ITAT CHENNAI BENCH 'C'

IT Appeal Nos. 266 & 656 (Mds.) of 2012
[ASSESSMENT YEAR 2007-08]

ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND V. DURGA RAO, JUDICIAL MEMBER

R. Vijayaraghavan for the Appellant.
Pragati Kumar for the Respondent.

Abraham P. George, Accountant Member - These are appeals filed by the assessee and Revenue against an order dated 21.11.2011 of Commissioner of Income Tax (Appeals)-IV, Chennai.

2. Appeal of the Revenue is taken up first for disposal. Revenue has raised nine grounds, of which, ground Nos.1 and 9 are general needing no adjudication.

3. Vide its ground No.2, Revenue is aggrieved that CIT(Appeals) reduced a disallowance made by the A.O. under Section 14A of Income-tax Act, 1961 (in short 'the Act'), to 2% of the income claimed as exempt by the assessee.

4. Facts apropos are that Assessing Officer had disallowed Rs. 21,65 lakh applying Rule 8D of Income-tax Rules, 1962, against a claim of tax free interest and dividend of Rs. 7.05 crore. Though the assessee had argued that it had not incurred any expenditure for earning the exempt income, it was not accepted by the Assessing Officer.

5. Appeal of the assessee before CIT(Appeals) was successful. According to him, decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 was in assessee's favour. As per ld. CIT (Appeals), Rule 8D could not be applied for impugned assessment year. Nevertheless, he held that Section 14A enabled the Assessing Officer to make a reasonable disallowance. He sustained disallowance to 2% of the exempt income claimed by the assessee.

6. Now before us, learned D.R., strongly assailing the order of CIT (Appeals), submitted that Assessing Officer was justified in invoking Rule 8D for working out disallowance under Section 14A of the Act.

7. Per contra, learned A.R., in support of the order of CIT (Appeals), submitted that Hon'ble jurisdictional High Court in the case of Simpson & Co. Ltd. v. Dy. CIT [TC(A) No.2621 of 2006, dated 15.10.2012] had held 2% to be a reasonable estimation for disallowance to be made under Section 14A of the Act.

8. We have perused the orders and heard the rival submissions. Without doubt, Rule 8D was not applicable for impugned assessment year in view of the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). However, Section 14A enabled the Assessing Officer to make a disallowance as warranted by the facts and circumstances in years prior to assessment year 2008-09. Ld. CIT(Appeals) held that disallowance of 2% of the exempt income was a fair estimation of expenses incurred for earning such income, relying on the decision of co-ordinate Bench of this Tribunal in the case of ABI Showatech (India) Ltd. in I.T.A. No. 246/Mds/2011 dated 18.11.2010. We do find that Hon'ble jurisdictional High Court in the case of Simpson & Co. Ltd. (supra) had upheld estimation made for expenditure attributable to dividend income at 2% of managerial expenses was justified. Relevant para 2 of the order of Hon'ble jurisdictional High Court is reproduced hereunder:-

"2. Learned counsel appearing for the assessee as well as learned standing counsel appearing for Revenue submits that the issue involved in this Tax Case (Appeal) is covered by a decision of this Court dated 08.08.2012 in T.C. (A) No.2287 of 2006 in the case of M/s EID Parry (India) Limited v. The Joint Commissioner of Income Tax, wherein this Court pointed out that in the absence of any materials regarding incurring of expenditure, the Tribunal was justified in confirming the order of the Commissioner of Income Tax (Appeals) that the deduction of 2% managerial expenses had to be made while calculating deduction under Section 80M. Thus being pure question of fact, there being no other material in support of the claim made, the order of the Tribunal was confirmed."

However, the above decision was rendered in the context of Section 80M which is a section allowing deduction against gross total income. However, in the instant case, the income was claimed exempt under one or other of various sub-sections of Section 10 of the Act. Hence, in our opinion, decision in Simpson & Co. Ltd.'s case (supra) may not help the assessee. Therefore, in the interest of justice, we set aside the orders of the authorities below and remit the issue of disallowance of expenditure against income claimed as exempt, back to the file of the A.O. for consideration afresh in accordance with law.

