Classic Motors Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5384/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7335 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 1
• Next Hearing Date: 15-06-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 01-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V R SONBHADRA
• Assessee Lawyers: P N MEHTA
• Keywords: Business income; Depreciation; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-I : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER ITA NO.5384/DEL/2014 ASSESSMENT YEAR : 2010-11 CLASSIC MOTORS PVT. LTD., 101, COMPETENT HOUSE, F-14, CONNAUGHT PLACE, NEW DELHI. PAN: AABCC9312R VS. ITO, WARD-3(2), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.N. MEHTA, CA DEPARTMENT BY : SHRI V.R. SONBHADRA, SR. DR DATE OF HEARING : 15. 06.2016 DATE OF PRONOUNCEMENT : 16.06.2016 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 31.7.2014 IN RELATION TO TH E ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE SUSTENANCE OF DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES AT RS.2,75,844/- ITA NO.5384/DEL/2014 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE CLAIMED DEDUCTION FOR VARIOUS EXPENSES AMOUNTING TO RS.36,9 7,995/-. THESE EXPENSES INCLUDED REPAIRS AND MAINTENANCE (OFFICE A ND OTHERS) AT RS.5,62,797/-. THE AO OBSERVED THAT THE ASSESSEE H AD CLAIMED 30% DEDUCTION ON ACCOUNT OF INCOME FROM HOUSE PROPERTY AND, HENCE, REPAIRS AND MAINTENANCE EXPENSES WERE NOT ALLOWABLE . HE, THEREFORE, MADE ADDITION OF RS.5,62,797/-. THE LD. CIT(A) NOT ICED THE DETAILS OF REPAIRS AND MAINTENANCE EXPENSES AMOUNTING TO RS.5, 62,797/- WHICH HAVE BEEN REPRODUCED ON PAGE 3 OF THE IMPUGNED ORDE R. A CHART HAS BEEN DRAWN ON PAGE 7 OF THE LD. CIT(A)S ORDER IN W HICH REPAIRS AND MAINTENANCE EXPENSES HAVE BEEN SEGREGATED IN RESPE CT OF FOUR PROPERTIES WITH FURTHER BREAK-UP ABOUT THE NATURE O F EXPENSES. THE LD. CIT(A) UPHELD THE ADDITION TO THE EXTENT OF RS.2,75 ,844/- REPRESENTING REPAIRS EXPENSES AMOUNTING TO RS.9,799/- IN RELATIO N TO THE PROPERTY AT 5, BHIKAJI CAMA PLACE AND 50% ON PROPERTY AT A-38, MOH AN COOPERATIVE, MATHURA ROAD, NEW DELHI. THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF DISALLOWANCE TO THIS EXTENT. ITA NO.5384/DEL/2014 3 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. ON A SPECIFIC QUERY, THE LD. AR ADMITTED THAT PROPERTY AT 5, BHIKAJI CAMA PLACE WAS PARTLY LET OU T AND PARTLY USED AS THE ASSESSEES REGISTERED OFFICE. OUT OF TOTAL ARE A OF THIS PROPERTY AT 177.25 METRES, THE AREA LET OUT WAS OF 105.44 METRE S. THE LD. AR ALSO ADMITTED THAT THE PROPERTY AT A-39, MOHAN COOPERATI VE, MATHURA ROAD, WAS LET OUT AND WAS NOT USED FOR THE PURPOSES OF BU SINESS. SINCE THE ASSESSEE HAS EARNED RENTAL INCOME OF OVER RS.60 LAC AND CLAIMED STANDARD DEDUCTION @ 30%, THERE CANNOT BE ANY QUEST ION OF ALLOWING ANY REPAIRS AND MAINTENANCE OF THE PROPERTIES WHICH HAVE BEEN LET OUT. THE LD. CIT(A) HAS DISALLOWED 50% OF REPAIRS AND MA INTENANCE EXPENSES IN RELATION TO THE PROPERTY AT A-38, MOHAN COOPERAT IVE, MATHURA ROAD, WHICH WAS STATED BY THE LD. AR TO HAVE BEEN USED FO R BUSINESS PURPOSE. AS AGAINST THAT, THE CLAIM OF THE ASSESSEE IS THAT THIS PROPERTY WAS NOT USED FOR LETTING OUT AND, HENCE, NO DISALLOWANCE BE MADE TO THIS EXTENT. AS THE NECESSARY DETAILS OF EXPENSES INCURRED IN RE SPECT OF THE PROPERTIES LET OUT ARE NOT SPECIFICALLY AVAILABLE, I CONSIDER IT EXPEDIENT TO SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FI LE OF AO FOR ITA NO.5384/DEL/2014 4 RESTRICTING THE DEDUCTION QUA THE PROPERTIES USED FOR THE BUSINESS PURPOSE. THE AO IS DIRECTED TO FIRST IDENTIFY THE PROPERTIES LET OUT FULLY OR PARTLY AND, THEN, DISALLOW THE REPAIRS AND MAINT ENANCE EXPENSES RELATABLE TO SUCH LET OUT PROPERTIES. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARD. 5. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALLO WANCE AT RS.6,17,549/- OUT OF ADMINISTRATIVE EXPENSES. THE ASSESSEE CLAIMED ADMINISTRATIVE EXPENSES COMPRISING OF ADVERTISEMENT EXPENSES, LEGAL & PROFESSIONAL, PRINTING AND STATIONERY AND TRAVELLIN G EXPENSES, ETC., AMOUNTING TO RS.36,97,995/-. THE AO OBSERVED THAT T HE BUSINESS INCOME OF THE ASSESSEE FROM FUN AND FAIR GAME AMOUNTED TO RS.76,189/- ONLY AND, AS AGAINST THAT, EXPENSES TO THE TUNE OF RS.31 .35 LAC, EXCLUSIVE OF REPAIRS AND MAINTENANCE, WERE CLAIMED TO HAVE BEEN INCURRED. HE, THEREFORE, MADE DISALLOWANCE @ 25% OF THESE EXPENS ES. THE LD. CIT(A) REDUCED THE DISALLOWANCE TO RS.6,17,549/- BY EXCLUD ING THE AMOUNT VOLUNTARILY ADDED BACK BY THE ASSESSEE IN ITS COMPU TATION OF INCOME. ITA NO.5384/DEL/2014 5 THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF ADDITION TO THIS EXTENT. 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE AO HAS MADE AN AD HOC 25% DISALLOWANCE OF EXPENSES BY OBSERVING THAT THE REVE NUE FROM THE BUSINESS WAS MUCH LESS THAN THE EXPENSES INCURRED. APART FROM THAT, HE HAS NOT DISPUTED THE FACTUM OF THE ASSESSEE HAVING ACTUALLY INCURRED THESE EXPENSES FOR THE PURPOSE OF ITS BUSINESS. SIM PLY BECAUSE THE BUSINESS RECEIPTS ARE LESS, CANNOT BE A REASON TO D ISALLOW THE EXPENDITURE INCURRED OTHERWISE FOR THE PURPOSE OF BUSINESS. I, THEREFORE, ORDER TO DELETE THE DISALLOWANCE OF RS.6,17,549/- SUSTAINED IN THE FIRST APPEAL. THIS GROUND IS ALLOWED. 7. THE LAST GROUND IS AGAINST THE DISALLOWANCE OF D EPRECIATION AMOUNTING TO RS.8,34,010/-. THE ASSESSEE CLAIMED DE PRECIATION AMOUNTING TO 36,28,209/-. THE AO NOTICED THAT THE MAJOR PORTION OF DEPRECIATION WAS ON PLANT AND MACHINERY, VEHICLES, GAMES AND TOY MAINTENANCE AND COMPUTERS ETC. SINCE THE ASSESSEE WAS CARRYING ON THE ITA NO.5384/DEL/2014 6 BUSINESS OF GAME AND TOY MACHINES, THE AO ALLOWED D EPRECIATION ON GAMES AND TOY MACHINE AT RS.2,92,170/-. 50% OF THE REMAINING DEPRECIATION WAS DISALLOWED. THE LD. CIT(A) RESTRI CTED THE DISALLOWANCE TO 25%. THE ASSESSEE IS AGGRIEVED AGAINST THE SUST ENANCE OF REMAINING AMOUNT OF DEPRECIATION. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS NOTED FROM THE IMPUGNED O RDER THAT THE ASSESSEE CLAIMED DEPRECIATION UNDER THE `BUILDING BLOCK IN RESPECT OF THREE BUILDINGS, WHICH WERE USED FOR THE BUSINESS PURPOSE . IT SHOWS THAT DEPRECIATION ON THE LET OUT BUILDING(S) WAS NOT CLA IMED. AS REGARDS DEPRECIATION ON OTHER ASSETS, I FIND THAT THE AO HA S HERE AGAIN GIVEN SIMILAR REASONING FOR RESTRICTING THE DEPRECIATION BY OBSERVING THAT THE BUSINESS ACTIVITY WAS AT A LOWER LEVEL. ONCE THERE ARE ASSETS INCLUDING PLANT AND MACHINERY, VEHICLES, COMPUTERS, ETC., WHI CH ARE BEING USED FOR THE PURPOSE OF BUSINESS FROM EARLIER YEARS, THE AO CANNOT DISALLOW DEPRECIATION ON SUCH ASSETS SIMPLY BY PRESUMING THA T SUCH ASSETS MUST NOT HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. TH E AO HAS ADMITTED ITA NO.5384/DEL/2014 7 THAT THE ASSESSEE CARRIED ON THE BUSINESS ACTIVITY OF GAME AND TOYS. I AM UNABLE TO APPRECIATE AS TO HOW THIS BUSINESS UNDER THE GIVEN CIRCUMSTANCES CAN BE CARRIED ON WITHOUT THE PLANT A ND MACHINERY, VEHICLE, COMPUTERS, ETC., ALL OF WHICH ARE NECESSA RY ITEMS FOR CARRYING ON THE BUSINESS ACTIVITY. IN MY CONSIDERED OPINION , THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN RESTRICTING THE DEPRECIATION ON AD HOC BASIS WHEN THE ASSETS WERE USED FOR THE BUSINESS PURPOSE. I O RDER FOR THE DELETION OF ADDITION. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.06.201 6. SD/- [R.S. SYAL] ACCOUNTANT MEMBER DATED, 16 TH JUNE, 2016. DK ITA NO.5384/DEL/2014 8 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.