2020 (10) TMI 990 - AT - Income Tax

Tribunal directs AO to allow depreciation from previous years & fully allows various business expenses on appeal.

The Tribunal partially allowed the appeal regarding depreciation, directing the AO to allow depreciation on the opening written down value from previous ... Disallowance of depreciation - Depreciation on opening written down value - HELD THAT:- Information cannot be relied upon to decide the issue in hand in the absence of primary documents as highlighted by the authorities below. Assessee failed to file any documentary evidence reflecting the sales made by it through the Manufacturing activity viz a viz the trading activity separately which was essential to establish the fact that assessee has carried out the manufacturing activity in the year under consideration. Assessee has claimed depreciation in the year under consideration in the opening written down value and addition of fixed assets put together which was disallowed by the CIT (A) - depreciation claimed by the assessee in the opening written down value cannot be denied in the year under consideration as it pertains on the fixed assets which were acquired in the earlier years and the depreciation was allowed thereon - we direct the AO to allow the depreciation on such opening written down value of the assets brought forward from the earlier assessment year. Hence, the ground of appeal of the assessee is partly allowed. Disallowance on account of damage and wastage of goods - HELD THAT:- Assessee by claiming the bad debts is not under the obligation to prove the ir-recoverability of the amount from the parties. Assessee chooses to write off such amount as the damaged goods which is also supported by the ledger copy of the other party. Thus,in the present situation, what we try to infer is that claim of the assessee cannot be treated as bogus.Authorities below have not verified from the concern parties whether the claim made by the assessee is not tenable by issuing notice under Section 133(6)/131 of the Act. Similar claim of the assessee was admitted by the Revenue for immediate preceding assessment year as discussed above, therefore, the same claim in the year under consideration, though high in value, cannot be rejected without any cogent materials - we are not impressed with the finding of the authorities below in the manner in which they have rejected the claim of the assessee. Accordingly, we set aside the finding of CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. Disallowance of the expenses on account of business promotion expenses - HELD THAT:- Whether the Circular No.5/2012 issued by CBDT is applicable retrospectively or prospectively. In this regard we note that the relevant assessment year under consideration is A.Y. 2008-09 during which there was no CBDT Circular as referred by the authorities below for making disallowance by branding the expenditure as covered by Explanation to Section 37(1) - We found that the expenditures were incurred wholly and exclusively for the purpose of business, therefore, same cannot be disallowed by applying CBDT Circular dated 01-08-2012 in respect of years under consideration. In the case of Troikaa Pharmaceuticals Limited vs. DCIT [2019 (10) TMI 731 - ITAT AHMEDABAD] involving identical facts and circumstances has decided the issue in favour of the assessee. Hence, the ground of appeal of the assessee is allowed. Disallowance of foreign travelling expenses - HELD THAT:- Claim of the assessee was accepted by the Learned CIT(A) to the tune of 90% of the total foreign travelling expenses incurred by the assessee. But, the Learned CIT(A) in his finding has inadvertently restricted the disallowance at ₹ 1,38,381/- instead of ₹ 15,376/-. Thus, accordingly we hold that the issue is limited to the extent of ₹ 15,376 only. First of all, we note that there is no provision under the law to make the disallowance on estimated basis. As such we do not find any cogent material on the part of the Learned CIT(A) for making disallowance in part. Assessee being a body corporate cannot incur any expenditure personal in nature as held in the case of Sayaji Iron &Engg. Co.[2001 (7) TMI 70 - GUJARAT HIGH COURT] - assessee has made exports to the foreign countries as evident from the details filed by it (the assessee). Therefore, we hold that foreign travelling expenses were incurred by the assessee in the course of his business activities and therefore no disallowance is warranted. Issues Involved:1. Disallowance of depreciation.2. Disallowance of damage and wastage expenses.3. Disallowance of business promotion expenses.4. Disallowance of foreign traveling expenses.Issue-wise Detailed Analysis:1. Disallowance of Depreciation:- Facts: The assessee, a private limited company engaged in manufacturing and trading pharmaceuticals, claimed depreciation of Rs. 45,36,884 for the A.Y. 2008-09. The AO disallowed this claim, questioning the commencement of manufacturing activities and the use of plant and machinery.- AO's Observations: The assessee failed to provide an approved plan for the building and proof of using the plant and machinery. The AO noted inconsistencies such as capital work in progress, low raw material consumption, and lack of separate trading accounts.- CIT(A)'s Findings: The CIT(A) upheld the AO's decision, emphasizing the absence of crucial documents like the approved building plan and proof of the plant's operational status. However, the CIT(A) directed the AO to verify the actual depreciation claimed and restrict the addition to that figure.- Tribunal's Decision: The Tribunal found that the assessee failed to produce primary documents to substantiate the claim of depreciation. However, it directed the AO to allow depreciation on the opening written down value from previous years. Thus, the appeal was partly allowed.2. Disallowance of Damage and Wastage Expenses:- Facts: The assessee claimed Rs. 26,66,760 for damage and wastage due to expired medicines. The AO disallowed Rs. 25,57,779 of this amount, citing lack of evidence and inconsistencies in the VAT audit report.- CIT(A)'s Findings: The CIT(A) confirmed the AO's disallowance, noting the absence of detailed records for expired goods and highlighting a sample agreement that placed responsibility for damages on the agent, not the assessee.- Tribunal's Decision: The Tribunal criticized the partial acceptance of the claim without cogent materials and noted that similar claims were accepted in the previous year. It directed the AO to delete the addition, allowing the appeal.3. Disallowance of Business Promotion Expenses:- Facts: The assessee claimed Rs. 16,72,746 for sponsoring a tour to Singapore for doctors. The AO disallowed the entire amount, questioning the business expediency and lack of supporting documents.- CIT(A)'s Findings: The CIT(A) upheld the disallowance, deeming the expenses unethical and illegal as per the Medical Council of India's regulations.- Tribunal's Decision: The Tribunal noted that the CBDT Circular No. 5/2012, which prohibits such expenses, was not applicable retrospectively to A.Y. 2008-09. It found the expenses were incurred wholly and exclusively for business purposes and allowed the appeal.4. Disallowance of Foreign Traveling Expenses:- Facts: The assessee claimed Rs. 1,53,757 for foreign travel expenses. The AO disallowed the entire amount, considering it personal in nature.- CIT(A)'s Findings: The CIT(A) accepted 90% of the expenses but inadvertently restricted the disallowance to Rs. 1,38,381 instead of Rs. 15,376.- Tribunal's Decision: The Tribunal noted that a body corporate cannot incur personal expenses and found that the expenses were for business purposes. It directed the AO to delete the addition, allowing the appeal.Conclusion:The Tribunal's judgment resulted in partial allowance of the appeal concerning depreciation, full allowance of the appeal on damage and wastage expenses, business promotion expenses, and foreign traveling expenses, directing the AO to make necessary adjustments and deletions as per the Tribunal's findings.