TITAN COMPANY LIMITED 9EARSTWHILE KNOWN AS TITAN INDUSTRIES LIMITED),KRISHNAGIRI vs. ACIT LTU 1, CHENNAI

आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: These appeals by the assessee are arising out of the common order of the Commissioner of Income Tax (Appeals)-17, Chennai in & 27/14-15 & 3/15-16 dated 11.12.2017. The

- 3 - 505, 506 & 507/Chny/2020 a. The Hon'ble CIT(A) has erred in disallowing the provision made against future claims under the CLP on the ground that the Appellant has not adopted any scientific method for applying the rate of provision. b. The Hon'ble CIT(A) has erred in stating that the expenditure, being unascertained and provision in nature, is not an allowable expenditure as per the Act. c. The Hon'ble CIT(A) failed to appreciate the fact that the Appellant had adopted scientific basis while providing for future claims that may arise on account of redemption of reward points. d. The Hon'ble CIT(A) ought to have observed that the provision created for CLP is similar to provision for warranty, which is permissible as an allowable deduction in the computation of total income when created on a scientific basis. e. The Hon'ble CIT(A) has erred in ignoring the fact that the utilization and claim for redemption points in the subsequent AY's is in line with the provision created for the current year, which substantiates that the provision made against the said claim is scientific and genuine. f. The Hon'ble CIT(A) ought to have appreciated the fact that provision is created in the books based on the past data available with the Appellant and relying on past trends for the movement in the provision for CLP.

3.1 Brief facts are that the assessee, a domestic company, is in the business of manufacturing, trading and servicing of watches, jewellery and clocks. The AO on verification of profit & loss account and balance sheet of the assessee noticed that the assessee during the financial year 2007-08 relevant to assessment year 2008-09 made provision of Rs.4,30,25,602/- being customer loyalty points accrued on sale after redemption at stores. The AO noted that the - 4 - 505, 506 & 507/Chny/2020 points redeemed during the period of two years i.e., assessment year 2007-08 & 2009-09 is only Rs.80,20,822/- representing 17% of the entire points accrued on sales. He noted that the assessee has made provision for financial year 2008-09 at Rs.1,70,02,601/- on points outstanding after redemption relating to assessment year 2008-09 having made a provision on entire outstanding during the previous year itself. The date of redemption according to him worked out at 27% but the assessee had made provision @ 40% on the points outstanding. Therefore, according to AO the assessee has not adopted any scientific method for creating this provision and this being simpliciter provision, the same is not allowable expenditure under the Act and hence, he disallowed the entire claim of assessee claimed at Rs.4,80,99,369/-. Aggrieved, assessee preferred appeal before CIT(A).

3.2 The CIT(A) after considering the submissions of the assessee confirmed the disallowance holding that the assessee could not prove that the provision towards customer loyalty programme is based on some scientific method and moreover, the finding of fact given by the AO that the rate of redemption was at great variation viz-a-viz, the provision made is correct. Hence, he confirmed the - 5 - 505, 506 & 507/Chny/2020 action of the AO. Aggrieved, assessee came in appeal before the Tribunal.

3.3 Before us, the ld.counsel for the assessee made argument that the provision made towards customer loyalty program is an ascertained liability, created on a scientific basis and (i) it represents an obligation arising as a result of past event, (ii) it is probable that an outflow of resources will be required to settle the obligation, and (iii) a reliable estimate can be made of the amount of obligation. Therefore, he submitted that the provision is not a contingent liability but is in fact an ascertained liability. The ld.counsel further stated that in terms of Accounting Standard 29, a "contingent liability" is one where (i) it is not probable that an outflow of resources embodying the economic benefits will be required to settle the obligation; or (ii) a reliable estimate of the amount of obligation cannot be made. In the present case, the above conditions are not satisfied, and therefore the provision created is not a contingent liability Secondly, the ld.counsel submitted that the provision is created based on the estimated percentage of redemption arrived at after analyzing the trend ofredemption cycle of the customers in the preceding four quarters on the total outstanding points available at the year end.

- 6 - 505, 506 & 507/Chny/2020 The scientific nature of the provision created is substantiated by the utilization pattern in the subsequent years, which is more than the amount of provision created in the preceding financial year(s), which is reproduced as under: Assessment year Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Opening balance of - 430.25 480.99 987.44 2,330.17 3,606.54 4,763.47 provisions Add: Provision for the 430.25 296.36 1,150.15 3,311.74 3,787.51 4,650.67 6,952.26 year Less: Utilization/redemption - (245.62) (643.70) (1,969.01) (2511.14) (3,493.74) (5,071.11) of points Closing balance of 430.25 480.99 987.44 2,330.17 3,606.54 4,763.47 6,644.62 provisions Net provision - 506.45 1,342.73 1,276.37 1,156.93 1,881.15 The ld.counsel further argued that since the provision created by the assessee is scientific in nature, the same ought to be allowed. The ld.counsel further submitted that insofar as the excess provision is concerned, i.e. the difference between the provision created for a particular year and the actual expenditure incurred in the subsequent year, the same is offered to tax. If the reward point lapse after a few years, the same is reversed and offered to tax and hence the entire transaction is revenue neutral. The ld.counsel also relied on the decisions of Hon’ble Supreme Court in the case of Bharat Earth Movers vs. CIT, reported in [2000] 245 ITR 428 (SC)

- 7 - 505, 506 & 507/Chny/2020 and Rotork Controls India Pvt. Ltd., vs. CIT,reported in 314 ITR 62(SC).

