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2014 (12) TMI 890 - ITAT BANGALOREClaim of higher rate of depreciation i.e. 60% on the routers and switches treating them as computers – Held that:- As decided in assessee’s own case for the earlier assessment year, the same rate is followed in allowing depreciation at the rate of 60% - the AO is directed to adopt that rationale for the relevant AY also and allow depreciation at the rate of 60% on routers and switches. Audio visual conferencing equipments and video streaming equipments – Held that:- To treat the equipment as computer or computer system, the nature of the equipment and the functions they perform are to be examined - all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming - Some of the components may exist independently and may also be functioning independently but in the assessee’s business they are only performing the functions as input and output devices - The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity - the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery - The AO shall allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery - assessee also advanced an alternative argument that once the equipment has entered the ‘fleet of assets’ and depreciation has been allowed at the rate of 60% in the earlier years, the same cannot be treated as plant and machinery during the relevant assessment year and depreciation granted at lower rate of 15%. Administrative support services fee incurred by the assessee disallowed u/s 40A(2)(b) – Held that:- The assessee has filed on 14-7-2014, the break-up of the expenditure as per profit and loss account during the financial year 2007-08 - the services rendered by Cisco India to the assessee are in the nature of Financial and Accounting services, legal and tax related issues information system and related issues, Treasury services, Asset Management/residual value analysis, credit analysis and deal execution - to invoke the provisions of sec.40A(2) of the Act, the AO cannot make an ad hoc disallowance u/s 40A of the Act but has to determine the expenses which are excessive and unreasonable - The AO has failed to point out any particular expenditure which according to him, is excessive or unreasonable but has made an ad hoc disallowance which is not sustainable - disallowance u/s 40A(2) can be made only if the alleged excessive and unreasonable payment is made to any person enumerated under clause (b) of sub-sec.(2) of sec.40A of the Act - the AO has not brought out anything on record to show that Cisco India Ltd., falls in any of the categories of persons enumerated under clause (b) of sub-section (2) of sec.40A - The recipient of the payment i.e. Cisco India, definitely does not fall under any of the categories of persons under clause (b) of sub-sec.(2) of sec.40A - The AO has not carried out any exercise to bring on record that Cisco India has got substantial interest in the business or profession of the assessee or that it falls in any of the categories of persons - the disallowance u/s 40A(2)(b) of the Act is not called for. Computation of total income – set off of brought forward depreciation/loss - Held that:- The AO has given a finding that the tax payer did not produce any supporting evidence to establish that the services were actually received by it - except for stating that the assessee has received administrative management services, no evidence is produced to substantiate the claim - the TPO has held that the assessee has failed to produce any evidence to substantiate its claim of receiving services, but has not compared the margins declared by the assessee with the margins of the comparable companies for similar services – thus, the matter is remitted back to the TPO for re-adjudication – Decided in favour of assessee.
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