Income Tax Appellate Tribunal - Pune
Sigma Electric Mfg. Corp. Pvt. Ltd.,, ... vs Deputy Commissioner Of Income-Tax,, on 23 November, 2016
आयकर अपील य अ धकरण, पुणे यायपीठ "बी" पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
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BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.82/PN/2015
#नधा&रण वष& / Assessment Year : 2004-05
Sigma Electric Manufacturing .......... अपीलाथ /
Corporation Pvt. Ltd.,
Appellant
Formerly known as Semco Electric
Pvt. Ltd.,
151/1, 155 Mahalunge Village,
Post Chakan, Chakan Talegaon Road,
Chakan, Pune 410 501
PAN : AADCS9493H
बनाम v/s
DCIT, Circle-10, Pune
.......... यथ /
Respondent
अपीलाथ क ओर से / Appellant by : Shri Sharad Shah
यथ क ओर से / Respondent by : Shri P.L. Kureel
सुनवाई क तार ख / घोषणा क तार ख /
Date of Hearing :21.11.2016 Date of Pronouncement: 23 .11.2016
आदे श / ORDER
PER R.K.PANDA, AM :
This appeal filed by the assessee is directed against the order dated 01-01-2014 of the CIT(A)-V, Pune relating to Assessment Year 2004-05.
2. The grounds raised by the assessee are as under :
"On facts and in law & without prejudice to each other
1. The Ld. AO erred in levying penalty (and Ld.CIT(A) erred in upholding) when there is no concealment or furnishing of inaccurate particulars.2 ITA No.82/PN/2015
2. The Ld. AO erred in levying penalty (and Ld.CIT(A) erred in upholding) in respect of claim of depreciation where, assessee had claimed lesser depreciation and AO has allowed more depreciation, thus resulting in reduction in income rather than addition to the taxable income.
3. The Ld. AO has erred in working out (and Ld.CIT(A) erred in directing the AO to verify the working and modify) "Tax Sought to be Evaded" for the purpose of computation of penalty.
4. The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.
3. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of Electric Component for industrial use. It filed its return of income on 30-10-2004 declaring total income of Rs.1,21,600/-. During the course of assessment proceedings the Assessing Officer observed from the depreciation schedule that the assessee company has claimed less depreciation i.e. @25% as against the eligible rate of 60% on computer software, for both the 10B units, i.e. unit A1 and unit A2. Because of this claim of lesser depreciation on computer software, there was less claim of depreciation to the tune of Rs.91,07,813/- (Rs.50,83,003/- for unit A1 and Rs.40,24,810/- for unit A2. In other words, this has resulted in over statement of profit to this extent. The Assessing Officer, therefore, in the order passed u/s.143(3) initiated penalty proceedings u/s.271(1)(c) of the Act for furnishing of inaccurate particulars of income. The assessee challenged the same before CIT(A) but was without any success.
4. During penalty proceedings the assessee relying on various decisions justified the claim of depreciation @25% on computer software. However, the Assessing Officer was not satisfied with the explanation given by the assessee and levied penalty u/s.271(1)(c) of the Act on account of such lesser claim of depreciation on computer software.
5. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer. While doing so, he observed that the lesser claim of depreciation at 25% as 3 ITA No.82/PN/2015 against 60% applicable to computer softwares are driven by the greed of the assessee for claiming higher deduction u/s.10B of the I.T. Act. He observed that what the assessee is using is just a license software and not any intangible asset as claimed. The same auditors make depreciation claim @60% in non 10B cases while in the present case the claim has been made @25% which is not correct. Therefore, he held that the Assessing Officer was justified in holding that the claim of depreciation at 25% on computer software by the assessee is not a bonafide one and has been made to claim higher deduction. This according to him is a case of filing of inaccurate particulars of income. Relying on the decision of the Mumbai Bench of the Tribunal in the case of Time Guarantee Ltd. vide ITA No.1681/Mum/2007 for A.Y. 1993-93 order dated 10-10-2014, wherein the Tribunal has upheld the levy of penalty on account of wrong claim of depreciation in respect of financial transaction claimed to be lease transaction. The CIT(A) upheld the levy of penalty by the Assessing Officer.
6. Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
7. The Ld. Counsel for the assessee strongly challenged the order of the CIT(A). He submitted that the assessment year involved is A.Y. 2004-
05. Referring to the decision of Delhi Bench of the Tribunal in the case of Sony India Pvt. Ltd. Vs. Addl.CIT reported in 141 TTJ 432 he submitted that the Tribunal in the said decision has held that license for use of computer software being an intangible asset as per Part-B of Appendix-1 to Income Tax Rules, is eligible for depreciation @25%. Referring to the decision of the Tribunal in assessee's own case for A.Y. 2004-05 in quantum proceedings he submitted that the Tribunal while deciding the issue of rate of depreciation on computer software in ITA No.1125/PN/2011 and bunch of other appeals vide order dated 31-03-2015 has restored the issue to the file of the Assessing Officer with a direction to decide the issue afresh with 4 ITA No.82/PN/2015 certain directions. He drew the attention of the Bench to the following observation of the Tribunal :
"24. The second issue raised by the assessee is with regard to the rate of depreciation to be allowed on computer software. The plea of the assessee before us was that as per the entry in Appendix-1 to the Income Tax Rules, 1962 (in short 'Rules') i.e. reference to Part B - intangible assets, it is provided that know-how, patents, copy rights, trade marks, licenses, franchises or any other business or commercial rights of similar nature are to be taken as intangible assets. As against the entry No.5 in Part A, tangible assets reads as computers including the computer software. Further, the claim of the assessee was that the software was licensed software rather than owned software and once when there was specific entry for copy rights, licenses or other business or commercial rights of similar nature, the general entry for computer software should be understood for owned software, which once purchased and there was no question of renewal of license. Reliance in this regard was placed on series of decisions by the learned Authorized Representative for the assessee, but special reliance was placed on the ratio laid down by the Delhi Bench of the Tribunal in Sony India Pvt. Ltd. Vs. Addl.CIT (2011) 56 DTR 156 (Delhi). It was pointed out by the learned Authorized Representative for the assessee that in case of license for use of computer software, it was held that the license was an intangible asset as per Part B of Appendix-1 to Rules, which prescribes uniform rate of 25% for depreciation on all intangible assets. In the Schedule to Income Tax Rules, under Part A in block of assets and plant & machinery at serial No.5, it is provided that depreciation at 60% would be allowed on computers including computer software. The said definition to include computer software was introduced w.e.f. assessment year 2006-07. Under Part B i.e. intangible assets, it is provided that know-how, patents, copy rights, trade marks, licenses, franchises or any other business or commercial rights of similar nature are to be allowed depreciation @ 25%. While interpreting the term license for use of computer software, the Delhi Bench of the Tribunal in Sony India Pvt. Ltd. Vs. Addl.CIT (supra), had held that the same was an intangible asset. The ratio laid down by the Delhi Bench of Tribunal was with regard to license for use of computer software. The Act itself recognized the distinction between the computer software perse and the license, wherein the computer along with computer software is termed as a tangible asset and the license is covered as intangible asset. The Delhi Bench of Tribunal has held that the license for use of computer software is an intangible asset entitled to depreciation @ 25%. However, in the facts of the present case before us, the nature of acquisition of computer software is not clear whether the assessee has purchased computer software perse or has obtained license for use of any computer software. In case the asset acquired by the assessee is in the form of computer software, then the same is entitled to the depreciation @ 60% and in case, it is the license for use of computer software, then the assessee is only entitled to depreciation @ 25% as claimed in the return of income. In order to establish the nature of acquisition by the assessee in the field of computer software, we deem it fit to restore the issue back to the file of Assessing Officer, who shall determine the same and consequently, allow the depreciation on the same. The assessee shall furnish the necessary evidence in this regard before the Assessing Officer and who in turn, shall decide the issue. The 5 ITA No.82/PN/2015 ground of appeal No.2 raised by the assessee is thus, allowed for statistical purposes."
