RADIO ELECTRIC P. LTD, MUMBAI V. ITO 5(3)(1), MUMBAI

ITA 5400/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6231 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2002-2003
• Appeal Filed On: 29-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Change of opinion
• Section: 143(3); 80IB; 32; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 5400/MUM/2009 ASSESSMENT YEAR-2002-03 M/S. RADIO ELECTRIC PVT. LTD., LAMINGTON CHAMBERS, LAMINGTON ROAD, MUMBAI-400 004 PAN-AABCR 3403J THE ITO 5(3)-1, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI DEEPAK TRALSHAWALA RESPONDENT BY: SHRI JITENDRA YADAV O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 28.07.2009 PASSED BY THE LD. CIT(A)-V FOR TH E ASSESSMENT YEAR 2002-03. 2. THE APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF THE LD. CIT(A) UPHOLDING THE REASSESSMENT AND DISALLOWANCE OF DEPR ECIATION OF RS. 1,46,270/- AND INTEREST OF RS. 1,58,309/-ON BORROWI NGS FOR ACQUIRING THE PREMISES . 3. THE RELEVANT FACTS ARE THAT THE APPELLANT COMPAN Y ENTERED INTO AN AGREEMENT FOR THE PURCHASE OF ONE FLAT AT CHENNAI I N A HOUSING PROJECT BEING DEVELOPED BY M/S ALACRITY HOUSING LIMITED ON 29.3.2000. FOR THE PURCHASE OF FLAT APPELLANT HAS ARRANGED LOANS FROM CITY BANK. THIS FLAT WAS PURCHASED IN THE NAME OF ITS MANAGING DIRECTOR SHRI UMESH D ITA NO. 5400/M/2009 2 MARATHE. THE APPELLANT CLAIMED THAT THE SAID FLAT C OULD NOT BE PURCHASED IN THE NAME OF ENTITY WITH LIMITED LIABILITY AND TH EREFORE IT WAS DECIDED TO PURCHASE THE FLAT IN THE NAME OF DIRECTOR MR. UMESH D. MARATHE. ACCORDING TO THE APPELLANT, FLAT WAS READY FOR POS SESSION IN THE MONTH OF DECEMBER, 2000 BUT POSSESSION WAS NOT TAKEN IN THE FINANCIAL YEAR 2000-01 DUE TO NON COMPLETION OF TAKING NO OBJECTIO N CERTIFICATE FROM THE LOCAL AUTHORITIES. THE APPELLANT CLAIMED THAT IT T OOK THE POSSESSION OF THE FLAT IN THE CURRENT PREVIOUS YEAR. THE APPELLANT S UBMITTED THAT THERE IS MOU BETWEEN THE APPELLANT AND ITS DIRECTOR SHRI UM ESH D MARATHE WHICH CLEARLY STATES THAT ALL THE RIGHTS AND OBLIGA TIONS IN THE SAID PROPERTY ARE THAT OF THE COMPANY ONLY. 4. IN THE ASSESSMENT YEAR 2001-02, THE APPELLANT CL AIMED DEDUCTION OF RS 1,48,862/- ON ACCOUNT OF INTEREST PAID ON AMO UNTS BORROWED FOR THE PURCHASE OF FLAT. NO DEPRECIATION WAS CLAIMED IN THE ASSESSMENT YEAR 2001-02 SINCE THE ASSET WAS NOT PUT TO USE IN THAT YEAR. HOWEVER IN THE CURRENT YEAR APPELLANT CLAIMED INTEREST OF RS. 1,58 ,309/- AND DEPRECIATION OF RS 1,46,270/- ON THE GROUND THAT T HE SAID FLAT IS USED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. 5. IN THE ASSESSMENT YEAR 2001-02, THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE APPELLANT FOR INTEREST EXPENSE IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT. HOWEVER CIT-5 MUMBAI INVOKED THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT AND HELD IN THE ORDER DATED 8.11.2005, THAT THE APPELLA NT IS NOT THE OWNER OF THE FLAT. CIT FURTHER HELD THAT INTEREST CANNOT BE ALLOWED AS THE FLAT HAS NOT BEEN PUT TO USE IN THAT YEAR. IN ADDITION TO T HIS CIT ALSO HELD THAT THE APPELLANT IS NOT ALLOWED TO CLAIM DEDUCTION ON ACCOUNT OF INTEREST PAID AS THE FLAT HAS NOT BEEN PUT TO USE IN THE SAI D YEAR. 6. THE FIRST ISSUE IS AGAINST THE REOPENING OF ASSE SSMENT. BASED ON THE FINDING OF THE CIT, THE ASSESSING OFFICER FORME D THE OPINION THAT THE ITA NO. 5400/M/2009 3 APPELLANT IS NOT ENTITLED TO ANY DEDUCTION ON ACCOU NT OF INTEREST PAID ON LOANS USED FOR THE PURCHASE OF FLAT AND ALSO DEPREC IATION ON THE SAID FLAT. FURTHER ACCORDING TO THE ASSESSING OFFICER THE APPE LLANT CANNOT CLAIM DEDUCTION UNDER SEC. 80IB OF THE INCOME TAX ACT ON VASAI UNIT ON INTEREST INCOME OF RS 14,777/- AND THE ASSESSING OF FICER FOUND THAT THE APPELLANT HAS CLAIMED EXCESS DEDUCTION OF RS 4,433/ - UNDER SECTION 80IB OF THE INCOME TAX ACT. THE ASSESSING OFFICER RE OP ENED THE ASSESSMENT PROCEEDINGS FORMING THE BELIEF THAT INCOME CHARGEAB LE TO TAX HAS ESCAPED ASSESSMENT AND ISSUED NOTICE UNDER SECTION 148 OF T HE INCOME TAX ACT ON 29.3.2007. 7. BEFORE THE LD.CIT(A) THE ASSESSEE ARGUED THAT IN ITS CASE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E INCOME TAX ACT ON 25.2.2005 AND ALL THE DETAILS WERE FURNISHED BY THE APPELLANT REGARDING THE PURCHASE OF PREMISES AND TAKING OF LO AN VIDE LETTER DATED 10.2.2005. THE APPELLANT EXPLAINED THAT IT CORRECTL Y CLAIMED THE DEDUCTION ON ACCOUNT OF INTEREST PAID AND ON ACCOUN T OF DEPRECIATION AS IT IS THE REAL OWNER OF THE FLAT AND FLAT HAS BEEN USED BY THE APPELLANT FOR THE PURPOSE OF ITS BUSINESS. THE APPELLANT SUBMITTE D THAT AS PER DECISION OF THE DELHI HIGH COURT IN THE CASE OF KELVINATOR O F INDIA 256 ITR 1, WHERE ASSESSMENT IS FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT IT IS PRESUMED THAT THE ASSESSING OFFICER HAS LOOKED I NTO ALL ASPECTS AND ASSESSMENT MADE CANNOT BE REOPENED UNLESS THE ASSES SEE HAS FAILED TO DISCLOSE ALL THE FACTS NECESSARY FOR ASSESSMENT FUL LY AND TRULY. THE APPELLANT SUBMITTED THAT NOTICE UNDER SEC. 148 HAS BEEN ISSUED ON THE BASIS OF CHANGE OF OPINION. ACCORDINGLY SUBMITTED THAT NOTICE ISSUED IS NOT VALID NOTICE. 8. THE CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND GONE THROUGH THE REASONS RECORDED BY THE ASSESSING OFFICER AT THE TIME O ISSUE OF NOTICE UNDER SECTION 148 OF THE INCOME TAX ITA NO. 5400/M/2009 4 ACT. THE MAIN REASONS FOR ISSUE OF THIS NOTICE IS T HE ORDER PASSED BY THE CIT-V MUMBAI UNDER SECTION 263 OF THE INCOME TAX ACT ON 8.11.2005, DISALLOWING INTEREST EXPENSES IN ASSESSMENT YEAR 2001-02. THE FLAT IS IN THE NAME O F THE DIRECTOR. THE PAYMENT FOR THE SAME HAS BEEN MADE B Y THE APPELLANT COMPANY. THE FACT IS THAT THE FLAT HAS BE EN PURCHASED IN THE NAME OF THE DIRECTOR AND NOT IN TH E NAME OF APPELLANT COMPANY. THERE IS NO EVIDENCE THAT FLAT IS REGISTERED IN THE NAME OF APPELLANT. THEREFORE AP PELLANT CANNOT BE TREATED AS OWNER OF THE FLAT. SINCE THE A PPELLANT IS NOT THE OWNER OF THE FLAT THE APPELLANT IS NOT ENTI TLED TO CLAIM DEPRECIATION AND CLAIM DEDUCTION FOR INTEREST PAID ON LOANS TAKEN FROM CITI BANK FOR THE PURCHASE OF FLAT. NOTI CE IN THE PRESENT CASE HAS BEEN ISSUED WITHIN A PERIOD OF FOU R YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THERE FORE THE ASSESSING OFFICER IS COMPETENT TO ISSUE NOTICE IF I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT EVEN IF TH ERE IS NOT FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FU LLY AND TRULY ALL FACTS NECESSARY FOR ASSESSMENT. THE CIT-V MUMBA I IN THE ORDER UNDER SECTION 263, HAS ALREADY HELD THAT THE APPELLANT IS NOT ENTITLED INTEREST ON THE LOANS AS THE APPELL ANT IS NOT THE OWNER OF THE FLAT. ON THESE FACTS IT CANNOT BE SAI D THAT THE ASSESSING OFFICER HAS ISSUED THE NOTICE ON THE BAS IS OF CHANGE OF OPINION. THE APPELLANT CANNOT RELY ON THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDI A 256 ITR 1 AS THERE ARE REASONS WITH THE ASSESSING OFFICER TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. ACCORDINGLY IT IS HELD THAT NOTICE UNDER SECTION 14 8 OF THE INCOME TAX ACT ON 29.3.2007 IS A VALID NOTICE. THE SE GROUNDS ARE NOT ALLOWED. 9. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. T HE FIRST ISSUE IS AGAINST THE REOPENING OF ASSESSMENT. THE AO HAD REO PENED THE ASSESSMENT FOR TWO REASONS. ONE WAS ALLOWANCE OF IN TEREST AND DEPRECIATION IN RESPECT OF A FLAT WHICH WAS IN THE NAME OF THE DIRECTOR AND THE OTHER REASON WAS THAT IN COMPUTING THE RELI EF U/S 80 HHC WAS CLAIMED WITHOUT DEDUCTING THE RELIEF GRANTED U/S 80 IB. FURTHER INTEREST TO THE EXTENT OF RS. 34,117/-WAS INCLUDED IN COMPUT ING THE RELIEF U/S 80- IB. HOWEVER WE FIND THAT THE ASSESSEE HAS NOT QUEST IONED THE EXCLUSION OF INTEREST IN COMPUTING THE RELIEF U/S 80IB IN THE REOPENED ASSESSMENT. ITA NO. 5400/M/2009 5 IN THE CIRCUMSTANCES IF REOPENING IN RESPECT OF ONE OF THE ISSUES HAS BEEN ACCEPTED BY THE ASSESSEE, IT MEANS THAT IN RESPECT OF THAT ISSUE THE REOPENING HAS BEEN VALIDLY DONE AND THEREFORE THE A SSESSEE CANNOT QUESTION THE REOPENING OF THE ASSESSMENT IN RESPECT OF OTHER ISSUES. IN THE CIRCUMSTANCES, THE FIRST GROUND REGARDING REOPE NING IS HELD AGAINST THE ASSESSEE. 10. THE NEXT GROUNDS OF THE APPEAL ARE AGAINST THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF INTEREST AND DEPRECI ATION TO THE APPELLANT ON THE FLAT AT CHENNAI CITY WHICH IS USED AS OFFICE BY THE APPELLANT COMPANY. THE AO AND THE LD.CIT(A) HAVE HELD THAT AS THE APPELLANT IS NOT THE OWNER OF THE SAID FLAT THE ASSESSING OFFICE R HAS RIGHTLY NOT ALLOWED CLAIM OF THE APPELLANT FOR DEPRECIATION AND INTEREST PAID ON LOANS TAKEN BY THE PURCHASE OF FLAT. THEY HAVE DRAWN SUP PORT FROM A SIMILAR FINDING GIVEN BY CIT-V IN ORDER UNDER SECTION 263 D ATED 8.11.2005 FOR THE A.Y 2001-02. 11. AGGRIEVED THE ASSESSEE IS ON APPEAL. BEFORE US IT WAS CONTENDED THAT THE FLAT WAS PURCHASED FOR THE PURPOSE BEING U SED AS OFFICE OF THE ASSESSEE. AS THE BANK PROVIDING FINANCE WOULD NOT G RANT HOUSING LOANS TO COMPANIES, THE FLAT WAS PURCHASED IN THE NAME OF THE DIRECTOR. THE FLAT IS SHOWN AS FIXED ASSET OF THE COMPANY AND THE LOAN TAKEN IS SHOWN AS LIABILITY OF THE COMPANY. INTEREST PAID IS SHOWN AS A DEDUCTION IN THE BOOKS OF THE COMPANY. AGREEMENT DATED 6.4.2000 BETW EEN THE COMPANY AND THE DIRECTOR TO THE EFFECT THAT THOUGH THE FLAT IS PURCHASED IN THE NAME OF THE DIRECTOR, THE FLAT WILL BE OWNED BY THE COMPANY. 12. WE HEARD BOTH THE PARTIES. WE FIND THAT THE DEP ARTMENT HAS NOT QUESTIONED THE FACT THAT THE FLAT WAS USED AS THE O FFICE OF THE ASSESSEE COMPANY AND THE SAME WAS ACQUIRED FROM THE LOAN FUN DS BORROWED FROM THE BANK. THE LOAN HAS BEEN SHOWN AS A LIABILITY IN THE BOOKS OF THE ASSESSEE AND THE INTEREST AND REPAYMENT OF THE LOAN WAS BEING MADE BY ITA NO. 5400/M/2009 6 THE ASSESSEE. INTEREST PAYABLE ON THE LOAN AND DEPR ECIATION ON THE COST OF THE BUILDING WHICH HAS BEEN CLAIMED AS DEDUCTION BY THE ASSESSEE. THE MAIN REASON FOR DISALLOWANCE OF INTEREST ON BORROWI NGS TO ACQUIRE THE FLAT AT CHENNAI AND DEPRECIATION THEREON IS THAT THE COM PANY IS NOT THE REGISTERED OWNER OF THE FLAT. 13. THE APEX COURT IN THE CASE OF MYSORE MINERALS L TD VS CIT (239 ITR 775) WAS DEALING WITH A SIMILAR SITUATION. IN THAT CASE ALSO THE BUILDING WAS NOT REGISTERED IN THE NAME OF THE ASSESSEE BUT THE ASSESSEE WAS USING IT FOR THE PURPOSE OF ITS BUSINESS. THEY CLAI MED DEPRECIATION ON THE BUILDINGS WHICH WAS REFUSED BY THE DEPARTMENT ON TH E GROUND THAT THE BUILDING WAS NOT REGISTERED IN THE NAME OF THE ASSE SSEE. THE APEX COURT HELD THAT THE TERM `OWNER IN SEC 32(1) SHOULD BE A SSIGNED SUCH MEANING AS WOULD ENABLE THE ASSESSEE TO SECURE THE BENEFIT INTENDED TO BE GIVEN BY THE LEGISLATURE. ANYONE IN POSSESSION OF THE PRO PERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THERE FROM AND OCCUPY THE PROPERTY IN HIS OWN RIGHT WOULD BE THE OWNER OF THE BUILDING FOR THE PURPOSE OF SEC 32 (1) EVENTHOUGH A FORMAL DEED OF TITLE MAY NOT BE EXECUTED AND REGIST ERED. APPLYING THE RATIO OF THE APEX COURT TO THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE HAS BEEN EXERCISING DOMINION OVER THE PROPERTY TO T HE EXCLUSION OF THE OTHERS. MERELY BECAUSE THERE IS NO REGISTERED CONVE YANCE DEED, IT CANNOT BE SAID THAT THE ASSESSEE IS NOT THE OWNER OF THE B UILDINGS. IT BEING SO WE HAVE NO HESITATION IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION ON THE COST OF THE BUILDING AND DEDUCTION OF INTERE ST PAYABLE ON THE LOAN BORROWED FOR THE PURPOSE OF ACQUISITION OF THE PREM ISES. IN THE IMMEDIATELY PRECEDING YEAR THE INTEREST WAS DISALLO WED ON THE GROUND THAT THE BUILDING WAS NOT PUT TO USE. IN THIS YEAR THE ASSESSEE HAS USED THE BUILDINGS FOR THE PURPOSES OF THEIR BUSINESS. H ENCE THE DEPRECIATION ITA NO. 5400/M/2009 7 AND INTEREST CANNOT BE DISALLOWED MERELY ON THE GRO UND THAT IT WAS NOT ALLOWED IN THE EARLIER YEAR. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2010 SD/- SD/- (PRAMOD KUMAR) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 5400/M/2009 8 DATE INITIALS 1 DRAFT DICTATED ON: 24.11.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25.11.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______