2012 (5) TMI 748 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of depreciation on motor cars used for business purposes.
2. Ad hoc disallowance of foreign traveling expenses.

Summary:

Issue 1: Restriction of Depreciation on Motor Cars
The assessee contested the CIT(A)'s decision to restrict depreciation on motor cars used for business purposes to 20% instead of 50%. The Assessing Officer (AO) had observed that the cars were not "new commercial vehicles" eligible for 50% depreciation as per Income Tax Rules. The AO referred to various dictionary definitions and newspaper reports to conclude that the cars were not commercial vehicles. The CIT(A) upheld this view, stating that the business of the appellant did not involve hiring vehicles, thus restricting depreciation to 20%.

The ITAT, however, noted that the cars were light motor vehicles as defined u/s 2 of the Motor Vehicles Act, 1988, and used for business purposes. The Tribunal referenced the definition of "commercial vehicle" in the Income Tax Rules, which includes light motor vehicles with an unladen weight of less than 7500 kg. The Tribunal also cited a similar case (Shah Rukh Khan Vs. DCIT) where higher depreciation was allowed. Consequently, the ITAT directed the AO to allow depreciation at 50%, allowing the assessee's appeal on this ground.

Issue 2: Ad Hoc Disallowance of Foreign Traveling Expenses
The assessee challenged the disallowance of Rs. 5,00,000 out of foreign traveling expenses. The AO had disallowed the expenses due to the lack of specific documentary evidence proving that the directors' foreign visits were for business purposes. The CIT(A) confirmed this disallowance, citing incomplete evidence.

The ITAT reviewed the details submitted by the assessee, which included travel dates, countries visited, and related expenses. The Tribunal found no evidence from the AO to suggest that the foreign travel was for personal purposes. Since the foreign travel was accepted as business-related, the ITAT ruled that the ad hoc disallowance lacked basis and set aside the CIT(A)'s order, allowing the assessee's appeal on this ground.

Conclusion:
The ITAT allowed the appeal of the assessee, directing the AO to allow depreciation at 50% for motor cars and to reverse the ad hoc disallowance of Rs. 5,00,000 for foreign traveling expenses.

Order pronounced on this 11th day of May, 2012.