2020 (7) TMI 102 - AT - Income Tax

Disallowance of excess depreciation - depreciation on software @60% - HELD THAT - No infirmity in the order of the ld CIT (A) in upholding that depreciation on software is allowable @60%. However, for working out actual block of asset on which depreciation is to be allowed, he directed the ld AO to verify the same. We find no infirmity in the decision the ld CIT (A), therefore, ground No. 1 of the appeal is dismissed. Deduction of ESOP expenses - Additional claim before the AO by way of letter and did not made a claim by filing revised return - HELD THAT - As carefully looking to the claim of the assessee it was found that the assessee has claimed deduction at ₹ 1,79,19,730/- whereas the amount of expenditure pertaining to the FY 2011-12 was only ₹ 10,45,671/-. Balance claim was of earlier years. CIT(A) directed the ld AO to restrict the claim of deduction of ₹ 10,45,671/- only against the claim of the assessee at ₹ 1,79,19,730/-. Further, surprisingly he also directed the ld AO to consider the claim of other earlier years when such claim is made by the appellant. We find that above further direction are not warranted pertaining to earlier years for the reason that ld CIT (A) does not have any power to direct ld AO for allowability of such claim for earlier years. If assessee wishes to claim, there is no fetter on the right of the assessee, but the claim should be in accordance with the law. If assessee makes a claim for deduction of balance expenditure in earlier years, whenever such a claim is made, the ld AO may examine the same and decide the issue on merits in accordance with law. - Decided against revenue.

Summary

Issues:
1. Excess depreciation claim disallowed by AO
2. Additional claim of deduction on employee compensation expenses rejected by AO

Issue 1: Excess Depreciation Claim
The assessee, engaged in stock and shares brokerage, filed a return of income for AY 2012-13, with the AO disallowing excess depreciation claim on software. The AO held that the claim was not crystallized during the year and disallowed it. The assessee contended that depreciation on software should be allowed at 60%, not 25% as determined by the AO. The CIT (A) upheld the assessee's claim, directing the AO to verify the actual cost of the asset for depreciation calculation. The ITAT found no infirmity in the CIT (A)'s decision, dismissing the revenue's appeal.

Issue 2: Additional Claim of Deduction on Employee Compensation Expenses
During assessment proceedings, the assessee submitted a letter claiming additional deduction for employee compensation expenses of ?1.79 crores, not initially claimed in the return. The AO disallowed the claim, stating it was not a revenue expense and lacked actual expense proof. The CIT (A) allowed the claim, citing precedents like Biocon Ltd, and directed the AO to consider the claim on merit. However, the CIT (A) noted the claim was made on a cumulative basis, not in line with the Biocon case, which allowed claims on a straight-line basis. The ITAT agreed with the CIT (A) on allowing the claim but modified the direction regarding considering claims for earlier years, stating the CIT (A) lacked authority to direct such consideration. The appeal of the revenue was dismissed with this direction.

In conclusion, the ITAT upheld the CIT (A)'s decision on both issues, allowing the excess depreciation claim and directing consideration of the employee compensation expenses claim. However, the ITAT modified the CIT (A)'s direction regarding the consideration of claims for earlier years, stating that such direction was beyond the CIT (A)'s authority.