Tribunal decision: Advances allowed, preemption charges disallowed, 60% depreciation on peripheral devices.

The Tribunal partly allowed the assessee's appeal. It deleted the disallowance of advances written off, upheld the disallowance of preemption charges as capital expenditure, and directed the AO to allow depreciation at 60% on peripheral devices used with computers.

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Issues Involved:
1. Disallowance of advances written off.
2. Disallowance of deduction claimed towards payment of preemption charges.
3. Disallowance of depreciation claimed on certain equipment.

Detailed Analysis:

1. Disallowance of Advances Written Off:
The assessee, a company engaged in various businesses, filed its return of income declaring 'Nil' income after setting off unabsorbed depreciation. During the assessment, the AO noticed that the assessee debited an amount towards bad debts and advances written off, which included Rs. 5,49,500. The AO disallowed this amount, and the CIT(A) sustained the disallowance on the grounds that the assessee failed to produce evidence that the parties refused to repay the advances.

The Tribunal found that the disallowance was incorrect as per Section 36(1)(vii) of the Act, which allows deduction if the debt becomes bad and is written off in the books of account. The Tribunal deleted the addition made by the AO, stating that the deduction cannot be disallowed merely because the assessee could not prove that the parties refused to make payment.

2. Disallowance of Deduction Claimed Towards Payment of Preemption Charges:
The assessee claimed a deduction for preemption charges paid to VSNL for surrendering transponders. The AO disallowed the expenditure, stating it did not relate to the assessment year under consideration. The CIT(A) sustained the disallowance, treating the payment as a capital expenditure.

The Tribunal upheld the CIT(A)'s decision, stating that the preemption charges were paid for premature termination of the lease agreement, which is connected to an asset used as a tool for carrying on the business. The Tribunal referred to the Special Bench decision in Aztec Software and Technology Services Ltd. Vs. ACIT, which held that such payments are capital expenditures. The Tribunal found no reason to interfere with the CIT(A)'s order.

3. Disallowance of Depreciation Claimed on Certain Equipment:
The assessee claimed depreciation at 60% on items like printers, scanners, modems, etc., treating them as part of the computer block. The AO restricted the depreciation to 25%, treating these items as plant and machinery. The CIT(A) sustained the AO's decision.

The Tribunal found that the issue was covered by its earlier decisions in the assessee's own case for previous assessment years. The Tribunal referred to the Special Bench decision in DCIT vs. Datacraft India Limited, which held that peripheral devices used along with computers and integrated with their functions should be treated as part of the computer and eligible for higher depreciation. The Tribunal directed the AO to allow depreciation at 60% as claimed by the assessee.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal deleted the disallowance of advances written off, upheld the disallowance of preemption charges as capital expenditure, and directed the AO to allow depreciation at 60% on peripheral devices used with computers.

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