2020 (11) TMI 413 - AT - Income Tax

Depreciation on Car - Claim not allowed on the reason that the assessee's hotel business is not in operation and not earned any revenue from hotel business - HELD THAT - As in the case of CIT Vs. Kriti Resorts (P) Ltd. 2011 (7) TMI 39 - HIMACHAL PRADESH HIGH COURT when the business is not in operational, the assessee can also claim depreciation. The assessee company is in existence under the Companies Act and it has to fulfill various statutory compliances and it is not disputed that the assessee is earning income from F O business and other sources. The same was offered for tax. Unless and until the assessee is ceased to exist, the assessee is entitled for depreciation on assets which was included block of assets. For granting depreciation, it is not mandatory for assessee to have revenue from Hotel Business. In the present case, the Assessing Officer himself has allowed maintenance of Car expenditure however disallowed depreciation on the same which is not correct. In our opinion, the assessee is entitled for depreciation as per Income Tax Act which has to be granted. We allow the appeal of the assessee.

Issues Involved:
1. Disallowance of depreciation on a motor car.
2. Determination of business continuity for depreciation claims.
3. Relevance of revenue generation from specific business activities for depreciation eligibility.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on a Motor Car:
The primary issue raised by the assessee concerns the disallowance of depreciation amounting to ?20,40,391 on a motor car. The Assessing Officer (AO) disallowed the depreciation on the motor car, arguing that the assessee did not generate revenue from the hotel business during the assessment year. The CIT (Appeals) upheld the AO's decision but directed the AO to disallow the depreciation as per the Income Tax Act, 1961, instead of the Companies Act.

2. Determination of Business Continuity for Depreciation Claims:
The assessee contended that the lower authorities disallowed the depreciation solely because there was no revenue from the hotel business. The assessee argued that it engaged in Futures & Options (F&O) operations during the assessment year, which was reflected in the financial statements under “Profits and Gains of Business or Profession.” The assessee cited several legal precedents to support the claim that the existence of revenue from the hotel business is not a precondition to claim depreciation under Section 32 of the Income Tax Act.

The assessee further argued that the motor car was used for F&O operations, visiting properties for reviving the hotel business, and attending board and general meetings. The assessee emphasized that the directors used the car for business purposes, and the lower authorities' observation that the appellant was not engaged in business was incorrect.

The assessee also highlighted its past engagement in the hotel business and the temporary suspension due to the lessor taking back the leased property. The assessee was actively seeking new hotel properties to resume business, indicating the continuity of business operations.

3. Relevance of Revenue Generation from Specific Business Activities for Depreciation Eligibility:
The assessee relied on various judgments to argue that the absence of revenue from the hotel business does not negate the eligibility for depreciation. Notably, the case of CIT Vs. Kriti Resorts (P.) Ltd. was cited, where the Himachal Pradesh High Court held that a company could claim depreciation even if the business operations were temporarily suspended, provided the company continued to exist and fulfill statutory obligations.

The assessee also referenced the case of DCIT E.India Biz.Com (P.) Ltd., where the Tribunal allowed depreciation despite the absence of business operations, as the company was still in existence and maintaining its assets.

The Tribunal considered these arguments and precedents, noting that the assessee's company was still operational, earning income from various sources, and fulfilling statutory compliances. The Tribunal concluded that for granting depreciation, it is not mandatory for the assessee to have revenue from the hotel business. The Tribunal found that the AO's allowance of car maintenance expenditure but disallowance of depreciation was inconsistent.

Judgment Summary:
The Tribunal allowed the appeal of the assessee, holding that the assessee is entitled to depreciation as per the Income Tax Act, irrespective of the revenue from the hotel business. The Tribunal emphasized that the company's existence and engagement in other business activities justified the claim for depreciation. The appeal was pronounced in favor of the assessee.

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