2019 (2) TMI 711 - AT - Income Tax

Depreciation on an LED panel acquired by the assessee from its sister concern - depreciation @60% - whether the LED panel could be considered as equivalent to a computer for allowing deprecation at the rate of 60%? - Held that - There can be no case for the Revenue that the acquisition of the LED panel from M/s. Tricom Vision by the assessee was for reduction of tax liability by claiming excess depreciation. In our opinion CIT(A) was justified in holding that cost to the assessee for the purpose claiming depreciation was cost incurred by it for acquiring the LED panel from M/s. Tricom Vision. As to the question whether the LED panel is equivalent to a computer for availing depreciation at the rate of 60% for computers in New Appendix I of Income Tax Rules, 1962, term computer has not been defined in the Act. Characteristic of the LED Panel acquired by the assessee has been given in the registered valuer s report which more or less fits to the definition of computer as given in Information Technology Act, 2000. It had memory function, ability for processing and could also perform logical action by synchronizing the inputs to display. Thus in our opinion, the LED panel purchased by the assessee was eligible for claiming depreciation at the rate of 60%. - decided against revenue

Summary

Issues Involved:
1. Determination of the cost to be adopted for calculating depreciation on an LED panel acquired by the assessee.
2. Whether the LED panel qualifies as a computer for allowing depreciation at the rate of 60%.

Issue 1: Determination of Cost for Depreciation Calculation

The Department challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] regarding the cost to be adopted for calculating depreciation on an LED panel acquired by the assessee from its sister concern, M/s. Tricom Vision. The Department argued that the written down value (WDV) of the LED panel in the seller's books was ?8,41,579, whereas the assessee had paid ?3,00,00,000 and claimed depreciation on this amount. The Department contended that allowing depreciation on ?3,00,00,000 would result in aggregate depreciation exceeding the original cost of ?1,80,00,000, violating the first proviso to Rule 5(1A) of the Income Tax Rules, 1962. They also suggested that the transaction was intended to claim undue depreciation benefits due to the relationship between the Managing Partner of M/s. Tricom Vision and the Managing Director of the assessee company.

The Tribunal examined the definition of "actual cost" under Section 43(1) of the Income Tax Act, which means the actual cost to the assessee, reduced by any portion met by another person or authority. Explanation 3 to Section 43(1) allows the Assessing Officer (AO) to determine the cost if the asset was previously used by another person and the transfer's main purpose was to reduce tax liability. The Tribunal noted that the AO did not provide reasons for disregarding the valuation report from a Government-approved valuer, which valued the LED panel at ?3,05,00,000. The Tribunal referenced the Supreme Court's decision in Jogta Coal Co. Ltd vs. CIT, which held that the cost for depreciation purposes should be the cost in the hands of the assessee, not the previous owner. The Tribunal concluded that the CIT(A) was justified in holding that the cost to the assessee for claiming depreciation was the amount paid to acquire the LED panel from M/s. Tricom Vision.

Issue 2: Classification of LED Panel as a Computer

The Department argued that the LED panel should be considered an electrical appliance, not a computer, and thus eligible for only 10% depreciation, not 60%. The Tribunal noted that the term "computer" is not defined in the Income Tax Act but is defined in Section 2(1) of the Information Technology Act, 2000, as a device performing logical, arithmetic, and memory functions by manipulating electronic, magnetic, or optical impulses.

The Tribunal examined the characteristics of the LED panel as described in the registered valuer's report, which indicated that the panel had memory functions, data processing abilities, and could perform logical actions by synchronizing inputs to display messages and videos. The Tribunal found that these characteristics fit the definition of a computer under the Information Technology Act, 2000. Therefore, the Tribunal concluded that the LED panel was eligible for depreciation at the rate of 60%.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on both issues, dismissing the Department's appeal. The cost for depreciation purposes was determined to be the amount paid by the assessee, and the LED panel was classified as a computer eligible for 60% depreciation.