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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals preferred by the Revenue are directed against common order of the ld. Commissioner of Income Tax (Appeals) 6, Chennai dated 30.06.2017relevant to the assessment years 2013-14 and 2014-15. First, we shall take the appeal filed for the assessment year 2007-08. Since common issues are involved, both the appeals were heard together and are being disposed of by this common order for the sake of convenience.
The appeal in of the Revenue is found to have been filed late by four days before the Tribunal. By referring to the petition for condonation of delay, the ld. DR has submitted that in its memo dated 31.08.2017, the ld. PCIT has mentioned that the time barring for filing the appeal was on 01.09.2017, but the Department filed the appeal only on 07.09.2017 since the appeal papers were not readily available for submission as it got mixed up with other scrutiny files. Thus, the ld. DR requested for condoning the short delay in filing the appeal and prayed to admit the appeal for hearing. The ld. Counsel for the assessee did not object to the submissions of the ld. DR and therefore, we condone the delay of four days in filing the appeal and admit the appeal for hearing.
The first common ground raised in both the appeals is that the ld. CIT(A) erred in directing the Assessing Officer to allow the additional depreciation. From the depreciation chart for income tax purpose for both the assessment years, the Assessing Officer noticed that the assessee has claimed additional depreciation @ 20% under section 32(1)(iia) of the Income Tax Act, 1961 [“Act” in short] relatable to assets acquired in the immediately preceding year and used for less than 180 days for which only 50% of the eligible additional depreciation was claimed. The Assessing Officer observed that as per the provisions of section 32(1)(iia) of the Act, the assessee who is engaged in the business of manufacture or production of any article or thing, is allowed to claim additional depreciation @ 20% on purchase of new asset. Since there was nothing mentioned in the said provision for carry forward of 50% of eligible claim of 20% of additional depreciation, if the assets are put to use for less than 180 days, the additional depreciation claimed by the assessee was disallowed and brought to tax.
On appeal, by following the decision of Hon’ble Jurisdictional High Court in the case of Brakes India Ltd. v. DCIT in T.C. A. No. 551 of 2013 dated 14.03.2017, the ld. CIT(A) directed the Assessing Officer to allow the additional depreciation for both the assessment years under consideration.
Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years. The ld. DR mainly argued that the Department has not accepted the judgment in the case of CIT v. Brakes India Ltd. (supra) and preferred SLP before the Hon’ble Supreme Court and pleaded that to keep the case alive, the order of the ld. CIT(A) may be set aside and restored that of the Assessing Officer. On the other hand, the ld. Counsel for the assessee strongly supported the orders of the ld. CIT(A).
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. Against the disallowance of additional depreciation on the ground that there was nothing mentioned in the said provision for carry forward of 50% of eligible claim of 20% of additional depreciation when the assets are put to use for less than 180 days, the ld. CIT(A) has observed that similar issue on an identical facts and circumstances was decided in favour of the assessee by the Hon’ble Jurisdictional High Court in the case of CIT v. Brakes India Ltd. (supra). Accordingly, the ld CIT(A) directed the Assessing Officer to allow the additional depreciation for both the assessment years under consideration. In assessee’s own case for earlier assessment years in a common order in & 1166/Mds/2010 & I.T.A. No.1069/Mds/2010 dated 06.01.2012, the Coordinate Benches of the Tribunal has observed that each assessment year is separate and independent assessment year and the provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any and accordingly, the dismissed the ground raised by the assessee with regard to allowance of additional depreciation. Against the order of the Tribunal, the assessee preferred further appeal before the Hon’ble Jurisdictional High Court.
6.1 By distinguishing the jugdement of Hon’ble Madras High Court in the case of M.M. Forgings Ltd. v. Addl. CIT 349 ITR 673 and by referring to the decision of the Tribunal in the case of Fresh & Honest Café Ltd v. DCIT in dated 10.08.2016, wherein, the Tribunal followed its own decision in assessee’s own case for earlier assessment year, in which, the decision of the Hon’ble Karnataka High Court in the case of CIT v. Rittal India (P) Ltd. 66 taxmann.com 4 has been referred, the Hon’ble Madras High Court decided the issue in favour of the assessee by duly affirming the decision in the case of CIT v. Rittal India (P) Ltd. (supra). Further, it was also held that the issue is squarely covered by the decision of Hon’ble Madras High Court in the case of CIT v. Shri T.P. Textiles Pvt. Ltd. in T.C.A. No. 157 of 2017 vide order dated 06.03.2017.
