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Income Tax Appellate Tribunal, ‘A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER These are appeals filed by the assessee directed against orders dated 19.03.2015 of ld. Commissioner of Income Tax (Appeals)-15, Chennai, for the impugned assessment years.
ITA Nos 1223 to 1228/15. :- 2 -:
Ld. Counsel for the assessee submitted that he was pressing 2. only those grounds which were listed by him in the chart filed. As per ld. Counsel grounds if any, apart from those mentioned in the chart were supportive in nature and the issues involved stood covered by the grounds listed in the chart. Accordingly, we restrict ourselves to the grounds depicted in the chart furnished by the ld. Authorised Representative.
Appeal of the assessee for assessment year 1999-2000 in is taken up first for disposal.
Ld. Counsel for the assessee submitted that this appeal 4. emanated from an order passed by the ld. Assessing Officer, pursuant to the directions of this Tribunal. As per the ld. Authorised Representative, ground No.2 was on disallowance of share issue expenditure of �3,31,421/-. Submissions of the ld. Authorised Representative was that this Tribunal had directed the ld. Assessing Officer to reconsider the claim based on evidence submitted by the assessee. Ld.Authorised Representative admitted that assessee was unable to provide evidence to show that the funds received through increase in share capital were utilized for the purpose of extension of its industrial undertaking or for setting up a new industrial unit.
ITA Nos 1223 to 1228/15. :- 3 -:
We have considered the contentions of the ld. Authorised 5.
Representative and perused the orders of the authorities below. Ld. Assessing Officer had disallowed �3,31,421/-, being share issue expenditure claimed by the assessee u/s.35D of the Income Tax Act, 1961 (in short ‘’the Act’’). This Tribunal had through its order dated 24.03.2009 in remitted this issue back to the file of the ld. Assessing Officer for examination afresh after considering the factual aspects. Even in the fresh proceedings, assessee was unable to bring any evidence to demonstrate that funds from increased share capital was used for extension of its existing industrial undertaking or spent in connection with the setting up of a new industrial unit. Since the disallowance was made due to inability of the assessee to substantiate its claim, we do not find any reason to interfere with the orders of the lower authorities. Ground No.2 of the assessee stands dismissed.
Only other effective ground raised by the assessee appearing as ground No.4 in the chart is on a disallowance of interest income for the purpose of computation of deduction claimed by the assessee u/s.80HHE of the Act.
Ld. Counsel for the assessee submitted that interest of 7.
�3,11,014/- was earned on fixed deposits kept for meeting the ITA Nos 1223 to 1228/15. :- 4 -: margin requirement for letter of credit and bank guarantees.
According to him, such interest was business income eligible for deduction u/s.80HHE of the Act.
Per contra, ld. Departmental Representative strongly 8.
supported the orders of the lower authorities.
We have considered the rival contentions and perused the 9. orders of the authorities below. Claim of the assessee is that the fixed deposits were kept for the purpose of meeting margin requirement for opening LOC and obtaining bank guarantees. However, assessee could not substantiate this claim before the lower authorities despite opportunities given to it. Ld. Commissioner of Income Tax (Appeals) had relied on the judgment of Hon’ble Jurisdictional High Court in the case of Dollar Apparels vs. ITO, 294 ITR 484, confirming the disallowance. Since assessee was unable to support the claim with proper evidence, we do not find any reason to interfere with the orders of the lower authorities. Ground No.4 of the assessee stands dismissed.
Now, we take up the appeal of assessee for the assessment year 2002-03 in ITA No.1224/CHNY/2015.
ITA Nos 1223 to 1228/15. :- 5 -:
First effective ground appearing as ground No.2 in the chart 11. is on disallowance of prior period expenditure of �18,33,815/-.
