2012 (9) TMI 469 - AT - Income Tax

Addition on account of unrealized gain from forward contract Offered for tax by the assessee - Corresponding entry is also disclosed as Unrealized Profit on Forward Exchange Contracts and Financial Instruments as Loans and Advances in Balance sheet Held that - As the assessee has already offered the impugned amount in its audited accounts therefore again addition of the same will lead to double taxation. Decision in favour of assessee. Legal and professional charges capital or revenue in nature Fee paid to advocates for SLP filed before the Supreme Court die modification charges and payment of court fees - Held that - As the assessee had not obtained benefit of any enduring nature by way of this expenditure. These expenditures which are incurred in the ordinary course of business have to be allowed to the assessee and the same cannot be disallowed by treating the same as capital in nature. Decided in favour of assessee. Disallowance of depreciation u/s 32 Rate of depreciation on computer accessories and peripherals - Held that - Following the decision of Delhi High court in case of BSES Rajdhani Powers Ltd. (2010 (8) TMI 58) that computer accessories and peripherals such as printers scanners and server etc. form an integral part of the computer system as they cannot be used without the computer. Hence same are the part of the computer system and entitled to depreciation at the higher rate of 60%. Decision in favour of assessee.

Summary

Issues Involved:
1. Disallowance of unrealized profit on forward exchange contract
2. Addition of Rs. 14,00,000 on account of capitalization of legal and professional charges
3. Disallowance of extra depreciation on computer peripherals/accessories

Analysis:

Issue 1: Disallowance of unrealized profit on forward exchange contract
The Assessing Officer (AO) added Rs. 14,32,41,170/- as unrealized profit on a forward exchange contract due to a fluctuation in foreign currency rates. The Commissioner of Income Tax (Appeals) observed that the amount had already been disclosed in the Profit and Loss account and reconciled in the audited report. The Commissioner concluded that the addition would result in double taxation as the amount had already been offered for tax. The Tribunal upheld the Commissioner's decision, stating that the addition would lead to double taxation and favored the assessee.

Issue 2: Addition of Rs. 14,00,000 on account of capitalization of legal and professional charges
The AO disallowed Rs. 14,00,000 as capital expenditure, citing the case law of C.I.T. vs. Madras Auto Services. However, the Commissioner held that the expenses were incurred in the ordinary course of business and not for any enduring benefit. Relying on the case law of C.I.T. vs. JK Synthetics Ltd., the Commissioner decided that the expenditure was revenue in nature. The Tribunal agreed with this view, stating that the expenses did not result in any enduring benefit and were incurred in the regular course of business, thus upholding the Commissioner's order.

Issue 3: Disallowance of extra depreciation on computer peripherals/accessories
The AO allowed only 15% depreciation on computers instead of the claimed 60%. The Commissioner, referring to relevant case laws and a Delhi High Court decision, held that computer peripherals and accessories are integral to the computer system and entitled to higher depreciation at 60%. The Tribunal, in line with the High Court decision, upheld the Commissioner's order, allowing the higher rate of depreciation. Consequently, the appeal filed by the Revenue was dismissed.

In conclusion, the Tribunal's decisions favored the assessee in all three issues, emphasizing the principles of avoiding double taxation, distinguishing between capital and revenue expenditures, and recognizing the integral nature of computer peripherals in depreciation calculations.