Tribunal allows appeals on depreciation & prior period expenses for verification by Assessing Officer

The appeal for the assessment year 2006-07 regarding the disallowance of depreciation was allowed for statistical purposes by the Tribunal. The issue was remanded back to the Assessing Officer for verification of the assessee's claim regarding RBI's permission to resume business. Similarly, the appeal for the assessment year 2007-08 concerning the disallowance of prior period expenses was also allowed for statistical purposes. The Tribunal directed the Assessing Officer to further verify the claim that the liability for Customs and Excise Duty arose and was paid in the relevant year.

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Issues Involved:
1. Disallowance of depreciation for A.Y. 2006-07.
2. Disallowance of prior period expenses for A.Y. 2007-08.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation for A.Y. 2006-07:

The assessee, engaged in software development and consultancy, filed a return declaring a loss after claiming depreciation of Rs. 48,71,812/-. The A.O. disallowed this claim, arguing that the business was not operational during the year due to the withdrawal of permission by RBI, thus making the depreciation claim invalid. The assessee cited case laws to support its claim, but the A.O. found them inapplicable as the business stoppage was due to RBI's withdrawal of permission.

On appeal, the CIT(A) upheld the A.O.'s decision, stating that the assessee could not prove the continuity of business or provide evidence that the machinery on which depreciation was claimed was carried forward from previous years. The Tribunal, upon hearing both sides, noted that the assessee provided a letter from RBI dated 23-02-2006, granting permission to resume business. The Tribunal admitted this additional evidence and remanded the issue back to the A.O. for verification of the assessee's claim regarding the RBI's permission and to decide the depreciation claim in accordance with the law. Thus, the appeal for A.Y. 2006-07 was allowed for statistical purposes.

2. Disallowance of Prior Period Expenses for A.Y. 2007-08:

The assessee claimed a deduction of Rs. 29,65,122/- for prior period expenses, mainly comprising Customs and Excise Duty paid during the year. The A.O. disallowed this claim, stating that no provision for this payment was made in earlier years and thus could not be claimed under section 43B on a payment basis.

On appeal, the CIT(A) upheld the A.O.'s decision, noting that the liability for Customs and Excise Duty related to earlier years and the expenditure did not pertain to the assessment year in question. The Tribunal, after considering the submissions and evidence, noted that the demand for Customs and Excise Duty was raised during the year under consideration as a result of the debonding process initiated earlier. The Tribunal found that this important submission and the relevant documentary evidence were not adequately considered by the CIT(A). Therefore, the Tribunal remanded the issue back to the A.O. for verification of the assessee's claim that the liability arose and was paid in the year under consideration. Consequently, the appeal for A.Y. 2007-08 was also allowed for statistical purposes.

Conclusion:

Both appeals of the assessee were treated as allowed for statistical purposes, with directions for further verification by the A.O. on the respective issues of depreciation and prior period expenses.

Order pronounced in the open court on 14th August, 2013.

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