Income Tax Appellate Tribunal - Chennai
Nippo Batteries Company Limited, ... vs Assessee on 10 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.1917/Mds/2012
(Assessment Year: 2003-04)
M/s Nippo Batteries Company Ltd. Vs. Assistant Commissioner of Income
Pottipatti Plaza, 4th floor, Tax,
77, N.H.Road, Company Circle-IV(4)
Chennai-600 034. Chennai-600 034.
PAN: AAACI2291L
(Appellant) (Respondent)
Appellant by : Mr. Vikram Vijayaraghavan, Advocate
Respondent by : Mr. Anirudh Rai, CIT DR
Date of Hearing : 10th January, 2013
Date of Pronouncement : 22nd February, 2013
ORDER
Per Vikas Awasthy, JM:
The appeal has been filed by the assessee impugning the order of the CIT(A)-VI, Chennai dated 20.03.2012 relevant to the assessment year 2003-04.
2. The brief facts of the case are that the assessee had filed return of income for the assessment year 2003-04 on 27.11.2003 declaring total income of ` 29,46,21,362/- . The case of the assessee was selected for scrutiny and notice under section 142(1) dated 10.01.2006 was served on the 2 ITA No.1917/Mds/2012 assessee. The Assessing Officer vide order dated 29.3.2006 made certain additions in the income returned by the assessee.
3. Aggrieved against the assessment order, the assessee preferred an appeal before the CIT(A) inter-alia on the following grounds:-
i) Disallowance of excess depreciation on moulds.
The assessee has claimed depreciation @ 40% whereas the Assessing Officer restricted it to 25%;
ii) Disallowance of expenses on purchase of softwares holding it to be capital in nature. The assessee has claimed the same as revenue expenditure; and
iii) Restriction on claim under section 80IA. The assessee has claimed interest income as eligible for deduction u/s.80IA. The A.O. rejected the same.
The CIT(A) rejected all the aforementioned grounds of the assessee and upheld the order of the Assessing Officer on the issues.
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Aggrieved against the order of the CIT(A), the assessee has come in second appeal before the Tribunal.
4. Mr. Vikram Vijayaraghavan appearing on behalf of the assessee submitted that the first ground of appeal i.e. depreciation on moulds amounting to `10,36,177/- has already been decided by the Tribunal in the assessment years 1999-2000, 2002-03 and 2004-05 against the assessee in ITA Nos.1436 to 1438/Mds/2007 vide order dated 7th July, 2008.
5. Ground No.2 relates to disallowance of expenses on purchase of software. The counsel for the assessee submitted that capitalization of expenses relating to purchase of software is incorrect. The counsel submitted that expenses incurred by the assessee on different softwares viz., Bio- metric software ` 12,73,000/-, Oracle `4,03,150/- and Intranet application software ` 5,17,705/- are revenue in nature as softwares are always subject to change and become obsolete very fast. Therefore, for upgradation of the existing software, the assessee incurred expenditure. It is not 4 ITA No.1917/Mds/2012 the case where the assessee has purchased new softwares, only existing softwares have been upgraded. In order to support his submissions, the AR has relied on the judgement of the Hon'ble Delhi High Court in the case of CIT Vs. Asahi India Safety Glass Ltd. reported as 346 ITR 329(Del).
6. The third ground on which the order of the CIT(A) has been assailed is with regard to deduction under section 80IA. The counsel for the assessee submitted that as against the claim of ` 4,60,70,449/- only a sum of ` 4,30,13,538/- has been allowed. The counsel submitted that the Assessing Officer has erred in excluding interest on deposits with banks and interest received from dealers for exceeding the credit period from the income eligible for deduction under section 80IA. The assessee is entitled for the benefit on the said interest income under the provisions of section 80IA as well. In order to support his contentions, the counsel relied on the judgements of the Hon'ble Madras High Court in the case of Madras Motors reported as 257 ITR 60(Mad) and in the case of Indo Matsushita Carbon Company reported as 286 ITR 201 (Mad).
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7. On the other hand, Shri Anirudh Rai appearing on behalf of the Revenue contended that the issue No.1 is covered against the assessee by the order of the co-ordinate Bench of the Tribunal passed in ITA No.1436 to 1438/Mds/2007 decided on 7.7.2008.
8. On issue no.2, the D.R. submitted that the assessee has acquired softwares as outright purchases and not as upgradation of existing software. Therefore, expenditure incurred on outright purchase of software has to be capitalized. However, the assessee is entitled for depreciation @ 60% on the cost of the software. He contended that the judgement referred to by the counsel for the assessee in the case of Asahi India Safety Glass Ltd., is not applicable in the facts and circumstances of the present case. On the contrary, the case of the assessee is squarely covered by the order of Delhi Bench of the Tribunal in the case of Escorts Ltd., Vs. ACIT reported as 104 ITD 427 and the Pune Bench of the Tribunal in the case of Sudarshan Chemical Industries Ltd., Vs. ACIT., reported as 110 ITD 171. In order to support his contentions, the D.R. also relied on the judgement of the 6 ITA No.1917/Mds/2012 Hon'ble Rajasthan High Court in the case of CIT Vs. Arawali Constructions Co. P. Ltd., reported as 259 ITR 30(Raj).
