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2016 (5) TMI 1518 - AT - Income TaxAllowability of 60% depreciation on V-sat equipment - AO has restricted the claim of depreciation of 60% on V-sat equipments to 25% - HELD THAT - An identical facts on similar issue, in the case of Anagram Capital Ltd. v. ACIT 2011 (2) TMI 1575 - ITAT AHMEDABAD since the facts are identical as has been considered in the earlier year in which it was held that the VSAT equipments cannot be categorized as computer software, there is no material on record to dispute the findings of the authorities below. Nothing is brought to our notice on facts to distinguish the facts considered in earlier year as noted above. - Decided against assessee Disallowance of ROC fees paid to Registrar of Companies for increasing the share capital - revenue expenditure or capital expenditure - HELD THAT - As perused the order of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited v. CIT 1996 (12) TMI 6 - SUPREME COURT wherein, held that the fee paid to the Registrar for expansion of the capital base of the company was directly related to capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of capital expenditure since the expenditure was directly related to the expansion of capital base of the company and thus it was not an expense in the nature of revenue - Decided in favour of revenue. Disallowance of lease rentals - main argument of the AR is that the lease rental was crystallized during the assessment year 2005-06 and 2006-07 and the same was claimed in these years - ssessee is following mercantile system of accounting - HELD THAT - The expenditure relating one assessment year cannot be claimed in another assessment year since each assessment year is an independent assessable unit. The assessee was following mercantile system of accounting and the expenses not recorded in relevant assessment year, the same cannot be allowed as deduction because remedy does not lie on the next assessment year. Considering the facts and circumstances of the case, we are of the opinion that it would be appropriate to remit the issue back to the Assessing Officer with regard to lease rentals paid to NELCO to allow rental accrued in the relevant assessment year only. AO shall exclude prior period of lease rentals while considering the same. With these observations, we set aside the order of the ld. CIT(A) and remit the matter back to the Assessing Officer to work out the allowable deduction in accordance with law. Thus, the ground raised by the Revenue is allowed for statistical purposes. Lease transactions with HCL Comnet Ltd. - CIT(A) has observed that the advance payments were down payments towards lease rentals for both the assessment years - HELD THAT - It is a fact that a mere down payment does not make the transaction a sale nor the amount can be treated as refundable deposit without any basis. Therefore, these expenditures should be considered as revenue expenditure. Further, the Assessing Officer has not given any finding to disallow the band width charges for 256 KBPS and lease rental charges paid to various franchisees as well as v-sat shifting charges. Though both the items are not provided in the books of accounts, but the assessee has made the claim in the computation of income statements, which is found to be in order in view of the judgement of CIT v. Pruthvi Brokers and Shareholders P. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT . Therefore, the ld. CIT(A) has rightly held that both the charges would be treated as revenue items and eligible for deduction. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. Allowability of depreciation on office equipments - at 15% or10% - HELD THAT - CIT(A) was of the opinion that the claim of the assessee seems to be in order. He also observed that as per Appendix-I to Rule 5 of Income Tax Rules, 1962, Block III(i), the depreciation rate is 15% for office equipments. Depreciation rate of 10% is applicable for Furniture and Fittings falling in Block II to the above Appendix-I. Office equipments obviously and apparently falling under Block III are entitled to 15% depreciation rate. Accordingly, he directed the Assessing Officer to allow the depreciation @ 15% on Office Equipments. In view of the above findings of the ld. CIT(A), we find no reason to interfere with the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by the Revenue is dismissed. Allowability of depreciation on printers and scanners - assessee has claimed depreciation at 60% on printers and scanners under the head Computers - AO has restricted the depreciation to 15% and the excess depreciation was added back to the total income of the assessee - HELD THAT - We find that the Hon ble Delhi High Court in the case of BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT has held that computer accessories and peripherals such as printers, scanners and server etc. formed an internal part of the computer system and, in fact, the computer accessories and peripherals cannot be used without the computer. The Hon'ble High Court thus held that they are the part of the computer system and are entitled to depreciation at the higher rate of 60%. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - In the argument advanced by the assessee. However, we are of the opinion that the investments would definitely involve certain administrative and establishment cost since the decision to make investments, track investments, sale of such investments and follow-up of the receipt of income, sale proceeds etc have to be undertaken which entails definite costs. It is for this purposes that Rule 8D(2)(iii) provides that one half percent of the average value of the investments will be deemed to be expenditure incurred for the same. When the Act has specified a definite formula for working out the expenditure to be disallowed, the Assessing Officer should have disallowed % of average value of the investments as per Rule 8D(2)(iii) as expenditure incurred for earning of exempt income. Accordingly, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to disallow under Rule 8D(2)(iii) alone. Thus, the ground raised by the assessee is allowed for statistical purposes.
Issues Involved:
1. Allowability of 60% depreciation on V-sat equipment. 2. Deleting the disallowance of ROC fees paid to Registrar of Companies for increasing the share capital. 3. Deleting the disallowance of lease rentals. 4. Allowability of depreciation on office equipment. 5. Allowability of depreciation on printers and scanners. 6. Confirmation of disallowance under section 14A of the Income Tax Act. Detailed Analysis: 1. Allowability of 60% Depreciation on V-sat Equipment: The primary issue was whether V-sat equipment qualifies for 60% depreciation. The Assessing Officer restricted the depreciation to 25%, but the Commissioner of Income Tax (Appeals) [CIT(A)] allowed 60% depreciation, treating V-sat as an integral part of the computer system. The Revenue appealed, citing the Ahmedabad Bench decision in Anagram Capital Ltd. v. ACIT, which classified V-sat as communication equipment eligible for 25% depreciation. The Tribunal concurred with the Revenue, noting no higher court ruling modifying this decision, thus allowing the Revenue's appeal. 2. Deleting the Disallowance of ROC Fees Paid to Registrar of Companies for Increasing the Share Capital: The assessee claimed ROC fees as revenue expenditure, which the Assessing Officer disallowed, treating it as capital expenditure based on Supreme Court rulings in Punjab State Industrial Development Corporation Limited v. CIT and Brooke Bond India Ltd. v. CIT. The CIT(A) allowed the claim, but the Tribunal reversed this decision, following the Supreme Court's stance that ROC fees for increasing share capital are capital expenditures. The Revenue's appeal was allowed. 3. Deleting the Disallowance of Lease Rentals: The dispute concerned lease rentals paid to NELCO and HCL Comnet Ltd. The Assessing Officer disallowed certain amounts, questioning the crystallization of liabilities and adherence to accounting standards. The CIT(A) allowed the claims, citing that the payments were crystallized during the relevant financial years. The Tribunal remitted the issue back to the Assessing Officer for reconsideration, particularly for lease rentals paid to NELCO, to exclude prior period rentals. For HCL Comnet, the Tribunal upheld the CIT(A)'s decision, treating the expenditures as revenue items. 4. Allowability of Depreciation on Office Equipment: The Assessing Officer restricted depreciation on office equipment to 10%, while the assessee claimed 15%. The CIT(A) sided with the assessee, referencing Appendix-I to Rule 5 of the Income Tax Rules, which prescribes 15% depreciation for office equipment. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. 5. Allowability of Depreciation on Printers and Scanners: The assessee claimed 60% depreciation on printers and scanners, which the Assessing Officer restricted to 15%. The CIT(A), following the Delhi High Court decision in BSES Yamuna Powers Ltd., allowed 60% depreciation, treating them as part of the computer system. The Tribunal upheld this decision, dismissing the Revenue's appeal. 6. Confirmation of Disallowance under Section 14A of the Income Tax Act: The Assessing Officer disallowed expenses under Section 14A r.w. Rule 8D, related to earning exempt income. The CIT(A) confirmed the disallowance. The Tribunal partially allowed the assessee's appeal, directing the Assessing Officer to disallow only 0.5% of the average value of investments as per Rule 8D(2)(iii), recognizing that administrative and establishment costs are involved in managing investments. Conclusion: The Tribunal allowed the Revenue's appeals for the assessment years 2003-04, 2004-05, 2007-08, and 2010-11. For the assessment years 2005-06 and 2006-07, the appeals were partly allowed for statistical purposes. The assessee's appeal for the assessment year 2010-11 was also allowed for statistical purposes.
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