2024 (10) TMI 517 - AT - Income Tax

Disallowance of depreciation u/s 32 - claim of AO and CIT- A is that there is no business carried on by the assessee during the year - HELD THAT - It is not the case of the assessee that the learned assessing officer has singled out any asset forming part of the block of the asset to test its individual user. Therefore the judicial precedents relied upon by AO does not help the case of the assessee. Before the CIT- A assessee has raised several legal contentions, none of those decisions were considered by the CIT-A. CIT-A merely referred to the notes to the accounts and confirmed the disallowance of depreciation. Assessee did not get any opportunity of explanation before the learned assessing officer who passed an assessment order is assessee did not furnish details before him, in the interest of justice, we set-aside this issue back to the file of the learned assessing officer with a direction to the assessee to prove that in absence of any business activity carried on by the assessee, how the assessee is entitled to claim of depreciation u/s 32 (1) - AO may examine the same and decide the issue afresh. Addition towards unexplained sale application money - the claim of the assessee that there are no fresh credits during the year is apparent. However, as AO in the assessment order has specifically stated that the reason addition during the year and the same amount has been added as unexplained cash credit u/s 68 of the act. Neither the AR nor the learned departmental representative could explain how the above figure is arrived at. Further the learned CIT - A also not considered that how the amount has been arrived at by the learned assessing officer. Without examining the fact that whether the assessee has received any sum during the year or not, he has confirmed the addition u/s 68 of the act. The learned CIT A also did not consider the facts stated by the assessee that the share capital of the assessee company remains unchanged for last 3 years. Therefore, we set-aside the whole issue back to the file of the learned assessing officer within direction to the assessee to substantiate before the learned assessing officer that there are no credits in the books of account during the year on account of share application money or membership fees. The learned assessing officer may examine the same and decide the issue afresh. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Disallowance of depreciation under Section 32 of the Income Tax Act.
2. Addition of unexplained share application money under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation under Section 32:

The primary issue revolves around the disallowance of depreciation claimed by the assessee under Section 32 of the Income Tax Act. The assessee, engaged in the business of training and education, claimed depreciation amounting to Rs. 12,201,055 during the assessment year 2011-12. The Assessing Officer (AO) disallowed this claim on the grounds that the assessee did not conduct any business activities during the year, as evidenced by the nil income shown in the profit and loss account and the notes to accounts indicating no commercial operations. The AO contended that the assets were not used for business purposes, a prerequisite for claiming depreciation under Section 32(1).

The assessee argued that the depreciation was claimed on an opening block of assets with no new additions during the year, suggesting that the usage of assets need not be proven for subsequent years. The CIT(A) upheld the AO's decision, emphasizing the lack of business activity and revenue. However, the Tribunal noted that the assessee did not receive an opportunity to explain its position before the AO. Consequently, the Tribunal remanded the issue back to the AO for a fresh examination, directing the assessee to demonstrate entitlement to depreciation despite the absence of business activity.

2. Addition of Unexplained Share Application Money under Section 68:

The second issue concerns the addition of Rs. 41,544,689 as unexplained share application money under Section 68. The AO observed an increase in the share application money/membership fees compared to the previous year, which the assessee failed to substantiate with documentary evidence or confirmations. Consequently, the AO treated this amount as unexplained cash credit. The CIT(A) confirmed the addition, citing the assessee's failure to prove the genuineness of the transactions.

The assessee contended that there was no fresh credit in the share capital or membership fees during the year, as the figures remained unchanged from the previous year. The Tribunal found merit in the assessee's claim, noting that the share capital and membership fees had not increased. However, the Tribunal observed that neither the assessee nor the Revenue could clarify the calculation of the added amount. Consequently, the Tribunal remanded the issue back to the AO, instructing the assessee to substantiate the absence of new credits during the year, allowing the AO to re-evaluate the matter.

Conclusion:

The Tribunal set aside both issues, directing the AO to re-examine the claims of depreciation and the addition under Section 68, with the assessee required to provide necessary substantiation. The appeal was allowed for statistical purposes, and the order was pronounced in open court on March 28, 2024.