2017 (1) TMI 1521 - AT - Income Tax

Disallowance of deduction claimed for rent paid in respect of commercial space hired - Held that - It is observed that the rent received from the concerned property from M/s. Rumteek Finvest Pvt. Ltd. was taxed by the A.O. in the hands of the assessee company under the head Income from other sources instead of Income from house property on the ground that the same was not owned by the assessee and it was taken on rent from M/s. Print Sales Company. He, however, disallowed the deduction claimed by the assessee on account of rent payable to M/s. Print Sales Company mainly on the ground that such rent was not paid by the assessee company to the said owner. As submitted by the learned counsel for the assessee at the time of hearing before the Tribunal, the assessee company has paid the said rent to M/s. Print Sales Company in the F.Y. 2003-04 and this position can be established by it on evidence if the matter is sent back to the A.O. for verification. Higher depreciation @ 60% on a colour scanner - Held that - This issue is squarely covered in favour of the assessee in the case of ITO vs Samiran Majumdar 2005 (8) TMI 293 - ITAT CALCUTTA-B wherein it was held that the printer and scanner being integral part of computer systems are entitled for higher rate of depreciation as applicable to the computers. Rejection of assessee s claim for purchase returns by treating the same as unproved - Held that - If at all the corresponding purchases had not been recorded by the assesses company in its books of accounts as alleged by the A.O., there was no reason for the assessee company to issue debit notes on account of purchase returns because the same resulted in reduction of expenditure claimed by it on account of purchases. Even the inference drawn by the A.O. about the unaccounted purchases on the basis of debit notes issued by the assessee was totally unfounded as some of such purchases, as noted by the A.O. himself, were made in the immediately preceding year. If the debit notes issued by the assessee on account of purchase returns were found to be unsubstantiated, the expenditure on purchases to that extent would have to be increased and there cannot be made any addition to the total income of the assessee on this issue by any stretch of imagination. Find the addition made by the A.O. and confirmed by the Ld. CIT(A) on this issue as unsustainable and deleting the same. Disallowance of repairs and maintenance expenditure by treating the same as capital in nature - Held that - As rightly contended by him, the said expenditure thus did not result in any enduring benefit to the assessee company in the capital field and the same having been incurred on repairs and replacement is liable to be allowed as revenue expenditure. The description given in the relevant bills, copies of which are also placed on record before the Tribunal, also supports and substantiates this view. Therefore, delete the disallowance made by the A.O. and confirmed by the Ld. CIT(A) on this issue. Order under section 154 disallowing the claim of the assessee for depreciation at higher rate on colour scanner - Held that - In the appeal of the assessee is squarely covered in favour of the assessee by the decision of the Division Bench of this Tribunal in the case of ITO vs Samiran Majumdar 2005 (8) TMI 293 - ITAT CALCUTTA-B wherein it was held that the printer and scanner being integral part of computer systems are entitled for higher rate of depreciation as applicable to the computers. We direct the A.O. to allow claim of the assessee for higher depreciation at 60% on colour scanner and allow this assessee s appeal.

Summary

Issues Involved:
1. Disallowance of rent deduction claimed for commercial space hired.
2. Claim for higher depreciation on a color scanner.
3. Addition on account of rejection of purchase returns.
4. Addition of alleged gross profit from unaccounted purchases.
5. Disallowance of repairs and maintenance expenditure as capital in nature.
6. Disallowance of claim for higher depreciation on a color scanner.

Analysis:

Issue 1: Disallowance of rent deduction claimed for commercial space hired
The assessee's rental income was taxed under "Income from other sources" instead of "Income from house property" as the property was not owned by the assessee. The deduction claimed for rent payable to the property owner was disallowed by the AO and confirmed by the CIT(A). The Tribunal directed the AO to verify the rent payment for deduction, as the rent was paid in the subsequent year. The deduction was allowed, and the appeal for A.Y. 2002-03 was partly allowed.

Issue 2: Claim for higher depreciation on a color scanner
The Tribunal allowed the claim for higher depreciation at 60% on the color scanner, citing a previous decision in favor of such claims for integral parts of computer systems. The appeal for A.Y. 2002-03 on this issue was allowed.

Issue 3: Addition on account of rejection of purchase returns
The AO made an addition to the total income on the basis of unproved purchase returns. The Tribunal found the addition unsustainable as issuing debit notes for returns would reduce expenditure. The addition was deleted, and the appeal for A.Y. 2003-04 was allowed.

Issue 4: Addition of alleged gross profit from unaccounted purchases
This addition was found to be consequential to the issue of unaccounted purchases. As the primary addition was deleted, the consequential addition was also deleted, and the appeal was allowed.

Issue 5: Disallowance of repairs and maintenance expenditure as capital in nature
The AO disallowed a portion of repairs and maintenance expenditure as capital in nature. The Tribunal found the expenditure on repairs and replacement to be revenue expenditure, allowing the claim and deleting the disallowance. The appeal for A.Y. 2003-04 was allowed.

Issue 6: Disallowance of claim for higher depreciation on a color scanner
The Tribunal directed the AO to allow the claim for higher depreciation on the color scanner, as it was an integral part of a computer system. The appeal for A.Y. 2003-04 was allowed.

In conclusion, the appeals for A.Y. 2002-03 and A.Y. 2003-04 were partly allowed and allowed, respectively, based on the Tribunal's decisions on the various issues raised by the assessee.