M/S.dinamalar, Tirunelveli v. The Income-Tax Officer, Income Tax Department, Ward Ii(1), Tirunelveli

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 02.09.2016 CORAM: THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR T.C.A.No.624 of 2016 M/s.Dinamalar,Tirunelveli.... AppellantVersus The Income-Tax Officer,Income Tax Department,Ward II(1), Tirunelveli.... Respondent Prayer: Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal, Madras "B" Bench made in I.T.A.No.2829/Mds/2013,dated 14.01.2016 for the Assessment Year 2011-12, against theOrder of the Commissioner of Income Tax (Appeals) II, inI.T.A.No.12/2014-15, dated 21.10.2014 on the file of theOffice of the Commissioner of Income Tax (Appeals) II,Madurai, against the Assessment order of the Assessment Year2011-12, dated 28.03.2014 made in PAN.No. on thefile of the Income Tax Officer Ward1(1), Tirunelveli. For Appellant: Mr.S.Sridhar For Respondent: Mr.M.Swaminathan Senior Standing Counsel for IT ORDER Tax Case Appeal is directed against the order dated14.01.2016 made in I.T.A.No.2829/Mds/2013, for the assessmentyear 2011-2012, in the matter of M/s.Dinamalar, Tirunelveli,by which, the Income Tax Appellate Tribunal, "B" Bench,Chennai, has dismissed the appeal filed by the revenue. 2. Brief facts leading to the appeal are that theappellant-assessee is a firm engaged in the business ofpublication of Daily Newspaper and filed its return of incomefor the assessment year 2011-12, on 21.03.2013, admitting atotal income of Rs.40,69,56,311/-. The return was processedhttps://hcservices.ecourts.gov.in/hcservices/under Section 143(1) of the Income Tax Act, 1961 and subsequently, the case was selected for scrutiny under CASS.The Assistant Commissioner of Income tax, Circle-1,Tirunelveli, issued a notice, under Section 143(2), on08.08.2013. Subsequently, after transfer of the case, anothernotice under Section 142(1) has been issued on 18.11.2013. Inresponse to the same, the assessee’s authorized representativeShri.A.Muthu, Internal Auditor appeared and produced books ofaccounts, copy of bank statements and other details. Afterexamination of the details and discussion with him, theassessment is completed making the following additions, (a) Disallowance of excess Depreciation Rs1,80,229/-.(b) Disallowance of excess Depreciation Rs17,13,508/- and Rs 9,01,181/-. (c) Disallowance of Additional depreciationRs.19,96,405/-. 3.As regards the claim of depreciation on electricalequipments, the assessee had claimed 80% depreciation againstthe "control panel board and transformer”, treating them to beelectrical equipments, classified under the head "B".Instrumentation and monetary systems for monitoring energyflows” in the depreciation table New Appendix-I-III-(8)(ix)B,which works to Rs.1,80,229/-. The assessing officer was of theview that the above items do not qualify for depreciation at80%, as these equipments are not classified under the headingE.Electrical equipment, of the depreciation table.Accordingly, the assessing officer disallowed the excessdepreciation of Rs.1,80,229/- and added to the total income. (c) Disallowance of Additional depreciationRs.19,96,405/-. 3.As regards the claim of depreciation on electricalequipments, the assessee had claimed 80% depreciation againstthe "control panel board and transformer”, treating them to beelectrical equipments, classified under the head "B".Instrumentation and monetary systems for monitoring energyflows” in the depreciation table New Appendix-I-III-(8)(ix)B,which works to Rs.1,80,229/-. The assessing officer was of theview that the above items do not qualify for depreciation at80%, as these equipments are not classified under the headingE.Electrical equipment, of the depreciation table.Accordingly, the assessing officer disallowed the excessdepreciation of Rs.1,80,229/- and added to the total income. 4.Being aggrieved by the same, the appellant-assesseehas preferred an appeal in I.T.A.No.12/2014-15, to theCommissioner of Income-Tax (Appeals)-II, Madurai, contendinginter alia that,"(i) The assessing officer restricted the claimof Depreciation from 80% to 15% which is applicablein item 111(1) of the Depreciation schedule withoutconsidering the fact that 15% is applicable toMachinery and Plant other than those covered by subitems (2) (3) and (8) below. Item No. 2 Covers Motorcars and No.3 Covers Aero plane, Motor Buses,Commercial Vehicles, Air Pollution and WaterPollution control equipment etc., and No.8, Covers,Wooden parts, Rollers of Flour mill, sugar mills andiron and steel industry (ix) Energy saving devices(A)Specifiedboilersandfurnaces,(B)Instrumentation and monitoring system for monitoringenergy flows, (C) Waste heat recovery equipment, (D)Cogeneration systems, (E) Electrical Equipments, (F)Burners, and (G) Other Equipments (XIII) RenewableEnergy devices. The disputed items are under item(3)which will not come under Plant & Machinery which ishttps://hcservices.ecourts.gov.in/hcservices/eligible for 15%. (ii) The assessing officer allowed depreciationof15% as against the claim of 80% for the followingitems 1) Control Panel Board and 2) Transformer without considering whether these items are not coveredby sub- items 2 or 3 or 8 of the Depreciationschedule. (iii) The assessing officer failed to considerthat those two items come under sub-section 8(B a)Automatic Electrical Load monitoring systems and 8(Ec, Ed) Automatic Voltage controller, power factorcontroller fcr AC Motors of the schedule and hence15% depreciation is not applicable but 80%applicable which has been rightly claimed." 5.While considering the definition, "Transformer", asper Wikepedia, vide order, dated 21.10.2014, inI.T.A.No.12/2014-15, the Commissioner of Income-Tax (Appeals)-II, Madurai, has upheld the findings of the assessing officer,as hereunder: "4.5. The definition of a transformer as perWikepedia is as under:-A transformer is an electrical device thattransfers energy between two or more circuitsthrough electromagnetic induction and are designedto efficiently change AC voltages from one voltelevel to another increase or decrease. 4.6. Appellant is arguing that depreciation of80% is allowable under the Act for AutomaticElectrical Load monitoring systems and AutomaticVoltage controller, power factor controller for ACMotor and that Transformer and Control Panel Boardrepresent Automatic Electrical Load monitoringsystem and Automatic Voltage controller. Atransformer is used to step up or step down thevoltage and is not same as Automatic electrical Loadmonitoring systems and Automatic Voltage controller,power factor controller for AC Motor. Therefore thedecision of the Assessing Officer to restrict thedepreciation is in order and the addition isupheld.” 4.6. Appellant is arguing that depreciation of80% is allowable under the Act for AutomaticElectrical Load monitoring systems and AutomaticVoltage controller, power factor controller for ACMotor and that Transformer and Control Panel Boardrepresent Automatic Electrical Load monitoringsystem and Automatic Voltage controller. Atransformer is used to step up or step down thevoltage and is not same as Automatic electrical Loadmonitoring systems and Automatic Voltage controller,power factor controller for AC Motor. Therefore thedecision of the Assessing Officer to restrict thedepreciation is in order and the addition isupheld.” 6.As regards the claim of depreciation on computersand computer peripherals, the assessee claimed depreciation onthe following items, viz., cannon lide, scanner, computerizedcounting & stacking machines, transportation charges, CTPmachine, scanner, sisco router, modem, computerized counting &stacking (F/C), CTP machine (clearing charges), CTP machine(erection) treating it as “Computers” as mentioned in NewAppendix-I – III (5) of the Income Tax Rules, which accordingto him, are eligible for depreciation @ 60%. https://hcservices.ecourts.gov.in/hcservices/ 7.The assessing officer disallowed the claim of higherdepreciation at 60%, on the following remarks,"The depreciation in respect above machinerieswas claimed at the rate of 60% under the headcomputers. Only computers including computersoftware is eligible for depreciation at 60% asclassified in SI. No.5 under the heading III. Plantand Machinery of Part- A of the depreciation table.The above machineries are computerized machines andare not computers classified in the depreciationtable. Hence they are eligible for depreciation @15% only. Accordingly the excess depreciation of Rs.17,13,508/- and Rs.9,01,181 calculated above isdisallowed and added to the total income." 8.Being aggrieved by the same, the appellant-assesseehas preferred an appeal in I.T.A.No.12/2014-15, to theCommissioner of Income-Tax (Appeals)-II, Madurai, contendinginter alia that, "(i) The assessing officer failed to considerthat computer accessories and peripherals such asprinters, scanner and server etc., being integralpart of computer system and they cannot used withoutcomputer as decided in the case of C.l.T vs BSESYamuna Power LTD [358 I.T.R 47 (Delhi)]. (ii) The assessing officer failed to consider thedecision made in the case A.C.l.T Circle -12(1) vsG.E. Capital Business NewDelhi Process Managementservices Pvt. Ltd., AIFACS IN I.T.A No.2887/Del/2011for the assessment year 2007 -08 in which case theclaim of Depreciation @ 60% was allowed on Laptops,Printer, Scanner, Laptop Mouse, IBM San Switches,Projector, Pendrive, Network equipment, router packdesktop with monitor, visual impex etc. (iii) The assessing officer failed to considerthe decision made in the case of CIT vs. BSESRajdhani powers Ltd In I.T. Appeal No.1266 (Delhi) of2010, Hon’ble Delhi High Court held that the computeraccessories and peripherals such as printers,scanners and servers etc., form an integral part ofcomputer system and in fact, the computer accessoriesand peripherals cannot be used without computer andconsequently as they are the part of computer system,they are entitled to 60% of depreciation. (iv) The above decision was followed in the caseof Omni Globe Information and Technologies India (P)Ltd (131 I.T.D 280 (Delhi)) (v) In the case of DCIT vs Data Craft India Ltdin I.T.A. Nos 7462 & 754/Mum/2007, the Mumbai SpecialBench held that routers and switches are to beincluded in the block of computers entitled of 60%https://hcservices.ecourts.gov.in/hcservices/Depreciation. From the above decisions, it is clear (iv) The above decision was followed in the caseof Omni Globe Information and Technologies India (P)Ltd (131 I.T.D 280 (Delhi)) (v) In the case of DCIT vs Data Craft India Ltdin I.T.A. Nos 7462 & 754/Mum/2007, the Mumbai SpecialBench held that routers and switches are to beincluded in the block of computers entitled of 60%https://hcservices.ecourts.gov.in/hcservices/Depreciation. From the above decisions, it is clear and evident that the computers, computer accessoriesand peripherals such as printers, scanners, serversRouter, Modem and computerized Machineries and plantsare form part of computer and hence they are eligible60% Depreciation." 9.While considering the explanation, "ComputerizedCounting & Stacking Machine and the CTP Machine", theCommissioner of Income-Tax (Appeals)-II, Madurai, vide orderin I.T.A.No.12/2014-15, dated 21.10.2014, upheld the findingsof the assessing officer, as hereunder: "5.5 Surprisingly, the name of the machine in theinvoice is “Logic stacker with strapper”. Assesseeclassified this machine with the description computercounter and stacker. It is surprising how Appellanthas modified the name of the machine. Normally thename of the machine in the accounts should always bewhat is indicated in the invoice and in: my viewAppellant has no choice of writing the description asit wishes. When questioned, Appellant stated that itis based on the function it performs. 5.6 With regard to the 2 machine assessee hasrecorded the name in the accounts as, CTP machine, Itwas explained during appeal that CTP means Computerto Printer. This is the latest machine wherein thedraft of the layout of the newspaper is made on thecomputer which is then transmitted to the printingpress. This machine replaces the earlier method ofmanual typesetting and preparing the block forprinting press Appellant was asked to produce copy ofinvoice of this machine which is enclosed as annexure2 of this order This machine is imported from Taiwanand name in the invoice as “Register TY-800 AOLVision plate punching and bending system”. Theinvoice mentions that Register TY-800 AOL Visionplate punching and bending system is a machine with 3different components as under: a) One TY-800 AOL Auto Vision Punching andBending; b) One Standard Conveyor; c) One plate stacker.5.7 Customs authorities have also classified thismachine and charged the applicable customs duty withthe following description “Register TY-800 AOL Visionplate punching and bending system and has 3components:a) One TY-800 AOL Auto Vision Punching andBending; b) One Standard Conveyor; c) One plate stacker. 5.8 Name of asset in the invoice as “Register TY-https://hcservices.ecourts.gov.in/hcservices/800 AOL Vision plate punching and bending system”. Assessee classified this machine with the descriptionCTP machine. It is surprising how Appellant hasmodified the name of the Asset. Normally the name ofthe machine in the accounts should always be what isindicated in the invoice and in my view Appellant hasno choice of writing the description as it wishes.When Appellant questioned stated that it is based onthe function it performs. 5.9 Increasingly organizations are moving towardscomputerized integrated manufacturing, where more andmore computers, robots, and microprocessors are usedin conjunction with the machines. But the machinescannot be called as computers even though computer isan integral and dedicated part of the whole machine.That computer in the machine cannot be used for anyother purpose. For example a CNC (ComputerizedNumerically Controlled) lathe machine has a computerand microprocessor to control the movement of thespindle but that cannot make a CNC lathe as acomputer. It still does machining, cutting metal andcreating shapes in the metal but it is more automatedand driven by preprogrammed instructions through thecomputer. it is still a machine assisted by acomputer and microprocessor. 5.9 As per the schedule of depreciation, the rate60% .of depreciation is allowable only to computersand at best may include accessories like servers,scanner sisco router modem etc as held in thedecisions cited by the Appellant but can neverinclude the 2 machines acquired by the assessee. Thedescription of the machines as per the invoice isdifferent and Appellant’s decision to use its ownnames adding the word computer is incorrect. Assesseecannot invent its own nomenclature add the wordcomputer which is not there in invoice and thenproceed to claim depreciation at 60% with theargument that they are computers. 5.10 Even on functionality test, these machinesrepresents plant and machine which helps in easiertypesetting and faster printing of the newspaper andautomated stacking of newspaper in correct numbers.The machines do contain computer as one part of thewhole machinery, but it should be noted that thecomputer is dedicated to that machine and does onlythe functions for that machine. This in my view doesnot make machines as computers to be eligible forclaiming the depreciation at 60%. ......... 5.12 The decisions relied by the Appellant onlycover assets like laptops, servers, printers,scanner, sisco router, modem, laptop mouse,https://hcservices.ecourts.gov.in/hcservices/Projector, Pendrive, Network equipment, router pack desktop with monitor. IBM San Switches which areintegral parts of computer band those which cannot beused without being attached to the computers. None ofthese decisions cover the any machine used formanufacturing which has computer as one of thecomponents. 5.13 In view of this factual and legal position,it is held that out of the Assets listed by the AC,only scanner, sisco router modem is, eligible fordepreciation at 60%. Rest of the assets listed by theAC form part of plant’ and machinery and thus is’eligible for depreciation only at 15%. The AO’sdecision to treat the machines not as computers butas Plant & Machinery and restricting the claim ofdepreciation to 15% on these machines is in order andthe assessee’s arguments are rejected.” 10.Being aggrieved by the order of the appellateauthority in I.T.A.No.12/2014-15, dated 21.10.2014, theassessee has preferred an appeal in I.T.A.No.2829/Mds/2013,contending inter alia,"(i) The Commissioner of Income Tax (Appeals)has erred in sustaining the addition ofRs.1,80,229/- being the disallowance of the claim ofdepreciation at 80% and the grant of depreciation at15% by the Revenue, since these equipments cannot beclassified in any of the items mentioned in thedepreciation table New Appendix-I-III-(8)(ix) of theIncome Tax Rules.(ii) The Commissioner of Income Tax (Appeals)has erred in sustaining the addition ofRs.17,13,508/-&Rs.9,01,181/-beingthedisallowance of the claim of depreciation at 60% andthe grant of depreciation at 15% by the Revenuesince these items cannot be considered as“Computers” falling in Appendix-I – III (5) of theIncome Tax Rules." 11.Before the Tribunal, as regards claim ofdepreciation @ 80%, on "control panel board and transformer",the appellant-assessee has contended that the same can beclassified under the head, “B.Instrumentation and monetarysystems for monitoring energy flows”, as mentioned in NewAppendix-I-III-(8)(ix)B and therefore, they are entitled todepreciation @ 80%, as provided under the Act. Considering thearguments of the appellant-assessee and the findings of theauthorities, the Income Tax Appellate Tribunal, vide order,dated 14.01.2016, in I.T.A.No.2829/Mds/2013, held as follows:"We find merit in the contention of the Ld.A.R. Control panel board and Transformers are moreor less items either falling in the category ofhttps://hcservices.ecourts.gov.in/hcservices/“Instrumentation and monitoring systems” as stated in the depreciation schedule in New Appendix-IIII-(8)(ix)B of Income Tax Rules or “Electricalequipment” as stated in the New Appendix-I-III-(8)(ix)E under the head Electrical Equipments takinginto account of the principles of ejusdem generis.Therefore we hereby direct the Ld. Assessing Officerto grant depreciation @ 80% to the assessee on theseabove stated items." 12.On the claim of depreciation on computers andcomputer peripherals, the Tribunal further held, as follows:"We agree with the view of the Ld. CIT (A).Only computer peripherals can be at the mostconsidered as computers for the purpose of claimingdepreciation at the rate prescribed in New Appendix-III(5) of the Income Tax Rules. All other items fallin the category mentioned in New Appendix-III(1) ofthe Income Tax Rules as held by the Ld. CIT (A).Therefore, we do not find any reason to interferewith the order of the Ld. CIT (A) on this issue whohas elaborately considered this matter in hisorder."13.Being aggrieved by the same, the assessee, has filedthe instant Tax Case Appeal, on the following substantialquestion of law,"Whether the Appellate Tribunal is correct inlaw, in passing a cryptic order in sustaining theaction of the respondent in restricting the claim ofhigher deprecation of 15% as against the claim of 60%for the computer machineries, thereby confirming theaddition of the differential depreciation in thecomputation of taxable total income, whileoverlooking the functional test proving andestablishing perversity in the order passed by themboth on facts and in law?" 14.Though, reiterating the very same submissions madebefore the appellate authority, Mr.S.Sridhar, learned counselfor the appellant-assessee, assailed the correctness of theorder, stated supra, made submissions on the substantialquestions of law and prayed for an answer, in favour of theassessee, going through the material on record and the ordersof the authorities and tribunal, we do not find any manifesterror. On the other hand, we are of the considered opinionthat orders of the authorities and the appellate tribunal, arecorrect, in holding that the machineries, for which,depreciation to the extent, sought for, do not fall under thedefinition, "computer, including computer software". Fact thatthe machineries do not fall under the abovesaid category,cannot be termed as perverse and therefore, the orderhttps://hcservices.ecourts.gov.in/hcservices/impugned, does not call for interference. 15.We have given our careful consideration, as to howboth the appellate authority and the tribunal have consideredthe facts of the case and rendered findings, on the rivalsubmissions of the parties. Going through the material onrecord, we are of the considered view that the concurrentfindings of fact, rendered by the CIT (Appeals) and the IncomeTax Appellate Tribunal, do not call for any interference, asno substantial question of law, is involved. 16.In the result, the Tax Case Appeal is dismissed. Nocosts. Sd/- Assistant Registrar(CS V) //True Copy// Sub Assistant RegistrarskmTo1.The Income Tax Appellate Tribunal, “B” Bench, Chennai.2.The Commissioner of Income Tax(Appeals)II, Madurai.3.The Income Tax Officer Ward1(1), Tirunelveli.+1cc to Mr.M.Swaminathan, Advocate, S.R.No.50144 T.C.A.No.624 of 2016 KS(CO)CA(21/09/2016)