We have heard the contentions of the ld. Counsel. Assessee had claimed prior period expenditure of �18,33,815/-. Ld. Assessing Officer had disallowed the claim since expenditure related to an earlier year, and did not relate to the previous year relevant to impugned assessment year. Contention of the assessee before ld. Commissioner of Income Tax (Appeals) was that such expenditure was incurred wholly and exclusively for the purpose of business and being a genuine business outgo, was required to be allowed u/s.37 of the Act. However, ld. Commissioner of Income Tax (Appeals) did not accept this contention. Argument of the ld. Authorised Representative before us is that, if the prior period expenditure is not allowed for the impugned assessment year, corresponding allowance should be given for the earlier years to which such expenditure related to. We are afraid, we cannot accept this contention. If assessee was of the opinion that expenditure related to an earlier year, it ought have filed claims in the respective years. It is not disputed that the expenditure of �18,33,815/- did not relate to the impugned assessment year.
Hence, in our opinion, the claim was rightly disallowed. We therefore
ITA Nos 1223 to 1228/15. :- 6 -: find no reason to interfere with the orders of the lower authorities.
Ground No.2 of the assessee stands dismissed.
Vide its effective ground No.3, grievance of the assessee is 13. that lease rent deposits which were written off were not allowed as expenditure.
Ld. Counsel for the assessee submitted that assessee had 14. written off �3,97,923/- being rental deposits adjusted against rentals / maintenance charges due on properties occupied by the assessee. As
per the ld. Authorised Representative, this was a normal business loss which ought have been allowed. Ld. Authorised Representative, relied on a Co-ordinate Bench order in assessee’s own case for assessment years 2003-2004 and 2004-05 (in and 1966/Mds/2008, dated 25th May, 2009).
Per contra, ld. Departmental Representative strongly supported the orders of the lower authorities.
We have considered the rival contentions and perused the orders of the authorities below. It is not disputed that what was written off by the assessee was not trading a debt nor any money lent by it in the ordinary course of a business of banking or money lending. No doubt, ld. Authorised Representative placed reliance on a ITA Nos 1223 to 1228/15. :- 7 -:
Co-ordinate Bench order in assessee’s own case for assessment years 2003-2004 and 2004-05 (in and 1966/Mds/2008, dated 25th May, 2009). Para 13 of the said order which is apposite here is reproduced hereunder:-
‘’13. We have given our thought on the issue. As regards to the Earned Money Deposit with the MTNL for taking telephone connection, this amount is being refunded during the certain period of time by way of credit given in monthly or bi- monthly bills raised by the MTNL as per the Indian Telegraph Rules framed under the Indian Telegraphs Act and only a certain percentage, just to say 4% of the total deposit is charged as book keeping charges. Therefore, the Earnest money deposited with MTNL cannot be treated as irrecoverable advances and thereby cannot be treated as bad debts. As regards to the other expenses by examining the nature of expenses, it is clear that these expenses were incurred I By the assessee on behalf of its customers with whom the assessee was doing business and therefore the same was incurred in the course of ordinary business of the assessee and allowable as expenditure / business loss. Accordingly, we hold that except the Earnest Money with the MTNL, other claims of the assessee is written off being bad debts are allowable. Hence, the Revenue partly succeeds, qua this issue’’.
A reading of the above, clearly show that amount which was written in the said year was earnest money deposit with the MTNL and other claims incurred on behalf of its customers. No part of the claim was on any write–off of rental deposits. That apart, the EMD written off was not allowed by the Tribunal. Ld. Authorised Representative also place reliance on an decision of Delhi Bench of the Tribunal in the case of Fab India Overseas P. Ltd vs. CIT (ITA No.199/ Del/2012, dated 28.06.2013). A perusal of the said order show that security deposits which were written off were given for a lease which never
ITA Nos 1223 to 1228/15. :- 8 -: went through. The Tribunal had held that there was no binding agreement between assessee and the lessor, since the lease deed was not registered and held that security deposit written-off was a business loss. However, in the case before us, there is nothing on record to show that rental deposits written off by the assessee pertained to any lease which had not materialized. In the circumstances, we do not find any reason to interfere with the orders of the lower authorities. Ground No.3 of the assessee stands dismissed.
Vide its effective ground No.4, grievance of the assessee is on a disallowance of software expenditure of �7,76,684/- claimed by it as Revenue outgo.
We have considered the rival counsel. Assessee had claimed 18. software expenditure of �7,76,684/- as a revenue outgo. Ld. Assessing Officer was of the opinion that it was a capital outgo.
Though the assessee had stated that the software purchased were office tools used for its projects, such claim was not accepted.
Before ld. Commissioner of Income Tax (Appeals), assessee had argued that the computer software were included in the definition of Computer for depreciation purposes, only from assessment year 2003- 04 and therefore for the impugned assessment year, it was allowable
ITA Nos 1223 to 1228/15. :- 9 -: as revenue outgo. Ld. Commissioner of Income Tax (Appeals) however did not accept this. What we find is that assessee could not furnish any evidence to show the nature of the software expenses. Assessee was unable to demonstrate whether it was paid as software licence fee or paid for outright acquisition of a software. In such circumstances, we are of the opinion that lower authorities were justified in not allowing the claim as revenue outgo. However, we find that ld. Assessing Officer had allowed depreciation @ 25% only.
Once purchase of software is considered as a capital expenditure, it has to be given the same rate of depreciation as applicable for computer. Assessee is therefore, in our opinion entitled to depreciation on the software expenditure at the rate applicable for computer for the impugned assessment year. Ordered accordingly.
Ground No.4 of the assessee is treated as partly allowed for statistical purposes.
Now, we take up appeal of the assessee for assessment 19. year 2003-04 in ITA No.1225/CHNY/2015.
Effective ground No.2 of the assessee is on share issue expenditure of �11,31,421/- which was disallowed by the lower authorities. This is similar to the ground No.2 raised by the assessee for the assessment year 1999-2000 in ITA No. 1223/Mds/2015. We
ITA Nos 1223 to 1228/15. :- 10 -: have already confirmed the order of the ld. Commissioner of Income Tax (Appeals) in para 5 above. Fact situation being the same, ground No.2 of the assessee for assessment year 2003-04 is also dismissed.
Vide its effective ground No.4, grievance raised by the assessee is on disallowance of expenditure of �1,17,866/- claimed as incurred for improvement of leasehold property.
We have considered the rival contentions and perused the orders of the authorities below. Assessee had claimed 100% depreciation on expenditure of �1,17,866/- incurred for improvement of leasehold premises. However, ld. Assessing Officer allowed the claim only to the extent of 10% being rate of depreciation applicable for building. The matter had reached this Tribunal, in an earlier round of proceedings and this Tribunal through its order dated 25.05.2009 in & 1966/Mds/08, had held as under:-
“There is no doubt that as per amendment in Section 32, by insertion of Explanation (1), capital additions made in leasehold buildings are to be treated as if the said building was owned by the assessee. However, the exact nature as to the claim of the assessee that they are temporary structures has to be examined. In this view of the matter, we remit this issue to the file of the Assessing Officer to give a finding thereon. The assessee should be given adequate opportunity of being heard’’. When the issue was taken afresh by the ld.AO, latter required the assessee to provide the details of the expenditure. However, assessee was unable to bring in any evidence to prove that ITA Nos 1223 to 1228/15. :- 11 -: the expenditure incurred was for any temporary structure. Even before the ld. Commissioner of Income Tax (Appeals) assessee failed to support its claim that the expenditure was incurred for erecting a temporary structure in the leasehold property. Since the disallowance was made due to inability of the assessee to produce evidence regarding nature of expenditure incurred, we do not find any reason to interfere with the orders of the lower authorities. Ground No.4 of the assessee stands dismissed.
Vide its effective ground No.7, grievance raised by the 23. assessee is on a disallowance of �5,01,826/- being gratuity payments to LIC.
Ld. Counsel for the assessee, placing reliance on the decision of Co-ordinate Bench in assessee’s own case for assessment year 2002-03 (in dated 3.10.2007) submitted that such claim was allowed in earlier year. According to him, there was no change in the nature of payments made for the impugned assessment year as well.
Per contra, ld. Departmental Representative strongly supported the orders of the lower authorities.
