TaxTMI 
TaxTMI 
2017 (7) TMI 174
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.... take up cross appeals relevant to the assessment year 2008-09 and in the assessee's appeal, following grounds have been raised: "(a) The order of the Commissioner of Income tax (Appeals) dated 8.3.2012 is erroneous to the extent it rejects the appellant's contention concerning the grant of additional depreciation on plant and machinery acquired in the period 2002- 2005. (b) The Commissioner of Income-tax (Appeals) ought to have reversed the order of the assessing officer rejecting the claim of additional depreciation of an amount Rs. 1,98,26,411/-. The claim is allowable and the CIT(Appeals) erred in concluding that additional depreciation is allowable under Sec. 32 (1) (iia) of the Income Tax Act only in respect of Assessment Year in which the new machinery was acquired and installed and not thereafter. (c) The Commissioner of Income-tax (Appeals) ought to have accepted the claim in so far as clause (iia) to Sec. 32 introduced vide Finance Act 2005 supports the stand of the Appellant herein. (d) The claim in relation to additional depreciation in relation to assets acquired in the period 2002-2005 is allowable u/s 32(1)(iia) in law and on f....
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....categories. The AR of the assessee has stated before the Assessing Officer that the excess claim of Rs..3,83,16,971/- is the additional depreciation on plant and machinery acquired and installed by the assessee in the previous year as well as in the preceding year. After considering the submissions of the assessee and verification of details furnished by the assessee, the Assessing Officer has observed that no deduction under section 32(1)(iia) of the Act is allowable to any machinery or plant, the whole or the actual cost of which is allowed as deduction, whether by way of depreciation or otherwise, in computing the income chargeable under the head "profit and gains of business or profession" of anyone previous year since the assessee has claimed an amount of Rs..1,98,26,411/- as additional depreciation on machineries acquired and installed during the period 2002-03 to 2004-05 and 2005-06. The machineries were installed and claimed depreciation and additional depreciation during the previous year itself and duly allowed in the computation of total income for the respective assessment years. Since the assessee has claimed depreciation and additional depreciation of such machineries....
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....t of such machinery. Hence the arguments of the learned Authorized Representative have no merit and the Assessing Officer in his assessment order has also discussed elaborately regarding the provisions of section 32. In view of this I confirm the disallowance made by the Assessing Officer with regard to depreciation." 2.5 At the time of hearing, the ld. DR has submitted that the issue involved in this appeal is squarely covered against the assessee by the decision of the Coordinate Bench of the Tribunal in assessee's own case for the assessment year 2010-11 in I.T.A. No. 578/Mds/2015 vide order dated 28.08.2015 and filed copy of the order of the Tribunal. 2.6 On the other hand, the ld. Counsel for the assessee fairly conceded the submissions of the ld. DR. 2.7 We have heard both sides, perused the materials on record and gone through the orders of authorities below. We have also perused the order of the Tribunal in assessee's own case for the assessment year 2010-11 dated 28.08.2015 with regard to the claim of additional depreciation, wherein the Tribunal has observed and held as under: "2. The only issue involved in this appeal is relating to claim of ad....
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....ctual cost to which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year. It is pertinent to point out that the additional depreciation is eligible only to new machinery, or plant acquired or installed and not availed any deduction by way of depreciation or otherwise in the year of such machinery or plant put into use by an assessee. This issue was present in the A.Y. 2008-09 & 2009-10 also in the case of Assessee Company and disallowance was made. Further, CIT (A) as well as ITAT, Chennai bench has upheld this disallowance and assessee company has preferred appeal before the High Court of Madras. Therefore, for the current year also disallowance of claim of additional depreciation is made." 3. On appeal, the ld. CIT(A), by following his own decisions for the earlier assessment years 2008-09 and 2009-10 in assessee's own case, dismissed the ground raised by the assessee. 4. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The ld. CIT(A), by following his own d....
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.... which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;" 9. First requirement for being eligible for the claim of additional depreciation is that it should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which additional depreciation has been claimed, was already used in various preceding previous years. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed. Additional depreciation itself is only for a ne....
