Estimated expense disallowance and higher depreciation on computer peripherals and software are upheld in favour of the assessee.

An estimated disallowance of expenses for alleged non-verifiability is not sustainable where the assessing officer identifies no specific defective item, expenditure head, or evidentiary basis supporting the estimate. Computer peripherals such as UPS, printers and networking routers are treated as integral parts of the computer system and are eligible for the higher depreciation rate applicable to computers. Computer software is likewise regarded as part of the computer system and also qualifies for the higher depreciation rate prescribed for software. The assessee was stated to have succeeded on all disputed additions, and the departmental challenge failed.

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Issues: (i) Whether the disallowance of expenses made on an estimated basis for alleged non-verifiability was sustainable; (ii) whether computer peripherals such as UPS, printers and networking routers were entitled to depreciation at the higher rate applicable to computers; (iii) whether computer software was entitled to depreciation at the higher rate applicable to computer systems.

Issue (i): Whether the disallowance of expenses made on an estimated basis for alleged non-verifiability was sustainable.

Analysis: The assessing officer had not identified any specific item of unverifiable expense, any particular head of expenditure, or any material basis to justify the estimate. A small disallowance made without supporting evidence could not be sustained when no concrete defect in the vouchers or expenses was established.

Conclusion: The disallowance of expenses was not sustainable and was rightly deleted.

Issue (ii): Whether computer peripherals such as UPS, printers and networking routers were entitled to depreciation at the higher rate applicable to computers.

Analysis: Computer accessories and peripherals form an integral part of the computer system because they cannot function independently of the computer. In view of the jurisdictional precedent, such items are to be treated as part of the computer system for depreciation purposes.

Conclusion: Higher depreciation at the rate applicable to computers was allowable.

Issue (iii): Whether computer software was entitled to depreciation at the higher rate applicable to computer systems.

Analysis: Computer software was treated as an integral component of the computer system. The applicable depreciation schedule also specifically provided a higher rate for computer software, supporting the assessee's claim.

Conclusion: Higher depreciation at the rate applicable to computer software was allowable.

Final Conclusion: The assessee succeeded on all disputed additions, and the departmental challenge failed in full.

Ratio Decidendi: Where no specific defect or evidentiary basis is shown, an estimated disallowance cannot stand, and computer peripherals and software forming an integral part of the computer system are eligible for the higher depreciation rate.

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