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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI B.R. BASKARAN (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against order dated 09/7/2014 passed by Ld. CIT (Appeals)- 21, Mumbai for the assessment year 2010-2011, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143(3) of the Income Tax Act, 1961, (for short ‘the Act’).
2. Brief facts of the case are that the appellant company engaged in the business of retailing in books, music, stationery and gift articles, filed its return of income for the relevant assessment year declaring the total loss of Rs. 2 Assessment Year: 2010-2011 2,31,34,707/-. The return was processed and after scrutiny assessment order was passed determining the total loss of Rs. 1,24,51,400/-. The AO made disallowance of Rs. 12,12,411/- u/s 14A, disallowance of Rs. 64,88,000/- with regard to customer loyalty programme out of total provision of Rs. 125.67 lacs and disallowance of depreciation of Rs. 10,26,428/- on computer peripherals & accessories and Rs. 4,17,549/- on computer software. The assessee challenged the assessment order before the Ld. CIT (A). So far as the addition made u/s 14A of the Act is concerned, the Ld. CIT(A) after hearing the assessee directed the AO to make addition of only 0.5% of average investment towards administrative expenses and ordered to delete the remaining amount of addition. So far as addition made on account of provisions for unredeemed point is concerned, the Ld. CIT (A) deleted the same by following the decision of CIT (A) passed in the assessee’s own case for A.Y. 2009-10. Similarly, the Ld. CIT (A) allowed the depreciation @ 60% on computer accessories and computer software by following the order of the Ld. CIT (A) passed in the assesee’s own case for the A.Y. 2008-09.
Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before this Tribunal on the following effective grounds:-
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of interest expenditure made by the AO, amounting to Rs. 9,88,171/- computed u/s 14A r.w.r. 8D of the IT Act, 1961.
On the facts and the circumstance of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 64.88 lakhs on account of provision for expenses with respect to customer loyalty programme, out of total provision of Rs. 125.67 lakhs, though the provision of Rs. 64.88 lakhs has not yet crystallized as on the last date of FY 2009-10, being in the nature of unascertained liability.
3 Assessment Year: 2010-2011
3. On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in directing the AO to allow the depreciation @ 60% instead of @ 15% on computer peripherals & accessories ignoring the fact that the same should be classified under the head block of Plant & Machinery.
4. On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in directing the AO to allow the depreciation @ 60% instead of @ 25% on computer software ignoring the fact that the software is not the part of the computer as same is characteristics of intangible asset.”
Ground No. 1 pertains to disallowance u/s 14A of the Act. Before us, the Ld. Departmental Representative (DR) relying on the assessment order submitted that since the assessee has not categorized the expenses incurred for earning exempt income, the AO has rightly calculated the expenses as per Rule 8D of the Income Tax Rules.
On other hand, the Ld. Counsel for the assessee submitted that the Ld. CIT (A) has rightly deleted the additions made u/s 14A of the Act as the assessee had reserves and surplus of Rs. 78.55 crores and investment in shares was Rs. 7.01 crore. Since the assessee’s reserve and capital is more than the investment, addition u/s 14A is not warranted.
We notice that the Ld. CIT(A) has partly allowed this ground of appeal by following the decision dated 20.8.2013 rendered by the coordinate Bench in the assessee’s own case for the assessment year 2008-09. The relevant para of the order reads as under:
3.3 I have considered the facts and circumstances of the case and also examined the balance sheet of the appellant. The appellant 4 Assessment Year: 2010-2011 had reserves and surplus of Rs. 78.55 crore and investment in shares is Rs. 7.01 crores. Appellant reserves & capital is much more than the investment. The Hon’ble ITAT had dismissed the revenue appeal for A.Y. 2008-09 and confirmed the deletion of interest of Rs. 9,38,040/- u/s 14A of the Act. Hence, the addition of interest of Rs. 9,38,040/- is deleted. However, the AO is directed to compute 0.5% of average investment for administrative expenses hence, this ground of appeal is partly allowed.
Since, the Ld. CIT(A) has partly allowed this ground of appeal by following the order of the ITAT passed in the assessee’s own case (supra) on the identical issue, we do not find any reason to interfere with the same. Hence, we dismiss this ground of appeal of the revenue.
8. Ground No. 2 pertains to disallowance of addition of Rs. 64.88 lacs made by the AO with regard to customer loyalty programme out of total provision of Rs. 125.67 lacs. The Ld. DR submitted that since there is no certainty regarding redemption of points, the AO has rightly made the disallowance in question. Hence the Ld. CIT(A) ought to have sustained the said disallowance.
Per contra, the Ld. Counsel for the assessee submitted that this issue has already been decided in favour of the assessee in assessee’s own case for the assessment year 2009-10 by the Ld. CIT(A). Since, the Ld. CIT(A) has allowed this ground of appeal by following the earlier order, this ground of the appeal of the revenue is liable to be dismissed on this score only.
10. After having heard and gone through the material placed before us, we find that the Ld. CIT(A) has deleted the disallowance made by the AO in accordance with the findings of the then CIT(A) given in assessee’s own case for the assessment year 2009-10. The relevant portion of the order reads as under; 5 Assessment Year: 2010-2011 “4.3 I have considered the facts and circumstances of the case. This issue had come into consideration of CIT (A) in the A.Y. 2009- 10 wherein in para 3.3 it is held as under:
3.3 I have considered the facts and circumstances of the case. The appellant’s award points for every purchase I his shop. These redeemed points were calculated by the appellant at the end of the year claimed as accrued liability for the year. The A.O. disallowed it treating it as unascertained liability. Similar issue with the identical facts had arisen in the case of Shoppers Stop Ltd. (2012-TIOL-128-ITAT-Mum). “In that case it is held that allowance of customer loyalty points was raised before ITAT. Shoppers Stop claimed provision for unredeemed customer reward points as marketing expenditure in the year in which the points were generated. The A.O. disallowed the expenses holding that it is an unascertained liability. The CIT (A) upheld the companies contention that it is ascertained liability. In the appeal filed by Department the ITAT held that it is ascertained liability and deleted the disallowance.
Similar issue has come in the case of Jet Airways for a frequent flyer programme of Jet Airways which awarded the reward points. The ITAT held that it is an ascertained liability, expenditure has to be allowed.”
Following the above decision, I allow the reward points allotted by the Landmark during the year as ascertained liability. Expenditure by the appellant can be allowed as ascertained liability. Hence appellant’s this ground of appeal is allowed.”
The Ld. CIT(A) has decided the identical issue in favour of the assessee following the view taken by the Ld. CIT(A) in assessee’s own case for the assessment year 2009-10. We, therefore, do not find any reason to interfere with the same. Hence, we uphold the finding of the Ld. CIT(A) on this ground and dismiss this ground of appeal of the revenue.
6 Assessment Year: 2010-2011
Ground No. 3 pertains to disallowance of depreciation on printers, battery, routers, cables, back box and switches. The Ld. DR relying on the assessment order contended that since the assets are computer peripherals and not the computer, the assessee is not entitled for depreciation at the rate of 60%. On the other hand, the Ld. Counsel for the assessee submitted that since the Ld. CIT(A) has decided this issue by following the decision of the ITAT passed in assessee’s own case, there is no merit in the contention of the revenue.
We notice that the Ld. CIT(A) has decide this ground of appeal
in favour of the assessee by following the decision of the Tribunal rendered in assessee’s own case for the assessment year 2008
09. (supra). The relevant para of the findings of the Ld. CIT(A) is reproduced as under:
“5.3 I have considered the facts and circumstances of the case. This issue has come into consideration of ITAT Mumbai in A.Y. 2008-09 wherein in para 5 it is held as under:-
5. The learned D.R. unable to place before us any contrary decision on this issue. Having regard to the circumstances of the case we accept the plea of the assessee and direct the AO to allow depreciation @ 60% on scanner, scanner card and card printer. Ground No. 1 is accordingly allowed in favour of the assessee.
Following the decision of Hon’ble ITAT, Mumbai appellant’s claim is allowed. The A.O. is directed to allow appellant 60% depreciation on computer accessories, hence, addition made by the A.O. is deleted. This ground of appeal is allowed.”
14. Since, the Ld. CIT(A) has already decided the identical issue in favour of the assessee in assessee’s own case for the assessment year 2008-09 and the Ld. CIT(A) has followed the same, there is no reason to interfere with the same.
7 Assessment Year: 2010-2011 We, accordingly, uphold the findings of the Ld. CIT(A) on this issue and dismiss the ground of the appeal of the revenue.
Ground No. 4 pertains to depreciation on software licenses. The Ld. DR relying on the assessment order contended that depreciation on intangible assets is allowable at the rate of 25% and the Ld. CIT(A) has wrongly allowed the enhanced rate of depreciation. Therefore, the impugned order is liable to be set aside. On the other hand, the Ld. Counsel for the assessee submitted that since the Ld. CIT(A) has decided this issue by following the decision of Ld. CIT(A) passed in assessee’s own case for the assessment year 2008-09, there is no merit in the contention of the revenue.
We notice that the Ld. CIT(A) has decide this ground of appeal in favour of the assessee by following the decision of the Ld. CIT(A) passed in assessee’s own case for the assessment year 2008-09. The relevant para of the findings of the Ld. CIT(A) is reproduced as under:
“6.3 I have considered the facts and circumstances of the case. This issue has come into consideration of CIT (A) in A.Y. 2008-09 wherein in para 3.3 it is held as under:-
3.3 I have considered the facts of the case. As per decision of ITAT Special Bench Delhi in the case of Amway India Enterprises (supra) computer software on the license to use such software is required to be considered as tangible asset and ownership on such software lies with the appellant. As per Item No. 5 of Group-A the new appendix I i.e. table of depreciation rate, the rate of depreciation allowable on computer and computer software is at the rate of 60% on such computer software. In the facts and circumstances and considering the Supreme Court decision in the case of Tata Consultancy Services and ITAT Special Bench decision in the case of Amway India Enterprises, the AO was not justified in 8 Assessment Year: 2010-2011 treating such computer software as tangible assets. The AO is directed to allow depreciation at the rate of 60% on such computer software. This ground of appeal is allowed.
17. Since, the Ld. CIT(A) has already decided the identical issue in favour of the assessee in assessee’s own case for the assessment year 2008-09 and the Ld. CIT(A) has passed the impugned order by following the same, there is no reason to interfere with the same. We, accordingly, uphold the findings of the Ld. CIT(A) on this issue and dismiss this ground of the appeal of the revenue.
In the result, appeal filed by the revenue for the assessment year 2010- 2011 is dismissed.