Tribunal allows partial appeal, directs AO to reconsider depreciation claim, audit fee allowed, certain expenses disallowed.

The Tribunal partially allowed the appeals by directing the AO to reconsider the depreciation claim and prior period expenses, allowing the audit fee, and deleting the additional disallowance of traveling expenses. However, the disallowances related to gift and presentation of articles and staff welfare expenses were upheld.

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Issues Involved:
1. Disallowance of depreciation on the opening balance of W.D.V. of the building.
2. Disallowance of various expenses including prior period expenses, audit fees, traveling expenses, gift and presentation of articles, and staff welfare treated as entertainment expenses.

Detailed Analysis:

1. Disallowance of Depreciation on the Opening Balance of W.D.V. of the Building:
The appellant claimed depreciation of Rs. 4,58,753 and Rs. 3,36,024 for the assessment years 1990-91 and 1991-92 respectively. The Assessing Officer (AO) disallowed these claims as the appellant could not furnish details of assets prior to 21st Nov., 1988, due to a change in management. On appeal, the CIT(A) upheld the AO's decision, as the appellant had not filed the detailed claim for depreciation. The Tribunal recognized that the appellant was prevented from filing the particulars due to the unavailability of books of accounts, which were only received on 24th Dec., 1993, following a court order. The Tribunal directed the AO to reconsider the issue upon submission of the requisite details by the appellant and allow the claim in accordance with the law and facts of the case.

2. Disallowance of Various Expenses:
a) Prior Period Expenses:
The appellant claimed prior period expenses of Rs. 48,286, which were disallowed by the AO on the grounds that the appellant follows a mercantile system of accounting and failed to prove that the liabilities arose in the year under consideration. The CIT(A) upheld this disallowance. The Tribunal noted that the new management took over on 22nd Nov., 1988, and received the books of accounts on 24th Dec., 1993. The Tribunal restored the issue to the AO for reconsideration, directing the AO to verify if the liabilities pertained to the year under appeal or were quantified during the year under consideration.

b) Audit Fees:
The AO disallowed audit fees of Rs. 7,000, stating it related to an earlier year. The CIT(A) sustained this disallowance. The Tribunal noted that the audit bill was raised on 9th Jan., 1990, and thus the liability was ascertained during the year under consideration. The Tribunal directed the AO to allow the audit fee of Rs. 7,000.

c) Traveling Expenses:
The AO disallowed Rs. 5,935, including expenses like taxi charges, telephone, and tips under Rule 6D. The CIT(A) upheld this disallowance. The Tribunal found the appellant's explanation convincing and noted that the appellant had already disallowed Rs. 3,044. The Tribunal deleted the additional disallowance of Rs. 2,891.

d) Gift and Presentation of Articles:
For the assessment years 1990-91 and 1991-92, the CIT(A) upheld disallowances of Rs. 22,816 and Rs. 21,366 respectively, due to lack of evidence and business connection. The Tribunal upheld these disallowances, agreeing with the CIT(A) that the appellant failed to provide sufficient evidence regarding the business connection and details of the gifts.

e) Staff Welfare Treated as Entertainment Expenses:
The appellant claimed staff welfare expenses of Rs. 25,056 and Rs. 42,280 for the assessment years 1990-91 and 1991-92 respectively. The AO disallowed 50% of these expenses as entertainment expenses, which the CIT(A) upheld for 1990-91 and reduced to 1/3rd for 1991-92. The Tribunal found the estimates reasonable and declined to interfere with the CIT(A)'s decisions.

Conclusion:
The appeals were partially allowed. The Tribunal directed reconsideration of the depreciation claim and prior period expenses by the AO, allowed the audit fee, and deleted the additional disallowance of traveling expenses. However, the Tribunal upheld the disallowances related to gift and presentation of articles and staff welfare expenses.

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