1979 (6) TMI 89 - AT - Income Tax

Supreme Court affirms Tribunal's decisions on depreciation, excessive payments, entertainment expenses, and borrowed capital.

The Supreme Court upheld the Tribunal's decision to allow depreciation on expenditure incurred in shifting the factory premises, stating it was part of ... - Issues:1. Allowance of depreciation on expenditure incurred in shifting factory premises.2. Disallowance of excessive payment for goods purchased from parties under section 40A(2) of the IT Act.3. Disallowance of entertainment expenses.4. Treatment of borrowed capital in computing capital employed for relief under section 80J of the IT Act.Issue 1: The Revenue contended that the AAC erred in allowing depreciation on the expenditure incurred in shifting the factory premises. The assessee had shifted its factory and incurred expenses in the process. The ITO disallowed depreciation, stating that the expenditure did not enhance asset value. The AAC allowed the claim, leading to the Revenue's appeal. The Supreme Court's rulings in similar cases were cited. The Tribunal noted that the shifting was a necessity due to the lease termination, not for business improvement. Citing relevant judgments, the Tribunal upheld the AAC's order, stating that the expenditure was part of the actual cost for depreciation calculation.Issue 2: The Revenue challenged the deletion of an addition representing excessive payment for goods purchased under section 40A(2) of the IT Act. The ITO disallowed a sum, alleging inflated purchase costs. The AAC reversed the disallowance. The Tribunal found that the ITO failed to establish excessive payment based on fair market value. As no evidence supported the disallowance, the Tribunal upheld the AAC's decision.Issue 3: The Revenue disputed the allowance of entertainment expenses. The ITO disallowed the claim, but the AAC allowed it as business-related. Citing relevant court decisions, the Tribunal upheld the AAC's decision, stating that common courtesy expenses did not constitute entertainment expenditure.Issue 4: The Revenue contested the treatment of borrowed capital in computing capital for relief under section 80J of the IT Act. The Madras High Court's ruling favored the assessee, but the Revenue argued against the Tribunal's jurisdiction on the issue. Citing various court decisions, the Tribunal upheld the AAC's decision, disregarding the disputed rule in computing capital for relief under section 80J. The appeal was dismissed.