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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Dy. Commissioner of Income Tax, Prime Focus Ltd. Central Range-4, Room No. 409, 2 Anand Kunj, North Avenue, Vs. 4th Floor, Ayakar Bhavan, M.K. Linking RD, Santacruz (w) Marg Mumbai-400 020 Mumbai-400054 Appellant .. Respondent PAN No. AAACP6811B Revenue by .. Shri B. Satyanarayana Raju, DR .. Shri Rushabh H Vyas, CA, AR Assessee by Date of hearing .. 12-04-2017 .. Date of pronouncement 12-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-52, Mumbai, in appeal No. CIT(A)-52/IT/DC/AC-CC-4(4)/112/2013-14 dated 30- 12-2014. The Assessment was framed by DCIT (OSD)-I, CR-7, Mumbai for the A.Y. 2009-10 vide order dated 30-04-2013 u/s 143(3) read with section 144C of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) in allowing depreciation at the rate of 60% on computers and computer based items instead of 25% allowed by AO. For this Revenue has raised following grounds: - “Whether on the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the editing equipments based on computer as computer without considering the fact that the addition towards excess claim of depreciation for A.Y.2004-05 was confirmed by the Ld. CIT(A) wherein it was held that items claimed as computers are merely supporting the computer rather than the computer itself.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation 60% treating them as computer instead of 25% applicable for machineries.”
We have heard the rival contentions and gone through the facts and circumstances of the case. Brief facts are that the AO disallowed the claim of depreciation, claimed by assessee at 60% on editing equipments claiming them as computers, and restricting the depreciation at 25%. Aggrieved assessee preferred the appeal before CIT(A), who after considering submissions of assessee, the certificate of charter engineer certifying assets as computer vide his letter dated 22-12-2014 and assessee’s own case for AY 2005-06, wherein identical issue was considered by CIT(A) allowed the claim of deprecation at the rate of 60% by observing in para 8 to 12 as under: - “8. I have considered the facts of the case, submissions and contentions of the assessee as also order of the AO. While completing the assessment, the AO rejected the claim of the. assessee, on the grounds that these editing equipments were not computers as a whole, but it is one part fitted in it. Therefore, he chose to disallow the claim of the assessee. Before proceeding further, it will be relevant to discuss the nature and specifications of these assets and whether the same amounts to 'computer' or not, as under: - Sl Particulars of Vendor Name/ Cost Description of asset Usage Nature No. assets 1. Ethernet Port Avaya Global Ten Gigabite Ethernet Used for Computer connect Ltd. System for conveyance of consistency in hardware (Rs.15,21,830/-) data performance in case of network load or traffic problems 2. Colour Grading Flimlight Digital World’s most powerful The computer Computer system Film technology colour grading and system and system finishing system for film, software used for and TV, Commercial and colour computer broadcast. It is a software enhancement software used for colouring and grading used in films 3. AVID Media Media Tools Media Compower software It is a digital non- Computer Compower (Rs.10,92,000/-) is a type of computer linear software Software software application as accelerator along with non-linear editing system computer system computer Page 2 of 8 (NLE) produced by AVID for video editing, storage technology and was with input, output system released in 1989 on the data accessories. Macintosh II.
4. XT (2) SD EVs Broadcast Software Application along It is a computer Computer Boradcast server Equipments with SD Broadcast server server which server and software (Rs.1,30,41,574) offers with application interoperability computer with the Avid software DNXHD Format 5. Bones and Grassvalley (A Bones licensed application By this software, Computer Datacine Licenses Thomson Brand) software and datacine the movies can be Software application, (Rs.3,64,64,275) licensed application transferred at 30 along with customized software for film scanning frames per computer software (version and storage second systems. 23.5) 9. From the very nature of these assets, it is quite clear that they are either in nature of computer server or computer software or application system, and a person with basic knowledge of computers will understand that these assets are apparently in nature of computer hardware or computer software. The Chartered Engineer, Shri Kumar Subramaniam, has clearly certified these assets as computers, vide his report dated 22/12/2014. Similarly, the in house expert, Shri Parminder Singh Chadda, has also certified these assets to be computers. It appears that the learned AO never tried to look into the nature of these assets, even though he had made a visit to the premises of the assessee, in the previous years. Computer does not mean only a personal computer or a laptop or a mainframe computer. In fact, any microprocessor-based device may be termed as computer. The word 'computer' has been defined by various -organizations, which is discussed as under:
9.1 As per the Information Technology Act, 2000, 'computer' is defined as under:-
“'Computer' means any electronic magnetic, optical or other high-speed data processing device or system which performs logical arithmetic, and memory functions by manipulations of electronic, magnetic or optical
Prime Focus Ltd; AY:09-10 impulses, and includes all input, output, 6processing, storage, computer software, or communication facilities which are connected or related to the computer in a computer system or computer network."
9.2 Further, as per Oxford Dictionary, a computer is defined as under: -
"An electronic device which is capable of receiving information (data) in a particular form and of performing a sequence of operations in accordance with a predetermined but variable set of procedural instructions (program) to produce a result in the form of information or signals.”
