2005 (12) TMI 460 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 1,50,000 on account of medical profession.
2. Addition of Rs. 2 lakhs, Rs. 1 lakh, and Rs. 1 lakh received as share application money.
3. Disallowance of Rs. 26,225 and Rs. 6,820 for 1/5th depreciation on car and personal use of telephone.
4. Addition of Rs. 60,000 paid as rent for machinery.

Analysis:

Issue 1 - Addition of Rs. 1,50,000 on account of medical profession:
The appellant company derived income from the medical profession. The Assessing Officer added Rs. 1,50,000 due to lack of patient addresses for verification of receipts. The CIT(A) confirmed the addition based on an alleged agreement by the appellant. However, the appellant disputed agreeing to the addition. The appellant provided detailed evidence and argued that complete details were maintained. The ITAT noted discrepancies in the Assessing Officer's report and lack of patient production. Consequently, the ITAT directed deletion of the Rs. 1,50,000 addition, ruling in favor of the appellant.

Issue 2 - Addition of share application money:
The Assessing Officer questioned the genuineness of share application money received from three individuals. Statements from these individuals raised doubts about the transactions. The appellant argued that the amounts were returned by cheque, but discrepancies in statements and lack of share allotment cast suspicion on the transactions. The ITAT upheld the CIT(A)'s decision, citing doubts about the genuineness and creditworthiness of the transactions.

Issue 3 - Depreciation on car and personal use of telephone:
The appellant contested the disallowance of depreciation on a car and telephone used for business purposes but deemed personal by the authorities. The ITAT referenced a previous case to establish that personal use by directors does not constitute non-business use for the company. The ITAT allowed the appeal, considering the personal use as additional remuneration for the directors.

Issue 4 - Addition of rent for machinery:
The Assessing Officer disallowed rent paid for machinery, questioning its ownership and lack of documentary evidence. The appellant claimed the rent was declared and depreciation claimed by the owner, but failed to provide supporting documents. The ITAT found insufficient investigation by the Assessing Officer and remanded the issue for further examination, allowing the appeal for statistical purposes.

In conclusion, the ITAT partially allowed the appeal, ruling in favor of the appellant on the medical profession addition and the depreciation on car and telephone, while remanding the issue of rent for machinery for further investigation.