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Facts
The assessee filed a return declaring a loss. The AO disallowed depreciation, observing no business activities. The Ld. CIT(A) allowed the depreciation based on previous ITAT orders for the assessee's earlier assessment year. The Revenue filed an appeal against this decision, which faced a delay in filing.
Held
The ITAT condoned the delay in filing the appeal and upheld the Ld. CIT(A)'s decision. It relied on its own previous order for the assessee (AY 2004-05) and the Calcutta High Court's judgment in a sister concern's case, which established that depreciation could be claimed even if capitalized in books or if no business activity was observed, as long as the assets were owned and utilized for business. The Tribunal found the issue squarely covered in favor of the assessee.
Key Issues
Whether depreciation can be disallowed solely due to the absence of business activities or the capitalization of assets in books, when the assessee owns and utilizes the assets for business, in light of binding precedents.
Sections Cited
250, 143(1), 145, 144, 32
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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Date of concluding the hearing : 29.01.2025 Date of pronouncing the order : 03.03.2025 O R D E R
PER SANJAY AWASTHI, ACCOUNTANT MEMBER:
In this case, the ITAT Registry has informed that there is a delay of 235 days in filing of the said appeal. The revenue has filed a petition for condoning the said delay as under:
“The Ld. CIT (A) NFAC. Delhi has passed order in appeal no. ITBA/NFAC/S/250/2022-23/1048556170(1) dated 09.01.2023 through ITBA The order of the Ld. CIT (A), NFAC, Delhi has neither been communicated to this stakeholder nor any alert on passing on the order by the Ld. CIT (A), NFAC. Delhi has been sent either through SMS or through email or through any other mode by the Departmental system network to this office Orders of the Ld. CIT (A) are downloaded from the Departmental system on manual checking basis. During the period of January, 2023 to August, 2023 this stakeholder was under pressure of disposing time barring matters. For this reason and due to Emas Expressway Pvt. Ltd. non-availability of system resources, the searching of appeal order in ITBA systems could not be done on regular basis. This appellant submits that there was sufficient causes for not presenting the appeal within due time and the appeal may kindly be heard on merit for the interest of Revenue after condoning delay in filing appeal for genuine reasons as mentioned above.” 1.1 Considering the reasons spelt out in the petition for condonation of delay, the delay is condoned and the appeal is admitted for adjudication.
This appeal arises from order passed u/s 250 of the Income Tax Act, 1961 [hereafter ‘the Act] by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereafter “the Ld. CIT(A)], vide order dated 09.01.2023.
2.1 Brief facts of the case are that the assessee had filed return of income on 30.10.2005 at a returned loss of Rs. 1,46,56,371/-. The return was processed u/s 143(1) of the Act on 27.10.2006, accepting the returned income of the assessee. The case was selected for scrutiny and assessment was completed on 21.11.2008, assessing income at Rs. 1,53,44,460/-. In the assessment order, the Ld. AO has disallowed depreciation of Rs. 3,00,00,827/- observing that no business activities were carried out by the assessee during the year under consideration.
2.2 The Ld. CIT(A) followed the decision in assessee’s own case, for an earlier year rendered by the Hon’ble ITAT. The relevant findings of the Ld. CIT(A) are as under:
“I have considered the assessment order, grounds of appeal and the submission of the appellant. It is seen that the assessing officer has disallowed the depreciation claimed by the appellant company in view of the observation that no business activities were carried out by the appellant. During the course of appellate proceedings, the appellant has stated that in its own case on the same issue in the earlier year ie. A.Y. 2004-05, the assessing officer has disallowed the claim of depreciation The matter for the A.Y. 2004-05 travelled upto ITAT and the ITAT has allowed the appeal in favour of the appellant in 1325/Kol/2007 dated 19.12.2014. Since, the depreciation was allowed by the ITAT in assessee own case for the A.Y 2004-05, the same is also allowed for the A.Y 2005-06 i.e. year under consideration. In view of these finding the appeal of the appellant is allowed.”
Emas Expressway Pvt. Ltd. 3. The Ld. DR relied on the orders Ld. AO and stated that the depreciation would be allowed only in case there was a business user of the asset in question.
3.1 Before us, the Ld. AR placed on record the orders of Hon’ble ITAT [ITA No. 1325/Kol/2007, dated 19.12.2014] and pointed out that the issue was squarely covered in favour of the assessee. The Ld. AR also placed on record the order of Hon’ble Calcutta High Court in the case of assessee’s sister concern, in the case of Mapex Infrastructure (P) Ltd. reported in 212 Taxman 23 (Cal). The Ld. AR pointed out that this case has been relied on by the Hon’ble ITAT in ITA 1325/Kol/2007 (supra).
Right at the outset, it deserves to be mentioned that the Hon’ble ITAT in the assessee’s own case for AY 2004-05 [ITA No. 1325/Kol/2007] has relied on the following passages from the order in the case of Mapex Infrastructure (P) Ltd. (supra):
“8. After hearing the learned counsel for the parties and reading the judgment of all the authorities below we feel that the Assessing Officer as well as the CIT (Appeals) disallowed the claim of depreciation because in its own accounting system (mercantile of course) and also in the profit and loss the assessee itself has shown the aforesaid depreciation was capitalized and this was shown under the heading "National Highway Development Account". In other words, the authority concerned by necessary implication held that assessee after having shown in its own account is estopped from claiming depreciation in the Income Tax returns consequently, disallowed carry forward of the balance loss. Therefore, cardinal question to be answered in this appeal is whether in view of the aforesaid capitalization in its account debar the appellant from claiming allowance of depreciation in the return before officer concerned. On fact it is not disputed that the plant and machinery equipment’s are assets and was utilized for the business. The above question we have summarized has been answered by the Division Bench of the Madras High Court in case of Sakthi Soyus Lad (supra). In that judgment it was held on the principle of law as follows "Capitalisation of those expenditure in the books of account alone was not the decisive factor in examining an expenditure for the purpose of income-tax. The name given to an expenditure or a nomenclature given to an expenditure in the books of account of the assessee is not the litas test to decide the exact nature of expenditure for the purpose of income-tax. The purpose of the Companies Act in different from the purpose of the Income-tax Act Therefore, the classification of those expenses as capital in nature for the purpose of the Companies Act, does not ipse facto make that expenditure a capital expenditure for the purpose of the Income-tax Act."
In the case before Madras High Court the aforesaid decision was rendered on the factual aspect that assessor therein filed a return of income admitting a total loss of Rs. 8.58.41,145- The Assessing Officer disallowed the claim of expenditure to the extent of Rs. 20,36.157/- towards crop development expenses on the ground that the same was not considered as a revenue expenditure by the assessee in its accounts. However, the assessee claimed it as revenue in the statement of computation of total income. The Assessing Officer however disallowed the expenses incurred amounting to Rs. 16,41.125/towards advertisement in respect of the Soya products and sales promotional expenses. On fact in those cases authorities below took note of what was stated in the waited account net what was claimed in the returns.
Our High Court in case of Berger Pan India) Lat (supra) while taking note of the old decision of the Supreme Court in case of Kedarnath Jate Mig Cao Lak v CIT (1971) 82 (TB 362 and CITv India Discount Co. Ltd. [1970] Z5 ITR 191 held that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not self estopped by the treatment given by the assessee to it in its own books of account. 11. b appears that the authorities below have heavily relied on the account in view of Section 145 of the Act. In view of sub section (3) of the same the sand sub-section has given ample discretion of the assessee with regard to correctness and completeness of any account of the assessee in case where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2) have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144 We think that the aforesaid sub-section (3) in this case has no manner of application as it is not a case here that the appellant has frequently shifting its accounting process and method in this case the accounting system is uniform however, while filing returns the depreciation of those assets have been claimed under the provisions of the law in its return.
The aforesaid two pronouncements have clearly answered this question. We feel in this case while making assessment of any returns any deduction is sought for it is the duty of the revenue official to examine not only the account but also substantive right of claiming deduction under the Act on the facts and circumstances of this case. It is not a case that the said assets and properties do not belong to the appellant, therefore depreciation in any assets and properties is a regular phenomenon and deduction on this account is allowable under Section 32 automatically 13. It appears that learned Tribunal while reading Section 32 of the Act has accepted the legal principle but unfortunately while granting relief as rightly pointed out by Mr. Khaitan has not allowed the setting off of the interest income as regard the aforesaid amount of depreciation. We therefore allow this appeal and set aside the judgment and order of the authorities below We direct the A.O to work out again allowing the deduction and setting off of the amount of interest income and to allow carry forward. Thus, the appeal is allowed without any order as to costs.” 4.1 Following the order of the Hon’ble Calcutta High Court, the ITAT has given a finding as under:
Emas Expressway Pvt. Ltd. “6. We have considered the rival submissions. As it is noticed that the issue in this appeal is squarely covered by the decision of the Hon’ble Jurisdictional High Court in the case of Mapex Infrastructure Pvt. Limited, respectfully following the judgment of the Hon’ble Calcutta High Court the issue in this appeal is restored to the file of the Assessing Officer in line with the directions of the Hon’ble Jurisdictional High Court in the case of Mapex Infrastructure Pvt. Limited referred to supra. 4.2 Respectfully following the order of Co-ordinate Bench of the Tribunal in assessee’s own case, the matter is decided in favour of the assessee and against the Revenue.
In the result, the appeal filed by the Revenue is hereby dismissed.
Order pronounced in the court on 03.03.2025