION @25%. REFE RRING TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-0 5 IN QUANTUM PROCEEDINGS HE SUBMITTED THAT THE TRIBUNAL WHILE DE CIDING THE ISSUE OF RATE OF DEPRECIATION ON COMPUTER SOFTWARE IN ITA NO.1125 /PN/2011 AND BUNCH OF OTHER APPEALS VIDE ORDER DATED 31-03-2015 HAS RESTO RED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH WITH 4 ITA NO.82/PN/2015 CERTAIN DIRECTIONS. HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING OBSERVATION OF THE TRIBUNAL : 24. THE SECOND ISSUE RAISED BY THE ASSESSEE IS WITH REGARD TO THE RATE OF DEPRECIATION TO BE ALLOWED ON COMPUTER SOFTWARE. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT AS PER THE ENTRY IN APPENDIX-1 TO THE INCOME TAX RULES, 1962 (IN SHORT RULES) I.E. REFEREN CE TO PART B INTANGIBLE ASSETS, IT IS PROVIDED THAT KNOW-HOW, PATEN TS, COPY RIGHTS, TRADE MARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE ARE TO BE TAKEN AS INTANGIBL E ASSETS. AS AGAINST THE ENTRY NO.5 IN PART A, TANGIBLE ASSETS READS AS COMP UTERS INCLUDING THE COMPUTER SOFTWARE. FURTHER, THE CLAIM OF THE ASSE SSEE WAS THAT THE SOFTWARE WAS LICENSED SOFTWARE RATHER THAN OWNED SOFTWA RE AND ONCE WHEN THERE WAS SPECIFIC ENTRY FOR COPY RIGHTS, LICENSES OR OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, THE GENERAL E NTRY FOR COMPUTER SOFTWARE SHOULD BE UNDERSTOOD FOR OWNED SOFTWARE, WHICH ONCE PURCHASED AND THERE WAS NO QUESTION OF RENEWAL OF LICE NSE. RELIANCE IN THIS REGARD WAS PLACED ON SERIES OF DECISIONS BY THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, BUT SPECIAL RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE DELHI BENCH OF THE TRIBUNAL IN SONY INDIA PVT. LTD. VS. ADDL.CIT (2011) 56 DTR 156 (DELHI). IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT IN CASE OF LICENSE FOR USE OF COMPUTER SOFTWARE, IT WAS HELD THAT THE LICENSE WAS AN INTANGIBLE ASSET AS PER PART B OF APPENDIX-1 TO RULES, WHICH PRESCRIBES UNIFORM RATE OF 25% FOR DEPRECIATION ON ALL INTANGI BLE ASSETS. IN THE SCHEDULE TO INCOME TAX RULES, UNDER PART A IN BLOCK OF ASSETS AND PLANT & MACHINERY AT SERIAL NO.5, IT IS PROVIDED THAT DEPRE CIATION AT 60% WOULD BE ALLOWED ON COMPUTERS INCLUDING COMPUTER SOFT WARE. THE SAID DEFINITION TO INCLUDE COMPUTER SOFTWARE WAS INTRODUCE D W.E.F. ASSESSMENT YEAR 2006-07. UNDER PART B I.E. INTANGIBLE ASSETS, IT IS PROVIDED THAT KNOW-HOW, PATENTS, COPY RIGHTS, TRADE M ARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE ARE TO BE ALLOWED DEPRECIATION @ 25%. WHILE INTERP RETING THE TERM LICENSE FOR USE OF COMPUTER SOFTWARE, THE DELHI BENCH OF THE TRIBUNAL IN SONY INDIA PVT. LTD. VS. ADDL.CIT (SUPRA), HAD HELD T HAT THE SAME WAS AN INTANGIBLE ASSET. THE RATIO LAID DOWN BY THE DELHI B ENCH OF TRIBUNAL WAS WITH REGARD TO LICENSE FOR USE OF COMPUTER SOFTWARE . THE ACT ITSELF RECOGNIZED THE DISTINCTION BETWEEN THE