ACIT Vs. Zydus Intrastructure Pvt. Ltd. (ITAT Ahmedabad)
From going through the proviso (2) of section 80IAB of the Act, which says that if the work of operation and maintenance of SEZ is transferred from one developer to another then the deduction allowable in sub-section (1) of section 80IAB will be allowed to transferee developer for the remaining period of the remaining of consecutive 10 years. This proviso gives a very clear picture that when the transferee is eligible for deduction under section 80IAB for the income from operation and maintenance of SEZ then certainly transferor i.e. developer is eligible for deduction under section 80IAB from operation and maintenance. Assessee being a developer of SEZ is eligible for deduction under section 80IAB for income earned from operation and maintenance of SEZ.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal of Revenue for assessment year 2009-10 is directed against the order of learned Commissioner (Appeals)-XIV, Ahmedabad dated 30-4-2012 in appeal No.Commissioner (Appeals) XIV/Jt.CIT, R-8, 224/2011-12 passed against order under section 143(3) of the Income Tax Act, 1961 (in short the Act) framed on 23-12-2011 by Jt. CIT, Range-8, Ahmedabad. Revenue has raised following grounds :-
1. The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 84,841 made by the assessing officer under section41 of the Act.
2. The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the depreciation on application software license @ 60%
3(a) Ld. Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the deduction under section 80IAB of the Act on the income derived from activities of operation and maintenance. :
(b) The Ld. Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the deduction under section 80IAB of the Act on the income received from sale of scrap and professional fees.
(c) The Ld. Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing to allow the deduction under section 80lAB of the Act on the prior period income.
4. On the facts and in the circumstances of the case, the learned Commissioner (Appeals)-XIV, Ahmedabad ought to have upheld the order of the assessing officer.
5. It is therefore, prayed that the order of the learned Commissioner (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the assessing officer be restored.
2. Briefly stated facts of the case are that the assessee is a private limited company engaged in the business of development, operation and maintenance of Pharma Special Economic Zone (SEZ). Return of income for assessment year 2009-10 was filed on 16-9-2009 disclosing income at Rs. 73,88,600. Case was selected for scrutiny assessment. During the course of assessment proceedings learned assessing officer observed that assessee has credited the profit and loss account by income on account of operation and maintenance of SEZ which was included in the deduction under section 80IAB of the Act. However, learned assessing officer was of the view that such income from operation and maintenance is not eligible for deduction under section 80IAB and added it back to the income of the assessee. Along with this addition learned assessing officer also disallowed Rs. 22,000 under section 14A of the Act, Rs. 84,841 under section 41(1) of the Act and disallowing software expenses at Rs. 80,959. Learned assessing officer also denied deduction under section 80IAB of the Act for Rs. 23,09,372 being prior period income received in relation to raw- water charges. In total addition of Rs. 1,55,54,473 was made and income of the assessee was assessed at Rs. 2,29,43,074.
3. Assessee went in appeal before learned Commissioner (Appeals) and the same was partly allowed with major relief given by learned Commissioner (Appeals).
4. Now Revenue is in appeal before the Tribunal.
5. Ground No. 1 of Revenue’s appeal is as under :-
The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 84,841 made by the assessing officer under section41 of the Act.
6. Learned DR supported the order of assessing officer.
7. On the other hand, learned AR submitted that addition under section 41 of the Act towards liability of Rs. 84,841 which in the view of learned assessing officer ceased to exist as on 31-3-2009. Learned AR further submitted that closing balance of the impugned parties, which were added under section 41(1) of the Act, were having regular business transaction with the assessee company and payments were made to these parties in the subsequent years and as these liabilities actually existed at the close of the year, no addition was called for under section 41(1) and learned Commissioner (Appeals) has rightly deleted the same.
8. We have heard the rival contentions and perused the material on record. Revenue has challenged the order of learned Commissioner (Appeals) for deletion of the addition made under section 41(1) of the Act for cessation of liability. We observe that learned Commissioner (Appeals) has deleted the addition under section 41(1) of the Act of Rs. 84,841 by observing as under :-
3.3 Decision
I have carefully perused the assessment order and the submissions given by the appellant. During the course of assessment proceedings, the appellant could not furnish the confirmations from certain creditors and the assessing officer treated the liability as ceased and applied the provisions of section 41 (I) of the Act. The appellant has submitted that the confirmation could not be submitted during the assessment proceedings as the same was awaited. However, the appellant has actually made the payment to said party In the subsequent year and the proof of such payment was also enclosed and produced before the assessing officer After consideration of all facts, I am in agreement with the submission of the appellant that the payment has been made in the subsequent year. The assessing officer also has not given any specific finding regarding the fact that the liability has ceased to exist. He has applied the provisions by generally mentioning the provisions of section 41 (1) and only on the reason that the confirmation was not submitted. Unless, if is established by the assessing officer that the liability has ceased to exist and has ceased with no chance of revival, the provisions of section 41(1) cannot be applied, as the -appellant has not still written back the liability and on the contrary the payment has been made in the subsequent year,
In view of above discussion, the addition made by the assessing officer is directed to be deleted. The ground of appeal is accordingly allowed.
We find that learned AR has referred to the fact that the impugned creditors were having regular business transactions in subsequent years also and the actual payments were made to these parties in the subsequent years and the very foundation called for an addition under section 41(1d) of the Act gets demolished if an assessee proves that the impugned liabilities were paid off.
9. From going through the observation of learned Commissioner (Appeals) and also the fact that the impugned creditors were paid in subsequent years, we find no reason to interfere with the order of learned Commissioner (Appeals), we uphold the same. This ground of Revenue is dismissed.
10. Ground No. 2 of Revenue’s appeal is as under –
2. The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the depreciation on application software license @ 60%
11. Learned DR supported the order of learned assessing officer.
12. Learned AR submitted that assessee claimed expenditure of Rs. 2,47,249 on account of computer software as revenue expenditure, but learned assessing officer while scrutinizing these expenses was of the view that expenditure of Rs. 59,999incurred on purchase of software was basically a license fees and are capital in nature subject to 25% depreciation (applicable for intangible asset) and after allowing Rs. 11,040 on the cost of software of Rs. 91,999 made an addition of Rs. 80,959.
13. When the matter traveled before learned Commissioner (Appeals) it was held that the software license expenditure which are valid for long term but are part and parcel of the computer system and are eligible for 60% depreciation and assessee has accepted the decision of learned Commissioner (Appeals) and has not challenged it before the Tribunal.
14. We have heard the rival contentions and perused the material on record. The issue raised in this ground by Revenue is against the action of learned Commissioner (Appeals) for disallowing depreciation on software @ 60% in place of 25% which are applicable for intangible asset. We observe that learned assessing officer has treated the expenditure of Rs. 91,999 towards purchase of software license as capital asset under the block of intangible assets eligible for depreciation @ 25% whereas learned Commissioner (Appeals) has also treated the expenditure of Rs. 91,999 as capital expenditure but has categorized it along with computers and directed the assessing officer to allow depreciation @ 60% by observing as under :-
4.3 Decision:
I have careful perused the assessment order and the submissions given by the appellant. The appellant has submitted that since the software involves rapid obsolescence, the claim of revenue expenditure-should be allowed. I am not inclined to agree with the submission of the appellant. The appellant has bought software licenses which are valid for long term and the expenditure incurred thereon is, therefore, not in the nature of revenue. Therefore; the plea of the appellant that expenditure is in the nature of revenue is dismissed.
However, the treatment of the software by the assessing officer as intangible asset and allowing interest @ 25% is not justified as the computer software has been grouped as eligible to rate of depreciation @ 60% and, therefore, assessing officer should have allowed the depreciation @ 60% in place of 25% at/owed by him. The appellant has also disputed the finding of the assessing officer that the software were used for less than 180 days. The assessing officer is directed to verify the claim from the facts available on record and allow the depreciation accordingly as per the provisions of the Act, The grounds of appeal are accordingly partly allowed.
15. It is almost a settled issue that software application which are having validity for long term period are basically system software on which computer hardware runs and it is impossible to use computer without having such software installed on it and, therefore, such licensed software are subject to depreciation @ 60% and learned Commissioner (Appeals) has done so. We find no reason to interfere with the order of learned Commissioner (Appeals) on this issue. This ground of Revenue is dismissed.
16. Ground No.3 of Revenue’s appeal is as under :-
3(a) Learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the deduction under section 80IAB of the Act on the income derived from activities of operation and maintenance. :
(b) The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing the assessing officer to allow the deduction under section 80IAB of the Act on the income received from sale of scrap and professional fees.
(c) The learned Commissioner (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing to allow the deduction under section 80lAB of the Act on the prior period income.
17. In the return of income filed, assessee claimed deduction under section 80IAB of the Act at Rs. 11.76 crores. In the course of examination of the claim of deduction under section 80IAB of the Act, learned assessing officer observed that in the profit and loss account assessee has shown income from sales, maintenance and operation, raw-water charges income, prior period raw-water charges income, operation and maintenance charges which were claimed by assessee to be eligible for deduction under section 80IAB of the Act whereas learned assessing officer was of the confirmed view that assessee was not eligible for deduction under section 80IAB for income earned in operating and maintenance of SEZ. In view of this observation learned assessing officer denied deduction under section 80IAB of the Act for Rs. 1,53,66,673 on account of following :-
