M/s Microsoft Corporation India Pvt. Ltd, New Delhi V. DCIT, New Delhi

CO 345/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5302 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-11-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 15-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: SANAT KAPOOR S
• Keywords: Depreciation; Revised return; Reassessment proceedings
• Section: 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.4173/DEL/2010 ASSESSMENT YEAR : 2002-03 DCIT, CIRCLE 6 (1), NEW DELHI. VS. MICROSOFT CORPORATION INDIA PVT. LTD., F-40, NDSE I, NEW DELHI. PAN : AAACM5586C C.O. NO.345/DEL/2010 (ITA NO.4173/DEL/2010) ASSESSMENT YEAR : 2002-03 MICROSOFT CORPORATION INDIA PVT. LTD., F-40, NDSE I, NEW DELHI. PAN : AAACM5586C VS. DCIT, CIRCLE 6 (1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR & SHRI SANAT KAPOOR, ADVOCATES REVENUE BY : SHRI N.K. CHAND, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THE APPEAL IS FILED BY THE DEPARTMENT AND THE CROSS OBJECTIONS BY THE ASSESSEE. BOTH OF THEM ARE DIRECTED A GAINST THE ORDER OF THE CIT (A) DATED 9 TH JUNE, 2010 FOR ASSESSMENT YEAR 2002-03. GROUNDS OF APPEAL AND GROUNDS OF CROSS OBJECTIONS ARE AS UNDER:- ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 2 ITA NO.4173/DEL/2010 1. THE ORDER OF LEARNED CIT (APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN ANNULLING THE ASSESSMENT ORDER PASSED U/S 147/143 (3) OF THE IT ACT. 2.1. THE LD. CIT (APPEALS) IGNORED THE FACT THAT THE C ASE OF THE ASSESSEE WAS OPENED U/S 147/148 OF THE IT ACT AFTER FOLLOWING DUE PROCEDURE LAID DOWN BY LAW. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.46,78,313/- MADE BY THE A.O. BY RESTRIC TING THE DEPRECIATION ON ITG NETWORKING EQUIPMENT @ 25% AS AGAINST 60% CLAIMED BY THE ASSESSEE WITHOUT DISCUSSING THE MERITS OF THE ADDITION MADE BY THE A.O. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AME ND ANY GROUNDS OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. C.O. NO.345/DEL/2010 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E NOTICE ISSUED UNDER SECTION 148 BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX 6 (1) (HEREINAFTER REFERRE D TO AS THE LEARNED ASSESSING OFFICER) IS ILLEGAL, BAD IN LAW, WITHOUT JURISDICTION AND BARRED BY TIME LIMITATION, HENCE , THE REASSESSMENT ORDER DATED 31 ST JULY 2008 PASSED BY THE LEARNED ASSESSING OFFICER IS ALSO ILLEGAL, BAD IN L AW AND WITHOUT JURISDICTION. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS NO FAILURE ON PART OF THE RESPONDENT TO DISCLOSE TRUL Y AND FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, HEN CE, THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT AND THE REASSESSMENT ORDER ARE ILLEGAL, BAD IN LAW AND WITHOU T JURISDICTION. THE RESPONDENT CRAVES, TO CONSIDER EACH OF THE ABOVE GROUNDS OF CROSS OBJECTIONS WITHOUT PREJUDICE TO EACH O THER AND CRAVES, LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF CROSS OBJECTIONS. 