2023 (1) TMI 1291 - AT - Income Tax

Depreciation allowance on Cisco Phone - items functionally dependent on computers - 15% or 60% - AO treated the Cisco Phone as part of plant and machinery and did not allow the depreciation rate of 60% claimed by the assessee applicable for computers - HELD THAT - As the identical issue was considered in the case of M/s. Cisco Systems Capital (India) Pvt. Ltd. 2014 (12) TMI 890 - ITAT BANGALORE as held items which are functional dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The AO shall thus allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re-adjudication Accordingly in the interest of justice we remit the file to the AO. AO is directed to follow the ratio laid down by the ITAT in the aforesaid order. Assessee appeal partly allowed for statistical purposes.

Summary

Issues:
1. Alleged violation of principles of natural justice by the Ld. CIT (A).
2. Disallowance of depreciation allowance by the Ld. CIT (A).

Analysis:
1. The appeal raised concerns about the violation of natural justice principles by the Ld. CIT (A) without providing adequate hearing opportunity to the appellant. However, the appellant chose not to press this ground, leading to its dismissal as not pressed.

2. The primary issue in the appeal revolved around the Ld. CIT (A) upholding the reduction in depreciation allowance by Rs. 32,208. The Assessing Officer (AO) treated a Cisco Phone as part of plant and machinery, disallowing the 60% depreciation rate claimed by the assessee applicable for computers. The AO's decision was based on the assertion that the depreciation rate for mobile phones in the block of plant and machinery was 15%, hence the correct rate for the Cisco Phone should have been 7.5%. The appellant argued for the higher rate based on the functionality similarity to computers, citing judgments from Bangalore ITAT and Delhi ITAT.

3. The AO's decision was further supported by distinguishing the ITAT decisions referenced by the assessee. Despite the appellant's reliance on the ITAT Bangalore Bench and ITAT Delhi Bench decisions, the Ld. CIT (A) upheld the disallowance, leading to the current appeal.

4. During the appeal hearing, the appellant's counsel referenced a specific ITAT case that addressed a similar issue, emphasizing the need to evaluate each component's functional dependency on computers to determine classification as either computer or plant and machinery. The ITAT's direction was to allow depreciation at 60% for equipment classified as computers and 15% for those as plant and machinery. Both parties agreed to remit the issue back to the AO for re-examination in line with the ITAT's directive.

5. Consequently, the Appellate Tribunal decided in favor of the appellant, partially allowing the appeal for statistical purposes. The case was remitted to the AO to reassess the depreciation allowance based on the ITAT's guidance provided in the referenced order.

6. The judgment, pronounced on January 20, 2023, highlighted the importance of adhering to legal principles and precedents in determining depreciation rates for assets, ensuring a fair and just outcome for the appellant.