TMI Blog2017 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... d the royalty for exclusively using the trade mark “CRI” based on monthly turnover at the rate of 0.50%, which was duly agreed and executed a User Agreement between the proprietor and user. Therefore, the expenses incurred towards payment of royalty has been treated as revenue expenditure by the ld. CIT(A) for the assessment 2008-09, which was duly confirmed by the Tribunal against the appeal of the Revenue after elaborately discussing the facts Addition made towards implementation of oracle additional report development - Disallowance of improvement of software or purchase of software - Held that:- The assessee has filed the copies of invoices raised by M/s. Astral Consulting Ltd. and the payments are made for the information systems services rendered. There was no dispute that the payments were made for the purpose of improvement of the software consequent upon merger of other companies, which was necessitated to generate some reports in oracle application. Any expenditure incurred for the purpose of improvement of software or purchase of software that expenditure should be treated as revenue expenditure Disallowance made on account of dividend income - addition u/s 14A r.w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax (Appeals) ought to have accepted the claim in so far as clause (iia) to Sec. 32 introduced vide Finance Act 2005 supports the stand of the Appellant herein. ( d) The claim in relation to additional depreciation in relation to assets acquired in the period 2002-2005 is allowable u/s 32(1)(iia) in law and on facts and the CIT(Appeals) erred in rejecting the claim. ( e) The Commissioner of Income-tax (Appeals) erred in concluding that the expenses relating to software concerning import/export (Rs.6,75,418/-), payroll (Rs.1,21,680/-) and billing (Rs. 3,80,000/-) are not allowable being capital in nature. ( f) The CIT(Appeals) ought to have rioted that the expenses are revenue in nature and allowable in so far as they are inextricably connected with the business carried on by the appellant. ( g) Any other ground that may be taken at the time of personal hearing. 2.1 For the assessment year 2008-09, the Revenue has raised the following effective grounds: (i) The ld. CIT(A) has erred in deleting the royalty payment of ₹.1,60,97,339/- made to M/s. C.R.I. Amalgamations (P) Ltd. on the ground that the assessee is the owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installed during the period 2002-03 to 2004-05 and 2005-06. The machineries were installed and claimed depreciation and additional depreciation during the previous year itself and duly allowed in the computation of total income for the respective assessment years. Since the assessee has claimed depreciation and additional depreciation of such machineries of preceding assessment years, the Assessing Officer has held that the claim of additional depreciation for the year under consideration is not allowable and hence, the claim of additional depreciation in the guise of depreciation on machinery acquired and installed in the preceding years amounting to ₹.1,98,26,411/- was disallowed and added to the income declared by the assessee. 2.4 The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has observed and held as under: 8. I have gone through the submissions made by the appellant and also the order of the Assessing Officer. Taking into consideration the provisions as existed in 1981, 2002 and 2005, the learned Authorized Representative stated that since the restriction to the previous year is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and gone through the orders of authorities below. We have also perused the order of the Tribunal in assessee s own case for the assessment year 2010-11 dated 28.08.2015 with regard to the claim of additional depreciation, wherein the Tribunal has observed and held as under: 2. The only issue involved in this appeal is relating to claim of additional depreciation. In the assessment order, the Assessing Officer has observed as under: 4(ii). The assessee company has claimed additional depreciation on plant and machinery acquired and installed in the preceding years other than the new machinery acquired and installed during the previous year. As per the provisions of section 32 (1)(ii)(a), no deduction is allowable to any plant and machinery, the whole or the actual cost of which is allowed as deduction whether by way of depreciation or otherwise, in computing the income chargeable under the head profit and gains of business or profession of any one previous year . The additional depreciation u/s 32 is eligible only to any new machinery or plant acquired and installed by an assessee engaged in the business of manufacture and production of any article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation is made. 3. On appeal, the ld. CIT(A), by following his own decisions for the earlier assessment years 2008-09 and 2009-10 in assessee s own case, dismissed the ground raised by the assessee. 4. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The ld. CIT(A), by following his own decisions for the earlier assessment years, has observed as under: 9. I have gone through the submissions made by the appellant and also the order of the Assessing Officer. For the Asst. Year 2008-09 the same issue was dealt elaborate by me in my appellate order in ITA No. 213/10-11 dated 08.03.2012 and decided in favour of the Revenue. Subsequently for the Asst. Year 2009-10, on the same issue in ITA No. 105/12-13 dated 20.08.2013, the ground of appeal was decided against the assessee. Following my earlier orders for the Asst. Year 2008-09 and 2009-10, I confirm the disallowance made by the Assessing Officer with regard to additional depreciation. This ground of appeal is dismissed. 5. Similar issue has been raised before the Tribunal in assessee s own case for the assessment year 2007-08 in I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which additional depreciation has been claimed, was already used in various preceding previous years. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed. Additional depreciation itself is only for a new machinery or plant. A claim of additional depreciation as made by the assessee, if allowed, will not be an allowance for a new machinery or plant. Intention of the Legislature was to give such additional depreciation in the year in which assets were put to use and not for any succeeding year. There is nothing in the statute which allows such claim of additional depreciation every year on machinery acquired in earlier year. There cannot be any presumption that unless a claim is specifically denied, it has to be allowed. In the case of Brakes India Ltd. (supra) where assessee claimed carry forward of additional depreciation, this Tribunal had held as under at para 15 of its order:- 15. We have considered the rival submissions. A perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee could not produce invoices for the above expenses either before the ld. CIT(A) or even before the Tribunal. Since the assessee could not produce invoices towards purchase of the softwares to substantiate its claim of deduction, the disallowance made to that extent is confirmed. 3.1 With regard to the expenses of ₹.6,75,418/- towards purchase of software OPTISUITE, the authorities below have observed that it is product licence fee for a version of software for which exports and imports, which had suffered excise duty like an asset to the assessee. Since there is an enduring benefit to the assessee, the acquisition of computer software has to be treated as capital expenditure and thus, the disallowance made by the Assessing Officer was confirmed by the ld. CIT(A). 3.2 Before us, by relying on the decision in the case of CIT v. Southern Roadways 288 ITR 14 (Mad), the ld. Counsel for the assessee has submitted that the expenses incurred towards purchase of software should be treated as revenue in nature and pleaded that the disallowance made on this account should be deleted. On the other hand, the ld. DR supported the orders of authorities below. 3.3 We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the aforesaid transactions incurred an expenditure to the tune of ₹ 1,36,77,664/- and ₹ 1,70,68,811/- in assessment years 1997-98 and 1998-99 respectively. In the books of accounts for the assessment years 1997-98 the assessee had not written off any sum, while in the succeeding assessment year, i.e., 1998-99 the assessee had written off a part of the expenditure amounting to ₹ 9,91,228/-. 8.2 Given these facts, could it be said that the expenditure incurred by the assessee in the aforementioned assessment years was in the nature of capital expenditure. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the fact that in the succeeding financial year, i.e., 1997-98 (assessment year 1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of ₹ 150 crores and that even without this expenditure it would have continued to achieve the said turnover; though the expenditure incurred in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the assessing officer in support of its order which found resonance in submissions of the learned counsel for the revenue is, in our view flawed and, hence it would have to be rejected. 10.1. Secondly, the mere fact that the assessing officer records that the expenditure, in financial year 1997-98 (assessment year 1998- 99), was incurred towards what he terms as an on-going project would not ipso facto give it a colour of capital expenditure. A careful reading of the Tribunals judgment show that after noticing the submission of the assessee that the expenditure incurred in the said assessment year was for removing deficiencies w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3.4 In the present case, the contention of the Assessing Officer was that the softwares are entirely new and does have enduring benefit. However, the Hon ble Delhi High Court in the above case has observed that the test of enduring benefit is not certain or conclusive test in determining the expenditure as capital or revenue. The real intent of the expenditure and whether the expenditure results in creation of fixed capital for the assessee are to be examined. Thus, in view of the ratio laid down by the Hon ble Delhi High Court in the case of CIT v. Asahi India Safety Glass Ltd.(supra), which was also followed in the case of CIT v. Amway India Enterprises (supra), we hold that the software expenses should be treated as revenue in nature and accordingly, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the disallowance made on this account. The ground raised by the assessee is allowed. 3.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be verified with the business prudence. The assignment of trade mark as an arrangement amongst the family members is also to be considered. It is pertinent to note that how a family arrangement can deal with property of company, which is a separate legal entity. 4.1.2 After considering the submissions of the AR of the assessee, the Assessing Officer has observed that when the assessee was the owner of the Trade mark and by giving away the same for a meagre consideration and paying huge amount as royalty is not justifiable. The allowance of royalty to the holding company appears to be unreasonable since the value of the brand name is only ₹.1,000/-, then the payment of huge royalty of ₹.1,60,97,339/- paid by the assessee company will attract the provisions of section 40A(2)(b) of the Act. The holding company, M/s. CRI Amalgamation limited is having the 55% of shares in the assessee company with common directors. The assessee company has transferred 55% of its shares to the holding company and allotted shares in exchange of transfer of shares. The directors of assessee company are holding more than 80% of shares in the holding company. The payment of royalty is unrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations before the Hon'ble High Court of Madras seeking the sanction of Scheme of Merger. The companies were: ( i) M/s. C.R.I. Industries (P) Ltd. ( ii) M/s. Ransar Industries Ltd. ( iii) M/s. Chola Pumps (P) Ltd. ( iv) M/s. Meltech Castings (P) Ltd. ( v) M/s. Sri Premraj Engineering and Textiles (P) Ltd. [ Hereinafter referred to as Transferor Companies] and M/s. C.R.I. Pumps (P) Ltd. [Transferee Company]. The Scheme of Amalgamation approved by the High Court provided specifically for the transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme. Clause 5.6 (Page 22 of the High Court Order) states as follows :- The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter of an agreement of assignment in favour of M/s. CR.I. Amalgamations Private Limited, to be effective from 31.03.2007, and so these Trade Marks shall not stand transferred to or vested in the Transferee Company 6. The internal page 44 of the High Court Order states that item Nos.1, 2, 3 and 4, the trade mark C.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of M/s. C.R.I. Amalgamations Pvt. Ltd. to be effective from 31.03.2007 and so the trade mark shall not stand transferred to or vested in the transferee company, which was not disputed by the Department, the consideration fixed by the directors of the transferor company for the trade mark and the amount of payment of royalty to transferee company cannot be a subject matter of the issue. No provision of section exists in the Income Tax Act or Income Tax Rule for fixing the rate of trade mark. The assessee was using the trade mark for more than three decades and it confers the right for fixing the rate of royalty to be paid by the transferor company, i.e., assignee company which was duly agreed through Assignment Deed executed by both the assignor and assignee. Therefore, the Assessing Officer was not legally correct to disallow the claim of deduction and prayed that the order of the ld. CIT(A) should be confirmed. 20 4.5 We have heard both sides, perused the materials available on record and gone through the orders of authorities below. We have also perused the paper book filed by the assessee, wherein, the assessee has filed copy of the assignment deed, user agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer of all assets of the transferor companies to the transferee company, except those set out in Schedule G of the Scheme as per clause 5.6 (page 22 of the Hon ble High Court order), wherein it has been stated as under: The trade mark belonging to various transferor companies as are specifically enumerated in Schedule G hereto are already the subject matter of an agreement of assignment in favour of M/s. CRI Amalgamations Private Limited, to be effective from 31.03.2007, and so these Trade Marks shall not stand transferred to or vested in the Transferee Company . After carefully perusing the order of the Hon ble Madras High Court, it is clear that all the assets of the transferor companies were amalgamated with transferee company, except the Trade Mark. Therefore, the Assessing Officer was factually not correct to conclude that after merger, the trade mark CRI was the property of the assessee company. 4.7 The Assignment Deed was executed on 31.03.2007 between the CRI Industries Ltd. and CRI Amalgamation Pvt. Ltd., by which, the latter become the proprietor of the trade mark on the consideration duly agreed by both assignee company and assignor. Further, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-exclusive user of logo based on turnover and not lump sum payment should be treated as revenue expenditure. In the present case, the assessee paid the royalty for exclusively using the trade mark CRI based on monthly turnover at the rate of 0.50%, which was duly agreed and executed a User Agreement between the proprietor and user. Therefore, the expenses incurred towards payment of royalty should be treated as revenue expenditure. 4.10 In the case of CIT v. Sharda Motor Industrial Ltd. 319 ITR 109, the Hon ble Delhi High Court has held that the finding of the ld. CIT(A) that the payment of royalty was purely a revenue expenditure, which was annual expenditure depending upon the quantum of production in the relevant year was a finding of fact rightly arrived at. In the present case also, the User being assessee shall pay a royalty to the Proprietor [M/s. C.R.I. Amalgamations Pvt. Ltd.] with effect from 01.04.2007, a sum equal to 0.50% of monthly turnover arising out of the sale of the user goods during the term of the agreement. 4.11 Under the above facts and circumstances and in view of various decisions (supra), we hold that the royalty paid by the assessee is of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of improvement of the software consequent upon merger of other companies, which was necessitated to generate some reports in oracle application. Any expenditure incurred for the purpose of improvement of software or purchase of software that expenditure should be treated as revenue expenditure in view of our decision in assessee s case decided at para 3.3 3.4 hereinabove. Accordingly, the ground raised by the Revenue is dismissed. 6. The last ground raised in the appeal of the Revenue is with regard to deletion of disallowance made on account of dividend income. The assessee has made investments in the associate companies to the tune of ₹ 3,53,76,758/-, out of the borrowed funds and not offered any income from such investments. The investments made by the assessee company are in the non performing companies as shares and not earned any income from the same, whereas the assessee company is paying interest to the borrowing funds. The interest on borrowed funds was debited and claimed as expenditure of the business and not considered the borrowed funds diverted for the purpose of investments. As per the provisions of section 14A(3) of the Act, in a case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 14A of the Act. Therefore, he pleaded that the order of the ld. CIT(A) should be reversed. 6.4 On the other hand, the ld. Counsel for the assessee has supported the order passed by the ld. CIT(A). 6.5 We have heard both sides, perused the materials on record. In this case, it is an admitted fact that the assessee has invested in its subsidiary companies situated in South Africa and Saudi Arabia. However, the Assessing Officer made disallowance under section 14A r.w.r. 8D on the ground that the disallowance of notional expenditure incurred on the earning of dividend is liable to be made. The ld. CIT(A) has held that since the assessee has made investment in foreign subsidiaries and not in domestic companies, the provisions of section 14A of the Act are not applicable in assessee s case and moreover the dividend income earned from the foreign subsidiaries were admitted as income under the provisions of Double Taxation Agreement, the ld. CIT(A) directed the Assessing Officer to delete the addition of ₹.1,56,950/- made under section 14A of the Act r.w.r. 8D. 6.6 In the case of Suzlon Energy Ltd. v. DCIT [2012] 20 ITR (Trib) 391 (Ahd), the Ahmedabad Benche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 872/Mds/2013 [A.Y. 2009-10] 7. The only effective ground raised in the appeal of the assessee is with regard to confirmation of disallowance of additional depreciation of ₹.3,46,68,501/-. The assessee has raised similar ground on identical facts in the assessment year 2008-09 and by following the decision of the Coordinate Bench of Tribunal in assessee s own case for the assessment year 2010-11, we have decided the issue against the assessee at para 2.7 2.8 hereinabove. Accordingly, for the assessment year 2009-10 also, the ground raised by the assessee in it s appeal is dismissed. I.T.A. No. 2014/Mds/2013 [A.Y. 2009-10] 8. The Revenue has raised two effective grounds viz., (i) the ld. CIT(A) has erred in deleting the royalty payment made to M/s. C.R.I. Amalgamations Pvt. Ltd. and (ii) the ld. CIT(A) has erred in deleting the disallowance made on account of dividend income earned out of investment under section 14A of the Act. 8.1 In the assessment year 2009-10 also, the assessee has paid ₹.2,01,89,940/- as royalty to M/s. CRI Amalgamation Pvt. Ltd., the holding company for using the trade mark CRI . The Assessing Officer has observed that the CRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the foreign subsidiaries, which was offered to tax under the provisions of DTAA. Further, the Assessing Officer has determined the expenditure by applying the provisions of section 14A of the Act r.w.r. 8D. The ld. CIT(A) has held that since the assessee has made investment in foreign subsidiaries and not in domestic companies, the provisions of section 14A of the Act are not applicable in assessee s case and moreover the dividend income earned from the foreign subsidiaries were admitted as income under the provisions of Double Taxation Agreement, the ld. CIT(A) directed the Assessing Officer to delete the addition made under section 14A of the Act r.w.r. 8D. For the assessment year 2008-09 also the Revenue has raised similar ground and while deciding the issue, we have elaborately discussed the facts and by following various case law, we confirmed the order passed by the ld. CIT(A) at paras 6 to 6.8 hereinabove. By following our above decision in the assessment year 2008-09, similar ground raised by the Revenue in the assessment year 2009-10 is dismissed. 8.4 Accordingly, the appeal filed by the Revenue for the assessment year 2009-10 is dismissed. I.T.A. No. 2318 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided the appeal of the assessee on merits. In view of the above facts and circumstances, we are of the opinion that the ld. CIT(A) should have adjudicated the issue of reopening of assessment and thereafter proceeded to decide the issues on merits. Thus, we set aside the order of the ld. CIT(A) and remit the matter back to the ld. CIT(A) to adjudicate the legal issue in accordance with law after allowing opportunity of hearing to the assessee. Since the issue of reopening of assessment is remitted to the file of the ld. CIT(A), the other grounds raised by the assessee are not adjudicated at this juncture. 9.5 Accordingly, the appeal filed by the assessee is allowed for statistical purposes. I.T.A. No. 830/Mds/2015 [A.Y. 2007-08] 10. In the appeal of the Revenue, the only effective ground raised is with regard to deletion of penalty levied under section 271(1)(c) of the Act. 10. 1 Brief facts of the case are that the assessee has filed its return of income on 31.10.2007 declaring total income of ₹.3,71,93,727/-. The case of the assessee was selected for scrutiny and order under section 143(3) of the Act was passed on 17.12.2009. In the assessment order, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal vide its order dated 05.03.2015 in I.T.A. Nos. 2711 2712/Mds/2014. Therefore, the ld. Counsel for the assessee has prayed that by following the order of the Coordinate Bench of the Tribunal, for the assessment year under consideration also the penalty levied under section 271(1)(c) of the Act may kindly be deleted. The ld. DR could not controvert the above submissions of the ld. Counsel for the assessee. 10.5 We have heard both sides, perused the materials on record and gone through the orders of authorities below. Against similar penalty levied under section 271(1)(c) of the Act towards confirmation of disallowance made in the assessment years 2008-09 2009-10, the order of the ld. CIT(A) deleting the levy of penalty was sustained by the Tribunal vide its order dated 05.03.2015 in I.T.A. Nos. 2711 2712/Mds/2014 and deleted the penalty levied by the Assessing Officer by following the decision in the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158, wherein the Hon ble Supreme Court has held that where there is no finding that any details supplied by the assessee in the return are found to be incorrect or erroneous or false, there is no question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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