2022 (3) TMI 647 - AT - Income Tax

Disallowance of depreciation on plant and machinery belonging to the appellant company and installed at customer's premises for the business of the assessee - HELD THAT - In this case, the customers of the assessee are either the stand alone pathology laboratories or the hospitals with such in-house laboratories, which carry out the diagnosis of a medical disease by subjecting the patients sample with the use of reagents in the diagnostic machines/instruments. The modus operandi adopted by the assessee for running its business of trading in diagnostic machines and reagents, which is commonly followed in the trade line of diagnostic industry. We herein vacate the consequential finding of the CIT(A) which had so emerged on the basis of his aforesaid misconceived and ill founded observations that the diagnostic machines installed by the assessee at the customers site under the reagent rental contracts were not from the assesses 'Block of assets', but formed part of the letters 'Stock in trade'. We thus being of the view that the installation of the diagnostic machines owned by the assessee and forming part of its 'Block of assets' at the customers site, being a part of the business of the assessee, and rather as a matter of fact a modus operand adopted by the assessee to boost its sales of reagents, therefore the latter being found to have duly satisfied the requisite conditions contemplated u/s. 32(1) is thus entitled to deprecation on the said diagnostic machines. We thus in light of our aforesaid observations set aside the order of the CIT(A) and allow the appeal of the assessee. Difference in Form 26AS and the receipts shown by the assessee - HELD THAT - We find that no new facts have been brought to our notice. Therefore, we do not find a reason to come to a different conclusion than the one arrived at by the authorities below. Ground 2 of the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of depreciation on plant and machinery.
2. Addition due to the difference between income credited to the Profit and Loss account and the income reflected in Form 26AS.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Plant and Machinery:

The assessee appealed against the disallowance of ?6,53,933/- on account of depreciation on plant and machinery installed at customer premises. The primary business of the assessee involves trading in diagnostic kits and instrumentation used for medical purposes, and marketing related medical instrumentation on a commission basis. The assessing officer disallowed the depreciation on machines given on rent, following the precedent set in earlier years.

The Tribunal noted that the modus operandi of the assessee includes:
- Outright sale of diagnostic machines to customers.
- Installation of diagnostic machines owned by the assessee at customer premises with a conditional agreement that the reagents used must be purchased exclusively from the assessee.

The Tribunal referenced its earlier decision for assessment years 2007-08 to 2010-11, where it was held that the conditional deployment of diagnostic machines to boost reagent sales is a strategic business approach. The Tribunal found that the installation of diagnostic machines at customer sites under such agreements constitutes a business activity, and thus, the assessee is entitled to claim depreciation.

The Tribunal dismissed the observations of the CIT(A) that the assessee had not furnished details or evidence regarding the plant and machinery given to customers. The Tribunal found that the diagnostic machines formed part of the assessee's "Block of assets" and were installed at customer sites as part of a strategic business practice. Therefore, the disallowance of depreciation was not justified.

2. Addition Due to Difference in Income:

The assessee also contested the addition of ?1,88,922/- due to discrepancies between the income credited to the Profit and Loss account and the income reflected in Form 26AS. The assessing officer noted mismatches in amounts reported by various parties, resulting in the aggregate difference being added as unaccounted receipts.

The Tribunal found no new facts or evidence to challenge the findings of the lower authorities. Consequently, the Tribunal upheld the addition, dismissing the assessee's ground on this issue.

Conclusion:

The Tribunal allowed the appeal of the assessee in part. The disallowance of depreciation on plant and machinery was overturned, allowing the assessee's claim for depreciation. However, the addition due to the difference in income as reflected in Form 26AS was upheld. The final order pronounced in the open court on 01st March 2022 resulted in the appeal being partly allowed.