2011 (7) TMI 1202 - AT - Income Tax

Summary

Issues Involved:

1. Whether the interest accrued on advances given to M/s. Karsan amounting to Rs. 6,64,71,000/- should be included as income for the Assessment Year 2005-06.
2. Whether depreciation on UPS should be allowed at 60% or at the normal rate of 25%.

Issue-wise Detailed Analysis:

1. Accrual of Interest on Advances Given to M/s. Karsan:

The primary issue revolves around whether the interest accrued on advances given to M/s. Karsan should be included in the income for the Assessment Year 2005-06. The assessee did not offer the accrued interest of Rs. 664.71 lakhs for taxation, contending that no legal right to the interest had been created as the award had not been made a rule of the court. The AO added the amount to the income based on the notes to accounts and previous findings for Assessment Year 2004-05.

The CIT(A) deleted the addition, relying on the ITAT's decision for the Assessment Year 2004-05, which held that no income accrued as the award was not enforceable in that year. The Tribunal reiterated that the award did not become enforceable until it was made a rule of the court, which did not happen in the relevant year. It was concluded that no enforceable right had accrued to the assessee in the year under consideration, thus no interest income had accrued.

2. Depreciation on UPS:

The second issue concerns the rate of depreciation on UPS. The AO reduced the depreciation claim from 60% to 25%, treating UPS as a plant and not an integral part of the computer system. The CIT(A) allowed the higher depreciation rate, following the Tribunal's decision in Expeditors International (India) Pvt. Ltd. Vs. ACIT, which held that peripherals like printers, scanners, and UPS form an integral part of the computer system and are eligible for higher depreciation.

The Tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's ruling in CIT vs. BSES Yamuna Powers Ltd., which confirmed the Tribunal's stance on allowing 60% depreciation on computer peripherals and accessories.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both issues. It was held that no interest income had accrued to the assessee in the Assessment Year 2005-06, and the claim for 60% depreciation on UPS was upheld. The decision was pronounced in the Open Court on 15th July, 2011.