2014 (3) TMI 249 - AT - Income Tax

Disallowance of depreciation u/s 32 - claim of lower rate of depreciation activity of mining and processing of Iron Ores etc - A.O disallowed the claim of depreciation on fixed assets Land , taken on lease from OMC on the ground that the rate of depreciation so claimed is lower than the provision under Sec.32(1)(ii) - Held that - The contention of the assessee is upheld for the simple reason that the denial of claim of depreciation has been made on misinterpretation of law and the applicability - Explanation to Section 32(1)(ii) leans in favour of the assessee to the extent that it is the actual action of put to use which entitles the assessee to claim depreciation - all expenses are incurred for the purpose of business and are incidental to the holding of rights were claimed u/s.32(1)(ii) being the license to carry out the mining therefore could not be denied insofar as the Government and the lessee are in control of the asset - The definition of depreciation has been misconstrued for the purpose of allowing deduction by the Assessing Officer and the CIT(A) in holding a view on the promulgation of Section 32(1)(ii) with effect from the year 1998-99 which has been further amended w.e.f. Assessment Year 2003-04 thus, the assessee is entitled to depreciation as charged to the P & L account in accordance with its business exigencies Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of depreciation on wrongful assumption of law.
2. Addition on account of donation.
3. Delay in filing the appeal.

Analysis:
1. The appellant contested the disallowance of depreciation claimed on fixed assets 'Land' leased from OMC, arguing that the lower rate claimed was not prejudicial to revenue. The AO disallowed the claim citing Sec.32(1)(ii) of the IT Act. The CIT(A) upheld the disallowance, stating the leasehold rights acquired did not entitle the appellant to claim depreciation at a lower rate. The appellant argued that the asset was intangible and depreciation should be allowed as per business exigencies. The ITAT held in favor of the appellant, stating the denial of depreciation was based on a misinterpretation of law and directed the AO to allow the depreciation claim.

2. The addition on account of donation was contested by the appellant, claiming it was done whimsically without reasons. The ITAT directed the AO to verify the donation receipts and allow the deduction as per the provisions of the Income-tax Act, 1961.

3. The appeal was filed belatedly due to the professional's indisposition handling the case. The delay was condoned, and the appeal was admitted for hearing. The ITAT allowed the appeal of the assessee, directing the AO to allow the depreciation claim and verify the donation receipts for deduction under Section 80G of the IT Act.