2013 (12) TMI 953 - AT - Income Tax

Depreciation on fixed assets - Held that - The major portion of the depreciation has been disallowed because the assessee did not present adequate proof regarding the additions to the fixed assets - Enough time was not given to the assessee to produce sufficient evidence and the same has been mentioned in the written submissions also - The issue was restored for fresh adjudication. Depreciation on UPS - Held that - UPS is an essential component of a computer system and ensures data integrity through uninterrupted supply of power - This is a dedicated system for computers only. Therefore, the depreciation rate to be allowed is 60% - Decided against assessee. Depreciation on library books - Held that - The cost of the books is less than Rs. 5,000 - 100% depreciation claimed by the assessee is to be allowed - Decided in favour of assessee. Exemption u/s 10A - Held that - Following Gemplus Jewellery India Ltd. 2010 (6) TMI 65 - BOMBAY HIGH COURT - Even if the disallowance is sustained, it will only go to increase the business profits of the assessee which is exempt u/s 10A - Assessing Officer is directed to recompute the deduction after taking into account disallowances made - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of exemption u/s 10A on internet and telephone charges.
2. Disallowance of depreciation claim on additions to fixed assets.

Analysis:
1. The case involved cross appeals against the order of CIT(A) for the assessment year 2007-08. The assessee, engaged in computer software and IT services, claimed exemption u/s 10A on internet and telephone charges. The Assessing Officer disallowed these claims, but CIT(A) ruled in favor of the assessee based on precedents like Patni Telecom Pvt. Ltd. vs. IT. The Tribunal upheld this decision, citing similar rulings by other benches and high courts. The expenditure on internet and telephone charges was deemed to be excluded from export turnover and total turnover, leading to the dismissal of the revenue's appeal on this issue.

2. Regarding the disallowance of depreciation on additions to fixed assets, the CIT(A) upheld the Assessing Officer's decision due to insufficient proof provided by the assessee. The Tribunal, after hearing arguments from both sides, remitted the issue back to the Assessing Officer for reevaluation. The assessee's claim for depreciation at a higher rate on UPS was supported by the Tribunal, directing the Assessing Officer to allow 60% depreciation. Additionally, the Tribunal allowed 100% depreciation on library books valued below Rs. 5,000. The Tribunal also considered the recomputed business profit for exemption u/s 10A, aligning with precedents and directing the Assessing Officer to recalculate the deduction after factoring in the disallowances. Consequently, the assessee's additional ground on this matter was allowed.

In conclusion, the Tribunal dismissed the revenue's appeal while partly allowing the assessee's appeal for statistical purposes. The judgment highlighted the importance of providing adequate proof for depreciation claims and the consideration of disallowances in calculating deductions for exemption u/s 10A, in line with established legal precedents.