2017 (3) TMI 947 - AT - Income Tax

Disallowance of depreciation - Held that - It is a fact that assessee has not furnished either details of the assets or the values of individual assets or any invoices in order to support the acquisition of computers for the purpose of business. As seen from the Balance Sheet of Laser Dot Ltd., the WDV as per the books of account as on 31-03-2010 was only ₹ 23,46,947/-. There are no additions to the fixed assets during the year as far as the statement of accounts of Laser Dot Ltd., was concerned. This indicates that the acquisition of assets was in the hands of merged company and have been claimed as part of new company in the revised accounts. As seen from the record, assessee not only failed to provide the details of the assets but also failed to provide the basic details of cost, nature of asset and how the amounts were paid from the books of account. As seen from the submissions before the CIT(A), it was the assessee s contention that highly sophisticated recording and monitoring systems were supposed to have been acquired from second-hand market and from other places and got them assembled into broadcasting and monitoring system . At least assessee could have furnished the copy of the returns filed before the AO of erstwhile company in due time, as the assets were not acquired by Laser Dot Ltd., but seems to be part of merged company, Esha News Monitoring Services Private Limited. Since nothing was placed on record to substantiate the claim, we are unable to appreciate assessee s contention that the machinery should have been inspected by the AO and depreciation allowed. It is for assessee to substantiate the acquisition of assets, atleast prima-facie, by furnishing necessary vouchers, invoices, values and make etc., so that there is some basis for verification. In the absence of the same, the burden cannot be shifted. In view of that, we uphold the order of the AO/ CIT(A) - Decided against assessee.

Summary

Issues:
- Disallowance of depreciation by Assessing Officer
- Eligibility to claim depreciation on fixed assets
- Lack of evidence for purchase of assets
- Failure to provide details to support depreciation claim
- Reconciliation of balance sheet amounts

Analysis:

Issue 1: Disallowance of Depreciation by Assessing Officer
The appeal was against the Commissioner of Income Tax (Appeals)-5's order confirming the Assessing Officer's disallowance of depreciation amounting to ?1,55,66,368. The Assessing Officer disallowed the depreciation based on the lack of evidence for the purchase of computers, a claim made by the assessee.

Issue 2: Eligibility to Claim Depreciation on Fixed Assets
The CIT(A) referred to Section 32(1) and emphasized that depreciation is allowable on specific assets owned and used for business purposes. The appellant failed to provide evidence of purchase or acquisition of machinery, essential for claiming depreciation. The absence of proof of actual cost and acquisition led to the denial of depreciation.

Issue 3: Lack of Evidence for Purchase of Assets
The appellant did not produce invoices or bills to support the addition of fixed assets, specifically computers, amounting to ?2,59,43,948. Despite submitting a certificate from Core Media Systems, no concrete evidence of procurement was provided. The lack of documentation and reliance on third-party certificates led to the disallowance of depreciation.

Issue 4: Failure to Provide Details to Support Depreciation Claim
The appellant's argument that machinery was purchased second-hand and used for business activities was not substantiated with adequate proof. The failure to furnish essential details, invoices, or values to verify the acquisition of assets resulted in the rejection of the depreciation claim.

Issue 5: Reconciliation of Balance Sheet Amounts
Discrepancies were noted in the balance sheet figures related to fixed assets, indicating a merger with another company. However, the appellant did not adequately explain or provide details regarding the assets merged into the new company. The lack of clarity and supporting documentation further weakened the appellant's case.

In conclusion, the ITAT upheld the decision to dismiss the appeal, emphasizing the appellant's failure to provide sufficient evidence and details to substantiate the claim for depreciation on fixed assets. The judgment highlighted the importance of concrete proof of asset acquisition and ownership to support depreciation claims under the Income Tax Act.