2018 (12) TMI 748 - AT - Income Tax

Disallowance of depreciation on fixed assets of media library created by way of capitalisation of stock and scrap in trade - Held that - It is evident that in the assessment year 2007-08, the total addition of ₹ 7,97,00,000/-has been made to the fixed assets of media library, which included amount of ₹ 3,19, 95,890/- on account of revaluation of the stock in trade. No doubt that in view of the order of the Tribunal(supra), the assessee is not entitled to depreciation in respect of the amount of ₹ 3,19,95,890/-however, the claim of the depreciation in respect of the balance amount of rupees ( 7,97,00,000 3,19,95,890) 4,77,04,110/- cannot be denied, if otherwise it is allowable in terms of section 32 of the income tax act. Similarly the additions made to the media library of ₹ 2,13,783/- and ₹ 11,21,148/- are also eligible for depreciation if actual addition to fixed asset has been made by the assessee subject to the conditions of Section 32. We find that the lower authorities have not examined this issue of allowability of the depreciation other than the amount of ₹ 3,19,95,890/-, we feel it appropriate to restore this issue to the file of the Ld. Assessing Officer for examining the allowability of the depreciation on the amount other than the ₹ 3,19,95,890/-in accordance with the provisions of the Act. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground of the appeal, is accordingly allowed for statistical purposes. Disallowance of staff welfare and other business expenses - Held that - Addition mainly in view of nonproduction of the vouchers or logbook or other evidences in support of the claim of the expenses by the assessee. It is also settled law that no such disallowance can be made on ad hoc basis without pointing out specific defects in the claim of the assessee. In view of the above facts and circumstances of the case and the issue of the claim of depreciation already restored to the file of the Ld. Assessing Officer, we feel it appropriate to restore this issue also to the file of the Assessing Officer for deciding a fresh after providing adequate opportunity of being heard to the assessee. Disallowance of expenditure incurred through the credit card held by the directors of the company - Held that - In absence of the details of expenses incurred by the credit card for the purpose of the business of the company, the AO made disallowance at the rate of 50% of the total expenses incurred through the credit card . We have heard the rival submissions of the parties on the issue in dispute .Since the disallowance on this account has also been made on percentage basis in ad-hoc manner without pointing out specific expenditure being not for the purpose of the business, we feel it appropriate to restore the issue also to the file of AO for deciding afresh after providing adequate opportunity of being heard to the assessee. This ground of the appeal is also allowed for statistical purposes.

Issues Involved:
1. Legality and correctness of the order passed by the Commissioner of Income Tax (Appeals).
2. Ad hoc disallowance of various expenses by the Assessing Officer.
3. Disallowance of 50% of the Membership fee on American Express Credit Card.
4. Disallowance of depreciation claimed on Fixed Assets (Media Library).

Issue-wise Detailed Analysis:

1. Legality and Correctness of the Order Passed by the Commissioner of Income Tax (Appeals):
The assessee challenged the order passed by the Commissioner of Income Tax (Appeals)-6, New Delhi, asserting that it was "bad at law, wrong in facts and against the principles of natural justice." However, this general ground was not pressed further and did not require adjudication.

2. Ad Hoc Disallowance of Various Expenses by the Assessing Officer:
The Assessing Officer disallowed various expenses on an ad hoc basis, including staff welfare, business promotion, telephone, traveling, vehicle running, vehicle depreciation, vehicle insurance, and servant salary expenses. The disallowance was made due to the absence of logbooks, invoices, or vouchers to substantiate these expenses. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the personal nature of the expenses could not be ruled out and that the expenses were not fully verifiable. The Tribunal, however, noted that such disallowances should not be made on an ad hoc basis without pointing out specific defects in the claims. Consequently, the issue was restored to the Assessing Officer for a fresh examination, providing the assessee an opportunity to present adequate evidence.

3. Disallowance of 50% of the Membership Fee on American Express Credit Card:
The Assessing Officer disallowed 50% of the Membership fee on the American Express Credit Card, amounting to ?55,150/-, due to the absence of details justifying the business purpose of the expenses incurred through the credit card. The Tribunal found that the disallowance was made on an ad hoc basis without specific evidence that the expenses were not for business purposes. Therefore, this issue was also restored to the Assessing Officer for reconsideration, ensuring the assessee could provide adequate evidence.

4. Disallowance of Depreciation Claimed on Fixed Assets (Media Library):
The assessee claimed depreciation of ?1,13,65,036/- on fixed assets of the media library, which included revalued stock converted into capital assets in the financial year 2006-07. The Commissioner of Income Tax (Appeals) followed the Tribunal's previous order for the assessment year 2007-08, which rejected the claim of depreciation on revalued assets, stating that the revaluation was done to window-dress the balance sheet and had no tax implications. The Tribunal upheld that the assessee could not claim depreciation on the revalued amount of ?3,19,95,890/- but allowed the possibility of claiming depreciation on the balance amount if it met the conditions of Section 32 of the Income Tax Act. The issue was restored to the Assessing Officer for examination of the depreciation claim on the amount other than the revalued portion.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes, restoring the issues of ad hoc disallowance of expenses, disallowance of Membership fee, and depreciation claim on the media library (excluding the revalued portion) to the Assessing Officer for fresh examination, ensuring the assessee had the opportunity to present adequate evidence. The decision was pronounced in the Open Court on 10th December 2018.

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