Appeal partially granted on expenses, higher depreciation allowed on Scanner, Tribunal directs fresh decision.

The Tribunal partly allowed the appeal, setting aside the lower authorities' orders on expenses disallowance and directing a fresh decision based on the Bombay High Court's ruling. It allowed higher depreciation on the Scanner but denied it for the UPS, instructing the A.O. to adjust accordingly. The Tribunal emphasized the prospective application of Rule 8D from A.Y. 2008-09 and directed a reasonable method for calculating disallowances for A.Y. 2006-07.

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Issues:
1. Disallowance of expenses under section 14-A and depreciation on UPS and Scanner.

Analysis:
1. The appeal concerned challenges to the disallowances of expenses amounting to Rs. 7,35,145 and Rs. 18,228 made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] respectively. The expenses were related to the earning of exempt dividend income, and the depreciation claimed on UPS and Scanner. The A.O. applied Rule 8-D of the Income Tax Rules, 1962, to calculate the expenses attributable to the dividend income. The CIT(A) upheld the disallowances. The Tribunal noted that the Hon'ble Bombay High Court ruled that Rule 8D is applicable prospectively from A.Y. 2008-09 and directed the A.O. to decide the disallowance afresh using a reasonable method for A.Y. 2006-07. The Tribunal also directed the A.O. to verify the absence of interest expenditure related to earning dividend income.

2. Regarding the claim for higher depreciation at 60% on the Scanner, the Tribunal relied on the decision of the Special Bench of ITAT Mumbai in the case of DCIT vs. Datacraft India Ltd. and allowed the higher depreciation as a Scanner is considered an input device connected to a computer. However, the Tribunal held that the UPS does not qualify as an input or output device connected to a computer but rather as an electrical equipment supplying power. Therefore, the Tribunal directed the A.O. to recompute the depreciation for the UPS accordingly.

3. The Tribunal partly allowed the appeal, setting aside the orders of the lower authorities on the expenses disallowance issue and directing a fresh decision based on the Bombay High Court's ruling. Additionally, the Tribunal allowed the higher depreciation claim on the Scanner but denied it for the UPS due to its function as an electrical equipment. The A.O. was instructed to make necessary adjustments in line with the Tribunal's directions.

This detailed analysis covers the issues related to the disallowance of expenses under section 14-A and the depreciation claims on UPS and Scanner as addressed in the ITAT Mumbai judgment.

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