Vikas Gupta, New Delhi V. ACIT, New Delhi

ITA 2332/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6802 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TIWARI
• Keywords: Depreciation; Search and seizure; Principle of natural justice; Cost of acquisition
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SH. N. K. SAINI, AM AND MS. SUCHITRA KAMBLE , JM ITA NO. 2332/DEL/2015 : ASSTT. YEAR: 2010 - 11 VIKAS GUPTA, 4, FRIENDS COLONY WEST, NEW DELHI - 110065 VS ACIT, CIRCLE - 24(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A APG3152D ITA NO. 6550/DEL/2016 : ASSTT. YEAR: 2012 - 13 VIKAS GUPTA, 4, FRIENDS COLONY WEST , NEW DELHI - 110065 VS A CIT, CIRCLE - 2 8 (1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAA PG3152D ASSESSEE BY : MS. ROLI CHAUBEY, CA REVENUE BY : SH. K. TIWARI, SR. DR DATE OF HEARING : 31 . 0 5 .201 8 DATE OF PRONOUN CEMENT: 12 . 07 .201 8 ORDER PER N. K. SAINI, AM: THE APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 IS DIRECTED AGAINST THE ORDER DATED 02.01.2015 OF LD. CIT - 11, NEW DELHI WHILE THE APPEAL FOR THE ASSESSMENT YEAR 2012 - 13 IS DIREC TED AGAINST THE ORDER DATED 28.10.2016 OF LD. CIT(A) - 10, NEW DELHI. 2. SINCE, THE APPEALS RELATE TO THE SAME ASSESSEE HAVING COMMON ISSUES WERE HEARD TOGETHER, SO, THESE ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 2 3 . IN ITA NO. 2332//DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOWING AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS - 11) HAS ERRED IN CONFIRMING THE SAME T HE FOLLOWING ON BASELESS ASSUMPTIONS AND REASONING WHICH HAVE NO GROUND AND WITHOUT PAYING ANY HEED TO THE FACTS, CIRCUMSTANCES, PREVAILING IN THE CASE OF THE ASSESSEE AND WITHOUT CONSIDERING THE INFORMATION/DOCUMENTS PRODUCED BEFORE HIM. BASED ON THE FAC TS AND CIRCUMSTANCES OF THE CASE AND ON THE CIRCUMSTANTIAL EVIDENCE THROWN UP BY THE DOCUMENTS PRODUCED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER HAS ERRED IN DISALLOWING AND THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS - 11) HAS ERRED IN CONFIRMING THE FOLLOWING EXPENSES: - A. DISALLOWANCE OF RS. 19,30,819/ - BEING DEPRECIATION CLAIMED. B. DISALLOWANCE OF RS. 3,95,568/ - BEING INTEREST PAID ON LOAN. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE INFORMATION AND DOCUMENTS PRODUCED BY THE ASSESSEE, THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS - 11) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 23,26,387/ - AS IN DOING SO, THEY HAVE ALSO GO NE AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND THE GENERALLY ACCEPTED PRACTICE ADOPTED IN ACCOUNTING OF EXPENDITURE OF SUCH NATURE. 3. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS - 11) HAS ERRE D IN CONFIRMING THESE DISALLOWANCES AS THEY HAVE DONE SO ON THE BASIS OF AN INCORRECT INTERPRETATION OF THE PROVISIONS OF THE ACT AND HAS COMPLETELY IGNORED THE INTENT OF THE LAW. 4. THAT THE LEARNED CI T (APPEALS - 11) HAS ERRED IN UPHOLDING THE DISALLOWAN CES MADE BY THE LEARNED ASSESSING OFFICER BY RELYING ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 3 ON CASE LAWS WHOSE FACTS ARE COMPLETELY DIFFERENT FROM THOSE EXISTING IN THE CASE OF THE ASSESSEE. 5. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AND THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS - 11) HAS ERRED IN CONFIRMING THESE DISALLOWANCES AS THEY HAVE DONE SO THEY HAVE NOT CONSIDERED THE EXIGENCIES OF BUSINESS. BASED ON THE ABOVE, IT IS PRAYED THAT THE DISALLOWANCES MADE IN THE CASE OF THE ASSESSEE BE DELETED BY THIS HON'BLE BENCH ON T HE GROUNDS OF NATURAL JUSTICE AND FOR REASON OF THE SAME BEING UNJUSTIFIED IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND OF THE INTENTION OF LAW. 4. THE FIRST ISSUE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF RS.19,30,890/ - MADE BY THE AO ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE. 5 . FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE E - FILED THE RETURN OF INCOME ON 20.09.2010 DECLARING AN INCOME OF RS.1,37,48,930/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS THE ACT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD SHOWN ADDITION OF RS.3,89,07,750/ - IN THE LAND & BUILDING AND CLAIMED THE DEPRECIATION ON TH E TOTAL AMOUNT WHICH INCLUDED THE VALUE OF LAND ALSO. THE AO ASKED THE ASSESSEE TO EXPLAIN AS UNDER: I ) IT IS SEEN FROM THE SCHEDULE OF FIXED ASSETS THAT YOU HAVE PURCHASED A BUILDING (C - 140 & 141) AND RS. 3,83,25,000 / - + RS.5,82,7 50/ - (TOTAL - RS. 3,89,07 ,750/ - HAS BEEN ADDED UNDER THIS HEAD, ON WHICH DEPRECIAT ION AMOUNTING TO RS.38,61,638/ - HAS BEEN CLAIMED. IN THIS CONNECTI ON, YOU ARE REQUIRED TO EXPLAIN : ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 4 A) THE PROPERTY WAS PURCHASED FOR RS. 3.65 CRORES AS PER SALE DEED. PLEASE SUBMIT EVIDENCE IN RESPE CT OF THE BALANCE AMOUNT OF RS. 24,07,7 50/ - . B) IT IS FURTHER SEEN FROM THE COP Y OF AGREEMENT TO SELL THAT THE BUILDING PURCHASED BY YOU CONSISTED THE COST OF LAND OF 2000 SQ. MTRS. THUS, THE PURCHASE COST INCLUDES THE COST OF LAND, WHICH IS SUBSTANTIAL I N THESE DEALS AND OFTEN MORE THAN THE VALUE OF BUILDING. YOU HAVE NOT SEGREGATED THE COST OF LAND FROM THE PURCHASE COST IN YOUR BALANCE SHEET AND HAVE TAKEN DEPRECIATION THEREON ALSO. YOUR KIND ATTENTION IS DRAWN TO THE FACT THAT NO DEPRECIATION IS ALLOWE D ON LAND. ACCORDINGLY, YOU ARE REQUESTED TO EXPLAIN WHY THE DEPRECIATION CLAIMED AT RS. 38,61,638/ - MAY NOT BE DISALLOWED BY 50% BEING COST OF LAND.' 6. IN RESPONSE TO THE ABOVE, THE ASSESSEE SUBMITTED THAT THE PAYMENT MADE WAS A COMPOSITE PRICE AND THER E WAS NO SEGREGATION BETWEEN LAND AND BUILDING. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS USING THE BUILDING AND NOT THE LAND, THEREFORE, PAID FOR A BUILDING. IT WAS FURTHER SUBMITTED THAT ALL THE LAND IN NOIDA WERE LEASEHOLD FOR A FIXED PERIOD . IT WAS S TATED THAT THE NOIDA AUTHORITIES IS THE LESSOR AND ALL THOSE WHO TAKE LAND INCLUDING THE ASSESSEE ARE LESSEES. HOWEVER, THE AO WAS NOT SATISFIED FROM THE REPLY OF THE ASSESSEE AND HELD THAT THE DEPRECIATION WAS ALLOWABLE ONLY ON BUILDING AND NOT ON LAND. H E, THEREFORE, DISALLOWED 50% OF THE DEPRECIATION TREATING THE SAME AS PERTAINING TO THE COST OF LAND. 7. THE ANOTHER ISSUE IN THIS APPEAL RELATES TO THE DISALLOWANCE OF RS.3,95,568/ - BEING INTEREST PAID ON THE LOAN. THE AO NOTICED ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 5 THAT THE ASSESSEE HAD DE BITED FOLLOWING EXPENSES ON ACCOUNT OF INTEREST PAID: I) NEOTEX VINIMAY PRIVATE LIMITED RS.96,534/ - II) PARAMJYOTI TRADERS PVT. LTD. RS.2,60,420/ - III) M /S TOPSTAR MARKETING PVT. LTD. RS.38,614/ - TOTAL RS.3,95,568/ - 8. THE AO WAS O F THE VIEW THAT LOANS WERE TAKEN BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY , THOSE LOANS HAVE NOTHING TO DO WITH THE PROPRIETARY CONCERN AND THAT THE ASSESSEE HAD REFLECTED THESE LOANS FOR THE PURPOSE OF INTRODUCTION OF HIS CAPITAL TO THE EXTENT OF RS.87 L AKHS. HE, THEREFORE, DISALLOWED THE INTEREST CLAIMED BY THE ASSESSEE AMOUNTING TO RS.3,95,568/ - AND ADDED THE SAME TO HIS INCOME. 9. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO SUSTAINED THE DISALLOWANCE MADE BY THE AO BY OBSERVI NG IN PARAS 4 TO 4.1.5 AS UNDER: 4. IN THE GROUNDS OF APPEAL, THE AR HAS IMPUGNED THE ADDITION MADE BY THE AO BY DISALLOWING THE CLAIM OF DEPRECIATION OF RS.19,30,819/ - AND INTEREST PAID OF RS.3,95,568/ - TREATING THE LOAN OBTAINED IN INDIVIDUAL CAPACITY. SINCE ALL THE GROUNDS ARE CO - RELATED, SAME ARE BEING DEALT TOGETHER IN THE FOLLOWING MANNER: 4.1.1 IN THE SUBMISSIONS, IT HAS BEEN CONTENDED BY THE AR THAT APPELLANT HAD PAID COMPOSITE PRICE FOR THE PURCHASE OF ENTIRE FACTORY INCLUDING THE COST OF RIGHTS IN THE LEASE HOLD LAND UNDERNEATH SUCH BUILDING. AR IN THIS REGARD PLACED HIS RELIANCE IN THE CASE REPORTED AS CIT VS RAJESH EXPORTS LTD. (2006) 9 SOT 28 (BANG.) (URO) AND CLAIMED THAT DEPRECIATION IS ALLOWABLE ON THE ENTIRE PRICE PAID WITHOUT ANY BREAK - U P BETWEEN THE COST OF THE BUILDING AND THE LAND. IT HAS ALSO BEEN ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 6 CONTENDED THAT THERE WAS NO SEGREGATION OF COST TOWARDS LAND AND BUILDING AND PAYMENT WAS MADE FOR THE ENTIRE PREMISES. IT WAS ALSO SUBMITTED THAT THERE WAS NO DISTINCTION BETWEEN THE LAND R IGHTS AND THE COST OF BUILDING AS EACH OWNER WAS GETTING A PROPORTIONATE SHARE IN THE LAND UNDERNEATH THE BUILDING UNDER THE PURCHASE WHICH IS A COMMON BUSINESS PRACTICE. FURTHER, IT HAS ALSO BEEN CLAIMED BY THE AR THAT APPELLANT ACQUIRED A RIGHT WITH RESP ECT TO THE LAND AS THE LAND IS LEASE HOLD RECEIVED UNDER LEASE FROM THE NOIDA AUTHORITIES AND CLAIMED THAT LAND IS AN INTANGIBLE ASSET AND ENTITLED FOR CLAIM OF DEPRECIATION. AR ALSO PLACED RELIANCE IN THE CASE REPORTED AS CYBER PARK DEVELOPMENT AND CONSTR UCTION LTD. VS DCIT ITA NO. 266/BANG./2001 AND CLAIMED THAT APPELLANT IS ELIGIBLE FOR CLAIMING DEPRECIATION ON THE LAND. 4.1.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT. IN THE INCOME TAX ACT DEPRECIATION IS ALLOWABLE IN RESPECT OF BLOC K OF ASSETS MEANS A GROUND OF ASSETS FOLLOWING WITHIN A CLAUSE OF ASSETS COMPRISING: A) TANGIBLE ASSETS, BEING BUILDING, MACHINERY, PLANT OR FURNITURE. B) INTANGIBLE ASSETS, BEING KNOW - HOW, PATENTS COPY RIGHTS, TRADE MARK, LICENSE. FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE FIRST DAY OF APRIL, 1998. 