DCIT, Coimbatore V. CRI Pumps P Ltd., Coimbatore

ITA 830/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8038 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 19-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2015
• Court: TRIBUNAL
• Department Lawyers: DR ANITA SUMANTH
• Assessee Lawyers: DURAI
• Keywords: Reopening of assessment; Depreciation; Double taxation relief; Additional depreciation; Fair market value; Wrong claim; Difference of opinion; Scheme of amalgamation; Revised return; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 32; 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I . T.A. NO S . 1017/MDS/2012, 2318/MDS/2014 & 1872/MDS/2013 ASSESSMENT YEAR S:2008 - 0 9, 2005 - 06 & 2009 - 10 M/S. CRI PUMPS (P) LTD., NO. 7/46/1, KEERANATHAM ROAD, SARAVANAMPATTI, COIMBATORE. [PAN: AAACC9497N] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE IV(2), COIMBATORE. ( / APPELLANT ) ( / RESPONDENT ) I .T.A. NOS. 1246/MDS/2012, 830/MDS/2015 & 2014/MDS/2013 ASSESSMENT YEARS:2008 - 09, 2007 - 08 & 2009 - 10 THE ASSISTANT/ DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE (2)/ COMPANY CIRCLE IV(2), COIMBATORE. VS. M/S. CRI PUMPS (P) LTD., NO. 7/46/1, KEERANATHAM ROAD, SARAVANAMPATTI, COIMBATORE. ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : DR. ANITA SUMANTH, ADVOCATE / RESPONDENT BY : SHRI DURAI PANDIAN, JCIT / DATE OF HEARING : 23 . 08 .201 6 / DATE OF P RONOUNCEMENT : 16 . 11 .2016 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E S E TWO CROSS APPEAL S FILED BY THE ASSESSEE AS WELL AS REVENUE P ERTAIN TO SAME ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDER S OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) I , COIMBATORE DATED 08 . 0 3 .201 2 AND 20.08.2013 FOR THE ASSESSMENT YEAR S 20 0 8 - 0 9 AND 2009 - 10 RESPECTIVELY . THE ASSESSEE ALSO FILED APPEAL AGAINST TH E ORDER OF THE LD. CIT(A) I, COIMBATORE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 2 DATED 06.08.2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND THE DEPARTMENT ALSO FILED APPEAL AGAINST THE ORDER OF THE LD. CIT(A) I, COIMBATORE DATED 05.01.2015 FOR THE ASSESSMENT YEAR 2007 - 08. 2. F IRST , WE SHALL TAKE UP C ROSS APPEALS RELEVANT TO THE ASSESSMENT YEAR 2008 - 09 AND IN THE ASSESSEE S APPEAL, FOLLOWING GROUNDS HAVE BEEN RAISED : (A) THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 8.3.2012 IS ERRONEOUS TO THE EXTENT IT REJECTS THE APPELLANT'S CONTENTI ON CONCERNING THE GRANT OF ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY ACQUIRED IN THE PERIOD 2002 - 2005. (B) THE COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE REVERSED THE ORDER OF THE ASSESSING OFFICER REJECTING THE CLAIM OF ADDITIONAL DEPRECI ATION OF AN AMOUNT RS.1,98,26,411/ - . THE CLAIM IS ALLOWABLE AND THE CIT(APPEALS) ERRED IN CONCLUDING THAT ADDITIONAL DEPRECIATION IS ALLOWABLE UNDER SEC. 32 (1) (IIA) OF THE INCOME TAX ACT ONLY IN RESPECT OF ASSESSMENT YEAR IN WHICH THE NEW MACHINERY WAS A CQUIRED AND INSTALLED AND NOT THEREAFTER. (C) THE COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE ACCEPTED THE CLAIM IN SO FAR AS CLAUSE (IIA) TO SEC. 32 INTRODUCED VIDE FINANCE ACT 2005 SUPPORTS THE STAND OF THE APPELLANT HEREIN. (D) THE CLAIM IN RELATION TO ADDITIONAL DEPRECIATION IN RELATION TO ASSETS ACQUIRED IN THE PERIOD 2002 - 2005 IS ALLOWABLE U/S 32(1)(IIA) IN LAW AND ON FACTS AND THE CIT(APPEALS) ERRED IN REJECTING THE CLAIM. (E) THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONCLUDI NG THAT THE EXPENSES RELATING TO SOFTWARE CONCERNING IMPORT/EXPORT (RS.6,75,418/ - ), PAYROLL (RS.1,21,680/ - ) AND BILLING (RS. 3,80,000/ - ) ARE NOT ALLOWABLE BEING CAPITAL IN NATURE. (F) THE CIT(APPEALS) OUGHT TO HAVE RIOTED THAT THE EXPENSES ARE REVENUE I N NATURE AND ALLOWABLE IN SO FAR AS THEY ARE INEXTRICABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE APPELLANT. (G) ANY OTHER GROUND THAT MAY BE TAKEN AT THE TIME OF PERSONAL HEARING. 2.1 FOR THE ASSESSMENT YEAR 2008 - 09, THE REVENUE HAS RAISED TH E FOLLOWING EFFECTIVE GROUNDS: (I) THE LD. CIT(A) HAS ERRED IN DELETING THE ROYALTY PAYMENT OF .1,60,97,339/ - MADE TO M/S. C.R.I. AMALGAMATIONS (P) LTD. ON I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 3 THE GROUND THAT THE ASSESSEE IS THE OWNER OF THE TRADE MARK CRI . (II) THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TOWARDS IMPLEMENTATION OF ORACLE ADDITIONAL REPORT DEVELOPMENT. ( III) THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE UNDER SECTION 14A OF THE ACT. 2.2 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PUMPS AND MOTORS WITH BRAND NAME CRI . THE ASSESSEE HAS FILE D ITS RETURN OF INCOME ADMITTING THE TOTAL INCOME OF .33,69,88,630/ - ON 26.09.2008. SUBSEQUENTLY A REVISED RETURN WAS FILED ON 25.09.2009 ADMITTING THE SAME TOTAL INCOME. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 07.09.2009. IN RESPONSE THERETO, THE ASSESSEE FURNISHED ALL DETAILS AND AFTER VERIFICATION OF DETAILS, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .37,52,87,545/ - BY MAKING VARIOUS ADDITIONS. 2.3 THE FIRST GROUND RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE OF .1,98,26,411/ - . IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS OBSERVED THAT A S AGAINST THE ELIGIBLE AMOUNT OF ADDITIONAL DEPRECIATION OF . 1,84,90,560/ - , THE ASSESSEE HAS CLAIMED DEPRECIATION OF . 3,83,16 , 971/ - IN EXCESS BY GROUPING THE PLANT AND MACHINERY INTO DIFFERENT CATEGORIES. THE AR OF THE ASSESSEE HAS STATED BEFORE THE ASSESSING OFFICER I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 4 THAT THE EXCESS CLAIM OF .3,83,16,971 / - IS THE AD D I T IONAL DEPRECIATION ON PLANT AND MACHINERY ACQUIRED AND INSTALLED BY THE ASSESSEE IN THE PREVIOUS YEAR AS WELL AS IN THE PRECEDING YEAR. AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE AND VERIFICATION OF DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT N O DEDUCTION UNDER SECTION 32(1)(IIA) OF THE ACT IS ALLOWABLE TO ANY MACHI N ERY OR PLANT, THE WHOLE OR THE ACTUAL COST OF WHI CH IS ALLOWED AS DEDUCTION, WHETHER BY WA Y OF DEPRECIATIO N OR OTHERWISE, IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION OF ANYONE PREVIOUS YEAR SINCE T HE ASSESSEE HAS C LAIMED A N AMOUN T OF . 1,98,26,411 / - AS ADDITIONAL DEPRECIATION ON MACHINERIES ACQUIRED AND INSTALLED DURING THE PERIOD 2002 - 03 TO 2004 - 05 AND 2005 - 06. THE MACHINERIES WERE INSTALLED AND CLAIMED DEPRECIATION AND ADDITIONAL DEPRECIATION DURING THE PREVIOUS YEAR ITSELF AND DULY ALLOWED IN THE COMPUTATION OF TOTAL INCOME FOR THE RESPECTIVE ASSESSMENT YEARS. SINCE THE ASSESSE E HAS CLAIMED DEPRECIATION AND ADDITIONAL DEPRECIATION OF SUCH MACHINERIES OF PRECEDING ASSESSMENT YEARS, THE ASSESSING OFFICER HAS HELD THAT THE CLAIM OF ADDI TIONAL DEPRECIATION FOR THE YEAR UNDER CONSIDERATION IS NOT ALLOWABLE AND H ENCE, THE CLAIM OF ADDITIONAL DEPRECIATION IN THE GUISE OF DEPRECIATION ON MACHINERY ACQUIRED AND INSTALLED IN THE PRECEDING YEARS AMOUNTING TO . 1,98,26,411/ - WAS DISALLOWED AND ADDED TO THE INCOME DECLARED BY THE ASSESSEE. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 5 2.4 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: 8. I H AVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFICER. TAKING INTO CONSIDERATION THE PROVISIONS AS EXISTED IN 1981, 2002 AND 2005, THE LEARNED AUTHORIZED REPRESENTATIVE STATED THAT SINCE THE RESTRICTION TO THE P REVIOUS YEAR IS AS PER THE PROVISIONS INTRODUCED BY THE FINANCE ACT 2005 WITH EFFECT FROM 01.04.2006, ADDITIONAL DEPRECIATION IS ALLOWABLE TILL THE VALUE OF ASSETBECO.MES NIL. ON GOING THROUGH THE PROVISION OF CLAUSE (II) OF SUB SECTION (1) OF SECTION 32 W ITH EFFECT FROM 01.04.1981 AND ALSO THE PROVISIONS WITH EFFECT FROM 01.04.2003 AND THE PROVISIONS WITH EFFECT FROM 01.04.2005, THE INTENTION OF THE LEGISLATURE IS VERY CLEAR THAT THE DEDUCTION UNDER ADDITIONAL DEPRECIATION IS ALLOWABLE IN THE PREVIOUS YEAR IN WHICH THE NEW MACHINERY OR PLANT WAS INSTALLED BY THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING OR PRODUCTION OF ANY ARTICLE OR THING. THE PROVISIONS OF CLAUSE (II) (A) CLEARLY STATES THAT THE A FURTHER SUM EQUAL TO _____ PERCENTAGE OF THE ACTU AL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE II. THE DEFINITION OF ACTUAL COST IS DISCUSSED IN THE PROVISION OF SECTION 43(1) OF THE INCOME TAX ACT. ACTUAL COST MEANS THE ACTUAL COST OF THE ASSETS TO THE ASSESSEE REDUCED BY THAT PORTION OF COST THEREOF, IF ANY AS HAS BEEN MADE DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHORITY. IN REFERENCE TO THIS THE PROVISIONS OF THE ACT ARE VERY CLEAR THAT THE ACTUAL COST TO THE APPELLANT IS THE COST AT WHICH HE HAS PURCHASED THE NE W PLANT AND MACHINERY AND INSTALLED AFTER THE 31ST DAY OF MARCH 2002 (AS PER THE PROVISIONS OF FINANCE ACT 2002) AND ALSO ANY NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED AFTER 31ST DAY OF MARCH 2005 [ACCORDING TO THE FINANCE ACT 2005] ADDITIONAL DEPRECI ATION IS ALLOWABLE ON THE ACTUAL COST OF SUCH MACHINERY. HENCE THE ARGUMENTS OF THE LEARNED AUTHORIZED REPRESENTATIVE HAVE NO MERIT AND THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS ALSO DISCUSSED ELABORATELY REGARDING THE PROVISIONS OF SECTION 32. I N VIEW OF THIS I CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH REGARD TO DEPRECIATION. 2.5 AT THE TIME OF HEARING, THE LD. DR HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF T HE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 6 YEAR 2010 - 11 IN I.T.A. NO. 578/MDS/2015 VIDE ORDER DATED 28.08.2015 AND FILED COPY OF THE ORDER OF THE TRIBUNAL . 2.6 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THE SUBMISSIONS OF THE LD. DR. 2.7 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 DATED 28.08.2015 WITH REGARD TO THE CLAIM OF ADDITIONAL DEPRECIATION , WHEREIN THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS RELATING TO CLAIM OF ADDITIONAL DEPRECIATION. IN THE ASSESSMENT ORDER, THE ASSESSING O FFICER HAS OBSERVED AS UNDER: 4(II). THE ASSESSEE COMPANY HAS CLAIMED ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY ACQUIRED AND INSTALLED IN THE PRECEDING YEARS OTHER THAN THE NEW MACHINERY ACQUIRED AND INSTALLED DURING THE PREVIOUS YEAR. AS PER THE PR OVISIONS OF SECTION 32 (1)(II)(A), NO DEDUCTION IS ALLOWABLE TO ANY PLANT AND MACHINERY, THE WHOLE OR THE ACTUAL COST OF WHICH IS ALLOWED AS DEDUCTION WHETHER BY WAY OF DEPRECIATION OR OTHERWISE, IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT A ND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR . THE ADDITIONAL DEPRECIATION U/S 32 IS ELIGIBLE ONLY TO ANY NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTION OF ANY ARTICLE OR T HING IN THE PREVIOUS YEAR RELEVANT TO THE RESPECTIVE ASSESSMENT YEAR. ONCE A NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED IN A YEAR AND CLAIMED DEPRECIATION AND ADDITIONAL DEPRECIATION FOR THE YEAR OF INSTALLATION, THE ASSESSEE IS NOT ELIGIBLE FOR ADDITIO NAL DEPRECIATION IN THE SUBSEQUENT YEAR SINCE THE PLANT AND MACHINERY LOST ITS CHARACTER OF NEW PLANT AND MACHINERY. THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION ONLY TO THE NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED DURING THE PREVIOUS YEAR. T HE ADDITIONAL DEPRECIATION IS ONLY ELIGIBLE TO THE NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED DURING A GIVEN YEAR AND CANNOT BE EXTENDED TO SUBSEQUENT YEARS AS SUCH PLANT AND MACHINERY WILL NOT QUALIFY FOR ADDITIONAL DEPRECIATION SINCE IT WAS NO LONGER NEW MACHINERY IN THE SUBSEQUENT YEARS. THE ADDITIONAL DEPRECIATION IS INTRODUCED BY THE LEGISLATURE IN ORDER TO PROMOTE INDUSTRIES AS ONE TIME MEASURE IN THE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 7 YEAR OF INSTALLATION BY PROVIDING OVER AND ABOVE THE NORMAL ENTITLED DEPRECIATION ON PLANT AND MACHINERY. THE FINANCE ACT 2002 PROVIDED ADDITIONAL DEPRECIATION AT THE RATE OF 15% AND THE FINANCE (NO.2) ACT 2004 PROVIDED 20% ADDITIONAL DEPRECIATION TO THE NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED. THE VERY SAME WAY THE FINANCE ACT 2005 ALSO PROV IDED 20% ADDITIONAL DEPRECIATION TO THE NEW PLANT AND MACHINERY. ALL THE ABOVE REFERRED AMENDMENTS INSISTED AND HIGHLIGHTED THE ACQUISITION AND INSTALLATION OF NEW MACHINERY OR PLANT AN SPECIFICALLY POINTED OUT THAT NO DEDUCTION IS ELIGIBLE TO ANY PLANT OR MACHINERY, WHOLE OF THE ACTUAL COST TO WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR. IT IS PERTINENT TO POINT OUT THAT THE ADDITIONAL DEPRECIATION IS ELIGIBLE ONLY TO NEW MACHINERY, OR PLANT ACQUIRED OR INSTALLED AND NOT AVAILED ANY DEDUCTION BY WAY OF DEPRECIATION OR OTHERWISE IN THE YEAR OF SUCH MACHINERY OR PLANT PUT INTO USE BY AN ASSESSEE. THIS ISS UE WAS PRESENT IN THE A.Y. 2008 - 09 & 2009 - 10 ALSO IN THE CASE OF ASSESSEE COMPANY AND DISALLOWANCE WAS MADE. FURTHER, CIT (A) AS WELL AS ITAT, CHENNAI BENCH HAS UPHELD THIS DISALLOWANCE AND ASSESSEE COMPANY HAS PREFERRED APPEAL BEFORE THE HIGH COURT OF MAD RAS. THEREFORE, FOR THE CURRENT YEAR ALSO DISALLOWANCE OF CLAIM OF ADDITIONAL DEPRECIATION IS MADE. 3. ON APPEAL, THE LD. CIT(A), BY FOLLOWING HIS OWN DECISIONS FOR THE EARLIER ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 IN ASSESSEE S OWN CASE, DISMISSED THE G ROUND RAISED BY THE ASSESSEE. 4. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LD. CIT(A), BY FOLLOWING HIS OWN DECISIONS FOR THE EARLIER ASSESSMENT YEARS, HAS OBSERVED AS UNDER: 9. I H AVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFICER. FOR THE ASST. YEAR 2008 - 09 THE SAME ISSUE WAS DEALT ELABORATE BY ME IN MY APPELLATE ORDER IN ITA NO. 213/10 - 11 DATED 08.03.2012 AND DECIDED IN FAVOUR OF THE REVENUE. SUBSEQUENTLY FOR THE ASST. YEAR 2009 - 10, ON THE SAME ISSUE IN ITA NO. 105/12 - 13 DATED 20.08.2013, THE GROUND OF APPEAL WAS DECIDED AGAINST THE ASSESSEE. FOLLOWING MY EARLIER ORDERS FOR THE ASST. YEAR 2008 - 09 AND 2009 - 10, I CONFIRM THE DISALLOWANC E MADE BY THE ASSESSING OFFICER WITH REGARD TO ADDITIONAL DEPRECIATION. THIS GROUND OF APPEAL IS DISMISSED. 5. SIMILAR ISSUE HAS BEEN RAISED BEFORE THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO.1824 & 1825/MDS/2010 VI DE ORDER DATED 04.04.2013, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT THE ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEES, FOR IMPUGNED ASSESSMENT YEAR, WERE ON M ACHINERY ALREADY ACQUIRED DURING THE YEARS 2002 - 03 TO 2004 - 05 AND 2005 - 06. THUS, IN THE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 8 PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR, THE MACHINERY WERE NO MORE NEW. CLAIM OF THE ASSESSEES IS THAT UNDER SECTION 32(1)(IIA) OF THE ACT, ADDITIONAL DEPR ECIATION FOR NEW PLANT AND MACHINERY ACQUIRED WAS AVAILABLE IN EVERY YEAR AFTER ITS INSTALLATION IF SUCH INSTALLATION HAPPENED AFTER 31ST MARCH, 2005. SAID CLAUSE (IIA) OF SECTION 32(1) IS REPRODUCED HEREUNDER: - 32 (1) IN RESPECT OF DEPRECIATION OF . . . . . . . . . . . . . . . . . . .. .. .. .. . . . . . . . . . .. .. . . . . . . . . . . . . . (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRE D AND INSTALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCT ION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF - (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INS TALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST - HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR; 9. FIRST REQUIREMENT FOR BEING ELIGIBLE FOR THE CLAIM OF ADDITIONAL DEPR ECIATION IS THAT IT SHOULD BE ON A NEW MACHINERY OR PLANT. A MACHINERY IS NEW ONLY WHEN IT IS FIRST PUT TO USE. ONCE IT IS USED, IT IS NO LONGER A NEW MACHINERY. ADMITTEDLY, THE MACHINERY, ON WHICH ADDITIONAL DEPRECIATION HAS BEEN CLAIMED, WAS ALREADY US ED IN VARIOUS PRECEDING PREVIOUS YEARS. THEREFORE, FOR THE IMPUGNED ASSESSMENT YEAR, IT IS NO MORE A NEW MACHINERY OR PLANT. ONCE IT IS NOT A NEW MACHINERY OR PLANT, ALLOWANCE UNDER SECTION 32(1)(IIA) CANNOT BE ALLOWED. ADDITIONAL DEPRECIATION ITSELF IS ONLY FOR A NEW MACHINERY OR PLANT. A CLAIM OF ADDITIONAL DEPRECIATION AS MADE BY THE ASSESSEE, IF ALLOWED, WILL NOT BE AN ALLOWANCE FOR A NEW MACHINERY OR PLANT. INTENTION OF THE LEGISLATURE WAS TO GIVE SUCH ADDITIONAL DEPRECIATION IN THE YEAR IN WHICH ASSETS WERE PUT TO USE AND NOT FOR ANY SUCCEEDING YEAR. THERE IS NOTHING IN THE STATUTE WHICH ALLOWS SUCH CLAIM OF ADDITIONAL DEPRECIATION EVERY I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 9 YEAR ON MACHINERY ACQUIRED IN EARLIER YEAR. THERE CANNOT BE ANY PRESUMPTION THAT UNLESS A CLAIM IS SPECIFICALLY DENIED, IT HAS TO BE ALLOWED. IN THE CASE OF BRAKES INDIA LTD. (SUPRA) WHERE ASSESSEE CLAIMED CARRY FORWARD OF ADDITIONAL DEPRECIATION, THIS TRIBUNAL HAD HELD AS UNDER AT PARA 15 OF ITS ORDER: - 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PERUSAL O F THE PROVISIONS OF SECTION 32 AS APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR CLEARLY SHOWS THAT ADDITIONAL DEPRECIATION IS ALLOWABLE ON THE PLANT AND MACHINERY ONLY FOR THE YEAR IN WHICH THE CAPACITY EXPANSION HAS TAKEN PLACE WHICH HAS RESULTED IN THE SUB STANTIAL INCREASE IN THE INSTALLED CAPACITY. IN THE ASSESSEE S CASE THIS TOOK PLACE IN THE ASSESSMENT YEAR 2005 - 06 AND THE ASSESSEE HAS ALSO CLAIMED THE ADDITIONAL DEPRECIATION DURING THAT YEAR AND THE SAME HAS ALSO BEEN ALLOWED. EACH ASSESSMENT YEAR IS S EPARATE AND INDEPENDENT ASSESSMENT YEAR. THE PROVISIONS OF SECTION 32 OF THE ACT DO NOT PROVIDE FOR CARRY FORWARD OF THE RESIDUAL ADDITIONAL DEPRECIATION, IF ANY. IN THE CIRCUMSTANCES, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY, GROUND NO.1 OF THE ASSESSEE S APPEAL STANDS DISMISSED. 