9. With regard to issue no.3, the DR submitted that the amount of interest is a huge amount and it relates to interest on bank deposits and interest received from dealers for exceeding the credit period on sale of goods. The details of such debtors were not made available either before the Assessing Officer or CIT(A). Neither the details have been made available before the Tribunal. Therefore, he strongly supported the order of the CIT(A). The DR prays for dismissal of the ground of appeal of the assessee. Further, in order to fortify his submissions, the DR relied on the judgement of the Hon'ble Madras High Court in the case of Indian Additives Ltd. Vs. DCIT., reported as 67 DTR (Mad) 389 wherein it has been held that deduction u/s.80IB is not allowable in respect of compensation received from sundry debtors for delayed payments.
10. We have heard the submissions made by both the parties. We have also perused the orders of the authorities below and the judgements/orders referred to by both the 7 ITA No.1917/Mds/2012 sides. The counsel for the assessee has fairly conceded with regard to depreciation on moulds, that the issue has already been decided by the Tribunal in the assessee's own case in the assessment years 1999-2000, 2002-03 and 2004-05 against the assessee in ITA Nos.1436 to 1438/Mds/2007 respectively. A perusal of the said order of the Tribunal placed on record shows that the Tribunal has held that the assessee is entitled to claim depreciation @ 25% instead of 40% on the moulds. Respectfully following the earlier order of the Tribunal on the issue, this ground of appeal of the assessee is dismissed. The depreciation is to be allowed to the assessee @ 25% as against 40% claimed by the assessee.
11. The second issue is with respect to purchase of softwares. The contention of the counsel for the assessee is that purchase of software is only upgradation of existing softwares and not purchase of new software. On the other hand, the DR submitted that expenditure incurred on acquisition of software has to be capitalized and it cannot be treated as revenue in nature.
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12. The Hon'ble Delhi High Court in the case of Asahi India Safety Glass Ltd. (supra) has held as under:-
"9. The Revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that the test of enduring benefit is not a certain or a conclusive test which the Courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards running a business as against an expense undertaken for the benefit of the business as a whole. In other words, the expenditure which is incurred, which enables the profit-making structure to work more efficiently leaving the source of the profit making structure untouched would in our view be expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably, leaving the fixed assets untouched would be an expenditure in the nature of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage would thus collapse in such like cases. It would in our view be only truer in cases which deal with technology and software application which do not in any manner supplant the source 9 ITA No.1917/Mds/2012 of income or add to the fixed capital of the assessee."
The Hon'ble Delhi High Court with the aforementioned observations and after considering catena of judgements including Arawali Constructions Co .P. Ltd. (supra) has held that expenditure incurred on purchase or upgradation of software is revenue in nature. The Hon'ble High Court in the said judgement has approved the view of the Special Bench of the Tribunal in the case of Amway India Enterprises Vs. DCIT., reported as 301 ITR (AT) 1 (SB).
13. The Hon'ble Madras High Court in the case of CIT Vs. Sundaram Clayton Ltd. reported as 321 ITR 69(Mad) has also held that expenditure incurred relating to purchase of software is revenue in nature.
14. In view of the aforesaid judgements and the facts of the present case, we are of the considered view that the expenditure incurred by the assessee in purchase/upgradation of software is allowable as revenue expenditure. We therefore allow this ground of appeal of the assessee.
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15. The third ground of appeal of the assessee is disallowance of interest income for grant of deduction under section 80IA of the Act. The Hon'ble Supreme Court of India in the case of Pandian Chemicals Ltd. Vs. CIT reported as 262 ITR 278 has categorically held that interest income does not form part of income of undertaking eligible for deduction under section 80HH. The provisions of section 80HH and section 80IA are pari materia with respect to the phrase "gross total income of the assessee includes any profits and gains derived from any business." The Hon'ble Apex Court has held that the word "derived from" in section 80HH of the Income Tax Act, 1961 must be understood as something which has direct or immediate nexus with the assessee's industrial undertaking ("business" in the instant case) .
The Hon'ble jurisdictional High Court in the case of Indian Additives Ltd. (supra) has held that compensation (interest) received from sundry debtors for delayed payment is not allowable as deduction u/s.80IB. The Hon'ble Court further observed that by using the expression 'derived from' in 11 ITA No.1917/Mds/2012 section 80IB, Parliament intended to cover sources not beyond the first degree.
16. In view of the above discussion, we hold that the interest income which the assessee has earned from deposits in the bank and from the interest on extended credit period allowed to its debtors does not constitute income eligible for deduction under section 80IA. A perusal of the order of the CIT(A) shows that this issue has already been adjudicated by the Tribunal against the assessee in ITA Nos.1436 to 1438/Mds/2007 vide order dated 7.7.2008 by following the law laid down by the Hon'ble Supreme Court of India in the case of Pandian Chemicals Ltd. (supra). Accordingly, this ground of appeal of the assessee is dismissed.
17. In the result, the appeal of the assessee is partly allowed in the aforesaid terms.
Order pronounced in the open court on Friday, the 22nd day of February, 2013 at Chennai.
Sd/- Sd/-
( N.S. Saini ) (Vikas Awasthy)
Accountant Member Judicial Member
Chennai,
Dated the 22nd February, 2013.
somu
12 ITA No.1917/Mds/2012
Copy to: (1) Appellant (4) CIT(A)
(2) Respondent (5) D.R.
(3) CIT (6) G.F.