2010 (7) TMI 1056 - AT - Income Tax

Summary

Issues involved:
1. Deletion of addition made by AO on account of disallowance of depreciation on website.
2. Deletion of addition made by AO on account of outstanding sundry creditors.
3. Allowability of 60% depreciation on computer peripherals and accessories.

Deletion of addition made by AO on account of disallowance of depreciation on website:
The AO disallowed depreciation claimed by the assessee on the website, stating that the IT Act did not provide for such treatment. The assessee argued that the expenses were for the development of the website and should be treated as deferred revenue expenditure. The AO found that the expenses were not covered under the Act and could not be treated as a plant. However, the CIT(A) concluded that the website qualified as "computer software" eligible for depreciation under section 32 of the IT Act. The Tribunal upheld the CIT(A)'s decision, stating that the expenditure on website development was an allowable business expenditure.

Deletion of addition made by AO on account of outstanding sundry creditors:
The AO added a sum to the assessee's income due to outstanding sundry creditors, claiming it as deemed income under section 41(1) of the IT Act. The assessee explained that the liabilities were outstanding due to initial losses and had been written back when deemed unnecessary. The CIT(A) held that there was no remission or cessation of liabilities, and the AO was not justified in invoking section 41(1). The Tribunal agreed with the CIT(A), stating that the outstanding liabilities did not automatically become income of the assessee.

Allowability of 60% depreciation on computer peripherals and accessories:
The AO restricted depreciation on computer peripherals and accessories to 25%, contrary to the 60% claimed by the assessee. The CIT(A) referred to a Tribunal decision stating that peripherals are integral parts of a computer and directed the AO to allow depreciation at 60%. The Tribunal upheld the CIT(A)'s decision, citing a Special Bench decision that all components of a computer, including peripherals, fall under the category of computer hardware eligible for 60% depreciation.