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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI ABRAHAM P. GEORGE
O R D E R Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of CIT(Appeals), LTU, Bangalore dated 28.05.2014 for the assessment year 2007-08 inter alia on the following grounds:-
Disallowance of excess depreciation on Automated “1. Teller Machines (ATM) by reclassifying as plant and machinery a) The Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the order of the learned Assessing Officer (AO) reclassifying ATMs as plant and machinery and restricting the depreciation to 15% under the Income-tax Act, 1961 (the Act). b) The learned CIT(A) ought to have observed that ATM performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses giving debit or credit cash and thereafter dispenses the cash and gives a printed receipt. c) The learned CIT(A) ought to have observed that an ATM is a computerized device automated with the aid of computer, computer peripherals, software and other hardware devices that provides the clients of the Banks with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. d) The learned CIT(A) erred in stating that computer is not an integral part of the ATM machine but is only a telecommunication device for the purpose of cash storage and dispensation. e) The learned CIT(A) ought to have observed that since the ATM machine performs the functions of a computer along with other functions (such as dispending of cash at the time of withdrawal, deposit of cash etc.,) and such other functions are wholly dependent upon the functions of the computer, the ATM machine would qualify to be computer and be entitled to higher depreciation @ 60% under the Act. f) The learned CIT(A) erred in holding that CPU contained in the ATM is merely to control the user interface and transaction device and the processing/verification of the information is done by the server of the bank and hence, computer is not an integral part of ATM machine. g) The learned CIT(A) ought to have observed that if the traditional standalone ATMs could be considered as computers under the Act, even the present networked ATMs would also qualify as computers as the only difference between them is that the standalone ATM contains the customers' account details in its entirety, while present networked ATMs get connected to the bank's server through internet connection from remote locations in order to complete the processing of the transaction. h) The learned CIT(A) erred in not relying upon the principles laid down by the judicial precedents including the jurisdictional Tribunal's ruling in the case of NCR Corporation Pvt. Ltd. [ITA No.353/Bang/2010] wherein it was held that ATM machines are 'computers' and are entitled to depreciation at the rate of 60%.
2. Disallowance of excess depreciation on UPS by reclassifying as plant and machinery a) The Learned CIT (A) erred in upholding the order of the learned AO reclassifying UPS as plant and machinery and restricting the depreciation to 15% under the Act. b) The learned CIT(A) ought to have appreciated that the UPS machine is being used only for the purpose of ensuring uninterrupted power supply to computer systems by regulating the flow of power in order to avoid any kind of damage to the computers and hence to be treated as part of computer system. c) The learned CIT(A) erred in not relying on the principles laid down by the judicial precedents which have held that UPS is 'computer peripheral' and entitled to depreciation at the rate of 60%.
3. Disallowance of depreciation on account of non- furnishing of invoices/bills for purchase of fixed assets a) The learned CIT(A) ought to have appreciated that the appellant has already furnished 73% of the total invoices/bills in support of the additions to fixed assets under the block "computers and computer software". b) The Learned CIT(A) erred in upholding the order of the learned AO disallowing depreciation on balance 27% of the additions to fixed assets under the block "computers and computer software" for which the appellant could not furnish bills/invoices. c) The Learned CIT(A) ought to have observed that the invoices for entire additions to fixed assets have been duly verified and confirmed by the external auditors during the audit of the books of accounts of the appellant (including its branches spared across the country). d) The learned CIT(A) ought to have accepted the quantum (73%) of evidences furnished hitherto in support of additions to fixed assets, as representative sample for the entire additions made during the year under the block "computers and computer software" and allowed the depreciation thereon. e) Notwithstanding without prejudice to the above, the learned CIT(A) ought to have taken the management representation into cognizance to the effect that entire additions to fixed assets are genuine and accordingly allowed depreciation on the balance additions for which invoices could not be furnished by the appellant.
4. Disallowance of expenditure in the nature of penalty - Rs.l,l5,566 a) The learned CIT(A) erred in considering the payments are compensatory in nature like interest payment for delay in filing service tax returns, interest on belated payment of the service tax, payment to weight measurements department, interest on short remittance of service tax etc., as payments in the nature of penalty under the Act. b) The learned CIT (A) ought to have observed that these expenses are not penal in nature but are compensatory in nature and hence eligible for deduction under section 37(1) of the Act. c) The learned CIT(A) erred in disregarding the case laws relied on by the appellant and concluding that the above expenses cannot be allowed as deduction under section 37 of the Act.
