ITAT rules on depreciation for leased furniture, upholding standard deduction and partial disallowance of expenses.

The ITAT ruled in favor of the Revenue regarding the disallowance of depreciation on furniture and fixtures leased out under 'Income from House Property', overturning the Ld. CIT(A)'s decision. The ITAT reinstated the AO's order, emphasizing that claiming standard deduction for the leased property, including furniture and fixtures, precluded further depreciation. However, the ITAT upheld the Ld. CIT(A)'s decision on the proportionate disallowance of expenses related to leased property, resulting in a partial allowance of the Revenue's appeal.

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Issues:
1. Disallowance of depreciation on furniture and fixtures offered under 'Income from House Property'.
2. Proportionate disallowance of expenses relating to leased property claimed against business income.

Analysis:

Issue 1: Disallowance of Depreciation on Furniture and Fixtures
The Revenue contested the Ld. CIT(A)'s decision to delete the disallowance of depreciation amounting to Rs. 1,38,922 on furniture and fixtures leased out by the assessee under 'Income from House Property'. The AO disallowed the claim as the assessee had already offered the rental income under the same head and claimed standard deduction under section 24 of the Income Tax Act. The Ld. CIT(A) allowed the depreciation, noting that the lease agreement did not specify separate rent for furniture and fixtures, and they were part of the leased units. The ITAT held that since the assessee claimed standard deduction for the leased property, including furniture and fixtures, further depreciation was not permissible. Consequently, the decision of the Ld. CIT(A) was overturned, and the AO's order was reinstated in favor of the Revenue.

Issue 2: Proportionate Disallowance of Expenses
The Revenue challenged the Ld. CIT(A)'s deletion of the disallowance of Rs. 39,38,460 out of total expenses of Rs. 2,19,36,152 related to leased property. The AO calculated a proportionate disallowance of expenses attributable to leasing activity, considering the assessee's business of leasing and selling flats. However, the Ld. CIT(A) observed that the assessee maintained separate accounts for maintenance charges and other expenses related to leased flats, which were not debited to the profit and loss account. The ITAT upheld the Ld. CIT(A)'s decision, emphasizing that the assessee had already segregated maintenance expenses from common expenses, and there was no basis for further disallowance. Therefore, the ITAT affirmed the Ld. CIT(A)'s order on this issue, resulting in a partial allowance of the Revenue's appeal.

In conclusion, the ITAT's judgment favored the Revenue on the disallowance of depreciation on furniture and fixtures, while upholding the Ld. CIT(A)'s decision on the proportionate disallowance of expenses related to leased property.

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