Depreciation Claim Denied for Residential Office

The Tribunal upheld the disallowance of depreciation claimed on office premises used solely for residential purposes, rejecting the appeal due to lack of evidence supporting business use. Additionally, the Tribunal confirmed the penalty imposed under section 271(1)(c) for furnishing inaccurate particulars of income related to the depreciation claim, emphasizing the absence of authorized residential use by the director. Both appeals were dismissed, with the order pronounced on October 27, 2010.

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Issues Involved:

1. Disallowance of Depreciation on Office Premises
2. Confirmation of Levy of Penalty u/s 271(1)(c)

Summary:

1. Disallowance of Depreciation on Office Premises:

The assessee claimed depreciation on Flat No.104, 10th Floor, Somerset House, Mumbai, asserting it was used for business purposes. However, a survey u/s 133A revealed the premises were used solely as a residence. Statements from Mrs. Anju Bang, Director, and other company officials confirmed no business activities or storage of business documents occurred at the premises. The AO concluded the premises were never used for business, rejecting the depreciation claim. The CIT(A) upheld this decision, noting the lack of evidence supporting business use and distinguishing the case from precedents cited by the assessee. The Tribunal confirmed the disallowance, emphasizing the absence of a company resolution authorizing the director's residential use of the premises and the lack of perquisite value being taxed in the director's hands.

2. Confirmation of Levy of Penalty u/s 271(1)(c):

The assessee's claim for depreciation on the premises was disallowed based on the survey findings. Penalty proceedings u/s 271(1)(c) were initiated, and the AO imposed a penalty of Rs. 8,03,285/-, deeming the depreciation claim a false claim. The CIT(A) confirmed the penalty, stating the assessee furnished inaccurate particulars of income. The Tribunal upheld the penalty, noting the assessee's withdrawal of the depreciation claim only after being cornered and the lack of evidence showing authorized residential use by the director. The Tribunal referenced the Supreme Court's decision in Dharmendra Textile Processors vs. CIT, affirming that concealment need not be willful for penalty imposition, and the Explanation to section 271(1)(c) applied.

Conclusion:

Both appeals were dismissed, with the Tribunal confirming the disallowance of depreciation and the levy of penalty u/s 271(1)(c). The order was pronounced in the open Court on October 27, 2010.

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