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2016 (3) TMI 872 - ITAT VISAKHAPATNAM

2016 (3) TMI 872 - ITAT VISAKHAPATNAM - TMI - Disallowance of excess depreciation claimed on Iris Cameras - Held that:- 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 .....

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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 Therefore, we are of the opinion that the Iris camera without the aid of software is obsolete and it cannot be used in the normal course of business.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 depreciation as claimed by the assessee. - Decided in favour of assessee

TDS u/s 194J - disallowance of franchisee fees u/s 40(a)(ia) on non TDS - A.O. was of the opinion that the paym .....

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agreement was entered on 18.4.1999 and ended on 17.4.2005. As per clause 3.9 of the agreement, it was specifically mentioned that the date of termination of the agreement is 17.4.2005. We further noticed that the clause 7 of agreement provides for termination of agreement. As per clause 8 of the agreement, it was specifically mentioned that 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 recor .....

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ent was terminated and business was closed during the financial year 2005-06 relevant to assessment year 2006-07. Though, the expenditure has been paid in earlier years and considered as prior period expenditure, still it can be claimed as expenditure deductible for the year under consideration as long as it was incurred for business purpose. When the prior period expenditure/liability claimed as business expenditure for the relevant assessment year, the point to be considered is whether the cla .....

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ND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Appellant by : Shri S. Rama Rao, AR For The Respondent : Shri P. Srinivasa Murthy,DR ORDER PER G. MANJUNATHA, Accountant Member: These appeals filed by the assessee are directed against the separate, but identical orders of CIT(A), Visakhapatnam dated 15.2.2013 for the assessment year 2006-07 & 2007-08. Since, the issues involved in these appeals are common, they are clubbed, heard together and disposed of by way of this common ord .....

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ed 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 f .....

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esponse to show cause notice, the assessee submitted that it has purchased Iris camera for execution of specified work for A.P. Government, Food & Civil Supplies Department for preparation of photo ID ration cards for the beneficiaries. As per the said agreement, the assessee has to prepare photo ID ration cards with the iris image of beneficiaries. The contract is for a period of 2 years and after the contract, the Iris cameras along with software and hardware used for capturing the Iris sh .....

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iation. The A.O., however, after considering the explanations furnished by the assessee held that the Iris camera is nothing but normal digital camera eligible for depreciation of 15% under normal block of plant and machinery. Since, assessee purchased the asset and put to use on or after 1.10.2005, the A.O. calculated depreciation @ 7.5% and disallowed the excess depreciation amounting to ₹ 19,29,500/- 4. Similarly, the A.O. noticed that the assessee has claimed expenditure of ₹ 4,4 .....

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logy Group International Limited for running a franchisee for software training and educational courses. As per the franchisee agreement, it needs to make technical knowhow fee and training resources fee of ₹ 4,50,000/-. The said amount has been paid during the financial year 1999-2000, therefore, no TDS has been deducted. The A.O. after considering the explanations furnished by the assessee held that the franchisee fee attracts TDS u/s 194J of the Act. Since, assessee failed to deduct TDS .....

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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 i .....

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ted TDS on such payment. The provisions of section 40(a)(ia) was not in force when the payment was made, therefore, no disallowance can be made for franchisee fee. 6. The CIT(A), however, after considering the explanations furnished by the assessee held that the Iris camera is a hardware component and is akin to any digital camera. It has its own utility as hardware. It may need data card software for its function, but that would not mean that the camera as such is obsolete. With these observati .....

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u/s 40(a)(ia) of the Act is deleted. However, the CIT(A) further observed that the claim of franchisee fees expenses of ₹ 4,49,990/- in the subject previous year is not justified as the training centre was closed on 17.4.2006. As per the agreement, the impugned amount related to the term of the agreement i.e. for 6 years. The claim that the amount was kept as deposit and written off is not acceptable in view of clear provisions contained in franchisee agreement that it is a fee for man pow .....

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but a normal digital camera, coming under plant and machinery and eligible for 15% depreciation. It was the contention of the assessee that Iris camera is not a mere digital camera. 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 a .....

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he 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 & loss account. 8. We have considered the submissions of the assessee and also gone through the orders of the authoriti .....

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ertain that once the software is returned, whether the Iris cameras work independently without the aid of that software or not. It is the contention of the assessee that without the aid of software provided with the Iris camera, the cameras become obsolete and cannot be used in its business. On perusal of the paper book filed by the assessee, we find that the Iris camera is a sophisticated equipment works with the aid of software and computer along with other accessories. As stated in the clause .....

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specified software provided along with Iris access system. Though the CIT(A) stated that the camera is a hardware component and it is akin to any digital camera, it is not certain that Iris camera can be used for general purposes. Therefore, we are of the opinion that the CIT(A) was not correct in coming to the conclusion that the Iris camera is a hardware component and it is akin to any digital camera and hence eligible for normal depreciation of 15% as a plant and machinery. 9. The assessee s .....

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pes 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 .....

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e assessee. 10. The next issue came up for our consideration is disallowance of franchisee fees u/s 40(a)(ia) of the Act. The A.O. was of the opinion that the payment of franchisee fees is in the nature of technical fees, attracts provisions of section 194J of the Act. Since, assessee fails to deduct TDS, disallowed the amount u/s 40(a)(ia) of the Act. On first appeal, the CIT(A) held that the impugned payment was not made during the previous year and hence there is no liability for TDS. Accordi .....

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amount u/s 37 of the Act. It was the contention of the assessee that the subject agreement was terminated during the financial year 2005-06 relevant to assessment year 2006-07. Therefore, it has rightly claimed the expenditure on termination of the agreement. 11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. disallowed the amount for the reason that assessee has failed to deduct TDS on payment of franchis .....

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of the agreement, we find that the agreement was entered on 18.4.1999 and ended on 17.4.2005. As per clause 3.9 of the agreement, it was specifically mentioned that the date of termination of the agreement is 17.4.2005. We further noticed that the clause 7 of agreement provides for termination of agreement. As per clause 8 of the agreement, it was specifically mentioned that 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 th .....

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t 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 on .....

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