HEWLETT PACKARD FINANCIAL SERVICES (INDIA) P. LTD,BANGALORE vs. ASST CIT CIR 2(1)(2), BANGALURU

The ld. AR submitted that HP Indigo Digital Press Printer cannot work without the aid of the computer and that it is a settled position that the peripherals which are integral part of the computer that cannot be used without the computer are to be considered as computers for the purpose of allowing hire rate of deprecation at 60%. The ld. AR further submitted that since the Act does not defined a term "Computer" the definition under the Information Technology Act has to be considered as it reflects the common parlance of the definition that will aid to interpret the actual meaning of computer. The ld. AR also submitted that HP Indigo Digital Press Printer is an integrated part with the computer in as much as without necessary software and computing capabilities the printer cannot be operated. The ld. AR placed reliance on the decision of Hon'ble Madras High Hewlett Packard Financial Services (India) Pvt. Ltd. Court in the case of CIT vs. Cactus Imaging India Pvt. Ltd. [2018] 93 taxmann.com 396 (Mad.) where it has been held that the printer being a part of computer is eligible for depreciation @ 60%. The ld. AR submitted that the similar view has been held by the Jurisdictional High Court in the case of CIT vs. Saraswat Infotech Ltd. where ATM Machines are held to be eligible for depreciation @ 60% for the reason that the ATM cannot function without the help of computer and would be part of the computer used in the banking industries. The ld. AR argued that the ratio laid down in these case are applicable to the issue under consideration and therefore the assessee is entitled to claim depreciation @ 60% on HP Indigo Digital Press Printer.

We heard the parties and perused the material on record. It is a settled position that a printer being integral part of computer is eligible for depreciation @ 60% and various judicial forums have been consistently holding this view. The Hon'ble Madras High Court in the case of M/s Cactus Imagine India Pvt. Ltd. (supra) has considered a similar issue where it has been held that “2. These tax case appeals, by the Revenue, have been admitted on the following substantial question of law: 'Whether on the facts and circumstances of the case, the Tribunal was right in holding that printers are eligible for 60% depreciation, when the entry in the depreciation table specifically says, "computers including computer software?"

We find that this material fact has been consistently followed by the first Appellate Authority and the Tribunal in the assessee's own case and we find no material or reason to differ from the said finding of fact. Furthermore, we find that this issue is a pure question of fact and no question of law arises for consideration in this Tax Case (Appeal). Accordingly, this Tax Case (Appeal) stands dismissed. No costs.”

It was further pointed out that the rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous.

By applying the rule of interpretation, we find that the relevant entry under old appendix I Clause III(5) states "computers including computer software" and the Notes under the Appendix defines 'computer software in Clause 7 to mean any computer program recorded on disc, tape, perforated media or other Hewlett Packard Financial Services (India) Pvt. Ltd. information storage device. Noteworthy to mention that the notes contained in the appendix, the term "computer" has not been defined. Therefore, as pointed out by the Division Bench in Bimetal Bearings Lid (supra), if a particular article would fall within the description by the force of words used, it is impermissible to ignore the word description. Thus, going by the usage of the equipment purchased by the petitioner, we have to take a decision.

In paragraph 6 of the order passed by the Commissioner of Income Tax (Appeals), it has been stated that it can be inferred that the machines "computer printers" under consideration can either be called computers-printers, since a lot of independent functions done by the computers are done by these printers and they can be called an integral part of the computer system. Therefore, the Commissioner of Income Tax (Appeals) came to the conclusion that it should be treated as part of the computer and an accessory to the Computer. This factual finding cannot be dislodged by us, as no material has been placed by the Revenue before this Court.”

From the perusal of the above decision of the Hon'ble High Court, we notice that the underlying principle for allowing hire rate of deprecation to printers is that the printers are integral part of the computer system that cannot function without computer. We further notice that the Hon'ble Bombay High Court in the case of Sarswat Infotech Ltd. has allowed hire rate of deprecation to ATM Machines on the same principle.

