2010 (12) TMI 606 - AT - Income Tax

Bonus and incentive paid to Managing Director and Director of the company - Held that Section 36(1)(ii) provides that commission will not be allowed as deduction if it had not been paid so it would be paid as profits or dividend - Hence 2% amount paid to the directors on the basis of sales became their salary and there was no question of applicability of Section 36(1)(ii)- Decided in favour of assessee. Depreciation on computer accessories and peripherals - As per the Hon ble Delhi High Court in the case of CIT vs. BSES Yamuna Powers Ltd. 2010 -TMI - 78240 - DELHI HIGH COURT Held that computer accessories and peripherals such as printers scanners and server etc. form an integral part of the computer system - In fact the computer accessories and peripherals cannot be used without the computer - Consequently as they are the part of the computer system they are entitled to depreciation at the higher rate of 60%. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of bonus and incentive paid to directors.
2. Disallowance of extra depreciation claimed on computer peripherals.

Issue 1 - Disallowance of bonus and incentive paid to directors:
The appeal was filed by the Revenue against the CIT(A) order for AY 2007-08. The Revenue contested the deletion of an addition of Rs.20,64,795 on account of bonus and incentive paid to the Managing Director and Director of the company. The AO disallowed the claim under Section 36(1)(ii), arguing that the directors, being major shareholders, could receive the amount as profit or dividend. However, the CIT(A) allowed the amount based on the ITAT decision in ACIT vs. Bony Polymers, emphasizing that Section 36(1)(ii) does not apply without evidence that the commission would have been paid as dividends. The CIT(A) referred to CBDT Circular No.551, stating that commission payment alone is essential, and excessiveness can be examined under Section 40A(2). The ITAT upheld the CIT(A)'s decision, noting that the payments were based on sales and were akin to salary, not dividends. The appeal was dismissed.

Issue 2 - Disallowance of extra depreciation on computer peripherals:
The AO disallowed the claim for 60% depreciation on computer peripherals and accessories, restricting it to 15%. The CIT(A) granted relief to the assessee, citing the decision in the case of Container Corporation. The ITAT upheld the CIT(A)'s decision, referencing the Delhi High Court decision in CIT vs. BSES Yamuna Powers Ltd., which held that computer accessories and peripherals are integral to the computer system and entitled to higher depreciation rates. Consequently, the appeal on this ground was also dismissed.

In conclusion, the ITAT, New Delhi dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the bonus and incentive payments to directors and the claim for higher depreciation on computer peripherals. The judgments were based on legal interpretations and precedents, ensuring fair treatment and compliance with tax laws.