Income Tax Appellate Tribunal - Hyderabad
Ushodaya Enterprises, Hyderabad vs Assessee on 22 October, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1429/Hyd/2008
Assessment Year : 2004-05
Ushodaya Enterprises Ltd., Asst. Commissioner of Income-
Hyderabad. tax, Circle - 16(2), Hyderabad.
PAN - AAACU2690P
(Appellant) (Respondent)
Assessee by Shri V. Siva Kumar
Revenue by Shri D. Sudhakar Rao
Date of hearing 22-09-2014
Date of pronouncement 22-10-2014
O RDE R
PER SAKTIJIT DEY, J.M.:
This is an appeal by assessee against the order dated 30/06/08 of the CIT(A)-V, Hyderabad for the assessment year 2004-05.
2. Assessee has raised five grounds. Ground Nos. 1 & 5 being general in nature, not required to be adjudicated.
3. Ground No. 2 with its sub-grounds relates to disallowance of advances written off of Rs. 5,49,500.
4. Briefly the facts are, assessee a company is engaged in the business of printing news papers, publications, telecasting and manufacture and sale of food products. For the assessment year under dispute, assessee filed its return of income on 31/03/04 2 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
declaring income at 'Nil' after setting off of unabsorbed depreciation under the normal provisions of the Act. As there was book loss of Rs. 89.63 lakhs, assessee also did not compute book profit u/s 115JB of the Act. Subsequently, assessee filed a revised return on 26/04/05 declaring total income at Nil after setting by setting off of unabsorbed depreciation for AY 2001-02 amounting to Rs. 86,41,971 in place of Rs. 2,61,53,834 as shown in the original return of income. During the assessment proceeding, AO while examining the P&L A/c noticed that assessee has debited an amount of Rs. 15,11,541 towards bad debts and advances written off. When AO called upon assessee to furnish details of bad debts and advances written off and to show cause as to why the claim made should not be disallowed, assessee submitted its reply stating therein that an amount of Rs. 5 lakhs was given to Anand Foods, who are the suppliers of packing materials and pouches for pickles and confectionary manufactured by assessee. It was submitted that an amount of Rs. 5 lakh was paid for purchase of machinery for making pouches for food division as per assessee's design. Later when assessee changed the design of the pouches, machinery/dyes purchased by the said party was found to be not suitable for manufacturing the changed design of pouches. Hence, the party concerned refused to repay the amount .For this reason, the amount of Rs. 5 lakhs was written off. Assessee submitted that it had paid an amount of Rs. 49,500 to three different persons towards rent deposits. The rented buildings were vacated by assessee during the year 1997-98. However, landlords refused to return the deposit due to poor maintenance of the building. Hence, the amounts of Rs. 49,500 was written off as bad debt. Similarly, assessee explained that an amount of Rs. 54,690 was paid to employees who left the organization, Rs. 13,512 paid to various persons towards labour advance and an amount of Rs. 49,416 comprised of bad debts below Rs. 5,000. AO after considering the submissions of assessee, disallowed an amount of Rs. 6,67,123. Being aggrieved of such disallowance, assessee preferred appeal before the CIT(A). CIT(A) 3 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
granted partial relief to assessee by sustaining addition to the extent of Rs. 5,49,000.
5. Learned AR submitted before us that an amount of Rs. 5 lakhs paid to M/s Anand Foods was towards purchase of suitable machinery for supply of pouches with particular design. When assessee changed the design of the pouches and requested the supplier to supply the pouches with changed design since machinery purchased by the party could not be used for manufacturing pouches with changed design, the said party not only refused to supply the pouches but also refused to refund the advance given by assessee. As the amount was not recoverable, assessee wrote off the said advance in its books. So far as the amount of Rs. 49,500 towards rent deposits, it was submitted that such rent deposits were towards premises taken on rent for business purpose, but, when assessee vacated the premises during the year 1997-98, landlords refused to repay the deposits due to poor maintenance of the building by assessee. As the amounts were not recoverable, assessee has written off the advance in the books of account. The learned AR submitted that as the loss in respect of written off advance was during the course of business, assessee is eligible to deduction u/s 36(1)(vii). In support of such contention, he relied upon the decision of the Hon'ble High Court of Jharkhand in case of CIT Vs. Tata Robins Fraser Ltd., [2012] 26 taxmann.com 15 (Jhar.)
