Try out our Premium Member services: Virtual Legal Assistant, Query Alert Service and an ad-free experience. Free for one month and pay only if you like it. Income Tax Appellate Tribunal – Chandigarh
M/S Fastway Transmission (P) … vs Dcit, Cc-Ii, Chandigarh on 6 May, 2020 आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, “ए ” च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’, CHANDIGARH ी एन. के. सैनी, उपा य एवं ी संजय गग , या यक सद य BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJAY GARG, JUDICIAL MEMBER आयकर अपील सं./ ITA No.547/Chd/2017 नधा रण वष / Assessment Year : 2013-14 आयकर अपील सं./ ITA No.139/Chd/2019 नधा रण वष / Assessment Year : 2012-13 आयकर अपील सं./ ITA No.842/Chd/2018 नधा रण वष / Assessment Year : 2014-15 आयकर अपील सं./ ITA No.140/Chd/2019 नधा रण वष / Assessment Year : 2015-16 M/s Fastway Transmission (P) बनाम
Ltd., Plot No.17, Industrial Area, The A.C.I.T.,
Phase-1, Chandigarh. Central Circle-II, Chandigarh. थायी लेखा सं./PAN NO: A A B C F 1 8 5 4 B नधा $रती क& ओर से/Assessee by : Shri Ashwani Kumar, CA राज व क& ओर से/ Revenue by : Shri Chandrajit Singh, CIT (DR) on 4.12.2019 and Smt Chandrakanta CIT (DR) on 18.03 2020 सन ु वाई क& तार*ख/Dates of Hearing : 04.12.2019/18.03.2020 उदघोषणा क& तार*ख/Date of Pronouncement: 06/05/2020 2 Per Sanjay Garg, Judicial Member: आदे श/ORDER T h e s e a p p e a l s r e l a t i n g t o d i f f e r e nt a s se s s me n t ye a r s h a ve been p re f e r r e d by t he a s se s se e a ga in s t t he co r r e s p o n di n g s e p a r a te o r d e r s p a s se d b y th e L d . C o m m i s s i o n e r o f I n c o m e Ta x ( A p p e a l s ) – 3 G u r ga o n, ( he r e i na f te r r e fe rr e d t o a s C I T( A p p e a l s ) ) u / s 2 5 0 ( 6 ) o f t h e I n c o m e Ta x A ct , 1 9 6 1 ( he r e i na f te r r e f e r re d to a s ‘ the A c t ‘ ) . S i nc e t he f a c t s a s w e l l t he i s s u e s i n v o l ve d i n a l l t h e c a p t i o ne d a p p e a l s a re i d e nti c a l , he n ce , t h es e h a ve be e n h e a r d t o ge t h e r a n d a r e be i n g d i s p o s e d o f w i th t h i s c o m m o n o r de r : 2. I TA N o 5 4 7 / C h d / 2 0 1 7 f o r A Y – 2 0 1 3 – 1 4 i s ta ke n a s t he l e a d ca se f o r th e s a ke o f c o n v e ni e n c e . I T A N o . 54 7 / C h d / 2 0 1 7 3. The brief facts of t he ca se , as e x t ra c te d f ro m t he impugned o r de r s of t he lower a ut h o r i ti e s , are t ha t the a s se s se e i s e n ga g e d i n t he b u s i ne s s o f M u l t i S y ste m O p e ra to r s and D i g i ta l Cable Se r v i ce s ( DC S ) . Th e DCS services are r e nd e r e d to the c us t o m e rs t hr o u g h se t top boxes. Th e a s se s se e , t h u s , a c ts a s a n i n te r m e di a te be t we e n l o c a l ca b le o p e r a t o r s a n d b r o a d ca s te r s . Th e a s se ss e e f o r t he a s se s s m e nt y e a r u n d e r c o n s id e r a t i o n de c la r ed a l o s s o f R s . 30 , 2 1 , 6 4 , 5 7 3 / – i n t he re t ur n o f i n c o m e . D ur i n g t he c o u r se o f a s se s s m e nt 3 p r o c e e d i n g s , t h e A s s e s s i n g O f f i ce r ( i n s h o r t ‘ A O ‘) n o t i ce d t ha t t h e a s se s se e ha d e n te re d i n t o a f i n a nc i a l le a s e a g r e e m e n t wi t h M / s C I S C O C a p it a l S y s te m I n di a P v t . L t d . ( h e r e i n a fte r r e f e r re d t o a s C I S C O ) f o r s u p p l y o f S e t To p B o x e s ( he r e i na ft e r r e f e r re d t o a s S TB ) a n d He a d E n d s . Th e A s s e s s i n g O ff i c e r f u r t h e r n o te d that CISCO was a N o n – B a n k i ng F i na n c e Company (NBFC) r e gi s te r e d w i t h R e se r ve B a n k o f I n d i a a n d w a s i n t h e b us i n e ss o f p r o v i d i n g d if fe r e n t t y p e s o f l o a n s o n a s se t s / e q u i p m e n t s to i t s c u s t o me r s . T h e A s se s s i n g O f f i ce r fo u n d t ha t t h e a s se s se e h a d e n te r e d into the s a i d a g r ee m e n t with C I SC O through M a s te r L e a se F i na n ce Ag r e e m e n t d a te d 7 . 1 2 . 2 0 1 1 a l o n g w i t h a n u m b e r o f sc h e d u l e s , w h e r e i n t h e l e a se te r m w a s 4 8 m o n t hs f o r t h e s up p l y o f 7 , 9 1 , 9 2 4 n u m b e r o f S TB s a n d He a d e n d s f o r t h e a m o u nt d e ta il e d a s u nd e r : S TB = R s . 1 1 , 8 2 ,7 0 , 0 6 6 C u s t o m D ut y = R s . 2 5 , 9 4 ,6 3 , 9 8 7 Head ends = Rs.7,90,48,205 Total = R s . 1 4 4 , 6 7, 8 2 , 2 5 8 T h e A O f u r t h e r no t e d f r o m t he N o t e s t o A c c o u n ts , f o r m i ng p a r t o f t he B a l a n c e S he e t t h a t t h e a s s e sse e ha d t r e a te d the a r ra n ge m e n t w it h C I S C O a s a Fi n a n c e le a s e ca p i ta l i z in g t he p r i n c i p a l c o mp o n e n t ( co s t p l u s c u s t o m d u t y) o f t he a g r e e d l e a se r e n t . Th e a s s e s se e d e bi te d o n l y t he i n te r e s t i n t h e P ro f i t a n d L o s s a cc o u n t a n d f u r t h e r t r e a te d t h e a s se ts le a se d ( se t top boxes) as fixed a s s e t s. H o w e ve r , for t he purpose of 4 c o m p u ta t io n o f i n c o m e a s p e r t h e p r o v i s i o n s o f t he I n c o me Ta x A c t , t h e p r i n c i p a l c o m p o ne n t o f th e l e a se r e n ta l s a m o u n t i n g t o R s . 5 8 , 8 7 ,1 6 , 9 8 3 / – w a s a l s o c l a i m e d a s de du c t i o n a l o ng w i th i n te r e s t c o m p o n en t . On being asked to explain in this r e s p e c t, the a s se s se e e x p la i ne d t ha t i n t h e b o o k s o f a c c o u n t s , f o l l o w in g m a n d a t o r y a c co u n t i ng s ta nd a r d A S – 1 9 f o r t h e c o m p a ni e s p r e s c r i b e d by t h e I n s t i t u te o f C h a r te re d A c c o u n ta n t s o f I n d i a , t h e a s se ts w e r e t r e a te d a s f i x e d a s se t s a n d t he tr a n sa c ti o n w i t h C I S C O w a s t r e a te d a s F i na n c e L e a se , w h e re a s , f o r t he p u r p o se o f I n co m e Ta x A c t , t h e tr a n sa c t i o n w a s tr e a te d a s o p e r a t i n g l e a se and t h e re b y c la i m i n g t he le a s e r e n ta l paid to CISCO as d e du c t i o n. T h e A O , a f te r a n a l y z i n g t h e va r i o u s c la u s e s o f th e a g re e m e nt e n te r e d into by the a s s e sse e with CISCO, held that the a s se s se e h a d e n t e r e d i n t o a fi n a n ce l e a se a gr e e m e n t w i t h C I S C O a n d w a s e n t i t l e d t o c l a i m d e p r e c i a t i o n o n t h e a s s e ts s o l e a se d . Accordingly, the A ss e s s i n g O f f i ce r d i s a ll o we d t he c l a i m o f d e d u c t i o n o f t he P r i n c i p a l c o m p o ne n t o f t h e l e a se r e nta l s a m o u n t i n g t o R s . 5 8 , 8 7 , 1 6 , 9 8 3 / – m a d e b y t h e a s se s se e and a ll o w e d depreciation @ 15% amounting to R s . 1 6 , 1 8 ,1 4 , 8 4 3 / – o n t h e l e a se d a s s e t s , t h u s r e s u l t i n g i n a n addition of R s . 4 2 , 6 9 , 02 , 1 4 0 / – . He rejected th e a l te r na te c o n te n t i o n o f t h e a s s e s se e t ha t t h e S TB w o u l d f a ll w i th i n the 5 d e fi n i t io n a n d s c o p e o f c o m p u t e rs , h e n ce , de p r e ci a t i o n o n the s a m e s h o ul d b e g r a n te d @ 6 0 % a s p r o v i d e d u n d e r I . T. R u l e s, 1962. Th e A O a l s o f o u nd t h a t t he a s s e s se e h a d c la i me d d o u b le d e d u c ti o n on account of i n te r e s t p a id to CISCO a m o u n t i n g t o R s . 6 , 3 8 , 1 7 0 / – a n d a d d e d t he s a me t o t h e i n c o m e of the a sse s se e . Th e A s se ss i n g O f f i ce r fu r t h e r made d i sa l l o w a n c e o n a c co u n t o f e x ce ss d e d u ct i o n c l a i m e d u / s 3 5 D o f t he A c t b y t he a ss e s se e a m o u n t i n g t o R s . 2 . 4 0 c r o r e s a n d R s . 3 , 4 1 , 8 7 0 / – . F u r t he r d i sa l l o w a n c e o f i n te re s t , a m o u n t i n g t o R s . 2 8 , 6 8 ,0 9 6 / – w a s a ls o m a de , u / s 3 6 ( 1 ) ( i i i ) o f t h e A c t, o n a c co u n t o f p a y m e n ts ma d e o n b e h a l f o f o ne M / s G . S . M a j e s t i c D e ve l o pe rs P v t. L t d . t r e a t i n g t he sa m e to b e i n th e na t u r e o f loan for non bu s i n e s s p ur p o s e . Th u s , a f te r m a k i n g a b o ve d i sa l l o w a n c e s / a d d i t i o n s , t h e A ss e ss i n g O ff i c e r a s se s s e d the i n c o m e o f t h e a s s e s se e a t R s . 2 1 , 1 9 , 8 5 , 7 0 3 a s a g a in s t l o s s o f R s . 3 0 , 2 1 ,6 4 , 5 7 3 / – r e t u r ne d b y th e a s se s se e . 4. T h e a s se s se e a p p e a l e d a ga i n s t th e a f o re sa i d o r d e r o f t he A s se s s i n g O f f i ce r b e f o re the C I T( A p p e a l s ) b ut could not s u c ce e d o n a n y o f t he i ss ue s r a i s e d . 5. A g g r i e ve d b y t h e o r d e r o f t he C I T( A ) , t h e a s se s s e e ha s c o m e u p in a p pe a l b e f o re u s r a i s i n g t he f o l l o w i n g G r o u n d s : “1. That the Worthy Commissioner of Income Tax (Appeals)- 5, Gurgaon has grossly erred in dismissing all the grounds of appeal as taken before him by the appellant without appreciating the detailed 6 submissions and various contentions as raised by the assessee during the course of number of hearings and has passed the order in a summary manner and has just confirmed the additions, which are totally uncalled for and against the facts and circumstances of the case. 2. That the Worthy CIT(A) has erred in confirming the addition of Rs.6,00,38,170/-, which had been claimed in the computation of income u/s 37 as interest paid to the M/s Cisco System Capital India Pvt. Ltd., towards the payment of interest on account of Set top Boxes taken on lease from the above said company. 3. That the Worthy CIT (A) has erred in holding that the transactions between the appellant company and M/s Cisco System Capital India Pvt. Ltd., are on account of financial lease and which finding is against the material on record. 4. That the Worthy CIT (A) has erred in confirming the action of the Assessing Officer with regard to the addition of Rs.42,69,02,407/- as lease rental charges and allowing the depreciation u/s 32 as per AO order, which is against the decided law on the subject and the various judgments, which we had cited before him the claim by the appellate of lease rent to the tune of Rs.58,87,16,983/- has been denied in summary manner on certain irrelevant facts. 5. That the Worthy CIT (A) has erred in holding in para 5.4.13 about treating the lease rental as capital expenditure and not allowing the deduction u/s 37 of the Income Tax Act is against the facts and circumstances of the case. 6. That the Worthy CIT (A) has erred in confirming the action of the Assessing Officer in disallowing the deduction u/s 35D amounting to Rs.2.40 crores. 7. That the Worthy CIT (A) has erred in confirming the addition of Rs.3,41,870/- on account of alleged unexplained expenditure. 8. That the Worthy CIT(A) has erred in confirming the action of the Assessing Officer in disallowing the interest amounting to Rs.28,68,096/- u/s 36 (1)(iii) and holding that the amount of Rs. 3.20 crores as 7 advanced by the company was not for the business purposes. 9. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 6. Apart from the above grounds of appeal, the assessee has taken the following additional ground of appeal: “Without prejudice, the assessing officer erred in not allowing depreciation on Set top boxes at the eligible rate of 60% ” 7. G r o u n d N o . 1 r a is e d b y t h e a s se s s e e i s ge ne r a l i n n a t u r e , h e nce ne e d s n o a d j u d i c a t i o n . 8. Grounds No.2 : Th e a s se ss e e v i d e g r o u n d N o . 2 ha s a g i ta t e d t h e a ct io n o f t h e C I T( A ) i n c o n f i r m i ng t he a d d it i o n o f R s . 6 , 0 0 , 3 8 , 1 7 0 / – m a d e o n a c co u n t o f i n te r e s t p a i d t o M/ s C I S C O C a p i ta l Sy s te m h o l d i ng t he s a m e to ha ve b e e n c la i m e d t w i c e b y t h e a s se s s e e . 9. T h e L d . C o u n se l f o r t he a s se ss e e i n t h i s r e s p e c t ha s s u b m i t t e d t ha t d u r i n g t he re le v a n t ye a r 2 0 1 3 – 1 4 f o r ‘ S TB s & h e a d e n d s, t h e r e w e r e t wo c o m p o n e nt s o f t h e l e a s e p a y me nt s m a de b y th e a s se s s e e t o M/ s C I SC O Principal Component – Rs. 58,87,16,983/- I n te r e s t C o m p o ne n t – Rs. 6,00,38,178/- Total R s . 6 4 , 8 7 ,5 5 , 1 5 3 / – 8 The Ld. Counsel has further s u b m i t te d t ha t as per the a c co u n t i ng s ta n d a r d s A S – 1 9 p re s cr i b e d b y t h e I n s t i t u te o f C h a r te r e d A c c o un t a n t s o f I n di a ( I C AI ) , the a s se s se e ca p i ta l i ze d t h e a f o r e sa i d t o ta l a m o u n t o f R s . 6 4 , 8 7 , 5 5 , 15 3 / – i n t h e b o o k s o f a c c o u n t a n d c l a i me d d e p re c ia t i o n o n i t . Th e a s se s se e d i d n o t d e b i t t he i n t e r e s t c o m p e te n t o f R s . 6 , 0 0 , 3 8 , 1 7 8 / – i n the p r o f i t a n d l o s s a c c o u n t , t h o u g h i n a d ve r te n t l y m e n t i o n e d s o i n ‘ N o te 2 J ‘ o f t h e A u d i te d A c c o u n ts t h a t i n te r e s t co m p o ne n t ha s b e e n de b i te d . H o w e ve r , a c t u a l l y i t wa s n o t d o ne s o . Th e L d . C o u n se l in t h i s r e s p e c t ha s s u b mi t te d t h a t i t i s no t t he ca se o f t h e A s s e s si n g O f f i c e r t ha t t he i n te r e s t c o m p o ne n t w a s n o t a ll o w a b l e a s d e d u c t i o n t o t he a s s e ss e e b u t t h e l i m i te d i s sue t h a t w h e t he r t he a s se s s e e h a s c l a i m e d d o u b le de d u c t i o n o f the s a m e w h i c h c a n b e w e l l ve r i f i e d f r o m t he a c co u n t s o f the a s se s se e b y t he A s s e s si n g O f f i c e r . Th e L d . c o u n s e l f o r the a s se s se e i n t h i s r e sp e c t ha s f u r t h e r s u b mi t te d t ha t A s s e ss i ng O f f i ce r m i st o o k t h e figure o f R s . 5 . 3 5 c r o re s a s c l a i m o f d e du c t i o n o n a cc o u n t o f i nt e re s t e x p e n d i t u r e , r a th e r , t h e sa i d f i g u r e w a s i n r e sp e c t o f i n te r e s t o n s e rv i ce ta x w h i c h w a s p a rt o f t he t o ta l f i g ur e o f R s . 9 . 4 8 cr o r e s d e b i te d u nd e r t h e h e a d ‘ F i n a n ce C o s t ‘ a n d n o t a p a r t o f t h e f i gu r e o f R s. 6 4 . 8 7 c o r e s r e l a t i n g t o t he l e a se p a ym e n t c h a r g e s . Th e L d . c o u n se l i n t h i s r e sp e c t h a s f u r th e r s u b m i t te d t h a t t he p a y m e n t o f R s . 5 .3 5 c o r e s , n o ti ce o f w h i c h h a s b e e n ta k e n b y t he A s se s s i n g O f f i ce r w a s t o w a r d s i n te r e s t o n se r v i ce t a x w h i c h w a s a p p a re n t f r o m 9 t h e fa c t t ha t t h e sa i d a m o u n t w a s de p o s i te d u n d e r t h e c o d e ” 0 0 4 4 0 2 1 8 – C a b l e O p e r a t o r ” . T h e L d . C o u n s e l ha s f ur t he r r e l i e d u p o n t he c o p y o f t h e c ha l la n s p l a ce d a t p a g e s 5 9 t o 6 1 o f t h e p a p e r b o o k t o s h o w t h a t t he i n te re s t / p e na l t y / o v e r h e a d s a s se r v i ce ta x , w he r e a s , t he c o d e 0 0 4 40 2 1 7 r e l a te s t o se r v i ce ta x . Th e s u m a n d s u bs t a n ce o f the w h o l e a r gu me n ts o f t h e L d . c o u n s e l , wa s t h a t t he i n te re s t c o m p o n e n t o f the t o ta l le a se r e n ta l p a i d b y t he a s se s s e e w a s r e q u ir e d to b e d e bi te d in t o t he p r o f i t a n d l o ss a c c o u n t e ve n a s pe r A S – 1 9 , however, th e a s s e s se e i na d ve r t e n t l y ca pi ta l i ze d the e n t ir e a m o u n t o f le a s e re n ta l o f R s . 6 4 . 8 7 c r o r e s . H o w e ve r , i n the i n c o m e t a x re tu r n , t he e n t i r e l e a s e re n ta l o f R s . 6 4 . 8 7 c o r e s h a s be e n c l a i m e d a s d e d u c t i o n o f e x p e n d i tu r e u / s 3 7 o f t he I n co m e Ta x A c t . Th a t t h e r e w a s n o d e d u c t i o n o f t h e in te r e st c o m p o ne n t o f R s. 6 , 0 0 , 3 8 , 1 7 8 / – w h i c h is o th e r w i s e a l l o w a b le t o t he a s se s s e e u n d e r b o t h t he co n d i t io n s i .e . w h e t he r the t r a n sa c t i o n i s ta ke n a s t h a t o f l e a s e o r a s t h a t o f l o a n . Th e a s se s se e w a s e n t i t l e d t o c la i m de d u c t i o n u / s 3 7 o f t he i n te r e st e x p e n d i t ur e i n c u r r e d / p a i d f o r th e p r o c u r e me n t s o f t h e a s se t s w h i c h we re u se d s o l e l y fo r t h e b us i n e s s o f t he a s se s s e e . 10. T h e L d . D R , o n t h e o t h e r ha n d , ha s r e l i e d o n t h e f i n d i n gs o f t h e l o w e r a uth o r i t ie s a n d h a s f u r t he r s u b m i t te d t h a t the i s s ue w he t h e r d o u b le d e d u ct i o n has been claimed by t he a s se s se e o f t he i n t e r e s t e x pe n d i tu r e s h o u l d b e r e s t o r e d t o the 10 A s se s s i n g O f f i ce r for ve r i f i ca ti o n . C o n si de r i ng t he a b o ve s u b m i s s i o n s o f t h e L d . r e p r e se n t a t i ve s o f t h e p a rt i e s , t h i s i s s ue is re s t o r e d t o t he f i le o f t he A s s e s si n g O f f i c e r f o r l i m ite d p u r p o se o f ve r i f ic a ti o n t h a t w he th e r t he a ss e s se e h a s c la i m e d d o u b le d e d u c t i o n o f t h e a m o u n t o f R s . 6 , 0 0 , 3 8 ,1 7 8 / – c la i me d a s i n te r e s t c o m p o ne n t o f t h e to t a l l e a se r e n ta l c l a i m o f R s. 6 4 , 8 7 , 5 5 15 3 / – . H o we ve r , t he i ss u e a s t o th e a l l o w a b i l i t y o f d e du c t i o n o f p r i n c i p a l c o m p o ne n t o f R s . 5 8 , 8 7 , 16 , 9 8 3 / – ha s been c o n te s te d vide gr o u n d Nos. 3 to 5 which ha s be e n d i s c u s se d i n t he s u b s e q ue n t p a r a s o f t h i s o r d e r. I n v ie w o f t h i s , t h e i s s ue r a i s e d v i d e g r o u n d N o .2 o f the a p p e a l i s a c c o r d i n g l y r e s t o r e d t o t h e f i le o f t h e A s s e s s i ng O f f i ce r i n t he te r m s a s i n d i ca te d a b o ve . 11. Grounds No 3, 4 & 5 : G r o u n d N o s . 3 , 4 a n d 5 r a i s e d by t h e a s se s s e e a r e a ga i n s t t h e a c t i o n o f t h e L d . C I T ( A p p e a l s ) i n u p h o l d i n g t he o r d e r o f t he A ss e ss i n g O f f i ce r t r e a t i n g t he l e a se a g r e e m e n t e n te r e d i n t o by the a s se s s e e wi t h CISCO as a f i na n ce l e a se a g r e e m e n t a s a ga i ns t o p e r a t i n g l e a se c l a i m e d by t h e a s se s se e . S in c e t he i s s ue s r a i se d v i d e a b o ve g r o u n d s a r e i n te r l i n k e d , hence t he sa m e a re taken t o ge t he r for a d j u d i c a ti o n . 11 12. We ha ve he a r d the r i va l c o n te n t i o n s of the Ld. R e p r e se n ta t i ve s of both the p a r t ie s and ha v e a l so g o ne through the record. Th e d e ta i l e d su b m i s si o n s of the Ld. C o u n se l f o r t he a s se s s e e o n t he i s s u e a r e s um m e d u p p o i n t w i s e a s un d e r : – A ) T h a t t h e re we re b o t h t y p e s o f t r a n s a c t i o n s d o ne by t he a s se s se e w i t h C I S C O i .e . s o me e q u i p me n t w e r e le a se d o u t b y t he CI S C O a n d t h e o t he r w e r e p u r c h a se d d i r e c t l y b y th e a s se s s e e . I n ca se o f d ir e c t p u r ch a s e , t h e a s s e t s we re c a p i t a l i z e d a n d d e p r e c ia t i o n c la i me d o n t h o s e . H o w e v e r , i n ca se o f l e a s e d a s se t s , t h o ug h , i n v i e w o f t he m a nd a to r y r e q u i re me n t f o r t he c o mp a ni e s a s pe r C o m pa n i e s A c t t o f o l l o w t h e A c c o un t i n g S t a n da r d AS – 1 9 p r e s c r i be d b y I n st i t u te o f C h a r t e re d A c c o u n ta n t s o f I n d i a , t h e l e a se tr a n sa c t i o n w i t h C I S C O w a s b o o k e d a s F i na n c e Le a s e , h o we ve r , i n fa c t , t he s a m e wa s a n o p e r a t i n g l e a se . He n ce , t h o u g h , a s p e r t h e a c c o u n ti n g st a nd a r d E S – 1 9 , S TP s w e r e ca pi ta li z e d a n d d e p re c ia t i o n c o m p u te d , h o w e v e r, i n t h e i nc o m e ta x r e t u r n t he d e p r e c i a t i o n s o c o m pu t e d w a s w r i tte n b a c k a n d i n ste a d t h e l e a se r e n t ( b o th p r i n ci pa l c o m p o n e n t a n d i n t e r e s t c o m p o n e n t ) wa s cl a i m e d a s d e d uc t i b le e x p e n d i t ur e u / s 3 7 o f t he A c t . B ) T h a t a s p e r t he p r o v i s i o ns o f t he I n c o m e Ta x A ct ( i n s h o r t ‘ t he Ac t ‘ ) , d e p r e c i a t i o n i s a d m i s s ib l e u n de r s e c t i o n 3 2 o f t he A ct o n l y to t he o wn e r o f th e a s s e t . T h a t t he l e a se c h a r ge s p a i d f o r th e u s e o f t h e a ss e t to t h e o w ne r o f th e a s se t a r e a l l o wa b le a s r e ve n ue e x p e n d i t ur e u n d e r se c t io n 3 7 o f t h e I . T. A c t to t he payer. C ) T h a t a t pa ge 8 0 i n p a r a g ra p h 5 . 4 . 4 o f t h e im p u g n e d o r de r , t he L d . C I T( A ) h i m s e l f h a s m e n ti o n e d , ” t h e r e is no doubt about t he ge n u i ne n e s s of t he l e a se a g r e e m e n t ” . Th e L d . C o u n se l i n t h i s r e s p e c t ha s s u b m i t t e d t ha t w h e n t h e C I T( A ) d i d n o t h a v e a n y do u b t a b o u t t h e ge n u i n e n e s s o f t he l e a se a g r e e m e n t , t h e n 12 t h e re w a s n o q u e st i o n o f ma k i n g a n y d i sa l l o w a n ce h o l d i n g th e l e a se a gre e m e nt a s n o n – ge n u i n e . D ) Th a t t he I n c o m e Ta x A c t d o e s n o t re c o gn i ze t he d i f fe r e n ce b e t w e e n th e f i n a nce l e a se a n d o pe r a ti ng l e a se . R e li a n ce in t h i s re s pe c t ha s b e e n p la ce d u p o n the CBDT circular No. 2 of 2001. E ) T h a t i n t h e p u r ch a s e b i l l s C I S C O h a s b e e n m e nt i o ne d as buyer. F ) T h a t C I S C O ha d c l a i m e d t h e l e a se r e n ta l s a s i t s i n c o m e a n d TD S h a s be e n de d u c te d b y t h e a s se s s e e o n t he l e a se r e n ta l s, w h i c h h a d b e e n a f f i r me d a l s o b y C I S C O i n i t s r e p l y to q u e r y ra i se d t o i t b y t he A O b y i ss u i n g n o t i ce u / s 1 3 3 ( 6 ) o f t he A c t G) Th a t CISCO has claimed d e p re c ia t i o n on t he a s se t s / e q u i p m e nt a s o w n e r , w hi ch ha s b e e n a l l o we d t o i t @ 6 0 % f r o m A. Y 0 8 – 0 9 – A . Y 1 0 – 1 1 a n d t h a t e ve n A O h a d a c c e p te d de p r e c i a t i o n c l a i m ed o n S TB @ 6 0 % i n A . Y 1 3 – 1 4 , w hi c h w a s c o n f i r m e d b y th e D R P a l s o . H ) T h a t t h e e n t r ie s i n the b o o k s o f a cc o u n t a re n o t d e te r m i n a t i ve o f t h e na tu r e o f t h e tr a n s a c t i o n . Th e i n c o m e f o r the p u r p o se o f le v y o f i n c o m e ta x i s t o b e d e te r m i n e d a s p e r t h e pr o v i s io n s o f t h e I n c o m e Ta x A c t , 1 9 6 1 , a n d t h e A c c o u n t i ng S t a n d a r d s a r e n o t r e l e va n t f o r t h e sa me . R e l ia n c e i n t h i s r e g a r d wa s p l a ce d o n t he d e c i s i o n o f t he a p e x c o u r t i n K e d a r n a th J u te M a n u fa c t u r i n g C o . l t d . v s C I T ( 1 9 7 1 ) 8 3 I TR 3 6 3 ; S u t le j C o t t o n Mi l l s L t d . V s C I T 1 1 6 I TR 1 a n d f u r t he r u p o n t h e C B D T C i r c u la r N o . 2 o f 2 0 0 1 d a te d 9 . 2. 2 0 0 1 s t a t i n g th a t t h e A c c o u n t i ng S t a n d a r d s o n le a s e s w i l l h a ve n o i m p l i ca t i o n o n t h e a l l o w a n ce o f d e p re ci a t i on o n a s se t u n d e r t h e p r o v i si o n s o f I n c o m e Ta x A c t . R e l ia n ce w a s f ur t h e r p la ce d o n n o t i f i ca t i o n i ss u e d b y t h e C B D T d a te d 9 . 1 . 2 0 1 5 a n d f ur t he r d a te d 2 9 . 9. 2 0 1 6 p o i n t i n g o u t t he r e f r o m t h a t t he A c c o u n t i n g S ta nd a r d s – 1 9 re la t i n g t o a c co u n t i ng f o r l e a se s ha s n o t b e e n n o t i f i e d f o r t he p u r p o se o f a pp l i ca b i l i t y u n de r t he I n co m e Ta x A c t . 13 I ) T h a t i n f i na n c e l e a se t h e r e i s o u t r i g h t sa le s a nd t he s e l l e r t r i e s t o s e c u r e i t se l f wi t h c o l l a te ra l s e c u r i t y a s v i r t ua l l y o w n e r sh i p i s t r a ns f e r r e d t o l e s s e e , w h i c h i s a b s e n t i n t h e p r e se n t c a s e w h e r e C I S C O ha s no s e c u r i t y r a t h e r o w n e r s hi p a n d c o n t r o l o ve r t he a s se t a n d t h e re i s n o c h a r g e r e gi s te r e d w i t h t h e R O C a l so b y C I S C O w h i c h i s ma n da t o r y i f th e r e i s o w ne r s h i p o f l e s se e . J ) T h e L d . C o u n s e l f o r t h e a s s e s se e h a s f ur t h e r s u b m i t te d t h a t s o f a r t h e a r g u m e n t t h a t t he a s se s s e e h a d c la i me d C E N V A T c r e d i t o n le a s e h o l d g o o d s , h e e x p l a i ne d f r o m p a g e 3 8 t o 41 o f t h e w r i t te n s u b m i s s i o n s t ha t f o r claiming CENVET credit, i t i s n o t e s se n t ia l t h a t a s se s se e m u s t be o w ne r o f t h e g o o d s . K ) T h e L d . C o u n s e l f o r t h e a s se s see h a s f u rt h e r in v i t e d o u r a t te n t i o n to t he f o l l o w i n g c la u se s o f t he l e a se a g r e e m e n t a n d su b m i t te d t h a t i t w a s a p p a re n t t h a t the a s se s se e w a s n o t t h e o w n e r o f th e e q u i p m e n t a nd t ha t C I S C O w a s t he o w n e r o f t h e e q u ip m e n t : i) Th a t i n t h e M a s te r L e a se a n d F i n a n ce A gre e m e nt F i n a n c i n g a n d l e a si n g a r e s e pa r a te t r a n sa c t i o n s. T h e f i na n c e a g re e me n t i s a p pl ic a b l e t o s o f t w a r e l i ce n se , m a i n te n a n ce , se r v i ce s w h e r e a s l e a se a g r e e m e n t a r e a p p l i c a b l e t o e q ui pm e n t . ii) Th a t m o n t h l y r e n t w a s p a i d f o r u s a ge a n d n o l u m p s u m p a y m e n t w a s p a i d sh o w i n g t h a t the a s se t ha d be e n l e a se d t o t h e a ss e s se e f o r usa ge only. iii) Th a t t h e r i s ks a n d r e w a r d s o f o w ne r s h i p w e r e e q u a l l y d i s t r i b ut e d b e t w e e n the l e s s o r a n d th e lessee. iv) A s pa r a 1 . 2 o f t h e d e e d , t he l e s s o r s h a l l a l l t im e s r e ta i n t i t l e t o t h e e q ui p m e n t . W i t h o u t p e r m i s s i o n o f t h e le s s o r t he l e s se e s ha l l n o t d i s p o se o f a n y o f t h e e q u i pm e n t . T h e r e c o rd o f m a i n te n a n ce e t c. w i l l be p r o d u c e d b e fo r e t h e le s so r . v) A s p e r c l a u se s 5 . 1 a n d 5 . 2 , t he l e s se e w a s e n ti tl e d t o u se t he a s se t i n i t s b us i n e s s o n l y . 14 vi) A s pe r C l a u se s 1 1 . 1 a n d 1 1 . 2 o f t he d e e d , i n d e fa u l t of payment by the a s se s se e , the c o n se q ue n ce s e nt a i le d re t u r n i n g t h e a s s e t t o the lessor. vii) A s pe r C l a u se 9 . 1 , o n e n d o f t h e le a s e , the e q ui p me n t w a s to b e r e t u r n e d to t h e le s s o r . V a r i o u s j u d ge m en t s ha ve b e e n r e l ie d u p o n b y L d . C o u n s e l f o r t h e a s se s se e t o s t r e s s t he p o i n t t h a t w he n t h e o w n e r s h i p h a d n o t t r a n s fe rr e d to t h e l e s s e e t h e n t h e a r r a n ge m e n t c a n n o t b e s a i d t o be o f a l o a n o r f i na n c e . T h e ju d ge me n t s r e f e r re d t o a r e as under: 1 . C I T v s S ha a n F i na n ce ( P ) L t d . 23 1 I TR 3 0 8 ( S C ) 2 . C I T v s . M a ha r a s h t r a A p e x C o r p o ra t i o n 2 5 4 I TR 98(SC) 3 . I C D S L t d . V s . C I T 3 5 0 I TR 5 2 7 ( S C ) 4 . R a js h r e e R o a d wa y s v s . Union of India [2003] 1 2 9 ta x m a n 6 6 3 ( R a j . ) 5 . P K F F i na nc e L t d . V s C I T ( P b . & H r y ) 6 . C I T V s C o s m o F i l m s L t d . ( 2 0 1 1 ) 33 8 I TR 2 2 6 7 . C I T v s P u n j a b St a te E l e c t r i c i t y B o a r d ( 2 0 1 0 ) 3 2 0 I TR 4 6 9 ( P B & H r y . ) 8 . B o m ba y D ye i n g & M f g . C o . L t d . V s . D C I T I T A 4 5 9 9 / M u m . / 2 0 0 2 ( M u m b a i Tr i b u n a l ) . 9 . M i n d a C o r p o r a ti o n l i m i te d vs DCIT I TA No. 1 9 6 2 / D e l /2 0 1 2 ( I TA T D e l h i ) . The Ld. Counsel c o n c l u di n g his a r g u me nt s , ha s s u b m i t t e d t ha t i n a n y ca se i t w o u l d be a r e ve n ue n e u t r a l e x e r c i se . Either the a sse s se e would be entitled to l e a se c h a r ge s o r t o de p r e c i a t i o n . H e i s t h i s r e s p e c t ha s r e l ie d u p o n 15 t h e d e c is i o n o f t h e De l h i H i gh C o u r t i n t he c a s e o f ” C I T v . T r i v e n i E n g in e e r i n g a nd I n d u s t r ie s L t d. ” [ 2 0 1 1 ] 3 3 6 I TR 3 7 4 ( De l h i ) . 13. T h e D e p a r t me n t h a s a l s o f i le d v a r i o us d o c u me n ts a n d w r i t te n s u bm i s s i o n s i n s u p p o r t o f i t s c o n te nt i o n . Th e m a i n t h r u s t o f t he L d . D R h a s b e e n th a t t h e i mp u g n e d a g re e m e nt w a s a l o a n / f i na n c e a g re e m e n t , w i t h t h e a s s e sse e b e i n g the o w ne r o f t h e a s se t f o r a l l p r a c t i c a l p u r p o se s a n d C I S C O b e i ng t h e f i n a nce r . Th e a r g u m e n t s o f th e L d . D R a r e su m m e d u p a s u n de r : – A . Th a t t h e a s s e sse e a s p e r i t s o w n w i l l a n d a s p e r t he a c tua l na t u r e o f t h e t r a n sa c t i o n h a s f o l l o w e d AS – 1 9 , w h i c h d o e s no t m a n d a te o r r e q u ir e a n a s s e s se e t o c l a i m a t ra n sa c t i o n a s a f i na n c i a l l e a s e . A S – 1 9 s im p l y p r e s c r i be s a s to w h a t i s t he o p e ra t i n g le a s e a n d f i n a n ce l e a se . A ss e sse e h a v i n g i t s e l f ca te g o r i ze d it a s f i n a n c i a l l e a se in t he b o o k s w a s e s t o p p e d fr o m ta k i n g a di f f e r e n t s ta n d f o r t h e p u r p o s e o f ta x a ti o n . B . Th e a sse s se f o r t h e p u r p o se o f d e fe r m e n t o f ta x h a s g i ve n t he d i ff e re n t t r e a tm e n t t o t h e a f o r e s a i d t r a n sa c t io n o f l o a n . C . A s p e r t he le a se a g re e me n t , t h e l e a se te r m w a s n o n – c a nce l l a b l e a n d t h e o b l i ga t io n w a s a b s o l u te ( C l a use 1.3).

