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October 11, 2022

ATM Machines are eligible for the depreciation rate of computer software

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

ATM Machines are eligible for the depreciation rate of computer software

Facts and Issue of the Case

The facts of the case are that M/s. Financial Software and Systems Private Limited, is engaged in the business of Automated Teller Machine [ATM] management services and filed its return of income for the assessment year 2017-18 on 29.11.2017 admitting total income of ₹.81,42,210/- under normal provisions of the Act and of book profit ₹.3,09,79,643/- under section 115JB of the Income Tax Act, 1961. The assessment has been completed under section 143(3) of the Act dated 30.11.2019 and determining total assessed income of ₹.27,98,691/- under normal provisions and book profit of ₹.3,09,79,643/- under section 115JB of the Act. On appeal, the ld. CIT(A) dismissed the appeal filed by the assessee and sustained the addition made by the Assessing Officer towards disallowance against depreciation on ATM machines and addition of cessation of liability under section 41(1) of the Act.

The first issue came up for consideration in ground Nos. 3 to 7 relates to disallowance of depreciation on Automated Teller Machine [ATM]. The ld. Counsel for the assessee, at the time of hearing, submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT, Chennai in assessee’s own case for the assessment years 2013-14 onwards, where, the Tribunal has held that the ATM machines are eligible for depreciation at 60% as applicable to computer software. On the other hand, the ld. DR fairly agreed that the issue is covered in favour of the assessee by the decision of the ITAT. However, facts remain that the Assessing Officer has not made addition towards disallowance of depreciation even though he had restricted the depreciation on ATM machines at 15% as against 60% depreciation claimed by the assessee.

Observation by the Court

The court had heard both the sides, perused the materials available on record and gone through the orders of authorities below. We find that an identical issue has been considered by the Tribunal in assessee’s own case for the assessment year 2015-16 & 2016-17 in dated 17.03.2020, wherein, the Tribunal by following earlier decision in assessee’s own case for the assessment year 2013-14 and 2014-15 and held that the assessee is entitled for 60% depreciation on ATM machines. In this view of the matter and following the decisions of the Coordinate Benches of the Tribunal in assessee’s own case for earlier assessment years, we direct the Assessing Officer to allow depreciation at 60% on ATM machines as claimed by the assessee. As regards the arguments of the ld. DR that the Assessing Officer has not made the addition towards depreciation, it was the rejoinder of the ld. Counsel for the assessee that the Assessing Officer has computed the depreciation on WDV after allowing 15%, whereas, the assessee has claimed WDV after allowing 60% depreciation and because of this, the depreciation claimed by the assessee in the return of income in the relevant assessment year is higher when the Assessing Officer has worked out the depreciation at 15% on WDV. If the Assessing Officer considered 60% of depreciation and worked out WDV then the depreciation worked out by the Assessing Officer will be higher than or equal to the depreciation claimed by the assessee.

The court find substance in the arguments of the ld. Counsel for the assessee that there is difference in working of depreciation because of the different rates considered by the assessee as well as the Assessing Officer. But, the fact remains that once the assessee is entitled for 60% of depreciation on ATM machines, the Assessing Officer has to work out the depreciation right from the beginning at 60% to compute WDV. Accordingly, we direct the Assessing Officer to allow 60% of depreciation and work out the opening WDV and compute the correct depreciation to be allowed for the impugned assessment year. The next issue came up for consideration in ground Nos. 8 to 11 is addition towards cessation of liability under section 41(1) of the Act. The ld. Counsel for the assessee has submitted that the assessee does not want to address the ground challenging addition made towards cessation of liability under section 41(1) of the Act.

The court find that the Assessing Officer has made an addition towards cessation of liability under section 41(1) of the Act because the assessee could not justify with necessary evidences. Even before the ld. CIT(A), the assessee could file any evidence to justify the existence of the liabilities. Therefore, considering the fact and circumstances of the case and also the plea of the ld. Counsel for the assessee, the court confirm the addition made towards the disallowance of cessation of liability under section 41(1) of the Act and reject the ground taken by the assessee.

Conclusion

The appeal filed by the assessee is partly allowed.

Financial-Software-and-Systems-Private-Limited-Vs-DCIT-ITAT-Chennai

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