2016 (4) TMI 1314 - AT - Income Tax

Depreciation on life saving equipments - @15% OR 40% - Held that - As the machines acquired by the assessee though may not be identical to the machinery mentioned in the Income Tax Rules specifying the rate of depreciation in Part-III (xia) (d), (n), they appear to be similar in nature. Since depreciation is a beneficial provision to the assessee, it has to be broadly viewed and applied beneficially to the assessee. Moreover these equipments either become obsolete in a short while or have short life span. Therefore, we hereby direct the learned Assessing Officer to allow the claim of depreciation @ 40% on the cost of acquisition of the above mentioned equipments considering it as life saving equipments as provided under the Rules and accordingly delete the addition made - Decided in favour of assessee Addition on belated payment of employees contribution to ESI - Held that - Now it is an admitted fact that by the various decisions of higher judiciary the remittance of employees / employers contribution of PF/ESI etc., if remitted before the due date of filing the return disallowance cannot be made by invoking the provisions of section 43B of the Act. Therefore, we hereby direct the learned Assessing Officer to verify whether these payments are made before the due date of filing of return, and if found so, delete the disallowance made by invoking the provisions of section 43B of the Act. Disallowance u/s 37 being marketing expenses - Held that - ere is no prohibition in the Act to make payments to Doctors for the services rendered by them. In the case of the assessee, gifts were given to Doctors by way of gold coins in appreciation to their services. It can be construed as the fees paid in kind for the services rendered by the Doctors in the hospital. The presumption of the learned Assessing Officer that these payments are made to Doctors for canvassing patients cannot be accepted without any cogent evidence. Further the Revenue has not quantified the amount for which invoices, bills are not available for the expenditure incurred and the nature of unexplained expenses. Hence, it appears to be a passing remark - we hereby direct the learned Assessing Officer to delete the addition made on account of disallowance Disallowance being expenses incurred on consumables and on repairs under section 40A(3) - Held that - Considering the total turnover of the assessee for the relevant assessment year 2012-13 of ₹ 39.00 crores approximately, we find this claim of expenditure to be very negligible. Therefore, in the interest of justice, we hereby direct the learned Assessing Officer to delete the disallowance - Assessee appeal allowed.

Summary

Issues Involved:

1. Restricting the depreciation on life-saving equipment to 15% instead of 40%.
2. Disallowance of ?57,512/- due to the belated payment of employees' contribution to ESI.
3. Disallowance of ?71,62,741/- under section 37 of the Act for marketing expenses.
4. Disallowance of ?3,25,000/- for expenses incurred on consumables and repairs under section 40A(3) of the Act.

Issue-wise Detailed Analysis:

1. Restricting the depreciation to 15% as against 40% claimed by the assessee on life-saving equipment:

During the scrutiny assessment, the Assessing Officer (AO) observed that the assessee claimed 40% depreciation on certain equipment, categorizing them as life-saving under the Income Tax Rules. The AO restricted the depreciation to 15%, arguing that the equipment did not qualify as life-saving. The Commissioner of Income Tax (Appeals) upheld this decision. The assessee presented detailed information about the equipment, asserting their life-saving nature. The Tribunal concluded that the equipment, although not identical to those listed in the Income Tax Rules, were similar in nature and had a short lifespan. Therefore, the Tribunal directed the AO to allow 40% depreciation, considering the equipment as life-saving.

2. Disallowance of ?57,512/- being belated payment of employees' contribution to ESI:

The AO disallowed ?57,512/- for the late payment of employees' ESI contributions, invoking section 43B of the Act. The Commissioner of Income Tax (Appeals) upheld this, referencing the Gujarat High Court's decision favoring the Revenue. The Tribunal noted that higher judiciary decisions allow deductions if contributions are paid before the return filing due date. The Tribunal directed the AO to verify if the payments were made before the due date and, if so, to delete the disallowance.

3. Disallowance of ?71,62,741/- under section 37 of the Act being marketing expenses:

The AO disallowed ?71,62,741/-, which included gold coins gifted to doctors and advertisement expenses, citing Circular No.5/2012 and the Indian Medical Council's code prohibiting such freebies. The Commissioner of Income Tax (Appeals) upheld this. The Tribunal found merit in the assessee's argument that payments to doctors for services and hospital advertisements are not prohibited. The Tribunal directed the AO to delete the disallowance, noting the lack of evidence supporting the AO's presumption of payments for canvassing patients and the unquantified nature of unexplained expenses.

4. Disallowance of ?3,25,000/- being expenses incurred on consumables and repairs under section 40A(3) of the Act:

The AO disallowed ?3,25,000/- for cash expenditures exceeding ?20,000/- in a single day, invoking section 40A(3). The Commissioner of Income Tax (Appeals) upheld this without further deliberation. The Tribunal found the AO's order cryptic and noted the negligible nature of the expenditure relative to the assessee's turnover of ?39 crores. The Tribunal directed the AO to delete the disallowance, considering the availability of bills and vouchers for the expenditures.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal directing the deletion of all disallowances made by the AO. The order was pronounced in the open court on April 22, 2016.