Depreciation disallowed on inflated cost of capital assets

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ‘B’, NEW DELHI

The Relevant Text of the Order as follows :

Thus, facts and circumstances of the cases relied upon by the assessee being distinguishable, the ratio of those decisions cannot be applied in the case of the assessee. In the facts of the case the preponderance of the probability suggests that raising of bogus bills by the subcontractors to the contactors and then routing back of the money in the form of the cash definitely must have been done on the direction of the assessee as assessee is the ultimate beneficiary by way of excess deduction of depreciation on the capital asset in the form of building.

In view of the facts and circumstances discussed above, in principle we hold that the assessee is not entitled for the depreciation on the inflated portion of the cost of capital asset shown by the assessee as incurred through two contractors, namely, OSN and JDMS.

Depreciation disallowed on inflated cost of capital assets

As far as the quantum of depreciation is concerned, we find that while computing the cumulative inflated expenses in the the case of JDMS, the learned CIT(A) has missed the undisclosed income of Rs.10 crore declared by the JDMS for financial year 2010-11 and the net capital work-in-progress has been shown that Rs.111,16,58,703/- instead of Rs.101,16,58,703/-. Similarly, in the case of OSN also the undisclosed income declared by the said party in respect of building constructed for the assessee has not taken into account for reducing the capital cost of the building. The AO was required to examine relevant bills of the two contractors, where the value of construction work has been inflated. As the quantum of depreciation to be disallowed on the account of inflation of capital asset of building has not been computed correctly by the lower authorities, we feel it appropriate to restore this issue of computation of disallowance of depreciation in the case of the assessee to the file of the Assessing Officer for deciding in view of our observation made above. It is needless to mention that assessee shall be afforded adequate opportunity of being heard.

6.9 The ground of the appeal of the Revenue is accordingly allowed party for statistical purposes.

ITA Nos.545/Del/2016 & 193/Del/2017
Assessment years: 2013-14 & 2014-15

7. Now we take up the appeal of the assessee having ITA No. 545/Del/2016 and ITA No. 1931/Del/2017 for assessment year 2013-14 and 2014-15 respectively. Identical grounds have been raised in both these appeals except the change of the amount, which in assessment year 2013-14 is ₹ 1,89,47,963/- and in assessment year 2014-15 is ₹ 1,70,53,166/-. The ground of the appeal for assessment year 2013-14 is reproduced as under:

1. The of the learned CIT(A) is not correct in law and on facts.
2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in law in deleting the addition of Rs.1,89,47,963/- made by the Assessing Officer on account of excessive depreciation.
3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”

8. The learned CIT(A) in assessment year 2013-14 deleted the disallowance of depreciation in view of his finding in assessment year 2012-13 observing as under :

“4.2.2 This matter emanate from the disallowances in the immediately preceding assessment year wherein the AO had, based on his observation that the contractors, M/s Jubiliant Developers & Management Services Pvt. Ltd. (JDMS) and M/s OSN Infrastructure & Projects Pvt. Ltd. (OIPPL), had disclosed certain expenses on account of the contract work of construction awarded to them by the appellant, held that the appellant has inflated cost of capital assets through booking of inflated bills raised by these contractors and had worked out the excess invoices against work done by the contractors vis-a-vis the capitalization of asset by the appellant after considering the expenses on contract allegedly inflated by the contractors, and had disallowed commensurate depreciation. After detailed discussion in the appellate order dated 07.10.2015 in Appeal No.81/14-15 in the case of the same assessee for AY 2012-13 I have held that there is no case of excess capitalization and therefore the depreciation disallowed by the AO was deleted. The disallowance of depreciation in this year has been made by the AO by adopting the WDB as on 31.03.2012 as per his findings in the assessment order for AY 2012-13 which stands modified by my above order dated 07.10.2015, and therefore there is no case for disallowance on account of depreciation on the alleged excess capitalized assets. The addition of Rs. 1,89,47,963/- is therefore deleted.”

9. As the issue in dispute in both the years under consideration is dependent on the outcome of assessment year 2012-13, which we have restored to the Assessing Officer for deciding the quantum of the depreciation, we feel it appropriate to restore the grounds raised in assessment years 2013-14 and 2014-15 for deciding the quantum of the depreciation on the basis of the written down value of the capital asset of the building determined for assessment year 2012-13. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground of appeal is accordingly allowed partly for statistical purposes.

10. In the result, all the three appeals of the Revenue are allowed partly for statistical purposes.

Order is pronounced in the open court on 29th November, 2019.

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Tags : Judgement, Appellant Tribunal, Income Tax