In the given case it is submitted that HP Indigo Digital Press Printer is a digital offset printer predomenently used for commercial jobs like printing industrial labels, plastic cards speciality products etc. The printer receives commands from a computer attached to it for carrying out the printing function and the computer contains a software programme i.e. specific to such printer where the design intended to be printed is created / modified in the computer. The Hewlett Packard Financial Services (India) Pvt. Ltd. computer then converts its input command into a machine readable format which HP Indigo Digital Press Printer uses to execute the printing function. From the perusal of these facts as submitted, it is clear that HP Indigo Digital Press Printer cannot work in isolation and can perform the act of printing only with the support of the computer. Accordingly, we see merit in the submission that HP Indigo Digital Press Printer is integral part of the computer that cannot function independently. Therefore, respectfully the ratio laid down in the judicial precedents, we hold that HP Indigo Digital Press Printer is entitled for depreciation @ 60% as applicable to computers. The grounds raised by the assessee in this regard are allowed.

During the course of assessment proceedings the AO issued a notice u/s. 133(6) of the Act to M/s Hewlett – Packard India Sales Pvt. Ltd. (HPIS) and from the reply received noticed that HPIS has written off bad debts of Rs. 11,77,01,185/- towards the assessee. Accordingly, the AO called on the assessee to justify as to why the liability outstanding against HPIS should not be treated as ceased. The assessee submitted that HPIS records sales in its books immediately on raising invoice on the assessee whereas the assessee records the liability towards HPIS only upon acceptance of equipment by the customer. The assessee submitted that in respect of the amount written off by HPIS the sales invoice would have been accounted against the assessee and in the absence of acceptance the assessee would not have recognized the liability towards HPIS. The assessee also submitted that since no liability is recorded against HPIS the writing off of bad-debts to the books of HPIS does not result in cessation of liability in the hands of the assessee due to different accounting practices adopted by HPIS and the Hewlett Packard Financial Services (India) Pvt. Ltd. assessee. However, the AO did not accept the submissions of the assessee stating that the assessee has not supported the said contentions with actual documents. The AO further held that the impugned transactions are totally unrecorded which is not acceptable and accordingly treated the amount as addition u/s. 41(1) of the Act. Before the CIT(A) the assessee made similar submissions and further stated that the addition u/s. 41(1) would arise only where the assessee has earlier been allowed a deduction in any previous year. The assessee also submitted that in any case the transaction with HPIS is that of purchase of capital asset and that the liability towards the purchase is not recorded in the books of the assessee until the books are accepted by the customers. The CIT(A) after considering the submissions of the assessee held that “5.2. I have circumspected the facts and circumstances of the case and have carefully considered the finding of the Assessing Officer as well as rival submission of the Appellant, the facts of the case is that M/s. Hewlett Packard H.P. (I) Pvt. Ltd. has sold out goods to the Appellant company worth of Rs. 11,77,01,185/-Subsequently, in this year this company has written off such liability as Bad Debt. This fact was noticed by the Assessing Officer through inquiry u/s.133(6) of the Income-tax Act, 1961. Obviously, such written off of liability by the seller of goods/IT equipments which are being leased out by the Appellant, a gain or income to the Appellant. It may not be taxable u/s 41(1) of the Income-tax Act, 1961 if such amount have not allowed or claimed as deduction in any A.Y. but such cessation of liability is taxable because the Appellant has claimed depreciation on such equipment and secondly, it's business is related to leasing of assets which is a stock-in-trade or an asset which are subject to business transactions of revenue nature. The claim of the Appellant that this transaction is capital in nature is not tenable because of the nature of business activity of the Appellant. The Appellant was incorporated in India on 18.01.2001 which is subsidiary of M/s. Hewlett Packard Financial Services, Venture Services Holding, U.S.A. The Appellant has certificate to engage in leasing business as a non-banking Financial Company from Reserve Bank of India. As admitted by the Assessee, it is engaged in the business of providing innovative technology, leasing and financing assets of Management as well as to customers in India. Thus, apart from loan arrangement, it also does hire purchase and finance lease business. The Hewlett Packard Financial Services (India) Pvt. Ltd. Appellant claims depreciation on all such equipment, projects is given on lease. "Thus, it is very evident that such cessation of liability by the principal is a revenue gain to the Appellant. The Ld. Assessing Officer has rightly noted in Para 9.3 of the assessment order that the Assessee has not shown the transaction in his books of accounts and when inquiry was made from the principal, it came to the notice that the sale price have been written off but Assessee has suppressed the same whereas there is a visible gain of such trading liability as Bad Debts. Obviously, by letter dated 24.04.2014, the Appellant has not given satisfactory reply to the Assessing Officer. The relevant part of the letter have been reproduced by the Assessing Officer in Para 9.2 of the assessment order. Thus, the contention of the Appellant that such expenditure has been paid in earlier year hence, Sec.41(1) cannot be applied, is out of context) Reason is very obvious that IT equipment has been purchased and depreciation has been claimed and selling party has become principal, has written off the trading liability, hence, there is a gain/income to the Appellant because Appellant had not to pay purchase price of the goods on which depreciation has been claimed. Therefore, the addition so made of Rs.11,77,01,185/-is sustained.”

