HINDUSTAN FIELD SERVICES P.LTD,NAVI MUMBAI vs. DCIT CIR 1(1)(2), MUMBAI

1. Confirming the reclassification made by Assessing Officer of the items of additions to Block of Computers amounting to Rs.1,45,59,565/- out of the total additions of Rs.1,63,44,565/- to the Block and confirming the partial disallowance of depreciation claim on the Block of Computers. Mum 2016-Hindustan Field Services Pvt. Ltd.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Department Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that assessee is in the business of providing field services to Hindustan Unilever Ltd. about the sales and merchandise services across all channels and categories, trade marketing, optimization or store presence, modern trade, best trade practices capabilities, market intelligence, brand advisory services, general trade channel, brand activation for food division, rural sales promotion and merchandising for 4 Mum 2016-Hindustan Field Services Pvt. Ltd. ice cream, event co-ordination. The assessee provided Mobiles-phones and Tablets to its field employee. Mobiles-phones or Tablets were used for compiling records, computer, processing, acquisition and shortage, storing and transmitting data to the system functioning as computers. It was explained to the Assessing Officer that mobiles phones, tabs were purchased for the use of representative in the field to transmit data about the information as per survey conducted to the computer at centre.

It was canvassed by ld. AR for the assessee that the break-up of Mobiles and computers were never asked by Assessing Officer. The Assessing Officer acted in a manner which is not permissible under the Act. The 5 Mum 2016-Hindustan Field Services Pvt. Ltd. Assessing Officer cannot tamper with the written down value (WDV).

In support of his submission, the ld. AR of the assessee on the point of functional test to be applied relied upon the decision of Hon’ble Supreme Court in ACIT vs. Victory Aqua Farm Ltd. (379 ITR 335 (SC), CIT vs. Karnataka Power Corporation ( 274 ITR 268 (SC), CIT vs. Dr. B. Venkata Rao (243 ITR 81 (SC). On the submission that opening WDV cannot be disturbed, the ld. AR of the assessee relied upon the decision of Delhi Tribunal in Actis Advisers P. Ltd. vs. ACIT (146 ITD 314 (Del-Trib.), decision of Gujarat High Court in Banco Products (India) ltd. vs. DCIT (379 ITR 1 (Guj.), decision of Bangalore Tribunal in Akzo Nobel Coatings India P. Ltd. vs. DCIT (152 TTJ 774) and decision of Mumbai Tribunal in DCIT vs. Essar Steel Ltd. (61 SOT 39 (Mum-Trib.). The ld. AR of the assessee further submits that case law relied by Assessing Officer in Federal Bank vs. ACIT 9322 ITR 319 (Kerala) is not applicable on the facts of the present case. 6 Mum 2016-Hindustan Field Services Pvt. Ltd.

On the other hand, the ld. DR for the revenue relied upon the order of lower authorities. The ld. DR further submits that all the submission made by assessee was not made before the lower authorities. The peripheral of computers are not computers. The assessee has not provided breakup of Mobiles and Computers in its depreciation schedule under Tax Audit Report (TAR), therefore, fresh examination of all assets are required to be made. On the submission of ld. AR of the assessee that ground no.3 was not adjudicated. The ld. DR submits that the matter may be remanded back to the ld CIT(A) for adjudication of ground no.3 as well. In support of his submission, the ld. DR for the revenue relied upon the decision of Hon’ble Kerala High Court in Federal Bank Ltd. vs. ACIT (supra).