D . Th a t th e l if e sp a n o f se t t o p bo x wa s 3 t o 4 ye a r s. Th e te r m o f t he l e a se de e d w a s s o d e v i se d t o co v e r b o t h the p r i n c i p a l a n d i n te r e s t c o m p o n e n t s o f t he f i n a n ce d a m o u nt w i t h i n t he l e a se pe r i o d . ( L e a se S c h e d u le & C la u s e 1 1 ) . Th e l e s se e ha d , o n t he
16 t e r m i na ti o n o f le a s e , t he o p t i o n t o t r a n s f e r t h e a s s e t a t R s . 1 pe r se t to p b o x .

E . Th e C I S C O ha s n o o w ne r s h ip c o n t r o l o ve r t he e q ui p m e n t. I n ca s e o f b r e a c h o f c o n t r a c t , t h e s e t t o p b o x e s c a n no t b e t a k e n a w a y fr o m t h e m i l l i o ns o f c o n s u me r s b y th e C I SC O . Th a t t h e o t he r o p t i o n o f returning the a s se t a f te r u n i n s ta l la ti o n from c u s t o m e r s p r e m i s e s a n d s h i p p i n g b a c k t o t he l e s s o r , b e i n g f a r m o re e x p e n s i ve , t h e sa id o p t i o n w a s m e r e l y a ca m o u f l a g e , w i t h t h e r e a l i n te nt i o n be i ng t o se l l t he a s se t to t he l e s se e a t v e r y l o w p r i c e o n t he t e r m i na ti o n / e x p ir y o f t h e a g r e e me n t.

F . Th e a s s e s se e ha d a va i le d cr e d i t o f c u s t o m d ut y p a i d o n t he i m p o r t o f t he s e t to p bo x e s a ga i n s t se r v i ce ta x l i a b i l i t y . Th e a s s e s se e h a d a l so a v a i le d C E N V A T c r e d i t o n S TB s c l a i m i n g t h e m t o be ca p i ta l g o o d s .

G . Th a t t he r e g u l a t i o n s f ra m e d b y Te l e c o m R e g u l a t o r y A u t h o r i t y o f I n d ia ( TR A I ) s t i p u l a te t ha t t he c u s t o m e r c a n ke e p t he b o x a f te r e x p i r y o f 3 ye a r s o f i n s ta l l a t i o n . Th e a sse s s e e c o u l d n o t ha ve co m pl i e d w i t h a b o ve c o n d i t i o n i f i t w e r e n o t t he o w n e r o f t he a s se t .

H . Th a t t h e TD S h a d b e e n d e d u c te d o n l y o n t h e i n te r e st c o m p o ne n t o f t he p a y m e n ts ma d e b y t he le s se e a n d n o t o n t h e p r i n c ip a l c o m p o n e n t s .

I . Th a t t h e p u r c h a s e b i l l s o f t he se a s s e t s re ve a l e d t h a t t h e a ss e t ha s be e n b i l l e d t o Fa s t w a y Tr a n s m i ss i o n ( P ) L t d . r e c o g n i z i n g t h e a s s e s se e a s p r i m a r y b u ye r a n d user.

J. T h a t t he l e s s o r h a s a l s o t r e a te d t he a g r e e m e n t a s f i na n ce le a se i n i t s B o o k s .

K . Th a t t he s w o r n s t a te m e n t s o f S h r i R a je s h M e h r u , C F O o f t he c o m p a ny , S h r i S u sh i l Th a k u r , A s si st a nt Ma n a g e r ( A c co u n t s ) i n t he c o m p a n y , S h r i C ha m a n L a l K a ti ya l , A c co u n t s H e a d i n t h e c o m p a n y , r e c o r d e d d u r i n g t h e c o ur s e o f s u rv e y u / s 1 3 3 A o r u n d e r s e ct i o n 1 3 1 o f t he A c t , r e a f f i r m e d t h a t t he t r a n sa ct i o n w a s t ha t o f a l o a n .
17 L . Th a t t he a s se s s e e t h r o ug h l e tt e r d a te d 2 4 . 2 . 2 0 1 4 a d d re s se d to DD I T( I n ve s t i ga ti o n) h a d s ta te d tha t it h a d s h o w n t he le a se f i na n c e a s u n s e c u r e d l o a n in i ts books.

M. Th a t CI S C O i s a N o n B a n k i ng F i n a nc e C o mp a ny ( N B F C ) a n d i t s m a i n a c t iv i t y i s o f f i na n c i n g a n d n o t leasing.

N . Th a t a l l t h e r i s k s a n d r e w a r d s a s s o c i a te d w i t h o w n e r s h i p l a y w i t h t h e a s se s se e , t h e l e s se e . Th e r i s k s a g r e e d t o b e b o rn e b y t he l e s se e a s p e r t h e te rm s o f t h e ML F A a r e a s u n d e r :

a) A s p e r c la us e 1 . 2 o f t he a g r e e m e nt t h e r i s k s a n d r e sp o n s i b i l i t y a s s o c ia te d w i th t h e p r o c u re me n t o f t h e a s se t l a y so l e l y u p o n t he a sse s se e .

b) T h e l e ss e e w a s s o l e l y r e sp o ns i b l e f o r de l i ve r y , i n s ta l la t i o n , m a i n t e na n c e a nd r e p a y m e n t o f the e q ui p me n t, w a r ra n te e s , i n de m n i ti e s a nd i n s u r a nc e . A l l fe e s , t a x e s a n d c h a r g e s l e v i ed b y t he G o v e r nm e nt w e r e t h e re sp o n s i b i l i t y o f t he le s se e . ( C l a u se 5. 1 – 5.3) c ) T h e r i s k s a s s o c i a te d w i t h l o ss , t he f t , d a m a g e , d e st r u c t i o n o f a s s e t l a y w i t h the le s se e . ( C la u s e 5 .4 ) d ) T h e le sse e w a s re q u i r e d t o o b ta in a n d ma i n ta i n t he r i s k i n s u r a n ce c o v e r a ge w i th r e s pe c t t o t h e e q ui p m e n t i n s ur e d , a ga i ns t a ny c a s ua l t y to the e q ui p m e n t, a n y c o m m e r c ia l l i a bi l i t y e t c . , w i t h the i n s u r a n ce p o l i c y n a m i n g t h e le s se e a s t he i n s ur e d . ( C l a u se 5. 5 ) e) T h e le s se e w a s r e q ui r e d t o in d e m n i f y t h e l e ss o r a ga i n s t a l l c la i ms s u c h a s d e ma n d s , a c t i o n s , d e b t s , s e t t le m e n t s , e tc. a r i s i n g o n a c c o u n t o f l e a s i n g d o c u m e n t s , e q ui p m e n t , o w ne r sh i p o f e q u i p m e n t, i n f r i n ge m e n t o f p a t e n t , c o p y r ig h t, e t c . I t wa s p o i nt e d o u t t ha t b y v i r t u e o f the i nd e m n i t y c l a use t he le s se e h a d b e e n b ur d e ne d w i t h e x t r a o r di n a r y r e s p o n s i b i l i t y a n d r i sk s w h i le t h e l e ss o r w a s ex o ne r a te d f r o m th e s a m e a n d t h e e l e m e n t o f b a i l m e n t wa s c o m p le t e l y m i s s i n g . ( C l a u se 6 )
18 f) W h i le t he l e ss e e h a d th e r i g h t to t e r m i na te th e l e a se b y p re pa y i n g t h e r e n t , t h e l e s s o r h a d n o s u ch o p t i o n e x ce p t i n t h e c a s e o f d e f a u l t b y t h e l e s se e . ( C l a u se 10.2) g) T h e le s se e w a s g r a n t e d a l l r i g h ts o f p o s se s s io n a n d user of t he e q ui p m e n t and of m a n u fa c tu r e r w a r r a n te e r i g h ts r e la t i n g t o t h e a ss e t. ( C l a u se 8) h) T h e l e s se e ha d b e e n g i ve n r i gh t o f s u b le a s e the e q ui p me n t t o it s c u s to m e r s a n d p u t p e r ma n e n t m a rk i n g o n t he e q u i p m e nt . ( C l a u se 1 2 o f l e a se schedule) i) F o re i g n E x c h a n g e f l u c t u a ti o n l o s s o r ga i n on i m p o r t s o f a s s e t w a s t o b e b o r ne b y t he le s se e . R e l ia n ce h a s be e n p la c e d o n the d e c i s i o n o f t he Sp e ci a l B e n c h o f I . T. A . T. i n t h e c a se o f ” I n d u s in d B a n k L t d . V s . C I T” 1 3 5 I TD 165, “Asea Brown B o ve r i L td . Vs. I nd u s t ri a l F i n a n ce C o r p o r a t io n of India”, 154 Ta x m a n 512, “Association of L e a s i n g a n d F i na n cia l S e r v i c e C o m pa n ie s V s . U n i o n o f I n d ia ” (2011) 2 SCC 352. R e l i a nce was also p la ce d on CBDT I n st r u c t i o n N o .1 9 7 8 d a te d 3 1 . 1 2 . 1 9 9 9 la yi n g down certain f e a t u r e s t o de te r m i ne the o w ne rs h i p o f l e a se d a s s e t f o r the p u r p o se o f a l l o w in g d e p re c ia t i o n u / s 3 2 o f t he Ac t . 14. W e ha v e c o n s i d er e d t he r i va l c o n t e n t i o n s. Th e f i r s t a n d f o r e m o s t a r g u m e n t o f t he L d . C o u n se l f o r t h e a ss e s se e i s t ha t s i n ce t he Income Ta x A c t , 1 96 1 does not r e co g n i ze the d i f fe r e n ce between the f i na n ce l e a se a nd o p e r a ti n g le a s e , h e nce w ha te v e r t y p e o f le a se i t m a y be , t he a s se s se e ca n n o t b e d e n i e d t h e b e n e fi t o f d e d u c t i o n u / s 3 7 o f t h e A c t o f r e ve n ue
19 e x p e n d i t ur e i nc u r re d b y t h e a s s e sse e i n t he s h a pe o f l e a se r e nta l so l e l y f o r t he b u s i n e s s p u r p o se o f t he a ss e s se e . Th a t t h e d i s ti n c t i o n be t we e n a n o pe ra t i n g le a se o r f i na n ce le a s e i s p r e s c r i b e d i n t h e A c c o u n ti n g S ta n d a r d ( AS – 1 9 ) b y t he I C AI w h i c h i s ma n da to r i l y r e q u i r e d t o b e f o l l o w e d b y the C o m p a n i e s f o r m a k i n g a c c o u n t i n g e n t r i e s , ho w e v e r , t he sa id s t a n da r d ha s n o r e l e va n c e s o f a r a s t he c o m p u ta t i o n o f t he i n c o m e u n de r t h e p r o v i si o n s o f I n c o m e Ta x A c t wa s c o n ce r n e d . Th e L d . c o u n se l i n t h is r e sp e c t ha s r e l ie d u p o n t he d e c i s i o n o f the A p e x C o u r t i n th e c a s e o f ‘ K e da r n a t h J u te M a nu f a c t u r i ng C o . L t d . v s C I T’ ( s u p r a ) a n d C B D T C i r c u l a r N o . 2 o f 2 0 0 1 d a t e d 9.2.2001.

15. O n t he o t he r ha n d , t he L d. D R i n h i s s u b m i s s i o n s a s n o t e d a b o ve a n d f u r the r r e l y i n g u p o n t he d e c i s i o n o f the S p e c i a l B e n c h o f t he Tr i b u n a l i n t he ca se o f ‘I n d u sI n d B a n k L t d . v s A C I T’ ( s u p ra ) a s we ll a s o f H o n ‘ b l e S u p re me C o u r t i n t h e ca se o f ‘ A s so c i a t i o n o f L e a s i ng a n d F i n a n ci n g S e r v i c e s C o . L t d v U n i o n o f I n d i a ‘ [ 2 0 11 ] 2 S C C 3 5 2 ha s s ub m i t te d t h a t t he a s se s se e h i m se lf h a d t r e a te d t he a f o r e sa i d le a se a s ‘ F i n a n ce L e a se ‘ as per AS-19 and f u r th e r t ha t as per AS-19, the a s se s se e i s e n t it l e d t o o n l y d e p r e ci a t i o n o n t he e q u ip m e nt a s per the ru le s ; Th a t a f te r a na l yz i n g t he c o n t e nt s of the a g r e e m e n t i n q ue s t i o n , t he A s se s s i n g O f f i c e r r i g h t l y h e l d tha t t h e t r a n sa ct i o n i n q ue s t i o n w a s a F i na n c e L e a se a n d h e n c e ,
20 t h e A ss e s s i ng O f f i c e r r i g h tl y d e n i e d t he de d u c t io n o f a l l e ge d l e a se r e n ta l p a id t o C I S C O a s t h e sa m e w a s n o t a r e ve n ue e x p e n d i t ur e .

16. A t t h i s s ta ge , i t i s a p p r o p r ia te , i n o u r v i e w , to f i r s t ly discuss the r e l e va n t p r o v is i o n s of the Act relating to a ll o w a b i l i t y o f cl a i m o f d e d u ct i o n a s d e p r e c ia t i o n o n c a p i ta l a s se t s and also r e la ti n g to the a l lo w a b i l i t y of r e ve n ue e x p e n d i t ur e .

17. Section 32 of the I n co m e Ta x Act prescribes f or a ll o w a n ce o f de du c t i o n o n a c c o u n t o f d e p r e c i a t i o n o n C a pi ta l A s se t s a nd r e a ds a s u n d e r :

Section 32 of the Income Tax Act.

“Depreciation.

Section – 32 32. (1) In respect of depreciation of–
(i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed–
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: [Provided………”
21 18. S e ct i o n 37 of the Income Tax Act deals with the a ll o w a b i l i t y o f the e x p e n d i t ur e s o l e l y i n c u rr e d f o r t h e b u s i n e ss p u r p o se s , t he r e l e va n t p a r t o f t h e se ct i o n i s r e p r o d u c e d a s u n de r : –

“General Section – 37
37. Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”.

