LTIMindtree Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that depreciation under section 32 of the Income Tax Act is allowable only when the asset is put to use for the business purpose. Notably, the onus is on the assessee to prove that the assets are put to use for the business purposes only.
Facts- During the course of assessment proceedings, the Assessing Officer observed that the assessee has acquired new assets of Rs. 4,22,01,852/- during the previous year and claimed depreciation of Rs. 2,23,01,237.
The assessee was asked to furnish evidence in respect of the acquisition of new assets. The assessee furnished details of the list of fixed assets addition during FY 2005-06 and enclosed copies of two invoices indicating the purchase of assets worth of Rs. 64,480/- dated 20.08.2005 and Rs. 93,600/- dated 17.08.2005 and in regard to balance of assets, the counsel for the assessee stated that it was very difficult to produce the copies of all the new assets purchased and contended that sample of two assets have already been furnished and requested to complete the assessment on the basis of evidence furnished.
AO after referring to section 32 of the Act observed that the assessee’s AR expressed his difficulty to furnish the evidence with regard to the ownership of the new assets acquired by the assessee during the previous year except for two sample invoices. Hence, it is reasonably presumable that the assessee does not own the properties and thus it is not eligible for claim of depreciation. Hence, the depreciation claimed on the new assets, except the assets relating to which the invoices have been produced is rejected and added to the income returned.
Conclusion- According to the assessee, the assessee has satisfied the ownership of assets and is eligible for depreciation and has relied on the auditor’s report in this regard. But the question arises whether the assets were put to use for business purpose. The assessee has not put forth any evidence regarding use of the assets for business purpose as per the requirement of section 32 of the Act either before the revenue authorities or even before me.
The onus is on the assessee to prove that the assets were put to use for business purposes and merely reliance on the audit report is not sufficient as mentioned above. Merely achieving the turnover of the business is not a criterion to show that assets were used for business purposes. In the remand report, the AO has not given a clear finding, but he has stated that the assessee was unable to prove the claim that assets were used for business purpose and he has given his opinion in the remand report based on the nature of business of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)-11, Bengaluru, order dated 14.12.2022 DIN No. ITBA/APL/M/250/2022-23/1047996835(1)for the assessment year 2006-07. On the following grounds of appeal:-
“1. The Order of the Learned Commissioner (Appeals) {in so far as same is prejudicial to the Appellant^ is not justified in law and on facts and circumstances of the case.
2. The Learned Commissioner (Appeals) is not justified in making certain incorrect and perverse observations in so far as conduct of the Appellant during the appellate proceedings.
3. As regards denial of depreciation of Rs. 2,22,06,388/- claimed in respect of fixed assets addition made during the impugned year:
3.1. The Learned Commissioner (Appeals) is not justified in denying depreciation even when the Appellant satisfied all the conditions to justify its claim.
3.2. The Learned Commissioner (Appeals) is not justified in applying user test by failing to appreciate that it was never the basis of the Learned Assessing Officer of denying the depreciation during the assessment proceeding.
3.3. Without prejudice to the above, the Lower Authorities are not justified in denying depreciation when the Appellant discharged its onus of establishing that the assets were put to use for the purpose of business of the Appellant on the basis of auditors’ report, tax audit report and its business exigencies.
3.4. Without prejudice to the above, the Learned Commissioner (Appeals), having not doubted that the appellant acquired the impugned assets at the stated costs during the course of the previous year, is not justified in insisting on absolute evidence of use after the lapse of 16 years rather than applying the principle of “preponderance of probability” and “prudency”.
3.5. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 16,49,963/-in respect of computers & systems by stating that “initial usage requires a proper installation and such date can always be ascertained from the system”, by failing to appreciate that computers & systems do not last for 16 years.
3.6. As regards denial of depreciation of Rs. 2,05,57,909/- in respect of software tools:
3.6.1. The Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 2,05,57,909/-, when the Learned Assessing Officer in the remand report had stated that “However, considering the nature of business the assessee is engaged in ie. Software development, it is possible that these software tools were used for assessee business purpose”.
3.6.2. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “tools requires registration at the time of installation as at that point of time some ‘PIN’ is required to be entered. So the date of first usage of such tools can always be ascertained’, by failing to appreciate that such information would not be available with the Appellant as the shelf life of software does not last for 16 years.
3.6.3. The Learned Commissioner (Appeals) ought to have allowed depreciation on software tools on the same principles on which the depreciation on plant and machinery [Scan Emulator Pod] was allowed.
3.6.4. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 2,05,57,909/- for the impugned AY 2006-07, when the Learned Assessing Officer has accepted that depreciation should be allowed and the Learned Commissioner (Appeals) allowed depreciation in an identical facts and circumstances in the Appellant’s own case for the AY 2007-08.
3.7. As regards denial of depreciation of Rs. 12,808/- in respect of plant and machinery:
3.7.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 12,808/- in respect of addition to plant and machinery of Rs.1,70,768/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.
3.7.2. Without prejudice to the above, the Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 12,808/- on same principles on which the depreciation on plant and machinery of Rs.84,240/-was allowed by him.
3.8. As regards denial of depreciation of Rs, 57,067/- in respect of vehicles:
3.8.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 57,067/- in respect of addition to Vehicles of Rs. 7,60,896/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.
3.8.2. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “the appellant could have brought on record the documents relating to the registration of vehicle and it’s insurance to show that the same was put to use. It could have brought on record the log book to show the same was put to use”, by failing to appreciate that such information would not be available with the Appellant as the life of the vehicles does not last for 16 years.
3.9. As regards denial of depreciation of Rs. 1,507/- in respect of office equipments:
3.9.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 1,507/- in respect of addition to office equipment of Rs. 20,085/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.
3.9.2. Without prejudice to the above, the Learned Commissioner (Appeals) having stated that “As regards, washing machine, fridge, iron box and mixer grinder, the argument of the appellant that the same wee used for housekeeping work and pantry/ cafeteria for the welfare of the employees, could have some weight, being a normal practice” ,ought to have allowed depreciation on office equipments.
4. As regards the addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off:
4.1. The Learned Commissioner (Appeals) is not justified in making addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off by erroneously invoking section 28(iv) of the IT Act.
4.2. The Learned Commissioner (Appeals) is not justified in failing to appreciate that liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(i)(B) and not under section 28(iv) of the IT Act.
4.3. The Learned Commissioner (Appeals) is not justified in failing to appreciate that there are no provisions under IT Act to treat the depreciation allowed in the past years as income in the subsequent year.
4.4. Without prejudice to the above, the Learned Commissioner (Appeals) has failed to appreciate that waiver of any amount payable would amount to receipt of cash which therefore does not fall under section 28(iv) as held in CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC).
5. Without prejudice to the above, Lower Authorities having disallowed depreciation and made addition in respect of liability written off ought to have computed the deduction 10A of the IT Act by taking revised profits.
For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid Appeal be allowed.”
2. The brief facts of the case are that the assessee filed return of income for the AY 2006-07 on 24.11.2006 declaring total loss of Rs.2,24,61,220/-. The case was selected for a scrutiny under CASS and statutory notices were issued to the assessee. The counsel Sri Tata Krishna, CA appeared from time to time and the documents were furnished. During the course of assessment proceedings, the AO observed that the assessee has acquired new assets of Rs. 4,22,01,852/- during the previous year and claimed depreciation as under:-
