TaxTMI 
TaxTMI 
2020 (12) TMI 442
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....ng to INR 5,756,005 (including additional depreciation) relating to assets capitalized during the subject AY. The Appellant had capitalized amounts of INR 16,445,731, which were payment made to directors as an incentive for providing consultation/professional services with regard to purchase and installation of fixed assets during the subject AY 2014-15. 2.2 Further, the learned CIT(A) has erred in not appreciating the fact that out of the aforesaid amounts capitalized, an amount of JNR 10,853,698 was claimed as expenditure and debited to profit and loss account of the Company during the AY 2013-14, however the same has been disallowed in AY 2013-14 under section 43B of the Act and the same has not been claimed as a deduction at the time of actual payment during the subject AY. Given the same, the claim of depreciation on the aforesaid amount shall not tantamount to double deduction. 2.3 Notwithstanding the above, the learned CIT(A) erred in not allowing the entire amount paid to the directors as revenue expenditure in the nature of professional fees, for which TDS was also deducted under section 194I of the Act. 3. Disallowance of depreciation on assets purchased in AY 2013-....
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.... sides and considered material on record, we find that although the reasons given by the assessee is not sufficient enough to condone the delay in filing the appeal, but considering the delay of 24 days in filing the appeal, the delay in filing the appeal is condoned to advance substantial justice and the appeal of the assessee is admitted for hearing. 4. The brief facts of the case are that the assessee company is engaged in the business of marketing and manufacturing of pharmaceutical finished dosage formulations, filed its return of income for the assessment year 2014-15 on 30.11.2014 declaring 'Nil' total income. The case was selected for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has capitalized an amount of Rs. 60,52,126/- and Rs. 1,03,93,605/- as pre-operative expenses relating to acquisition of asset. The AO called upon the assessee to justify the claim of depreciation on expenses capitalized. In response, the assessee submitted that the amounts capitalized under pre-operative expenses represents payments made to the Directors of the company towards rendering services in connection with installation of plant and machi....
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....was not able to prove beyond reasonable doubt that the Directors of the company had requisite qualification to render services in relation to installation of plant and machinery and there is no evidence to prove that they have rendered services for installation of plant and machinery to warrant such huge payments. The ld. CIT(A) further noted that although the assessee has debited incentives paid to Directors in the previous financial years relevant to the assessment year 13-14, but for the reasons best known to them, this part of expenditure has been disallowed and added back to total income u/s. 43B of the Act while filing the return of income. During the year, the assessee has paid the amount by deducting TDS and capitalized to plant and machinery and also claimed depreciation, without establishing the fact that how an expenditure was revenue in nature in the previous financial year suddenly becomes capital in nature for the purpose of claiming depreciation. Therefore, he was of the opinion that the claim of the assessee that it has paid incentive for installation of plant and machinery to Directors cannot be accepted and accordingly the claim of depreciation on said amount is n....
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.... in the assessment year 2013-14 and for the reasons best known to them they have not claimed the same as an expenditure probably as the amounts were not paid by them and the Directors would not have offered the amount as their income in the earlier year. During the year, the appellant have paid the amount by deducting TDS u/s. 194J as professional fees and capitalized the payment so made. It is also not clear as to how the incentive was worked out and what was the total cost of the machinery installed on which such capitalization was made. The case laws relied on would only show that the expenses incurred for installation of machineries are to be capitalized. In this case, the appellant was not able to prove beyond reasonable doubt that the directors of the company had requisite qualification and in fact rendered services for installation of the machinery to warrant such huge payments and that too as incentive and not towards consultation charges for erection of the machinery. In view of the above ambiguity in the submissions of the appellant, Its claim that it paid incentive for installation of machinery to its Directors cannot be accepted and consequently no depreciation can be a....
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....to purchase and installation of fixed assets is part of the asset as envisaged u/s. 43(1) of the Act and hence the assessee has rightly claimed depreciation on such amount. The ld. AR further submitted that the ld. CIT(A) has erred in not appreciating the fact that out of the total amounts capitalized, the amount of Rs. 1,08,53,698/- was claimed as expenditure and debited to P&L account for the assessment year 2013-14, but the same has been disallowed u/s. 43B of the Act in the statement of total income. Since, the assessee has not claimed deduction towards said expenditure, the same can be added back to the cost of the assets, because it is related to purchase and installation of plant and machinery. The AR further submitted that the ld. CIT(A) has erred in disallowing depreciation on plant and machinery acquired in financial year 2012-13 but put to use in financial year 2013-14 without appreciating the fact that as per Section 32 of the Act, depreciation can be availed only when the asset is put to actual use. Since the assessee has put to use the particular asset in the impugned assessment year, it has rightly claimed depreciation on the said asset. The ld. AR further submitted ....
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....ut in order to claim the benefit of depreciation, the assessee shall prove beyond doubt that particular expenditure is incurred in connection with acquisition/installation of said asset. In this case, the facts brought out by the lower authorities which clearly indicate that the assessee has failed to justify the genuineness of expenditure with necessary evidence. Although the assessee claimed that it has deducted tax at source u/s. 194J of the Act on such expenditure while making payment, but mere making a TDS on said payment does not automatically prove the genuineness of expenditure. Further, the assessee itself has claimed said expenditure as revenue in nature in the previous financial year and debited to pre-operative expenses. But, during the current financial year, it has changed its stand and capitalized to said plant and machinery as part of cost of asset. Therefore, we are of the considered view there is no clarity in the accounting terms given by the assessee in so far as particular expenditure is concerned because it has given differential treatment for different financial years. Hence, we are of the considered view that the issue needs to be re-examined by the AO in th....