2016 (1) TMI 163 - AT - Income Tax

Depreciation claim - put to use - whether the assessee was entitled to depreciation at half the normal rates, even though asset in respect of Deltron Unit was acquired and put to use on 1.10.2004; because the assessee had itself claimed depreciation on assets other than building at half of the normal rates? - Held that - No merit in the claim of the appellant that depreciation is to be allowed for the entire year particularly having regard to the fact that assessee itself had chosen to claim depreciation for half of the year for all assets other than the building. The assessee has also not placed on record any evidence to substantiate when was the building occupied/put to use by the appellant company. In such regard, the conclusion as drawn by both the Assessing Officer and CIT(A) is in order and therefore, it is directed that the depreciation is to be allowed only for half of the year and not for the entire year. - Decided against assessee Disallowance of 50% of boarding and lodging expenses in respect of foreign travelling - Held that - In the instant case, the assessee claimed foreign and travelling expenses of ₹ 20,33,758/-. The Assessing Officer has noted that during the assessment proceedings, the assessee could not furnish bills and vouchers in respect of boarding and lodging expenses aggregating to ₹ 6,32,295/- and as such, disallowed 50% of the expenditure and computed the disallowance at ₹ 3,66,148/-. It is thus apparent that Assessing Officer has not disputed the genuineness of the expenditure on an individual specific level. The travelling expenses have also been allowed in entirety other than above disallowance of boarding and lodging disallowance in an adhoc manner on the ground that supporting explanation were not furnished. We do not find merit in such a manner and the method of the disallowance. The Assessing Officer neither having identified, highlighted the specific items in respect of which, disallowance has been made by him, the adhoc disallowance so made is deleted - Decided in favour of assessee

Summary

Issues Involved:
1. Entitlement to Depreciation at Full Rates vs. Half Rates
2. Application of Explanation 3 to Section 43(1) for Determining Actual Cost
3. Disallowance of Boarding and Lodging Expenses for Foreign Travel

Detailed Analysis:

1. Entitlement to Depreciation at Full Rates vs. Half Rates
The assessee contended that it was entitled to full depreciation at normal rates as the assets from Deltron Ltd. were put to use on 1.10.2004 for more than 180 days during the year ending 31st March 2005. However, the AO and CIT(A) upheld that the assessee was entitled to depreciation at half the normal rates, as the assets were acquired and put to use on 1.10.2004. The CIT(A) noted that the assessee itself claimed depreciation on assets other than the building at half rates. The tribunal found no merit in the claim for full-year depreciation, as the assessee did not substantiate when the building was occupied or put to use. Hence, depreciation was allowed only for half of the year.

2. Application of Explanation 3 to Section 43(1) for Determining Actual Cost
The AO observed that the assessee acquired assets from Deltron Ltd. at a substantially higher price than the WDV, suspecting it was a device to claim higher depreciation and reduce tax liability. The AO invoked Explanation 3 to Section 43(1), determining the actual cost based on the WDV of the assets in Deltron Ltd.'s books. The assessee argued that the assets were valued by a government-approved valuer and that Deltron Ltd., a public limited company, had disclosed the transaction. The tribunal noted that the AO did not find any specific defects in the valuer's report and that the transaction was genuine, supported by the book value under the Companies Act. The tribunal concluded that the AO was not justified in invoking Explanation 3 to Section 43(1) and upheld the actual cost as per the assessee's claim.

3. Disallowance of Boarding and Lodging Expenses for Foreign Travel
The AO disallowed 50% of the boarding and lodging expenses for foreign travel due to the absence of supporting bills and vouchers. The CIT(A) upheld this disallowance. The assessee argued that the expenses were genuine, incurred at permissible limits, and related to substantial export turnover. The tribunal found that the AO did not dispute the genuineness of the travel or expenses but made an ad hoc disallowance. The tribunal deleted the disallowance, noting that the AO neither identified specific items nor provided a basis for the ad hoc disallowance.

Conclusion:
The tribunal allowed the appeals partly, rejecting the claim for full-year depreciation but allowing the claim for actual cost and deleting the disallowance of boarding and lodging expenses. The tribunal directed the AO to recalculate the depreciation based on the correct figures of assets taken over from Deltron Ltd. and upheld the depreciation for half of the year.