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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI G.S. PANNU & SHRI C.N. PRASAD
3 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. आदेश / O R D E R PER C.N. PRASAD (JM) 1. These appeals are filed by the assesse for the Assessment Years 2003– 04, 2004–05 and 2005–06 and Cross Appeal filed by the revenue for the Assessment Year 2003–04 against various orders of the Ld.CIT(A)/CIT passed u/s 250/263 of the Act.
Now we will take up appeal filed by the assessee for the Assessment Year 2003–04 in ITA.No.2563/Mum/2007 and cross appeal filed by the Revenue in ITA.No. 2702/Mum/2007.
The first issue in the appeal of the assessee is in respect of disallowance of depreciation of fixed assets. Briefly stated the facts are that during the Assessment Years 2001–2002 and 2002–2003 the assessee did not claim depreciation on fixed assets relying on certain judicial pronouncements. However, the Assessing Officer during the Assessment Years 2001–02 & 2002-03 as well as the current Assessment Year i.e. 2003– 04 calculated the depreciation on assets and allowed the same while computing the income of assessee since allowance of depreciation was mandatory for the Assessment Year 2002–03 onwards according to Assessing Officer. This action of the Assessing Officer was upheld by the Ld.CIT(A) against which the assessee is in appeal before us.
4 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd.
At the time of the hearing Learned Counsel for the assessee fairly concedes and submits that this issue has been decided against the assessee in its own case for the Assessment Year 2006–07 by the Coordinate Bench in ITA.No.4180/2005 dated 18.01.2010 copy of the order is placed before us. The Learned Authorized Representative of the assessee invited our attention to Para 18 at Page 13 of the order wherein Coordinate Bench decided this issue against the assessee following the judgment of the Hon’ble Bombay High court in the case of the Indian Rayon Corporation Ltd. v. CIT [261 ITR 98]. He further submits that this decision is followed in the Assessment Years 2002–03 and 2003–04 in ITA.No.590/Mum/2016 and 2642/Mum/2007 dated 18.01.2012 by the Coordinate Bench. Respectfully following the Coordinate Bench decisions, we upheld the view of the Ld. CIT(A) and dismiss Ground Nos.1 to 4 raised by the assessee on this issue.
The next issue in Ground No.5 to 7 is regarding restricting the deduction u/s 10A and 10B of the Act. Briefly stated the facts are that, the Assessing Officer while completing the assessment excluded unrealized sale proceeds from computing deductions u/s 10A and 10B of the Act. The Ld.CIT(A) upheld the action of the Assessing Officer in excluding unrealized sale proceeds from computing the deductions. The Learned Counsel for the assessee submits that on similar circumstances the Coordinate Bench for the 5 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. Assessment Year 200–02 and 2002–03 in ITA.No.4180/Mum/2005 and ITA.No.736/Mum/2006 dated 07.01.2009 held that the assessee will be free to move application for rectification as prescribed in section 155(13) as and when the export proceeds are realized as per the procedure laid down. Therefore, he submits that similar finding may be given for this Assessment Year also. Ld. DR has no serious objection in giving similar finding following the Coordinate Bench.
Heard both parties on this issue. The Coordinate Bench has given finding in respect of unrealized sale proceeds as under: - “2.2 The Second dispute is regarding allowability of deduction under section 10A/10B in respect of unrealized export proceeds. The export proceeds to the tune of Rs.8,36,314/- had not been realized in this case till the extension granted by RBI upto 31.03.2002. Assessing Officer therefore did not allow deduction under section 10A/10B in respect of the aforesaid sum which was confirmed by the CIT(A), aggrieved by which the assessee is in appeal. 2.2.1 We have heard both the parties, perused the records and considered the matter carefully. The deduction under section 10A/10B is available only in respect of sale proceeds which are received in or brought to India in convertible foreign exchange within a six months from the end of the previous year or such further period as maybe allowed by the competent authority. In this case the proceeds had not been received till the period extended by the competent authority. Therefore, disallowance of deduction by the authorities below is upheld. In case the assessee is able to receive the proceeds in future as per the procedure prescribed, the assessee may file rectification application under section 154 as in terms of section 155(13), the four year period for rectification will be reckoned from the end of year in which the proceeds are received.
