The Varachha Co.Op.Bank Ltd., Surat vs Department Of Income Tax

The Asstt. Commissioner The Varachha Co.op. Bank of Income Tax, Circle-9, Ltd. 1 s t Floor, Affil Tower, Surat (Appellant) Vs L.H. Road, Surat PAN: AABAT4356N (Respondent)

Revenue by: Smt. Sonia Kumar, Sr. D.R. Assessee by: None

Date of heari ng : 15-06-2015 Date of pronouncement : 24-06-2015

आदेश /ORDER

PER : RAJPAL YADAV, JUDICIAL MEMBER:-

The revenue is in appeal before us against the order of ld. Commissioner of Income Tax (Appeals) dated 17th March, 2011 passed for Assessment Year 2007-08.

I.T.A No. 1733/Ahd/2011 A.Y. 2007-08 Page No 2 ACIT vs. The Varachha Co.op Bank Ltd

2. Ground no. 1 & 2 are inter-connected with each other. In these grounds of appeal, revenue has pleaded that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 20,04,069/- and Rs. 5,30,590/-.

3. In response to the notice of hearing, no-one has come present on behalf of the assessee. With the assistance of ld. DR, we have gone through the record carefully and proceed to decide this appeal ex-parte qua the assessee.

4. The brief facts of the case are that assessee is engaged in the business of banking. It has filed its return of income on 23-10-2007 declaring total income at Rs. 2,74,17,250/-. The case of the assesse was selected for scrutiny assessment and a notice u/s. 143(2) was issued and served upon it. On scrutiny of the accounts, it revealed that assessee has debited a sum of Rs. 28,62,956/- on software purchases. The purchase invoice was produced before the Assessing Officer. The Assessing Officer observed that in the tax rules the items purchased by the assessee have been included in schedule of assets eligible for depreciation, therefore, it cannot claim the alleged expenditure on software purchases as revenue expenditure. In other words, according to the Assessing Officer, the expenditure is to be treated as capital expenditure and depreciation @ 60% is admissible to the assessee whereas assessee is claiming 100% expenditure in the garb of an argument that it is a revenue expenditure. The ld. Assessing Officer confronted the assessee as to why its claim be not disallowed. The assessee filed a reply vide letter dated 14-12-2009. It pointed out that expenditure of Rs. 28,62,956/- was incurred for upgradation of the existing software installed by the bank i.e. Oracle I.T.A No. 1733/Ahd/2011 A.Y. 2007-08 Page No 3 ACIT vs. The Varachha Co.op Bank Ltd

database, automation of software at headquarter and branches. The Assessing Officer was not satisfied with the explanation of the assesse. He treated the expenditure as capital in nature and allowed the depreciation @ 60%.

5. The assessee has further incurred expenditure on LCD, monitor, UPS, printer, port switches. The ld. Assessing Officer did into treat these expenditures at par with computer but treated them as electrical installation and granted depreciation at a lower rate. The assessee has claimed depreciation of Rs. 5,30,590/- on these items @ 60% which has been disallowed by the Assessing Officer.

6. On appeal, ld. Commissioner of Income Tax (Appeals) has allowed the expenditure incurred by the assessee on up-gradation of the computers as revenue expenditure and also deleted the disallowance of depreciation on printers, LCD, monitor etc.

7. With the assistance of ld. DR, we have gone through the record carefully. As far as the disallowance of depreciation @ 60% on printers, scanners, monitors, UPS, port switches are concerned; the issue is covered in favour of the assessee by the decision of Hon'ble Delhi High Court rendered in the case of CIT vs. BSES Rajdhani 1266/2010 decided on 31st August, 2010. The ITAT has also considered this issue in the case of Samiran Mazumdar reported in 98 ITD page 119. In these decisions, it has been observed that printers and scanners are integral part of computers, they cannot function independently, therefore, the depreciation admissible to them is at part with a computer.

I.T.A No. 1733/Ahd/2011 A.Y. 2007-08 Page No 4 ACIT vs. The Varachha Co.op Bank Ltd

8. As far as the first issue is concerned, we are of the view that assessee has not acquired any new asset in the form of computers rather it has just got upgraded its software already installed in some of the computers. It is also pertinent to note that some of the software might be required to upgrade annually, therefore, it is basically a revenue expenditure. The Assessing Officer has not disputed the functions of the software upgraded by the assessee. He simply observed that since it is an asset included in the schedule on which depreciation is admissible, therefore, it is to be treated as a capital asset and expenditure incurred on it would fall within the ambit of capital expenditure. On the other hand, Ld. First Appellate Authority has appreciated the contentions of the asssessee and thereafter allowed the expenditure. We do not find any error in the order of ld. Commissioner of Income Tax (Appeals) on these issues.

9. In the next ground, the grievance of the revenue is that ld. Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 5,43,527/-. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has distributed gifts amongst the children of the members. He disallowed the claim on the ground that expenditure was not incurred for the purpose of the business. On the other hand, the contentions of the assessee was that gifts were given to the children of the members who had secured high marks in the examination. The assessee was able to promote its business by introducing such schemes and making popular among the members. Ld. first appellate authority has accepted this contention of the assessee and allowed the claim.

10. Ld. DR relied upon the order of Assessing Officer. On due consideration of facts and circumstances, we find that ld. Assessing Officer I.T.A No. 1733/Ahd/2011 A.Y. 2007-08 Page No 5 ACIT vs. The Varachha Co.op Bank Ltd

has not pointed out as to how element of personal nature in these expenditures is involved. If assessee has formed a uniform policy by giving gifts to meritorious children of its members, then, it is just building the brand name of its bank amongst its members. It is one of the policies which will make the bank popular amongst the members. Therefore, ld. first appellate authority has rightly allowed the expenditure to the assessee. This ground of appeal is rejected.

11. In the result, appeal of the revenue is dismissed.

Order pronounced in the open court on 24-06-2015

Sd/- Sd/-

(G.D. AGRAWAL) (RAJPAL YADAV) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad : Dated 24/06/2015 ak आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file.

By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद