ALTONA INVESTMENTS P. LTD, MUMBAI V. ITO WD 6(1)-2, MUMBAI

ITA 5151/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3521 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: PRASAD BAPAT
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH,(AM) ITA NO.5151/MUM/2009 ASSESSMENT YEAR : 2005-06 ALTONA INVESTMENTS PVT. LTD. 532, ALTA BHAVAN SENAPATI BAPAT ROAD, DADAR MUMBAI-400 028. ..( APPELLANT ) P.A. NO. (AACCA 8775 B) VS. INCOME TAX OFFICER-6(1)(2) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SH RI PRASAD BAPAT RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 16.6.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN INVESTMENT IN SHARES AND SECURITIES, INTER-CORP ORATE LENDING, LEASING AND HIRE PURCHASE, EDP PROCESSING SERVICE S, FILED RETURN DECLARING LOSS OF RS.11,35,150/-. DURING THE COU RSE OF ASSESSMENT PROCEEDING IT WAS INTERAIA OBSERVED BY THE ASSESSING ITA NO.5151/M/09 A.Y:05-06 2 OFFICER THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSES SMENT YEAR 2005-06, THE ASSESSEE HAS PURCHASED A RESIDENTIAL FLAT FOR RS.2,86,70,350/- INCLUDING STAMP DUTY AND OTHER INCIDE NTAL COSTS. FROM THE DEPRECIATION STATEMENT ATTACHED TO THE RETUR N OF INCOME IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS SHOW N ADDITION TO RESIDENTIAL FLAT AT RS.2,86,80,350/- AND CLAIMED 5% OF DEPRECIATION ON THE SAME RS.7,16,759/-. THE ASSESSEE WAS A SKED TO EXPLAIN THE PURPOSE OF PURCHASE OF THE FLAT AND ALSO WH Y DEPRECIATION IS CLAIMED ON THE SAME. THE ASSESSEE'S REPRESENTATIVE STATE D THAT ---- THE PURCHASE OF THIS FLAT WAS DULY AUTHORIZED BY T HE BOARD OF DIRECTORS OF THE COMPANY AT ITS MEETING DA TED 1.11.2004. THE FLAT WAS PURCHASED BY THE ASSESSEE WITH THE INTENTION OF ULTIMATELY PROVIDING IT BY WAY OF A RENT FREE ACCOMMODATION TO ITS EXECUTIVE/MANAGING DIRECT OR. IT IS FURTHER STATED THAT IN TERMS OF THE AGREEMENT DATED 30.4.2002, (COPY OF WHICH IS FILED), ENTERED INTO B Y THE COMPANY WITH THE MANAGING DIRECTOR (THEN DESIGNATED AS EXECUTIVE DIRECTOR) THE COMPANY WAS OBLIGED TO PROV IDE A SUITABLE RESIDENTIAL ACCOMMODATION FREE OF COST, SU BJECT TO CERTAIN MONETARY RESTRICTIONS. . THE ASSESSEE WAS ASKED TO FILE COPY OF RETURN OF INCOME FO R ASSESSMENT YEAR 2005-06 OF THE MANAGING DIRECTOR MRS. GEE TA JAYANT DHOTE WHO HAS BEEN ALLOTTED THE FLAT AS RENT FREE ACCOM MODATION. ON VERIFICATION OF THE RETURN OF INCOME FILED BY HER THE ASSESSING OFFICER OBSERVED THAT THE MANAGING DIRECTOR HAS NOT DECLARED AN Y PERQUISITE IN THE COMPUTATION OF TOTAL INCOME FILED. WHEN THIS WAS POINTED OUT TO THE REPRESENTATIVES, IT WAS STATED THAT THE POSSESSION OF THE FLAT WAS TAKEN IN THE MONTH OF DECEMBER, 2004 AND RENOVATION/ REPAIRS ETC. WERE BEING CARRIED OUT THEREAFTER AND THE FLAT WAS ACT UALLY USED FOR OCCUPATION IN THE MONTH OF JUNE, 2005. IT WAS ASKED BY THE ASSESSING OFFICER THAT SINCE THE FLAT IN QUESTION WAS USED DURING THE FINANCIAL YEAR 2005-06 RELEVANT TO THE ASSESSMENT YEAR 2006-07 AN D ALSO THE ITA NO.5151/M/09 A.Y:05-06 3 FACT THAT NO PERQUISITE HAS BEEN DECLARED BY THE MANAGI NG DIRECTOR, WHO IS OCCUPYING THE FLAT, WHY THE DEPRECIATION CLAIMED AND INTEREST INCOME AND OTHER EXPENSES INCURRED IN CONNECTION WITH TH E PURCHASE OF THE FLAT SHOULD NOT BE DISALLOWED. IT WAS EXPLAIN ED BY THE ASSESSEE THAT ----- THE BASIC PROVISIONS OF SECTION 36(1)(III) ARE CON CERNED WE HAVE ALREADY MADE ELABORATE SUBMISSIONS ON THE SETTLED LAW THAT DEDUCTION IS ALLOWABLE FOR INTERES T. AS REGARDS DEPRECIATION IS SOUGHT TO BE DISALLOWED ON THE GROUND THAT THE FLAT WAS NOT USED FOR THE PURPOSES OF BUSINESS IN F.Y. 2004-05 SINCE IT WAS OCCUPIED BY T HE EXECUTIVE DIRECTOR ONLY FROM F.Y. 2005-06 AND MORE SO SINCE THE CORRESPONDING PERQUISITE VALUE THEREOF WA S CONSIDERED FOR TAXATION IN THE HANDS OF THE ED FROM F.Y. 2005-06, IT IS RESPECTFULLY SUBMITTED THAT SINCE TH E FLAT WAS ACQUIRED FOR THE PURPOSES OF PROVIDING ACCOMMODATION TO THE EXECUTIVE DIRECTOR AND FURTHER SINCE IT WAS BEING READY FOR THE PURPOSE OF ACCOMMODATION BY THE ED IT MUST BE SAID THAT HAS BE EN USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESS EE. THE PROCESS OF FURNISHING THE ACCOMMODATION MUST BE DEEMED TO BE INCIDENTAL TO AND IN THE COURSE OF USE THEREOF FOR THE PURPOSES OF BUSINESS OF THE ASSESSE E. .. .. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT ON THE ONE HAND THE ASSESSEE AGREES THAT THE PERQUISITE VALUE CAN BE ADDE D IN THE HANDS OF THE EXECUTIVE DIRECTOR ONLY WHEN THE ACCOMMODAT ION IS PROVIDED I.E., IN F.Y. 2005-06 AND ON THE OTHER HAN D THE ASSESSEE SAYS THAT DEPRECIATION IS TO BE ALLOWED AS IT WAS BEING READ Y FOR THE PURPOSE OF ACCOMMODATION FOR THE EXECUTIVE DIRECTOR, IT MUST BE SAID THAT IT HAS BEEN USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE . THE ASSESSING OFFICER FURTHER OBSERVED THAT ONE OF THE CONDITI ONS FOR ALLOWING THE DEPRECIATION IS THE ASSET SHOULD BE USED D URING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF THE BUSINESS O R PROFESSION ITA NO.5151/M/09 A.Y:05-06 4 CARRIED ON BY THE ASSESSEE. SINCE THE ASSET I.E., FLAT I N QUESTION WAS NOT USED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2005- 06, HE DISALLOWED DEPRECIATION AND OTHER EXPENSES. THE ASSESSING OFFICER AFTER MAKING SOME OTHER DISALLOWANCES COMPLETED T HE ASSESSMENT AT AN INCOME OF RS.1,92,940/- VIDE ORDER DATED 14.12.2007 PASSED U/S.143(3) OF THE ACT. 3. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH T HE VIEWS OF THE ASSESSING OFFICER CONFIRMED THE DISALLOWANCE OF DEPRECIATIO N , HOWEVER, DIRECTED THE ASSESSING OFFICER TO ALLOW HOUSING LOAN EXPENSES AND INTEREST ON HOUSING LOAN AND ACCORDINGLY PAR TLY ALLOWED THE APPEAL. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.7,26,759/- ON T HE GROUND THAT THE FLAT WAS NOT USED FOR THE PURPOSE O F BUSINESS DURING THE ACCOUNTING YEAR. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS THAT SINCE TH E FLAT WAS ACQUIRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AN D THE PROCESS OF FURNISHING THE ACCOMMODATION SHOULD BE DEEMED T O BE INCIDENTAL TO AND IN THE COURSE OF USE THEREOF FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THEREFORE, THE DEPRECIATION IS AL LOWABLE. THE RELIANCE WAS ALSO PLACED ON THE DECISIONS IN THE CASE OF KHI MJI VISRAM ITA NO.5151/M/09 A.Y:05-06 5 AND SONS (GUJARAT) PRIVATE LIMITED VS. CIT (1994) 2 09 ITR 993 (GUJ) AND CIT VS. O.P KHANNA AND SONS (1983) 140 ITR 558 (P&H). 6. ON THE OTHER HAND THE LD. DR SUBMITS THAT FOR THE REASONS AS MENTIONED IN THE ASSESSMENT ORDER AND IN THE ORDER OF T HE LD.CIT(A) THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN NOT ALLOWING THE DEPRECIATION AS THE PROPERTY WAS NOT USED FOR THE PURPOSE OF THE BUSI NESS OF THE ASSESSEE AND, THEREFORE, THE ORDER PASSED BY THE ASSESSING O FFICER AND CONFIRMED BY THE LD. CIT(A) BE UPHELD. 7. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL P ARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THA T THERE IS NO DISPUTE THAT THE ASSESSEE COMPANY HAS OCCUPIED THE PROPER TY I.E. FLAT IN THE MONTH OF DECEMBER 2004 AND STARTED RENOVATION /REPAIRS ETC. THUS THE ASSESSEE HAS SATISFIED THE FIRST CONDITION THAT THE PROPERTY IS OWNED BY THE ASSESSEE. AS REGARDS THE OTHER CONDITION THA T THE ASSET SHOULD BE USED FOR THE PURPOSE OF BUSINESS WE FIND THAT T HERE IS NO DISPUTE THAT AFTER TAKING THE POSSESSION OF THE PREMISES T HE ASSESSEE HAS STARTED RENOVATION/REPAIRS OF THE PROPERTY FOR THE PURPOSE OF BUSINESS AND THE SAME HAS BEEN ALLOWED BY THE ASSESSING OF FICER. IT IS NOT THE CASE OF THE REVENUE THAT NO SUCH RENOVATION/R EPAIRS WERE CARRIED OUT BY THE ASSESSEE OR THE SAME ARE NOT ALLOWABLE . MERELY BECAUSE THE ASSESSEE AFTER TAKING OVER THE POSSESSION OF THE PROPERTY HAS CARRIED OUT REPAIRS AND RENOVATION AND HAS GIVEN TH E SAID FLAT TO HIS EXECUTIVE DIRECTOR IN THE FINANCIAL YEAR 2005-06 RE LEVANT TO 2006- 07, DOES NOT MEAN THAT THE PREMISES WAS NOT USED BY TH E ASSESSEE FOR THE PURPOSES OF BUSINESS. ITA NO.5151/M/09 A.Y:05-06 6 8. IN KHIMJI VISRAM AND SONS (GUJARAT) PRIVATE LIMITE D SUPRA, IT HAS BEEN HELD (HEADNOTE); (II) THAT SINCE THE ASSESSEE HAD PURCHASED THE PRE MISES FOR THE PURPOSE OF ITS BUSINESS OR SETTING UP OF TH E BUSINESS AND THAT IT TOOK OVER POSSESSION IN JULY, 1975, AND HANDED OVER THE SAME TO ITS AGENT FOR FURNISHIN G AND REPAIRS, IT COULD BE SAID THAT, AFTER TAKING OVER T HE POSSESSION, THE PREMISES WERE USED FOR THE PURPOSE OF THE BUSINESS. THEREFORE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION IN RESPECT OF ITS OFFICE PREMISES IN B OMBAY FOR THE ASSESSMENT YEAR 1976-77. 9. IN O.P KHANNA AND SONS SUPRA, IT HAS BEEN OBSERVED AND HELD (HEADNOTE): THE USE OF MACHINERY INVOLVES A SET OF CIRCUMSTANC ES DIFFERENT FROM THAT OF A BUILDING. WHEN A NEW UNIT IS REQUIRED TO BE SET UP, IT INVOLVES A NUMBER OF PROC EDURAL FORMALITIES BEFORE THE STAGE OF 'TURN KEY', AS IS T ECHNICALLY TERMED. THE PROCEDURE FOR SETTING UP THE UNIT WOULD NATURALLY COMMENCE WITH THE ARRANGEMENT OF A SUITAB LE BUILDING TO HOUSE THE SAME. THIS WOULD BE FOLLOWED BY INSTALLATION OF ELECTRICAL OR OTHER FITTINGS TO PRO VIDE THE SOURCE OF ENERGY FOR THE UNIT. AFTER ARRANGING FOR THE BUILDING, ANY STEPS TAKEN BY THE ENTREPRENEUR TO SE T THE BUILDING INTO GEAR FOR RUNNING THE UNIT, WOULD BE N OTHING BUT PUTTING IT TO 'USE'. THE ASSESSEE WHICH CARRIED ON THE BUSINESS OF A PRI NTING PRESS PURCHASED A NEW BUILDING IN NOVEMBER, 1970, INSTALLED ELECTRICAL FITTINGS AND SHIFTED ITS BUSIN ESS TO THE BUILDING IN SEPTEMBER, 1971, AND CLAIMED DEPRECIATI ON FOR THE PERIOD NOVEMBER, 1970 TO MARCH 31, 1971, RELEVA NT TO THIS ASSESSMENT YEAR 1971-72 AND THIS WAS ALLOWE D BY THE TRIBUNAL. ON A REFERENCE: HELD, THAT IN THE INSTANT CASE THE ASSESSEE WAS ABLE TO SHIFT HIS BUSINESS INTO THE NEW BUILDING WITHIN A F EW MONTHS. DURING THIS TRANSITORY PERIOD THE BUILDING PURCHASED BY THE ASSESSEE HAD BEEN 'USED' AND THE DEPRECIATION ALLOWANCE HAD TO BE MADE IN RESPECT OF IT WHILE COMPUTING ITS BUSINESS INCOME FOR THE ASSESSM ENT YEAR 1971-72. ITA NO.5151/M/09 A.Y:05-06 7 IN THE ABSENCE OF ANY CONTRARY DECISION PLACED ON RECORD B Y THE REVENUE WE RESPECTFULLY FOLLOWING THE ABOVE DECISIONS HOLD THAT THE PROPERTY IS OWNED AND USED FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE, THEREFORE, THE ASSESSEE IS ENTITLED TO DEPRECIATIO N ON THE FLAT PURCHASED BY THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED T O ALLOW THE SAME ACCORDING TO RULES. THE GROUND TAKEN BY THE A SSESSEE IS, THEREFORE, ALLOWED. 10. IN THE RESULT, ASSESSEE'S APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.12.2010. SD/- SD/- (RAJENDRA SINGH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.12.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.