Wintac Limited, Bangalore V. DCIT, Bangalore

ITA 834/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5528 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Assessee Lawyers: ANIL RAO
• Keywords: Depreciation; Non-deduction of tax; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.834/BANG/2016 ASSESSMENT YEAR : 2010-11 M/S. WINTAC LIMITED, NO. 163, RESERVOIR STREET BASAVANGUDI, BENGALURU 560004. PAN : AAACR8613H VS. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 12(5), BENGALURU. APPELLANTS RESPONDENT ASSESSEE BY : SHRI. ANIL RAO, CA REVENUE BY : SMT. SWAPNA DAS, JCIT DATE OF HEARING : 16.03.2017 DATE OF PRONOUNCEMENT : 13 .04.2017 O R D E R PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 01.03.2016 OF CIT(A) FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IN SO FAR AS SU STAINING THE ORDER OF THE AO IN RESPECT OF DISALLOWANCE OF DEPRECIATION OF RS . 10,35,657 ON COMPUTER SOFTWARE IS AGAINST LAW, FACTS OF THE CASE AND WEIG HT OF EVIDENCE. 2. THE CIT(A) HAS ERRED IN SUSTAINING DISALLOWANCE OF DEPRECIATION OF RS.10,35,657 ON THE GROUND THAT AMOUNT PAID TO OBTA IN COMPUTER SOFTWARE HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT AS I N THE NATURE OF ROYALTY AND HENCE CANNOT BE ADDED TO BLOCK OF ASSETS OF COM PUTER. ITA NO.834/BANG/2016 PAGE 2 OF 9 3. THE LEARNED CIT(A) HAS ERRED IN NOT FOLLOWING TH E DECISIONS OF THE JURISDICTIONAL HIGH COURT IN ITA NO 507/2002 - CIT VS. WIPRO LTD AND FOLLOWED IN WIPRO LTD VS. DCIT, CENTRAL CIRCLE 1(3) REPORTED IN 236 TAXMANN 209 AND DECISIONS OF OTHER HIGH COURTS WHIC H APPLY TO THE FACTS OF THE CASE THAT AMOUNTS PAID FOR PURCHASE OF PACKAGED SOFTWARE CANNOT BE ROYALTY. 4. THE LEARNED CIT(A) HAS ERRED IN RELYING UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN SAMSUNG ELECTRONICS LT D (2011) 345 ITR 494 TO HOLD THAT PAYMENT MADE TO THE SOFTWARE VENDOR AS RO YALTY, WHEN THE SAID CASE IS NOT APPLICABLE TO THE FACTS OF THIS CASE. 5. THE LEARNED CIT (A) ERRED IN HOLDING THAT APPELL ANT WAS OBLIGED TO DEDUCT TAX AT SOURCE IN THE PREVIOUS YEAR 2007-08 AND 2008 -09 ON THE PAYMENT MADE TO THE VENDOR FOR ACQUISITION OF LICENSE, INCR EASE IN USERS AND EXTENSION OF LICENSE WHEN SUCH PAYMENT WAS HELD NOT TO BE ROYALTY BY THE JURISDICTIONAL TRIBUNAL. 6. THE LEARNED CIT (A) ERRED IN CONCLUDING THAT AMO UNT IN THE NATURE OF ROYALTY CANNOT BE CAPITALISED. 7. THE CIT (A) HAS ERRED IN INCLUDING PROFESSIONAL FEES OF RS. 7,17,744 FOR IMPLEMENTATION, INTEREST PAID TO BANK AND OTHER EXP ENSES CONNECTED WITH IMPLEMENTATION RS. 5,81,618 CAPITALISED UNDER SOFTW ARE OF RS. 34,52,190 AS ROYALTY TO BE DISALLOWED BY THE AO. 8. THE APPELLANT BE PERMITTED TO ADDUCE FURTHER EVI DENCE AT THE TIME OF HEARING. 2. THE ONLY ISSUE RAISED IN THE APPEAL OF THE ASSES SEE IS REGARDING DISALLOWANCE OF DEPRECIATION MADE BY THE AO BY INVOKING OF SECTION 40(A)(IA) IN RESPECT OF ERP SYS TEM SOFTWARE PURCHASED BY THE ASSESSEE AND CAPITALIZED THE SAME. THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.34,52,19 0/- ON ERP SYSTEM. THE LICENSE OF THE SOFTWARE NAMED AS NAVI SION IS OWNED BY MICROSOFT CORPORATION. THIS TOTAL EXPENDI TURE OF ITA NO.834/BANG/2016 PAGE 3 OF 9 RS.34,52,190/- COMPRISING OF A SUM OF