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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMITABH SHUKLA
The Asst. Commissioner of M/s.Johnson Lifts Pvt Ltd Income Tax, Vs. No.1, East main Road, Anna LTU Circle-1 Nagar Western, Extension, Chennai-34 Chennai-101 [PAN-AADCJ0838Q) (अपीलार्थी/Assessee) (प्रत्यर्थी/Respondent) अपीलधर्थी की ओर से/ Assessee by : Shri R.Vijayaraghavan, Advocate प्रत्यर्थी की ओर से /Revenue by : Shri P.Sajit Kumar, JCIT सुनवाई की तारीख/Date of Hearing : 21.05.2024 घोषणा की तारीख /Date of Pronouncement : 31.05.2024 आदेश / O R D E R PER AMITABH SHUKLA, A.M : The appeals vide for Assessment Year: 2016-17 & 2017-18 have common grounds and hence are being adjudicated together.
2. Assessment Year: 2016-17 The appeal in this case is filed by the Revenue having been aggrieved by the order bearing DIN & order No.ITBA /NFAC/S/250/2023- 24/1057514515(1) dated 30.10.2023 of CIT(A)/NFAC. The assesse has raised the following grounds of appeal:-
1. The order of learned CIT(A) is contrary to law and facts and circumstances of the case.
2. The CIT(A) erred in holding that AMC charges received are fully not income of the year of receipt despite the fact that there was no cancelation clause in the AMC contract and the assesse received a non-refundable receipt.
3. The CIT(A) erred in allowing the spread over of such receipts considering the period of AMC coverage.
4. The ClT(A) ought to have followed the ratio laid down in decisions the case of Keshav Mills Ltd., Vs CIT (SC) 23 ITR 230, CIT Vs G.S.R Krishnamurthy (Mad) 202 ITR 393, that in Mercantile system profit arises/ accurse on the date of transaction i.e, the receipt of income refers to the first occasion when the recipient gets the money under his own control.
5. The CIT(A) erred in deleting the disallowance u/s 40(a)(i) in respect of overseas commission paid without deduction of tax at source.
6. The CIT(A) failed to recognize that the payment of a marketing fee to a non-resident is only for the purpose of managing the assesse company's sales affairs outside India, and thus the payment for the purpose of rendering managerial services outside India shall be considered only as a payment for fees for technical services, which would clearly fall under Explanation 2 of section 9 (1)(vii). 7. The CIT(A) erred in not holding that the assesse ought to have deducted tax at source on the commission payments to the non- residents, and in any case, it was not open for the assesse to conclude suo-moto that the payments made to non-residents are not chargeable to tax as the proper course of action for the assesse would be to make an application u/s, 195(2) to the concerned Assessing Officer, in the absence of which the assesse ought to have deducted tax at applicable rates. 8. The CIT(A) erred in deleting the disallowance of bad debts of Rs.3,02,05,099/- claimed u/s 36(1)(vii), 9. The CIT(A) erred in not appreciating the fact that the amounts written off pertain to Government Agencies, Banks, Co-operative Housing Societies etc., and since the debtors were actually Government themselves, it was inappropriate to consider that the government was not in a position discharge its acknowledged debts. 10. The CIT(A) failed to appreciate the fact that the assesse should have carried out the activity of passing the written off entries in ledger account and in order to do so the assesse was required to have a reasonable conclusion to arrive at a decision that the debt has become irrecoverable. 11.The CIT(A) ought to have followed the decision of the Hon'ble High Court in the case of South India Surgical Co. Ltd (287 ITR 62) wherein it was held that the bad debts pertaining to Government /Agencies cannot be written off , as Govt. Agencies cannot be seen as defaulters though there could be delay in realization of debts. 12.The CIT(A) erred in deleting the excess depreciation claimed on software amounting to Rs 3,68,100/-. 13.The CIT(A) has erred in directing the AO to allow depreciation claimed on software @ 60% although according to section 32 of the Income Tax Act, depreciation on intangible assets is limited to 25%, contrary to decision of the jurisdictional High Court in the case of Dinamalar Vs. ITO, Income Tax Department, Ward 11(1), Tirunelveli (2017) reported in 74 taxmann.com 14 (Madras).
14.The ClT(A) erred in deleting the excess depreciation claimed on printer and scanner an amounting of Rs 6,48,719/- 15.The ClT (A) has erred in directing the AO to allow depreciation claimed printer and scanner @ 60% and failed to appreciate that printer and Scanner are not an integral part of computer and allowed depreciation as a part of general plant and machinery 16.The learned CIT(A) has failed to note that the relied upon decision of Hon'ble ITAT in the assessee's own case in TA Nos. 1412 to 1416/Mds/2016 dated 10/08/2016 was not accepted by the department and appeal u/s 260A is pending before Madras High Court. 17.For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored. 3.0 Brief facts of the case, as reported by the assesse, are that JOHNSON LIFTS PRIVATE LIMITED is a company holding PAN AAACJ0838Q having Registered Office at No 1, East Main Road, Anna Nagar Western Extension, Chennai-600101. The Assesse is assessed to tax by Deputy Commissioner of Income Tax, Large Taxpayer Unit-1 Chennai. The Assesse filed the Original return of income for the assessment year 2016-17 on 19.11:2016, and subsequently filed the revised return on 31.03,2018 declaring total income of Rs. 198,45,58,120. The tax payable thereon was computed at Rs.69,41,86, 901 which was paid by way of Advance Tax amounting to Rs.53,00, 00, 000, TDS amounting to Rs.17,14,81, 827. This resulted in a refund of Rs. 72, 94, 930. The return was processed u.s. 143(1) (a). Thereafter, the assessment was taken up for scrutiny u.s. 143(3) and the Assessing Officer has passed an order on 04.12.2018. The disallowances and additions made by the Assessing Officer in the order included the following:-
1. 1. Added the sum of Rs. 665, 91, 206 being Advances received on Annual Maintenance Contracts (AMC) and accounted as Advance from customers- AMC for the year. The period of AMC with the customers sometimes spills over to two financial years. Based on the mercantile system of accounting followed by the company, the revenue from AMCs is recognized to the extent attributable for the period of AMC performed. Balance amount of receipt is recognized in the subsequent year and offered to tax.
2. Disallowed Commission paid to Foreign Companies of Rs. 51, 25, 360 which was paid without deduction of tax at source as per the provisions of the Act and relevant Double Taxation Avoidance Agreements, under section 40(a)(i). The amount paid to the Agents of the Company is only for procurement of orders from outside India. As the income represents the Business Profits of such Agents in the respective countries, they are not taxable in India. Further the said Agents do not have any Permanent Establishment in India.
Disallowed the claim of Bad Debts written off amounting to Rs.302,05,099 which has been considered as not recoverable by the Assessee. The said amount has been offered to tax in the respective previous years in which the corresponding sale was accounted.
Restricted depreciation on Computer Scanner and Printers to 25 percent as against 60 percent leading to addition of Rs. 648,719. The accessories such as printer, scanner etc. are considered as Computer peripherals and they form integral part of Computer System.
Restricted depreciation on Computer Software to 25 percent as against 60 percent leading to addition of Rs.368,100. The said computer software licenses are only application software and are not income generating assets for the Assessee.
The Assessing Officer also initiated penalty proceedings u.s. 271(1)(C) of the Act.7. AO also levied interest of Rs.4 49,310 u.s. 234 A of the Act although the assessee filed its original return before the due date."
4.0 The CIT(A) / NFAC vide its order dated 30.10.2023(Supra) deleted the addition made by the AO. 5.0 Ground No.1 is general in nature and does not requires any adjudication. 6.0 Ground No. 2 to 4 are regarding the action of the AO in not allowing the assesse the benefit of amortization on AMC charges but taxing them in the year under consideration and the action of CIT(A) in deleting the same. The Ld.CIT(A) accorded relief to the assesse by distinguishing the jurisdictional High Court order relied upon by the AO and simultaneously by placing reliance upon the orders of this tribunal in assessee’s own case for AY-2006-07 to 2009-10 & 2011-12 to 2012-13 on the same issue. Thus in -1416/Mds/2016 this tribunal held that the AMC charges received by the assesse deserve amortization and cannot be taxed in one year. The Ld.AR of the assesse invited our attention to the impugned order of the tribunal and requested for similar relief. The Ld.DR vehemently argued in favour of the order of Ld.AO. 7.0 We have heard rival submission in the light of facts of the case and material brought on records. Respectfully following the decision of this tribunal in assesee’s own case discussed (Supra), and also in view of the fact that no change of facts has been alluded to by the Revenue, it is held that the addition made by the Ld.AO on account of AMC is not sustainable and the same is therefore directed to the deleted and the order of Ld.CIT(A) is confirmed. Accordingly, grounds of appeal
Nos. 2 to 4 are dismissed. 8.0 Ground No. 5 to 7 are regarding the action of the AO in disallowing overseas commission paid to parties by invoking provisions of section 40 (a) (i) and the action of CIT(A) in deleting the same. The Ld.CIT(A) accorded relief to the assesse by placing reliance upon judicial citations including decision of this tribunal in assessee’s own case for AY-2009-10 in ITA No.222/Mds/2013 9.0 The Ld.AR of the assesse invited our attention to the impugned order of the tribunal and requested for similar relief. The Ld.DR vehemently argued in favour of the order of Ld.AO. 10.0 We have heard rival submission in the light of facts of the case and material brought on records. Thus in the cited decision this tribunal held that “….as a matter of fact, the services were rendered outside India and the payments made outside India. The payee has not business connection or permanent establishment in India. In these circumstances the payments received by the foreign parties do not become chargeable to tax in India u/s 9. When the commission paid to the foreign parties is not liable for tax in India, it is not necessary to deduct any tax therefrom.
ITA No.48/Chny/2024 :- 10 -:
The liability to deduct tax at source arises only against the payments having income element taxable in India. Therefore the Commissioner of Income Tax appeals is justified in deleting the allowance made by the AO u/s 40 (a) (i)…” Respectfully following the decision of this tribunal in assesee’s own case discussed (Supra), and also in view of the fact that no change of facts has been alluded to by the Revenue, it is held that the addition made by the Ld.AO on account of overseas commission is not sustainable and the same is therefore directed to the deleted and the order of the Ld.CIT(A) is confirmed. Accordingly, grounds of appeal
Nos. 5 to 7 are dismissed.
11. Ground No. 8 to 11 are regarding the action of the AO in disallowing bad debts and the action of CIT(A) in deleting the same. The Ld.CIT(A) accorded relief to the assesse, inter-alia holding that for allowing bad debt it is not necessary to examine or establish recoverability or otherwise of a debt as well as by placing reliance upon judicial citations including decision of this tribunal in assessee’s own case for AY-2009-10 in ITA No.222/Mds/2013.
12. The Ld.AR of the assesse invited our attention to the impugned order of the tribunal and requested for similar relief. The Ld.DR vehemently argued in favour of the order of Ld.AO.
ITA No.48/Chny/2024 :- 11 -:
We have heard rival submission in the light of facts of the case and material brought on records. The Ld.AR also drew our attention to CBDT circular No.12/2016 dated 30.05.2016 on the claim of bad debts u/s 36 (1) (VII) r.w. section 36(2) postulating allowance of a bad debt claim raised in any earlier year and which has been written off as irrecoverable in the books by an assesse in respect of previous year. Respectfully following the decision of this tribunal in assesee’s own case discussed (Supra), and also in view of the fact that no change of facts has been alluded to by the Revenue, it is held that the addition made by the Ld.AO on account of bad debts is not sustainable and the same is therefore directed to the deleted and the order of the Ld.CIT(A) is confirmed. Accordingly, grounds of appeal
Nos. 8 to 11 are dismissed.
14. Ground No. 12 to 13 are regarding the action of the AO in restricting claim of depreciation of the assesse to 25% against 60% claimed on computer software and the action of CIT(A) in deleting the same. The Ld.CIT(A) accorded relief to the assesse, inter-alia holding that accounting a standard AS-26 is applicable for classification of software as “intangible” only for the purpose of reporting in the financial statements and it cannot override a specific provisions contained in the Income Tax Rules. Accordingly, relying upon the decision of Hon’ble jurisdictional High Court quoted at 97 taxmann 205, and 109 taxmann :- 12 -:
134, as well as 46 taxmann 88 of Hon’ble Mumbai High Court deleted the addition made by the AO.
The Ld.AR of the assesse invited our attention to the impugned order of the tribunal and requested for similar relief. The Ld.DR vehemently argued in favour of the order of Ld.AO and placed reliance upon the decision of Hon’ble Madras High Court in the case of Dinamalar cited at 389 ITR 0094.
We have heard rival submission in the light of facts of the case and material brought on records. In this regard we find that the decision of Hon’ble Madras High Court in the case of Dinamalar cited at 389 ITR 0094 is squarely applicable in the present case on account of its peculiar facts discussed by the AO in his order. The ratio decendi in the case is that when the machines for which depreciation was sought for, did not fall under definition of “Computer” including computer software than enhanced depreciation cannot be granted. Respectfully following the decision of the Hon’ble Jurisdictional High Court it is held that the addition made by the Ld.AO is correct and the relief given by Ld.CIT(A) is deleted. Accordingly, grounds of appeal Nos. 12 to 13 are allowed. 17.0 Ground No. 14 to 16 are regarding the action of the AO in restricting claim of depreciation of the assesse to 25% against 60% :- 13 -: claimed on printers and scanners and the action of CIT(A) in deleting the same. 18.0 The Ld.CIT(A) accorded relief to the assesse, inter-alia holding that the devices like printers and scanners are computer peripherals and essential part of the computer system they cannot work in isolation. Accordingly, relying upon the decision of Hon’ble ITAT Kolkata and Delhi the Ld.CIT(A) deleted the addition made by the AO. 19.0 The Ld.DR vehemently argued in favour of the order of Ld.AO. 20.0 We have heard rival submission in the light of facts of the case and material brought on records. In this regard we find that the decision of Hon’ble Madras High Court in the case of Cactus Imaging india Pvt. Ltd dated 16.04.2018 is squarely applicable in the present case on account of its peculiar facts discussed by the AO in his order. The ratio decendi in the case is that the devices like printers and scanners are computer peripherals and integral part of the computer system. Respectfully following the decision of the Hon’ble Jurisdictional High Court it is held that the addition made by the Ld.AO is not sustainable and the same is deleted and the decision of the Ld.CIT(A) is sustained . Accordingly, grounds of appeal Nos. 14 to 16 are dismissed.
ITA No.48/Chny/2024 :- 14 -: