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2021 (10) TMI 570 - AT - Income TaxDisallowance of depreciation claimed on property - assessee had claimed depreciation @ 10% on residential property - restricting the disallowance to 5% by AO - HELD THAT - Contention of the assessee that the disallowance has been made for the first time in the year under consideration and there has been no disallowance either in the preceding assessment year or succeeding assessment year has not been controverted by the Revenue - For restricting the disallowance to 5% no reasons have been given by AO which according to us would mean that assessee using the premises for the purpose of business has not been doubted. AO was not justified in restricting the claim of depreciation to 5%. We direct the AO to allow the claim of depreciation @ 10%. Thus the ground of the assessee is allowed.
Issues:
1. Disallowance of depreciation claimed on property. 2. Conversion of limited scrutiny to complete scrutiny. Issue 1: Disallowance of Depreciation Claimed on Property: The appeal was against the order of the Commissioner of Income Tax (Appeals) relating to the Assessment Year 2015-16. The Assessee, a company engaged in Trading and Investments in Securities, had initially filed a return declaring Nil income. The case was selected for scrutiny, and the assessment resulted in a total income of ?12,69,660. The Assessee appealed the partial relief granted by the CIT(A) and raised grounds against the disallowance of depreciation claimed on property. The Assessee contended that the property was used for business purposes, but the AO disallowed a portion of the depreciation claimed. The CIT(A) upheld the AO's decision. The Assessee argued that the disallowance was unjustified as there was no prior disallowance in preceding or succeeding assessment years. The ITAT held that the AO's restriction of depreciation to 5% without providing reasons was unwarranted. Consequently, the ITAT directed the AO to allow depreciation at the claimed rate of 10%, thereby allowing the Assessee's appeal. Issue 2: Conversion of Limited Scrutiny to Complete Scrutiny: The Assessee raised an additional ground challenging the conversion of the case from 'Limited Scrutiny' to 'Complete Scrutiny' as being contrary to CBDT instructions. The Assessee argued that the conversion was not in compliance with Circular No.19 & 20 dated 29.12.2015. The Assessee contended that the conversion was invalid as the potential escapement of income did not exceed the prescribed limits for a metro city like Delhi. The ITAT, following the decision of the Supreme Court in a similar case, allowed the admission of the additional ground. The Assessee's argument was based on the legal nature of the ground. The ITAT found merit in the Assessee's contention and admitted the additional ground. However, since the primary issue regarding the disallowance of depreciation was decided in favor of the Assessee, the additional ground was deemed academic and required no further adjudication. Consequently, the ITAT allowed the Assessee's appeal, addressing both the primary issue of depreciation disallowance and the challenge to the conversion of scrutiny. In conclusion, the ITAT ruled in favor of the Assessee, directing the AO to allow the claimed depreciation and addressing the challenge to the conversion of scrutiny. The judgment highlighted the importance of providing reasons for disallowances and ensuring compliance with CBDT instructions in scrutiny procedures.
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