6. The learned DR, on the other hand, relied on the order of CIT(A).
7. We have considered the submissions of the parties and perused the relevant material on record as well as the orders of revenue authorities. As can be seen, while AO has disallowed the amount for the reason that they are not in the nature of advance, CIT(A) has sustained the assessee's claim with the observation that no evidence has been produced by assessee to substantiate that party has 4 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
refused to repay advance given by assessee and further the said party has refused to supply the pouches for their changed design. So far as the rent deposits are concerned, CIT(A) sustained the disallowance by simply observing that assessee has failed to produce any evidence that landlords have refused to repay the deposits. In our view, the conclusion drawn by AO as well as CIT(A) are not correct as it is not in accordance with the statutory provision. As per Section 36(1)(vii) if the debt becomes bad and had actually been written off in the books of account, then, it is to be allowed as a deduction. In the present case, there is no dispute to the fact that the amount in question has been written off in the books of account of assessee. Therefore, deduction claimed cannot be disallowed only on the reason that assessee has not proved that the persons concerned have refused to make payment to assessee. In the aforesaid facts and circumstances, we delete the addition made by AO.
8. The next issue as raised in ground no. 3 along with its sub- grounds is in respect of disallowance of deduction claimed towards payment of preemption charges of Rs. 4,27,00,000 paid to VSNL for surrender of transponders.
9. Briefly the facts relating to the issue in dispute are, during the assessment proceeding, AO noticed that assessee has debited prior period expenses of Rs. 504.70 lakhs in the P&L A/c. On further examination of details of prior period expenses, AO noticed that the amount includes preemption cost of Rs. 4,70,00,000 paid to VSNL on surrender of lease right of transponder. AO was of the view that as the expenditure does not relate to the assessment year under consideration, the same is not allowable. Accordingly, he asked assessee to explain. In response to the query raised by AO, assessee submitted that it has started ETV Telugu telecast in September, 1995 and the channel was transmitted on analogue mode, which requires a dedicated transponder for each channel, for which purpose assessee 5 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
entered into lease agreement with M/s VSNL, Mumbai to utilize one of the transponder. Subsequently, as assessee planned to launch other regional channels, it had taken on lease additional transponders from VSNL. However, subsequently, digital mode technology has been developed, under which, number of channels can be transmitted from a single transponder, which is very cost effective. It was submitted that in the changed technology, assessee transmitted eight channels through a single transponder. Therefore, it decided to shift the channels to digital mode and decided to surrender two transponders. Accordingly, request was made to VSNL for surrender of the transponders and after prolonged negotiations, VSNL agreed for surrender of one transponder with effect from 01/01/2003 and another transponder with effect from 01/01/2004 subject to payment of preemption charges. It was submitted that as per the lease agreement with VSNL in respect of transponder 86/186 lease was available up to 31/07/06 for which lease charges of US $ 15,84,000 was payable. As per the MOU with VSNL, for surrendering this transponder the preemption charges payable was worked out at US $ 10,33,000 equivalent to Rs. 4,70,27,466. It was submitted that in terms with AS- 26 issued by ICAI, the total preemption charges of Rs. 4,70,27,466 was written off as prior period expenses in the books of account as the liability to pay preemption charges arose during FY 2003-04 relevant to AY under dispute. AO, however, did not find merit in the submissions of assessee and accordingly disallowed the expenditure claimed. Being aggrieved of such disallowance assessee preferred appeal before the CIT(A). CIT(A) after considering the submissions of assessee in the context of the facts and materials on record noted that preemption charges was paid to VSNL for premature termination of the lease agreement in respect of two transponders. CIT(A) following the decision of Special Bench of ITAT, Bangalore in case of Aztec Software and Technology Services Ltd. Vs. ACIT 294 ITR (AT) 32 held that as payment made by assessee to VSNL is in the nature 6 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
of a capital expenditure, the same cannot be allowed as deduction. Accordingly, he sustained the disallowance made by AO.
