2021 (8) TMI 128 - AT - Income Tax

Rectification of mistake u/s 254 - Nature of expenditure - Disallowance of lease rentals - capital or revenue expenditure - alternate plea the assessee had raised that even if the lease rentals are to be treated as capital expenditure, consequential depreciation on the same is to be allowed - It is the plea of the assessee in this MP that while the order of the Tribunal has specifically ruled on the alternate plea of granting depreciation, the substantive issue that the disallowance of the lease rentals is to be quashed, both on facts and legal principles, does not appear to have been specifically adjudicated, even though a general finding has been recorded - HELD THAT - The mistake in the final Order of Assessment against which Ground No.14 was raised by the assessee was that instead of allowing ₹ 14,80,094/- as depreciation, the AO erroneously disallowed a sum of ₹ 1,49,65,386/- and added the said sum to the total income of the assessee. The Tribunal, while adjudicating the said issue, has rightly held in para 22 of its order that the AO should allow deduction of a sum of ₹ 14,80,094/- as depreciation instead of disallowing a sum of ₹ 1,49,65,386/-. There is no mistake much less a mistake apparent on the face of the record. These is no alternate plea and there could be only one plea i.e., to allow depreciation of ₹ 14,80,094/- and delete the addition of ₹ 1,49,65,386/- which the Tribunal has allowed. The allegations in the MP are all on the basis of surmises as to what the AO would do while giving effect to the order of the Tribunal. This MP is devoid of any merit and the same is dismissed. MP dismissed.

Summary

Issues Involved:
1. Disallowance of lease rentals claimed as revenue expenditure
2. Treatment of lease rentals as capital expenditure
3. Claim for consequential allowance of depreciation on lease rentals

Analysis:
1. The assessee filed a Miscellaneous Petition (MP) seeking the recall of an order to adjudicate Ground No.14, which pertained to the disallowance of lease rentals claimed as revenue expenditure. The AO treated the lease rentals as capital expenditure, leading to the disallowance. The Tribunal had remanded the issue back to the AO for reconsideration of the nature of expenses.

2. The assessee contended that while the Tribunal had ruled on granting depreciation, the issue of disallowance of lease rentals as capital expenditure was not specifically addressed. The assessee argued that the Tribunal's order might create a misconception that the disallowance was upheld, contrary to the decision in the assessee's case for the previous assessment year.

3. The AO, in the draft assessment order, did not disallow depreciation or consider the expenditure as capital. The assessee raised objections before the Dispute Resolution Panel (DRP) regarding the depreciation on lease rentals capitalized in the previous year. The DRP directed the AO to grant depreciation at a rate of 10% based on the directions for the earlier assessment year.

4. The final assessment order by the AO disallowed a higher amount than directed by the DRP for depreciation on lease rentals. The Tribunal held that the AO should have allowed depreciation of a specific amount instead of disallowing a larger sum. The Tribunal found no mistake in its order and dismissed the Miscellaneous Petition filed by the assessee.

5. The Tribunal clarified that there was only one plea to allow depreciation on the specified amount and delete the excessive addition made by the AO. The Tribunal found no merit in the petition, as it was based on assumptions regarding the AO's actions post the Tribunal's order. The Miscellaneous Petition was dismissed by the Tribunal.