Arcserve India Software Solutions Pvt. Ltd. challenged the disallowance of depreciation claims made for the assessment year 2015-16, alleging improper denial by ACIT, Circle-3(1), New Delhi.
The company filed an appeal against the order dated April 8, 2019, by the Commissioner of Income Tax (Appeals)-32, which denied depreciation claims on certain assets. The final tribunal order was pronounced on June 27, 2022.
Arcserve India argued that the assets acquired were essential for setting up their operations and thus eligible for depreciation. However, the tax authorities noted that the assets were not put to use within the fiscal year, as the company was still in the setup phase without operational employees.
During the tribunal hearing on June 9, 2022, the company did not appear, leading to an ex-parte decision. The assessing officer had initially observed that some assets were invoiced in the name of an associated enterprise in the USA and some invoices were dated post the fiscal year-end.
The tribunal agreed with the lower authorities that the business was not operational during the fiscal year as the assets were acquired towards the end of the year and no employees were transferred until after the fiscal year-end. Consequently, it was held that the depreciation claim was premature as the assets were not in use.
The Tribunal upheld the Commissioner’s decision, affirming that the depreciation claim was rightfully disallowed due to the lack of proof that the assets were put to use in the relevant assessment year. This case highlights the importance of aligning asset utilization with operational readiness to qualify for tax deductions such as depreciation.
The appeal by Arcserve India was dismissed, reinforcing the principle that tax benefits are contingent upon the demonstrable use of assets in the business operations within the relevant fiscal period.
Arcserve India Software Solutions Pvt. Ltd. vs. ACIT: ITA 5244/DEL/2019 Depreciation Claim Dismissal
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