10. Learned AR apart from making submissions before us at the time of hearing has also filed written submissions more or less reiterating the contentions raised before the departmental authorities. Learned AR submitted before us that as per the lease agreement with VSNL, assessee has to pay lease charges of US $ 15,84,000 per annum which worked to a total of US $ of Rs. 40,92,000 for the balance lease period from 01/01/04 to 31/07/2006. However, as per the MOU entered with VSNL on 18/12/03 terminating lease for two transponders, preemption charges payable were only US $ 10,33,000 as a result of which assessee could save substantial expenditure on account of lease charges payable to VSNL. Thus, it was submitted that as the expenditure was incurred on account of a prudent business decision for the purpose of business it is allowable as a revenue expenditure. In support of such contention, learned AR relied upon the following decisions:
1. CIT Vs. Anjani Kumar Co. Ltd., 259 ITR 114 (Raj.)
2. Mohan Meakin Ltd. Vs. CIT, 348 ITR 109 (Del.)
3. CIT Vs. EKL Appliances Ltd., 20 Taxman 509 DEL
4. CIT Vs. Vardhman Spinning & General Mills, 176 Taxman 157 (P&H)
5. CIT Vs. Rose Services Apartment India (P) Ltd., 326 ITR 100 (Del.)
6. Minda (HUF) Ltd. Vs. JCIT, 101 ITD 191/285 ITR (AT) 88 (Del.)
11. The learned DR, on the other hand, supporting the view taken by the departmental authorities submitted that the expenditure incurred being capital in nature has rightly bee disallowed.
7 ITA No.1429/Hyd/2 008Ushodaya Ente rprises Ltd.
12. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. We have also carefully applied our mind to the decisions placed before us. There is no dispute so far as the factual aspect is concerned. It is a fact that assessee has taken on lease from VSNL 5 numbers of transponders for telecasting its programmes in the channels. However, out of the five transponders taken on lease from VSNL, assessee requested for surrender of 2 transponders and after prolonged negotiation, VSNL agreed for surrender of one transponder with effect from 01/01/03 and another transponder w.e.f. 01/01/04 subject to payment of preemption charges of US $ 10,33,000. Thus, as can be seen, the preemption charges of Rs. 4,70,27,466 equivalent to US $ 10,33,000 was towards premature termination of lease in respect of two transponders of VSNL, which were used by assessee as assets of its business. Therefore, the expenditure incurred by assessee being connected with an asset which is used as a tool for carrying on the business of assessee, certainly, in the nature of capital expenditure. The Hon'ble SB of ITAT, Bangalore in case of Aztec Software and Technology Services Ltd. Vs. ACIT (supra) while considering identical nature of expenditure relating to payment on termination of lease held as under:
"We have given careful thought to the submissions of the parties on this point. We have also seen orders of the revenue authorities on this issue. There is no dispute that the amount in question was paid to M/s Prestige Estate Pvt. Ltd. from whom property was taken by the assessee on lease for expanding its business. Subsequently, the company decided not to carry the lease and agreement was terminated pre-maturely. It is claimed that Rs. 1 crore was paid to the lesser under a negotiated settlement towards pre-mature termination of lease. The amount shown as advance was written off and claimed as a revenue deduction. The reasons given for claiming it as a revenue expenditure were not accepted by the AO and the learned CIT(A). Accordingly to the revenue authorities, amount was paid for acquiring a benefit of enduring nature and, therefore, was a capital expenditure. On the facts and circumstances of the case, we agree with the view taken by the revenue authorities that 8 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
amount of Rs. 1 crore given as advance and loan written off under the settlement, could not be treated as expenditure of revenue nature. It was rightly treated as expenditure of capital nature. The expenditure was clearly connected with apparatus with which the business was to be carried. Therefore, we see no reason to interfere with the finding of the revenue authorities on this issue. The ground of appeal is accordingly rejected."
13. As in the present case also, the expenditure incurred is connected to apparatus with which assessee carried on its business, the nature of expenditure is also capital. Though it is true that whether a particular expenditure is capital or revenue would depend on the facts involved in a particular case but considering the facts of the present case, the decision of the ITAT Bangalore SB squarely applies. So far as the decisions relied upon by the learned AR are concerned, on careful examination, we find they are not applicable to the facts of the present case as in none of these decisions, the expenditure incurred relate to amount paid on termination of a lease agreement. In the aforesaid view of the matter, we do not find any reason to interfere with the order of the learned CIT(A). Accordingly the same is upheld by dismissing ground raised by assessee.
14. The next issue as raised in Ground No. 4 with its sub-grounds is in respect of disallowance of depreciation of an amount of Rs. 1,43,99,145 claimed @ 60% on printers, scanners, modems, etc. and restricting the same to 25% by treating them as plant and machinery.
15. Briefly the facts are, during the course of assessment proceeding, AO noticed that assessee has claimed depreciation of Rs. 11,43,63,771 @ 60% on the block of computers. On further verification of the details submitted by assessee, AO noticed that the block of computers also include printers, scanners, modems, switches, photo/edit V-sat equipment, UPS, network cables, softwares, etc. AO after verifying these facts was of the view that computers connected to photo transmission equipment, editing 9 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
equipment, v-sat and data processing equipment are to be treated as computers. However, scanners, printers, modems, switches, networking cable, transmission equipment and software do not form part of computers. AO opined that every peripheral device connected to the computer does not form part of the computer. He observed that computer runs without peripherals like printer, scanner etc. , but not the other way round. The AO was of the opinion that computers used for photo transmission equipment, decoding equipment v-sat, data processing equipment are eligible for depreciation @ 60% whereas the other peripherals like printers, scanners, modems, switches, photo/edit/equipment UPS, network cables and softwares form part of plant and machinery, on which, depreciation is allowable @25% only. Accordingly, he proposed to restrict depreciation @ 25% on them. Though, assessee objected to such action, the AO, however, rejecting the submissions of assessee, restricted depreciation @ 25% on routers facsimile systems, modem, v-sat, etc and in the process disallowed an amount of Rs. 1,43,99,145. Being aggrieved of such disallowance, assessee preferred appeal before CIT(A). The CIT(A) following his own order for the AY 2002-03 in case of same assessee, sustained the disallowance made by AO.
16. The learned AR at the outset submitted before us that the issue is squarely covered by the decision of ITAT in assessee's own case for AY 2002-03 ad 2003-04 as well as for AY 2005-06 and 2006-07. The learned DR though agreed that the issue is covered by the decisions of the coordinate bench, but, he nevertheless supported the order of CIT(A).
17. We have considered the submissions of the parties and perused the materials on record as well as the orders of revenue authorities. As can be seen, AO has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as plant and machinery. The CIT(A) has sustained the order of AO by 10 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
following his own order passed incase of assessee for the AY 2002-
03. However, it is seen from record that the order passed by CIT(A) for AY 2002-03 and 2003-04 on identical issue was challenged by assessee before the Tribunal. The tribunal while considering the dispute in appeal preferred by assessee in ITA Nos. 1241/H/08 and 591/Hyd/10 for AY 2002-03 and 2003-04 respectively allowed assessee's claim of depreciation @ 60% on these items. While doing, so the Tribunal followed its earlier order in assessee's own case for AY 2005-06 and 2006-07. The finding of the Tribunal is extracted hereunder for ready reference:
"11. We have heard the submissions of the parties and perused the material on record. As per the list submitted by the assessee in Annexure-B and the detailed note submitted explaining their fimction, the items on which there is a dispute regarding claim of depreciation are editing equipments, edit control unit, charter generator V. Sat equipments etc., and several types of software and various parts and components. It is the contention of the assessee that all these equipments form integral part of the computer system and they cannot function independently except in conjunction with a computer system. As can be seen from the assessment order, the primary basis on which the Assessing Officer concluded that depreciation claimed by the assessee is not allowable at 60% as according to him computer means a CPU which is also called as mother board along with its memory. Monitor key board, mouse are essential to run computer as an independent entity. The aforesaid finding of the Assessing Officer was upheld by the CIT (A) who also held that every peripheral device connected to the computer does not form part of the computer. Let us now examine how far the findings of the revenue authorities are acceptable in the context of the ratio laid down by the Income-tax Appellate Tribunal, Mumbai (Special Bench) in case of DCIT vs. Datacraft India Limited (40 SOT 295), the Hon'ble Special Bench being conscious of the fact the term 'computer' has not been defined under the IT Act nor in the general clauses Act, 1987, the meaning of the term computer has to be understood by applying the principles of statutory interpretation i.e., one has to give the meaning to the expression 'computer' not merely by going to the dictionary meaning but by applying common parlance or commercial parlance tests as well as by analysing the intendment of legislature in providing higher rate of depreciation. The Hon'ble Special Bench after interpreting the expression 'computer' in common parlance as well as commercial parlance in the context 11 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
of availability of depreciation at higher rate of 60% in the case of router and switches whether to be treated as 'computer' held as under:-
25. Thus in order to determine whether a particular machine can be classified as a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyse further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals, are received through the relevant net works such as Dish TV, Tata Sky etc. But TV does not become computer for the reason that its principal function cannot be done only with the aid of 'computer functions' notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a standalone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/ object/f unction of such machine should be achievable only through 'computer functions'.
26. Having analysed the meaning of 'computer' in common parlance, let us proceed to ascertain the concept, meaning and functions of 'router' Again we find that the term 'router' has not been defined in the Income- tax Act, 1961. Accordingly it also needs to be assigned the meaning as it is understood in common parlance. The learned Departmental Representative- tive has placed some literature from the internet explaining the meaning of 'Router' as a device in computer networking that forwards data packets to their destinations, based on their addresses. As per this literature the working of router has been explained by which data packets are transmitted over a network (say the internet), they move from many routers (because they pass through many networks) in their journey from the source machine to be destination machine. Routers work with IP packets, meaning that they work at the level of the IP protocol. Every router keeps information about its neighbours (other routers in the same or other networks). When a packet of data arrives at a router, its header information is scrutinized by the router. Based on the destination and source IP addresses of the packet, the router decides which neighbour it will forward it to.
27. The assessee vide its letter dated 21-2-2005, addressed to the 12 ITA No.1429/Hyd/2 008 Ushodaya Ente rprises Ltd.
Assessing Officer, submitted a note on use of routers! switches by explaining that the routers are crucial device that let the messages flow from one computer to another. It was further explained that the router has two separate but related jobs, viz.,
(a) to ensure that the information does not go where it is not needed and (b) it makes sure that the information does make it to the intended destination.
28. A router is a networking device whose software and hardware are customized to the tasks of routing and forwarding information. A router has two or more network interfaces, which may be to different physical types of network (such as copper cables, fibre or wireless) or different network standards. Each network interface is a small computer specialized to convert electric signals from one form to another. Routers connect two or more logical subnets, which do not share a common network address. The subnets in the router do not necessarily map one- to-one to the physical interfaces of the router. The term "layer 3 switching" is used often interchangeably with the term "routing". The term switching is generally used to refer to data forwarding between two network devices that share a common network address.
29. In simple words, a router means a device that routes data from one computer to another or from one network to another. Routers provide connectivity inside enterprises, between enterprises and the internet, and inside Internet providers. From the above discussion it transpires that the function of a router is to receive the data from one computer and make it available to another computer for viewing or further processing. Apart: from facilitating the flow of data between two computers, the routers also. help in the transfer of data from network to computer. Thus the essential function of the router in a commercial organization is to facilitate the flow of data from one computer to another for its processing or storage. Switches are shorter version of routers, which perform similar functions as that of routers but within a limited sphere.
30. On functioning of a 'Router' we find that there is no dispute on the fact that a "Router" does not perform any logical, arithmetic and intermediary functions on data nor it manipulates or processes data, the way a com- puter would do. A "Router" does not have a "CPU". It only enables transmission of data and data packages, in a sophisticated manner, to intended places. A data cable also carries data from one place to another, but it does not selectively interchange packets of data between places. The difference between a "Cable" and a Router" is that in a "Router" data is "Routed" as per the specification. Thus a "Router" may not by itself be called a computer.
13 ITA No.1429/Hyd/2 008Ushodaya Ente rprises Ltd.
31. Now we have to consider whether a 'router' can be considered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'peripherals'. Together, they all fall under the category of computer hardware. 'Software', on the other hand, consist of the programs and applications that run on computers. Because software runs on computer hardware, software programs often have 'system requirements', that list the minimum hardware required for the software to run.
31.1 In short, "Router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another net work connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this "machine" can be used independent of Computer. If yes, then it cannot be called "Computer Hardware" in all circumstances.
31.2 When "Computer Hardware", is used as a component of the computer, it becomes part and parcel of the computer, as in the case of operating software in the computer. In such a situation, hardware in question can be considered as a part of a computer and hence a 'computer'. Per contra, when the machine is not used as a necessary assessor or in combination with a computer, it cannot be called a 'Computer component'.
31.3 Coming to the Routers, it is seen that these can also be used with a Television and in such use, E0 computer is required. These are also called T.V. routers. Similarly, "Internet Service Providers", give connectivity, by installing a router in the premises of the persons !institutions availing the internet connection. In these cases the router is not used along with a computer. In such a situation, it would be a "Stand alone"
equipment. In such cases this cannot be considered a component of a computer or computer Hardware. Giving another example, a computer software can be used in many devices including washing machine, televisions, telephone equipment etc. When such software is used in those devices, it integrates with that particular devices. The predominant function of the device determines its classification. Only if the Computer software, re- sides in a computer, then it become a part and parcel of a computer and, as long as it is as integral part of a computer, it is classified as a 'Computer'.14 ITA No.1429/Hyd/2 008
Ushodaya Ente rprises Ltd.
31.4. In view of the above discussion, we are of the considered view that router and switches can be classified as a computer Hardware when they are used along with a computer and when their functions are integrated with a 'computer'. In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer."
12. While coming to such conclusion, the Hon'ble Special Bench approved the view taken by the Income-tax Appellate Tribunal, Kolkota Bench in case of ITO vs. Samiran Majumdar (98 ITD 119) but did not agree with the view taken by the Income-tax Appellate Tribunal, Mumbai Bench in the case of Routermania Technologies (P) Ltd. Vs. ITO (16 SOT 384) by holding that the meaning of expression 'computer' cannot be restricted only to the CPU of the computer by pulling out the import and output devices from the ambit of 'computer'. The Hon'ble Special Bench further went on to hold that though functions of the computer as one composite unit is for performing logical, arithmetical or memory functions etc., but it is not the only equipment which performs such functions that can be called as 'computer'. All the input and output devices which in fact support in the receipt of input and outflow of the output are also part of the 'computer'. Therefore, the ratio which can be culled out from the aforesaid decision of Hon'ble Special Bench (specifically paragraph 31.4 of the order), it is to be seen that the Hon'ble Special Bench has clearly held that when a particular hardware or software is used along with a computer and when their functions are integrated with a computer or in other words when the device is used as part of the computer in its functions, even though it may be having user on standalone basis, but still then such hardware or software would be termed as a 'computer'. In applying the aforesaid ratio to the facts of the present case, it can be seen that the revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as 'computer' are being used as input or output device of the computers. However, the departmental authorities have negatived the claim of the assessee solely on the reasoning that every peripheral device connected to the computer cannot form part of the computer. However, such view of the revenue authorities cannot be the correct proposition of law in view of the ratio laid down by the Hon'ble Special Bench in case of DCIT vs. Datacraft India Limited (supra) by holding that any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression 'computer'. We may further observe that in the assessee's own case for the assessment year 2006-07, Income-tax Appellate Tribunal, Hyderabad Bench while deciding the departmental appeal in ITA Nos.
15 ITA No.1429/Hyd/2 008Ushodaya Ente rprises Ltd.
701/Hyd/2009 and 426/Hyd/10 dated 9-7-2012 also upheld the order passed by the CIT (A) in allowing depreciation at the rate of 60% by treating the screen, key board, mouse, UPS, net working, router as part of the computer system and thereby eligible for depreciation at the rate of 60% as available to computer. In the aforesaid view of the matter, we are inclined to accept the assessee's contention that it is entitled to avail depreciation at the rate of 60% on those items as is applicable to 'computer'. Accordingly, we set aside the order passed by the CIT (A) by allowing the grounds raised by the assessee."
As the dispute in the present appeal is materially the same and the learned DR has not brought any contrary decision to our notice, we respectfully follow the decision of the coordinate bench in assessee's own case as referred to above and direct the AO to allow depreciation @ 60% as claimed by assessee. Accordingly, the ground raised by assessee is allowed.
18. In the result, assessee's appeal is partly allowed.
Pronounced in the open court on 22.10.2014.
Sd/- Sd/-
(B. RAMAKOTAIAH) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 22 nd October, 2014
kv
Copy to:-
1) Ushodaya Enterprises Ltd., 6-3-570, Somajiguda, Hyderabad.
2) ACIT, Circle - 16(2),Hyderabad
3) CIT(A)-V, Hyderabad
4) CIT-IV, Hyderabad
5)The Departmental Representative, I.T.A.T., Hyderabad.