Case Law Details
Unifrax India Ltd. Vs JCIT (ITAT Mumbai)
ITAT Mumbai held that assessee is entitled to raise the additional legal submissions and also additional claims before the appellate authorities. Accordingly, appellate authorities have jurisdiction to entertain the new claim.
Facts- AO made various additions, being aggrieved, the Appellant carried all the above issues in appeal before the CIT(A). However, the CIT(A) declined to grant any relief and vide order dated 16.12.2013 dismissed all the grounds raised by the Appellant in this regard. Being aggrieved, the Appellant are now in appeal before us challenging the order passed by CIT(A).
Further, during the assessment proceedings vide letter dated 15.11.2013 the Appellant raised additional claim in respect of net foreign exchange gain of INR 8,93,939/- credited to the Profit & Loss Account. However, the Assessing Officer disregarded the same while the CIT(A), in appeal preferred by the Appellant, refused to entertain the claim.
Conclusion- Held that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. Thus, we hold that the CIT(A) erred in not adjudicating the claim of the Appellant raised by way of letter dated 15.11.2013.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These are three appeals arising out of three separate orders passed by the Ld. Commissioner of Income Tax (Appeals)-XIV/4, Ahmadabad [hereinafter referred to as „the CIT(A)‟] for the Assessment Years 2009-10, 2010-11 and 2011-12. Since the appeals involved identical issues the same were heard together and are bring disposed off by way of common order. These appeals were originally filed before the Ahmadabad Benches and thereafter, transferred to Mumbai Benches.
ITA No. 504/AHD/2014 (Assessment Year 2009-10)
2. We would first take up appeal for the Assessment Year 2009-10. By way of this appeal the Appellant/Assessee has challenged the order dated 16.12.2013 passed by the CIT(A) partly allowing the appeal against the Assessment Order, dated 27.12.2011 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for the Assessment Year 2009-10.
3. The Appellant has raised following grounds of appeal:
“1) The learned Commissioner of Income Tax (Appeals) erred holding that the provisions of Section 14A of the Act were applicable in the case of the Appellant, since the dividend from shares/units of mutual funds is subjected to tax in the hands o f the payer under section 115-O/ 115-R of the Act and as the Appellant receives an amount after the tax has been paid, it cannot be said that such dividend income is not chargeable to tax under the Act and, hence, the provisions of Section 14A are not attracted in the case of the Appellant.
2) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in disallowing an amount of Rs.9,73,508/- under Section 14A of the Act computed in accordance with the provisions of sub-clause (iii) of Rule 8D. Having regard to the facts and circumstances o f the case and the provisions of law, the Appellant submits that the unwarranted disallowance be deleted.
3) The learned Commissioner of Income Tax (Appeals) erred in disregarding the order of his predecessor and in holding that the investments in growth schemes of mutual funds, which do not yield any exempt income, are to be considered for computing the average value of investments as per the provisions of sub-clause (iii) of Rule 8D, for the purpose o f computing the disallowance under Section 14A of the Act.
4) Without prejudice to the Appellant’s contention that no expenditure is allocable to the earning of exempt dividend income and in any event, the Appellant submits that the disallowance computed at Rs.9,73,508/- is arbitrary and grossly excessive and the same requires to be reduced substantially.
5) The learned Commissioner of Income Tax (Appeals) erred in relying on the provisions of Section 14A of the Act and Rule 8D of the Rules while computing the amount liable for being added back to the book profits to be computed under Section 115JB of the Act. The Appellant submits that Section 115JB o f the Act is a separate code by itself and the provisions o f Section 14A cannot be applied for computing the book profits under Section 115JB of the Act
6) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation under Section 32 of the Act on computer software at 25% as against the rate of 60% claimed by the Appellant, on the ground that the Appellant has shown computer software under the head “Intangible Assets” in the books of account. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance on account o f depreciation on computer software of Rs.17,764/- be deleted.
7) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in adding back an amount of Rs 99,670/- to the Total Income of the Appellant which represents the difference in the AIR.”
4. The relevant facts, in brief, are that the Appellant, a company engaged in the business of manufacturing and sale of ceramic fiber and fiber products, filed return of income for the Assessment Year 2009-10 on 29.09.2009 declaring total income of INR 17,81,04,593/-.The case of the Appellant was selected for scrutiny and assessment was framed under Section 143(3) of the Act vide Assessment Order dated 27.12.2011. The Assessing Officer, inter alia, made (a) addition of INR 99,670/- holding the same to be receipts not accounted for in the books of account for the relevant previous year, (b) disallowance of INR 9,73,508/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟) holding the same to be expenditure incurred to earn exempt income, and (c) disallowance of depreciation of INR.1,77,764/- holding the same to be excess depreciation claimed by incorrectly applying the rate of 60% in respect of application software instead of the applicable rate of 25%. The Assessing Officer also added the amount disallowed under Section 14A of the Act while computing Book Profits under Section 115JB of the Act.
5. Being aggrieved, the Appellant carried all the above issues in appeal before the CIT(A). However, the CIT(A) declined to grant any relief and vide order dated 16.12.2013 dismissed all the grounds raised by the Appellant in this regard.
6. Being aggrieved, the Appellant are now in appeal before us challenging the order passed by CIT(A) on the grounds specified in paragraph 2 above.
Ground No. 1 to 5
7. Ground 1 to 4 pertains to disallowance of INR 9,73,508/- made under Section 14A of the Act under normal provisions of the Act while Ground No. 5 directed against the addition of the aforesaid amount while computing Book Profits as per the provisions of 115JB of the Act.
8. The Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant Company is a debt free company not having any secured or unsecured loans. For the Assessment Year 2009-10, the own funds of the Appellant aggregated to INR 5602.74 Lakhs whereas total tax free investments of the Appellant stood at INR 686.37 Lakhs. The entire investments are sourced out of the internal approvals. Therefore, no disallowance should have been made under Section 14A of the Act. Without prejudice to the aforesaid, during the assessment proceedings the Appellant had proposed disallowance under Section 14A of the Act amounting to INR 36,229/- being 5% of the total salary cost of the head of Finance & Accounts Department. Accepting the contention of the Appellant, the Assessing Officer computed disallowance in terms of Rule 8D(2)(i) and Rule 8D(2)(ii) at „Nil’. However, the Assessing Officer computed disallowance under Rule 8D(2)(iii) of the Act at INR 9,73,508/-. Ld. Authorised Representative for the Appellant, relying upon the judgment of Hon’ble Delhi High Court in the case of ACB India Ltd. vs. Assistant Commissioner of Income Tax: [2015] 374 ITR 108 (Delhi), submitted that while computing disallowance in terms of Rule 8D(2)(iii) the Assessing Officer erred in including all the investments as opposed to investments in respect of which exempt income was earned during the relevant previous year. He also relied upon the decision of Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax – Circle 17(1), New Delhi vs. Vireet Investment Private Limited: [2017] 188 TTJ 1 (Delhi – Trib.) (SB) and submitted that the amount of disallowance computed under Rule 8D of the Rules cannot be added back while computing Book Profits in terms of Section 115JB of the Act.
9. In response, the Ld. Departmental Representative relied upon the order passed by the Assessing Officer and the CIT(A) and submitted that the Assessing Officer has made disallowance as per the mandate of Section 14A of the Act read with Rule 8D of the Rules.
10. We have considered the rival submissions and perused the material on record. On perusal of the financial statements of the Appellant for the financial year ended 31.03.2009 relevant to the Assessment Year 2009-10, we find that the averments made by the Ld. Authorised Representative for the Appellant are factually correct as the Appellant is a debt free company having sufficient own capital for making investments. The Hon’ble Delhi High Court in the case of ACB India Ltd. (supra) has held that only investments yielding exempt income during the relevant previous year are to be considered while computing the average value of investment for the purpose of Rule 8D(2)(iii) of the Rules. However, in the present case the Assessing Officer has taken into consideration the entire Investments. Accordingly, we set aside the addition of INR 9,73,508/- made under Section 14A of the Act. The Assessing Officer is directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments yielding exempt income during the relevant previous year as per the judgment of Hon‟ble Delhi High Court in the case of ACB India Ltd. (supra). In view of the above Ground No. 1 to 4 raised by the Appellant are partly allowed.
11. We note that the Assessing Officer has computed tax liability under normal provisions of the Act, and therefore, Ground No. 5 raised by the Appellant is disposed off as being infructuous.
Ground No. 6
12. Ground No. 6 raised by the Appellant pertains to disallowance of INR.17,764/- made by the Assessing Officer and confirmed by the CIT(A) holding the same to be excess depreciation claimed by the Appellant by adopting higher rate of 60% as against the applicable rate of 25%.
13. The Ld. Authorised Representative for the Appellant submitted that the Appellant was entitled to claim depreciation at the rate of 60% as applicable to software, whereas the Assessing Officer/CIT(A) have held that depreciation rate of 25% relevant for intangible assets shall be applicable. The Ld. Authorised Representative for the Appellant referred to the Depreciation Rates specified under Rule 5 of the Income Tax Rules, 1962. Taking us through the Entry (5) „Computers including Computer Software‟ under the heading „III Machinery and Plant‟ falling under „Part A – Tangible Assets‟ and Note 7, the Learned Authorised Representative for Appellant submitted that the definition of Computer Software does not provide for any distinction between system software and application software and prescribed the rate of 60% for Computer Software (which includes, both, application software as well as system software). In this regard, he also placed reliance upon decision of Hon‟ble Madras High Court in the case of CIT vs. Computer Age Managements Services Private Limited: 267 Taxman 146 (Madras)[08-07-2019].
14. Per contra, the Ld. Departmental Representative relied upon paragraph 6 to 6.8 of the assessment order and submitted that admittedly the software being used by the Appellant was an application software which was eligible for depreciation at the rate of 25% being an intangible asset.
15. We have considered the rival submissions and perused the material on record. We note that Hon‟ble Madras High Court while deciding the issue in favour of the assesee has held as under:
“6. Mr. R. Hemalatha, learned Senior Standing Counsel appearing for the Revenue would vehemently contend that what were acquired by the assessee were only licenses, which are intangible. However, the Assessing Officer held that they would fall under Part B of New Appendix I and that the assessee was entitled to depreciation at 25%.
7. As noticed above, the assessee is in the business of registrar and transfer agent as licensed by the SEBI handling large volume o f market sensitive data and information, which is available only through general customized application software. The assessee acquired software licenses capitalized during the relevant years in the books of accounts and claimed depreciation at 60%. In paragraph 20 of the order passed by the Tribunal, the nature of items, on which, the assessee claimed depreciation at 60%, has been listed out and they are 17 in number, from which, we find that substantial amount of server licences, which have been obtained by the assessee are customized and some of which are single user licenses.
8. The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression ‘computer software’ to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices.
9. The case of the Revenue is that software are licences and that they are intangible assets and would fall under Part B of New Appendix I, which deals with knowhow, patents, copyrights, trademarks, licenses, francises or any other business or commercial rights of similar nature.
10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the instant case, the Tribunal, in our considered view, rightly held that the assessee is eligible to claim depreciation at 60%.
11. In the decision rendered by a Division Bench of this Court in the case of CIT v. Cactus Imaging India (P.) Ltd. [20181 93 com 396/256 Taxman 32/406 ITR 406 (Mad.) to which, one of us (TSSJ) was a party, an identical question came up for consideration wherein the object was printer (computer printer). This Court, after taking into consideration as to how the entries would be interpreted, referred to the decision in the case of Bimetal Bearings Ltd. v. State of Tamil Nadu [19911 80 STC 167 (Mad.) and held as hereunder :
“9. The Hon’ble Division Bench took note of the decision o f the Hon’ble Supreme Court pointing out that the ‘entry’ to be interpreted is in a taxing statute; full effect should be given to all words used therein and if a particular article would fall within a description, by the force of words used, it is impermissible to ignore the description, and denote the article under another entry, by a process of reasoning.
10. It was further pointed out that the rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous.
11. By applying the rule of interpretation, we find that the relevant entry under old appendix I Clause III (5) states computers including computer software and the Notes under the Appendix defines ‘computer software’ in Clause 7 to mean any computer program recorded on disc, tape, perforated media or other information storage device. Noteworthy to mention that the notes contained in the appendix, the term ‘computer’ has not been defined. Therefore, as pointed out by the Division Bench in Bimetal Bearings Ltd. (supra), if a particular article would fall within the description by the force of words used, it is impermissible to ignore the word description. Thus, going by the usage of the equipment purchased by the petitioner, we have to take a decision.”
12. As held in the above decision, if a particular article would fall within the description by the force of the words used, it is impermissible to ignore the word ‘description’ and going by the usage of the equipment purchased by the assessee, a decision has to be arrived at. We find that there is no error in the decision arrived at by the Tribunal by taking note of the specific entry in contra distinction with the general entry. Therefore, the first substantial question of law has to be necessarily answered against the Revenue.” (Emphasis Supplied)
16. That the Hon‟ble Madras High Court had held that rate of 60% shall be applicable in the case of application software. In view of the same, we hold that the Appellant is entitled to claim depreciation at the rate of 60% in respect of application software. The disallowance of depreciation amounting to INR 17,764/- is, therefore, deleted. Accordingly, Ground No. 6 raised by the Appellant is allowed.
Ground No. 7
17. Ground No. 7 pertains to addition of INR 99,670/- made by the Assessing Officer treating the same to be receipts not accounted for in the books of accounts by the Appellant. The Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant does not wish to pursue this ground as the amount involved is small. Accordingly, Ground No. 7 raised by the Appellant is disposed off as being infructuous.
ITA No. 505/AHD/2014 (Assessment Year 2010-11)
18. We would now take up appeal for the Assessment Year 2010-11. For the Assessment Year 2010-11, identical additions were made by the Assessing Officer vide Assessment Order dated 28.02.2013 passed under Section 143(3) of the Act, which were confirmed by the CIT(A) in appeal preferred by the Appellant leading to the filing of the present appeal before us.
19. Both the sides agreed that Ground No. 1 to 6 raised in appeal for the Assessment Year 2010-11 are identical to Ground No. 1 to 6 raised in appeal for the Assessment Year 2009-10 with only difference being in the quantum of addition/disallowance. Since, the facts of circumstances of the case for the Assessment Year 2010-11 are identical to those in the Assessment Year 2009-10, our findings/adjudication on grounds raised in appeal for the Assessment Year 2009-10 shall apply mutatis mutandis to the corresponding grounds raised in appeal for the Assessment Year 2010-11.
Ground No.1 to 5
20. In view of our finding/adjudication in paragraph 10 above, Ground Nos. 1 to 4 raised by the Appellant are partly allowed. The addition of INR 14,93,625./- is set aside and the Assessing Officer is directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) of the Rules by taking into consideration only the investments yielding exempt income during the relevant previous year as per the judgment of Hon’ble Delhi High Court in the case of ACB India Ltd. (supra). Ground No. 5 raised by the Appellant is disposed off as being infructuous since the Assessing Officer has computed tax liability under the normal provisions of the Act.
Ground No. 6
21. In view of our findings/adjudications for the corresponding ground raised in appeal for the Assessment Year 2009-10 (in paragraph 16 above), Ground No. 6 raised by the Appellant is allowed. We hold that the Appellant is entitled to claim depreciation at the rate of 60% in respect of application software, and therefore, disallowance of depreciation amounting to INR 7,105/- is deleted.
ITA No.2595/AHD/2015 (Assessment Year 2011-12)
22. We would now take up appeal for the Assessment Year 2011-12. By way of this appeal the Appellant/Assessee has challenged the order dated 21.07.2015 passed by the CIT(A) partly allowing the appeal against the Assessment Order, dated 30.12.2013 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) for the Assessment Year 2011-12.
23. The Appellant has raised following grounds of appeal:
“1) The learned Commissioner of Income Tax (Appeals) erred in holding that the investments in growth schemes of mutual fund units, which do not yield any exempt income, are to be considered for computing the average value of investments as per the provisions of sub- clause (iii) of Rule 8D, for the purpose of computing the disallowance under Section 14A o f the Act.
2) Without prejudice to the Appellant’s contention that no expenditure is allocable to the earning of exempt dividend income and in any event, the Appellant submits that the disallowance computed at Rs 14,51,960/- is arbitrary and grossly excessive and the same requires to be reduced substantially.
3) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation under Section 32 of the Act on computer software at 25% as against the rate of 60% claimed by the Appellant, on the ground that the Appellant has shown computer software under the head “Intangible Assets” in the books of account. Having regard to the facts and circumstances of the case, the Appellant submits that the disallowance on account o f depreciation on computer software of Rs.65,318/- be deleted.
4) The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in rejecting the claim raised by the Appellant during the course of the assessment proceedings that the net foreign exchange gain o f Rs.8,93,939/- on the capital advance paid to Dilo Gmbh towards purchase of machinery, which was credited to the Profit and Loss Account of the Appellant, was required to be excluded from the Total income of the Appellant in terms o f the provisions of Section 43A of the Act and in not adjudicating the Ground of Appeal by relying on the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd. vs. CIT reported in 284 ITR 323 (SC).”
Ground No. 1 and 2
24. Both the sides agreed that the issues raised in Ground No. 1 and 2 pertaining to disallowance under Section 14A of the Act read with Rule 8D of the Rules are identical to the issues raised in Ground No. 1 to 4 of the appeal for the Assessment Year 2009-10. Accordingly, in view of our finding/adjudication in paragraph 10 above, Ground Nos. 1 and 2 raised by the Appellant are partly allowed. The addition of INR 14,51,960/- is set aside and the Assessing Officer is directed to re-compute disallowance under Section 14A read with Rule 8D(2)(iii) by taking into consideration only the investments yielding exempt income during the relevant previous year as per the judgment of Hon‟ble Delhi High Court in the case of ACB India Ltd. (supra). However, the disallowance so computed shall be limited to the amount of exempt income earned by the Appellant during the relevant previous year.
Ground No. 3
25. Both the sides agreed that the Issue raised in Ground No. 3 pertaining to disallowance excess depreciation of INR 65,318/- is identical to the issues raised in Ground No. 6 of the appeal for the Assessment Year 2009-10. Accordingly, in view of our finding/adjudication in paragraph 16 above, Ground No. 3 raised by the Appellant is allowed. We hold that the Appellant is entitled to claim depreciation at the rate of 60% in respect of application software, and therefore, disallowance of depreciation amounting to INR 65,318/- is deleted.
Ground No. 4
26. Ground No. 4 relates to net foreign exchange gain of INR 8,93,939/-During the assessment proceedings vide letter dated 15.11.2013 the Appellant raised additional claim in respect of net foreign exchange gain of INR 8,93,939/- credited to the Profit & Loss Account. However, the Assessing Officer disregarded the same while the CIT(A), in appeal preferred by the Appellant, refused to entertain the claim holding as under:
“11. Ground No.11 is with regard to the claim raised by the Appellant during the course of the assessment proceedings vide letter dated November 15, 2013, that the net foreign exchange gain o f Rs.8,93,939/- on the capital advance paid to Dilo Gmbh towards purchase of machinery, which was credited to the Profit and Loss Account of the Appellant, was required to be excluded from the Total Income of the Appellant in terms of the provisions of Section 43A o f the Act. The recourse available to the assessee to make such a claim is by filing a revised Return of Income. An assessee cannot make a fresh claim for deduction in the course of the assessment proceedings which view has been upheld by the Hon’ble Supreme Court in the case of Goetze India Ltd. vs. CIT reported in 284 ITR 323 (SC). Accordingly, the claim of the assessee is rejected. This ground of appeal is dismissed.”
27. The Learned Authorised Representative for Appellant appearing before us submitted that the CIT(A) had the jurisdiction and power to entertain the additional claim. However, the CIT(A) declined to adjudicate the claim by misplacing reliance on the judgment in the case of Goetze India Ltd. vs. CIT : 284 ITR 323 (SC). On merits, the Learned Authorised Representative for Appellant submitted that the aforesaid net foreign exchange gain pertained to advance given by Appellant to a foreign party for purchase for capital asset which was not delivered to the Appellant till the end of the relevant previous year. Therefore, this exchange gain should have been reduced from the cost of acquisition of capital asset. However, the Assessing Officer disregarded the claim and therefore, brought to tax the net foreign exchange gain of INR 8,93,939/- which was credited to profit and loss account as part of Misc. Income.
28. Per contra, the Learned Departmental Representative relied upon the order passed by the Assessing Officer and CIT(A) and submitted that the claim was not made in the return of income and was raised for the first time during the assessment proceedings vide letter dated 15.11.2013. Since, the return was not revised the Assessing Officer was correct in not considering the claim and therefore, the CIT(A) was also correct in rejecting the claim of the Appellant.
29. We have considered the rival submissions and perused the material on record. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. The decision in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 3231 (SC) was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal. [CIT – Central-1, Mumbai vs Pruthvi Brokers & Shareholders: [2012] 349 ITR 336 (Bombay) at Para 10 and 24]. Thus, we hold that the CIT(A) erred in not adjudicating the claim of the Appellant raised by way of letter dated 15.11.2013. It has been contended that the net foreign exchange gain pertains to advance for purchase of capital asset and has been credited to the Profit & Loss Account under head Miscellaneous Income (Schedule 8). We direct the assessing officer to verify (a) whether the net foreign exchange gain pertains to the purchase of capital asset and (b) whether the same is included in Miscellaneous Income credited to Profit & Loss Account. In case on verification the Assessing Officer is satisfied that both the aforesaid conditions are satisfied, then the Assessing Officer shall reduce the amount of income by the amount of net Foreign Exchange Gain and reduce the same from the cost of capital asset as per Section 43A of the Act. Ground No. 4 raised by the Appellant is treated as being allowed for statistical purposes.
In result, the appeal for Assessment Year 2009-10 (ITA No. 504/AHD/2014), 2010-11 (ITA No. 505/AHD/2014) and 2011-12 (ITA No. 2595/AHD/2015) are partly allowed.
Order pronounced on 14.12.2022.
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