2018 (12) TMI 680 - AT - Income Tax

Disallowance of depreciation on Effluent Treatment Plant - whether the assessee was able to establish that its ETP was installed and put to use during the year, enabling it to claim depreciation on the same? - Held that - The installation of the ETP in the impugned year not being in dispute and the assessee having proved that ETP was capable of being run on the existing load available with the assessee in the impugned period being a lean period in the beer industry the factum of ETP being put to use in the impugned year stands established. The assessee is, therefore, we hold, is eligible to claim depreciation @ 50% of the value of the asset. The order passed by the CIT(A) denying the said claim is, therefore, set aside and ground No.1 raised by the assessee is, therefore, allowed. Disallowance of foreign travel expenses - expenditure incurred on the trip of MD to UK and the trip to Germany - Held that - For trip to UK The only evidence, we find, which have been filed by the assessee gives the details of the trip and proof of expenses incurred by way of bills of travel agent and bills of foreign exchange purchased. No evidence to prove the visit of the MD to breweries in Edinburgh had been filed, nor any other evidence to prove that the trips were undertaken for business purpose. Therefore, we uphold the order of the Ld.CIT(A) in disallowing the claim of foreign travelling expenses incurred on the trip undertaken by the MD of the assessee company to UK. There is no justification for holding the expenses incurred on the MD as excessive. Surely the stature of an MD if far above that of the other employees of the company and therefore the expenses cannot be said to be excessive by comparing with the quantum incurred on other employees.Even while disallowing expenses for personal usage, only general statements have been made that some personal element must be involved in the trip to Germany. There is therefore we find no basis either for holding the expenses incurred on the MD s trip to Germany excessive or personal. The Revenue cannot deny the claim of expenditure on whims and fancies. The same is, therefore, not acceptable. In view of the same, we hold that the denial of claim of expenditure incurred on the trip of the MD of the assessee company to Germany was unwarranted and uncalled for and the same is directed to be allowed to the assessee. The disallowance of claim of expenditure, therefore, to the extent of ₹ 3,27,030/- is deleted.

Summary

Issues Involved:
1. Disallowance of depreciation on Effluent Treatment Plant (ETP).
2. Disallowance of foreign travel expenses of the Managing Director (MD).

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Effluent Treatment Plant (ETP):

The assessee appealed against the disallowance of ?20,80,484/- as depreciation on ETP. Initially, the ITAT had remanded the issue back to the Assessing Officer (A.O.) for re-examination. The A.O. and subsequently the CIT(A) upheld the disallowance, citing that the ETP was not put to use during the relevant financial year since the additional power load required for its operation was sanctioned only in the subsequent financial year.

The assessee provided several documents, including a Brewer and Engineer Certificate, PSEB demand notice, PPCB clearance certificate, and PPCB consent, to substantiate the claim that the ETP was installed and operational within the relevant financial year. However, the A.O. rejected these evidences, emphasizing that the additional power load was sanctioned only on 20.05.2009, thus concluding that the ETP could not have been operational in the impugned year.

The assessee contended that the ETP was operational on the existing power load due to the off-season of the beer industry, which required lower power consumption. The ITAT examined the facts and found that the plant was indeed installed and capable of being used with the existing power load. The ITAT held that the disallowance of depreciation was unwarranted and allowed the depreciation claim of ?20,80,484/-.

2. Disallowance of Foreign Travel Expenses of the Managing Director (MD):

The assessee claimed ?14,21,898/- as foreign travel expenses for the MD, which was initially disallowed due to lack of documentary evidence proving the business purpose. Upon reassessment, the A.O. allowed ?2,17,195/- for the MD’s trip to Germany, disallowing the remaining amount as extravagant and possibly personal.

The assessee argued that the MD’s trips to the UK and Germany were for business purposes, including visiting breweries and attending a trade fair. The ITAT upheld the disallowance for the UK trip due to insufficient evidence proving its business purpose. However, for the Germany trip, the ITAT found the business purpose established, as the A.O. had allowed expenses for other employees on the same trip. The ITAT disagreed with the A.O.’s view that the expenses were excessive or personal, emphasizing the MD’s higher stature justifying higher expenses.

Thus, the ITAT allowed the full claim of ?5,44,225/- for the Germany trip and upheld the disallowance for the UK trip, resulting in partial allowance of the assessee’s appeal.

Conclusion:

The appeal was partly allowed. The ITAT granted the depreciation on ETP and allowed the full claim of foreign travel expenses for the MD’s trip to Germany while upholding the disallowance for the UK trip.