2012 (8) TMI 296 - AT - Income Tax

Dis allowance of prior period development expenses - Held that - Once the survey party has drawn a trading account as on the date of survey mentioning land development expenses inclusive of the expenditure in question pertaining to bricks purchases cement pipe architect fees registration fees sundry expenses moram purchases colour purchases - the AO s action would tantamount to double jeopardy that on one hand net profit was arrived at after considering those expenses and on the other hand again those were added on the pretext of disallowance of expenses pertained to Assessment Year 2005-06 - in favour of assessee. Disallowance out of labour expenses - Held that - When the Appellant has not engaged any contractor and done the development work departmentally he has to engage labour at his own and cost of the labours cannot be denied and in case of retail labour one cannot expect a bill but the reasonable record would be a voucher or labour register. Since the AO has not denied that the Appellant has maintained documentary evidence and the AO has not pin-pointed any defect in the same the disallowance made at 10% of the labour expenses on the reasoning that the documentary evidences are self made cannot be sustained - in favour of assessee. Disallowance of excess claim of depreciation on medical equipments - Held that - CIT(A) has examined the usage of each of the equipment in question and therefore rightly held that they were nothing but in the category of life saving medical equipments on which depreciation @ 40% was allowable - in favour of assessee.

Summary

Issues Involved:

1. Deletion of addition on account of disallowance of expenses pertaining to the previous assessment year.
2. Deletion of addition on account of disallowance of labour expenses.
3. Deletion of addition on account of disallowance of excess claim of depreciation on medical equipment.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Disallowance of Expenses Pertaining to the Previous Assessment Year:

The Revenue appealed against the deletion of an addition of Rs. 33,57,337/- made due to disallowance of expenses related to A.Y. 2005-06. The assessee, involved in the construction business, was subjected to a survey where a trading account was drawn, revealing unaccounted profit applied towards various investments. The assessee declared an income of Rs. 1,06,49,310/- for A.Y. 2006-07, which included development expenses of Rs. 2,03,26,885/-. The Assessing Officer (AO) disallowed Rs. 33,57,337/- as it pertained to the previous year. The CIT(A) deleted this addition, stating that the expenditure was part of the opening stock-in-trade and correctly debited as development expenses. The Tribunal upheld this view, emphasizing that the profit disclosed included these expenses, and disallowing them would result in double jeopardy.

2. Deletion of Addition on Account of Disallowance of Labour Expenses:

The Revenue contested the deletion of an addition of Rs. 3,41,300/- made on account of disallowance out of labour expenses. The AO had made an ad-hoc disallowance of 10% of the labour expenses due to self-made vouchers. The CIT(A) provided relief, noting that labour costs are essential in development projects and the appellant's labour expenses were reasonable. The AO did not identify any specific defects in the vouchers. The Tribunal agreed with the CIT(A), finding no logical basis for the ad-hoc disallowance and confirming the deletion of the addition.

3. Deletion of Addition on Account of Disallowance of Excess Claim of Depreciation on Medical Equipment:

The Revenue appealed against the deletion of an addition of Rs. 6,46,216/- out of a total Rs. 8,12,587/- made due to disallowance of excess depreciation claimed on medical equipment. The CIT(A) had allowed depreciation at 40%, considering the equipment as life-saving medical devices. The Tribunal upheld this decision, interpreting the term "life-saving medical equipment" in the Income Tax Rules as illustrative rather than exhaustive. The CIT(A) had rightly examined the usage of the equipment, confirming their classification as life-saving, and the Tribunal found no merit in the Revenue's appeal.

Conclusion:

The Tribunal dismissed both appeals by the Revenue, confirming the CIT(A)'s decisions on all grounds. The Tribunal's detailed analysis emphasized the proper accounting treatment of expenses and the reasonableness of claims, ensuring that the assessee's declared profits and expenses were appropriately considered.