2018 (4) TMI 143 - AT - Income Tax

Higher rate of depreciation on Cash Dispenser, ATM and its related accessories and UPS batteries - Held that - We find that the assessee is eligible for depreciation @ 60% on ATM and other related accessories. As regards depreciation @ 60% on UPS is concerned, we find that though the UPS can independently function without the assistance or integration with a computer and is an alternate mode of supply of power and does not depend on any assistance from a computer, the computer can function only on a power supply and when there is no power supply, it is connected to UPS so that it can work uninterruptedly and without losing the unsaved data when the power goes off. Therefore, in our opinion, UPS also can be considered as a computer if it is connected to the ATM Machine or a Computer and depreciation thereon is allowable at 60%. AO is directed to verify if the UPS are used for the functioning of the ATM and allow depreciation accordingly. Interest on non-performing assets/sticky loan is to be recognized only when it is received or credited to the P&L A/c. - Held that - We direct the AO to consider the interest on NPAs as income only in the year of receipt. The addition is accordingly deleted

Summary

Issues:
1. Depreciation rate on various assets claimed by the assessee.
2. Tax treatment of interest income on Non-Performing Assets (NPAs).

Depreciation Rate Dispute:
The case involved the assessee, a cooperative society engaged in banking, disputing the depreciation rate on certain assets claimed in the A.Y 2013-14. The Assessing Officer (AO) disallowed a portion of the claimed depreciation, asserting that the allowable rate was 15% instead of the 60% claimed by the assessee. The AO based this decision on the definition of 'computer' under the Information Technology Act, 2000. The appellant argued that assets like ATM, related accessories, and UPS should be considered part of the computer system, justifying a 60% depreciation rate. The Tribunal analyzed various precedents and concluded that the appellant was eligible for 60% depreciation on ATM and related accessories. Additionally, the UPS, when connected to a computer or ATM for uninterrupted power supply, could also be considered part of the computer system, warranting a 60% depreciation rate. The AO was directed to verify the usage of UPS and allow depreciation accordingly, leading to the allowance of grounds of appeal 1 to 3.

Tax Treatment of Interest Income on NPAs:
Regarding the tax treatment of interest income on NPAs, the AO observed that the assessee, following the mercantile system of accounting, offered interest income on NPAs on realization basis. However, the AO held that since section 43D did not apply to the assessee as a non-scheduled cooperative bank, interest on NPAs should be taxed on an accrual basis. The CIT (A) upheld this decision, leading to the assessee's appeal. The appellant cited precedents from the Gujarat and Bombay High Courts to support the contention that interest on NPAs should only be recognized when received or credited to the Profit & Loss Account. The Tribunal concurred with the appellant's argument, following the decisions of the Gujarat High Court and the ITAT Visakhapatnam Bench. Consequently, the AO was directed to consider interest on NPAs as income only in the year of receipt, resulting in the deletion of the addition made by the tax authorities. Thus, ground of appeal No.4 was allowed in favor of the assessee.

In conclusion, the ITAT Hyderabad ruled in favor of the assessee on both issues, allowing the depreciation at a higher rate for certain assets and directing the tax treatment of interest income on NPAs to be recognized only when received. The judgment provided detailed analysis based on legal precedents and statutory provisions, ensuring a fair and just outcome for the appellant.