2016 (1) TMI 1207 - AT - Income Tax

Tribunal rules in favor of Assessee on appeal citing procedural irregularities, depreciation rates, and expense disallowances.

M/s Megasoft Solutions (India) Pvt. Ltd. Versus DCIT, Circle 16 (2), New Delhi

The Tribunal partly allowed the Appeal, ruling in favor of the Assessee on several grounds, including procedural irregularities, depreciation rates, ... Lower rate of depreciation on CCTV cameras - Held that:- CCTV cameras cannot function without computer, as to see the footage captured by CCTV camera you need a device in the shape of computer and thus, Computer is an integral part of CCTV camera and as such, is eligible for depreciation at the rate of 60% as prescribed for Computers under the Income Tax Act and accordingly, allow the depreciation @ 60% on the issue in dispute. This view is fully supported by the following case laws:- High Court of Delhi in the cases of CIT vs Citicorp Maruti Finance Ltd. (2010 (11) TMI 802 - Delhi High Court) and CIT vs Bonanza Portfolio Ltd. reported [2011 (8) TMI 1058 - DELHI HIGH COURT] Disallowance of expenditure on advertisement expenses - Held that:- The said expenditure was genuine one as the same was paid to Lion Club for advertisement in District Directory for good and effective medium for company's products and services, as is evident from the receipt filed at pages 165 of the paper book and delete the addition in dispute by relying on the judgment of Hon'ble High Court of Delhi in the case of CIT vs. Salora International Limited [2008 (8) TMI 138 - DELHI HIGH COURT] wherein it has been held that expenses incurred for advertisement and sales promotion and brand building are allowable expenses. Adhoc disallowance expenditure (i.e. 10% of the telephone expense and vehicle running and maintenance expenses) and (40% of the festival expenses) - Held that:- The disallowance of ₹ 1,24,003/- (10% of the telephone expenses and vehicle running and maintenance expenses) made by AO are without any basis and purely adhoc disallowances made for personal use or vouchers in the hands of the company which is not permissible in the eyes of law. I also note that the disallowance of ₹ 36,056/- (40% of the festival expenses) has been incurred exclusively for the business purpose and all the payments had been through bank with proper supporting vouchers, hence, both the additions in dispute are deleted Disallowing the donation and not allowing the deduction under section 80G - Held that:- Expenditure was paid for brand promotion and effective marketing of company's products and services, as is evident from the receipt filed at page 166 of the paper book. Hence, the addition in dispute is deleted. Also find that even otherwise the assessee is eligible for deduction under section 80G of the I.T. Act, 1961. This view is fully supported by the decision of the Hon'ble High Court of Delhi in the case of CIT vs. Salora International Limited [2008 (8) TMI 138 - DELHI HIGH COURT] wherein, it has been held that the expenses incurred for advertisement and sales promotion and brand building are allowable expenses. Issues Involved:1. Violation of principles of natural justice by the Learned CIT (A).2. Discrepancies in the service of notices for hearings.3. Lower rate of depreciation on CCTV cameras.4. Disallowance of advertisement expenses.5. Adhoc disallowance of expenses.6. Disallowance of donation and deduction under Section 80G.7. Penalty proceedings under Section 271(1)(c) and interest under Section 234B.Issue 1: Violation of principles of natural justice by the Learned CIT (A):The Assessee contended that the Learned CIT (A) erred in passing the order without providing sufficient opportunity for a hearing, thus violating the principles of natural justice. The Assessee argued that they were not adequately heard before the order was passed.Issue 2: Discrepancies in the service of notices for hearings:The Assessee raised concerns about discrepancies in the service of notices for hearings, stating that certain notices were not served upon them. This discrepancy led to confusion regarding hearing dates and availability of the CIT (A).Issue 3: Lower rate of depreciation on CCTV cameras:The main contention was regarding the depreciation rate for CCTV cameras. The Assessee argued that CCTV cameras cannot function without a computer, making the computer an integral part of the CCTV system. Therefore, they claimed that depreciation should be allowed at the rate of 60% as prescribed for computers under the Income Tax Act.Issue 4: Disallowance of advertisement expenses:The Assessee challenged the disallowance of advertisement expenses, providing evidence that the expenditure was genuine and incurred for promoting the company's products and services. They relied on previous judgments to support their claim that such expenses are allowable.Issue 5: Adhoc disallowance of expenses:Concerns were raised regarding the adhoc disallowance of expenses by the Assessing Officer without proper basis or evidence. The Assessee argued that the disallowances were made for personal use without justification, and all expenses were incurred exclusively for business purposes with proper documentation.Issue 6: Disallowance of donation and deduction under Section 80G:The Assessee contested the disallowance of a donation made for the purpose of advertisement and the denial of deduction under Section 80G. They provided evidence that the donation was for brand promotion and marketing, emphasizing that such expenses are allowable. They also asserted their eligibility for deduction under Section 80G.Issue 7: Penalty proceedings under Section 271(1)(c) and interest under Section 234B:The Assessee argued against the initiation of penalty proceedings under Section 271(1)(c) and the levying of interest under Section 234B. They claimed that no penalty should be imposed as the return of income was revised by the Assessee before any query was raised by the Assessing Officer. Additionally, they contended that interest under Section 234B should not have been charged.This judgment addressed various issues raised by the Assessee, including procedural irregularities, depreciation rates, expense disallowances, and penalty proceedings. The Tribunal partly allowed the Appeal, ruling in favor of the Assessee on several grounds, citing legal precedents and evidence to support their decision.