TMI Blog2013 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- Following the decision in case of BSES YAMUNA POWERS Ltd (2010 (8) TMI 58 - DELHI HIGH COURT) that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. The computer accessories and peripherals cannot be used without the computer. Therefore, the computer peripherals such as UPS system/inverter are essentially part of computer system and computer in the modern age cannot work independently without these basic peripherals – In favour of assessee In respect of Fibre Optic Computer Networking - Held that:- A civil foundation for plant partakes the nature of plant for depreciation, similarly an AC or T.V. installed in a bus partakes the nature of commercial vehicle and an electric cable when used in a building partakes the nature of building while it becomes part & plant which used in a machine. Following the same principle, we hold that computer fibre networking when used in conjunction with computers will be eligible for depreciation as is available to computers – In favour of assessee Disallowance u/s 14A – Rule 8D applicable prospectively or retrospectively - Expenditure in relation to exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax in the hands of employees under the I.T. Act. The provisions on account of LTC encashment were made in accordance with accounting standard AS-15 which are mandatory. The provision of LTC encashment provided by the assessee in its books of accounts on the basis of AS-15, was a deductible amount from the profits of the company – In favour of assessee - ITA No.751/Del/2011 & ITA No.1488/Del/2011 - - - Dated:- 26-10-2012 - I.C. Sudhir and T.S. Kapoor, JJ. Appellants Rep by: Shri M.P. Rastogi, Adv. Shri P.N. Shastry, CA Respondent Rep by: Shri Niranjan Kovli, CIT-DR ORDER Per: T.S. Kapoor: These cross appeals are filed by the assessee as well as by the revenue against the order of ld CIT(A) dated 25.11.2010. The grounds raised by the assessee are as under:- 1. The CIT [A] has erred in confirming the disallowance of prorata depreciation of ₹ 5926.05 lacs on account of downward Revaluation of assets [by reduction] in A.Y. 2000-01. 2. The CIT [A] has erred in confirming the disallowance of additional demand of Royalty of ₹ 31 lakhs paid during the year to the Government shown in the P L a/c as Adjustments relating to earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in deleting the addition of ₹ 35.64 lacs made by AO on account of depreciation on assets not in active use. 4. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in deleting the addition of ₹ 2186 lacs made by AO on account of long service awards provided on accrual basis. 5. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in deleting the addition of ₹ 9775 lacs made by AO on account of LTC being eligible for encashment not being capable of being ascertained in definite terms with reasonable certainly. 6. The appellant craves to amend modify, alter,' add or forego any ground of appeal at any time before or during the hearing of this appeal. 3. The brief facts of the case are that the assessee is a Govt. of India Undertaking and is engaged in the manufacture, process, sale, and export of iron and steel of various grades. The assessee is also engaged in the field of mining, generation and distribution of electricity for consumption through thermal power station. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The Assessing Officer disallowed the depreciation on proportionate basis on reduction amount of assets relying upon the provisions of section 43(1), 43(6) 32 (1) which according to him clearly allowed depreciation on reduced written down value of assets. In this respect explanation 10 to section 43(1) which states that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Govt. or by State Govt. or any authority established under any law in the form of a subsidy or grant then so much of the cost as it relatable to such subsidy or grant of reimbursement shall not be included in the actual cost of the assets of the assessee. The assessee submitted before the Assessing Officer that when a loan is obtained it is of a capital nature and when loan is utilized, it does not become an expense. Therefore, when a loan is waived/written off by an assessee, it is not an allowable deduction as it is capital in nature and similarly when the loan is waived in favour of assessee it retain its capital nature and does not result into a taxable receipt. It further submitted that when an asset is revalued up-ward depreciation allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isen during the year was not acceptable in the absence of any evidence furnished to this effect by the appellant. Therefore, the addition of ₹ 31 lakhs was upheld. 3. Disallowance of Depreciation on Water Supply Sewerage Plant:- 9. The Assessing Officer noted that the water supply and sewerage plant in addition to meeting the requirements of various factories was also utilized for residential townships set up by the assessee at different factory sites. He observed that in the earlier year the appellate authority had held that 75% of expenditure on these plants was for business purposes and balance 25% was for residential purpose and depreciation on this 25% value of plant was allowed to the assessee @ 5% against claim of assessee at 25%. The assessee during assessment proceedings submitted that in assessment year 1985-86, the Ld CIT had passed an order u/s 263 of the Act whereby he had directed that 75% of the water supply and sewerage plant should be determined as plant machinery and the balance 25% be treated