1999 (4) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Depreciation on Assets Leased to Rajasthan State Electricity Board (RSEB).
2. Disallowance u/s 43B on Deferred Sales Tax.
3. Addition of Lease Rent.
4. Disallowance of Garden Maintenance Expenses.

Summary:

Issue 1: Disallowance of Depreciation on Assets Leased to RSEB
The assessee claimed depreciation on Water Pollution Control Equipment leased to RSEB. The Assessing Officer (AO) disallowed this claim, asserting the transactions were sham, primarily aimed at availing 100% depreciation to reduce tax liability. The AO argued that the transactions lacked genuine purchase and delivery of assets, and were collusive to defraud the Revenue. The CIT(A) upheld this disallowance. The Tribunal, however, ruled that the transactions were not sham as consideration was paid, and the assessee was entitled to depreciation as per Circular No. 9 of 1943 and relevant case laws. The Tribunal also found that the assets were indeed used by RSEB and the valuation report provided by the assessee was reliable. Consequently, the Tribunal directed the AO to allow depreciation of Rs. 1,23,85,750.

Issue 2: Disallowance u/s 43B on Deferred Sales Tax
The AO disallowed Rs. 25,39,770 under section 43B on account of deferred sales tax. The Tribunal, relying on precedents including the case of Morvi Horological Industries v. ITO and CIT v. K.N. Oil Industries, held that the disallowance was not justified and directed its deletion.

Issue 3: Addition of Lease Rent
The CIT(A) confirmed the addition of Rs. 1,09,583 being the amount of lease rent under contractual obligation. The Tribunal upheld this disallowance as the assessee failed to provide sufficient evidence to substantiate the claim.

Issue 4: Disallowance of Garden Maintenance Expenses
The AO disallowed Rs. 8,549 out of garden maintenance expenses, suspecting they were not wholly and exclusively for business purposes. The Tribunal found the disallowance to be based on surmises and conjectures and directed its deletion.

Conclusion:
The appeal was partly allowed, with the Tribunal granting relief on the issues of depreciation and deferred sales tax while upholding the disallowance of lease rent and deleting the disallowance of garden maintenance expenses.