COMPUTER SOFTW ARE PERSE AND THE LICENSE, WHEREIN THE COMPUTER ALONG WITH COMPUTE R SOFTWARE IS TERMED AS A TANGIBLE ASSET AND THE LICENSE IS COVERED AS INTANGIBLE ASSET. THE DELHI BENCH OF TRIBUNAL HAS HELD THAT THE LICENSE FOR USE OF COMPUTER SOFTWARE IS AN INTANGIBLE ASSET ENTITLED TO DE PRECIATION @ 25%. HOWEVER, IN THE FACTS OF THE PRESENT CASE BEFOR E US, THE NATURE OF ACQUISITION OF COMPUTER SOFTWARE IS NOT CLEAR WHETHER THE ASSESSEE HAS PURCHASED COMPUTER SOFTWARE PERSE OR HAS OBTAINED LICEN SE FOR USE OF ANY COMPUTER SOFTWARE. IN CASE THE ASSET ACQUIRED BY T HE ASSESSEE IS IN THE FORM OF COMPUTER SOFTWARE, THEN THE SAME IS ENTITL ED TO THE DEPRECIATION @ 60% AND IN CASE, IT IS THE LICENSE FOR USE OF COMPUTER SOFTWARE, THEN THE ASSESSEE IS ONLY ENTITLED TO DEPRECIA TION @ 25% AS CLAIMED IN THE RETURN OF INCOME. IN ORDER TO ESTABL ISH THE NATURE OF ACQUISITION BY THE ASSESSEE IN THE FIELD OF COMPUTER SOFT WARE, WE DEEM IT FIT TO RESTORE THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL DETERMINE THE SAME AND CONSEQUENTLY, ALLOW THE DEPREC IATION ON THE SAME. THE ASSESSEE SHALL FURNISH THE NECESSARY EVIDENCE IN THIS REGARD BEFORE THE ASSESSING OFFICER AND WHO IN TURN, SHALL DEC IDE THE ISSUE. THE 5 ITA NO.82/PN/2015 GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS, ALLO WED FOR STATISTICAL PURPOSES. 8. HE SUBMITTED THAT ALTHOUGH THE TRIBUNAL HAS PASS ED THE ORDER WAY BACK IN MARCH 2015, HOWEVER, THE ASSESSING OFFICER HAS NOT RECOMPUTED THE DEPRECIATION IN THE LIGHT OF THE DIRECTION OF T HE TRIBUNAL. HE SUBMITTED THAT THE ISSUE IS A HIGHLY DEBATABLE ONE AND THEREF ORE DOES NOT CALL FOR LEVY OF PENALTY U/S.271(1)(C) OF THE I.T. ACT. 9. SO FAR AS THE DECISION RELIED ON BY THE LD.CIT(A ) IN THE CASE OF TIME GUARANTEE LTD. (SUPRA) IS CONCERNED HE SUBMITTED TH AT THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. I N THAT CASE THE MAIN ISSUE ON WHICH ADDITION WAS MADE BY THE ASSESSING OFFICER WAS WITH REGARD TO THE CLAIM OF DEPRECIATION ON LEASED ASSETS. IT WAS FOUND BY THE ASSESSING OFFICER AFTER DETAILED INVESTIGATION THAT THE TRANS ACTIONS WERE BOGUS, SHAM AND COLOURABLE DEVICES TO EVADE TAX. IT HAS BEEN H ELD THAT THE TRANSACTIONS IN QUESTION AT THE MOST COULD BE SAID TO BE LOAN TR ANSACTION AND NOTHING MORE THAN THAT. UNDER THESE CIRCUMSTANCES THE TRIB UNAL REJECTED THE ARGUMENT OF THE ASSESSEE THAT WHETHER A TRANSACTION IS A LEASED TRANSACTION OR A FINANCIAL TRANSACTION IS A DEBATABLE LEGAL ISS UE AND THE LEVY OF PENALTY WAS CONFIRMED. HOWEVER, IN THE INSTANT CASE THERE IS NO BOGUS OR SHAM TRANSACTION OR COLOURABLE DEVICE TO EVADE TAX. THE ASSESSEE HAS CLAIMED LESSER RATE OF DEPRECIATION ON THE BASIS OF VARIOUS JUDICIAL DECISIONS AVAILABLE AT THAT TIME. THEREFORE, THE CLAIM OF DE PRECIATION AT 25% AS AGAINST 60% HELD BY THE ASSESSING OFFICER IS A HIGH LY DEBATABLE ISSUE