2020 (12) TMI 442 - AT - Income Tax

Disallowance u/s 43B - expenditure debited to pre-operative expenses - HELD THAT - In this case, the facts brought out by the lower authorities which clearly indicate that the assessee has failed to justify the genuineness of expenditure with necessary evidence. Although the assessee claimed that it has deducted tax at source u/s. 194J of the Act on such expenditure while making payment, but mere making a TDS on said payment does not automatically prove the genuineness of expenditure - the assessee itself has claimed said expenditure as revenue in nature in the previous financial year and debited to pre-operative expenses. But, during the current financial year, it has changed its stand and capitalized to said plant and machinery as part of cost of asset. We are of the considered view there is no clarity in the accounting terms given by the assessee in so far as particular expenditure is concerned because it has given differential treatment for different financial years - we are of the considered view that the issue needs to be re-examined by the AO in the light of the claim of the assessee that said expenditure is part of cost of capital asset which is incurred in connection with acquisition/installation of plant and machinery. In case, it is part of acquisition of asset, then the AO is directed to verify and allow depreciation as per law. Disallowance of depreciation of fixed asset acquired during financial year 2012-13 and put to use during financial year 2013-14, according to AO - the assessee has acquired asset during financial year 2012-13 and claimed depreciation during financial year 2013-14. No doubt, there is no bar under the Act to claim depreciation on any asset which was acquired in earlier financial year, but the only point needs to be examined is when the particular asset is installed and put to use in the premises of the assessee. It was the claim of the assessee before the lower authorities that although the asset was acquired in financial year 2012-13 but the same was put to use on 01.01.2014 relevant to assessment year 2014-15. If the claim of the assessee is correct then the assessee is entitled for depreciation on particular asset from the date the said asset is put to use in the business of the assessee. But fact with regard to date of acquisition and date of asset put to use in the business needs verification from the AO - we are of the considered view that this issue also needs to be go back to the file of the AO for fresh consideration to examine the claim of the assessee and allow depreciation in accordance with the provisions of Section 32. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Disallowance of depreciation relating to assets capitalized during the subject AY.
2. Disallowance of depreciation on assets purchased in AY 2013-14 but put to use in AY 2014-15.
3. Excess disallowance of depreciation.
4. Initiation of penalty proceedings under section 271(1)(c) of the Act.
5. Condonation of delay in filing the appeal.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation Relating to Assets Capitalized During the Subject AY:
The assessee claimed depreciation on assets capitalized during the assessment year 2014-15, which included payments made to directors as incentives for consultation/professional services related to the purchase and installation of fixed assets. The CIT(A) disallowed this claim, noting that the directors' qualifications and the actual services rendered were not substantiated. Additionally, the CIT(A) pointed out inconsistencies in the treatment of these expenses, which were initially claimed as revenue expenditure in the previous year but later capitalized. The Tribunal acknowledged the principle that professional fees related to asset acquisition should be added to the asset's cost but emphasized the need for the assessee to prove the genuineness of such expenses. The Tribunal remitted the issue back to the AO for re-examination.

2. Disallowance of Depreciation on Assets Purchased in AY 2013-14 but Put to Use in AY 2014-15:
The assessee argued that although the assets were acquired in the financial year 2012-13, they were put to use only in the financial year 2013-14, and thus depreciation should be allowed for the year 2014-15. The CIT(A) disallowed the claim, citing a lack of evidence regarding the nature of the assets and the time taken for installation. The Tribunal remitted the issue back to the AO for verification of the actual date of use of the assets, directing the AO to allow depreciation if the assets were indeed put to use in the assessment year 2014-15.

3. Excess Disallowance of Depreciation:
The assessee contended that if the assets were put to use for less than 180 days, only 50% of the depreciation should be disallowed. The CIT(A) dismissed this claim due to insufficient evidence. The Tribunal noted that since the primary issue of depreciation was remitted back to the AO, the alternative claim regarding the 50% depreciation also needed reconsideration. The AO was directed to examine this aspect and allow depreciation as per Section 32 of the Act if the assets were used for less than 180 days.

4. Initiation of Penalty Proceedings Under Section 271(1)(c) of the Act:
The assessee argued that the initiation of penalty proceedings was unwarranted as there was no failure to comply with notices or any attempt to conceal income or furnish inaccurate particulars. This issue was not specifically addressed in the Tribunal's order, indicating that it was not a primary focus of the appeal.

5. Condonation of Delay in Filing the Appeal:
The Tribunal noted a delay of 24 days in filing the appeal, which the assessee attributed to an inadvertent mistake by the counsel handling tax matters. Despite the DR's opposition, the Tribunal condoned the delay, emphasizing the need to advance substantial justice.

Conclusion:
The Tribunal set aside the appeal to the file of the AO, directing a reconsideration of the issues related to depreciation claims in light of the assessee's arguments and supporting judicial precedents. The appeal was allowed for statistical purposes, and the order was pronounced on 2nd December 2020 in Chennai.

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