Neptune Information Solutions Ltd., V. Assessing Officer,

ITA 962/DEL/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4201 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 23-03-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K RAVI RAMACHANDRAN
• Keywords: Depreciation; Reasonable cause; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.962/DEL/2006 ASSESSMENT YEAR : 2002-03 M/S NEPTUNE INFORMATION SOLUTIONS LTD., 1207, VIKRAM TOWER, 16, RAJENDRA PLACE, NEW DELHI. PAN : AAACN2754P VS. ASSESSING OFFICER, CIRCLE 13 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI K. RAVI RAMACHANDRAN, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 16 TH JANUARY, 2006 FOR ASSESSMENT YEAR 2002-03. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING TH E SUM OF RS.9,97,500/- ON ACCOUNT OF LEASE RENT. 2. THE CONCLUSION OF THE LOWER AUTHORITIES THAT THE SAID SUM OF RS.9,97,500/- IS NOT REVENUE EXPENDITURE AND N OT HAVING BEEN INCURRED FOR THE PURPOSES OF AN ONGOING BUSINESS IS ERRONEOUS AND IS OPPOSED TO EVIDENCES ON RECORD. 3. THE LOWER AUTHORITIES HAVE ERRED IN RESTRICTING THE ALLOWANCE FOR DEPRECIATION IN RESPECT OF UPS SYSTEM AT 20%. IT IS CONTENDED THAT SUCH UPS SYSTEM BEING A PART O F THE COMPUTER IS ELIGIBLE FOR DEPRECIATION AT THE SAME RA TE AS IS APPLICABLE TO THE COMPUTER. ITA NO.962/DEL/2006 2 4. THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. IT IS PERTINENT TO MENTION THAT EARLIER THE APPEA L FILED BY THE ASSESSEE WAS DISMISSED IN LIMINE ON ACCOUNT OF FAILURE OF T HE ASSESSEE TO ATTEND ON THE FIXED DATE OF HEARING. HOWEVER, T HE SAID ORDER WAS RECALLED ON THE GROUND THAT THE ASSESSEE WAS PREVENTED B Y A REASONABLE CAUSE AS ITS DIRECTOR WAS SERIOUSLY ILL VIDE OR DER DATED 7 TH JANUARY, 2011 IN M.A. NO.220/DEL/2010 AND THE DATE WAS FIXED FOR 19 TH APRIL, 2011. ON 19 TH APRIL, 2011, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE, HENCE, WE PROCEEDED TO DECIDE THE PRESENT APPE AL EX PARTE QUA THE ASSESSEE ON MERITS AFTER HEARING LEARNED DR. 3. THE GRIEVANCE OF THE ASSESSEE EXPRESSED IN GROUND NOS.1 AND 2 IS RELATING TO A DISALLOWANCE OF ` 9,97,500/-. THE R ETURN OF INCOME WAS FILED AT A LOSS OF ` 1,49,61,594/- ON 31 ST OCTOBER, 2002. VARIOUS ADDITIONS WERE MADE INCLUDING AN ADDITION OF ` 9,97, 500/- ON ACCOUNT OF LEASE PREMIUM CLAIMED TO BE PAID OF ` 4,37,500/- TO NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY (NOIDA) FOR YEAR 20 01-02 AND ` 5,60,000/- TO NOIDA TOWARDS FEE FOR EXTENSION PERIOD OF CONSTRUCTION OF BUILDING ON THE COMPANYS PLOT SITUATED AT NOIDA. TH E REASON FOR DISALLOWANCE AS STATED BY THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER IS THAT SUCH EXPENDITURE CANNOT BE ALLOWED AS R EVENUE EXPENDITURE AS THE PAYMENT RELATES TO LAND ON WHICH N O BUILDING WAS YET ERECTED AND, THUS, IT DOES NOT HAVE A DIRECT CONN ECTION WITH THE BUSINESS BEING RUN BY THE ASSESSEE. THE EXPENDITURES BEING NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE, THE AMOUNT COULD NOT BE ALLOWED AS REVENUE EXP ENDITURE. IT IS OBSERVED BY THE ASSESSING OFFICER THAT FOR AN EXPENDIT URE TO BE ITA NO.962/DEL/2006 3 ALLOWED AS A REVENUE EXPENDITURE, THERE SHOULD BE A D IRECT CONCERN AND DIRECT PURPOSE FOR WHICH THE MONEY IS LAID OUT AN D NOT THE REMOTE OR INDIRECT