10. WHEN AN ALLOWANCE WHICH IS ORDINARILY NOT AVAILABLE UNDER NORMAL COMMERCIAL PRINCIPLES OF ACCOUNTING, IS MADE SPECIFICALLY ALLOWABLE, THRO UGH ENACTMENT OF CERTAIN SPECIFIC PROVISIONS OF THE ACT, IT IS ALSO A REQUIREMENT THAT THERE SHOULD BE SIMILAR SPECIFIC PROVISION WHICH SHOWS ITS APPLICABILITY EVERY YEAR, UNLESS THE CONTEXT STRONGLY CALLS FOR SUCH AN INTERPRETATION. WE ARE THUS OF THE OPI NION THAT CIT(APPEALS) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION. NO INTERFERENCE IS WARRANTED. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 ON SIM ILAR ISSUE RAISED, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 2.8 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11, THE SIMILAR GROUND RAISED B Y THE ASSESSEE IN THE ASSESSMENT YEAR 2008 - 09 IS DISMISSED. 3. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES RELATING TO SOFTWARE. THE EXPENSES RELATING TO SOFTWARE INCLU DES PAY ROLL SOFTWARE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 10 [ .1,21,680/ - ], BILLING SOFTWARE [ .3,80,000/ - ] AND EXPORT/IMPORT PRODUCT LICENCE FEE [ .6,75,418/ - ]. WITH REGARD TO THE EXPENSES TOWARDS PAY ROLL SOFTWARE AND BILLING SOFTWARE, SINCE THE ASSESSEE COULD NOT PRODUCE ANY INVOICES FOR TH E ABOVE EXPENSES, THE ASSESSING OFFICER DISALLOWED THE EXPENSES. THE ASSESSEE COULD NOT PRODUCE INVOICES FOR THE ABOVE EXPENSES EITHER BEFORE THE LD. CIT(A) OR EVEN BEFORE THE TRIBUNAL. SINCE THE ASSESSEE COULD NOT PRODUCE INVOICES TOWARDS PURCHASE OF THE SOFTWARES TO SUBSTANTIATE ITS CLAIM OF DEDUCTION, THE DISALLOWANCE MADE TO THAT EXTENT IS CONFIRMED. 3.1 WITH REGARD TO THE EXPENSES OF .6,75,418/ - TOWARDS PURCHASE OF SOFTWARE OPTISUITE, THE AUTHORITIES BELOW HAVE OBSERVED THAT IT IS PRODUCT LICENCE FEE FOR A VERSION OF SOFTWARE FOR WHICH EXPORTS AND IMPORTS, WHICH HAD SUFFERED EXCISE DUTY LIKE AN ASSET TO THE ASSESSEE. SINCE THERE IS AN ENDURING BENEFIT TO THE ASSESSEE, THE ACQUISITION OF COMPUTER SOFTWARE HAS TO BE TREATED AS CAPITAL EXPENDITURE AND THUS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A) . 3.2 BEFORE US, BY RELYING ON THE DECISION IN THE CA SE OF CIT V. SOUTHERN ROADWAYS 288 ITR 14 (MAD), THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE EXPENSES INCURRED TOWARDS PURCHASE OF SOFTWARE SHOULD BE TREATED AS REVENUE IN NATURE AND PLEADED THAT THE DISALLOWANCE MADE ON THIS ACCOUNT SHOULD BE DELETED. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 11 3.3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE POINT AT ISSUE FOR ADJUDICATION IS WHETHER THE EXPENDITU RE INCURRED BY THE ASSESSEE ON SOFTWARE PURCHASES IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE EXPENSES INCURRED ON PURCHASE OF SOFTWARE APPLICATION WERE DISALLOWED BY THE ASSESSING OFFICER TREATING THE EXPENDITURE AS ONE INCURRED ON CAPITAL ACCOUNT AND ALLOWED DEPRECIATION . ON SIMILAR FACTS AND CIRCUMSTANCES IN THE CASE OF CIT V. AMWAY INDIA ENTERPRISES 346 ITR 341 (DELHI) , BY FOLLOWING THE DECISION IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD. [2012] 346 ITR 329 (DELHI), THE HON BLE DELHI HIGH COURT HAS HELD THAT THE PURCHASE OF SOFTWARE IS REVENUE EXPENDITURE. IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD. (SUPRA), THE HON BLE DELHI HIGH COURT HAS OBSERVED AND HELD AS UNDER: 8. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES, WHAT HAS EMERGED ON FACTS AS FOUND BY THE AUTHORITIES BELOW IS AS FOLLOWS: THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING SAFETY GLASS WHICH IS USED IN AUTOMOBILES. THUS THE MAIN SOURCE OF INCOME OF THE ASSESSEE IS FROM THE SAID ACTIVITY. THE ASSESSEE APPEARS TO HAVE ENTERED INTO AN AGREEMENT WITH ARTHUR ANDERSON & ASSOCIATES IN THE FINANCIAL YEAR 1996 - 97 (ASSESSMENT YEAR 1997 - 98) FOR INSTALLATION OF A SOFTWARE APPLICATION FOR ASSISTANCE IN AREAS RELATED TO FINANCIAL ACCOUNTING, INVENTORY AND PURCHASE. IT HAS EMER GED THAT AN OFFER WAS MADE IN RESPECT OF SUCH A SOFTWARE APPLICATION BY ARTHUR ANDERSON & ASSOCIATES, WHICH FIND A REFLECTION IN A LETTER DATED 25.06.1996. THE SAID AGREEMENT BETWEEN THE ASSESSEE AND ARTHUR ANDERSON & ASSOCIATES ALSO REQUIRED THE ASSESSEE TO ENTER INTO A BACK - TO - BACK AGREEMENT WITH ORACLE. THE REASONS PERHAPS BEING THAT THE SOFTWARE APPLICATION SUPPLIED BY THE AURTHOR ANDERSON & ASSOCIATES WORKED ON ORACLE APPLICATION. IT IS PRECISELY FOR THIS REASON THAT ARTHUR ANDERSON & ASSOCIATES REQUIR ED THE ASSESSEE TO ENTER INTO A LICENCE AGREEMENT WITH ORACLE TITLED MASTER SOFTWARE LICENCE AND SERVICES AGREEMENT. THE ASSESSEE WAS THUS, REQUIRED TO PAY : APART FROM THE FEE TO ARTHUR ANDERSON & ASSOCIATES QUA ITS AGREEMENT WITH IT; LICENCE FEE TO ORACL E. AS A MATTER OF FACT ORACLE ALSO OFFERED SUPPORT AND MAINTENANCE SERVICES FOR WHICH A FURTHER ADDITIONAL FEE WAS REQUIRED TO BE PAID TO ORACLE. 8.1 THE ASSESSEE THUS ADMITTEDLY IN RESPECT OF THE AFORESAID TRANSACTIONS INCURRED AN EXPENDITURE TO THE TU NE OF RS 1,36,77,664/ - AND RS 1,70,68,811/ - IN ASSESSMENT YEARS 1997 - 98 AND 1998 - 99 RESPECTIVELY. IN THE BOOKS OF ACCOUNTS I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 12 FOR THE ASSESSMENT YEARS 1997 - 98 THE ASSESSEE HAD NOT WRITTEN OFF ANY SUM, WHILE IN THE SUCCEEDING ASSESSMENT YEAR, I.E., 1998 - 99 THE ASSESSEE HAD WRITTEN OFF A PART OF THE EXPENDITURE AMOUNTING TO RS 9,91,228/ - . 8.2 GIVEN THESE FACTS, COULD IT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE AFOREMENTIONED ASSESSMENT YEARS WAS IN THE NATURE OF CAPITAL EXPENDITURE. 9. THE REVENUE IN SUPPORT OF ITS STAND HAS TAKEN RECOURSE TO THE TEST OF ENDURING BENEFIT. IT IS IN OUR VIEW NOW SOMEWHAT TRITE TO SAY THAT THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR A CONCLUSIVE TEST WHICH THE COURTS CAN APPLY ALMOST BY ROTE. WHAT IS R EQUIRED TO BE SEEN IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION OF FIXED CAPITAL FOR THE ASSESSEE. IT IS IMPORTANT TO BEAR IN MIND THAT WHAT IS REQUIRED TO BE SEEN IS NOT WHETHER THE ADVANTAGE OBTAINED L ASTS FOREVER BUT WHETHER THE EXPENSE INCURRED DOES AWAY WITH A RECURRING EXPENSE(S) DEFRAYED TOWARDS RUNNING A BUSINESS AS AGAINST AN EXPENSE UNDERTAKEN FOR THE BENEFIT OF THE BUSINESS AS A WHOLE. IN OTHER WORDS, THE EXPENDITURE WHICH IS INCURRED, WHICH EN ABLES THE PROFIT MAKING STRUCTURE TO WORK MORE EFFICIENTLY LEAVING THE SOURCE OF THE PROFIT MAKING STRUCTURE UNTOUCHED, WOULD IN OUR VIEW BE AN EXPENSE IN THE NATURE OF REVENUE EXPENDITURE. FINE TUNING BUSINESS OPERATIONS TO ENABLE THE MANAGEMENT TO RUN IT S BUSINESS EFFECTIVELY, EFFICIENTLY AND PROFITABLY; LEAVING THE FIXED ASSETS UNTOUCHED WOULD BE AN EXPENDITURE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH THE ADVANTAGE MAY LAST FOR AN INDEFINITE PERIOD. TEST OF ENDURING BENEFIT OR ADVANTAGE WOULD THU S COLLAPSE IN SUCH LIKE CASES. IT WOULD IN OUR VIEW BE ONLY TRUER IN CASES WHICH DEAL WITH TECHNOLOGY AND SOFTWARE APPLICATION, WHICH DO NOT IN ANY MANNER SUPPLANT THE SOURCE OF INCOME OR ADDED TO THE FIXED CAPITAL OF THE ASSESSEE. [SEE ALEMBIC CHEMICAL WO RKS CO. LTD. VS CIT (1989) 177 ITR 377; CIT VS J.K. SYNTHETICS (2009) 309 ITR 371 AT PAGE 412 AND CIT VS. INDIAN VISIT.COM (SUPRA)]. 9.1. THIS IS THE APPROACH WHICH THE SUPREME COURT HAS APPLIED EVEN IN CASES WHERE THERE IS A ONCE FOR ALL OR A LUMP SUM P AYMENT. WHAT IS TO BE SEEN IN THE FACTS OF THIS CASE, AS ALREADY NOTICED BY US HEREINABOVE, THAT THE ASSESSING OFFICER AS A MATTER OF FACT HAS RETURNED A FINDING THAT THE EXPENDITURE UNDERTAKEN WAS FOR OVERHAULING THE ACCOUNTANCY OF THE ASSESSEE AND TO EFF ICIENTLY TRAIN THE ACCOUNTING STAFF OF THE ASSESSEE. THE TRIBUNAL, WHICH IS DECIDEDLY THE FINAL FACT FINDING AUTHORITY HAS AFTER NOTICING THE MATERIAL ON RECORD OBSERVED THAT THE EXPENDITURE WAS INCURRED UNDER VARIOUS SUB - HEADS, WHICH INCLUDED LICENCE FEE, ANNUAL TECHNICAL SUPPORT FEE, PROFESSIONAL CHARGES, DATA ENTRY OPERATOR CHARGES, TRAINING CHARGES AND TRAVELLING EXPENSES. THE FINAL FIGURE WAS A CONSOLIDATION OF EXPENSES INCURRED UNDER THESE SUB - HEADS. THE TRIBUNAL, IN OUR VIEW, AND RIGHTLY SO, CAME TO THE CONCLUSION THAT NONE OF THESE RESULTED IN EITHER CREATION OF A NEW ASSET OR BROUGHT FORTH A NEW SOURCE OF INCOME FOR THE ASSESSEE. THE TRIBUNAL CLASSIFIED THE SAID EXPENSES AS BEING RECURRING IN NATURE TO UPGRADE AND/OR TO RUN THE SYSTEM. 10. IN THE BACKGROUND OF THE AFOREMENTIONED FINDINGS, IT CANNOT BE SAID THAT THE EXPENSES BROUGHT ABOUT IN AN ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSING OFFICER WAS PERHAPS SWAYED BY THE FACT THAT IN THE SUCCEEDING I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 13 FINANCIAL YEAR, I.E., 1997 - 98 (ASSESSMENT YEAR 1998 - 99), THE AMOUNT SPENT WAS LARGE. FIRST OF ALL, THE EXTENT OF THE EXPENDITURE CANNOT BE A DECISIVE FACTOR IN DETERMINING ITS NATURE. AS OBSERVED BY THE TRIBUNAL, THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR HAD A TURNOVER OF RS 150 CRORES AND THAT EVE N WITHOUT THIS EXPENDITURE IT WOULD HAVE CONTINUED TO ACHIEVE THE SAID TURNOVER; THOUGH THE EXPENDITURE INCURRED IN ISSUE WOULD HAVE ENABLED IT TO RUN ITS BUSINESS MORE EFFICIENTLY. THEREFORE, THE RATIONALE SUPPLIED BY THE ASSESSING OFFICER IN SUPPORT OF I TS ORDER WHICH FOUND RESONANCE IN SUBMISSIONS OF THE LEARNED COUNSEL FOR THE REVENUE IS, IN OUR VIEW FLAWED AND, HENCE IT WOULD HAVE TO BE REJECTED. 10.1. SECONDLY, THE MERE FACT THAT THE ASSESSING OFFICER RECORDS THAT THE EXPENDITURE, IN FINANCIAL YEAR 19 97 - 98 (ASSESSMENT YEAR 1998 - 99), WAS INCURRED TOWARDS WHAT HE TERMS AS AN ON - GOING PROJECT WOULD NOT IPSO FACTO GIVE IT A COLOUR OF CAPITAL EXPENDITURE. A CAREFUL READING OF THE TRIBUNALS JUDGMENT SHOW THAT AFTER NOTICING THE SUBMISSION OF THE ASSESSEE TH AT THE EXPENDITURE INCURRED IN THE SAID ASSESSMENT YEAR WAS FOR REMOVING DEFICIENCIES WHICH WERE FOUND IN THE SOFTWARE INSTALLED IN THE EARLIER ASSESSMENT YEAR, AND THAT, OUT OF A SUM OF RS 1.71 CRORES A SUM OF RS 49 LACS WAS INCURRED TO MODIFY, CUSTOMIZE AND UPGRADE THE SOFTWARE INSTALLED, WHILE THE BALANCE EXPENDITURE WAS USED FOR DEVELOPMENT AND IMPLEMENTATION - IT RETURNED A FINDING THAT THE EXPENSES WERE INCURRED TO UPGRADE AND RUN THE SYSTEM. IN VIEW OF THESE FINDINGS WE ARE OF THE OPINION THAT ASSESS ING OFFICER DISCOVERED AN ERRONEOUS PRINCIPLE ON THE BASIS OF WHICH HE DENIED THE EXEMPTION TO THE ASSESSEE. 11. SOFTWARE IS NOTHING BUT ANOTHER WORD FOR COMPUTER PROGRAMMES, I.E., INSTRUCTIONS, THAT MAKE THE HARDWARE WORK. SOFTWARE IS BROADLY OF TWO TY PES, I.E., THE SYSTEMS SOFTWARE, WHICH IS ALSO KNOWN AS THE OPERATING SYSTEM WHICH CONTROLS THE WORKING OF THE COMPUTER; WHILE THE OTHER BEING APPLICATIONS SUCH AS WORD PROCESSING PROGRAMS, SPREAD SHEETS AND DATA BASE WHICH PERFORM THE TASKS FOR WHICH PEOP LE USE COMPUTERS. BESIDES THESE THERE ARE TWO OTHER CATEGORIES OF SOFTWARE, THESE BEING: NETWORK SOFTWARE AND LANGUAGE SOFTWARE. THE NETWORK SOFTWARE ENABLES GROUPS OF COMPUTERS TO COMMUNICATE WITH EACH OTHER, WHILE LANGUAGE SOFTWARE PROVIDES WITH TOOLS RE QUIRED TO WRITE PROGRAMMES. (SEE MICROSOFT COMPUTER DICTIONARY, 5TH EDITION 'SOFTWARE' AT PAGE 489). 12. THE AFORESAID WOULD SHOW THAT WHAT THE ASSESSEE ACQUIRED THROUGH ARTHUR ANDERSON AND ASSOCIATES WAS AN APPLICATION SOFTWARE WHICH, ENABLED IT TO EXE CUTE TASKS IN THE FIELD OF ACCOUNTING, PURCHASES AND INVENTORY MAINTENANCE. THE FACT THAT THE APPLICATION SOFTWARE WOULD HAVE TO BE UPDATED FROM TIME TO TIME BASED ON THE REQUIREMENTS OF THE ASSESSEE IN THE CONTEXT OF THE ADVANCEMENT OF ITS BUSINESS AND/OR ITS DIVERSIFICATION, IF ANY; THE CHANGES BROUGHT ABOUT DUE TO STATUTORY AMENDMENTS BY LAW OR BY PROFESSIONAL BODIES LIKE THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH ARE GIVEN THE RESPONSIBILITY OF CONCEIVING AND FORMULATING THE ACCOUNTING STAND ARDS FROM TIME TO TIME, AND PERHAPS ALSO, BY REASON OF THE FACT THAT EXPENSES MAY HAVE TO BE INCURRED ON ACCOUNT OF CORRUPTION OF THE SOFTWARE DUE TO UNINTENDED OR INTENDED INGRESS INTO THE SYSTEM - OUGHT NOT GIVE A COLOUR TO THE EXPENDITURE INCURRED AS ON E EXPENDED ON CAPITAL ACCOUNT. GIVEN THE FACT THAT THERE ARE MYRIAD FACTORS WHICH MAY CALL FOR EXPENSES TO BE INCURRED IN THE FIELD OF SOFTWARE APPLICATIONS, IT CANNOT BE SAID THAT EITHER THE EXTENT OF THE EXPENSE OR I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 14 THE EXPENSE BEING INCURRED IN CLOSE PRO XIMITY, IN THE SUBSEQUENT YEARS, WOULD BE CONCLUSIVELY DETERMINATIVE OF ITS NATURE. THE ASSESSING OFFICER HAS, IN OUR VIEW, ERRED PRECISELY FOR THESE VERY REASONS. 3.4 IN THE PRESENT CASE, THE CONTENTION OF THE ASSESSING OFFICER WAS THAT THE SOFTWARES A RE ENTIRELY NEW AND DOES HAVE ENDURING BENEFIT. HOWEVER, THE HON BLE DELHI HIGH COURT IN THE ABOVE CASE HAS OBSERVED THAT T HE TEST OF ENDURING BENEFIT IS NOT CERTAIN OR CONCLUSIVE TEST IN DETERMINING THE EXPENDITURE AS CAPITAL OR REVENUE. THE REAL INTENT O F THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION OF FIXED CAPITAL FOR THE ASSESSEE ARE TO BE EXAMINED. THUS, IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD.(SUPRA) , WHICH W AS ALSO FOLLOWED IN THE CASE OF CIT V. AMWAY INDIA ENTERPRISES (SUPRA) , WE HOLD THAT THE SOFTWARE EXPENSES SHOULD BE TREATED AS REVENUE IN NATURE AND ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISAL LOWANCE MADE ON THIS ACCOUNT. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 3.5 ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. I.T.A. NO. 1246/MDS/2012 [A.Y.: 2008 - 09] 4. THE FIRST ISSUE RAISED IN THE APPEAL OF THE REVENUE IS WITH REGA RD TO PAYMENT OF ROYALTY OF .1,60,97,339/ - . DURING THE PREVIOUS YEAR, THE ASSESSEE COMPANY HAS PAID .1 , 60,97,339/ - AS R OYALTY TO M/S. CRI AMALGAMATION L TD., THE HOLDING COMPANY, FOR USING THE TRADE MARK 'CRI' . THE ASSESSEE IS USING THE TRADEMARK 'CRI' FOR MO R E THAN 3 DECADES. THE T RADE MARK WAS ORIGINALLY WITH M/ S CRI INDUSTRIES LTD., AND THE SAME WAS MERGED WITH THE ASSESSEE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 15 COMPANY ON 31.03.2007. AFTER THE MERGER OF M / S CRI I NDUSTRIES L TD., WITH THE ASSESSEE CO MPANY, ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COMPANY ITSELF WA S THE OWNER OF THE TRADE MARK . 4.1.1 BEFORE THE ASSESSING OFFICER THE AR OF THE ASSESSEE HAS SUBMITTED THAT ROYALTY WAS PAID TO M/ S CRI AMALGAMATION LIMITED DURING THE PREVIOUS YEAR ONLY BECAUSE OF THE TRADE MARK 'CRI' VESTS W ITH THE SAID COMPANY AND T HE ASSE SS EE COMPANY USED THE TRADE MARK 'CRI' FOR THE YEAR UNDER CONSIDERATION . ACCORDING TO THE AR , THE TRADE MARK WAS TRANSFERRED FROM THE ASSESSEE'S HANDS TO M/S. CRI AMALGAMATION LTD., AS PER THE 'FAMILY SETTLEMENT' BETWEEN THE PROMOTERS AND THEIR FAMI LY MEMBERS. THE TRADE MARK 'CRI' WAS GIVEN ON AN ASSIGNMENT FOR A MEAG R E VALUE OF . 1 , 000 / - AND THE SAME WAS JUSTIFIED BY AN ASSIGNMENT DEED. THE TRADE MARK OF 'CRI' WAS ORIGINALLY WITH M/S. CRI INDUSTRIALS AND THE SAME WAS TRANSFERRED TO M/S. CRI INDUSTRIES LIMITED. SUBSEQUENTLY ON 31 . 03 . 2007, THE CRI INDUSTRIES LIMITED WAS AMALGAMATE D TO CRI PUMPS (P) LTD., THE ASSESSEE COMPANY. PRIOR TO AMALGAMATION, THE ASSES SEE COMPANY PAID 'ROYALTY' TO M/ S CRI INDUSTRIES LIMITED SINCE THE TRADE MARK 'CRI' WAS IN ITS POSSESSION. AFTER THE MERGER, THE TRADE MARK 'CRI' IS THE PROPERTY OF THE ASSESSEE COMPANY. NORMALLY WHEN ANY PROPERTY IS ASSIGNED OR GIVEN AWAY AND WHEN IT IS PRETTY WELL KNOWN THAT THE ASSIGNER WILL USE IT IN FUTURE, THEN THE RIGHT WILL BE RESERVED FOR ITS USE WITHOUT ANY CONSIDERATION. IN THE INSTANT CASE, THE ASSESSEE HAS ASSIGNED T HE TRADE MARK FOR A MEAG R E VALUE OF . 1 ,000/ - , AS A PART OF FAMILY ARRANGEMENT, AND PAID A SUBSTANTIAL ROYALTY OF .1,60,97,339/ - TO THE ASSIGNEE IS NOT JUSTIFIABLE. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 16 THE ACTION OF MAKING THE ASSIGNMENT AS A PART OF THE FAMILY SETTLEMENT REQUIRED TO BE VERI FIED WITH THE BUSINESS PRUDENCE. THE ASSIGNMENT OF TRADE MARK AS AN ARRANGEMENT AMONGST THE FAMILY MEMBERS IS ALSO TO BE CONSIDERED. IT IS PERTINENT TO NOTE THAT HOW A FAMILY ARRANGEMENT CAN DEAL WITH PROPERTY OF COMPANY, WHICH IS A SEPARATE LEGAL ENTITY. 4.1.2 AFTER CONSIDERING THE SUBMISSIONS OF THE AR OF THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT WHEN T HE ASSESSEE WA S THE OWNER OF THE TRADE MARK AND BY GIVING AWAY THE SAME FOR A MEAGRE CONSIDERATION AND PAYING HUGE AMOUNT AS ROYALTY IS NOT J USTIFIABLE. THE ALLOWANCE OF ROYALTY TO THE HOLDING COMPANY APPEARS TO BE UNREASONABLE SINCE THE VALUE OF THE BRAND NAME IS ONLY .1 , 000 / - , THEN THE PAYMENT OF HUGE ROYALTY OF . 1,60,97,339 / - PAID BY THE ASSESSEE COMPANY WILL ATTRACT THE P ROVISIONS OF SECT ION 40A(2)(B) OF THE ACT . THE HOLDING COMPANY, M/S. CRI AMALGAMATION LIMITED IS HAVING THE 55% OF SHARES IN THE ASSESSEE COMPANY WITH COMMON DIRECTORS. THE ASSESSEE COMPANY HAS TRANSFERRED 55% OF IT S SHARES TO THE HOLDING COMPANY AND ALLOTTED SHARES IN EXC HANG E OF TRANSFER OF SHARES. THE DIRECTORS OF ASSESSEE COMPANY ARE HOLDING MORE THAN 80% OF SHARES IN THE HOLDING COMPANY. THE PAYMENT OF ROYALTY IS UNREASONABLE AS PER THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME T AX ACT,1961 BY GIVING AWAY THE OWNER SHIP OF TRADE MARK FOR MEAG R E CONSIDERATION OF .1000 / - AND ALLOWANCE OF HUGE ROYALTY FOR THE USAGE OF VERY SAME TRADE MARK WHICH WAS IN POSSESSION OF THE ASSESSEE FOR THE DECADES. THUS, THE ASSESSING OFFICER DISALLOWED THE ROYALTY I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 17 PAYMENT OF .1 ,60,97,339 / - AND ADDED TO THE INCOME RETURNED BY THE ASSESSEE. 