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TMI Blog2021 (12) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of assets/articles installed in the Guest House without appreciating the fact that these assets/articles installed in the Guest House are integral part of the Guest House Building and therefore eligible for depreciation at the rated fixed for Guest House Building. 3. The Hon'ble ITAT is requested to cancel the order of the learned CIT(A)-3, Coimbatore and uphold the order of the Assessing Officer. 4. The Hon'ble ITAT is requested leave to add, amend or modify the grounds of appeal, if necessary, in future." 3. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of egg powder, poultry farm, poultry cattle feeds and trading in branded eggs, filed its return of income for the assessment year 2011-12 on 30.09.2011, admitting total loss of Rs. 17,00,21,018/- The assessment has been completed u/s.143(3) of the Income Tax Act, 1961 (hereinafter the 'Act') on 25.03.2015, determining total loss at Rs. 13,83,67,749/- by making additions towards disallowance of prior period expenses amounting to Rs. 2,26,09,204/- and disallowance of depreciation on guest house building including plant & machinery, etc., at Rs. 13,70,165/-. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that it is in the nature of prior period expenses and does not pertain to accounting period and hence, cannot be allowed as deduction. The AO has discussed the issue at length in light of Accounting Standard-5, issued by the ICAI for treatment of prior period items in the books of accounts of assessee and observed that when the assessee is having knowledge of particular expenses, he ought to have provided the same in the books of accounts of the assessee, when it was following mercantile system of accounting. Therefore, he opined that only prior period items which occurs as a result of errors and omissions in preparation of financial statements of one or more years is allowed as deduction, whereas adjustment necessitated by circumstances, which though related to prior periods, are determined in the current period is not allowed as deduction. Since, the expenditure provided in the books of accounts towards reimbursement of certain expenses to subsidiary company is not occurred on account of errors or omissions, but for failure of the assessee to make provisions in the books of accounts of the assessee and hence, disallowed the claim of the assessee. 6. The ld.DR submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursing transportation and storage expenses of goods to the final destination point. It is also not in dispute that there is a dispute between the assessee and its subsidiary company for reimbursement of expenses. The said dispute was resolved during the impugned assessment year and thus, the assessee has made provision for reimbursement of expenses to its subsidiary for earlier financial years 2007-08 to 2009-10. The AO has denied deduction only on the ground that said expenditure pertains to earlier financial years and further it is in the nature of prior period expenses. The AO has given various reasons to disallow reimbursement of expenses to subsidiary. We have gone through the reasons given by the AO in light of various arguments of the assessee and we ourselves do not subscribe to the reasons given by the AO, for the simple reason that when a particular expenditure is incurred wholly and exclusively for the purpose of business, the same needs to be allowed as deduction, irrespective of the fact that said expenditure pertains to earlier financial year or current financial year. The only point that needs to be considered is whether particular expenditure is accrued or crysta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of CIT(A) and reject ground taken by the Revenue. 9. The next issue that came up for our consideration from Ground No.2 of Revenue appeal is disallowance of depreciation on guest house. 10. The assessee has claimed depreciation @ 10% on guest house, which is applicable to factory and office buildings. The assessee had also claimed depreciation @ 15% on plant & machinery, kitchen equipments and electrical fittings. The 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. On appeal, the ld.CIT(A) has restricted depreciation on building to 5% by holding that the AO was erred in restricting depreciation on other assets installed in guest house, which are eligible for higher depreciation of 15% by applying the functional test when specific categorization is made in Appendix-I to Rule 5 of Income Tax Rules, 1962. 11. The ld.DR submitted that the ld.CIT(A) has erred in directing the AO to allow depreciation at higher rates in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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