2017 (4) TMI 568 - AT - Income Tax

Disallowance of depreciation on furniture and fixtures - rental income relating to which has been offered by the assessee under Income from house property - Held that - Admittedly, no separate lease rent deed has been executed from furniture and fixtures but the said furniture and fixtures are part of the leased units and have not been used for the business purpose of the assessee as the income derived from the said leased units has been offered by the assessee under the head Income from house property . The assessee has also claimed standard deduction as admissible on Income from house property as per provisions of section 24 of the Act. Once the assessee has claimed the standard deduction in relation to the leased property which includes furniture and fixtures, in our view, the assessee is not entitled to further depreciation on such leased asset. This issue is accordingly decided against the assessee and in favour of the Revenue Proportionate disallowance of expenditure relatable to leased property - Held that - CIT(A) has noticed that the assessee had been maintaining separate account for the maintenance charges received from each of the building rented out and as well as the expenditure actually incurred on maintenance of these buildings. The assessee had maintained separate account for maintenance charges and other common expenses incurred, which means the assessee has segregated out the expenses incurred on maintenance out of the common expenses and the same were not debited to profit and loss account and under these circumstances there was no question of further making of proportionate disallowance in relation to the maintenance of building/leasing activity. He, therefore, deleted further disallowance made by the AO except the suo-moto disallowance offered by the assessee. - Decided against revenue

Summary

Issues:
1. Disallowance of depreciation on furniture and fixtures offered under 'Income from House Property'.
2. Proportionate disallowance of expenses relating to leased property claimed against business income.

Analysis:

Issue 1: Disallowance of Depreciation on Furniture and Fixtures
The Revenue contested the Ld. CIT(A)'s decision to delete the disallowance of depreciation amounting to ?1,38,922 on furniture and fixtures leased out by the assessee under 'Income from House Property'. The AO disallowed the claim as the assessee had already offered the rental income under the same head and claimed standard deduction under section 24 of the Income Tax Act. The Ld. CIT(A) allowed the depreciation, noting that the lease agreement did not specify separate rent for furniture and fixtures, and they were part of the leased units. The ITAT held that since the assessee claimed standard deduction for the leased property, including furniture and fixtures, further depreciation was not permissible. Consequently, the decision of the Ld. CIT(A) was overturned, and the AO's order was reinstated in favor of the Revenue.

Issue 2: Proportionate Disallowance of Expenses
The Revenue challenged the Ld. CIT(A)'s deletion of the disallowance of ?39,38,460 out of total expenses of ?2,19,36,152 related to leased property. The AO calculated a proportionate disallowance of expenses attributable to leasing activity, considering the assessee's business of leasing and selling flats. However, the Ld. CIT(A) observed that the assessee maintained separate accounts for maintenance charges and other expenses related to leased flats, which were not debited to the profit and loss account. The ITAT upheld the Ld. CIT(A)'s decision, emphasizing that the assessee had already segregated maintenance expenses from common expenses, and there was no basis for further disallowance. Therefore, the ITAT affirmed the Ld. CIT(A)'s order on this issue, resulting in a partial allowance of the Revenue's appeal.

In conclusion, the ITAT's judgment favored the Revenue on the disallowance of depreciation on furniture and fixtures, while upholding the Ld. CIT(A)'s decision on the proportionate disallowance of expenses related to leased property.