4.1.3 THE WORD BUILDING HAS NOT BEEN DEFINED IN THE ACT, THEREFORE, BE CONSTRUCTED IN ITS ORDINARY GRAMMATICAL SENSE UNLESS THER E IS SOMETHING IN THE CONTEXT OR OBJECT OF THE STATUTE TO SHOW THAT IT IS USED IN A SPECIAL SENSE DIFFERENT FROM ITS ORDINARY GRAMMATICAL SENSE. AS PER PROVISIONS OF THE ACT, DEPRECIATION TABLE INCLUDES ROADS, CULVERTS, WELLS AND TUBE WELLS IN THE BUILDING . BUILDING IN ANY CASE, DOES NOT INCLUDE LAND BECAUSE LAND DOES NOT DEPRECIATE. ANY EXPENDITURE BY AN ASSESSEE DIRECTLY REFERABLE TO THE LAND AND NOT REFERABLE TO THE BUILDING AS DISTINCT FROM LAND, CANNOT CONSTITUTE A PART OF THE COST OF CONSTRUCTION OF T HE ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 7 BUILDING FOR THE PURPOSE OF ALLOWANCE OF DEPRECIATION. IN THIS REGARD, I PLACE RELIANCE IN THE CASE REPORTED AS VIJAY SHREE PVT. LTD. VS CIT (1968) 67 ITR 420 (DEL.). SIMILARLY, NO DEPRECIATION CAN BE GRANTED IN RESPECT OF PREMIUM PAID TO LEASE HOLD LAN D BECAUSE SUCH PREMIUM IS NOT INCLUDABLE IN THE COST OF SUPER STRUCTURE CONSTRUCTED THEREON. IN THIS CONTEXT MY RELIANCE IS ON THE CASE REPORTED AS CIT VS INDIA OIL CORPORATION LTD. (1996) 218 ITR 511. 4.1.4 FURTHER AS FAR AS AR S SUBMISSION WITH REGARD T O COMPOSITE PAYMENT MADE TOWARDS LAND AND BUILDING IS CONCERNED CONTENDING THAT THERE IS NO BREAK - UP, THE SAME CANNOT BE ACCEPTED. THIS ISSUE HAS BEEN DECIDED BY THE A BENCH OF THE HON BLE ITAT DELHI IN ITA NOS. 4212 & 4213/DEL/2010 IN THE CASE REPORTED AS BRIJWASI ART PRESS LTD. VS DCIT, CIRCLE - 3(1), WHEREIN THIS ISSUE HAS BEEN DEALT WITH, RELEVANT PORTION OF WHICH IS REPRODUCED BELOW: 13. NOW, IN THE LIGHT OF THIS LEGAL POSITION, AS PER THE J UDGMENT OF HON'BLE DELHI HIGH COURT, WE EXAMINE THE FACTS O F THE PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE HAS PURCHASED A BUILDING ALONG WITH LAND FOR RS. 35.10 LAKHS IN THE YEAR 1995 AND WITHOUT ALLOCATING ANY PART OF THIS PRICE OF LAND AND BUILDING TOWARDS LAND, THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION @ 10% ON THIS ENTIRE VALUE OF LAND & BUILDING AS IF THE SAME IS THE VALUE OF BUILDING ONLY AND NO PORTION OF THE PRICE PAID BY THE ASSESSEE IS RELATABLE TO LAND. THIS CANNOT BE A BONA FIDE ASSUMPTION BY ANY PERSON EVEN BY A LAYMAN THAT WHEN A BUILDING IS P URCHASED ALONG WITH LAND, NO PART OF THE PURCHASE PRICE OF SUCH LAND & BUILDING IS RELATABLE TO LAND. IN FACT, MAJOR PORTION OF SUCH COMBINED PRICE IS RELATABLE TO LAND IN MOST OF THE CASES. HAD THERE BEEN A DIFFERENCE IN ALLOCATION ONLY, IT COULD HAVE BEE N A BONA FIDE CASE UNDER WHICH PENALTY IS NOT IMPOSABLE IF SOME PORTION OF THE COMPOSITE PRICE WOULD HAVE BEEN ALLOCATED BY THE ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 8 ASSESSEE TOWARDS LAND CLAIMING NO DEPRECIATION THEREON AND SUCH ALLOCATION HAVING BEEN INCREASED BY THE ASSESSING OFFICER, IT CA N BE ACCEPTED THAT THE ACTION OF THE ASSESSEE IS BONA FIDE AND FOR MERE DIFFERENCE IN ESTIMATION OF LAND VALUE, PENALTY IS NOT JUSTIFIED BUT IN THE PRESENT CASE, NO PORTION OF COMBINED PRICE OF LAND & BUILDING HAS BEEN ALLOCATED BY THE ASSESSEE TOWARDS LAN D AND FOR THE ENTIRE PRICE PAID BY THE