2018 (10) TMI 54 - AT - Income Tax

Allowable busniss expenditure - Gift Expenses, Business promotion expenses and Entertainment Expenses wholly and exclusively - Held that - Looking to the nature of expenditure and nature of business activity of the assessee, it would reveal that these expenditures were not wholly required, in a sense, for the purpose of business or could it be termed that these expenses were exclusively incurred for the purpose of business. The ld.CIT(A) has examined this aspect in details and made reference to the decision in CONFEDERATION OF INDIAN PHARMACEUTICAL INDUSTRY (SSI) VERSUS CENTRAL BOARD OF DIRECT TAXES AND UNION OF INDIA 2013 (7) TMI 387 - HIMACHAL PRADESH HIGH COURT , and thereafter held that these expenses were not incurred for the promotion of the business. As pointed out by assessee, similar expenses were disallowed to it in earlier assessment years upto the level of the Tribunal, though order of the Tribunal has not been placed on record by either parties. But statement made at the Bar is sufficient for holding that such expenditure has been disallowed in the past also. Thus, in order to maintain consistency, these grounds of appeals are rejected in both the assessment years. Depreciation required to be granted to the assessee on the alleged life saving equipments - @40% OR 15% - Held that - We find that a list of life saving medical equipments has been given in this Appendix on which deprecation at the rate of 40% is permissible. Where rate of depreciation has been provided on specific machinery, it is not to be granted on each and every machinery installed at the hospital. Thus, the ld.CIT(A) has rightly rejected the stand of the assessee. The depreciation is to be granted on the basis of rate provided in the table given in the Income Tax Rules. The machinery on which depreciation has been claimed by the assessee at 40% is not being provided in the Appendix. Therefore, the depreciation on such machinery is at 15% which has rightly been upheld by the ld.CIT(A). This ground of appeal is rejected in both years. Depreciation on certain electrical installation at 15% which has been restricted by the AO to 10% - Held that - We find that depreciation has been restricted at the rate of 10% by the ld.AO because the assessee failed to demonstrate that electrical panel installed by it was part of the machinery. He considered electrical installation as independent asset than the medical equipments. CIT(A) has considered all these aspects in right perspective and no interference is called on this issue. Hence, this ground of appeal is also rejected.

Summary

Issues Involved:
1. Maintainability of Revenue's appeal due to low tax effect.
2. Disallowance of expenditure on gift expenses, business promotion expenses, and entertainment expenses.
3. Depreciation rate on life-saving equipment.
4. Depreciation rate on electrical installations.

Issue-wise Detailed Analysis:

1. Maintainability of Revenue's Appeal Due to Low Tax Effect:
The Revenue's appeal was dismissed on the grounds of low tax effect as per CBDT Circular No. 3 of 2018 dated 11.7.2018, which prohibits filing of appeals where the tax effect is less than ?20 lakhs. The Tribunal noted that the disputed addition was ?45 lakhs, and the tax effect was less than ?20 lakhs. The Revenue did not provide evidence that their case fell within exceptions of the Circular. The Tribunal allowed the Revenue to approach for recall if re-verification by the AO showed higher tax effect or applicability of exceptions.

2. Disallowance of Expenditure on Gift Expenses, Business Promotion Expenses, and Entertainment Expenses:
The Tribunal upheld the partial disallowance of these expenses by the CIT(A) for both assessment years. The CIT(A) had analytically examined each expenditure and found certain expenses allowable (e.g., birthday gifts for staff, sponsorship of Marathon) and others not allowable (e.g., gifts to doctors, IPL match arrangements) under Section 37(1) of the Income Tax Act. The Tribunal agreed that expenses like gifts to doctors were prohibited by law and thus not deductible. The Tribunal emphasized consistency, noting similar disallowances were upheld in previous years.

3. Depreciation Rate on Life-Saving Equipment:
The assessee claimed 40% depreciation on certain medical equipment, which the AO restricted to 15%. The CIT(A) upheld this, stating the listed equipment did not qualify for the higher rate under Appendix I(III)(3)(xia) of the Income Tax Rules. The Tribunal agreed, noting that specific machinery rates must be adhered to, and the claimed equipment did not fall under the specified category for higher depreciation.

4. Depreciation Rate on Electrical Installations:
The assessee claimed 15% depreciation on electrical installations, which the AO restricted to 10%. The CIT(A) upheld this, noting the installations (e.g., LDB Panel, industrial cables) were not part of medical equipment but rather general electrical fittings. The Tribunal agreed, finding no evidence that these installations were integral to the medical machinery, thus supporting the lower depreciation rate.

Conclusion:
The Tribunal dismissed all appeals from the assessee and the Revenue, upholding the CIT(A)'s decisions on disallowances and depreciation rates. The Tribunal's judgment emphasized adherence to statutory provisions, consistency with past decisions, and proper classification of expenses and assets for tax purposes.