2019 (6) TMI 1454 - AT - Income Tax

Tribunal grants 60% ATM depreciation rate, upholds Section 80JJAA deduction, remands audit report verification

The Tribunal allowed the assessee's appeal, directing the Commissioner of Income Tax (Appeals) to permit a 60% depreciation rate on Automated Teller ... Depreciation on ATMs as part of computer equipment - Interpretation of 'computer' under the Information Technology Act, 2000 - Precedential value of tribunal and high court decisions in tax classification disputes - Conflict of judicial decisions - construction favourable to the assessee - Deduction under section 80JJAA - eligibility and statutory audit report requirement - Remand for limited verification of documentary complianceDepreciation on ATMs as part of computer equipment - Interpretation of 'computer' under the Information Technology Act, 2000 - Precedential value of tribunal and high court decisions in tax classification disputes - Conflict of judicial decisions - construction favourable to the assessee - Whether ATMs qualify as computers or computer equipment and are therefore eligible for depreciation at 60% - HELD THAT: - The Tribunal held that ATMs perform decoding, processing and output functions through integrated computer hardware and software and therefore fall within the concept of computers/computer network as understood for depreciation purposes. The Tribunal followed co ordinate tribunal decisions (including Royal Bank of Scotland N.V. and Datacraft/Global Trust Bank authorities) and the decision of the Bombay High Court in CIT v. Saraswat Infotech Ltd., which treated ATMs as part of the computer system eligible for higher depreciation. The Karnataka High Court decision relied upon by the Revenue was given in the context of sales tax/statute different from the Income tax Act and therefore not binding; the Supreme Court principle that, where non jurisdictional High Court decisions conflict, the construction favourable to the assessee should be adopted, was applied. On this basis the Assessing Officer was directed to allow depreciation at 60% on ATMs for the assessment years under consideration. [Paras 6]Depreciation on ATMs allowed at the rate of 60% (treated as computer equipment); directions to Assessing Officer to grant depreciation accordingly.Deduction under section 80JJAA - eligibility and statutory audit report requirement - Remand for limited verification of documentary compliance - Precedential value of tribunal decisions in assessee's own case - Whether the assessee is entitled to deduction under section 80JJAA and whether the claim should be remanded for verification of the audit report - HELD THAT: - The Tribunal observed that the question of entitlement to deduction under section 80JJAA in the assessee's case is covered by its earlier orders for preceding assessment years, which treated the assessee's software/IT undertaking and its employees as within the scope of the provision. Accordingly, the assessee is prima facie entitled to the deduction. However, because section 80JJAA requires production of an audit report as a statutory pre condition and the record did not establish that such report was placed before the Assessing Officer during assessment, the Tribunal remanded the matter to the Assessing Officer for the limited purpose of verifying whether the requisite audit report had been submitted and to decide the claim in accordance with the Tribunal's earlier reasoning and applicable law. The remand is limited to verification of compliance with the statutory documentary requirement; entitlement otherwise is recognised subject to that verification. [Paras 8]Entitlement to deduction under section 80JJAA accepted in principle; matter remanded to the Assessing Officer for limited verification whether the statutory audit report was submitted and for fresh decision accordingly.Final Conclusion: Assessee appeals allowing depreciation on ATMs at 60% for AY 2013 14 and AY 2014 15 are allowed; Revenue appeal on section 80JJAA is remanded to the Assessing Officer for limited verification of the statutory audit report, with entitlement recognised subject to that verification. Issues Involved:1. Depreciation rate on Automated Teller Machines (ATMs).2. Deduction under Section 80JJAA of the Income Tax Act.Issue-wise Detailed Analysis:1. Depreciation Rate on Automated Teller Machines (ATMs):The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in restricting the allowance of depreciation on ATMs at 15% instead of the 60% claimed by the assessee. The assessee, engaged in software development and ATM services, argued that ATMs should be classified as 'computers' and thus eligible for a higher depreciation rate due to their functional similarities with computers. The Assessing Officer (AO) disagreed, treating ATMs as mere electronic devices and allowing only a 15% depreciation rate, referencing the Karnataka High Court's decision in Diebold Systems (P) Ltd vs CIT.The Tribunal found that ATMs perform logical, arithmetic, and memory functions akin to computers, supported by the Special Bench of the Mumbai Tribunal's decision in Dy. CIT v. Datacraft India Ltd. and the Delhi Tribunal's decision in Global Trust Bank Ltd. Furthermore, the Tribunal noted that the Karnataka High Court's decision was under the Karnataka Sales Tax Act, not the Income Tax Act. The Tribunal also referenced the Bombay High Court's decision in CIT vs Saraswat Infotech Ltd., which supported a higher depreciation rate for ATMs.Thus, the Tribunal directed the AO to allow depreciation at 60% for ATMs for the assessment years 2013-14 and 2014-15.2. Deduction under Section 80JJAA of the Income Tax Act:The second issue was whether the CIT(A) was justified in allowing the assessee's claim for deduction under Section 80JJAA. The AO had disallowed the claim, noting that the assessee did not claim it in the computation of total income due to a declared loss. However, the CIT(A) allowed the deduction based on the Tribunal's decisions in the assessee's favor for previous years.The Tribunal upheld the CIT(A)'s decision, noting that the assessee met the conditions for deduction under Section 80JJAA. However, the Tribunal remanded the matter to the AO to verify whether the assessee had submitted the required audit report before the completion of assessment proceedings, as mandated by the section.Conclusion:- The appeals of the assessee for the assessment years 2013-14 and 2014-15 were allowed, granting a 60% depreciation rate on ATMs.- The revenue's appeal was allowed for statistical purposes, remanding the issue of the Section 80JJAA deduction back to the AO for verification of the audit report submission.