2012 (7) TMI 804 - AT - Income Tax

Disallowance of Depreciation on renovation - AO stated that capital expenditure incurred in respect of a premises that were taken on lease after the end of the previous year are not eligible for depreciation - Held that - Mrs. Radhika Sehgal, the land lady and Mr. Mukesh Sehgal director of the company traveled together to India. In fact, as per argument of assessee that they are close relatives. Therefore, it can be said that there was oral understanding between them for lease of the above building. Moreover, the various licenses issued by various authorities like Customs Department STPI had given licenses with the same property as its address. Moreover, business was also started from the same premises before 31st March, 2006. Therefore, we do not see any reason to interfere in the order of Ld CIT(A)in deleting the addition made by the A.O on account of disallowance of depreciation - in favour of assessee Disallowance of expenditure on account traveling - Held that - Mr. Mukesh Shegal was one of the first director of the company and he had traveled to India for completion of various formalities for getting various approvals - there is every possibility that traveling expenses incurred by assessee on the travel of its director were to enable him to attend Board meetings and to file various documents before various authorities - as genuine business expenditure has been incurred CIT(A) was correct to allow the expenditure - in favour of assessee. Disallowance of exemption u/s 10B - Held that - As assessee had claimed exemption for the profits only from 1.2.2006 to 31.3.2006 and all the conditions for availment of exemption u/s 10B were complied. Therefore no reason to interfere in the order of Ld CIT(A)for allowing the exemption - in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of depreciation claimed by the assessee on renovation of leased property.
2. Deletion of disallowance of expenditure on account of traveling expenses.
3. Direction to allow exemption under section 10B on the profits derived for a specific period without discussing the reasons for disallowance by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Depreciation on Renovation of Leased Property:
The revenue appealed against the deletion of an addition of Rs. 371,402/- made by the AO on account of disallowance of depreciation claimed by the assessee on the renovation of a leased property. The AO noted that the property was neither owned by the assessee nor was there any lease deed executed before the end of the previous year. The CIT(A) allowed the depreciation, noting that the business was carried out from the premises from January 2006, supported by various licenses and certificates. The Tribunal upheld the CIT(A)'s decision, stating that the oral understanding between the parties and the commencement of business from the premises justified the claim for depreciation.

2. Traveling Expenses:
The AO disallowed Rs. 5,64,344/- incurred on traveling expenses by Ms. Radhika Sehgal and Mr. Mukesh Sehgal, who were not employees or directors of the company. The CIT(A) allowed 50% of the expenses, recognizing Mr. Mukesh Sehgal as a legitimate business expenditure since he was a director overseeing the software business. The Tribunal agreed with the CIT(A), noting that Mr. Mukesh Sehgal was involved in completing formalities for business approvals, thus validating the expenditure as genuine business expenses.

3. Exemption under Section 10B:
The AO disallowed the exemption under section 10B, citing the failure to produce an audit report, reliance on outsourced software development, and lack of certified copies of invoices. The CIT(A) held that the assessee was eligible for the exemption from 01-02-2006, based on the approval as an STPI unit and compliance with the conditions under the STPI scheme. The Tribunal affirmed the CIT(A)'s decision, noting that the prescribed audit report was filed during the assessment proceedings and that the invoices were within the threshold not requiring certification.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found that the assessee met the necessary conditions for claiming depreciation on the renovation, justified the traveling expenses as legitimate business expenditures, and complied with the requirements for exemption under section 10B. The appeal was dismissed in favor of the assessee.