ASSESSEE FOR LAND & BUILDING, THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE ACTION OF THE ASSESSEE IS NOT BONA FIDE IN OUR CONSIDERED OPINION. THEREFORE, THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA), DOES NOT HELP THE ASSESSEE IN THE PRESENT CASE. 14. AS PER ABOVE DISCUSSION, WE HAVE FOUND THAT NONE OF THE JUDGMENTS OF HON'BLE APEX COURT ON WHICH RELIANCE HAVE BEEN PLACED BY THE LD AR OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE. WE HAVE ALSO DISCUSSED ABOVE THAT THE ASSESSEE S EXPLANATION IS NOT BONA FIDE BECAUSE NOT ALLOCATING ANY PORTION OF THE COMBINED PRICE OF LAND & BUILDING TOWARDS LAND CANNOT BE ACCEPTED AS A BONA FIDE ACTION OF THE ASSESSEE AND HENCE, IN THE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD CIT(A) AS PER WHICH HE HAS CONFIRMED THE PENALTY IMPOSED BY THE ASSESSING OFFICER BECAUSE L D CIT(A) HAS FOLLOWED THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF ESCORTS FINANCE LTD, AS REPORTED IN 183 TAXMAN 453 AND LD AR OF THE ASSESSEE COULD NOT POINT OUT ANYTHING TO SHOW THAT THIS JUDGMENT OF HON'BLE DELHI HIGH COURT IS NOT A PPLICABLE IN THE PRESENT CASE. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD CIT(A) ON THIS ISSUE. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 9 16. ORDER PRONOUNCED IN THE OPEN COURT ON THE DAY OF 18TH FEBRUARY, 2011. SD/ - SD/ - (I.P. BANSAL) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER 4.1.5 IN VIEW OF THE ABOVE FACTS IT IS HELD THAT AO S ACTION IN DISALLOWING THE CLAIM OF D EPRECIATION ON LAND IS VERY MUCH AS PER PROVISIONS OF THE INCOME TAX ACT, 1961. IN THE ABSENCE OF ANY BREAK - UP OF THE PAYMENT MADE TOWARDS BUILDING AND LAND, AO RIGHTFULLY ESTIMATED THE QUANTUM IN THE RATIO 50:50. THEREFORE, CONTENTION OF THE AR IN THIS RE GARD IS REJECTED AND ADDITION MADE BY THE AO OF RS.1930819/ - IS UPHELD. 10 . AS REGARDS TO THE SUSTENANCE OF DISALLOWANCE OF INTEREST EXPENSES OF RS.3,95,568/ - , THE OBSERVATIONS OF THE LD. CIT(A) AS MENTIONED IN PARAS 4.1.6 TO 4.1.9 OF THE IMPUGNED ORDE R READ AS UNDER: 4.1.6 WITH REGARD TO DISALLOWANCE OF INTEREST EXPENSES OF RS.395568/ - , IT HAS BEEN CONTENDED BY THE AR THAT AO IS INCORRECT IN HOLDING THAT LOAN WAS OBTAINED BY THE ASSESSEE IN HIS INDIVIDUAL CAPACITY HAVING NO NEXUS WITH THE PROPRIETARY CONCERN. IT HAS BEEN CONTENDED THAT ASSESSEE OBTAINED LOAN OF RS.1 CRORE FOR THE BUSINESS PURPOSE WHICH WAS ROUTED THROUGH THE SAVINGS ACCOUNTS OF THE ASSESSEE IN THE CAPITAL OF THE APPELLANT. IT WAS ADDITION MADE BY THE APPELLANT TO THE CAPITAL ACCOUNT. I T HAS ALSO BEEN CONTENDED THAT CLAIM OF THE APPELLANT IS ALLOWABLE AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT WHICH PROVIDES THAT IF FUNDS HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS, INTEREST EXPENSE ARE ALLOWABLE ON SUCH LOANS. IT HAS ALSO BEE N SUBMITTED BEFORE THE UNDERSIGNED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE MAKING THIS ADDITION, THE FACT WAS NOT CONFRONTED TO THE AR IN THE ABSENCE OF WHICH HE COULD NOT EXPLAINED THE AO THAT ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 10 LOANS WERE INTRODUCED FOR THE PROPRIETARY CONC ERN THROUGH SAVINGS ACCOUNTS OF THE ASSESSEE. TO EXPLAIN THE MODUS - OPERANDI TO INTRODUCE THE CAPITAL THROUGH SAVINGS ACCOUNT IT HAS BEEN SUBMITTED THAT APPELLANT WAS APPLYING FOR A TERM LOAN IN HIS PROPRIETORSHIP FIRM FOR PURCHASE OF A FACTORY FOR WHICH IT HAD TO MEET THE BENCH MARK DEBT - EQUITY RATIO IF THE APPELLANT HAD INTRODUCED THE LOAN DIRECTLY INTO THE PROPRIETARY CONCERN THE DEBIT - EQUITY RATIO WOULD HAVE BEEN LOW AND IF WOULD HAVE BECOME IN ELIGIBLE FOR OBTAINING THE LOAN. IT HAS FURTHER EXPLAINED TH AT DUE TO EXERCISE OPTED BY THE APPELLANT HE COULD ARRANGE A TERM LOAN OF RS.2.94 CRORES IN RESPECT OF HIS PROPRIETORSHIP CONCERN. FURTHER, IT IS SUBMITTED THAT APPELLANT HAD NEITHER GIVEN ANY LOAN NOR PAID ANY LIABILITY DURING THE F.Y.2009 - 10 WHICH DOES N OT RELATE TO THE BUSINESS AND IT HAS BEEN CLAIMED THAT LOAN OBTAINED WAS EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS AND CLAIMED THAT INTEREST EXPENSE RELATING TO LOAN OBTAINED ARE ALLOWABLE AS PER PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 4.1.7 I HAV E CONSIDERED THE SUBMISSIONS OF THE AR OF THE APPELLANT. ON PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE AO, IT REVEALED THAT AO HAS RECORDED AS UNDER: THE ASSESSEE HAS REFLECTED THESE LOANS FOR THE PURPOSE OF INTRODUCTION OF HIS CAPITAL TO THE EXTENT O F RS.87 LACS. THEREFORE, THESE AMOUNTS ARE NOT AN ALLOWABLE EXPENSE AND ACCORDINGLY DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4.1.8 AS PER PROVISIONS OF SECTION 36(1)(III), IT IS PROVIDED THAT DEDUCTION IS ALLOWABLE IF THE AMOUNT OF INTERE ST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 4.1.9 IT HAS VEHEMENTLY BEEN CONTENDED BY THE AR THAT APPELLANT OBTAINED THE LOAN FOR THE BUSINESS PURPOSE ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 11 WHICH WAS ROUTED TO THE BUSINESS THROUGH THE APPELLANT S SAVI NG BANK ACCOUNT, WHICH IS VERIFIABLE FROM RECORD. THE REASONS FOR ROUTING THE LOAN GIVEN PER SUBMISSION DATED 12.12.2014 ARE NOT SUBSTANTIVE NOR CONVINCING SUCH A ROUTING CANNOT BE TERMED AS BUSINESS EXPEDIENCY ESPECIALLY WHEN THE APPELLANT HAS BANK ACCOUN TS. ANYWAY FUNDS HAVE TO COME TO THE USER AND THEN ONLY THE EXPENDITURE IS ALLOWABLE. DIRECT NEXUS IS ESSENTIAL WHICH IS ABSENT IN THIS CASE. 11 . NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED THE BUILDING AND LAND BY PAYING A COMPOSITE PRICE. IT WAS ALSO STATED THAT THE LAND WAS LEASE HOLD ON WHICH BUILDING WAS CONSTRUCTED. THEREFORE, THE DEPRECIATION PERTAINS TO THE BUILDING O NLY AND NOT TO THE LAND. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS SUN PHARMACEUTICAL IND. LTD. (2010) 329 ITR 479 (GUJ.). 12 . IN HIS RIVAL SUBMISSIONS, THE LD. SR. DR REITERATED THE OBSERVATIONS MADE BY THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 13 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE ITAT DELHI BENCH E , NEW DELHI IN THE CASE OF ITO, WARD - 6(4), NEW DELHI VS MILLENNIUM SPIRE INDIA MANAGEMENT (P) LTD. IN ITA NO. 3297/DEL/2013 FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 23.12.2014 WHEREIN IT HAS BEEN HELD AS UNDER: ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 12 12. FROM A PERUSAL OF THE ABOVE TERMS OF THE AGREEMENT, WE FIND THAT IT IS A COMPOSITE AGREEMENT; AND THERE IS NO SEPARATE CONSIDERATION ATTRIBUTABLE SPECIFICALLY TO THE LAND. THEREFORE THE ISSUE IS WHETHER O N PURCHASE OF COMMERCIAL SPACE F OR A COMPOSITE CONSIDERAT ION, THE ASS ESSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE COMPOSITE CONSIDERATION. THIS ISSUE WAS CONSIDERED BY THE BANGALORE BENCH OF ITAT IN THE CASE OF JCIT VS. RAJESH EXPORTS 9 SOT 28 (BANG.) ITAT BANGALORE AND IT WAS HELD AS UNDER: - '9 SOT 28 (BANG.) ITAT BANGALORE 'NOW THE QUESTION IS IF IT IS A LAND, THEN DEPRECIATION UNDER SECTION 32 OF THE ACT IS ALLOWABLE. SECTION 32(1) READS AS UNDER: '32(1) IN RESPECT OF DEPRECIATION OF - (I) BUILDINGS, MACHINERY, PLA NT OR FURNITURE, BEING TANGIBLE ASSETS; IT IS CLEAR FROM A READING OF SECTION 32(1) THAT THE WORD 'BUILDING' IS USED BY THE LEGISLATURE. THE TERM 'BUILDING' USED IN SECTION 10(2) OF THE 1922 ACT HAD COME UP FOR JUDICIAL EXAMINATION BEFORE THE HON'BLE SUPRE ME COURT IN THE CASE OF CIT V ALPS THEATRE (65ITR377 ). THE QUESTION BEFORE THE SUPREME COURT WAS WHETHER THE COST OF LAND IS ENTITLED TO DEPRECIATION ALONG WITH COST OF BUILDING STANDING THEREON. REVERSING THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT; T HE HON'BLE SUPREME COURT HELD THAT BUILDING DOES NOT INCLUDE THE SITE BECAUSE THERE CANNOT BE ANY QUESTION OF DESTRUCTION OF SITE. IT IS FURTHER HELD THAT THE WORD USED IS 'DEPRECIATION' AND DEPRECIATION MEANS DECREASE IN VALUE OF PROPERTY THROUGH WEAR & T EAR DETERIORATION, OBSOLESCENCE. (WEBSTER'S NEW WORD DICTIONARY). IN THAT SENSE, LAND CANNOT DEPRECIATE. DEPRECIATION IS ALLOWABLE ONLY ON THE VALUE OF SUPERSTRUCTURE ON THE LAND AND NOT ON THE VALUE OF LAND. THE LEGAL PRINCIPLES LAID DOWN BY THE HON'BLE S UPREME COURT IN THE CASE OF ALPS THEATRE (SUPRA) STILL HOLDS GOOD. EVEN UNDER SECTION 32 OF THE IT ACT, 1 961, THE WORD USED IS 'BUILDING AND BUILDING IS TO BE INTERPRETED THE ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 13 SUPERSTRUCTURE. AS FAR AS THE FACTS BEFORE US ARE CONCERNED, THOUGH IT IS VEHEMEN TLY ARGUED BY THE LEARNED COUNSEL FOR ASSESSEE THAT THE PURCHASE PRICE OF LAND WAS A COMPOSITE ONE AND FOR THE SAKE OF CONVENIENCE, THE PRICE OF LAND AND PRICE OF BUILDING WAS SEPARATELY SHOWN, WE ARE AFRAID THAT HIS CONTENTION CAN BE ACCEPTED. AS FAR AS T HE CONVEYANCE DEED IS CONCERNED, CONSIDERATION PAID BY THE ASSESSEE FOR LAND IS SHOWN SEPARATELY. IF THE TRANSACTION WAS COMPOSITE ONE, THEN NO DISTINCTION AT LEAST IN THE CONSIDERATION PAID TO THE VENDOR WOULD HAVE BEEN MADE. WE ARE OF THE OPINION THAT AS THERE IS A CLEAR - CUT IDENTITY IN RESPECT OF PRICE PAID TO THE LAND AND BUILDING, THE ASSESSING OFFICER WAS RIGHT IN ALLOWING DEPRECIATION ONLY ON THE BUILDING. THE CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE C OST OF LAND AS THE SAME IS NOT CONTEMPLATED UNDER SECTION 32 OF THE ACT. IN THE RESULT, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. IN THE RESULT, THE REVENUE'S APPEAL IS PARTLY ALLOWED.' 