DCIT CEN CIR 4(4) CEN RG 4, MUMBAI V. PRIME FOCUS LTD, MUMBAI

ITA 5225/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0257 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 05-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESPANDE
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.5225 /MUM/2015 (ASSESSMENT YEAR: 2007-08) DCIT CC 4(4) CENTRAL RANGE 4 VS. M/S. PRIME FOCUS LTD. ROOM NO. 409, 4TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 2, ANAND KUNJ, NORTH AVENUE LINKING ROAD, SANTACRUZ (W) MUMBAI 400054 PAN AAACP6811B APPELLANT RESPONDENT APPELLANT BY: SHRI SAURABH DESPANDE RESPONDENT BY: NONE DATE OF HEARING: 07.08.2017 DATE OF PRONOUNCEMENT: 09.08.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE CIT(A)-52, MUMBAI DATED 31.08.2015 FOR A.Y. 2007-08 . 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL RELATES TO T HE CLAIM OF DEPRECIATION @60% WHILE THE AO HAS ALLOWED THE SAME @25%. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE EVEN THOUG H NOTICE WAS DULY SERVED. WE, THEREFORE DECIDED TO DISPOSE OFF T HIS APPEAL AFTER HEARING THE LEARNED A.R. AND GOING THROUGH THE ORDER OF THE TAX AUTHORITIES BELOW. 4. WE NOTED THAT THE AO WAS OF THE OPINION THAT THE D EVICE NAMES AS EDITING EQUIPMENTS BASED ON COMPUTER WERE PURCHASED FROM ABOARD/INDIA IS NOT A COMPUTER AS A WHOLE BUT IT IS ONE PART FITTED IN IT SO AS TO ENABLE TO FAST THE PROCESS OF FILM EDITING. H E NOTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE SAID EQUIPMENT @60% WHILE THE ASSESSEE SHOULD HAVE ALLOWED @25%. THE AO THEREFORE DISALLOW ED THE EXCESS DEPRECIATION TO THE EXTENT OF ` 5,36,84,393/-. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DISCUSSING THE FACTS AND SUBMISSIONS ITA NO. 5225/MUM/2015 M/S. PRIME FOCUS LTD. 2 MADE BY THE ASSESSEE DELETED THE ADDITION OF ` 5,36,84,393/- BY ALLOWING THE DEPRECIATION TO THE ASSESSEE ON THIS EQUIPMENT @60% ON THE BASIS OF HIS ORDER FOR A.Y. 2005-06 BY OBSERVING AS UNDER: - 12. IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE ME IN ASSESSEE'S OWN CASE FOR A.Y. 2005-06, AND AFTER CON SIDERING THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT, I HAD , VIDE ORDER DATED 1/7/2014, ALLOWED THE CLAIM OF THE APPELLANT AND DE LETED THE DISALLOWANCE MADE BY THE AO. FOR CLARITY, THE RELEV ANT PORTION OF MY ORDER DATED 1/7/2014 IS REPRODUCED AS UNDER:- '10. FROM THE SCHEDULE OF FIXED ASSETS ATTACHED WIT H THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERAT ION, IT APPEARS THAT EDITING EQUIPMENTS HAVE BEEN SHOWN UNDER THREE DIFFERENT CATEGORIES AND DEPRECIATION THEREON HAS BEEN CLAIME D AT DIFFERENT RATES RANGING FROM 25% TO 60%, AS UNDER:- ASSET RATE % WDV - 1.4.04 ADDITIONS (UPTO 30.9.04) ADDITIONS (AFTER 30.9.04) TOTAL DEPRECIA TION (RS.) EDITING EQUIPMENT - COMPUTER BASED 60.00 172.52,895 12,17,50,224 98,02,638 14,88,05,757 8,63.42,663 EDITING EQUIPMENT - RECORDER BASED 25.00 1,84,66,381 15,77,880 34,87,614 2,35,31,875 54,47,017 EDITING EQUIPMENT - OTHERS 25.00 65,32,054 32,08,786 36,24,500 1,33,65,340 28,88.273 IT WOULD BE SEEN FROM THE ABOVE THAT THE ASSESSEE I S CLAIMING DEPRECIATION AT THE RATE OF 60% IN RESPECT OF COMPU TER-BASED EDITING EQUIPMENTS, WHILE IN RESPECT OF OTHER TWO CATEGORIE S, DEPRECIATION ONLY AT THE RATE OF 25% IS BEING CLAIMED. THE MAIN REASON FOR REOPENING OF THE ASSESSMENT WAS THAT THE AO WAS OF THE VIEW THAT THE EDITING EQUIPMENTS WERE IN FACT NOT COMPUTERS, BUT WERE LIKE ANY OTHER PLANT AND MACHINERY, AND, THEREFORE, DEPRECIA TION ONLY AT THE RATE OF 25% WAS ALLOWABLE IN RESPECT OF THESE ASSET S. .. 12. NOW, IN THE LIGHT OF THE ABOVE DEFINITIONS, LET US EXAMINE AS TO WHETHER THE VARIOUS ASSETS, IN RESPECT OF WHICH DEP RECIATION HAS BEEN CLAIMED AT THE RATE OF 60%, ARE ACTUALLY 'COMP UTERS' OR NOT. BEFORE THAT, DETAILS OF THESE ASSETS ARE REPRODUCED AS UNDER :- .. 13. FROM THE PERUSAL OF THE ABOVE DETAILS, IT IS QU ITE CLEAR THAT THESE ASSETS ARE IN THE NATURE OF EITHER COMPUTER SOFTWAR ES OR COMPUTERS, WHICH ARE USED FOR DIFFERENT POST-PRODUCTION PROCES SES RELATING TO PRODUCTION OF FILMS, LIKE IMPROVING THE QUALITY OF FILMS/PICTURE, SOUND AND AUDIO QUALITY, SPECIAL EFFECTS, ANIMATION ETC. IT IS RELEVANT TO MENTION THAT INDIAN MOVIES LIKE 'RA-ONE' OR HOLLYWO OD FILMS LIKE ITA NO. 5225/MUM/2015 M/S. PRIME FOCUS LTD. 3 'AVATAR' WERE MOSTLY MADE ON COMPUTER BY USING LATE ST ANIMATION TECHNOLOGY, ETC. EVEN IN OTHER FILMS, CERTAIN SCENE S ARE NOT SHOT PROPERLY BY CAMERA, REQUIRING IMPROVEMENT IN COLOUR S OF PICTURE OR CLARITY. SUCH IMPROVEMENTS ARE DONE THROUGH COMPUTE RS IN THE POST- PRODUCTION PROCESS. BESIDES, SOUND QUALITY OR AUDIO -BASED EDITING IS DONE ON COMPUTER, THROUGH SPECIALIZED EQUIPMENTS. T HE INVOICES OF THESE ITEMS CLEARLY SHOW THAT THESE ARE IN THE NATU RE OF COMPUTERS, OR COMPUTER MONITOR, OR COMPUTER SOFTWARE. THIS IS THE ONLY IMPRESSION A COMMON PERSON IS GOING TO HAVE BY LOOKING AT THE SP ECIFICATIONS OF THESE ITEMS, THEIR BROCHURES AND OTHER DETAILS. FUR THER, THEY ARE MADE BY WELL-KNOWN COMPANIES LIKE APPLE, AUXUS MICR O-SYSTEMS, ETC. THE ASSESSEE HAS ALSO FURNISHED DETAILED LITER ATURE, INCLUDING THEIR PICTURES, CONFIGURATION, ETC., WHICH ONCE AGA IN CLEARLY ESTABLISH THAT THEY ARE IN NATURE OF COMPUTERS OR COMPUTER SO FTWARE. FURTHER, THE REPORT DATED 8/1/2014 SUBMITTED BY CHARTERED EN GINEER, SHRI KUMAR SUBRAMANIAN, ALSO CLEARLY INDICATES THAT THES E ASSETS ARE IN THE NATURE OF 'COMPUTERS' AS DEFINED UNDER THE INFO RMATION TECHNOLOGY ACT, 2000. SIMILAR REPORT HAS BEEN GIVEN BY THE IN-HOUSE TECHNICAL HEAD, SHRI PARMINDER SINGH CHADDA, ALSO. 14. IT APPEARS THAT SUCH DETAILED EVIDENCE SUBMITTE D BEFORE THE AO WAS NOT LOOKED INTO BY HIM WITH ANY SERIOUSNESS. WH EN THE BILLS AND VOUCHERS ARE CLEARLY SHOWING THE ASSETS AS COMP UTER, OR COMPUTER SOFTWARE, OR MONITOR, I DO NOT UNDERSTAND AS TO WHAT KIND OF TECHNICAL EXPERTISE IS REQUIRED AT THE END OF TH E ASSESSING OFFICER TO MAKE AN ASSESSMENT ABOUT SUCH AN ASSET. IT HAS T O BE UNDERSTOOD THAT NOW FILM MAKING HAS BECOME A HIGHLY TECHNICAL BUSINESS, IN THE SENSE THAT FILMS ARE SHOT USING DI GITAL CAMERAS, THEY ARE FURTHER PROCESSED ELECTRONICALLY THROUGH C OMPUTERS TO GIVE SPECIAL EFFECTS, ETC., FOR WHICH VARIOUS EQUIPMENTS REQUIRED ARE IN THE NATURE OF COMPUTER. I WOULD LIKE TO FURTHER CLA RIFY THAT THE ASSESSEE HAS DIVIDED THESE ASSETS UNDER THREE DIFFE RENT CATEGORIES, AS MENTIONED IN THE FOREGOING PARAGRAPHS, AND ONLY A FEW ASSETS HAVE BEEN CLASSIFIED AS COMPUTER-BASED, WHILE OTHER S ARE CLASSIFIED AS EDITING EQUIPMENTS-RECORDING-BASED, AND EDITING EQUIPMENTS- OTHERS. THEREFORE, IT IS NOT THE CASE THAT ALL THE EDITING EQUIPMENTS ARE BEING SHOWN AS COMPUTERS AND DEPRECIATION AT TH E RATE OF 60% IS BEING CLAIMED. ONLY ON A FEW EQUIPMENTS, WHICH Q UALIFY TO BE COMPUTERS, DEPRECIATION HAS BEEN CLAIMED AT THE RAT E OF 60%. IN VIEW OF THESE FACTS AND CONSIDERING THE REPORT OF T ECHNICAL EXPERT AND OTHER MATERIAL ON RECORD, LIKE SALE INVOICES, C ONFIGURATION, SPECIFICATIONS, ETC., I HOLD THAT THESE EDITING EQU IPMENTS ARE ACTUALLY COMPUTER-BASED AND QUALIFY TO BE COMPUTERS, AS DEFI NED UNDER I.T. RULES, 1962, AND, THEREFORE, THE ASSESSEE IS ENTITL ED TO CLAIM DEPRECIATION AT THE RATE OF 60% ON THESE ASSETS. .. 17. IN VIEW OF THE DISCUSSION IN THE FOREGOING PAR AGRAPHS, I HOLD THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING DEPRECI ATION AT THE RATE OF 60%, IN RESPECT OF THE ABOVE ASSETS, AS THE VARI OUS DETAILS SUBMITTED BY THE ASSESSEE CLEARLY ESTABLISH THAT SU CH ASSETS WERE IN THE NATURE OF 'COMPUTERS', AS DEFINED UNDER THE INFORMATION TECHNOLOGY ACT, 2000. I, ACCORDINGLY, DIRECT THE AO TO ALLOW DEPRECIATION AT THE RATE OF 60% ON THESE ASSETS AND DELETE THE ITA NO. 5225/MUM/2015 M/S. PRIME FOCUS LTD. 4 ADDITION OF RS.5,03,66,553/- MADE BY HIM. THE FIRST GROUND OF APPEAL IS ACCORDINGLY ALLOWED. IDENTICAL ISSUE IS INVOLVED IN THE PRESENT YEAR ALS O. THEREFORE, FOR THE DETAILED REASONS DISCUSSED BY ME IN MY ORDER DA TED 1/7/2014 IN THE CASE OF THE APPELLANT FOR A.Y. 2005-06, I DI RECT TO ALLOW DEPRECIATION AT THE RATE OF 60% ON THE ASSETS IN QU ESTION AND DELETE THE ADDITION OF RS.5,36,84,393/- MADE IN THIS YEAR. THESE GROUNDS ARE, ACCORDINGLY, ALLOWED. 5. THE LEARNED D.R. EVENTHOUGH VEHEMENTLY RELIED ON TH E ORDER OF THE AO BUT COULD NOT SUBMIT BEFORE US ANY COGENT MATERI AL OR EVIDENCE WHICH MAY COMPEL US TO TAKE A VIEW DIFFERENT FROM THAT HA S BEEN TAKEN BY THE CIT(A). WE ALSO NOTED THAT THE IMPUGNED CASE IS DUL Y COVERED BY THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF BSES YAMUNA POWERS LTD. 40 TAXMAN.COM 108 IN WHICH THE HON'BLE HIGH COURT HAS TAKEN A VIEW THAT THE COMPUTER ACCESSORIES AND PERI PHERALS BEING A PART OF THE COMPUTER SYSTEM IS ELIGIBLE FOR DEPRECIATION AT HIGHER RATE OF 60%. WE ACCORDINGLY DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE ORDER OF THE CIT(A) AND WE CONFIRM THE ORDER OF THE CIT(A). 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH AUGUST, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 9 TH AUGUST, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -52, MUMBAI 4. THE CIT (C)-II, MUMBAI 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.