6 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. 7. Following the above order, we hold that the finding of the Tribunal for Assessment Year 2001-02 & 2002-03 applies for the current Assessment Year also. We direct the Assessing Officer to follow the directions of the ITAT accordingly. These grounds are partly allowed for statistical purposes.
The next issue in Ground No.8 is regarding the disallowance of interest on deposits and interest on staff loans for the purpose of computing deductions u/s 10A/10B of the Act. The Assessing Officer while computing the deductions excluded interest on fixed deposits and interest on staff loans holding that these are not incomes derived from business of the undertaking and therefore not eligible for deduction. On appeal the Ld. CIT(A) sustained the action of the Assessing Officer against which the assessee is in appeal before us.
The Learned Counsel for the assessee submits that these receipts have direct nexus with the business of the undertaking therefore eligible for deduction u/s 10A of the Act. He placed reliance on the following decisions:- (i) Watson Pharma (P.) Ltd. v. DCIT; [2015] 54 taxmann.com 88 (Mumbai–Trib.) (ii) Universal Precision Screws v. ACIT; [2015)38 ITR (Trib) 233 (Delhi) (iii) Krupa Trading Company v. Additional CIT; [2017] 77 taxmann.com 177 (Mumbai–Trib.)
7 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. 10. The Ld.DR however submits that in assessee’s own case for the Assessment Year 2002–03 this issue has been decided against the assessee by the Coordinate Bench in ITA .NO.736/Mum/2006 dated 07.01.2009 wherein it was held that interest income on fixed deposits is not income derived from the undertaking and not eligible for deduction u/s 10A/10B of the Act.
We pursued the orders of the Coordinate Bench for the Assessment Year 2002–03 and find that this issue has been decided against the assessee following the decision of the Hon’ble Supreme Court in the case of Pandyan Chemicals (262 ITR 278) and also following the Tribunal order in assessee’s own case for the Assessment Year 1997–98 and 1998–99, as there is no change in facts we are not inclined to deviate from the view already taken in assessee’s own case in earlier Assessment Year. Thus respectfully following said order we hold that the interest on Fixed Deposits as well as the interest from staff loans is not income derived from the undertaking for the purpose of allowing deduction u/s 10A/10B of the Act. This ground of the assessee is dismissed.
The next issue in Ground No.9 and 10 is regarding the disallowance of cost of software. The Assessing Officer while computing the income of the assesse disallowed cost of software treating it as capital expenditure on the 8 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. ground that software will give benefit of enduring nature to the assessee company. On appeal to the Ld. CIT(A), the Ld. CIT(A) sustained the action of the Assessing Officer without appreciating the contention of the assessee that this cost of software was meant for purchase and sale of software and profit on sale of software has been offered to tax. The Ld. CIT(A) rejected the contention of the assessee and observed that there is no trading activity.
The Learned Counsel for the assessee before us submits that assessee is into purchase and sale of software also. He submits that there is trading activity and therefore it cannot be an expense in the nature of capital. He submits that the income from sale of software has been offered to the tax. Ld. DR supported the orders of the authorities below.
We have heard the rival submissions. It is the contention of the assessee that it is into purchase and sale of software and there is a trading activity. Therefore, the cost of software purchased for sale cannot be treated as capital expenditure, has considerable force. It is the contention of the assessee that the profit and sale of software has been offered to tax and there is a trading activity and in such circumstances such cost of software cannot be treated as capital in nature. For the limited purpose of verification as to whether this cost of software was on account of trade in software or it was used for internal purpose, we restore this matter to the file of the Assessing
9 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. Officer who shall verify the fact and if it is found that this cost of software was incurred for sale the same shall be allowed as cost of purchase and no disallowance should be made treating it as capital expenditure. The Assessing Officer shall pass orders after verification of this fact and after providing opportunity to the assessee. This ground is allowed for statistical purposes.
The next issue in Ground Nos.11 and 12 of the assessee’s appeal is regarding setoff of loss while computing the deduction u./s 10A of the Act.
The Learned Counsel for the assessee at the outset submits that this issue is now decided by the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. [391 ITR 274]. The Learned Counsel submits that after amendment to section 10A and 10B with effect from 01.04.2001 the nature of benefit contemplated in the provisions of section 10A and 10B became deduction and therefore such deduction should be granted before setoff of losses.
The Ld.DR placed reliance on the orders of the authorities below.
We have heard the rival submissions, perused the orders of the lower authorities and the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd (supra). The Hon’ble Supreme Court held as under: -
10 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. “From a reading of the relevant provisions of section 10A, it is more than clear that the deduction contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deducting is given by the Act to the individual undertaking and resultantly flows to the assessee. Circular No. 794, dated August 9, 2000 states in paragraph 15.6 that the export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100 per cent export oriented undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision. If the specific provisions of the Act (the first proviso to sub-section (1) of section 10A and sub-sections (1A) and (4) of section 10A) provide that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous circular of the Department understood the situation, it is logical and natural that the deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 of the Act would be premature for application. The deduction under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in section 10A can be reconciled by understanding the expression “total income of the assessee” in section 10A as “total income of the undertaking”. Therefore, though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. Decision of the Karnataka High Court in CIT v. YOKOGAWA India Ltd. [2012] 341 ITR 385 (Karn) affirmed on this point”.
11 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. 19. In the light of the decision of the Hon’ble Supreme Court we direct the Assessing Officer to decide this issue following the apex court decision (supra).
The next issue is Ground No.13 of the assessee is regarding the carry forward and setoff of losses in subsequent Assessment Years. Since this ground is only consequential in nature we direct the Assessing Officer to allow carry forward and setoff of losses in subsequent years in accordance with the law.
Ground No.14, the grounds of appeal is regarding non-adjudication of grounds by Ld. CIT(A). At the time of hearing Learned Counsel submitted that this ground is not pressed. Hence this ground is dismissed as not pressed.
22. Ground Nos.15 and 16 of the appeal are general in nature and therefore need not be adjudicated and hence dismissed.
23. Coming to the Revenue’s appeal in the only issue is that Ld.CIT(A) erred in deleting in disallowance of software consumable expenses treating them as revenue expenditure.
24. At the outset the Learned Counsel for the assessee submits that this issue is decided in favor of the assessee by the Coordinate Bench of this 12 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. Tribunal for the Assessment Year 2004–05 in ITA. No.6822/Mum/2007 dated 12.12.2012 and copy of the order is placed at Page No. 118 of the paper book. Referring to Para 3 at Page 3 of the said Order he submits that issue has been decided in favor of the assessee by upholding the order of the Ld.CIT(A) in deleting the disallowance. The Ld. DR placed reliance on the Assessment Order.
We have heard the rival contentions and perused the orders. The Coordinate Bench of the Tribunal considered similar issue in the Assessment Year 2004–05 and by following the order of the Special Bench of the Delhi Tribunal in the case of Amway India Enterprise and also the Hon’ble Delhi High Court in the case of “CIT v. Amway India Enterprises” (346 ITR 341) held that software consumable expenses are revenue in nature. Respectfully following the said Order, we uphold the order of the Ld.CIT(A) on this issue and dismiss the grounds of revenue on this issue.
Now we deal with the appeal of the assessee for the Assessment Year 2005–06 in ITA No.6299/Mum/2011.
