2024 (8) TMI 1226 - AT - Income Tax

Disallowance of the depreciation - assets which were held by the assessee were not put to use as per authorities below - as per revenue some of the invoices were in the name of associate company of USA and some invoices were bearing the date of next Financial Year - HELD THAT - Ownership of assets invoiced to Arcserve USA was transferred to the assessee via inter- office memos. Incorrect invoice , the same was rectified after the fiscal year end but the assets were in use and payments were made during the current assessment year. Assessee stated that there was a business transfer agreement for purchase of running business of CA India Technologies Pvt. Ltd. which was to take place from 26.02.2015 but due to some technical reason the record date of acquisition was extended to 31.05.2015. No employee cost is there, assessee s submission in this regard is that operations commenced with directors and assistance from Arcserve USA and CA Technologies employees, negating additional manpower costs. Furthermore, the most important feature is that assessee had arrangement with its AE for billing cost plus 15%. This has been duly billed during the year and entire depreciation cost plus 15% has been billed to the AE. When the Revenue is accepting the revenue earned which is totally based upon depreciation plus 15% markup, there is no reason to deny the cost. Thus, authorities below have erred in disallowing the depreciation - Decided in favour of assessee.

Summary

Issues: Disallowance of depreciation for assets not put to use.

In this case, the appellant, an assessee, challenged the disallowance of depreciation amounting to Rs. 88,58,662 made by the Assessing Officer (AO) for the assessment year 2015-16. The AO disallowed the depreciation on the grounds that certain bills were in the name of an associated enterprise of the USA and some were dated after 31.03.2015, indicating that the assets were not put to use. The AO also noted that the appellant was in the process of setting up its business and had not claimed any employee expenses, implying that the assets could not have been utilized. The AO disallowed the claim of depreciation for Plant and Machinery, furniture & fittings, and building. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the assets were not put to use during the year due to the absence of employees and lack of ownership establishment. The appellant argued that assets were procured through a subsidiary of its parent company, ownership was transferred via inter-office memos, and corrected invoices were issued post-fiscal year-end. The appellant contended that operations had commenced with assistance from other entities, revenue was based on depreciation costs plus markup, and depreciation should be allowed. The Tribunal agreed with the appellant, stating that the authorities erred in disallowing depreciation. The appellant's appeal was allowed, and they were entitled to claim the depreciation amount.

In summary, the key issue in this case was the disallowance of depreciation for assets that were allegedly not put to use by the appellant. The AO and CIT (A) based their decision on ownership discrepancies, lack of employee costs, and assets not being utilized. However, the appellant argued that assets were in use, ownership was transferred, and revenue was generated based on depreciation costs. The Tribunal found in favor of the appellant, allowing the depreciation claim and overturning the previous decisions.