ITAT directs AO to allow 10% depreciation, addresses scrutiny conversion challenge. Reasons for disallowances emphasized.

The ITAT ruled in favor of the Assessee, directing the AO to allow the claimed depreciation at the rate of 10% and addressing the challenge to the conversion of scrutiny from 'Limited Scrutiny' to 'Complete Scrutiny.' The judgment emphasized the necessity of providing reasons for disallowances and adhering to CBDT instructions in scrutiny processes.

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Issues:
1. Disallowance of depreciation claimed on property.
2. Conversion of limited scrutiny to complete scrutiny.

Issue 1: Disallowance of Depreciation Claimed on Property:
The appeal was against the order of the Commissioner of Income Tax (Appeals) relating to the Assessment Year 2015-16. The Assessee, a company engaged in Trading and Investments in Securities, had initially filed a return declaring Nil income. The case was selected for scrutiny, and the assessment resulted in a total income of Rs. 12,69,660. The Assessee appealed the partial relief granted by the CIT(A) and raised grounds against the disallowance of depreciation claimed on property. The Assessee contended that the property was used for business purposes, but the AO disallowed a portion of the depreciation claimed. The CIT(A) upheld the AO's decision. The Assessee argued that the disallowance was unjustified as there was no prior disallowance in preceding or succeeding assessment years. The ITAT held that the AO's restriction of depreciation to 5% without providing reasons was unwarranted. Consequently, the ITAT directed the AO to allow depreciation at the claimed rate of 10%, thereby allowing the Assessee's appeal.

Issue 2: Conversion of Limited Scrutiny to Complete Scrutiny:
The Assessee raised an additional ground challenging the conversion of the case from 'Limited Scrutiny' to 'Complete Scrutiny' as being contrary to CBDT instructions. The Assessee argued that the conversion was not in compliance with Circular No.19 & 20 dated 29.12.2015. The Assessee contended that the conversion was invalid as the potential escapement of income did not exceed the prescribed limits for a metro city like Delhi. The ITAT, following the decision of the Supreme Court in a similar case, allowed the admission of the additional ground. The Assessee's argument was based on the legal nature of the ground. The ITAT found merit in the Assessee's contention and admitted the additional ground. However, since the primary issue regarding the disallowance of depreciation was decided in favor of the Assessee, the additional ground was deemed academic and required no further adjudication. Consequently, the ITAT allowed the Assessee's appeal, addressing both the primary issue of depreciation disallowance and the challenge to the conversion of scrutiny.

In conclusion, the ITAT ruled in favor of the Assessee, directing the AO to allow the claimed depreciation and addressing the challenge to the conversion of scrutiny. The judgment highlighted the importance of providing reasons for disallowances and ensuring compliance with CBDT instructions in scrutiny procedures.

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