2021 (4) TMI 576 - AT - Income Tax

Depreciation @ 60% on STBs - HELD THAT - As decided in own case 2020 (5) TMI 190 - ITAT CHANDIGARH wherein held that Transaction of acquiring of STBs by the assessee was a loan/financial transaction meaning thereby the STBs were purchased by the assessee to put to use in its business. STBs are further given to the consumers on hire purchase agreement which are deemed to be sold to the consumers after three years from the date of delivery/installation - assessee had put the STBs in its business from the date it acquired/purchased the same. In view of this, the assessee is entitled to deprecation irrespective of the date of installation of STBs in the premises of the consumers. This issue is accordingly allowed in favour of the assessee. Addition of the total interest claimed by the assessee - HELD THAT - As decided in own case 2020 (5) TMI 190 - ITAT CHANDIGARH Counsel has demonstrated that there were sufficient own funds available with the assessee company in the form of share capital and reserves to meet the advance given - During the year relevant to the assessment year under consideration, the assessee has shown capital work in progress amounting to ₹ 2,32,75,003 but had not capitalized the interest on the same for the reason that the appellant had huge interest free reserves and own funds. As pointed out by the ld. CIT(A), ld. AR demonstrated during the appellate proceedings that the assessee had share capital and reserves to the tune of ₹ 145.34 crore and ₹ 63.52 crore respectively to meet the capital work in progress. Since, there is no material change in the facts of the present case, the Ld. CIT(A) has rightly deleted the addition made by the AO by following the decision of the coordinate Bench. In our considered view, the findings of the ld. CIT(A) are in accordance with the decision of the coordinate Bench rendered in the assessee's own appeals for the assessment years 2012-13 to 2015-16. Addition u/s. 14A - Sufficiency of own funds - HELD THAT - As decided in own case 2020 (5) TMI 190 - ITAT CHANDIGARH no disallowance is attracted u/s. 14A of the Act in case the assessee has not earned any income not forming part of the total income. This issue is accordingly decided in favour of the assessee Depreciation on the custom duty component and all incidental costs for acquiring assets from CISCO - AO observing that since the assessee has claimed depreciation it cannot claim deduction u/s. 37 of the Act for the amount of lease rent paid to CISCO - HELD THAT - As decided in own case The assessee is entitled only to claim interest paid as part of the said lease rentals as expenditure u/s. 36(1)(iii) of the Income Tax Act. The assessee, in view of the discussion made above, is not entitled to claim the principal component of alleged lease rent paid as 'revenue expenditure' u/s. 37(1) of the Act. However, the assessee is also entitled to claim depreciation on the said assets purchased from borrowed capital. - Decided against assessee.

Issues Involved:

1. Depreciation on Set Top Boxes (STBs)
2. Disallowance of interest attributable to work in progress
3. Disallowance under Section 14A of the Income Tax Act
4. Lease rental on set top boxes

Issue-Wise Detailed Analysis:

1. Depreciation on Set Top Boxes (STBs):

The Revenue challenged the CIT(A)'s decision to allow depreciation at 60% on STBs, arguing that STBs should be treated as 'plant and machinery' with a depreciation rate of 15%. The CIT(A) followed the Chandigarh ITAT's decisions for the assessment years 2012-13 to 2015-16, which classified STBs as computers eligible for 60% depreciation. The Tribunal upheld the CIT(A)'s decision, noting that the facts and issues were identical to previous years where the higher depreciation rate was allowed. The Tribunal emphasized that the economic life of STBs, as per TRAI guidelines and the assessee's own statements, was three years, justifying the higher depreciation rate.

2. Disallowance of interest attributable to work in progress:

The Revenue contested the deletion of ?9,89,077/- related to interest attributable to work in progress. The CIT(A) had deleted this addition, following the ITAT's decisions for earlier years, which held that if an assessee has sufficient interest-free funds, no disallowance under Section 36(1)(iii) is warranted. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had adequate interest-free reserves and own funds to cover the capital work in progress, consistent with previous rulings.

3. Disallowance under Section 14A of the Income Tax Act:

The Revenue challenged the deletion of ?1,83,17,325/- disallowed under Section 14A read with Rule 8D, despite the assessee not earning any exempt income. The CIT(A) deleted the addition, following the ITAT's decisions for the assessment years 2014-15 and 2015-16, which held that no disallowance under Section 14A is warranted if no exempt income is earned. The Tribunal upheld the CIT(A)'s decision, reiterating that the issue was covered by multiple High Court rulings and previous ITAT decisions favoring the assessee.

4. Lease rental on set top boxes:

The assessee's cross-objection related to the disallowance of lease rental on STBs taken on lease from Cisco Systems Capital India Pvt. Ltd. The CIT(A) confirmed the AO's disallowance, following the ITAT's decisions for the assessment years 2012-13 to 2015-16, which classified the lease as a finance arrangement rather than an operational lease. The Tribunal upheld the CIT(A)'s decision, noting that the lease agreement was essentially a financing arrangement, and the assessee was entitled to claim interest paid as expenditure under Section 36(1)(iii), but not the principal component as revenue expenditure under Section 37(1).

Conclusion:

The Tribunal dismissed the appeals filed by the Revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s decisions on all issues, consistent with previous ITAT rulings. The Tribunal emphasized the importance of consistency in judicial decisions where facts and issues remain unchanged across assessment years.

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