Partial Use Of Director's Farmhouse For Business Does Not Bar Depreciation Claim: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 11 March 2026 upheld the deletion of disallowances relating to repair expenses and depreciation claimed on a farmhouse owned by Jagadish Chander Malhotra, Director of Malhotra Cables Pvt. Ltd, after finding that part of the premises was used for business purposes.

A Bench comprising Judicial Member Challa Nagendra Prasad and Accountant Member M. Balaganesh affirmed the findings of the Commissioner of Income Tax (Appeals) [CIT(A)], which had allowed the expenses.

The Bench observed:

“The appellant company has brought on record contemporaneous evidences proving that the appellant was using the farm house for the purposes of business, which has not been satisfactorily rebutted by the assessing officer.”

These appeals arose from a search and seizure operation on 12 December 2022 at the company's business and residential premises, part of a larger investigation involving alleged unaccounted income of over Rs. 152 crores from bogus purchases and scrap sales. While the decision explicitly addresses AY 2022-23, its reasoning applies equally to AYs 2020-21, 2021-22, and 2023-24, as the facts were identical.

For Assessment Year 2022-23, the company had claimed a total deduction of Rs. 1,27,19,318, comprising Rs. 98,51,007 towards repair expenses and Rs. 28,68,311 towards depreciation on the director's farmhouse. The Assessing Officer (AO) had disallowed the claim, treating the expenditure as personal in nature.

Subsequently, the CIT(A) stage, deleted the disallowances, after examining evidence that a portion of the farmhouse was used for business under a Memorandum of Understanding (MoU) dated 1 April 2020, and that the Director, an elderly person with limited mobility due to health reasons, required part of the premises for work purposes.

The Revenue challenged the CIT(A)'s deletion of these disallowances before the ITAT, relying on the AO's original findings and arguing that the expenses were personal and not connected to the business.

The ITAT rejected the challenge, noting that the Revenue had failed to provide evidence to rebut the “contemporaneous evidences,” including the MoU and the Director's statements, which demonstrated that part of the farmhouse was used for business purposes.

Accordingly, the ITAT dismissed the Revenue's challenge, upholding the CIT(A)'s deletion of disallowances for the farmhouse expenses.