1991 (10) TMI 80 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenses under section 37(3A) of the IT Act.
2. Deduction of initial depreciation for computing the written down value of assets.

Analysis:

*Issue 1: Disallowance of expenses under section 37(3A) of the IT Act*

The first ground of appeal in this case pertains to the deletion of expenses totaling Rs. 37,069 and Rs. 1,98,782 by the CIT(A) from the purview of section 37(3A) of the IT Act. The ITO had added these amounts during assessment, but the CIT(A) held that the expenses were not covered under the disallowance provision of section 37(3A). The CIT(A) reasoned that expenses connected with sales promotion should only be considered for disallowance under this section. The Tribunal upheld the CIT(A)'s decision, emphasizing that expenses allowable under specific sections other than the omnibus section 37(1) should not be disallowed under section 37(3A). Specifically, repair expenses related to assets allowable under section 31 were excluded from disallowance under section 37(3A), as per various Tribunal decisions and a Bombay High Court ruling. The Tribunal found the CIT(A)'s deletion of the expenses justified and upheld the order.

*Issue 2: Deduction of initial depreciation for computing the written down value of assets*

The second ground of appeal concerns the CIT(A)'s decision regarding the deduction of initial depreciation for computing the written down value of assets under section 32(1)(iv) of the IT Act. The ITO had disallowed a portion of the claim on an estimate basis due to lack of details regarding adjustments of initial depreciation allowed in earlier years. The CIT(A) deleted this disallowance, citing the amendment to section 32(1)(iv) effective from April 1, 1984, which required deduction of initial depreciation for computing the written down value of assets. The Tribunal agreed with the CIT(A), noting that the Assessing Officer could not modify the written down value brought forward from earlier years where initial depreciation had already been allowed. The Tribunal upheld the CIT(A)'s decision to delete the addition, finding it justified based on the facts presented and the applicable law.

In conclusion, the Tribunal dismissed the Department's appeal, upholding the CIT(A)'s orders regarding the disallowance of expenses under section 37(3A) and the deduction of initial depreciation for computing the written down value of assets.