Tribunal decision: Appeals partly allowed for AY 2007-08 & 2008-09, dismissed for AY 2009-10.

The Tribunal partially allowed the appeals for AY 2007-08 and AY 2008-09, directing the AO to implement the findings. The revenue's appeal for AY 2009-10 was dismissed. The Tribunal upheld the CIT's partial correctness in reviewing the AO's order, emphasizing that not all aspects of the assessment were erroneous and prejudicial to the revenue.

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Issues Involved:
1. Payment of commission and salary to the Managing Director (MD).
2. Claim of depreciation on electrical installations.
3. Non-deduction of TDS on consultancy charges in foreign currency.
4. Additional depreciation on air pollution equipment.
5. Disallowance of outstanding liability of leave encashment.

Detailed Analysis:

1. Payment of Commission and Salary to the Managing Director (MD):
The CIT-IV noticed discrepancies in the commission paid to the MD, Mr. Pratap Reddy, amounting to Rs. 5,09,20,000/-. The CIT contended that the commission should be restricted to Rs. 1,10,65,184/- as per the MD's tax return for AY 2007-08. The assessee argued that the commission was based on a resolution passed in 2003 and revised in 2007, and should be accounted for on an accrual basis for FY 2006-07. The Tribunal agreed partially with the CIT, concluding that the commission should be allowed at 1% of the net profit, not 3%, as the resolution for the revised commission was effective from September 01, 2007. Thus, the AO was directed to allow the commission at 1%.

2. Claim of Depreciation on Electrical Installations:
The CIT found that the assessee claimed depreciation on electrical installations at 15% instead of the eligible 10% as per amended Rule 5 of the IT Rules. The assessee argued that the electrical installations were part of plant & machinery. The Tribunal agreed with the assessee, stating that the electrical installations (e.g., line metering equipment, HT motors) are integral to plant & machinery and should be depreciated at the same rate as plant & machinery, which is 15%.

3. Non-Deduction of TDS on Consultancy Charges in Foreign Currency:
The CIT noted that no TDS was deducted on consultancy charges paid in foreign currency. The assessee claimed compliance with TDS provisions and provided details of TDS payments. The Tribunal remitted this issue back to the AO for verification, as directed by the CIT.

4. Additional Depreciation on Air Pollution Equipment:
For AY 2008-09, the CIT disallowed additional depreciation of Rs. 5,73,54,115/- on air pollution equipment, stating that no additional depreciation is allowed if 100% depreciation is already claimed. The assessee argued that since the equipment was used for less than 180 days, only 50% depreciation was claimed, and additional depreciation should be allowed. The Tribunal dismissed this ground, stating that the equipment, categorized under special assets with 100% depreciation, cannot claim additional depreciation under Section 32(1)(iia).

5. Disallowance of Outstanding Liability of Leave Encashment:
The CIT disallowed an outstanding liability of Rs. 1,09,01,795/- for leave encashment, stating it was not actually paid. The assessee cited a Tribunal decision allowing such provisions. The Tribunal agreed with the assessee, referencing the consistent view taken in similar cases, and allowed the provision for leave encashment.

Conclusion:
The Tribunal partly allowed the appeals for AY 2007-08 and AY 2008-09, directing the AO to implement the Tribunal's findings. The revenue's appeal for AY 2009-10 was dismissed. The Tribunal upheld the CIT's partial correctness in reviewing the AO's order but emphasized that not all aspects of the assessment were erroneous and prejudicial to the revenue.

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