ITAT Delhi Permits Depreciation Claims on Composite Cost of Leasehold Office Premises

The ITAT Delhi evaluated a tax dispute concerning whether depreciation could be claimed on the composite cost incurred for leasehold office premises. The tribunal ruled in favor of the taxpayer, establishing that composite costs associated with preparing leasehold commercial spaces for business operations qualify for depreciation deductions under the Income Tax Act. This ensures that capital investments made by tenants on leased properties are appropriately recognized for tax relief. Under standard tax principles, depreciation applies to capital assets owned and used for business purposes, creating historical ambiguity for leasehold improvements where the underlying land or building belongs to a lessor.

Previously, tax authorities often contested depreciation claims on leasehold premises by separating structural and non-structural components or questioning absolute ownership. The ITAT Delhi clarification confirms that composite expenditure contributing to the operational utility of leasehold office premises is eligible for standard depreciation allowances. Tax practitioners and corporate accountants should review their clients' fixed asset schedules to identify eligible composite costs on leasehold properties.

Professionals should ensure that documentation clearly details all expenses included in the leasehold office setup to substantiate depreciation claims during assessments. Bottom line: Properly document composite leasehold office costs to optimize depreciation deductions and withstand tax scrutiny.