2021 (8) TMI 6 - AT - Income Tax

Disallowance of depreciation claimed under the block furniture fittings - assessee had claimed depreciation @ 100% claiming that they are temporary constructions - A.O. disallowed the same holding that the assessee could not prove the expenditure as could not produce bills vouchers in support of purchase of furniture and fixtures - HELD THAT - It is an admitted fact that the assessee has not produced any bills/vouchers in support of these payments. The assessee could furnish details of cheque numbers relating to these payments, but could not establish the nature of expenses for which these payments have been made. Since the assessee could produce rental agreements, the ld. CIT(A) has allowed capitalization of payments related to building. It is a settled proposition that the onus to prove the expenditure lies upon the assessee. Since the assessee has failed to prove the nature of expenditure, no infirmity in the order passed by Ld. CIT(A) on this issue. Restricting the depreciation to 10% in respect of interior and other expenses incurred on the showrooms - HELD THAT - Facts clearly demonstrate that the expenditure incurred by the assessee cannot be termed towards temporary structures. Another fact that the assessee, on the first issue, has sought capitalization of entire amount of ₹ 14,55,919/-. On the above said amount also, the assessee had claimed depreciation 100%. AO disallowed the entire amount for want of bills/vouchers. Before Ld CIT(A), the assessee has only sought capitalization and depreciation @ 10%. Thus, the assessee has accepted the treatment given by AO in respect of the above said amount of ₹ 14,55,919/-. Hence it is not appropriate on the part of the assessee to take a different stand with regard to the remaining amount. CIT(A) was justified in confirming the order of the A.O. in restricting the depreciation to 10%. Appeal filed by the assessee is dismissed.

Summary

Issues:
1. Disallowance of depreciation claimed by the assessee.
2. Disallowance of specific expenses due to lack of bills/vouchers.
3. Dispute over the categorization of expenses as temporary constructions.
4. Restriction of depreciation to 10% on certain expenses.
5. Continuation of use of interiors and furnishings over time.

Issue 1: Disallowance of Depreciation Claimed by the Assessee
The assessee challenged the partial confirmation of disallowance made by the Assessing Officer (AO) regarding the depreciation claimed. The AO disallowed a portion of the depreciation claimed by the assessee, holding that the expenses did not qualify for 100% depreciation. The assessee contended that the expenses were related to temporary constructions, justifying the 100% depreciation claim. However, the AO disagreed, allowing only 10% depreciation on the expenses. The Commissioner of Income Tax (Appeals) [CIT(A)] partially confirmed the AO's decision, leading to the appeal before the Tribunal.

Issue 2: Disallowance of Specific Expenses
The AO disallowed a specific amount for lack of bills and vouchers provided by the assessee. The disallowed expenses included commission, electricity charges, rent, salaries, shop insurance, and shop maintenance. The CIT(A) allowed capitalization of a portion of these expenses based on rental agreements produced by the assessee. However, the remaining amount was disallowed due to insufficient evidence. The Tribunal upheld the CIT(A)'s decision, emphasizing the assessee's failure to substantiate the nature of these expenses.

Issue 3: Categorization of Expenses
A key contention was the categorization of expenses as temporary constructions, justifying the 100% depreciation claim. The assessee argued that the expenses were related to showrooms set up on rented premises, qualifying as temporary constructions. However, the AO and CIT(A) maintained that the expenses did not meet the criteria for temporary structures, warranting only 10% depreciation.

Issue 4: Restriction of Depreciation
The AO and CIT(A) restricted the depreciation claim to 10% for certain expenses, including interiors and furnishings used by the assessee over an extended period. The CIT(A) noted that these expenses provided enduring benefits and were not temporary in nature. The Tribunal upheld the decision, emphasizing the assessee's acceptance of the 10% depreciation treatment for a portion of the expenses.

Issue 5: Continuation of Use of Interiors and Furnishings
The CIT(A) observed that the interiors, furniture, and fixtures installed by the assessee in 2008 continued to be used in 2019, indicating their enduring benefit. This continuity of use led to the confirmation of the 10% depreciation restriction by the CIT(A) and subsequently by the Tribunal.

In conclusion, the Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s decision on the depreciation issues, lack of evidence for specific expenses, and the categorization of expenses as not qualifying for 100% depreciation. The judgment highlighted the importance of substantiating expenses and the enduring nature of assets in determining depreciation eligibility.