Explanation ….”
19. A p e r u sa l o f t h e a b o ve p r o v i s i o n s r e ve a l s t h a t f o r t he c l a i m o f d e p r e c i a ti o n , a s se t m u s t b e o w n e d w h o l l y o r p a r t ia l l y b y t he a s s e s se e a n d i s us e d f o r t h e p u r p o s e o f b u s i ne s s o r profession of the a s se s s e e . Wh e r e a s any e x p e n di t u r e , not b e in g i n t h e n a t u r e o f t he ca pi ta l e x p e n d it u re o r p e r s o na l e x p e n d i t ur e o f th e a s se s s e e , l a i d o u t o r e x p e n de d wh o l l y a n d e x cl u s i ve l y f o r t h e p u r p o se o f b u s i ne s s o f th e a s se s se e is a ll o w a b l e a s a d e d u c t i o n o f e x pe nd i t u r e u / s 3 7 o f t h e A c t . 20. T h e q u e s t i o n be f o r e u s i s a s to w h e t h e r t h e p r i n c i p a l c o m p o ne n t of l e a se rental claimed by t he a s s e s se e is a R e ve n ue e x p e n d i t u r e fa l l i n g u / s 3 7 o f t h e A c t o r a ca p i ta l e x p e n d i t ur e i n cu r r e d f o r t h e p u r p o se o f ca p i ta l a ss e t s u p o n
22 w h i c h t h e a s se ss e e ca n b e a l l o w e d d e p re c i a t i o n a s p e r the p r o v i s i o ns o f se c t i o n 3 2 o f t h e I nc o me Ta x A c t . 21. T h e a s se s s e e i n t h i s c a se h a s p l e a de d t ha t t h e a s s e t s / e q ui p me n t i n q u e s ti o n w a s t he p r o p e r t y o f C I S C O w h i c h w a s t a k e n b y t h e a ss e s se e o n l e a se f r o m C I S C O a ga in s t p a y m e n t o f l e a se c ha r g e s ; W h e re a s , t he s u m a n d s u b s t a nce o f the a r gu m e n t s o f t he L d . D R ha s b e e n t ha t t he t r a n sa c t i o n i n fact, w a s a f in a n c e l e a se a s d e f in e d b y t h e I C AI i n i t s A S – 1 9 . T h e A S – 1 9 p re s cr i b e d b y th e I C AI r e a d s a s u n d e r :- “3.1 A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

3.2 A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset.

3.3 An operating lease is a lease other than a finance lease.”
22. A f te r c o n s i d e r i ng t h e r i va l s u b m i s s i o n s , we f in d f o r c e i n t h e c o n te n ti o n o f the L d. C o u n se l fo r th e a s se s se e t h a t t h e I n c o me Ta x A c t d o e s n o t r e c o g n i z e o r d i ff e r e n t i a te b e t w e e n d i f fe r e n t t y p e s o f l e a se t r a n sa c t i o ns . A s p e r t he p r o v i s i o n s o f t he I n co m e Ta x A c t , a n y e x p e n d it u re i n c u r re d on ca p i ta l assets cannot be allowed as d e d uc t i o n of e x p e n d i t ur e , h o w e ve r , a n a s se ss e e c a n c la i m d e p re c ia t i o n a s p r e s c r i b e d b y t he r u le s o n t h e v a l ue o f s u c h a n a s s e t. H o w e ve r , i f s u ch a n a s se t, a s c l a i m e d i n t h i s ca s e b y the a s s e s se e , i s n o t o w ne d b y t he a s s e s se e , r a t he r , t he s a m e
23 h a s b e e n p r o c u r e d o n le a se o r hi re b a s i s t o b e u s e d s o le l y f o r b u s i ne s s p ur p o se o f t h e a s s e ss e e , t h e h i r e c h a r ge s / l e a se r e n ta l p a i d f o r s u c h a n a s s e t w il l b e a d m i s s i b l e a s r e ve n ue e x pe n d i t u r e u / s 3 7 o f t h e A c t . I n t hi s ca se , the R e v e n u e ha s t r ie d t o d r a w d i s t i nc t i o n b e t w e e n t w o t y p e s o f l e a se s c l a s s if y i n g t h e m a s o p e ra ti n g le a se a nd f i na n c e l e a se a s p e r g u i de l i ne s i s s u e d b y t h e I C AI v i d e A S – 19 . W e f i n d t h a t A S – 1 9 h a s b e e n p r e s c r i be d b y t he I C A I t o be f o l l o we d for m a i n ta i n i n g the a c c o un t books by the c o m p a n ie s. H o w e ve r , s o f a r a s t he I n c o m e Ta x A c t i s c o n ce r ne d , t he s a m e ha s no r e l e va n ce . Th e r e i s n o p r o v is i o n u n de r t he I n co m e Ta x A c t d i f f e r e n ti a t i n g b e t w e e n O p e r a t i n g L e a se a n d F i n a n ce L e a se . F u r t h e r t h e C B D T C i r c u l a r N o . 2 o f 20 0 1 d a te d 9 . 2 . 2 0 0 1 r e a d s a s un d e r : –

“CIRCULAR NO. 2 of 2001 Finance Lease Agreements–Effect of publication of Accounting Standards on allowability of depreciation– Reg.
9/02/20 01 DEPRECIATION SECTION 32 Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax Act. The ownership of the asset is determined by the terms of contract between the lessor and the lessee.

1. The Central Board of Direct Taxes vide Instruction No. 1978, dated 31st December, 1999
24 (F.No. 225/190/98/ITA.II) has laid down the line of investigation in such cases. In cases where assets are factually nonexistent, having been created by hawala transaction, the question of allowance of depreciation does not arise. In cases of sale and lease-back of assets without any alternation in the situation of assets and its working, the denial of depreciation claimed has to be considered keeping in view the principle laid down by the Supreme Court in the case of McDowel & Co. Ltd. (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC).
2. It has come to the notice of the Board that the new Accounting Standard on ‘Leases’ issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act.
3. The contents of this Circular may be brought to the notice of all concerned.
[F.No. 225/86/2000/ITA-II–From Central Board of Direct Taxes]”

SOURCE : (2001) 165 CTR (St) 25 23. M o r e o ve r , a pe ru s a l o f t h e sa i d A S – 1 9 re v e a l s t h a t the s a m e i n fa ct ta l k s o f a l o a n a g r e e m e nt d e s c r i b e d a s a l e a se . I n o u r v ie w , m o re c o n f u s i o n w i l l b e c r e a te d i f t h e r e l ia n ce i s p l a ce d o n A S – 1 9 p r e s c r i b e d b y I C A I f o r de c i d i n g t he c la i m o f d e du c t i o n u n d e r t h e I n c o me Ta x A c t . W he n t he I n c o me Ta x A c t d o e s n o t d i st i n gu i s h e s b e t w e e n v a r i o u s t y p e o f le a s e s , w e f in d no j u s t i f ia b le re a s o n to firstly describe and c a te g o r i se a p a r t i c u l a r t y pe o f t r a n s a c t i o n /a g r e e me n t a s a f o r m o f l e a se n a m e d ” f i n a nce l e a se ” a nd t he n t o s a y t h a t t h e p r o v i s i o ns o f s e c t i o n 3 7 o f t he I n co m e Ta x A c t f o r c l a i m o f e x p e n d i t u r e o n l e a se r e n ta l wi l l n o t b e a p p l i ca b l e o n s u c h t y p e o f l e a se ; t h i s, i n o u r v i e w , w i l l b e a ga i n s t t h e p r o v i s i o n s o f t h e I n c o m e Ta x
25 A c t . O n t h e o ne h a n d , te r mi n g a n d p l a c i ng a t r a n sa c t i o n / a g r e e m e n t u n de r t he ge n r e o f ‘ Le a s e ‘ a n d t he n t o s a y t h a t su ch p a r t i c u l a r s p e ci e s o f t h a t ge n r e w i l l no t be e n t i t l e d t o t he d e du c t i o ns a s p r e s cr i b e d f o r t h e l e a se tr a n s a c ti o n s u n d e r the I n co m e Ta x A c t , i n o u r v i e w , s e r ve s n o p u r p o s e o t he r t ha n c o n f u s i o n a n d co n f l i c t o f o p i ni o n g i v i n g r i se t o t h e d i s p u te a n d l i t i ga t io n o n t he i s s ue . A s p e r t he p r o v i s i o ns o f t he I nc o m e Ta x A c t w ha t i s t o b e de te r m i ne d a s t o w h e t h e r t he a g re e m e n t / t r a n sa c t i o n s i n q ue s t i o n i s o f a l e a se o r a l o a n o r o f a h i r e / p u r c ha se .

The Hon’ble Supreme Court in the case of ” Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs CIT” 227 I TR 172: [1997] 93 Taxman 502 (SC) has held that normally, the Accounting Standards is accepted but it cannot override the provisions of the Income Tax Act. The relevant part of the o bservation made by the by the hon’ble Supreme Court is reproduced as under: “28. It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. As was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. ( supra), the Income- tax Law does not march step by step in the footprints of the accountancy profession.”
26 F u r t he r , i t ha s b e n h e l d b y t he H o n ‘ b l e S u p r e m e C o u r t i n t h e c a se o f ‘ K e da r na t h J u te M a n u fa ct u r i n g C o . l t d . vs C I T’ ( S u p r a ) t h a t w he t he r t he a s se s se e wa s f u l l y e n t i t le d t o a p a r t i c u la r d e du c t i o n o r n o t , w o u l d d e p e n d u p o n t he p r o v is i o n s o f t h e I n co m e Ta x A c t a n d n o t o n t he e nt r i e s o f h is b o o k s o f a c c o u nt . T h e H o n ‘ b le S u p r e me C o u rt i n t h e ca se o f ‘S u t le j C o t t o n M i l l s v s C I T’ 1 1 6 I TR 1 h a s h e l d t h a t t h e e nt r i e s i n t h e b o o k s o f a c co u n t w e r e n o t d e te r m i na t i ve o f t h e ta x a bl e i n c o me o f th e a s se s se e 24. N o w , i n t h i s ca s e t he m o o t q u e s ti o n be f o r e u s i s t ha t w h e t h e r t h e a s se s s e e i s t h e o wn e r o f t h e e q u i p m e n t o r t he s a m e i s h i r e d o n r e n t b y t he a s s es s e e f r o m C I S C O o r t o sa y i n o t h e r w o r d s w he t h e r t he a g re e m e n t w i t h C I S C O i s o f a ” l e a se ” a s c l a i m e d b y t he a s se s s e e o r t he sa me i s me r e l o a n / f i n a n ce a g r e e m e n t . Th o u g h t h e c o n te n t i o n o f t h e L d . A R h a s b e e n t ha t s i n ce t he A O h i m s e l f te r me d t h e t r a n sa c t i o n a s F i n a n ce L e a se w h i c h a d m i t t e d l y i s a f o r m o f l e a se he n ce , t h e a s se ss e e i s e n ti t l e d to de d u c t i o n of lease r e n ta l paid as r e ve n ue e x p e n d i t ur e . H o w e v e r , w e a r e n o t c o n v i nce d w i t h t h e a b o ve c o n te n t i o n of th e L d. C o u n se l for the a s s e ss e e . H o n ‘ b le S u p r e m e i n t he c a s e o f ” S u n d a r a m F i na n ce L t d v s S ta te O f K e r a la A n d A n o th e r” 1 9 6 6 AI R 11 7 8 , 1 9 6 6 S C R (2 ) 8 2 8 ( b y t he m a jo r i t y v i e w ) h a s he l d th a t t he t r u e e f fe c t of a tr a n sa ct i o n m a y be de te r m i n e d f r o m t h e te r m s o f t he a g r e e m e nt
27 considered in the light of the su r r o u n d i n g c i r c u m s ta n ce s. I n e a ch ca se t h e C o u r t ha s , un l e s s p r o h i b i te d b y s t a t u te , p o we r t o g o b e h in d t he do c u m e nts a n d t o de t e r m i n e t he na t u r e o f t he t ra n sa c ti o n , w h a t e ve r m a y b e t he f o r m o f t h e d o c u m e n t . T h o u g h b o t h t h e L d . R e p re se n ta t i ve s o f t h e p a r t i e s h a ve r e l ie d upon va r i o u s ca se la w s in s up p o r t of t he i r c o n te n t i o n s , h o w e v e r , w i t h o ut s e p a r a te l y d i s cus s i n g t h e f a c t s o f e a c h o f t he c a se l a w r e li e d u p o n , it may be well observed that it is n o w he re he l d i n a n y o f th e ca se la w s t h a t t he n o m e n c la tu r e g i ve n to a t r a ns a ct i o n by t he p a rt i e s i s sa cr o s a nc t or is d e te r m i n a t i ve o f t h e n a t u r e o f t he t r a n s a c ti o n . I t i s o n l y a fte r considering the re le v a n t facts and ci r c u m sta n c e s and t he v a r i o u s c l a use s o f t h e a g r e e m e nt t h a t t h e r e a l i n te n ti o n o f t he parties behind t he agreement is ga t he r e d which is d e te r m i n a t i ve o f t h e n a t u r e o f su c h t r a n s a c t io n /a g r e e me n t. A p e r u sa l o f t h e c a s e l a w s c i te d re ve a l s t h a t t he ju d ge s o f the H o n ‘ b le Ap e x C o u r t a s w e l l o f t h e H o n ‘ bl e H i gh C o u r t s a r e u n a n i m o u s t o ho l d t h a t t h e t r ue l e ga l r e l a t i o n a r i s i n g fr o m a t r a n sa c t i o n d e te r m i ne s t he ta x a b i l i t y o f t h e r e c e i p t a r i s i ng f r o m t h e t ra n sa c t i o n u n d e r t h e I n c o me Ta x A c t . I n a c a s e , where t he te r m s of the transaction a re embodied in a d o c u m e n t , the t r u e e f fe c t o f a t r a n sa c t i o n m a y b e d e te r m i ne d f r o m t he t e r m s o f t he a g re e me n t c o n s i d e r e d i n t he l i g h t o f the surrounding c i r c u m s ta n ce s . For t he p u r p o se of d e c i di ng w h e t h e r a p a r t ic u l a r t r a ns a c t i o n i s a le a s e o r n o t , t he q ue st i o n
28 of i n te n t i o n s of the p a r t ie s is to be d e te r m i n e d and t he i n te n t i o n ha s t o b e in fe r r e d f r o m t he c i r c u m s ta n c e s o f e a ch c a se . A s pe r t he f a c t s o f t h e pr e s e nt ca se , t h e t r a n s a c t i o n i n q ue s t i o n m a y b e e i t h e r o f a L e a se o r o f a l o a n o r a H ir e – P u r c ha se a g re e me n t. N o w w e w i l l d i s c u s s se pa r a te l y a b o ut the r e sp e c t i ve sa l i e nt f e a t u re s o f L e a se , l o a n a n d H i r e – P u r c ha se agreements.

25. No definitio n has been given of ‘Lease’ under the Income Tax Act. However, the term ‘lease’ has been defined under Section 105 of the Transfer of Property Act, 1882, but the same is in context to lease of immovable property. The said definition is reproduced as under:–

“a lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms”
The said definition when applied in case of lease of moveable properties would mean that the lease is the transfer of right to enjoy the property in question. Such a transfer of right can be made for a fixed time or for indefinite time and in lieu of getting the right to posse ss and enjoy the property, the lessee has to pay certain considerations either in cash or in kind to the lessor. Hence, the lease is an arrangement whereby l e s s o r c o n ve y s
29 u s e r r i g h t s i n a n a s s e t t o t he le sse e . Th e a sse t i s o w ne d f o r a l l p r a c t i ca l p u r p o se s b y t he le s s o r , h a v i n g a l l r i g h ts a n d b e a r in g a ll r i s k s a s s o c ia t e d w i t h o w n e r sh i p , a n d the l e ss e e i s g i ve n o n l y t h e u se r r ig h t s i n t he a sse t . Th e d o m i na n t c o n t r o l o ve r t h e a s se t r e m a in s w i t h th e le s s o r .

H o we v e r , in a loan transaction, the asset is o w ne d a nd p o s se s se d b y t he l o a ne e /d e b t o r . Th e l o a n e e / d e bt o r b e a r s a l t h e r i s k r e l a t i n g t o t he a s se t. T h e c re d i t o r is e n t i t l e d t o th e r e t u r n o f t he p r i n c i p a l a m o u n t a l o n g w i t h i n te re st e t c . a s p e r agreement between t he cr e d i t o r and de b t o r . Th e c re d i t o r , h o w e v e r , f o r t he s e c u r i t y o f t he mo n e y a d va n c e d m a y ge t a l ie n o v e r t h e a s se t p u r c h a s e d w i t h th e l o a n a m o u n t un t i l h i s d u e s a r e p a i d b a c k b y t h e d e b to r .

H o we v e r , t h e c o n f u s i o n a r i s e s i n c a s e o f c e r ta in t r a n sa c t i o n w h i c h , th o u g h , a p p a r e n t l y a p pe a r s t o b e o f l e a se o f a s se t v iz . a s se t / s p u r c ha se d b y l e s s o r a nd f u r t h e r l e a se d o u t t o t h e l e s se e ; b ut in a c tu a l t h is type of t r a ns a c t i o n is an a r ra n ge m e n t o f f i n a n c i n g t h e pu rc h a se o f t h e a s se t f o r t h e s o c a l le d l e sse e ( d e b t o r ) a n d s u c h a n l e s s e e i n fa c t i s t h e o w ne r o f t he a s se t a n d i s l i a b le t o b e a r a l l t yp e o f r i s k s a s so c ia te d w i t h s u c h a s s e t. I n t h i s f o r m o f a r r a n g e m e n t , th e s o – ca l le d l e s s o r ‘ s r o l e i s co n f i ne d t o o n ly fi n a n c i n g t he p ur c h a se a n d h e h a s n o o t he r i n te re s t o r i s n o t l i a b l e f o r a n y r i sk a s s o c ia te d w i t h t he a s se t . I t i s t h e s o ca l le d l e s s e e w h o , f o r a ll p r a c t i c a l
30 p u r p o se s , i s t he o w ne r o f t he a s s e t e x e r c i s i n g a l l r i g h t s o f o w ne r s h i p a n d b e a r i n g a l l r is ks a s s o c i a te d w i th t he a sse t , p a y i n g ba ck t he e n ti r e c o s t o f t h e a s se t t o t he l e s s o r o ve r th e t e r m o f t h e le a s e w h i c h ge ne ra l ly i s t h e e c o n o mi c l i f e o f t h e a s se t a n d a c q u ir i n g o w n e r s hi p o f t h e a s s e t o n te r m i na t i o n o f t h e l e a se a t ve r y l o w p r i c e .

T h e t h i r d t yp e o f s u c h l i k e t r a n s a c t i o n s i s a h i r e – p u r c ha se a g r e e m e n t w h i c h i n f a ct i s l e a se c u m p u r c ha se a g r e e m e n t . I n H i r e – p u r c ha se a g re e m e n t, t he h i r e r h a s o pt i o n t o t e r m i na te t h e a g re e me n t b y re t u r ni n g t he g o o d s t o t h e o w n e r , b u t, i n f i na n c ia l le a s e , t h e te r m s a re so d e vi s e d t ha t th e g o o d s a r e p a s se d o n t o t he le s se e w i t h o u t a ny o p t i o n t o th e le s se e to t e r m i n a t e t he a g r e e m e n t a t h i s o w n w i l l b y r e t u r n i n g the g o o d s . I n h i re – p u r c h a s e a g re em e nt , t he se l le r r e m a i n s the o w ne r o f t h e g o o d s t i l l t he l a s t in s ta l m e n t o f t he a g r e e d p r i ce i s p a id b y t h e h i r e r o r t h e h i r e r c h o o s e s t o b u y t h e g o o d s b e fo r e t h e e x p i ry o f t h e te r m o f a gr e e m e nt . A n i n te r e s t i n g q ue s t i o n a s to w h e t he r t he tr a n s a c t i o n wa s a h i r e – p u r c ha se agreement or a m e re lo a n / f i na n ce t r a n sa c t i o n came i n to consideration before the Hon’ble Su p r e m e in the ca s e of ” S u n d a r a m F i na n c e L t d v s Sta te O f K e r a l a An d A n o t h e r ” 1966 A I R 1 1 7 8 , 1 9 6 6 S C R ( 2 ) 8 2 8 a f te r a na ly z i n g t he va ri o u s te r m s a n d c l a u se s o f th e a g r e e m e n t o bs e rv e d that an owner of goods w h o p u r p o r t s t o c o n ve y a b s o l u te l y o r a c k n o w l ed g e s t o ha ve
31 c o n ve ye d g o o d s a n d s u b se q ue n t l y p u r p o r ts t o hi re t he m u n de r a h i r e – p ur c ha se a g r e e m e n t i s n o t e s t o p p e d f r o m p r o v i n g tha t t h e re a l b a r ga i n w a s i n t e n d e d t o b e a l o a n o n t he se c u ri t y o f t h e g o o d s . I t w a s h e l d t ha t i n a h i re – p u r c h a s e a g r e e me n t the h i r e r b e i n g u n de r n o l e ga l o b l ig a ti o n t o b u y , h a s a n o p ti o n e i t he r t o r e t u r n t h e g o o d s o r t o b e c o me i t s o w ne r b y p a y m e nt in full of the s t i p u la te d hire charges and th e p r i ce for e x e r c i s i ng t he option. Th i s class of hire p u r c ha se agreements mu s t be d i s ti n g u i s he d f r o m t r a n sa c t i o n s i n w h i c h t h e c u s t o m e r i s t he o w n e r o f t he g o o d s a n d w i t h a v ie w t o f i n a n ce h i s p u r c ha se , he e n t e rs i n t o a n a r r a n ge m e n t w h i ch is in the form of a h i re – p u r c h a se a g r e e m e nt with the f i na n c ie r, but in s u b s t a nce e v i de n ce s a l o a n t r a n sa c t i o n s u b j e c t t o a h i r i n g a g r e e me n t u n d e r which the lender is given t h e l i ce nse t o s e iz e t he g o o d s .

26. N o w , a f te r a na ly s i s o f t h e v a r io u s c la u s e s o f th e l e a se d e e d i n q u e s t i o n, i t i s t o be n o t e d :

a) T h a t a s p e r c l a u s e s 1 . 2 a n d 8 .1 o f t h e a g r e e m e n t, the l e s se e ha s to se le c t t he equipment to be procured and inform the lessor accordingly. T he o b l i ga t i o n o f t he l e s s o r i s r e s tr i c te d o nl y t o th e p a y me n t o f t he p r i ce o f t h e e q u i p m e nt t o t h e ve n do r . S o m u c h s o t ha t a s pe r t he s a i d c l a u se s , i f t h e l e a se d o e s n o t c o n s um m a te , th e l e sse e s h a l l be l i a b l e t o p a y t o t h e ve n d o r i n a c c o rd a n c e w i t h t h e a p p l i ca b le
32 p u r c ha se o r d e r o r s h a l l ha ve t o in d e m n i f y t he l e ss o r and hold t he le s so r ha r m le s s from any liability a r i s i n g i n c o n ne c t i o n w i t h a n y s u p p l y c o n t r a c t o r l e s s o r r i g h t , t i t le , i n te re s t i n t he e q ui p m e n t.

b) F ur the r a s pe r cl a u se 1 0 .2 o f the a gree me n t, the l e sse e i n a ny ca se ha s to pa y the f ul l r e nta l a gree d up o n and e ve n t he re la te d ite ms of fi na n ci ng tr a nsa c tio n , e ven if it p r e ma tur e l y te r m ina te s t he co n tr a ct th us e nsur i ng the re pa yme n t t o the le ss or o f th e a m o un t f ina nc e d b y i t.

