2011 (4) TMI 1405 - AT - Income Tax

Summary

Issues involved:
The issues involved in this case are the disallowance of lease rent, restriction on depreciation for UPS system, and the appeal filed by the assessee against the order passed by the CIT (A) for assessment year 2002-03.

Disallowance of Lease Rent:
The Assessing Officer disallowed a sum of &8377; 9,97,500/- on account of lease rent, stating that the expenditure was not incurred wholly and exclusively for the business of the assessee. The CIT (A) upheld this disallowance, emphasizing that the premises for which the payments were made were not being used for the business purpose of the assessee. The assessee argued that the payments were annual lease rents for the use of land and should be allowed as revenue expenditure. The ITAT Delhi found that if the plot was taken by the assessee for business purposes, the recurring payments could not be considered unrelated to the business simply because construction had not yet taken place. As the plot was purchased for business purposes, the disallowance was deemed unjustified and was deleted.

Depreciation on UPS System:
The issue of depreciation on the UPS system arose, with the assessee claiming that UPS is a part of the computer and should be eligible for depreciation at 60%. The Assessing Officer argued that UPS is part of plant and machinery, warranting depreciation at the rate applicable to such assets. The CIT (A) supported this view, stating that UPS is merely a backup mechanism in case of power failure and not an essential part of the computer. However, the ITAT Delhi referred to a decision of the jurisdictional High Court which allowed depreciation at 60% for computer peripherals and accessories, considering them integral parts of the computer system. Applying the same analogy to UPS, the ITAT directed the Assessing Officer to allow depreciation at 60% on the UPS system.

Conclusion:
The ITAT Delhi allowed the appeal filed by the assessee, overturning the disallowance of lease rent and directing the allowance of depreciation at 60% on the UPS system. The decision was based on the premise that the expenditures were related to the business activities of the assessee and should be treated as allowable expenses.