2019 (8) TMI 236 - AT - Income Tax

Allowable business expenses - Disallowance of business promotion expenses, gift to doctors and entertainment expenses - HELD THAT - As decided in own case 2018 (10) TMI 54 - ITAT AHMEDABAD 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. CIT(A) has examined this aspect in details and made reference to the decision of Hon ble Himachal Pradesh High Court, and thereafter held that these expenses were not incurred for the promotion of the business. As pointed out by the ld.counsel for the 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 on life saving equipment - @15% OR 40% - HELD THAT - As decided in own case 2018 (10) TMI 54 - ITAT AHMEDABAD 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) Disallowance of depreciation on certain electronical installation - rate of 15% which has been restricted by the AO to 10% also confirmed by CIT -A - 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. Assessee appeal dismissed.

Summary

Issues Involved:
1. Disallowance of business promotion expenses, gift to doctors, and entertainment expenses.
2. Restriction of depreciation on life-saving equipment to 15% instead of 40%.
3. Disallowance of depreciation on electrical installations, restricting it to 10% instead of 15%.

Issue-wise Detailed Analysis:

1. Disallowance of Business Promotion Expenses, Gift to Doctors, and Entertainment Expenses:

The assessee challenged the disallowance of ?6,89,920/- out of business promotion expenses, gift to doctors, and entertainment expenses. The Tribunal noted that similar disallowances were upheld in previous assessment years (2011-12 and 2012-13) and followed the same reasoning. The assessee, engaged in cardiac care, had debited ?21,86,519/- under these heads. The AO disallowed these expenses, which were partially allowed by the CIT(A). The Tribunal upheld the CIT(A)’s order, referencing the Medical Council of India’s prohibition on accepting gifts and the CBDT’s circular clarifying such expenses as inadmissible under Section 37 of the Income Tax Act. The Tribunal emphasized that these expenses were not wholly and exclusively for business purposes and maintained consistency with past decisions, thus dismissing the appeal.

2. Restriction of Depreciation on Life-Saving Equipment to 15% Instead of 40%:

The assessee claimed 40% depreciation on certain assets, which the AO restricted to 15% as per the Income Tax Rules. The CIT(A) upheld this restriction, and the Tribunal agreed, noting that the specific life-saving equipment listed in Appendix I(III)(3)(xia) did not include the assets in question. The Tribunal affirmed that depreciation must be granted based on the rates provided in the Income Tax Rules, and the machinery listed by the assessee did not qualify for the higher rate. Consequently, the Tribunal rejected this ground of appeal.

3. Disallowance of Depreciation on Electrical Installations, Restricting it to 10% Instead of 15%:

The assessee claimed 15% depreciation on electrical installations, which the AO restricted to 10%. The CIT(A) upheld this decision, and the Tribunal concurred, noting that the assessee failed to demonstrate that the electrical installations were part of the medical equipment. The Tribunal found that the installations were considered independent assets and not part of the machinery, thus justifying the lower depreciation rate. The Tribunal upheld the CIT(A)’s decision, dismissing this ground of appeal.

Conclusion:

The Tribunal dismissed the appeal, maintaining consistency with previous decisions and upholding the CIT(A)’s orders on all grounds. The Tribunal emphasized adherence to the Income Tax Rules and relevant legal provisions, ensuring that the expenses and depreciation claims were in line with statutory requirements. The order was pronounced on 30th July 2019 at Ahmedabad.