2016 (1) TMI 867 - AT - Income Tax

Disallowance of depreciation - no business activity has been carried out by the assessee during the Assessment Year under consideration - Held that - The assessee company is entitled for depreciation on computer and software during the year under assessment (Assessment Year 2008-09 and 2010- 11) though not actually used for the purpose of business on the grounds inter alia that when during the previous Assessment Year i.e. Assessment Year 2007-08, the assessee disclosed receipt from technical consultancy and training fee, income from trading activities and other income but shown the income from technical consultancy and training fee at nil in Assessment Years 2008-09 and 2010-11, it is entitled for depreciation u/s 32 of the Act as the same has not been discarded by the assessee company; that when the machinery in question was in fact used in the earlier year and depreciation was allowed on block of assets, the assessee company is entitled for depreciation; that though the usage of machinery in the business was not in the relevant assessment year but in the earlier financial year its entire machinery remained in ready to use mode because the assessee company has come up with logical explanation that due to not having received any order for technical consultancy nor it carried out any training activity, the income from its business comes to nil ; that when the A.O. has accepted the contention of the assessee that it has made sales representing trading items incidental to its main business activity and has earned profit from such activity, he cannot disallow the depreciation claimed by the assessee; that even Ld. CIT(A) has erred in doubting the trading activities stated to have been carried out by the assessee company during the Assessment Year 2008-09 without any investigation though in the past, such activity has been accepted by the Revenue specifically; that no doubt, the assessee has not produced the vouchers to prove the claim of sale and purchase but when the Revenue has accepted the audited profit and loss statement, they cannot be allowed to sail in two boats; that when the assessee company has not sold, discarded, demolished or destroyed the assets during the previous year, the assessee has certainly become entitled for depreciation.- Decided in favour of the assessee. Expenses against the income - income from other sources OR business income - Held that - CIT(A) has himself allowed the expenditure of the assessee relating to audit fees, communication expenses, legal and professional charges, electricity and water, bank interest and charges, printing and stationary u/s 57 and directed the Assessing Officer to allow thee expenses against the income determined u/s 57, as business expenditure, the assessee is proved to be carrying out the business activities from which it has shown the business income during the year under assessment and consequently entitled for depreciation. Even otherwise, when the trading by the assessee company is accepted by the Revenue as incidental to its main business during the earlier years, the income cannot be treated as income from other sources rather it is a business income. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Disallowance of depreciation due to alleged non-business activity.
2. Classification of income from sale of insurance-related books.
3. Disallowance of specific business expenses.

Issue-Wise Detailed Analysis:

1. Disallowance of Depreciation:
The primary issue revolves around whether the Assessing Officer (A.O.) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in disallowing the depreciation claimed by the assessee on the grounds that no business activity had been carried out during the assessment years 2008-09 and 2010-11. The A.O. and CIT(A) disallowed the depreciation, arguing that since the assessee did not receive any orders for technical consultancy or training, and failed to prove the installation and use of computers and other assets, the claim for depreciation was unjustified. The Tribunal, however, referenced the judgment in CIT Vs Yamaha Motor India (P) Ltd., which held that "as long as the machinery is available for use, though not actually used, it falls within the expression 'used for the purposes of the business' and the assessee can claim the benefit of depreciation." The Tribunal concluded that the assessee is entitled to depreciation as the assets were ready for use, even if not actively used during the relevant assessment years.

2. Classification of Income from Sale of Insurance-Related Books:
The second issue concerns the classification of income from the sale of insurance-related books. The CIT(A) upheld the A.O.'s decision to treat this income as "Income from Other Sources" rather than business income. The Tribunal noted that the sale of insurance-related books was allied to the assessee's main business of technical consultancy and insurance training. Since the CIT(A) allowed other business-related expenses, it indicated that business activities were indeed being carried out. Consequently, the Tribunal determined that the income from the sale of insurance-related books should be classified as business income.

3. Disallowance of Specific Business Expenses:
The third issue pertains to the disallowance of specific business expenses, including insurance expenses, miscellaneous expenses, and traveling and conveyance expenses. The CIT(A) disallowed these expenses without providing specific reasons. The Tribunal observed that the CIT(A) had allowed other business expenses under Section 57 of the Income Tax Act, which suggested that the assessee was engaged in business activities. Therefore, the Tribunal concluded that the disallowed expenses should also be recognized as legitimate business expenses.

Conclusion:
The Tribunal allowed the appeals, determining that the assessee was entitled to claim depreciation on assets, classify income from the sale of insurance-related books as business income, and deduct specific business expenses. The Tribunal's decision was based on the principle that assets available for use, even if not actively used, qualify for depreciation, and that the assessee's activities were consistent with carrying on a business. The appeals were thus decided in favor of the assessee.