2011 (11) TMI 633 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of vehicle and telephone expenses.
2. Disallowance of prior period expenses.
3. Method of adjustment of carried forward book losses and depreciation for MAT purposes.

Summary:

1. Disallowance of Vehicle and Telephone Expenses:
The Assessing Officer disallowed 10% of vehicle expenses and made an ad hoc disallowance of Rs. 2,00,000/- out of telephone expenses due to lack of proper records. The Commissioner of Income-tax (Appeals) upheld the disallowance but reduced the telephone expenses disallowance to Rs. 1,00,000/-. The Tribunal found that identical issues had been decided in favor of the assessee in previous years and by the Hon'ble Bombay High Court, which held that no such ad hoc disallowance can be made for a limited company. The Tribunal set aside the orders of the authorities below and directed the deletion of the impugned disallowances.

2. Disallowance of Prior Period Expenses:
The Assessing Officer disallowed prior period expenses of Rs. 13,10,698/- as the assessee failed to establish that these expenses were crystallized during the relevant year. The Commissioner of Income-tax (Appeals) affirmed the decision. The Tribunal, following the judgment of the Hon'ble Bombay High Court in the assessee's own case, held that even if the expenditure is incurred in the year but the demand is raised and accepted in the subsequent year, the expenditure would be allowable in the subsequent year. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and directed the deletion of the disallowance.

3. Method of Adjustment of Carried Forward Book Losses and Depreciation for MAT Purposes:
The Assessing Officer rejected the assessee's method of adjusting carried forward book losses and depreciation while computing income as per MAT, leading to a higher computed income. The Commissioner of Income-tax (Appeals) upheld this decision. The Tribunal found that the manner of determining the individual figures of loss and depreciation was not indicated in section 115JB, and the methodology adopted by the Assessing Officer was incorrect. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remitted the matter back to the Assessing Officer to revisit the working of book profit for section 115JB, following the principles discussed and allowing the assessee a reasonable opportunity of being heard.

Decision:
The appeal of the assessee is partly allowed. Decision pronounced in the open court on 30th November, 2011.