2000 (9) TMI 230 - AT - Income Tax

Issues Involved:
1. Disallowance of entertainment expenses.
2. Disallowance on account of personal use of phones and vehicles by directors.
3. Non-allowance of 100% depreciation on office equipment.
4. Disallowance out of general expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Entertainment Expenses:

Ground No. 4 disputes the disallowance of Rs. 21,094 out of assessee's claim of Rs. 28,950 for entertainment expenses. The learned authorised representative of assessee contended that the AO made the disallowance under s. 37(2A) based on returned income, but argued that the calculation should be based on the assessed income. The Departmental Representative countered that deductions should be based on the returned income only. The Tribunal held that the computation should be based on the assessed income, favoring the assessee, following the principle of law that prefers the view favorable to the assessee when two views are possible.

2. Disallowance on Account of Personal Use of Phones and Vehicles by Directors:

Ground No. 5 disputes the disallowance on account of personal use of phones and vehicles by directors and 1/5th depreciation on vehicles. The assessee argued that no disallowance should be made for a limited company, citing several judicial decisions. The Departmental Representative argued that the disallowance was for non-business use, not personal use, and there was no evidence of exclusive business use. The Tribunal, considering the cited decisions, concluded that in the case of a company, there cannot be a disallowance for personal use of telephone and vehicles. The disallowances sustained by CIT(A) were found unjustified and were deleted accordingly.

3. Non-allowance of 100% Depreciation on Office Equipment:

Ground No. 8 disputes the non-allowance of 100% depreciation on office equipment valuing Rs. 7,340. The assessee argued that the items should be treated as 'plant' and cited several judicial decisions supporting this view. The Departmental Representative contended that these items did not fall within the specific category of "Machinery & Plant" and were merely office appliances. The Tribunal, considering the judicial precedents, concluded that office appliances could fall within the expression 'plant' and directed that 100% depreciation be allowed on the items in question.

4. Disallowance out of General Expenditure:

Ground No. 9 disputes the disallowance of Rs. 10,250 out of general expenditure. The assessee argued that such expenditures were allowable, citing several judicial decisions and a Board's Circular. The Departmental Representative contended that the AO made the disallowance on an estimate basis and that some expenditures were not wholly and exclusively for business purposes. The Tribunal found the disallowance excessive and restricted it to Rs. 2,250, granting the assessee relief of Rs. 8,000.

Conclusion:

The appeal of the assessee was allowed in part as indicated above.

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