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TMI Blog2016 (3) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter called as 'the Act') on 7.2.2007. The case was reopened under sec. 147 of the Act, by issuing notice u/s 148 of the Act. In response to notice issued u/s 148, the assessee has filed a letter stating that the return filed originally u/s 139(1) of the Act, may be treated as return filed in response to notice u/s 148 of the Act. Subsequently, the case has been selected for scrutiny and accordingly, notice u/s 143(2) and 142(1) of the Act were issued. In response to notice, the authorized representative of the assessee appeared from time to time and furnished the books of accounts and other relevant information. 3. During the course of assessment proceedings, the A.O. noticed that the assessee has claimed depreciation @ 50% on Iris cameras. The A.O. was of the opinion that the Iris Camera is a plant & machinery coming under general block, eligible for 15% depreciation, as against the assessee claimed 50% depreciation, therefore, issued a show cause notice and asked to explain why excess depreciation claimed should not be disallowed. In response to show cause notice, the assessee submitted that it has purchased Iris camera for execution of specified work for A.P. Government, F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Rs. 4,49,990/- has been disallowed u/s 40(a)(ia) of the Act and added to the total income. 5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated its submissions before the A.O. The assessee further submitted that as per the agreement entered into between District Collector, the life of the Iris cameras used in the execution of works contract is only 2 years. After the execution of works contract, it needs to return the software along with data captured in the Iris camera to the District Collector. Once the software is returned to the principals, the Iris camera becomes obsolete. Therefore, it has amortised and charged the cost of such Iris cameras to the profit & loss account over a period of 2 years @ 50% for each year. Similarly, as regards the disallowance of franchisee fees, the assessee submitted that on 18-4-1999 it has entered into agreement with Software Technology Group India Limited for taking franchisee to offer software training and education. As per the agreement, during the financial year 1999-2000 it has paid upfront technical knowhow and training fees of Rs. 4,50,000/-. Since, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... era. It is a part of the computer system configuration and the said equipment is found as Iris access system. It has an Iris recognition system and a computer accessory. The literature published by LG with regard to Iris access 2000, the instrument used in the business of the assessee is submitted in the paper book. The assessee further submitted that as can be seen from the literature, the equipment now under consideration is technically known as EOU(Enrolment optical unit) 3000. This recognizes the Iris for enrolment of the Iris in the server. The Iris recognition system, the software to be used for the purpose and the grabber card are supplied by the District Collector of A.P. Government for the use of Iris recognition system to be used only for the purpose of issue of various types of ration cards. Without the software, the Iris recognition system cannot be operated. The assessee further contended that the software supplied by the principals i.e. District Collector has to be returned to the Government after the work is completed. It has no right on the software supplied by the principals. Therefore, it has charged the cost of such cameras over a period of 2 years to the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated. The Iris recognition system, the software to be used for the purpose and the grabber card are supplied by the Government for the use of Iris recognition system to be used only for the purpose of issue of various types of ration cards. The assessee categorically stated that this camera cannot be used in normal course of business and it can be used only for the specified purpose of capturing Iris. The assessee taken this contract for the first time and after completion of the project he did not enter into any other contract of similar type. The cameras become obsolete once the work is over. We find force in the argument of the assessee for the reason that on perusal of details, we find that the assessee has used this cameras supplied by the principals for the specified purpose of execution of its work contract. As per the agreement, the software used for capturing Iris should be returned to the principals. Therefore, we are of the opinion that the Iris camera without the aid of software is obsolete and it cannot be used in the normal course of business. The assessee has rightly claimed 50% depreciation over a period of two years. Hence, we direct the A.O. to allow the deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the date of termination of the agreement is as per clause 3.9 of the agreement i.e. on 17.4.2005. Therefore, we are of the opinion that the CIT(A) was recorded incorrect findings of the facts to state that the agreement was terminated on 17.4.2006 and hence the impugned amount was not eligible for deduction for the year under consideration. 12. Having said that let us examine whether the CIT(A) was correct in disallowed the amount u/s 37 of the Act. The CIT(A) disallowed the amount u/s 37 of the Act, by stating that the impugned amount falls outside the financial year and hence not entitled for deduction. We do not see any merits in the findings of the CIT(A). Section 37 provides for general deductions, where any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee) incurred only and exclusively for the purpose of business or profession shall be allowed as a deduction in computing the income chargeable under the head business or profession. As per section 37, if the expenditure incurred only and exclusively for the purpose of business, then the amount should be al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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