Depreciation allowed on assets despite invoices in associate's name when ownership properly transferred and assets in use

The ITAT Delhi ruled in favor of the assessee regarding disallowance of depreciation on assets. Revenue authorities had disallowed depreciation claiming assets were not put to use, citing invoices in associate company's name and some dated in next financial year. The tribunal found that asset ownership was properly transferred via inter-office memos, assets were actually in use with payments made during assessment year, and business transfer agreement delays were due to technical reasons. Crucially, since revenue authorities accepted income based on depreciation plus 15% markup billed to associated enterprise, they could not deny the corresponding depreciation cost.

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Issues: Disallowance of depreciation for assets not put to use.

In this case, the appellant, an assessee, challenged the disallowance of depreciation amounting to Rs. 88,58,662 made by the Assessing Officer (AO) for the assessment year 2015-16. The AO disallowed the depreciation on the grounds that certain bills were in the name of an associated enterprise of the USA and some were dated after 31.03.2015, indicating that the assets were not put to use. The AO also noted that the appellant was in the process of setting up its business and had not claimed any employee expenses, implying that the assets could not have been utilized. The AO disallowed the claim of depreciation for Plant and Machinery, furniture & fittings, and building. The Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that the assets were not put to use during the year due to the absence of employees and lack of ownership establishment. The appellant argued that assets were procured through a subsidiary of its parent company, ownership was transferred via inter-office memos, and corrected invoices were issued post-fiscal year-end. The appellant contended that operations had commenced with assistance from other entities, revenue was based on depreciation costs plus markup, and depreciation should be allowed. The Tribunal agreed with the appellant, stating that the authorities erred in disallowing depreciation. The appellant's appeal was allowed, and they were entitled to claim the depreciation amount.

In summary, the key issue in this case was the disallowance of depreciation for assets that were allegedly not put to use by the appellant. The AO and CIT (A) based their decision on ownership discrepancies, lack of employee costs, and assets not being utilized. However, the appellant argued that assets were in use, ownership was transferred, and revenue was generated based on depreciation costs. The Tribunal found in favor of the appellant, allowing the depreciation claim and overturning the previous decisions.

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