We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also deliberated on various case laws relied by lower authorities as well as by representative of the parties. Ground No. 1 to 3 & 5 relates to claim of depriciation on Mobile Phones and Tablets @ 60%. In the return of income, the assessee claimed depreciation @ 60% on Mobile Phones and Tablets classifying them as computer. The Assessing Officer allowed depreciation only @ 15% treating them as a part and partial of Plant & Machinery and liable for depreciation on @ 15%. The Assessing Officer also concluded that Mobiles Phones and Tablets are not computer. The Assessing Officer 7 Mum 2016-Hindustan Field Services Pvt. Ltd. while allowing depreciation @ 15% relied upon the decision of Hon’ble Kerala High Court in Federal Bank Ltd. (supra). Before ld CIT(A) the assessee furnished its exhaustive written submission which has been reproduced by him in para-3.1 of his order. It was also explained the nature of duties of marketing/field personnel deployed by the assessee company all over the country. It was further explained that the Mobile Phones and Tablets were provided to those employees who required up to date regular information about the market sports, dealer-wise position of supplied, storage availability of store, its proper display for taking decision to approach the customer adopting marketing plans. It was also explained that assessee used information technology extensively for the purpose of rendering services efficiently and effectively, for which acquire computer hardware and software and set up the system to capture the data and enabled the field worker after their data processing and take further decision to execute business. The field representative of assessee, who visits the market spot all over the country and conduct survey, supervises implication of strategy and report the position to center using information technology. Representatives required instrument with necessary data card, broadband width. The assessee also submitted that the decision in the case of Federal Bank Ltd. (supra)

We have noted that the assessee explained to the ld. CIT(A) that mobiles phones, tabs were purchased for the use of representative in the field to transmit data about the information as per survey conducted to the computer at centre. Mobiles Phones and Tabs are used as a part of system connected to the office. These units being part of the information system in operation to conduct the business. The Mobiles Phones and Tabs having capability to perform the functions of computers and are used as such to enter data store, process and/or transmit them to the system in the office where all other information is collected and processed. In our view, the Tablets and Mobile Phones are used by the representative, which have capability to perform the function for data entry, store, process and to transmit the data to the main computer system in the office of assessee are integral part of computer system.

The Special Bench of Mumbai Tribunal in Data Craft India Ltd. (supra) considered the issue pertaining to the interpretation for the term ‘computer’ for the specific purpose of allowance of depreciation on computer. It was held that in a common sense and popular 9 ITA No. 4472 Mum 2016-Hindustan Field Services Pvt. Ltd. understanding refers to any electronic or other high speed data processing device which performs ‘logical, arithmetic and memory functions on data’ and includes all input and output device which are connected to or related to it.

Coordinate bench of Hyderabad Tribunal in Ushodaya Enterprises Ltd Vs ACIT (supra) held that any device when they are used along with computer and when their functions are integrated with computer comes within the ambit of expression of ‘computer’. It was further held that printers, scanners, modems, switches, hubs, cables/ cards and softwares are eligible for 60% depriciation.

In view of the above factual and legal discussion, we are of the view that the assessee is entitled for depriciation on mobile phone and tablets at 60%. Since, the AO has recorded the finding that no details of mobile phone and tablets were provided by assessee, on the contrary the ld. AR for the assessee vehemently submitted that no such details were asked by AO. Considering the fact that we have hold the assessee eligible for depriciation @ 60% on mobile phone and tablets, the assessee is directed to provide the details to the AO. The AO after verification of the details shall allow depriciation on all smart mobile phones and tablets @ 60%.

The decision of Hon’ble Kerala High Court in Federal Bank Ltd. V ACIT (supra) relied by Assessing Officer is not applicable on the facts 10 Mum 2016-Hindustan Field Services Pvt. Ltd. of the present case. The instrument i.e. EPABX and Mobile Phones used as a communication equipments were not allowed for higher rate of depreciation i.e. for 60% depreciation. However, in the present case, all the Mobiles Phones and Tabs are used as a unit as a part of information system in the operation of assessee for conducting survey, transmit data about the information of the survey conducted to the computer centre.

In the result these ground No. 1 to 3 & 5 are allowed.

Ground No. 4 relates to re-classification of the opening Written Down Value of the Block of Asset of Computers and holding part of the opening balance of the Block as Plant & Machinery for allowance of Depreciation. As we have noted the ld AR for the assessee vehemently submitted that the opening WDV cannot be disturbed and relied on the decisions of Delhi Tribunal in Actis Advisers P.

In the result, appeal of the assessee is allowed.