India Healthcare Solutions Pvt Ltd., CHENNAI V. ITO, CHENNAI

ITA 897/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96284 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.897/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. INDIA HEALTHCARE SOLUTIONS PVT. LTD., 9D, 1 ST LANE, KARANEESHWARAR KOIL STREET, MYLAPORE, CHENNAI-600 004. VS THE INCOME TAX OFFICER, COMPANY WARD-II(1), CHENNAI. PAN:AABCI4741E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. T.BANUSEKAR, C.A. /RESPONDENT BY : MR.A.B.KOLI, JCIT /DATE OF HEARING : 16 TH SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 29 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNA I DATED 05.11.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANC ES OF THE CASE AND AT ANY RATE IS OPPOSED TO THE PRINCIPL ES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFIC ER IS 2 ITA NOS. 897/MDS/2015 WITHOUT JURISDICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN HOLDING THAT THE SOFTWARE EXPENSES CLAIMED BY TH E APPELLANT WERE CAPITAL IN NATURE. 4. FOR THAT THE COMMISSIONERS OF INCOME TAX (APPEALS) ERRED IN REJECTING THE APPELLANT'S CONTENTION THAT UPS ARE ENERGY SAVING DEVICES AND CONSEQUENTLY IN RESTRICTI NG DEPRECIATION ON UPS AT 60% INSTEAD OF ALLOWING DEPRECIATION AT THE RATE OF 80% AS CLAIMED BY THE APPELLANT. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN HOLDING THAT THE APPELLANT WAS NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE INCOME TAX ACT. 6. FOR THAT, WITHOUT PREJUDICE TO THE ABOVE, THE COMMI SSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTING THE ALTE RNATE CLAIM OF THE APPELLANT FOR DEDUCTION U/S 10A OF THE INCOME TAX ACT. 7. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) O UGHT TO HAVE HELD THAT THE APPELLANT HAD FULFILLED ALL T HE CONDITIONS OF SECTION 10A AND WAS THEREFORE ELIGIBL E FOR DEDUCTION U/S 10A OF THE INCOME TAX ACT. 8. FOR THAT RS. 5,11,9271- BEING THE DISALLOWANCE U/S 40(A)(IA) OUGHT TO BE ADDED TO BUSINESS PROFITS WHILE COMPUTI NG DEDUCTION U/S 1OB / 10A. 3. GROUND NO.1 IS GENERAL NEED NOT BE ADJUDICATED. 4. IN GROUND NO.2 , THE ASSESSEE CHALLENGES THAT O RDER OF THE ASSESSING OFFICER IS WITHOUT JURISDICTION. HOWE VER, NO ARGUMENTS ARE ADVANCED ON THIS GROUND AND THEREFORE THIS GROUND IS DISMISSED. 3 ITA NOS. 897/MDS/2015 5. GROUND NO.3 IS NOT PRESSED BY THE COUNSEL AND TH E SAME IS DISMISSED ACCORDINGLY. 6. GROUND NO.4 IS WITH REGARD TO CLAIM OF DEPRECIAT ION ON UPS. THE ASSESSEE CLAIMED AT 80% WHEREAS COMMISSIO NER OF INCOME TAX (APPEALS) ALLOWED 60% OF DEPRECIATION BY FOLLOWING VARIOUS DECISIONS OF THIS CO-ORDINATE BEN CH AND OTHER BENCHES OBSERVING AS UNDER:- 42.1 HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSEE'S CONTENTION IS THAT THE UPS ARE ENERGY SA YING DEVISES AND HENCE ELIGIBLE FOR HIGHER RATE OF DEPREDATION @ 80%. THE UPS SYSTEMS ARE REQUIRED FOR OPERATIONS OF THE COMPUTER S. HENCE THE UPS BECOMES PART AND PARCEL OF THE COMPUTER SYSTEMS ONCE THEY ARE ATTACHED TO THE COMPUTERS. HENCE THEY ARE LEGIBLE FOR DEPRECIATION @ 60% BEING THE DEPRECIATION AVAILABLE FOR COMPUTERS. THERE ARE SEVERAL PRONOUNCEMENTS IN THIS REGARD, INCLUDING DELHI HIGH COURT AND THE JURISDICTIONAL I TAT, WHERE IT WAS HELD THAT UPS ALSO FORMS PART OF THE COMPUTER S YSTEM AND, THEREFORE, ELIGIBLE FOR DEPRECIATION @ 60%. SOME OF THE DECISIONS ARE AS UNDER - (I) ITA NO.99/MDS/2010 (ITAT CHENNAI) IN THE CASE OF IO B. (II) ITA NO.3606JMUMJ2011 (ITAT MUMBAI) IN THE CASE OF SARASWAT INFOTECH LTD. (III)ITA 474JDELJ2009 DELHI TRIBUNAL IN THE CASE OF GLOBAL TRUST BANK. (IV) ITA 962JDELJ2006 DELHI TRIBUNAL IN CASE OF NEP TUNE INFORMATION SOLUTIONS LTD THE RELEVANT PORTION OF THE DECISION OF THE !TAT IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO.99JMDSJ201O DATED 19 .03.2013 IS AS UNDER- 28. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE AR THAT THE UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPRECIATION @ 80% SHOULD BE GRANTED. HOWEVER, WE ARE IN CONSONAN CE WITH THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES LTD. (SUPRA), WHEREIN THE HON'BLE COURT HAS GRANTED DEPRECIATION @ 60% BY TREATING UPS AS PART OF COMPUTER HARDWARE. ACCORDINGLY, WE ALLOW DEPRECIATION 60% ON UPS ARID PARTLY ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 4 ITA NOS. 897/MDS/2015 4.2.3 RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT, IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO.99/MDS/2010 DATED 19.03.2~13, I HOLD THAT UPS ATTACHED TO THE COMPUTERS ARE PART OF COMPUTER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 60%. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING AND ALLOWING THE DEPRECIATION ON UPS @ 60%, AS AGAINST 80% CLAIMED BY THE ASSESSEE, IS AS PER THE LAW AND JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER IS CONFIRMED. 7. ON GOING THROUGH THE ABOVE FINDINGS, WE DO NOT F IND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSION ER OF INCOME TAX (APPEALS) IN RESTRICTING THE DEPRECIATIO N ON UPS TO 60% AND THUS UPHOLD THE SAME AND REJECT THE GROU NDS OF APPEAL OF THE ASSESSEE ON THIS ISSUE.. 8. IN GROUND NO.5, THE ASSESSEE IS CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN HOLD ING THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTIO N 10B OF THE ACT. ALTERNATIVELY IN GROUND NO.6 AND 7, IT WAS THE CONTENTION OF THE ASSESSEE THAT ASSESSEE IS ELIGIBL E FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THEREFORE, COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE AL LOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT. 9. THE ASSESSING OFFICER AT PAGE 7 IN PARA 16 OF TH E ASSESSMENT ORDER OBSERVED THAT WHEN SHOW CAUSE NOT ICE 5 ITA NOS. 897/MDS/2015 DATED 14.03.2013 WAS ISSUED TO THE ASSESSEE TO SHOW CAUSE AS TO WHY ITS CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT SHOULD NOT BE DISALLOWED, THE ASSESSEE VIDE LETTER DATED 20.03.2013 SUBMITTED THAT IT IS ENTITLED FOR EXEMPT ION UNDER SECTION 10A OF THE ACT BUT WRONGLY CLAIMED DEDUCTIO N UNDER SECTION 10B AND IT WAS A TECHNICAL MISTAKE IN CLAI MING DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESSE E SUBMITTED THAT IT HAS FULFILLED ALL THE CONDITIONS PRESCRIBED FOR CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT. TH E COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ACT ION OF THE ASSESSING OFFICER IN REJECTING THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 10B OF THE ACT OBSERVING AS UNDER:- 4.3.3 HOWEVER, THE DEDUCTION U/S.L0B IS SUBJECT TO THE FULFILLMENT OF SEVERAL CONDITIONS STIPULATED UNDER THE STATUTES. ONE OF SUCH CONDITIONS IS THAT THE UNIT MUST HAVE BEEN APPROVED BY THE 'BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATIONS) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT'. THE BOARD FOR THIS PURPOSE IS THE 'INTER-MINISTERIA L STANDING COMMITTEE', APPOINTED BY THE MINISTRY OF INDUSTRIES. THE ASSESSEE, BEFORE THE ASSESSING OFFICER, HAS ACCEPTED THAT IT HAD NOT OBTAINED ANY SUCH APPROVAL, THOUGH ITS UNIT WAS REGISTERED WITH THE STPI. APPROVAL FROM THE 'INTER-MINISTERIAL STANDING COMMITTEE' IS A PRE-REQUISITE FOR THE PURPOSE OF ALLOWING THE DEDUCTION U/S.L0B OF THE ACT. IN THE ABSENCE OF SUCH APPROVAL THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/ S.L0B OF THE ACT, AS HELD BY THE HIGH COURT OF DELHI IN THE CASE OF CIT V S REGENCY CREATIONS LTD (2012)(27 TAXMANN 6 ITA NOS. 897/MDS/2015 322)(DEL). THE HON'BLE HIGH COURT ALSO HAS HELD THAT 'APPROVAL GRANTED TO A 100% EOU SET UP UNDER SOFTWARE TECHNOLOGY PARK SCHEME CANNOT BE DEEMED TO BE AN APPROVAL UNDER SECTION L0B' . 4.3.4 IN VIEW OF THE ABOVE REASONS AND THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS REGENCY CREATIONS LTD (REPORTED IN 27 TAXMANN 322 (2012), I AM OF THE CONSIDERED OPINION THAT IN THE ABSENCE OF APPROVAL FROM THE 'INTER-MINISTERIAL STANDING COMMITTEE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE ASSESSEES CLAIM OF DEDUCTION U/S.10B OF THE ACT IS AS PER THE LAW AND JUSTIFIED. THE ASSESSEE FAILS IN ITS APPEALS IN THI S REGARD. 10. ON GOING THROUGH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY INFIRMITY IN UPHOLDING THE ASSESSMENT ORDER IN REJECTING THE DED UCTION UNDER SECTION 10B OF THE ACT. THE COMMISSIONER OF I NCOME TAX (APPEALS) REJECTED THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT IT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OBSERVING THAT AS PER THE PROVISIONS OF SECTION 10A ONLY THOS E INDUSTRIAL UNDERTAKINGS WHICH ARE ESTABLISHED IN SEZ ON OR AFT ER 01.04.2001 ARE ELIGIBLE FOR DEDUCTION. HE WAS OF T HE VIEW THAT ASSESSEES UNDERTAKING WAS REGISTERED IN STPI AND NOT UNDER SEZ AND THEREFORE THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 7 ITA NOS. 897/MDS/2015 11. COUNSEL FOR THE ASSESSEE REFERRING TO THE PROVI SIONS OF SUB-SECTION (2) (I)(B) OF SECTION 10A SUBMITS THAT AN UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AF TER 01.04.1994 IN ANY ELECTRONIC HARDWARE TECHNOLOGY PA RK, OR AS THE CASE MAY BE SOFTWARE TECHNOLOGY PARK, IS EL IGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. HE SUBMITS THAT THIS PROVISION WAS COMPLETELY IGNORED BY THE ASSESSING O FFICER AND HE WAS OF THE VIEW THAT AN UNDERTAKING COMMENCI NG ON OR AFTER 1 ST DAY OF APRIL,1984 IN ANY SEZ AS MENTIONED IN CLAUSE (2)(I)(C) OF SECTION 10A ONLY IS ELIGIBLE F OR DEDUCTION. 12. ON GOING THROUGH THE PROVISIONS OF SECTION 10A AND SUB-CLAUSE 2(I)(B) AND ALSO SUB-SECTION (2)(I) (C) OF SECTION 10A, WE FIND CONSIDERABLE FORCE IN THE SUBMISSION S OF THE COUNSEL FOR THE ASSESSEE. WE ARE OF THE VIEW THAT A SSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) HA VE COMPLETELY OVERLOOKED THE PROVISIONS IN REJECTING T HE CLAIM OF THE ASSESSEE THAT IT IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THUS, WE RESTORE THIS ISSUE TO THE FILE OF THE 8 ITA NOS. 897/MDS/2015 ASSESSING OFFICER FOR THOROUGH EXAMINATION AND DECI DE THE ISSUE IN ACCORDANCE WITH LAW I.E. WHETHER THE ASSES SEE IS ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE ACT OR NOT. 13. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE DISALLOWANCE MADE UNDER SECTIO N 40(A)(IA), WHICH WAS NOT CHALLENGED IN APPEAL, TO T HE EXTENT OF ` 5,11,927/- SHOULD BE ADDED TO THE BUSINESS PROFIT S WHILE COMPUTING THE PROFITS UNDER SECTION 10A OF THE ACT. 14. FOR THIS PROPOSITION, COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN T HE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (330 ITR 175) . 15. SINCE WE HAVE RESTORED THE ISSUE OF ALLOWABILIT Y OF DEDUCTION UNDER SECTION 10A TO THE FILE OF THE ASSE SSING OFFICER, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION, KEEPING IN VIEW TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY P.LTD. (SUPRA), AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9 ITA NOS. 897/MDS/2015 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2015. SD/- SD/- ( # ) ( & (# ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) * / ACCOUNTANT MEMBER ( * / JUDICIAL MEMBER ( /CHENNAI, , /DATED 29 TH OCTOBER, 2015 SOMU ./ 0/ /COPY TO: 1. APPELLANT 2.RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .