2010 (10) TMI 1069 - AT - Income Tax

ITAT Chennai allows appeal, cancels disallowances on wages and depreciation. Adhoc disallowance not justified. Civil work integral.

M/s Sri Rama Vilas Weaving Factory Versus The DCIT,

M/s Sri Rama Vilas Weaving Factory Versus The DCIT, - TMI Issues involved: Appeal against disallowance of wages paid to weavers and tailors, Disallowance of depreciation on building.Dispute 1 - Disallowance of wages paid to weavers and tailors:The assessee, engaged in textile business, claimed tailoring and packing expenses. The AO made an adhoc disallowance of 2% of the claim, amounting to Rs. 1,01,415, stating some vouchers were defective. The CIT(A) upheld this disallowance, but the ITAT Chennai found in favor of the assessee. The ITAT noted that the vouchers clearly indicated the nature of payments made, and without specific defects being pointed out, an adhoc disallowance was not justified. The disallowance was deleted, and ground No.2 of the assessee was allowed.Dispute 2 - Disallowance of depreciation on building:The assessee claimed depreciation on civil work and electrical fittings associated with a windmill project. The AO disallowed Rs. 26 lakhs of the claim, stating these items did not qualify for higher depreciation rates applicable to windmills. The CIT(A) agreed with the AO, but the ITAT Chennai disagreed. The ITAT held that the civil work and electrical fittings were integral parts of the windmill and satisfied the functional test. Citing precedents, the ITAT concluded that the claim of the assessee should not have been disallowed. The disallowance was cancelled, and ground No.3 of the assessee was allowed.Conclusion:The ITAT Chennai allowed the appeal of the assessee in both disputes, cancelling the disallowances made by the lower authorities.