2010 (11) TMI 990 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to the deletion of additions made by the Assessing Officer (AO) u/s 40A(2)(b) of the Income Tax Act, 1961 for excess payment of building rent and bus rent, and disallowance of depreciation claimed by the assessee trust.

Deletion of Addition of Building Rent and Bus Rent:
The AO disallowed Rs. 4 lakhs for excess payment of building rent and Rs. 9,28,475 for bus rent to M/s Adarshila Associates, a concern in which some trustees are partners, under section 40A(2)(b). The AO considered the rate of interest to determine reasonableness of payments, but the ld. CIT(A) deleted both additions. The ld. CIT(A) emphasized that reasonableness should be based on market rates, not internal workings of the concern. Without comparative rates for similar properties or services, the AO failed to prove non-reasonableness. The ld. CIT(A) held that the AO did not meet the onus of proof, thus deleting the additions.

Disallowance of Depreciation:
The AO disallowed Rs. 22,84,246 claimed as depreciation by the trust on assets purchased from trust funds due to lack of explanation. However, the ld. CIT(A) allowed the claim, stating that even in normal business income computation, asset funding nature does not affect depreciation claim. The ld. CIT(A) directed the AO to verify depreciation computation as per the Income-tax Rules, allowing the claim in principle.

Judicial Precedents and Conclusion:
The assessee cited judgments supporting depreciation claim, emphasizing that trust income should be computed commercially. The Tribunal upheld the ld. CIT(A)'s decision, allowing depreciation on assets owned and used by the trust. Referring to judicial precedents, the Tribunal rejected the Revenue's grounds, emphasizing that depreciation is essential for preserving the trust's corpus. The Tribunal also upheld the ld. CIT(A)'s decision on the reasonableness of building and bus rent payments, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the ld. CIT(A)'s order on the deletion of additions for building and bus rent payments, as well as allowing the depreciation claim for assets owned and used by the trust.