it as building for the purposes of depreciation. The assessee did not file appeal against the order u/s 263 due to lack of proper advice and Department had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32 to 43 of IT Act. The assessee further explained that exchange rate if remained favourable in a year under consideration vis-a-vis German mark then the exchange reserve does not get utilized and if the exchange rate in a year becomes adverse vis-a-vis German mark then the amount of reserve during the year as well as any amount remaining un-utilized from earlier years gets utilized and therefore in the process the company was neither getting benefit of 4% interest subsidy nor getting foreign exchange fluctuation subsidy. The assessee referred to the decision of ITAT in its own case for assessment year 1998-99 in which whole interest included transfer to reserves was allowed. It was further submitted that Hon'ble ITAT in the assessment year 2000-01 to 2002- 03 following the order of assessment year 1998-99 had deleted similar additions. However, the Assessing Officer observed that out go of interest to KFW was only 0.75% of interest and for the remaining 8% interest it was a clear case of remission of liability and therefore the claim of assessee on account of 8% of interest on accrual basis was not justified. The Assessing Officer made the disallowance of ₹ 1445 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of addition in respect of assessment year 2001-02 and the decision was followed by ld CIT(A) in appeal for assessment year 2002-03 and 2003- 04. It was also submitted that Department had not preferred any second appeal on this issue. Therefore, the matter had achieved finality. However, the Assessing Officer did not accept the contentions of the assessee and relying upon number of cases made an addition of 35.64 lakhs. 14. Before Ld CIT(A), the same arguments were advanced which were taken before Assessing Officer and Ld CIT(A) after considering the submissions of assessee deleted the disallowance of ₹ 35.64 lakhs. 6. Depreciation on Computers Fibre Optic Networking (Rs.14.97 lakhs): 15. The Assessing Officer observed that assessee had made addition in assessment year 2005-06 to the tune of ₹ 265.29 lakhs on account of purchase of computer fibre optic networking and had been claiming depreciation @ 60% being applicable to computer block. The Assessing Officer had allowed depreciation only @ 25% in respect of assessment year 2005-06 and @ 15% in assessment year 2006-07 on the basis of applicable rates of depreciation to plant machinery and during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was also submitted that UPS and computers were of limited capability and they cannot be used for any other purpose and can be used in conjunction with computer which makes them an integral part of computer. The case law of Karnataka Power Corporation 247 ITR 268 was relied upon wherein it was held that a building structure will be eligible for depreciation as a building or plant on the basis of its structure to serve special technical requirement and it was held that building structure was an integral part of generating system and thus was a plant eligible for depreciation. Similarly reliance was placed on the judgment of ITAT Calcutta benches reported in 98 ITD 119 wherein it was held that a printer and scanner being an integral part of computer has to be treated as computer for the purpose of allowing higher depreciation. The Ld CIT(A) following the CIT(A) s order in the case of assessee in respect of assessment year 2006-07 did not agree with the contention of assessee and confirmed the action of Assessing Officer. 8. Disallowance u/s 14A:- 19. During assessment proceedings the Assessing Officer observed that assessee had made investment amounting to ₹ 51379 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me arguments as before Assessing Officer and submitted that company had decentralized administration and has separate Managing Director for each of the eight plants to manage their affairs. The Ld CIT(A) following the Ld CIT(A) s order in the earlier year for assessment year 2006-07 sustained the disallowance as per prescribed formula and upheld the addition made by the Assessing Officer. 9. Delay in deposit of PF (Rs. 298.46 lakhs). 21. The Assessing Officer had disallowed a sum of ₹ 298.46 lakhs on account of delay in deposit of PF. On appeal, the Ld CIT(A) deleted the addition of ₹ 298.46 lakhs on the basis of provision which was added in Finance Act, 1987 whereby the expenses were allowed for deduction where the liability for these been discharged before the due date of filing of return of income. The revenue has not gone against this deletion by the Ld CIT(A) and hence this is not before us for adjudication. 10. Provision for long service award: ₹ 2186 lakhs. 22. The Assessing Officer observed that from the computation of income the assessee had reduced ₹ 2186 lakhs towards provision for long service award. On being asked to explain, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting these known expenses were booked on accrual basis and were allowable under the IT Act. The Assessing Officer did not accept the contentions of the assessee and held that liability should be capable of being translated in definite terms with a reasonable certainty and made an addition of ₹ 9775 lakhs. 25. Before the ld CIT(A) the arguments as put before Assessing Officer were repeated and submitted that Assessing Officer had disallowed it as a contingent and un-ascertained liability whereas the liability for encashment of LTC was a definite and determined liability as per service conditions. The Ld CIT(A) after going through the submissions of the assessee deleted the addition of ₹ 9775 lakhs. 