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2012 (6) TMI 133 - AT - Income TaxActual Cost - Calculation of depreciation on the Gas Cylinders acquired from associate concern through MOU - AO has allowed the depreciation on the closing WDV of the said firm and not on the cost as recorded by the assessee-company - Held that - Through MOU the assigner a Registered firm has transferred all its assets and liabilities to assignee, the assessee-company who has taken over all the liabilities as well and agreed to transfer a consideration, plus the shares in the name of the partners of the said erstwhile firm as this is not the case of transfer of capital assets by holding company to its subsidiary company, or the case of capital asset being transferred by amalgamation, or transfer of capital asset by demerger, then the only recourse for the Revenue ought to be that the actual cost as defined u/s.43(l) should have been taken for the calculation of depreciation - since the assets and liabilities of the firm have been taken over by the assessee-company therefore the exception as prescribed u/s.47(xiii) that nothing contained in section 45 shall apply to any transfer of the capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried have its application and that could have been the reason that no action was ascribed in the hands of the erstwhile firm against revenue. Direction to allow depreciation of Gas Cylinders being put to use once the assessee has demonstrated that the cylinders were purchased and were dispatched for its destination and from that very day the assessee has started receiving the lease-rent the date is very relevant to decide whether the assets in question have actually been put to use for 180 days or more for the purpose of eligibility of full rate of depreciation - Held that - Since the admitted fact is that one of the business of the assessee is hiring of gas cylinders thus the assets in question have actually been leased out with effect from 27.09.2003 and have been put to use for hiring business for more than 180 days against revenue. Addition of sum being difference between receipts credited in profit and loss account and the actual receipt as per TDS certificates not affording the Assessing Officer an opportunity to rebut the evidence put before him Held that - The provisions of Rule 46A was infringed by CIT(A) by not confronting certain new evidences to the AO as the reconciliation with supporting evidences was not in the knowledge of the AO it is advisable to restore this ground of the Revenue back to the stage of the AO to be decided after investigation and verification of the TDS certificates in favour of revenue for statistical purposes. Deleting the addition of sum being diversion of profit under charging rent on cylinders leased to the associate concern Held that - For alleging the impugned diversion of profit the AO has overlooked the business model and the pattern of business activity of the assessee - though the business activity of the group concern is leasing out of LCH cylinders but the dealing with the GACL of the sister-concern who was not a loss making concern should have been taken into account before alleging the diversion of profit - the rate of tax as applicable in the case of the said sister-concern was identical with the rate of tax of the assessee with no mala fide motive for such diversion of income on the part of the assessee against revenue. Treatment of vehicle expenses - C.I.T.(A)deleted the addition of Rs. 36,801 being vehicle expenses for personal use Held that - In the absence of any specific instance of user of vehicle for non-business purpose, we are of the view that there was no scope for such an ad hoc disallowance against revenue. Claim of bad debt disallowed Held that - As decided in T.R.F. Ltd. v. CIT 2010 (2) TMI 211 (SC) in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee against revenue.
Issues Involved:
1. Higher depreciation on gas cylinders acquired through MOU. 2. Depreciation on assets not actually put to use. 3. Addition of undisclosed income based on TDS certificates. 4. Alleged diversion of profit undercharging rent on cylinders leased to associate concern. 5. Disallowance of vehicle expenses for personal use. 6. Bad debts claim. Issue-wise Detailed Analysis: 1. Higher Depreciation on Gas Cylinders Acquired Through MOU: The CIT(A) directed the AO to allow higher depreciation on gas cylinders acquired from an associate concern through an MOU. The AO contended that the assessee inflated the actual cost through revaluation, which is against the precedent set by the Supreme Court in Saharanpur Electric Supply Co. v. CIT. The AO restricted the depreciation claim based on the WDV from the previous firm. The CIT(A) found that the transaction was a legitimate business transfer under section 47(xiii) of the IT Act, and the actual cost should be considered for depreciation. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not invoke Explanation-3 to section 43(1), which could have allowed adjustment of the actual cost. 2. Depreciation on Assets Not Actually Put to Use: The AO disallowed full depreciation on gas cylinders, arguing they were not "put to use" before 30/09/2003. The CIT(A) allowed full depreciation, citing that the cylinders were leased out from 27.09.2003, thus meeting the "put to use" requirement for more than 180 days. The Tribunal agreed with the CIT(A), noting that the lease commencement date was relevant for determining the usage period. 3. Addition of Undisclosed Income Based on TDS Certificates: The AO added Rs. 16,12,749 as undisclosed income based on discrepancies between receipts in the profit and loss account and TDS certificates. The CIT(A) accepted the assessee's reconciliation, which included prior period income and discount income. The Tribunal found merit in the Revenue's argument that the AO was not given a chance to rebut the new evidence and remanded the issue back to the AO for re-evaluation. 4. Alleged Diversion of Profit Undercharging Rent on Cylinders Leased to Associate Concern: The AO alleged profit diversion by the assessee to its associate concern by undercharging rent on cylinders. The CIT(A) deleted the addition, noting that the associate concern was not a loss-making entity and the tax rates were identical. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not investigate the commercial reasons behind the rent charges and the business model of the assessee. 5. Disallowance of Vehicle Expenses for Personal Use: The AO disallowed 10% of vehicle expenses, suspecting personal use by directors. The CIT(A) deleted the addition, following the precedent set by Sayaji Iron & Engg. Co. v. CIT. The Tribunal affirmed the CIT(A)'s decision, noting the lack of specific evidence of personal use. 6. Bad Debts Claim: The AO disallowed the assessee's claim for bad debts amounting to Rs. 9,54,436, questioning the efforts made for recovery. The CIT(A) allowed the claim, and the Tribunal upheld this decision, referencing the Supreme Court's ruling in T.R.F. Ltd. v. CIT, which clarified that writing off bad debts in the books is sufficient for claiming deduction. Separate Judgments: For A.Y. 2003-04 and 2005-06, the Tribunal followed the same reasoning as for A.Y. 2004-05 and dismissed the Revenue's appeals. The Tribunal's decisions were consistent across the assessment years, addressing the same issues with similar conclusions.
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