The assessee is in the software management consulting business as well as futures and options trading (F&O). A total income of Rs.1.23 crore was declared in a tax return. During the assessment processes, the assessee claimed Rs. 2,08,761 in depreciation on new additions. Depreciation on such additions was denied by the AO because the assessee failed to provide confirmation of the purchase of additional fixed assets.
The assessee provided the essential data of additions to fixed assets during the initial appellate process. The ld. CIT(A) requested the AO’s remand report. A gift of a Swift automobile worth Rs.3,06,059 from his brother was one of the additions to the fixed assets. The former CIT(A) declined to allow depreciation on the grounds that there was no ‘actual cost’ because the car was given to the assessee as a gift, and hence no depreciation could be permitted because the assessee had not spent any money on it.
The word ‘actual cost’ in regard to assets is defined in Section 43(1). Explanation 2 to section 43(1) indicates that where an asset is gifted to the assessee, the actual cost of the asset to the assessee is the prior owner’s actual cost, less the amount of depreciation actually allowed. The tribunal decided that the authorities below were not justified in disallowing depreciation on fixed assets to the extent of Rs. 45,909 due to the obvious mandate of Explanation 2 to section 43(1). To this degree, the contested order was overturned.
Regarding the other issue, the assessee had claimed profit on the sale and purchase of shares in the sum of Rs. 34,62,194 as ‘Business income,’ which he had claimed as a short-term capital gain. The tribunal held that the ld. CIT(A) was justified in treating income from share trading as ‘Business income’ because the assessee had treated the income from the purchase and sale of shares as ‘Business income’ in the immediately preceding and subsequent assessment years and nothing had been shown, except their depiction in the balance sheet as Investment, as to how the shares were held. As a result, this ground of appeal was unsuccessful. As a result, the appeal was partially granted.