4.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, AND ALSO THE ASSIGNMENT DEE D, SCHEME OF AMALGAMATION PASSED BY THE HON BLE MADRAS HIGH COURT, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: 5. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFICER. AT PARA 2 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER STATED 'THAT THE ASSESSEE IS USING THE TRADE MARK 'C.R.I.' FOR MORE THAN THREE DECADES. THE TRADE MARK WAS ORIGINALLY WITH M/S. C.R.I. INDUSTRIES LTD AND THE SAME WAS MERGED WITH THE ASSESSEE COMPANY ON 31.03.2007. AFTER THE MERGER OF M/S. C.R.I. INDUSTRIES LTD. WITH THE ASSESSEE COMPANY, THE ASSESSEE COMPANY ITSELF IS THE OWNER OF THE TRADE MARK. HENCE, THE PAYMENT OF ROYALTY TO M/S.C.R.I. AMALGAMATION LTD. IS NOT IN ORDER'. ON GOING THROUGH THE FACTS OF THE CASE AND ALSO THE HON'BLE HIGH COURT ORDER REGARDING THE MERGER OF THE COMPANIES AS SUBMITTED BY THE APPELLANT IN THE SUBMISSIONS, IT IS FOUND THAT THE TRADE MARK 'C.R.I.' IS SPECIFICALLY RETAINED BY M/S. C.R.I. INDUSTRIES. AS CAN BE SEEN FROM THE PERUSAL OF THE HIGH COURT ORDER DA TED 25.09.2007, ON A COMBINED READING OF CLAUSE 5.6 AND SCHEDULE G TO THE SCHEME OF AMALGAMATION WHICH IS ANNEXED AS PART OF THE HIGH COURT ORDER AND IN TERMS OF WHICH THE AMALGAMATION HAS BEEN SANCTIONED BY THE HON'BLE HIGH COURT, THE TRADE MARK 'C.R.I.' IS SPECIFICALLY RETAINED BY M/S. C.R.I. INDUSTRIES. THE ASSIGNMENT OF THE TRADE MARK 'C.R.I.' HAS BEEN DONE BY M/S. C.R.I. INDUSTRIES LTD. TO M/S. CR.I. AMALGAMATIONS (P) LTD. PURSUANT TO THE DEED OF ASSIGNMENT BETWEEN M/S. C.R.I. INDUSTRIES AND M/S. C.R.I . AMALGAMATION DATED 31.03.2007. THE TRADE MARK 'C.R.I.' WAS HELD BY M/S. C.R.I. INDUSTRIES FROM THE TIME OF REGISTRATION OF THE TRADE MARK FROM INCEPTION. FIVE GROUP CONCERNS ALONG WITH M/S. C.R.I. PUMPS (P) LTD. FILED APPLICATIONS BEFORE THE HON'BLE HIGH COURT OF MADRAS SEEKING THE SANCTION OF SCHEME OF MERGER. THE COMPANIES WERE: (I) M/S. C.R.I. INDUSTRIES (P) LTD. (II) M/S. RANSAR INDUSTRIES LTD. (III) M/S. CHOLA PUMPS (P) LTD. (IV) M/S. MELTECH CASTINGS (P) LTD. (V) M/S. SRI PREMRAJ ENGINEERIN G AND TEXTILES (P) LTD. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 18 [HEREINAFTER REFERRED TO AS TRANSFEROR COMPANIES] AND M/S. C.R.I. PUMPS (P) LTD. [TRANSFEREE COMPANY]. THE SCHEME OF AMALGAMATION APPROVED BY THE HIGH COURT PROVIDED SPECIFICALLY FOR THE TRANSFER OF ALL ASSETS OF THE TRANSFEROR CO MPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE SET OUT IN SCHEDULE G OF THE SCHEME. CLAUSE 5.6 (PAGE 22 OF THE HIGH COURT ORDER) STATES AS FOLLOWS : - 'THE TRADE MARK BELONGING TO VARIOUS TRANSFEROR COMPANIES AS ARE SPECIFICALLY ENUMERATED IN SCHEDULE G HERETO ARE ALREADY THE SUBJECT MATTER OF AN AGREEMENT OF ASSIGNMENT IN FAVOUR OF M/S. CR.I. AMALGAMATIONS PRIVATE LIMITED, TO BE EFFECTIVE FROM 31.03.2007, AND SO THESE TRADE MARKS SHALL NOT STAND TRANSFERRED TO OR VESTED IN THE TRANSFEREE COMPANY'. 6. THE INTERNAL PAGE 44 OF THE HIGH COURT ORDER STATES THAT ITEM NOS.1, 2, 3 AND 4, THE TRADE MARK 'C.R.I.' IS TO BE RETAINED BY M/S.C.R.1. INDUSTRIES LTD., THE PROPRIETOR OF THE TRADE MARK. HENCE THE TRADE MARK 'C.R.I.' WAS NOT TRANSFERRED TO THE APPELLANT I N TERMS OF THE SCHEME OF AMALGAMATION THAT WAS ORDERED BY THE HON'BLE HIGH COURT OF MADRAS BY ITS ORDER DATED 25.09.2007. IN VIEW OF THE ABOVE DISCUSSION, IT IS SEEN THAT THERE IS A FACTUAL ERROR COMMITTED BY THE ASSESSING OFFICER IN COMING TO THE CONCLUSI ON THAT AFTER THE MERGER THE ASSESSEE COMPANY ITSELF IS THE OWNER OF THE TRADE MARK. IN THE EARLIER YEARS THE APPELLANT HAD BEEN PAYING ROYALTY TO M/S. C.R.I. INDUSTRIES REGULARLY AND WAS ACCEPTED BY THE DEPARTMENT AND ALLOWED AS REVENUE EXPENDITURE. M/S. C.R.I. INDUSTRIES THE RECIPIENT OF ROYALTY PAYMENTS TILL ASSESSMENT YEAR 2007 - 08 HAS BEEN OFFERING THE SAME TO TAX WHICH WAS ACCEPTED BY THE DEPARTMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FURNISHED THE I.T. RETURN OF M/S. C.R.I. AMALGAMATION (P) LTD. IN RESPECT OF ASSESSMENT YEAR 2008 - 09 OFFERING TO TAX THE AMOUNT OF ROYALTY RECEIVED FROM THE APPELLANT OF .1,60,97,339/ - . TAKING ALL THE FACTS INTO CONSIDERATION, IN MY OPINION THE AMOUNT PAID AS ROYALTY IS THE ALLOWABLE EXPENDITURE IN THE HANDS OF THE APP ELLANT. THE INCOME RECEIVED BY M/S. C.R.I. AMALGAMATION (P) LTD. WAS ALSO OFFERED TO TAX FOR THE ASSESSMENT YEAR 2008 - 09. HENCE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENDITURE PAID AS ROYALTY. THIS GROUND OF APPEAL IS ALLOWED. 4.3 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR HAS SUBMITTED THAT THE TRADE MARK CRI WAS GIVEN AWAY FOR A MEAGRE CONSIDERATION OF .1,000/ - ONLY BY A FAMILY SETTLEMENT, THOUGH AN AGREEMENT DEED WAS NOT JUSTIFIABLE. FURTHER, HE CONTENDED THAT THE PAYMENT FOR TRADE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 19 MARK CRI FIXED BY THE DIRECTORS OF THE TRANSFEROR COMPANY WAS ONLY .1,000/ - THEN THE PAYMENT OF .1,60,97,339/ - TO THE HOLDING COMPANY IS EXCESSIVE AND UNREASONABLE AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERTED AND RESTORED THAT OF THE ASSESSING OFFICER. 4.4 PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT WHEN THE HON BLE MADRAS HIGH COU RT HAS APPROVED THE SCHEME OF AMALGAMATION PROVIDED SPECIFICALLY FOR THE TRANSFER OF ALL ASSETS OF THE TRANSFEROR COMPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE SET OUT IN SCHEDULE G OF THE SCHEME, WHICH IS SUBJECT MATTER OF AN AGREEMENT OF ASSIGNMENT I N FAVOUR OF M/S. C.R.I. AMALGAMATIONS PVT. LTD. TO BE EFFECTIVE FROM 31.03.2007 AND SO THE TRADE MARK SHALL NOT STAND TRANSFERRED TO OR VESTED IN THE TRANSFEREE COMPANY, WHICH WAS NOT DISPUTED BY THE DEPARTMENT , THE CONSIDERATION FIXED BY THE DIRECTORS OF THE TRANSFEROR COMPANY FOR THE TRADE MARK AND THE AMOUNT OF PAYMENT OF ROYALTY TO TRANSFEREE COMPANY CANNOT BE A SUBJECT MATTER OF THE ISSUE. NO PROVISION OF SECTION EXISTS IN THE INCOME TAX ACT OR INCOME TAX RULE FOR FIXING THE RATE OF TRADE MARK. THE ASS ESSEE WAS USING THE TRADE MARK FOR MORE THAN THREE DECADES AND IT CONFERS THE RIGHT FOR FIXING THE RATE OF ROYALTY TO BE PAID BY THE TRANSFEROR COMPANY, I.E., ASSIGNEE COMPANY WHICH WAS DULY AGREED THROUGH ASSIGNMENT DEED EXECUTED BY BOTH THE ASSIGNOR AND ASSIGNEE. THEREFORE, THE ASSESSING OFFICER WAS NOT LEGALLY CORRECT TO DISALLOW THE CLAIM OF DEDUCTION AND PRAYED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 20 4.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE PAPER BOOK FILED BY THE ASSESSEE, WHEREIN, THE ASSESSEE HAS FILED COPY OF THE ASSIGNMENT DEED, USER AGREEMENT, ORDER OF THE HON BLE HIGH COURT SANCTIONING THE SCHEME OF AMALGAMATION AND ALSO WRITTE N SUBMISSION FILED BY THE SR. AR OF THE DEPARTMENT SHRI R. DURAIPANDIAN, JCIT. IN THIS CASE, THE ASSESSEE PAID 0.5% OF ITS TURNOVER AS ROYALTY FOR THE TRADE MARK CRI WHICH WAS ASSIGNED TO M/S. CRI AMALGAMATIONS THROUGH ASSIGNMENT DEED EXECUTED BETWEEN CR I INDUSTRIES PVT. LTD. & CRI AMALGAMATION PVT. LTD. THE SCHEME OF AMALGAMATION WAS DULY SANCTIONED BY THE HON BLE MADRAS HIGH COURT VIDE ITS ORDER DATED 25.09.2007 W.E.F. 31.03.2007. WHILE APPROVING THE SCHEME OF AMALGAMATION, THE HON BLE HIGH COURT HAS SP ECIFICALLY PROVIDED THAT THE TRANSFER OF ALL ASSETS OF THE TRANSFEROR COMPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE SET OUT IN CLAUSE 5.6 OF SCHEDULE G OF THE SCHEME. AS PER ASSIGNMENT DEED EXECUTED ON 31.03.2007, THE ASSIGNOR M/S. CRI INDUSTRIES PRIVA TE LIMITED CONSIST OF SEVERAL MANUFACTURING AND NON - MANUFACTURING COMPANIES HAVE AGREED TO GIVE AWAY THE TRADE MARK CRI FOR A CONSIDERATION OF .1,000/ - TO M/S. CRI AMALGAMATION PVT. LTD. HOWEVER, THE DAMAGES PROPOSED TO BE PAID BY M/S. CRI AMALGAMATION PVT. LTD. FOR USING THE TRADE MARK CRI WAS NOT MENTIONED IN THE ASSIGNMENT DEED. HOWEVER, THROUGH A USER AGREEMENT EXECUTED ON 02.04.2007 BETWEEN THE CRI AMALGAMATIONS PVT. LTD. AND THE ASSESSEE HAVE AGREED FOR PAYMENT OF ROYALTY TO THE PROPRIETOR WITH EFFECT FROM 01.04.2007 A SUM EQUAL TO 0.50% OF MONTHLY I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 21 TURNOVER ARISING OUT OF THE SALE OF THE USER GOODS. ONCE THE PROPRIETOR AND THE USER HAVE AGREED AND FIXED THE RATE OF ROYALTY, NO PROVISIONS OF SECTION OF INCOME TAX ACT OR INCOME TAX RULES SHALL INTE RFERE EITHER TO REDUCE OR ENHANCE THE RATE OF ROYALTY. 