That takes us to the next question as to what constitutes remission or cessation of the liability. It cannot be disputed that the words "remission" and Hewlett Packard Financial Services (India) Pvt. Ltd. "cessation" are legal terms and have to be interpreted accordingly. In State of Madras v. Gannon Dunkerley & Co (Madras) Ltd. AIR 1958 SC 560 Venkatarama Aiyyar J. explained the general rule of construction that words used in statutes must be taken in their legal sense and observed:- "The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense and that, accordingly, the legislation must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law". In our opinion, this rule should be applied to the interpretation and understanding of the words "remission" and "cessation" used in the section.”

The AO on perusal of the return filed for the year under consideration noticed that the assessee has claimed brought forward unabsorbed depreciation from AY 2002-03 to AY 2008-09 as tabulated below: Assessment Year Brought forward unabsorbed depreciation as per return – Rs. 2002-03 31,61,233/- 2003-04 3,82,151/- 2004-05 15,38,89,295/- 2005-06 8,79,04,436/- 2006-06 14,73,98,816/- 2007-08 30,50,17,004/- 2008-09 20,09,28,456/-

The AO further noticed that the assessee did not file the return of income for AY 2002-03 to AY 2008-09 except for AY 2003-04 and issued a show-cause notice to the assessee as to why the brought forwards unabsorbed depreciation should not be disallowed. The AO also called on the assessee to file copy of order u/s. 143(1) or any document in support of its claim of return for these years. The assessee submitted before the AO that the return for AY 2002-03 and 2003-04 Hewlett Packard Financial Services (India) Pvt. Ltd. were filed within the time prescribed u/s. 139(4) and that for the rest of the AYs the returns were filed beyond the due date. The assessee further submitted that the carry forward of unabsorbed depreciation is deemed to be part of and stand on the same footing as current depreciation and that there is no time limit for carry forward of unabsorbed depreciation. Accordingly, the assessee submitted that the unabsorbed depreciation should be allowed to be carry forward even where no return is filed. The AO did not accept the submissions of the assessee and disallowed the claim of depreciation on the ground that the assessee has not filed any valid return of income. On further appeal, the CIT(A) held that “6.3. As evident from the above admission of the Appellant that return of income from A.Y.2002-03 to A.Y.2008-09 have never been filed on time. Thus, it is very evident that such return of income, if these have been filed have definitely been not filed within time limit and further no notice u/s.148 of the I.T. Act, 1961 has been issued for escapement assessment hence, no depreciation could be allowed mechanically without scrutinizing the veracity of claim and correctness of income. It is also very important to keep into notice that the Ld. Assessing Officer has mentioned in the assessment order that no valid return of income has been filed and claim was disallowed in A.Y.2009-10. Further, the Ld. Assessing Officer gets support from the decision of Madras High Court, in the case of Sri Rajarathinam Transports Pvt. Ltd. v/s. CIT(1993) 71 Taxmann 128 (Mad.). When no return of income has been filed and no assessment has been made in A.Y.2002-03 to 2008-09, claim of the Appellant must not be accepted mechanically. Sec. 139(3) of the I.T. Act, 1961 provides that if any Assessee/person has sustained in loss, he has to furnish return of income within the time allowed under sub-section 1 of Sec. 39 of the I.T. Act, 1961. In most of the case relied upon by the Assessing Officer, facts are different as in those cases, depreciation have been quantified or legally ascertained in earlier year. Here in these cases, return of income was not filed and no assessment was made u/s.143(1) or u/s.143(3) or u/s.147 or u/s. 154 hence, it cannot be presumed that such claim of depreciation is correct, genuine and based on evidences or is legally allowable. Therefore, after gap of 6 years, if such claim is made without filing valid return of income, such claim of the Appellant cannot be entertained mechanically, therefore, stand of the Assessing Officer is approved and claim of the Appellant is rejected.”

The ld. AR submitted that as per the provisions of section 32(2) the unabsorbed depreciation becomes part of the depreciation of the current year and therefore the same cannot be denied on the ground that no return has been filed by the assessee. The ld. AR drew our attention to the requirement u/s 80 towards submission of return for losses which contains all losses except unabsorbed depreciation. The ld. AR also drew our attention to the provisions of section 139(3) which specifically covers all carry forward losses except unabsorbed depreciation stating that the assessee is required to file the return of loss in the prescribed form. Accordingly, the ld. AR argued that the combined perusal of the above provisions of the Act makes it clear that the requirement to file the return of income in order to carry forward unabsorbed depreciation is not provided in the Act and therefore the assessee's claim cannot be denied on that ground. The ld. AR also argued that the return for all the AYs were filed by the assessee though beyond the due dates prescribed u/s. 139(4) which the AO could have considered and issued notice u/s.

Since the AO did not issue the notice u/s 148 the ld. AR argued that the return filed by the assessee beyond the due date u/s.139 is deemed to have been accepted by the AO. The ld. AR without prejudice made an alternate claim that in case the unabsorbed depreciation is not allowed to be carry forwards then the written down value of the asset should be increased to that extent. The ld. AR further submitted that by denying the carry forward of unabsorbed depreciation and by reducing the cost of asset by depreciation would amount to double disallowance which is not tenable.

The ld. DR on the other hand submitted that the returns filed beyond the due date u/s 139(4) is a non-est return and therefore the unabsorbed depreciation for the years where the assessee has not filed the return of income cannot be allowed to be carry forward. The ld. DR further submitted that the alternate plea of the Hewlett Packard Financial Services (India) Pvt. Ltd. assessee regarding WDV cannot be allowed since the depreciation allowance is mandatory. The relevant extract from the written submissions of the ld DR in this regard is extracted below – “7.1 With respect to assessee’s argument that to claim unabsorbed depreciation there is no need to file return within due date, the undersigned relies on the reasoning given by AO and CIT(A) in this argument of the assessee. 7.2 Secondly assessee's argument to consider the returns filed after due date specified for belated returns u/s 139(4) cannot be accepted as same is beyond the provisions of statute. Section 139(4) allows any person, who has failed to furnish a return within the time allowed, to furnish a belated return before three months prior to the end of the relevant assessment year or before completion of assessment whichever is earlier. Therefore, any return filed after this dead line u/s 139(4) automatically or by default becomes a non-est return. Or in other words it amounts to 'no filing of any return of income'. Therefore, any claim made under such non-est return is equivalent to no claim. 7.3 Thirdly Assessing Officer has no jurisdiction to accept any such returns, It is beyond his jurisdiction to consider any such returns and claims made therein. There is no provision under Income Tax Act which allows/authorises the Assessing Officer to accept such returns. Even section 139(8A), which allows belated returns with certain conditions, was inserted much later ie. by Finance Act 2022 w.e.f. 01.04.2022 and thus same is not applicable to assessee. Assessee had recourse only u/s 119(2)(b) as such condonation powers lie only with CBDT. U/s 119(2)(b) the CBDT may, if it considers it desirable or expedient so to do for avoiding genuine hardship to an assessee, authorise any income tax authority to admit any such application or claim after expiry of the period specified under the Act. Section 119(2)(b) is reproduced as under: "the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income-tax authority, not being [a Joint Commissioner (Appeals) or] a Commissioner (Appeals)] to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law;"

We heard the parties and perused the material on record. The assessee in the return of income has claimed brought forward unabsorbed depreciation pertaining to AY 2002-03 to 2008-09. The AO / CIT(A) did not allow the carry forward stating that the assessee has not filed the return of income within the due date specified under section 139. In this regard it is relevant to take note of the details of return of income filed by the assessee for these AYs Assessment Year Date of filing of Return 2002-03 12.06.2003 Hewlett Packard Financial Services (India) Pvt. Ltd. 2003-04 31.01.2005 2004-05 19.07.2006 2005-06 12.03.2008 2006-06 15.11.2011 2007-08 15.11.2011 2008-09 15.11.2011

The contention of the assessee is that for the purpose of carry forward of unabsorbed depreciation the law does not provide that the return of income is required to be filed within the due dates specified under section 139. In this regard our attention was drawn to provisions of section 80 and section 139(3) of the Act which read as under – 139 - Return of income. (1) to (1C) *** (3) If any person who has sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains" and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72, or sub-section (2) of section 73, or sub- section (2) of section 73A or sub-section (1) or sub-section (3) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1), a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1).

From the plain reading of the above sections it is clear that the losses under the head "profits and gains from business of profession" and loss under "Capital Gains" are not allowed to be carried forward if the return is not filed within the due Hewlett Packard Financial Services (India) Pvt. Ltd. date for filing the return as specified under section 139(1). Accordingly, the assessee's argument is that the requirement to file the return of income within the due date under section 139(1) is applicable to business loss and not to unabsorbed depreciation which is carried forward under section 32(2). The revenue's contention is that the provisions of section 32(2) allows the carry forward of unabsorbed depreciation is allowed only to the extent determined in assessment and in assessee's case where the return is non est cannot be allowed to be carried forward. In this regard we have perused the other provisions relating to setoff and carry forward of loss such as section 78 which restricts the Carry forward and set off of losses in case of change in constitution of firm or on succession to the losses under Chapter VI where as unabsorbed depreciation is carried forward under section 32(2) under Chapter IV. Now coming to section 157 containing provisions relating to intimation of loss by the AO in the course assessment we notice that the said section provides for intimation of various losses under section 72(1), section 73(2), section 74 (1) / 74(3) or section 74A(3) but does not talk about the unabsorbed depreciation under section 32(2). After the combined perusal of the various provisions under the Act as discussed herein above, we are inclined to agree with the contention of the assessee that the requirement to file the return of income within the due date under section 139(1) is not a condition precedent to carry forward the unabsorbed depreciation. Further in this regard, we notice that the Hon'ble Andhra Pradesh High Court in the case of CIT vs Sri Vijayalakshmi Minerals & Trading Co ([1998] 101 taxman 283 (Andhra Pradesh)) has considered the issue of carry forward of unabsorbed depreciation where the return is considered as non est under the erstwhile section 139(10) and held that the unabsorbed depreciation in respect of preceding assessment year where return was non est by virtue of section 139(10) could be carried forward to current assessment year and set off against the profit of that Hewlett Packard Financial Services (India) Pvt. Ltd. year. When we apply the said ratio to the present case, there is merit in the contention that the unabsorbed depreciation for AY 2002-03 to AY 2008-09 cannot be denied to be carried forward on the ground that the return for the said AYs are non est. It is also relevant to consider Explanation 5 to section 32 which provides the provisions of section 32(1) shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. In other words even if the assessee has not claimed the depreciation allowance in the return of income the law deems it to have been claimed. In assessee's case the in the returns filed beyond the due dates under section 139(1), the assessee has claimed depreciation and therefore in our view the AO cannot deny the unabsorbed depreciation as not having been claimed since the return of income is non est. In view of these discussions we direct the AO to consider the return of income filed by the assessee for AY 2002-03 to 2008-09 for the purpose of determining the unabsorbed depreciation and allow the carry forward of the same in accordance with law. The assessee is directed to submit the required details with regard to the depreciation claimed in AY 2001-03 to 2008-09 before the AO and cooperate with the proceedings. It is ordered accordingly.

The ld. AR submitted that the assessee has received amount against the invoices raised where the customers have short paid and have not issued the TDS certificate. The ld. AR further submitted that the assessee is not able to claim credit for the TDS since the certificate has not been received from the customers. The ld. AR also submitted that the amount not recoverable is therefore written off by the assessee and has used the nomenclature "provision for TDS certificate" whereas in effect the amount written off is bad-debits. Accordingly, the ld. AR submitted that the amount should be allowed as a deduction. The ld. AR with regard to the adjustment made by the AO towards the provision for TDS against book profit u/s 115JB argued that the adjustment does not fall within the purview of the adjustments as provided in section 115JB.

The ld. DR on the other hand submitted that the amount claimed as deduction by the assessee is a provision and is not an actual write off. The ld. DR further submitted that the assessee has not substantiated the basis on which the Hewlett Packard Financial Services (India) Pvt. Ltd. provision is created and therefore, the lower authorities have correctly disallowed the amount. The ld. DR on the issue of adjustment made to profit fairly conceded that if the amount pertains to bad debts then there is no provision u/s 115JB to make the said adjustment.

We heard the parties and perused the material on record. The assessee has made a provision against the amount not recoverable from the customers towards TDS deducted by them since the customers have neither made the full payment nor they issued the TDS certificate. In other words, the provision made by the assessee is towards the short payments received from the customers. Accordingly in our view, there is merit in the submission that the provision made is towards the bad debts though the same is accounted as Provision for TDS. Therefore denying the deduction on the ground that if it is allowed would amount to allowing deduction towards tax. Having said, we notice that the assessee has made an adhoc provision of Rs.4,00,00,000 towards the unrecoverable amount and it is not coming out clearly from the facts before us whether the amount is an actual write off in the books of accounts or a mere provision made. Since the AO has denied the deduction on the ground that Tax cannot be claimed as a deduction, the AO has not examined the allowability in the light of the provisions of section 36(1)(vii). Therefore we remit the issue back to the AO with a direction to examine the claim of deduction under the provisions of section 36(1)(vii) and allow the same in accordance with law. The assessee is directed to submit the relevant details in support of the claim before the AO. It is ordered accordingly.

On the issue of adjustment made towards the above disallowance to the book profit under section 115JB, we notice that the AO has made the adjustment on the premise that the amount claimed is a provision made towards income tax Hewlett Packard Financial Services (India) Pvt. Ltd. paid or payable. We have in the above paragraph have held that the provision made by the assessee is towards amount unrecoverable akin to bad debts. Accordingly we direct the AO to delete the adjustment made to book profit under section 115JB in this regard.

Ground No.5 is with regard to disallowance of depreciation claimed on assets given on finance lease. The ld. AR during the course of hearing submitted that the ground is not pressed since the order of the CIT(A) was subsequently rectified u/s 154 (order dated 11.08.2017) and the disallowance was deleted. Accordingly, the ground is dismissed as not pressed.

Ground No. 6 is with regard to short credit of TDS and in this regard we notice that the CIT(A) has given a direction to the AO to allow the full credit of TDS where the TDS has been deposited into Government Account and there is no deficiency in the documents submitted by the assessee. The ld. AR submitted that section 205 of the Act restricts the recovery of tax from the assessee in case where the tax is deductable at source to the extent to which tax has been deducted from the income. Therefore, the ld. AR argued that the direction of the CIT(A) to give credit only if the TDS have been deposited into the Government Account is not correct. We in this regard issue direction to the AO to examine the facts and give credit to the assessee in accordance with law keeping in mind the provisions of section 205 of the Act. It is ordered accordingly.

Ground No.7 is with regard to interest u/s 234B and penalty u/s 271. The ground is consequential and does not warrant a separate adjudication.

In result, appeal filed by the assessee is partly allowed.