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....missed." 2.8 Respectfully following the above decision of the Tribunal in assessee's own case for the assessment year 2010-11, the similar ground raised by the assessee in the assessment year 2008-09 is dismissed. 3. The next ground raised in the appeal of the assessee is that the ld. CIT(A) has erred in confirming the disallowance of expenses relating to software. The expenses relating to software includes pay roll software [Rs..1,21,680/-], billing software [Rs..3,80,000/-] and export/import product licence fee [Rs..6,75,418/-]. With regard to the expenses towards pay roll software and billing software, since the assessee could not produce any invoices for the above expenses, the Assessing officer disallowed the expenses. The assessee could not produce invoices for the above expenses either before the ld. CIT(A) or even before the Tribunal. Since the assessee could not produce invoices towards purchase of the softwares to substantiate its claim of deduction, the disallowance made to that extent is confirmed. 3.1 With regard to the expenses of Rs..6,75,418/- towards purchase of software OPTISUITE, the authorities below have observed that it is product licence fee for a ve....
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....n & Associates also required the assessee to enter into a back-to-back agreement with Oracle. The reasons perhaps being that the software application supplied by the Aurthor Anderson & Associates worked on oracle application. It is precisely for this reason that Arthur Anderson & Associates required the assessee to enter into a licence agreement with oracle titled Master Software Licence and Services Agreement. The assessee was thus, required to pay : apart from the fee to Arthur Anderson & Associates qua its agreement with it; licence fee to Oracle. As a matter of fact Oracle also offered support and maintenance services for which a further additional fee was required to be paid to Oracle. 8.1 The assessee thus admittedly in respect of the aforesaid transactions incurred an expenditure to the tune of Rs. 1,36,77,664/- and Rs. 1,70,68,811/- in assessment years 1997-98 and 1998-99 respectively. In the books of accounts for the assessment years 1997-98 the assessee had not written off any sum, while in the succeeding assessment year, i.e., 1998-99 the assessee had written off a part of the expenditure amounting to Rs. 9,91,228/-. 8.2 Given these facts, could it be s....
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....d under various sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal, in our view, and rightly so, came to the conclusion that none of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. The Tribunal classified the said expenses as being recurring in nature to upgrade and/or to run the system. 10. In the background of the aforementioned findings, it cannot be said that the expenses brought about in an enduring benefit to the assessee. The assessing officer was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (assessment year 1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of Rs. 150 crores and that even without this expenditure it would have continued to achieve the said turnover; though the expenditure incurred in....
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....ee in the context of the advancement of its business and/or its diversification, if any; the changes brought about due to statutory amendments by law or by professional bodies like the Institute of Chartered Accountants of India, which are given the responsibility of conceiving and formulating the accounting standards from time to time, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The assessing officer has, in our view, erred precisely for these very reasons." 3.4 In the present case, the contention of the Assessing Officer was that the softwares are entirely new and does have enduring benefit. However, the Hon'ble Delhi High Court in the above case has observed....
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.... the assessee company paid "Royalty" to M/s CRI Industries Limited since the trade mark 'CRI' was in its possession. After the merger, the trade mark 'CRI' is the property of the assessee company. Normally when any property is assigned or given away and when it is pretty well known that the assigner will use it in future, then the right will be reserved for its use without any consideration. In the instant case, the assessee has assigned the trade mark for a meagre value of Rs..1,000/-, as a part of family arrangement, and paid a substantial royalty of Rs..1,60,97,339/- to the assignee is not justifiable. The action of making the assignment as a part of the family settlement required to be verified with the business prudence. The assignment of trade mark as an arrangement amongst the family members is also to be considered. It is pertinent to note that how a family arrangement can deal with property of company, which is a separate legal entity. 4.1.2 After considering the submissions of the AR of the assessee, the Assessing Officer has observed that when the assessee was the owner of the Trade mark and by giving away the same for a meagre consideration and paying....
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....ause 5.6 and Schedule G to the Scheme of Amalgamation which is annexed as part of the High Court order and in terms of which the amalgamation has been sanctioned by the Hon'ble High Court, the trade mark "C.R.I." is specifically retained by M/s. C.R.I. Industries. The assignment of the trade mark "C.R.I." has been done by M/s. C.R.I. Industries Ltd. to M/s. CR.I. Amalgamations (P) Ltd. pursuant to the Deed of Assignment between M/s. C.R.I. Industries and M/s. C.R.I. Amalgamation dated 31.03.2007. The trade mark "C.R.I." was held by M/s. C.R.I. Industries from the time of registration of the trade mark from inception. Five group concerns along with M/s. C.R.I. Pumps (P) Ltd. filed applications before the Hon'ble High Court of Madras seeking the sanction of Scheme of Merger. The companies were: (i) M/s. C.R.I. Industries (P) Ltd. (ii) M/s. Ransar Industries Ltd. (iii) M/s. Chola Pumps (P) Ltd. (iv) M/s. Meltech Castings (P) Ltd. (v) M/s. Sri Premraj Engineering and Textiles (P) Ltd. [Hereinafter referred to as Transferor Companies] and M/s. C.R.I. Pumps (P) Ltd. [Transferee Company]. The Scheme of Amalgamation approved by ....
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....e. Further, he contended that the payment for trade mark "CRI" fixed by the directors of the transferor company was only Rs..1,000/- then the payment of Rs..1,60,97,339/- to the holding company is excessive and unreasonable and pleaded that the order of the ld. CIT(A) should be reverted and restored that of the Assessing Officer. 4.4 Per contra, the ld. Counsel for the assessee has submitted that when the Hon'ble Madras High Court has approved the Scheme of Amalgamation provided specifically for the transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme, which is subject matter of an agreement of assignment in favour of M/s. C.R.I. Amalgamations Pvt. Ltd. to be effective from 31.03.2007 and so the trade mark shall not stand transferred to or vested in the transferee company, which was not disputed by the Department, the consideration fixed by the directors of the transferor company for the trade mark and the amount of payment of royalty to transferee company cannot be a subject matter of the issue. No provision of section exists in the Income Tax Act or Income Tax Rule for fixing the rate of trade mark. The ....
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....ply comparing the payment of royalty with the consideration paid towards acquiring the trade mark "CRI" by the proprietor to whom the royalty was paid. If any claim of expenditure made without any evidence or found false or bogus, then the Assessing Officer has every right to reject the claim after recording salient findings. What is required to be expended has to be seen from the businessmen point of view and not from the view of the Assessing Officer. In this case, the Hon'ble Madras High Court has sanctioned the Scheme of Merger vide its order dated 25.09.2007 w.e.f. 31.03.2007 between CRI Industries and five group concerns along with the assessee provided specifically for the transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme as per clause 5.6 (page 22 of the Hon'ble High Court order), wherein it has been stated as under: "The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter of an agreement of assignment in favour of M/s. CRI Amalgamations Private Limited, to be effective from 31.03.2007, and so these Trade M....
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.... the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The case of the assessee does not come under the purview of any person referred to in clause (b) of sub-section (2) to section 40A of the Act. Accordingly, we reject the contention of the ld. DR. 4.9 In the case of ACIT v. Shriram Transport Finance Co. Ltd. [2011] 9 ITR (Trib) 543 (Chennai), the Coordinate Bench of the Tribunal has observed that the payment for non-exclusive user of logo based on turnover and not lump sum payment should be treated as revenue expenditure. In the present case, the assessee paid the royalty for exclusively using the trade mark "CRI" based on monthly turnover at the rate of 0.50%, which was duly agreed and executed a User Agreement between the proprietor and user. Therefore, the expenses incurred towards payment of royalty should be treated as revenue expenditure. 4.10 In the case of CIT v. Sharda Motor Industrial Ltd. 319 ITR 109, the Ho....
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....rious decisions of the Tribunal as well as various High Courts and therefore, he pleaded that the ground raised by the Department should be rejected. 5.3 During the course of hearing, even though the ld. DR has filed a written submission, he has not controverted the findings of the ld. CIT(A) with regard to the deletion of addition made on this ground and supported the order passed by the Assessing Officer. 5.4 After considering the rival submissions, we find that the assessee has filed the copies of invoices raised by M/s. Astral Consulting Ltd. and the payments are made for the information systems services rendered. There was no dispute that the payments were made for the purpose of improvement of the software consequent upon merger of other companies, which was necessitated to generate some reports in oracle application. Any expenditure incurred for the purpose of improvement of software or purchase of software that expenditure should be treated as revenue expenditure in view of our decision in assessee's case decided at para 3.3 & 3.4 hereinabove. Accordingly, the ground raised by the Revenue is dismissed. 6. The last ground raised in the appeal of the Revenue is with ....
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....aid investments which have been offered to tax. Hence the provisions of section 14A are not applicable to the facts of the case. The assessee has earned Rs. 9.99 Lakhs as dividends from the foreign subsidiaries which was admitted as income under the provision of Double Taxation Agreement. Hence the Assessing Officer is directed to delete the addition of Rs..1,56,950/- made u/s 14A r.w. Rule 8D of the Income Tax Act, 1961." 6.3 On being aggrieved, the Revenue is in appeal before the Tribunal and the ld. DR has contended that the assessee has clearly diverted the borrowed funds and made investment elsewhere and thus violated the provisions of section 14A of the Act. Therefore, he pleaded that the order of the ld. CIT(A) should be reversed. 6.4 On the other hand, the ld. Counsel for the assessee has supported the order passed by the ld. CIT(A). 6.5 We have heard both sides, perused the materials on record. In this case, it is an admitted fact that the assessee has invested in its subsidiary companies situated in South Africa and Saudi Arabia. However, the Assessing Officer made disallowance under section 14A r.w.r. 8D on the ground that the disallowance of notional expenditur....
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....s made in the shares of such foreign companies. Thus, the impugned order passed by the Commissioner (Appeals) is upheld." 6.8 In view of the above decisions of the Tribunal and Hon'ble High Court, we hold that the provisions of section 14A of the Act are not applicable to assessee's case since the investment made in foreign subsidiaries and the income earned from the aforesaid investments have been offered to tax. Thus, we confirm the order passed by the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue. 6.9 Accordingly, the appeal filed by the Revenue is dismissed. I.T.A. No. 1872/Mds/2013 [A.Y. 2009-10] 7. The only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance of additional depreciation of Rs..3,46,68,501/-. The assessee has raised similar ground on identical facts in the assessment year 2008-09 and by following the decision of the Coordinate Bench of Tribunal in assessee's own case for the assessment year 2010-11, we have decided the issue against the assessee at para 2.7 & 2.8 hereinabove. Accordingly, for the assessment year 2009-10 also, the ground raised by the assessee in it's appeal is d....
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.... confirmed by the Tribunal against the appeal of the Revenue after elaborately discussing the facts and following case law from paras 4 to 4.11. In view of our above findings in paras 4 to 4.11, for the assessment year 2009-10 also the disallowance made by the Assessing Officer is deleted and dismissed the ground raised by the Revenue. 8.3 The next ground raised by the Revenue is with regard to disallowance of Rs..1,91,880/-made under section 14A of the Act r.w.r. 8D. In the assessment year 2009-10, the assessee has earned dividend of Rs..52,82,000/- out of the investments made in the foreign subsidiaries, which was offered to tax under the provisions of DTAA. Further, the Assessing Officer has determined the expenditure by applying the provisions of section 14A of the Act r.w.r. 8D. The ld. CIT(A) has held that since the assessee has made investment in foreign subsidiaries and not in domestic companies, the provisions of section 14A of the Act are not applicable in assessee's case and moreover the dividend income earned from the foreign subsidiaries were admitted as income under the provisions of Double Taxation Agreement, the ld. CIT(A) directed the Assessing Officer to delete....
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....issues on merits. 9.4 After considering the rival submissions and perusing the orders of authorities below, we find that the assessee has raised a specific ground before the ld. CIT(A) as under: "2. The additional depreciation and depreciation on windmill has been considered by the Assessing Officer at the time of original assessment and the learned officer is not justified in reopening the assessment on mere change of opinion." However, the appellate order, the ld. CIT(A) has not adjudicated the legal issue with regard to reopening of assessment and decided the appeal of the assessee on merits. In view of the above facts and circumstances, we are of the opinion that the ld. CIT(A) should have adjudicated the issue of reopening of assessment and thereafter proceeded to decide the issues on merits. Thus, we set aside the order of the ld. CIT(A) and remit the matter back to the ld. CIT(A) to adjudicate the legal issue in accordance with law after allowing opportunity of hearing to the assessee. Since the issue of reopening of assessment is remitted to the file of the ld. CIT(A), the other grounds raised by the assessee are not adjudicated at this juncture. 9.5 Accor....
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....of the Act, the assessee has furnished inaccurate particulars of income and therefore, the penalty under section 271(1)(c) of the Act is clearly attracts to the facts of the assessee's case and pleaded that the order of the ld. CIT(A) should be reversed. 10.4 Per contra, the ld. Counsel for the assessee has submitted that against the penalty levied under section 271(1)(c) of the Act towards confirmation of similar disallowance made in the assessment years 2008-09 & 2009-10, the order of the ld. CIT(A) deleting the levy of penalty was sustained by the Tribunal vide its order dated 05.03.2015 in I.T.A. Nos. 2711 & 2712/Mds/2014. Therefore, the ld. Counsel for the assessee has prayed that by following the order of the Coordinate Bench of the Tribunal, for the assessment year under consideration also the penalty levied under section 271(1)(c) of the Act may kindly be deleted. The ld. DR could not controvert the above submissions of the ld. Counsel for the assessee. 10.5 We have heard both sides, perused the materials on record and gone through the orders of authorities below. Against similar penalty levied under section 271(1)(c) of the Act towards confirmation of disallowance ma....