2022 (2) TMI 432 - AT - Income Tax

Appellant's Claim for 100% Depreciation Allowed After Tribunal Reconsiders Evidence

M/s VBHDC Value Homes Pvt. Ltd. Versus The Additional Commissioner of Income Tax, Range-12 Bangalore

M/s VBHDC Value Homes Pvt. Ltd. Versus The Additional Commissioner of Income Tax, Range-12 Bangalore - TMI Issues:1. Eligibility of expenditure for deduction related to construction of temporary structure.2. Determination of the nature of expenditure as capital or revenue.3. Allowance of depreciation at 10% for temporary structures with a life span of less than 3 years.Issue 1: Eligibility of Expenditure for DeductionThe appellant challenged the CIT(A)'s decision disallowing the expenditure of Rs. 1,57,99,757 for the construction of temporary structures, arguing that the structures were temporary in nature and thus entitled to 100% depreciation. The Assessing Officer (A.O.) disallowed the excess depreciation claimed, stating that the assets were not purely temporary as per IT Rules since they were used for three to four years. The CIT(A) upheld this view, considering the structures to have an enduring benefit and not meeting the criteria for temporary structures under the Income Tax Rules.Issue 2: Nature of Expenditure - Capital or RevenueThe CIT(A) noted that the appellant's financials mentioned that temporary structures were depreciated over the life of the project, which was 3 to 4 years. The CIT(A) observed that the structures had enduring benefits and value, even though they were dismantled after the project completion, and thus, the expenditure resulted in an asset of enduring nature. The CIT(A) referred to the Income Tax Rules, stating that depreciation at 100% was allowed for temporary erections like wooden structures, emphasizing that the expenditure incurred by the appellant did not qualify as temporary under the rules.Issue 3: Allowance of 10% DepreciationThe appellant contended that allowing depreciation at 10% for structures with a lifespan of less than 3 years was not in accordance with the law. The Tribunal admitted additional evidence, a certificate from the Architect stating that the structures were temporary and demolished after project completion. The Tribunal directed the A.O. to reconsider whether the expenditure should be treated as revenue expenditure or qualify for 100% depreciation for temporary structures. The appeal was allowed for statistical purposes, emphasizing the need for fresh examination by the A.O. based on the additional evidence presented.This detailed analysis of the judgment highlights the key issues raised, the arguments presented by the parties, and the Tribunal's decision to admit additional evidence for a fresh examination by the Assessing Officer.