Section 32 of the Income-tax Act, 1961

IN THE ITAT, DELHI BENCH ‘D’ Bisquare Technologies (P.) Ltd. v. Income-tax Officer, Ward 3(1), New Delhi n.v. vasudevan, judicial member and r.c. sharma, Accountant Member it appeal No.2483 (Delhi) of 2005 [Assessment year 2001-02] January 21, 2008 [1] Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/ Rate of - Assessment year 2001-02 - Assessee claimed deprecation on UPS at rate of 100 per cent - Assessing Officer, however, allowed depreciation on UPS at rate of 10 per cent holding that it was just office electrical installation - Whether since function of UPS also includes automatic voltage controller, correction of power supply through sine waves saves energy and also mandatory powers allowed and further since Appendix 1 of the Income-tax Rules does not specifically contains item UPS for 100 per cent claim of depreciation, matter required fresh decision by Assessing Officer - Held, yes [II] Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/ Rate of - Assessment year 2001-02 - Assessee was engaged in business of information technology - It claimed depreciation on EDA software claiming to have been imported - Assessing Officer denied depreciation on ground inter alia, that only evidence placed on record was a copy of invoice and bill of entry - Whether since invoice and bill of entry with regard to import of EDS software clearly indicated purchase of equipment by assessee and further since by furnishing cogent material assessee had not been able to clearly demonstrate as to when this machine was put to use during year under consideration and effective production/technical assistance being taken by assessee with regard to business of information and technology and digital security solutions for net working in respect of which assessee had alleged to have derived consultancy income, issue required afresh decision by Assessing Officer - Held, yes FACTS I The assessee was engaged in the business of information technology. It claimed depreciation on the UPS at the rate of 100 per cent. The Assessing Officer, however, allowed depreciation on the UPS at the rate of 10 per cent holding that it was just office electrical installation and not eligible for 100 per cent depreciation. On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer. On second appeal: HELD I The UPS not only takes care of uninterrupted powers supply, but it care off, but it also stabilizes the voltage. Therefore, the function of the UPS also includes automatic voltage controller, correction of power supply through sine waves saves energy and also mandatory powers allowed. However, Appendix-I of the Income-tax Rules does not specifically contains the item ‘UPS’ for 100 per cent claim of depreciation. Therefore, the issue was to be restored to the file of the Assessing Officer for decision afresh. The assessee was also to be directed to furnish technical report to the effect that it is not only a stand by power back up machine but its function includes automatic voltage controller/correction of powers supply through sine waves and allowed mandatory. [Para 10] FACTS II The assessee claimed depreciation on EDA software claiming to have been imported from one C. The Assessing Officer denied the depreciation on the grounds that the only evidence placed on record was a copy of the Invoice and bill of entry, that neither the transportation code nor the exact date of arrival of the same nor the mode of transportation and the place from where customer clearance was obtained has been revealed, and that the assessee had also failed to capitalize the total expenditure on its transportation, customs duty and the freight inward etc., pertaining to this asset. On appeal, the Commissioner (Appeals) confirmed the action of the Assessing Officer. On second appeal HELD II The invoice and bill of entry with regard to import of EDS software, as placed on record, clearly indicated the purchase of the equipment. However, by furnishing cogent material the assessee had not able to clearly demonstrate as to when this machine was put to use during the year under consideration and the effective production/technical assistance being taken by the assessee with regard to business of information and technology and digital security solutions for net working in respect of which the assessee had alleged to have derived consultancy income. Therefore, this issue also required to be restored to the file of the Assessing Officer for decision afresh. [Para 11] EDITOR’S NOTE where the assessee was engaged in the business of information technology and the Assessing Officer disallowed the assessee’s claim for deduction of a sum of Rs.9.50 lakhs paid as commission to one N for procuring orders and further the Commissioner (Appeals) confirmed the disallowance made by the Assessing Officer, since if the Assessing Officer had any doubt in respect of the commission paid to ‘N’ he should have issued notice under section 131 to the concerned person and record his statement to find out the factual thing which he had failed to do, and further since the Commissioner (Appeals) who had also got co-terminus powers, had not exercised co-terminus powers to find out the services; rendered by commission agent in respect of sales orders having been procured and in connection with which the assessee had paid the Commission amount and further since the assessee had also failed to brought on record in clear terms as to what were the precise services actually rendered, by ‘N’ for which it had paid Rs.9.50 lakhs and the basis of its computation, the issue required afresh decision by the Assessing Officer. where the assessee claimed depreciation on certain old assets being acquired from a company ‘B’ in which the director of the assessee-company was also interested as a director and the Assessing Officer disallowed the assessee claim for depreciation observing that written down value of these assets in the books of the transferring company on the date these assets were transferred to the director of the assessee company was not furnished to him, the issue was restored to the file of the Assessing Officer with the direction to determine the written down value of these assets as per Explanation 3 to section 43(1) and it was also held that even though the assessee had purchased the entire business of the company ‘B’ which included goodwill of the company and the name of the company etc., the value of goodwill was not includible in the value of assets for the purpose of deprecation. CASE REVIEW ITO v. Jetendra Dev Seth (IT Appeal No.1786 (Delhi) of 2003, dated 8-9-2006] - distinguished