Appellate Tribunal: No Depreciation on Assets Transferred via Journal Entries

The Appellate Tribunal upheld the decision against the appellant-firm, ruling that depreciation cannot be claimed on assets owned by another taxpayer and transferred through unilateral journal entries. The judgment was pronounced on 29-08-2012.

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Issues involved: Appeal against the order of CIT(A)-34, Mumbai regarding addition of depreciation on assets introduced by a partner of the firm and non-compliance with apex court tests for allowance of depreciation.

Issue 1: Addition of depreciation on assets introduced by a partner of the firm
The assessee firm, engaged in the business of beauty parlour, declared a loss in its Return of Income. The Assessing Officer (AO) disallowed the claim of depreciation amounting to Rs. 27,727 as the fixed assets were not in the name of the assessee-firm but in the name of a proprietary concern of a partner. The First Appellate Authority upheld this decision, stating that since the assets were not in the name of the assessee-firm, it was not entitled to depreciation. The Appellate Tribunal concurred, emphasizing that ownership of assets cannot be transferred between tax entities through unilateral journal entries. The Tribunal rejected the appeal, highlighting that the assets were not introduced as capital contribution by the partner to the firm, and allowing depreciation in such cases would contradict basic provisions of depreciation laws.

Issue 2: Non-compliance with apex court tests for allowance of depreciation
During the proceedings, the Authorized Representative argued that certain bills mentioned a different entity's name but were accounted for in the books of the assessee-firm. However, the Departmental Representative contended that assets were purchased by the proprietary concern and could not be transferred through journal entries to another entity for depreciation purposes. The Tribunal agreed with the AO and FAA, emphasizing that depreciation cannot be claimed on assets owned by a different taxpayer, even if possession was transferred between entities. The appeal was dismissed, stating that allowing depreciation in such cases would set a dangerous precedent contrary to depreciation laws.

In conclusion, the Appellate Tribunal upheld the decision against the appellant-firm, emphasizing that depreciation cannot be claimed on assets owned by another taxpayer and transferred through unilateral journal entries. The judgment was pronounced on 29-08-2012.

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