RS.21,52,826/ - TOWARDS THE COST OF LICENSE AND THE BALANCE AMOUNT WAS TOWA RDS THE COST OF EXTENSION OF LICENSE FOR THREE YEARS AS WELL AS FOR IMPLEMENTATION EXPENDITURE INCURRED BY THE ASSESSEE WAS CAPITALIZED AND CLAIMED DEPRECIATION. THE AO HELD THAT THIS PAYMENT MADE BY THE ASSESSEE IS IN THE NATURE OF RO YALTY AS PER EXPLANATION 2 TO SECTION 9(I)(VI) OF THE INCOME TAX ACT. SINCE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THIS AMOUNT, THEREFORE THE AO DISALLOWED THE CLAIM OF DEPRECIATI ON BY INVOKING THE PROVISIONS OF SECTION 40(I)(A) OF THE ACT. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) BUT COULD NOT SUCCEED. 3. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT ONCE THE ASSESSEE HAS CAPITALIZED THIS EXPENDI TURE AND CLAIMED ONLY DEPRECIATION UNDER SECTION 32 OF THE A CT, THEN THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE INVOKED F OR DISALLOWANCE OF THE CLAIM OF DEPRECIATION. HE HAS RELIED UPON THE DECISION DATED 26.06.2015 IN THE CASE OF M/S. KAVAS AKI MICROELECTRONICS INC., DDIT (INTERNATIONAL TAXATION ) IN IT(TP) A NO. 1512/2010. ON THE HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE COORDI NATE BENCH OF ITA NO.834/BANG/2016 PAGE 4 OF 9 THIS TRIBUNAL IN THE CASE OF M/S. KAVASAKI MICROELE CTRONICS INC., (SUPRA) IN PARA 6 TO 8 AS UNDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS LIMITED ONLY WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION BY INVOKING THE PR OVISIONS OF SECTION 40(A)(I) OF THE ACT. THERE IS NO DISPUTE THAT THE A SSESSEE HAS MADE THE PAYMENT IN QUESTION TO A NON-RESIDENT FOR PURCH ASE OF SOFTWARE AND THE SAID PAYMENT HAS BEEN CAPITALIZED BY THE AS SESSEE I N THE BLOCK OF COMPUTER ASSET. ONCE THE ASSESSEE CA PITALIZED THE PAYMENT AND HAS NOT CLAIMED THE SAME AS AN EXPENDIT URE AGAINST THE PROFITS OF THE BUSINESS OF THE ASSESSEE, THEN, THE QUESTION ARISES WHETHER THE DEPRECIATION WHICH IS A STATUTORY DEDUC TION AS PER THE SECTION 32 OF THE ACT CAN BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. AT THE OUTSET, IT IS T O BE NOTED THAT ON THE SIMILAR SET OF FACTS ANIDENTICAL ISSUE HAS BEEN DEA LT BY THE ITAT, MUMBAI BENCH IN THE CASE OF SKOL BREWERIES LTD. (SU PRA), WHEREIN IT WAS HELD IN PARAS 16.1 TO 16.4 AS UNDER :- 16.1 AS REGARDS THE ALTERNATIVE PLEA OF THE LD SR COUNSEL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HA S NOT CLAIMED THE ENTIRE AMOUNT AS REVENUE EXPENDITURE; B UT HAS CAPITALIZED THE SAME AND CLAIMED ONLY DEPRECIATION U/S 32(1)(II); THEREFORE, PROVISIONS OF SEC. 40(A)((I) SHALL NOT APPLY. SECTION 40(A)(I) CONTEMPLATES THAT ANY INTEREST, RO YALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE OUTSIDE INDIA AS IT IS RELEVANT FO R THE CASE IN HAND ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHA PTER XVII -B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DED UCTION, HAS NOT BEEN PAID, THE AMOUNT OF INTEREST, ROYALTY, FEE FOR TECHNICAL SERVICES AND OTHER SUM SHALL NOT BE DEDUC TED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS & GAINS OF BUSINESS OR PROFESSION'. THIS CONDITION OF DEDUCTIBILITY HAS BEEN STIPULATED U/S 40 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38 OF THE ACT. SEC. 40 BE GINS WITH