9911796707
TMI Blog2017 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... essment 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 facts and the CIT(Appeals) erred in rejecting the claim. (e) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of preceding assessment years, the Assessing Officer has held that the claim of additional depreciation for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 additional depreciation. In the assessment order, the Assessing Officer has observed as under: "4(ii). The assessee company has claimed add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits 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 decisions for the earlier assessment years, has observed as under: "9. I have gone through the submissions made by the appellant and also the order of the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 new machinery or plant. A claim of additional depreciation as made by the assessee, if allowed, will not be an allowance for a new machinery or plant. Intention of the Legislature was to give such additional depreciation in the year in which assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 version of software for which exports and imports, which had suffered excise duty like an asset to the assessee. Since there is an enduring benefit to the assessee, the acquisition of computer software has to be treated as capital expenditure and thus, the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates 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 said that the expenditure incurred by the assessee in the aforementioned assessment years was in the nature of capital expenditure. 9. The revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that the test of enduring b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the assessing officer in support of its order which found resonance in submissions of the learned counsel for the revenue is, in our view flawed and, hence it would have to be rejected. 10.1. Secondly, the mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime 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 that the test of enduring benefit is not certain or conclusive test in determining the expenditure as capital or revenue. The real intent of the expenditure and whether the expenditure results in creation of fixed capital for the assessee are to be examined. Thus, in view of the ratio laid down by the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, 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 huge amount as royalty is not justifiable. The allowance of royalty to the holding company appears to be unreasonable since the value of the brand name is only Rs..1,000/-, then the payment of huge royalty of Rs..1,60,97,339/- paid by the assessee company will attract the provisions of section 40A(2)(b) of the Act. The holding company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries 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 the High Court 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. Clause 5.6 (Page 22 of the High Court Order) states as follows :- "The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 assessee was using the trade mark for more than three decades and it confers the right for fixing the rate of royalty to be paid by the transferor company, i.e., assignee company which was duly agreed through Assignment Deed executed by both the assignor and assignee. Therefore, the Assessing Officer was not legally correct to disallow the claim of deduction and prayed that the order of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Marks shall not stand transferred to or vested in the Transferee Company". After carefully perusing the order of the Hon'ble Madras High Court, it is clear that all the assets of the transferor companies were amalgamated with transferee company, except the Trade Mark. Therefore, the Assessing Officer was factually not correct to conclude that after merger, the trade mark "CRI" was the property of the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (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 Hon'ble Delhi High Court has held that the finding of the ld. CIT(A) that the payment of royalty was purely a revenue expenditure, which was annual expenditure depending upon the quantum of production in the relevant year was a finding of fact rightly arrived at. In the present case also, the User being assessee shall pay a royalty to the Proprietor [M/s. C.R.I. Amalgamations Pvt. Ltd.] with effect from 01.04.2007, a sum eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 regard to deletion of disallowance made on account of dividend income. The assessee has made investments in the associate companies to the tune of Rs. 3,53,76,758/-, out of the borrowed funds and not offered any income from such investments. The investments made by the assessee company are in the non performing companies as shares and not earned any income from the same, whereas the assessee company is paying interest to the borrowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenditure incurred on the earning of dividend is liable to be made. 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 the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue 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 dismissed. I.T.A. No. 2014/Mds/2013 [A.Y. 2009-10] 8. The Revenue has raised two effective grounds viz., (i) the ld. CIT(A) has erred in deleting the royalty payment made to M/s. C.R.I. Amalgamations Pvt. Ltd. and (ii) the ld. CIT(A) has erred in deleting the disallowance made on account of dividend income earned out of investment under section 14A of the Act. 8.1 In the assessment year 2009-10 also, the assessee has paid Rs..2,01,89,940/- as royalty to M/s. CRI Amalgamation Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 the addition made under section 14A of the Act r.w.r. 8D. For the assessment year 2008-09 also the Revenue has raised similar ground and while deciding the issue, we have elaborately discussed the facts and by following various case law, we confirmed the order passed by the ld. CIT(A) at paras 6 to 6.8 hereinabove. By following our above decision in the assessment year 2008-09, similar ground raised by the Revenue in the assessment year 2009-10 is dismissed. 8.4 Accordingly, the appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal 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 Accordingly, the appeal filed by the assessee is allowed for statistical purposes. I.T.A. No. 830/Mds/2015 [A.Y. 2007-08] 10. In the appeal of the Revenue, the only effective ground raised is with regard to deletion of penalty levied under section 271(1)(c) of the Act. 10. 1 Brief facts of the case are that the assessee has filed its return of income on 31.10.2007 declaring total income of Rs..3,71,93,727/-. The case of the assessee was selected for scrutiny and order under section 143(3) of the Act was passed on 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 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 and deleted the penalty levied by the Assessing Officer by following the decision in the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158, wherein the Hon'ble Supreme Court has held that "where there is no finding that any details supplied by the assessee in the return are found to be incorrect or erroneous or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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