2003 (7) TMI 281 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of depreciation on computers purchased and leased out.
2. Disallowance of car expenses, depreciation on car, and AGM expenses.
3. Set-off of unabsorbed depreciation and investment allowance under Section 115J of the IT Act.

Detailed Analysis:

1. Disallowance of Depreciation on Computers:

The primary issue pertains to the CIT(A)'s decision to uphold the disallowance of depreciation amounting to Rs. 24,99,750 on computers purchased from M/s Pertech Computers Ltd. (PCL) and leased out by the appellant. The appellant contended that the computers were genuinely purchased and leased, and thus, they were entitled to claim depreciation. The AO observed that the transactions appeared dubious as PCL, a computer manufacturer, leased back the computers it sold, raising doubts about the genuineness of the transactions. The AO and CIT(A) viewed the transactions as financial arrangements aimed at reducing tax liability rather than genuine lease transactions.

The Tribunal, after hearing both parties, concluded that the transactions were genuine. They noted that the appellant provided substantial evidence, including purchase invoices, lease agreements, and payment confirmations. The Tribunal emphasized that the legal effect of the transactions should be considered, and the evidence provided by the appellant was not rebutted or proven false. Therefore, the Tribunal deleted the disallowance of depreciation, recognizing the transactions as legitimate.

2. Disallowance of Car Expenses, Depreciation on Car, and AGM Expenses:

The second issue involves the disallowance of Rs. 11,827 out of car expenses, 1/6th of the claim of depreciation on the car, and Rs. 7,500 out of AGM expenses. The AO disallowed 1/5th of the car expenses and depreciation, citing past history, and the CIT(A) reduced this to 1/6th. The Tribunal found that since the appellant is a company, there is no scope for personal use of the car, and thus, no disallowance should be made.

Regarding AGM expenses, the AO disallowed the expenditure considering it as entertainment under Section 37(2A) of the Act. The CIT(A) provided partial relief, reducing the disallowance to Rs. 7,500. The Tribunal upheld the CIT(A)'s decision, finding no justification to interfere with the reduced disallowance.

3. Set-off of Unabsorbed Depreciation and Investment Allowance:

The third issue concerns the CIT(A)'s decision that set-off of unabsorbed depreciation and investment allowance should be allowed to the extent of the total income available, not restricted to the total income taxable under Section 115J of the IT Act. The AO disallowed the investment allowance as it was not allowed in previous years. The CIT(A) followed the Tribunal's earlier decision in a similar case.

The Tribunal, referencing its previous orders, including the case of Motor & General Finance Ltd., confirmed that the investment allowance should be allowed. They followed the precedent set by earlier decisions, allowing the appellant's claim for set-off.

Conclusion:

The Tribunal partly allowed the appeal, providing relief on the disallowance of depreciation on computers and the set-off of unabsorbed depreciation and investment allowance. However, they upheld the disallowance of AGM expenses as decided by the CIT(A).