6.2 In view of the above judicial precedents, we are of the considered opinion that the ld. CIT(A) has rightly followed the decision in the case of Brakes India Ltd. v. DCIT (supra) and directed the Assessing Officer to allow the additional depreciation for both the assessment years. Accordingly, the ground raised by the Revenue is dismissed for both the assessment years.
The next common ground raised in the appeals of the Revenue is that the ld. CIT(A) erred in deleting the disallowance made under 14A r.w. Rule 8D(2)(ii). From the audited financial statement, the Assessing Officer noticed that the assessee has non-current investments of ₹.3,97,625/- as on 31.03.2013 as well as 31.03.2014 and generates exempt income. Accordingly by applying the provisions of section 14A r.w. Rule 8D, the Assessing Officer made disallowance of ₹.25,121/- and ₹.22,888/- in the assessment years 2013-14 and 2014-15 respectively. On appeal, after considering the submissions of the assessee as well as by following the decision of the Hon’ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. 366 ITR 505, the ld. CIT(A) held that there can be no disallowance under Rule 8D(2)(ii) of the Income Tax Rules.
7.1 Aggrieved, the Revenue is in appeal before the Tribunal and the ld. DR has submitted that the ld. CIT(A) went in wrong to presume that no component of borrowed capital has been employed in making the investments and pleaded that the order of the ld. CIT(A) should be set aside. On the other hand, the ld. Counsel for the assessee vehemently argued that despite having huge interest free funds by the assessee, the Assessing Officer wrongly presumed that the borrowed funds would have been employed in making the investments and accordingly, he made the disallowance, which is unwarranted and prayed for confirmation of the order passed by the ld. CIT(A).
7.2 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. By reiterating the submissions as made before the ld. CIT(A), It was the submission of the ld. Counsel for the assessee that the impugned investments have been made a long time ago and the interest free funds of ₹.684.27 lakhs far outweigh the borrowed funds of ₹.181.38 lakhs for the assessment year 2014-15. Similarly, for the assessment year 2013-14 also, the interest free funds of ₹.671.67 exceed the borrowed funds at ₹.482.37 lakhs. Therefore, it was submitted that there was no question of allocation of interest expenditure under Rule 8D. While considering similar issue, in the case of CIT v. HDFC Ltd. (supra), the Hon’ble Bombay High Court has held that where assessee’s capital, profit reserves, surplus and current account deposits were higher than the investments in tax free securities, it would have to be presumed that investment made by the assessee would be out of the interest free funds available with the assessee and no disallowance is warranted under section 14A of the Act. The ld. DR could not controvert the above findings of the Hon’ble Bombay High Court. Thus, we are of the considered opinion that the ld. CIT(A) has rightly followed the above judgement of Hon’ble Bombay High Court and held that no disallowance under Rule 8D(2)(ii) could be made in this case. Hence, the ground raised by the Revenue is dismissed for both the assessment years.
The next ground raised in the appeal of the Revenue for the assessment year 2013-14 is that the ld. CIT(A) erred in holding that the depreciation on software has to be granted at the rate of 60% and not at the rate of 25%. The assessee has claimed depreciation @ 60% on AutoCAD Inventor LT suite 2013 amounting to ₹.47,000/- claiming to be software. However, the Assessing Officer observed that the said asset is in the nature of license and not the original software on which the assessee can claim higher rate of depreciation, he allowed depreciation @ 25% and balance amount was brought to tax. On appeal, by considering the submissions of the assessee as well as relying on the decision of the Tribunal, the ld. CIT(A) directed the Assessing Officer to allow the depreciation of software license @ 60% as claimed by the assessee.
8.1 We have considered the rival submissions. It is an undisputed fact that the software license acquired by the assessee is part and parcel of computer system. If the asset is held to be software, which is used in the computer system and classified with the ambit of “computer”, the assessee is eligible to claim depreciation @ 60% as held by the Tribunal in various cases. If at all to say that the assessee is acquired only license, the entire expenditure incurred for acquiring the license is allowable as revenue expenditure as held by the Coordinate Benches of the Tribunal in the case of DCIT v. Dasfoss Industries (P) Ltd. (2013) 37 taxmann.com 240 [in & 370/Mds/2013 vide order dated 28.06.2013], wherein, the decision of the Hon’ble Bombay High Court in the case of CIT v. Raychem RPG Ltd. 346 ITR 138 has been followed. The ld. DR could not controvert the above findings of the Tribunal. In view of the above, we find no reason to interfere with the orders of the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed.
In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced on the 20th February, 2018 at Chennai.