2011 (4) TMI 786 - AT - Income Tax

Addition - Recruitment and training expenses - The expenditure incurred by the taxpayer company on imparting training to its employees in order to increase their efficiency in day-to-day working was in the revenue field - As per the decision of the ITAT in the case of Sony India (P.) Ltd. vs. DCIT do not find any infirmity in the order passed by the ld. CIT (Appeals) deleting the addition. Sales promotion expenses - The AO had not pointed out any expenditure which was not incurred for the purpose of the business. In the absence of any such findings the deletion of disallowance made by the ld. CIT (A) is justified. Depreciation on computers - rate of depreciation - The assessing officer to allow 60 per cent depreciation on the computers as claimed by the assessee - By now it is a settled position of law that depreciation is allowable on computers including peripheral such as printers etc. at the rate of 60 per cent and hence do not find any reason to interfere in the order of the ld. CIT (A) on this issue - Held that computers and their peripherals will be eligible for depreciation at the rate of 60 per cent.

Summary

Issues:
1. Disallowance of recruitment and training expenses
2. Disallowance of sales promotion expenses
3. Disallowance of depreciation on computers

Analysis:

Issue 1: Disallowance of recruitment and training expenses
The assessing officer disallowed a portion of recruitment and training expenses, considering it as capital expenditure due to enduring benefits. However, the CIT (Appeals) deleted the addition, citing similar treatment in the previous assessment year. The ITAT upheld the decision, emphasizing that the expenditure was revenue in nature, as it facilitated business operations without acquiring any capital asset. The ITAT referred to precedents and established that revenue expenditure, even if providing enduring benefits, is deductible entirely in the year incurred if wholly and exclusively for business purposes. The decision was based on the Sony India case, confirming the deletion of the addition.

Issue 2: Disallowance of sales promotion expenses
The assessing officer disallowed a portion of sales promotion expenses, alleging enduring benefits. The CIT (Appeals) reversed this decision, noting no previous disallowance in similar cases. The ITAT concurred, stating that without evidence of expenses not being for business purposes, the deletion of disallowance was justified. The ITAT upheld the CIT (Appeals) decision, emphasizing consistency in treatment.

Issue 3: Disallowance of depreciation on computers
The AO restricted depreciation on computers to 25%, treating them as plant and machinery. However, the CIT (Appeals) allowed 60% depreciation, following precedents and specific provisions. The ITAT, based on previous rulings, confirmed the 60% depreciation rate for computers and peripherals, rejecting the Revenue's appeal. The decision was in line with established law and upheld the CIT (Appeals) order.

In conclusion, the ITAT dismissed the Revenue's appeal, affirming the CIT (Appeals) decisions on all issues. The judgment emphasized adherence to legal precedents, consistency in treatment, and the distinction between revenue and capital expenditures in determining deductions.