2000 (9) TMI 998 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of car expenses and depreciation for personal and non-business use.
2. Disallowance of telephone expenses for non-business purposes.
3. Disallowance of depreciation on rolls and classification of expenditure on replacement of rolls as capital or revenue expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Car Expenses and Depreciation:

The assessee challenged the disallowance of one-fourth of car expenses and car depreciation for the assessment years 1992-93 and 1993-94. The Assessing Officer had disallowed these expenses for personal and non-business use, a decision upheld by the Commissioner of Income-tax (Appeals) based on the assessee's past practice of disallowing similar expenses up to the assessment year 1991-92. The Tribunal noted that the assessee admitted to personal use of the car to this extent in previous years and found no justification for a different treatment in the assessment years under reference. Consequently, the Tribunal confirmed the disallowance and dismissed this ground of appeal for both years.

2. Disallowance of Telephone Expenses:

The assessee also contested the disallowance of Rs. 1,000 and Rs. 600 out of telephone expenses for the assessment years 1992-93 and 1993-94, respectively. The Assessing Officer treated these expenses as non-business-related, a decision upheld by the Commissioner of Income-tax (Appeals) based on the past history of the case. The Tribunal found the disallowance reasonable, noting the accepted personal use of the telephone. Therefore, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s order and dismissed this ground of appeal for both assessment years.

3. Disallowance of Depreciation on Rolls and Classification of Expenditure:

The most significant issue was the disallowance of depreciation on rolls amounting to Rs. 1,09,072 and Rs. 60,063 for the assessment years 1992-93 and 1993-94, respectively. The assessee had claimed the expenditure on replacement of rolls as revenue expenditure. The Assessing Officer, however, treated it as capital expenditure and allowed depreciation at 50 percent, following a change in the depreciation rate from 100 percent to 50 percent effective October 1, 1991. The Commissioner of Income-tax (Appeals) upheld this treatment, reasoning that the legislative intent was to treat such expenditure as capital in nature.

The Tribunal, however, disagreed with this rationale. It noted that the assessee had consistently claimed such expenditure as revenue expenditure, which had been allowed by the Department up to the assessment year 1991-92. The Tribunal referred to several judicial precedents, including the Karnataka High Court's decision in Mysore Spun Concrete Pipe Pvt. Ltd. [1992] 194 ITR 159, which held that expenditure on replacement of moulds post-commencement of business was revenue in nature. The Tribunal concluded that the expenditure on replacement of rolls did not create a capital asset or provide an enduring benefit, classifying it as current repairs allowable under section 31 of the Income-tax Act. Therefore, the Tribunal set aside the Commissioner of Income-tax (Appeals)'s order and directed the Assessing Officer to allow the deduction as current repairs, allowing this ground of appeal for both assessment years.

Conclusion:

In conclusion, the Tribunal partly allowed the assessee's appeals, confirming the disallowance of car and telephone expenses but overturning the disallowance of depreciation on rolls, treating the replacement expenditure as revenue in nature.