NON-OBSTANTE CLAUSE; THEREFORE, IT IS AN OVERRIDING EFFECT T THE PROVISIONS OF SEC. 30 TO 38 OF THE I T ACT. THE QUESTION ARISES IS WHETHER ANY AMOUNT PAID OUTSIDE INDIA OR TO THE NON RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS CAPITALIZED THE SAME IN THE FIXED ASSE TS AND CLAIMED ONLY DEPRECIATION IS SUBJECTED TO THE PROVI SIONS OF SEC. 40(A)(I) OR NOT ?. WE QUOTE THE PROVISIONS OF SEC. 40(A)(I) AS UNDER: ITA NO.834/BANG/2016 PAGE 5 OF 9 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION', IN THE CASE OF ANY ASSESSEE [(I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION B EFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SE RVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, O UTSIDE INDIA; OR IN INDIA TO A NON-RESIDENT, NOT BEING A C OMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOUR CE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YE AR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESC RIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCT ED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SEC TION 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS B EEN PAID. EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, ROYALTY' SH ALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; 16.2 IT IS MANIFEST FROM THE PLAIN READING OF PROVI SIONS OF SEC. 40(A)(I) THAT AN AMOUNT PAYABLE TOWARDS INTEREST, R OYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UND ER THIS ACT SHALL NOT BE DEDUCTED WHILE COMPUTING THE INCOME UN DER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION ON W HICH TAX IS DEDUCTIBLE AT SOURCE; BUT SUCH TAX HAS NOT BEEN DED UCTED. THE EXPRESSION 'AMOUNT PAYABLE' WHICH IS OTHERWISE AN A LLOWABLE DEDUCTION REFERS TO THE EXPENDITURE INCURRED FOR TH E PURPOSE OF BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID EX PENDITURE IS A DEDUCTIBLE CLAIM. THUS, SECTION 40 REFERS TO THE OUTGOING AMOUNT CHARGEABLE UNDER THIS ACT AND SUBJECT TO TDS UNDER CHAPTER XVII-B. THERE IS A DIFFERENCE BETWEEN THE E XPENDITURE AND OTHER KIND OF DEDUCTION. THE OTHER KIND OF DEDU CTION WHICH INCLUDES ANY LOSS INCIDENTAL TO CARRYING ON THE BUS INESS, BAD DEBTS ETC., WHICH ARE DEDUCTIBLE ITEMS ITSELF NOT B ECAUSE AN EXPENDITURE WAS LAID OUT AND CONSEQUENTIALLY ANY SU M HAS GONE OUT; ON THE CONTRARY THE EXPENDITURE RESULTS A CERTAIN SUMS PAYABLE AND GOES OUT OF THE BUSINESS OF THE AS SESSEE. THE SUM, AS CONTEMPLATED UNDER SEC. 40(A)(I) IS THE OUTGOING ITA NO.834/BANG/2016 PAGE 6 OF 9 AMOUNT AND THEREFORE, NECESSARILY REFERS TO THE OUT GOING EXPENDITURE. DEPRECIATION IS A STATUTORY DEDUCTION AND AFTER THE INSERTION OF EXPLANATION 5 TO SEC. 32, IT IS OBLIGA TORY ON THE PART OF THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF DEPRECIATION ON THE ELIGIBLE ASSET IRRESPECTIVE OF ANY CLAIM MAD E BY THE ASSESSEE. THEREFORE, DEPRECIATION IS A MANDATORY DE DUCTION ON THE ASSET WHICH IS WHOLLY OR PARTLY OWNED BY THE AS SESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION WHIC H MEANS THE DEPRECIATION IS A DEDUCTION FOR AN ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS AND N OT FOR INCURRING OF ANY EXPENDITURE. 