Depreciation claim allowed for business use, disallowance remitted for fresh consideration

The Tribunal allowed the depreciation claim for the assessment years 2010-11 and 2011-12 as the building was found to be used for business purposes. However, for the assessment year 2012-13, where the income was declared under house property, the appeal was dismissed. The disallowance under Section 14A read with Rule 8D was remitted back to the AO for fresh consideration, requiring the assessee to provide supporting documentation. The appeals were partly allowed for statistical purposes.

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Issues Involved:
1. Depreciation on letting out of building for business purposes.
2. Disallowance made under Section 14A read with Rule 8D of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Depreciation on Letting Out of Building for Business Purposes:

Facts:
The assessee declared income from letting out property as income from business for the assessment years 2010-11 and 2011-12, and under the head income from house property for the assessment year 2012-13. The Assessing Officer (AO) disallowed depreciation on the building, stating it was not used for business purposes, based on an inspection report indicating that 75% of the building was vacant and the rest was rented out.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, noting that the building was not being used for business purposes and directed the AO to disallow the total depreciation claim, assessing the building space as income from house property.

Tribunal's Decision:
The Tribunal referred to a previous order in the assessee’s own case (ITA No.99/Coch/2016), which allowed depreciation on the building since it was found to be used for business purposes, including staff occupation and training. The Tribunal directed the AO to assess the income from letting out the building under the head income from business and grant depreciation for the assessment years 2010-11 and 2011-12. However, for the assessment year 2012-13, since the assessee itself declared the income under the head house property, the Tribunal dismissed the appeal, allowing only the deduction under Section 24 of the I.T. Act.

2. Disallowance Made Under Section 14A Read with Rule 8D of the Income Tax Act:

Facts:
The assessee made investments in equity shares totaling Rs. 13.82 crores, which were treated as exempt income bearing investments. The AO applied Rule 8D read with Section 14A, disallowing expenses related to these investments, arguing that interest-bearing funds were used for these investments.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, noting that the assessee failed to provide bank account details to prove that interest-bearing funds were not used for the investments.

Tribunal's Decision:
The Tribunal noted the assessee's claim of having sufficient interest-free funds to make the investments. However, it found that the assessee did not establish the availability of enough own funds at the time of making the investments before the lower authorities. The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to produce cash flow statements and supporting documents to demonstrate the availability of interest-free funds at the time of investment.

Conclusion:
The appeals for the assessment years 2010-11 and 2011-12 were allowed concerning the depreciation issue, while the appeal for the assessment year 2012-13 was dismissed. The disallowance under Section 14A read with Rule 8D was remitted back to the AO for fresh consideration, with directions to the assessee to provide necessary documentation. The appeals were partly allowed for statistical purposes.

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