9. Ground No.2 is thus allowed for statistical purposes.
10. Vide its ground No.3, Revenue is aggrieved on the deletion of disallowance of power charges of Rs. 4.63 crore.

11. Assessee had entered into a Tripartite Agreement with UTI Bank and Wescare India Ltd., under which it held an operating lease for wind electric generators. M/s UTI Bank was the lessor. M/s Wescare India Ltd. was generating power out of such wind generators, and the electricity was to be fed in the grids of Tamil Nadu Electricity Board. Assessee was to get credit against the supply of electricity, from M/s Tamil Nadu Electricity Board. Assessee was to pay M/s Wescare India Ltd. an agreed amount based on number of units supplied by it to TNEB. Such payments were made through account payee cheques. As per the Assessing Officer, assessee was the owner of the windmills, and therefore, payment to M/s Wescare India Ltd. could not be allowed. He disallowed such a claim, as was done in the earlier assessment years.

12. Assessee's appeal before CIT(Appeals) was successful. CIT(Appeals), following his own earlier order for assessment years 2002-03 to 2006-07, deleted the addition made by the Assessing Officer.

13. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that Revenue had gone on appeal against the order of CIT(Appeals) for earlier assessment years. Therefore, according to him, CIT(Appeals) ought not have placed reliance on his earlier orders, while allowing the claim.

14. Per contra, learned A.R. submitted that Revenue's appeal on this issue before this Tribunal, already stood decided. As per learned A.R., the matter had been remitted by this Tribunal in Revenue's appeal for assessment years 2005-06 and 2006-07 in I.T.A. Nos. 249 & 1166/Mds/2010. Placing a copy of the order dated 6.1.2012, learned A.R. submitted that the matter required a fresh look by the Assessing Officer.

15. We have perused the orders and heard the rival submissions. On a similar issue raised by the Revenue in an appeal filed by it for assessment years 2005-06 and 2006-07, this Tribunal held as under in its order dated 6th January, 2012:-

"6. In ground No.3 in the Revenue's appeal it was the submission that the issue was against the decision of the disallowance of power charges. It was the submission that in the course of assessment the Assessing Officer had disallowed the claim of power charges by relying upon the assessment order for the assessment years 2003-04 and 2004-05. It was the submission that the learned CIT(A) had deleted the same by following his predecessor's order for the assessment years 2003-04 and 2004-05. However, it was fairly conceded by both the sides that the issue had been restored to the file of the Assessing Officer by the Tribunal for the assessment years 2002-03, 2003-04 and 2004-05 in ITA Nos.1635/Mds/2007, 2510/Mds/2007 and 1565/Mds/2008 dated 10.06.2011. It was fairly agreed by both the sides that they had no objection if the issue is restored to the file of the Assessing Officer for re-adjudication. Consequently, respectfully following the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment years 2002-03, 2003-04 and 2004-05, this issue is restored to the file of the Assessing Officer with similar directions as given in the said earlier order of this Tribunal. It was also agreed that this issue was the ground No.1 in the Revenue's appeal in ITA No. 1166/Mds/2010 also. Consequently, the same finding applies to ground No.1 of the Revenue's appeal in ITA No. 1166/Mds/2010."

Accordingly, for impugned assessment year also, the matter is remitted back to Assessing Officer for consideration afresh, in accordance with directions given in the orders of this Tribunal in I.T.A. No. 1635/Mds/2007, I.T.A. No. 2510/Mds/2007 and I.T.A. No. 1565/Mds/2008 dated 10.6.2011.

