2015 (6) TMI 279 - AT - Income Tax

Disallowance of Management Fee - CIT(A) deleted the addition - Held that - Appellant has submitted detailed working of the basis of allocation of expenditure bet n the appellant and SOIPL and has also adequately explained additional queries raised by my office on basis of allocation adopted by the appellant under all possible odd situations. Detailed note to substantiate that the said cost recharge has not resulted in any loss to the Revenue has also been submitted by the Appellant.On the contrary, the AO has made its allegations merely on theories and nothing has been brought on record to show that the management fee is not related to the business of the appellant or has not actually been incurred. Thus, the addition made by the AO to the income of the appellant by disallowing the management expenditure reducing the amount of returned loss is deleted correctly by CIT(A) - Decided in favour of assessee. Disallowance of advertisement expenditure - CIT(A) deleted the addition - Held that - No merit in allegation of the AO that merely as this is the first year of operation of the Company the advertisement expenditure would render enduring benefit to the company. Moreover, the AO has failed to define the period over which such benefit is expected to be incurred. Thus, placing reliance on the judicial precedents specifically the decision jurisdictional Delhi High Court in case of Salora International (2008 (8) TMI 138 - DELHI HIGH COURT ) and Brilliant Tutorials P Ltd (2007 (1) TMI 147 - MADRAS High Court ) which is on similar fact pattern, the claim of advertisement expenditure made by the appellant is correct and the addition made by the AO is deleted - Decided in favour of assessee. Disallowance of filing fee - Held that - CIT(A) has allowed the relief on the basis of submissions of the assessee that these expense were inadvertently reported in audit report and actually these related to financial year 2008-09. We do not find any infirmity in his findings - Decided against revenue. Depreciation on accessories and peripherals of computer - Held that - The accessories and peripherals of computer provide input processing, storage and various output devices. The output devices such as printers, scanner etc. are computer peripherals and form essential parts of the computer. These output devices cannot work in isolation and also working on computer system without an output device such as printer would be futile. In view of the same, the claim of depreciation at 60 percent on printer, scanner, and other computer peripherals by the appellant seems justified. The same position has been accepted by various Tribunals wherein it has been held that computer peripherals such as routers, switches, printers etc are eligible for depreciation at the rate of 60 percent. In view of the same, the claim of depreciation by the appellant is correct and the addition made by the AO is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of Management Fee
2. Capitalization of Advertisement Expenses
3. Disallowance of Filing Fees for Increasing Authorized Share Capital
4. Depreciation on Printers and Other Peripherals

Issue-wise Detailed Analysis:

1. Disallowance of Management Fee:
The Revenue appealed against the deletion of Rs. 1,34,35,168/- made by the Assessing Officer (AO) on account of disallowance of management fee. The AO argued that the assessee could not provide bill-wise details of services received, and all bills were dated 31.03.2008, suggesting the expenses were booked to lower profits. However, the assessee contended that the expenses were shared between group companies based on the number of students registered, and appropriate taxes were deducted. The Tribunal observed that the expenses were charged based on man-hours spent, and there was no tax advantage to the group as a whole. The CIT(A) had reasonably dealt with the issue, and the Tribunal found no infirmity in the CIT(A)'s findings, thus dismissing the Revenue's ground.

2. Capitalization of Advertisement Expenses:
The AO had disallowed advertisement expenses, treating them as capital in nature, providing enduring benefits. The CIT(A) held that the AO failed to define the period over which such benefits would be incurred and relied on judicial precedents, including the Delhi High Court's decision in Salora International and the Madras High Court's decision in Brilliant Tutorials. The Tribunal agreed with the CIT(A)'s findings, noting no merit in the AO's allegations, and dismissed the Revenue's ground.

3. Disallowance of Filing Fees for Increasing Authorized Share Capital:
The AO disallowed Rs. 1,22,500/- paid to the Registrar of Companies for increasing authorized share capital, treating it as a capital expenditure. The assessee argued that the expense was inadvertently reported in the audit report for the wrong financial year and provided evidence to support their claim. The CIT(A) directed the AO to verify the materials and grant appropriate relief. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the Revenue's ground.

4. Depreciation on Printers and Other Peripherals:
The AO disallowed depreciation on computer peripherals, treating them as not eligible for higher depreciation rates. The CIT(A) held that peripherals like printers and scanners are essential parts of a computer system and eligible for 60% depreciation, relying on various Tribunal decisions. The Tribunal agreed with the CIT(A)'s findings, based on the decision of the Hon'ble Jurisdictional High Court, and dismissed the Revenue's ground.

Conclusion:
All three appeals filed by the Revenue were dismissed, and the Tribunal upheld the CIT(A)'s decisions on all issues. The order was pronounced in the open court on 31st Oct., 2014.