TMI Blog2021 (12) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in branded eggs, filed its return of income for the assessment year 2011-12 on 30.09.2011, admitting total loss of ₹ 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 ₹ 13,83,67,749/- by making additions towards disallowance of prior period expenses amounting to ₹ 2,26,09,204/- and disallowance of depreciation on guest house building including plant machinery, etc., at ₹ 13,70,165/-. The assessee carried the matter in appeal before the first appellate authority. 4. The ld.CIT(A) for the reasons stated in his appellate order dated 27.10.2016 deleted addition made by the AO towards disallowance of prior period expenses, however partly allowed addition made towards disallowance of depreciation by restricting depreciation on guest house building at 5%, but allowed 15% depreciation on other assets like plant machinery, kitchen equipment, etc. Aggrieved by the CIT(A) order, the Revenue is in appeal before us. 5. The first issue that came up for our consideration from Ground No.1 of Revenue appeal is deletion of disallowance of prior period expenses. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 submitted that the ld.CIT(A) has erred in deleting disallowance of prior period expenses relating to the subsidiary without appreciating the fact that the assessee company was well aware about the expenses and could have booked it regularly as and when it accrued on the basis of agreement with the subsidiary company regarding reimbursement of those expenses. The ld.DR referring to the decision of Hon ble Delhi High Court in the case of Delhi Tourism T.D.C. Ltd., vs. CIT, [2006] 285 ITR 114 submitted that the assessee has failed to account certain expenditure in the books of accounts, even though it was known to the assessee, then the claim of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary. 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 crystallized during the financial year or not. The payment of expenditure is not relevant. In this case, the claim of the assessee that although expenditure pertains to earlier financial years, because of certain dispute regarding reimbursement of expenses, the same was not provided in the books of accounts of the assessee. We find merit in the arguments of the assessee for the simple reason that any expenditure is deductible as and when it accrued to the assessee irrespective of the fact whether it was paid or not. In this case, the assessee has filed necessary evidences to prove that the expenditure was accrued and crystallized during the current financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation 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 respect of assets / articles installed in guest house without appreciating the fact that these assets / articles installed in the guest house are integral part of guest house building and therefore eligible for depreciation at the rate applicable for guest house building. 12. The ld.AR for the assessee, on the other hand strongly supporting order of the ld.CIT(A) submitted that Income Tax Act provides for different rate of depreciation for different assets on the basis of their functionality and hence clubbing of assets into buildings and restricting depreciation to the rate applicable to building is incorrect. 13. We have heard both the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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