16. Ground No.3 is allowed for statistical purposes.

17. Vide its ground No.4, Revenue is aggrieved regarding deletion of disallowance of additional depreciation on plant and machinery. As per Revenue, items on which depreciation was claimed, were in the nature of office assets and not used in any manufacturing purpose.

18. Facts apropos are that Assessing Officer had disallowed a claim of additional depreciation of Rs. 9.58 lakh for a reason that plant and machinery on which such claim was preferred, was used for non-manufacturing purposes.

19. Assessee in its appeal before CIT(Appeals), argued that the machinery were used only for manufacturing purposes and nothing was kept in the corporate office. As per the assessee, even the software purchased was used for ordering material, which was used in the manufacturing process.

20. Ld. CIT(Appeals) was appreciative of assessee's contentions. According to him, assessee was a manufacturer of automobile spare parts and machinery purchased was utilized in its manufacturing activity. Therefore, he held assessee as eligible for claiming additional depreciation.

21. Now before us, learned D.R., assailing the order of CIT(Appeals), submitted that the assets on which additional depreciation was disallowed by the A.O. comprised the following items:-

The software on which assessee had claimed such depreciation was SAP R/3. According to him, the assets on which additional depreciation could be allowed, was restricted to assets used in manufacturing activity. None of the above assets were so used.

22. Per contra, learned A.R., in support of the order of CIT(Appeals), submitted that it was not necessary that plant and machinery should be used in manufacturing activity to claim additional depreciation. There was no requirement to have any operational connectivity. Reliance was placed on the decision of Hon'ble jurisdictional High Court in the case of CIT v. VTM Ltd. [2009] 319 ITR 336/[2010] 187 Taxman 39 (Mad.).

23. We have perused the orders and heard the rival submissions. There is no dispute that the additional depreciation claimed by the assessee was on plant and machinery. Only qualm of the Revenue is that such plant and machinery was used in office and not in the manufacturing activity of the assessee. However, it is an admitted position that assessee was already engaged in manufacturing activity. Hon'ble jurisdictional High Court in the case of VTM Ltd. (supra) had held that a condition for claiming additional depreciation was that acquisition or installation had to be after 31.3.2002. Their Lordship held that it was not necessary for a new plant and machinery to have operational connectivity to products already being manufactured. We are of the opinion that the above decision comes to the aid of the assessee. Further, computer software was SAP R/3 generally used in managing inventory as well. We are therefore of the opinion that CIT(Appeals) was justified in allowing such claim.

24. Ground No.4 of the Revenue is dismissed.

25. Vide its ground No.5, grievance raised by the Revenue is that CIT(Appeals) deleted apportionment of expenditure on Research & Development to the units on which assessee had claimed deduction under Section 10B of the Act.

26. Assessee had claimed deduction under Section 10B on two units, viz. Apache Exports and Roll Tec Engineering. Assessing Officer found that the assessee had claimed scientific research expenditure, but no part thereof was allocated to these units. Assessing Officer, therefore, indulged in an apportionment of such expenditure over these two units. Though assessee claimed that products manufactured by it from such units, were time tested ones, and no R&D efforts were required for it, this was not accepted by the Assessing Officer. Result was that the claim of deduction under Section 10B was reduced by an amount of Rs. 27,37,344/- for Apache Exports and the loss claimed on Rolltec Engineering increased by Rs. 54,12,000/-.

27. In its appeal before CIT(Appeals), argument of the assessee was that the scientific research expenses were incurred for developing new products and not in relation to any of the items manufactured from the units for which deduction under Section 10B was available. As per the assessee, Assessing Officer had made a pro rata allocation of a deduction claimed under Section 35(AC) on donation paid to Swami Vivekananda Rural Society Development and Sundaram Medical Foundation. This had nothing to do with any scientific research. Even capital expenditure relating to scientific research was also allocated.

28. Ld. CIT(Appeals) was appreciative of assessee's contentions made before him. According to him, allocation of scientific research expenditure to 10B units were not correct. Just because of the probability that units on which deduction under Section 10B was available might have also benefitted out of research would not be a reason, according to him, to make such apportionment. In this view of the matter, he deleted the allocation of scientific research expenditure to the units on which assessee had claimed deduction under Section 10B of the Act.

29. Now before us, learned D.R., assailing the order of CIT(Appeals), submitted that scientific research expenditure had relevance to all the units of the assessee including the units on which deduction under Section 10B was claimed. If such expenditure was not correctly allocated, the profit claimed on such units will be higher the profits of the other units. Therefore, according to him, apportion was correctly done by the Assessing Officer. CIT(Appeals) fell in error in disturbing such apportionment.

30. Per contra, learned A.R., strongly assailing the order of CIT(Appeals), submitted that Hon'ble jurisdictional High Court in assessee's own case in TC(A) No.738, 739 of 2005 held this issue in favour of assessee.

31. We have perused the orders and heard the rival submissions. The dispute is regarding scientific research expenditure of the assessee, which was allocated by the Assessing Officer to the units on which deduction under Section 10B was claimed. As per assessee, the research was not related to any of the products manufactured by such units, but was for development of new products. Assessee had claimed weighted deduction under Section 35(2AB) on expenditure of Rs. 5,83,66,790/- incurred on acquiring capital assets for its Research & Development. Weighted deduction was also claimed on revenue expenditure of Rs. 12,38,76,337/- incurred in its Research and Development facilities. Weighted deduction was claimed at 150%. Assessee also claimed a sum of Rs. 5,84,49,176/- as expenditure incurred in relation to R&D under Section 35(1)(iv) of the Act. Though the assessee mentioned that the products manufactured in the units for which 10B was available, were time tested products, A.O. was of the opinion that assessee was manufacturing Pad Assembly from its Apache Export Unit and DIH Brakes, Adaptor Casting Machine, Air, Calliper Assembly and Piston Assembly from its Rolltec Engineering Unit. As per A.O., the new products developed could be used extensively for export purposes. However, we find nothing is available on record to show what tangible benefit, if any, assessee had derived on account of the research work. Whether any such earlier research had helped the assessee with regard to its activities in the units on which it had claimed deduction under Section 10B of the Act, is also not on record. CIT(Appeals) had given relief to the assessee accepting its claim that it had not incurred any such expenditure with reference to the units on which 10B deduction was claimed. We are of the opinion that the matter requires a fresh look by the Assessing Officer. Assessing Officer has to verify whether the research done by the assessee had any tangible benefit vis-à-vis the activities carried on by it from the units on which deduction under Section 10B was claimed. Assessing Officer has to compute such data with regard to research expenditure incurred in earlier years and come to a conclusion in this regard. Assessee has to co-operate with the Assessing Officer and give necessary information. We, therefore, set aside the orders of authorities below and remit this issue back to Assessing Officer for consideration afresh.

32. Vis-à-vis the decision of Hon'ble jurisdictional High Court in assessee's own case in TC(A) No.738 & 739 of 2005 (supra), the question there was regarding distribution of expenses for R&D to its Sholinghur Unit for the purpose of computing deduction under Section 80HHC and 80-I of the Act. Since, for the impugned assessment year, the claim is under Section 10B of the Act, and Research & Development expenditure which has been allocated, is not relatable to Sholinghur unit, we are of the opinion that judgment of Hon'ble jurisdictional High Court, relied on by the assessee, would not help its case.

33. Ground No.5 of the Revenue is allowed for statistical purposes.
34. Vide its ground No.6, Revenue is aggrieved that the CIT(Appeals) allowed setting off of loss in 10B units against profits of non-10B units.

35. While computing the income of the assessee, Assessing Officer disallowed assessee's claim for set off of loss incurred in its 10B units against profits of non-10B units.

