Consistency and audited accounts defeat ad hoc disallowance; depreciation on pollution control plant was also allowed.
Depreciation was allowed on an air and water pollution control plant treated as a composite installation, and the department's contrary approach was found inconsistent with acceptance of the same plant in the succeeding year. The record supported application of consistency, so the assessee's claim succeeded on depreciation. An ad hoc disallowance from selling and distribution expenses was also deleted because the expenses were treated as business expenditure, the audited accounts showed no defect, and similar expenditure had been accepted in earlier and later years at comparable or higher levels. The additions on both counts were deleted.
Issues: (i) Whether depreciation was allowable on the air and water pollution control plant installed and put to use after 30 September for the assessment year in question. (ii) Whether an ad hoc disallowance out of selling and distribution expenses was justified despite audited accounts and acceptance of similar expenditure in other years.
Issue (i): Whether depreciation was allowable on the air and water pollution control plant installed and put to use after 30 September for the assessment year in question.
Analysis: The plant was certified as an air and water pollution control system, and the description of the machinery had to be seen as a composite plant rather than by isolating individual components. The same plant had also been accepted in the succeeding year when the balance depreciation was allowed, and the approach of the department was inconsistent. The record supported application of the principle of consistency.
Conclusion: Depreciation of Rs. 30,41,138 was allowable in favour of the assessee.
Issue (ii): Whether an ad hoc disallowance out of selling and distribution expenses was justified despite audited accounts and acceptance of similar expenditure in other years.
Analysis: The expenses were found to be business expenditure and were accepted in earlier and later years at comparable or higher percentages of turnover. The accounts were audited and no defect or deficiency was pointed out. In the absence of any material basis, an estimated disallowance could not be sustained.
Conclusion: The disallowance of Rs. 7,34,850 was deleted in favour of the assessee.
Final Conclusion: The assessee succeeded on both grounds, and the additions made on account of depreciation and selling and distribution expenses were deleted.
Ratio Decidendi: Where the facts and statutory claim remain the same across assessment years, an inconsistent departure from an accepted position without new material is impermissible, and an ad hoc disallowance cannot be sustained in the absence of any defect in the audited accounts.
TaxTMI 
AI Drafter ✕
TaxTMI 
