TMI Blog2020 (12) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... of the claim of the assessee that said expenditure is part of cost of capital asset which is incurred in connection with acquisition/installation of plant and machinery. In case, it is part of acquisition of asset, then the AO is directed to verify and allow depreciation as per law. Disallowance of depreciation of fixed asset acquired during financial year 2012-13 and put to use during financial year 2013-14, according to AO - the assessee has acquired asset during financial year 2012-13 and claimed depreciation during financial year 2013-14. No doubt, there is no bar under the Act to claim depreciation on any asset which was acquired in earlier financial year, but the only point needs to be examined is when the particular asset is installed and put to use in the premises of the assessee. It was the claim of the assessee before the lower authorities that although the asset was acquired in financial year 2012-13 but the same was put to use on 01.01.2014 relevant to assessment year 2014-15. If the claim of the assessee is correct then the assessee is entitled for depreciation on particular asset from the date the said asset is put to use in the business of the assessee. But fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the learned CIT(A) erred in not allowing the entire amount paid to the directors as revenue expenditure in the nature of professional fees, for which TDS was also deducted under section 194I of the Act. 3. Disallowance of depreciation on assets purchased in AY 2013-14 but put to use in AY 2014-15 '3.1. The learned CIT(A) erred in disallowing depreciation on plant and machinery acquired in AY 2013-14, but put to use in AY 2014-15. The CIT(A) ought to have appreciated that the depreciation under section 32 of the Act can be availed only when the asset is put to actual use, i.e. when the plant and machinery was set up and operational. 4. Excess disallowance of depreciation 4.1. The learned CIT(A) ought to have disallowed only 50 per cent of the depreciation relating to the aforesaid assets amounting to INR 3,417,965, as only this amount of depreciation was claimed by the Appellant, as the assets were put to use for a period less than 180 days. 5. Others The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act without appreciating that there was no failure on the part of the Appellant in complying with notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called upon the assessee to justify the claim of depreciation on expenses capitalized. In response, the assessee submitted that the amounts capitalized under pre-operative expenses represents payments made to the Directors of the company towards rendering services in connection with installation of plant and machinery. The assessee further submitted that out of the total expenses, a sum of ₹ 54,26,849/- was disallowed u/s. 43B of the Income Tax Act, 1961 (hereinafter 'the Act') for the assessment year 2013-14. Since, the said sum was not allowed as revenue expenditure, the assessee has capitalized it and claimed depreciation. The AO was not convinced with the explanation furnished by the assessee and according to him, expenditure incurred towards installation charges paid to Directors is in the nature of revenue expenditure on which depreciation cannot be allowed. Accordingly, disallowed depreciation claim on said expenditure. The AO further noted that the assessee has also capitalized sum of ₹ 30,85,500/- towards purchase of plant and machinery, but such plant and machinery, was purchased on 14.12.2012. Since, the asset was acquired in earlier financial year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in the previous financial year suddenly becomes capital in nature for the purpose of claiming depreciation. Therefore, he was of the opinion that the claim of the assessee that it has paid incentive for installation of plant and machinery to Directors cannot be accepted and accordingly the claim of depreciation on said amount is not in accordance with law. As regards to disallowance on depreciation on ₹ 30,85,500/-, the CIT(A) noted that the assessee was not able to demonstrate the nature of asset purchased and justify the time of about one year taken to install such machinery. The assessee also not given any details of the transaction as to how the said asset acquired in December 2012 was dealt in the books of accounts in the earlier financial year. Therefore the CIT(A) opined that there is no error in the findings of the ld. AO to disallow depreciation on said plant and machinery. The ld. CIT(A) also dealt with alternative plea of the assessee and held that since the claim of the assessee that assets were installed only in the second half of the year would not supported by any documentary evidence, there is no mistake in the finding recorded by the AO to disallow 100% d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the machinery to warrant such huge payments and that too as incentive and not towards consultation charges for erection of the machinery. In view of the above ambiguity in the submissions of the appellant, Its claim that it paid incentive for installation of machinery to its Directors cannot be accepted and consequently no depreciation can be allowed on such fees though capitalized by the appellant in its books. I therefore the grounds of the appeal and hold that the appellant is not entitled to depreciation on the amount of ₹ 1,64,45,731/- capitalized. Depreciation claimed on assets capitalized amounting to ₹ 30,85,500 4.5. As regards the disallowance of depreciation on ₹ 30,85,500/-, the ARs submission that though the asset was acquired in the earlier previous year they were installed in the second half of the previous year relevant to the assessment year 2014-15 and therefore it is entitled to depreciation Is not supported by any documentary evidence. The appellant was not able to demonstrate the nature of asset purchased and justify the time of about one year taken to install such machinery purchased etc. The appellant has not also given any deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired in financial year 2012-13 but put to use in financial year 2013-14 without appreciating the fact that as per Section 32 of the Act, depreciation can be availed only when the asset is put to actual use. Since the assessee has put to use the particular asset in the impugned assessment year, it has rightly claimed depreciation on the said asset. The ld. AR further submitted that without prejudice to the argument that the assessee has entitled for depreciation on full amount atleast, the ld. CIT(A) should have appreciated the fact the assessee has claimed only 50% of the depreciation relating to the aforesaid asset because the said asset was put to use for a period less than 180 days. 8. The ld. DR on the other hand strongly supporting the order of the CIT(A) submitted that the authorities below has brought out clear facts in light of various evidences filed by the assessee and came to the conclusion that the assessee has failed to file necessary evidences to prove genuineness of payments made to Directors in order to claim the benefit of depreciation as part of cost of asset. Therefore, there is no reason to take a different view unless the assessee has demonstrated with evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... italized to said plant and machinery as part of cost of asset. Therefore, we are of the considered view there is no clarity in the accounting terms given by the assessee in so far as particular expenditure is concerned because it has given differential treatment for different financial years. Hence, we are of the considered view that the issue needs to be re-examined by the AO in the light of the claim of the assessee that said expenditure is part of cost of capital asset which is incurred in connection with acquisition/installation of plant and machinery. In case, it is part of acquisition of asset, then the AO is directed to verify and allow depreciation as per law. 10. As regards disallowance of depreciation of fixed asset acquired during financial year 2012-13 and put to use during financial year 2013-14, according to AO, the assessee has acquired asset during financial year 2012-13 and claimed depreciation during financial year 2013-14. No doubt, there is no bar under the Act to claim depreciation on any asset which was acquired in earlier financial year, but the only point needs to be examined is when the particular asset is installed and put to use in the premises of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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