2012 (8) TMI 585 - AT - Income Tax

50% disallowance of depreciation - Held that - The facts are not clear in the period for which the machinery had been used by the assessee. The discussion in assessment order and date of acquisition of machines is non-speaking - remitted back to A.O. to work out the period eligible for depreciation. Disallowance made under section.40 (a) (ia) - Held that - Considering assessee s submission that question of TDS arise only to that payment made against service of labour and he is making payments regarding conversion charges as well as payments against supply of material and labour the issue of deciding the nature of payments is remitted back to AO for afresh consideration & disallowance to the amount payable by the end of previous year need to be warranted & there cannot be a disallowance in the case of amounts already paid by assessee before 31st of March of previous year - in favour of assessee for statistical purposes. Disallowance of foreign exchange fluctuation loss, partial disallowance of foreign travel and sales promotion expenses, disallowance of partners remuneration - Held that - All the grounds involving question of facts are not maintainable as they were not raised by assessee before CIT(A)as the grounds not raised and adjudicated before CIT (A) are not maintainable before Tribunal.

Summary

Issues:
- Partial disallowance of depreciation
- Disallowance of foreign exchange fluctuation loss
- Disallowance towards personal expenses
- Disallowance of partner's remuneration
- Disallowance under section 40(a)(ia)

Partial Disallowance of Depreciation:
The Assessing Officer (A.O.) disallowed 50% of the depreciation claimed by the assessee on machineries purchased from Singapore as they were used for less than 180 days. The assessee argued that once machineries are purchased, they form part of the 'block of asset', hence full depreciation should be allowed. The issue was remitted back to the A.O. to determine the eligible period for depreciation.

Disallowance of Foreign Exchange Fluctuation Loss:
The A.O. disallowed the claim of Rs.6,15,360/- as exchange fluctuation related to payments made for machineries from Singapore, stating it formed part of the cost of acquisition and could not be deducted. The assessee contended that the loss was incurred for business purposes. However, this issue was not considered further as it was not raised before the Commissioner of Income Tax (CIT) (Appeals).

Disallowance towards Personal Expenses:
The A.O. disallowed a portion of foreign travel and sale promotion expenses, citing an element of personal enjoyment. Additionally, remuneration paid to working partners was disallowed due to lack of quantification in the partnership deed. These matters were left open for determination at the end of the previous year.

Disallowance under Section 40(a)(ia):
The Revenue appealed against the CIT(A)'s decision to restrict disallowance under section 40(a)(ia) to the amount payable at the end of the previous year. The Special Bench decision held that disallowance could only apply to amounts 'payable', not already paid. The Revenue's appeal was dismissed based on this interpretation.

Conclusion:
The A.O.'s total addition of Rs.3,35,87,952/- was partly allowed in the assessee's appeal for statistical purposes. The disallowances of foreign exchange fluctuation loss, partial foreign travel and sales promotion expenses, and partners' remuneration were dismissed as they were not raised before the CIT(A). The issue of disallowance under section 40(a)(ia) was remitted back to the A.O. for further consideration. The order was pronounced on June 25, 2012, after the conclusion of the hearing.