2010 (6) TMI 845 - AT - Income Tax

Tribunal adjusts depreciation calculation, upholds expenses disallowance for personal use

The Tribunal allowed the appeal regarding depreciation calculation, emphasizing the need to reduce actual depreciation allowed to the assessee for written ... - Issues involved: The judgment involves issues related to depreciation calculation and disallowance of expenses under the head Telephone and Vehicle Expenses and Depreciation.Depreciation Calculation: The appeal raised concerns about the calculation of depreciation on written down value without the claim of depreciation for the previous year relevant to AY 2001-02. The AO allowed depreciation of &8377; 4,58,274/- instead of the claimed &8377; 6,96,484/-, resulting in a disallowance of &8377; 2,38,210/-. The AO worked out the depreciation allowable based on the WDV of assets from the beginning after allowing notional depreciation in the AY 2001-02. The CIT(A) upheld the AO's decision, relying on various precedents. However, the Tribunal found that the WDV should be ascertained by reducing the actual depreciation allowed to the assessee, not the notional amount that should have been allowed.Disallowance of Expenses: The AO disallowed 1/6th of the expenses on vehicles and depreciation on the car, along with telephone expenses, due to potential personal use by the partners of the firm and their family members. The disallowance amounted to &8377; 17,475/- for personal use of cars and &8377; 9,281/- for phones/mobiles. The CIT(A) upheld this disallowance, stating that without log-books or records for personal use, the AO's decision was justified. The Tribunal agreed with the CIT(A) that the disallowance was reasonable under sec. 38(2) of the Act, as no evidence was presented to refute personal use of the vehicles and telephones.Conclusion: The Tribunal allowed ground no.1 of the appeal regarding depreciation calculation, emphasizing the need to reduce actual depreciation allowed to the assessee for WDV calculation. However, ground no.2 concerning the disallowance of expenses was rejected, as the disallowance for personal use of vehicles and telephones was deemed reasonable. No additional grounds were raised, leading to a partial allowance of the appeal.