2023 (6) TMI 1114 - AT - Income Tax

Tribunal dismisses denial of asset depreciation & liability addition under IT Act; remits deduction computation issue.

The Tribunal dismissed the denial of depreciation on fixed assets and the addition of liability written off under section 28(iv) of the IT Act. The issue ... Depreciation claimed in respect of fixed assets denied - onus of establishing that the assets were put to use for the purpose of business - HELD THAT:- CIT(Appeals) has rightly disallowed the depreciation on the assets by observing that the assessee was unable to prove that the assets were used for business purpose with cogent evidence. AR relied on many case laws which are distinguishable on the facts of the present case. Decided against assessee. Liability written off - whether liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(i)(B) and not under section 28(iv)? - HELD THAT:- In case of Commissioner v. Mahindra & Mahindra Ltd [2018 (5) TMI 358 - SUPREME COURT] had observed that the assessee had received a loan, a part of which was later on waived off. Under the circumstances, the Supreme Court held that the assessee had received cash or money and as such the same was not covered by section 28(iv) of the Income Tax Act. But in the case on hand, the assessee had purchased assets and created liability and later on it found that the assets were not suitable for the business and the assets were returned to the vendor. Therefore the case law relied on by the ld. AR of Mahindra & Mahindra Ltd. [2018 (5) TMI 358 - SUPREME COURT] is distinguishable on facts of the case on hand. CIT(A) has passed a good and reasoned order and find no reason to interfere with his order. Accordingly the grounds of the assessee are rejected. Computation of revised profits as per the section 10A if disallowance of the depreciation on assets and liability written off is upheld - HELD THAT:- Since we have upheld the order of the CIT(A) treating the disallowance made as business income and the issue has not been examined in the light of section 10A, therefore considering the documents submitted by the assessee, remit this issue to the AO for examination in light of section 10A of the Act and decision in accordance with law, after providing opportunity of being heard to the assessee. The assessee is directed not to seek unnecessary adjournments and cooperate in early disposal of the case. This ground is allowed for statistical purposes. Issues Involved:1. Denial of depreciation on fixed assets.2. Addition of liability written off under section 28(iv) of the IT Act.3. Computation of deduction under section 10A of the IT Act.Summary:Issue 1: Denial of Depreciation on Fixed AssetsThe assessee claimed depreciation of Rs. 2,22,06,388 on fixed assets, which was disallowed by the Assessing Officer (AO) due to the assessee's failure to produce all invoices and evidence of ownership and usage of the assets. The CIT(A) upheld the AO's decision, emphasizing that the onus was on the assessee to prove the assets were put to use for business purposes. The Tribunal agreed with the CIT(A), citing that the audit report alone was insufficient to establish the usage of assets and that the assessee failed to provide necessary evidence, such as installation dates or usage logs.Issue 2: Addition of Liability Written OffThe AO added Rs. 10,62,493 to the income, treating it as a capital receipt arising from the extinguishment of liability. The CIT(A) enhanced this addition by Rs. 15,41,161, totaling Rs. 26,03,654, under section 28(iv) of the IT Act. The CIT(A) reasoned that the assessee had claimed depreciation on the liability in earlier years, and upon its extinguishment, the benefit should be taxed. The Tribunal upheld this decision, distinguishing it from the Supreme Court's ruling in Mahindra & Mahindra Ltd., where a loan waiver was treated differently.Issue 3: Computation of Deduction under Section 10AThe assessee argued that if the depreciation disallowance and liability addition were upheld, the revised profits should be considered for deduction under section 10A. The Tribunal noted that this issue was not raised before the CIT(A) and remitted it to the AO for examination in light of section 10A, directing the AO to consider the relevant documents and provide an opportunity for the assessee to be heard.ConclusionThe Tribunal dismissed the grounds related to the denial of depreciation and the addition of liability written off, while remitting the issue of computation of deduction under section 10A back to the AO for further examination. The appeal was partly allowed for statistical purposes.