SNC JEWELS P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5349/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0940 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 22-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: MRIGAKSHSI JOSHIAR
• Keywords: Depreciation; Share purchase agreement; Capital expenditure

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./5349/MUM/2014, /ASSESSMENT YEAR: 2011-12 SNC JEWELS PVT.LTD. UNIT NO.124,SDF IV,SPEEZ ANDHRI,MUMBAI-400096 PAN:AAICS 0348G VS. DCIT 8(3) MUMBAI-20 ( /APPELLANT ) ( / RESPONDENT ) REVEN UE BY: SHRI A K NAYAK -DR ASSESS EE BY: SHRI MS. MRIGAKSHSI JOSHI-AR / DATE OF HEARING: 24.03.2017 / DATE OF PRONOUNCEMENT: 03.05.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 14/07/2014 OF THE CIT ( A)-18,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSI NESS OF MANUFACTURING AND EXPORT OF PLAIN AND STUDDED GOLD AND DIAMOND JEWELLERY, FILED ITS R ETURN OF INCOME ON 30/09/2011, DECLARING TOTAL INCOME OF RS.2.66 CRORES.THE ASSESSING OFFICER(AO)C OMPLETED THE ASSESSMENT U/S.143(3) ON 05/ 03/2014,DETERMINING ITS INCOME AT RS. 3.02 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT RESTRICTING THE CLA IM OF DEPRECIATION ON BUILDING AT RS.11.84 LAKHS AS AGAINST RS. 23.68 LAKHS,U/S.32 OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD SHOWN ADDITION TO IMMOVABLE PROPERTY AT RS. 4.73 CRORES, THAT IT HAD CLAIMED DEPRECIATION OF RS.23.68 LAKHS THERE ON FOR THE YEAR UNDER APPEAL. HE DIRECTED THE ASSESSEE TO FILE DETAILS IN THAT REGARD WITH SUPPOR TING EVIDENCES. AFTER CONSIDERING ITS LETTER,DATED 27/02/2014,THE AO OBSERVED THAT THE AGREEMENT TO PU RCHASE THE FLATS WAS EXECUTED ON 05/08/ 2010,THAT FROM THE COPY OF SANCTION OF CREDIT FACIL ITY FROM STATE BANK OF INDIA IT WAS CLEAR THAT BIPIN N SAGAR(BNS)WAS THE OWNER OF THE SAID PROPERT Y AS ON 15/10/2010, THAT THE ASSESSEE HAD PAID THE SOCIETY CHARGES FROM THE MONTH OF NUMBER 2 010, THAT THE PROPERTY IN QUESTION WAS PUT TO USE FOR LESS THAN SIX MONTHS, THAT THE CLAIM MADE B Y THE ASSESSEE FOR DEPRECIATION ON IMMOVABLE PROPERTY FOR THE WHOLE YEAR WAS NOT ACCEPTABLE. ACC ORDINGLY HE RESTRICTED THE DEPRECIATION RS. 11, 84,075/-. 5349/M/14(11-12) SNC JEWELS 2 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,HE HELD THAT THE ASSESSEE HAD PURCHASED THE IMMOVABLE PROPERTY IN AUGUST,2010 THAT THE ASSESSEE HAD PURCHASED THE FLATS AS PER THE POSSESSION LETTE R DATED 27/08/2010,THAT IT WAS ELIGIBLE TO OCCUPY THE FLATS FROM THE SAID DATE,THAT NO EVIDENC E WAS SUBMITTED BEFORE THE AO OR BEFORE HIM TO PROVE THAT ASSESSEE HAD OCCUPIED THE FLATS FOR T HE GUESTHOUSE PURPOSES, THAT THE PERUSAL OF THE BANK ACCOUNT AND OTHER DOCUMENTS PROVE THAT PROPERT Y WAS IN THE NAME OF BNS AS ON 15/ 10/ 2010,THAT THE ASSESSEE PAID SOCIETY CHARGES IN THE MONTH OF NOVEMBER 2010, THAT IT HAD TAKEN ACTUAL POSSESSION OF THE PROPERTY IN THE MONTH OF N UMBER 2010 WHICH WAS LESS THAN SIX MONTHS, THAT THE AO WAS JUSTIFIED IN RESTRICTING THE DEPREC IATION TWO RS. 11.84 LAKHS. 2.2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT THE ASSESSEE HAD PURCHASED THE FLATS FOR ITS GUESTHOUSE IN AUGUST 2010, THAT LAST INSTALMENT WAS PAID ON 27/08/2010, THAT THE POSSESSION LATER WAS ISSUED ON THE SAME DATE, IT WAS PUT TO USE IN THE MONTH OF AUGUST,2010, THAT THE PAYMENT OF SOCIETY B ILL COULD NOT PROVE THE DATE OF POSSESSION. HE REFERRED TO THE PAGES 73, 74, 81 AND 91 OF THE P APER-BOOK. THE DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT THERE WAS NO EVIDENCE TO PROVE THA T BANK STATEMENT WERE WRONG, THAT SOCIETY CHARGES WERE PAID IN THE MONTH OF OCTOBER, 2010, TH AT BNS WAS IN POSSESSION OF THE PROPERTY TILL OCTOBER,2010. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND ASSESSEE HAD PURCHASED THREE FLATS IN GLEN EAGLE CO-OPERATIV E HOUSING SOCIETY VIDE SALE DEEDS DATED 05/08/2010, THAT BNS HAD HANDED OVER THE POSSESSION TO THE ASSESSEE ON 27/08/2010 (PAGE 73 OF THE PB),THAT AS PER THE MEMORANDUM OF TRANSFERS OF THE SHARES OF THE SOCIETY THE SHARES WERE TRANSFERRED TO THE ASSESSEE ON 14/08/2010, THAT THE AO AND THE F AA REFERRED TO THE SOCIETY BILL DATED 8/10/2010,THAT THEY HELD THAT ASSESSEE HAD US ED THE PREMISES FOR A PERIOD LESS THAN SIX MONTHS. IN OUR OPINION,THE CONFUSION HAS ARISEN BEC AUSE OF THE SOCIETY BILL, DATED 8/10/2010. WE FIND THAT THE BILL WAS ISSUED IN THE NAME OF BNS, T HOUGH HE WAS NOT IN POSSESSION OF THE PROPERTY AFTER AUGUST, 2010 AND THAT THE BILL WAS RAISED FOR THE PERIOD FOR JULY,2010 TO DECEMBER,2010. AS THE SALE OF THE FLATS WAS ALSO IN POSSESSION OF THE PROPERTY DURING THE SAID PERIOD, SO, THE BILL WAS ISSUED IN HIS NAME.BUT, DURING THE INTERVENING PERI OD, HE HAD HANDED OVER THE POSSESSION TO THE ASSESSEE. IT IS ALSO A FACT THAT SOCIETY MAINTENANC E CHARGES,AMOUNTING RS. 2.37 LAKHS WERE PAID BY 5349/M/14(11-12) SNC JEWELS 3 THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE FAA WAS NOT JUSTIFIED IN HOLDING THAT BNS WAS THE OWNER OF THE PROPERTY TILL OCTOBER,2010. THE POSSESSION LETTER CLEARLY ESTABLISHES THE FACT OF OWNERSHIP OF THE FLATS BY T HE ASSESSEE IN THE MONTH OF AUGUST, 2010. THEREFORE, REVERSING THE ORDER OF THE FAA WE HOLD T HAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION OF RS. 23.68 LAKHS.FIRST GROUND OF APPEAL IS DECIDE D IN FAVOUR OF THE ASSESSEE. 3. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE OF PR OFESSIONAL FEES OF RS. 70,000 PAID FOR COMPILATION OF SHARE PURCHASE AGREEMENT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD DEBITED AND AMOUNT OF RS. 9.2 LAKH S ON ACCOUNT OF LEGAL AND PROFESSIONAL SERVICES.HE DIRECTED HIM TO SUBMIT PARAWISE DETAILS ALONG WITH THE PURPOSE FOR WHICH EXPENDITURE WAS INCURRED AND DETAILS OF THE TAX DED UCTED AT SOURCE.AFTER CONSIDERING THE SAME, HE HELD THAT THE ASSESSEE HAD PAID RS. 70,000/- RSM AS TUTE CONSULTING PRIVATE LTD FOR COMPILATION OF SHARE PURCHASE AGREEMENT. HE WAS OF THE OPINION THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE.ACCORDINGLY,HE ASKED THE ASSESS EE TO EXPLAIN AS TO WHY SAME SHOULD NOT BE DISALLOWED.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO OBSERVED THAT THE EXPENDITURE WAS INCURRED FOR SECTORIAL WORK IN RELA TION TO CHANGE TO THE INTERNAL SHARE PATTERN OF THE COMPANY,THAT THE EXPENSES INCURRED BY THE ASSES SEE WAS LIABILITY OF THE SHAREHOLDERS, THAT THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSES OF THE BUSINESS CARRIED OUT BY IT.HE DISALLOWED RS. 70,000 PAID TO THE CONSULTI NG FOR AND ADDED THAT IT TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT ASSESSEE HAD INCURRED THE EXPENDITURE FOR SECTORIAL WORK IN RELATION TO CHANGE IN THE INTERNAL SHAREHOLDING PATTERN OF THE COMPANY, THAT THE EXPENDITURE WAS CAPITAL NATURE, THAT THE AO HAD HELD THAT SAME DID NOT RELATE TO THE BUSINES S OF THE ASSESSEE. BEFORE HIM THE ASSESSEE STATED THAT IT HAD NO OBJECTION IN TREATING THE EXP ENDITURE AS CAPITAL EXPENDITURE. ACCORDINGLY HE HELD THAT AMOUNT IN QUESTION SPENT BY THE ASSESSEE FOR CHANGING THE INTERNAL SHAREHOLDING PATTERN OF THE COMPANY WAS A CAPITAL EXPENDITURE. 3.2. BEFORE US, THE AR ARGUED THAT THE EXPENDITURE INCUR RED BY THE ASSESSEE WAS DIRECTLY RELATED WITH THE CARRYING ON BUSINESS OF THE ASSESSEE, THAT THE FAA HAD WRONGLY TREATED IT AS CAPITAL EXPENDITURE.THE DR SUPPORTED THE ORDER OF THE FAA. 5349/M/14(11-12) SNC JEWELS 4 WE FIND THAT THE FAA HAS MENTIONED THAT THE AR OF T HE ASSESSEE HAD STATED THAT THERE WAS NO OBJECTION IF THE DISPUTED AMOUNT WAS TREATED AS CAP ITAL EXPENDITURE, THAT ACCORDINGLY HE HELD THAT EXPENDITURE WAS CAPITAL IN NATURE. BEFORE US, THE A SSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT ITS AR HAS MADE NO CONCESSION BEFORE THE FAA.T HERE WAS NO REASON FOR THE FAA TO TREAT THE EXPENDITURE IN QUESTION AS CAPITAL EXPENDITURE,IF T HE AR HAD NOT MADE THE CONCESSION. THEREFORE, IN OUR OPINION, SECOND GROUND RAISED BY THE ASSESSE E DESERVES TO BE DISMISSED. 4. LAST GROUND OF APPEAL IS ABOUT DISALLOWING A SUM OF RS. 5,872/-, BEING THE DIFFERENCE BETWEEN RS.12,000 (INTEREST)AND RS. 6,128/-(AMOUNT CREDITED IN THE P&L ACCOUNT) BASED ON THE INFORMATION FROM THE AIR DATABASE. 4.1. BEFORE US,IT WAS CONTENDED THAT THE AO AND THE FAA HAD FAILED TO TAKE INTO CONSIDERATION THAT RS. 10,800/-(RS. 12,000 LESS TDS) PERTAIN TO I NTEREST ON SECURITY DEPOSIT RECEIPTS FROM TATA POWER CO.LTD. DURING THE YEAR, THAT SAME HAD BEEN A DJUSTED AGAINST THE ELECTRICITY BILL PERTAINING THE SAME PERIOD, THAT IT HAD DEBITED A NET AMOUNT O F RS. 3 LAKHS IN THE APPEAL AND ACCOUNT AFTER SETTING OFF THE INTEREST OF RS. 12,000/-, THAT RS. 6,128/-PERTAIN TO INTEREST RECEIVED ON WATER DEPOSIT THAT WAS TAXABLE AND THEREFORE CREDITED TO THE P&L ACCOUNT. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. AFTER CONSIDERING THE AVAILABLE MATERIAL, WE ARE OF THE OPINION THAT MATTER NEEDS FURTHER VERIFICA - TION BY THE AO. THEREFORE, IN THE INTEREST OF JUSTI CE, WE ARE RESTORING THAT THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. HE IS DIRECTED TO AF FORD A REASONABLE OF URGENCY OF INTO THE ASSESSEE.THIRD GROUND IS DECIDED IN FAVOUR OF THE A SSESSEE, IN PART AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN TH E OPEN COURT ON 3 RD MAY,2017. 3 ,2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03.05.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 5349/M/14(11-12) SNC JEWELS 5 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.