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2009 (4) TMI 943 - AT - Income TaxAddition on expenses incurred on legal and professional expenses as capital expenditure - enduring benefit - CIT(A) allowed the claim of the assessee as the expenditure was incurred for increasing the efficiency and import of the assessee in getting the work done for the clients and the assessee did not acquire any asset out of the said payment. HELD THAT - No enduring benefit can be said to have obtained by the assessee. The consultancy charges were paid to Laxmi and Associates for brokerage charges for obtaining office space on lease for acquiring office space on lease and not for acquiring any capital asset. The consultancy charges were paid to Bharat S. Raut and Co. for preparation of agreement for legal costs cross charges, marketing cost cross charge, advice on exchange control issues for the aforesaid agreement, advice on withholding tax for remittance of the aforesaid agreement for preparing cost sharing arrangement of legal cost and marketing cost with the parent company in USA. The company has also incurred a total amount. It comprises of payment to M/s QSYS Constants for implementing ISO 9001 2000 based Quality Management System as the major part of the amount was paid for professional fee to M/s QSYS. In this connection, reliance was placed on various decisions of the Hon'ble High Court in which it has been that any expenditure which improves efficiency and does not lead to any additional asset is a revenue expenditure. Therefore, this expenditure, in our opinion, cannot be treated as capital expenditure. The consultancy charges paid to Design and Development for planning, designing the interiors, a leased premises. This expenditure also, is to be treated as a revenue expenditure and cannot be said to be capital expenditure as no enduring benefit has been obtained by the assessee. The consultancy charges paid to Keystone for architectural services such as layout plans, work station details, toilet details, false ceiling plan etc. A similar view in this regard was held in B and A Plantation vs. CIT 1999 (12) TMI 43 - GAUHATI HIGH COURT and Modi Spinning and Weaving Mills Co. Ltd. vs. CIT, 1992 (10) TMI 76 - DELHI HIGH COURT observing that expenditure on items like fixing false ceiling, painting, making some structural charges are of a revenue nature. Therefore, the decision of the CIT(A) deserves to be upheld and we do so. Therefore, this ground of the revenue is dismissed. Disallowance of depreciation on computer peripherals and computers accessories - claimed a depreciation @ 60% - AO did not accept the claim of the assessee and reduced the said deprecation to 25% - CIT(A) accepted the plea of the assessee that the Router which is an integral part of the computer system without which it is unable to connect the high speed computers with the internet and also with the internal Local Area Network and allowed the depreciation claimed. HELD THAT - We are of the considered view that the decision taken by the CIT(A) in this regard is correct and deserves to be upheld. A Router is a device that forwards data packets along networks and is connected to at least two networks, commonly known as Local Area Network (LAN) or Wireless LAN (WAN) and its ISP's network. The usage of the Router in the computer is not only required for its functioning, but is an important and an integral part of the computer for increasing the high speed with the interned efficiently. The order of the CIT(A) is, therefore, upheld and the ground of the revenue is dismissed. The appeal of the revenue is dismissed.
Issues:
1. Dispute over deletion of addition of Rs. 10,64,500 as capital expenditure. 2. Disallowance of depreciation on computer peripherals and accessories. Analysis: Issue 1: Dispute over Capital Expenditure The appeal filed by the revenue challenged the deletion of the addition of Rs. 10,64,500 made by the AO, arguing that legal and professional charges were capital expenditure. The expenditure in question was related to feasibility studies, STPI approval, certification charges, and office space acquisition. The revenue contended that the expenses provided enduring benefits and thus should be treated as capital expenditure. However, the CIT(A) allowed the claim, emphasizing that the expenditure aimed at increasing efficiency and did not result in asset acquisition. The Tribunal examined each consultancy charge in detail, concluding that they were revenue expenditures essential for the regular business activities, not resulting in enduring benefits. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. Issue 2: Disallowance of Depreciation The second ground of dispute involved the disallowance of depreciation amounting to Rs. 2,24,507 on computer peripherals and accessories. The assessee claimed depreciation at 60%, which the AO reduced to 25%. The CIT(A) accepted the plea that the "Router" was integral for connecting high-speed computers to the internet and LAN, allowing depreciation at 60%. The Tribunal upheld the CIT(A)'s decision, emphasizing the critical role of the "Router" in computer functioning and its importance as an integral part of the system. Consequently, the ground of the revenue regarding depreciation was dismissed. In conclusion, the Tribunal upheld the CIT(A)'s decisions in both issues, dismissing the revenue's appeal in its entirety.
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