2011 (7) TMI 1217 - AT - Income Tax

Summary

Issues involved: Disallowance of depreciation on factory building and reduction of disallowance of administrative expenses.

Disallowed depreciation on factory building: The Revenue appealed against the deletion of depreciation disallowance on the factory building. The CIT(A) allowed relief to the assessee based on previous orders. The ITAT upheld the CIT(A)'s decision for the assessment year 2005-06, considering the allocation of building space to subsidiary companies. The Revenue's argument regarding section 38(2) was dismissed, and the order of the CIT(A) was upheld.

Reduction of administrative expenses disallowance: The AO disallowed 5% of administrative expenses for earning tax-free income, which the CIT(A) reduced to 3%. The Assessee argued that common expenditure cannot be artificially attributed to tax-free income. Various case laws were cited to support this argument. The Revenue contended that the disallowance was fair based on the company's dividend income. The ITAT considered the decisions of the Bombay High Court and the Kerala High Court, concluding that no disallowance could be made prior to 2007-08. Therefore, the disallowance made by the AO was deleted, and the appeal by the Revenue was dismissed while the Cross-Objection by the assessee was allowed.