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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member These are appeals by the Revenue against the orders dated 28.5.2014 and 14.7.2014 of the CIT(Appeals), LTU, Bangalore relating to assessment years 2007-08 & 2008-09 respectively.
The common issue that arises for consideration in both these appeals is as to, whether the CIT(Appeals) was justified in directing the AO to allow depreciation at 60% of printers, scanners, equipments and other peripherals, treating them as falling within the description of ‘computer’ for the purpose of allowing depreciation.
The assessee is a banking company. For the A.Y. 2007-08, the AO called for the details of the additions to the fixed assets of computers during the previous year. The additions to the fixed assets under the head ‘computer’ during the previous year was a sum of Rs.13,17,60,280 out of which the assets added before 30.9.2006 was Rs.8,38,80,498. The assessee could produce copies of bills evidencing addition to fixed assets of computers only to the extent of Rs.6,87,62,263. The assessee had included printers, ATM, UPS, scanners, network equipments and other peripherals as part of the fixed assets ‘computer’.
According to the AO, depreciation on computer was allowed at 60%, whereas if the aforesaid fixed assets are treated as forming part of the block of assets ‘plant & machinery’, the allowable depreciation was only 15%. According to the AO, printers, ATM, UPS, scanners, network equipments and other peripherals cannot be regarded as computers and accordingly the AO allowed depreciation as follows:-
Total addition of fixed assets under the head Computer & Software 13,54,65,893
Evidenes produced for 6,87,62,623
Where no evidences submitted 6,67,03,270 Depreciation as claimed originally by the assessee is as under Description More than Rate Depreciation Less than Rate Depreciation Total of assets 180 days allowed 180 days allowed Depreciation Computers 4,78,79,782 60% 2,87,27,869 8,38,80,498 30% 2,51,64,150 5,38,92,019 Software 12,73,723 60% 7,64,234 24,31,890 30% 7,29,567 14,93,801 Total deprn. 2,94,92,103 2,58,93,717 5,53,85,820 Claimed Depreciation on the basis of invoices furnished by the assessee Description More than Rate Depreciation Less than Rate Depreciation Total of assets 180 days allowed 180 days allowed Depreciation Computers 16,98,633 60% 10,19,179 10,52,740 30% 3,15,822 13,35,001 Printers, ATM, UPS 1,45,02,583 15% 21,75,387 5,15,08,667 7.5% 38,63,150 60,38,537 and scanner Total depreciation 73,73,538 eligible Accordingly, the AO disallowed a sum of Rs.4,80,12,282 (5,53,85,820 – 73,73,538) being the excess depreciation claimed by the assessee.
For the AY 2008-09, similar claim made by the assessee was disallowed as follows:-
“Recomputation of depreciation In the AY 2007-08 while passing the OGE to the order of CIT, LTU, the similar exercise has been carried out wherein the closing WDV was determined by restricting the depreciation claim. It is as under: By treating the same as opening WDV for the AY 2008-09 the depreciation claim for the AY 2008-09 on account of computers and software is reworked as under:
WDV for AY 2008-09 in the case of M/s. SBM OB on Additions as per order Deductions Depreciation WDV as 01/04/2006 u/s 143(3) rws 263 allowed on dated 30/11/2012 31/03/2007 More Less than than 180 180 days days Computers 338840845 1698633 1052740 55870605 171117146 114604467 Software 86132133 0 0 11944309 44512694 29675130 Computers treated as 0 14502583 51508667 0 6038537 599727713 plant & machinery 221668378
Amount of depreciation claimed in return 269680657 Excess depreciation claimed to be disallowed 48012282
OB on Additions as per order Deductions Depreciation WDV as 01/04/2006 u/s 143(3) rws 263 allowed on dated 30/11/2012 31/03/2007 More Less than than 180 180 days days Computers 114604467 40735662 42581998 65327578 60394830 72199719 Software 29675130 0 0 12291605 10430115 6953410 Computers treated as 59972733 28796054 37451434 0 16124173 110096028 plant & machinery 86949118
Depreciation claimed 176802937 Excess claimed 89853819
Conclusion It is noticed from the detailed discussion that the assessee bank has been claiming excess depreciation in every year. It has been detected during the proceedings initiated u/s 263 of the IT
Act by CIT(LTU) for the AY 2007-08. The assessment for the AY 2008-09 was reopened and the assessee bank was requested to substantiate the claim of depreciation. Even though the assessee bank has objected the reopening they have failed to furnish complete evidences in support of fixed assets added under the head computers and software. In some cases the machineries like ATM, AC, printer etc has been claimed as computer and the excess depreciation has been restricted accordingly. Hence after verifying the evidences the depreciation claim has been restricted as per the detailed discussion made above. The excess claim of depreciation of Rs.8,98,53,819 has been disallowed and added back.”
Aggrieved by the aforesaid order of the AO, the assessee preferred appeal before the CIT(Appeals). Insofar as it relates to treating the printers, scanners, network equipments and other peripherals as forming part of the fixed assets ‘computer’, the CIT(Appeals) was of the view that the claim of the assessee was justified, based on the decisions referred to by the assessee. The following were the relevant observations of the CIT(Appeals):-
“5. Relying upon the judicial decisions cited in respect of HDFC Bank and Venture Infotech (supra), the AO has disallowed the claim of depreciation at 60% on the captioned items. Before me the appellant submitted that the printers, scanners, modems etc., are computer peripherals and provide input processing, storage and various output devices and, accordingly, form an essential part of a computer. They cannot work in isolation apart from the computer to which they are attached. Likewise, the network equipment such as routers etc assist in transmitting the data and the data packages to intended locations between computer networks. Reliance was placed by the appellant on the following judicial decisions:-
- DCIT Vs. Datacraft India Limited (40 SOT 295) (Mum ITAT) (SB) - ITO Vs. Samiran Majumdar (2006) 280 ITR (AT) 74 (Kolkata ITAT) - Container Corporation of India Ltd. Vs. ACIT (30 SOT 284) (Delhi ITAT) - DCIT Vs. Microsoft Corpn. India (P) Ltd. (139 TTJ 40) (Delhi ITAT) - Expeditors International India (P) Ltd. Vs. Addl.CIT (118 TTJ 652) (Delhi ITAT) - Haworth India (P) Ltd. Vs. DCIT (140 TTJ 446) (Delhi ITAT) - DCIT and Addl.CIT Vs. Cosmos Films Ltd. (13 ITR (Trib) 340)(Delhi ITAT) 5.1 I have gone examined the appellant’s arguments and the cited case laws and find that in respect of printers, scanners, routers and other net work equipments, the judicial decisions are strongly weighed in favour of the appellant primarily on the ground that these hardware items become operational only through ‘computer functions’ and these computer hardware when used as component of the computer become part and parcel of the computer. In these situations, as held in the Data Craft India decision, ‘the hardware in question can be considered as a part of the computer and, hence, a computer.’ On these items, therefore, the claim of higher depreciation at 60% is considered appropriate and the AO is directed to allow the same.”
In AY 2007-08, the CIT(Appeals) followed his own order for AY 2006-07.
Aggrieved by the relief allowed by the CIT(Appeals), the Revenue has preferred the present appeals before the Tribunal.
As far as the claim of Revenue that printers, scanners, network equipments and other peripherals cannot be regarded as computer, we are unable to accept the stand of the Revenue. The Hon’ble Delhi High Court in the case of CIT v. Birla Soft Ltd., judgment dated 15.12.2011 has held that computer peripherals, CD writer, printer, network cables, switches, isolators, etc. are entitled to depreciation @ 60%. The SLP filed by the Revenue against the judgment of the Delhi High Court has since been dismissed by the Hon’ble Supreme Court by its judgment dated 14.2.2014 in SLP(Civil) Nos.2645/2012.
The Special Bench of the Tribunal in the case of DCIT v. Datacraft 10.
India Ltd. (2010) 40 SOT 295 (MUM) SB has held that it is not correct to say that it is only a device which could perform logical arithmetic or memory functions by manipulations of electronic impulses is computer. All the input and output devices which support in the receipt of input and outflow of output are also part of computer. Thus, computer has to necessarily include input and output devices within its scope, subject to their exclusive user with the computer.
In the light of the aforesaid decisions based on which the CIT(Appeals) allowed relief to the assessee, we are of the view that there is no merit in these appeals by the Revenue.
For AY 2007-08, one of the objections raised by the Revenue in the grounds of appeal is that the CIT(Appeals) has admitted additional evidence with regard to additions to the fixed assets under the head ‘computer’ without affording the AO of looking into the additional evidence filed by the assessee before the CIT(A). On this aspect, we have perused the order of the CIT(Appeals) and we find that the CIT(Appeals) has not admitted any additional evidence. He found that the assessee has entered into MOU with SBI for sharing of costs pertaining to common information technology initiatives. Pursuant to this MOU, the total additions made to computers and softwares by SBI was Rs.27,42,43,752 and 10% of the aforesaid addition has been charged to the assessee bank viz., Rs.2,74,24,375 as IT costs. The assessee also furnished evidence for additions to computer and software amounting to Rs.27,03,494 by collating invoices from its branches. The assessee thus filed evidence to the extent of 73% of the total additions to fixed assets under the head ‘computer’. The assessee, in respect of remaining additions to fixed assets under the head ‘computer’, requested to accept the letter from DGM(F&A) confirming that as per statutory auditors have verified all the underlying invoices and bills for additions to fixed assets under the head ‘computers’. The CIT(Appeals) considered the aforesaid submissions on behalf of the assessee and observed as follows:-
“7.4 The appellant’s claim and evidences as above have been examined and they are found relevant for deciding the issue at hand. The AO is directed to examine the same and, if found genuine, to allow the claim to the extent of Rs.2,74,24 375 for the SBI Cost Shared Components and Rs.29,03,494 for the balance assets. The remaining gap in addition to fixed assets which is not supported by evidence, however, cannot be accepted since the onus provided by law on the appellant has not been discharged through production of the primary evidences to support its claim. In fact, in the context of disallowance of penalty expenditure discussed in the next section the appellant has stated that it was not bound by the views of the statutory auditors. This being the case it would be unfair to bind the AO to the certification by the statutory auditors in the matter of invoices for fixed assets. The unevidenced addition to fixed assets, therefore, cannot be admitted for allowing the claim of depreciation. This ground, therefore, partly succeeds.”
It can be seen from the aforesaid observations of the CIT(Appeals) that he has only directed the AO to examine whatever evidence has been admitted by the CIT(Appeals). The grievance projected by the Revenue regarding violation of Rule 46A of the I.T. Rules, in our view, therefore is unjustified and not sustainable.
In the result, both the appeals are dismissed.
Pronounced in the open court on this 29th day of May, 2015.