NATIONAL SECURITIES DEPOSITORY LTD,MUMBAI vs. ADDL CIT RG 7(1), MUMBAI

ORDER PER G.S.PANNU,A.M:

The captioned appeal filed by the assessee pertaining to assessment year 2011-12 is directed against an order passed by CIT(A)-20, Mumbai dated 02/02/2012, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961(in short ‘the Act’), dated 24/12/2008.

“ The grounds set out below are without prejudice to one another:

2. The CIT(A) erred in upholding the disallowance under section 14A to the extent of Rs.I0,39,345/- being 2% of the exempt income. 3. The CIT(A) erred in not adjudicating the following grounds of appeal raised before him: i. The ACIT erred in not determining the brought forward as well as the current year's Short Term Capital Loss to be carried forward for set-off against Income in the subsequent years. The Appellant therefore submits that the ACIT be directed to determine the Short Term Capital Loss for set-off in future against the taxable income of subsequent years. ii.. The ACIT erred in considering the depreciation claimed by the Appellant at Rs. 36,77,71,210 instead of Rs. 29,06,77,389, while computing the Assessed Income. The Appellant therefore prays that the ACIT be directed to consider the correct amount of depreciation claimed by the Appellant in the Return of Income while computing the Assessed Income. iii. The ACIT erred in disallowing the depreciation on depository system (now known as Central System) amounting to Rs.3,29,00,950/- twice, while computing the Assessed Income. The Appellant therefore pray that the ACIT be directed to delete the double disallowance on account of depreciation on depository system. IV. The ACIT erred in allowing depreciation on Voltage Regulator @ 60% instead of 80%. The Appellant therefore prays that the ACIT be directed to compute depreciation as per the correct rate of depreciation provided in Appendix I of the Rules applicable for AY 2006-07.”

(AY. 2006-07) 4. In so far as, Ground of appeal

No.1 is concerned, the same relates to the rate of depreciation allowable on computer software. In the return of income assessee had claimed depreciation on computer software @60%, whereas the Assessing Officer has allowed it @25%. As per the Assessing Officer, the rate of 60% is applicable in cases of software which has been acquired as an integral part of the computer hardware. In the present case, according to the Assessing Officer assessee had clubbed acquisition of all kinds of software with the central computer system, even though the acquisition of software did not form integral part of the computer hardware. The CIT(A) has also affirmed the stand of the Assessing Officer, against which assessee is in appeal before us.

5. At the time of hearing, Ld. Representative for the assessee pointed out that in assessment year 2004-05 vide order in dated 20/02/2017, the Tribunal has allowed the depreciation on computer software @ 60% and, therefore, in this year too similar decision be taken. Though the Ld. Departmental Representative has not disputed the factual matrix, but reiterated the stand of the Assessing Officer, which we have noted in the earlier para and the same is not being repeated for the sake of brevity.

6. In the light of the precedent in the assessee’s own case, we deem it fit and proper to direct the Assessing Officer to allow the depreciation on computer software @ 60%. Accordingly, on this issue assessee succeeds.

7. In so far as Ground of appeal No.2 is concerned, the same relates to disallowance made under section 14A of the Act in relation to the exempted income. The order of the authorities below reveal that during the year under consideration assessee had received exempt income comprising of interest on tax free bonds of Rs.5,19,57,250/-. The Assessing Officer noticed

(AY. 2006-07) that since assessee had received exempt income during the year, the provisions of section 14A of the Act were attracted so as to disallow the expenditure incurred in relation to earning of such income. The Assessing Officer noticed that in preceding assessment years of 2002-03 to 2005-06, 2% of the concerned exempt income was treated as an expenditure attributable to such exempt income and accordingly disallowed under section 14A of the Act. However, as per the Assessing Officer, the computation in this year is liable to be determined in terms of rule 8D of the Income Tax Rules,1962( in short ‘the Rules’) and he accordingly determined a sum of Rs.47,20,663/- as an amount disallowable in terms of Rule 8D(20(ii) of the Rules. The CIT(A) following the judgment of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Vs. DCIT, 328 ITR 81(Bom) noticed that rule 8D of the Rules was not applicable for the instant assessment year and that the same was applicable prospectively from assessment year 2008-09 onwards and, therefore, he disagreed with the action of the Assessing Officer. However, CIT(A) has directed the Assessing Officer to restrict the disallowance under section 14A of the Act to2% of the exempted income, which came to Rs.10,39,345/-. Not being satisfied with the decision of the CIT(A), assessee is in further appeal before us.

(AY. 2006-07) 10. Having considered the rival submission, in our view, the estimation of amount disallowable under section 14A of the Act, as made by the CIT(A) is quite reasonable and, therefore, no interference is called for, hence on this ground assessee fails.

12. After considering the rival stands, we deem it fit and proper to restore the issue raised in Ground No.3 back to the file of CIT(A), who shall examine the same and, thereafter adjudicate in accordance with law. Needless to mention that the CIT(A) shall allow the assessee a reasonable opportunity of being heard and thereafter pass an order afresh on the aforesaid limited aspects as per law. Thus, on this Ground assessee succeeds for statistical purposes only.