4.6 THE ASSESSING OFFICER SIMPLY COMPARING THE PAYMENT OF ROYALTY WITH THE CONSIDERATION PAID TOWARDS ACQUIRING THE TRADE MARK CRI BY THE PROPRIETOR TO WHOM THE ROYALTY WAS PAID. IF ANY CLAIM OF EX PENDITURE MADE WITHOUT ANY EVIDENCE OR FOUND FALSE OR BOGUS, THEN THE ASSESSING OFFICER HAS EVERY RIGHT TO REJECT THE CLAIM AFTER RECORDING SALIENT FINDINGS. WHAT IS REQUIRED TO BE EXPENDED HAS TO BE SEEN FROM THE BUSINESSMEN POINT OF VIEW AND NOT FROM THE VIEW OF THE ASSESSING OFFICER. IN THIS CASE, THE HON BLE MADRAS HIGH COURT HAS SANCTIONED THE SCHEME OF MERGER VIDE ITS ORDER DATED 25.09.2007 W.E.F. 31.03.2007 BETWEEN CRI INDUSTRIES AND FIVE GROUP CONCERNS ALONG WITH THE ASSESSEE PROVIDED SPECIFICALLY F OR THE TRANSFER OF ALL ASSETS OF THE TRANSFEROR COMPANIES TO THE TRANSFEREE COMPANY, EXCEPT THOSE SET OUT IN SCHEDULE G OF THE SCHEME AS PER CLAUSE 5.6 (PAGE 22 OF THE HON BLE HIGH COURT ORDER), WHEREIN IT HAS BEEN STATED AS UNDER: THE TRADE MARK BELONGIN G TO VARIOUS TRANSFEROR COMPANIES AS ARE SPECIFICALLY ENUMERATED IN SCHEDULE G HERETO ARE ALREADY THE SUBJECT MATTER OF AN AGREEMENT OF ASSIGNMENT IN FAVOUR OF M/S. CRI AMALGAMATIONS PRIVATE LIMITED, TO BE EFFECTIVE FROM 31.03.2007, AND SO THESE TRADE MARK S SHALL NOT STAND TRANSFERRED TO OR VESTED IN THE TRANSFEREE COMPANY . AFTER CAREFULLY PERUSING THE ORDER OF THE HON BLE MADRAS HIGH COURT, IT IS CLEAR THAT ALL THE ASSETS OF THE TRANSFEROR COMPANIES WERE AMALGAMATED WITH I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 22 TRANSFEREE COMPANY, EXCEPT THE TR ADE MARK. THEREFORE, THE ASSESSING OFFICER WAS FACTUALLY NOT CORRECT TO CONCLUDE THAT AFTER MERGER, THE TRADE MARK CRI WAS THE PROPERTY OF THE ASSESSEE COMPANY. 4.7 THE ASSIGNMENT DEED WAS EXECUTED ON 31.03.2007 BETWEEN THE CRI INDUSTRIES LTD. AND CRI AMALGAMATION PVT. LTD., BY WHICH, THE LATTER BECOME THE PROPRIETOR OF THE TRADE MARK ON THE CONSIDERATION DULY AGREED BY BOTH ASSIGNEE COMPANY AND ASSIGNOR. FURTHER, THE USER AGREEMENT WAS EXECUTED ON 02.04.2007 BETWEEN THE PROPRIETOR OF THE TRADE MARK VIZ ., CRI AMALGAMATIONS PVT. LTD. AND USER I.E., ASSESSEE BY AGREEING FOR PAYMENT OF ROYALTY, A SUM EQUAL TO 0.50% OF MONTHLY TURNOVER BY THE USER COMPANY FOR USING THE TRADE MARK CRI . IN THE EARLIER YEARS THE ASSESSEE HAS BEEN PAYING ROYALTY TO M/S. CRI IN DUSTRIES REGULARLY AND WAS ACCEPTED BY THE DEPARTMENT AND ALLOWED IT AS REVENUE EXPENDITURE. M/S. C.R.I. INDUSTRIES, THE RECEIPT OF ROYALTY PAYMENTS TILL ASSESSMENT YEAR 2007 - 08 HAS BEEN OFFERING THE SAME TO TAX WHICH WAS ACCEPTED BY THE DEPARTMENT. MOREOV ER, FOR THE ASSESSMENT YEAR 2008 - 09, THE ROYALTY RECIPIENT COMPANY M/S. C.R.I. AMALGAMATIONS (P) LTD. HAS OFFERED TO TAX THE ROYALTY RECEIVED FROM THE ASSESSEE OF .1,60,97,339/ - . 4. 8 THE MAIN CONTENTION OF THE LD. DR IS THAT THE SUM OF ROYALTY PAID BY T HE ASSESSEE ATTRACTS THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT WITHOUT GIVING ANY APPROPRIATE REASONS. JUST BECAUSE THE ASSESSING OFFICER WAS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE , THE EXPENSES I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 23 TOWARDS ROYALTY, DEDUCTION CA NNOT BE DENIED . THE PROVISIONS OF SECTION REFERRED TO BY THE LD. DR RELATES AND SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THE INCOME TAX ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION , WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SUB - SECTION (2) TO SECTION 40A OF THE ACT AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRU ING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION . THE CASE OF THE ASSESSEE DOES NOT COME UNDER THE PURVIEW OF ANY PERSON REFERRED TO IN CLAUSE (B) OF SUB - SECTION (2) TO SECTION 40A OF THE ACT. ACCORDINGLY, WE REJECT THE CONTENTION OF THE LD. DR. 4. 9 IN THE CASE OF ACIT V. SHRIRAM TRANSPORT FINANCE CO. LTD. [2011] 9 ITR (TRIB) 543 (CHENNAI), THE COORDINATE BENCH OF THE TRIBUNAL HAS OBSERVED THAT THE PAYMENT FOR NON - EXCLUSIVE USER OF LOGO BASED ON TURNOVER AND NOT LUMP SUM PAYMENT SHOULD BE TREATED AS REVENUE EXPENDITURE. IN THE PRESENT CASE, THE ASSESSEE PAID THE ROYALTY FOR EXCLUSIVELY USING THE TRADE MARK CRI BASED ON MONTHLY TURNOVER AT THE RATE OF 0.50% , WH ICH WAS DULY AGREED AND EXECUTED A USER AGREEMENT BETWEEN THE PROPRIETOR AND USER. THEREFORE, THE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 24 EXPENSES INCURRED TOWARDS PAYMENT OF ROYALTY SHOULD BE TREATED AS REVENUE EXPENDITURE. 4. 10 IN THE CASE OF CIT V. SHARDA MOTOR INDUSTRIAL LTD. 319 ITR 109, THE HON BLE DELHI HIGH COURT HAS HELD THAT THE FINDING OF THE LD. CIT(A) THAT THE PAYMENT OF ROYALTY WAS PURELY A REVENUE EXPENDITURE, WHICH WAS ANNUAL EXPENDITURE DEPENDING UPON THE QUANTUM OF PRODUCTION IN THE RELEVANT YEAR WAS A FINDING OF FACT RIGHTLY ARRIVED AT. IN THE PRESENT CASE ALSO, THE USER BEING ASSESSEE SHALL PAY A ROYALTY TO THE PROPRIETOR [M/S. C.R.I. AMALGAMATIONS PVT. LTD.] WITH EFFECT FROM 01.04.2007, A SUM EQUAL TO 0.50% OF MONTHLY TURNOVER ARISING OUT OF THE SALE OF THE USER GOODS DURIN G THE TERM OF THE AGREEMENT. 4.11 UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND IN VIEW OF VARIOUS DECISIONS (SUPRA), WE HOLD THAT THE ROYALTY PAID BY THE ASSESSEE IS OF REVENUE IN NATURE, WHICH IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE REFORE, THE LD. CIT(A) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE PAID AS ROYALTY. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TOWARDS IMPLEMENTATION OF ORACLE ADDITIONAL REPORT DEVELOPMENT. 5.1 THE ASSESSING OFFICER TREATED THE EXPENDITURE AS CAPITAL IN NATURE AND DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. BEFORE THE LD. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 25 CIT(A), THE AR O F THE ASSESSEE HAS SUBMITTED THAT BECAUSE OF THE MERGER OF THE COMPANIES, IT BECOME NECESSARY TO GENERATE SOME REPORTS IN ORACLE APPLICATION. IT WAS ALSO SUBMITTED THAT THE ASSESSEE S SYSTEMS WERE INITIALLY LOADED WITH ORACLE SOFTWARE AND BECAUSE OF THE ME RGER OF OTHER COMPANIES WITH THE ASSESSEE COMPANY, NECESSARY CONSULTANCY SERVICES WERE REQUIRED FOR GENERATION OF REPORTS AND ALSO FOR COMPLETING THE MERGER PROCESS WITH REGARD TO ACCOUNTS OF THE COMPANIES. ON EXAMINATION OF THE INVOICES RAISED BY M/S. AST RAL CONSULTING LTD., THE LD. CIT(A) HAS OBSERVED THAT THE PAYMENTS ARE MADE FOR THE INFORMATION SYSTEMS SERVICES RENDERED TO THE ASSESSEE. SINCE THE EXPENDITURE WAS INCURRED DURING THE COURSE OF IMPROVEMENT OF THE SOFTWARE FUNCTIONING, THE LD. CIT(A) HAS H ELD THAT THE SAME SHOULD BE TREATED AS REVENUE EXPENDITURE AND ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 5.2 THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ANY EXPENSES INCURRED EITHER PURCHASE OF SOFTWARE OR ANY TOWARDS IMPROVEMENT OF THE SOFTWARE THAT SHOULD BE TREATED AS REVENUE EXPENDITURE IN VIEW OF VARIOUS DECISIONS OF THE TRIBUNAL AS WELL AS VARIOUS HIGH COURTS AND THEREFORE, HE PLEADED THAT THE GROUND RAISED BY THE DEPARTMENT SHOULD BE REJECTED. 5. 3 DURING THE COURSE OF HEARING, EVEN THOUGH THE LD. DR HAS FILED A WRITTEN SUBMISSION, HE HAS NOT CONTROVERTED THE FINDINGS OF THE LD. CIT(A) WITH REGARD TO THE DELETION OF ADDITION MADE ON THIS GROUND AND SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICE R. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 26 5.4 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE ASSESSEE HAS FILED THE COPIES OF INVOICES RAISED BY M/S. ASTRAL CONSULTING LTD. AND THE PAYMENTS ARE MADE FOR THE INFORMATION SYSTEMS SERVICES RENDERED. THERE WAS NO DISPUTE THAT THE PAYMENT S WERE MADE FOR THE PURPOSE OF IMPROVEMENT OF THE SOFTWARE CONSEQUENT UPON MERGER OF OTHER COMPANIES, WHICH WAS NECESSITATED TO GENERATE SOME REPORTS IN ORACLE APPLICATION. ANY EXPENDITURE INCURRED FOR THE PURPOSE OF IMPROVEMENT OF SOFTWARE OR PURCHASE OF SOFTWARE THAT EXPENDITURE SHOULD BE TREATED AS REVENUE EXPENDITURE IN VIEW OF OUR DECISION IN ASSESSEE S CASE DECIDED AT PARA 3.3 & 3.4 HEREINABOVE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 6. THE LAST GROUND RAISED IN THE APPEAL OF T HE REVENUE IS WITH REGARD TO DELETION OF DISALLOWANCE MADE ON ACCOUNT OF DIVI D END INCOME . THE ASSESSEE HAS MADE INVESTMENTS IN THE ASSOCIATE COMPANIES TO THE TUNE OF RS.3,53,76,758/ - , OUT OF THE BORROWED FUNDS AND NOT OFFERED ANY INCOME FROM SU CH INVESTMEN TS. THE INVESTMENTS MADE BY THE ASSESSEE COMPANY ARE IN THE NON PERFOR M IN G COMPANIES AS SHARES AND NOT EARNED ANY INCOME FROM THE SAME, WHEREAS THE ASSESSEE COMPANY IS PAYING INTEREST TO THE BORROWING FUNDS. THE INTEREST ON BORROWED FUNDS WA S DEBITED AND C LAIMED AS EXPENDITURE OF THE BUSINESS AND NOT CONSIDERED THE BORROWED FUNDS DIVERTED FOR THE PURPOSE OF INVESTMENTS. AS PER THE PROVISIONS OF SECTION 14A(3) OF THE ACT , IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY IT IN RELAT ION TO ANY PART OF THE I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE AMOUNT OF SUCH EXPENDITURE WHICH MIGHT HAVE BEEN I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 27 INCURRED IN RELATION TO SU CH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WAS REQUIRED TO BE DETERMINED AS PER THE PROCE DURE PRESCRIBED IN RUL E 8 D OF THE I. T. RULES, 1962. 