Addition sustained for claiming accumulated depreciation in Profit and Loss Account

Addition sustained for claiming accumulated depreciation in Profit and Loss Account instead of current year’s depreciation

ABCAUS Neutral Case Law Citation:
ABCAUS 3689 (2023) (03) ITAT

Important Case Laws relied upon by parties:

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming  addition made by the Assessing Officer (AO) on  account of difference in depreciation claimed.

The appellant assessee was in the business of developing residential, commercial properties etc. The case was selected for scrutiny under CASS. In the course of the scrutiny assessment for the relevant Assessment Year the Assessing Officer observed that while determining the taxable income, the assessee had added back a lesser amount being depreciation under the Companies Act instead of depreciation debited to the Profit and Loss account. 

Accordingly, the AO disallowed the difference in the depreciation claimed in the Profit and Loss account and added back in the computation of income.

Before the CIT(A), the assessee stated that there was a clerical mistake in claiming excess depreciation. It was stated that actual amount to be debited to the profit and loss account was only current years depreciation being the difference of the opening and closing balance of accumulated depreciation. It was submitted that the correctness of the balancesheet was not disturbed as the total expenditure claimed remained the same.

However, the CIT(A) observed that the AO had rightly made the disallowance and dismissed the appeal.

Before the ITAT, the assessee stated that accounts of a real  estate  company are inter alia governed by the Guidance Note issued by Institute of  Chartered Accountant of India. In tune with Guidance Note,  income has been determined as per separate computation sheet which calculated the income and expenditure and carried to  profit and loss account every year. The income has been determined as per the said Guidance Note and correct taxable  income  has been offered in the return of income.

However, the Tribunal noted that the assessee while computing the taxable income had taken ‘profit before tax’ as per its ‘profit and loss account’ as a starting point and reduced the depreciation only to the extent of current years depreciation as per Companies Act instead of accumulated depreciation claimed as deduction in the P&L Account.

The Tribunal opined that if the version of the assessee for claim of   current  year  depreciation is accepted then by the same token, ‘profit before’ tax will stand increased by the differential to the same extent.

Accordingly, the Tribunal dismissed the appeal of the assessee.

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• No disallowance u/s 43B if expenditure not claimed in Profit and Loss Account
• Assessee developing infrastructure facility of Govt. not contractor for denying 80IA deduction
• Jurisdictional PCIT/CIT to condone delay in filing Form No. 10A for Registration u/s 12A
• AO not justified in making addition by adopting extrapolation without any material evidence
• Court can not sit over comparative financial attractiveness of rival offers decided by CoC