M/s. Pace Industries Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6062/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5679 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Additional evidence
• Section: 271(1)(c); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER, AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER, ITA NO. 6062/DEL/2015 [ASSESSMENT YEAR: 2007-08] M/S PACE INDUSTRIES PVT. LTD.(FOR ERSTWHILE INSTITURE OF QUALITY LTD.), L2A, HAUZ KHAS ENCLAVE, NEW DELHI - 110016 DCIT, CIRCLE-11(1), NEW DELHI PAN - AAACI2845N APPELLANT RESPONDENT ASSESSEE BY SHRI ROHIT JAIN & SHRI DEEPESH JAIN & MS.MENAL GOYAL REVENUE BY SHRI NAINA SON I KAPIL CIT - DR DATE OF HEARING 06 /08 /2019 DATE OF PRONOUNCEMENT 08 /08 /2019 ORDER PER T. S. KAPOOR, ACCOUNTANT MEMBER, THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-4, DATED 17/09/2015. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ['CIT (A)] ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF DE PRECIATION OF RS.3,72,783 CLAIMED BY THE APPELLANT IN RESPECT OF BUILDING - I, 1.1 THAT THE CIT(A)/ ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT HAD DISALLOWED 50% OF ELIGIBLE DEPRECIATION AS PER SECTION 32(1 )(II) R.W.S 38(2) OF THE INCOME TAX ACT, 1961 (THE ACT)- 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING AD-HOC DISALLOWANC E TO THE EXTENT OF 50% OF EXPENSES AMOUNTING TO RS.22,56,316 PAID BY T HE APPELLANT 2 ITA NO.6062/DEL/2015 BETWEEN OCTOBER 2006 AND MARCH 2007, WITHOUT CONSID ERING THE NATURE OF SUCH EXPENDITURE AND THE PERIOD IN RELATI ON TO WHICH THE SAME HAD BEEN INCURRED, 2.1 THAT THE CIT(A)/ ASSESSING OFFICER FAILED TO APPRE CIATE THAT PROFESSIONAL CONSULTANCY FEES AMOUNTING TO RS. 14 ,87,669 (AND INCLUDED IN THE AFORESAID AMOUNT OF RS.22,56,316) R ELATED TO THE PERIOD WHEN THE BUSINESS WAS IN OPERATION. 2.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT AD MITTING AND CONSIDERING ADDITIONAL EVIDENCES FILED BY THE APPEL LANT UNDER RULE 46A OF THE INCOME TAX RULES. 1962 ('THE RULES), DESPIT E THE FACT THAT REMAND REPORT WAS RECEIVED THEREON FROM THE ASSESSI NG OFFICER. 2. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ASS ESSEE HAD DISCONTINUED ITS BUSINESS FROM OCTOBER 2006, THEREF ORE, THE ASSESSEE HAD CLAIMED DEPRECIATION ON BUILDING-1 @50% IN ACCORDAN CE WITH PROVISIONS OF SECTION 32(1) R.W.S 38(2) OF THE ACT. HOWEVER, T HE ASSESSING OFFICER DISALLOWED THE SAME BY HOLDING THAT THE CLAIM OF 50 % OF THE DEPRECIATION IS APPLICABLE ONLY TO THE ITEMS OF PURCHASE OF FIXE D ASSETS ACQUIRED DURING THE YEAR. THE LD. AR SUBMITTED THAT THE ORDER OF TH E ASSESSING OFFICER IS CONTRADICTORY IN ITSELF AS IN RESPECT OF DEPRECIATI ON ON OTHER FIXED ASSETS, THE ASSESSING OFFICER HAS HIMSELF RESTRICTED THE CL AIM OF THE ASSESSEE TO 50% ON THE BASIS OF PROVISIONS OF SECTION 38(2) OF THE ACT. THEREFORE, IT WAS PRAYED THAT THE ORDER OF THE LD. CIT(A) WHO HAD CONFIRMED THE ADDITION SHOULD BE SET-ASIDE. 3. ARGUING THE OTHER GROUND OF APPEAL, THE LD. AR S UBMITTED THAT THE CLAIM OF THE EXPENSES INCURRED BY THE ASSESSEE WERE DISALLOWED TO THE EXTENT OF 75% AS IN THE OPINION OF THE ASSESSING OF FICER, THESE WERE 3 ITA NO.6062/DEL/2015 INCURRED FROM OCTOBER 2006 TO MARCH 2007 WHEN THE B USINESS OF ASSESSEE WAS NOT BEING CARRIED OUT. THE LD. AR IN T HIS RESPECT FILED A CHART EXPLAINING THE HEADWISE EXPENSES AND ARGUED T HAT THESE EXPENSES WERE INCURRED BEFORE SEPTEMBER 2006 (WHEN THE BUSIN ESS WAS RUNNING) BUT THE PAYMENTS THEREOF WERE MADE DURING THE MONTH S BETWEEN OCTOBER 2006 TO MARCH 2007. 4. THE LD. AR IN THIS RESPECT SUBMITTED THAT THE AS SESSEE HAD FILED ADDITIONAL EVIDENCES UNDER RULE-46A WITH THE LD. CI T(A) AND THE LD. CIT(A) HAD OBTAINED REMAND REPORT FROM THE ASSESSIN G OFFICER ALSO, BUT HE HAS NOT DEALT WITH THE REMAND REPORT AND SIMPLY UPHELD THE DISALLOWANCES. THEREFORE, IT WAS PRAYED THAT THE AP PROPRIATE RELIEF MAY BE GRANTED TO THE ASSESSEE. 5. THE LD. DR ON THE OTHER HAND, PLACED HER RELIANC E ON THE ORDER OF AUTHORITIES BELOW. 6. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. AS REGARDS, GROUND NO. 1, WE FIND THAT THE ASSESSING OFFICER DID NOT ALLOW DEPRECIATION ON BUILDING MARK ED AS BUILDING NO.1 AS IN HIS OPINION, THE 50% DEPRECIATION CAN ONLY BEEN ALLOWED IN A CASE WHERE THE ASSET IS ACQUIRED DURING THE PREVIOUS YEA R AND THAT ASSET MUST HAVE BEEN PUT TO USE FOR BUSINESS PURPOSES. HE HELD THAT THE ASSESSEE DID NOT ACQUIRE BUILDING DURING THE YEAR AND THEREF ORE, THE CLAIM OF 4 ITA NO.6062/DEL/2015 DEPRECIATION WAS DISALLOWED. WE OBSERVE THAT IN RES PECT OF CLAIM OF DEPRECIATION AND OTHER ASSETS (WHERE THE ASSESSEE H AD CLAIMED 100% DEPRECIATION), THE ASSESSING OFFICER HIMSELF HAS RE STRICTED THE CLAIM OF DEPRECIATION TO 50% BY RELYING ON PROVISIONS OF SEC TION 38(2) OF THE ACT. THE FINDINGS OF THE ASSESSING OFFICER IN THIS RESPE CT ARE QUITE RELEVANT WHICH FOR THE SAKE OF COMPLETENESS ARE REPRODUCED B ELOW:- FURTHER, AS PER A CHART SUBMITTED BY THE ASSESSEE DETAILING MONTHWISE INCOME EARNED BY THE ASSESSEE UNDER VARIO US HEADS, IT IS OBSERVED THAT THE ASSESSEE WAS EARNING REVENU ES FROM ITS BUSINESS UNDER THE HEADS. TRAINING INCOME AND SEMIN AR INCOME ONLY TILL SEPTEMBER, 2006. THEREAFTER, THE ONLY SOU RCE OF REVENUE FOR THE ASSESSEE WAS RENTAL INCOME FROM OCTOBER, 20 06 TO MARCH, 2007. THIS RENTAL INCOME HAS BEEN OFFERED FOR TAXAT ION AS INCOME FROM HOUSE PROPERTY. SO IT CAN BE SAFELY CONCLUDED THAT THE ASSESSEE WAS ENGAGED IN BUSINESS ONLY TILL SEPTEMBE R, 2006 AND THEREAFTER WAS EARNING INCOME FROM HOUSE PROPER TY. SO THE ABOVE ASSETS WERE NOT BEING EXCLUSIVELY USED FOR TH E PURPOSE OF BUSINESS THROUGHOUT THE YEAR. IN THIS REGARD, THE PROVISIONS OF SECTION 38(2) OF THE IT ACT, 1961 ARE REPRODUCED BELOW. - 38(2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNITURE I S NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OR PRO FESSION, THE DEDUCTIONS UNDER CLAUSE (II) OF CLAUSE (A) AND CLAU SE (C) OF SECTION 30, CLAUSE (I) AND (II) OF SECTION 31 AND CLAUSE (I I) OF SUB-SECTION (1) OF SECTION 32 SHALL BE RESTRICTED TO A FAIR PROPORTIONATE PART THEREOF WHICH THE ASSESSING OFFICER MAY DETE RMINE HAVING REGARD TO THE USER OF SUCH BUILDING, MACHINERY, PLA NT OR FURNITURE FOR THE PURPOSES OF BUSINESS OR PROFESSION. SO IN VIEW OF THE ABOVE LAW, THE ASSESSEE CANT BE ALLOWED FULL CLAIM OF DEPRECIATION UNDER THE HEAD INCOME, AS HAS BEEN CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOM E. THEREFORE, EXERCISING THE POWERS GIVEN UNDER SECTION 38(2), TH E CLAIM OF THE ASSESSEE FOR DEPRECIATION UNDER THE HE AD INCOME FROM BUSINESS IS RESTRICTED TO 50% OF THE AMOUNT CL AIMED BY THE ASSESSEE. THIS 50% FIGURES HAS BEEN ARRIVED AT KEEP ING IN MIND THAT FOR THE PERIOD OF 6 MONTHS (APRIL-06 TO SEPT-0 6) THE ASSESSEE WAS CARRYING ON THE NORMAL BUSINESS ACTIVITIES OF C ONDUCTING TRAINING AND SEMINARS. FOR THE REMAINING 6 MONTHS ( OCT-06 TO 5 ITA NO.6062/DEL/2015 MARCH-07) THE ASSESSEE WAS NOT CARRYING THE BUSINES S BUT ITS SOURCE OF INCOME WAS RENT WHICH WAS OFFERED FOR TAX ATION UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS A 30% DEDUC TION IS ALLOWED U/S 24(A) FROM THE RENTAL INCOME SO IN A WA Y ALL THE EXPENSES INCLUDING DEPRECIATION IS ASSUMED TO BE SU BSUMED WITHIN THIS 30% DEDUCTION. THEREFORE, RESTRICTING T HE CLAIM TO 50%, A DEDUCTION ON ACCOUNT OF DEPRECIATION IS ALLO WED ONLY TO THE EXTENT OF RS.2,08,585/- (RS. 417770/- DIVIDED B Y 2). A S SUCH AN ADDITION OF RS.2,08,585/- IS MADE TO THE TOTAL I NCOME. SINCE THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS O F INCOME I AM SATISFIED THAT PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT SHOULD BE INITIATED WHICH ARE ACCORDINGLY DONE. 7. IN THE ABOVE FINDINGS, THE ASSESSING OFFICER HAS HIMSELF RESTRICTED THE CLAIM OF DEPRECIATION IN RESPECT OF OTHER ASSET S TO 50% BY HOLDING THAT ASSESSEE WAS INTO BUSINESS ONLY TILL SEPTEMBER 2006 . THEREFORE, THERE IS NO REASON FOR THE ASSESSING OFFICER TO DISALLOW THE CLAIM OF 50% DEPRECIATION IN RESPECT OF BUILDING MARKED AS BUILD ING NO.1. THEREFORE, WE REVERSE THE ORDER OF THE LD. CIT(A) TO THIS EXTENT AND ALLOW GROUND NO.1 OF THE APPEAL. 8. NOW COMING TO GROUND NO.2, WE FIND THAT THE ASSE SSING OFFICER HAS MADE A CATEGORICAL FINDING AT PAGE 7 OF HIS ORDER T HAT THE EXPENSES WERE INCURRED AFTER OCTOBER 2006. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD CLOSED ITS BUSINESS IN SEPTEMBER 2006. BEFORE US, T HE LD. AR HAS ARGUED THAT THESE EXPENSES WERE INCURRED BEFORE OCTOBER 20 06, HOWEVER, THE PAYMENTS WERE MADE DURING THE PERIOD OCTOBER 2006 T O MARCH 2007. WE ALSO OBSERVE THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCES UNDER RULE 46A WITH THE LD. CIT(A) AND LD. CIT(A) HAD ALSO OBT AINED THE REMAND REPORT FROM THE ASSESSING OFFICER WHICH HE HAS NOT MENTIONED IN HIS 6 ITA NO.6062/DEL/2015 ORDER, THEREFORE, WE DEEM IT APPROPRIATE TO REMIT T HE ISSUE BACK TO THE OFFICE OF THE LD. CIT(A) TO READJUDICATE THE ISSUE OF EXPENSES IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT ASSESSEE WILL BE PROVIDED SUFFICIENT OPPORTUNITY OF BEING HEARD. IN VIEW OF T HE ABOVE, GROUND NO.2 OF THE APPEAL FILED BY ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. 9. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08/08/ 2019. SD/- SD/- [BHAVNESH SAINI] [T.S. KAPOOR] JUDICIAL MEMBER ACCOUNTANT MEMBER DELHI; DATED: 08/08/2019. F{ F{F{ F{X~{T? X~{T? X~{T? X~{T? FA FA FA FA P.S P.SP.S P.S COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI