2014 (4) TMI 1049 - AT - Income Tax

Disallowance of depreciation claimed on leased plant& machinery - Held that - When the income was received from leasing out of plant and machinery; on the said rental income the assessee shall be eligible inter-alia to claim deductions u/s 32(1) of the Act. In the light of the express provisions of the Act, the assessee is entitled to claim depreciation on plant and machinery. Since, there is no dispute on the fact that the assessee owns the asset and had rented out the said assets, i.e., plant and machinery and the rental income has been duly brought to tax by the assessee, the assesse is entitled to depreciation. In the light of express provision of law, disallowance made of ₹ 89,52,989/- representing depreciation on plant and machinery has been rightly deleted by the ld CIT(A) and the impugned order is valid in the eyes of law and we confirm the same - Decided against Revenue.

Summary

Issues:
1. Disallowance of depreciation claimed on leased plant & machinery.
2. Restriction of addition of expenses not essential for the business.

Issue 1: Disallowance of Depreciation:
The appeal involved a dispute over the disallowance of depreciation claimed on leased plant and machinery by the revenue. The Assessing Officer disallowed the claim, leading to an appeal before the ld CIT(A) who deleted the disallowance. The revenue contended that the lessee company did not use the assets for business purposes, justifying the disallowance. However, the ld AR argued that the Assessing Officer's reasoning was flawed as the rental income was assessed, indicating asset usage. The ld AR referenced relevant legal provisions and a Delhi High Court decision to support the claim for depreciation. The ITAT analyzed sections 56 and 57 of the Income Tax Act, confirming the assessee's entitlement to claim depreciation on leased assets. The tribunal upheld the ld CIT(A)'s decision to delete the disallowance, dismissing the revenue's appeal.

Issue 2: Restriction of Expenses Addition:
The second issue pertained to the restriction of adding expenses not essential for the business. The Assessing Officer disallowed a portion of the expenses, citing lack of business activity by the assessee. The ld CIT(A) further allowed additional expenses, leading to a dispute. The revenue argued for setting aside the ld CIT(A)'s order, while the ld AR asserted that the expenses were incurred for statutory obligations. The ld AR highlighted past decisions supporting expense allowance during non-business years. The ITAT noted a similar issue in a previous case and followed the precedent, declining to interfere with the ld CIT(A)'s decision. Consequently, the tribunal confirmed the ld CIT(A)'s order, dismissing the revenue's appeal.

In conclusion, the ITAT upheld the ld CIT(A)'s decisions on both issues, ruling in favor of the assessee and dismissing the revenue's appeal in its entirety.

---