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August 29, 2023

Depreciation under Section 32 is ineligible in the absence of any commercial activity

Depreciation under Section 32 is ineligible in the absence of any commercial activity

Fact and issue of the case

This appeal in ITA No.6523/Del/2017 for AY 2013-14 arises out of the order of the Commissioner of Income-tax (Appeals)-31, New Delhi [hereinafter referred to as the ‘ld. CIT(A)] in Appeal No.75/2016-17/185/16-17 dated 12.07.2017 against the order of passed by the ld. Assessing Officer, Central Circle-28, New Delhi (hereinafter referred to as ‘ld. AO’) passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.03.2016.

The assessee has raised the following grounds of appeal:-

That the assessment order passed u/s 143(3) of the I.T. Act, 1961 on 31/03/2016 and upheld by the Ld. CIT(A) on 12.07.2017 are perverse to the law and to the facts of the case because of not following proper law and procedure while completing the assessment proceedings.

That the assessing officer has grossly erred in law and to the facts of the case in making lump-sum addition of Rs. 12.26.467/- being commission income in the hands of the appellant at the rate of 0.60% merely on the basis of his presumption and guess work, without the support of any material either collected or placed upon records, which the Ld. CIT(A) has failed to appreciate while adjudicating the appeal.

That the addition made of Rs. 12,25,467/- were only on the basis o f presumption and guess work of the assessing officer because the provision o f law contained u/s 145 has never been invoked besides this the assessing officer has farther failed to appreciate, that on the identical facts the declared income have already been accepted as correct in the preceding year, and in the subsequent years also.

That the order passed is unconstitutional, having no locus standi under law as the assessing officer has charged commission on lump-sum basis @ 0.60% on the entire transactions appearing as credited in the bank of the appellant company for Rs. 20,42,44,469/-.

That the Ld. AO has grossly erred on facts of the case as even after accepting profits as per books of account he presumed that the appellant company is in the business of providing accommodation entries without the support of any material either collected or ever placed upon records.

That no proper and reasonable opportunity, if any was ever afforded by the assessing officer and by the Ld. CIT(A) prior proceeded to complete the assessment proceedings and to adjudicate the appeal arbitrarily capriciously and in a whimsical manner thereby making illegal and impugned additions in the declared income of the appellant.

That the addition of Rs. 4,03,213/- made on the basis of interest income appearing in the Form 26AS of the appellant company is also perverse to the law and to the facts of the case as not tenable, because of posting as forming part of the Other Receipts appearing in the Profit & Loss A/c in the books o f accounts of the appellant company.

That the order passed by the Ld. CIT(A) were further not justified under the law and to the facts of the case, because the remand report which has been considered on the back of the appellant while adjudicating the appea l has never confronted / provided copy thereof to the appellant for its rebuttal thereof, prior to adjudication the appeal.

That the addition for the excess of depreciation of Rs.13.740/- as alleged by the Assessing Officer was also not legal under the law and to the facts of the case.

That charging of interest under Section 234B and initiating penalty proceedings u/’s 271(l)(c) are further wrong as against the law and to the facts of the case as such the same my please be deleted because of being consequential to the illegal addition made and relief claimed there from.

That the appellant company assails their right to amend, alter, change any grounds of appeal or take any further ground at any time even during the course of hearing of this instant appeal. PRAYER: It is, therefore, prayed that:

That the illegal and impugned addition made in the declared income o f Rs. 16,42,420/-, may please be deleted / quashed.

That the interest charged u/s 234B and penalty proceedings initiated u/s 271 (l)(c) of the Act, may also be waived being consequential to the illegal and impugned additions made and relief claimed therefrom.

Any other relief which this Hon’ble Court may please be deemed fit and proper on the facts and in the circumstances of the case. It is prayed accordingly. ”

Observation of the court

We find that in the ground No.9, the assessee had raised an issue challenging the disallowance of excess depreciation on Rs.13,740/- made by the ld. AO. In this regard, we find that since the ld. AO had disbelieved the existence of any business being carried on by the assessee, accordingly had proceeded to disallow the depreciation claimed by the assessee in the sum of Rs.13,740/-. This issue was not even agitated by the assessee before the ld. CIT(A). But, this issue is agitated before us vide ground No.9. We have already held that the assessee is not carrying on any business. Accordingly, it would not be entitled for depreciation u/s 32 of the Act. In any case, this issue does not arise out of the impugned order of the ld. CIT(A) before us. Hence, ground No.9 raised by the assessee is dismissed.

We find that the assessee had disclosed a sum of Rs.1,48,380/- as returned income under the head ‘Income from business.’ Since we have already held that no business is carried on by the assessee and it has been merely providing accommodation entries to various parties to earn commission income thereon, thus, business income of Rs.1,48,380/- voluntarily offered to tax by the assessee should not be brought to tax. Hence, we hold that this sum of Rs.1,48,380/- is available to the assessee for telescoping benefit and the same would be telescoped with the aforesaid additions confirmed hereinabove. The ld. AO is hereby directed to give credit of Rs 1,48,380/- while determining the income of the assessee.

The ground No.10 raised by the assessee is regarding chargeability of interest u/s 234B which is consequential in nature and does not require any specific adjudication. Further, initiation of penalty proceedings u/s 271(1)(c) of the Act is also being agitated by the assessee, which would be premature for adjudication at this stage and, hence, dismissed.

Grounds No.1 and 11 raised by the assessee are general in nature and does not require any specific adjudication

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 26.07.2023.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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