Income Tax Appellate Tribunal - Ahmedabad
The Varachha Co.Op.Bank Ltd., Surat vs Department Of Income Tax on 11 June, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER AND
SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER
ITA No. 2268/Ahd/2012
A.Y: 2009-10
The Assistant Vs The Varachha Co-op.
Commissioner of Bank Ltd. 1st Floor, Affil
Income - Circle - 9, Tower, L.H. Road,
Surat. Surat-395006
PAN: AABAT4356N
(Appellant) (Respondent)
Revenue by : Shri T. Sankar, Sr.D.R.
Assessee(s) by : Shri Rusesh Shah, A.R.
सुनवाई कȧ तारȣख/
/ Date of Hearing : 11/06/2013
घोषणा कȧ तारȣख /Date of Pronouncement: 14/06/2013
आदे श/O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the Revenue arising from the order of learned CIT(A)-V, Surat, dated 14.7.2012. The grounds raised by the Revenue are hereby decided as follows:
"1. On the facts and in the circumstances of the case and in law the CIT(A) has erred in deleting the addition made by the assessing officer of Rs.4,26,039/- on account of disallowance of software expenses by holding that the assessee had not acquired any new assets but merely upgraded its existing hardware & software.
2. The ld. CIT(A) ought to have upheld the addition made by the AO by disallowing claim of the revenue expenditure made by the assessee considering the fact that such claim was capital in nature."ITA No.2268/Ahd/2012
ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -2- 1.1 In respect of above two grounds, the AO has noted by order under Section 143(3) dated 21.12.2011 that the assessee is a co-operative bank and claimed an expenditure of Rs.10,65,097/- towards software purchases. A show cause was issued to the assessee that it was eligible for depreciation @ 60% on the software purchases. The AO has reproduced Appendix-1, i.e., Table of rate of depreciation and informed that the computers including computers software are eligible for 60% depreciation as per IT Rules. On the other hand, it was submitted that the software which was purchased were nothing but simple upgradation of the existing computer. The AO was not convinced and held that the software expenses claimed as revenue expenditure was not to be allowed because the expenditure was capital in nature. It is evident that the AO had allowed depreciation @ 60% and the balance i.e., Rs.4,26,039/- was taxed in the hand of the assessee.
1.2. When the matter was carried before learned CIT(A), it was held that the upgradation of the existing hardware and software was revenue expenditure. The ground of the assessee was allowed.
1.3. We have heard both the sides. In the paper book, the assessee had furnished a list of the account of the software purchased during the year. Having heard the submissions of both the sides and on due consideration of the facts of the case, we are of the considered view that this issue is covered by an order of the Hon'ble Punjab and Haryana High Court rendered in the case of CIT Vs. O.K. Play India Ltd. reported in (2012) 206 Taxman 57 (Punj. & Har.) / (2012) 346 ITR 57 (Punj. &Haryana), wherein it was held as under:
ITA No.2268/Ahd/2012ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -3- "Learned counsel for the assessee points out that in identical circumstances, finding of the Tribunal was upheld by this Court in CIT v. Varinder Agro chemicals Ltd. (2009) 309ITR 272 (Punj. & Har.) holding that no substantial question of law arose. Reference was also made to the judgment of Hon'ble Supreme Court in Alembic Chemical Works Co. Ltd. V. CIT (1989) 177 ITR 377/43 Taxman 312 (SC) to the effect that it would be unrealistic to ignore rapid advances in research and to attribute a degree of endurability and permanence to the technical know how at any particular stage in fast changing area of science."
1.4 Respectfully following the above decision we hereby affirm the findings of learned CIT(A). This ground of the Revenue is hereby dismissed.
2. Ground No.3 & 4 are reproduced below:
"3. On the facts and in the circumstances of the case and in law the CIT(A) has erred in deleting the addition made by the assessing officer of Rs.2,12,520/- by holding that the AO had wrongly categorized the items purchased viz. Printers and routers as electrical equipments instead of energy savings devices.
4. The learned CIT(A) ought to upheld the addition made by the AO as the concerned items viz. printers cannot be classified under the head energy saving devices for claiming higher depreciation."
2.1 On perusal of invoices, it was noted by the AO that certain items which were included in the "computer block" were not the assets which were included in the Appendix-1 of the schedule of depreciation of computer. According to AO, the assets such as printers, scanners were not to be included as an item of computers. The assessee's claim was that those assets were in fact included in the schedule of "Energy Saving Device" and required to be allowed as per the depreciation permissible under the said schedule. However, the AO had concluded that the printers ITA No.2268/Ahd/2012 ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -4- were separate from computers and not permissible to claim as depreciation @ 60% which is permissible only in respect of computers. So, the AO was not convinced and held that those items were not the items of computers and only @ 10% was granted. Resultantly, the difference between the two, i.e., Rs.2,12,520/- is added in the taxable income of the assessee.
2.2 When the matter was carried before learned CIT(A), it was held that the assessee has satisfactorily explained that those equipments were eligible for depreciation as claimed by the assessee.
2.3 We have heard both the sides and perused the compilation filed before us. We have noted that in the case of DCIT Vs. Datacraft India Ltd. (2010) 40 SOT 295 (Mum.) (SB), it was held that the "router" and "switches" can be classified as computer hardware when they are used along with computer and when there functions are integrated with a computer. It was concluded that in such a situation the routers and switches are to be included in back of computers for the purposes of demanding the rate of depreciation. An another decision on this issue is pronounced in the case of ITO Vs. Samiran Majumdar (2006) 98 ITD 119 (Kol), wherein the issue was whether printers and scanners being integral part of computer system can be treated as computer for the purpose of allowing higher rate of appreciation. The respected co- ordinate Bench has answered in affirmative. Respectfully following these decisions, we hereby dismiss this ground of the revenue.
3. Ground No.5 and 6 are reproduced below:
ITA No.2268/Ahd/2012ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -5- "On the facts and in the circumstances of the case and in Law the CIT(A) has erred in deleting the addition made by the assessing officer of the Rs.5,03,767/- on account of disallowance of the business development expenses by holding that the expenses incurred were wholly and exclusively for business purpose. The learned CIT(A) ought to upheld the addition made by the AO as the assessee had admitted that gifts were given to the children and its members and thus same could not be held to be for business purpose but passing of benefit for its members."
3.1 The assessee had claimed "Business Development Expenses" of Rs.5,03,767/-. On examination, it was found that the gifts were in the shape of bags and were gifted to children of the members of the bank.
The assessee has explained that certain memento, gifts, notebooks were distributed to the bright students to promote the name of the bank. The efforts were made for the welfare of the members of the bank. Moreover, it was explained that the lunch boxes and bags contained the tags of the bank. Those were distributed for the purpose of advertisement of the bank. However, the AO was not convinced and held that the benefit was given to the children of the members of the co-operative bank. The expenditure was disallowed.
3.2 When the matter was carried before the learned CIT(A), it was held that the submission of the assessee was self explanatory and he has directed to delete the addition.
3.3 Heard both the sides and perused the material placed before us. Undoubtedly, the assessee co-operative bank has distributed gifts, mementos, school bags, etc to the children of its members. Now, the question is that such distribution of gifts was allowable as business ITA No.2268/Ahd/2012 ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -6- expenditure was an identical issue decided by ITAT Ahmedabad Bench in the case of ACIT Vs. The Gujarat State Co-operative Bank Ltd. in ITA Nos.1899/Ahd/2012, A.Y:2009-10, dated 31.01.2013, wherein the order of Hon'ble Jurisdictional High Court in the case of Karajan Co-operative Cotton Sales (199 ITR 17) followed and expenditure was allowed. The relevant portion of the High Court decision was reproduced, a paragraph is reproduced below:
"The stand of the revenue that expenditure incurred by the society on giving presents to as own members would amount to expenditure on itself or application of its income to its members also could not be countenanced as the society was entirely a separate entity functioning under the provisions of the Gujarat Co- operative Societies Act, 1961 and was distinct from its members. As per section 96 of the said Act, disputes can be contemplated even between the society, on the one hand, and its members, on the other. Thus, a society is a separate legal entity having its own business and business income. In the course of augmenting its business and maintaining it, if society as a corporate body decided to give presents to its members and to commemorate Silver Jubilee Celebrations, it could not be said that the society that the society was not doing something as a prudent businessman."
3.4 Since, the respected co-ordinate bench has taken a view in assessee's favour by following the decision of the Jurisdictional High Court, therefore, on the same light, we are hereby decide this issue in favour of the assessee and dismiss this ground of the revenue.
11. In the result, appeal of the Revenue is dismissed.
Sd/- Sd/-
( ANIL CHATURVEDI ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 14/06/2013
Prabhat Kr. Kesarwani, Sr. P.S.
TRUE COPY
ITA No.2268/Ahd/2012
ACIT, Cir.-9, Surat Vs. The Varachha Co-op. Bank Ltd., A.Y. 2009-10 -7- आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ(अपील) / The CIT(A)-III, Ahmedabad
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) उप/ आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad