Case Law Details
ACIT Vs Indiabulls Ventures Ltd (ITAT Delhi)
The issue under consideration is whether the depreciation at the rate of 60% will be allowed for computer related software?
In the present case, the issue of excess depreciation claim the ld CIT (A) held that the assessee has purchased software on which the depreciation is allowable @60% and not @25% has allowed by the ld AO. Therefore, referring to the sub-clause 5 of clause III of part A appendix 1 to Rule 5(1) he held that on computers and computer software assessee is eligible for deduction @60%. The connected dispute with respect to the same deduction was the amount of cost of the asset on which depreciation is to be allowed. As mentioned by the ld CIT (A) according to the ld AO the software purchased was of Rs. 21 laks and not Rs. 20681452/-. Thus the ld CIT (A) on Principle held that software depreciation has to be allowed @60% however, he directed the ld AO to verify the amount of actual cost of the asset on which depreciation is to be allowed. Revenue is aggrieved by the order of CIT hence filed the appeal before ITAT.
ITAT states that, they find no infirmity in the order of the ld CIT (A) in upholding that depreciation on software is allowable @60%. However, for working out actual block of asset on which depreciation is to be allowed, ITAT also directed the ld AO to verify the same. Therefore, the appeal filed by revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal is filed by the revenue against the order of the ld CIT (A)-18, New Delhi dated 20.12.2016 for the Assessment Year 2012-13.
2. The revenue has raised the following grounds of appeal:-
“1. Whether on the facts and circumstances of the case & in law, the ld CIT(A) erred in deleting the provision of excess depreciation of Rs. 68,71,008/- ignoring the facts that the disallowance of excess depreciation was not crystallized during the year under consideration.
2. Whether on the facts and circumstances of the case and in law the ld CIT(A) erred in directing the AO to consider the additional claim of deduction on account of employee compensation expenses amounting to Rs. 1.79 crores, rejected by the AO.”
3. The brief fact of the case is that the assessee is a company engaged in the business of stock and shares broker of NSE and BSE. It filed its return of income on 29.09.2012 at Rs. 29227870/-. The assessment u/s 143(3) of the Act was passed on 25.03.2015 determining total income of the assessee at Rs. 3,60,98,880/- wherein, the ld AO disallowed the excess depreciation claim on software of Rs. 6871008/-.
4. During the course of assessment proceedings, another issue arose. The assessee submitted a letter dated 16.02.2015 for claiming additional claim of deduction on account of employee compensation expenses of Rs. 1.79 crores which was not claimed in the return of income.
The assessee claimed that the same should be allowed to the assessee. The ld AO disallowed the same holding that
a. these are the not revenue expenses,
b. not actual expenses but a notional loss.
c. such expenses do not relate to previous year.
In the end, he applied the decision of the Hon’ble Supreme Court in case of Goetze (India) Ltd Vs. CIT 284 ITR 323 holding that the claim raised by the assessee is not by filing a revised return. Thus, he rejected the claim of Rs. 1.79 crores on account of ESOP expenses. As the above claim was not made in the return of income and no separate adjustment of addition was subtraction to the return of income was made.
5. The assessee aggrieved with the order of the ld AO preferred an appeal before the ld CIT (A). On the issue of excess depreciation claim the ld CIT (A) held that the assessee has purchased software on which the depreciation is allowable @60% and not @25% has allowed by the ld AO. Therefore, referring to the sub-clause 5 of clause III of part A appendix 1 to Rule 5(1) he held that on computers and computer software assessee is eligible for deduction @60%. The connected dispute with respect to the same deduction was the amount of cost of the asset on which depreciation is to be allowed. As mentioned by the ld CIT (A) according to the ld AO the software purchased was of Rs. 21 laks and not Rs. 20681452/-. Thus the ld CIT (A) on Principle held that software depreciation has to be allowed @60% however, he directed the ld AO to verify the amount of actual cost of the asset on which depreciation is to be allowed.
6. On the second issue of ESOP expenses the ld CIT(A) allowed the claim of the assessee following the order in case of Biocon Ltd 2013] 35 taxmann.com 335 (Bangalore – Trib.) (SB)/[2013] 25 ITR(T) 602 (Bangalore – Trib.) (SB)/[2014] 144 ITD 21 (Bangalore – Trib.) (SB)/[2013] 155 TTJ 649 (Bangalore – Trib.) (SB). He also referred to several other judicial precedents including the judicial precedent in case of sister concern, which was decided by ld CIT (A). Based on this he directed the ld CIT (A) to consider the claim of the assessee on merit as per para 4.3.5.11. He further held that claim of the assessee is also not in tune with ratio of the decision of the special bench in case of Biocon Ltd wherein the claim is allowable on straight-line basis but the assessee has claimed it on cumulative basis.i.e. Claim of earlier years’ expenses was also made n this year. In assessment order 2012-12, the cost of the assessee on ESOP expenses as stated in para 4.3.3 of the order of only Rs. 1045671/- whereas the claim of the assessee is Rs. 17919730/-. The ld CIT (A) directed the ld AO to follow the decision of Biocon Ltd. he further directed the ld AO to consider the case of the assessee for earlier years also on the merits. The ld AO aggrieved with this direction is in appeal before us.
7. The ld DR on both these issues relied upon the grounds of appeal. He submitted that the depreciation is not crystallized during the year whereas the ld CIT (A) with respect to ground No. 2 has incorrectly directed the ld AO to consider the additional claim of deduction of employee compensation and for earlier years.
8. The ld AR submitted that the ld CIT (A) has directed the ld AO to consider the issue on the merits of the case of ESOP expenses following the decision of the special bench and therefore the revenue cannot be aggrieved. With respect to the depreciation, he submitted that the ld CIT (A) has in principle held that the assessee is eligible for deduction of deprecation @60% on software. However, for the purpose of computation of actual cost he directed the ld AO to verify the same. He therefore submitted that there is no grievance to the revenue.
9. We have carefully considered the rival contentions and orders of the lower authorities. As far as ground No. 1 is concerned, we find no infirmity in the order of the ld CIT (A) in upholding that depreciation on software is allowable @60%. However, for working out actual block of asset on which depreciation is to be allowed, he directed the ld AO to verify the same. We find no infirmity in the decision the ld CIT (A), therefore, ground No. 1 of the appeal is dismissed.
10. Coming to ground No. 2 where the assessee raised an additional claim before the ld AO by way of letter and did not made a claim by filing revised return, was rejected by the ld AO on the merits as well as on the ground that no revised return is filed by the assessee claiming the above deduction. The ld AO followed the decision of the Hon’ble Supreme Court 284 ITR 323. The grievance of the revenue is with respect to the direction of the ld CIT (A) to consider the additional claim of deduction on account of employee compensation expenses amounting to Rs. 1.79 crores, which is rejected by the ld AO. The direction of the ld CIT(A) is mainly contained in paragraph No. 4.3.5.11 and 12 of the order which is as under:-
4.3.5.11 Here, since there is a prima facie case in favour of the appellant, therefore, respectfully following these decisions, I would be inclined to direct that the Assessing Officer considers the claim on merits and in any case, after due verification and provide necessary relief as per law and as directed in para 4.3.5.8 above.
4.3.5.12 Coming to the quantum of claim made, I observed that from the table reproduced at para 4.3.3 above, the appellant has claimed Rs.179,19,730/- as EOSP cost allowable for the year under consideration. However, I find that this claim has been made on cumulative EOSP cost basis. The claim is apparently not in tune with the ratio of Biocon case relied on, where the claim is allowable on straight line basis. The AO has to restrict the claim of deduction on the same basis and as regards the disallowance that may follow, the AO may consider the claim in other years (including earlier years) and as per law, when such a claim is made by the appellant.”
11. On careful analysis of the order of the ld CIT (A), we find no infirmity in his direction as far as in principle, he allowed the claim of the assessee and directed the ld AO to compute the deduction of ESOP expenses by following the decision of the special bench of ITAT in case of Biocon Ltd 35 Taxmann.com 335. However, carefully looking to the claim of the assessee it was found that the assessee has claimed deduction at Rs. 1,79,19,730/- whereas the amount of expenditure pertaining to the FY 2011-12 was only Rs. 10,45,671/-. Balance claim was of earlier years. The ld CIT(A) directed the ld AO to restrict the claim of deduction of Rs. 10,45,671/- only against the claim of the assessee at Rs. 1,79,19,730/-. Further, surprisingly he also directed the ld AO to consider the claim of other earlier years when such claim is made by the appellant. We find that above further direction are not warranted pertaining to earlier years for the reason that ld CIT (A) does not have any power to direct ld AO for allowability of such claim for earlier years. If assessee wishes to claim, there is no fetter on the right of the assessee, but the claim should be in accordance with the law. If assessee makes a claim for deduction of balance expenditure in earlier years, whenever such a claim is made, the ld AO may examine the same and decide the issue on merits in accordance with law. To that extent, the direction of the ld CIT (A) to the ld AO is required to be modified. Other than what is indicated above, we do not find any infirmity in the order of the ld CIT (A).
12. In the result, the appeal of the revenue is dismissed with above direction.
Order pronounced in the open court on 02/07/2020.
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