2016 (8) TMI 696 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions on IT Act, Depreciation, and Deductions

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested grounds. The issues regarding deletion of addition under ... Addition u/s.41 - Held that:- The impugned creditors were having regular business transactions in subsequent years also and the actual payments were made to these parties in the subsequent years and the very foundation called for an addition u/s 41(1) of the Act gets demolished if an assessee proves that the impugned liabilities were paid off. From going through the observation of ld. CIT(A) and also the fact that the impugned creditors were paid in subsequent years, we find no reason to interfere with the order of ld. CIT(A), we uphold the same. This ground of Revenue is dismissed. Depreciation on application software license @ 60% - Held that:- It is almost a settled issue that software application which are having validity for long term period are basically system software on which computer hardware runs and it is impossible to use computer without having such software installed on it and, therefore, such licensed software are subject to depreciation @ 60% and ld. CIT(A) has done so. We find no reason to interfere with the order of ld. CIT(A) on this issue. Deduction u/s.80IAB - income earned from operation and maintenance of SEZ - Held that:- From going through the proviso (2) of section 80IAB of the Act which says that if the work of operation and maintenance of SEZ is transferred from one developer to another then the deduction allowable in sub-sec.(1) of sec.80IAB will be allowed to transferee developer for the remaining period of the remaining of consecutive 10 years. This proviso gives a very clear picture that when the transferee is eligible for deduction u/s 80IAB for the income from operation and maintenance of SEZ then certainly transferor i.e. developer is eligible for deduction u/s 80IAB from operation and maintenance. Further from going through the letter issued by Government of India Ministry of Commerce & Industries dated 21st June, 2006 to the assessee for setting up of a sector specific Special Economic Zone for Pharmaceuticals at Ahmedabad, we find that in clause (ii) under the main clause (III) referring to general condition it reads that operation and maintenance of the facilities will be met as per the standard in the specific manner and proposition of the user. We are of the view that assessee being a developer of SEZ is eligible for deduction u/s 80IAB for income earned from operation and maintenance of SEZ. In the result ground no.3(a) of Revenue is dismissed. Deduction u/s 80IAB on the income received from sale of scrap and professional fees - Held that:- On the basis of submissions made by ld. AR we understand that fixation of water charges was approved in the Developer Committee meeting held on 22nd April, 2009 in which a specific agenda relating to fixation of water charges was taken up for consideration for the first time and the charges for use of water were approved and fixed at ₹ 25 kl effective from the beginning of SEZ. On the basis of this decision necessary effect was given in books of account for F.Y.2008-09 and as far as F.Y.2007-08 was concerned, the income relating to water charges was impossible to be incorporated in the account of F.Y. 2007-08 as they were already closed and finalised and, therefore, this amount of ₹ 23,09,372/- was shown as a prior period income from water charges. In the given facts and circumstances, we are of the view that as the assessee being eligible u/s 80IAB of the Act for a particular block of years it will not make any impact to the Revenue if the deduction u/s 80IAB of the Act is allowed for prior period water charges also when the raw water charges in the year under appeal has not been questioned by ld. Assessing Officer for being eligible for deduction u/s 80IAB of the Act. We, therefore, find no reason to interfere with the order of ld. CIT(A) on this issue. - Decided against revenue. Issues Involved:1. Deletion of addition under Section 41(1) of the IT Act.2. Depreciation rate on application software license.3. Deduction under Section 80IAB of the IT Act on various incomes:a. Income from operation and maintenance.b. Income from sale of scrap and professional fees.c. Prior period income.Detailed Analysis:1. Deletion of Addition under Section 41(1) of the IT Act:The Revenue challenged the deletion of an addition of Rs. 84,841 made by the Assessing Officer (AO) under Section 41(1) for cessation of liability. The AO had treated certain liabilities as ceased due to the absence of creditor confirmations. However, the CIT(A) found that the liabilities were genuine and payments were made to the creditors in subsequent years. The Tribunal upheld the CIT(A)’s decision, noting that the AO did not provide specific findings that the liabilities had ceased to exist. The Tribunal concluded that the addition under Section 41(1) was not justified and dismissed the Revenue's ground.2. Depreciation Rate on Application Software License:The Revenue contested the CIT(A)’s direction to allow depreciation on software licenses at 60% instead of 25%. The AO had treated the software license expenditure as a capital asset under intangible assets, eligible for 25% depreciation. The CIT(A), however, categorized the software as part of the computer system, eligible for 60% depreciation. The Tribunal agreed with the CIT(A), stating that software licenses, which are essential for the functioning of computer hardware, should be depreciated at 60%. This ground of Revenue was dismissed.3. Deduction under Section 80IAB of the IT Act:a. Income from Operation and Maintenance:The AO denied the deduction under Section 80IAB for income from the operation and maintenance of the SEZ, interpreting that the section only covered income from developing the SEZ. The CIT(A) disagreed, stating that the approval granted to the assessee included operation and maintenance as integral parts of the SEZ development. The Tribunal upheld the CIT(A)’s decision, emphasizing that the legislative intent and provisions allowed deductions for income from operation and maintenance activities. The Revenue's ground was dismissed.b. Income from Sale of Scrap and Professional Fees:The AO disallowed the deduction for income from the sale of scrap and plan approval fees. The CIT(A) allowed the deduction, reasoning that these incomes were directly related to the business activities of the SEZ development. The Tribunal upheld the CIT(A)’s decision, noting that both incomes were part of regular business activities and eligible for deduction under Section 80IAB. This ground of Revenue was dismissed.c. Prior Period Income:The AO disallowed the deduction for prior period income of Rs. 23,09,372 from raw-water charges, arguing it should be claimed in the year it pertained to. The CIT(A) allowed the deduction, noting that the income was recognized in the year under appeal due to the finalization of water charges in a later period. The Tribunal agreed, stating that as the assessee was eligible for deduction under Section 80IAB for a specific block of years, the timing of income recognition did not impact the eligibility. This ground of Revenue was dismissed.Conclusion:The Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s decisions on all contested grounds. The issues were resolved in favor of the assessee, confirming the deletions, depreciation rates, and deductions as correctly applied by the CIT(A).