2017 (4) TMI 446 - AT - Income Tax

Depreciation on plant machinery installed at customer s site free of cost - Held that - The installation of equipments in the client s premises of assessee s equipments was necessary and part and parcel of nature of business carried on by the assessee. It cannot therefore be said that the equipments in question had not been used for the purpose of the business of the assessee. The fact that the equipments were used in the business premises of the clients cannot be the basis to disallow the claim of the assessee for deduction on account of depreciation. The decision of the Hon ble Supreme Court in the case of ICDS Ltd. vs CIT 2013 (1) TMI 344 - SUPREME COURT clearly supports the claim of the assessee in this regard. It is clear from the perusal of the order of AO that the AO s objection was that since the equipments in question had not been installed at the assessee s factory premises, it cannot be said that the equipments were used for the purpose of assessee s business. This reason given by the AO for disallowing the claim of the assessee for depreciation cannot be sustained in view of the factual and legal position discussed as above. - Decided against revenue Disallowance of Travelling and Conveyance - CIT(A) restricted addition to 5% - Held that - The assessee had filed complete details of reimbursement of travelling expenses in the present case before CIT(A). When these details were forwarded to the AO the AO did not find any fault. He however, has stated in his remand report that the assessee could not produce certain other details called for as to what were the other details called for is not spelt out in the remand report. It is therefore clear that there is no valid basis for sustaining the disallowance made by the AO. The CIT(A) has however has taken a conservative approach and disallowed 5% of the reimbursement of travelling expenses. We are of the view that no fault could be found with the approach adopted by CIT(A).- Decided against revenue Disallowance of Labour Supply Expenses - CIT(A) restricted addition to 5% - Held that - We are of the view that the order of CIT(A) on this issue does not call for any interference. As already observed despite filing of all the details, the AO has given a vague remand report that some of the details called for were not furnished. In the given facts and circumstances the CIT(A) with a conservative approach sustained the disallowance of 5% of the labour supply expenses. We do not find any fault with the approach of CIT(A).- Decided against revenue Disallowance of Misc. Expenses - CIT-A allowed claim - Held that - In the light of the admitted factual position that all details were furnished by the Assessee in the proceedings before CIT(A) and in the light of the remand report of the AO wherein no defects have been pointed out in the details furnished by the Assessee, the very basis of disallowance made by the AO did not survive. In these circumstances, the addition made by the AO was rightly deleted by the CIT(A)- Decided against revenue

Summary

Issues Involved:

1. Depreciation on plant machinery installed at customer's site.
2. Disallowance of travelling and conveyance expenses.
3. Disallowance of labour supply expenses.
4. Disallowance of miscellaneous expenses.

Issue-wise Detailed Analysis:

1. Depreciation on Plant Machinery Installed at Customer's Site:

The primary contention was whether the Assessee could claim depreciation on plant and machinery installed at customer sites. The Assessee, engaged in manufacturing and dealing with water treatment chemicals, installed machinery worth ?2.46 crores at customer sites to monitor the use and effect of its chemicals. The AO disallowed the depreciation claim of ?82,20,338/- on the grounds that the machinery was not installed at the Assessee's factory premises and was not used for the Assessee's business. The CIT(A) allowed the depreciation, referencing the Supreme Court decision in ICDS Ltd. vs CIT, which supports depreciation claims for assets used in the business, irrespective of their location. The Tribunal upheld the CIT(A)'s decision, stating that the installation at customer sites was integral to the Assessee's business operations.

2. Disallowance of Travelling and Conveyance Expenses:

The Assessee claimed ?5,90,92,000/- for travelling and conveyance, including ?3,15,17,493/- reimbursed to employees. The AO disallowed the entire reimbursement due to a lack of detailed substantiation. The CIT(A), after reviewing the submitted details and the company's reimbursement policy, restricted the disallowance to 5% of the reimbursed amount, i.e., ?15,75,874/-. The Tribunal found no fault with the CIT(A)'s conservative approach and dismissed the revenue's appeal, agreeing that the Assessee had provided sufficient details.

3. Disallowance of Labour Supply Expenses:

The AO disallowed ?1,06,11,230/- of the labour supply expenses, questioning the reimbursement to employees instead of direct payments to suppliers. The CIT(A) reviewed the details and restricted the disallowance to 5%, i.e., ?5,30,560/-, acknowledging that some details might have been missing but the complete disallowance was unjustified. The Tribunal upheld the CIT(A)'s decision, noting that the AO's remand report did not specify the missing details, thereby supporting the conservative 5% disallowance.

4. Disallowance of Miscellaneous Expenses:

The AO disallowed 50% of the sundry expenses amounting to ?51,98,275/- due to the absence of proper bills and vouchers. The CIT(A) deleted this disallowance after the Assessee provided all details and the AO failed to point out any specific shortcomings. The Tribunal agreed with the CIT(A), emphasizing that the AO's basis for disallowance did not hold once the Assessee furnished the required details, thus dismissing the revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all counts. The judgments were based on the principle that the Assessee provided sufficient evidence and justification for their claims, and the AO's disallowances lacked substantiated grounds. The decisions referenced relevant case laws and adhered to established legal principles concerning business expenses and depreciation claims.