2015 (10) TMI 487 - HC - Income Tax

Disallowance of depreciation - assessee could not prove that he had started production and that the excise documents produced were only photocopies and were not the original and, therefore, reliance could be placed on these documents - ITAT allowed the claim - Held that - The Tribunal after considering the evidence found that the assessee had started the production of poly chips plant at Nasik on 29th March, 1996 and operated the plant during the relevant previous year, which was borne out from the excise records and the raw material purchased and consumed by the assessee. The Tribunal had further given a finding that the excise records were verified by the excise authorities and the genuineness of those documents could not be doubted. In Commissioner of Income Tax Vs. Mentha and Allied Products (2009 (11) TMI 539 - Allahabad High Court) held that the assessee was entitled to claim depreciation on plant and machinery, even though it was used during the year for trial production. Once a finding has been given by the Tribunal that the assessee has operated the plant during the relevant previous year, the assessee became entitled for depreciation and was rightly allowed by the first appellate authority. - Decided in favour of assessee. Disallowance of foreign travelling expenses on 34 persons - disallowance on basis of a tax audit report on the ground that the names of the persons, who had travelled were not given - ITAT allowed the claim - Held that - Tribunal found that the names of the 34 persons were placed before the first appellate authority, which was examined and accepted and no adverse material was found by the departmental representative. The Tribunal found that 34 persons, who had travelled were dealers and distributors of the assessee and such trip was organized to promote the business of the assessee and, therefore, was entitled for such allowance. This being a finding of fact, which is not perverse, we are of the opinion that no substantial question of law arises.- Decided in favour of assessee. Disallowance of commission - expenditure increased as compared to the expenditure incurred in the previous year - Held that - Tribunal found that cheques were paid to commission agents, who in turn, were regular income tax assessees . We are of the opinion that when genuineness of the payments was not doubted by the department, the assessee was entitled to claim such allowance as business expenditure, which could not be disallowed on the ground that the expenditure on the commission in the year in question had increased as compared to the expenditure incurred in the previous year.- Decided in favour of assessee.

Summary

Issues:

1. Disallowance of depreciation claimed by the assessee for new units established.
2. Disallowance of foreign travelling expenses.
3. Disallowance of payment of commission.

Analysis:

1. Disallowance of Depreciation:
The appellant, engaged in manufacturing activities, set up three new units during the relevant assessment year. The Assessing Officer disallowed depreciation claimed on the grounds that the plants were not fully installed, not put to use, and not ready for production. However, the Tribunal found evidence that the poly chips plant at Nasik was operational and in production during the relevant year, supported by excise records and raw material consumption. Citing precedents, the Tribunal allowed the depreciation claim, emphasizing that the machinery need not be actively used to qualify for depreciation. The court concurred, stating that once production had commenced, the assessee was entitled to depreciation, dismissing the appeal.

2. Disallowance of Foreign Travelling Expenses:
The Assessing Officer disallowed foreign traveling expenses incurred for 34 persons due to missing names in the tax audit report, casting doubt on the expenditure's genuineness. However, the Tribunal found that the names were presented to the first appellate authority, verified as dealers and distributors of the assessee. The trip was deemed a business promotion activity, justifying the expense. As this was a factual finding without perversity, the court held no substantial question of law arose, upholding the allowance of the expenses.

3. Disallowance of Payment of Commission:
The Tribunal examined the disallowed commission payment of &8377; 77,74,507 and found that the payments were made to regular income tax assessees. As the genuineness of the payments was unquestioned and the commission agents were legitimate taxpayers, the court ruled that the expenditure qualified as a legitimate business expense. The increase in expenditure compared to the previous year did not warrant disallowance. Consequently, the court dismissed the appeal, stating no substantial question of law was raised for consideration.