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2016 (11) TMI 453 - ITAT KOLKATA

2016 (11) TMI 453 - ITAT KOLKATA - TMI - Claim of depreciation - AO has disallowed the depreciation on the ground that machine has not been put to use in the year under consideration - Held that:- Machine was ready to use in the year under consideration on 15.03.2004 as evident from the testing report which is placed on page 7 of the paper book. In similar facts and circumstances, several courts have decided this issue in favour of assessee. In holding so we find support from the judgment of Hon .....

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- Disallowance on account of interested on the borrowed fund and management fees - Held that:- As we have already decided the first ground of appeal of the Revenue in favour of assessee by observing that the impugned machineries were entitled for the depreciation in the year under consideration. As the said equipment was undoubtedly put to use on and from 14.03.2005. The suspicion of the AO that the machines were under trial is unfounded and in contradiction to the documentary evidence in resp .....

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ise and conjecture Following the same analogy we do not find any reason to interfere in the order of ld. CIT(A) and accordingly, the inter-connected issues raised by Revenue is dismissed.- Decided in favour of assessee - Expenditure incurred in repair on rented property - Held that:- We find that assessee was admittedly running its business from rented premises and repair expenses were incurred in the rented premises only. In such circumstances, various courts have decided this issue in favo .....

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02 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 upto the A.Y.2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finan .....

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hmed, Accountant Member This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-XXIV, Kolkata dated 28.03.2013. Assessment was framed by ITO Ward-8(2), Kolkata u/s 154/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 17.12.2007 for assessment year 2005-06. Md. Ghyas Uddin, Ld. Senior Departmental Representative appeared on behalf of Revenue and Shri Ashok Kumar Tulsyan, Ld. Authorized Representative appeared on behalf o .....

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g proceeded with. 3. First inter-connected issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the disallowance made by Assessing Officer for ₹ 32,38,637 on account of depreciation. For this, Revenue has raised the following grounds of appeal:- That the CIT(A) has erred in law as well as in fact in deleting the disallowance of claim of the assessee for depreciation to the tune of ₹ 32,38,637/- for F.Y 2004-05 without considering the fact that the machinery was .....

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Authorities Below are that the assessee, a Limited Company is engaged in providing diagnostic services. The assessee, during the year under consideration has filed its return of income at Rs. (-) 6,99,410/- dated 26.10.2005. Subsequently the case was selected for scrutiny under CASS module and accordingly notices u/s 143(2) & 142(1) were issued upon assessee. The assessment was framed u/s. 143(3) of the Act at a total income of ₹ 34,15,988/- after making certain additions / disallowan .....

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e supplier. The AO further observed that warranty period of the said machine started with effect from 03.05.2005. On question by the AO for disallowing the aforesaid sum on the ground of not putting the machine into use in the year under consideration, the assessee could not make any satisfactory reply. Accordingly, the AO opined that the assessee is not entitled to claim the depreciation allowance in the year under consideration and accordingly disallowed the aforesaid allowance and added back .....

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nd from that date. However, in making such a conclusion, he ignored the remarks put by the authorized signatory in the same report, which reads as under:- As installation schedule was for 07th March 05 we have lost full 7 days working revenue loss. As there were delay in not hand over of Camera for patient trials. . This remark was not given cognizance. Again, in the same report, it has been written that installation started on 26-02-05 and the date of installation of machine was 14-03-05. We al .....

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for customers and made a remark that no test can be carried out for commercial purpose by accepting fees from customers, with an equipment under trial. Such comment is uncalled for and reveals the biased of the AO in disallowing the claim of depreciation. Considering the facts and circumstances, Ld. CIT(A) deleted the addition made by AO by observing as under:- 2.3 I have carefully considered the observation of the Assessing Officer in the assessment order and also the submission of the Ld. A/R .....

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signed on 05.05.2005 and the warranty for the unit expired on 03.05.2006. Accordingly, the AO did not allow the depreciation on the said unit. The Ld. A/R explained that in the said installation completion and acceptance report, the appellant has made the following remark:- As Installation schedule was for 7th March 05, we have lost full 7 days working Revenue loss. As there were delay in hand over of Camera for patient trials. The Ld. A/R has also explained that as per the said report, the ins .....

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the installation of the unit was completed on 14/03/2005 and it was also put to use during F.Y 2004-05. Accordingly, the AO is directed to allow depreciation on the said unit. This ground of appeal is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 6. Ld. DR before us submitted that as per service report the machine was handed over for its commercial use on 03.03.2005 and besides the warranty of machine began from the same date. Therefore the depreciation sho .....

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hine which is placed on page 7 of the paper book. Ld. AR further submitted the machine was ready to use for commercial production after the aforesaid trial run. He also relied on the order of Ld. CIT(A). 7. We have heard the rival contentions of both the parties and perused the materials available on record. From the aforesaid facts, we find that AO has disallowed the depreciation claimed by assessee on the ground that machine has not been put to use in the year under consideration. However from .....

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nt allowance-User for business-Trial production- Once it is shown that the assessee has put the machinery to use for the purpose of its business, further enquiry about the degree or type of use is not permitted by the language of s. 32-Once the assessee can establish bona fide use of machinery for the purpose of its business, the assessee establishes its right to claim depreciation-As regards investment allowance, s. 32A inter alia, requires that the machinery or plant in question "is wholl .....

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t and again it was decided in favour of assessee. In view of the aforesaid facts and respectfully following the various judicial precedents relied upon hereinabove, we find no infirmity in the order passed by the Ld. CIT(A) in this regard and accordingly, the inter-connected issues raised by Revenue is dismissed. 8. The second issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the disallowance made by Assessing Officer for ₹ 2,89,436/- and ₹ 30,375/- on accou .....

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ct in deleting the disallowance of interest on borrowed capital to the tune of ₹ 2,89,436/- and management fees to the tune of ₹ 30,375/- without considering the statutory provision of Sec. 36(1)(iii) of the IT Act, 1961 wherein it has been clearly mentioned that interest paid on borrowed capital shall not be allowed for any period from the date on which the capital was borrowed for acquiring asset till the date on which such asset was first put to use. The assessee purchased machine .....

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servation of the AO was based on the handing/ taking over report given by the machine supplier. The AO further observed that warranty period of the said machines started with effect from 03.05.2005. On question by the AO for disallowing the aforesaid sum on the ground of not putting the machine into use in the year under consideration, the assessee could not make any satisfactory reply. Accordingly, the AO opined that the assessee is not entitled to claim the interest and management consultation .....

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to use on and from 14.03.2005. The suspicion of the AO that the machines were under trial is unfounded and in contradiction to the documentary evidence in respect of the said installation. The acceptance report and the confirmation on behalf of the seller speaks unequivocally that the machine was in workable condition from 14.3.2005 and under no circumstances, it may be said that it was under trial. This is because of the simple reason that no customer would accept the report from under trial ma .....

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am order and also the submission of the Ld. A/R. At para 2.3, it has been held that the said unit was installed within 14.03.2005 and also put to use during FY 2004-05. Accordingly, the AO is directed to delete the addition on account of 9i) interest of ₹ 2,89,436/- and (ii) management fees of ₹ 330,375/- in respect to the said unit. This ground of appeal is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. Ld. DR before us vehemently supported the .....

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ly, the inter-connected issues raised by Revenue is dismissed. 11. Next issue raised by Revenue in its appeal is that Ld. CIT(A) erred in deleting the addition made by AO for ₹ 5,56,950/- on account of expense incurred on repair and maintenance. For this, Revenue has raised following grounds:- That the CIT(A) had erred in law as well as in fact in deleting the disallowance of claim of the assessee for repair and maintenance to the tune of ₹ 5,56,950/- without considering the fact tha .....

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refore, the AO treated the same as capital expenditure and disallowed the same and added to the total income of the assessee. 13. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT(A) submitted that the repair expense has been incurred on a rental premises and therefore such expense cannot fetch any long term enduring benefit. The moment, assessee will vacate the premise and all the expenses will have no benefit to assessee. The Ld. CIT(A) considering the same .....

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igh Court in the case of CIT vs. J.K. Industries Pvt. Ltd. [1980] 125 ITR 218 (Cal), wherein it has been held that wooden paneling is not an enduring asset. The Ld. A/R has also relied on the decision of the Hon'ble High Court of Delhi in the case of CIT Vs. Hi Line Pins (P) Ltd (2008) 306 ITR 182 wherein it has been held that expenditure on repairs and renovation of rented premises would fall within the expression repairs to the premises as appearing in Section 30(a0(i). Considering the fac .....

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es only. In such circumstances, various courts have decided this issue in favour of assessee. In holding so we find support from the judgment of Hon ble jurisdictional High Court in the case of CIT Vs. Dewar s Garage (I) Pvt. Ltd. 204 ITR 763(Cal). The relevant extract of the judgment is reproduced below. Business expenditure-Capital vis-à-vis revenue expenditure- Expenditure incurred in repair of rented premises to ward off demolition notice-Allowable as revenue expenditure even if large .....

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following grounds:- That the CIT(A) had erred in law as well as in fact in directing to allow the unabsorbed depreciation loss for the AY 1996-97 without considering the fact that the same was supposed to be carried forward for eight years immediately succeeding the AY 3004-05. So the claim to set off loss for A.Y 1996-97 in A.Y 2005-06 was not tenable. The AO did not allow the unabsorbed depreciation pertaining to the AY 1996-97 to be carried forward in the year under consideration on the grou .....

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granted the relief to the assessee by observing as under:- 6.2 I have carefully considered the submission of the Ld A/R. The copies of the appellant s submission and the Additional Ground of Appeal were forwarded to the AO vide letter No. CIT(A)-XXIV/37(3)/A.No.92/12-13/1338 dated 21.12.2012. The AO has informed vide his letter No. ITO/Wd- 8(2)/Kol/2012-13/Appeal/111 dated 04.01.2013 that he would submit a report within 15 days. However, he has not submitted any report till today. In the case of .....

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AY 1996-97 and AY 2004-05 respectively after verifying the correctness of the claims from the returns of income as well as the assessment records in accordance with the provision of Section 32. For statistical purpose, this ground of appeal is allowed. Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 17. Before us both the parties relied on the order of Authorities Below as favourable to them. At the outset, we find that assessee issue of the assessee is covered in fa .....

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verned by Section 32 as amended by Finance Act 2001-Held, Circular No.14 of 2001 clarified that restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with-Unabsorbed depreciation from A.Y.1997-98 can be carried forward and set off against income of A.Y. 2006-07-Assessee s appeal allowed. Any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as .....

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ce Act, 2001 would allow the unabsorbed depreciation allowance available in the A.Y. 1997-98, 1999-2000, 2000-01 and 2001-02 to be carried forward to the succeeding years, and if any unabsorbed depreciation or part thereof could not be set off till the A.Y. 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years. Current depreciation is deductible in the first place from the income of the business to which it relates. If such depreci .....

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