2012 (11) TMI 19 - AT - Income Tax

Depreciation - Disallowance as asset not put to use - business of assessee not in existence - Held that - It is pertinent to note that the assessee had conducted business transactions by achieving a turnover of Rs.4,06,214/- and also incurred some business expenditure in order to achieve the same. Further it is not a pre-condition by any statute to incur expenditure for the purpose of conducting business or to establish the existence of any business activity. All the activities which revolve round the business may not result in fiscal expenditure. It appears from the above transaction that the assessee was in possession of soft-wares which he had sold during the year. There is nothing to establish that the assessee had not used the building and furniture during the previous year. Such inference cannot be made due to absence of electricity expenditure. It is evident from the profit & loss account of the assessee that the assessee had incurred expenditure such as office maintenance expenditure which clearly establishes that the office of the assessee was in operation, thus it can be fairly concluded that the assessee was in continuance of its business during the relevant previous year and, therefore, it is entitled to claim the depreciation - in favour of assessee

Summary

Issues: Disallowance of depreciation claimed by the assessee.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A)-XI, Ahmedabad, regarding the disallowance of depreciation amounting to Rs.3,23,251. The assessee, a Private Limited Company engaged in software development, had claimed depreciation on various assets in its return of income. The assessing officer disallowed the claim as there was no business activity during the relevant year. The AO required the assessee to substantiate the claim, and upon review, disallowed the depreciation invoking sections 32 and 28(i) of the Act. The CIT(A) confirmed the AO's order, stating that the assets on which depreciation was claimed were not put to use, indicating the winding up of business. The CIT(A) dismissed the appeal, upholding the disallowance of depreciation.

The assessee contended that it conducted business transactions, achieved turnover, and incurred business expenditure during the relevant year, even though no fiscal expenditure was incurred. The ITAT observed that the assessee had sold software during the year and incurred office maintenance expenditure, indicating the business was in operation. The ITAT noted that the absence of electricity expenditure did not necessarily mean assets were not used. Considering the facts and circumstances, the ITAT held that the assessee was in continuance of its business during the relevant year and thus entitled to claim depreciation. The ITAT set aside the orders of the revenue and directed the AO to allow the depreciation claim in accordance with the law, concluding in favor of the assessee.

In conclusion, the ITAT allowed the appeal of the assessee, overturning the disallowance of depreciation and directing the AO to allow the claim based on the finding that the business was in operation during the relevant year, entitling the assessee to depreciation benefits.