2016 (7) TMI 265 - AT - Income Tax

Depreciation on Plant & machinery - @60% OR 15% - Assessee was engaged in the business of providing services like testing, analysis and inspection services relating to oil and gas to various companies like ONGC, Reliance, British Gas, etc. - For providing above services, the assessee company purchased specialized plant & machinery used specifically for oil & gas industry - AO observed that assessee is not eligible for claiming depredation @ 60%, as the assessee was engaged into providing services in relation to oil & gas and not involved into direct business. Held that - Impugned issue squarely covered in favour of assessee by Delhi High Court ruling in the case of HLS India Limited 2011 (5) TMI 322 - DELHI HIGH COURT allowing depreciation @ 60% in such cases - Decided in favour of assessee Disallowance being Site Advances and Rent Deposits written off and claimed as business loss - Held that - Instead of giving a finding on assessee s claim, CIT(A) was simply carried away by the observations made by AO in the light of the provisions of section 36(2) of the Act. There is no dispute that the claim of the assessee could not be allowed as a bad debt in the light of the provisions of section 36(2) of the Act but nevertheless the claim is justified as a business loss. Since both these amounts are directly related to the business of the assessee, therefore, the claim of business loss cannot be brushed aside lightly. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition - Decided in favour of assessee

Summary

Issues:
1. Depreciation rate on plant & machinery
2. Disallowance of site advances and rent deposits as business loss

Depreciation Rate on Plant & Machinery:
The appeal and cross objection were directed against the same order of the Ld. CIT(A)-XIV, Ahmedabad pertaining to A.Y. 2009-10. The Revenue contended that the depreciation of &8377; 50,64,819/- on plant & machinery was allowed at 60% instead of 15% by the Assessing Officer. The Revenue argued that the higher rate of depreciation was only applicable to "Mineral Oil concerns," not to the assessee. The assessee, engaged in Maintenance and Services of Oil and Gas, justified the claim of 60% depreciation by stating that the machinery was used exclusively for oil & gas exploration. The A.O. disagreed and restricted the claim to 15%. The ld. CIT(A) allowed depreciation at 60% based on the decision of the Hon'ble Delhi High Court in the case of HLS India Limited. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision.

Disallowance of Site Advances and Rent Deposits as Business Loss:
The A.O. disallowed &8377; 1,30,911/- and &8377; 1,26,500/- claimed as business loss for site advances and rent deposits respectively. The assessee argued that these amounts were essential for business operations and should not be treated as income. The A.O. disallowed the claim under section 36(2) of the Act. The ld. CIT(A) upheld the disallowances. The Tribunal, however, allowed the claim of business loss, stating that the amounts were directly related to the business of the assessee and should not be ignored. The Tribunal directed the A.O. to delete the addition of &8377; 2,57,411/-, thereby allowing the cross objection of the assessee.

In conclusion, the Tribunal upheld the depreciation rate of 60% on plant & machinery based on the decision of the Hon'ble Delhi High Court. Additionally, the Tribunal allowed the claim of site advances and rent deposits as business loss, emphasizing their direct relation to the business activities of the assessee. The orders of the ld. CIT(A) disallowing the claims were set aside, and the A.O. was directed to delete the additions.