8. He submitted that although the Tribunal has passed the order way back in March 2015, however, the Assessing Officer has not recomputed the depreciation in the light of the direction of the Tribunal. He submitted that the issue is a highly debatable one and therefore does not call for levy of penalty u/s.271(1)(c) of the I.T. Act.
9. So far as the decision relied on by the Ld.CIT(A) in the case of Time Guarantee Ltd. (Supra) is concerned he submitted that the said decision is not applicable to the facts of the present case. In that case the main issue on which addition was made by the Assessing Officer was with regard to the claim of depreciation on leased assets. It was found by the Assessing Officer after detailed investigation that the transactions were bogus, sham and colourable devices to evade tax. It has been held that the transactions in question at the most could be said to be loan transaction and nothing more than that. Under these circumstances the Tribunal rejected the argument of the assessee that whether a transaction is a leased transaction or a financial transaction is a debatable legal issue and the levy of penalty was confirmed. However, in the instant case there is no bogus or sham transaction or colourable device to evade tax. The assessee has claimed lesser rate of depreciation on the basis of various judicial decisions available at that time. Therefore, the claim of depreciation at 25% as against 60% held by the Assessing Officer is a highly debatable issue and therefore penalty u/s.271(1)(c) of the Act is not leviable. He accordingly submitted that penalty levied u/s.271(1)(c) of the Act should be deleted.
10. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that the assessee by claiming lesser rate of depreciation on computer software increased its 6 ITA No.82/PN/2015 profit of export oriented units which is exempt from tax. Therefore, the assessee has furnished inaccurate particulars of income and therefore the penalty u/s.271(1)(c) has been rightly levied by the Assessing Officer and the same has been rightly upheld by the CIT(A). He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the assessee should be dismissed.
11. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute in the grounds raised by the assessee in the impugned appeal is regarding levy of penalty u/s.271(1)(c) of the Act on account of claim of lesser depreciation on computer software. The assessee in the instant case has claimed depreciation @25% on computer software whereas according to the AO the rate of depreciation should be 60%. The assessee by claiming lesser rate of depreciation on computer software has increased its profit of the eligible 10B units which is exempt from tax. Therefore, the assessee by claiming lesser rate of depreciation and increasing its profit of the eligible units has furnished inaccurate particulars of income for which the penalty was levied by the AO u/s.271(1)(c) of the I.T. Act. It is the case of the Ld. Counsel for the assessee that rate of depreciation on computer software is a highly debatable issue and therefore penalty u/s.271(1)(c) of the I.T. Act is not leviable.
12. We find merit in the arguments of the Ld. Counsel for the assessee. We find in the quantum proceeding the Tribunal has restored the issue to the file of the AO with certain directions which has already been reproduced in the preceding paragraph. It was submitted at the time of hearing that the AO has not taken any action on the basis of the direction given by the 7 ITA No.82/PN/2015 Tribunal. Since the quantum addition is still pending before the AO, therefore, under the facts and circumstances of the case and in the interest of justice we deem it proper to restore the issue to the file of the AO with a direction to reconsider the same on the basis of the outcome of the quantum addition. Needless to say the AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. He shall also keep in mind as to whether the issue is debatable or not. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
13. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Pronounced in the open court on 23-11-2016.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
पण
ु े Pune; दनांक Dated : 23 November, 2016.
rd
सतीश
आदे श क) *#त,ल!प अ-े!षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-V, Pune
4. The CIT-V, Pune #वभागीय %त%न*ध, आयकर अपील य अ*धकरण, "B Bench"
5. पण ु े / DR, ITAT, "B Bench" Pune;
6. गाड2 फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, //स या#पत %त / True Copy // // True Copy // व&र'ठ %नजी स*चव / Sr. Private Secretary आयकर अपील य अ*धकरण, पण ु े / ITAT, Pune