DCIT, NEW DELHI vs. M/S. GATEWAY IMPEX (P) LTD., NEW DELHI

ITA 220/DEL/2014Status: DisposedITAT Delhi24 September 2015AY 2005-064 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that once the Revenue accepted the capitalization of pre-operative expenses and allowed depreciation in an earlier year, it cannot disturb the opening written down value of such assets in a subsequent year. Therefore, the CIT(A) was correct in allowing depreciation on pre-operative expenses.

What were the facts?

The assessee claimed depreciation on plant and machinery, including pre-operative expenses. The AO disallowed a portion of the claimed depreciation, considering the assessee's primary business as rental income. The CIT(A) allowed depreciation on pre-operative expenses but disallowed depreciation on rent paid to DDA.

What were the issues?

Whether depreciation on pre-operative expenses capitalized as plant and machinery is allowable in a subsequent assessment year, when accepted in a prior year by the AO.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH : SMC : NEW DELHI

Before: SHRI R.S. SYAL

For Respondent: Shri Amrit Lal, DR

Hearing: 23.09.2015Pronounced: 24.09.2015

Assessee by : None Department by : Shri Amrit Lal, DR Date of Hearing : 23.09.2015 Date of Pronouncement: 24.09.2015 ORDER

This appeal by the Revenue is directed against the order passed by the CIT(A) on 31.10.2013 in relation to the Assessment Year 2005-06.

The only effective ground raised

in this appeal is against restricting the addition of Rs.21,03,361/- to Rs.2,88,513/- made by disallowing the excess depreciation claimed by the assessee.

3. Briefly stated, the facts of the case are that the assessee is engaged in the business of sale, purchase and development of property and letting it to tenants and also providing for the conveniences and services commonly provided in apartments and business quarters. The assessee claimed depreciation on plant and machinery. It was observed by the AO that besides claiming depreciation on lifts, windows cleaning system, HVAC, IBMS, etc., the assessee also made allocation of other pre-operative expenses on proportionate basis. He noticed that the assessee’s main activity was of giving building on rent. He, therefore, came to hold that the entire expenditure incurred on fixed assets by the assessee was pertaining to rental income. Since the assessee was also providing certain maintenance services, he held that the depreciation was allowable only on those assets, namely, lifts, windows cleaning system, HVAC, IBMS, uplift trolley and sound proofing system. As such, he re-determined the opening written down value of Plant and machinery used for maintenance and services at Rs.2.39 crore and computed allowable depreciation at Rs.59.83 lac. As the assessee had claimed depreciation amounting to Rs.80.86 lac, the differential amount of Rs.21.03 lac was disallowed. Against the disallowance of depreciation to this extent, the ld. CIT(A) allowed depreciation to the tune of Rs.18,14,848/- on pre-operative expenses capitalized, but, disallowed depreciation on the rent paid to the DDA at Rs.2,88,513/-. The Revenue is aggrieved against the relief allowed in the first appeal.

I have heard the ld. DR and perused the relevant material on record.

An adjournment application was filed by one counsel without there being any Power of attorney in his favour. Such adjournment request was rejected. Accordingly, the appeal is being disposed of on merits ex parte qua the assessee.

It is observed that the ld. CIT(A) has allowed relief only in respect of pre-operative expenses which were capitalized by the assessee in the previous year relevant to assessment year 2003-04. Not only such capitalization was allowed by the AO in the assessment completed u/s 143(3) of the Act for that year, but also allowed depreciation on such block of plant and machinery. Once the Revenue, after making proper investigation, has accepted addition to the block of Plant and machinery by the amount of pre-operative expenses in an earlier year and also allowed depreciation accordingly, it is impermissible to the AO in a later year to disturb the opening written down value of such block of assets by opining that the pre-operative expenses should not have been capitalized. There is nothing on record to indicate that some proceedings were taken up for the assessment year 2003-04 to rectify the allowing of capitalization of such pre-operative expenses to plant and machinery. In view of the foregoing discussion, I am of the considered opinion that the ld. CIT(A) was right in allowing depreciation on pre-operative expenses capitalized under the head ‘Plant and machinery’ for business purpose.

In the result, the appeal is dismissed. The decision was pronounced in the open court on 24th September, 2015.

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