2023 (5) TMI 625 - AT - Income Tax

Disallowance being half of depreciation and director remuneration claimed - business of the assessee suspended during the year under consideration - machinery were used for less than 180 days - whether temporary lull in the business would disentitle the assessee to claim depreciation and other expenses for full year? - HELD THAT - As relying on M/S. CHENNAI PETROLEUM CORPORATION LTD. 2013 (8) TMI 525 - MADRAS HIGH COURT and M/S ISHWAR BUILDERS PVT. LTD VERSUS THE DY. C.I.T CIRCLE 12 (2) NEW DELHI 2019 (12) TMI 613 - ITAT DELHI there is no requirement of disallowing part of director s remuneration and depreciation when the business was stopped due to temporary lull. Accordingly, we set aside the order passed by CIT(A) on the above said two issues and direct the AO to delete the disallowances. Disallowance sustained by the CIT(A) made out of various expenses - We notice that the assessee did not controvert the finding of the AO that some of the vouchers are supported by self made vouchers. Accordingly, we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue. Appeal of the assessee is partly allowed.

Summary

Issues involved:
The issues involved in the judgment are the disallowance of depreciation, director remuneration, and lump sum expenses by the Assessing Officer, which were sustained in part by the Commissioner of Income Tax (Appeals). The main contention is whether the temporary suspension of business operations would disentitle the assessee from claiming certain deductions.

Depreciation Disallowance:
The Assessing Officer disallowed 50% of the depreciation claimed by the assessee as the business operations were stopped in July 2014, and assets were used for less than 180 days. The Commissioner of Income Tax (Appeals) concurred with this view. However, the Tribunal referred to relevant case laws and held that the temporary lull in business does not warrant the disallowance of depreciation. Citing the decision of the Hon'ble Madras High Court, the Tribunal set aside the disallowance of depreciation and directed the AO to delete it.

Director Remuneration Disallowance:
The AO restricted the director remuneration claimed by the assessee for the whole year, as business operations ceased in July 2014. The CIT(A) upheld this disallowance partially. The Tribunal, considering the temporary nature of the business suspension, referred to a Delhi Tribunal decision and held that the assessee, engaged in furthering business activities, is eligible for the claim of director remuneration. Consequently, the Tribunal set aside the CIT(A)'s decision on this issue and directed the AO to delete the disallowance.

Lump Sum Expenses Disallowance:
The AO made a lump sum disallowance from various expenses, which was partly sustained by the CIT(A). The Tribunal noted that the assessee did not contest the AO's finding that some vouchers were self-made. Therefore, the Tribunal upheld the CIT(A)'s decision on this issue.

Conclusion:
In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the AO to delete the disallowances of depreciation and director remuneration. However, the disallowance of a lump sum amount from various expenses was upheld. The Tribunal emphasized that the temporary suspension of business activities does not justify disallowing certain deductions and referred to relevant case laws to support its decision.