Ground No.1 is regarding disallowance of depreciation on fixed assets which was thrust upon the assessee. This issue has been decided against the assessee by the Coordinate Bench and following the same we have dismissed
13 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. this ground in earlier paragraphs while deciding the grounds for the Assessment Year 2003–04 in ITA.No.2563/Mum/2007. The decision taken in this appeal applies mutatis mutandis to the issue in appeal for the Assessment Year 2005–06 in ITA.No.6299/Mum/2011. Hence following the above decision, we reject ground No.1 raised by the assessee on this issue.
Ground No.2 is in respect of confirmation of disallowance of deduction u/s 10A/10B in respect of unrealized export proceeds. This issue has been dealt by us in earlier paragraphs while dealing with the appeal in ITA.No.2563/Mum/2007 for the Assessment Year 2003–04. The finding given therein applies mutatis mutandis to this appeal for the Assessment Year 2005–06 also. Thus this ground of appeal is allowed for statistical purpose.
29. The next issue in Ground No.3 of the assesse appeal is in respect of the disallowance of software expenses treating it as capital expenditure. The Learned Counsel for the assessee submits that the arguments advanced for the Assessment Year 2003–04 equally applies to this year as similar kind of expenditure was incurred on software in this Assessment Year. While disposing of the appeal of the assessee for the Assessment Year 2003–04 in ITA.No.2563/Mum/2007 we have held that if the software was purchased for sale and if there is any trading activity such software cannot be treated
14 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. as capital expenditure but has to be allowed as cost of purchase especially when profit on sale of such software was already considered as trading receipt while computing the profits of the assessee. Hence decision taken for the Assessment Year 2003–04 applies mutatis mutandis for this Assessment Year also. The Assessing Officer may examine this aspect of the matter thoroughly and the assessee shall provide all necessary details on this issue and cooperate with the Assessing Officer in the proceedings. We order accordingly.
Now we take up the appeal of the assessee for the Assessment Year 2004-05 in ITA.NO.4165/Mum/2013. This appeal is filed against the order of the Ld. CIT(7) (Mum) dated 28.03.2013 passed u/s 263 of the Act for the Assessment Year 2004-05.
The Ld. Counsel for the assessee submits that the assessment for the Assessment Year 2004-05 was completed originally u/s 143(3) on 29.12.2006 which was later revised u/s 147 of the Act and reassessment was completed on 21.11.2011. The Learned Counsel for the assessee further submits that 263 order was passed on 17.03.2009 revising the Assessment Order passed u/s 143(3) on 29.12.2009. He submits that this order of revision was quashed by ITAT by order dated 04.03.2010 in ITA No.2272/Mum/2009. The Learned Counsel for the assessee submits that in 15 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. the revision order passed u/s 263 the Ld.CIT proposed to withdraw 10A deduction which the ITAT quashed the order.
The Learned Counsel for the assessee submits that the Commissioner issued show cause notice on 31.01.2013 to revise the reassessment order passed on 21.11.2011 u/s 143(3) r/w 147 of the Act. Referring to the show cause notice which is placed at page 79 of the paper book, the Learned Counsel for the assessee submitted that the ld. Commissioner proposed to revise the reassessment on two grounds that is (i) Assessing Officer allowed setoff of unobserved depreciation beyond a period of 8 years and (ii) the disallowance of deduction u/s 10A made under normal provisions of the Act was not carried out such similar disallowance while computing book profits u/s 115JB of the Act. The Learned Counsel in so far as the first issue is concerned that is setoff of unobserved depreciation beyond a period of 8 years submits that this issue is subject matter of original assessment made u/s 143(3) on 29.12.2006 and therefore Ld.CIT could not have revise the order on this issue. In respect of the second issue regarding denial of deduction u/s 10A while computing book profits u/s 115JB the Ld. Counsel referring to Page 84 of the paper book submits that the assessee is entitled for deduction u/s 80HHE in respect of all the STP/EOU units and this is not considered by the Ld.CIT while passing the revision order. He submits that 16 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. in case the assessee in not eligible for deduction u/s 10A of the Act the profits are eligible for deduction u/s 80HHE of the Act. The Learned Counsel for the assessee submits that in any case the disallowance of deduction is the subject matter revision u/s 263 in the order passed on 17.03.2009 which was quashed by ITAT on 04.03.2010 he submits that the Ld.CIT should not have revised the re-assessment order on this ground.
The Ld. DR submits that in so far as the deduction u/s 10A is concerned the assessee itself in its reply dated 22.03.2013 to the commissioner at Page 84 of the paper book submitted that denial of deduction u/s 10A can be added back while computing book profits u/s 115JB of the Act. He submits that it was further stated by assessee that this being a mistake apparent from record the same may be rectified u/s 154 of the Act. Therefore, he submits that now the assessee cannot say that the order passed by the Ld.CIT u/s 263 is not correct. Coming to the setoff of unabsorbed deprecation he submits that prima facie it appears that this is not the subject matter of assessment as seen from the Assessment Order. There is no discussion by the Assessing Officer therefore he submits that the order passed by the Learned Commissioner u/s 263 is perfectly justified.
We have heard the rival submissions perused the orders of the authorities below and the order of the ITAT setting aside the 263 order
17 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. earlier, the show cause notice issued by the commissioner and reply submitted by the assessee. As far as the contention of the assessee that 10A deduction is subject matter of revision u/s 263 against 143(3) proceedings and this revision order was set aside by ITAT and therefor the Ld.CIT should not have revised the re-assessment is concerned, we are not able to appreciate this because the subject matter of revision u/s 263 order dated 17.03.2009 was with regard to exclusion of certain inadmissible expenses like post & communication and insurance charges but not the issue of whether deduction not allowed u/s 10A while computing normal provisions should also be denied while computing book profits u/s 115JB. Therefore, this contention of the assessee is rejected. We find from the reply submitted to Ld.CIT as regards to deduction u/s 10A is concerned, the assessee itself submitted in the reply that there is a mistake in not adding back the denial of deduction while computing the book profits and at the same time it is the contention that the profits of the undertaken is eligible for deduction u/s 80HHE if not u/s 10A of the Act. Coming to allowing setoff of unabsorbed depreciation beyond 8 years it is the submission that this is the subject matter of original assessment made u/s 143(3) on 29.12.2006. We have perused the Assessment Order and also the appellate order arising out of the original Assessment Order and find that this specific issue as to whether the 18 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. assessee is entitled to carry forward unabsorbed depreciation beyond 8 years and set off against the current year profits is not the subject matter of assessment order or appellate proceedings. Therefore, we are of the view that since the Assessing Officer has not examined this aspect of the matter the Ld.CIT is justified in directing the Assessing Officer to look into these aspects. In any case the Ld.CIT has set aside the re-assessment and directed to conduct enquiry and take a decision in accordance with the law after giving proper opportunity. There is no prejudice caused to the assessee as there is no specific direction to disallowance unabsorbed depreciation as well as deduction u/s 10A while computing the book profits. Since issues have not been examined by the Assessing Officer in the course of the assessment proceedings, we are of the view that the action of Ld.CIT u/s 263 is in order. However, we make it clear that the Assessing Officer may also examine the contention of the assessee that if the profits are not eligible for deduction u/s 10A the same may be considered for deduction u/s 80HHE while computing the incomes of the assessee under normal provisions as well as while computing book profits u/s 115JB of the Act. Hence the appeal of the assessee preferred against 263 order is dismissed with the above observations.
19 & ITA.No.2702/MUM/2007& ITA.No.6299/MUM/2011 & ITA.No.4165/Mum/2013 Siemens Technology and Services Pvt. Ltd. 35. In the result assessee’s appeals for the Assessment Years 2003-04 and 2005-06 are partly allowed for statistical purposes. Revenue’s appeal for the Assessment Year 2003-04 is dismissed. Assessee’s appeal for Assessment Year 2004-05 is dismissed.
Order pronounced in the open court on the 30th June, 2017.