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Income Tax Appellate Tribunal, F BENCH, MUMBAI
order : 14.12.2022 O R D E R Per Rahul Chaudhary, Judicial Member:
1.
These are three appeals arising out of three separate orders passed by the Ld. Commissioner of Income Tax (Appeals)-XIV/4, Ahmadabad [hereinafter referred to as „the CIT(A)‟] for the Assessment Years 2009-10, 2010-11 and 2011-12. Since the appeals involved identical issues the same were heard together and are bring disposed off by way of common order. These appeals were originally filed before the & ITA No.2595/AHD/2015 Assessment Year: 2009-10, 2010-11 & 2011-12 Ahmadabad Benches and thereafter, transferred to Mumbai Benches.
2. We would first take up appeal for the Assessment Year 2009-10. By way of this appeal the Appellant/Assessee has challenged the order dated 16.12.2013 passed by the CIT(A) partly allowing the appeal against the Assessment Order, dated 27.12.2011 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for the Assessment Year 2009-10.
3. The Appellant has raised following grounds of appeal:
“1) The learned Commissioner of Income Tax (Appeals) erred holding that the provisions of Section 14A of the Act were applicable in the case of the Appellant, since the dividend from shares/units of mutual funds is subjected to tax in the hands of the payer under section 115-O/ 115-R of the Act and as the Appellant receives an amount after the tax has been paid, it cannot be said that such dividend income is not chargeable to tax under the Act and, hence, the provisions of Section 14A are not attracted in the case of the Appellant.
2) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in disallowing an amount of Rs.9,73,508/- under Section 14A of the Act computed in accordance with the provisions of sub-clause (iii) of Rule 8D. Having regard to the facts and circumstances of the case and the provisions of law, the Appellant submits that the unwarranted disallowance be deleted. 3) The learned Commissioner of Income Tax (Appeals) erred in disregarding the order of his predecessor and in holding that the investments in growth schemes of mutual funds, which do not yield any exempt income, are to be considered for computing the average value of investments as per the provisions of sub-clause (iii) of Rule 8D, for the purpose of computing the disallowance under Section 14A of the Act. 4) Without prejudice to the Appellant's contention that no expenditure is allocable to the earning of exempt dividend income and in any event, the Appellant submits that the disallowance computed at Rs.9,73,508/- is arbitrary and 2 & ITA No.2595/AHD/2015 Assessment Year: 2009-10, 2010-11 & 2011-12 grossly excessive and the same requires to be reduced substantially. 5) The learned Commissioner of Income Tax (Appeals) erred in relying on the provisions of Section 14A of the Act and Rule 8D of the Rules while computing the amount liable for being added back to the book profits to be computed under Section 115JB of the Act. The Appellant submits that Section 115JB of the Act is a separate code by itself and the provisions of Section 14A cannot be applied for computing the book profits under Section 115JB of the Act 6) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation under Section 32 of the Act on computer software at 25% as against the rate of 60% claimed by the Appellant, on the ground that the Appellant has shown computer software under the head "Intangible Assets" in the books of account. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance on account of depreciation on computer software of Rs.17,764/- be deleted. 7) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in adding back an amount of Rs 99,670/- to the Total Income of the Appellant which represents the difference in the AIR.”
The relevant facts, in brief, are that the Appellant, a company engaged in the business of manufacturing and sale of ceramic fiber and fiber products, filed return of income for the Assessment Year 2009-10 on 29.09.2009 declaring total income of INR 17,81,04,593/- .The case of the Appellant was selected for scrutiny and assessment was framed under Section 143(3) of the Act vide Assessment Order dated 27.12.2011. The Assessing Officer, inter alia, made (a) addition of INR 99,670/- holding the same to be receipts not accounted for in the books of account for the relevant previous year,
(b) disallowance of INR 9,73,508/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟) holding the same to be expenditure incurred to earn exempt income, and (c) disallowance of depreciation of INR.1,77,764/- holding the same to be excess depreciation claimed 3 ITA. No. 504-505/AHD/2014 & Assessment Year: 2009-10, 2010-11 & 2011-12 by incorrectly applying the rate of 60% in respect of application software instead of the applicable rate of 25%. The Assessing Officer also added the amount disallowed under Section 14A of the Act while computing Book Profits under Section 115JB of the Act.
Being aggrieved, the Appellant carried all the above issues in appeal before the CIT(A). However, the CIT(A) declined to grant any relief and vide order dated 16.12.2013 dismissed all the grounds raised by the Appellant in this regard.
Being aggrieved, the Appellant are now in appeal before us challenging the order passed by CIT(A) on the grounds specified in paragraph 2 above.
Ground No. 1 to 5 7. Ground 1 to 4 pertains to disallowance of INR 9,73,508/- made under Section 14A of the Act under normal provisions of the Act while Ground No. 5 directed against the addition of the aforesaid amount while computing Book Profits as per the provisions of 115JB of the Act.
The Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant Company is a debt free company not having any secured or unsecured loans. For the Assessment Year 2009-10, the own funds of the Appellant aggregated to INR 5602.74 Lakhs whereas total tax free investments of the Appellant stood at INR 686.37 Lakhs. The entire investments are sourced out of the internal approvals. Therefore, no disallowance should have been made under Section 14A of the Act. Without prejudice to the aforesaid, during the assessment proceedings the Appellant had proposed disallowance under Section 14A of the Act amounting to INR 36,229/- being 5% of the total 4 & ITA No.2595/AHD/2015 Assessment Year: 2009-10, 2010-11 & 2011-12 salary cost of the head of Finance & Accounts Department. Accepting the contention of the Appellant, the Assessing Officer computed disallowance in terms of Rule 8D(2)(i) and Rule 8D(2)(ii) at „Nil‟. However, the Assessing Officer computed disallowance under Rule 8D(2)(iii) of the Act at INR 9,73,508/-. Ld. Authorised Representative for the Appellant, relying upon the judgment of Hon‟ble Delhi High Court in the case of ACB India Ltd. vs. Assistant Commissioner of Income Tax: [2015] 374 ITR 108 (Delhi), submitted that while computing disallowance in terms of Rule 8D(2)(iii) the Assessing Officer erred in including all the investments as opposed to investments in respect of which exempt income was earned during the relevant previous year. He also relied upon the decision of Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax - Circle 17(1), New Delhi vs. Vireet Investment Private Limited: [2017] 188 TTJ 1 (Delhi - Trib.) (SB) and submitted that the amount of disallowance computed under Rule 8D of the Rules cannot be added back while computing Book Profits in terms of Section 115JB of the Act.
In response, the Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A) and submitted that the Assessing Officer has made disallowance as per the mandate of Section 14A of the Act read with Rule 8D of the Rules.
We have considered the rival submissions and perused the material on record. On perusal of the financial statements of the Appellant for the financial year ended 31.03.2009 relevant to the Assessment Year 2009-10, we find that the averments made by the Ld. Authorised Representative for the Appellant are factually correct as the Appellant is a debt free company having sufficient own capital for making investments. The Hon‟ble Delhi High Court in the case of & ITA No.2595/AHD/2015 Assessment Year: 2009-10, 2010-11 & 2011-12 ACB India Ltd. (supra) has held that only investments yielding exempt income during the relevant previous year are to be considered while computing the average value of investment for the purpose of Rule 8D(2)(iii) of the Rules. However, in the present case the Assessing Officer has taken into consideration the entire Investments. Accordingly, we set aside the addition of INR 9,73,508/- made under Section 14A of the Act. The Assessing Officer is directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments yielding exempt income during the relevant previous year as per the judgment of Hon‟ble Delhi High Court in the case of ACB India Ltd. (supra). In view of the above Ground No. 1 to 4 raised by the Appellant are partly allowed.
We note that the Assessing Officer has computed tax liability under normal provisions of the Act, and therefore, Ground No. 5 raised by the Appellant is disposed off as being infructuous.
Ground No. 6 12. Ground No. 6 raised by the Appellant pertains to disallowance of INR.17,764/- made by the Assessing Officer and confirmed by the CIT(A) holding the same to be excess depreciation claimed by the Appellant by adopting higher rate of 60% as against the applicable rate of 25%.
The Ld. Authorised Representative for the Appellant submitted that the Appellant was entitled to claim depreciation at the rate of 60% as applicable to software, whereas the Assessing Officer/CIT(A) have held that depreciation rate of 25% relevant for intangible assets shall be applicable. The Ld. Authorised Representative for the Appellant referred to the Depreciation Rates specified under Rule 5 of the Income Tax Rules, 1962. Taking us through the Entry (5) 6 & ITA No.2595/AHD/2015 Assessment Year: 2009-10, 2010-11 & 2011-12 „Computers including Computer Software‟ under the heading „III Machinery and Plant‟ falling under „Part A - Tangible Assets‟ and Note 7, the Learned Authorised Representative for Appellant submitted that the definition of Computer Software does not provide for any distinction between system software and application software and prescribed the rate of 60% for Computer Software (which includes, both, application software as well as system software). In this regard, he also placed reliance upon decision of Hon‟ble Madras High Court in the case of CIT vs. Computer Age Managements Services Private Limited: 267 Taxman 146 (Madras)[08-07-2019].
Per contra, the Ld. Departmental Representative relied upon paragraph 6 to 6.8 of the assessment order and submitted that admittedly the software being used by the Appellant was an application software which was eligible for depreciation at the rate of 25% being an intangible asset.
We have considered the rival submissions and perused the material on record. We note that Hon‟ble Madras High Court while deciding the issue in favour of the assesee has held as under:
“6. Mr. R. Hemalatha, learned Senior Standing Counsel appearing for the Revenue would vehemently contend that what were acquired by the assessee were only licenses, which are intangible. However, the Assessing Officer held that they would fall under Part B of New Appendix I and that the assessee was entitled to depreciation at 25%. 7. As noticed above, the assessee is in the business of