13. HAVING CONSID ERED THE ABOVE CASE - LAWS AND IN THE ABSENCE OF ANY OTHER CONTRARY DECISION IN RESPECT OF A COMPOSITE CONSIDERATION, WE ARE INCLINED TO CONFIRM THE IMPUGNED ORDER OF THE ID CIT(A). THE ID DR HAS NOT ASSAILED THE FACTUAL POSITION THAT THE CONSIDERATION PAID WAS NOT A COMPOSITE CONSIDERATION, BY POINTING OUT ANY MATERIAL SO AS TO PERSUADE US TO COME TO A CONCLUSION THAT THERE WAS BIFURCATION OF CONSIDERATION BETWEEN LAND AND BUILDING. THEREFORE WE CONFIRM THE ORDER AND DISMISS THE APPEAL. 14 . IN THE PRESEN T CASE ALSO, THE PAYMENT MADE WAS COMPOSITE AND NO SEPARATE CONSIDERATION WAS ATTRIBUTABLE TO THE LAND WHICH WAS LEASEHOLD AND NOT THE PROPERTY HAVING EXCLUSIVE OWNERSHIP OF THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ENTITLED TO THE ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 14 DEPRECIATION ON THE BUIL DING . IN THAT VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO ALLOW THE DEPRECIATION TO THE ASSESSEE. 1 5 . AS REGARDS TO THE SECOND ISSUE RELATING TO THE DISALLOWANCE OF INTEREST ON THE LOAN. THE LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE LOAN WAS TAKEN BY THE AS SESSEE FOR THE BUSINESS PURPOSE AND IT WAS SHOWN IN HIS CAPITAL ACCOUNT AS LIABILITY, S INCE, THE ASSESSEE IS A PROPRIETOR AND THERE IS NO DIFFERENCE BETWEEN THE INDIVIDUAL AND THE PROPRIETOR. IT WAS ALSO STATED THAT NOT HING WAS BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE THAT THE LOAN WAS NOT UTILIZED BY THE ASSESSEE FOR THE BUSINESS PURPOSE. THEREFORE, THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. 16 . IN HIS RIVAL SUBMISSIONS, THE L D. SR. DR SUPPORTED THE ORDER OF THE LD. CIT(A). 17 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD, IT APPEARS THAT THE ASSESSEE INSTEAD OF SHOWING THE LOAN SEPARATELY INCLUDED IT IN HIS CAPITAL ACCOUNT BUT IT REMAINS TH E LIABILITY OF THE BUSINESS CARRIED OUT BY THE ASSESSEE . SINCE, THE LOAN WAS USED FOR BUSINESS PURPOSE , IT WAS IMMATERIAL WHETHER THE ASSESSEE HAD SHOWN IT SEPARATELY OR INCLUDED IT IN THE CAPITAL ACCOUNT. IN THE PRESENT CASE, THE LOAN AMOUNT WAS UTILIZED BY TH E ASSESSEE FOR BUSINESS PURPOSE AND NOTHING IS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE LOAN TAKEN BY THE ASSESSEE WAS UTILIZED ELSEWHERE AND NOT IN BUSINESS , ITA NO. 2332 /DEL/2015 ITA NO. 6550/DEL/2016 VIKAS GUPTA 15 THEREFORE, T HE DISALLOWANCE OF THE INTEREST ON THE SAID LOAN WAS NOT JUSTIFIED. ACCORDINGL Y, THE SAME IS DELETED. 18 . IN ITA NO. 6550/DEL/2016 FOR THE ASSESSME NT YEAR 2012 - 13, THE ONLY ISSUE AGITATED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF DEPRECIATION. THIS ISSUE HAS BEEN ADJUDICATED IN FORMER PART OF THIS ORDER WHILE DECIDING THE APPE AL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA NO. 2332/DEL/2015. THEREFORE, OUR FINDINGS GIVEN THEREIN SHALL APPLY MUTATIS MUTANDIS. 19 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE ALLOWED. (ORDER PR ONO UNCED IN TH E OPEN COUR T ON 12 / 0 7 /2018 ) SD/ - SD/ - ( SUCHITRA KAMBLE ) ( N. K. SAINI ) JUDIC IAL MEMBER ACCOUNTANT MEMBER DATED: 12 /07 /2018 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR