2014 (2) TMI 656 - AT - Income Tax

Disallowance of depreciation - Erroneous and insufficient grounds Held that - The decision of the CIT(A) upheld that depreciation is allowed in respect of building and not on land because building is a wasting asset, whereas land is a permanent asset - where it is possible to reasonably allocate the cost of acquisition between that of building and of land, the depreciation should be allowed only after making such allocation, on the value of the building so determined - Relying upon Commissioner of Income-Tax, Punjab, Jammu And Kashmir And Himachal Pradesh Versus Alps Theatre 1967 (3) TMI 6 - SUPREME Court building, for the purpose of depreciation, means only the superstructure constructed on the land and does not include land - the action of the AO in allocating the cost of acquisition of the immovable property between that of land and the superstructure and allowing depreciation only in respect of the cost of the superstructure is rightly upheld Decided against Assessee. Disallowance of salary paid to employees Held that - The findings of the CIT(A) upheld that no explanation has been furnished as to why the vouchers even for the one month were not signed by the three employees - The assessee had obviously employed more persons than the aforesaid three employees and the other employees could have carried out the work stated to be done by these three employees - There is nothing on record to show that vouchers for only one month were examined by the AO assessee was not able to produce any evidence to show that salary was paid to these three persons thus, the disallowance righty upheld Decided against Assessee.

Summary

Issues:
1. Disallowance of depreciation on immovable property.
2. Disallowance of salary expenditure.

Issue 1: Disallowance of Depreciation on Immovable Property:
The appellant claimed depreciation on an immovable property purchased for Rs.5,30,570, which included land and building. The Assessing Officer (AO) allowed depreciation only on the value of the building, disallowing the balance claim. The CIT(A) upheld the AO's decision. The appellant argued that since the purchase was for both land and building without specific amounts allocated, depreciation should be allowed on the entire purchase consideration. However, the Tribunal agreed with the CIT(A) that where possible, the cost should be reasonably allocated between building and land for depreciation purposes. Citing legal precedents, the Tribunal emphasized that depreciation is for the building as a wasting asset, not for the land, which is a permanent asset. The Tribunal upheld the AO's allocation of the cost between land and building, allowing depreciation only on the building's value. Consequently, the Tribunal dismissed the appellant's appeal on this issue.

Issue 2: Disallowance of Salary Expenditure:
The appellant claimed an expenditure of Rs.5,64,000 on salaries, but the AO disallowed Rs.1,38,000 due to unsigned vouchers for three employees. The CIT(A) upheld this disallowance. The appellant contended that the salaries were paid, and the lack of signatures on vouchers was an oversight. However, the Tribunal noted that no evidence was produced to prove payment to the three employees in question. The Tribunal agreed with the CIT(A) that the appellant failed to provide a satisfactory explanation for the unsigned vouchers. As a result, the Tribunal upheld the disallowance of Rs.1,38,000 on salary expenditure. Therefore, the appellant's appeal on this issue was dismissed.

In conclusion, the Appellate Tribunal ITAT Amritsar upheld the disallowance of depreciation on the immovable property and the disallowance of salary expenditure, as decided by the CIT(A) and the AO. The Tribunal provided a detailed analysis based on legal principles and precedents to support its decision on each issue, ultimately dismissing the appellant's appeal.