Joint commissioner of Income-tax (OSD), Circle - 4(1)(2), Bangalore V. M/s. Msource (India) Private Limited, Bangalore

ITA 936/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0054 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-06-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 02-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISRA
• Assessee Lawyers: K R GIRISH
• Keywords: Depreciation; Rectification of order; Opportunity of being heard; Principle of natural justice; Rule 8D; Set aside
• Section: 143(3); 14A; 154

Judgement Text

ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL BBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENTAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER ITA NO.936/BANG/2019 ASSESSMENTYEAR:2013-14 JOINT COMMISSIONER OF INCOME-TAX (OSD) BENGALURU PAN NO :AACCM2097G VS. M/S. MSOURCE (INDIA) PVT. LTD. 1 ST FLOOR, WTC 3 BLOCK B BAGMANE, WORLD TECHNOLOGY CENTRE K.R. PURAM, MARATHAHALLI OUTER RING ROAD BODDENEKUNDI BANGALORE-560 048. APPELLANT RESPONDENT C.O. NO.52/BANG/2019 (ARISING OUT OF ITA NO.936/BANG/2019) ASSESSMENT YEAR: 2013-14 M/S. MSOURCE (INDIA) PVT. LTD. 1 ST FLOOR, WTC 3 BLOCK B BAGMANE, WORLD TECHNOLOGY CENTRE K.R. PURAM, MARATHAHALLI OUTER RING ROAD BODDENEKUNDI BANGALORE-560 048. VS. JOINT COMMISSIONER OF INCOME-TAX (OSD) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI PRIYADARSHIMISRA, D.R. RESPONDENT BY : SHRI K.R. GIRISH, A.R. DATE OF HEARING : 25.06.2020 DATE OF PRONOUNCEMENT : 29.06.2020 ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 2 OF 8 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATE D 20-02-2019 PASSED BY LD CIT(A)-4, BENGALURU AND THEY RELATE TO THE ASSESSMENT YEAR 2013-14. 2. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN HOLDING THAT THE ADDITIONS MADE BY THE AO IN THE RE CTIFICATION ORDER PASSED U/S 154 OF THE ACT IS DEBATABLE IN NATURE AN D ACCORDINGLY DELETING THE ADDITIONS. 3. IN THE CROSS OBJECTION, THE ASSESSEE IS CONT ENDING THE DECISION OF LD CIT(A) IN HOLDING THAT THERE WAS NO VIOLATION OF PRINCIPLES OF NATURAL JUSTICE COMMITTED BY AO WHILE PASSING THE R ECTIFICATION ORDER. 4. THE FACTS RELATING TO THE CASE ARE STATED I N BRIEF. THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION WAS COMP LETED BY THE AO U/S 143(3) OF THE ACT ON 29.11.2016. SUBSEQUENT LY, THE AO NOTICED THAT THERE ARE CERTAIN MISTAKES APPARENT FR OM RECORD IN THE ASSESSMENT ORDER PASSED BY HIM. ACCORDINGLY HE INI TIATED RECTIFICATION PROCEEDINGS U/S 154 OF THE ACT ON THE FOLLOWING ISSUES:- ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 3 OF 8 (A) THE ASSESSEE HAD CLAIMED DEPRECIATION AT THE H IGHER RATE OF 60%, AS APPLICABLE TO COMPUTERS, ON CERTAIN ITEM S OF PLANT AND MACHINERY. THE SAME WAS ALLOWED IN THE ORIGINA L ASSESSMENT ORDER. THE ASSESSEE HAD CLASSIFIED THOS E MACHINERIES AS PLANT AND MACHINERY GENERAL AND PLANT AND MACHINERY OFFICE EQUIPMENTS. THE AO TOOK TH E VIEW