2017 (10) TMI 226 - AT - Income Tax

Allowing only 50% of the depreciation - CIT(A) noted that since the business of the assessee was finally stopped in September, 2011, so depreciation is allowable only for half of the year - assessee become partner in some other concern though for the same activities - Held that - It is an admitted fact that assessee is a Company and stopped its business activities on 20th September, 2011 when the assessee entered into the Limited Liability Partnership Agreement (LLP) with many parties and agreed to form the LLP in the name and style of IILM Enterprise, LLP , business would be carried out in the name of the new LLP. It was, therefore, proved that assessee company discontinued its business permanently and through the execution of LLP agreement dated 20th September, 2011, the assessee company has become partner in the new LLP. Therefore, the Ld. CIT(A) was justified in holding that the activities of the assessee were finally stopped in September, 2011 when the assessee become partner in some other concern though for the same activities. Therefore, the expenditure were rightly allowed in the case of the assessee company till the closure of the business i.e., September, 2011. The depreciation was also therefore, correctly allowed for half of the year i.e., up-to September, 2011 when business of the assessee company was completely stopped. Merely new LLP has started doing the same activity would not give any right to the assessee to claim depreciation for whole of the year because assessee completely stopped its business activities as a Company in September, 2011. - Decided against assessee.

Summary

Issues:
1. Depreciation allowance for the assessee's fixed assets.
2. Disallowance of expenses claimed by the assessee.
3. Liability of security fees claimed by the assessee.

Depreciation Allowance:
The assessee challenged the order of the Ld. CIT(A) regarding the allowance of only 50% of the depreciation amount of ?1,98,022 out of the total amount of ?3,96,022. The assessee contended that since it temporarily suspended its activities in 2009-2010 and entered into a Limited Liability Partnership Agreement in September 2011 to continue the business, full depreciation should have been allowed. The Ld. CIT(A) allowed 50% depreciation, considering that the business was permanently stopped in September 2011 when the assessee became a partner in another concern. The Ld. CIT(A) reasoned that the new LLP's activities did not entitle the assessee to claim full-year depreciation as the company had ceased its business activities. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the appeal and confirming the 50% depreciation allowance.

Disallowance of Expenses:
The assessee had not carried out any business during the relevant year and had engaged in investment activities. The Assessing Officer (A.O.) disallowed the expenses claimed by the assessee, including a liability of ?3,60,000 and ?555 for security fees. The A.O. sought details of the persons related to the security fees, which the assessee failed to provide adequately. The A.O. added the security fees amount to the assessee's total income. The Ld. CIT(A) allowed business expenditure of ?1,38,585 incurred until the business closure in September 2011. However, the Ld. CIT(A) confirmed the addition of ?3,60,000 as the security fees. The Tribunal found no reason to interfere with the Ld. CIT(A)'s order, as the assessee's temporary suspension of business activities did not warrant full depreciation allowance and the expenses were rightly allowed until the business closure.

Liability of Security Fees:
The assessee claimed a liability of ?3,60,000 and ?555 for security fees, stating that the fees were more than three years old and had been accounted for as income in the subsequent financial year. The A.O. disallowed this amount, leading to its addition to the total income. The Ld. CIT(A) upheld the disallowance of the security fees, emphasizing that the expenses were incurred until the business closure in September 2011. The Tribunal affirmed the Ld. CIT(A)'s decision, dismissing the appeal and confirming the disallowance of the security fees.

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