2014 (5) TMI 621 - AT - Income Tax

Disallowance on account of depreciation on computer accessories Held that - Following CIT vs. BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT - computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system - the computer accessories and peripherals cannot be used without the computer - they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Decided against Revenue. Disallowance u/s 14A r.w. Rule 8D of the Rules Dividend income - Held that - The assessee has maintained all through that no expenses were incurred for earning the exempt income by way of dividend relying upon Assistant Commissioner of Income Tax Circle 10, Kolkata Versus Champion Commercial Co Ltd 2012 (10) TMI 24 - ITAT, KOLKATA - the AO did not return a finding that the claim of the assessee that no expenses had been incurred for earning the exempt income, was incorrect - She merely held that administrative expenses had to be incurred for earning of exempt income also - The rejection of the assessee s claim in this manner is found to be improper and the CIT (A) correctly reversed the action of the AO by deleting the disallowance made there was no error in the order of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Disallowance of depreciation on computer accessories
2. Disallowance under section 14A r.w. Rule 8D

Analysis:

Issue 1: Disallowance of Depreciation on Computer Accessories
The Department appealed against the order for Assessment Year 2008-09, challenging the deletion of disallowance of depreciation on computer accessories. The Assessing Officer (AO) disallowed depreciation on UPS and printers at 15% instead of the claimed 60%. However, the Commissioner of Income Tax (Appeals) accepted the assessee's claim and allowed the depreciation at 60%. The Tribunal cited various decisions supporting the assessee's claim and noted that the High Court also ruled in favor of the assessee in a similar case. Therefore, the Tribunal rejected Ground No.1 of the appeal.

Issue 2: Disallowance under Section 14A r.w. Rule 8D
Regarding Ground No.2, the AO disallowed expenses related to earning dividend income under Rule 8D of the IT Rules. The Commissioner (Appeals) held the AO's action as bad in law and deleted the disallowance. The Department argued that administrative expenses are incurred for earning exempt income, justifying the disallowance. However, the assessee contended that no expenses were incurred for earning the exempt income and had already added back an amount exceeding the disallowance under Rule 8D. The Tribunal found that the AO did not consider crucial financial details provided by the assessee, leading to an improper rejection of the claim. Citing precedent and analyzing the facts, the Tribunal upheld the Commissioner's decision to delete the disallowance, ultimately dismissing the department's appeal.

In conclusion, the Tribunal upheld the Commissioner's decision on both issues, rejecting the Department's appeal and dismissing the case.