2017 (2) TMI 1086 - AT - Income Tax

Depreciation on computer systems on the WDV @60% - display system - AO has reduced the depreciation rate claimed at 60% to 15% - Held that - If the depreciation was allowed at 60%, categorising such equipment as computer systems in earlier years on 2008-09 and 2009-10, AO cannot re-classify them in the block of assets concept in a later year. He is bound to grant depreciation at 60% only. Apart from that even though the assets involved is a display system, which can be categorised as a computer monitor as the results are projected on the big screen in the race course ground. These are part of the display system controlled by computers. In view of that, we find merit in assessee s contentions. Following the precedence on the issue, as relied on by assessee in various cases, we uphold assessee s contentions that the display system was entitled for depreciation at 60%. If at all Revenue want to examine the Rate of depreciation, the same could have been examined in AY. 2008-09 i.e., when the said asset was purchased and included in the block of the assets. Since assessee was already getting depreciation at 60%, on the principles of consistency depreciation 60% is to be allowed in the impugned assessment years as well. In view of that, AO is directed to grant depreciation at 60% on the WDV as claimed. Grounds of assessee are allowed.

Summary

Issues:
1. Disallowance of 15% ad-hoc disallowance out of race winning payments.
2. Dispute regarding depreciation rate claimed at 60% for electronic display system.

Issue 1: Disallowance of 15% ad-hoc disallowance out of race winning payments:
The case involved cross-appeals by the Revenue and the Assessee for the assessment years 2010-11 and 2011-12 arising from separate but common orders of the Commissioner of Income Tax (Appeals). The Assessee, a company engaged in horse race-course operations, faced a disallowance by the Assessing Officer (AO) of 15% ad-hoc disallowance out of race winning payments below a certain threshold. The AO's disallowance was based on the lack of details regarding payees for betting prize money. However, the Ld.CIT(A) deleted the disallowance by relying on the orders of the ITAT in the Assessee's own case for earlier years. The ITAT upheld the Ld.CIT(A)'s decision, emphasizing that the issue was identical to the one decided in the Assessee's favor in previous years. The Revenue challenged this decision, but the ITAT affirmed the Ld.CIT(A)'s order, stating that the higher forum's decisions must be followed. Therefore, the ad-hoc disallowance was deleted based on precedent.

Issue 2: Dispute regarding depreciation rate claimed at 60% for electronic display system:
Another issue in the case was the dispute over the depreciation rate claimed by the Assessee at 60% for an electronic display system, which the AO categorized as electronic equipment and allowed depreciation at 15%. The Ld.CIT(A) upheld the AO's decision, stating that the display system was not eligible for 60% depreciation as it was considered electronic equipment, not a computer. However, the ITAT disagreed with the Ld.CIT(A) and AO, noting that the equipment had been classified as a computer system in earlier years, and therefore, depreciation at 60% should be granted. The ITAT emphasized the principle of consistency in depreciation treatment and directed the AO to allow depreciation at 60% on the Written Down Value (WDV) as claimed by the Assessee. Consequently, the Assessee's appeal was allowed, and the Revenue's appeals were dismissed.

In conclusion, the ITAT Hyderabad ruled in favor of the Assessee on both issues, deleting the ad-hoc disallowance of race winning payments and allowing depreciation at 60% for the electronic display system. The judgments were based on the principle of following precedent and ensuring consistency in treatment across assessment years.