Bombay Cloth House, Kamareddy, Nizamabad V. ACIT, Circle-1, Nizamabad, Nizamabad

ITA 67/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6353 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 13-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 14-01-2016
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Keywords: Depreciation; Revenue expenditure
• Section: 143(3); 54; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. ASST. YEAR APPELLANT RESPONDENT 63/HYD/2016 2003 - 04 BOMBAY CLOTH HOUSE, KAMAREDDY [PAN: AAFFB4005P] THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I, NIZAMABAD 64/HYD/2016 2004 - 05 65/HYD/2016 2005 - 06 66/HYD/2016 2006 - 07 67/HYD/2016 2007 - 08 FOR ASSESSEE : SHRI A. SRINIVAS, AR FOR REVENUE : SHRI K.E. SUNIL BABU, DR DATE OF HEARING : 01-07-2016 DATE OF PRONOUNCEMENT : 06-07-2016 O R D E R THESE FIVE APPEALS ARE BY ASSESSEE AGAINST THE COMM ON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-5 , HYDERABAD DATED 30-10-2015 FOR AYS. 2003-04 TO 2007-08. THE ISSUE IN THESE APPEALS IS WHETHER THE ASSESSING OFFICER (AO) IS COR RECT IN RESTRICTING THE DISALLOWANCE IN THE PROCEEDINGS U/S. 1 54 OF THE INCOME TAX ACT [ACT]. 2. BRIEFLY STATED, ASSESSEE HAS FILED RETURNS OF INCOM E AND ASSESSMENTS HAVE BEEN COMPLETED IN THE RESPECTIVE ASS ESSMENT YEARS U/S. 143(3) R.W.S. 147. AO NOTICED THAT DEPREC IATION ON CERTAIN ITEMS WAS ALLOWED AT 100% AS AGAINST 10% OR 15% ALLOWABLE AND ACCORDINGLY ISSUED NOTICE U/S. 154 FO R AYS. 2003-04, 2004-05 & 2005-06. THE PROCEEDINGS IN AYS. 2006-07 & 2007-08 BOMBAY CLOTH HOUSE :- 2 -: ARE CONSEQUENTIAL IN NATURE TO THE ACTION OF TAKEN IN PR OCEEDINGS IN THREE ASSESSMENT YEARS. IN THE ORDER U/S. 154, IN THE IMPUGNED THREE ASSESSMENT YEARS ON 2003-04, 2004-05 & 2005-06 , THE DEPRECIATION ALLOWED AT 100% ON CERTAIN ITEMS IN THE ASS ESSMENT LIKE FALSE CEILING, ELEVATION FLOAT GLASS AND ELECTRIC AL FITTINGS WERE CONSIDERED BY THE AO AND RESTRICTED FOR DEPRECIATION T O 10% ON THE FIRST TWO ITEMS AND 15% ON THE LAST ITEM OF ELECTRICAL FITTINGS. EVEN THOUGH THE ORDER U/S. 154 STATES THAT OPPORTUNITIES WERE GIVEN, THERE WAS NO RESPONSE FROM ASSESSEE AND ACCORDINGLY AO RESTRICTED THE EXCESS DEPRECIATION ALLOWED, IN THE ORDER U/S. 154 . 3. BEFORE THE LD. CIT(A), IT WAS CONTENDED BY ASSESSEE THAT THE DEPRECIATION WAS CORRECTLY CLAIMED, THE SAME WAS ALLOW ED IN THE ORDER U/S. 143(3) R.W.S. 147 AND ALSO POINTED OUT THAT THE ASSESSMENT WAS REOPENED FOR THE PURPOSE OF VERIFICATIO N OF DEPRECIATION CLAIMS AND ACCORDINGLY THE AO AFTER DUE V ERIFICATION, ALLOWED THE CLAIMS AT 100%. THEREFORE, RECTIFICATION U /S. 154 BY THE SUBSEQUENT PROCEEDINGS IS NOT CORRECT IN LAW. ASSE SSEE ALSO RELIED ON THE DECISION OF THE HON'BLE APEX COURT IN TH E CASE OF CIT VS. MADRAS AUTO SERVICES (P) LTD., [233 ITR 468] (SC ) IN CLAIMING EXPENDITURE AT 100% ON THE PROPERTY, LEASED BY ASSESS EE ON THE ADDITIONS MADE TO THE LEASED PROPERTY. LD. CIT(A) HOW EVER, DID NOT AGREE WITH ASSESSEES CONTENTIONS AND MOSTLY REFERRING TO VARIOUS CASE LAW AND DISTINGUISHING THE JUDGMENT OF HON'BLE S UPREME COURT, UPHELD THE ACTION OF THE AO AND DISMISSED THE AP PEALS IN ALL THE IMPUGNED ASSESSMENT YEARS. ASSESSEE IS AGGRIEVED . BOMBAY CLOTH HOUSE :- 3 -: 4. LD. COUNSEL POINTED OUT REFERRING TO THE PROCEEDING S IN SECTION 143(3) R.W.S. 147 FOR AY. 2003-04 TO SUBMIT TH AT THE ASSESSMENT ITSELF WAS REOPENED FOR THE PURPOSE OF VERI FYING THE CLAIM OF DEPRECIATION AND REFERRED TO THE EXPLANATION G IVEN WHILE CLAIMING THE DEPRECIATION AT 100% ON THE FALSE CEILING , FLOAT GLASS AND ELECTRICAL FITTINGS, BEING MADE TO THE LEASED BUIL DING USED IN ASSESSEES BUSINESS OF CLOTH. HE ALSO REFERRED TO THE PROCEEDINGS U/S. 143(3) FOR AY. 2005-06 WHEREIN ALSO ASSESSEE H AS EXPLAINED TO THE AO ABOUT THE RATE OF DEPRECIATION. HE ALSO REFERR ED TO THE PAGE NO. 11 IN THE PAPER BOOK, WHEREIN IT WAS SPECIFICALLY STATED THAT THE DEPRECIATION FOR THE CURRENT YEAR AT RS. 23,800/- WA S CLAIMED AT 100% WHICH REPRESENTS ELECTRICAL FITTINGS WHICH ARE OF NO ENDURING VALUE AND MOREOVER, OUR PREMISES IS A LEAS ED PREMISES. THERE IS ALSO EXPLANATION WITH REFERENCE TO BROUGHT F ORWARD DEPRECIATION PERTAINING TO AY. 2003-04 AND ELECTRICAL FITTINGS IN AY. 2004-05 WHICH WERE VERIFIED BY THE AO IN EARLIER PRO CEEDINGS AND ALLOWED. THE DETAILED EXPLANATION OF ASSESSEE IN THE REPLY GIVEN TO THE DCIT, NIZAMABAD IN AY. 2005-06 IS AS UNDER: 1. DEPRECIATION FOR THE CURRENT YEAR I.E., YEAR ENDED 31-03-2005 A MAJOR COMPONENT OF DEPRECIATION CLAIMED AS DEDUCTION IS ON ACCOUNT OF BROUGHT FORWARD DEPRECIATION FORM EARLIER YEARS I.E., ASST. YEARS 2003-04 AND 2004-05. FOR THE CURRENT YEAR WE HAVE CLAIMED ONLY RS. 23,800/- AS 100% DEPRECIATION THIS AMOUNT REPRESENT S ELECTRICAL FITTINGS WHICH ARE OF NO ENDURING VALUE AND MORE OV ER OUR PREMISES IS A LEASED PREMISES. AS REGARDS THE BROUGHT FORWARD DEPRECIATION THOUGH THE EXPENDITURE HAS BEEN INCURRED IN THE PREVIOUS YEAR RELEVANT TO ASST. YEAR 2003- 04 WE SUBMIT THE EXPLANATION FOR THE SAME AS UNDER: THE ITEMS WHICH HAVE BEEN CLAIMED AS 100% ALLOWABLE IN THE YEAR ENDED 31-03-2003 RELEVANT TO ASST. YEAR 2003-04 CON SISTS OF THE FOLLOWING: BOMBAY CLOTH HOUSE :- 4 -: S.NO. PARTICULARS AMOUNT 1. FALSE CEILING 4,08,175 2. ELEVATION FLOAT GLASS 1,20,900 3. ELECTRICAL FITTINGS 7,37,275 TOTAL: 12,66,350 THE ITEMS WHICH HAVE BEEN CLAIMED AS 100% ALLOWABLE IN THE YEAR ENDED 31-03-2004 RELEVANT TO ASST. YEAR 2004-05 CON SISTS OF ELECTRICAL FITTINGS OF RS. 26,780/-. AS STATED TO YOU EARLIER AND ALSO AS VERIFIED BY YO U OUR PREMISES IS A LEASED PREMISES AND THESE EXPENDITURES ARE INCURR ED FOR LEASED PREMISES AND THE CLAIM FOR THE SAME IS BASED ON THE PRINCIPLES LAID DOWN BY VARIOUS JUDICIAL PRONOUNCEMENTS WHICH ARE A S UNDER: A. CIT VS. MADRAS AUTO SERVICES (P) LTD., [1998] [233 ITR 468] (SC); B. EMPIRE JUTE COMPANY LTD., VS. CIT [1980] [124 ITR 1 ] (SC); C. CIT VS. JANAK STEEL TUBES (P) LTD., [1990] [182 ITR 92] (P&H); D. CIT VS. DAS PRAKASH [1978] [114 ITR 210] (MAD); WE REQUEST YOU TO OBSERVE THAT OUR CASE IS FACTUALL Y AS WELL AS ON LEGAL PRINCIPLES OF SETTLED LAW IS COVERED BY THE P RINCIPLES LAID DOWN IN ABOVE CITED CASES. WE REQUEST YOU TO ACCEPT THE SAME. IT WAS FURTHER SUBMITTED THAT THE AO ISSUED A NOTICE U/S. 1 54 FOR RESTRICTING THE DEPRECIATION, WHICH WAS ALLOWED IN THE EARLIER PROCEEDINGS AFTER DUE VERIFICATION, THEREFORE, THE SAM E CANNOT BE CONSIDERED U/S. 154 OF THE ACT. THIS IS NOT A MISTAKE APPARENT FROM RECORD AND RELIED ON VARIOUS PROPOSITIONS OF LA W. 5. LD. DR HOWEVER, SUBMITTED THAT THERE WAS EXCESS DEPRECIATION CLAIM AND SO, THE AO HAS CORRECTLY RESTRIC TED THE AMOUNT. HE SUPPORTED THE ORDERS OF THE LD. CIT(A). BOMBAY CLOTH HOUSE :- 5 -: 6. I HAVE CONSIDERED THE ISSUE AND EXAMINED THE DOCUM ENTS ON RECORD. EVEN THOUGH LD. CIT(A) ANALYSED THE ISSUE IN THE LIGHT OF VARIOUS CASE LAW ON THE ISSUE IN REJECTING THE APPEAL S, I AM OF THE VIEW THAT HE HAS NOT NOTICED THE FUNDAMENTAL FACTS. THES E CLAIMS WERE EXAMINED IN A SCRUTINY PROCEEDINGS AND WERE ALL OWED BY THE AO, ON BEING SATISFIED THAT THE CLAIM OF 100% IS ALLOWA BLE. THERE IS NO MISTAKE APPARENT FROM RECORD, AS SOME OF THE TEMPOR ARY FITTINGS ARE ELIGIBLE FOR 100% DEPRECIATION ACCORDINGLY WITH R EFERENCE TO BUILDINGS. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICES (P) LTD., [233 ITR 468] (SC) (S UPRA) HAS ALLOWED EXPENDITURE FOR CONSTRUCTION OF A NEW BUILDING AFTER THE DEMOLITION OF THE OLD PREMISES TAKEN ON LEASE AS RE VENUE EXPENDITURE. IN THIS CASE, THE BUILDING WAS TAKEN ON LEASE AND ASSESSEE HAS INCURRED CERTAIN EXPENDITURE TOWARDS FAL SE CEILING, FLOAT GLASS AND ELECTRICAL FITTINGS, WHICH ARE OF NOT E NDURING NATURE. AS SEEN FROM THE LETTER DT. 13-06-2008 BY THE DCIT, CIR CLE-I, NIZAMABAD ADDRESSED TO ASSESSEE WITH REFERENCE TO REOP ENING OF ASSESSMENTS FOR AYS. 2003-04 & 2004-05, THE REASONS F OR REOPENING AS COMMUNICATED ARE AS UNDER: A. TO VERIFY THE CLAIM OF INTEREST/REMUNERATION PAID TO PAR TNERS; B. TO VERIFY THE CORRECTNESS OF DEPRECIATION CLAIMED; C. TO VERIFY THE CORRECTNESS OF SUNDRY CREDITORS/NEW CRED ITORS INTRODUCED; D. TO VERIFY THE COST OF CONSTRUCTION OF BUILDING; BOMBAY CLOTH HOUSE :- 6 -: 6.1. AS CAN BE SEEN FROM THE ABOVE, THE ASSESSMENTS IN AYS. 2003-04 & 2004-05 HAVE BEEN REOPENED TO VERIFY THE CO RRECTNESS OF DEPRECIATION CLAIMED ALSO AND THE ORDERS U/S. 143(3) R.W.S. 147 WERE COMPLETED BY THE AO AFTER AN EXPLANATION FROM ASS ESSEE AND ALLOWED THE DEPRECIATION AT 100%. NOT ONLY THAT, EVEN IN AY. 2005- 06 AS EXTRACTED ABOVE, THERE IS A DETAILED EXPLANATION WITH REFERENCE TO CLAIM OF 100% DEPRECIATION ON THE ELECTRI CAL FITTINGS. IN VIEW OF THE ABOVE, IT CANNOT BE STATED THAT AO HAS NOT EXAMINED THE ISSUE AND THERE WAS A MISTAKE IN ALLOWING THE DEPRE CIATION AT 100%. HAVING CONSIDERED THE ISSUE IN THE LIGHT OF TH E FACTS THAT THOSE ITEMS ARE NOT OF ENDURING NATURE, THE DEPRECIATION WAS ALLOWED AT 100%. EVEN ALTERNATELY, THE SAME CAN ALSO BE CONSIDERED AS REVENUE EXPENDITURE WHICH IS ALSO AL LOWABLE AT 100%. THE VARIOUS JUDICIAL PRONOUNCEMENTS AS LISTED OUT BY ASSESSEE IN REPLY TO AO IN THE ASSESSMENT PROCEEDINGS REALLY ESTABLISH THAT THE EXPENDITURES INCURRED ON LEASED PR EMISES CAN BE CLAIMED AT 100%. HAVING ALLOWED THE EXPENDITURE AFTER DUE VERIFICATION OF THE NATURE OF EXPENDITURE IN THE ASSESSM ENT PROCEEDINGS IN THE IMPUGNED ASSESSMENT YEARS, IT IS NO T CORRECT ON THE PART OF THE SUCCESSOR OFFICER TO RESTRICT THE SAME IN THE PROCEEDINGS U/S. 154, WHICH HAS A LIMITED SCOPE. I AM NOT EXTRACTING THE VARIOUS CASE LAW ON THE ISSUE, BUT SUFF ICE TO SAY THAT THE ACTION OF THE AO IN MODIFYING THE ORDERS WHICH AR E PASSED U/S. 143(3) ON AN ISSUE WHICH IS NOT APPARENT MISTAKE, CANN OT BE UPHELD. IN VIEW OF THIS, I AM OF THE OPINION THAT ACTIO N OF THE AO IS BAD IN LAW AND FURTHER, LD. CIT(A) WITHOUT CONSIDERIN G THE FACTS UPHELD THE ORDERS WHICH CANNOT BE SUSTAINED. THEREFOR E, THE GROUNDS RAISED BY ASSESSEE IN AYS. 2003-04, 2004-05 & 2005-06 ON THE RESTRICTION OF DEPRECIATION IN THE PROCEEDINGS U /S. 154 ARE BOMBAY CLOTH HOUSE :- 7 -: ALLOWED. THE IMPUGNED ORDERS OF THE AO AND CIT(A) ON THIS ISSUE ARE SET ASIDE. 6.2. THE APPEALS IN AYS. 2006-07 & 2007-08 ARE ON C ONSEQUENTIAL ORDERS PASSED BY THE AO. SINCE THE MODIFICATIONS UND ERTAKEN IN EARLIER YEARS ARE NOT APPROVED, THE CLAIMS ORIGINALL Y ALLOWED GET RESTORED. THEREFORE, THE CONSEQUENTIAL ORDERS ALSO AR E SET ASIDE. THE ORDERS OF THE AO ORIGINALLY PASSED ARE RESTORED. 7. IN THE RESULT, ALL THE APPEALS OF ASSESSEE ARE ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JULY, 2016 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 06 TH JULY, 2016 TNMM COPY TO : 1. BOMBAY CLOTH HOUSE, SUBASH ROAD, KAMAREDDY, TELANGANA. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, NIZA MABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-5, HYDERABAD 4. THE PR. COMMISSIONER OF INCOME TAX-5, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.