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TMI Blog2015 (1) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee inasmuch as if an amount of ₹ 2,11,34,759 out of total amount of ₹ 2,38,85,000 was already offered to tax in the earlier years, the prior period adjustment made in that behalf by the assessee, on account of the concerned parties declining to make the payments due to discrepancies in the billing, the same should be allowed as deduction as bad debts. We therefore, set aside the impugned order of the CIT(A) and direct the Assessing Officer accordingly to restrict the disallowance made. - Decided partly in favour of assessee. - ITA Nos. 676/Hyd/2009 & 411/Hyd/2010 - - - Dated:- 7-1-2015 - Shri P. M. Jagtap And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Shri V. Siva Kumar, Advocate For the Respondent : Shri D. Sudhakar Rao, CIT (DR) ORDER Per Asha Vijayaraghavan, J.M. These are the appeals filed by the assessee directed against the orders of the CIT (A)-IV Hyderabad dated 15.01.2010 and 13.03.2009 respectively relating to A.Ys 2005-06 2006-07 respectively. ITA No.676/Hyd/2009 A.Y 2005-06. 2. Brief facts of the case are that the assessee is a company, engaged in the business of publishing of news papers, satellite televisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the relevant provisions of the Income Tax Rules relating to rate at which depreciation is allowable on computer and computer software. I agree with the observations made by the AO that only computer and computer software are entitled for depreciation @60%. Though various accessories like printers, scanners, modems, routers etc., referred to by the appellant may be linked to the computers, the same cannot be considered as forming integral part of the computer system. Those accessories being distinct and separate items, come under the purview of plant and machinery for allowance of depreciation at the normal rate of 25%. In this view of the matter, the stand of the AO in allowing depreciation on such computer accessories @ 25%, as against the claim made by the appellant @60% is justified. Thus, the disallownace of ₹ 89,98,773/- made by the AO towards excess claim of depreciation on computer accessories is confirmed . 4. Aggrieved, the assessee is in appeal before us. We find that ITAT in ITA No.1429/Hyd/2014 for A.Y 2004-05 in assessee s own case it has been held in Para Nos.14 to 17 as follows: 14. The next issue as raised in Ground No. 4 with its subgrounds is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions of the parties and perused the materials on record as well as the orders of revenue authorities. As can be seen, AO has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as plant and machinery. The CIT(A) has sustained the order of AO by following his own order passed in case of assessee for the AY 2002-03. However, it is seen from record that the order passed by CIT(A) for AY 2002-03 and 2003-04 on identical issue was challenged by assessee before the Tribunal. The tribunal while considering the dispute in appeal preferred by assessee in ITA Nos. 1241/H/08 and 591/Hyd/10 for AY 2002-03 and 2003-04 respectively allowed assessee's claim of depreciation @ 60% on these items. While doing, so the Tribunal followed its earlier order in assessee's own case for AY 2005-06 and 2006-07. The finding of the Tribunal is extracted hereunder for ready reference: 11. We have heard the submissions of the parties and perused the material on record. As per the list submitted by the assessee in Annexure-B and the detailed note submitted explaining their fiction, the items on which there is a dispute regarding claim of depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me computer for the reason that its principal function cannot be done only with the aid of 'computer functions' notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a standalone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/ object/f unction of such machine should be achievable only through 'computer functions'. 26. Having analyzed the meaning of 'computer' in common parlance, let us proceed to ascertain the concept, meaning and functions of 'router' Again we find that the term 'router' has not been defined in the Income- tax Act, 1961. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other or from one network to another. Routers provide connectivity inside enterprises, between enterprises and the internet, and inside Internet providers. From the above discussion it transpires that the function of a router is to receive the data from one computer and make it available to another computer for viewing or further processing. Apart: from facilitating the flow of data between two computers, the routers also. help in the transfer of data from network to computer. Thus the essential function of the router in a commercial organization is to facilitate the flow of data from one computer to another for its processing or storage. Switches are shorter version of routers, which perform similar functions as that of routers but within a limited sphere. 30. On functioning of a 'Router' we find that there is no dispute on the fact that a Router does not perform any logical, arithmetic and intermediary functions on data nor it manipulates or processes data, the way a computer would do. A Router does not have a CPU . It only enables transmission of data and data packages, in a sophisticated manner, to intended places. A data cable also carries data from one place t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long with a computer. In such a situation, it would be a Stand alone equipment. In such cases this cannot be considered a component of a computer or computer Hardware. Giving another example, a computer software can be used in many devices including washing machine, televisions, telephone equipment etc. When such software is used in those devices, it integrates with that particular devices. The predominant function of the device determines its classification. Only if the Computer software, re- sides in a computer, then it become a part and parcel of a computer and, as long as it is as integral part of a computer, it is classified as a 'Computer'. 31.4. In view of the above discussion, we are of the considered view that router and switches can be classified as a computer Hardware when they are used along with a computer and when their functions are integrated with a 'computer'. In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer. 12. While coming to such conclusion, the Hon'ble Special Bench approved the view taken by the Income-tax Appellate Tribunal, Kolkata Bench in case of ITO vs. Sami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derabad Bench while deciding the departmental appeal in ITA Nos.701/Hyd/2009 and 426/Hyd/10 dated 9-7-2012 also upheld the order passed by the CIT (A) in allowing depreciation at the rate of 60% by treating the screen, key board, mouse, UPS, net working, router as part of the computer system and thereby eligible for depreciation at the rate of 60% as available to computer. In the aforesaid view of the matter, we are inclined to accept the assessee's contention that it is entitled to avail depreciation at the rate of 60% on those items as is applicable to 'computer'. Accordingly, we set aside the order passed by the CIT (A) by allowing the grounds raised by the assessee. As the dispute in the present appeal is materially the same and the learned DR has not brought any contrary decision to our notice, we respectfully follow the decision of the coordinate bench in assessee's own case as referred to above and direct the AO to allow depreciation @ 60% as claimed by assessee. Accordingly, the ground raised by assessee is allowed. 5. Respectfully following the decision of the Coordinate Bench, we allow the assessee s ground on this issue. 6. The next disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallow the amounts already paid. 7.2 The assessee also submitted that the Allahabad High Court in its judgment in the case of CIT vs. Vector Shipping Services (P) Ltd (38 Taxmann.com 77 (357 ITR 641) upheld the finding of the ITAT that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by the end of the year. A copy of the decision of the Hon'ble High Court was also submitted by the assessee and the ITAT followed the ratio of the Special Bench decision in the case of M/s. Merilyn Shipping Transport Ltd (136 ITD 23(SB). 7.3 The assessee further submitted that the Hon'ble Andhra Pradesh High Court in its judgment dated 24.06.2014 in the case of CIT vs. M/s. Janapriya Engineers Syndicate (ITA No.352 of 2014) held until and unless the decision of the Special Bench in the case of M/s Merilyn Shipping Transport is upset by the Hon'ble jurisdictional Court, it binds smaller and coordinate bench of the Tribunal. The assessee pray that in the light of the decision of the jurisdictional High Court, ITAT may direct the disallowance u/s 40(a)(ia) may not be made in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,38,85,000. 10. Facts of the case in relation to this issue are that the Assessing Officer has added an amount of ₹ 2,38,85,000 on the ground that the expenditure does not pertain to the year under appeal. On appeal before the CIT(A), assessee submitted that the said amount pertains to excess amounts billed to various parties in the earlier years, which were rectified, on being pointed out by the said parties, and accordingly debited to the Profit Loss Account. The learned Authorised Representative of the assessee submitted an details before the CIT(A), clarifying the nature of the amounts and allowability of deduction in respect thereof. The CIT(A), not finding merit in the contentions of the assessee, upheld the action of the Assessing Officer in disallowing the amount of ₹ 2,38,85,000 on the ground that the expenditure in question does not pertain to the year under appeal, and the assessee has not incurred any exp, but has written off income of earlier years. 11. Before us, on appeal, the learned counsel for the assessee, Shri Siva Kumar, submitted that the CIT(A) has not appreciated that in the earlier assessment years, bills were raised to the extent of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. The CIT (A) confirmed the disallowance made by the AO u/s 40(a)(ia) of the I.T. Act on the ground that the assessee failed to deduct the tax at source u/s 194C of the Act on software expenses paid to M/s Ushakiron Television and M/s Ushakiron Movies and M/s Arjoe Entertainment India (P) Ltd. Before the CIT (A) it was submitted that since the assessee has already paid a part of the amount, out of ₹ 43,16,33,123/- to various parties, such amounts are not payable at the end of the year and therefore, there is no justification in disallowing ₹ 43,16,33,123/- u/s 40(a)(ia), while computing the income of the assessee. The CIT (A) following the decision of his predecessors in assessee s own case for 2005-06 held at Para 6.4 as follows: 6.4 Since the facts of the case are identical in the current year also, I am in full agreement with the order of my predecessor that the above payments are covered u/s 194C of the Act, falling within the purview of clause (b) below explanation (iii) of the aforementioned section. Since the appellant did not deduct TDS, the disallowance of ₹ 43,16,33,123/- made by the AO is held to be justified and no interference is called for. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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