TaxTMI 
TaxTMI 
2015 (1) TMI 510
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act. While doing so, the AO made disallowance of depreciation, disallowance of expenditure u/s 40(a)(ia) of the act and disallowance of expenditure on the ground that the same does not pertains to the year under the accounting among other disallowances. Aggrieved, the assessee preferred appeal before the CIT (A) and with respect to disallowance of Rs. 89,98,773/- which is on account of restrictions of depreciation on computers, software and peripherals to 25% as against 60% claimed by the assessee (vide item III(5) of Old Appendix-I under Rule 5 of I.T. Rules, 1962). The assessee submitted details of the computer equipments, peripherals and software which is the subject matter of disallowance. Assessee also submitted that out of the additions of Rs. 3,08,80,838/-, an amount of Rs. 2,25,43,236/- was incurred towards the cost of operationg software which is eligible for depreciation at 60%. Also, an amount of Rs. 83,37,602/- out of the additions of Rs. 3,08,80,838/- was incurred towards cost of printers, scanners, modems, switches/hubs, cables/cards, routers, facsimile systems V-Sat terminals, software etc and it was submitted that they are integral part of computer systems a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by assessee, AO noticed that the block of computers also include printers, scanners, modems, switches, photo/edit V-sat equipment, UPS, network cables, software, etc. AO after verifying these facts was of the view that computers connected to photo transmission equipment, editing equipment, v-sat and data processing equipment are to be treated as computers. However, scanners, printers, modems, switches, networking cable, transmission equipment and software do not form part of computers. AO opined that every peripheral device connected to the computer does not form part of the computer. He observed that computer runs without peripherals like printer, scanner etc. , but not the other way round. The AO was of the opinion that computers used for photo transmission equipment, decoding equipment v-sat, data processing equipment are eligible for depreciation @ 60% whereas the other peripherals like printers, scanners, modems, switches, photo/edit/equipment UPS, network cables and software form part of plant and machinery, on which, depreciation is allowable @25% only. Accordingly, he proposed to restrict depreciation @ 25% on them. Though, assessee objected to such action, the AO, howeve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncluded that depreciation claimed by the assessee is not allowable at 60% as according to him computer means a CPU which is also called as mother board along with its memory. Monitor key board, mouse are essential to run computer as an independent entity. The aforesaid finding of the Assessing Officer was upheld by the CIT (A) who also held that every peripheral device connected to the computer does not form part of the computer. Let us now examine how far the findings of the revenue authorities are acceptable in the context of the ratio laid down by the Income-tax Appellate Tribunal, Mumbai (Special Bench) in case of DCIT vs. Datacraft India Limited (40 SOT 295), the Hon'ble Special Bench being conscious of the fact the term 'computer' has not been defined under the IT Act nor in the general clauses Act, 1987, the meaning of the term computer has to be understood by applying the principles of statutory interpretation i.e., one has to give the meaning to the expression 'computer' not merely by going to the dictionary meaning but by applying common parlance or commercial parlance tests as well as by analyzing the intendment of legislature in providing higher rate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....twork (say the internet), they move from many routers (because they pass through many networks) in their journey from the source machine to be destination machine. Routers work with IP packets, meaning that they work at the level of the IP protocol. Every router keeps information about its neighbours (other routers in the same or other networks). When a packet of data arrives at a router, its header information is scrutinized by the router. Based on the destination and source IP addresses of the packet, the router decides which neighbour it will forward it to. 27. The assessee vide its letter dated 21-2-2005, addressed to the Assessing Officer, submitted a note on use of routers! switches by explaining that the routers are crucial device that let the messages flow from one computer to another. It was further explained that the router has two separate but related jobs, viz., (a) to ensure that the information does not go where it is not needed and (b) it makes sure that the information does make it to the intended destination. 28. A router is a networking device whose software and hardware are customized to the tasks of routing and forwarding information. A router has two or more....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'peripherals'. Together, they all fall under the category of computer hardware. 'Software', on the other hand, consist of the programs and applications that run on computers. Because software runs on computer hardware, software programs often have 'system requirements' that list the minimum hardware required for the software to run. 31.1 In short, "Router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another net work connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this "machine" can be used independent of Computer. If yes, then it cannot be called "Computer Hardware" in all circumstances. 31.2 When "Computer Hardware", is used as a component of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... computer as one composite unit is for performing logical, arithmetical or memory functions etc., but it is not the only equipment which performs such functions that can be called as 'computer'. All the input and output devices which in fact support in the receipt of input and outflow of the output are also part of the 'computer'. Therefore, the ratio which can be culled out from the aforesaid decision of Hon'ble Special Bench (specifically paragraph 31.4 of the order), it is to be seen that the Hon'ble Special Bench has clearly held that when a particular hardware or software is used along with a computer and when their functions are integrated with a computer or in other words when the device is used as part of the computer in its functions, even though it may be having user on standalone basis, but still then such hardware or software would be termed as a 'computer'. In applying the aforesaid ratio to the facts of the present case, it can be seen that the revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as 'computer' are being used as input or o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated from advertisements by way of telecasting the serials and programmes produced. The AO held that it is immaterial whether the payments are made on outright basis or revenue sharing basis. He held that tax is liable to be directed u/s 194C and disallowed a sum of Rs. 45,16,04,175/- on account of non deduction of tax under the said section. In appeal the CIT (A) upheld the action of the AO. 7. Aggrieved by the order of the CIT (A), the assessee came up in appeal before us and submitted that an identical issue came up before the ITAT A Bench, Hyderabad in assessee's own case wherein the ITAT upheld the disallowance. In this regard the assessee submitted that the sister concerns and other parties are the absolute owners of the programs, feature films, serials etc., produced by them and the assessee is not the owner of the rights over these programmes except telecasting these programmes on its TV channels. The assessee further submitted that the agreement that the assessee entered was only for telecasting the programmes produced by its sister concerns and other parties through the assessee's TV channels and the understanding was that the revenue generated on advertisements in time ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he relevant accounting year, out of the amounts disallowed which have been upheld by the CIT (A). This ground is partly allowed for statistical purposes. 9. With respect to the last ground being disallowance of expenditure of Rs. 1,00,71,880/- on the ground that the same does not pertain to the year under account. AO disallowed a sum of Rs. 1,00,71,880/- on the ground that the same does not pertain to the earlier years. In appeal, the CIT (A) has upheld the disallowance. Before us it was submitted that the CIT (A) failed to appreciate the fact of the case. During the A.Ys 2002-03 and 2004-05 the assessee raised bills towards advertisement charges on certain parties at prime time rates. Some of the advertisements were telecast on more number of times than agreed and upon the clients pointing out such mistakes, credit notes were given for excess amount bills on them by debiting to prior period expenses. The concerned amount worked out to Rs. 1,00,20,532/-. The assessee also paid a sum of Rs. 47,711/- towards bonus relating to A.Y 2004-05 and debited the same to prior period expenses. The CIT (A) ought to have deleted the disallowance. In this connection it is submitted that identica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ff. Alternatively, the learned counsel argued that since the excess billing of Rs. 2,11,34,759 out of Rs. 2,38,85,000 was offered to tax in the earlier years, and it is written off to Profit & Loss Account in the year under appeal as prior period adjustment, the same should be allowed as deduction as bad debt, since such amounts were considered as income in earlier years. 12. The learned Departmental Representative on the other hand, opposing the above contentions of the assessee on this issue, supported the order of the CIT(A). 13. We have considered the rival submissions and perused the orders of the lower authorities. Though in principle, we are agreement with the disallowance made by the Revenue authorities, we find merit in the alternative contention of the assessee. Inasmuch as if an amount of Rs. 2,11,34,759 out of total amount of Rs. 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....