2. LD. CIT (A) HAS HELD THAT THE INITIATION OF RE-ASSE SSMENT PROCEEDINGS IN ITSELF WAS ILLEGAL AS FIRST PROVISO TO SEC TION 147 WAS ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 3 APPLICABLE. THE RE-ASSESSMENT PROCEEDINGS WERE INITIATE D AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSE SSMENT YEAR AND THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCL OSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. HOW EVER, THE CIT (A) HAS DECLINED TO GO INTO THE MERITS OF THE ISSUE WHI CH RAISED A POINT REGARDING GRANT OF DEPRECIATION OF ITG NETWORKING E QUIPMENT WHICH, ACCORDING TO THE ASSESSEE, WAS ELIGIBLE @ 60% I.E., THE RATE OF DEPRECIATION PROVIDED FOR COMPUTERS AND, ACCORDING T O THE ASSESSING OFFICER, THE SAID EQUIPMENT FALL UNDER THE HEAD PLA NT AND MACHINERY, THEREFORE, ELIGIBLE FOR DEPRECIATION @ 25%. 3. THE DEPARTMENT IN ITS APPEAL IS AGGRIEVED ON BOTH THE ISSUES; FIRSTLY THAT INITIATION OF RE-ASSESSMENT PROCEEDINGS HAS I NCORRECTLY BEEN HELD TO BE INVALID BY THE CIT (A) AND, SECONDLY, ON THE GROUND THAT CIT (A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOU NT OF DIFFERENCE IN THE RATE OF DEPRECIATION. THE ASSESSEE IN ITS CROSS OBJEC TIONS IS SUPPORTING THE ORDER OF THE LD. CIT (A) ON ACCOUNT O F APPLICATION OF PROVISO TO SECTION 148. 4. BRIEF FACTS REQUIRED FOR DETERMINATION OF THE PRE SENT APPEAL ARE THAT THE RETURN OF INCOME FOR THE PRESENT YEAR ORIGI NALLY WAS FILED ON 31 ST OCTOBER, 2002 DECLARING AN INCOME OF RS.15,11,71,69 0/- WHICH WAS LATER ON REVISED ON 31 ST MARCH, 2004 TO RS.15,03,82,930/-. THE ASSESSMENT WAS COMPLETED U/S 143 (3) ON 29 TH MARCH, 2005 AT AN INCOME OF RS.24,12,86,195/-. THEREAFTER, UPON NOTICI NG THAT THE ASSESSEE HAD CLAIMED DEPRECIATION @ 60% AMOUNTING TO RS.80,19,964/- ON ITG NETWORKING EQUIPMENT WHICH, AC CORDING TO THE ASSESSING OFFICER, WAS TO BE ALLOWABLE @ 25% I.E., A SUM OF RS.33,41,651/-, THEREFORE, EXCESS CLAIM RESULTED IN UND ER-ASSESSMENT OF INCOME AT RS.46,78,313/-. ACCORDINGLY, NOTICE U/ S 148 WAS ISSUED, COPY OF WHICH IS PLACED AT PAGES 100 AND 101 OF THE P APER BOOK. THE ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 4 NOTICE ISSUED U/S 148 IS DATED 18 TH /23 RD JULY, 2007 AND WITH THE SAID NOTICE, THE REASONS FOR ISSUING THE NOTICE U/S 148 AS FIL ED AT PAGE 101 OF THE PAPER BOOK ARE AS BELOW:- MICROSOFT CORPORATION INDIA PVT. LTD. ASSESSMENT YEAR 2002-2003 REASONS FOR ISSUING NOTICE U/S 148 OF THE IT ACT, 1961 . IN THE CASE OF M/S MICROSOFT CORPORATION INDIA PVT. LTD. , IT HAS BEEN FOUND THAT DEPRECIATION ON NETWORKING EQUIPME NTS HAS BEEN ALLOWED INADVERTENTLY @ 60% UNDER THE CATEGORY OF COMPUTER WHEREAS IT SHOULD HAVE BEEN ALLOWED @ 25% AS IN THE CASE OF PLANT AND MACHINERY, AS NETWORKING EQUIP MENTS FORMS A PART OF PLANT AND MACHINERY. THE INCORRECT ALL OWANCE OF INCORRECT DEPRECIATION HAS RESULTED INTO UNDER ASSESSME NT OF INCOME BY RS.46,78,313/-. IN ADDITION, INTEREST U/S 2 34B HAS ALSO BEEN UNDERCHARGED. THEREFORE, I HAVE REASONS TO BELIEVE THAT INCOME OF TH E ASSESSEE FOR THE A.Y. 2002-2003 CHARGEABLE TO TAX AMOU NTING TO RS.46,78,313/- HAS ESCAPED ASSESSMENT, I AM ALSO SATI SFIED THAT THE CASE OF THE ASSESSEE FOR THE A.Y. 2002-2003 IS A F IT CASE FOR TAKING ACTION U/S 147/148 OF THE IT ACT, 1961. NOTICE U/S 148 OF THE IT ACT ISSUED TO THE ASSESSEE. SD/- DCIT, CIRCLE 6 (1) 5. THE OBJECTIONS AGAINST INITIATION OF RE-ASSESSMENT PRO CEEDINGS WERE FILED VIDE LETTER DATED 8 TH JANUARY, 2008 WHICH WAS DISPOSED OF BY THE ASSESSING OFFICER VIDE ORDER DATED 7 TH JULY,2008. THE COPY OF OBJECTIONS DATED 8 TH JANUARY, 2008 IS FILED BY THE ASSESSEE IN THE PAPER BOOK AT PAGES 102 TO 112. THE ASSESSEE HAD SUBMITTED THA T DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS THE OFFICE OF T HE ASSESSING OFFICER HAD SPECIFICALLY EXAMINED THE ISSUE OF DEPRECI ATION ON NETWORKING EQUIPMENT IN THE CONTEXT OF ELIGIBLE DEP RECIATION RATE AND SUBSEQUENT TO EXPLANATION OFFERED BY THE ASSESSEE VIDE WR ITTEN REPLY DATED 17 TH MARCH, 2005 HAS ALLOWED THE CLAIM OF DEPRECIATION O N SUCH NETWORKING EQUIPMENT @ 60%. IN THE VERY OBJECTION IT WAS SUBMITTED ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 5 THAT THE INITIATION OF THE PROCEEDINGS U/S 148 ARE TI ME BARRED AS THE INITIATION IS BARRED BY THE FIRST PROVISO TO SECTION 1 47 AND THE SAID PROVISO WAS ALSO REPRODUCED IN THE SAID REPLY. IT WAS SU BMITTED THAT THERE WAS NO FAILURE IN FILING THE RETURN OF INCOME AND THERE WAS NO FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACT S NECESSARY FOR THE ASSESSMENT AND, THUS, IT WAS CLAIMED THAT INITIATION OF R E-ASSESSMENT PROCEEDINGS IS BAD IN LAW. HOWEVER, THE ASSESSING OFFICE R DID NOT ACCEPT SUCH SUBMISSIONS OF THE ASSESSEE AND HAS FRAMED RE- ASSESSMENT VIDE IMPUGNED ORDER DATED 31 ST JULY, 2008 PASSED U/S 147/143 (3) OF THE ACT. 6. LD. DR, AFTER NARRATING THE FACTS, RELYING UPON T HE ORDER OF ASSESSING OFFICER, PLEADED THAT RE-ASSESSMENT PROCEEDINGS WE RE VALIDLY INITIATED, THEREFORE, THE CIT (A) WAS WRONG IN HOLDING THAT THE PROCEEDINGS U/S 147/148 WERE VOID AND, THEREFORE, QUA SHING THE IMPUGNED ASSESSMENT ORDER. ON MERITS, HE PLEADED THAT T HE ASSESSING OFFICER WAS RIGHT IN RESTRICTING THE DEPRECIATION @ 2 5% ON ITG NETWORKING EQUIPMENTS. 7. ON THE OTHER HAND, RELYING UPON THE REPLY FILED BY THE ASSESSEE IN RESPONSE TO REASONS FOR REOPENING THE ASSESSMENT AND RELYI NG UPON THE FINDINGS RECORDED BY THE CIT (A) THAT THERE WAS N O FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATE RIAL FACTS, LD. AR SUBMITTED THAT CIT (A) HAS RIGHTLY QUASHED THE ASSESSMENT ORDER ON THE GROUND THAT RE-ASSESSMENT PROCEEDINGS WERE TIME BARR ED. 8. LD. AR FURTHER PLACED RELIANCE INTER ALIA UPON THE FOLLOWING TWO DECISIONS OF HONBLE DELHI HIGH COURT:- I) WELL INTERTRADE PVT. LTD. (FORMERLY WEL INTERTRA DE LTD.) & ANOTHER, PETITIONERS VS. ITO (2008) (308 ITR 22) ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 6 II) M/S HARYANA ACRYLIC MANUFACTURING COMPANY VS. CIT -IV AND ANOTHER 308 ITR 38. 9. THESE DECISIONS WERE RELIED UPON BY HIM FOR RAISING THE CONTENTION THAT WHERE THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, PRE-CONDITION FOR INVOKING PROVISO TO SECTION 147 IS NOT SATISFIED AND NOTICE AS WE LL AS PROCEEDINGS PURSUANT THERETO ARE LIABLE TO BE QUASHED AND ALSO THE CONTENTION THAT WHERE REASONS RECORDED DID NOT INDICA TE THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT, THEN ALSO, THE INITIATION OF RE-ASSESSMENT PROCEEDINGS WOULD BE WITHOUT JURISDICTION AS PER PROV ISO TO SECTION 147. HE ALSO RELIED UPON THE DECISION OF ITAT IN THE CASE OF BANK OF TOKYO-MITSUBISHI UFJ LTD. VS. ADIT, INTERNATIONAL TAXA TION, KOLKATA DATED 12 TH DECEMBER, 2008 WHEREIN BOTH THE AFOREMENTIONED DEC ISIONS OF JURISDICTIONAL HIGH COURT WERE CONSIDERED AND IT W AS HELD THAT WHERE THERE IS NO SPECIFIC AVERMENT MADE IN THE REASONS RECOR DED REGARDING THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS RELATING TO ASSESSMENT, THE PROVISO TO SEC TION 147 WILL BE APPLICABLE AND HE DREW OUR ATTENTION TOWARDS THE OBSERVATIONS OF THE TRIBUNAL CONTAINED IN PARA 6. THE COPY OF THE ORDER HAS BEEN PLACED AT PAGES 57-79 OF THE PAPER BOOK IN WHICH ONE OF US (ACCOUNTANT MEMBER) IS A PARTY. 10. WE HAVE HEARD BOTH THE PARTIES AND WE HAVE CAREF ULLY GONE THROUGH THE DOCUMENTS REFERRED TO BY THE LD. AR. TH E REASONS HAVE ALREADY BEEN REPRODUCED IN THE ABOVE PART OF THIS OR DER. THE PERUSAL OF REASONS WILL REVEAL THAT EVEN THE ASSESSING OFFICER WH ILE RECORDING THE REASONS HAS NOT SPECIFICALLY POINTED OUT THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY A LL MATERIAL FACTS RELATING TO THE ASSESSMENT. THE ONLY REASON FOR WHICH T HE RE- ASSESSMENT PROCEEDINGS WERE TO BE INITIATED WAS REGARDING THE ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 7 DIFFERENCE IN RATE OF DEPRECIATION ON ITG NETWORKIN G EQUIPMENT WHICH, ACCORDING TO THE DEPARTMENT WAS INADVERTENTLY ALLOWE D AT A HIGHER RATE APPLICABLE TO COMPUTER. HOWEVER, BY WAY OF EVIDENC E, THE ASSESSEE HAS BEEN ABLE TO PROVE THAT DURING THE COURSE OF ORIG INAL ASSESSMENT PROCEEDINGS, THE QUERY RELATING TO APPLICABLE RATE O F DEPRECIATION ON ITG NETWORKING EQUIPMENT WAS RAISED AND A SPECIFIC REP LY WAS GIVEN BY THE ASSESSEE ON THE BASIS OF WHICH THE CLAIM OF THE ASSESSEE WAS ADMITTED IN THE ORIGINAL ASSESSMENT ORDER AND, THUS, THE AVERMENT OF THE ASSESSING OFFICER IN THE REASONS RECORDED THAT IT WAS INADVERTENTLY ALLOWED @ 60% IS NOT SUPPORTED BY THE MATERIAL AVAILA BLE ON RECORD. A CONSCIOUS DECISION WAS TAKEN BY THE ASSESSING OFFICER REGAR DING GRANT OF DEPRECIATION. 11. IF THE NOTICE IS TO BE ISSUED FOR RE-ASSESSMENT PROCEE DINGS IN A CASE WHERE ASSESSMENT IS FRAMED U/S 143 (3), THEN, THE NOT ICE CANNOT BE ISSUED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THERE IS A FAILURE ON THE PART OF T HE ASSESSEE TO MAKE A RETURN U/S 139 OR IN RESPONSE TO NOTICE ISSUED UN DER SUB- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCL OSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THAT ASSE SSMENT YEAR. 12. ACCORDING TO THE FACTS OF THE PRESENT CASE, IT IS N OT THE ALLEGATION OF THE DEPARTMENT THAT THE ASSESSEE DID NOT FILE RETURN EITHER U/S 139/142 (1) OR U/S 148. IT IS FOUND THAT IN RESPONSE T O NOTICE U/S 148 THE ASSESSEE VIDE LETTER DATED 30 TH AUGUST, 2007 HAS OFFERED THE INCOME AS PER REVISED RETURN FILED ON 31.03.2004. SU CH FACT IS STATED IN THE REPLY FILED BY THE ASSESSEE DATED 8 TH JANUARY, 2008, COPY OF WHICH IS FILED AT PAGES 102 TO 112 OF THE PAPER BOOK. THUS, RETURNS HAVING BEEN FILED IN RESPONSE TO NOTICE U/S 139 AS WELL AS SECTION 148, THE OTHER CONDITION TO BE FULFILLED FOR NON-APPLIC ABILITY OF FIRST PROVISO TO ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 8 SECTION 147 IS THAT THERE SHOULD NOT BE A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NE CESSARY FOR ASSESSMENT. FROM THE ABOVE DISCUSSION, IT HAS ALREADY BEEN MADE CLEAR THAT NEITHER IT IS THE ALLEGATION OF THE ASSESSING OFFICER THAT THERE WAS ANY SUCH FAILURE OF THE ASSESSEE NOR THE RECORD HAS SHO WN SUCH FAILURE. RATHER, THE ISSUE ON MERIT WAS REQUIRED TO B E EXPLAINED BY THE ASSESSING OFFICER AND THE SAME WAS EXPLAINED DURING THE C OURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. HAVING FULFILLED THE A FOREMENTIONED TWIN CONDITIONS, THE FIRST PROVISO TO SECTION 147 DEBA RRED THE INITIATION OF REASSESSMENT PROCEEDINGS AS THE NOTICE U/S 148 IS ISSUED O N 18/23.07.2007 WHICH IS BEYOND THE FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR WHICH PERIOD ENDS ON 31.03.2003. 13. THE RATIO OF TWO DECISIONS OF JURISDICTIONAL HIGH COURT RELIED UPON BY LD. AR, AS MENTIONED IN PARA 8 OF THIS ORDER, ARE FULLY APPLICABLE TO THE PRESENT CASE, RELYING UPON WHICH, THE CO-ORDINAT E BENCH IN THE CASE OF BANK OF TOKYO-MITSUBISHI UFJ LTD. VS. ADIT, IN TERNATIONAL TAXATION, KOLKATA (SUPRA) HAS HELD THAT RE-ASSESSMENT PRO CEEDINGS WERE NOT VALID. CONCLUSION OF THE TRIBUNAL AS CONTAI NED IN PARA 6 IS REPRODUCED BELOW:- 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. IT IS CLEAR FROM THE DECISIONS OF JURISDICTIONAL HIGH COURT IN THE CASE OF HARYANA ACRYLIC MANUFA CTURING CO. AND WEL INTERTRADE PVT. LTD. (SUPRA) THAT A SPECIFIC AVERMENT HAS TO BE MADE IN THE RECORDED REASONS REGARD ING FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY A ND TRULY ALL MATERIAL FACTS RELATING TO THE ASSESSMENT IN A CA SE WHERE PROVISO TO SECTION 147 IS APPLICABLE. ADMITTED LY, THE AFORESAID PROVISION IS APPLICABLE TO THE FACTS OF TH E CASE. THEREFORE, THE AVERMENT ABOUT THE FAILURE HAS TO BE MADE IN THE RECORDED REASONS. SUCH AN AVERMENT CANN OT BE INFERRED FROM THE CORRESPONDENCE BETWEEN THE AS SESSEE AND THE AO FOR THE REASON THAT THE JURISDICTION I S DERIVED FROM THE RECORDED REASONS, WHICH ARE COMMUNIC ATED TO THE ASSESSEE. ON PERUSAL OF THE REASONS RECORD ED IN THIS CASE, WE FIND THAT NO SUCH AVERMENT HAS BEEN MAD E THEREIN. THEREFORE, THE RATIO OF THE AFORESAID D ECISIONS IS ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 9 SQUARELY APPLICABLE TO THE FACTS OF THE CASE. BESIDES THAT, IT IS CLEAR THAT THE PROVISION MADE AND THE PROVISI ON WRITTEN BACK TO PROFIT & LOSS ACCOUNT WERE ADDED TO AND SUBTRACTED FROM THE INCOME WHILE DRAWING THE STATEME NT OF INCOME, WHICH WAS ANNEXED TO THE RETURN BY THE ASSESSEE. THE FIGURES SHOWN THEREIN WERE REPRODUCED IN THE ASSESSMENT ORDER WHILE MAKING THE ORIGINAL ASSES SMENT. THEREAFTER, COMPUTATION WAS MADE U/S 36(1)(VIIA) (B), WHICH WAS ALSO ACCEPTED BY THE AO. THE FIGURES OF THE PROVISION MADE AND THE PROVISION WRITTEN BACK WERE TAKEN FROM THE ANNUAL ACCOUNTS, WHICH WERE ALSO ANNEXED WITH THE RETURN OF INCOME. IN THE LIGHT OF THESE FACTS, IT WILL B E DIFFICULT, WELL NIGH IMPOSSIBLE, TO CONCLUDE THAT THERE WAS A FAILURE TO DISCLOSE ALL MATERIAL FACTS ON THE PART OF THE ASSES SEE. IT IS ALSO CLEAR THAT NO ALLEGATION OF THE FAILURE HAS BEEN MADE IN THE RECORDED REASON WHICH WAS SUPPLIED TO THE ASSESSEE. THEREFORE, IT IS HELD THAT THE PRE-CONDITION, AS ME NTIONED ABOVE, FOR ISSUE OF NOTICE U/S 148, IS NOT SATISF IED OR EVEN DOES NOT EXIST. IT IS NOT A CASE WHERE THE INFORM ATION LAY EMBEDDED, WHICH THE DEPARTMENT COULD DISCERN BUT DID NOT DISCERN. THE INFORMATION WAS DISCLOSED IN THE MO ST TRANSPARENT MANNER IN THE STATEMENT OF INCOME, WHI CH WAS ADOPTED IN THE ASSESSMENT ORDER. THEREFORE, THE RATIO OF THE DECISION OF JURISDICTIONAL HIGH COURT, MENTION ED ABOVE, IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. ACCORDINGLY, IT IS HELD THAT THE AO DID NOT HAVE JURISDICTION TO I SSUE NOTICE U/S 147. CONSEQUENTLY, ASSESSMENT MADE THEREON W AS BAD IN LAW. 14. SO FAR AS IT RELATES TO MERITS OF THE ISSUE I.E., RE GARDING GRANT OF DEPRECIATION @ 60% ON ITG NETWORKING EQUIPMENTS, IT WAS THE CONTENTION OF LD. AR THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY THE SPECIAL BENCH DECISION IN THE CASE OF DCIT VS. DATA CRAFT INDIA LTD., A DECISION RECENTLY RENDERED BY SPECIAL BENCH ON 9 TH JULY, 2010 AND REPORTED AS 40 SOT 295, A COPY OF WHICH IS FILED AT PAGES 225 TO 234 OF THE PAPER BOOK. HE SPECIFICALLY RELIED UPON THE FOLLOWING OBSERVATIONS FROM THE SAID DECISION:- IN SHORT, ROUTER IS A HARDWARE DEVICE THAT ROUTES DATA (HENCE THE NAME) FROM A LOCAL AREA NETWORK (LAN) TO ANOTHER NE TWORK CONNECTION. A ROUTER ACTS LIKE A COIN SORTING MACHINE, ALLOWING ONLY AUTHORIZED MACHINES TO CONNECT TO OTHER COMPUTER SYSTEMS. MOST ROUTERS ALSO KEEP LOG FILES ABOUT THE LOC AL NETWORK ACTIVITY. NOW THE QUESTION IS WHETHER THIS MACHI NE ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 10 CAN BE USED INDEPENDENT OF COMPUTER. IF YES, THEN IT C ANNOT BE CALLED COMPUTER HARDWARE IN ALL CIRCUMSTANCES. WHEN COMPUTER HARDWARE IS USED AS A COMPONENT OF THE COMPUTER, IT BECOMES PART AND PARCEL OF THE COMPUTER, AS IN THE CASE OF OPERATING SOFTWARE IN THE COMPUTER. IN SUCH A SITUATION, HARDWARE IN QUESTION CAN BE CONSIDERED AS A PART OF A COMPUTER AND HENCE A COMPUTER. PER CONTRA, WHEN THE MACHINE IS NOT USED AS A NECESSARY ASSESSORY OR IN COMBINATION WITH A COMPUTER, IT CANNOT BE CALLED COMING TO THE ROUTERS, IT I S SEEN THAT THESE CAN ALSO BE USED WITH A TELEVISION AND IN SU CH USE, NO COMPUTER IS REQUIRED. THESE ARE ALSO CALLED T.V. RO UTERS. SIMILARLY, INTERNET SERVICE PROVIDERS GIVE CONNECTIV ITY, BY INSTALLING A ROUTER IN THE PREMISES OF THE PERSONS/INSTI TUTIONS AVAILING THE INTERNET CONNECTION. IN THESE CASES THE ROU TER IS NOT USED ALONG WITH A COMPUTER. IN SUCH A SITUATION, IT WOU LD BE A STAND ALONE EQUIPMENT. IN SUCH CASES THIS CANNOT BE CONSIDERED A COMPONENT OF A COMPUTER OR COMPUTER HARDW ARE. GIVING ANOTHER EXAMPLE, A COMPUTER SOFTWARE CAN BE US ED IN MANY DEVICES INCLUDING WASHING MACHINE, TELEVISIONS, TELEPHONE EQUIPMENT, ETC. WHEN SUCH SOFTWARE IS USED IN THOSE DE VICES, IT INTEGRATES WITH THAT PARTICULAR DEVICES. THE PREDOMINANT FUNCTION OF THE DEVICE DETERMINES ITS CLASSIFICATION. ONLY IF THE COMPUTER SOFTWARE, RESIDES IN A COMPUTER, THEN IT BECOME A PART AND PARCEL OF A COMPUTER AND, AS LONG AS IT IS AS INTE GRAL PART OF A COMPUTER, IT IS CLASSIFIED AS A COMPUTER. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSID ERED VIEW THAT ROUTER AND SWITCHES CAN BE CLASSIFIED AS A COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COMPUTER. IN OTHE R WORDS, WHEN A DEVICE IS USED AS PART OF THE COMPUTER IN ITS FU NCTIONS, THEN IT WOULD BE TERMED AS A COMPUTER. 15. WE FIND THAT VIDE LETTER DATED 17 TH MARCH, 2005 SUBMITTED BY THE ASSESSEE TO THE ASSESSING OFFICER DURING THE COURSE OF ORIGI NAL ASSESSMENT PROCEEDINGS, THE NOTE AS REQUIRED BY THE ASSESSING OFFICER WITH REGARD TO JUSTIFICATION OF CLAIM OF DEPRECIATIO N @ 60% WAS SUBMITTED AS UNDER:- 14. NOTE ON DEPRECIATION RATE OF 60 PER CENT ON IT G NETWORKING NOTE ON DEPRECIATION RATE OF 60 PER CENT ON ITG NET WORKING NOTE ON DEPRECIATION RATE OF 60 PER CENT ON ITG NET WORKING NOTE ON DEPRECIATION RATE OF 60 PER CENT ON ITG NET WORKING EQUIPMENTS. EQUIPMENTS. EQUIPMENTS. EQUIPMENTS. AS PER THE INCOME TAX RULES, 1962 (THE RULES), DEPR ECIATION IS AVAILABLE ON COMPUTER AND COMPUTER SOFTWARE AT THE RATE O F 60 ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 11 PER CENT. THE DEFINITION OF COMPUTER SYSTEMS HAS BEE N PROVIDED UNDER SECTION 36 (1) (XI) OF THE ACT TO MEAN: A DEVICE OR COLLECTION OF DEVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCLUDING CALCULATORS WH ICH ARE NOT PROGRAMMABLE AND CAPABLE OF BEING USED IN CONJUNCTION WITH EXTERNAL FILES, OR MORE OF WHICH C ONTAIN COMPUTER PROGRAMMES, ELECTRONIC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA, THAT PERFORMS FUNCTIONS INCLU DING, BUT NOT LIMITED TO LOGIC, ARITHMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATION AND CONTROL AS EVIDENT FROM THE DETAILS OF ADDITIONS INCLUDED WITHIN THE TAX AUDIT REPORT, THE EQUIPMENTS INCLUDED WITHIN ITG NETWORKI NG PRIMARILY INCLUDES ROUTERS, SWITCHES, MODEMS, ETC. WHI CH ARE PRIMARILY IN THE NATURE OF INPUT AND OUTPUT SUPPORT DEVIC ES THAT PERFORMS FUNCTIONS INCLUDING COMMUNICATION AND CONTROL . ACCORDINGLY, SUCH ASSETS QUALIFY AS COMPUTER SYSTEMS U NDER THE ACT AND DEPRECIATION AT THE RATE OF 60 PERCENT HAS BEEN CLAIMED. 16. FROM THE ABOVE NOTE, IT IS CLEAR THAT THE ABOVE EQUIPMENT PRIMARILY INCLUDE THE ROUTERS, SWITCHES, MODEMS, ETC. W HICH ARE IN THE NATURE OF INPUT AND OUTPUT SUPPORT DEVICES WHICH PERF ORMS THE FUNCTIONS INCLUDING COMMUNICATION AND CONTROL AND, T HUS, THEY ARE COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH COMP UTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH COMPUTER. SUCH DEVICES USED AS PART OF THE COMPUTER IN ITS FUNCTIONS AND, THUS, IT CAN BE TERMED AS COMPUTER ONLY, THEREFORE, ELIGIBLE FOR D EPRECIATION @ 60%. THEREFORE, ALSO WE FIND NO INFIRMITY IN THE CLAIM OF THE ASSESSEE OF DEPRECIATION @ 60% OF ITG NETWORKING EQUIPMENTS. 17. IN VIEW OF THE ABOVE DISCUSSION, THE DEPARTMENTAL GROUND NO.2 AND 3 ARE DISMISSED. GROUND NO.1 AND 4 ARE GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. 18. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE MERELY SUPPORTING THE ORDER OF THE CIT (A). AS THE ORDER OF THE CIT (A) HAS BEEN UPHELD, ITA NO.4173/DEL/2010 CO. NO.345/DEL/2010 12 THE CROSS OBJECTIONS FILED BY THE ASSESSEE HAVE BECOME INF RUCTUOUS, THEREFORE, THEY ARE ALSO DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T AS WELL AS THE CO FILED BY THE ASSESSEE BOTH ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.11.20 10. SD/- SD/- [K.G. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 19.11.2010. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES