Once ITO Accepted Income Earned Which Is Totally Based Upon Depreciation Plus 15% Markup, There Is No Reason To Deny Cost: Delhi ITAT
Pankaj Bajpai
15 March 2024 3:30 PM IST
Finding that the assessee had arrangement with its AE for billing cost plus 15%, which has been duly billed during the year and entire depreciation cost plus 15% has been billed to the AE, the New Delhi ITAT allowed the depreciation claimed by assessee.The Bench of Shamim Yahya (Accountant Member) and Challa Nagendra Prasad (Judicial Member) observed that “When the Revenue is accepting...
Finding that the assessee had arrangement with its AE for billing cost plus 15%, which has been duly billed during the year and entire depreciation cost plus 15% has been billed to the AE, the New Delhi ITAT allowed the depreciation claimed by assessee.
The Bench of Shamim Yahya (Accountant Member) and Challa Nagendra Prasad (Judicial Member) observed that “When the Revenue is accepting the revenue earned which is totally based upon depreciation plus 15% markup, there is no reason to deny the cost”. (Para 8)
As per the brief facts of the case, the assessee company had filed its ITR and the case was selected for scrutiny under the reason 'Depreciation claimed at higher rates/higher addition depreciation claimed'. During assessment proceedings, assessee was asked to give the details and evidence of procurement of assets during the year on which depreciation has been claimed. The AO noted that certain bills were in the name of Associated Enterprise of USA and certain bills were dated after 31.03.2015. AO observed that assessee was in the phase of setting up of its business and had not claimed any expense for employee cost and hence the assets could not have been 'put to use'. He also observed that some of the fixed asset's bills were not in the name of assessee and some of the bills pertained to next assessment year. Accordingly, the AO disallowed the claim of depreciation, holding that since the assets were not 'put to use' the claim of depreciation for arriving at book profit under the Company Law was not also allowable.
The Bench found that the only issue involved is disallowance of depreciation as the assets which were held by the assessee were not 'put to use' as per authorities.
The Bench noted that the first objection of the authorities is that ownership of the assets and bills were in different names.
In this regard, the Bench referred to the submission of the counsel that assets were procured through Arcserve USA due to the company's initial setup phase, and ownership of assets invoiced to Arcserve USA was transferred to the assessee via interoffice memos.
As regards the incorrect invoice, the Bench found that the same was rectified after the fiscal year end but the assets were in use and payments were made during the current assessment year.
“Assessee stated that there was a business transfer agreement for purchase of running business of 'CA India Technologies Pvt. Ltd.' which was to take place from 26.02.2015 but due to some technical reason the record date of acquisition was extended to 31.05.2015. Furthermore, as regards the objection that no employee cost is there, assessee's submission in this regard is that operations commenced with directors and assistance from Arcserve USA and CA Technologies employees, negating additional manpower costs”, added the Bench.
Counsel for Appellant/ Taxpayer: Rohit Tiwari
Counsel for Respondent/ Revenue: Kanv Bali
Case Title: Arcserve India Software Solution Pvt. Ltd. verses ACIT
Case Number: ITA No.5244/Del/2019