3.4 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee has given comparative figures i.e., opening balance of provisions, provision created for the year under consideration, less utilization / redemption of the points and finally closing balance of the provisions. Thereby, net provision was also adopted. These figures were clear from the above chart reproduced in the argument of the ld.counsel for the assessee in above para 3.4. We noted that the provision is created based on estimated percentage of redemption after analyzing the trend of redemption cycle of the customers in the preceding four quarters on the total outstanding points available at the year end. This system adopted by the assessee is based on scientific method as propounded by the Hon’ble Supreme Court in the case of Rotork Controls India Pvt. Ltd., supra, wherein the Hon’ble Supreme Court has observed as under:- “17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. As stated above, the case of Indian Molasses Co. (supra) is different from the present case. As stated above, in the present case we are concerned with an army of items of sophisticated (specialiased) goods manufactured and sold by the assessee whereas the case of Indian Molasses Co. (supra) was restricted to an individual retiree. On the - 8 - 505, 506 & 507/Chny/2020 other hand, the case of Metal Box Company of India (supra) pertained to an army of employees who were due to retire in future. In that case the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of years. In such a case it was held by this Court that the provision made by the assessee- company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same principle is laid down in the judgment of this Court in the case of Bharat Earth Movers (supra). In that case the assessee company had formulated leave encashment scheme. It was held, following the judgment in Metal Box Company of India (supra), that the provision made by the assessee for meeting the liability incurred under leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deduction out of gross receipts for the accounting year during which the provision is made for that liability. The principle which emerges from these decisions is that if the historical trend indicates that large number of sophisticated goods were being manufactured in the past and in the past if the facts established show that defects existed in some of the items manufactured and sold then the provision made for warranty in respect of the army of such sophisticated goods would be entitled to deduction from the gross receipts under Section 37 of the 1961 Act. It would all depend on the data systematically maintained by the assessee. It may be noted that in all the impugned judgments before us the assessee(s) has succeeded except in the case of Civil Appeal Nos. of 2009 - Arising out of S.L.P.(C) Nos.14178-14182 of 2007 - M/s. Rotork Controls India (P) Ltd. v. Commissioner of Income Tax, Chennai, in which the Madras High Court has overruled the decision of the Tribunal allowing deduction under Section 37 of the 1961 Act. However, the High Court has failed to notice the "reversal" which constituted part of the data systematically maintained by the assessee over last decade.

In view of the above, we are of the view that the assessee is consistently following the same method and even creation of provision created based on the remedy percentage of redemption is on scientific basis. As regards to excess provision is concerned, the - 9 - 505, 506 & 507/Chny/2020 difference between the provisions created for a particular year and the actual expenditure incurred in the subsequent year, the difference is offered to tax. In such situation, we cannot say that the provision created based on estimated percentage of redemption is not scientific. Hence, according to us, this is an allowable deduction and we allow accordingly.

3.5 Since facts and circumstances are exactly identical in assessment years 2010-11, 2011-12 & 2012-13, taking a consistent view, we allow the assessee’s claim of disallowance of provision made towards customer loyalty program. Accordingly, this issue of assessee in all these four assessment years i.e., AYs 2009-10 to 2012-13 is allowed.

- 10 - 505, 506 & 507/Chny/2020 4.1 Briefly stated facts are that the assessee earned dividend income of Rs.2,56,791/- during assessment year 2009-10 and assessee made suo-motto disallowance under Rule 8D(2) at Rs.2,500/- while computing total income towards expenditure incurred for earning the aforesaid exempt income. The AO noted that the investment portfolio of the assessee as on 31.03.2009 stands at an aggregate value of Rs.7,66,44,000/- and thereby he invoked the provisions of section 14A r.w.rule 8D(2)(ii) disallowed interest at Rs.8,14,341/- and under rule 8D(2)(iii) being administrative expenses, an amount equal to 0.5% of the average value of investment at Rs.14,39,635/-, thereby the AO disallowed total expenses relatable to exempt income u/s.14A r.w.rule 8D(2) at Rs.22,53,976/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the action of the AO and dismissed the ground of assessee’s appeal. Aggrieved, now assessee is in appeal before the Tribunal.

4.2 We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee took us through the assessment order and stated that the AO while computing disallowance of expenses relatable to exempt income has not even discussed what is the quantum of dividend income or he

- 11 - 505, 506 & 507/Chny/2020 has not discussed what is the quantum of disallowance suo-motto made by the assessee whereas, assessee has made suo-motto disallowance of Rs.2,500/-. The AO simpliciter reproducing the provisions of section 14A applied straight formula as provided under rule 8D(2) for invoking (i), (ii) & (iii) limbs. The ld.counsel for the assessee stated that the AO has not examined the investment made and the expenditure incurred and once there is no finding as regards to the nature of expenditure and the investments and dividend earned, the AO has not at all recorded his satisfaction and for this, the ld.counsel for the assessee relied on the decision of Hon’ble Supreme Court in the case of Maxopp Investments Ltd., vs. CIT reported in [2018] 91 taxmann.com 154(SC) and also relied on the Hon’ble Madras High Court decision in the case of Redington (India) Ltd., vs. ACIT reported in [2017] 77 taxmann.com 257.

4.3 When these facts were confronted to ld.CIT-DR, he could not point out how the AO has reached to a conclusion that there are expenses relatable to exempt income and there is any satisfaction recorded qua that, he could not argue anything.

4.4 After hearing both the sides, we noted that the AO has not at all recorded satisfaction as regards to disallowance to be made or - 12 - 505, 506 & 507/Chny/2020 not. Once there is no satisfaction recorded, in our view, the decision of Hon’ble Supreme Court in the case of Maxopp Investments Ltd., supra squarely applies. This being a covered issue, we set aside the order of CIT(A) and that of the AO on this issue and allow this issue of assessee’s appeal. Accordingly, this issue raised by assessee in all the four assessment years, 2009-10 to 2012-13 is allowed.

3. Disallowance of professional and consultancy expenditure under section 40(a) (i) of the Act - Rs. 2,64,86,006 a. The Hon'ble CIT(A) has erred in disallowing the payments made to foreign agent as Professional and Consultancy Services on the ground that taxes has not been deducted at source. b. The Hon'ble CIT(A) has erred in holding that the source of income for the Appellant is within India as the income earning activity is situated within India.

- 13 - 505, 506 & 507/Chny/2020 c. The Hon'ble CIT(A) has erred in stating that there is a direct nexus between the payments and the earnings of income from sources within India. d. The Hon'ble CIT(A) has erred in ignoring the fact that the services received by the Appellant are utilised abroad for US operations and neither accrues or arises in India nor IS deemed to accrue or arise in India. e. The Hon'ble CIT(A) has erred in n not considering the fact that these payments has not been made from India. The payments to the professional consultants are made directly from the US and therefore, the income is not received in India. f. The Hon'ble CIT(A) ought to have observed that the fees for technical services would not be taxable in India, if the amount payable by the resident payee is in respect of services being utilized in a business or profession carried on by such person outside India or making or earning any income from any source Outside India. g. In the present case, the Appellant's United States ('US) branch has paid these amounts to the consultants in the US for the purpose of increasing the sales of the US boutique. Therefore, the source of income derived from these payments is outside India.

