2024 (8) TMI 1174 - AT - Income Tax

Denial of depreciation - method adopted by the assessee in writing off the expenditure incurred therein basing on the life expectancy of items i.e., 3-5 years - nature of business of the assessee is sale of high end branded readymade garments and its accessories for men and women in reasonably decorated showrooms which are obtained on lease basis for 3 5 years and assessee improves the said leased premises by interior decoration like false-ceiling, racks, electrical light fittings, paining, partitions and change of flooring, etc. and expects life of the said items from 1 to 5 years HELD THAT - ACIT did not dispute the original scrutiny assessment proceedings and the method of write-off and claiming by way of depreciation. Admittedly, there is no dispute with regard to leased premises by the assessee as it is clear from the order of the AO and the CIT(A). Thus, following the decision of AMRUTANJAN FINANCE LIMITED 2011 (8) TMI 320 - MADRAS HIGH COURT taking into account of facts and circumstances of the case, we find that the claim of depreciation as allowed by the Assessing Officer in the original scrutiny proceedings, are justified. Thus, the order of the ld. CIT(A) is quashed and the ground raised by the assessee is allowed.

Summary

Issues:
1. Denial of depreciation by the Assessing Officer.
2. Justification of confirming the order by the ld. CIT(A).
3. Acceptance of the method of write-off by the Revenue in earlier years.

Analysis:
Issue 1: The appeal challenges the denial of depreciation by the Assessing Officer. The assessee, engaged in the sale of garments and accessories, improved leased premises with interior decorations. The Assessing Officer disallowed part of the expenditure under section 263 of the Income Tax Act, despite accepting the same method in previous years. The AR argued citing precedents like CIT v. Ayesha Hospital P. Ltd. and CIT v. Madras Auto Services P. Ltd., supporting the expenditure as revenue expenditure.

Issue 2: The ld. CIT(A) confirmed the Assessing Officer's order. The AR, Shri Babu Peram, emphasized the consistent method of write-off and the acceptance by the Revenue in earlier years. Referring to relevant case laws, the AR argued for the allowance of depreciation. The AR's contentions were supported by the decision of the Hon'ble Madras High Court, which held that the expenditure on interior decorations qualifies as revenue expenditure.

Issue 3: The Revenue did not dispute the original scrutiny assessment proceedings or the method of write-off. The ld. CIT(A)'s order was quashed based on the decision of the Hon'ble Madras High Court, which considered the facts and circumstances of the case. The Tribunal found justification in the claim of depreciation allowed by the Assessing Officer in the original scrutiny proceedings, leading to the allowance of the assessee's appeal.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the acceptance of the method of write-off based on the life expectancy of items and the consistent practice followed in earlier years. The order of the ld. CIT(A) was quashed, and the claim of depreciation was deemed justified based on the precedents and facts presented.