AND THEREFORE PENALTY U/S.271(1)(C) OF THE ACT IS NOT L EVIABLE. HE ACCORDINGLY SUBMITTED THAT PENALTY LEVIED U/S.271(1)(C) OF THE ACT SHOULD BE DELETED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE ASSESSEE BY CLAIMING LESSER RATE OF DEPRECIATION ON COMPUTER SO FTWARE INCREASED ITS 6 ITA NO.82/PN/2015 PROFIT OF EXPORT ORIENTED UNITS WHICH IS EXEMPT FR OM TAX. THEREFORE, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME AND THEREFORE THE PENALTY U/S.271(1)(C) HAS BEEN RIGHTLY LEVIED BY TH E ASSESSING OFFICER AND THE SAME HAS BEEN RIGHTLY UPHELD BY THE CIT(A). HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND THE GRO UNDS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE GROUNDS R AISED BY THE ASSESSEE IN THE IMPUGNED APPEAL IS REGARDING LEVY OF PENALTY U/ S.271(1)(C) OF THE ACT ON ACCOUNT OF CLAIM OF LESSER DEPRECIATION ON COMPUTER SOFTWARE. THE ASSESSEE IN THE INSTANT CASE HAS CLAIMED DEPRECIATI ON @25% ON COMPUTER SOFTWARE WHEREAS ACCORDING TO THE AO THE RATE OF DE PRECIATION SHOULD BE 60%. THE ASSESSEE BY CLAIMING LESSER RATE OF DEPRE CIATION ON COMPUTER SOFTWARE HAS INCREASED ITS PROFIT OF THE ELIGIBLE 1 0B UNITS WHICH IS EXEMPT FROM TAX. THEREFORE, THE ASSESSEE BY CLAIMING LESS ER RATE OF DEPRECIATION AND INCREASING ITS PROFIT OF THE ELIGIBLE UNITS HAS FURNISHED INACCURATE PARTICULARS OF INCOME FOR WHICH THE PENALTY WAS LEV IED BY THE AO U/S.271(1)(C) OF THE I.T. ACT. IT IS THE CASE OF T HE LD. COUNSEL FOR THE ASSESSEE THAT RATE OF DEPRECIATION ON COMPUTER SOFT WARE IS A HIGHLY DEBATABLE ISSUE AND THEREFORE PENALTY U/S.271(1)(C) OF THE I.T. ACT IS NOT LEVIABLE. 12. WE FIND MERIT IN THE ARGUMENTS OF THE LD. COUNS EL FOR THE ASSESSEE. WE FIND IN THE QUANTUM PROCEEDING THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO WITH CERTAIN DIRECTIONS WHICH HA S ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. IT WAS SUBMITTED AT TH E TIME OF HEARING THAT THE AO HAS NOT TAKEN ANY ACTION ON THE BASIS OF THE DIR ECTION GIVEN BY THE 7 ITA NO.82/PN/2015 TRIBUNAL. SINCE THE QUANTUM ADDITION IS STILL PEND ING BEFORE THE AO, THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE WE DEEM IT PROPER TO RESTORE THE ISSUE T O THE FILE OF THE AO WITH A DIRECTION TO RECONSIDER THE SAME ON THE BASIS OF TH E OUTCOME OF THE QUANTUM ADDITION. NEEDLESS TO SAY THE AO SHALL GIV E DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER FACT AND LAW. HE SHALL ALSO KEEP IN MIND AS TO WHETHER THE ISSUE IS DEBATABLE OR NOT. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23-11-2016. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE; DATED : 23 RD NOVEMBER, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // # % / TRUE COPY // // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A ) - V, PU NE 4. 5. THE CIT - V, PUNE # %%*, *, B BENCH / DR, ITAT, B BENCH PUNE; 6. 2 / GUARD FILE.