2003 (4) TMI 502 - AT - Income Tax

Summary

Issues:
1. Classification of T.V. Sets as 'furniture' instead of 'plant and machinery' for depreciation and deduction under section 32AB.
2. Treatment of entertainment expenses as incurred for employees and guests.

Analysis:
1. Classification of T.V. Sets:
The primary issue in this appeal was the classification of T.V. Sets as either 'furniture' or 'plant and machinery' for the purpose of claiming higher depreciation and deduction under section 32AB. The assessee argued that the T.V. Sets were used for training workers and entertainment, thus constituting 'plant' eligible for higher depreciation. The Assessing Officer and CIT(A) classified them as 'furniture', allowing lower depreciation and disallowing deduction under section 32AB. The assessee relied on legal precedents and the definition of 'plant' under section 43(3) of the Income-tax Act to support their claim. Ultimately, the Tribunal held that T.V. Sets indeed qualified as 'plant', entitling the assessee to higher depreciation at 33.33% and deduction under section 32AB.

2. Treatment of Entertainment Expenses:
The second issue revolved around the treatment of entertainment expenses, with the Assessing Officer disallowing the entire expenditure initially. The assessee contended that a portion of the expenses was incurred for employees and the rest for guests. The CIT(A) determined that 25% of the expenses were for employees and the remaining for entertainment. Upon appeal, the Tribunal found this allocation reasonable and declined to interfere with the CIT(A)'s decision. Consequently, the appeal on this issue was dismissed, affirming the treatment of entertainment expenses as per the CIT(A)'s order.

In conclusion, the Tribunal ruled in favor of the assessee regarding the classification of T.V. Sets as 'plant', allowing higher depreciation and deduction under section 32AB. However, the appeal failed concerning the treatment of entertainment expenses, with the Tribunal upholding the CIT(A)'s allocation of expenses between employees and entertainment.