2006 (6) TMI 259 - AT - Income Tax

Issues Involved:
1. Disallowance of depreciation on the capitalized value of goodwill and losses of amalgamated company.
2. Deduction under section 35D on account of preliminary expenses.
3. Disallowance of depreciation on motor car purchase.
4. Disallowance of interest paid to the bank.
5. Rejection of application for adjournment and request for consolidation of pending appeal.
6. Levy of additional tax.
7. Charging of interest under section 234B.

Issue-Wise Detailed Analysis:

1. Disallowance of depreciation on the capitalized value of goodwill and losses of amalgamated company:
The first common ground for all four assessment years relates to the disallowance of depreciation on the capitalized value of goodwill and losses of Sooraj Generators Limited (SGL) amalgamated with Sooraj Automobiles Limited (SAL). The appellant claimed depreciation on losses and goodwill as part of the cost of the building. The Assessing Officer and CIT(A) disallowed the claim, stating that losses and goodwill cannot be added to the written down value of the building for depreciation purposes. The Tribunal upheld this view, emphasizing that the losses and goodwill are not related to the building's cost and should not be treated as such for depreciation under section 32 of the Income-tax Act.

2. Deduction under section 35D on account of preliminary expenses:
The next ground of appeal in all four years is regarding the deduction under section 35D for preliminary expenses of Rs. 7,56,761, which was withdrawn by the assessee's counsel. The ground was dismissed as withdrawn.

3. Disallowance of depreciation on motor car purchase:
For the assessment year 1995-96, the assessee claimed depreciation on a motor car purchased for Rs. 45,000. The Assessing Officer disallowed the claim due to a lack of documentary evidence. The CIT(A) upheld the disallowance, and the Tribunal agreed, stating that the primary responsibility to justify the claim lies with the assessee, and in the absence of evidence, the claim was rightly rejected.

4. Disallowance of interest paid to the bank:
For the assessment year 1997-98, the Assessing Officer disallowed Rs. 40,000 as interest paid to the bank, arguing that advances to the Managing Director led to the need for an overdraft. The CIT(A) concurred. However, the Tribunal found that the advances were given as imprest for business purposes and deleted the disallowance, stating that the borrowal was for business purposes and the presumption of unnecessary overdraft was unsupported.

5. Rejection of application for adjournment and request for consolidation of pending appeal:
For the assessment year 1998-99, the ground regarding the rejection of the application for adjournment and request for consolidation of pending appeal was not pressed before the Tribunal and was dismissed for want of prosecution.

6. Levy of additional tax:
For the assessment year 1998-99, the ground against the levy of additional tax of Rs. 7,118 was not pressed before the Tribunal and was dismissed for want of prosecution.

7. Charging of interest under section 234B:
For the assessment year 1997-98, the assessee contested the charging of interest under section 234B while computing income under section 115JA. The Tribunal upheld the levy, referencing the ITAT's decision in Lumax Industries Ltd. v. DCIT, which stated that interest under sections 234B and 234C is leviable even when income is computed under section 115JA.

Appeals of Revenue:

1. Allowing relief on preliminary and pre-operative expenses:
For assessment years 1995-96 and 1996-97, the revenue contested the relief of Rs. 1,81,000 on preliminary and pre-operative expenses of SGL. The Tribunal modified the CIT(A)'s order, holding that the preliminary expenses incurred by SGL can be claimed under section 35D, subject to a ceiling of 2.5% of SGL's capital employed.

2. Deletion of disallowance under section 43B:
For assessment year 1995-96, the revenue contested the deletion of disallowance of Rs. 7,970 under section 43B. The Tribunal upheld the CIT(A)'s finding and maintained the deletion of the disallowance.

Conclusion:
The appeals of the assessee for assessment years 1995-96, 1996-97, and 1998-99 were dismissed, while the appeal for assessment year 1997-98 was partly allowed. The appeals of the revenue for assessment years 1995-96 and 1996-97 were partly allowed.

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