T h e re le v a n t c la u s e i s a s u n de r :

“10.2 Prepayment. Lessee may terminate a Lease or Financing Transaction by prepaying its remaining Rent. Lessee shall provide Lessor with at least one (1) month prior written notice of the intended prepayment date, Lessor may, depending on market Conditions at the time, reduce the remaining Rent to reflect such pre payment and shall advise Lessee of the balance to be paid. If a lease is terminated, Lessee shall at the same time prepay any related line items of Financing transaction.”

c) As per c l a u se 1.3 of deed, t he l e a se is a no n –
c a nc e l a b l e l e a se a n d l e s se e i s o b li g e d t o p a y t he r e nt due under th e le a s e d un a f fe c te d by any c i r c u m s ta n c e . The r e l e va n t clause is r e p r o d uc e d h e re u n d e r :

“1.3 Term Not cancelable and Obligations Absolute, The Original Term of a Lease with respect to each item of Equipment leased or the Financing Transaction with respect to each Financed item under a Schedule shall commence on the date as specified in the Schedule (the “Commencement Date”) and shall continue for the term provided in that Schedule, except in cases provided in sections 5.4,10.2 and 11.”
33 d) All c o s t, expenses and li a b i li t y re l a ti n g to t he equipment i n cl u d i n g ta x e s , i n s u r a n ce and m a in te na n ce h a ve t o b e b o r ne b y t h e a sse s se e a s pe r c l a u se 2 o f t he a g r e e m e n t .

e ) F u r t he r th e l e ss e e i s r e s p o n s i b le , a t i t s o w n e x p e n s e , for t he d e l i ve ry of the equipment and e ve n in i n s t a l la t i o n t he r e o f . f ) F u r t he r all r i sk s p e r ta i n i n g to damage, loss or d e st r u c t io n of the equipment is the s o le r e sp o n s i b i l i t y o f t h e l e s se e . g ) F u r t he r t he le s s e e i s re q u i r e d t o o b ta i n a l l r i s k , i n s u ra n ce co v e r a g e w i t h re s pe c t to t h e e q u i p me n t f o r e n su r i n g a ga i n s t a n y ca u sa l i t y , c o m m e r c ia l l i a b i l i ty e t c.

h ) T h e l e s se e h a s b e e n g i ve n a r i g h t t o s u b le a se the a s s e t a l so .

i ) F u r t he r a s p e r sc h e d u le a t ta c he d f o r m i n g p a r t o f t he a g r e e m e n t, t he l e s se e ca n re m o ve t he p e r ma n e nt marking of the equipment e vi de n c i ng l e s s e e ‘s o w ne r s h i p , se c ur i t y a n d o t h e r in te r e s t t he re i n .
27. C o n s i d e r in g t he a b o ve c l a use s of the le a s e deed in q ue s t i o n and in the li g h t of proposition settled t h r o ug h v a r i o u s d e c i s i o n s o f t h e h i g he r c o u r t s a n d h i g h e st c o u r t o f t he c o u n t r y t h a t w he n t he te r m s o f t h e c o nt r a c t l o o k e d i n to w i t h the re le v a n t c i r c u m s ta n ce s t ha t are de te r m i n a ti ve of the n a tu re o f the s u c h c o n t r a c t s , w e ha ve n o he s i t a t i o n t o ho l d that t he t ra n sa c ti o n in t he p r e se n t ca s e is that of a
34 l o a n / F i na n c e . Af te r g o i n g t h r o ug h t h e va r i o u s t e r m s o f t he d e e d , w e f i n d t ha t t h e o n l y r o l e o f t h e le s s o r i n t h e p r e s e nt a r ra n ge m e n t is to f i n a n ce th e t r a n sa c t i o n of p u r c ha se of e q ui p me n t, with the l e s se e se l e c ti n g t he e q u ip m e n t to be s u p p l i e d b y th e d e a le r , u s i n g i t fo r i t s e x p e cte d e c o n o m i c l i f e , p a y i n g ba c k t he e nt i r e co s t o f th e e q u i p m e n t o v e r t he l e a se t e n u r e a n d e x e r c i s i n g a l l r i g h t s o f o w n e r sh i p o v e r t h e a sse t a n d a l s o b e a r i n g t h e r i s k s o f l o ss e s , da m a ge s , e tc . a s s o ci a te d w i t h t he o w ne r s h i p o f t he a s s e t a n d n o o p t io n t o t he le s s e e to t e r m i n a t e the l e a se a n d r e t u r n th e a s se t b e f o r e th e e n d o f t he l e a se te r m . Th u s , i t i s n e it he r a le a s e , n o r a h i r e p u rc ha se agreement, but a l o a n/ f i na n ce a r r a n ge m e n t between the parties. So far as the contention of th e Ld. C o u n se l f o r t he a s se s se e t h a t t h e ti t l e o f t he a s s e t re ma i ns w i t h t h e le s s o r i s c o n ce r ne d , w e f in d f r o m th e c l a us e s o f t he a g re e m e nt t h a t the s a i d t i tl e i s r e ta i n e d f o r t he p ur p o s e o f se c u r i t y fo r r e c o v e r y o f p r i n c i p a l a m o u n t.

So far as th e c o n te n t i o n of the Ld. counsel for the a s se s se e t h a t i n v i e w o f t he m a n d a t o r y r e q u i re m e nt f o r the c o m p a n ie s Ac t a s p e r C o m pa n ie s A c t t o f o l l o w t h e A c c o u n t i ng S t a n da r d A S – 1 9 , t h e le a s e t r a n sa c t i o n w i t h C I S C O w a s b o o ke d a s F i na n ce Le a s e i s c o n ce r ne d , t h o u g h t h e l a w i s w e l l s e tt l e d t h a t t h e e n t r i e s i n t h e b o o k s o f a c co u n t a re n o t d e te r m i na t i ve o f t he na t u r e o f th e t ra n sa c t i o n , h o we v e r w e d o n o t a g r e e w i th
35 t h e co n te n ti o n th a t th e a s se s s e e i n t h i s ca se w a s m a n d a t o r i l y r e q u i re d to t r e a t t h e l e a se a s F i n a n ce le a se i n t h e b o o k s o f a c co u n t . W e a g r e e w i t h t h e s u b m i s s i o n o f t h e L d . D R th a t AS – 1 9 o n l y d e fi ne s th e na t u re o f t he l e a s e t r a ns a c t i o n ; h o w e ve r , i t d o e s n o t ma n d a te t h a t e ve r y l e a se t r a n s a c t i o n i s t o be t re a te d a s f i na n ce l e a se i n t h e b o o k s o f a c c o u n t . Th e a sse s se e i n t h i s c a se , f u l l y k n o w in g t h e fa c t s a n d a s p e r t he a ct u a l i nte n t i o n a l b e t w e e n t he p a r t ie s r e l a t i n g t o th e na t u re o f t h e t r a n sa c t io n , o u t o f i t s o w n w i l l , ha s t r e a te d th e t ra n sa c t i o n in q ue s t i o n a s f i na n ce le a s e . However, we ha ve a l re a d y he l d that sa i d t r e a t m e n t b y t he a s se s se e o f t h e t ra n sa c t i o n i n q ue s t i o n a s p e r A S – 1 9 ha s no r e le va n ce s o fa r a s t h e c la i m o f d e d u c t i o ns u n de r I n c o me Ta x A c t i s c o n ce r ne d .

T h e c o n te n t i o n o f t he L d . C o u n s e l f o r t h e a s ses s e e t h a t the l e s s o r , C I S C O ha d be e n a l l o w e d d e p r e c i a ti o n o n t h e a s se t s by t h e I TA T f r o m A . Y 2 0 0 8 – 0 9 t o 2 0 1 0 – 1 1 , t h u s p r o vi n g t h a t i ts o w ne r s h i p o f t h e a s s e t s s t o o d a cc e pt e d b y t h e R e v e nu e , i n o u r v i e w , is o f n o co n s e q ue n ce s i n ce t he p r e se n t l e a s e a g r e e m e n t w a s e n te r e d in to o n 0 7 – 1 2 – 2 0 11 , r e l a t i n g t o A . Y . 2 0 1 2 – 1 3 w h i c h i s a s u b s e q ue n t a s s e s s m e n t ye a r . E ve n o t h e r w i se o n g o i n g t h r o u g h the o r de r s o f t he I T A T i n t h e ca se o f C I S C O i t is r e ve a l e d t ha t t he i s su e be f o r e th e C o – o r d i na te B e n c h o f t he I TA T r e l a t e d o n l y t o t h e r a t e o f de p r e ci a t i o n t o w h i c h the a s se s se e w a s e l ig i b le o n t he l e a s e d a s se ts a n d t h e q ue s ti o n r e ga r d i n g e n t i tl e m e nt o f c la i m o f d e p r e c i a t i o n wa s n e ve r b e fo r e
36 i t . Th e r e f o r e , i t c a nn o t b e sa i d th a t t h e I TA T h a d de c i d e d the a ll o w a b i l i t y o f c l a i m o f C I S C O o f b e in g o w ne r o f t h e a s se t . E v e n o t h e r w i se , i f t he CI S C O h a s r e ta in e d s o m e o w n e r s h i p r i g h t s o ve r t h e a s s e t s f o r th e p u r p o se o f s e c u r i t y o f t h e l o a n a m o u n t a n d the r e f o r e , a s s u m i n g, f o r t h e sa k e o f a r g u me n t s t h a t t he a s s e ts a r e n o t fu l l y o w n e d b y t h e a s se sse e , e v e n t h e n t h e p r o v i s i o n s o f s e c ti o n 3 2 w i l l b e a tt r a c te d a s i t p r o v i d e s f o r c l a i m o f d e pr e c ia ti o n o n a s se t s o w n e d f u l l y o r pa r t l y b y a n a s se s se e .

T h e c o n te n t i o n o f t h e L d . C o u ns e l t ha t t he L d . C I T( A ) h i m se l f ha s me n ti o ne d , ” the r e is no doubt a b o ut t he g e n u i ne n e s s o f th e l e a se a g r e e me n t ” , i n o u r v i e w , i s o f n o he l p t o t h e a s se s s e e . T h e i m p u g ne d o r d e r i s t o b e r e a d a s a w h o l e , a n d a s i n g le l i n e o r w o r d ca n n o t b e c h o se n to i n t e r p re t a d i f fe r e n t me a n i n g . W ha t t he L d . C I T( A ) h a s c o n v e ye d i s tha t t h o u g h t h e e x e cu t i o n o f t he le a s e de e d i s n o t d o u b te d b u t t he r e a l i nt e n t i o n b e h in d t h e d e e d i s t o b e ga t h e r e d f r o m the v a r i o u s c l a use s o f t h e d e e d a n d f a c ts a n d c i r c u m s t a n ce s o f the c a se . Th u s , we h a ve no hesitation in ho l d i n g t ha t the a r ra n ge m e n t in the p r e se n t ca se wa s a loan / f i n a n ce a r ra n ge m e n t i n th e g u i se o f a l e a s e a g re e m e n t . 28. H o w e ve r , t h e c o n t r o v e r s y d o e s no t e n d h e re . Th o u g h the a s se s se e i s he ld t o b e t he o w ner o f t h e a sse t , h o w e ve r , t he n e x t q ue st i o n t ha t a r i se i s wh e th e r t h e a s s e t i s he l d b y t he
37 a s se s se e a s b u s in e ss / t r a d i n g a s s e t o r a s a ca p i ta l a s s e t . The a s se s se e , a d mi t te d ly , f u r t he r g i ve s o n h i re t he ST B s t o v a r i o u s consumers and installs t h o se in the i r premises. Th e c o n s u m e r s d e p o si t r e f u n d a b l e se cu r i t y a m o u n t a l m o s t e q u a l to the cost of t he S TB s to the a sse s se e . A s se s s e e c ha r ge s m o n t h l y r e n t f r o m t h e c o n s u m e r s f o r t h r e e ye a r s . A f te r the e x p i r y o f t hr e e y e a r s , t he S TB s b e c o m e t h e p r o p e r t y o f the c o n s u m e r s a nd a t t he s a me t im e t he s e c u r i t y d e p o si t ge ts f o r f e i te d a n d a p p r o p r i a te d to the i n c o me of the a s se s se e , w h i c h i s a l s o o f f e r e d / s u b je c te d to i n c o m e ta x . Th e t r a n sa ct i o n w i t h c o n su m e r s , t h u s , a p pa r e n tl y a p p e a r s t o b e o f a ” h ir e – p u r c ha se ” , t he a s s e s se e b e i n g t h e l e s se r c u m se l le r , t he d e ta i l o f t he t r a n sa c t i o n w e w i l l d i s cu s s i n t h e l a te r p a r t o f the o r de r . H o w e v e r , t h e q ue s t i o n t h a t w i l l a r i se a t t h i s s ta ge a s t o an a s se t , held or further g i ve n on hire- p u rc h a se by an a s se s se e who is in t he b u s i ne s s of l e t t i ng & selling a p a r t i c u l a r t y pe o f g o o d ( S TB s ) o n h i r e – p u rc ha se b a s i s w h i ch i s essential to and i n te g r a l part of main b u s i ne s s of ‘ b r o a d ca st i n g o f c h a n ne l s ‘ o f t he a s s e s se e , i s t o b e tr e a te d a s b u s i ne s s / t ra d i n g a s s e t o f t h e a s s e s se e e l i g i b le f o r c la i m o f d e du c t i o n o f e x pe n di t u r e u / 3 7 o f t h e Ac t o r a s a c a p i ta l a s se t o f t h e a s s e s se e e li g i b l e f o r c l a i m o f de d u c t i o n o f d e p re c ia t i o n u n de r s e ct i o n 3 2 o f t h e Ac t . S in c e , n o a r g u m e n t s ha ve be e n a d v a n ce d o n t h i s i s s u e b y a n y o f t h e p a r t i e s , he n ce , i n v i e w o f t h e di s c u s si o n m a de i n e a r l ie r p a r a s o f t h i s o r de r, w e p r o ce e d
38 t o de c id e t he ne x t c o n tr o v e r s y t re a ti n g t h e a s s e t a s a c a p i ta l a s se t i n t h e ha nd o f t h e a s s e s se e .

T h e a s se s se e , t he re f o r e , i s e n t i t l e d o n l y t o c l a i m i n te r e st p a i d a s p a r t o f th e sa i d le a s e r e n t a l s a s e x p e n d i tu r e u / s 3 6 ( 1 ) (iii) of t he I n c o m e Ta x A c t . Th e a s se s se e , i n v i e w o f the d i s c u s s i o n ma d e a b o ve , i s n o t e n t i t le d t o c l a i m t h e p r i n c i p a l c o m p o ne n t o f a l le ge d l e a se r e n t p a id a s ‘ r e v e n ue e x pe n d i t u r e ‘ u / s 3 7 ( 1 ) o f t h e A c t . H o w e ve r , t he a s se s se e i s a l so e n ti t l e d to claim depreciation on t he sa i d a s se t s p u rc h a se d f r om b o r r o w e d ca p i ta l .

A d d i t i o na l G r o u n d :

2 9 . N o w t h e is s ue r a i s e d t h r o u g h A d d i t i o na l G r o un d o f a p p e a l b e fo r e u s i s a s to a t w ha t r a te d e p r e c i a t i o n i s a l lo w a b l e t o the a s se s se e o n the e q ui p m e n t s o p u r c ha se d b y t he a s s e s s e e a f te r o b ta i n i n g f i na n ce f r o m the C I S CO .

30. T h e L d . D R h a s o b j e cte d t o t he a d m i ss i o n o f a d d i t i o n a l g r o u n d o f a p p e a l a t th i s s ta ge. I t h a s b e e n su b m i t t e d the a d d i t i o n a l g ro u nd i s no t a l e ga l g r o u n d a s t h e a l l o w a b i l it y o f d e pr e c ia ti o n @ 6 0 % o r @ 1 5 % i s p u re l y b a se d o n f a c ts a n d c l a s s i f i ca t i o n of this Act, therefore, t he a b o ve a d d i ti o n a l g r o u n d c a n no t be a d m i t te d a t t hi s s t a g e . I n t h e a l te r na t iv e , t h e L d . D R h a s su b m i t t e d t ha t if t h e a d d i ti o n a l g ro u n d i s t o b e a d m i t te d , t he sa m e m a y b e re s to r e d t o t h e f il e o f t h e C I T( A ) .
39 S h e , i n t h i s r e s p e c t , h a s re l i e d u p o n t h e d e ci s i o n o f the H o n ‘ b le M . P . H i g h C o u r t i n t h e ca se o f ” C I T V s . M / s To l l a r a m H a s s o m a l ” ( 2 0 0 6) 1 5 3 Ta x m a n n 5 3 2 ( M P ) .

H o we v e r , Th e L d . A R o f t h e a sse s s e e ha s s u b m i tt e d tha t the i s su e as to ‘ w h e t he r t he a s se s se e is e l i g i b le for d e pr e c ia ti o n a t th e ra te o f 6 0 %? ‘ w a s w e l l b e f o re th e A s s e s s i ng O f f i ce r a n d a l l t h e re l e v a n t f a ct s h a ve be e n d i s cu s se d b y the A O i n t he o r de r f o r A Y 2 0 1 2 – 1 3 a n d 2 0 1 3 – 1 4 . H e h a s f u r the r submitted t ha t the i s s ue of c l a s s i f i ca t i o n of c o m p u te r p e r i p he r a l s a s c o m p u te r e q u i pm e n t e l ig i b le f o r d e p r e c ia ti o n w a s de c i d e d b y t h e H o n ‘ b l e De lh i H i g h C o u r t in t h e c a s e o f ” C I T V s B i r l a s o ft L t d . ” , I TA N o . 1 2 8 4 / 2 0 1 1 w h i c h w a s f u r the r a ff i r m e d b y t h e H o n ‘ b l e S u p r e m e C o u r t . He , t h e re f o r e ha s s u b m i t t e d t h a t th e me re fa ct t h a t t he i s s u e o f c l a s s i f ica t i o n w a s a d m it t e d i n b o t h t h e H i g h C o u r t a n d S u p r e m e C o u r t g o e s t o p r o ve t h a t it is a le ga l i s s u e d a s b o t h t h e c o u r t s , a s pe r the p r o v i s i o ns o f I n c o m e Ta x A c t , 1 96 1 , c a n o n l y e n te r ta i n a p pe a l s w h i c h ha ve a q u e s t i o n o f l a w . Th e L d . C o u n se l h a s f u r t he r s u b m i t t e d t ha t i f t h e r e l e va n t fa c t s a re a l r e a d y o n re c o r d i n r e sp e c t a n a d d i t io n a l c la i m w h i c h i n t h i s ca se i s p u r e l y a l e ga l i s s ue , t he r e i s n o ba r i n r a i s i n g t h e sa m e a t a n y s t a g e o f the l i t i ga t io n . He i n t h i s r e sp e c t h a s re l i e d o n t h e d e c i s i o n o f the H o n ‘ b le S up r e me C o u r t i n t he ca s e o f ” N TP C V s . C I T” , 2 2 9 I TR 383 (SC).
4031. W e h a ve c o n s id e r e d t h e r i va l s u b m i s s i o n s of the Ld. r e p re s e n ta t i ve s o f t he p a r t ie s o n t h i s i ss ue . I t i s n o t d i s p u t e d t h a t t h e i s s ue r a i se d b y w a y o f a d d i t i o n a l g r o un d o f a p p e a l w a s a l r e a d y b e f o r e t he A s se ss i n g O f f i c e r i n t h e p ro c e e d i n g s f o r a s se s s m e nt ye a r 2 0 1 2 – 1 3 , t he a p p e a l a ga i n s t wh i c h i s a l so b e in g a d j u d i ca te d w i t h t h is c o m m o n o r d e r . E v e n f o r t h e y e a r u n de r c o n s i de ra ti o n , t he a s s e sse e ha d r a i se d t h i s i s s ue b e f o r e t h e A O b y wa y o f r e c t i fi ca t i o n a pp l i ca t i o n u / s 1 54 o f t he A c t. N e i t he r a n y ne w f a c t, n o r a n y ne w e vi d e n ce i s r e q ui re d t o b e p r o d u ce d for a d j u d i ca t i o n of the a b o ve i ss ue as all t he r e l e va n t f a ct s r e l a ti n g t o t he i s s ue a r e a l r e a d y o n t h e f i l e . The question as to whether the assessee can take an additional ground at the appellate stage even when the same has not been raised before the lower autho rities has been thoroughly discussed by the Co-ordinate Division Bench of the Tribunal at Mumbai, o ne of us (Judicial Member) being part of the said Bench, in the case of “Pandoo P. Naig” in ITA No.7089/Mum/2011 decided on 24.06.2016 [2016 (9) TMI 1062]. The Tribunal, while relying upon the decision of the Hon’ble Supreme Court in the case of “National Thermal Power Company Ltd. vs. CIT” 229 I TR 383, Full Bench of the Hon’ble Bombay High Court in the case of “Ahmedabad Electricity Co. Ltd. vs. CIT” (1993) 199 I TR 351, another decision of the Hon’ble Bombay High Court in the case of “CIT vs. “CI T vs. Pruthvi Brokers and
41 Shareholders Pvt. Ltd.” (2012) 349 ITR 336 (Bom.) has held that the appellate authorities have jurisdiction to deal not merely with additional ground which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The relevant part of the order of the Tribunal in the case of “Pandoo P. Naig” fo r the purpose of reference is reproduced as under: “19. Now coming to the point, whether, the claim put by the assessee Shri Pandoo P. Naig by way of additional ground before the Ld. CIT(A) regarding the deletion of addition of Rs.4 crore offered during the survey action and thereby offered in the return of income can be allowed at this stage?

The Ld. Counsel for the assessee in this respect has placed reliance on the decision of the Hon’ble Supreme Court in the case of “National Thermal Power Co. Ltd.” vs. CIT” 229 ITR 383. The facts before the Hon’ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT(A), the assessee though had taken a number of grounds of appeal, however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon’ble Supreme Court was “Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?” The Hon’ble Supreme Court while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection
42 before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon’ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.

20. The facts of the case in hand are on better footing. In the case in hand, though under consistent pressure, the assessee offered the additional income for taxation in the assessment proceedings but when he was burdened with many more additions, he at the first instance during the appeal before the Ld. CIT(A), challenged the offer of additional income on the basis of statement recorded under section 133A. Even the said ground was also admitted by the Ld. CIT(A) for adjudication though finally decided against the assessee. The full bench of the Hon’ble Bombay High Court in the cases of “Ahmedabad Electricity Company Ltd. vs. CIT” and “Godavari Sugar Mills Ltd. vs. CIT” by way of a common order dated 30.04.1992 (1993) 199 ITR 351 has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The appellate authorities, of course, cannot travel beyond the proceedings and examine new source of income, for that purpose other separate remedies are provided to the department under the Income Tax Act. The Hon’ble full bench of the Bombay High Court observed that apart from the above, there was nothing in section 254 or section 251 which would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee.”
32. The Hon’ble Bombay High Court in the case of “CI T vs. Pruthvi Brokers and Shareholders Pvt. Ltd.” (2012) 349 ITR 336
43 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words ‘could not have been raised’ must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts.

I n v ie w o f t he a b o ve d i s c u ss i o n , t h e a d d i t i o na l g r o u n d r a i se d b y t he a ss e s se e i s a d m i t te d f o r a d j ud i ca t io n . S i n ce a s d i s c u s se d a b o ve, a l l t h e fa c t s r e l e va n t t o t he i s s u e r a i s e d t h r o u g h th e a b o v e s t a te d a d d i ti o n a l g r o un d o f a p p e a l a re o n r e co r d and e ve n the i de n t i ca l ground has already be e n a d j u d i c a te d b y th e L d. C I T( A ) i n a s s e s s m e n t ye a r 2 0 1 2 – 1 3 a n d t h e a p p e a l a ga i ns t t h e sa i d o r d e r o f t he CI T( A ) f o r a s se s s m e nt y e a r 2 0 1 2 – 1 3 i s b e i n g a d j u d i ca t e d w i t h t h is co m m o n o r de r w h e r e i n t h e sa i d g r o u n d ha s b e e n ta k e n a s o ne o f t he m a i n g r o u n d s , h e nc e i n o u r v i e w , n o u s e f u l p u r p o se w i l l be se r ve d f o r r e s t o r in g t he a d d i t i o na l g r o un d o f a p p e a l t o th e f i le o f t he C I T( A ) f o r t h e y e a r u n de r c o n s i der a ti o n . H e n c e , w e p r o ce e d t o a d j u d i c a te t h e a d d i t i o na l g r o u nd o f a p p e a l .
44 33. T h e A s se s s i n g O f f i ce r h a s a l lo w e d t he d e p re c ia ti o n @ 1 5 %, w h e r e a s , t h e co n te n ti o n o f t h e co u n s e l f o r t h e a s se s se e i s t ha t S TB s w e r e c l a s s i f i a b l e u n d e r t he h e a d ” C o m p u te r s i n c l u d i n g C o m p ut e r S o f t w a r e ” a s p r o v i d e d un de r I t e m – I l l ( 5 ) o f t h e ta b l e o f r a t e s o f d e pr e c i a ti o n i n A p p e n d i x 1 t o t h e I nc o m e – t a x R u le s , 1 9 6 2 a n d w e re e l i g i b le f o r d e p r e c i a ti o n @ 6 0 %. T h e L d . C o u n s e l t o d e m o n s t r a te t h a t a S TB i s n o t o n l y i n i t se l f a co m p u te r b u t a l so i s p a r t a nd p a r ce l o f a l a r ge r c o m p u te r s y s te m f r o m w h ic h i t ge t s t h e s i gn a l s , d e c o de t he a u d i o – v i d e o s i g na l s a nd pa s s o n t o t he te le v is i o n . He i n th is r e s pe c t ha s m a de t he f o l l o w i n g w r i t te n s u b m is s i o n s :

“Without prejudice, it is further respectfully submitted that even in a scenario the aforesaid arrangement is treated as finance lease and the appellant is deemed to be the owner of these equipment’s, then depreciation on STBs should, in our submission, be allowed to the appellant at the rate of 60%, being classifiable under the head “Computers including Computer Software” as provided under Item-Ill (5) of the table of rates of depreciation in Appendix 1 to the Income-tax Rules, 1962 for the reasons explained hereunder: What is STB?
In this regard, it is respectfully submitted that set-top boxes are basically hardware devices that allows a digital signal to be received, decoded and displayed on screens. In other words, it is an audio-visual equipment that decodes and performs input /output processing functions.
45 A set-top box is a device that enables a television set to become
a user interface to the Internet and also enables a television set
to receive and decode digital television (DTV) broadcasts. The
main components of set top box are: System bus; – Tuner(s);
– Modulators and demodulators; Demultiplexer and decryptor;
– Decoders; Graphic processors; CPU and memory;
– Storage devices; – Physical interfaces; and
– Physical characteristics A set-top box contains one or more microprocessors for running
the operating system, possibly Linux or Windows CE, and for
parsing the MPEG transport stream. It also includes RAM, an
MPEG decoder chip, and more chips for audio decoding and
processing. Further it contains a hard drive for storing recorded
television broadcasts, for downloaded software, and for other
applications provided by DTV service provider. Definition/Meaning of the term Computer/Computers
including Computer Software Definition under Income Tax Act The term “computer” has not been defined under the Act.
However, the term ‘computer system’ has been defined under
Explanation (a) to clause (xi) of section 36(1) of the Act which
reads as under:

‘”computer system’ means a device or collection o f devices including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs
46 functions including, but not limited to, loeic, arithmetic, data storase and retrieval, communication and control”

Definition under Information Technology Act 2000 Further, the term “computer” has been defined in the
Information Technology Act, 2000, to mean electronic, magnetic,
optical or other high-speed data processing device or system
which performs logical, arithmetic and memory functions by
manipulations of electronic, magnetic or optical impulses, and
includes all input, output, processing, storage, computer
software or communication facilities which are connected or
relates to the computer in a computer system or computer
network.

Definition as per ICAI Attention in this regard is further invited to the study material
for PEE II Information Technology Paper VI issued by the ICAI,
which states as follows:

“The term “Computer” can logically be applied to any calculating machine. However, in common usage, the definition of a computer has become more limited in a contemporary usage. We now define a computer as an electronic data processing device capable of receiving input, storing sets of instructions for solving problems and generating output with high speed and accuracy. Computers are composed of switches, wires, motors, transistors and integrated circuits assembled on frames. The frames form components such as keyboards, printers, visual display units, disk drives, magnetic tape drives and central processing units. These components are wired together into a netM’ork called a computing system often called a computer. ” [emphasis supplied] Thus, from the above, it is evident that “computers” do not
simplicitor mean CPU’s, but any device which contain computer
programmes, electronic instructions, input data and output data
and performs functions including, but not limited to, logic,
arithmetic, data storage and retrieval, communication and
control qualify as “computers” for the purpose of claiming
47 depreciation @ 60% in terms of section 32 of the Act. Thus, from the above, if an analysis can be drawn as to how STB’s constitute a computer / computer software is as follows:

S. As per Definition of As per specification of STB, how
No. Computer it classifies as STB 1. Device that contains computer A Set Top Box comprises of programme and electronic algorithms which enable the instructions network to determine which channel to operate based on the electronic instructions received by it.
2. Has the capability of receiving it is an audio-visual equipment that inputs and then transforming decodes and performs input then input into the desired /output processing functions output using the electronic wherein the Conditional Access instructions System (CAS) sends input to the STB which in turn enables the STB to give output as to which package should be displayed on this (Refer Table 3 at Page 3 of the specifications).
3. Comprises of a Central STB comprises of Powerful 420 Processing Unit (CPU) DMIPs 32 bit RISC Processor, which is evident from the specification enclosed. (Refer Table 3 at Page 3 of the specifications).
4. Comprises of an Operating Power KEY Conditional Access system which enables the System, which secures digital giving of various commands. services using an RSA encryption algorithm that mathematically matches pairs of keys and is compliant with DVB (ETR 289) Common Scrambling Algorithm (Refer Table 3 at Page 3 of the specifications).
5. Performs the function of Already explained above. (Refer Logic/Arithmetic Table 3 at Page 3 of the specifications.)
6. Performs the function of Data Base model contains – 4MB Flash Storage Ram Memory (upto 8Mb option) –
32MB DRAF, 4KB EEPROM Refer Table 3 at Page 3 of the Specifications.) Thus, it is evident that a set top box is a nothing but a computer for the Cable Industry to function in as much as set
48 top boxes too responds to a specific set of instructions in a well-
defined manner and perform input/output processing.
Thus, in view of the above, it may be appreciated that set top
boxes clearly qualify as “computer”.

Without prejudice to the above, it is submitted that STB’s are
capable of being a computer and are also an integral part of the
network of computers, such as Oracle Based Billing System and
Conditional Access System (CAS) which processes the content
and the individual STB usage for the subscriber. The fact that
the STB is an integral part of the entire computer network
responsible for transmitting signals and displaying the relevant
output on the monitor screen/Television is explained
diagrammatically as per Annexure 1.

Further, apart from the above and even otherwise, it may be
appreciated that set top boxes are functionally dependent on
computers as demonstrated hereunder:

It may be pertinent to note that set-top boxes comprise three
separate subsystems–TV, conditional access (CA), and PC
components. The TV subsystem includes a number of tuners
and video decoders that are responsible for processing streams
of digital information. The CA system provides MSOs with
unprecedented control over what their subscribers watch and
when they watch it. The PC subsystem itself is modular-based,
which means that set-top designers can add and subtract
various components depending on user requirements. For
instance, MSOs that want to offer Internet services to their
subscribers will incorporate some type of storage solution into
their PC subsystem.

Moreover, detailed technical specifications proving the fact that
set top box is its self it computer device and entire technical
functions are not only digitally driven through the software
programs but it also contains flash memory, CPU (central
processing unit), power key, processor etc. on the lines of the
computers. Detailed technical specifications are enclosed
herewith as per Annexure-2.

Thus, for the aforesaid reason too, it is respectfully submitted
that since the functioning of STB’s are dependent on computers
49 and software, thus on this account as well they are eligible to be classified as “computers” and eligible for depreciation @ 60%. It has been concluded from the above discussion that the Set Top boxes and audio visual streaming equipment are same as former being the trade name of the equipment. Further Set Top Boxes are itself minicomputer with inbuilt hardware and software, Technical specification of Set Top Boxes has already been discussed above which verbatim tallies with technical specifications of computer such as Decoders, graphic processors, CPU and memory etc. It has also been proved that computer is integrated with back end servers and computers for transmission of signals. Then judicial pronouncements also support the contention of the assessee that the Set Top Box is out and out computer and thus have to be classified under the category of computer and software for the purpose of depreciation.”

15. Apart from above submissions, the Ld. Counsel for the assessee
has placed reliance on the decision of Specific reliance in this regard
is placed on the decision of Bangalore Bench of Tribunal in the case of
Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012
to submit that under similar facts and circumstances, the CISCO has
been granted 60% depreciation on the audio visual conferencing
equipment. The Ld. Counsel has further submitted that the assessee
has always been allowed depreciation @ 60% on STB’s in the
preceding as well as subsequent assessment year(s) in assessments
concluded under section 143(3) of the Act in respect of STB’s that
were owned by the assessee. Hence the principle of consistency
should be followed. He in this respect has made the following
submissions:

” Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012. In that case, the assessee claimed depreciation @ 60% on audio visual conferencing equipment and video streaming equipment’s
50 treating them as computers. However, the assessing officer
restricted the claim of depreciation to 15% treating it as plant
and machinery. On objections filed before the DRP, the addition
made in draft assessment order was confirmed by DRP.
On appeal filed before the Tribunal against final assessment
order, it was held as under:

8. Having heard both the parties and having considered the rival contentions, we find that to treat the equipment as computer or computer system, the nature of the equipment and the functions they perform are to be examined.

8.1 As per the details furnished by the learned counsel for the assessee, audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net-work, ISD through computers/computer network etc., and audio/video facility consist of many elements including the use of CODEC which stands for coder-decoder. Codec is a device, which converts and compresses an analog audio-video signal into digital data and then sends it over a digital line. The decoder reverses the processes at the receiving end and this compression and decompression allows large amount of data to be transferred across a network at close to real time. Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi. Therefore, according to the learned counsel for the assessee, computer system is extremely important to conferencing process and therefore the audio visual transmission equipment should be considered as part of a computer. 8.2 Regarding the video streaming equipment, it was submitted that the video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of
51 initiating and buffering, the file will begin to stream or play
in real time. Video streaming involves a series of steps
involving the use of media content, a computer that runs
encoding software, servers for upholding the streamed
media format and access to such media through various
devices. From the above submissions, it is clear that the
equipment used by the assessee for audio visual
conferencing and also video streaming involves the use of
computer. As certain input and output equipment may have
independent functionality and existence but the computer
devices which are involved in these activities would be o f
no use i f these input and output devices are not used.
Therefore, thoueh the input and output devices may have
independent existence and functionality in so far as the
activity o f the assessee is concerned, they do form part o f
the computer network system without which the computer
used for the purpose o f audio and video conferences would
be useless. The Special Bench of the Tribunal in the case of
Datacraft India Ltd., (cited supra) has held that peripheral
equipments used along with computer are also part of the
computer. We find that a similar issue had come up before ‘B’ Bench of the Tribunal at Delhi in the case of
M/s.Crabtree India Ltd. vs. ACITin ITA Nos.3638 &
3639/Del/2008 and the Tribunal vide orders dated 25-2-
2010 has held that video conferencing system is a
computer device that accepts information in the form of
digital data by way of video input i.e. with the help of
web/cam or video camera and audio input with the help of
microphone and the system thereafter processed the data
and transfer through analogue or digital telephone network
or LAN and digital gives the output data by way of audio
video output. Therefore, it is a technical device whose
functions are similar to the computer because basically
computer also responds to a specific set of instructions in a
well defined manner. The Tribunal considered the decision
of the IT AT, Calcutta Bench in the case of ITO vs. Simran
Majumdar (98 ITD 119) wherein the Tribunal had
considered the similar issue wherein depreciation at the
rate of 60% was claimed on printers and scanners and it
was held that they were eligible for depreciation at the rate
of 60%. The Tribunal, however, held that the contentions of
the assessee therein were not before the AO and therefore
the issue was set aside to the file of the AO to consider
each of the items in detail and find out which can be
equated and construed as computer for the purpose of
granting depreciation at the rate of 60% after providing the
assessee due opportunity of hearing.
52 8.3 In the case before us also, all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming. Some of the components may exist independently and may also be functioning independently but in the assessee’s business they are only performing the functions as input and output devices. The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity. But did the assessee use them independently is the question. In view o f the same, we are o f the opinion that the AO, instead o f classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part o f computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent o f the computer system and the purpose o f audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The A O, shall, thus allow depreciation at the rate o f 60% on the equipment which could be classified as computer and at the rate o f 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re-adjudication in accordance with law and our observation above. ” (emphasis supplied) It is pertinent to note that in the remand proceedings, the
assessing officer allowed depreciation @ 60% on audio-visual
equipments.

Further, it is submitted that in the assessment order passed in
the case of CISCO for the assessment year 2013-14, the
assessing officer has accepted the fact that audio-visual
equipments (Set-Top Boxes) are eligible for depreciation at the
rate of 60%. The relevant findings of the assessing officer are
reproduced as under:

“9.1 The issue of the percentage of depreciation to be allowed in the case of audio- visual equipments had been remanded to the assessing officer for AY 2008-09 and 2009-10. This issue was discussed in detail with the authorized representatives during the passing of the remanded back order for the AY 2008-09 and 2009-10.
53 Based on the submission of the assessee, it was concluded that the assessee is making use of these audio-visual equipments along with the computers and they form part of the integral computer system and hence it was decided that they are eligible for depreciation at 60%. Hence, the same is applicable here and the audio visual equipments are being allowed depreciation at 60%. ”

Further, even otherwise, it is settled law that various equipment
and peripherals which are attached to the computer system
and/or their functionality is dependent on computers are
classifiable under the head “computers” and eligible for
depreciation @ 60%.

Reference in this regard may be made to the decision of the
Delhi High Court in the case of CIT vs. Birlasoft Ltd: ITA No
1284/2011 wherein it was held that computer peripherals
should be included under the head ‘computer equipment’ and
are therefore, entitled to depreciation @ 60%.The said decision
has been affirmed by the Supreme Court in CIT vs Birlasoft
Ltd: SLP No. 20645/2012.

It was held likewise by the jurisdictional Delhi High Court in the
case of CIT vs. BSES Rajdhani Powers Ltd. in ITA No
1266/2010. In that case, the Court while adjudicating the
issue of depreciation on computer accessories and peripherals
held that computer accessories and peripherals such as
printers, scanners and server, etc., form an integral part of the
computer system. Further, the Court observed that computer
accessories and peripherals cannot be used without the
computer and consequently, as they are the part of the
computer system, they are entitled to depreciation at higher rate
of 60%.

Reliance is also placed on the following decisions wherein
depreciation at higher rate of 60% applicable to computers has
been upheld in respect of various equipment and peripherals
attached to the computer system:

• Income Tax Officer vs Samiran Majumdar : 98 ITD 119 (Kol) • DCIT vs Datacraft India Ltd : (2010) 133 TTJ 377 (Mum) (SB) • Inspecting Assistant Commissioner vs Commission and General Agency : 17 ITD 6 (Bangalore) • Escorts Tractors Ltd vs Asstt CIT : 101 Taxmann 171 (Delhi) • CIT vs Karnataka Power Corporation : 247 ITR 268
54 • Expeditors International (India) (P) Ltd vs Addl CIT : 118 TTJ 652 Accordingly, it is respectfully prayed that the assessing officer
may kindly be directed to allow depreciation @60% on the
aforesaid STB’s, in case the appellant is deemed to be the owner
of such assets.
” Principle of Consistency The appellant is providing ‘Digital Cable Service’ to its
customers since 2009 and for carrying on this business, it had
purchased Set Top Boxes (‘STBs’) in the earlier assessment
years out of its own funds and claimed depreciation @ 60%
thereon which was allowed by the tax authorities after due
application of mind.

In this regard, it is respectfully submitted that though principle
of res-judicata does not apply to income tax proceedings, it is
well settled that if there being no change either in facts or in
law, as compared to the earlier and subsequent years, the
position accepted/ determined by the Department needs to be
followed even on the principle of consistency. Reliance in this regard is placed on the following decisions: – CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC)
– Radhasoami Satsang v. CIT: 193 ITR 321 (SC)
– DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del)
– CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.)
– CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.)
– DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.)
– CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker)
– CIT v Harishchandra Gupta 132 ITR 799 (Ori)
– CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H)
– CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del)
– SLP dismissed.

Thus, in view of the above, the department having accepted that
STB’s are eligible for depreciation @ 60% in earlier as well as
subsequent years, the same stand ought not to be changed/
modified during the year under consideration even on the
principle of consistency, particularly, when no new fact/
information has been brought on record for the same.
55 Brief note on the assessment proceedings of CISCO Systems Capital (India) Private Limited.

CISCO Systems Capital (India) Private Limited is the owner of set top boxes. These have been classified as audio, video conferencing and video streaming equipment’s. This matter has been decided by Income Tax Appellate Tribunal Bangalore Bench-C Bangalore vide its order dated 19-09-2014 for the AY 2008-09, at page 10 of this order it was held that the above said equipment, is to be treated as computer and accordingly the AO shall thus allow depreciation @60%. Similarly for the AY 2010- 11 vide its order dated 19-02-2016 ITAT Bangalore-A Bench Bangalore has also held that the depreciation @60% of the equipment shall be allowed.

Keeping in view the import of detailed submissions made above it is crystal clear that the appellant company is entitled to claim of lease rentals paid to M/s CISCO Systems Capital (India) Private Limited and it is prayed that the appeal be kindly adjudicated accordingly.”

34. The Ld. DR o n t h e o t h e r ha n d , h a s s u b m i t te d t h a t the c o n te n t i o n o f t he L d . C o u n s e l is t h a t t he C I S C O h a s be e n a ll o w e d d e p re cia t i o n @ 6 0 % o n S TB s i s n o t co m in g o u t o f the o r de r o f t he Tr i b u na l ( s u p r a ) ; T h a t i n t he ca se o f C I S C O , d e pr e c ia ti o n @ 6 0 % h a s be e n a l lo w e d o n r o u te r s a n d s w i tc h e s a n d n o t o n S TB s . Th e L d . D R ha s f u r t he r s u b m i t te d t ha t S TB s a r e I n f o r m a t i o n A p p l i c a t i o n D e v i ce s de s i gn e d t o p e r f o r m a d e fi n i te e l e ct r o n i c f u n c ti o n . Th a t t he f u n c t io n o f t h e S TB s is t o r e c e iv e i n p u t s i g n a l s d e c o de t h o se s i g na l s a nd p a s s o n t o T V . H e , i n th i s r e s pe c t ha s r e li e d u p o n t he d e c i s i o n o f the I TA T ( S p e c i a l B e n c h ) o f t he Tr i b u n a l i n t he c a se o f ” Da ta C r a ft I n di a L t d . ” ( 2 0 10 ) 4 0 S O T 2 9 5 ( M u m . ) ( S B ) I TA T ) , w he re i n i t h a s be e n h e l d t h a t TV i s n o t a c o m p u te r . He h a s f u r the r
56 s u b m i t t e d t h a t a d e v ice ca n b e s a i d t o b e p a r t o f c o m p u te r s y s te m w he n i t s f u n c t i o n s d e p e n d s u p o n c o m p u t e r . I f i t i s i n d e pe n d e n t o f c o m p u te r a n d i t c a n f u n c t i o n i n d e p e n d e n t ly t h e n i t w i l l n o t fa l l w i t h i n the s co p e o f t h e d e v i ce t h a t m a y b e i n c l u d e d i n t he te r m ‘ co m p u te r s y s te m ‘ . H e h a s su b m i t te d tha t the S TB s just p a ss i n f o r ma t i o n to the TV s , it is not a c o m p u te r . He h a s f u r t he r s u b m i tt e d t h a t t h e S T B s w o u l d n o t a l s o fa l l w i t h i n th e de f i n i ti o n o f A u d i o – V i su a l E q u i p me n t u p o n w h i c h de p r e c i a t io n @ 6 0 % h a s b e e n a ll o w e d i n t h e ca se o f C I S C O . He , t h e r e f o r e , ha s s ub m i tt e d t ha t t h e A s ses s i n g O f f i ce r h a s r i gh t l y a l l o w e d t he d e pr e c ia ti o n @ 1 5 %. Th e L d . D R ha s a l s o r e l i e d u p o n t h e o b se r va ti o n s a n d fi n d i n gs m a d e b y the A s se s s i n g O f f i ce r o n t h i s i s s ue i n t h e A s se ss m e n t o r de r f o r A Y 2014-15. Th e Ld. DR, has a ls o strongly r e l ie d upon t he d e ci s i o n o f t h e c o – o r d i na te C o c h i n B e nc h o f t h e Tr i b u n a l i n t h e ca se o f ‘ A C I T v s K e r a l a C o m m u n i ca t o r s C a b le L i m i t e d ‘ (I TA N o . 2 7 1 / C o c hi / 20 1 8 d a te d 3 0 . 4 .2 0 1 9 ) , t o s u b m i t t h a t t he C o – o r d i a n te Bench of the Tr i b u n a l has decided the i s s ue of d e pr e c ia ti o n @ 1 5 % o n S TB s i n f a v o ur o f t h e R e v e n u e . The L d . D R i n th i s r e sp e c t ha s a l s o m a d e t h e fo l l o w i n g w r i t te n submissions:

” Note on Depreciation allowable on Set Top Box 60% or 15%”

” 1. It is worth noting that during the assessment proceedings for AY 2017-18 the assessee has made elaborative submissions to justify that it is eligible for 60 % depreciation on STBs. The assessee has made the following major submissions:
57 • ” Company has also started direct purchase of Set Top Boxes apart from the Set Top Boxes procured through lease, the company has claimed 60% depreciation on these assets due to nature of asset being integrated with computers and run through software aided by memory card and mother board. Thus Set Top boxes are computer in itself and are also integrated with large computer system which provide from the backend directions for the updations in packages and commands for the running of programs.
• Cisco being the owner of Set Top Boxes has claimed depreciation @60% on Set Top Boxes.

• In the Hon^ble IT AT Income Tax Appellate Bengalore Bench ‘C Bengalore in case of Cisco Systems Capital (India) Private Limited for the AY 2008-09 it was held that “as regard Audio visual conferencing equipment’s and video steaming, the learned counsel for the assessee has filed detailed submissions before the AO as well as before us to convince us that they are also part of the computer system and are not independently functional. He has drawn our attention to the detailed submissions filed by the assessee which has also been reproduced by the AO in his order”.

• It is evident that a set top box is a technical device whose functions are similar to a computer in as much as set top boxes too respond to a specific set of instructions in a well defined manner and perform input/output processing.

• It is respectfully submitted that since the functioning of STB’s are dependent on computers and software, thus on this account as well they are eligible to be classified as “computers” and eligible for depreciation @ 60%.

• Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012 • Further, it is submitted that in the assessment order passed in the case of CISCO for the assessment year 2013-14, the assessing officer has accepted the fact that audio-visual equipments (Set-Top Boxes) are eligible for depreciation at the rate of 60%. ”

2. What is a Smart TV- A TV or a Computer ? Similarly what is a smart phone
which can make video calls, display unlimited videos from youtube etc
websites? So what is that distinguishes pre-configured special electronic
devices from computers? Different devices now-a-days have embedded many
different hardware like relays, transistors, memory chips, digital gates etc. and
further they also include various software in order to execute pre-configured
58 functions. Such devices include toasters, washing machines, microwave ovens,
mobile phones, smart TVs, digital wristbands etc. 3. Therefore various courts have come with the concept of computer network.
Further under Income tax act for computer or computer network 60 %
depreciation is allowable. What falls under computer and computer network
has been defined 3.1 ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the
occasion to consider the meaning of word ‘computer’. After elaborately
considering the Special Bench has expounded as under: “Thus in order to determine whether a particular machine can be classified is a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyse further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals are received through the relevant networks such as Dish TV, Tata Sky etc. But TV does not become 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 stand-alone 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 Junctions’ in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/obiect/function of such machine should be achievable only through ‘computer functions”

3.2 From the above exposition it is evident that just because some sort of
computer functions are necessarily involved, mechanical system cannot be said
to be computer unless its principal function cannot be done without the aid of
computer function. In other words, 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.
It was held that in order to be called as computer, it is sine qua non that the
principal output/object/function of such machine could be achieved only
through ‘computer functions’ 4. STB is an information appliance device that generally contains a TV-tuner
input and displays output to a television set and an external source of signal,
turning the source signal into content in a form that can then be displayed on
59 the television screen or other display device. They are used in cable television,
satellite television, and over-the-air television systems, as well as other uses. 4.1 The main purpose of STBs is to deliver the audio-video signals to the TV
viewers. But using the complex technology, more and more value is added for
the operator i.e. maintaining the database of the clients, maintaining the
viewer’s log registers, the list of the channels subscribed by viewers, the
payment schedule of the viewers etc. these additional features are achieved
using computers at the back end. The STBs installed at the premises of the
users helps the operator to actualize this informational and supervisory control.
However, the main function of the STBs is to deliver the audio-video feed to
users. The major function of the STBs i.e. decoding and thus delivering the
audit video signals to the TV sets is independent of the various servers installed
at the premises of MSO (Multiple System Operator). Therefore, the main
functions of the STBs do not depend on servers and other electronic devices
installed in the premises of operator. This main function is not dependent on
backend computers installed at the premises of operator because STBs are
devices which are used even in cable television, over the air televisions etc. 4.2 Therefore STBs are neither a part of Computer Systems nor a dependent on
Computers. They can be at best called as Information Appliances attached to
Television sets to enjoy multiple contents. Further as per case law of DCIT
Mumbai v. Data Craft India Ltd. (2010) 40 SOT 295 (Mum.) (SB) ITAT), it is
already decided by Hon’ble ITAT that televisions cannot be treated as
computers. Therefore, any assembly attached to televisions i.e. STBs in this
case cannot be treated as ‘Computers’. Therefore, depreciation rate of 60 %
should not be allowed to assessee.

5. Further various submissions made by the assessee during the assessment
proceedings are analyzed as under:

• However, first of all it is observed that the order of Hon’ble ITAT in the case of CISCO System(India) Pvt. Limited is related to the Audit Video Conferencing devices and depreciation of 60% has been allowed by the Hon’ble ITAT and thus by the A.O. on such Audit Video Conference devices. The important points of the judgment are mentioned as below: o Audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net-work, ISD through computers/computer network etc.,
60 o Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi o Video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers far upholding the streamed media format and access to such media through various devices o From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, though the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferencing would be useless • However the assessee in the present case has failed to justify how STBs are
on par with Audio-Video Conferencing Devices. • Further, it is observed that the assessee himself has made claim of
depreciation of 15% on STBs in previous years. It is worth noting that for AY
2012-13 to AY 2016-17, the assessee has always been claiming 15 %
depreciation on STBs. For AY 2017-18, the assessee for the first time has
claimed that it is eligible for 60 % depreciation on STBs. Therefore, it is
inferred that without any proper justification assessee is claiming higher
depreciation rate i.e. 60% on the same kind of STBs which is not acceptable. 6. Further, a brief note on analogy of the STBs with the mobile phone is
discussed as under:-

6.1 The STB is a self-contained system installed at the premises of the
customers. The functioning of the STB is analogous to the functioning of the
mobile phones.
61 1. Like the Mobile Phone the data is transmitted and received using RF waves further the signal is encrypted when it is transmitted via satellite. The mobile decodes signal and allow the persons to talk. Similarly, STBs receive encrypted signals and it is decoded by STBs to allow the users to watch the programs. In mobile phones, if there is no balance then outgoing calls can’t be made till the SIM is recharged. Similarly if the customer has not recharged its smart card embedded in STBs then the corresponding signal will not be decoded by the STB. 2. When we recharge SIM of mobiles, then telecom operators change few bits of the signals transmitted by the mobiles which allow the user to make phone calls. Similarly, when the customer requests the MSO or makes an online payment to recharge its smart card the MSO merely modify few bits of the encrypted signal which gives the commands to STB to decode the same and thus allow the customer to enjoy the program. This is analogous to Mobile recharge as discussed above. 3. The mobiles are not the part of the computer/server systems installed at the premises of the telecom operators. Although Hardware/Software installed at the telecom operator premises control the mobile phone functioning by giving commands. For example to keep the control over the billing payment of the mobile phones the telecom operator uses number of servers and other devices. Further, the functioning of the mobiles is also enriched by the hardware and software installed at the premises of the telecom operators. However, it cannot be said that the mobiles are part of the servers systems installed at the premises of the telecom operators. The same is also applicable on the STB, the servers installed at the premises of the MSO only add o the functioning of the STBs the major function of the STBs i.e. decoding and thus projecting the audit video signals to the TV sets is independent of the various servers installed at the premises of MSO. Therefore, the main functions of the mobile phones as well as STBs do not depend on such servers. 6.2 Since, it is established fact that the mobile phones are eligible for 15%
depreciation. Further, the assessee has no fair justification how STBs are a part
of computer systems or how STBs are on par with Audio Video Conferencing
Devices, therefore the claim of the assessee for higher depreciation is
inadmissible. Further the Reliance is also placed on the following case laws:-
62 • ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word ‘computer1., as explained in above mentioned paras.

• In the case of DCIT Mumbai v. Data Craft India Ltd.(2010) 40 SOT 295 (Mum.) (SB) ITAT), the issue was related to router and switches which were part and parcel of le “computer” hardware and other functions were found to be integrated one. In the case of CIT v. Bses Yamuna Powers Ltd. ITA 1267 of 2010 (Delhi High Court, depreciation was allowed at the rate of 60% on “computer” accessories and peripherals such as printers, scanners and server as these were integral part of the computer system responsible for completing the required working. Here is not the case like that.
• In the case of Nestle India Ltd. v. DCIT111 TTJ 498 (ITAT Delhi) it has been held that UPS is not an integral part of computer, hence not entitled for higher rate of depreciation. Similarly, though ATM is run on the basis of computer devise, is not entitled for higher depreciation applicable to the computer. This propositions is there in the case of HDFC Bank Ltd. v. ACIT 2011 TIOL – 101 (ITAT Mumbai). Similarly, machines for designing and printing using computer technology had not been regarded as computers, vide: ST. Reddiar & Sons v. DCIT129ITD 475 (ITAT Cochin).

• In the case law of Federal Bank Ltd. v. Asstt Commissioner of Income- tax Hon’ble Kerela high court held that the rate of depreciation at 60 per cent is available on computers. Since EPABX and mobile phones are not computers, the assessee was not entitled to depreciation at 60 per cent.

In view of the above mentioned discussion, it is requested to Hon’ble ITAT depreciation rate of 60 % on Set Top Boxes should not be allowed to assessee.”
35. However, the Ld. Counsel for the assessee has made the following submissions to rebut the observations of the Assessing Officer and as well as regarding the applicability of the decision of the special bench of the ITAT in the case of “Data Craft” (supra):
63 Reasoning against Assessment Order for AY 2012-13 where 60% not allowed Para As per Order Applicability to Fastway
No.
6.2.4 The Ld. AO has stated that the said It is submitted that the Ld. AO did equipments are neither computers not go into the technicality of the nor energy saving devices as per the product and has summarily decided requirement of the Appendix I & IA that STB’s are not computers of Income Tax Rules 1962. It also without citing any reasoning or goes to say that the STB’s are not rationale. electrical equipments.

6.2.5 Reliance on the Order of CISCO by It is submitted that when the the assessee is not in place because Hon’ble Bench has allowed audio the order does not talk about STB’s visual streaming equipment to be but about audio visual conferencing part of computer system, STB is way equipments and video streaming advanced and a computer in itself.
equipments, wherein it was contended that they were part of The Ld. Assessing Officer did not the computer system. examine this in detail and has summarily concluded that it is not Since the word STB was not part of a computer. mentioned in that order, the assessee is not eligible. Further, it has also been mentioned that in the other judgement of CISCO it talks about giving depreciation to routers and switches @ 60% and not to STB’s Applicability of DCIT vs Datacraft India Limited to the case of Fastway
Transmissions Private Limited Para No. As per Order Applicability to Fastway
31.1 In short, “Router” is a hardware It is submitted that the device that routes data (hence the assessee has already name) from a local area network established that the STB’s (LAN) to another network have all the capabilities of a connection. A router acts like a computer and therefore eligible coin sorting machine, allowing for depreciation of a computer. 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
64 used independent of Computer. If yes, then it cannot be called “Computer Hardware” in all circumstances.

31.4 In view of the above discussion, I n th e c a s e of F a st w a y we are of the considered view that Transmission Private Limited, router and switches can be the STB’s are computer in classified as a computer Hardware themselves and are also part when they are used along with a of a larger computer system computer and when their at the back end. It is submitted functions are integrated with a that while STB’s are ‘computer’ In other words, when computers in themselves, the a device is used as part of the are also integrated with a computer in its functions, then it computer making them would be termed as a computer. eligible for depreciation of a computer 32 Now we will advert to the The Hon’ble Bench has reiied decisions relied on by the rival on the judgement of parties. We have set out above the Samiran Majumdar wherein cases decided by various Benches the)1 have argued that printers of the Tribunal in favour of the and scanners cannot be used assessee. The lead order is in the without computers and case of Samiran Majumdar therefore they are eligible to be (supra) which has been followed, treated as computers. directly or indirectly, in most of Similarly, STB’s again, while the subsequent cases. We will being computer in themselves, take up this case for discussion, in cannot be used independently which the question was whether unless integrated with a printer and scanner could be computer and thus qualifying allowed a higher rate of the assessee for depreciation of depreciation as applicable to a computer.
computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer. 32 In the opposition the orders In the opposing judgement, taking view in favour of the the argument was that Revenue are led by the case of routers do not perform any routermania logical, arithmetical or Technologies(supra). In this memory functions and thus case it was observed that the not eligible.
65 router is a device which links or In the case of the assessee, connects the computers for the the STB’s have their own exchange of relevant data. In CPU, Operating System, reaching the Input / Output mechanism conclusion that router is not enabling them to carry out all eligible for depreciation at the the functions of a computer. rate applicable to computer, the Accordingly, it is submitted Bench noticed that the router at that the said judgement is not its own does not perform any applicable to the company. logical, arithmetical or memory functions by manipulations of electronic, magnetic or optical impulses.
33 We prefer the view taken in the case of Samiran Majumdar In the instant case, the (supra) over that in the case of assessee has already filed Routermania Technologies detailed chart of the system (supra) ; With utmost respect, how a STB functions which the Mumbai Bench had taken a establishes the fact that they narrow view on this issue, by are an absolute integral part holding that only a device of the CAS Server Computer which can perform logical, and without the STB these arithmetical or memory computers cannot function. functions by manipulations of It is the STB’s that while electronic impulses etc. is performing their computer. It has restricted independent functions as a the meaning of computer only computer, give the entire to the CPU of the computer network the functioning. and pulled out the input and output devices from the As has been held by the ambit of computer. No doubt Hon’ble Bench that the the function of the computer, brain cannot be called the as one composite unit, is to body alone and that all parts perform logical, arithmetical or of the body along with the memory functions etc., but it is brain comprise of the body. not only the equipment which Similarly, the STB’s cannot be performs such functions that seen in isolation and have to can be called as computer ; All be seen part of the entire the input and output devices, computer/network system as discussed above, which which it is an integral part of support in the receipt of input in the industry of the and outflow of the output are assessee.
also part of computer. CPU alone, in our opinion, cannot be Thus, in light of these considered as synonymous to submissions, the assessee the expression ‘Computer’. The is entitled to depreciation function of CPU is akin to the as computers.
brain playing a pivotal role in the conduct of the body. As we do not call the brain alone as
66 the body, similarly the CPU alone cannot be described as computer. Thus the computer has to necessarily include the input and output devices within its scope, subject to their exclusive user with the computer, as discussed above. If we constrict the definition of computer only to processing unit, as has been held in the case of Routermania (supra),then even the keyboard and mouse etc. will not qualify to be called as computer because these equipments also do no performlogical, arithmetical or memory functions. In the light of the meaning of ‘computer’ discussed in earlier paras, we are inclined to agree with the view taken by the Kolkata Bench in Samiran Majumdar (supra).

36. A perusal of above submissions reveals that both the ld. Representatives of the parties in their rival submissions have tried to demonstrate from the operation and functioning of the STBs as to the whether the STBs perform functions as that of a standard ‘computer’ or not. The counsel for the assessee, as noted above, has firstly submitted that the components of the STB are same as that of a computer and that the STB in itself is a mini computer, the only difference being that it is devised to perform specialized functions. That in the STBs hardware and software architecture used is that of a computer. That the STBs have their own CPU, operating system, input-output mechanism
67 enabling them to carry out all the functions of a computers. Further, he has also demonstrated from the functioning of the STBs that an STB performs function of a computer with a slightly reduced instructions set. That the system software or the device drivers are also as that in a perso nal co mputer but instructed to perform the specialized functioning meant for the STBs.; that even the application software in STBs is same and developed with the same programming language as for a computer, but for specific and specialized functions.

However, the main thrust of the argument of the Ld. DR has been that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be a computer unless its principal function cannot be done without the aid of the computer function. The ld. DR relying upon the decisio n of Special Bench in the case of “Data Craft India Limited” (supra) has submitted that any machine or equipment cannot be described as computer unless its principal output or function is the result of some sort of computer function in conjunction with some non-computer functions. That since the main function of STBs is to deliver the Audio / Video feed to user, thus the major function of the STBs i.e. decoding and thus delivering the audio video signals to the TV sets is independent of the various servers installed at the premises of Multi System Operator (MSO). That the main functions of the STBs do not
68 depend on servers and other electronic devices installed in the premises of MSO. He, therefore, has submitted that STBs cannot be described as computer rather at the best called informatization appliances attached to TV set to enjoy multiple contents. The main argument of the Ld. DR is that as per the decisio n of the ‘DCIT vs Data Craft India Limited.’ (2010) 40 SO T 295 (Mum)(SB)(I TAT), the televisions cannot be treated as computers and hence any assembly attached to television, i.e. STBs in this case cannot be treated as computers. That in the case of CISCO, 60% depreciation has been allowed by the ITAT on audio / video conference devices. However, the assesses in the present case has failed to justify how STBs are at par with Audit / Video conferencing devices. Further, the ld. DR has submitted that the functioning of the STBs is analogues to the functioning of the mobile phones. The ld. DR, therefore, has submitted that since the mobile phones cannot be said to be computers, hence, similarly, the S TBs also cannot be said to be computers. On the other ha nd, the Ld. Counsel fo r the assessee also relying upon the decision of the Special Bench in ‘DCIT vs Data Craft India Ltd.’ (2010) 40 SOT 295 (Mum)(SB)(ITA T) has submitted that the assessee has also demonstrated that STBs have all the capabilities of a computer and that they are not only mini computers in itself but also part of a larger computer system at the back-end. That the STBs cannot be used
69 independently unless integrated with a computer. The ld. counsel for the assessee in this respect has relied upon the decision of the tribunal in the case of ‘Samiran Majumdar’ ( supra), wherein, it has been held that the printer and scanner cannot be used without computer and, hence, were held to be a part of computer qualifying for depreciation at the rate applicable to the computers. The ld. representative s of both the parties, therefore, have mainly stressed upon the functio ning of the STBs to submit whether they perform the functions of a computer or not; although the submission of the Ld. counsel of the assessee is that an STB is a computer itself and yet, it is further attached to a larger computer network at back and thus being part and parcel of a larger computer system also, whereas, the Ld. DR has stressed that altho ugh the STB may be performing many functions as that of a computer, yet the primary function of the STB is decoding of the audio – video signals and further delivering the audio – video signals to TV sets, hence, the primary function is not of computing, hence, they cannot be said to be computers.

37. In our view, though both the ld. representatives have gone too technical regarding the specific functions o f the STBs to submit whether they fall within the definition and scope of computer or not? However, in our view, neither under the
70 provisions of Income Tax Act nor in the Appendix 1 to Income Tax Rules, 1962 (providing for rate of depreciation) any such hyper technical approach has been taken. The rate of depreciation on a capital asset under the provisions of Income Tax Act and Rules thereto has been provided taking into consideration the general or approximate age of the asset and the speed at which it depreciates. Similar type of assets irrespective of their quality, make or the material used in, are placed under the same category on which rate of depreciation is same/equal e.g. all type of buildings except purely temporary erections have been placed under the same category irrespective of their strength and quality of the material used to erect such buildings. All types of furniture and fittings have been placed in the same category. All types of motor vehicles irrespective of their quality and material used, which may affect their life span, have been placed in one category and so on. The only difference is whether the asset is used for co mmercial hiring/renting or for own usage/consumption. At Serial No.5 of Appendix 1 to the rules, the computer including computer software have been placed with admissible rate of depreciation thereupon @ 60% . As per ‘Note 7’ appended below the appendix 1, it has been mentioned that ‘computer software means any computer programme recorded on any disc, tape perforate media or other information storage device.’ The various courts of law while adjudicating on the issue of allowability of rate of depreciation have interpreted
71 ‘computer and co mputer software’ as a ‘computer system’ which includes the other associated equipment attached with the CPU such as monitor, mouse, key board, printer, scanner etc. as these equipment/devices though, in themselves will not be doing the function of computer but they are required to be attached with the computers and cannot be operated independently. The life span of these devices attached to the CPU goes with that of the computer. In the modern era of fast evolution in technology sector, the technological devices based on computer programming and software are being replaced or required to be replaced in a very short span of time with their new and improved versions with enhanced ca pabilities and pe rformance features etc. due to revolutionary developments in this sector. A busine ssman has to replace the old equipment with the new/improved one to compete in the market. Hence, these types of computer devices become obsolete very soon due to their new versions and substitutes. Therefore, the higher rate of depreciation has been given on computers and software as compared to ordina ry plant and machinery. There are many case laws wherein the expenditure incurred on soft ware etc. claimed as Revenue expenditure by the assessee has been so allowed by the courts due to its short life as it is required to be replaced with the new a nd improved versions in a short span of time. The growth in technology sector is very fast and the older devices become useless and obsolete, not always due to the reason that these devices have outlived
72 their life but due to the fact that they are required to be replaced with their new version to keep pace with the time and to compete in the market.

In our view, it is not only the primary function that may be the sole criteria for deciding whether the STBs will be eligible fo r depreciation as applicable to the computers or not, rather the overall facts and circumstances such as the archite ctural design, nature of its components, the economic life of the STBs and their functions both primary and other functions, that are the deciding factors.

A perusal of the Appendix 1 to Income Ta x Rules,1962 reveals that the rate of depreciatio n provided is not item or quality specific, rather, the depreciation rate has been mentioned taking the genre of the particular type of assets and not on the basis of any specific species or to say not on the basis of differentiating nature or qualities of the assets falling within one genre/category. As noted above, different type of assets may be of different species but falling in one or same genre will be eligible for deprecation a t the same rate. A broader aspect of the nature and type of asset has been taken under the Appendix 1. Apart from the criteria of normal age of an asset, a higher rate of depreciation has also been provided for certain assets for the purpose of giving incentives in certain type of business such as
73 lifesaving equipment, energy saving equipment and environment and pollution controlling equipment etc. 38. It is pertinent to mention here that in the category of ‘Energy Saving Devices’ mentioned under Serial No. 8 (ix) (E) under Electrical Equipment, on the following type of devices a higher rate of depreciation i.e. @ 80 %, as applicable for the assessment year under consideration, has been given:- “k) Remote terminal units/in telligent electronic devices, computer hardware/sof tware, router/bridges, other required equipmen t and associated communication systems f or supervisory contr ol and data acquisition systems, energy management systems and distribu tion management systems f or power transmission systems.”
A perusal of the above reveals that in case of the aforesaid devices used for supervisory control and data acquisition systems, energy management system and distributio n management system for power transmission systems, the various devices which are either computer hardware or software or are closely linked to or associated with or attached to and generally performing either the same or identical functions, have not only been placed under the same category but they have been mentioned together but separated with “/” (slash) which means same or similar or inclusive of or to say ‘either / or” . It is used for connecting non-contrasting items or as a shorter
74 substitute for the conjunction “or” and ‘inclusive of’ i.e., ‘A’ or ‘B’ or ‘Both’. When certain things are so closely related that one overlaps the other and it is difficult to make a clear distinction between the two or both are inclusive irrespective of any distinction, such items are separated by ‘/’ instead of symbol of comma ” , ” which gives a separate identity to each of the item included in the same list.

Another example in this respect is given in respect of ‘Life Saving Medical Equipments’ which reads as under:

“(xia) Life saving medical equip ment, being– (a) D.C. Defi brillat ors for intern al use an d pac e makers (c) Heart lun g machine (d) Co balt Th erapy Un it (e) Colour Doppl er (f) SPE CT Gam ma Ca mera (g) Vascular An gi ograph y System incl udi ng Di gital Subtract ion Angi ography (h) Ventilator us ed wit h anaes thesia a pparatus (i) Magn etic R esonance Imagin g System (j) Surgical Las er (k) Ventilator oth er th an thos e us ed with ana esth esia (l) Gamma knife (m) Bon e Marrow Transpl ant Eq ui pm ent i ncluding silastic lo ng
stan ding intravenous cath eters for chemoth erapy
75 (n) Fibre o ptic en doscopes including, Paediatric resectoscope/audit resectoscope, Periton eosc opes, Arthosc ope, Microl aryn gosc ope, Fibr eo ptic Fl exi bl e Nasal Ph aryn go Bronch oscope, Fibreo pti c Flexible La ryngo Bronchosc ope, Vi deo Laryn go Bro nchoscope an d Video Oeso ph ago Gastro scope, Strobosco pe, Fibreoptic Fl exible Oeso ph ago Gastroscope (o) La parosc ope (singl e incision)”

A perusal of the above details reveals that separate items though falling under the heading “Life Saving Medical Equipment” have been mentioned separately under different alphabetic numbers, however, the items at (n) above shows that Paediatric resetoscope and audit resectoscope have been separated with ” / ” (slash), whereas, the other items though of similar nature have been separated with “, ” (comma) and whereas, the other items which are not similar but falling unde r the main head “life saving equipments” have been separated with different alphabetic numbers.

From the above discussion, it is logically inferred that the devices such as Remote terminal units/intellige nt electronic devices, computer hardware/software, router/bridges are inclusive of or are overlapping each other because of the similarity of the functions or their functions are in aid to each other’s functions for a collective main function. The STBs no doubt would also fall within the category of the above named
76 ‘intelligent electronic devices’, however, STBs since are not are electric energy saving devices, hence, the same will not be eligible for higher rate of deprecation @ 80%. However, clue fro m the above can be taken to include the above devices for claim of depreciation as is eligible for ‘computer and software’ as these devices(STBs) are identical to computers not only in their architectural design but also in their functioning. Even it has also not been disputed by the ld. DR that the STBs also perform computing functions but he has only tried to ma ke distinction between the two by stating that the main function of an STB is decoding of audio video signals. However, in our view, such hyper technical criteria cannot be adopted in view of the general and broader criteria adopted in Appendix 1 relating to the classification of the items for the purpose of depreciation rate. So far as the argument of the Ld. DR that since like a smart TV or a mobile telephone cannot be said to be computer, hence, the STBs can also be not categorized as computer, in our view, has no force. Now a days, the smart TVs are in market. The word ‘smart’ added before a TV shows that it is capable of performing certain smart or intelligent functions as that of a computer. In fact, these smart TVs have all the features and functions of a computer and in the absence of any specific classification in Appendix 1, It will be required to be seen whether such appliance is a simple TV or an advance appliance with an inbuilt computer system and performing functions as that of a computer.
77 There has been a great evolution in Mobile phone s also. Now a days, mobile pho nes are mini computers. Considering the speed at which these devices are evolved to new and improved versions, the component of such devices being delicate and sensitive and the functioning of such devices being a mixture of communication and computing, which is akin to that is performed by a computer, the mobile phones, in our view, cannot be placed and equated with simple plant and machinery of every type, rather, it will be appropriate to place these under the genre ‘computers and software’. So far as the argument of the Ld. DR that just because some sort of computer functio ns are necessarily involved, mechanical system cannot be said to be computer, we agree to that extent with this argument of the Ld. DR. Now a days with the advancement of techno logy, even the machines meant to perform mechanical functions such as a washing machine or a Lift have also been embedded with some sort of computer device, which gives command to said machine to perform certain specific functions; however, considering the material and components of such machines, their life, their main and associated functions and characteristics, they can be categorized either as mechanical devices, electrical devices, electronic devices or computer devices. Even where such division is generally not possible, the composition of such type of machines can be divided and their components can be segregated to find which component would fall in the category of plant and
78 machinery and which in computer category. Which device would fall under what category of Appendix 1 will depend upon the overall characteristics and not a single or sole factor can be said to be determinative of. Hence, considering the nature of the equipment, their architecture, their components, their functions and also their average life, STBs in our view would fall under the category o f computer for the purpose of determination of rate of depreciation.

39. The next contention of the Ld. DR , relying upo n the decision of Special Bench in the case of “Data Craft India Limited” (supra), has been that any ma chine or equipment cannot be described as computer unless its principal output or function is the result of so me sort of computer function in conjunction with some non-computer functions; that since the main function of STBs is to deliver the Audio / Video feed to user, thus the major function of the STBs i.e. decoding and thus delivering the audio video signals to the TV sets is independent of the various servers installed at the premises of Multi System Operator (MSO). He, therefore, has submitted that STBs cannot be described as computer rather at the best called informatization appliances attached to TV set to enjoy multiple contents. The main argument of the Ld. DR, thus, has been that as per the decision of the ‘DCIT vs Data Craft India Limited.’ (supra) since the televisions cannot be treated as computers and hence any assembly attached
79 to televisio n, i.e. STBs in this case cannot be treated as computers. However, in our view, the STBs are not just attachments to the television. They are essential for the business of the assessee to provide the broadcasting/D2h se rvices offered by the assessee to the consumer’s premises. It is part of the setup essential to transmit, decode and send the audio/video signal to the television. These, thus are attached being its part and parcel of the main server system of the operator receive commands, deco de them as per programming and transmit to the TV. The mere attachment of S TB with television will not be of any use unless it is connected with the main server system. Under the circumstance s, even as per the parameters laid down by the Special Bench in the case of ‘Data Craft India’ (supra), STBs would form part a nd attachment of the computer systems. 40. Even it is an admitted fact that in the case of CISCO, the matter relating to the depreciatio n on audio visual conference devices had been restored by the Tribunal to the file of the assessing officer for decision a fresh on the issue as per the observations/guidelines of the tribunal. It is also an admitted fact that the Assessing officer in the set aside proceedings has granted depreciation @ 60% on those Audio -Visual equipment on the analogy that they being attached, form part of the computer systems. However, the sole contention of the Ld. DR in this respect has been that it is not proved that STBs and Audio visual
80 conference device mentioned in the CISCO’s case were similar to the STBs. However the Ld. Counsel for the assessee in this respect has submitted that a letter was written by the Assessing Officer himself to the CISCO for clarification on this point, to which the CISCO vide their letter dated 18.02.2016 replied as under:

‘”5. Details of Depreciation claimed by us on Assets under Lease with Fastway transmission f or AY 2013-14 & AY 2014-15:

T he Assets provided on Lease to M/s Fastway T ransmission Pvt. Ltd. are
“Networking Equipments’ which would f all within the “Computers” Blocks we have accordingly claim ed the depreciation @ 60% as applicable to “Compu ters” Block. The total amount claimed as depreciation in our T ax Returns f or AY 2013-14 is IN R 573,385,590 & for AY 2014-15 depreciation claim is INR 812,535,709″

The matter therefore stands clarified by the CISCO itself. 41. Even otherwise, may be the audio-visual device as mentioned in the order of the CISCO not be the same equipment i.e STBs , but these would fall in the same category being ‘Information Appliances’. Ld. DR in his arguments has also stressed that STB is information appliance. Under the circumstances, the case of the assessee can not be differentiated from that of CISCO on the issue of rate of depreciation admissible on such ‘Information Appliances’ being treated as part of the computer systems in the case of CISCO.
81 42. So far as the reliance of the Ld. DR on the decision of the coordinate Cochin Bench of the Tribunal in the ca se of ACIT vs Kerala Communicators Cable Limited (supra) is concerned, we find that at in that case the assessee had claimed the depreciation at the rate of 80% by claiming them to be energy saving devices. The coordinate Bench held that the STBs did not fall within the definition of energy saving devices. The facts of the said case are therefore distinguishable. 43. Even otherwise, it is the own case of the Department that the STBs has a short life of three years. Referring to the clauses of the Master Lease Agreement with CISCO, as discussed above, it has been vehemently contended by the Department that the lease deed was so devised that the term of lease ends with the life of the equipment; that after the payment of the last installment, the equipment is rendered valueless; That the average life of the STBs is three years only and that is why the lease deed also ends at three years. In this respect, in the written submissions filed on 13.12.2017 by the Department, strong reliance has been placed on the observations of the Assessing officer in the assessment order in this respect, which reads as under:-

“T he economic life span of asset namely Set T op Box (STB) is 3 to 4 years. T his f act is ascertained
82 as per the TRAI guideline (page 232, Para 19 & 21 of DPB-II) and th e sworn statement recoded u/s 131 on 20.2.2014 of Sh Sushil Thakur S/o Sh. Karam Singh Thakur working as Assistant Manager (accounts) in the assessee company since 2008 (page 143 of DPB- III) wh erein he had categorically stated that ‘that usage lif e of STB is approx. 3-4 years only and lease tenure is also 3- 4 years’. T he tenure as per lease schedule is nearly the same as economic lif e of the equipmen t. T hus, lease period is settled in such a way so that the C ISCO f ully recovers the investment in the asse t together with interest thereon within the lif e span of the asse t.”
Further, in the written submissions dated 26.2.2018, it has been submitted as under:-

“The physical life of the assets is not relevant here. It is the economic life span of S TB which is relevant as per ITAT Special Bench decision in Indus Ind Ba nk and accounting standard. As per TRAI guideline and sworn statement u/s 131 of Shri Sushil Thakur the economic life spa n is 3 to 4 years. Even otherwise the assessee has charged depreciation of these assets @ 27.82% (page 176 of DPB 1 o n STB / Headends) in its books viz-a-viz charging of depreciation on other assets @ 14%. Thus major part of the life of STB is covered in 3 to 4 years.”

Further, the assessing officer ha s also placed reliance on TR AI notification No. 1-19/2012-B&CS dated 27.3.2013 as reproduced in the assessment order as under:

Sl. Particulars Tariff 1. Rent per month per set top box Rs.32.93 (exclusive of for the first three years taxes)
83 2. After three years from the date of No rent. The set top box installation shall become the property of the subscriber except smart card/viewing card 3. Security Deposit (Adjustable) Rs. 800/- 4. Amount of Security Deposit As per attached Table-B refunded on return of the Set 5. Installation Charges Nil 6. Activation charges Nil 7. Smart Card/Viewing Card Charges Nil 8. Repair and Maintenance Nil Charges for three years from the date of installation The Assessing Officer has observe d that as per the above tariff plan adopted by the assessee with the consumers, a t the end o f 3 years from the date of installation o f the STB in consumer’s premises, the consumer becomes the owner of the property. The assessing officer in this respect ha s observed that if the assessee was not the owner of the equipment, how can it pass on the ownership to the consumer after 3 years from the date of installation. We have already agreed in this respect with the contention of the Department.

However, as per the TRAI notifica tion also, the life of the STBs has been taken at 3 years. As per the said notification of the TRAI, after 3 years, the consumer becomes the owner of the equipment but at the same time, the service provider (assessee herein) is also absolved of the liability of any warranty / guarantee or maintenance of the equipment, meaning thereby the assessee recovers the rent for 3 years from the consumer and
84 further the security deposit received from the consumer is forfeited/appropriated to the assessee at the end of 3 years and on the other hand the consumer becomes the owner of the equipment. As observed in the assessment order, at the end of the 3 years, the security deposit so forfeited or appropriated to it is offered as income by the assessee. The equipment thus is deemed to be sold to the consumer. Thus, the agreement of the assessee with consumers in substance is a hire purchase agreement for a term of 3 years. The equipment remains on hire for 3 years with the consumer but is deemed to be sold at the end of 3 years. Here, the interesting point is that when at the end of 3 years, the equipment is sold and the receipt / sale price along with the hire charges received from the consume r during the period already o ffered to the income tax, ho w can the deduction of co rresponding investment / expenditure incurred for the purchase of such equipment can be postponed beyond such date of sale of equipment? The income under the Income Tax Act is the resultant profit after deduction of the investment / expenditure incurred from the total sale price received / receivable. Therefore, when the total receipt relating to the equipment either in the shape of hire charges or sale price in the shape of security deposit appropriated at the end of 3 years, is accounted for as receipt/income, then the deduction of the corresponding expenditure either in the shape of depreciation o r in the shape of revenue expenditure, under no circumstances,
85 can be delayed or postponed beyond the date of sale of equipment. The expenditure incurred for the purchase of such equipment is required to be set off from the final receipt / sale price by whatever manner either as a deduction on account of depreciation or as revenue expenditure. When the assessee no more remains the owner of the equipment, how can it claim depreciation on the same, which is sine qua non for claim of depreciation. The entire cost incurred by the assessee on the equipment is required to be squared off at the time of sale of equipment. Hence, under the circumstances, the assessee will be entitled either to the deduction of the cost of the equipment either as revenue expenditure and if the same is to be treated as capital asset, then depreciation ca nnot be postpone d beyond the actual life / ownership of the equipment and the assessee will be entitled to the deduction of the written down value of the equipment at the end of 3 years from the sale price received. However, the peculiar facts and circumstances of the case are that it is the own case of the department that the life of the equipment is 3 years and that the asset in the hands of the assesssee is a capital asset, then we cannot understand, how can the department press an argument for the grant of depreciation at a lower rate which may be extended beyond the life of the asset. Under these circumstances also, the assessee, in our view, is entitled to the higher rate of depreciation which is commensurate with the life of the asset.
86 In view of our findings given above, it is held that the assessee is entitled to deprecation @ 60% as applicable to the computers for the year under consideration. This ground is accordingly stands allowed.

44. Ground No. 6:. V i de G r o u n d N o . 6 t h e a s se s se e h a s c o n te s te d t he co n f i r m a ti o n o f di s a l l o w a n ce o f th e d e d u c ti o n claimed u/s 35D of t he Act of 1/5th of the preliminary e x p e n s e s a m o u n ti n g t o R s. 2 . 4 0 c r o r e s .

45. T h e fa c t s o f t he c a se a r e t ha t t he a ss e s se e h a d a cq u i r e d 1 0 0 % s h a r e s i n a c o m p a n y ‘ C a b l e N e t w o r k L i m i te d ‘ ( C B S L ) f r o m i t s pa r e nt c o m p a n y w h i c h h a d o w n e d 1 0 0 % s h a re s i n it n a m e l y D I GI W e s t e r n N e t w o r k P v t . L t d . ( D W N P L ) i n f i n a nc i a l y e a r 2 0 1 0 – 1 1 f o r R s . 1 c r o r e s . O n 1 . 8 . 2 0 1 0 i t h a d e n te r e d i n t o a n I R U a g r e e m e n t w i t h C B S L a n d a s pe r t h e sa i d a g r e e m e n t i t w a s gi ve n f i b r e l i n k s o n le a se o n a r o u t e o f 2 0 0 0 k m s f o r a p e r i o d o f f i ve ye a r s c o m me n c i n g f r o m 1 . 4 . 2 0 10 . A payment of R s . 1 2 c r o r e s wa s m a d e f o r t h e sa m e . Th i s p a y me nt w a s t re a te d a s p r e l i m i n a r y e x p e n se s b y t h e a s s e s se e a n d 1 / 5 t h o f t h e s a m e w a s c l a i m e d a s d e du c t i o n u / s 3 5 D o f t he A c t . Th e A . O . de n ie d t h e sa m e t o t h e a s s e s se e f o r t he f o l l o w i ng r e a s o ns : 1 ) C B S L ha d a cq u ir e d t h e u se r r i g h t s o f t he s e f i b r e l i n k s f r o m a c o mp a ny H F C L I n f o te l L td . ( HI TL ) a n d a s
87 p e r t he te r m s o f a g r e e m e n t e n te re d i n t o b y C B S L w i t h HI TL o n l y u s e r r i g h t s o f t he f i b r e l i n k s c o u l d b e g i ve n b y C B S L to a n y o t h e r c o n c e r n. A s pe r t h e A . O . t h e le a s i n g o ut a g re e m e n t w a s, t h e re f o r e , v o i d a b initio and h e n ce any tr a n sa c t io n e n te r e d i nt o in p u r s ua n c e to the sa m e wa s not a b u s i ne s s t r a n sa c t i o n a n d t h e a s se s s e e , t her e f o r e , c o u ld n o t b e c l a i m a n y b e ne fi t o u t o f t h i s tr a n s a c ti o n .

2) T h a t t h i s w a s no t e ve n n o r ma l l e a se a g r e e m e n t s i n ce n o se r vi c e t a x h a d be e n p a i d b y t h e a s s e ss e e which it was bound to pay if it was a le a s e agreement.

3) T h a t i t w a s o n l y a p a y o u t t o C B S L a s pa r t o f consideration of ta k e o ve r in the g u i se of IRU agreement.
4) T h a t e ve n o t h e rw i se t he pa y m e n t w a s no t f o r e x p a n s i o n o f t he b u si ne s s o f th e a s se s se e b ut w a s o n l y f o r ca r r y i n g o u t t he c u r re n t b u s i ne s s si n c e i t c o u l d b e u se d o n l y o w n e x i s t i n g ca b l e TV l i c e n ce .

5) I n t h e b o o k s o f C B S L t h e s a i d tr a nsa c t i o n ha d b e e n s h o w n a s a l o a n a n d , t h e r e fo r e , t h e c l a i m o f t h e a s se s se e w a s o f p r e l i m i n a r y e x pe n se s , w a s o n l y a n a fte r t h o ug h t .

6) L a st l y , tha t e ve n o t h e r w i se i t d id n o t q ua l if y a s a p re l i m i na r y e x p e n se a s p r o v i d e d f o r i n se c t i o n 3 5 D o f t he A ct .

46. T h e C I T( A ) c o n f i r m e d t he d i s a l l o w a n ce s o m a d e b y t he A.O.
8847. B e f o re u s , t h e L d . c o u n se l f o r a s se s se e c o n te n d e d t ha t m a y b e t h e e x pe n se s i n c u r r e d f o r a cq u i ri n g le a s e r i g h t s o f f i b re l i n k s d i d n o t f a l l w i t hi n t h e de f i n i ti o n a n d s c o p e o f p r e l i m i na r y e x p e n s e s u n de r t h e p r o v i si o n s o f s e c t i o n 3 5 D , h o w e v e r th e s a m e w e r e a l l o wa b le e i t he r a s b u s in e s s e x p e n se s o r a s d e p r e c ia t i o n o n t h e l e a se d a s se t a c q u i r e d b y v i r t u e o f t h i s I R U a gr e e me n t. Th i s c o n t e n t i o n ha s b e e n r a i s e d b e f o re us f o r t h e f i r s t ti m e . E v e n t he C I T( A ) ha s n o t go n e i n to t h i s a s p e c t h a v i n g d e n i e d the c la i m o f d e d u c t i o n u / s 3 5 D o f t he A c t o n l y . W e , th e r e f o re , re s t o r e t h i s i s s ue t o t h e C I T( A ) t o e x a m i n e a l l th e f a ct s o f t h e ca se o n t h i s i s s ue a n d t h e r e a f te r d e ci de t he c l a im i n a c c o r da n ce wi t h la w .

48. G r o u n d N o. 7 . Th e L d . c o u ns e l f o r t he a s ses s e e ha s s t a te d a t Ba r th a t g r o u n d N o . 7 i s n o t p re s se d , he n ce , the s a m e i s di s m i s sed a s n o t p r e s s e d .

49. Ground Nos.8: V i de G r o u n d N o . 8 , t he a s se s se e h a s c h a l l e n ge d the d i sa l l o w a n ce of i n te r e s t e x p e n di t u r e u/s 3 6 ( 1 ) ( i i i ) o f t h e Ac t .

50. B r ie f f a c t s r e l a t in g t o t he i ss ue a r e tha t du ri n g the c o ur se o f sur ve y a t the b us in e ss pre mi ses o f the a sse s see , a d o cu m e nt m e nt io n in g tra nsa cti o n s be t we en M/ s G. S. Ma j e st ic a nd
89 Mun ic ip a l C o r po r a ti o n L ud hia na wa s se i ze d. On b e i ng co n fr o n te d w ith th e sa me d ur ing a sse s sme n t p r o cee d i ngs , it w a s su bm i tte d b y the a sse s see , th a t i t w a s w or k in g i n the r e nta l o f fi ce o w ne d by M/s G. S Ma j e sti c De ve lo pe r s Pv t. L td . a nd a n a m o un t o f R s. 3. 2 0 cr o re s w a s give n a s a n a d va nce to th e c o mpa ny fo r bo o ki ng o f co r p o ra te o f fi ce . The A. O. d i d no t a cce pt the c o nte nti o n of the a ss e ssee as R s .2 cr o re s wa s r e ce ive d ba c k by th e a sse ssee c om pa n y a s pe r le dg e r a cco u nt o ut o f th e a dva nce sta te d to be giv e n fo r b o o ki ng of c o r po r a te o f fi ce . A s the a sse s see fa ile d to p ro v e the bu sines s e x i ge nc y of th is p a yme nt ma d e , d isa ll o wa nce o f in te re st @ 1 4 % am o u nti ng R s. 2 8, 68 , 09 6 /- w a s ma de u /s 3 6(l )( i ii ) o f the A ct. 51. T h e C I T( A ) c o n f i r m e d t he d i s a l l o w a n ce s o m a d e b y t he A s se s s i n g O f f i ce r .

52. B e f o re us , t he L d . c o u nse l f o r a s se s se e h a s co n te n d e d t h a t i t w a s p o s se s s e d o f s u f fi c i e n t o w n f u n d s f o r t h e pu r p o se of making t he i m p u g ne d a d v a nc e and, t h e re f o r e , no d i sa l l o w a n c e u/ s 3 6 ( 1 ) (i i i ) o f t he A c t w a s w a r r a n t e d . I t wa s p o i n te d out t ha t t he a s se s s e e company ha d r e se r v e s and surplus of R s .1 0 7 . 3 6 crores and s ha r e ca p i t a l of R s. 1 0 5 c r o r e s , w h i le a d v a nc e g ive n t o M/ s G . S . Ma j e sti c w a s R s . 3 . 2 0 c r o r e s o n l y o u t o f w h i c h a s um o f R s . 2 c r o r e s h a d b e e n
90 r e ce i ve d b a c k . Th e L d . c o u n se l f o r a s se s se e ha s c o n te n d e d t h a t i n t he l i gh t o f t h e a b o ve f a c t s , n o d i sa ll o w a n ce u/ s 3 6 ( 1 ) ( i i i ) o f t he A c t w a s w a r r a n t e d . H e i n t h i s r e s p e c t ha s r e l i e d o n t he d e ci s i o n o f t he Ho n ‘b l e J u r i s d i c t i o na l H i g h C o u r t i n t he c a se o f M / s B r i g h t E n te r p r i se s P v t . L t d . , r e p o r te d i n 3 8 1 I TR 1 6 0 .

53. T h e L d . D R , o n t h e o t he r h a nd , ha s r e l i e d u p o n the o r de r s o f t he lo w e r a u t h o r i t i e s .

54. W e ha v e he a r d th e r i va l c o n te n t i o n s . W e f i n d m e r i t i n the c o n te n t i o n o f t he L d . c o u n se l fo r a s se s se e . Th e L d . C o un s e l has de m o n s t r a t e d t ha t t he re we re su f f i c ie nt own funds a va i la b le w i th th e a s se s s e e c o m p a n y i n t he fo r m o f s h a r e c a p i ta l a n d r e ser v e s t o t he t u n e o f R s . 1 0 5 c r o re s a n d R s .1 0 7 crores r e s p e c t i ve l y to meet the a d va n ce g i v en of Rs.3.20 c r o r e s . Th e i s s u e i s n o w sq ua r e l y c o ve r e d b y t h e v a r i o us d e ci s i o n s o f t h e H i g h C o u r t s a s w e l l a s o f t he a p e x c o u r t o f the c o u n t r y i nc l u d i n g t ha t o f t he Ho n ‘ b l e J u r i s d i ct i o na l H i gh Court i n t he ca se o f ‘ B r i gh t E n t e r p r i s e s P v t . L t d V s . C I T, J a la n d ha r ‘ ( s u p r a ) , ‘ C I T V s . K a p s o n s A ss o c i a te s ‘ ( 2 0 1 6 ) 3 8 1 I TR 2 0 4 ( P & H ) a n d t h e l a t e s t d e ci s i o n o f t he C o o r d i n a te B e n ch of the Tr i b u n a l in the ca se of ‘ACIT Vs. Janak Global R e so u r c e s Pvt Ltd’ I TA No. 470/Chd/2018 order da te d
91 1 6 . 1 0 . 2 0 18 , h o l d i n g t h a t t ha t i f t h e a s se s se e i s p o s s e s se d o f s u f f i c i e nt o w n in t e r e s t f re e f u nd s t o m e e t t h e i n v e s t m e n ts / i n te r e s t free a d v a n ce s , t h e n, u n de r t he ci r c u m s ta n ce s , p r e s u m p t i o n w i l l b e t ha t i n te r e s t f r e e a d v a n ce s / i n ve s t me n ts h a ve b e e n m a d e b y t he a sse s se e o u t o f o w n f u n d s / i n te r e st f r e e f u nd s . R e l i a n c e i n t h i s r e s p e c t ca n a l s o b e p l a ce d o n the d e ci s i o n o f t he H o n ‘ b le S u p re me C o u r t i n t he c a s e of ‘ He ro C y c l e s ( P ) L t d Vs . C I T’ 379 ITR 347 (SC) and also on the l a t e s t d e c i s i o n o f t h e H o n ‘ b l e Su p r e m e C o u r t in t he c a s e o f ‘ C I T ( L TU ) V s . R e li a n ce I nd u s t ri e s L t d . ‘ [ 2 01 9 ] 4 1 0 I TR 4 6 6 ( S C ) . T h u s , a s pe r t he s e t t l e d la w n o d i s a l l o w a nc e u / s 3 6 ( 1 ) ( i ii ) of t he Act is w a r r a n te d on th i s i s sue . Th i s ground is a c co r d i n gl y a l l o w e d i n f a v o u r o f t h e a s se sse e . 55. G r o u n d N o . 9 :- G r o u n d N o . 9 is g e ne ra l i n n a tu r e a n d d o e s n o t r e q u i r e a n y s p e c i f i c a dj ud i c a t i o n . T h i s a p pe a l o f t h e a s se s se e s ta n d s p a r t l y a l l o w e d . ITA NO. 139/Chd/2019 (A.Y. 2012-13) 56. T h e a s s e s se e i n I TA N o . 1 3 9 / C hd / 2 0 1 9 ha s r a i s e d t he f o l l o w i ng g r o u nd s o f a p pe a l : –

1 . T h a t th e o r d e r d a te d 2 9 . 1 2 . 2 0 18 p a s se d u / s 2 5 0 ( 6 ) of th e In c o m e T a x A c t, 1 9 6 1 ( h e r e i n af te r c a l l e d th e ” A c t” ) b y th e L e a r n e d C o m m i s s io n e r of In c o m e – T a x ( A p p e a l s ) – 3 , G u r g a o n i s a g a i n s t l a w a n d f ac ts o n th e f il e i n a s m u c h a s h e wa s n o t
92 j u s t if ie d to u p h o l d th e ac ti o n of th e L d .
A s se s s in g O f f ic er i n r e s tr i c t i n g th e c l a i m of d e p r e c i a t io n o n s e t to p b o x e s a t t h e r a te of 1 5% a s a g a i n s t th e c l a i m e d b y th e A p p e l l a n t a t th e r a te of 6 0 % th e r e b y r e s tr ic ti n g th e c l a i m of d e p r e c i a t io n b y R s. 1 8 , 4 9 , 3 0 , 8 7 8/ – .

2 . T h a t th e o r d e r d a te d 2 9 . 1 2 . 2 0 18 p a s se d u / s 2 5 0 ( 6 ) of th e A c t b y th e L e a r n e d C o m m i s s io n e r of In c o m e – T ax ( A p p e a l s) – 3 , G u r g a o n i s a g ai n s t l a w a n d f a c t s o n th e f il e i n a s m u c h as h e wa s f u r th e r not j u s tif i e d to d i s a l l o w/ r e s t r ic t d e p r e c i a t io n a m o u n ti n g to R s. 9 1 , 2 8 , 6 7 0 / – in r e sp e c t of c e r ta i n a s se t s wh ic h we r e a l l e g e d l y n o t p u t to u s e d u r i n g th e r e l e v a n t p e r i o d o r we r e a l l e g e d l y p u t to u se af te r S e p te m b e r , 2 0 1 1.
3 . T h a t th e o r d e r d a te d 2 9 . 1 2 . 2 0 18 p a s se d u / s 2 5 0 ( 6 ) of th e A c t b y th e L e a r n e d C o m m i s s io n e r of In c o m e – T ax ( A p p e a l s) – 3 , G u r g a o n i s a g ai n s t l a w a n d f a c t s o n th e f il e i n a s m u c h as h e wa s n o t ju s ti f i e d to d e c i d e th e a p p e a l o n th e b a si s of p r in c ip l e s o f n a tu r a l j u s ti c e .
4 . T h a t th e o r d e r d a te d 2 9 . 1 2 . 2 0 18 p a s se d u / s 2 5 0 ( 6 ) of th e A c t b y th e L e a r n e d C o m m i s s io n e r of In c o m e – T ax ( A p p e a l s) – 3 , G u r g a o n i s a g ai n s t l a w a n d f a c ts o n th e f i l e i n a s m u c h a s h e h a s g r a v e l y e r r e d i n ad j u d ic a t i n g th e g r o u n d s of a p p e a l r e l a t i n g to th e a p p e a l .
5 . T h a t th e a p p e l l a n t c o m p a n y r e se r v e s i ts r i g h t s to r a i se a n y ad d i ti o n al g a d s of a p p e a l .
57. Ground No.1 : A p e r u sa l o f a b o v e r e p r o d u c e d g r o u n d N o . 1 r e ve a l s t h a t t he i s su e ta k e n i n t h i s g r o u n d is i d e n t i ca l t o that ha s b e e n a d ju d i ca te d vide ground N o s . 2 t o 5 o f I TA N o . 5 4 7 / C hd / 2 0 1 7 as above. Th e only differentiating fact
93 p o i n te d o ut b y b o t h t h e l e a r ne d r e pr e s e n ta t i ve s o f t h e p a r t ie s i s t ha t i n t h i s ca se t he cla i m o f d e d u c t i o n o f d ep r e c ia t i o n @ 6 0 % a s a ga i n s t 1 5 % a l l o w e d b y t he A . O . w a s ta k e n b y t h e a s se s se e d u r in g t h e r e a s se s s m e nt p r o c e e d i n g s ca r r i e d o u t u / s 147 of the Act carried out by the A s se s s i n g Officer. Th e A s se s s i n g O f f i ce r noticed t ha t t he a s se s se e had claimed d e pr e c ia ti o n on S TB s @ 35% i .e . @ 15 % and also further a d d i t i o n a l d e p r e c i a t i o n @ 2 0 %. Th e A s s e s s i n g O f f i c e r a f te r r e co r d i n g r e a s o n s s h o w c a u se d t h e a s se s se e a s t o w h y t h e d e pr e c ia ti o n o n S TB s b e n o t r e s t r i c te d t o 1 5 % a s t h e a s s e s se e was not e n ga ge d in t he b u si n e s s of m a n u f a ct u r i n g or p r o d u c t i o n . Th e a s s e s se e h o w e ve r i n t he r e t u r n o f i n c o m e f il e d i n r e s p o n s e t o no t i ce u / s 1 4 8 o f t h e A c t c la i m e d d e pr e c i a ti o n @ 6 0 % a s a l l o w a b le o n c o m p u te r s. Th e A s s e s s i n g o f f i ce r d i d n o t a ll o w t h e a b o v e c l a i m p u t b y th e a s s e s se e i n te r a l ia o n th e g r o u n d t ha t t h e a b o ve c l a i m o f h i g h e r d e p r e c ia ti o n ca n n o t b e a ll o w e d t o b e ta k e n f o r t he f i r s t t i m e i n t he r e a s s e s s m e n t proceedings.

58. T h e L d . C I T( A ) a l s o u p he l d t he a bo v e f i n d i n g s o f th e A . O . 59. B o t h t he l o w e r a u t h o r i t i e s i . e . th e L d . A s s e s si n g O f f i ce r a s w e l l a s t h e L d . C I T( A ) h a ve in t h i s re s pe ct re l i e d u p o n t h e d e ci s i o n o f t he H o n ‘ b l e S u p r e m e C o u r t i n t he c a s e o f C I T V s . S u n E n g in e e r i n g W o r k s P v t . L t d . ( 1 9 9 2 ) 1 9 8 I TR 2 9 7 ( S C ) t o
94 h o l d t ha t t h e p r o c e e d i n g s u / s 1 4 7 o f t he A c t a r e f o r th e b e ne f i t o f t h e R e v e nue a n d n o t f o r t h e b e ne f i t o f th e a s se s se e . T h e L d . C I T( A ) i n t h i s r e s pe c t h a s o b se rv e d t ha t m e r e f a c t o f t h e i s su e u / s 1 4 8 o f t he A c t ca ll i n g f o r f i l i n g o f re t ur n o f i n c o m e a n d de e m i n g s u c h r e t u r n a s a re t u r n f i le d u/ s 1 3 9 o f t h e A c t d i d n o t e n ti t le t h e a s se s s e e f o r a n e x te n d e d p e r i o d o f l i m i ta t i o n u / s 1 3 9 ( 5 ) o f t he A c t . H e o b se r ve d t ha t t he b e n e f i t o f s e c ti o n 1 3 9 ( 5 ) i s n o t a v a i la b le t o a n a s se s se e i n r e l a ti o n to a r e t u r n f i l e d p ur s ua n t t o n o t i c e u / s 1 4 8 o f t h e Ac t . 60. We ha ve hea rd the riva l contentions on this issue a nd a lso gone through the decision o f the Hon’ble Supreme Court in the ca se of ‘CI T Vs. Sun Engineering Works P vt. Ltd.'(supra ) a nd find tha t tha t the Hon’ble Supreme Co urt in the sa id ca se ha s held tha t the procee dings under section 147 a re for benefit of reve nue a nd a re a imed a t ga thering ‘esca pe d income’ of a n a ssessee, and tha t the sa me ca nnot be a llowed to be converte d a s ‘revisional’ or ‘review’ of a sse ssme nt proceedings. That in a reassessment proceeding under section 147, assessee cannot seek a review of concluded item, unconnected with escapement of income for purpose of computation of escaped income. However, we note that in this case, the claim of the assessee is directly related and connected with the issue on which the A.O. has reopened the assessment. The case of the A.O. has been that the
95 assessee has claimed depreciation at a higher rate i.e. @ 35% as against its entitlement of 15% whereas the assessee in the return filed in respo nse to notice u/s 148 of the Act has claimed the depreciation @ 60%. The very issue of rate of depreciation was the subject matter of the proceedings and under the circumstances, in our view, the assessee had got right to put his stance of application of higher rate on the said issue as against of lower rate proposed by the AO. However, we are of the further view that even the above proposition laid down by the Hon’ble Supreme Court otherwise will not be applicable as such in this case because of the direct statutory provisions on the issue involved of allowability of depreciation. Explanation 5 to section 32(1) Inserted by the Finance Act, 2001, w.e.f. 1-4-2002 reads as under:

” Explanation 5.–For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;”
As per Section 32 (1) of the Income Tax Act, 1961 (a s reproduced in the earlier para of this order) a n assessee is entitled to claim of deduction on account of depreciation on tangible as well as intangible assets owned or partly owned by the assessee and used for business purposes at the rate as may be prescribed. Hence, in view of Explanation 5 to section 32(1), the Assessing Officer is duty bound to allow depreciation at the prescribed
96 rates as admissible to an assessee on the assets irrespective of the fact that the assessee has claimed it or not in the return of income or otherwise. The Assessing Officer, thus, is mandatorily required to allow the depreciation as per prescribed rates and as legally admissible to the assessee especially when the very issue of rate of depreciation is the subject matter of the proceedings irrespective of the fact that whether the assessee has made a claim in that respect or not. Hence the plea that the assessee can not make a claim of higher admissible rate of depreciation is not available to the revenue in view of the express statutory provisions of Explanation 5 to section 32(1) of the Act. The Assessing officer is duty bound to apply and allow correct rate of depreciation irrespective of the fact that after allowing such depreciation, the assessed income of the assessee may get reduced from the returned income. Explanation 5 to section 32(1) has been held to be mandatory and prospectively applicable w.e.f. 01.04.2002 through various judicial pronouncements. Reliance in this respect can be placed on the decisions of Kerala High Court in the case of “CIT v. Kerala Electric Lamp Works Ltd.” [2003] 261 ITR 721; Madras High Court in the case of “CIT v. Sree Senhavalli Textiles (P.) Ltd.”[2003] 259 I TR 77; Punjab and Haryana High Court in the case of “Ram Nath Jindal and Jagjiwan Ram v. CIT” [2001] 252 ITR 590; Kolkata Bench of ITA T in “Bhagwati Sponge (P.) Ltd. v. DCIT” [2016] 72 taxmann.co m 40 ; “Dilip Kumar Roy v. DCIT” [2011] 11 taxmann.com 107
97 (Kolkata); “Surat Textile Mills Ltd. v. Income-tax Officer” [2014] 46 taxmann.com 419 (Gujarat); ” Sakun Po lymers Ltd. v. Joint Commissioner of Income-tax” [2015] 57 taxmann.com 65 (Gujarat) and in the case of “Dr. Mrs. Sudha S. Tr ivedi Vs I TO” 318 ITR 356 (Mumbai- Tribunal).

61. In the case of ‘Bhagwati Sponge (P.) Ltd.” (supra), the co- ordinate Kolkata Bench of the tribunal has observed, ” With regard to the claims made in the revised return, we f ind that the Learned C ITA had not considered the same in vie w of the f act that the revised return was f iled by the assessee beyond the prescr ibed period u/s 139(5) of the act. The Learned C IT A had applied the decision of Goetze India L td. supra and accordingly rejec ted the claim of the assessee. But we f ind f rom the last paragraph of the decision of Goetze India L td,supra, wherein the Hon’ble Apex Court observed that revised return though f iled belatedly could be considered by the Appellate Authority and hence we hold that the assessee is entitled to make its claim by way of revised return.”

It has been further observed, ” wh e n th e r e i s a m an d a te to g r an t d e p r e c ia ti o n to th e a s s e sse e wh e th e r o r n o t su c h c l ai m i s m a d e b y th e a s se s s e e i n th e r e tu r n i n te r m s of E x p l an a ti o n 5 , i t wo u l d b e j u s t a n d f ai r th a t t h e s a m e m an d a te wo u l d g e t a u to m a t ic al l y e x te n d e d to th e c l a i m of ad d i ti o n al d e p r e c i a ti o n a l so ” . 62. The ITAT Chennai Bench in the case of “I TO v. Sri Balaji Sago & Starch Products” [2012] 19 taxmann.com 313/53 SOT
98 15 where in the assessee was engaged in power generation and claimed depreciation on a newly installed windmill on the basis of WDV method at the rate of 15% and subse quently, when assessee realised its mistake noting that the correct rate of depreciation to which it was entitled to was @ 80%, hence, it filed a letter before Assessing Officer to rectify claim and to provide depreciation at the rate of 80%.The Assessing Officer rejected this claim purportedly following the decision of the Supreme Court in Goetze (India) L td.’s case (2006] 157 Taxman 1 (SC)/[2006] 284 ITR 323 (SC)/[2006] 204 C TR 182 (SC) by stating that a fresh claim cannot be made by assessee other than by filing a revised return. The claim of the assessee was allowed at the first appeal stage and on appeal by the Revenue the Tribunal held that the assessee was not making a fresh claim before Assessing Authority; In fact, assessee had made a claim for depreciation but rate chosen was not a correct one; thus, judgment of Supreme Court in Goetze ( India) L td.’s case (supra) would not apply in that case; it was further held that as per Explanation 5 to section 32(1), depreciation would be allowed whether or not a ssessee has claimed depreciation in computing total inco me; therefore, assessing officer was duty bound to allow depreciation co mputed at correct rate provided under Act. The Tribunal in this respect while relying upon the decisions of the Hon’ble Punjab & Haryana High Court rendered in the case of ‘C IT v. Ramco International’ [2011] 332 ITR 306/[2009] 180
99 Taxman 584 (Punj. & Har.); o f Hon’ble Gujarat High Court in the case of “Chokshi Metal Ref inery v. C IT ” [1977] 107 I TR 63 (Guj.) and of Chennai Bench in the case of ” K.K.S.K. Leather Processors (P) L td. v I TO” [ 2010] 126 ITD 215 has held as under:

” 18. Regarding the question, whether a claim made by the assessee in the course of assessment proceedings by way of other than filing a revised return, we have to state that exactly similar issue was considered by the Punjab & Haryana High Court in the case of Ramco International ( supra). In that case, the assessee had claimed deduction under sec.80IB. Though the assessee had furnished Form 10CCB and other requisite documents, the Assessing Officer made the assessment without referring to those documents. In first appeal, the Commissioner of Income-tax(Appeals) allowed the claim of the assessee which was the second appeal before the Tribunal. When the matter was again taken before the Hon’ble High Court, their Lord-ships held that as per Form 10CCB filed by the assessee in the assessment proceedings, the claim of deduction made by the assessee was admissible. The court held that the assessee was not making any fresh claim and had duly furnished and submitted the Form for claiming deduction under sec.80IB and in such circumstances, there was no requirement of filing any revised return. In the present case also, the assessee has made a claim for depreciation on WDV method but the rate chosen was not a correct one. The assessee asked for adopting the correct rate which is in fact, was only a prayer to rectify a mistake apparent on record. The assessee was not claiming any fresh claim before the assessing authority. Therefore, the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) does not apply to the present case.

19. The above position is fortified by the order of the ITAT, Chennai Bench ‘D’ rendered in the case of K.K.S.K. Leather Processors (P.) Ltd. (supra). The Tribunal, after examining the Explanation 5 to sub- sec. (1) of sec.32, held that the provisions of sub-sec.(1) of sec.32 was applied whether or not the assessee has claimed the deduction in
100 respect of depreciation in computing his total income. The Tribunal held that the Assessing Officer is duty bound and under obligation to allow the deduction of depreciation as per the provisions of sec.32(1). When such a statutory obligation is cast on the assessing authority, it is incumbent on him to apply the correct rate of depreciation, especially in the present case where the option exercised by the assessee is manifestly clear.

20. In the present case, the assessee has not made any fresh claim, as far as depreciation is concerned. It has already made a claim for statutory allowance of depreciation, subject to the mistake occurred in choosing the correct rate. The ratio of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) needs to be carefully applied in the matters of statutory allowances available to an assessee. There is a genetic difference in the concept of deduction by way of statutory allowance and deduction by way of other expenditure.”
(emphasis supplied by us) 63. Similarly the co-ordinate Pune Bench of the Tribunal in the case of “Income-tax Officer v. Gajraj Constructio ns” [2015] 62 taxmann.com 18 has observed as under:
” So, however, even if one were to import the reasoning raised by the learned Departmental representative based on the judgment of the hon’ble Supreme Court, to the present case, yet we do not find that it would debar the assessee from claiming deduction under section 80-IB(10) of the Act on the impugned additional income declared in the return filed in response to notice under section 153A(1)(a) of the Act. In the present case, the claim of deduction under section 80-IB(10) of the Act was made in the return of income originally filed and in the return filed in pursuance to the notice under section 153A(1)(a) of the Act, the claim under section 80-IB(10) of the Act is only enhanced and therefore, it is not a fresh claim. Therefore, in our
101 view, the judgment of the hon’ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd. does not help the Revenue in the present case.”
64. Further in the case of “Goetze India Ltd vs CIT” (supra) the issue that was settled by the Hon’ble Supreme Court was limited to the bar on the power of the assessing officer to entertain a claim for deduction otherwise tha n by filing a revised return , however, the Hon’ble Supreme Court made it clear that it does not impinge on the power of the Income-Tax Appellate Tribunal under section 254 of the Income-tax Act, 1961 as held by the Apex Court in the case of “NTPC Ltd.” (supra). Applying the same ratio, the bar, if any, to entertain a counter claim by the assessee as laid down by the hon’ble supreme court in the case of ” Sun Engineering” (supra) is on the powers of the Assessing Officer, however, in our humble view, that does not impinge or curtail the Powers of the Tribunal and higher authorities to entertain an Additional/ fresh claim based on the facts on the file in the light of proposition laid down by the hon’ble supreme court in the case of “NTPC Ltd.” (supra) and other case laws ( supra) as discussed in earlier paras (Para No. 31 & 32 above) of this order.
In view of the above discussion, we hold that the Assessing Officer as well as the Ld. CIT(A) were legally duty bound to consider and entertain the issue raised by the assessee of admissibility of statutory deduction of depreciation at a higher
102 rate as prescribed and adjudicate upon it. Even there is no bar on the Tribunal in this respect to entertain and adjudicate upon the issue of rate of depreciatio n despite the fact that the claim relating to admissibility of higher rate of depreciation was made for the first time in the return filed in response to section 148 of the Act.

So far the issue on merits is concerned, in view of our detailed discussion as above on the issue while adjudicating upon the additional ground taken in assessee’s appeal bearing ITA NO.547/Chd/2017 and in view of our decision rendered therein and the facts being similar in this appeal, the issue is accordingly decided in favour of the assessee and it is accordingly held that the assessee is entitled to depreciation on the assets in question @ 60 %.

65. Ground No.2: V i de g r o u n d N o .2 o f t h i s a p p e a l , t h e a s se s se e ha s a g it a te d t h e a c t i o n o f t he C I T( A ) i n c o n f i r m i n g t h e d i sa l l o w a n c e made by the A .O . in r e s pe c t of d e p re ca t i o n c l a i m e d o n t he ST B s w h i c h w e r e n o t p u t t o u se d u r i n g the ye a r a n d f ur t he r i n re s t r i c t i ng t he c l a i m o f d e p r e c ia t i on a t t he l o w e r r a te i n re s pe c t o f t h e S TB s w h i c h w e r e n o t p u t t o u se b e f o r e S e pte m b e r , 2 0 1 1 o n t h e g r o un d th a t t he sa m e w e r e u se d f o r a p e r i o d l e s s t ha n 1 8 0 d a y s . Th e r e le v a n t f i n di n g s o f t h e C I T( A o n t he i s s ue a re r e p r o d u c e d a s u n d e r :
103 ” T h e A O h a s m a d e th i s d i s a l l o wa n c e o n f o l l o wi n g g r o u n d s: – ( i) W i th r e g ar d to b il l of e n tr y of Re m o te s f o r R s. 5 9 , 3 6 , 5 5 3 / – and Rs.10,89,452/- th e a p p e l l an t c o u l d n o t f il e a n y d o c u m e n ta r y
e v i d e n c e to p r o v e th a t th e se we r e p u t to u se d u r i n g th e y e a r i t se l f a n d h en ce d e p r e c i a ti o n c l a i m e d o n th e s a m e wa s d i s al l o we d .

( ii ) W i th r e g ar d to b i l l of e n tr y f o r p u r c h a se of ST B s d a te d 2 3 . 0 9 . 2 0 1 1 a m o u n ti n g R s. 1 , 6 8 , 5 6 , 29 3 / – , th e a p p e l l an t c o u l d n o t f i l e a n y d o c u m e n ta r y e v i d e n c e to p r o v e th a t t h e se a s s e ts we r e p u t to u se b ef o r e S ep te m b e r 2 0 1 1 a n d th e r ef o r e d e p r e c i a t io n wa s al l o we d f o r a p e r i o d l e s s th a n 1 8 0 d a y s a n d n o t f o r th e c o m p l e te y e a r a s c l a i m e d b y th e a p p e l l a n t.

D u r i n g th e a p p e l l a te p r o c e e d i n g s, n o s u b m i s s i o n o r a n y e v i d e n c e to r e b u t th e f in d i n g s of th e A O h a v e b e e n f i l e d . T h e a d d i t io n h ad b e e n d o n e b y th e A O o n th e f a c t s of th e c a se a s p e r p r o v i s io n s of th e A c t. In v i e w o f th e s a m e , th i s g r o u n d of ap p e al of t h e a p p e l l an t c an n o t b e ac c e p te d an d h e n c e th e a d d i ti o n m a d e b y th e A O o n th i s ac c o u n t i s c o n f i r m e d . ”
66. T h e L d . C o u n se l f o r t he a s s e ss e e ha s s u b m i tte d t ha t t h o u g h t he a s se t s m a y n o t be p u t t o u se a s a l le g e d a bo ve d u r i n g t h e r e le v a n t pe r i o d, h o w e v e r , t h e a s se t s w e r e re a d y to u s e . A s pe r o ur o b se r va t i o n s a s n o te d a b o ve , it h a s be e n h e l d t h a t t h e t r a nsa ct i o n o f a c q u ir i n g o f S TB s b y t h e a s se s se e w a s a l o a n /f i n a n ci a l t r a n s a c t i o n me a n in g t he re b y th e S TB s w e r e p u r c ha se d b y th e a s s e s se e t o p u t t o use i n i t s b u s i ne s s . A s f u r t h e r o b se r ve d a s a b o v e , t he ST B s a r e fu r t h e r g i ve n t o t h e c o n s u m e r s o n hi r e p u r c ha se a gr e e m e n t wh i c h a r e d e e m e d t o b e s o l d t o t he c o n s u me r s a f te r t h r e e ye a r s f r o m t he da te o f d e li ve r y / i n s ta l la t i o n . Under t he c i r c u m s ta nc e s, it can be
104 s a f e l y c o n c l u d e d t h a t t he a s se s se e h a d p u t t he S TB s i n i t s b u s i ne s s f r o m th e d a te i t a cq u i r e d/ p u r c ha se d th e sa m e . I n view of this, the a s se s se e is e n t i t le d to d e p r e ca t i o n i r r e s p e c t i ve o f t h e d a te o f i n s ta ll a t i o n o f S TB s i n t h e p r e m i s e s o f t h e c o ns u me r s . Th i s i s s u e i s a c co r d i n gl y a l l o w e d i n f a vo ur o f t he a sse s se e .

67. Ground Nos.3 to 5:

T h e a b o ve g r o u n d s a re ge n e r a l i n n a t u re .

I n v ie w o f o u r f i n d i n g s g i ve n a bo v e , t h i s a p pe a l o f t h e a s se s se e s ta n d s a ll o we d .

842/Chd/2018 (A.Y. 2014-15):-

68. The assessee in this appeal has taken following grounds of appeal:-

1. T hat, the Ld. Commissioner of Income T ax (Appeals)-3,Gurgaon has erred in deciding the case without aff ording suff icient and reasonable oppor tunity of being heard.

2. T hat it had been contended before the Ld.C IT(A) that th e appeal f or earlier year of the same assessee involving same issue i.e. f or Asstt. Year 2013-14 was being heard bef ore the Hon’ble Bench of ITAT , Chandigarh Bench, Chandig arh and, as such, it was requested f or keeping the appeal in abeyance till the disposal of earlier year’s appeal by the IT AT , Chandigarh Bench, Chandigarh and which should have been considered.

3. Notwithstanding, the above said ground of appeal, the Ld. CIT (A) has erred in conf irming the action of the Assessing Off icer in disallo wing the deduction on accoun t of
105 principal component of lease rental amoun ting to Rs.63,59,83,743/- as claimed by the assessee in the computation of income and allo wing the depreciation u/s 32 of the Ac t, which was never claimed on th e leasehold assets by the Appellant.

4. T hat the Ld. C IT (A) has erred in holding that the agreement with M/s C ISC O L td. was on “f inancial lease” and not on “operational lease” and has wr ongly in terpre ted the various clauses of the agreement of lease with M/s C ISCO L td., to hold that it wa s case of “f inance lease” and not an “operational lease” as claimed by us during the course of assessment proceeding s.

5. T hat the Ld.C IT (A) has grossly erred in f ollowing the judgment of special Bench of IT AT in the case of “Induslnd Bank L td” and of the “Asea Br own Boveri L td”, wh ich has later on been distinguished by number of judicial pronouncements of Hon’ble Supr eme Cour t and Hon’ble Hig h Court and various Benches of the IT AT , wherein, both the above judgments as relied upon by the C IT (A) have been distinguished and not relied upon. T hus, the reliance by the C IT (A) on such Judgments is not proper.

6. T hat the disallowance of lease rental have been made against the f acts and circumstances of the case.

7. T hat the Ld. C IT (A) has erred in dismissing the ground of appeal with reg ard to disallo wance of in terest component of Rs.
8,21,25,816/- u/s 40(a)(ia).

8. T hat the said disallowance is against the f acts and circumstances of the case.

9. T hat the Ld. C IT(A) has erred in conf irming the disallo wance of Rs.2,40,000/- on account of disallo wance u/s 35D of the Act ignoring the f act that in the earlier year’s the said deduction have been allowed by the department in the order passed u/s 143(3) f or the Assessment ear 2012-13.
106 10. T hat the Ld. C IT (A) has erred in conf irming the disallo wance of interest am ounting to Rs.80,28,714/- and Rs.20,06,322/- u/s 36(1)(iii) overlooking the f act that there was huge surplus in the shape of share capital and reserves and surplus and as per binding judgmen t of Hon’ble Supreme Cour t and Hon’ble Punjab & Haryana High Court, no such disallowance is called f or.

11. T hat the Ld. C IT (A) has erred in conf irming the disallowance u/s 14A amounting to Rs.63,38,690/- specially, when thee was no exempt income and, as such, the disallowance u/s 14A is wholly unjustif ied.

12. T hat the Appellant craves leave to add or amend the grounds of appeal bef ore the appeal is f inally heard or disposed off .”

69. Apart from the above grounds of appeal, the assessee has taken the following additional grounds of appeal : “Withou t prejudice, the assessing off icer erred in not allowing depr eciation on Set top boxes at the eligible rate of 60%”
70. Ground Nos.1 to 6 : The issue taken vide ground Nos.1 to 6 as to the allowability o f lease rental as revenue expenditure has already been adjudicated in favour o f Revenue as per our findings given above while adjudicating ground Nos. 3 to 5 of assessee’s appeal in ITA No.547/Chd/2017. Our findings given above on these issues will mutatis mutandis apply to these grounds also.
10771. Additional Ground of Appeal:

It was common ground that the above ground is similar to additional gro und taken in the appeal of the assessee in ITA NO.547/Chd/2017 and our decision rendered therein will apply mutatis mutandis to this additional gro und also. This issue is accordingly decided in favour of the assessee. 72. Ground Nos.7 & 8: Ground Nos.7 and 8 relate to disallowance of the interest component of Rs.8,21,25,816/- under section 40(a)(ia) of the Act for less deduction of TDS. The assessing Officer observed that on the interest component paid by the assessee to the CISCO along with lease rental, the assessee had deducted TDS @ 1% instead of 2 % as was required under the pro visions of section 194A r.w.s. 194-I of the Act . He therefore made the impugned disallowance u/s 40(a) (ia). The Ld. CIT(A) has confirmed the additions so ma de by the AO.

73. Before us, the Ld. Counsel for the assessee has submitted that the Assessing Officer has made a separate addition of Rs.8,21,25,816/- on the interest component on account of non- deduction of TDS. It is submitted that it has been the submission of the assessee before the AO that this interest was part of lease charges claimed u/s 37 of the Act and the assessee had deducted TDS @ 2 % on the entire amount of lease charges aggregating to
108 Rs. 63,59,83,732/- (comprising of lease charges and interest). The assessing Officer in para 4.13(iv) at page 54 of the Assessment Order has observed that TDS has been deducted @ 1% on payment made to CISCO which is factually incorrect whereas the assessee has deducted TDS @ 2 % as was stipulated under the relevant provisions of the Act.

This issue, therefore, requires to be factually verifie d at the end of the Assessing Officer.

Moreover, the issue relating to the alleged lease rental paid by the assessee and claimed as revenue expenditure has already been adjudicated by us as above vide ground Nos. 3 to 5 of I TA No.547/Chd/2017 and it has been held that the said lease rentals in fact we re repayment of the loan amount. The assessee, therefore, was not required to deduct the TDS on the principal component of the loan amount. The assessee, however, has deducted TDS on the said component also, which under the circumstances, is to be considered as deduction of TDS towards interest component. The issued is accordingly restored to the file of the Assessing Officer for decision a fresh as per our observations made above.

74. Ground No.9: The above gro und is relating to the disallowance of expenditure claimed u/s 35D of the Act, which is identical to ground No.6 of the assessee’s appeal; ITA
109 No.547/Chd/2017 and our findings and directions given thereupon will apply mutatis mutandis to this ground also . 75. Ground No. 10: The above gro und is relating to the disallowance of expenditure claimed u/s 36(1)(iii) of the Act, which is identical to ground No.8 of the assessee’s appeal; ITA No.547/Chd/2017 and the facts being identical and the assessee being possessed of sufficient funds to meet the advance given, hence, our findings and directions given above on ground No.8 in ITA No.547/Chd/2017 will apply mutatis muta ndis to this ground also.

76. Ground No.11: Vide ground No.11 the assessee has agitated the confirmation of disallowance made by the AO u/s 14A of the Act in respect of the expenditure incurred for earning of tax exempt income.

The Ld. Counsel for the assessee has submitted that the assessee did not earn any tax ex empt income during the year. Hence, no disallowance u/s 14A was warranted. We find that the issue is now squarely covered by the various decisions of the High Courts in favour of the assessee viz.’CI T, Faridabad Vs. Lakhani Marketing Inc.’ 226 Taxman 45 (P&H ), ‘CI T Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H),
110 ‘Cheminvest Ltd Vs. I TO’ (2015) 378 I TR 33 (Delhi), ‘Corrtech Energy P. Ltd.’ (2014) 45 Taxman.com 116 (Gujarat High Court) ‘CI T Vs. M/s Shivam Motors (P) Ltd’ (2014) 272 C TR (All) 277. In all the above referred to case laws, the Hon’ble High Courts have been unanimous to hold that no disallowance is attracted u/s 14A of the Act in case the assessee has not earned any income not forming part of the total income. This issue is accordingly decided in favour of the assessee. The disallowance made by the lower authorities on the above issue is ordered to be deleted. 77. Ground No.12:

The above ground is general in nature.

78. 140/Chd/2018 (A.Y. 2015-16):-

The assessee in this appeal has taken following grounds of appeal:-

1. T hat order passed u/s 250(6) of the Income T ax Act, 1961 by the Learned Commissioner of Income T ax (Appeals)-3, Gurgaon is against la w and f acts on the f ile in as much as he was not justif ied uphold the action of the Learned Assessing Off icer in disallo wing the deduc tion on accoun t of lease rental amounting to Rs. 80,44,97,240/- as claimed by the appellant in the computation of income.

2. T hat the Learned C IT(A) gravely erred in upholding the action of the Learned Assessing Off icer in treating the lease agreement between the appellant and C ISCO System Capital India L td. as a f inancial lease instead th e same being operating lease.
111 3. T hat the Learned C IT (A) f urther gravely erred in upholding the action of the Learned Assessing Off icer in disallo wing a sum of Rs.
2,40,00,000/- claimed on account of the deduction u/s 35D of the Income T ax Act, 1961.

4. T hat he was not justif ied to uphold the action of the Learned Assessing Off icer in making an addition of Rs. 4,21,870/- as alleged unexplained expenditure.

5. T hat he was f urther not justif ied to uphold the action of the Learned Assessing Of f icer in disallo wing a sum of Rs. 61,40,984/- made as a disallo wance u/s 14A of the Income Tax Act, 1961.

79. Apart from the above grounds of appeal, the assessee has taken the following additional grounds of appeal : “Withou t prejudice, the assessing off icer erred in not allowing depr eciation on Set top boxes at the eligible rate of 60%”
80. G r o u n d N o s . 1 , 2 a nd A d d it i o na l G r o u n d :

G r o u n d N o s . 1 , 2 a n d A d d i t i o na l G r o u n d o f t h i s a p pe a l a r e i de n t i ca l t o g r o u n d N o s . 3 t o 5 a n d A d d i ti o na l G ro u n d i n a s se s se e ‘ s appeal for assessment year 2013-14 in I TA N o . 5 4 7 / C hd / 2 0 1 7 , he n ce our findings g i ve n a b o ve w h il e a d j u d i c a ti n g g r o u n d N o s . 3 t o 5 a n d a d d i t i o na l gr o u n d i n I TA N o . 5 4 7 / C hd / 2 0 1 7 will apply m u ta t i s m u ta n d i s to t he se grounds also.
11281. Ground No.3:

Th e a b o ve g ro u nd o f a p p e a l i s i de n t i ca l t o g r o u n d N o . 6 i n I TA N O . 5 4 7 / C h d / 2 01 7 , h e n c e o u r fi n d i n g s a n d d i re c ti o n s g i ve n a b o v e i n I TA N o . 5 4 7 / C h d / 2 0 1 7 w i l l a p p l y m u ta t i s m u ta n d is to t h i s g r o u n d a l so .

82. Ground No.4:

T h e a b o ve g r o u n d i s n o t p r e s s e d .

83. Ground No.5:

T h i s g r o u n d r e l a t e s t o d i sa l lo w a n c e m a de b y the A O u / s 1 4 A o f t h e A c t . T h e a ss e s se e a d m i t te d l y d i d n o t e a r n a n y ta x exempt i n c o me during the year. He n ce , as pe r o ur o b se r va t i o n s m a d e a b o v e w h i le a d j u d i ca ti n g g r o u n d N o . 1 1 o f a s se s se e ‘ s a p pe a l f o r A . Y . 2 0 1 4 – 1 5 i n I TA N o . 8 4 2 / C h d / 2 0 1 8 , n o d i sa l l o w a n ce u / s 1 4 A o f t h e Ac t i s w a r r a n te d . Th i s i s s u e i s a c co r d i n gl y a l l o w e d i n f a v o u r o f t h e a s se sse e . A c c o r d i n gl y , t h i s a p p e a l o f t he a sse s se e s ta n d p a r t l y a ll o w e d .

In the result the captioned appeals of the assessee are treated as partly allowed.

Sd/- Sd/- (एन. के. सै नी / N.K. SAINI) (सं जय गग / SANJAY GARG)
उपा य /Vice President या यकसद य/ Judicial Member
Dated : 06.05. 2020
113 “rati /आर.के.” Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh

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