TMI Blog2016 (5) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... of Punjab State Industrial Development Corporation Limited v. CIT [ 1996 (12) TMI 6 - SUPREME COURT] wherein, held that the fee paid to the Registrar for expansion of the capital base of the company was directly related to capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of capital expenditure since the expenditure was directly related to the expansion of capital base of the company and thus it was not an expense in the nature of revenue - Decided in favour of revenue. Disallowance of lease rentals - main argument of the AR is that the lease rental was crystallized during the assessment year 2005-06 and 2006-07 and the same was claimed in these years - ssessee is following mercantile system of accounting - HELD THAT:- The expenditure relating one assessment year cannot be claimed in another assessment year since each assessment year is an independent assessable unit. The assessee was following mercantile system of accounting and the expenses not recorded in relevant assessment year, the same cannot be allowed as deduction because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Equipments. In view of the above findings of the ld. CIT(A), we find no reason to interfere with the order passed by the ld. CIT(A) on this issue. Thus, the ground raised by the Revenue is dismissed. Allowability of depreciation on printers and scanners - assessee has claimed depreciation at 60% on printers and scanners under the head Computers - AO has restricted the depreciation to 15% and the excess depreciation was added back to the total income of the assessee - HELD THAT:- We find that the Hon ble Delhi High Court in the case of BSES Yamuna Powers Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT] has held that computer accessories and peripherals such as printers, scanners and server etc. formed an internal part of the computer system and, in fact, the computer accessories and peripherals cannot be used without the computer. The Hon'ble High Court thus held that they are the part of the computer system and are entitled to depreciation at the higher rate of 60%. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- In the argument advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted for scrutiny and notice under section 143(2) of the Act was duly served on the assessee. The assessee filed all details as required by the Assessing Officer. 3. Against the claim of depreciation of 60% on V-sat equipment, the Assessing Officer has restricted the depreciation at 25% and completed the assessment under section 143(3) of the Act by determining the income of the assessee at Rs. .30,97,639/- under normal provisions and under section 115JB of the Act, the income of the assessee was worked out to Rs. .1,19,19,881/-. 4. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) allowed the claim of depreciation of 60% on V-sat equipments for both the assessment years 2003-04 and 2004-05. Similarly, for the assessment years 2005-06, 2006-07 and 2007-08 also the ld. CIT(A) has allowed the claim of depreciation of 60% on V-sat equipments. 5. On being aggrieved, the Revenue is in appeal for all the assessment years with regard to allowance of 60% depreciation on V-sat equipments. The ld. DR by relying on the decision of Ahmedabad Bench of the Tribunal in the case of Anagram Capital Ltd. v. ACI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as eligible far higher deprecation [Simca Meters Ltd. 251 ITR 46]. 9. On perusal of the definition of 'Computer System' under the Explanation to clause (ix) of Section 36, it, can be noticed that devices supporting communications are also included in the definition. Further, the Sec. 2 of Information Technology Act of 2000 has explicitly laid dawn that a 'Computer' includes 'computer network', the latter also defined as a multitude of computers connected through communication media. By virtue of reading bath the definitions under Income Tax Act 1960 and Income Tax Act, 2000, the V-sat equipment as the communication device connecting the computers into a computer network and thus, is eligible to be treated as a computer. Thus, it can be seen that the V-sat is connecting all the computers at different locations and different ends to bring the entire intranet into active operation. By relying upon the ratios in the above definitions and case laws, it is held that the V-sat is an integral part of the computer in work and hence, is eligible for depreciation at 60%. The AO is directed to modify the depreciation accordingly. This ground is allowed in AYs 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee very fairly conceded that in the preceding assessment year 2003-04 the assessee did not prefer any appeal before the Tribunal against the order of the learned CIT(A) and as such the order of the learned CIT(A) in assessment year 2003-04 has become final. He has however, relied upon the order of ITAT, Mumbai Special Bench in the case of DCIT Vs Datacraft India Ltd., 40 SOT 295 and reiterated the submissions made before the authorities below. 4. On the other hand, the learned DR relied upon the orders of the authorities below. 5. We have considered the rival submission and the material available on record. The question before the ITAT Special Bench, Mumbai in the case of Datacraft India Ltd. (supra) was whether routers and switches can be classified as computer entitled to depreciation at 60 per cent or have to be classified as general plant and machine entitled to depreciation only at 25 per cent. The Special Bench in view of the decision made in the order stated that it can be said that routers and switches can be classified as computer hardware when they are used along with a computer and when their functions are integrated with computer. In other words, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2005-06, the assessee has claimed the expenditure of Rs. .5,00,000/- and Rs. . 4,00,000/- for the assessment 2007-08 under Rates and taxes paid to Registrar of Companies [ROC] towards enhancing the authorised share capital as revenue expenditure. However, the Assessing Officer has not accepted the claim of the assessee in view of the decision of the Hon ble Delhi High Court in the case of CIT v. Hindustan Insecticides Ltd. 250 ITR 338, wherein, the Hon ble High Court has observed that the matter is squarely concluded in favour of the Revenue by two decisions of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited v. CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. v. CIT 225 ITR 798. 12. The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) has held that since the expenditure is incurred for the purpose of enhancing the working capital of the company, the fees paid to the ROC will be eligible to be treated as revenue expenditure for both the assessment years. 13. On being aggrieved, the Revenue is in appeal before the Tribunal. 14. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 84,76,983/- Total 50,98,231/- 2006-07 Nelco 15,35,040/- Nelco 15,35,040/- HCL Comnet 71,91,971/- HCL Comnet 3,60,000/- Total 87,27,011/- Total 18,95,040/- From the above, the amount claimed as lease rentals paid to NELCO has been disallowed by the Assessing Officer stating that the liability has not been crystallized. The lease rentals amounting to Rs. .21,81,591/- in the assessment year 2005-06 and Rs. .15,35,040/- in the assessment year 2006-07 paid to NELCO were claimed by the assessee, as submitted in its letter dated 23.12.2007 for the assessment year 2005-06 before the Assessing Officer is reproduced as under: (a) Rs. .2,66,436/- related to financial year 2003-04 but paid late during 2004-05 on 21.09.2004 due to dispute with the party as explained above on payment basis, as dispute got resolved late. (b) Rs. .16,75,155/- being lease rent paid during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the submissions of the assessee, the ld. CIT(A) directed the Assessing Officer to allow the claim of the assessee with regard to lease rentals for both the assessment years. 22. On being aggrieved, the Revenue is in appeal before the Tribunal. 23. We have heard both sides, perused the materials on record and gone through the orders of authorities below. After considering the submissions of the assessee, the ld. CIT(A) has observed as under: 34. I have gone through the rival contentions. As narrated by the AR, vide his letter dated 23.12.2007 filed before the AO, it is a fact that the payments were with held in the earlier years but were all crystallized in this FY 2004-05 and 2005-06 following the settlement of the disputes, complaints and grievances with NELCO. The later event of purchasing the V-sat equipments from NELCO would not make liability a contingent one. The mere fact that the payments have been made after the disputes are settled would make the amounts crystallized in this same year. Further, it is immaterial whether the said amounts were debited to the books or claimed in the computation memo. The claims would be eligible for deduction following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to the lease transactions with HCL Comnet Ltd., the ld. CIT(A) has observed that the advance payments were down payments towards lease rentals for both the assessment years. It is a fact that a mere down payment does not make the transaction a sale nor the amount can be treated as refundable deposit without any basis. Therefore, these expenditures should be considered as revenue expenditure. Further, the Assessing Officer has not given any finding to disallow the band width charges for 256 KBPS and lease rental charges paid to various franchisees as well as v-sat shifting charges. Though both the items are not provided in the books of accounts, but the assessee has made the claim in the computation of income statements, which is found to be in order in view of the judgement of the Hon ble Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders P. Ltd. 349 ITR 336. Therefore, the ld. CIT(A) has rightly held that both the charges would be treated as revenue items and eligible for deduction. Thus, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. 25. In the cross appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prays for directions to the assessing officer to allow the depreciation @ 15% on Office Equipments and render justice and other contentions of the assessing officer in this connection are dealt with as follows. In the case of assets acquired by the assessee during the previous year, proviso to section 32 of the Income Tax Act, 1961 permits 50% of the applicable rate of depreciation. Hence, the assessee has claimed 50% of applicable rate of depreciation as per the above proviso and complied with the provisions of section 43(6)(c) of the Income Tax Act, 1961 applicable to Block of assets and there is no violation of any of the above provisions of Income Tax Act, 1961 quoted by the assessing officer. After considering the above submissions of the assessee, the ld. CIT(A) was of the opinion that the claim of the assessee seems to be in order. He also observed that as per Appendix-I to Rule 5 of Income Tax Rules, 1962, Block III(i), the depreciation rate is 15% for office equipments. Depreciation rate of 10% is applicable for Furniture and Fittings falling in Block II to the above Appendix-I. Office equipments obviously and apparently falling under Block III are entitled to 15% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has received exempt income but not disallowed any expenditure relatable to earning of such income even though it has debited several expenses in P L account in earning income during the year. The Assessing Officer was of the opinion that some expenditure, direct or indirect, must have been incurred and such expenditure should be disallowed as per section 14A of the Act. Thus, the assessee was asked to clarify as to why the disallowance should not be made under section 14A r.w. Rule 8D. The assessee vide its reply dated 15.2.2013 stated that no disallowances is called for as the above amounts already suffered tax by way of DDT/STT. The contention of the assessee was not accepted and worked out the disallowance under section 14A r.w. Rule 8D and added back to the total income of the assessee. 37. On appeal, after considering the submissions of the assessee and also by considering various judicial pronouncements, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 38. On being aggrieved, the assessee is in appeal before the Tribunal. 39. We have heard rival contentions and perused the materials available on record and gone through the orders of autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Boyce vs. DCIT, wherein it has been held that disallowance under Sec. 14A is 'fair and reasonable'. 40. After considering various judicial pronouncements, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. In this case, the assessee has not maintained separate account for its investments in mutual funds/shares. Moreover, the assessee has incurred an amount of Rs. .2,61,38,850/- as interest and other finance expenses during the year. The assessee has also claimed that borrowed funds were not utilized for making investments. The Assessing Officer has observed that the funds for the company come in a common kitty and it comprises of borrowed funds, share capital and retained earnings (Reserves Surplus). Therefore, he held that borrowed funds were not utilized for making investment in mutual funds/shares. 41. Before us, the ld. Counsel for the assessee has strongly contended that the share capital plus free reserve of the assessee is Rs. .54.92 crores, whereas the total investments itself is Rs. .2.019 crores and out of which, the investment in subsidiary account for Rs. .2.00 crores and therefore, the ld. Counsel for the assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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