26. Aggrieved by the order of Ld CIT(A), the Department as well as the assessee has filed separate appeals before this Tribunal. 27. At the outset, the Ld AR invited our attention to the summary of grounds of appeals by revenue as well as by assessee. In respect of assessee s appeal, the Ld AR submitted that ground No.1 is covered against the assessee and invited our attention to the Hon'ble Tribunal s order dated 25.6.2009 in respect of assessment year 2000- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has been claiming deduction u/s 43B on account of royalty and cess continuously since for the last so many years and moreover section 43B though specifically does not cover the term royalty or cess but by implication covers all statutory payments. The Mines Minerals Development Regulation Act, 1957 is a statutory Act and all payments paid to Govt. under the provision of this Act are necessarily statutory payments. Moreover, keeping in view the consistency, we are of the opinion that the payment made by the assessee was covered by the provisions of section 43B of the Act and therefore the second ground is decided in favour of the assessee. 34. As regards ground No.3 4, the Ld AR submitted that UPS of computers and Fibre Optic Computer Networking is a part of computer system without which computers cannot be run and therefore were eligible for depreciation @ 60% instead of normal rate of depreciation. Reliance was placed on the judgment of BSE Yamuna Power Ltd. placed at page 182 of paper book wherein the Hon'ble Delhi High Court had held that computer accessories and peripherals such as printer, scanner and server form an integral part of computer syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a building partakes the nature of building while it becomes part plant which used in a machine. Following the same principle, we hold that computer fibre networking when used in conjunction with computers will be eligible for depreciation as is available to computers. Therefore, ground No.4 is also allowed. 39. As regards ground No.5, regarding disallowance u/s 14A, the Ld AR submitted that Rule 8D is applicable prospectively from assessment year 2008-09 and is not applicable for the year under consideration. In this respect our attention was invited to the case of law Maxcopp Investment Ltd. wherein it was held that Rule 8D was applicable from assessment year 2008-09. 40. On the other hand, the Ld DR submitted that section 14A clearly states that where assessee has not claimed any expense against exempted income, proportionate disallowance of expenses has to be made. He further submitted that even in Maxopp Investment Ltd. the Hon'ble Court had held that all expenses are to be disallowed on proportionate basis. Though Rule 8D was not applicable but the Assessing Officer has calculated the disallowance as per provisions of Rule 8D. He submitted that it can be set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 and Hon'ble ITAT vide order dated 25.6.2009 had remanded back the matter to the office of Assessing Officer for determination as to whether mining rights are intangible assets or not. Therefore, following the above Tribunal order, we also remit the matter back to the office of Assessing Officer for consideration as to whether mining rights are intangible assets or not and accordingly examine the claim of assessee as to whether expenditure incurred on acquisition of mining rights is revenue expenditure or capital expenditure. 46. In respect of appeal filed by the Department, the ld AR submitted that ground No.1 regarding depreciation on water supply and sewerage plant is covered by the order of Ld CIT(A) in assessment year 1995-96 2001-02 to 2006-07. Similarly, ground No.2 regarding interest claimed on KFW German loan was also covered by the order of Ld CIT(A) on the basis of order of ITAT for assessment year 1998-99, 2000-01, 01-02 02-03. He further argued that both grounds were covered in favour of the assessee. 47. The Ld DR, on the other hand, relied upon the order no Assessing Officer. 48. We have heard the rival submissions of the parties and have gone thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and was sold by assessee in next year. The adjustment in WDV of the block of assets was made by Assessing Officer in the year in which that plant did not work instead of the year in which it was sold. Whereas in present case, the depreciation as per Companies Act was not charged as their WDV had reached 5% and these were though not in active use but these were used less as compared to other assets and therefore were eligible for depreciation. Therefore, we do not see any infirmity in the order of Ld CIT(A). Ground No.3 is also dismissed. 52. As regards ground No.4 regarding disallowance of liability for long service award which the assessee had claimed on the basis of accrual valuation as per accounting standard AS-15., the Ld AR submitted that liability was a definite and determined liability dischargeable in future and was provided on scientific basis as referred to by Hon'ble Supreme Court in Metal Box of India v. Workmen 73 ITR 53 and Bharat Earth Mover Ltd. 235 ITR 428 (SC). The Ld AR further submitted that disallowance was deleted by the Ld CIT(A) by following the decision of jurisdictional high Court of Delhi in CIT v. Insilco Ltd. 53. The Ld DR, on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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