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TMI Blog2016 (1) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted the addition - Held that:- CIT(A) rightly directed the AO to allow the depreciation on the assets of the assessee which were included in the block of assets. See CIT Vs Oswal Agro Mills Ltd. (2010 (12) TMI 947 - Delhi High Court) and CIT Vs Sonal Gum Industries (2009 (2) TMI 84 - GUJARAT HIGH COURT ) - Decided in favour of assessee - ITA No. 1799/Del/2011, ITA Nos. 4460 & 4461 /Del/2011 - - - Dated:- 11-1-2016 - Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM For the Petitioner : Sh. Anoop Sharma, Adv For the Respondent : Ms. Kesang Y. Shirpa, Sr. DR ORDER Per N. K. Saini, AM These three appeals by the department are directed against the separate orders of the ld. CIT(A)-XIII, New Delhi dated 03.02.2011, 27.07.2011 10.08.2011 for the assessment years 2005-06 to 2007-08 respectively. 2. These appeals relating to the same assessee were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. First we will deal with the appeal in ITA No. 1799/Del/2011 for the assessment year 2005-06. Following grounds have been raised in this appeal: 1. On the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... telecast of weekly draws and advertisement for monthly sale of lottery in newspaper etc. and are in the nature of business promotion. In fact, the assessee company has wrongly debited these expenses under the head Advertisement Brand Building exp. Details of expenses are enclosed. The AO treated the above expenditure as capital in nature and amortized for five years. Accordingly, 1/5th amounting to ₹ 41,24,784/- is allowed by him and balance of ₹ 1,64,99,137/- is disallowed. (ii) The AO in his order in para 4.1 to 4.5 has tried to analyze and distinguish between the revenue expenditure and the capital expenditure by citing various case laws but he himself has not adhered to fundamental principle of distinguishing revenue expenditure and capital expenditure. The AO in para 4.2 and 4.4 referred the case of Hylam Ltd. Vs CIT (1973) 87 ITR 310 (AP) and Andhra Pradesh High Court in the case of CIT Vs Singreni Collieries Co. Ltd. (1980) 121 ITR 466 respectively wherein it was held that the purpose for which an expenditure is made determines the nature of the expenditure. However, whether purpose is to obtain an enduring benefit or not is to be determined on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture or a revenue expenditure depends upon the nature and object for which it is incurred. It should consider the nature and its use in ordinary course of business and object to which the expenditure was incurred. Therefore, before deciding whether a particular expenditure is a capital expenditure or a revenue expenditure, it is necessary to see whether the expenditure in question was incurred to create a new assets or was incurred for maintaining the business of the company. In such cases, the former is a capital expenditure and the later is a revenue expenditure. (iii) Respectfully following the above principle laid down by Apex and High Court the appellant company has incurred expenditure on advertisement in print media, television, radio, designing and printing of posters and sign boards etc. which is a part of sale promotion of the company and it has not resulted in creation of any capital assets for the company. The expenditure incurred is in the nature of recurring expenses incurred wholly and exclusively for the promotion of the business and the expenditure incurred was not of durable nature. (iv) Therefore, such expenses on advertisement are to be allowed as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009) 315 ITR 125 (P H) 10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee incurred expenses on account of press advertisement, cable advertisement, printing of trend book, telecast in television, radio, designing printing of posters sign boards for increasing the profitability of its business of computerized lottery. Those expenses were incurred in the regular course of business, therefore, the AO was not justified in treating the expenses of Advertising and Brand Building as capital in nature. On the other hand, the ld. CIT(A) after considering the nature of expenses which were mainly on account of telecast of weekly lottery and advertisement of monthly sale of lottery in newspaper etc. held that those expenses were in the nature of business promotion. In our opinion, merely on this basis that those expenses were debited under the head Advertisement Brand Building expenses , the AO wrongly treated them as expenditure of capital in nature. Those expenses were required to be incurred from year to year and could not be made once for all i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computers. The AO however, allowed depreciation @ 25% which was applicable on Plant Machinery and accordingly made the addition of ₹ 7,58,70,585/-. 16. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: (i) The assessee company submitted before the learned assessing officer vide letter dated 30.10.2007 as under: The company claimed depreciation at the rate of sixty percent as applicable to computer systems though the amount was debited to the plant and machinery in the books of accounts. You will kindly observe from the enclosed details of the additions to plant and machinery that all the items included therein were part and parcel of computer system and the software to run the same. Depreciation is allowable under Income tax Act on the basis of character of the item of machinery. Computers are also plant and machinery eligible for higher rate of depreciation at sixty percent and the assessee company has rightly claimed and entitled to depreciation at sixty percent. (ii) The assessing officer while making the disallowance observed as under: From the perusal of depreciation chart it is seen that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made in the assessment order. 20. In his rival submissions the ld. Counsel for the assessee reiterated the submission made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). 21. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is not in dispute that the assessee grouped the POS Terminal Hardware under the head Plant Machinery. One set of POS Terminal was consisted of a monitor, A CPU, A Printer, a scanner, Card swipe machine and a UPS. The aforesaid items were integral part of computer system which were entitled for a depreciation @ 60%. Therefore, the ld. CIT(A) rightly directed the AO to allow the depreciation @ 60% instead of 25% allowed by him. We, therefore, do not see any infirmity in the order of the ld. CIT(A) on this issue. 22. In ITA No. 4460/Del/2011 for the assessment year 2006-07 and Vide Ground Nos. 1 2 in the ITA No. 4461/Del/2011 for the assessment year 2007-08, similar issues are raised by the department as were involved in ITA No. 1799/Del/2011 for the assessment year 2005- 06. The only difference is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Arunachal Pradesh Government to run the lottery business. It was operating in Arunachal Pradesh and also in other states on the basis of same license. The company had office and godown in Kolkata, West Bengal and it was also validly running lottery business in West Bengal. The Government of West Bengal imposed ban on the running of lottery of other states in West Bengal and sealed the office premises and godown of the assessee company and also other companies running lottery business in Kolkata. The assessee company among other lottery operators moved to Hon ble Kolkata High Curt against the ban imposed by West Bengal Government on running of lottery of other states in West Bengal. The Hon ble High Court granted an interim order and directed the state of West Bengal to return all the seized equipments and terminals. (ii) Since the assets under consideration which were sealed and depreciation there on was disallowed by the learned Assessing Officer were installed and put to use in the earlier years, the depreciation allowance cannot be denied during the year under appeal merely because the assets were not used during the year under appeal. (iii) the learned Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The disallowance of ₹ 1,86,85,586/- was without any basis and should have been calculated on WDV as per Income tax Act. The learned Assessing Officer cannot go beyond the definition of WDV under section 43(6) of the Income tax Act which does not contain any provision for adjustment to any block of assets in case some part of the assets could not be actually used during the year under assessment. 27. The ld. CIT(A) after considering the submissions of the assessee observed that the Hon ble Delhi High Court in the case of CIT Vs Oswal Agro Mills Ltd. held that the depreciation is allowable on the written down value of the block of assets and individuals assets lose their identity upon introduction into the block. He further observed that the cases relied by the AO were rendered before the introduction of the block of assets. The ld. CIT(A) deleted the disallowance made by the AO. 28. Now the department is in appeal. The ld. DR reiterated the observation made by the AO and strongly supported the assessment order dated 16.11.2009. He further submitted that the assets being sealed were not put to use, therefore, the assessee was not entitled to claim the depreciation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue cannot segregate a particular asset therefrom on the ground that it was not put to use. Individual assets have lost their identity and the concept of block of assets has been introduced for calculating depreciation. Assessee are not required to maintain particulars of each asset separately. The Revenue cannot claim that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of a block of assets . Moreover, the Revenue is not put to any loss by allowing depreciation on a particular asset, forming part of the block of assets even when that particular asset is not used in the relevant assessment year, as whenever such an asset is sold, it would result in short-term capital gains, which would be exigible to tax. The court cannot give an expression a meaning which would make the provision superfluous. 32. In the present case also the ld. CIT(A) directed the AO to allow the claim of the assessee for the impugned depreciation by following the ratio laid down by the Hon ble Jurisdictional High Court in the aforesaid referred to case. We, therefore, do not see any valid ground to interfere with the findings of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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