JAYCEE ADS P.LTD, MUMBAI V. ITO 6(1)-2, MUMBAI

ITA 392/MUM/2011

• Counselvise Citation: 39219914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 15-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 14-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: MUKESH B ADVANI
• Keywords: Depreciation; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 392/MUM/2011 ASSESSMENT YEAR : 2007 - 08 M/S. JAYCEE ADS PVT. LTD. 70 - B, CHURCHGATE CHAMBERS,5 NEW MARI NE LINES MUMBAI - 400 020 PAN: AA AC J3720D VS. ITO 6(1) - 2, R.NO.563, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKESH B. ADVANI REVENUE BY : SHRI O.P. SINGH, D.R. DATE OF HEARING : 15.07.13 DATE OF PRONOUNCEMENT : 28.08.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 15.10.10 RELEVANT TO AS SESSMENT YEAR 2007 - 08. THE SOLE GROUND OF APPEAL TAKEN BY THE ASSESSEE IN THE PRESENT APPEAL IS REPRODUCED AS UNDER: GROUND NO.1 THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.32,29,293/ - UNDER THE PRETEXT THAT THE ASSESSEE HAS WRONGLY CL AIMED DEPRECIATION OF RS.12,54,863/ - ON THE CAPITAL EXPENDITURE INCURRED ON BUS SHELTERS & UNIPOLES. ON THE OTHER HAND THE LEARNED ASSESSING OFFICER HAS ALLOWED A SUM OF RS.9,25,570/ - IN LIEU OF THE DEPRECIATION CLAIMED BY THE ASSESSEE UNDER THE PRETEXT T HAT THE CAPITAL EXPENDITURE INCURRED SHOULD BE AMORTIZED OVER THE LEASE PERIOD FOR WHICH THE PERMISSION IS GRANTED BY THE GOVERNMENT. IN LIGHT OF THE ABOVE FACTS THE ADDITION CONFIRMED BY THE LEARNED CIT(A) IS ERRONEOUS & UNCALLED FOR. HENCE OUGHT TO BE DELETED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY IS IN THE BUSINESS OF CONSTRUCTION OF BUS SHELTERS AND UNI - POLES ALONG THE NATIONAL HIGHWAYS (NH) & PWD ROADS BY ENTERING INTO AGREEMENT WITH EXCUTIVE ENGINEERS, N.H. DIVISION/PWD ROADS, BRIDGES DIVISION UNDER BUILT, OPERATE & TRANSFER (BOT) SCHEME, FOR THE PERIOD ITA NO.392/11 M/S. JAYCEE ADS PVT. LTD. 2 OF FIFTEEN YEARS FROM THE DATE OF HANDING OVER THE SITE TO THEM FOR THE CONSTRUCTION WORK. IN OTHER WORDS THE APPELLANT WOULD CONSTRUCT (BUILT) BUS SHELTERS, FROM ITS OWN FUNDS, O PERATE THE SAME FOR A PERIOD OF FIFTEEN YEARS AND THEN TRANSFER THE SAME TO THE N.H. DIVISION OF PWD, GOVERNMENT OF KERALA. THE APPELLANT COMPANY IS IN THIS BUSINESS FROM 2003 ONWARDS. THE APPELLANT COMPANY GOT AN ORDER NO. G.O. (MS) NO.34/2003/ PWD DATED 23.05.2003 ISSUED BY PUBLIC WORKS DEPARTMENT (PWD) GOVERNMENT OF KERALA AND SINCE THEN THE APPELLANT HAS BEEN CONSTRUCTING BUS SHELTERS & UNI - POLES. THE ENTIRE DIRECT EXPENSES RELATED TO CONSTRUCTION OF BUS SHELTERS & UNI - POLES WERE CAPITALIZED BY THE APPELLANT IN EACH YEAR AND DEPRECIATION AS PER THE PROVISIONS OF SECTION 32 OF BY I.T. ACT WAS CLAIMED BY THE APPELLANT ON SUCH EXPENSES, AS PER THE RATES PRESCRIBED UNDER THE INCOME RULES. IN THE PREVIOUS YEAR RELEVANT TO THE ABOVE MENTIONED ASSES SMENT YEAR , THE APPELLANT HAD INCURRED EXPENSES OF RS.16,66,946/ - UNDER THE HEAD BUS SHELTERS WHICH WERE CAPITALIZED AS FIXED ASSETS & CLAIMED DEPRECIATION @ 7.5% (I.E. 50% OF ACTUAL RATE 15%) AS (PLANT & MACHINERY) AS THE ENTIRE ADDITIONS WERE MADE FOR LE SS THAN 180 DAYS. FURTHER, THE APPELLANT ALSO MADE AN ADDITION DURING THE PREVIOUS YEAR UNDER THE HEAD MR UNI - POLES AMOUNTING TO RS.21,50,472/ - WHICH WAS ALSO CAPITALIZED AND DEPRECIATION @ 15% AMOUNTING TO RS.3,22,571/ - WAS CLAIMED UNDER THE HEAD PLANT & MACHINERY . DURING THE PREVIOUS YEAR THE APPELLANT CLAIMED DEPRECIATION OF RS.12,54,863/ - ON BUS SHELTERS & UNI - POLES ON WRITTEN DOWN VALUE AS ON 01.04.2006 AS WELL AS ON THE ADDITIONS. IT HAS BEEN MENTIONED IN CLAUSE 18 OF THE AGREEMENT THAT THE BUS SH ELTER CONSTRUCTED BY THE APPELLANT ON NH SHALL BE VESTED WITH THE GOVERNMENT OF INDIA HOWEVER, THE APPELLANT COMPANY HAS A RIGHT TO DISPLAY THE ADVERTISEMENT ON IT FOR THE PERIOD OF FIFTEEN YEARS. THE AO DURING THE ASSESS MENT PROCEEDINGS OBSERVED THAT T HE APPELLANT COMPANY WAS NOT THE OWNER OF THE BUS SHELTERS & UNI - POLES AND THEREFORE THE CAPITAL EXPENSES INCURRED BY THE APPELLANT SHOULD HAVE BEEN AMORTIZED OVER A PERIOD OF FIFTEEN YEARS. THE AO THUS ALLOWED DEPRECIATION FOR FIFTEEN YEARS ON STRAIGHT L INE METHOD (SLM) WHICH WORK ED OUT TO 6.67% P.A. IN AMORTIZING THE CAPITAL EXPENDITURE OVER A PERIOD OF FIFTEEN YEARS, THE A.O. APPLIED THE COMMERCIAL PRINCIPLE ITA NO.392/11 M/S. JAYCEE ADS PVT. LTD. 3 BY WHICH THE COST WHICH HAD BEEN INCURRED BY THE COMPANY AND HAD BEEN UTILIZED FOR THE PURPOSE OF EARNING THE INCOME WAS ALLOWED TO THE COMPANY. 3. IN APPEAL, THE LEARNED CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO OBSERVING AS UNDER: FROM THE ABOVE FACTS, IT IS CLEAR THAT THE APPELLANT COMPANY IS NOT OWNER OF THE ABOVE STRUCTURE. THE ONLY R IGHT GIVEN TO THE APPELLANT IS DISPLAYING ADVERTISEMENT OVER THE SAME. THEREFORE, I AGREE WITH THE ASSESSING OFFICER THAT THE APPELLANT COMPANY IS NOT ENTITLED FOR CLAIMING DEPRECIATION. BUT THE COST/EXPENSES INCURRED ARE TO BE ALLOWED IN THE RATIO OF RE QUISITE PERIOD I.E. FIFTEEN YEARS AVAILABLE TO THE COMPANY. THE APPELLANT CASE IS COVERED UNDER THE CONCEPT OF AMORTIZING THE EXPENDITURE AS HELD BY THE ASSESSING OFFICER FOLLOWING THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT GIVEN IN THE CASE O F MADRAS INDUSTRIAL INVESTMENT CORPN. VS. CIT. ACCORDINGLY, THE APPELLANT IS ENTITLED TO CLAIM IN THE RETURN OF INCOME PROPORTIONATE COST OF CONSTRUCTION OF BUS SHELTERS & UNIPOLES . THUS, THE ASSESSING OFFICER HAS RIGHTLY ALLOWED THE COST FOR THE YEAR UN DER CONSIDERATION WHICH COMES TO RS.9,25,570/ - AS AGAINST AMOUNT OF DEPRECIATION CLAIMED BY THE APPELLANT AT RS.12,54,863/ - AND ACCORDINGLY MADE DISALLOWANCE OF RS.3,29,293/ - . IN VIEW OF THE FACTS AND JUDICIAL DECISION RELIED UPON BY THE ASSESSING OFFICER , THE DISALLOWANCE MADE IS JUS TIFIED AND THE SAME IS UPHELD. 4. BEFORE US THE LD. A.R. HAS CONTENDED THAT THE AUTHORITIES BELOW HAVE TOTALLY IGNORED THE EXPLANATION 1 TO SECTION 32 OF INCOME TAX ACT, 1961 WHICH STATES THAT WHERE THE BUSINESS OR PROFESSIO N OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM , BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CON STRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASS ESSEE. HIS CONTENTION IS THAT THE DEPRECIATION CAN BE CLAIMED BY THE ASSESSEE EVEN WHEN THE ASSET IS NOT OWNED BY IT. O N THE OTHER HAND THE LD. D.R. HAS RELIED UPON THE FINDINGS OF THE AUTHORITIES BELOW. 5 . WE HAVE CONSIDERED THE RESPECTIVE SUBMISSIONS OF THE PARTIES. IT MAY BE OBSERVED THAT NEITHER THE LD. AO NOR THE LD. CIT(A) HAS TAKEN INTO CONSIDERATION THE CONTENTION OF THE ASSESSEE THAT HIS CLAIM IS ALLOWABLE UNDER SECTION 32 OF INCOME TAX ACT, 1961. NO FINDING HAS BEEN RECORDED IN THIS RESPECT B Y EITHER OF THE ITA NO.392/11 M/S. JAYCEE ADS PVT. LTD. 4 AUTHORITIES BELOW. IN OUR VIEW, THE CLAIM OF THE ASSESSEE WAS REQUIRED TO BE LOOKED INTO BY THE AUTHORITIES BELOW ON THIS ASPECT ALSO. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE CASE TO THE FILE OF THE A O WITH A DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 32 OF INCOME TAX ACT, 1961 AND DECIDE THE SAME IN ACCORDANCE WITH LAW AND WITH A SPEAKING ORDER AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO REPRESENT HIS C ASE. 6 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08. 2013. SD/ - SD/ - ( P.M. JAGTAP ) ( SANJAY GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.08. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MU MBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.