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2021 (12) TMI 201 - AT - Income TaxDisallowance of prior period expenses - HELD THAT:- Once any particular expenditure is crystallized during relevant accounting period, the same needs to be allowed as deduction irrespective of the fact that said expenditure pertains to earlier financial year and paid in subsequent financial years. In this case, the ld.CIT(A) has recorded categorical finding that the liability towards expenditure was crystallized during the current year and hence, it does not constitute prior period expenses - As noted that it is not a case of the AO that expenditure claimed by the assessee is not deductible at all. In fact, the AO has not made any adverse comments about deductibility of expenses. In this case, on perusal of facts available on record, we find that although expenditure pertains to earlier financial years but the same was accrued and crystallized during current assessment year and hence, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to delete addition made by the AO towards reimbursement of expenses to subsidiary company. Hence, we are inclined to uphold the findings of CIT(A) and reject ground taken by the Revenue. Disallowance of depreciation on guest house - assessee has claimed depreciation @ 10% on guest house, which is applicable to factory and office buildings - assessee had also claimed depreciation @ 15% on plant & machinery, kitchen equipments and electrical fittings - AO has allowed depreciation @ 5% on total amount spent towards guest house including plant & machinery, kitchen equipments, electrical fittings, on the ground that guest house was used for residential purpose and hence, depreciation as per the Act is allowable @ 5% but, not 10% / 15% as claimed by the assessee - HELD THAT:- CIT(A) has recorded categorical finding that each item of asset is to be classified independently by applying functional test especially when specific categorization is made in Appendix-I to Rule 5 of Income Tax Rules and further cannot be correlated to any other asset on the basis of their place of installation. In this case, there is no doubt with regard to the fact that other assets installed in guest house building like plant & machinery, furniture & fittings and electrical installations are entitled for 15% depreciation. Once, a particular asset is entitled for higher depreciation as per the Act, the AO was erred in restricting depreciation on said assets to 5%, which is applicable to residential building merely because those assets are installed in guest house building. The CIT(A) after considering relevant facts, has rightly directed the AO to allow depreciation as per Appendix-I to Rule 5 of Income Tax Rules, 1962 on assets, on the basis of their functional test. We do not find any error in the findings of the ld.CIT(A) and hence, we are inclined to uphold the findings of CIT(A) and reject ground taken by the Revenue.
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