Zed Assets Is Also Subject Todisallowance Under Section 40(A)(I) Of Theact? v. Commissioner Of Income-Tax, (1999) 106 Taxman 166 (Sc)And"Shrt

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 9 DAY OF DECEMBER 27070PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASADILT.A. NO.341 OF 2016 BETWEEN: 1.|THE PR. COMMISSIONER OF INCOME-TAX| INTERNATIONAL TAXATION. 7TH FLOOR, BMTC BUILDING| 80 FEET ROAD, KORMANGALA| BANGALORE-560095. 2.|THE INCOME-TAX OFFICER. INTERNATIONAL TAXATION. WARD-1(2), 4TH FLOOR| BMTC BUILDING, 80 FEET ROAD. KORMANGALA, BANGALORE-560095. (BY SRI. K.V. ARAVIND, ADV.,) .., APPELLANTS. AND" M/S. KAWASAKI MICRO ELECTRONICS INC.17TH FLOOR, CONCORDE BLOCK|UB CITY, VITTAL MALLYA ROADBANGALORE-560001 PAN: AACCK /495E. (BY SRI. T. SURYANARAYANA, ADV.) .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 29.06.20L5 PASSED IN ITA NO.1221/BANG/2014 FOR THE ASSESSMENT YEAR 2009-10,PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (11) ALLOW THE APPEAL AND SET ASIDE THE ORDERS.PASSED BY THE ITAT, BENGALURU IN ITA NO.1221/BANG/2014.DATED 29-06-20L5 CONFIRMING THE ORDER OF THE APPELLATE.COMMISSIONER AND CONFIRM THE ORDER PASSED BY THEINCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(2),_BENGALURU.» (III) TO PASS SUCH OTHER SUITABLE ORDERS AS THIS)HON BLE COURT DEEMS FIT OT GRANT IN THE FACTS AND)CIRCUMSTANCES OF THE CASE IN THE INTERES! OF JUSTICE.AND EQUITY. THIS|ITACOMING|ONFOR.HEARING,|THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 11.01.2017 on the following substantialquestion of law: Whether on the facts and In thecircumstances of the case the Tribunal I[sright in law in holding tnat assessee isentitled for depreciation claimed under| section 32 of the Act on an capitalized|expenditure on imported software which|was purchased by paying Rs.4.05 Crores.without deducting TDS as required undersection 195 of the Act without appreciatingthat section 40 starts with a non-obstante|clause overruling the section 30 to 38 of theAct and therefore the claim of depreciation|on the capitalized assets is also subject todisallowance under section 40(a)(i) of the|Act? 2.|We have heard the learned counsel for theparties at length. Learned counsel for the revenue.submitted that assessee has imported software and paidRs.4.05 Crores without deducting tax at source underSection 195 of the Act. It is further submitted that|assessee has capitalized the imported software andclaimed depreciation. The Assessing Officer disallowed|the depreciation invoking Section 40(a)(i) of the Act.|However, the Commissioner of Income Tax (Appeals).and the tribunal have deleted the disallowance. It Is! submitted that consequences of failure to deduct tax atsource either on expenditure under Section 32 orSection 37 result in disallowance under Section 40(a)(i)|of the Act. It is also submitted that depreciation is adeduction of expenditure for the period of the assetacquired at the prescribed rate of the percentage.|Hence, the depreciation would par take the character ofdeduction as referred to Section 40 of the Act. It Is also|argued that Section 32 of tne Act considers thedepreciation as deduction and if the finding of the|tribunal is accepted, the same would amount to defeatthe purpose and object of enacting Section 40(a)(i) of|theAct. ItISalsoSubmittedthat|disallowancecontemplated under Section 40(a)(i) of the Act would beapplicable even for denying depreciation under Section.32 of the Act. In support of aforesaid submissions,reliance has been placed on decisions in.MYSOREMINERALS LTD, VS. COMMISSIONER OF INCOME-TAX, (1999) 106 TAXMAN 166 (SC)and"SHRT, CHAUDHARYTRANSPORT|COMPANYVSITO’,(2020) 81 TAXMANN.COM 47 (SC). CHAUDHARYTRANSPORT|COMPANYVSITO’,(2020) 81 TAXMANN.COM 47 (SC). 3.Learned counsel for the assessee submitted|that depreciation is not an outgoing expenditure and.therefore, provisions of Section 40(a)(ia) of the Act arenot attracted. It has been further held that there is no.requirement of law permitting deduction of tax out of theexpenditure which has been capitalized and no amountwas claimed as revenue expenditure, therefore, nodisallowance under Section 40(a)(i) of the Act could bemade. It is also urged that depreciation is a statutorydeduction availabie to the assessee on the asset wnicn Is!wholly or partly owned by the assessee and used for thepurpose of business or profession. It is further submittedthat depreciation is just an allowance and not anexpenditure loss or trading liability. It is further.submitted that in view of the concurrent findingsrecorded in favour of the assessee the substantialquestion of law be answered in favour of the assessee. In support of aforesaid submission reliance has beenplaced on decisions in‘COMMISSION OF INCOME-TAXVS. MARK AUTO INDUSTRIES LTD.', (2013) 40°TAXMANN.COM 48)and"NECTAR BEVERAGES (P.).LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX’, (2009) 182 TAXMAN 319. 4We have considered the rival submissions.made on both the sides and have perused the record.The tribunal has not taken into account the decision|rendered by M/S WIPRO LTD. VS. DCIT, 383 ITR 1/79(KAR) and without assigning any reasons has placedreliance on decision of the coordinate bench. Therefore,in peculiar facts of the case , the impugned order passedby the tribunal is quashed and the matter is remitted totribunal for decision afresh and in accordance with law in!the light of rival contentions made by the parties. —Therefore, it is not necessary for us to answer thesubstantial question of law. | ��� ���������1,���������������������������� ����������������������