The Income Tax Appellate Tribunal (ITAT) observed that the claim of 50 % depreciation on a sample flat used for less than 180 days is allowable and deleted the disallowance. It was found that the revenue has not disputed the fact that the sample flat is a temporary structure and no contrary findings being brought on record.
Shri Niraj Sheth appeared for the appellant and Shri Samuel Pitta appeared for the respondent.
M/s Macrotech Developers Limited, the respondent assessee is engaged in the business of real estate, construction and development. For the year under consideration, the assessee filed the return of income declaring total income of Rs.62,08,53,170/- and book profit under section 115JB of Rs.45,42,04,660/-.
Subsequently, the return was revised on 29/03/2018 declaring Nil income after setting off all brought forward losses of Rs.21,37,37,597/-. The case was selected for scrutiny under CASS and the notices were duly served on the assessee. The revised return is filed due to the merger of M/s Suryakripa Constructions Ltd with effect from 01.04.2015 vide order dated 24.04.2017 of the National Company Law Tribunal (NCLT).
During the assessment, the AO noticed that the assessee has claimed depreciation on the building by applying the rate of 100% and claimed 50% of depreciation at Rs. 1,85,92,541/-. The AO called on the assessee to furnish details of why depreciation is claimed by applying a depreciation rate of 100%. The assessee further submitted that the sample flat is purely a temporary structure created at sight to show to the customer when the building is under construction and the same would be demolished subsequently in the year 2020.
Therefore the assessee had applied a depreciation rate of 100%. The assessee also made an alternate claim before the AO that since the expenses incurred towards the sample flat are for business the same should be allowed as a deduction under section 37(1). The AO held that since the gestation period of the project is four years from its inception as per the submissions of the assessee the depreciation on the overall cost incurred towards the sample structure should be claimed over four years. The AO accordingly allowed depreciation at 25%.
The CIT(A) held that the issue of allowance of depreciation should be considered and decided in the first year itself. If depreciation is allowed for the first year action in subsequent years concerning depreciation becomes consequential. Therefore, the CIT(A) held that in the assessee’s case since the depreciation is allowed in the first year i.e. AY 2015-16 at 50% of the depreciation, the AO should not have disturbed the allowance in the subsequent year i.e. 2016-17.
Since during the immediately preceding year the asset was used for less than 180 days the assessee claimed 50% of the depreciation which was duly allowed. Therefore, the appellant submitted that the CIT(A) has correctly allowed the claim by observing that the issue of allowance of depreciation should be considered and decided in the first year itself and cannot be disturbed in the subsequent years.
A two-member bench comprising Shri Kuldip Singh (Judicial Member) and Ms Padmavathy S (Accountant Member) observed that the revenue has not disputed the fact that the sample flat is a temporary structure and no contrary findings being brought on record. The ITAT held that the assessee’s claim of 50% of the cost of construction for the year under consideration is allowed. The disallowance made in this regard was deleted.
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