AR invited our attention to the observations of the revenue authorities, wherein, they had observed that the ATMs were just cash dispenser and projector and not a computer aided peripheral. The A.R. has placed certain photographs alongwith short descriptions as to how the ATM functions. From the short descriptions, it can be seen that ATM functions entirely through the functions of a computer. The AR thus invited our attention to the written submission, wherein, the AR pleaded before the revenue authorities that ATM cannot function without the help of a computer and is certainly an important computer peripheral for banking industry. The AR thus took us through the decision of Delhi ITAT in the case of DCIT vs. Global Trust Bank (ITA No.474/D/09), wherein, the coordinate Bench has held the ATM was a computer equipment and thus allowed depreciation at 60%.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No.3606 /Mum/2011 -Assessment Year: 2008-09
Saraswat Infotech Ltd. Vs. ACIT
Date of pronouncement: 14.3.2012
Per Vivek Varma, JM:
The appeal herein emanates from the order dated 23.2.2011 of the CIT(A)-22, Mumbai, wherein, the CIT(A) has upheld the additions made by the AO in order dated 23.12.2010, passed under section 143(3) of the Income tax Act, 1961, for the assessment year 2008-09.
2. The facts of the case are that the assessee company is a subsidiary of Saraswat Co.Op.Bank Ltd., and the assessee company provides software development and information technology enabled services to its holding company, i.e. Saraswat Bank. During the year, the holding company i.e. Saraswat Bank acquired three banks, i.e. Nasik Peoples Co.op.Bank, Murgha Rajendra Sahakari Bank and Anna Saheb Karale Sahakari Bank. During the course of assessment proceedings, the assessee company had acquired certain capital assets which would provide certain computers and technology services to its holding company, i.e. Saraswat Co.Op. Bank Ltd. The Assessing Officer also noticed that the assessee company had capitalized purchase of UPS under the block of “computers” and claimed depreciation @ 60%. The AO further noted that the assessee company had claimed depreciation @ 60% on the ATM machines. The Assessing Officer, while dealing with both these independent items held that so far as UPS is concerned, it is an electrical appliance for temporary supply of electricity in the event of power failure and is just another form of inverter and, therefore, at best, can be considered as a part of plant and machinery office equipment eligible for depreciation @ 15%. He, therefore, disallowed the excess claim and added the same to the total income of the assessee. So far as ATM was concerned, held that this cash dispensing machine with a projector, and here too, the AO held that there were only part of plant and machinery/office equipment and eligible for depreciation @ 15%. The AO, therefore, disallowed excess depreciation amounting to Rs. 11,02,442 and added it back to the income of the assessee company. The AO, further disallowed depreciation of Rs. 50,54,400 on account of purchase of software licence, holding that the assessee company could not prove that the assessee physically received the licence by 31.3.2008 and sent them to its branches who in turn installed and put the same in use on 31.3.2008. The AO, therefore, disallowed the depreciation and added it back to the assessee’s income.
3. Aggrieved by the order of the AO, the assessee preferred appeal on all the three issues before the CIT(A), who after going through the entire facts, as stated above, preferred not to disturb the findings of the AO and sustained the additions.
4. Aggrieved by the view taken by the CIT(A), the assessee is now in appeal before us.
5. Before us, learned A.R. of the assessee submitted that UPS is an integral part of the computer system as they can be used only alongwith the computers. UPS, according to the A.R. are connected to local area network, PCs, servers, routers, V-sats and thereform integral part of the overall computes systems as they regulate the flow of the power to avoid any kind of damage to the computer network done to fluctuation in power on sudden loss of power, which could bring the whole operation to a halt, causing loss of valuable data. The A.R. placed before us a decision of Hon’ble Delhi High Court in ITA No.65 of 2011 and ITA No.66 of 2011 in the cases of CIT vs. Orient Ceramics & Inds Ltd, wherein, the Hon’ble High Court in para 13, dealing with the issue of UPS, have accepted the findings of the same Hon’ble High Court in the case of CIT vs. BSES Yamuna Powers ltd. (ITA No.1267 decided on 31.8.2010). It was pointed out by the learned A.R that since the issue has been decided by an Hon’ble High Court, even if not a Jurisdictional High Court and, there being no other contrary decision, the decision of Hon’ble Delhi High Court as placed in the paper book in the case of Orient Ceramics & Ind Ltd (supra) should be followed.
6. Coming to the restriction of depreciation on ATM, the AR invited our attention to the observations of the revenue authorities, wherein, they had observed that the ATMs were just cash dispenser and projector and not a computer aided peripheral. The A.R. has placed certain photographs alongwith short descriptions as to how the ATM functions. From the short descriptions, it can be seen that ATM functions entirely through the functions of a computer. The AR thus invited our attention to the written submission, wherein, the AR pleaded before the revenue authorities that ATM cannot function without the help of a computer and is certainly an important computer peripheral for banking industry. The AR thus took us through the decision of Delhi ITAT b in the case of DCIT vs. Global Trust Bank (ITA No.474/D/09), wherein, the coordinate Bench has held the ATM was a computer equipment and thus allowed depreciation at 60%.
7. On both these issues, the Bench, respectfully follow the decision of Hon’ble Delhi High Court so far as UPS is concerned as will also follow the decision of coordinate bench of ITAT Delhi so far as ATM is concerned. It is important to note that even ITAT, Mumbai(SB) in the case of DCIT vs. Datacraft India Ltd., 6 Taxman.com.85 has taken bthe view that routers & switches are to be included in the block of computers as they cannot be used without the computers.
8. Coming to the depreciation on purchase of software license, the revenue authorities held that the assessee company could not prove that the software was acquired and installed and put to use by 31.3.2008 and hence they disallowed the depreciation. Before the Bench, the AR submitted that the software was put to use on 31.3.2008 and took us through the Purchase order which was dated 29.3.2008. Before us, the AR invited our attention to the fact that OMNI software was already in use by the bank since long. As the licence was to be acquired and to be put to use for the newly acquired co-operative banks, enhanced licenses were to be acquired. It was submitted by the AR that the assessee company acquired the licences for enhanced use, and we put to use on 31.3.2008, the AR invited our attention to a copy of daily trial balance for Ankali Miraj Branch on 31.3.2008.
9. On going through the facts on this issue also, we feel that the assessee company has gone on to prove that the software which was actually acquired and put to use on 31.3.2008 and hence, the assessee company has rightly claimed depreciation at 30% (being 50% of 60%). We, accordingly, allow the grievance of the assessee on this count.
10. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 14th March, 2012