6.1 THEREFORE, THE DISALLOWANCE U/S.14A READ WITH RULE 8 D HAS BEEN COMPUTED AS FOLLOWS: THE TOTAL INVESTMENTS OF THE ASSESSEE AS AT 01 - 04 - 2007 WERE .2,74,04, 000/ - AND AS AT 31 - 03 - 2008, THE TOTAL INVE STMENTS WERE .3,53 ,76, 000/ - . ACCORDINGLY, THE AVERA G E INVESTMENT S OF THE ASSESSEE AMOUNTED TO .3,13,90,000/ - AND 0.5% OF THE AVERAGE INVESTMENTS WORKS OUT TO .1,56,950/ - . THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED A SUM OF .1,56,950/ - UNDER SECTIO N 14A OF THE ACT READ WITH RULE 8 D OF THE RULES AND ADDED TO THE ASSESSEE'S INCOME. 6.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AND HELD AS UNDER: THE APPELLANT HAS RETURNED INCOME FROM DIVIDEND OF AN AMOUNT OF .9,99,000/ - THE SAME HAS BEEN OFFERED TO TAX. INVESTMENTS HAVE BEEN MADE BY THE APPELLANT IN ITS SUBSIDIARY COMPANIES SITUATED IN SOUTH AFRICA AND SAUDI ARABIA. THE DISALLOWANCE HAS BEEN MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES ON THE GROUND THAT THE DISALLOWANCE OF NOTIONAL EXPENDITURE INCURRED ON THE EARNING OF DIVIDEND IS LIABLE TO BE MADE. AS SEEN FROM THE FACTS THE INVESTMENT WAS MADE IN FOREIGN SUBSIDIARIES AND NOT IN DOMESTIC COMPANIES. THE APPELLANT HAS EARNED INCOME FROM THE AFORESAID INVESTMENTS WHICH HAVE BEEN OFFERED TO TAX. HENCE THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE ASSESSEE HAS EARNED RS.9.99 LAKHS AS DIVIDENDS FROM THE FOREIGN SUBSIDIARIES WHICH WAS ADMITTED AS INCOME UNDER THE PROVISION OF DOUBLE TAXATION AGREEMENT. HENCE THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF .1,56,950/ - MADE U/S 14A R.W. RULE 8D OF THE INCOME TAX ACT, 1961. 6.3 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND TH E LD. DR HAS CONTENDED THAT THE ASSESSEE HAS CLEARLY DIVERTED THE BORROWED I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 28 FUNDS AND MADE INVESTMENT ELSEWHERE AND THUS VIOLATED THE PROVISIONS OF SECTION 14A OF THE ACT. THEREFORE, HE PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. 6.4 ON T HE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 6.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD. IN THIS CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS INVESTED IN ITS SUBSIDIARY COMPANI ES SITUATED IN SOUTH AFRICA AND SAUDI ARABIA. HOWEVER, THE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D ON THE GROUND THAT THE DISALLOWANCE OF NOTIONAL EXPENDITURE INCURRED ON THE EARNING OF DIVIDEND IS LIABLE TO BE MADE. THE LD. CIT(A) HAS HELD THAT SINCE THE ASSESSEE HAS MADE INVESTMENT IN FOREIGN SUBSIDIARIES AND NOT IN DOMESTIC COMPANIES, THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE IN ASSESSEE S CASE AND MOREOVER THE DIVIDEND INCOME EARNED FROM THE FOREIGN SUBSIDIARIES WERE ADMITTED AS INCOME UNDER THE PROVISIONS OF DOUBLE TAXATION AGREEMENT, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION OF .1,56,950/ - MADE UNDER SECTION 14A OF THE ACT R.W.R. 8D. 6.6 IN THE CASE OF SUZLON ENERGY LTD. V. DCIT [2 012] 20 ITR (TRIB) 391 (AHD), THE AHMEDABAD BENCHES OF THE TRIBUNAL HAS HELD THAT THE INVESTMENT MADE IN THE FOREIGN SUBSIDIARIES IN RESPECT OF WHICH IT EARNED DIVIDEND INCOME FROM SUCH SUBSIDIARIES WAS TAXABLE IN INDIA AND THAT, THEREFORE, SECTION 14A OF THE ACT WOULD HAVE NO APPLICABILITY. ON FURTHER APPEAL, IN CIT V. SUZLON ENERGY I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 29 LTD. [2013] 354 ITR 630 (GUJ), THE HON BLE GUJARAT HIGH COURT HAS AFFIRMED THE DECISION OF THE TRIBUNAL. 6.7 FURTHER, IN THE CASE OF ITO V. STRIDES ARCOLAB LTD. [2012] 138 IT D 323 (MUM), THE MUMBAI BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: SECTION 14A(1) PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THIS ACT. SECTION 10(33), AT THE MATERIAL TIME, EXEMPTED INTER ALIA DIVIDEND REFERRED TO IN SECTION 115 - O FROM THE PURVIEW OF TAXATION, SECTION 115 - O TALKS OF A DOMESTIC COMPANY . A DOMESTIC COMPANY HAS BEEN DEFINED UNDER SECTION 2(22A). A BARE PERUSAL OF THE DEFINITION OF DOMESTIC COMPANY TRANSPIRES THAT IT I ONLY INDIAN COMPANY OR ANY OTHER COMPANY, WHICH IN RESPECT OF ITS INCOME IS LIABLE TO TAX UNDER THIS ACT, HAS MADE PRESCRIBED ARRANGEMENT FOR THE DECLARATION AND PAYMENT OF DIVIDEND. OBVI OUSLY THIS DEFINITION DOES NOT EXTEND TO FOREIGN COMPANIES. AS SUCH THE DISALLOWANCE UNDER SECTION 14A IS CONCEIVABLE IN RESPECT OF INVESTMENT MADE IN THE SHARES OF DOMESTIC COMPANIES AND NOT FOREIGN COMPANIES. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THE FINDING RECORDED BY THE COMMISSIONER (APPEALS) IN RESPECT OF THE COMPANIES REFERRED TO IN THE IMPUGNED ORDER AS FOREIGN COMPANIES. IN VIEW OF THESE FACTS, IT BECOMES APPARENT THAT THE PROVISIONS OF SECTION 14A CANNOT EXTEND TO IN VESTMENTS MADE IN THE SHARES OF SUCH FOREIGN COMPANIES. THUS, THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) IS UPHELD. 6.8 IN VIEW OF THE ABOVE DECISIONS OF THE TRIBUNAL AND HON BLE HIGH COURT, WE HOLD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO ASSESSEE S CASE SINCE THE INVESTMENT MADE IN FOREIGN SUBSIDIARIES AND THE INCOME EARNED FROM THE AFORESAID INVESTMENTS HAVE BEEN OFFERED TO TAX. THUS, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GRO UND RAISED BY THE REVENUE. 6.9 ACCORDINGLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 30 I.T.A. NO. 1872/MDS/2013 [A.Y. 2009 - 10] 7. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF AD DITIONAL DEPRECIATION OF .3,46,68,501/ - . THE ASSESSEE HAS RAISED SIMILAR GROUND ON IDENTICAL FACTS IN THE ASSESSMENT YEAR 2008 - 09 AND BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11, WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE AT PARA 2.7 & 2.8 HEREINABOVE. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, THE GROUND RAISED BY THE ASSESSEE IN IT S APPEAL IS DISMISSED. I.T.A. NO. 2014 /MDS/2013 [A.Y. 2009 - 10] 8. THE REVENUE HAS RAISED TWO EFFECTIVE GROUNDS VIZ., (I) THE LD. CIT(A) HAS ERRED IN DELETING THE ROYALTY PAYMENT MADE TO M/S. C.R.I. AMALGAMATIONS PVT. LTD. AND (II) THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF DIVIDEND INCOME EARNED OUT OF INV ESTMENT UNDER SECTION 14A OF THE ACT. 8.1 IN THE ASSESSMENT YEAR 2009 - 10 ALSO, THE ASSESSEE HAS PAID .2,01,89,940/ - AS ROYALTY TO M/S. CRI AMALGAMATION PVT. LTD., THE HOLDING COMPANY FOR USING THE TRADE MARK CRI . THE ASSESSING OFFICER HAS OBSERVED THAT THE CRI INDUSTRIES INDIA PVT. LTD. WAS HOLDING BRAND CRI , EVERY YEAR IT WAS RECEIVING ROYALTY INCOME FROM THAT BRAND LESS THAN .60 LAKHS AND FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE BRAND CRI BECAME SO COSTLY WITHOUT ANY CREDIBLE REASONS. HE FURTHER OBSERVED THAT SINCE THE HOLDING COMPANY M/S. CRI AMALGAMATION LIMITED WAS HAVING 55% OF SHARES IN THE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 31 ASSESSEE COMPANY WITH COMMON DIRECTORS. THE ASSESSEE COMPANY HAS TRANSFERRED 55% OF ITS SHARES TO THE HOLDING COMPANY AND ALLOTTED SHARES IN EXCHA NGE OF TRANSFER OF SHARES. THE DIRECTORS OF ASSESSEE COMPANY ARE HOLDING MORE THAN 80% OF SHARES IN THE HOLDING COMPANY. THEREFORE, BY HOLDING THAT THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ATTRACTS IN THIS CASE, HE DISALLOWED THE ROYALTY PAYMENT OF .2,01,89,940/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, BY FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 08.03.2012, THE LD. CIT(A) DIRECTED TO ALLOW THE EXPENDITURE PAID AS ROYALTY AND ALLOWED THE GROUND RAISED BY THE ASSESSEE. 8.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE ROYALTY AMOUNT RECEIVED BY THE CRI INDUSTRIES INDIA LTD., WHICH WAS HOLDING THE BRAND CRI IS NOT THE POINT AT ISSUE EITHER BEFORE THE DEPARTMENT OR BEFORE THE TRIBUNAL. SIN CE THE ROYALTY AMOUNT PAID BY THE ASSESSEE [USER] TO M/S. C.R.I. AMALGAMATION PVT. LTD. (PROPRIETOR] WAS HIGH, THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE. THE ASSESSEE PAID THE ROYALTY FOR EXCLUSIVELY USING THE TRADE MARK CRI BASED ON MONTHLY TURNOV ER AT THE RATE OF 0.50%, WHICH WAS DULY AGREED AND EXECUTED A USER AGREEMENT BETWEEN THE PROPRIETOR AND USER. THEREFORE, THE EXPENSES INCURRED TOWARDS PAYMENT OF ROYALTY HAS BEEN TREATED AS REVENUE EXPENDITURE BY THE LD. CIT(A) FOR THE ASSESSMENT 2008 - 09 , WHICH WAS DULY CONFIRMED BY THE TRIBUNAL AGAINST THE APPEAL OF THE REVENUE AFTER ELABORATELY DISCUSSING THE FACTS AND FOLLOWING CASE LAW FROM PARA S 4 TO 4.11 . IN VIEW OF OUR ABOVE FINDINGS IN PARAS 4 TO 4.11, FOR THE ASSESSMENT YEAR I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 32 2009 - 10 ALSO THE DISALL OWANCE MADE BY THE ASSESSING OFFICER IS DELETED AND DISMISSED THE GROUND RAISED BY THE REVENUE . 8.3 THE NEXT GROUND RAISED BY THE REVENUE IS WITH REGARD TO DISALLOWANCE OF .1,91,880/ - MADE UNDER SECTION 14A OF THE ACT R.W.R. 8D. IN THE ASSESSMENT YEAR 20 09 - 10, THE ASSESSEE HAS EARNED DIVIDEND OF .52,82,000/ - OUT OF THE INVESTMENTS MADE IN THE FOREIGN SUBSIDIARIES, WHICH WAS OFFERED TO TAX UNDER THE PROVISIONS OF DTAA. FURTHER, THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE BY APPLYING THE PROVISION S OF SECTION 14A OF THE ACT R.W.R. 8D. THE LD. CIT(A) HAS HELD THAT SINCE THE ASSESSEE HAS MADE INVESTMENT IN FOREIGN SUBSIDIARIES AND NOT IN DOMESTIC COMPANIES, THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE IN ASSESSEE S CASE AND MOREOVER TH E DIVIDEND INCOME EARNED FROM THE FOREIGN SUBSIDIARIES WERE ADMITTED AS INCOME UNDER THE PROVISIONS OF DOUBLE TAXATION AGREEMENT, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE UNDER SECTION 14A OF THE ACT R.W.R. 8D. FOR THE ASSE SSMENT YEAR 2008 - 09 ALSO THE REVENUE HAS RAISED SIMILAR GROUND AND WHILE DECIDING THE ISSUE, WE HAVE ELABORATELY DISCUSSED THE FACTS AND BY FOLLOWING VARIOUS CASE LAW, WE CONFIRMED THE ORDER PASSED BY THE LD. CIT(A) AT PARAS 6 TO 6.8 HEREINABOVE. BY FOLLOW ING OUR ABOVE DECISION IN THE ASSESSMENT YEAR 2008 - 09, SIMILAR GROUND RAISED BY THE REVENUE IN THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED. 8.4 ACCORDINGLY, THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 33 I.T.A. NO. 2318/MDS/2 014 [A.Y. 2005 - 06] 9. IN THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 - 06, THE ASSESSEE HAS RAISED TWO EFFECTIVE GROUNDS CHALLENGING CONFIRMATION OF REOPENING OF ASSESSMENT AS WELL AS CONFIRMATION OF DISALLOWANCE OF ADDITIONAL DEPRECIATI ON CLAIMED BY THE ASSESSEE. 9.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF .4,71,89,267/ - ON 28.10.2005. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 19.08.2006. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED TO THE ASSES SEE ON 31.05.2006. THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 28.12.2007. THEREAFTER, NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED TO THE ASSESSEE ON 29.03.2012 AND REASON FOR REOPENING OF THE CASE WAS COMMUNICATED TO THE ASSESSEE ON 15.05.2012. AFTER RECORDING THE REASON FOR REOPENING OF THE ASSESSMENT AND CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .5,82,10,419/ - AFTER MAKING VARIOUS ADDITIONS. 9.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 34 9.3 ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE LEGAL ISSUE WITH REGARD TO REOPENING OF ASSESSMENT SPECIFICALLY RAISED BEFORE HIM IN GROUND NO.2 AND PRAYED THAT SUITABLE DIRECTIONS MAY KINDLY BE ISSUED. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW WITH REGARD TO THE ISSUES ON MERITS. 9.4 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE HAS RAISED A SPECIFIC GROUND BEFORE THE LD. CIT(A) AS UNDER: 2. THE ADDITIONAL DEPRECIATION AND DEPRECIATION ON WINDMILL HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT AND THE LEARNED OFFICER IS NOT JUSTIFIE D IN REOPENING THE ASSESSMENT ON MERE CHANGE OF OPINION. HOWEVER, THE APPELLATE ORDER, THE LD. CIT(A) HAS NOT ADJUDICATED THE LEGAL ISSUE WITH REGARD TO REOPENING OF ASSESSMENT AND DECIDED THE APPEAL OF THE ASSESSEE ON MERITS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE LD. CIT(A) SHOULD HAVE ADJUDICATED THE ISSUE OF REOPENING OF ASSESSMENT AND THEREAFTER PROCEEDED TO DECIDE THE ISSUES ON MERITS. THUS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO T HE LD. CIT(A) TO ADJUDICATE THE LEGAL ISSUE IN ACCORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. SINCE THE ISSUE OF REOPENING OF ASSESSMENT IS REMITTED TO THE FILE OF THE LD. CIT(A), THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE NOT ADJUDICATED AT THIS JUNCTURE. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 35 9.5 ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 830/MDS/2015 [A.Y. 2007 - 08] 10. IN THE APPEAL OF THE REVENUE, THE ONLY EFFECTIVE GROUND RAISED IS WITH REGARD TO DELETION O F PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 10. 1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME OF .3,71,93,727/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ORDER UNDER SECTION 143(3) OF THE ACT WAS PASSED ON 17.12.2009. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION TO THE EXTENT OF .26 ,33,507/ - . AGAINST THE SIMILAR DISALLOWANCE MADE IN THE ASSESSMENT YEAR 2008 - 09, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGAINST THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2008 - 09, THE APPEALS FILED BY THE ASSESSEE AND M/S. RANSAR INDUSTRIES LTD. IN I.T.A. NOS. 1824/MDS/2010 & 1825/MDS/2010, THE TRIBUNAL, VIDE ITS ORDER DATED 04.04.2013, DISMISSED THE APPEALS OF THE ASSESSEE. THEREFORE, BASED ON THE ABOVE CONFIRMATION OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R IN THE ASSESS MENT YEAR 2008 - 09 FOR SIMILAR DISALLOWANCE ON THE CLAIM OF ADDITIONAL DEPRECIATION IN THE ASSESSMENT YEAR 2007 - 08, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS AND ISSUED NOTICE DATED 31.12.2012 AND SATISFIED THAT IT IS FIT CASE FOR L EVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT FOR FURNISHING OF I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 36 INACCURATE PARTICULARS OF INCOME AND ACCORDINGLY PENALTY OF .9,21,727/ - WAS LEVIED . 10.2 THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHED IN ACCURATE PARTICULARS OF INCOME. SINCE THE ASSESSEE FURNISHED EXPLANATION ON WHICH IT WAS UNABLE TO SUBSTANTIATE THAT IT WAS BONAFIDE BASING ON THE CHARGES MADE IN THE PROVISIONS OF SECTION 32 OF THE ACT AND ALL THE FACTS RELATING TO THE COMPUTATION OF ITS TOTAL INCOME HAVE BEEN DISCLOSED, THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE NOT ATTRACTED AND ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO DELETE THE PENALTY. 10.3 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR STRONGLY CONTENDED THAT BY WAY OF MAKING WRONG CLAIM AGAINST THE PROVISIONS OF THE ACT, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND THEREFORE, THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS CLEARLY ATTRACTS TO THE FACTS OF THE ASSES SEE S CASE AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED. 10.4 PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT AGAINST THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT TOWARDS CONFIRMATION OF SIMILAR DISALLOWANCE MA DE IN THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 10, THE ORDER OF THE LD. CIT(A) DELETING THE LEVY OF PENALTY WAS SUSTAINED BY THE TRIBUNAL VIDE ITS ORDER DATED 05.03.2015 IN I.T.A. NOS. 2711 & 2712/MDS/2014. I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 37 THEREFORE, THE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT BY FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ALSO THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT MAY KINDLY BE DELETED. THE LD. DR COULD NOT CONTROVERT THE ABOVE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. 10.5 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. AGAINST SIMILAR PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT TOWARDS CONFIRMATION OF DISALLOWANCE MADE IN THE ASSESSMENT YEARS 2008 - 09 & 2009 - 10, THE ORDER OF THE LD. CIT(A) DELETING THE LEVY OF PENALTY WAS SUSTAINED BY THE TRIBUNAL VIDE ITS ORDER DATED 05.03.2015 IN I.T.A. NOS. 2711 & 2712/MDS/2014 AND DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER BY F OLLOWING THE DECISION IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR 158 , WHEREIN THE HON BLE SUPREME COURT HAS HELD THAT WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN THE RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE , THERE IS NO QUESTION OF INVITING PENALTY UNDER SECTION 271(1)(C) ACT . A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURN ISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS . RESPECTFULLY BY FOLLOWING THE ABOVE DECISION OF THE HON BLE SUPREME COURT, FOR THE ASSESSMENT YEA R 2007 - 08 ALSO, WE ARE OF THE CONSIDERED OPINION THAT IT IS NOT A FIT CASE TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND ACCORDINGLY, CONFIRM THE ORDER PASSED BY THE LD. CIT(A) IN DIRECTING THE I.T.A. NO S . 1017 & 1246/M/12, 1872, 2014 & 2318/M/14 & 830/M/15 38 ASSESSING TO DELETE THE PENALTY. THUS, THE APPEAL FIL ED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEALS OF THE REVENUE IN I.T.A.NOS. 1246/MDS/2012, 830/MDS/2015 & 2014/MDS/2013 ARE DISMISSED AND THE APPEALS OF THE ASSESSEE IN I.T.A. NO. 1017/MDS/2012 IS PARTLY ALLOWED , I.T.A. NO. 1872/MDS/2013 IS DISMISSED AND I.T.A. NO. 2318/MDS/2014 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 16 TH NOVEMBER , 20 16 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 1 1 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.