Expenditure claim allowed in assessment proceedings can not be disallowed/restricted u/s 154 – ITAT

Expenditure allowed in assessment proceedings can not be restricted/disallowed in rectification proceedings u/s 154 which has a limited scope – ITAT

ABCAUS Case Law Citation:
971 2016 (07) ITAT
Assessment Year: 2003-04 to 2007-08
Date/Month of Judgment: July, 2016

Brief Facts of the Case:
The assessee filed returns of income and assessments were completed in the respective assessment years u/s. 143(3) r.w.s. 147. Subsequently, the AO noticed that depreciation on certain items like false ceiling, elevation float glass and electrical fittings was allowed at 100% as against 10% or 15% allowable and accordingly he issued notice u/s 154. There was no response from the assessee and accordingly AO by order u/s 154, restricted the excess depreciation allowed.

Before the CIT(A), the assessee contended that the depreciation was correctly claimed, the same was allowed in the order u/s. 143(3) r.w.s. 147 and also pointed out that the assessment was reopened for the purpose of verification of depreciation claims and accordingly the AO after due verification, allowed the claims at 100%. Therefore, rectification u/s 154 by the subsequent proceedings is not correct in law.

Assessee also relied on the decision of the Hon’ble Apex Court in the case of CIT Vs. Madras Auto Services (P) Ltd., [233 ITR 468] (SC) in claiming expenditure at 100% on the property, leased by assessee on the additions made to the leased property. Ld. CIT(A) however, did not agree with assessee’s contentions and upheld the action of the AO. 

Aggrieved, the assessee approached the Tribunal in the present appeal.

Before the Tribunal, the assessee submitted  that the assessment itself was reopened for the purpose of verifying the claim of depreciation and referred to the explanation given while claiming the depreciation at 100%. He also referred to the proceedings u/s 143(3) for AY. 2005-06 wherein explanation was made to the AO about the rate of depreciation. It was specifically stated that the depreciation for the current year at Rs. 23,800/- was claimed at 100% which represents ‘electrical fittings which were of no enduring value and moreover, our premises is a leased premises’.

Observations by ITAT:
The Tribunal noted that the claim(s) of depreciation were examined in a scrutiny proceedings and were allowed by the AO, on being satisfied that the claim of 100% is allowable. There was no mistake apparent from record. Also the building was taken on lease and assessee has incurred certain expenditure towards false ceiling, float glass and electrical fittings, which were of not enduring nature.

The assessments in AYs. 2003-04 & 2004-05 had been reopened to verify the correctness of depreciation claimed also and the orders u/s 143(3) r.w.s. 147 were completed by the AO after an explanation from assessee and allowed the depreciation at 100%  even in AY. 2005- 06 as extracted above, there is a detailed explanation with reference to claim of 100% depreciation on the electrical fittings. Even alternately, the expenditure could also be considered as ‘revenue expenditure’ which is also allowable at 100%.

Having allowed the expenditure after due verification of the nature of expenditure in the assessment proceedings in the impugned assessment years, it was not correct on the part of the successor officer to restrict the same in the proceedings u/s 154, which has a limited scope.

The action of the AO in modifying the orders which are passed u/s. 143(3) on an issue which was not apparent mistake, could not be upheld.