2025 (7) TMI 1684 - AT - Income Tax

Deprecation on temporary structures - as submitted that the assets used for construction power facilities and chain link facilities transit were in the nature of temporary assets and are eligible for 100 % depreciation - as per the agreement the assessee is responsible to make own arrangements for construction power at various location as per his requirements and also for chain link fence between existing main plant facilities and areas identified - HELD THAT - The assessee has constructed purely temporary structures. Structures were made supply the electricity to the labour and staff and to complete the contractual obligation. The cost of the temporary structures has been borne by the assessee. The assessee is allowed to make the temporary construction which is to be dismantled once the work is over. The case law of Dredging International India Pvt. Ltd. 2012 (9) TMI 1263 - ITAT DELHI assessee that assessee is entitled of 100 % depreciation in respect of the expenses incurred by it on construction of temporary structures. The grounds raised by the assessee are allowed.

Summary

ISSUES:

Whether the delay in filing the appeal is liable to be condoned despite exceeding the limitation period.Whether depreciation at 100% rate is admissible for temporary site enabling assets constructed by the assessee on land not owned by it.Whether the assets such as transformers, cables, galvanized steel tubes, base plates, and switchgear panels used for construction power supply can be classified as temporary structures under the depreciation schedule.Whether expenditure incurred on temporary site enabling facilities should be treated as capital expenditure or revenue expenditure.Whether the absence of ownership or leasehold rights over the land on which temporary structures are erected affects the classification and depreciation claim.

RULINGS / HOLDINGS:

The delay of 852 days in filing the appeal is condoned as there was "sufficient cause" including official leave and COVID-19 pandemic lockdown, and "substantial justice deserves to be preferred rather than deciding the matter on the basis of technical defect."The temporary site enabling assets constructed by the assessee are "purely temporary structures" and are eligible for 100% depreciation under the depreciation schedule, as they are not affixed to land owned or leased by the assessee and are to be dismantled after project completion.Assets such as transformers, cables, galvanized steel tubes, base plates, and switchgear panels used for construction power supply qualify as temporary structures since they are essential for "preliminary site enabling facilities" and are removable after contract completion.Expenditure on temporary structures erected on land not owned by the assessee, which do not create enduring capital assets for the assessee but provide a business advantage, is to be treated as capital expenditure eligible for 100% depreciation, supported by precedent distinguishing capital from revenue expenditure based on enduring benefit and ownership.The absence of ownership or leasehold rights over the land does not preclude the claim of 100% depreciation on temporary structures erected solely for execution of contractual work and removed thereafter.

RATIONALE:

The power to condone delay under section 5 of the Limitation Act, 1963, is exercised liberally to ensure "substantial justice" over technicalities, as affirmed by Supreme Court precedent emphasizing a "justifiably liberal approach."The legal framework for depreciation of assets distinguishes between temporary and permanent structures based on their nature, attachment to land, and intended duration of use, as per the Income Tax depreciation schedule and judicial interpretations.Precedents such as ACIT vs. Dredging International India Pvt. Ltd. and CIT vs. Industrial Cables Ltd. establish that temporary constructions erected on land not owned or leased by the assessee, used solely for contractual purposes and removable after completion, qualify for 100% depreciation.The Supreme Court's test from CIT v. Madras Auto Service and Assam Bengal Cement Co. Ltd. v. CIT differentiates capital and revenue expenditure by examining whether the expenditure brings into existence an asset or advantage of enduring benefit to the trade, with special consideration when the asset does not belong to the assessee.Cases where expenditure creates an asset belonging to another party but confers a business advantage have been held to be revenue expenditure; however, in the instant case, the temporary nature and removal obligation of the structures support their classification as capital assets eligible for full depreciation.The Tribunal's reasoning aligns with established principles that temporary structures, not permanently affixed and used only during project execution, are depreciable at 100%, and the absence of land ownership or leasehold rights does not negate this treatment.