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Issues: (i) Whether the cost of the LED panel for depreciation should be taken as the amount paid by the assessee or as the written down value in the seller's books; (ii) Whether the LED panel was eligible for depreciation at the rate applicable to computers.
Issue (i): Whether the cost of the LED panel for depreciation should be taken as the amount paid by the assessee or as the written down value in the seller's books.
Analysis: The expression "actual cost" under Section 43(1) of the Income-tax Act refers to the actual cost to the assessee. Explanation 3 does not authorise the Assessing Officer to substitute the seller's written down value as the buyer's actual cost; it only permits determination of actual cost having regard to the circumstances where the transfer is mainly for reducing tax liability by claiming enhanced depreciation. The assessee produced a registered valuer's report supporting the purchase price, and the seller's assessment showed that the transfer was taxed in its hands as short-term capital gains, which negatived the allegation of tax avoidance.
Conclusion: The cost for depreciation was correctly taken as the amount paid by the assessee for acquiring the LED panel, and not the seller's written down value.
Issue (ii): Whether the LED panel was eligible for depreciation at the rate applicable to computers.
Analysis: The term "computer" is not defined in the Income-tax Act, but its meaning in Section 2(1) of the Information Technology Act, 2000 covers an electronic data-processing system with logical, arithmetic, memory, input and output functions. On the facts found in the valuer's report, the LED panel had display controller, software-based message changes, memory and processing capabilities, and functioned as a synchronized electronic display system. On that basis, it was treated as sufficiently akin to a computer for depreciation purposes.
Conclusion: The LED panel was eligible for depreciation at the rate applicable to computers.
Final Conclusion: The Revenue failed on both issues, and the assessee's depreciation claim was sustained in full.
Ratio Decidendi: For depreciation, "actual cost" is the cost to the assessee, and a specialised electronic display system with data-processing functions may qualify as a computer for depreciation at the higher prescribed rate.
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