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2010 (2) TMI 912 - AT - Income TaxExpenses on exhibition/conference - 50% disallowed - Held that - The only reason assigned by the AO for disallowing the claim of the assessee is that it had not made any export sales either in the past or in the current year cannot be a valid reason for making the disallowance. AO has not doubted the genuineness of expenses and the business expediency for incurring such expenses. The turnover of the assessee had increased many folds because of these conferences and advertisements from assessment years 2002-03 to 2005-06. The disallowance can be made if it was found that expenses were not wholly and exclusively for the purpose of business. But no such circumstances have been pointed out by the AO. In favour of assessee. Depreciation - CIT (Appeals)allowing depreciation at the rate of 25 per cent on video conferencing equipment as against 60 per cent claimed by the assessee on the ground that video conferencing equipments are not computers - Held that - Video conference system is a computer device, that accept information in the form of digital data by way of video input i.e. with the help of web-cam or video camera and audio input with the help of microphone. The system thereafter processed the data and transfer through analogue or digital telephone network or lan and digital gives the output data by way of audio video output. It is a technical device whose function are similar to the computer because basically computer also respond to a specific set of instructions in a well defined manner On the basis of Samiran Majumdar (2005 (8) TMI 293 - ITAT CALCUTTA-B) wherein printer and scanner was considered integral part of the computer and allowed depreciation at the rate of 60 per cent. Thus issue set aside to the file of the AO for readjudication as the note exhibiting the functioning of a video conferencing equipment place before us was not placed before the AO - in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance of expenses for business promotion activities. 2. Depreciation rate applicable to video conferencing equipment. Issue-wise Detailed Analysis: 1. Disallowance of Expenses for Business Promotion Activities: The solitary grievance for the assessment year 2003-04 was the confirmation of the addition of Rs.4,38,957 by the CIT (Appeals). The assessee, engaged in the business of trading electric switch wires, had filed a return declaring an income of Rs.1,55,58,980. The Assessing Officer (AO) scrutinized the accounts and found that the assessee had debited Rs.8,77,915 towards expenses incurred on exhibitions, seminars, and conferences held in Hannover and Dubai, with 50% of these expenses borne by the assessee and the other 50% by Havells India Ltd. The AO disallowed 50% of the expenses borne by the assessee (Rs.4,38,957) on the grounds that the assessee had not made any export sales in the past or current year, thus questioning the necessity of such expenses. The CIT (Appeals) upheld the AO's decision. However, the assessee contended that the expenses were incurred for business needs and expediency, and the AO did not question the genuineness of the expenses. The assessee argued that the disallowance was unjustified as the resultant income from such expenses should not be a criterion for their allowance, citing the Supreme Court's decision in CIT v. Indian Bank Ltd. and the Delhi High Court's judgment in CIT v. Delhi Cloth and General Mills Co. Ltd. Upon consideration, it was noted that Section 37 of the Income-tax Act, 1961, allows for the deduction of all expenditures wholly and exclusively for business purposes, provided they are not personal or capital in nature. The AO's sole reason for disallowance was the lack of export sales, which was deemed invalid. The AO did not doubt the genuineness or business expediency of the expenses, and the assessee's turnover had increased significantly due to these promotional activities. Therefore, the appeal was allowed, and the disallowance was deleted. 2. Depreciation Rate Applicable to Video Conferencing Equipment: For the assessment year 2004-05, the issue was the CIT (Appeals)'s decision to allow depreciation at 25% on video conferencing equipment instead of the 60% claimed by the assessee. The AO found that the assessee had claimed 60% depreciation on video conferencing equipment, speakers, TV sets, etc., along with computers and peripherals. The AO disallowed the higher depreciation rate, arguing that video conferencing equipment, which includes TV sets and cameras, could not be construed as computers. The CIT (Appeals) upheld the AO's decision. The assessee argued that video conferencing systems should be equated with computers, citing the definition of a computer from the Information Technology Act, 2000. The assessee provided a detailed note explaining the functioning of video conferencing systems, emphasizing their similarity to computers in processing digital data. The Tribunal considered the rival contentions and noted that the material provided by the assessee was not presented before the AO. The Tribunal referenced the ITAT's decision in ITO v. Samiran Majumdar, which allowed 60% depreciation on printers and scanners as integral parts of computers. The Tribunal decided to set aside the issue for re-adjudication by the AO, directing the AO to consider each item in detail and determine which items could be equated with computers for the purpose of granting 60% depreciation. The AO was instructed to provide the assessee with an opportunity for a hearing and decide the issue in accordance with the law. Conclusion: The appeal for the assessment year 2003-04 was allowed, and the appeal for the assessment year 2004-05 was allowed for statistical purposes, with the issue of depreciation on video conferencing equipment remanded to the AO for further consideration.
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