We have considered the rival contentions and perused the orders of the authorities below. What was held by this Tribunal in its ITA Nos 1223 to 1228/15. :- 12 -:
order for assessment year 2002-03 in assessee’s own case mentioned (supra) is reproduced hereunder:-
‘’4.1 On this issue we find that, the learned Commissioner of Income Tax (Appeals) has held that the assessee company has a scheme with the Life Insurance Corporation of India and the payment is made to Life Insurance Corporation of India and it is not a provision in the books of accounts. Hence, the learned Commissioner of Income Tax (Appeals) held that the amount paid represents payments made to Life Insurance Corporation of India as per the scheme administered by them and as Life Insurance Corporation of India is an approved institution for maintaining gratuity funds, he directed the Assessing Officer to allow the claim of deduction for payments of gratuity. 4.2 We have heard both the counsels and perused the relevant records. We find that matters that payments were made to Life Insurance Corporation of India are not emanating from Assessing Officer's order. Hence, we remit this issue to the file of the Assessing Officer to examine the facts and grant necessary relief to the assessee if the provision represents payments made to Life Insurance Corporation of India. The assessee should be given adequate opportunity of being heard’’. It is not disputed that the payments were effected by the assessee to LIC under a scheme for ensuring gratuity to its employees. No doubt, this Tribunal had for assessment year 2002-03 remitted the issue back to the ld. Assessing Officer for examining the facts and giving necessary relief to the assessee. However, for the impugned assessment year, it is not disputed that the payments to LIC were not a provision but made under the gratuity scheme. We are therefore of the opinion that assessee was eligible to claim such deduction.
Disallowance of �5,01,826/- is deleted. Ground No.7 of the assessee is allowed.
ITA Nos 1223 to 1228/15. :- 13 -:
Now, we take up appeal of the assessee for the assessment 27. year 2004-05 in ITA No.1226/CHNY/15.
Effective ground No.2 of the assessee is on disallowance of 28. share issue expenditure of �9,65,708/-. This is similar to the ground No.2 raised by the assessee in its appeal for the assessment year 1999-2000 in ITA No. 1223/Mds/2015. We have already confirmed the order of the ld. Commissioner of Income Tax (Appeals) on this issue at para 5 above. Fact situation being the same, ground No.2 of the assessee for impugned assessment year is also dismissed.
Vide its effective ground No.4, grievance raised by the assessee is on a disallowance of �5,52,677/- being gratuity payments to LIC. This is similar to the ground No.7 raised by the assessee in its appeal for assessment year 2003-04 in ITA No. 1225/Mds/2015. We have already held in para 26 above that the disallowance was not warranted. Fact situation being the same, we delete this disallowance for impugned assessment year also. Ground No.4 of the assessee for assessment year 2004-05 is allowed.
Now, we take up appeal of the assessee for the assessment year 2007-08 in ITA No.1227/CHNY/15.
Vide its effective ground No.1, grievance raised by the assessee is on non-exclusion of items deducted from export turnover,
ITA Nos 1223 to 1228/15. :- 14 -: from total turnover while working out the eligible deduction u/s.10A of the Act .
Ld. Counsel for the assessee placing reliance on the 32. judgment of Hon’ble Karnataka High Court in the case of CIT vs. Tata Elxsi Ltd, 349 ITR 98 and that of Hon’ble Apex Court in the case of CIT vs.HCL Technologies Ltd, (2018) 93 taxmann.com 33, submitted that parity between export and total turnover was required for working out the deduction under Section 10A of the Act.
Per contra, ld. Departmental Representative strongly 33.
supported the orders of the lower authorities.
We have considered the rival contentions and perused the 34. orders of the authorities below. Grievance of the assessee is on non deduction of items excluded from export turnover, from total turnover also while working out relief available u/s.10A of the Act. By virtue of the judgments of Hon’ble Karnataka High Court in the case Tata Elxsi Ltd (supra) and that of Hon’ble Apex Court in the case HCL Technologies Ltd (supra), exclusions made from export turnover have to be considered for reduction from total turnover also while working out deduction available u/s.10A of the Act. Accordingly, we direct the ld. Assessing Officer to rework the deduction available to the assessee u/s.10A of the Act. Ground No.1 of the assessee stands allowed.
ITA Nos 1223 to 1228/15. :- 15 -:
Vide its effective ground No.2, grievance raised by the 35. assessee is on a denial of its claim for deduction of �4,07,15,784/- u/s.10A of the Act for its STPI units.
Ld. Counsel for the assessee submitted that ld. Assessing Officer had set off the loss from one STPI unit with the profit of another STPI units, before allowing the deduction claimed by the assessee u/s.10A of the Act, on the latter. According to him, such set off of profit /loss between two units could not be done, since deduction u/s.10A of the Act was to be given on a stand alone basis.
Reliance was placed on the judgment of Hon’ble Apex Court in the case of CIT vs. Yokogawa India Ltd, (391 ITR 274).
Per contra, ld. Departmental Representative fairly agreed that the issue stood covered in favour of the assessee.
We have heard the counsels. By virtue of the judgment of 38.
Hon’ble Apex Court in the case of Yokogawa India Ltd, (supra) which affirmed the judgment of Hon’ble Karnataka High Court, in the same case, deduction u/s.10A of the Act has to be considered on stand alone basis without setting off of loss another unit. Accordingly, we direct the ld. Assessing Officer to allow the claim made by the assessee u/s.10A of the Act without setting off such loss. Ground No.2 of the assessee stands allowed.
ITA Nos 1223 to 1228/15. :- 16 -:
Vide its effective ground No.6, grievance raised by the 39. assessee is on disallowance of expenditure of �4,99,373/- claimed for improvement of leasehold property was treated as capital outgo. This is similar to ground No.4 raised by the assessee in its appeal for assessment year 2003-04 in ITA No. 1225/Mds/2015. We have already confirmed the order of the ld. Commissioner of Income Tax (Appeals) at para 22 above. Fact situation being the same, ground No.6 of the assessee for impugned assessment year is also dismissed.
Vide its effective ground No.9, grievance raised by the 40. assessee is on a disallowance of �27,50,694/- being gratuity payments to LIC. This is similar to ground No.7 raised by the assessee in its appeal for assessment year 2003-04 in ITA No. 1225/Mds/2015.
We have already set aside the order of the lower authorities and allowed the claim for reasons mentioned in para 26 above. Fact situation being the same, ground No.9 of the assessee for impugned assessment year 2007-08 is allowed.
Now, we take up appeal of the assessee for the assessment year 2008-09 in ITA No.1228/CHNY/15.
Effective ground No.1 of the assessee seeks parity between 42. export turnover and total turnover for working out the addition made u/s.10A of the Act. This is similar to ground No.1 raised by the ITA Nos 1223 to 1228/15. :- 17 -: assessee in its appeal for assessment year 2007-08 in ITA No. 1227/Mds/2015. We have already allowed the relief sought by the assessee, for reasons mentioned at para 34 above. Fact situation being the same, ground No.1 of the assessee for impugned assessment year is allowed.
Effective ground No.2, is on claim u/s.10A of the Act being 43. allowed, after setting off loss of another STPI unit. This is similar to ground No.2 raised by the assessee in its appeal for assessment year 2007-08 in ITA No. 1227/Mds/2015. We have held at para 34 above that deduction under Section 10A has to be given on stand alone basis.
Similar directions are given here also. Ground No.2 of the assessee for impugned assessment year 2008-09 is allowed.
Vide its effective ground No.6, grievance raised by the 44. assessee is on a disallowance of expenditure of �4,49,435/- claimed as incurred for improvement of leasehold property. This is similar to ground No.4 raised by the assessee in its appeal for assessment year 2003-04 in ITA No. 1225/Mds/2015. We have already confirmed the order of the ld. Commissioner of Income Tax (Appeals) at para 22 above. Fact situation being the same, ground No.6 of the assessee for impugned assessment year is dismissed.
ITA Nos 1223 to 1228/15. :- 18 -:
To summarize the results, appeal of the assessee for 45. assessment year 1999-2000 is dismissed, whereas its appeals for all other years are partly allowed for statistical purposes.
Order pronounced on Tuesday, the 12th day of June, 2018, at Chennai.