RESULT WHICH MAY POSSIBLY MOTIVATE OR FLOW FROM SUCH AN EXPENDITURE AND THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE AS TO HOW SUCH EXPENDITURE SHOULD BE ALLOWED AS REVENUE EXPENDIT URE. 4. BEFORE THE CIT (A), IT WAS THE CASE OF THE ASSESSEE TH AT AS PER TERMS OF THE LEASE DEED THE ENTIRE CONSIDERATION OF ` 1.75 CRORE WAS PAID ON THE DUE DATES AS MENTIONED IN THE LEASE DEED. THE ASSESSEE WAS REQUIRED TO MAKE ANNUAL PAYMENT OF LEASE RENT FOR THE PURPOSE OF USE OF LAND AS PER CLAUSE 3 (C). CLAUSE 7 OF THE LEASE DEED ALSO PROVIDES THAT IF CONSTRUCTION ON THE AFORESAID PLOT OF LAND IS NOT UNDERTAKEN WITHIN THE SAID PERIOD, THEN, THE ASSESSEE SHA LL BE LIABLE TO PAY FURTHER SUM EACH YEAR AND IN TERMS OF THOSE CONDIT IONS, THE AFOREMENTIONED PAYMENT WERE MADE. RELIANCE WAS PLAC ED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. AHMEDABAD COTTON MFG. CO. LTD. 205 ITR 163 (SC) TO CONTEND TH AT THE AMOUNT PAID BY THE ASSESSEE IS ALLOWABLE IN LIEU OF ITS INABILITY TO EXPORT COTTON CLOTH. IT WAS CLAIMED THAT THESE TWO PAYMENTS ARE ONL Y ANNUAL LEASE RENTS FOR THE USE OF LAND AND THE SAME IS ALLOWABLE AS R EVENUE EXPENDITURE. LEARNED CIT (A) HAS RETURNED A FINDING THAT THE PREMISES FOR WHICH SUCH EXPENDITURES ARE CLAIMED WAS NOT BEING USED FOR THE BUSINESS PURPOSE OF THE ASSESSEE. THERE WAS NO BUSINESS CONNE CTION AT PRESENT AS EVEN CONSTRUCTION HAS NOT TAKEN PLACE. T HE AMOUNT CANNOT BE ALLOWED AS REVENUE EXPENDITURE AND HAS RIGH TLY BEEN DISALLOWED BY THE ASSESSING OFFICER. FOR ALLOWABILITY O F AN EXPENDITURE THE SAME OUGHT TO BE INCURRED FOR THE PURPOSE OF AN O NGOING BUSINESS AND, IN THE PRESENT CASE, THE ASSESSEE HAS NOT INCURRED SUC H EXPENDITURE FOR THE PURPOSE OF AN ONGOING BUSINESS. TH US, HE HAS UPHELD THE DISALLOWANCE. ITA NO.962/DEL/2006 4 5. AFTER NARRATING THE FACTS, RELYING UPON THE ORDER PASSED BY THE ASSESSING OFFICER AND CIT (A), IT WAS PLEADED BY LEARNED DR THAT THE DISALLOWANCE HAS RIGHTLY BEEN UPHELD BY THE CIT (A) A ND GROUND NOS.1 AND 2 TAKEN BY THE ASSESSEE SHOULD BE DISMISSED. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LEARN ED DR. WE HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER PASSED BY THE CIT (A). THE IMPUGNED DISALLOWANC E HAS BEEN MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THIS EX PENDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE. AS AGAINST THAT IT IS THE CASE OF THE ASSESSEE T HAT THESE EXPENDITURES ARE RELATING TO TWO PAYMENTS MADE TO NOI DA AUTHORITIES. AN AMOUNT OF ` 4,37,500/- IS ANNUAL LEASE RENT AND AN OTHER AMOUNT OF ` 5,60,000/- IS ON ACCOUNT OF ITS INABILITY TO PUT UP T HE RELEVANT SUPER STRUCTURE ON THE LAND WITHIN THE STIPULATED TIME. TH ESE ARGUMENTS OF THE ASSESSEE HAVE BEEN RECORDED IN THE ORDER OF CIT (A) . IT IS NOT EVEN THE CASE OF ASSESSING OFFICER THAT THE SAID PLOT ALLOTTED TO THE ASSESSEE BY THE NOIDA AUTHORITY IS NOT FOR THE PURPOSE OF BUSIN ESS OF THE ASSESSEE. IF THE PLOT IS TAKEN BY THE ASSESSEE FOR THE PURP OSES OF ITS BUSINESS AND THE SAID PURPOSE IS NOT DENIED, THEN, THE PA YMENT RELATING THERETO WHICH ARE RECURRING IN NATURE CANN OT BE SAID TO BE THE PAYMENTS NOT RELATED TO THE BUSINESS OF THE ASSESSEE SIMPLY ON THE GROUND THAT THE ASSESSEE FOR SOME REASON COULD NOT CONSTRU CT BUILDING THEREON FOR BUSINESS PURPOSES. IF IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE SAID PLOT FOR WHICH THE AFOREMENTIO NED PAYMENTS HAVE BEEN MADE BY THE ASSESSEE WAS NOT PURCHASED BY THE ASSESSEE F OR THE PURPOSES OF ITS BUSINESS, THEN, THE DISALLOWANCE WAS NOT CA LLED FOR AS IT PARTLY RELATES TO ANNUAL LEASE PAYMENT AND THE PAYMEN T FOR NON- CONSTRUCTION OF THE PLOT. WE, THEREFORE, DO NOT SEE ANY JUSTIFICATION IN DISALLOWANCE THEREOF AND THE DISALLOWANCE IS ACCORDING LY DELETED. ITA NO.962/DEL/2006 5 7. IN GROUND NO.3, THE ISSUE IS RELATED TO DEPRECIATIO N ON UPS SYSTEM. IT IS THE CLAIM OF THE ASSESSEE THAT UPS IS A PART OF COMPUTER. THEREFORE, DEPRECIATION @ 60% IS AVAILABLE. AS AGAIN ST THAT IT IS THE CASE OF THE ASSESSING OFFICER THAT IT IS A PART OF PLANT AND MACHINERY, HENCE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AT THE RATE APPLICABLE FOR PLANT AND MACHINERY. LEARNED CIT (A) HAS UPHELD THE ACTION OF ASSESSING OFFICER ON THE GROUND THAT UPS DOES NOT BECOME A COMPUTER ONLY FOR THE REASON THAT IT SUPPLIES UNINTERRUPTED POW ER TO RUN THE COMPUTER. ACCORDING TO LEARNED CIT (A), THE ESSENTIA L PARTS OF THE COMPUTER ARE CPU, WHICH PROCESSES THE DATA, THE KEY BO ARD THAT ENABLE THE INPUT AND THE MONITOR THAT HELP IN READI NG THE INPUT/OUTPUT. UPS IS ONLY A BACK UP MECHANISM IN CASE OF POWER FAILU RE. 8. WE HAVE HEARD LD. DR ON THIS ISSUE WHO HAS RELIED UP ON THE ORDER OF ASSESSING OFFICER AND CIT (A) AND WE HAVE ALSO CAREFU LLY GONE THROUGH THE ORDER OF ASSESSING OFFICER AS WELL AS THE CIT (A). AFTER DUE CONSIDERATION, WE FIND THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BSES RAJDHANI POWERS LTD. VIDE ORDER DATED 31 ST AUGUST, 2010 IN ITA NO.1266/2010. A COPY OF THE ORDER IS PLACED ON RECORD. IN THAT CASE THE TRIBUNAL HAD ALLOWED DEPRECIATION @ 60% ON COMPUTER PERIPHERALS A ND ACCESSORIES FOLLOWING THE EARLIER DECISION OF ITAT DELHI IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. VS. CIT (2008) 118 TT J 652 WHEREIN IT WAS HELD THAT PERIPHERALS SUCH AS PRINTERS, SCANNERS, NT SERVE R, ETC. FORMED INTEGRAL PART OF THE COMPUTER AND THE SAME, THEREFOR E, ARE ELIGIBLE FOR DEPRECIATION @ 60% AS APPLICABLE TO THE COMPUTER. T HE SAID ORDER OF THE TRIBUNAL WAS UPHELD BY THE HONBLE DELHI HIGH CO URT WITH THE FOLLOWING OBSERVATIONS:- 4. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL TH AT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTER S, SCANNERS AND SERVER, ETC. FORM AN INTEGRAL PART OF THE COMPUTER ITA NO.962/DEL/2006 6 SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHER ALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY, AS THE Y ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 5. IN VIEW OF AFORESAID, PRESENT APPEAL IS DISMISSED IN LIMINE. 9. THE SAME ANALOGY WILL BE APPLICABLE TO UPS. IN C ASE THE UPS IS NOT USED, THE DATA FED IN THE COMPUTER MAY WASH AWAY. THUS, UPS BECOME INTEGRAL PART OF THE COMPUTER AND, HENCE, EL IGIBLE FOR DEPRECIATION AT THE RATE APPLICABLE TO COMPUTERS. W E, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 60% ON TH E VALUE OF UPS SYSTEM. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.04.20 11. SD/- SD/- [K.G. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 21.04.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES