TMI Blog2020 (9) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... tfully following the view taken by the Hon ble High Court we uphold the order of the CIT(A) in context of the said issue during the year under consideration. Accordingly, finding no infirmity in the order of the CIT(A) who had directed the A.O to delete the aforesaid disallowance. Depreciation on purchase of software application - CIT(A) erred in directing the AO to grant depreciation @ 60% as against 25% granted by the AO - HELD THAT:- As decided in own case expenditure incurred by the assessee on purchase of software application and payment made for acquiring license to use those applications was to be allowed as a revenue expenditure. In the backdrop of the aforesaid settled position of law, we are of the considered view that as the aforesaid software purchased by the assessee did not form part of its profit making apparatus and only facilitated carrying its business more efficiently, therefore, the same was rightly claimed by it as a revenue expenditure. We thus in terms of our aforesaid observations direct the A.O to allow the software expenses. Disallowance being professional fees paid to M/s. Brown Wood - HELD THAT:- We notice that assessee has incurred consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only a provision. The liability for which such provision was made was an ascertained or known liability and, therefore, amount was to be reduced from the profit as per P L a/c prepared in accordance with provisions of Companies Act, 1956 to arrive at the book profits under s. 1I5JA of the Act. - I.T.A. No. 1939/Mum/2005 - - - Dated:- 16-9-2020 - Shri S. Rifaur Rahman, AM And Shri Ram Lal Negi, JM For the Appellant : Shri Manjunatha Swamy, DR For the Respondent : Shri J. D. Mistry, AR. ORDER PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER): The present appeal has been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals)-XIX, Mumbai in short Ld. CIT(A) dated 31.12.2004 for AY 2001-02. 2. The brief facts of the case are, the assessee is engaged in the business of manufacturing and sale of pharmaceuticals. Assessee filed its return of income showing total income of ₹ 116,592,027/- and deemed income u/s 115JB of the Act at ₹ 646,930,776/- was filed on 31.10.01 alongwith audit report u/s 44AB, audited statement of accounts and director s report for the year ended 31.03.2000. The return was processed u/s 143(1) on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt transferred to Debenture Redemption Reserve ignoring the fact that the assessee made the reserve after determining the net profit as per the company's Act. There is no provision in Sec. 11 5J to reduce such amount from the net profit. 7. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 5. With regard to ground no. 1, Ld. DR submitted before us that Ld CIT(A) erred in accepting the assessee's devise of not claiming depreciation in respect of assets taken over on amalgamation of Piramal Holding Ltd and M/s. Boehringer Mannheim India Ltd. (BMIL), ignoring that provisions of Section 34 (1) of the Act. were omitted w.e.f. 01.04.88 and relying on the Supreme court judgement in the case of Mahindra Mills reported in 243 ITR which pertains to the period prior to the omission of the section. He supported the findings of AO. 6. On the other hand, Ld. AR brought to our notice para 4 of CIT(A) s order and submitted that this ground is squarely covered by the order of Coordinate Bench of Hon ble ITAT in ITA 6392/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereon in para No. 22 to 28 which read as under:- 22. Gr.No.2 raised by the Revenue reads as follows: 2. Erred in a accepting assessee s device of not claiming depreciation ignoring omission of the provisions of Sec. 34(1) of the I.T. Act w.e.f. 01/04/1988 relying on the Hon ble Supreme Court judgment in the case of M/s. Mahindra Mills Ltd. reported in 243 ITR 56 which pertained to the period prior to the section s omission. 23. As already seen BMIL merged with the assessee company as per the scheme of amalgamation w.e.f. 1/4/96. The assessee has claimed depreciation on the assets taken over as part of the merger. The AO noticed from the schedule of depreciation furnished by the assessee that depreciation was being claimed on the WDV without adjusting for depreciation allowable for A.Y.s 1995-96 1996-97 in the hands of erstwhile BMIL. The erstwhile BMIL did not opt to claim depreciation for the assessment years 1995-96 1996-97 although assets have been used in the business carried on by BMIL during those years. The AO was of the view that depreciation is not available to the assessee on the WDV without taking into consideration the allowable depreciation on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Bombay High Court in the case of Premier Automobiles (supra) as laying down a limitation that notional allowance has to be reduced from the WDV to arrive at the WDV of the subsequent year. The CIT(A) also found that the decision of the Hon ble Supreme Court in the case of Mahindra Mills Ltd. (supra) clearly lays down the proposition that WDV has to be arrived at only after reducing depreciation actually allowed and in a case where the Assessee has not claimed depreciation it cannot be said that it was notionally allowed. Aggrieved by the order of the CIT(A) the revenue has raised Gr.No.2 before the Tribunal. 25. We have heard the rival submissions. We are of the view that the order of the CIT(A) has to be upheld. The Hon ble Supreme Court in CIT Vs. Mahendra Mills (2000) 159 CTR (SC) 381 has laid down that the assessee is entitled to exercise his option even through the filing of revised return and that option cannot be denied to him nor can depreciation be thrust on the assessee against his willingness. It was held that until a claim is made for allowing deductions of the nature covered under s. 32 along with necessary particulars, there would hardly be any occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n furnished. We have seen r. 5AA of the Rules which though since deleted provided for the particulars required for the purpose of deduction under s. 32. Even in the absence of r. 5AA, the return of income in the form prescribed itself requires particulars to be furnished by the assessee and no claim for the depreciation has been made in the return. The ITO in such a case is required to compute the income without allowing depreciation allowance. The circular of the Board, dt. 11th April, 1955, is of no help to the Revenue. It imposes merely a duty on the officers of the Department to assist the taxpayers in every reasonable way, particularly, in the matter of claiming and securing relief. The officer is required to do no more than to advise the assessee. It does not place any mandatory duty on the officer to allow depreciation of the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. It if does not wish to avail that benefit for some reason, benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage. Rather the ITO should advise him not to claim our view in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that for the removal of doubts the provisions of sub-s (1) will apply whether or not the assessee claims deduction in respect of depreciation in computing his total income, that Explanation cannot be regarded as taking away the effect of the judgment of the Supreme Court for the years prior to the date of introduction of the Explanation. The law declared by the Supreme Court cannot be regarded as having merely raised doubts. The interpretation of the relevant provisions of the Act by the apex court settles the law, and unless the subsequent amendment to the statute is expressly given retrospective effect, the law laid down by the apex court will remain the binding law for the period to the amendment. The newly added Explanation takes effect only on and from 1st April, 2002, and will not be applicable for prior ye3ars. If claim made in the original return had been given up in the revised return, there was no obligation to consider the claim for depreciation. 27. The Hon ble Supreme Court in the case of Mahendra Mills (Supra) had made the following observations: .Allowance of depreciation is calculated on the written down value of the assets, which written down valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, it is clear that what section 32 allows an assessee is the deduction by way of depreciation of an asset of an amount calculated as a percentage of the written down value thereof as may be prescribed. It is for the assessee to claim the same and furnish the requisite particulars. If the assessee does not claim the same, it cannot be allowed. But in that case, there will be no depreciation for that year which can be said to be unabsorbed to be carried forward to a subsequent year under section 32(2) of the Act. In other words, an assessee who does not claim deduction for the depreciation allowable to him under section 32 of the Act in the particular year, loses it once for all. He is not entitled to claim the same in a subsequent year though he will again be entitled in that subsequent year to claim depreciation for that year. (underlining by us for emphasis). The AO has relied on the underlined portion of the judgment to hold that an assessee who does not claim deduction for depreciation allowable to him under section 32 of the Act in a particular year loses it once for all. The AO has overlooked the fact that the above observation are in the context of priority of claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been decided by the Coordinate Bench of ITAT in ITA 6392/Mum/2003 for AY 2000-01 in assessee s own case on merits. For the sake of clarity, it is reproduced below:- 22. We have deliberated at length on the issue under consideration and find ourselves to be in agreement with the view taken by the CIT(A) that the assesse s claim for deduction of the aforesaid expenses as a revenue expenditure is well in order. In fact, we find that the issue is squarely covered by the order of the Hon ble High Court of Bombay in the assesse s own case for A.Y 1998-99 in CIT-7 Vs. Nicholas Piramal (India) Ltd. (2016) 69 taxmann.com 164 (Bom). In the said case, the Hon ble High Court after deliberating on the assesse s claim of expenses pertaining to closure of its Thane Unit , had observed, that the business of manufacturing of drugs at different units constituted single business and closing down of one unit and shifting its activity to other units was an expenditure that was incurred by the assessee for purposes of its business. As the facts leading to the disallowance of Thane factory expenses of ₹ 28,92,000/- by the A.O during the year under consideration remains the same as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and are unable to persuade ourselves to subscribe to the view taken by the lower authorities. We find that the issue that expenses incurred by an assessee on purchase of a software which brought greater efficiency in functioning of its business had been held by the Hon ble High Court of Bombay in the case of PCIT Vs. Holicin Services (South Asia) Ltd. (2018) 93 Taxmann.com 270 (Bom), as allowable as a revenue expenditure. Further, the Hon ble High Court of Bombay in the case of CIT Vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom) had observed that the expenditure incurred by an assessee on purchase of a software which facilitated its trading operations or enabled the management to conduct its business more efficiently or more profitably would not form part of the profit making apparatus of the assessee and would be allowable as a revenue expenditure. Also, we find that a similar view had also been taken by the Hon ble High Court of Delhi in the case of CIT Vs. Amway India Enterprises (2012) 346 ITR 341 (Del). In the aforesaid case, it was observed by the High Court that the expenditure incurred by the assessee on purchase of software application and payment made for acquiring licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd allowable as business expenditure. He submitted that AO disallowed the expenditure in two counts, first as capital expenditure and second is u/s 40(a)(i) r.w.s. 195 of the Act. 19. With regard to capital expenses, he submitted that the project is discontinued and it is allowable as revenue expenditure and relied on Hon ble Bombay High Court decision in the case of CIT vrs. Maganese Ore India Ltd. (2016) (67 taxman.com 268), in which the Hon ble High Court held that capital asset has never come into existence and ITAT has allowed travelling expenses or ore testing charges only as revenue expenditure. 20. Further, he relied in the case of CIT vrs. Nimbus Communications Ltd. (ITA No. 4244 of 2010) and submitted that the Hon ble Bombay High Court held that the findings of fact recorded by ITAT is that there is dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequently, there is no question of the assessee getting any enduring benefit. He submitted that even in the given case, assessee has aborted the listing of issue in NYSE and there is no enduring benefit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce from the record that the identical ground raised in the present appeal has already been decided by the Hon ble Bombay High Court in the case of CIT vrs. NCG Networks (India) Pvt. Ltd. (ITA No. 397 of 2015). For the sake of clarity, which is reproduced below:- (e) In the present facts, the amendment by introduction of Explanation-6 to Section 9(1)(iv) of the Act took place in the year 2012 with retrospective effect from 1976. This could not be have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under section 194C of the Act during the subject Assessment year, would require deduction under section 194J of the Act due to some future amendment with retrospective effect. (f) Further, we also notice that under Section 40(a)(i) of the Act, under which the expenditure has been disallowed by the Revenue, meaning of royalty as defined therein, is that as provided in Explanation 2 to Section 9(1)(vi) of the Act and not Explanation 6 to Section 9(1)(vi) of the Act. Thus, the disallowance of expenditure under Section 40(a)(i) of the Act can only be if the payment is 'Royalty' in terms of Explanation 2 to Section 9 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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