Tata Communications Ltd. v. Addl. CIT
In the Income Tax Appellate Tribunal at Mumbai
I.T.A. 1387/Mum/2008 & 1106/Mum/2008
Before Mr Vijay Pal Rao, Judicial Member and Mr Narendra Kumar Billaiya, Administrative Member
Decided on March 7, 2014

Relevancy of the case: Claim of depreciation with respect to gateway digital switches (GDS)

Statutes & Provisions Involved

• The Income Tax Act, 1961 (Section 143(3), 271(1)(c))
• The Information Technology Act, 2000 (Section 2)

Relevant Facts of the Case

• The assessee was a Government of India Enterprise, Videsh Sanchar Nigam Ltd. (VSNL). Some events took place in the field of telecommunication and it resulted in the failure of businesses, especially in stationing satellites in the earth atmosphere.
• ICO Global was also included in those businesses and so, they filed voluntary bankruptcy protection in US court in Delaware in 1999. The restructuring plan was approved. Hence, a company named New ICO Global was to be incorporated.
• The assessee provided for a write-down of the investment to be claimed as expenditure in the Profit and Loss A/c towards investment written off during the year of consideration.
• This claim was questioned by the AO. The assessee explained the object of the investment made in ICO Global. The main aim was to be a part of cutting-edge technology to sustain their place in the field of telecommunication, nationally and internationally, spending on networks and satellites based mobile telecommunication system to enable transmission of data, images, electronic signals, etc.
• The AO did not accept the contentions of the assessee that the shares written off of ICO Global are not business expenditure in the year, hence disallowed. Also, the capital loss which occurred in the accounting year 2001-2002 and not in the accounting year under consideration as the restructuring plan was approved in 2000 and the assessee has claimed to write off.
• On appeal, AO’s disallowance was confirmed by the CIT(A).
• The AO levied a penalty against the disallowance of higher depreciation on Gateway Digital Switches (GDS). The assessee claimed a higher depreciation keeping the Information Technology Act, 2000 in view and supported its claim by various decisions of this Tribunal. The switches and routers are considered a part of a computer for the purpose of depreciation.
• There were two appeals filed against the order of the CIT. One was the assessment order under Section 143(3) and the other was the penalty order under Section 271 (1)(c) of the Income Tax Act, 1961.

Opinion of the Bench

• The issue of higher depreciation on GDS was set and hence, the penalty on the account does not survive. There is a question whether GDS was a part of a computer for the purpose of depreciation under Section 32 of the Income Tax Act, 1961.
• It was held that the disallowance of higher depreciation on GDS switches does not warrant levy of penalty.

Final Decision

• The bench found no error in the order of the CIT in deleting the penalty. The appeal of penalty by the assessee was allowed and the appeal of revenue was dismissed.
• Thus, the quantum appeal was partly allowed.