Unreported Decisions – April 2022
By Ajay R. Singh, Advocate and CA Rohit Shah
1. Section 263- Revision held invalid when two possible views are possible on merits of a question- the AO has adopted one view :
The the assessee was the resident of USA and was filing his return of income in USA. The assessee did not file return of income for the year under consideration. On the basis of NMS data available on the ITS, it was noticed that, the assessee had purchased a property for the consideration of Rs.50,40,000/-. In view of this fact the assessment was reopened u/s 147/148 of the Act and accordingly the assessment was completed u/s 144 r.w.s. 147 of the Act whereby the income of the assessee was assessed to the tune of Rs.16,80,000/- being 1/3rd of the value of the property. On verification, it was found that there was nothing on record to establish the share of investment made by each of three persons and no material was available to establish about the filing of the return of other two persons. Therefore, PCIT invoked revision u/s 263 of the Act as the order was erroneous in so far as prejudicial to the interest of the revenue.
Assessee submitted that The PCIT did not record the reasons to which the order passed by the AO is erroneous and prejudicial to the interest of the revenue. In first reason for invoking the revisional power by the PCIT is in connection with the total investment in the property and in second reason, the PCIT mentioned about taxing the other two persons who were the share-holder in purchased the property. These facts had already been considered by the AO while passing the assessment order. The assessee had already been taxed to the extent of 1/3rd share meaning thereby a possible view has already been taken by the AO. Nothing therein to mention about the erroneous of order and prejudicial to the interest of the revenue. In these facts and circumstances and relied upon the decision in the case of CIT Vs. Gabrial India Ltd. 203 ITR 108 (Bombay HC) wherein it was held that the AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion. Such a conclusion could not be termed as erroneous simply because the CIT did not feel satisfied with the conclusion. The Hon’ble Court has also noted that though the words ‘prejudicial to the interest of the Revenue’ have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised.
The ITAT referred to various cases such as CIT Vs. Arvind Jewelers 259 ITR 502 Gujrat HC, CIT Vs. Hindustan Coco Cola Beverages Pvt. Ltd. 331 ITR 192 (Del), , CIT Vs. Sunbeam Auto Ltd., 332 ITR 167 and held that since the matter of controversy had already been examined by AO and a possible view had already been taken, therefore, invoking the revisional power u/s 263 of the Act nowhere seems justifiable. And thus, allowed Assessee’s Appeal.
Anand Vithal v. PCIT-27 Navi Mumbai
[ITA No.1139/Mum/2021 dated 7/4/2022 ; Bench A; A.Y. 2010-11]
ITA No.1139/Mum/2021 dated 7/4/2022
2. S. 11: Applicability of proviso to section 2(15)
Assessee is a company engaged in the business of manufacturing of fertilizer chemicals and paints. It filed its return of income at a loss of Rs. 1,84,26,369/- under normal provisions and at a book profit of Rs. 6,40,71,301/- under section 115JB of the Act. The return of income was selected for scrutiny and assessment order under section 143(3) of the Act was passed determining the total income of the assessee at Rs. 2,44,00,300/-.
Assessing officer considered the software as intangible asset depreciable at 25% instead of 60% as claimed by the assessee. The disallowance of depreciation on software ERP SAP is of Rs. 3,84,70,669/-.
Assessee has installed ERP SAP software amounting to Rs. 10,99,16,199/-. The assessee claimed depreciation thereon under section 32 of the Act at the rate of 60%. The learned Assessing Officer held that depreciation at the rate of 60% is allowable only on computers and software embedded in such computers which are part and parcel and are inseparable. Therefore, according to the learned Assessing Officer assessee has acquired only the license and hence, it is eligible for depreciation at the rate of 25% applicable to intangible assets.
The assessee preferred the appeal before the learned CIT(A). The learned CIT(A) held that depreciation at the rate of 60% is allowable only on system software which are integral part of the computer, however, the claim of the assessee was depreciation at the rate of 60% on ERP SAP software which is nothing but a software for the automation of office working.
Assessee submitted that the depreciation Schedule as New Appendix-I and in Part-A (tangible assets) at serial no. 5 of plant and machinery, where ‘computers including the computer software’ are eligible for depreciation at the rate of 60%. He further referred to note No. 7 where computer softwares are defined. He submitted that there is no justification to consider the depreciation at higher rate only on systems software. He further relied on the decision of Hon’ble Madras High Court in CIT vs. Computer Age Management Services (P.) Ltd. [2019] 109 taxmann.com 134 (Madras), wherein a software license acquired by the assessee is allowed depreciation at the rate of 60%.
Hon’ble ITAT observed that entry number 5 under Part A allows depreciation at the rate of 60% on computers including computer software. Note-7 states that computer software means any computer programme recorded on any disk, tape, perforated media or other information storage device. Apparently, it does not make any difference between application system software or application software. Further, part B of appendix-1 prescribed deprecation at the rate of 25% on certain intangible assets such as knowhow, patents, copy rights trademarks, license fee, franchise or any other business or commercial right of similar nature. Therefore, held that the license obtained by the assessee would fall in the definition of computer software so as to make it eligible as tangible asset and then depreciation rate at the rate of 60% will apply and thus allowed the appeal.
M/s Arkema Chemicals India P. Ltd. v. ACIT Circle 15(1)(1) Mumbai [ITA No. 1032/ Mum/2021 dated 22/4/2022; Bench A AY 2017-18 ]