36. Appeal of the assessee before CIT(Appeals) was successful. According to him, Section 10B only exempted profits, but it did not mean that loss, if suffered, could not be set off. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of Lason India (P.) Ltd. v. ITO [2008] 301 ITR (AT) 306 (Chennai). According to him, assessee was entitled to such claim.

37. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that for computing total income, units on which deduction under Section 10B was claimed had to be considered independently. Loss incurred in such an unit could be allowed carried forward, but could not be set off against the income for non-STP or non-10B units. Reliance was placed on the Hon'ble Karnataka High Court in CIT v. Yokogawa India Ltd. [2012] 341 ITR 385/21 taxmann.com 154.

38. Per contra, learned A.R., supporting the order of CIT(Appeals), placed reliance on the decision of Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119.

39. We have perused the orders and heard the rival submissions. No doubt, Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) had held that exemption under Section 10A was to be allowed without set off of brought forward unabsorbed loss and depreciation from earlier assessment year or current assessment year from a non-STP unit. Special Bench of this Tribunal in the case of Scientific Atlanta India Technology (P.) Ltd. v. Asstt. CIT [2010] 38 SOT 252 (Chennai) had also held that deduction under Section 10A was undertaking specific. The analogy will clearly apply in the case of units on which deduction is claimed under Section 10B as well, since Section 10A and Section 10B are similarly worded. Nevertheless, issue before Hon'ble Karnataka High Court, was regarding claim of deduction under Section 10A, on profits of an EOU, without setting off of brought forward loss of earlier years. In our opinion, the issue before Hon'ble Karnataka High Court was entirely different from the issue raised by the Revenue before us. Here it is a claim for set off loss of a unit on which claim under Section 10B could be preferred with the profits of a unit on which deduction under Section 10B was not available. This issue, in our opinion, has already been resolved in favour of assessee by Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. (supra). In the said case, assessee had four units which were eligible for deduction under Section 10B, of which, three units had returned profits, whereas, the fourth unit returned a loss. Deduction was independently claimed for the profits of the 10B units. Loss of the fourth unit was allowed to be set off against profits of the units on which there was no deduction available under Section 10B. Later the assessment was sought to be reopened. Their Lordship held the reopening done for disallowing set off of the loss of the fourth unit to be invalid. Their Lordship observed that assessee was entitled to claim deduction in respect of the profits of three eligible units, and also entitled to claim set off of loss arising in the fourth unit against other business income. We are of the opinion that this decision clearly goes in favour of assessee. Ld. CIT(Appeals) was justified in directing the Assessing Officer to allow set off of loss in the 10B units with profits in other non-10B units.

40. Ground No.6 of the Revenue stands dismissed.

41. Vide its grounds 7 and 8, grievance raised by the Revenue is that CIT(Appeals) deleted disallowances made under Section 40(a)(i) of the Act in respect of payments of export sales commission and payments towards logistic services, made to non-residents, for non-deduction of tax at source.
42. Facts apropos are that assessee had effected following payments, during the relevant previous year, to parties outside India, without deducting tax at source:-

Assessing Officer disallowed the above claim under Section 40(a)(i) of the Act.

43. In its appeal before CIT(Appeals), argument of the assessee was that export commission, and professional and consultancy charges were paid for rendering services outside India and the agents concerned had no permanent establishment in India. The amounts paid were the business income of the concerned non-residents. Therefore, according to the assessee, Section 195 was not attracted and it was not bound to deduct any tax at source. Insofar as logistics support services were concerned, assessee argued that concerned non-residents also had no permanent establishment in India and TDS provisions also did not apply. Ld. CIT(Appeals) accepted these contentions of the assessee and held that disallowance under Section 40(a)(i) was not warranted. He deleted the disallowance.

44. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that payments were made by the assessee for managing its sales outside India. As per learned D.R., these payments were made for managerial services and such managerial services fell under the head "fees for technical services". The persons who had received the payments provided assessee facilities of warehousing and helped it in distributing the consignments, and delivery to its customers. According to him, it fell under Explanation 2 to Section 9(1)(vii) of the Act. Similarly, logistics services also were intrinsically connected to the sales outside India and this, inter alia, included warehousing facility provided by the Non-resident. This also, as per learned D.R., comes within the realms of managerial services. Ld. CIT(Appeals) fell in error in holding that assessee was not liable to deduct tax for payments effected to non-residents for these services.

45. Per contra, learned A.R. submitted that similar issues had already come before this Tribunal in Revenue's appeal for assessment year 2005-06 in I.T.A. No. 250/Mds/2010 and this Tribunal had held in favour of the assessee.

46. We have perused the orders and heard the rival submissions. Purposes for which assessee had made payments to non-residents have already been given by us in the table at para 42 above. Assessee had not deducted tax at source while effecting such payments. As per the A.O., these expenditure were nothing but for managerial services rendered by the non-residents outside India. Further, as per the Revenue, explanation inserted by Finance Act, 2010 under Section 9(2) of the Act with retrospective effect from 1.6.1976, had dispensed with the condition regarding residence or place of business or business connection in India, for attracting rigours of Section 9(1)(vii). Therefore, according to them, CIT(Appeals) fell in error in holding that assessee was not liable to deduct tax at source. In this regard it is important to have a look at the explanations given by the assessee on the payments effected by it to the Non-residents. With regard to commission, assessee had before Assessing Officer, given a copy of the letter issued to the non-resident party which read as follows:-

"Assistance
You will render full assistance and co-operation with regard to the follow up of schedules and other correspondence that emanate from customers from time to time regarding the agreed products.

You will also be required to ensure the consignments are cleared, warehoused and distributed by nominated agents for onward delivery to customers. Expenses incurred on account of the above will be reimbursed by Brakes India and shall be supported by relevant basic documents. All other expenses related to the specific products including ASN (Advance Shipment Note) submission, sample certification, training and other direct expenses related to subject merchandise will be reimbursed. Supporting documents will have to be provided with the invoices. A copy of the agreement entered with nominated agent is to be forwarded to us for our approval/records.
You will have to arrange for monthly Stock Statement - part number wise for us to cover insurance and for monitoring the Stock levels."

With regard to warehousing charges including logistics charges, explanation given by the assessee to the A.O. was as under:-

"Freight and warehousing charges - The entire expenditure were wholly incurred outside India in terms of transportation, delivery and logistics costs. Those expenditure being incurred outside India are not liable for deduction of tax at source and those income are not liable for tax in India. Further all those agents do not have any PE's in India. Separate sheet detailing the break-up along with remarks is attached for your perusal. Also we enclose sample copies for distribution and logistics costs to substantiate that the expenditure were wholly incurred outside India."

Assessing Officer had also extracted the pertinent parts of the agreement assessee entered with M/s Volvo, which read as under:-

" "Services" means sea freight of the container from the port of departure, India to the port of Gothenburg, Sweden custom clearance, haulage of the container to VLCs warehouse at Arendal, Gothenburg, storage of the Products for an average period of five weeks and on time delivery according to VCTs call offs to VLCs factories in Gothenburg, Sweden and Ghent, Belgium. Consolidation of incoming delinses from VTC and material control.
Scope

During the terms of this Agreement VLC undertakes to carry out Services in accordance with the working instructions, specifications, quality requirements and procedures given to VLC by or on behalf of BRAKES INDIA and in such way that the work satisfies VTCs specifications and requirements as stated in the Customer Contracts or the Appendices hereto including the weekly inventory to be sent to BRAKES INDIA and the on time delivery of the Products to VTC in the quantities agreed upon.

VLC and BRAKES INDIA will, until the termination of this Agreement meet together at agreed intervals but in any event no less than once every half year at an agreed location to review the progress of the Services."

47. In our opinion, nature of services mentioned above will come not within the definition of "fees for technical services" given under Explanation 2 to Section 9(1)(vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technique or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said non-residents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bona fide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld. CIT(Appeals). No interference is called for.

48. Ground Nos.7 and 8 are dismissed.
49. In the result, appeal of the Revenue is partly allowed for statistical purposes.
50. Now we take up the appeal of assessee.
51. Assessee in its ground No.1 assails disallowance of additional depreciation of Rs. 4,91,39,749/-, which was the balance of its claim for preceding assessment year.

52. Assessee had claimed additional depreciation for machinery newly added, by it during the preceding assessment year 2006-07. Since the machinery were used for a period less than 180 days in the preceding assessment year, assessee had to restrict its claim to 50% of the normal rate of additional depreciation, allowed under the Act. However, for impugned assessment year, assessee claimed carry forward of the balance 50% of the additional depreciation. Assessing Officer was of the opinion that additional depreciation could be allowed only for new assets added during the year. As per the A.O., since the claim of the assessee related to additions to assets, made in the preceding assessment year, it could not be allowed. In other words, as per Assessing Officer, residual additional depreciation from earlier year could not be allowed for carry forward to a subsequent year. Assessee's appeal before CIT(Appeals) was not successful.

53. Now before us, learned A.R., assailing the orders of lower authorities, submitted that Section 32(1)(iia) was amended with effect from 1.4.2006. According to him, the present requirement was only of installation of the asset on which additional depreciation was claimed. Such additional depreciation was statutorily allowable, once assets were installed. According to him, though this Tribunal had held against the assessee on a similar issue for assessment year 2006-07 in its order dated 6th January 2012 in I.T.A. No. 1069/Mds/2010 amended provision was not considered by the Tribunal.

54. Per contra, learned D.R. supported the orders of authorities below.
55. We have perused the orders and heard the rival submissions. Claim of the assessee is under Section 32(1)(iia), which allow additional depreciation for new machinery or plant acquired and installed after 31st March, 2005. The said sub-clause (iia) of Section 32(1) reads as under:-
"32 (1) In respect of depreciation of -

(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture and production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):
Provided that no deduction shall be allowed in respect of -

First requirement for being eligible for such a claim is that it should be on a new machinery or plant. A machinery is new only when it is first put to use. Once it is used, it is no longer a new machinery. Admittedly, the machinery, on which carry forward additional depreciation has been claimed, was already used in the preceding assessment year though for a period of less than 180 days. Therefore, for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed to it. Additional depreciation itself is only for a new machinery or plant. Hence, carry forward of any deficit additional depreciation which, as per assessee, arose on account of use for a period less than 180 days in the preceding year, if allowed, will not be an allowance for a new machinery or plant. Further, a look at second proviso to Section 32(1)(iia) clearly shows that it restricts a claim of depreciation to 50% of the amount otherwise allowable, when assets are put to use for a period of less than 180 days irrespective of whether such claim is for normal depreciation or additional depreciation. Thus intention of the Legislature was to give such additional depreciation for the year in which assets were put to use and not for any succeeding year. There is nothing in the statute which allows carry forward of such depreciation. There cannot be any presumption that unless it is specifically denied, carried forward has to be allowed. What can be carried forward and set off have been specifically mentioned in the Act. This Tribunal in assessee's own case in I.T.A. No. 1069/Mds/2010 dated 6th January, 2012, at para 15, held as under:-

"15. We have considered the rival submissions. A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee's case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. Consequently, ground No.1 of the assessee's appeal stands dismissed."

We are therefore of the opinion that CIT(Appeals) was justified in following the view taken by coordinate Bench of this Tribunal.
56. Ground No.1 of the assessee stands dismissed.

57. Vide its ground No.2, grievance raised by the assessee is that higher depreciation on UPS was denied. As per assessee, UPS was an energy saving device eligible for higher depreciation prescribed.

58. We find that this issue had come up in assessee's appeal for assessment year 2006-07. This Tribunal at para 16 of its order dated 6.1.2012 (supra), had held as under:-

"16. In regard to ground No.2 it was submitted by the learned authorized representative that the issue was against the action of the learned CIT(A) in confirming the disallowance of higher depreciation on the UPS which was energy saving device. It was fairly agreed by both the sides that the issue was now covered by the decision of the coordinate Bench of this Tribunal in the case of DCIT v. Surface Finishing and Equipment reported in 81 TTJ 448 (Jodh.). As it is noticed that the issue is squarely covered by the decision of the coordinate Bench of this Tribunal, referred to supra, the Assessing Officer is directed to grant the assessee higher rate of depreciation on the UPS, which is an energy saving device. In the circumstances ground No.2 in the assessee's appeal stands allowed.

17. In the result appeals of the Revenue in ITA Nos. 249 and 1166/Mds/2010 are partly allowed for statistical purposes and the appeal of the assessee in ITA No.1069/Mds/2010 is partly allowed."

59. Respectfully following the coordinate Bench order, we hold that assessee was eligible for higher rate of depreciation on UPS treating it an energy saving device.
60. Ground No.2 of the assessee stands allowed.
61. Vide its ground No.3, grievance raised by the assessee is that CIT(Appeals) confirmed a disallowance of expenses incurred for purchase of software license.

62. Facts apropos are that assessee had claimed a sum of Rs. 15.72 lakh as Revenue outgo incurred for acquiring software license, during the relevant previous year. As per assessee, the amount was paid for "Virtual Lab Durable Software" for Fatigue Rig and there was no requirement to deduct any tax at source on the purchase consideration paid. However, Assessing Officer was not impressed. According to him, the payment could only be treated as royalty coming within the purview of Section 9(1)(vi) of the Act. As per the A.O., assessee had acquired only right to use the software and had to deduct tax at source under Section 195 of the Act. He applied Section 40(a)(i) and made a disallowance of Rs. 15.72 lakh.

63. Appeal of the assessee before CIT(Appeals) was not successful. CIT(Appeals) held that Section 40(a)(i) was attracted relying on the decision of Delhi Bench of this Tribunal in the case of Gracemac Corpn. v. Asstt. DIT [2010] 42 SOT 550.

64. Now before us, learned A.R., assailing the orders of lower authorities, submitted that software was only a license that was purchased. There was no royalty involved in the payment effected. According to him, Hon'ble Delhi High Court in the case of DIT v. Nokia Networks OY [2012] 212 Taxman 68/25 taxmann.com 225 had held that consideration paid for supply of software was not taxable. Reliance was also placed on the decision of same High Court in the case of DIT v. Ericsson A.B. [2012] 343 ITR 470/204 Taxman 192/[2011] 16 taxmann.com 371 (Delhi).

65. We have perused the orders and heard the rival submissions. The nature of software, which was acquired by the assessee, is not at all clear from the orders of authorities below. Except for mentioning that it was for purchasing "Virtual Lab Durable Software for Fatigue Rig", no other information is forthcoming. The question whether the payment was made for acquiring right for using a software or for a copyrighted software cannot be answered without such data. Hon'ble Delhi High Court in the case of Ericsson A.B. (supra) was dealing with a case where assessee had received the title of a GSM system, of which software was an inseparable part. The software was incapable of independent use. In the case of Nokia Networks OY (supra) also, it was a bundled sale where 70% of revenue was attributable to equipment, whereas, 30% was attributable to supplier of software. The facts before us are not sufficient to come to a rational conclusion on these lines. Authorities below had obviously failed to verify the type of software before coming a conclusion that the payment effected by the assessee to the non-residents was royalty. We, therefore, set aside the orders of authorities below and remit the issue back to the file of A.O. for consideration afresh, in accordance with law.

66. Ground No.3 raised by the assessee is allowed for statistical purposes.
67. In the result, appeal filed by the assessee is partly allowed for statistical purposes.