2010 (3) TMI 867 - HC - Income Tax

Whether ITAT was legally correct in allowing the electricity expenses in toto merely because such a bill had been raised by the Electricity Board, ignoring that the assessee itself had admitted that no manufacturing activity had been carried out during the year under assessment and that the assessee had failed to prove that the entire electricity expenses had wholly and exclusively been laid out for the purposes of its business Held that - assessee-respondent has been carrying out its normal activity except that there was no manufacturing activities undertaken during the assessment year under consideration. Therefore, expenses on account of electricity and power have been rightly allowed, even otherwise payments in respect of electricity and power have been made in accordance with the electricity/ power bills raised by the Electricity Board, appeal dismissed

Summary

Issues involved:
1. Allowance of electricity expenses in full.
2. Disallowance of depreciation and electricity expenses by the Assessing Officer.
3. Decisions of CIT(A) and the Tribunal on the disallowances.
4. Legal correctness of the decisions regarding depreciation and electricity expenses.
5. Applicability of precedents in Nahar Exports Ltd. case.
6. Adjudication of substantial questions of law by the High Court.

Analysis:
1. The Revenue appealed challenging the Tribunal's order allowing electricity expenses in full, arguing that the assessee admitted no manufacturing activity was conducted, and failed to prove the expenses were solely for business purposes. The Tribunal found no evidence to deem the expenses non-bonafide or extraneous, considering the assessee's sales activities. The Tribunal upheld the allowance of electricity expenses, partially allowing the assessee's appeal.

2. The Assessing Officer disallowed a portion of depreciation and electricity expenses due to lack of manufacturing activity and unutilized machinery. The CIT(A) upheld the depreciation disallowance but directed the Assessing Officer to allow the electricity expenses for office operations. The Tribunal disagreed with the depreciation disallowance, citing the Nahar Exports Ltd. case precedent, emphasizing the readiness of machinery for use and maintenance activities. The Tribunal found no grounds to disallow the electricity expenses, as they were paid as per legitimate bills.

3. The High Court noted that the depreciation claim was justified based on the machinery's readiness for use and maintenance expenses. The Court upheld the Tribunal's decision on depreciation, citing the Nahar Exports Ltd. precedent. Regarding electricity expenses, the Court agreed with the Tribunal's factual assessment that the expenses were legitimate for the business operations, as evidenced by sales activities and proper bill payments. Consequently, the Court dismissed the Revenue's appeal, affirming the Tribunal's decision.

4. The High Court concluded that the issues regarding depreciation and electricity expenses were fact-based and aligned with legal precedents. The Court found no substantial questions of law for determination, as the Tribunal's decisions were supported by factual and legal reasoning. The appeal was dismissed, upholding the Tribunal's order on the allowance of depreciation and electricity expenses.