The appellant craves leave to add, alter, or amend any of the above ground at the time of hearing.”
With regard to ground No1, the ld. counsel for the assessee has contended that this ground is squarely covered by the judgment of the Hon’ble Bombay High Court in the case of CIT v. Saraswat Infotech Ltd. in of 2012 dated 15.01.2013 and the order of the Tribunal in the case of NCR Corporation Pvt. Ltd. v. ACIT in ITA No.353Bang/2010 dated 28.02.2011, in which it has been held that Automated Teller Machines (ATMs) are computers and assessee is entitled to depreciation @ 60%. Reliance was also placed upon the order of the Tribunal in the case of DCIT v. Global Trust Bank Ltd. in ITA No.474/Del/2009 dated 20.4.2011.
Per contra, the ld. DR has contended that the Hon'ble jurisdictional High Court in the case of Diebold Systems Pvt. Ltd. v. Commissioner of Commercial Taxes reported at 144 STC 59 Kar has held that an ATM is an electronic device, which allows bank’s customers to make cash withdrawals, and check their account balances at any time without the need of human teller, probably that most widely used means of “electronic funds transfer”. Therefore, ATM is not a computer by itself and it is connected to a computer that performs the tasks requested by the person using ATMs. Since the Hon'ble jurisdictional High Court has given a specific finding with regard to the nature of ATMs, it cannot be treated as part of a computer in light of the judgment referred to by the assessee.
We have heard the rival submissions and carefully perused the orders of authorities below and the judgments referred to by the parties. We find that the Hon’ble Bombay High Court in the case of Saraswat Infotech Ltd. (supra) upheld the finding of the Tribunal that ATMs cannot function without the help of computer and therefore would be a part of the computer used in the banking industry, relying upon the judgment of the Hon’ble Delhi High Court dated 20.1.2011 in the case of CIT v. Orient Ceramics and Industries Ltd. The Tribunal in the case of NCR Corporation Ltd. v. ACIT in dated 28.02.2011 has also taken a similar view that ATMS are computers and assessee is entitled to depreciation @ 60%. Similar view was also followed by the Delhi Bench of the Tribunal in the case of DCIT v. Global Trust Bank Ltd. (supra).
Now we have been carried through a judgment of the Hon'ble jurisdictional High Court in the case of Diebold Systems Pvt. Ltd. v.
Commissioner of Commercial Taxes, 144 STC 4 Kar, in which the Hon’ble High Court has examined the nature of ATMs and has given a categorical finding that ATM is an electronic device which allows bank’s customers to make cash withdrawals, and check their account balances at any time without the need of human teller. The ATM is not a computer by itself, but it is connected to a computer that performs the tasks requested by the person using ATMs. The relevant observations of the Hon’ble High Court are extracted hereunder in this regard:-
38. The Supreme Court in several of its judgment has laid down the rule of interpretation for articles of daily use and commonly traded items, which are mentioned in the Taxing Statutes. The Rule is that if there is no definition in the Statute, we should follow for tax purposes the definition not of the dictionaries or of technical books but of commercial parlance i.e. the popular meaning. The intention of Legislature is, that in Taxing Statutes, when terms are used of common usage, it is the common man's understanding of the articles which prevails over the technical man's concept. The place of scientific definition based on technical books, technical literature, dictionaries, etc., is relevant. When the goods are technical, there is no market and so, no market parlance. At the same time, if the goods are not technical, the definition in the market parlance would apply. It only means, that if the goods are technical, common parlance or commercial parlance would not apply. Therefore, in our opinion, the revisional authority is firstly justified in observing that though technically goods in question may fall within the meaning of the expression computer terminals", but in common parlance theory, they are not understood so.
An Automatic Teller Machine, in our view, is an electronic device, which allows a bank's customer to make cash withdrawals, and check their account balances at any time without the need of human teller, probably that most widely used means of "electronic funds transfer". From the literature and the books on computers produced before us, we are of the view, that ATM is not a computer by itself and it is connected to a computer that performs the tasks requested by the person using ATM's. The computer is connected electronically to many ATM's that may be located from some distance from the computer. In common parlance, it is understood as electronic device and therefore, the revisional authority is justified in holding that ATM's are electronic goods and the levy of tax and the sale of ATM's requires to be made under Entiy 4 of Part 'E' of Second Schedule to the Act.
