2013 (12) TMI 779 - AT - Income Tax

Depreciation on dealership network - Held that - Following assessee s own case for A.Y. 2007-08 - The claim of the assessee for depreciation on dealership network is allowed by the Tribunal - The consideration paid by the assessee for the purpose of enhancing its network in the field of money transaction business by acquiring rights or infrastructure or other advantages attached to the marketing network - The same was in the nature of intangible asset as contemplated u/s 32(1)(ii) of the Act - The assessee was entitled to depreciation thereon @25% - Decided against Revenue. Depreciation on computer peripherals - Held that - Following CIT vs. BSES Yamuna Power Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT - Computer accessories and peripherals such as printers, scanners, server etc. very much form an integral part of the computer system and consequently they are eligible for depreciation at higher rate of 60% - Decided against Revenue. Expenses on exempt income - Interest and other expense - Held that - Following assessee s own case for A.Y. 2006-07 - Own funds were available with the assessee company in the form of share capital and reserves at the relevant time which was sufficient to made the investment in the equity shares. Other expenses - Held that - As per Rule 8D - The disallowance in respect of other expenses is sustained - Partly allowed in favour of assessee. Rectification of mistake - Held that - Following CIT vs. Sakseria Cotton Mills Ltd. 1979 (2) TMI 17 - BOMBAY High Court - The issue relating to allowability of deduction on account of provision for diminution in the value of investment while computing the book profit u/s 115JB of the Act was not the subject matter of appeal before the Tribunal - No direction were given by the Tribunal on this issue while restoring the matter to the file of the A.O. - There was no mistake in the order of the A.O. passed u/s 143(3) r.w.s. 254 of the Act on 30-12-2008 in allowing the deduction on account of provision for diminution in the value of investment calling for any rectification u/s 154 of the Act - Such mistake, was in the order originally passed by the A.O. u/s 143(3) - The rectification made by the A.O. on this issue to the order passed u/s 143(3) r.w.s. 254 of the Act by an order dated 19-8-2010 passed u/s 154 of the Act thus was not permissible - Decided in favour of assessee.

Summary

Issues Involved:
1. Depreciation claim on dealership network under Section 32(1)(ii) of the Income Tax Act.
2. Depreciation rate on printers, scanners, UPS, etc.
3. Disallowance under Section 14-A of the Income Tax Act.
4. Rectification order under Section 154 of the Income Tax Act for A.Y. 2001-02 regarding the provision for diminution in the value of investment.

Detailed Analysis:

1. Depreciation Claim on Dealership Network:
The Revenue challenged the deletion of disallowance amounting to Rs. 1,84,65,131/- made by the A.O. on the assessee's claim for depreciation under Section 32(1)(ii) of the Income Tax Act. The assessee, a company dealing in foreign exchange, claimed depreciation on the dealership network acquired from AFL. The A.O. disallowed this claim, stating that the assessee failed to prove the acquisition of any right as per Section 32(1)(ii). However, the CIT(A) deleted this disallowance, following the precedent set in the assessee's own case for A.Y. 2007-08, where the dealership network was treated as an intangible asset eligible for depreciation. The Tribunal upheld the CIT(A)'s decision, relying on the earlier Tribunal order, confirming that the dealership network qualifies as an intangible asset under Section 32(1)(ii).

2. Depreciation Rate on Printers, Scanners, UPS, etc.:
The Revenue contested the CIT(A)'s decision to allow a higher depreciation rate of 60% on printers, scanners, UPS, etc. The A.O. had disallowed this higher rate, arguing that these items could not be considered computers. The CIT(A) allowed the higher rate, referencing the Delhi High Court's decision in CIT vs. BSES Yamuna Power Ltd., which held that computer accessories and peripherals are integral to the computer system and eligible for 60% depreciation. The Tribunal agreed with this view, dismissing the Revenue's appeal and upholding the CIT(A)'s order.

3. Disallowance under Section 14-A:
The assessee's appeal for A.Y. 2008-09 involved a disallowance of Rs. 3,35,822/- under Section 14-A, confirmed by the CIT(A). The A.O. had made this disallowance based on the assessee's investment in equity shares, applying Rule 8-D of the Income Tax Rules. The assessee argued that the investment was made from its own funds, thus no interest disallowance should apply. The Tribunal, examining the balance sheet, found sufficient own funds to cover the investment, following its earlier decision in the assessee's case for A.Y. 2006-07, and deleted the interest disallowance. However, the Tribunal upheld the disallowance of other expenses as per Rule 8-D, sustaining Rs. 1,11,732/- of the total disallowance.

4. Rectification Order under Section 154 for A.Y. 2001-02:
The assessee's appeal for A.Y. 2001-02 contested the CIT(A)'s upholding of the A.O.'s rectification order under Section 154, which added Rs. 1,28,60,000/- to the book profit for provision for diminution in the value of investment. The A.O. had initially completed the assessment without this addition, which was later rectified. The Tribunal found that the issue of provision for diminution was not part of the Tribunal's directions when restoring the case to the A.O., making the rectification impermissible. The Tribunal referenced the Bombay High Court's decision in CIT vs. Sakseria Cotton Mills Ltd., concluding that the rectification should have been made to the original order, not the subsequent one. Thus, the Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the addition.

Conclusion:
- The appeal of the assessee for A.Y. 2001-02 was allowed.
- The appeal of the assessee for A.Y. 2008-09 was partly allowed.
- The Revenue's appeal for A.Y. 2008-09 was dismissed.

Order pronounced in the open court on 31.10.2013.