5.1 Brief facts are that the assessee during the year under consideration has incurred expenditure in foreign currency under the head ‘professional and consultancy services’ but not deducted TDS for the reason that these services are rendered abroad for US operations and hence, the income has neither accrues or arises in India nor is deemed to accrue or arise in India. The expenditure incurred during the year includes the following expenditure:-

- 14 - 505, 506 & 507/Chny/2020

Net Amount Name of the party Amount (Rs.) TDS (Rs.) Remarks (Rs.) KNS Consulting LLC 8950996.13 - 8950996.13 Reimbursement of expenses Raymond P Gallagher 2293256.55 - 2293256.55 Reimbursement CPA., P.C. of expenses Tata Incorporated 3546047.81 - 3546047.81 Reimbursement of expenses Tata Ltd 1508599.59 - 1508599.59 Reimbursement of expenses Titan International 10187106.72 - 10187106.72 Reimbursement (Middle East)F of expenses Total 26486006.8 26486006.8 According to AO, these services rendered by the above said persons are specialized technical services which require specialized provision of technical knowhow, expertise, skill knowhow. Hence, he held that the source from which the assessee has earned income was from India as the income earning activity is situated in India. He also held that payments to non-resident have been made for consultancy services for earning income from ultimate source in India and these are in the nature of technical services. Hence, said payment to foreign agent companies was disallowed by invoking the provisions of section 40(a)(i) of the Act. Aggrieved, assessee preferred appeal before CIT(A).

5.2 The CIT(A) also confirmed the action of the AO by holding that these services fall under the head ‘fee for technical services’ and the - 15 - 505, 506 & 507/Chny/2020 payment made are liable to tax in India. Hence, he confirmed the disallowance made by AO u/s.40(a)(i) of the Act by observing as under:- “It is an undisputed fact that all these services fall under the nomenclature of fee for technical services and the only question being whether the payments made are liable for tax in India. As far as payments made to KNS Consulting LLC, I find that the payment has been made for product development-amongst others-which involves development of sourcing/manufacturing plan for optimal use of appellant’s factories as well as its vendor base in India. It clearly shows that the services rendered were utilized in the business of the appellant failed to furnish in India. As far as the other payments are concerned, the appellant failed to furnish any evidence in support of their contention. In view of the above, I have no hesitation in confirming the disallowance made u/s.40(a)(i) for the assessment years under consideration by the Assessing Officer. The appellant fails on this ground.”

Aggrieved, assessee is in appeal before the Tribunal.

5.3 We have heard rival contentions and gone through facts and circumstances of the case. Before us, the ld.counsel for the assessee submitted that the assessee has made certain payments to foreign parties towards services rendered by such parties for operations in United States/United Kingdom. Since the payments were made towards earning of income from a source outside India, the assessee did not deduct tax at source on the same. The Assessing Officer made a disallowance under Section 40(a)(i) of the Act, holding that the assessee ought to have deducted tax at source

- 16 - 505, 506 & 507/Chny/2020 in India, on the alleged ground that the source of income is in India. He submitted that the AO has grossly erred in concluding that 'the source of income is in India, without any iota of material to support the finding. On the contrary, in fact, in the assessment years 2011- 12 and 2012-13, the AO categorically admits thatthe services were rendered in UK. Upon holding so, without any material, the AO concludes that the source of income is in India. The ld.counsel stated that the CIT(A) affirmed the disallowance made across all years, without appreciating the material on record in an appropriate manner.

5.4 In this regard, the ld.counsel submitted that the services rendered by the foreign parties were towards operations in US/UK. Since the services were undisputedly used in a business outside India, no income chargeable to tax in India accrued/arose to the non-residents, and therefore there is no requirement to deduct tax at source. He further stated the disallowance under section 40(a)(i) of the Act is wholly unwarranted. Moreover, the services rendered also do not satisfy the test of 'make available' under the India-US/ India-UK DTAA and therefore the payments are not taxable. The ld.counsel placed reliance on the decision of the Hon'ble High Court

- 17 - 505, 506 & 507/Chny/2020 of Karnataka in the case of CIT V. De Beers India Minerals (P.) Ltd. (reported in [2012] 21 taxmann.com 214 (Kar.))

5.5 Without prejudice and in any event, he submitted that for the financial year 2008-09 relevant to the assessment year 2009-10, no disallowance can be made in view of the legal position as it stood at that point. The ld.counsel stated that until amendment of Section 9(2) of the Act by inserting an explanation thereto, the legal position as laid down by the decision of the Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT reported in [2007] 288 ITR 408 (SC), was that for section 9(1)(vi) to be applicable, it is necessary that services provided by a non-resident assessee should not only be utilized within India, but should also be rendered in India or should have such a live link with India. Thereafter, an Explanation was inserted to Section 9(2) of the Act,vide Finance Act, 2007, to clarify that where the income is deemed to accrue or arise in India under clauses (v), (vi), (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a place of residence or place of business or business connection in India. Pursuant to this amendment too, the requirement of the non- resident rendering service in India for Section 9(1)(vi) of the Act to - 18 - 505, 506 & 507/Chny/2020 apply, as held by the Hon’ble Supreme Court in the case of lshikawajma (supra),was not done away with. This position was clarified by the Hon'ble High Court of Karnataka in the case of Jindal Thermal Power Co. Ltd. v. DCIT (reported in (2010] 321 ITR 31 (Karnataka).It is only vide the amendment brought out vide Finance Act, 2010,whereby the Explanation to Section 9(2) was substituted to specifically provide that the services are not required to be rendered in India, that theabove requirement was done away with. Therefore, until the amendment in2010, the legal position was that unless the services are rendered in India, no income accrues/arises in the hands of the non-residents. Therefore, the assessee was under no obligation to deduct tax at source in respect of the payments made in the financial year 2008-09 relevant to the assessment year 2009-10. Although the amendment was made with retrospective effect from 01.06.1976, it is a settled legal position that an assessee cannot be made liable for non-deduction of tax at source when the provisions requiring tax deduction was not on the statute book when the payment was made. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (reported in (2021) 125 taxmann.com 42 (SC).

- 19 - 505, 506 & 507/Chny/2020 5.6 On the other hand, the ld.CIT-DR relied on the order of the AO and that of the CIT(A).

5.7 After hearing rival contentions, we are of the view that for the relevant assessment year 2009-10, assessee cannot be made liable for TDS and it is an impossible act to be performed is asked to be done by the assessee. It is a matter of impossibility of the act and hence, for assessment year 2009-10, no disallowance is to be made and we held so. As regards to assessment years 2011-12 & 2012- 13, the amendment brought out by Finance Act, whereby Explanation to section 9(2) of the Act is to be pressed and accordingly, facts are to be examined. Therefore, we set aside this issue for these two assessment years 2011-12 and 2012-13 to the file of the AO.

6. The next issue raised by the assessee in assessment year 2009-10 is as regards to the order of CIT(A) confirming the action of the AO in disallowing loss on closure of boutique in United States. For this, assessee has raised following ground No.4:-

4. Disallowance of loss on closure of Boutique in United States (US)-Rs. 6,00,00,000 a. The Hon'ble CIT(A) has erred in ignoring the fact that the amount paid as other winding up cost does not give rise to any enduring benefit nor does

- 20 - 505, 506 & 507/Chny/2020 it lead to creation of a capital asset. b. The Hon'ble CIT(A) has not appreciated the fact that the Appellant has estimated the provision for slow moving inventory on the basis oftechnical evaluation and consumptions forecasts. c. The Hon'ble CIT(A) has not appreciated the fact that where any provision is made based on scientific method and with technical evaluation; deduction for provision should be allowable while computing the taxable income. d. The Hon'ble CIT(A) ought to have noted that the aforesaid expenditure does not result in enduring benefit nor does it lead to creation of capital asset in the hands of the appellant.

6.1 Brief facts are that the AO noted that the assessee has closed two Tanishq boutiques run in the United States of America during the year under consideration resulting into a loss of Rs.29.01 crores, which was charged to profit and loss account. According to AO, the AO has added back a sum of Rs.9.61 crores being loss on sale of assets to the total income whereas claimed a sum of Rs.19.40 crores as business expenditure. The AO noted the entire amount in the chart as under:- Sl.No. Particulars Rs. In Crores 1 Loss on sale of Fixed Assets 9.61 2 Lock in Rent – Chicago Store 6.62 3 Lock in Rent – New Jersey Store 6.78 4 Slow moving / Non-moving inventories 1.94 5 Other winding up costs 2.34 Total 29.01

- 21 - 505, 506 & 507/Chny/2020 Thereby, the AO made disallowance of expenses to the tune of Rs.19.40 crores being lock in rent, slow moving / non-moving inventory and other winding up costs as expenditure in the nature of capital. According to AO, these amounts should have been written off on capital account. Aggrieved, assessee preferred appeal before CIT(A).

6.2 The CIT(A) deleted the ‘lock in rent’ addition of Rs.13.40 crores but confirmed the disallowance made in respect of following two items:- “(iii) Slow moving/non moving inventory – Rs.1.94 crores (iv) Other winding up costs – Rs.4.06 crores (in the nature of Employee Costs, Rent and maintenance, Other miscellaneous overhead)

For this, the CIT(A) observed as under:- “In view of the above, I find merit in the argument of the appellant as far as the lock-in-rent was concerned and the appellant succeeds on this count. However, the appellant failed to furnish any evidence in connection with the expenditure claimed as slow moving/non-moving inventories of Rs.1.94 Crores and other winding up costs of Rs.2.34 Crores. In the absence of any evidence to the contrary, the disallowance made by the Assessing Officer is confirmed and the appellant fails on this count. As a result, the appellant gets a relief of Rs.13.4 Crores and the balance amount of Rs.6 Crores is confirmed. This ground of appeal is allowed partly.”

Aggrieved, assessee is in appeal before the Tribunal.

- 22 - 505, 506 & 507/Chny/2020 6.3 We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee before us argued that the slow moving / non-moving inventory and other winding up costs are in the nature of revenue expenditure and the write off of slow moving inventory and costs in the nature of employee expenses, rent, maintenance and other miscellaneous overheads cannot be called as capital in nature. He argued that slow moving inventory could not be sold in US market and were brought back to India on closure of boutique and write off of 25% was done to sell them in the Indian market. Therefore, he relying on the decision of Hon’ble Karnataka High Court in the case of CIT vs. IBM India Ltd., reported in [2015] 55 taxmann.com 515 (Kar) and Hon’ble Bombay High Court in the case of CIT vs. Indian Rare Earths Ltd., reported in [2015] 57 taxmann.com 393 (Bom) submitted that the above two expenditure should have been considered as revenue expenditure. We noted that as argued by ld.CIT-DR that the very nature of slow moving / non-moving inventory and other winding up costs were not factually demonstrated before the AO and therefore, these needs verification. We agree with the argument of ld.CIT-DR that principally these amounts i.e., slow moving and non-moving inventory and other winding up costs are in the nature of revenue but factual aspect, it

- 23 - 505, 506 & 507/Chny/2020 needs to be verified. Hence, we remit this issue back to the file of the AO for verification purpose only by setting aside the order of the AO and that of the CIT(A). The AO will verify the facts in regard to these two heads and then after verification of facts, will consider allowance of expenses. Accordingly, this issue of assessee’s appeal is allowed for statistical purposes.

7. The next common issue raised by the assessee in all these four assessment years is as regards to the order of CIT(A) confirming the action of the AO in disallowing the claim of deduction u/s.80IC of the Act on allocation of common expenses on the basis of turnover for the purpose of claim of deduction u/s.80IC of the Act. Since the facts and circumstances are exactly identical and grounds raised

are also identically worded grounds, we will take the facts and grounds from assessment year 2009-10 in and will decide the issue. For this, assessee has raised the following Ground No.5 in assessment year 2009-10:-

5. Allocation of common expenses on the basis of turnover for purposes of deduction under section 80IC - Rs. 7,33,08,206 a. The Hon'ble CIT(A) has erred in allocating / apportioning the following expenditure between Dehradun unit II, Roorkee and Baddi unit on the basis of total turnover as against the method used by the Appellant:  Research and development expense;  Assembly overheads; and - 24 - 505, 506 & 507/Chny/2020

 Corporate expenditure. b. The Hon'ble CIT(A) has failed to appreciate that the appellant had already allocated common expenditure in ratio of number of watches produced by each division to the total number of watches produced the watch division before arriving at the profit eligible for deduction under section 801C of the Act. c. The Hon'ble CIT(A) ought to have observed that the design and development costs and assembly share for common facilities incurred at the factory largely represents salaries of the employees and not directly relatable to the value of watches produced. d. The Hon'bleCIT(A) failed to appreciate that the components transferred are compatible to various watches and it is not possible, at the time of transfer, to identify the final watch variant into which these components would be assembled and thus it is not possible or practical to allocate these expenses based on the value of the watch. e. The Hon'ble CIT(A) ought to have appreciated that the Appellant has allocated the expenses based on the business requirements of each unit and the appellant's allocation is the closest approximation to the actual expenditure allocable to the unit.

7.1 Brief facts are that the AO noted during the course of assessment proceedings that in addition to main manufacturing unit at Hosur, apart from this, the assessee company is having three units located at Dehradun, Roorkee and Baddi. He noted that the jewellery division, the assessee company is having unit at Dehradun and assessee has claimed deduction u/s.80IC of the Act on certain units. According to AO, the method of allocation adopted by assessee for claiming of deduction u/s.80IC of the Act on these

- 25 - 505, 506 & 507/Chny/2020 three units is not acceptable and hence, apportioned the overhead corporate head office expenses and thereby recomputed the claim of deduction u/s.80IC of the Act. Aggrieved, assessee preferred appeal before CIT(A).

7.2 The CIT(A) also confirmed the action of the AO by observing in para 4.4 as under:- 4.4. Allocation of corporate overheads on the basis of turnover for purposes of deduction u/s 80IC

The Assessing Officer observes that with regard to the watch division the appellant has main manufacturing unit at Hosur apart from three units at Dehradun, Roorkee and Baddi. The appellant apportioned common overheads like corporate office expenditure, sales and marketing overhead, research and development cost etc. on the basis of number of watches produced which was unscientific and distorted in the view of the Assessing Officer. In the absence of evidence to the contrary, I hold that the method adopted by the Assessing Officer based on turnover is not only scientific but also reasonable keeping in view the facts of the case on hand. Therefore, the allocation of corporate overheads made by the Assessing Officer based on turnover of the various units is sustained. The appellant fails on this ground.

Aggrieved, assessee came in appeal before the Tribunal.

7.3 Before us, the ld.counsel for the assessee admitted that this issue is covered against assessee by the order of Tribunal in assessee’s own case for earlier assessment years 2006-07 to 2008-

- 26 - 505, 506 & 507/Chny/2020

7.4 After hearing rival contentions and going through the facts, we find that this issue is covered against the assessee by the Tribunal’s decision in assessee’s own case for the assessment year 2008-09 in order dated 09.09.2022 by observing as under:- “7. Apportionment of Expenses u/s 80-IC

7.1 In ground No.4, the assessee is aggrieved by apportionment of expenditure for the purposes of computation of deduction u/s 80-IC. It transpired that the assessee claimed deduction u/s. 80IC with respect to their units at Dehradun (Units I & II) and in Baddi. The method of apportionment of certain corporate overhead expenditure was not accepted in earlier years. The assessee allocated the same on the basis of number of watches produced. However, the same was distributed by the revenue on the basis of turnover of the units. The assessee furnished revised working of profits u/s 80IC which was perused by Ld. AO.

7.2 The assessee also claimed depreciation on trade marks as acquired in earlier years. The trademarks were stated to be related towatch division as well as jewellery division. The units availing deduction u/s 80-IC were watch division. The entire deprecation was allocated by assessee to non- eligible unit, which in the opinion of Ld.AO, was to be allocated to eligible units also.

7.3 Accordingly, adjusting the allocation of overhead and depreciation as above, Ld. AO reduced deduction by Rs.18.02 Crores. Aggrieved, the assessee is in further appeal before us.

7.4 We find that similar issue has been adjudicated by us in ITANo.1913/Chny/2011 for AY 2007-08 as under: -

- 27 - 505, 506 & 507/Chny/2020

“4.2 We find that all the other overhead expenses have been allocated by the assessee on the basis of turnover. Only design and development cost and assembly share of common facilities have been allocated on the basis of number of watches produced. The Ld. AO has apportioned the same on the basis of turnover. In our considered opinion, design and development cost and assembly share of common facilities are not proportional to the number of watches produced. The expenditure is largely salary expenditure of the two departments. It could not be said that the expenditure would be directly proportional to the number of watches produced. Rather, such expenditures would largely depend upon the decision of the management to decide as to how much expenditure was to be incurred to design / develop new products and the same may vary to a great extent in different periods. In such a case, the quantum of expenditure would have no relation with the number of watches and allocating the same on such basis would give absurd results as held by lower authorities. Therefore, the more appropriate method of allocation would be based on turnover as done by the assessee for other overhead expenses. Therefore, we concur with the stand of lower authorities, in this regard and find no reason to interfere in the same. This ground stand dismissed. All the ground stand disposed-off in terms of our above order.

Facts being pari-materia the same, we substantially confirm the stand of lower authorities in this regard except the issue of allocation of depreciation on trademark. In the paper-book, the assessee has filed an application u/r 29 of Income Tax Appellate Tribunal Rules, 1963 for admission of additional evidences which is supported by the affidavit of Managing Director of assessee company. By way of this application, the assessee seeks production of additional evidences which are in the form of summary of break-up of export sales, details of export sales, sample invoices, annual report etc. It is the submission of the assessee that the units which are eligible to claim deduction u/s 80-IC caters only to the domestic markets and therefore, depreciation on trademark could not be allocated to the said units as the trademark is put to use only in respect of watches exported. Admitting the same, we direct Ld. AO to examine the issue of - 28 - 505, 506 & 507/Chny/2020 allocation of depreciation and re-adjudicate the same in the light of submissions made in the application. The corresponding grounds stand partly allowed for statistical purposes.”

Similar petition u/r 29 has been filed by the assessee for this year as well. Facts being pari-materia the same, our adjudication as above shall mutatis- mutandis apply to this year also. The matter, to a limited extent of allocation of depreciation, stands restored back to the file of Ld. AO on similar lines. The grounds relating to allocation of other overhead expenditure stand dismissed. The corresponding grounds stand partly allowed for statistical purposes.”

Hence, taking a consistent view, we confirm the disallowance of claim of deduction u/s.80IC of the Act, as regards to apportionment of head office expenses. Since facts are identical in other three assessment years, taking a consistent view, this issue raised by the assessee in all these assessment years is dismissed.

8. The next common issue in these four appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in disallowing the claim of deduction u/s.80IC of the Act on allocation of expenditure on trade mark qua the units which are claiming deduction u/s.80IC of the Act. Since the facts and circumstances are exactly identical and grounds raised are also identically worded grounds, we will take the facts and ground from assessment year 2009-10 in and will decide the issue.

- 29 - 505, 506 & 507/Chny/2020 For this, assessee has raised the following Ground No.6 in assessment year 2009-10:-

a. The Hon'ble CIT(A) has erred in allocating the depreciation on Trademarks to the units claiming deduction under section 80IC as these Trademarks are applicable for sale of Titan products in countries other than India whereas the production from units claiming deduction under section 80IC of the Act are sold in India only. b. The Hon'ble CIT(A) has erred in not considering the fact that this registration of trademark is required to sell products in 75 other countries where-in the trademark is registered. c. The Hon'ble CIT(A) has erred in not considering the fact that the trademark is required to be registered for the purpose of sale of Titan products outside India and the products which are exported are produced by the unit situated in Hosur which is not claiming tax deduction under section 80-1C of the Act. d. The Hon'ble CIT(A) ought to have observed the products manufactured in the units claiming ax benefit under section 80-IC of the Act are sold in the domestic market only and not exported outside India. The Appellant craves leave to add, alter, rescind and modify the grounds hereinabove or produce further documents, facts and evidence before or at the time hearing of this appeal.

8.1 The AO during the course of assessment proceedings noticed that the assessee in assessment year 2007-08 had capitalized the trademark to the tune of Rs.63.27 crores. It pertains to watch division as well as jewellery division whereas depreciation on these trademarks has not been apportioned on various units on the basis

- 30 - 505, 506 & 507/Chny/2020 of production. The AO apportioned the depreciation amongst all the units on turnover basis and reduced the claim of deduction u/s.80IC of the Act after ascertaining apportionment of depreciation on trademarks. Aggrieved assessee preferred appeal before CIT(A) and the CIT(A) also dismissed this issue by observing in para 4.5 as under:- 4.5. Allocation of depreciation on Trademarks to units claiming deduction u/s 80IC

The Assessing Officer observes that the appellant capitalized trademarks to the tune of Rs.63.27 crores during the previous year relevant to the A.Y. 2007-08 and in accordance with the same claimed depreciation for the A.Ys. under consideration. The Assessing Officer further observes that the depreciation was totally claimed for Hosur Unit and nothing was apportioned as depreciation on trademarks for 801C Units namely, Dehradun, Baddi and Roorkee Units. Therefore, the Assessing Officer apportioned the depreciation amongst all the Units of the appellant- company on turnover basis. The appellant objects to the same stating that the trademark expenditure was incurred on exports, and therefore, the entire depreciation claimed was debited to the Hosur Unit since the 801C Units cater to domestic market.

This issue came up in appeal before the Dispute Resolution Panel(DRP), Chennai, and the Hon'ble DRP in its order in DRP/Chennai/44/2012 dated 31.08,2012 issued directions in this regard as follows:

“Based on the submissions and details filed by the Eligible Assessee, the Assessing Authority did the apportionment of common expenses and depreciation on the basis of turnover for purposes of deduction u/s.80IC of the Income Tax Act. There is therefore no anomalous position taken by the Assessing Authority in the given context. There is no need for any interference in this regard.”

- 31 - 505, 506 & 507/Chny/2020

Respectfully following the view endorsed by the Hon’ble DRP, the apportionment of depreciation on trademarks made by the Assessing Officer is sustained. The appellant fails on this ground. Aggrieved, assessee came in appeal before the Tribunal.

8.2 At the outset, the ld.counsel for the assessee stated that the depreciation on trademark has been set aside by the Tribunal in assessee’s own case in assessment year 2008-09 vide order dated 09.09.2022 in whereby the Tribunal considering the earlier decision of Tribunal in assessment year 2007- 08 in ITA No.1913/CHNY/2011 has remitted the issue back to the file of the AO. Taking a consistent view, we also set aside this issue to the file of the AO for re-adjudicating the issue as directed by Tribunal in assessment year 2008-09. This issue of assessee’s appeal is allowed for statistical purposes.

8.3 Since the facts are common in other three assessment years i.e., 2010-11, 2011-12 & 2012-13 also, taking a consistent view, we set aside this issue in all these assessment years back to the file of the AO with similar directions. Accordingly, this issue raised by the assessee in all these four assessment years is allowed for statistical purposes.

- 32 - 505, 506 & 507/Chny/2020

9. The next issue in assessee’s appeal for assessment year 2012- 13 is as regards to the order of CIT(A) confirming the action of the AO in disallowing marked to market loss arising on ECB loans and loss arising due to hedging exposures related to commitments on sales and purchases. For this, assessee has raised following Ground No.2:-

2. Disallowance of Marked to Market Losses ('MTM') - Rs. 2,17,16,894

The Hon'ble CIT(A) has erred in disallowing an amount of Rs. 2,17, 16,894 on account of MTM losses break-up of the which is as follows:

S.No. Particulars Amount 2.1 MTM gain on ECB loan 1,83,25,468 2.2 MTM loss due to hedging exposures related 33,91,426 to commitments on sales and purchases Total Amount of disallowance 2,17,16,894

2.1 Disallowance of MTM gain on ECB loan - Rs. 1,83,25,468 a. The Hon'ble CIT(A) has erred in not appreciating the fact that the Appellant has considered the MTM gain on ECB loan as capital in nature. b.. The Hon'ble CIT(A) has also erred in not appreciating the fact that the Assessee has voluntarily disallowed the loss/ allowed the gain on reinstatement of ECB loan in each of the earlier AY's. c. The Hon'ble CIT(A) erred in not appreciating the fact that the provision which has been disallowed earlier at the time of creation/accrual ought to be allowed as a deduction when the same is subsequently reversed/utilised. d. The Hon'ble CIT(A) ought to have allowed the amount which is already been disallowed by the Appellant in its ROI for past years.

2.2 Disallowance of MTM loss due to hedging exposures related to commitments on sales and purchases - Rs. 33,91,426

- 33 - 505, 506 & 507/Chny/2020 a. The Hon'ble CIT(A) has erred in not appreciating the fact that the total MTM losses debited to the profit and loss account Rs. 33,91,426 is inclusive of MTM gain on ECB loan amounting to Rs. 51,23,274 and MTM loss due to hedging exposures related to commitments on sales and purchases amounting to Rs. 85,14,700. b. The Hon'ble CIT(A) has erred in disallowing the MTM losses incurred on forward contract relating to gold price hedging on the ground that the same is a notional loss and not allowable as business loss. c. The Hon 'ble CIT(A) has erred in not accepting that the MTM losses arise on account of a fall in value of the underlying derivative contract as on the reporting date. The same represents a loss on an onerous contract existing as on the reporting date, albeit to be discharged / settled on future date. Hence, Such MTM losses are not notional or contingent but have accrued as on the balance sheet date. d. The learned CIT(A) has also erred in not observing that the Appellant has recognized the aforesaid loss in accordance with the provisions of the Indian Generally Accepted Accounting Principles and Income Computation and Disclosure Standards and hence, ought to be allowed as a revenue expenditure.

9.1 Brief facts related to the issue of claim of loss of Rs.2,17,16,894/- are that the assessee has made claim of loss for a sum of Rs.1,83,25,468/- in the computation of income filed with the return of income being Marked to Market (MTM) loss relating to foreign exchange derivatives, forward contracts, etc. It also claimed a sum of Rs.33,91,426/- on these outstanding forward contracts. According to AO, the assessee’s forward contract transactions are distinguishable from others who are only doing export / import

- 34 - 505, 506 & 507/Chny/2020 business involving forward contract transactions. According to AO, the claim of assessee regarding marked to market loss is notional loss and is on account of restatement of outstanding forward contracts as on the closing date of the financial year. Moreover, he noted that the forward contract transactions being derivative transactions were not settled through any stock exchange as mandated u/s.43(5)(d) of the Act. The assessee before AO filed details of marked to market losses of Rs.33.92 lakhs claiming that the assessee company has outstanding swap to hedge its foreign currency and interest rate exposures related to foreign currency loan [ECB loan] of USD 2.22 million outstanding as on 31.03.2012. According to AO, the company has hedged its exposure relating to sales and purchases and hence, this sum of Rs.33.92 lakhs represents loss due to increase in allowability due to fluctuation in foreign exchange as on the last date of the financial year. For balance sum of Rs.1,83,25,468/-, it was claimed before the AO by the assessee that the net marked to market loss / gain on ECB loan i.e., net of reversal of the earlier year losses amounting to Rs.132.02 lakhs at the beginning of the financial year 2011-12, an amount outstanding of Rs.1,83,25,468/- as already been effected in the computation of total income and therefore, no further disallowance of the same is called off. The assessee has given

- 35 - 505, 506 & 507/Chny/2020 complete working of computation of marked to market loss / gain vide its Annexure -1 to the reply dated 17.02.2015. But the AO has not agreed with the claim that the losses arising out of actual settlement of derivatives, transactions can be held to be non- speculative loss but the notional loss incurred on derivatives i.e., restatement of gain / loss, which is not incurred by actual settlement cannot be allowed to be set off against the profit of business. The AO tried to distinguish the case law of Hon’ble Supreme Court in the case of CIT vs. Woodward Governor India (P.) Ltd., reported in [2009] 179 Taxman 326 by holding that this case law does not deal with derivative loss and hence, does not applicable to the facts of the assessee’s case. He noted that in assessee’s case, the assessee is a manufacturer of watches and jewellery involving engineering industry but apparently, assessee is making use of forward contract for effective use of ECB payments and import credits which are in the nature of capital account transactions and if at all, these are to be considered on revenue account, the same are unascertained liability. Therefore, he held that this being speculative loss, is covered by the provisions of section 43(5)(d) of the Act and hence, not allowable. Accordingly, the AO disallowed the marked to market loss claimed by assessee at Rs.2,17,16,894/-. Aggrieved, assessee preferred appeal before CIT(A).

- 36 - 505, 506 & 507/Chny/2020 9.2 The CIT(A) simpliciter dismissed the ground of assessee by observing that no evidence were filed by assessee before the AO during the assessment proceedings or before him in appellate proceedings. For this, he observed in para 4.8 as under:- “4.8 Disallowance of Marked to Market losses (A.Ys. 2009-10 & 2012-13) The Assessing Officer observes that Marked to Market losses of Rs.52,00,000/- & Rs.2,17,16,894/- claimed as business expenditure for the A.Ys 2009-10 & 2012-13 respectively are not allowable since the same constitutes a notional loss in the hands of the appellant. They failed to furnish any evidence either before the Assessing Officer in the course of assessment proceedings or before me in the course of appellate proceedings any evidence in support of their contention that the losses claimed were allowable as a deduction as per the provisions of the Income Tax Act. In the absence of evidence to the contrary, the disallowance of Marked to Market losses of Rs.52,00,000/- & Rs.2,17,16,894/- claimed as business expenditure for the A.Ys. 2009-10 & 2012-13 respectively is confirmed. The appellant fails on this ground.”

Aggrieved, now assessee is in appeal before the Tribunal.

9.3 Before us, the ld.counsel for the assessee argued that the claim of assessee in regard to marked to market loss is on account of forward contract relating to gold price hedging and accordingly, assessee has made some gain on restatement of ECB loans. The assessee claimed loss as deduction since it pertains to its export transactions and did not offer the gain to tax since it pertained to capital transaction. The assessee now before us explained that the AO as well as the CIT(A) failed to appreciate that the disallowance

- 37 - 505, 506 & 507/Chny/2020 comprises of two different components one being loss and the other being gain. The details of the gain and loss are filed by the assessee as under:- MTM gain on ECB loan Rs.1,83,25,468/- MTM loss due to hedging exposures Rs.33,91,426/- related to commitments on sales and purchases Total amount of disallowance Rs.2,17,16,894/- According to ld.counsel, the loss arises on account of fall in the value of underlying derivative contract as on the reporting date, the same represents loss on an onerous contract existing on the reporting date, albeit to be discharged/settled on a future date. According to ld.counsel, such marked to market loss is not notional or contingent but have accrued as on the balance sheet date. He further explained that the marked to market gain on ECB loan is capital in nature and assessee has reduced the gain on restatement of ECB loan in each year since the same is capital in nature. He argued that in the previous assessment years, the assessee had disallowed the loss arisen on restatement of ECB loan and consequently, in the current year, the gain cannot be taxed.

9.4 On the other hand, the ld.CIT-DR relied on the assessment order and that of the CIT(A).

- 38 - 505, 506 & 507/Chny/2020 9.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company has outstanding swap to hedge its foreign currency and interest rate exposure relating to foreign currency loan i.e., ECB loan of USD 2.22 million outstanding as on 31.03.2012. In addition to this, the assessee has also hedged its exposure relating to sales and purchases. Therefore, due to fluctuation in foreign currency as on the last date of financial year, there is a loss of Rs.33.92 lakhs. The assessee claimed that foreign exchange loss arising on restatement of foreign contracts and it is neither notional nor contingent in nature allowable in term of decision of Hon’ble Supreme court in the case of Woodward Governor India (P.) Ltd., supra. We noted that the provision made for estimated loss on forward contract is made on the reasonable estimate based on the mercantile system of accounting regularly following for the preparation of books of accounts. We noted that the assessee company has considered the net marked to market loss / gain on ECB loan i.e considered as gain amounting to Rs.1,83,25,468/- and that has come out of net of reversal of earlier year loss amounting to Rs.1,32,02,194/- at the beginning of the financial year 2011-12 i.e., on 01.04.2011. We noted that this is neither ascertained liability nor contingent liability and moreover this does not fall under the CBDT instruction No.3 of - 39 - 505, 506 & 507/Chny/2020 2010 dated 23.03.2010 because it is clarified by the Board that the treatment to be adopted by the Revenue officers with regard to allowability of losses on account of forex derivatives is against the ruling propounded by Hon’ble Supreme Court. Hence, according to assessee this loss is allowable u/s.37 of the Act and we also agree with this. We noted that the Co-ordinate Bench of the Tribunal following the decision of Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd., supra, has considered this issue in the case of MPS Ltd., vs. DCIT in order dated 20.07.2022 and held as under:- 17. We have heard the rival contentions and had gone through the facts and circumstances of the case. It is clear that the Assessee has reversed the loss claimed in the next year and offered to tax. On this very count, the addition cannot be made. Secondly, this issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs. Woodward Governor India Private Limited (supra); wherein it is held as under: “For valuing the closing stock at the end of a particular year, the value prevailing on the last date is relevant. This is because profit/losses embedded in the closing stock. While anticipated loss is taken into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into account, as no prudent trader would care to show increase in profits before actual realization. This is the theory underlying the rule that closing stock is to be valued at cost or market price whichever is lower.” As the Assessee is consistently adopting the policy as and when loses arises, the same is disclosed as loss earned and is a claimed deduction. Hence, we allow the claim of the Assessee. Since we have allowed the claim of the Assessee on merits on regular assessment, similar to the decision on - 40 - 505, 506 & 507/Chny/2020 computing the book-profit u/s.115JB of the Act, the appeal of the Assessee is partly allowed.

In the present case before us also, the assessee has disclosed the gain as and when it is gain and claimed the loss as and when loss arises. Hence, we are of the view that this is allowable loss and we direct the AO accordingly.

a. The Hon’ble CIT(A) erred in reclassifying UPS as plant and machinery eligible for depreciation at the rate of 15%. b. The Hon’ble CIT(A) ought to have observed that since the term computer is not defined in the Income-tax Act, 1961 it has to be construed in common parlance. c. The Hon'ble CIT(A) ought to have observed that a computer refers to any electronic or other high speed data processing device which performs logical, arithmetic and memory functions on data and includes all input and output devices. d. The Hon'ble CIT(A) ought to have observed that UPS are computer peripherals and hence form essential part of computer. e. The Hon'ble CIT(A) erred in disregarding the judicial precedents relied upon by the Appellant stating that UPS is essentially a part of computer and accordingly eligible for depreciation @ 60%.f. The Hon'ble CIT(A) erred in - 41 - 505, 506 & 507/Chny/2020 not appreciating the fact that the Hon'ble DRP in the assessee's own case for the AY 2013-14 had held that UPS is eligible for depreciation at the rate of 60%.

10.1 Brief facts relating to this issue are that the assessee claimed depreciation on UPS (Uninterrupted Power Supply) at Rs.8,85,789/- claiming the same as included in the block computers and claimed depreciation @ 60%. The AO while framing assessment allowed depreciation by treating the UPS equipment to plant & machinery @ 15%. Hence, he restricted the depreciation @ 15%. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the disallowance of depreciation and restricted the depreciation at 15% by upholding the order of AO. Aggrieved, assessee came in appeal before the Tribunal.

10.2 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company has claimed depreciation on UPS which was for exclusive use of computers @ 60% being integral part of computer. This issue now remains no res-integra and covered by the order of Hon’ble Madras High Court in the case of CIT vs. Cactus Imaging India (P.) Ltd., reported in [2018] 98 taxmann.com 396, wherein the Hon’ble High Court has considered this issue in paras 7 & 8 as under:-

- 42 - 505, 506 & 507/Chny/2020

“4.The issue that arises for consideration is whether the printing machinery, namely printer and scanner, should be treated as an integral part of computer and eligible for 60% depreciation as against 25% as indicated by the Department. There is no dispute on the fact that the printer and scanner is used as an office equipment in business and that is part and parcel of the computer system as decided by the Tribunal in all the subsequent assessment years viz., 2003-04, 2004-05 and 2005-06. The Commissioner of Income Tax (Appeals) as well as the Tribunal have consistently taken the view that the printer and scanner should be treated as an integral part of the system and cannot be used without a computer and depreciation at 60% should be allowed.

5.We find that this material fact has been consistently followed by the first Appellate Authority and the Tribunal in the assessee's own case and we find no material or reason to differ from the said finding of fact. Further more, we find that this issue is a pure question of fact and no question of law arises for consideration in this Tax Case (Appeal). Accordingly, this Tax Case (Appeal) stands dismissed. No costs”

- 43 - 505, 506 & 507/Chny/2020 Since the issue is covered by Hon’ble Jurisdictional High Court decision, we direct the AO to allow depreciation on UPS at 60%. This issue of assessee’s appeal is allowed.

Order pronounced in the open court on 29th May, 2024 at Chennai.