16.3 THE DEDUCTION U/S 32 IS NOT IN RESPECT OF THE AMOUNT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTORY DEDUCTION ON AN ASSET WHICH IS OTHERWISE ELIGIBLE F OR DEDUCTION OF DEPRECATION. DEPRECIATION IS NOT AN OUTGOING EXP ENDITURE AND THEREFORE, THE PROVISIONS OF SEC. 40(A)(I) OF T HE ACT ARE NOT ATTRACTED ON SUCH DEDUCTION. THIS VIEW HAS BEEN FOR TIFIED BY THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MARK AUTO INDUSTRIES LTD.(SUPRA) IN PARS 5 & 6 AS UNDER: '5. ADVERTING TO QUESTIONS (II) AND (III), THE ISSU E WHICH ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE COULD BE DISA LLOWED CLAIM FOR DEPRECIATION UNDER SECTION 40(A)(I) OF TH E ACT ON THE GROUND THAT THE PAYMENTS MADE FOR TECHNICAL KNOW-HO W WHICH HAD BEEN CAPITALIZED, NO TAX DEDUCTION AT SOURCE HA S BEEN MADE THEREON. THE TRIBUNAL WHILE ACCEPTING THE PLEA OF THE ASSESSEE, IN PARA 3, HAD NOTICED AS UNDER: '3. GROUND NO. 4 IS AGAINST DELETION OF AN ADDITION OF RS.6,88,1751- MADE BY THE AO ON ACCOUNT OF DEDUCTIO N OF DEPRECIATION ON TECHNICAL KNOW-HOW AS THE ASSESSEE FAILED TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISION CONTAIN ED IN SECTION 40(A)(I). THE FINDING OF THE LEARNED CIT(A) WAS THAT THE ASSESSEE HAD INCURRED, EXPENDITURE BY WAY OF TECHNI CAL KNOW- HOW, WHICH WAS CAPITALIZED AMOUNT AS MADE IN THE RE TURN OF INCOME. SINCE HE ASSESSEE HAD NOT CLAIMED DEDUCTION FOR THE AMOUNT PAID, THE PROVISIONS CONTAINED IN SECTION 40(A) (I) WERE NOT ATTRACTED. THE LEARNED DR COULD NOT FIND ANY FAULT WITH THIS DIRECTION OF THE CIT(A) ALSO ALTHOUGH SHE REFERRED TO PAGE 4 OF THE ASSESSM ENT ORDER, WHERE IT WAS MENTIONED THAT THE TAX DEDUCTED IN RES PECT OF THE PAYMENT WAS MADE OVER TO THE GOVERNMENT IN THE SUBS EQUENT YEAR AND, THEREFORE, DEPRECIATION COULD NOT BE DEDU CTED ON THE CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE. IN RE PLY, THE LEARNED COUNSEL POINTED OUT THAT THE EXPENDITURE BY WAY OF ITA NO.834/BANG/2016 PAGE 7 OF 9 TECHNICAL KNOW-HOW WAS CAPITALIZED AND IT WAS NOT C LAIMED AS REVENUE EXPENDITURE. THEREFORE, THERE WAS ALSO NO R EASON TO DISALLOW DEPRECIATION ON SUCH CAPITALIZED AMOUNT AS THE AFORESAID PROVISION DOES NOT DEAL WITH DEDUCTION OF DEPRECIATION. HAVING CONSIDERED ARGUMENTS FROM BOTH THE SIDES, WE ARE OF THE VIEW THAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) WHICH REQUIRES CORRECTION FROM U S. THUS, THIS GROUND IS ALSO DISMISSED.' 6. LEARNED COUNSEL FOR THE REVENUE WAS UNABLE TO SU BSTANTIATE THAT IN THE ABSENCE OF ANY REQUIREMENT OF LAW FOR M AKING DEDUCTION OF TAX OUT OF THE EXPENDITURE ON TECHNICA L KNOW HOW WHICH WAS CAPITALIZED AND NO AMOUNT WAS CLAIMED AS REVENUE EXPENDITURE, THE DEDUCTION COULD BE DISALLOWED UNDE R SECTION 40(A)(I) OF THE ACT. ACCORDINGLY, NO INFIRMITY COUL D BE FOUND IN THE ORDER PASSED BY THE TRIBUNAL WHICH MAY WARRANT INTERFERENCE BY THIS COURT. THUS, BOTH THE QUESTION S ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE A SSESSEE.' 16.4 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FOL LOWING THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. 7. AS IT IS CLEAR FROM THE ABOVE DECISION THAT THE TRIBUNAL HAS DISCUSSED AND ANALYSED THE PROVISIONS OF SECTIO N 40(A)(I) IN DETAIL IN THE CONTEXT OF DISALLOWANCE OF DEPRECI ATION. THE LEARNED D.R. HAS SUBMITTED THAT ONCE THE ASSESSEE H AS VIOLATED THE PROVISIONS OF SECTION 195, THEN, EVEN THE EXPENDITURE IS CAPITALIZED BY THE ASSESSEE, THE PRO VISIONS OF SECTION 40(A)(I) ARE APPLICABLE FOR DISALLOWANCE OF DEPRECIATION ON SUCH CAPITALIZED EXPENDITURE. WE DO NOT AGREE WI TH THE CONTENTION OF THE LEARNED D.R, BECAUSE A REMEDY FOR VIOLATION OF PROVISIONS OF SECTION 195 IS AVAILABLE WITH THE ASSESSING OFFICER UNDER SECTION 201 & 201A OF THE ACT. THE PR OVISIONS OF SECTION 40(A) IS ONLY AN ADDITIONAL MEASURE TO ENFO RCE THE COMPLIANCE OF CHAPTER XVIIB OF THE ACT, BY DISALLOW ING AN EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A) ARISES ONLY WHEN AN EXPENDITURE IS CL AIMED BY THE ASSESSEE WITHOUT DEDUCTING THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER-XVIIB OF THE ACT, 1961. IN TH E CASE ON HAND, WHEN THE ASSESSEE HAS NOT CLAIMED, THE SAID P AYMENT AS AN EXPENDITURE THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT ARISE. THE ONLY REMEDY WH ICH MIGHT HAVE BEEN RESORTED TO BY THE ASSESSING OFFICER IS T HE ACTION UNDER SECTION 201 AND 201A OF 12 IT(I.T)A NO.1512/B ANG/2010 ITA NO.834/BANG/2016 PAGE 8 OF 9 THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SMS DEMANG (P) LTD. (SU PRA) IN PARA 8 AS UNDER :- 8. AS REGARDS THE CLAIM OF ASSESSEE FOR DEPRECIATI ON ON ASSETS CAPITALIZED, DEPRECIATION CANNOT BE DISALLOW ED ON THE GROUND THAT AT THE TIME OF REMITTANCE, NO TAX WAS D EDUCTED AT SOURCE. PROVISIONS OF SECTION 40(A)(I) ARE NOT APPL ICABLE FOR CLAIM FOR DEDUCTION UNDER SECTION 32 OF THE ACT. AC CORDINGLY, IN OUR CONSIDERED OPINION, THE AO WAS NOT JUSTIFIED IN DISALLOWING 50 PERCENT OF DEPRECIATION ON THE GROUND THAT PROVI SIONS OF SECTION 40(A)(I) WERE APPLICABLE. HOWEVER, THE AO W ILL VERIFY THE FACT WHETHER THE ASSETS IN RESPECT OF WHICH EXPENDI TURE HAS BEEN CAPITALIZED HAVE BEEN USED IN BUSINESS FOR PER IOD MORE THAN 180 DAYS. IF THE ASSETS HAVE BEEN USED FOR MOR E THAN 180 DAYS, THE AO WILL ALLOW FULL DEPRECIATION, AS CLAIM ED BY THE ASSESSEE. THE AO IS DIRECTED ACCORDINGLY. 8. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS BY FOLLOWING THE DECISIONS OF THE CO-ORDINATE BE NCHES OF THE ITAT, WE ARE OF THE OPINION THAT ONCE THE ASSESSEE HAS CAPITALIZED THE PAYMENT IN QUESTION THOUGH THE ASSE SSEE HAS NOT DEDUCTED THE TAX AT SOURCE ON SUCH PAYMENT, SEC TION 40(A)(I) CANNOT BE INVOKED FOR DISALLOWANCE OF DEPR ECIATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND THE ADDITION MADE BY THE ASSESSING OFFICER IS D ELETED. 5. FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, W E ARE OF THE CONSIDERED OPINION THAT ONCE THE ASSESSEE HAS CAPIT ALIZED THE PAYMENT IN QUESTION, THEN EVEN THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENT, THE PROVISIONS OF SECTIO N 40(IA) CANNOT BE INVOKED FOR DISALLOWANCE OF THE CLAIM O F DEPRECIATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE. ITA NO.834/BANG/2016 PAGE 9 OF 9 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF APRIL, 2017. SD/- SD/- (A. K. GARODIA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICI AL MEMBER BANGALORE. DATED: 13 TH APRIL, 2017. /NSHYLU/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.