9.3 As per Webster Dictionary, computer' means
"Programmable machine that can store, retrieve, and process data. Increasingly, personal computers contain specialized graphic processors, with dedicated memory, for handling the computations needed to display complex graphics, such as for three-dimensional simulations and games. Auxiliary data storage is usually provided by an internal hard disk and may be supplemented by other media such as floppy disks or CD-ROMs. Peripheral equipment includes input devices (e.g., keyboard, mouse) and output devices (e.g. monitor, printer), as well as the circuitry and cabling that connect all the components. Generations of computers are characterized by their technology. First- generation digital computers, developed mostly in the U.S. after World War II used vacuum tubes and were enormous. The second generation, introduced C. 1960, used transistors and were the Page 4 of 8
Prime Focus Ltd; AY:09-10 first successful commercial computers. Third- generation computers (late 1960s and 1970s) were characterized by miniaturization of components and use of integrated circuits. The microprocessor chip, introduced in 1974, defines fourth-generation computers.
From the above discussion, it is quite clear that computer includes all input-output devices as also computer software and all communication facilities connected to computer network. Further, as per Income-Tax Rules,1962, Appendix-I, containing rates of depreciation for different assets, 'computers including computer software' will have a depreciation rate of 60%, with effect from 1/4/2003.
The learned AR in this regard also mentioned, that the Hon'ble ITAT has allowed appeal of the assessee for A.Y. 2004-05, under identical circumstances. However, on careful perusal of the order, it is noticed that the Hon'ble ITAT had allowed the appeal on legal grounds, holding that there was no valid reason for issue of notice u/s. 148, and they had not gone into the merits of the case to decide whether the assets were actually computers or not. However, the learned AR also retied upon certain other decisions, which are applicable to the present case and are discussed in the following paragraph.
The Hon'ble ITAT, Delhi, in the case of ITO vs. Omni Globe Information Technologies Pvt. Ltd., has held that peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. Similarly, in the case of Sundaram Asset Management
Prime Focus Ltd; AY:09-10 Co. Ltd. vs. DCII, Hon'ble RAT, Chennai, held that the assessee is entitled to claim depreciation at the rate of 60% on UPS. While holding so, the Hon'ble Tribunal observed that it has been repeatedly held in various decisions of the Tribunal that depreciation at the rate of 60% has to be provided on UPS, treating it to be the part of computer, including the decisions in the cases of Haworth (I) P. Ltd. and Macawber Engineering System (India) P. Ltd.
Identical issue had come up for consideration before me in assessee's own case for A.Y. 2005-06, and after considering the facts of the case and submissions of the appellant, I had, vide order dated 1/7/2014, allowed the claim of the appellant and deleted the disallowance made by the AG. For clarity, the relevant portion of my order dated 1/7/2014 is reproduced as under: -------------- ------------------------- Identical issue is involved in the present year also. Therefore, for the detailed reasons discussed by me in my order 1/7/2014 in the case of the appellant for AY. 2005-06, I direct to allow depreciation at the rate of 60% on the assets in question and delete the addition of Rs. 3,15,95,93/- made in this year. These grounds are, accordingly, allowed.”
Aggrieved revenue is in second appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has divided these assets under three different heads in the schedule of assets i.e. the editing equipments computer based, editing equipments recorder based and editing equipments others. In respect to editing equipments which are computer based, the assessee has claimed depreciation at the rate of 60%, whereas in respect to other two categories depreciation has been claimed at the rate of 25%. We find that the relevant assets are either computer or computer software as certified by charter engineer vide his report dated 12-11-2014 certifying these assets as computers. Page 6 of 8
Prime Focus Ltd; AY:09-10 We find that this issue is also covered by Tribunal decision in for AY 2005-06, although the issue was on reopening but Tribunal has given a finding on merits also in Para 6 and the relevant portion of the Para 6 reads as under:-
“………………In the present case, apart from the fact that we observe no lapse on the part of the assessee to disclose fully and truly all the material facts necessary for the computation of its income, and neither has any been pointed to us, the claim has been subject to verification by the A.O. in the original proceedings. Further, though there is no discussion by him in the assessment order, he can only be considered as conscious and alive to this claim as the assessee had clearly bifurcated the editing equipments into two components, i.e., recorder based/others and computer based, claiming depreciation at the general and the enhanced rate (of 60%) thereon respectively, filing details in their respect, called for separately. This then is a case of review, impermissible under the Act. The ld. CIT(A) has allowed the reopening on the basis that there is no evidence to show that the assessee has furnished all the necessary details, including bills and vouchers for purchase of the equipments or their specification or technical expert reports, etc. during the course of the original assessment proceedings, so that the A.O. forming a view that the assets under reference may not qualify to be computers, cannot be entirely faulted. We cannot agree. There is, as afore-stated, firstly, no sound reason with the A.O., but merely a reason to suspect that the assessee’s claim may not be correct. Two, the assessee had furnished all the details as were called for during the original proceedings, including details of computer based equipments. There is nothing to show that these details Page 7 of 8
Prime Focus Ltd; AY:09-10 were not true or correct in any respect, much less material. Thirdly, the assessing authority forming a view on the basis of the material not found incorrect or untrue, is nevertheless a view, so that it becomes a case of review. Rather, as it appears, the A.O.’s action is guided by the consideration of being consistent in-as-much as like claim was not accepted by the Revenue for the immediately preceding year, i.e., A.Y. 2004-05. That by itself cannot be a ground for reopening.”
As the issue is covered in assessee’s own case for AY 2005-06 also and in the given facts and circumstances of the case, we confirm the order of CIT(A) allowing depreciation on computers at the rate of 60%. The appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 12 -04-2017.