The Visakhapatnam Bench of Income Tax Appellate Tribunal (ITAT)restored the order of the Assessing Officer (AO) by disallowing the depreciation claim of ₹2,66,81,164 due to the lack of evidence for the installation of machinery.
The Revenue-appellant appealed against the order dated 24.04.2019 passed by CIT(A) for the assessment year 2012-13. In this case, Mithra Kyokuto Special Purpose Vehicles Company Pvt Ltd.,respondent-assessee,engaged in manufacturing tippers and concrete mixtures, filed its income tax return on November 30, 2012, reporting a loss of ₹3,12,52,199. The return was processed under section 143(1), and the case was later selected for scrutiny.
Notices under sections 143(2) and 142(1) were issued, and after a change in the assessing officer, a fresh hearing was scheduled. The assessee’s representative appeared and submitted the required details.
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During the assessment, the AO noted that depreciation of ₹18,98,740 was claimed under the Companies Act and ₹2,66,81,164 under the Income Tax Act. However, there was no evidence that business operations had commenced or that the assets were used during the relevant year. As a result, the AO disallowed the depreciation claim of ₹2,66,81,164 and 20% of expenses amounting to ₹4,73,467.
The assessee appealed before the Commissioner of Income Tax(Appeals)[CIT(A)] against the order. After reviewing the submissions and relevant case laws, the CIT(A) allowed the appeal. The revenue appealed before the tribunal.
Read More: AO Disallows Depreciation over Alleged Double Deduction: ITAT directs Taxpayer to Produce Documents
The tribunal reviewed the records and heard both sides. The assessee claimed the business was set up during the assessment year but had not started production due to no orders. The CIT(A) relied on inauguration expenses to conclude that the machinery was ready for use.
The two member bench K.Narasimha Chary(Judicial Member) and S.Balakrishnan(Accountant Member) noted that while raw material costs were recorded under capital work-in-progress, they were not allocated to fixed assets, showing that the machinery was not put to use.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The assessee also failed to provide an installation certificate. It held that inauguration expenses alone did not prove the business was set up and that the assessee could not be considered a passive user of assets.
Since there was no evidence of machinery installation, the tribunal disallowed the depreciation claim, allowed the revenue’s appeal, and restored the AO’s order.
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