2010 (1) TMI 821 - AT - Income Tax

Legal and professional charges disallowed on account of deprecation - details of legal and professional charges were not filed - depreciation disallowed by the lower authorities was claimed on the assets which were not sold by the assessee during the year under consideration. These assets were part of block of assets. Sales have taken place; therefore, this is not the case that the assessee has sold the entire plant and machinery and no asset remained with the assessee - Held that - deduction on account of legal and professional charges and depreciation allowable. Deduction u/s 54EC - AO found that the bond had extended upto 31.12.2006; however, the assessee has purchased the bonds on 31.1.2007. Therefore, the assessee is not entitled for deduction as bonds were not purchased within the time allowed. - held that - The assessee approached the appropriate authorities to buy the bonds; however, they were not available. Therefore, it was an impossible task for the assessee to comply with the conditions of sec. 54EC. The assessee ultimately purchased FDs of Rs. 50 lacs with a view to buy specified bonds whenever they are available. - As soon as the bonds were available in the market, the assessee immediately purchased the same. Therefore, in our considered view, under these circumstances, the assessee is entitled for exemption u/s 54EC. - Decided in favor of assessee.

Summary

Issues Involved:
1. Disallowance of legal and professional charges and depreciation.
2. Disallowance of deduction u/s 54EC.

Analysis:

1. Disallowance of Legal and Professional Charges and Depreciation:
- The AO disallowed expenses claimed by the assessee as no business activity was carried out and the business was closed. The CIT(A) partly allowed some expenses but disallowed legal and professional charges and depreciation.
- The ITAT found that the expenses were justified as details were filed, and payments were not in dispute. The depreciation was claimed on assets not sold, and a precedent case supported the allowance of depreciation.
- Referring to a previous Tribunal decision, the ITAT directed the AO to allow the deduction for legal and professional charges and depreciation, ruling in favor of the assessee.

2. Disallowance of Deduction u/s 54EC:
- The AO observed discrepancies in the assessee's claim for exemption u/s 54EC related to the sale of a factory building and investment in specified bonds.
- The CIT(A) upheld the denial of exemption due to failure to purchase bonds within the extended time and considered the depreciable asset aspect.
- The ITAT noted the unavailability of bonds within the stipulated time and the subsequent purchase by the assessee. It emphasized the reasonable cause for the delay and allowed the exemption u/s 54EC.
- Citing a similar case precedent, the ITAT directed the AO to allow the claim of exemption under section 54EC, ultimately ruling in favor of the assessee.

In conclusion, the ITAT allowed the appeal of the assessee, directing the AO to allow the deductions for legal and professional charges, depreciation, and exemption u/s 54EC. The decision was based on the justifications provided by the assessee and the circumstances surrounding the unavailability of bonds within the specified time frame.