2020 (12) TMI 738 - HC - Income Tax

High Court remits case back to Tribunal for fresh consideration, stressing thorough review of arguments.

The Pr. Commissioner Of Income-Tax International Taxation Bangalore, The Income-Tax Officer International Taxation Ward-1 (2), Bangalore Versus M/s. Kawasaki Micro Electronics Inc.

The High Court remitted the case back to the Tribunal for fresh consideration, as the Tribunal did not adequately address the arguments presented by both ... Depreciation on computers disallowed u/s 40(a)(ia) - TDS u/s 195 - depreciation claimed u/s 32 on an capitalized expenditure on imported software which was purchased by paying without deducting TDS - HELD THAT:- We have considered the rival submissions made on both the sides and have perused the record. The tribunal has not taken into account the decision rendered by M/S WIPRO LTD. [2015 (10) TMI 826 - KARNATAKA HIGH COURT] and without assigning any reasons has placed reliance on decision of the coordinate bench. Therefore, in peculiar facts of the case, the impugned order passed by the tribunal is quashed and the matter is remitted to tribunal for decision afresh and in accordance with law in the light of rival contentions made by the parties. Therefore, it is not necessary for us to answer the substantial question of law. Issues:1. Interpretation of Section 40(a)(i) of the Income Tax Act regarding disallowance of depreciation on capitalized expenditure on imported software.2. Whether depreciation claimed under Section 32 of the Act is subject to disallowance under Section 40(a)(i) for failure to deduct tax at source under Section 195.Analysis:1. The appeal raised the issue of whether the Tribunal was correct in allowing the assessee's claim for depreciation on capitalized expenditure on imported software without deducting TDS as required under Section 195 of the Income Tax Act. The revenue contended that failure to deduct tax at source on the expenditure results in disallowance under Section 40(a)(i) of the Act. They argued that depreciation claimed under Section 32 should also be subject to disallowance under Section 40(a)(i). The revenue relied on precedents to support their argument.2. The assessee, on the other hand, argued that depreciation is not an outgoing expenditure and thus Section 40(a)(ia) does not apply. They claimed that since no amount was claimed as revenue expenditure, no disallowance under Section 40(a)(i) could be made. The assessee asserted that depreciation is a statutory deduction available for assets owned and used for business purposes, and it is not an expenditure loss or trading liability. They cited relevant case law to support their position.3. The High Court, after considering the submissions from both sides, found that the Tribunal did not consider a specific decision in the case and relied on a different bench's decision without providing reasons. Therefore, the Court quashed the tribunal's order and remitted the matter back for fresh consideration in light of the arguments presented by both parties. Consequently, the Court did not address the substantial question of law raised in the appeal.In conclusion, the High Court disposed of the appeal by remitting the matter to the Tribunal for a fresh decision, emphasizing the need for a thorough consideration of the arguments presented by both the revenue and the assessee.