2012 (6) TMI 133 - AT - Income Tax

Tribunal Upholds Business Depreciation, Remands Income Issue

Deputy Commissioner of Income-tax, Circle-4, Baroda Versus Prakash Chemical Agencies (P.) Ltd.

Deputy Commissioner of Income-tax, Circle-4, Baroda Versus Prakash Chemical Agencies (P.) Ltd. - TMI Issues Involved:1. Higher depreciation on gas cylinders acquired through MOU.2. Depreciation on assets not actually put to use.3. Addition of undisclosed income based on TDS certificates.4. Alleged diversion of profit undercharging rent on cylinders leased to associate concern.5. Disallowance of vehicle expenses for personal use.6. Bad debts claim.Issue-wise Detailed Analysis:1. Higher Depreciation on Gas Cylinders Acquired Through MOU:The CIT(A) directed the AO to allow higher depreciation on gas cylinders acquired from an associate concern through an MOU. The AO contended that the assessee inflated the actual cost through revaluation, which is against the precedent set by the Supreme Court in Saharanpur Electric Supply Co. v. CIT. The AO restricted the depreciation claim based on the WDV from the previous firm. The CIT(A) found that the transaction was a legitimate business transfer under section 47(xiii) of the IT Act, and the actual cost should be considered for depreciation. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not invoke Explanation-3 to section 43(1), which could have allowed adjustment of the actual cost.2. Depreciation on Assets Not Actually Put to Use:The AO disallowed full depreciation on gas cylinders, arguing they were not 'put to use' before 30/09/2003. The CIT(A) allowed full depreciation, citing that the cylinders were leased out from 27.09.2003, thus meeting the 'put to use' requirement for more than 180 days. The Tribunal agreed with the CIT(A), noting that the lease commencement date was relevant for determining the usage period.3. Addition of Undisclosed Income Based on TDS Certificates:The AO added Rs. 16,12,749 as undisclosed income based on discrepancies between receipts in the profit and loss account and TDS certificates. The CIT(A) accepted the assessee's reconciliation, which included prior period income and discount income. The Tribunal found merit in the Revenue's argument that the AO was not given a chance to rebut the new evidence and remanded the issue back to the AO for re-evaluation.4. Alleged Diversion of Profit Undercharging Rent on Cylinders Leased to Associate Concern:The AO alleged profit diversion by the assessee to its associate concern by undercharging rent on cylinders. The CIT(A) deleted the addition, noting that the associate concern was not a loss-making entity and the tax rates were identical. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not investigate the commercial reasons behind the rent charges and the business model of the assessee.5. Disallowance of Vehicle Expenses for Personal Use:The AO disallowed 10% of vehicle expenses, suspecting personal use by directors. The CIT(A) deleted the addition, following the precedent set by Sayaji Iron & Engg. Co. v. CIT. The Tribunal affirmed the CIT(A)'s decision, noting the lack of specific evidence of personal use.6. Bad Debts Claim:The AO disallowed the assessee's claim for bad debts amounting to Rs. 9,54,436, questioning the efforts made for recovery. The CIT(A) allowed the claim, and the Tribunal upheld this decision, referencing the Supreme Court's ruling in T.R.F. Ltd. v. CIT, which clarified that writing off bad debts in the books is sufficient for claiming deduction.Separate Judgments:For A.Y. 2003-04 and 2005-06, the Tribunal followed the same reasoning as for A.Y. 2004-05 and dismissed the Revenue's appeals. The Tribunal's decisions were consistent across the assessment years, addressing the same issues with similar conclusions.