2013 (12) TMI 779 - AT - Income Tax

Tribunal decision on depreciation, disallowance, and rectification under Income Tax Act

M/s WEIZMANN LTD Versus DEPUTY COMMISSIONER OF INCOME TAX

M/s WEIZMANN LTD Versus DEPUTY COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Depreciation claim on dealership network under Section 32(1)(ii) of the Income Tax Act.2. Depreciation rate on printers, scanners, UPS, etc.3. Disallowance under Section 14-A of the Income Tax Act.4. Rectification order under Section 154 of the Income Tax Act for A.Y. 2001-02 regarding the provision for diminution in the value of investment.Detailed Analysis:1. Depreciation Claim on Dealership Network:The Revenue challenged the deletion of disallowance amounting to Rs. 1,84,65,131/- made by the A.O. on the assessee's claim for depreciation under Section 32(1)(ii) of the Income Tax Act. The assessee, a company dealing in foreign exchange, claimed depreciation on the dealership network acquired from AFL. The A.O. disallowed this claim, stating that the assessee failed to prove the acquisition of any right as per Section 32(1)(ii). However, the CIT(A) deleted this disallowance, following the precedent set in the assessee's own case for A.Y. 2007-08, where the dealership network was treated as an intangible asset eligible for depreciation. The Tribunal upheld the CIT(A)'s decision, relying on the earlier Tribunal order, confirming that the dealership network qualifies as an intangible asset under Section 32(1)(ii).2. Depreciation Rate on Printers, Scanners, UPS, etc.:The Revenue contested the CIT(A)'s decision to allow a higher depreciation rate of 60% on printers, scanners, UPS, etc. The A.O. had disallowed this higher rate, arguing that these items could not be considered computers. The CIT(A) allowed the higher rate, referencing the Delhi High Court's decision in CIT vs. BSES Yamuna Power Ltd., which held that computer accessories and peripherals are integral to the computer system and eligible for 60% depreciation. The Tribunal agreed with this view, dismissing the Revenue's appeal and upholding the CIT(A)'s order.3. Disallowance under Section 14-A:The assessee's appeal for A.Y. 2008-09 involved a disallowance of Rs. 3,35,822/- under Section 14-A, confirmed by the CIT(A). The A.O. had made this disallowance based on the assessee's investment in equity shares, applying Rule 8-D of the Income Tax Rules. The assessee argued that the investment was made from its own funds, thus no interest disallowance should apply. The Tribunal, examining the balance sheet, found sufficient own funds to cover the investment, following its earlier decision in the assessee's case for A.Y. 2006-07, and deleted the interest disallowance. However, the Tribunal upheld the disallowance of other expenses as per Rule 8-D, sustaining Rs. 1,11,732/- of the total disallowance.4. Rectification Order under Section 154 for A.Y. 2001-02:The assessee's appeal for A.Y. 2001-02 contested the CIT(A)'s upholding of the A.O.'s rectification order under Section 154, which added Rs. 1,28,60,000/- to the book profit for provision for diminution in the value of investment. The A.O. had initially completed the assessment without this addition, which was later rectified. The Tribunal found that the issue of provision for diminution was not part of the Tribunal's directions when restoring the case to the A.O., making the rectification impermissible. The Tribunal referenced the Bombay High Court's decision in CIT vs. Sakseria Cotton Mills Ltd., concluding that the rectification should have been made to the original order, not the subsequent one. Thus, the Tribunal set aside the CIT(A)'s order and directed the A.O. to delete the addition.Conclusion:- The appeal of the assessee for A.Y. 2001-02 was allowed.- The appeal of the assessee for A.Y. 2008-09 was partly allowed.- The Revenue's appeal for A.Y. 2008-09 was dismissed.Order pronounced in the open court on 31.10.2013.