From a careful reading of the aforesaid judgment, we are of the view that ATM itself has its own identity and can be used independently, but once it is connected with the computer, further information sought by the customers can also be processed. Therefore, it cannot be said to be part of a computer or computer. Therefore, ATM is not eligible for higher rate of depreciation which is to be allowed to a computer. Only those devices which do not have its own identity or cannot be used independently without connecting to the computer can only be called as part of the computer for claiming higher rate of depreciation. Moreover, the Hon'ble jurisdictional High Court in the case of Diebold Systems Pvt. Ltd. v.
Commissioner of Commercial Taxes (supra) has categorically held that ATM is an electronic device, which allows bank’s customers to make cash withdrawals, and check their account balances at any time without the need of human teller and once it is connected to a computer, that performs the tasks requested by the person using ATMs. Therefore, we are of the considered view that that ATM is neither a computer nor a part of the computer and hence higher rate of depreciation cannot be allowed to it.
We therefore find no infirmity in the order of CIT(Appeals) in this regard and we confirm the same.
With regard to ground No.2, it has been urged on behalf of the assessee that this ground is covered in their favour by various orders of the Tribunal. In the case of CIT v. Orient Ceramics & Industries Ltd., [2011] 11 taxman.com 417 (Delhi) the Hon’ble Delhi High Court following its own judgment in the case of CIT v. BSES Yamuna Powers Ltd. [IT Appeal No.1267 dated 31.8.2010] has held that depreciation on UPS was to be allowed @ 60%. Following this judgment of the Hon’ble Delhi High Court, the Tribunal has also taken a similar view in the case of Sundaram Asset Management Co. Ltd. v. DCIT, 37 taxmann.com 278 (Chennai Trib.). Copy of judgments are placed on record.
The ld. DR simply placed reliance upon the order of the CIT(Appeals) and no contrary judgment was filed.
Since the issue is squarely covered by the judgment of the Hon’ble Delhi High Court in favour of the assessee and no contrary judgment is placed before us by the ld. DR, we set aside the order of CIT(Appeals) in this regard and direct the AO to allow higher rate of depreciation at 60% on UPS.
With regard to ground No.3, the ld. counsel for the assessee has contended that AO has disallowed the depreciation on account of non- furnishing of invoices/bills for purchase of fixed assets. He has contended that most of the b ills are placed before the AO, but on account of non- furnishing of some bills, he had disallowed depreciation in respect of those assets. In support of his contention that even in the absence of some of bills of certain assets, disallowance of depreciation on total assets cannot be made, he placed reliance upon the decision in the case of ACIT v. Jay Engineering Works, 113 ITR 389 and PNC Construction Co. Ltd. v. DCIT, 144 ITD 577.
The ld. DR, on the other hand, has contended that when the assessee claims depreciation over the fixed assets, the onus is upon him to produce the relevant invoices with regard to his purchase and if he fails to do so, the AO can disallow depreciation thereon, because depreciation can only be allowed if the assessee owns a particular asset. Thus, the AO has rightly disallowed depreciation on only those assets of which ownership was not proved.
Having heard the rival submissions and from a careful perusal of the record and relevant judgments, we find that during the course of assessment proceedings, the AO has asked the assessee to produce the bills/invoices with regard to purchase of fixed assets on which depreciation was claimed. Whatever bills were produced before the AO, the AO has examined the same and allowed depreciation thereon, but on certain assets assessee could not produce the invoices/bills to prove the ownership thereof. It is settled position of law that if anyone makes any claim, the onus is upon him to place relevant evidence in support of his claim, and if he fails to do so, adverse view can be taken against him. In light of this proposition of law, we are of the view that the AO has rightly disallowed depreciation with respect to those assets for which invoices of purchases were not filed to prove the ownership. Accordingly, we find no infirmity in the order of the CIT(Appeals) and we confirm the same.
So far as ground No.4 is concerned, the ld. counsel for the assessee has submitted that the AO has disallowed certain payments after treating it to be penalty on account of infraction of law.
During the course of hearing, details of disallowance were shown to us. From its perusal, we find that against certain disallowances, the nomenclatures was shown to be the penalties, but it is not clear whether penalties were paid on account of infraction of law. We are therefore of the view that the issue requires proper adjudication by the AO. We accordingly set aside the order of CIT(Appeals) in this regard and restore the matter to the file of AO with a direction to readjudicate the issue afresh, after affording opportunity of being heard to the assessee. If the AO finds that payments are compensatory in nature and not on account of infraction of law, no disallowance can be made. But if it is the penalty for infraction of law, disallowance is possible. Accordingly this ground is disposed of.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Pronounced in the open court on this 27th day of May, 2016.