THAT THE DEPRECIATION IS ALLOWABLE AT NORMAL RATES AND NOT @ 60% AS CLAIMED BY THE ASSESSEE. (B) THE ASSESSEE HAD DISALLOWED A SUM OF RS.11,33, 846/- U/S 14A OF THE ACT AND THE SAME WAS ACCEPTED IN THE ORI GINAL ASSESSMENT ORDER. THE AO NOTICED THAT THE PROVISIO NS OF RULE 8D WERE OMITTED TO BE APPLIED FOR COMPUTING DISALLO WANCE U/S 14A OF THE ACT. IF THE PROVISIONS OF RULE 8D(2 )(III) IS APPLIED, THE DISALLOWANCE WORKED OUT TO RS.1,40,22, 353/-. 5. WHEN THE NOTICE DATED 04-12-2017 ISSUED BY TH E AO U/S 154 OF THE ACT WAS RECEIVED BY THE ASSESSEE, IT SOUGHT ADJOURNMENT REQUESTING THE AO TO GIVE NEXT DATE OF HEARING AFTE R 5 6 WEEKS. IT APPEARS THAT THE AO ALSO WAITED FOR THE REPLY FROM THE ASSESSEE DURING THE ABOVE SAID PERIOD. SINCE NO REPLY WAS R ECEIVED, THE AO PASSED THE RECTIFICATION ORDER U/S 154 OF THE ACT D ISALLOWING DEPRECIATION CLAIM TO THE TUNE OF RS.38,27,587/- AN D ENHANCING THE DISALLOWANCE U/S 14A OF THE ACT BY RS.1,28,88,507/- . 6. THE ASSESSEE CHALLENGED THE RECTIFICATION ORDER BY FILING APPEAL BEFORE LD. CIT(A). THE ASSESSEE CONTENDED B EFORE HIM THAT THE A.O. DID NOT PROVIDE SUFFICIENT OPPORTUNITY AND HENCE, THERE WAS ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 4 OF 8 VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THE SA ID CLAIM OF THE ASSESSEE WAS REJECTED BY THE LD. CIT(A). WITH REGA RD TO ADDITIONS MADE BY THE A.O., THE LD. CIT(A) DELETED THEM BY HO LDING THAT BOTH THE ISSUES ARE DEBATABLE IN NATURE AND HENCE THE A. O. COULD NOT HAVE PASSED THE RECTIFICATION ORDER U/S 154 OF THE ACT. BOTH THE PARTIES ARE AGGRIEVED BY THE ORDER SO PASSED BY THE LD. CIT(A). 7. WE HEARD THE PARTIES AND PERUSED THE RECORD. TH E LD. A.R. SUBMITTED THAT THE DEPRECIATION CLAIMED @ 60% BY TH E ASSESSEE RELATE TO COMPUTERS AND PERIPHERALS ATTACHED TO THE COMPUTER. HE SUBMITTED THAT THE NOMENCLATURE OF THE HEADING WAS MENTIONED AS PLANT AND MACHINERY-GENERAL AND PLANT AND MACHIN ERY- OFFICE, BUT THE ITEMS INCLUDED IN THESE TWO CATEGORIES ARE IN THE NATURE OF NETWORK SWITCH, ROUTERS, FLASH DISK, PORTS, PRINTER , PROJECTOR, SCANNER, HEAD SET, ETC. THE LD. A.R. SUBMITTED THA T ALL THESE ITEMS ALSO ARE REQUIRED TO BE CLASSIFIED AS COMPUTERS AND HENCE THE ASSESSEE HAS TREATED THEM AS COMPUTERS AND ACCORDIN GLY CLAIMED DEPRECIATION @ 60%. ACCORDINGLY, THE LD. A.R. SUBM ITTED THAT THE A.O. WAS NOT JUSTIFIED IN RESTRICTING THE RATE OF D EPRECIATION TO 10%/15%, WITHOUT MAKING ANY FURTHER EXAMINATION, PRESUMING THAT THEY ARE NOT COMPUTERS. ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 5 OF 8 8. ON THE CONTRARY, LD. D.R. SUBMITTED THAT THE ASS ESSEE DID NOT GIVE ANY BREAKUP DETAILS OF ITEMS THAT WERE INCLUDE D UNDER THE HEADING PLANT AND MACHINERY - GENERAL AND PLANT AND MACHINERY - OFFICE. HENCE, ON THE FACE OF IT, IT APPEARED T HAT THE ASSESSEE HAS CLAIMED HIGHER RATE OF DEPRECIATION AS APPLICABLE T O COMPUTERS ON THE ITEMS, WHICH ARE OTHERWISE ELIGIBLE FOR DEPRECI ATION @ 15%/10%. THE LD. D.R. FURTHER SUBMITTED THAT THE ISSUE IS NO T DEBATABLE ONE AS HELD BY LD CIT(A), AS THE RATE OF DEPRECIATION A PPLICABLE TO VARIOUS ASSETS IS SPECIFIC ONE. 9. THE LD. A.R., ON THE CONTRARY, SUBMITTED THAT TH E ASSESSEE WOULD BE IN A POSITION TO FURNISH THE BREAKUP DETAI LS OF VARIOUS ITEMS INCLUDED UNDER THE HEAD PLANT AND MACHINERY - GENERAL AND PLANT AND MACHINERY - OFFICE IF AN OPPORTUNITY IS PROVIDED. THE LD. A.R. ALSO SUBMITTED THAT THE A.O. HAS PASSED TH E RECTIFICATION ORDER WITHOUT PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 10. HAVING HEARD THE RIVAL SUBMISSIONS ON THIS IS SUE, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE A.O. FOR THE REASON THAT:- A) THE ASSESSEE WAS NOT PROVIDED WITH ADEQUATE OPPORTU NITY TO PRESENT ITS CASE BEFORE THE A.O. ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 6 OF 8 B) THE ASSESSEE ALSO PLEADS FOR ONE OPPORTUNITY TO FUR NISH BREAKUP DETAILS OF ITEMS INCLUDED UNDER THE HEADS PLANT AND MACHINERY - GENERAL AND PLANT AND MACHINERY - OFF ICE. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. C IT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE A.O. FOR EXAMINING IT AFRESH. 11. THE NEXT ISSUE RELATES TO ADDITION MADE U/S 14A OF THE ACT. THE ASSESSEE HAD DISALLOWED A SUM OF RS.11.33 LAKHS U/S 14A OF THE ACT. THE A.O. BY APPLYING THE PROVISIONS OF SE CTION 14A OF THE ACT UNDER RULE 8D(2)(III) HAS ENHANCED THE DISALLOW ANCE TO RS.1,40,22,353/-. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENTS ONLY IN MUTUAL FUNDS, WHICH ACTUAL LY DOES NOT REQUIRE ANY EXPENDITURE REQUIRED TO BE INCURRED. H E SUBMITTED THAT THE ASSESSEE HAS, HOWEVER, DISALLOWED A SUM OF RS.1 1.33 LAKHS IN ORDER TO COMPLY WITH THE PROVISIONS OF SECTION 14A OF THE ACT. HENCE, THERE IS NO REQUIREMENT TO APPLY PROVISIONS OF RULE 8D(2)(III). THE LD. A.R. SUBMITTED THAT THE A.O. HAS APPLIED PR OVISIONS OF RULE 8D(2)(III) WITHOUT AFFORDING ADEQUATE OPPORTUNITY T O THE ASSESSEE. HE SUBMITTED THAT ASSESSEE SHOULD BE IN A POSITION TO EXPLAIN ITS CASE BEFORE THE A.O., IF AN OPPORTUNITY IS GIVEN TO THE ASSESSEE. ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 7 OF 8 12. THE LD. D.R. ALSO AGREED TO THE SAME. ACCORDIN GLY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE ALSO AND RESTORE THE SAME TO THE FILE OF THE A.O. FOR EXAMINING IT A FRESH. 13. SINCE WE HAVE RESTORED BOTH THE ISSUES TO THE F ILE OF THE A.O., THE CROSS OBJECTION FILED BY THE ASSESSEE SHALL BEC OME INFRUCTUOUS. 14. NEEDLESS TO MENTION, THE ASSESSEE SHOULD BE GIV EN PROPER OPPORTUNITY OF BEING HEARD BY THE A.O. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE TREATED AS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29.06.2020 SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 29 TH JUNE, 2020. VG/SPS ITA NO.936/BANG/2019 & C.O. NO.52/BANG/2019 MSOURCE (INDIA) PVT. LTD., BANGALORE PAGE 8 OF 8 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.