Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Usha International Ltd., New Delhi on 21 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'D', NEW DELHI
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND
SH. O.P. KANT, ACCOUNTANT MEMBER
ITA No.5932/Del/2014
Assessment Year: 2010-11
M/s. Usha International Ltd., Vs. DCIT,
Room No. 1005, 10th Floor, Circle-18(1), New Delhi
Surya Kiran Building, 19,
Kasturba Gandhi Marg, New
Delhi
PAN : AAACT0066A
(Appellant) (Respondent)
And
ITA No.6611/Del/2014
Assessment Year: 2010-11
DCIT, Vs. M/s. Usha International
Circle-18(1), New Delhi Ltd.,
Surya Kiran Building, 19,
Kasturba Gandhi Marg, New
Delhi
PAN : AAACT0066A
(Appellant) (Respondent)
Assessee by S/sh. V.P. Gupta & Anunav Kumar,
Advocates
Department by Sh. Amit Jain, Sr.DR
Date of hearing 14.03.2018
Date of pronouncement 21.03.2018
ORDER
PER O.P. KANT, A.M.:
These cross appeals by the Revenue and the assessee are directed against the order dated 10/09/2014 passed by the Ld. 2 Commissioner of Income-tax (Appeals), XXI, New Delhi [in short 'the Ld. CIT(A)'] for assessment year 2010-11. Since both the appeals have emanated from the same impugned order, both these appeals were heard together and disposed off by way of this consolidated order for convenience.
2. The grounds of appeal raised by the Revenue in ITA No. 6611/Del/2014 are reproduced as under:
1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition/disallowance of Rs.13,15,248/- made by the AO on account of mutation of land.
2. On the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition/disallowance of Rs.3,90,000/- made by the Assessing Officer on account of SAP software license. Ld. CIT(A) had also erred in allowing the depreciation of SAP Software @60% instead of 25%.
3. On the facts and in the circumstance of the case, Ld. CIT(A) erred in deleting the addition/disallowance of Rs.50,35,000/- made by the AO u/s 14A
4. The appellant craves, leave or reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal.
2.1 The grounds of appeal raised by the assessee in ITA No. 5932/Del/2014 are reproduced as under:
1. That the CIT(A) erred in holding that the appellant company is not entitled for refund of excess Dividend Distribution Tax paid of Rs.44.05 lacs for the reason that there is no provision in the Act for cancellation of the dividend or refund of dividend distribution tax pursuant to amalgamation. He failed to appreciate that since amalgamation was effective from 01.04.2009 all subsequent entries between the companies amalgamated during pendency of approval of amalgamation scheme have to be reversed / cancelled as one cannot make payment to self. The CIT(A) also erred in 3 taking the view that the issue was not arising for the assessment order for the reason that there was no mention of the same in the assessment order.
2. That the CIT(A) also erred in not directing the Assessing Officer to allow credit for Dividend Distribution Tax of Rs.17,11,365/- paid by M/s. Greenfields Commercial Pvt.
Ltd., which had amalgamated with the appellant company. He failed to appreciate that credit for tax deposited by above named company was to be allowed to the appellant company in determination of its liability.
3. That the CIT(A) erred in upholding disallowance of Rs.4 lacs, being the payment made by the company to DLF Golf Club towards corporate membership of the club on the ground that same was representing money refundable and, therefore, cannot be said to be incurred for the purpose of business. That the appellant company crave leave to amend, alter or add any of the grounds of appeal at any time hereinafter or during the course of hearing of appeal.
3. Briefly stated facts of the case are that the assessee company is engaged in manufacturing and sales of electric fans, water cooler etc. consumer durable products under the brand name "USHA". The assessee company filed return of income for the year under consideration on 25/09/2010 declaring total income of Rs.44,03,13,563/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short 'the Act') was issued and complied with. In the assessment completed under section 143(3) of the Act on 20/03/2013, the Assessing Officer made certain additions/disallowances and assessed the total income at Rs.44,83,91,310/-. Aggrieved with additions/disallowances, the assessee filed appeal before the Ld. CIT(A), who allowed the appeal partly vide the impugned order.
43.1 Aggrieved, both the parties are in appeal before the Tribunal, raising the grounds as reproduced above.
4. The ground No. 1 of the appeal of the Revenue relates to addition/disallowances of Rs.13,15, 248/- made by the Assessing Officer on account of mutation of land.
4.1 Before us, the Ld. DR submitted that Ld. CIT(A) has not passed a speaking order on the issue in dispute and, thus, the issue might be restored back to the file of the Ld. CIT(A) for deciding a fresh.
4.2 On the contrary, the Ld. counsel submitted that the Assessing Officer has wrongly disallowed the expenses considering the same in the nature of mutation charges. According to the Ld. counsel, the payment was in the nature of land revenue except for a small amount of Rs.10,200/- which was paid for changing the name of the company from 'Jay Engineering Works' (old name) to 'Usha International Ltd'. The Ld. counsel filed a paper book containing pages 1 to 82 and referred pages 6 to 16, which are receipt of land revenue charges paid in respect of the land. The Ld. counsel contended that the Ld. CIT(A) considering the nature of expenditure as land revenue expenses, he has allowed the deduction for the same.
4.3 We have heard the rival submissions and perused the relevant material on record including the pages of the paper book referred by the Ld. counsel. We find that the Assessing Officer in the assessment order has mentioned that during assessment proceeding, the assessee submitted a reply dated 18/02/2013 and, according to which, the expenses were incurred for mutation of the land in the name of the company. According to the 5 Assessing Officer, the expenses relates to acquisition of land, which being a capital asset, hence not allowable and accordingly, he added the expenditure of Rs.13,15,248/- to the total income of the assessee. The Ld. CIT(A) deleted the addition with following observations:
"3.2 The assessee is in appeal against the order of the AO and it is submitted that the AO is not justified to disallow the land revenue expenses which are called Khajna in West Bengal and there were some expenses which were paid to the Government for the change of the name from the old name Jay Engineering Works Ltd. to the present name Usha International Ltd.
3.3 I have considered the order of the AO and the submissions of the assessee and I find considerable merit in the submissions of the assessee that there is no proper justification in the order of the Assessing Officer for disallowing the land revenue expenses which were paid to the Government of West Bengal and accordingly made by the Assessing Officer is deleted."
4.4 On perusal of the above finding of the ld. CIT(A), it is evident that he has not considered the receipts of land revenue expenses and he has also not given any reasoning, as why said expenses are not in the nature of capital expenditure as held by Assessing Officer 4.5 Before us, the Ld. counsel has submitted detail of the expenses incurred of Rs.13,15,248/-, which is available on page 6 of the paper book. The relevant detail of the expenses is reproduced as under:
6 Date of payment Amount Nature of payment
07.07.2009 5,34,820 Land Revenue charges
07.07.2009 2,35,180 -do-
07.07.2009 1,71,380 -do-
11.01.2010 3,61,462 -do-
13.01.2010 10,200 Process fee towards mutation
proceedings for change in
name of company.
24.03.2010 2,206 Professional charges for a
valuer for reconciliation of
land measurement.
4.6 The Ld. Counsel has also enclosed letters addressed by the
assessee company to "Land and Land Reforms Officer" for payment towards land revenue charges of land situated in "Roynagar Mouza". All these letters are available from pages 7 to 12 of the paper book. Contents of one such letter dated 7th July, 2009 regarding payment of Rs.5,34,820/- are reproduced as under:
"We hereby tender the land revenue vide Cheque No.056620 dt. 06.07.2009 for Rs.5,34,820/- (Rupees Five lacs thirty four thousand eight hundred and twenty only) towards payment of land revenue for Bangla San 1416 in respect of our various premises totaling 27.80 acres in Roynagar Mouza."
4.7 Thus, it is manifested that, these payments are in the nature of land revenue charges of lands, which prima facie appears to be related to agricultural land. If these expenses are incurred related to agricultural land, then, in our opinion, such land revenue charges paid are not in any manner incurred wholly and exclusively for the purpose of the business, as income from agricultural activity is exempted from Income-tax. The letters 7 issued by the land revenue authorities demanding land revenue, which are available on pages 8, 10, 12, have been written in "Bengali" language & script and no English translation has been filed, thus, we are not able to decide with certainty whether the land in respect of which payment has been made, is agricultural land. The Ld. CIT(A) has also not discussed these documents in his order before arriving at conclusion that these expenses are revenue in nature. In such circumstances, we feel it appropriate to restore this issue to the file of the Assessing Officer for deciding afresh. The assessee is directed to produce all necessary documents in support of payment of land revenue charges including the English translation of letters issued by the land revenue authorities demanding the land revenue in respect of the land of the assessee. Further, if required, the Assessing Officer may verify nature of land and payment from the respective land revenue authorities also. The assessee is at liberty to produce any other evidences in support of its claim that the expenses are in the nature of revenue expenditure. Accordingly, the ground No. 1 of the appeal of the Revenue is allowed for the statistical purposes.
5. The ground No. 2 of the appeal of the Revenue relates to software expenses, which have been treated by the Assessing Officer as capital expenditure eligible for depreciation at the rate of 25%, whereas the Ld. CIT(A) held the expenses as revenue in nature as claimed by the assessee.
5.1 According to the Assessing Officer, amount of Rs.5,20,000/- has been paid as custom duty on import of SAP license and which was treated by the assessee as revenue expenditure. In view of 8 the Assessing Officer, the assessee acquired a tangible asset, and accordingly, he held the expenditure incurred as capital expenditure and allowed the application at the rate of 25% and added back the balance amount of Rs. 3, 90,000/-to the income of the assessee.
5.2 The Ld. CIT(A) held the expenses as revenue in nature with following finding:
"4.3 I have considered the order of the AO and the submissions of the assessee and find considerable merit in the submissions of the assessee that the computer software is a necessary business too! in the present age for any business activity and as such there is no proper justification for disallowing the expenses. Even otherwise the assessee is eligible for depreciation at the highest rate of 60% in the computer and the computer accessories and no fruitful purpose will be served by treating the same as capital expenditure and allowing the depreciation @ 60%. After considering all the facts and circumstances of the case, I am of the view that the expenses are of the revenue in nature and also not of much revenue significance and accordingly the addition made by the AO is deleted."
5.3 Before us, Ld. DR submitted that the expenditure on software would be revenue, if the software helps in running the business more efficiently without touching the profit-making structure of the assessee and it would be capital expenditure, if it has enhanced capacity of profit-making apparatus of the assessee. According to Ld. DR, the lower authority has not visited the said expenses from this angle and, therefore, the issue may be restored back to the file of the Assessing Officer for deciding afresh.
95.4 On the contrary, Ld. counsel submitted that computer software license charges are in the nature of revenue expenditure as held by the Hon'ble Delhi High Court in the case of CIT Vs. Asahi India Safety Glass Limited, (2012) 346 ITR 329(Delhi). 5.5 We have heard the rival submission and perused the relevant material on record, including the decision relied upon by the Ld. counsel of the assessee. In the case of Asahi India Safety Glass Limited (supra), the assessee acquired an application software to execute tasks in the field of financial accounting, inventory and purchase and that application software was required to be updated from time to time, based on statutory requirements. The Hon'ble Delhi High Court in background of above facts held that 'if the expenditure incurred in enables profit- making structure to work more efficiently leaving source of profit making structure untouched, the expenditure would be in the nature of revenue expenditure even though advantage might be of entering nature'. The relevant finding of the Hon'ble Delhi High Court is reproduced as under:
"12. The aforesaid would show that what the assessee acquired through Arthur Anderson and Associates was an application software which, enabled it to execute tasks in the field of accounting, purchases and inventory maintenance. The fact that the application software would have to be updated from time to time based on the requirements of the assessee in the context of the advancement of its business and/or its diversification, if any; the changes brought about due to statutory amendments by law or by professional bodies like the Institute of Chartered Accountants of India, which are given the responsibility of conceiving and formulating the accounting standards from time to time, and perhaps also, 10 by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The assessing officer has, in our view, erred precisely for these very reasons."
5.6 In the instant case, we find that the issue before us is in respect of the custom duty of SAP software purchased by the assessee. No details have either been provided by the lower authorities or by the assessee as how the expenditure incurred on purchase of SAP has been dealt by the Assessing Officer. Further, there are no facts available on record as in which fields of the business activity, the said SAP software has been used by the assessee. For determining, whether the expenditure incurred on the software is capital expenditure of revenue expenditure in view of the decision of the Hon'ble Delhi High Court in the case of Asahi India Safety Glass Limited (supra), above facts are crucial and in absence of which, the issue cannot be decided judiciously. 5.7 In view of the above facts and circumstances, we feel it appropriate to restore the issue to the file of the Assessing Officer for deciding afresh in accordance with law. The assessee is directed to furnish all necessary documents for deciding the issue in view of the decision of the Hon'ble Delhi High Court discussed above. It is needless to mention that the assessee shall be 11 provided adequate opportunity of being heard. Accordingly, the ground no. 2 of the appeal of Revenue is allowed for statistical purposes.
6. The ground No. 3 of the appeal of the Revenue relates to disallowance of Rs.50,35,000/- made by the Assessing Officer under section 14A of the Act read with Rule 8D of Income-tax Rules, which has been restricted by the CIT(A) to the dividend income earned of Rs.6,08,000/-.
6.1 The Ld. Sr. DR relied on the order of the Assessing Officer, whereas, the Ld. counsel relied on the order of Ld. CIT(A) and the decision dated 25.02.2015 of the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Limited Vs CIT in ITA No. 117/2015.
6.2 We have heard the rival submission and perused the relevant material on record. We find that assessee during the year under consideration earned dividend income of Rs.6,08,000/- and itself made disallowance of amount equal to the dividend income earned. The Assessing Officer was not satisfied with the disallowance made by the assessee and accordingly, invoked Rule 8D of Income Tax Rules, 1962 and computed disallowance of Rs.50,35,000/-. The Ld. CIT(A) restricted the disallowance to Rs.6,08,000/-. We find that Hon'ble Jurisdictional High Court in the case of Joint Investment Private Limited (supra) has held that no disallowance can be made under section 14A of the Act more than the dividend income earned, accordingly, following the above finding of the Hon'ble Delhi High Court, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and we, 12 accordingly, uphold the same. The ground No. 3 of the appeal of the Revenue is dismissed.
7 The ground No. 1 of the appeal of the assessee relates to claim of refund of dividend distribution tax paid of Rs. 44.05 lakhs by the company amalgamated with the assessee. 7.1 The Ld. counsel of the assessee submitted that four companies amalgamated with the assessee company w.e.f. 01/04/2009 in terms of scheme of arrangement sanctioned by the Hon'ble Delhi High Court by the order dated 19/07/2010. But before the order was passed by the Hon'ble High Court, the amalgamating company and the amalgamated companies declared and paid dividend. According to the Ld. counsel, when the profit of all the companies got consolidated, inter alia transaction of inter-se dividend got nullified because persons cannot transact with themselves and, hence, dividend tax to the extent of Rs. 44.05 lacs being excess payment, is refundable. The Ld. counsel submitted that the assessee had filed an application before the Assessing Officer on 18/04/2012, but same was not decided by him. He further submitted that Ld. CIT(A) dismissed the ground raised by the assessee holding that there was no cause of action as the issue was not emanating or arising from the order of the Assessing Officer.
7.2 The Ld. counsel submitted that issue is covered in favour of the assessee by the order dated 15/01/2013 of the Hon'ble Gujarat High Court in the case of Torrent Private Limited Vs. CIT, Special Civil Application No. 5857 of 2004.
7.3 On the contrary, Ld. DR relying on the order of the Ld. CIT(A) submitted that the Ld. CIT(A) has rightly not adjudicated 13 the issue as it was not emanating from the order of the Assessing Officer 7.4 We have heard the rival submission and perused the relevant material on record. The Ld. counsel drawn our attention to page No. 30 and 31 of the paper book, which is an application filed by the assessee before the Assessing Officer on 18/04/2012 and submitted that the Assessing Officer did not decide the issue of refund of dividend distribution tax raised in the said application. We note that since the Assessing Officer did not decide the issue in the assessment order, the ld. CIT(A) did not adjudicate on the issue. In our opinion, if the Assessing Officer had not adjudicated the issue, the CIT(A) should have directed him to dispose off the application of the assessee. Though the issue in dispute is not part of the income assessment of the assessee, however, in the interest of natural justice, we direct the Assessing Officer to dispose off the application of the assessee dated 18/04/2012, seeking a refund of excess payment of dividend distribution tax, in accordance with law. Accordingly, ground No. 1 of the assessee is allowed for statistical purposes.
8. The ground No.2 of the appeal of the assessee relates to not allowing credit of dividend distribution tax paid of Rs.17,11,365/- 8.1 The Ld. counsel submitted that the Assessing Officer has not given credit of dividend distribution tax of Rs.17,11,365/- paid by M/s Greenfield Commercial Private Limited i.e a company, which has been amalgamated with the assessee company, and accordingly, the Assessing Officer may be directed to give due credit of the dividend distribution tax paid by the assessee company.
148.2 On the contrary, Ld. Sr. DR submitted that this issue is not arising from the order of the Ld. CIT(A) and the assessee should have preferred application under section 154 of the Act seeking credit of the dividend distribution tax.
8.3 We have heard the rival submission and perused the relevant material on record. This issue of credit of the dividend distribution tax paid by M/s Greenfield Commercial Private Limited has been raised first time before us and no facts are available on record. We are of the opinion that if the tax has been paid by the assessee than it is eligible for getting credit of the tax paid in accordance with law and the Revenue cannot hold the amount in unjust manner with it. Though the issue is not emanating from the impugned order, in the interest of justice, we direct the Assessing Officer to consider the request of the assessee for allowing credit of the dividend distribution tax paid by M/s Greenfield Commercial Private Limited, in accordance with law. The ground No. 2 of the appeal of the assessee is accordingly allowed for statistical purposes.
9. The ground No. 3 of the appeal of the assessee relates to amount of Rs.4,00,000/- paid to "DLF Golf Club" towards membership as refundable security.
9.1 The Assessing Officer and the Ld. CIT(A) rejected the claim of the assessee on the ground that the amount of refundable security deposit cannot be allowed as deduction as it was not incurred wholly and naturally for the purpose of business. 9.2 Before us, the Ld. counsel of the assessee submitted that the amount will remain continued to be deposited till the membership of the company would continue and at the end, the 15 company, may not get refund of the same. The Ld. counsel submitted that considering the operation and a status of the company, this is a small amount and if refund is received same shall be considered as income at that stage. The Ld. counsel in support of his contention relied on the CBDT Circular dated 27/10/1993 in regard to security deposit for telephone connection. The Ld. counsel submitted that club expenses in any case are allowable as per the decision of the Supreme Court in the case of CIT Vs. United Glass Manufacturing Company Limited (2012) TIOL -102-SC-IT.
9.3 We have heard the rival submission and perused the relevant material on record. There is no dispute on the fact that the amount paid is refundable security deposit made to the club. In our opinion, any security deposit made cannot be a revenue expenditure allowable under section 37 of the Act. The amount is lying as a security only and not getting extinguished. The amount would be refunded back on termination of membership and it is not expenditure in the hands of the assessee. In the CBDT Circular (supra), the part of the security paid against Tatkal telephone deposit scheme was not refundable and, thus, said circular cannot be applied over the facts of the case of the assessee. In the case of United Glass Manufacturing Company Limited (supra), the assessee company paid membership fee for employees and not obtained membership for the company and, thus, the facts of the said case are different from the facts of the case of the assessee. Had the deposit been non-refundable to the assessee, the amount could have been considered allowable as expenditure, but in the present case, the amount of security 16 deposit has been admitted by the assessee as refundable, which in our opinion cannot be allowed as revenue expenditure, accordingly, we uphold the finding of the Ld. CIT(A) on the issue in dispute and dismiss the ground of appeal of the assessee.
10. In the result, the appeal of the Revenue and the appeal of the assessee are allowed partly for statistical purposes.
The decision is pronounced in the open court on 21st March., 2018.
Sd/- Sd/-
(H.S. SIDHU) (O.P. KANT)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 21st March, 2018.
RK/-(D.T.D)
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi