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Issues involved:
The judgment involves two main issues: 1. Disallowance of administrative expenses u/s 14A of the Income Tax Act. 2. Disallowance of depreciation on computer equipment. Issue 1: Disallowance of administrative expenses u/s 14A: The case involved the disallowance of `22.65 lacs out of administrative expenses of `22.33 crores u/s 14A of the Act. The Assessing Officer disallowed the expenses in the ratio of the turnover, claiming they were incurred for earning exempted income. However, the assessee argued that no specific expenditure was made for earning tax-free income, as the interest and dividend income was earned automatically without additional financial expenses. The assessee had also voluntarily disallowed `1 lac in the income tax return for such expenses. The CIT(A) referred to previous decisions and held that no further disallowance was warranted, as there was no material to show specific expenditure related to earning the exempt income. The ITAT upheld the CIT(A)'s decision, citing the non-retrospective nature of Rule 8D and the absence of specific expenditure indicated by the Assessing Officer. Issue 2: Disallowance of depreciation on computer equipment: The second issue concerned the disallowance of depreciation on computer equipment. The Assessing Officer disallowed the depreciation claim at 60%, treating computers and peripherals as plant & machinery and allowing depreciation at 25%. On appeal, the CIT(A) considered output devices like printers, scanners, servers, and port switches as computer peripherals integral to the PC system. The CIT(A) allowed depreciation at 60% based on precedents from ITAT cases. The ITAT agreed with the CIT(A) decision, citing previous judgments that supported the eligibility of computers and peripherals for depreciation at 60%. Consequently, the ITAT dismissed the Revenue's appeal. In conclusion, the ITAT upheld the CIT(A)'s decision on both issues, ruling in favor of the assessee and dismissing the Revenue's appeal.
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