STATE BANK OF INDIA vs. THE JOINT COMMISSIONER OF INCOME TAX

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15TH DAY OF JUNE 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.569 OF 2017 BETWEEN: STATE BANK OF INDIA (FORMERLY STATE BANK OF MYSORE) LOCAL HEAD OFFICE COMPLIANCE DEPARTMENT 4TH FLOOR, 65, ST. MARKS ROAD BENGALURU - 560001 REPRESENTED HEREIN BY ITS DGM & CFO LOCAL HEAD OFFICE BANGALORE MR. RAMESH CHANDRA GOKULAPALAN. ... APPELLANT (BY SRI. T. SURYANARAYANA, ADV.,) AND: THE JOINT COMMISSIONER OF INCOME TAX LARGE TAXPAYER UNITS BENGALURU. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.03.2017 PASSED IN ITA NO.1200/BANG/2014 FOR THE ASSESSMENT YEAR 2008- 09, PRAYING TO:

2 (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE TRIBUNAL PASSED IN ITA NO.1200/BANG/2014 (ANNEXURE-C) FOR ASSESSMENT YEAR 2008-09, TO THE EXTENT QUESTIONED HEREIN & ETC. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2008-09. The appeal was admitted by a bench of this Court on the following substantial questions of law: "(i) the Tribunal was correct in upholding the validity of the re-assessment proceedings concluded under Section 17 of the Act although the necessary requirements under the said provision were not satisfied? (ii) The tribunal was correct in holding that an ATM which performs the functions of a computer such as input, process and output, could not be considered as a

3 'Computer' or 'Computer System' or Computer Terminal' or 'Computer Peripheral Device' for the purpose of claiming depreciation under the Act at 60%? (iii) The Tribunal was justified in placing reliance on the decision rendered in the context of ATM under the Karnataka Sales Tax Act, 1952 ("KST Act") from the perspective of classification of ATM under the entry list provided in KST Act which is invoked in the event of 'sale' of such ATM without considering the aspect of usage of ATM as mandated under section 32 of Income Tax Act, 1961? (iv) the Tribunal, having regard to nature of banking business and quantum of transactions in relation to procurement of capital assets during the year, ought to have considered furnishing of 73% of the invoices in relation to capital assets acquired during the year as furnishing of substantial evidence relating to capital assets and therefore ought to have allowed depreciation under section 32 of the Act, on all the

4 assets, i.e., 100% of the assets acquired during the year?" 2. Facts leading to filing of this appeal briefly stated are that the assessee was formerly known as State bank of Mysore and was a subsidiary of State Bank of India constituted under the State Bank of India (Subsidiary Banks) Act, 1959. The assessee filed the return of income for the Assessment Year 2008-09 declaring total income of Rs.446,01,43,740/-. The assessee in its return claimed depreciation on Automated Teller Machines (ATMs) at the rate of 60% by classifying it to be 'computers'. The return was processed under Section 143(1) of the Act on 29.04.2009 and subsequently, a scrutiny assessment was concluded under Section 143(3) of the Act by an order dated 07.12.2010 determining the taxable income of the assessee at Rs.531,30,96,281/-. The Joint Commissioner of Income Tax re-opened the assessment for the assessment in question under Section 147 of the

5 Act and passed an order dated 17.02.2014 making additions on account of disallowance of depreciation at the higher rate of 25% on ATMs, UPSs, Printers, Scanners and other electrical devices to the extent of non furnishing of the evidence. 3. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) who by an order dated 14.07.2014 upheld the action of the Assessing Officer in re-opening of assessment under Section 147 of the Act as well as on the issue of depreciation. The assessee thereupon filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 24.03.2017 upheld the validity of re-opening of the assessment as well as disallowance of depreciation at 60% on ATMs by relying on its decision in case of the assessee for the Assessment Year 2007-08, the tribunal upheld the disallowance of depreciation. The tribunal also upheld the disallowance of depreciation claimed on

6 assets to the extent invoices were not produced by the assessee. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee submitted that re-opening of the assessment under Section 147 of the Act is invalid as necessary ingredients for re-opening the assessment are not present. It is further submitted that condition precedent for invoking Section 147 of the Act viz., (i) there should be a new tangible material warranting re-opening of the assessment (ii) proposed proceeding should not be on account of mere change of opinion were not fulfilled. It is also argued that re- assessment proceeding cannot be initiated on account of 'borrowed satisfaction' that income chargeable to tax has escaped assessment. It is also urged that ATMs are computers and are eligible for depreciation at the rate of 60% and the substantial question of law Nos.3 and 4 have already been answered in favour of the assessee by a division bench decision of this court in 'CIT VS.

7 NCR CORPORATION (P) LTD., (2020) 117 TAXMANN.COM 252 (KAR). It is also submitted that tribunal as well as the Commissioner of Income Tax (Appeals) and the Assessing Officer erred in not allowing depreciation as claimed under the block 'Computers including Computer Software' despite the fact that the assessee had submitted invoices evidencing acquisition to the extent of 66% of the assets acquired during the year. It is also urged that books of accounts of the assessee are awaited by external auditors and the same are subject to tax audit under Section 44AB of the Act and insistence of the authority for production of 100% invoices negates the very purpose of tax audit and it is rendered as futile exercise. It is also argued that assessee has 900 branches all over India and it is not practically possible to produce 100% invoices in support of additions made to the fixed assets. It is also urged that the tribunal ought to have appreciated that the statutory audit reports were a material evidence and the

8 same should have been considered. In support of aforesaid submissions, reliance has been placed on decisions in 'CIT VS. KELVINATOR OF INDIA LTD.', (2002) 123 TAXMAN 433 (DELHI), 'CIT VS. KELVINATOR OF INDIA LTD.', (2010) 187 TAXMAN 312 (SC), 'BANKIPUR CLUB LTD VS. CIT', (1971) 82 ITR 831 (SC), 'CIT VS. NCR CORPORATION (P.) LTD' supra, and ACIT VS. JAY ENGINEERING WORKS LTD, (1978) 113 ITR 389. 5. On the other hand, learned counsel for the revenue submitted that assessment proceedings have been re-opened in accordance with law and the same does not suffer from any infirmity. It is also urged that burden was on the assessee to show that he was the owner of depreciable asset and that the amount has been expended wholly for the purposes of business. It is also pointed out that all the authorities under the Act have held that assessee has failed to discharge the aforesaid burden as he had not produced the invoices. It

9 is also urged that the decision in case of JAY ENGINEERING WORKS supra is misconceived as in the aforesaid case, the books of accounts were not available as the same were destroyed in fire and therefore, statutory report was taken into account as secondary evidence. It is urged that in the instant case the assessee is in possession of the invoices, however, he has failed to produce the same. It is also urged that the finding in this regard is in conformity with Section 37 of the Act. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The assessee filed the return for the Assessment Year 2008-09 on 28.09.2008 and the assessment was completed on 07.12.2010. A notice was issued to the assessee on 21.03.2013 under Section 148 of the Act and thereafter, reasons for re-opening the assessment were supplied to the assessee on 07.05.2013. Therefore, the re-opening of assessment is in

10 accordance with law and the same has been rightly held to be so by the Assessing Officer, Commissioner of Income Tax (Appeals) and the tribunal. Therefore, substantial question of law No.1 is answered against the assessee and in favour of the revenue. 7. Admittedly, the substantial question of law Nos.2 and 3 have been answered in favour of the assessee by a division bench of this court in 'CIT VS. NCR CORPORATION (P) LTD.', (2020) 117 TAXMANN.COM 252 (KAR) and therefore, for the reasons assigned in the aforesaid judgment, the ATMs are held entitled for depreciation at the rate of 60% as computers. The substantial question of law Nos.2 and 3 are answered accordingly. 8. Now we may advert to the substantial question of law No.4. The burden undoubtedly is on the assessee who has claimed depreciation by producing the evidence on record viz., the invoices. In the instant case,

11 the assessee had produced 66% of the invoices and therefore, the depreciation to the extent of 66% has been allowed by the Assessing Officer, Commissioner of Income Tax (Appeals) as well as by the tribunal. The assessee has not admittedly produced the invoices in respect of 34% of the claim of depreciation. It is not the case of the assessee that he is not in possession of the invoices. It is pertinent to note that in JAY ENGINEERING WORKS supra, the books of accounts of the assessee were burnt in fire and therefore, the statutory audit report was accepted as secondary evidence. The law does not provide for statutory presumption in favour of the statutory audit report. The finding of fact on the aforesaid issue has been recorded by all the authorities viz., the Assessing Officer, Commissioner of Income Tax (Appeals) and the tribunal, which is in conformity with Section 37 of the Act. The aforesaid finding cannot be termed as perverse. For the aforementioned reasons,

12 the substantial question of law No.4 is answered against the assessee and in favour of the revenue. In the result, the order dated 24.03.2017 passed by the tribunal insofar as it pertains to Assessment Year 2008-09 is quashed insofar as it pertains to findings on substantial question of law Nos.2 and 3 and it is held that ATMs are held entitled for depreciation at the rate of 60% as computers. In the result, appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss