. DCIT, New Delhi V. M/s. MGF Development Ltd., New Delhi

ITA 685/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7465 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 28-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 04-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ADITYA GOEL
• Keywords: Business income; Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E: NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER, AND SHRI CHANDRA MOHAN GARG, JUDI CIAL MEMBER ITA NO. 685/DEL /2013 ASSESSMENT YEAR: 2004-05 THE DY.C.I.T. VS. M/S MGF DEVELOPMENT LTD CENTRAL CIRCLE 7 4/17B, ASAF ALI ROAD NEW DELHI MGF HOUSE, NEW DELHI PAN : AAACM 8146 J [APPELLANT] [RESPONDENT] DATE OF HEARING : 28.06.2016 DATE OF PRONOUNCEMENT: 08.08.2016 APPELLANT BY : SHRI SANJAY KUMAR , CIT-DR RESPONDENT BY : SHRI ADITYA GOEL, C A ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE CIT(A)-XXIII, NEW DELHI DATED 16/11/20 12 PASSED IN FIRST APPEAL NO. 372/11-12 FOR A.Y 2004-05. 2 2. GROUND NOS. 1 AND 3 ARE OF GENERAL IN NATURE AND THE SAME REQUIRES NO ADJUDICATION. THE REMAINING SOLE GROUND OF THE REVENUE READS AS UNDER: 2. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1,14,54,243/- MADE BY THE A.O ON ACCOUNT OF DEPR ECATION CLAIMED ON STOCK IN TRADE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE RELEVANT MATERIAL ON RECORD. THE LD. COUNSEL OF TH E REVENUE SUPPORTED THE ACTION OF THE A.O AND REITERATED THE ALLEGATION S THE ASSESSEE RECORDED IN THE ASSESSMENT ORDER. THE LD. COUNSEL OF THE REVENUE ALSO CONTENDED THAT AS PER PARA 5.2 THE LD. CIT(A) HAS R EMANDED THE CASE TOT EH A.O FOR VERIFICATION OF THIS FACT THAT THE I MPUGNED ASSETS ARE LEASE HOLD OR NOT WHICH IS NOT WITHIN HIS POWERS AS PER PROVISIONS OF INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'T HE ACT' FOR SHORT]. 4. THE LD. AR STRONGLY SUPPORTED THE IMPUGNED FIRST APPELLATE ORDER. HOWEVER, HE COULD NOT CONTROVERT THIS CONTENTION OF THE LD. COUNSEL OF THE REVENUE THAT THE LD. CIT(A) HAS NO POWERS TO RE STORE THE CASE TO THE A.O FOR VERIFICATION OF LEASE HOLD ASSESSEE ON WHICH DEPRECIATION WAS CLAIMED AND LEASE RENT WAS SHOWN AS BUSINESS IN COME. 3 5. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL AVAILABLE ON RECORD, FROM THE OPERATIVE PA RA 5.2 OF THE LD. CIT(A)S ORDER, WE OBSERVE THAT HE GRANTED RELIEF T O THE ASSESSEE WITH THE FOLLOWING DIRECTIONS AND CONCLUSION: 5.2 I HAVE CONSIDERED THE MATTER. THE APPELLANT, MGF DEVELOPMENTS LIMITED, WAS INCORPORATED ON SEPTEMBER 16, 1996. THE PRINCIPAL ACTIVITY OF MGF IS LEASING, HIRE PURC HASE AND REAL ESTATE DEVELOPMENT. THE APPELLANT IS EENGAGED IN TH E FIELD OF RETAIL REAL ESTATE DEVELOPMENT, INCLUDING DEVELOPIN G, LEASING AND MAINTAINING SHOPPING MALLS. THE SHOPS IN THE MALLS DEVELOPED BY THE APPELLANT ARE LEASED OUT TO DIFFERENT PARTIES. THE LEASE RENT RECEIVED IS TREATED AS BUSINESS INCOME BY THE APPEL LANT. THE APPELLANT REMAINS THE OWNER OF LEASED ASSETS, I.E. THE SHOPS IN THE SHOPPING MALLS. IF THE APPELLANT WAS CLAIMING I NCOME FROM LEASED SHOPS UNDER THE HEAD INCOME FROM HOUSE PROP ERTY, THE QUESTION OF ALLOWING ANY DEPRECIATION WOULD NOT HAV E ARISEN. IT IS NOT DISPUTED THAT THE APPELLANT IS TREATING THE INCOME FROM LEASE RENT AS BUSINESS INCOME. IT IS NOT DISPUTED T HAT THE APPELLANT IS THE OWNER OF THESE ASSETS. UNDER THE I NCOME FAX ACT, 1961 DEPRECIATION IS TO BE ALLOWED U/S 32( 1) ON ASSETS OR BLOCK OF ASSETS OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS. IN THE PRESENT CASE, THE ASSETS AR E PART OF THE BLOCK OF ASSETS CALLED BUILDINGS'. THIS FACT IS UN DISPUTED. THESE ASSETS HAVE BEEN USED FOR THE PURPOSES OF THE BUSIN ESS OF THE APPELLANT OF DEVELOPING SHOPPING MALLS AND LEASING OUT SHOPS. THIS IS ALSO UNDISPUTED. THEREFORE, THE APPELLANT F ULFILLS THE CONDITIONS LAID DOWN U/S 32 TO CLAIM DEPRECIATION O N THE ASSETS OWNED BY IT AND PUT TO USE FOR THE PURPOSE OF BUSIN ESS. IT IS 4 IMMATERIAL WHETHER THE ASSET IS BEING TREATED FOR T HE PURPOSE OF ACCOUNTING AS LEASE HOLD IMPROVEMENT OR STOCK-IN-TR ADE. THAT MAY BE THE REQUIREMENT UNDER THE COMPANIES ACT, 195 6 AND THE IMPLEMENTATION OF ACCOUNTING STANDARDS PRESCRIBED T HEREUNDER. BUT FOR THE PURPOSE OF COMPUTING TAXABLE INCOME UND ER THE INCOME TAX ACT, 1961 THE PROVISIONS OF THIS ACT WIL L BE APPLICABLE AND PROVISIONS OF COMPANIES ACT OR ACCOUNTING STAND ARDS ARE NOT MATERIAL FOR THIS PURPOSE. IN MY OPINION, THE APPEL LANT IS ENTITLED TO CLAIM DEPRECIATION ON LEASE HOLD ASSETS OWNED BY IT AND ALSO ON ANY IMPROVEMENT TO SUCH ASSETS WHICH HA VE BEEN CAPITALIZED IN ITS BOOKS OF ACCOUNT. ACCORDINGLY, O N MERITS, THE APPEAL IS ALLOWED. THE ASSESSING OFFICER IS DIRECTE D TO RECOMPUTE THE DEPRECIATION BY FIRST ADDING BACK THE DEPRECIAT ION CLAIMED AS PER COMPANIES ACT, 1956 AND THEN REDUCING THE DEPRE CIATION ALLOWABLE AS PER THE INCOME TAX ACT, 1961. WHILE GI VING EFFECT TO THIS ORDER, THE ASSESSING OFFICER WILL ALSO VERI FY THAT THESE ASSETS ARE INDEED LEASE HOLD ASSETS. APPEAL IS ALLO WED ACCORDINGLY. 6. IN VIEW OF THE ABOVE THE MAIN CONTROVERSY BETWEE N THE ASSESSEE AND THE A.O WAS THAT THE A.O HAS DENIED DEPRECIATIO N BY HOLDING THAT ANY ASSET, WHICH IS NOT PART OF BLOCK OF ASSETS AND IS SHOWN IN THE INVENTORY WOULD BE STOCK IN TRADE ON WHICH DEPREC IATION IS NOT ALLOWABLE AS PER PROVISIONS OF THE ACT. THE LD. CI T(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSETS ARE PART OF THE BLOCK OF ASSETS CALLED BUILDINGS WHICH HAVE BEEN USED FOR THE PURPOSE 5 OF THE BUSINESS OF THE ASSESSEE IF, I.E, DEVELOPING SHOPPING MALLS AND LEASING OUT SHOPS AND THUS APPLICANT FULFILS THE CO NDITION LAID DOWN IN SECTION 32 OF THE ACT AND CONSEQUENTLY BECOME ELIGI BLE FOR CLAIM OF DEPRECATION, THE LD. CIT(A) DIRECTED THE A.O TO RE COMPUTE DEPRECIATION BY FIRST ADDING BACK AS PER COMPANIES ACT, 1956 AND THEN REDUCING THE DEPRECATION ALLOWABLE AS PER PROVISION S OF THE ACT. HOWEVER, THE LD. CIT(A) DIRECTED THE A.O TO RECOMPU TED THE DEPRECIATION. ACCORDINGLY AS PER HIS DIRECTIONS NO TED IN PARA 5.2, AS REPRODUCED HEREINABOVE, TO THE A.O WHICH IS BEYOND HIS JURISDICTION AND THE DIRECTIONS OF THE LD. CIT(A) TO THE A.O CAN NOT BE HELD AS SUSTAINABLE. FURTHER, FROM THE RECORD, INTER ALIA, ASSESSMENT ORDER, IMPUGNED ORDER OF THE LD. CIT(A) AND OTHER EVIDENCE IT IS AMPLY CLEAR THAT THE A.O DID NOT MADE PROPER VERIFICATION OF TH E CLAIM OF THE ASSESSEE AS PER FACTS OF THE CASE. HENCE, WE ALSO FIND IT NECESSARY AND PROPER TO DIRECT THE A.O TO RECALCULATE THE CLAIM O F THE DEPARTMENT PLACED BY THE ASSESSEE ON THE BLOCK OF ASSESSEES WH ICH WERE PUT TO USE FOR THE BUSINESS PURPOSES OF THE ASSESSEE DURING TH E RELEVANT PERIOD BY ALLOWING IMPROVEMENT TO SUCH ASSETS WHICH HAVE BEEN CAPITALIZED IN THE BOOKS OF ACCOUNTS. THE A.O IS ALSO DIRECTED TO RECOMPUTED THE DEPRECATION FIRST ADDING BACK THE DEPRECIATION CLAI MED AS PER COMPANIES ACT, 1956 AND THEN REDUCING THE DEPRECATI ON ALLOWABLE AS 6 PER PROVISIONS OF THE ACT AND THE A.O SHALL ALSO VE RIFY THE FACT THAT THE ASSESSEE ON WHICH DEPRECIATION IS BEING CLAIMED AND LEASE HOLD OR NOT AFTER ALLOWING DUE OPPORTUNITY OF HEARING TO THE AS SESSEE. ACCORDINGLY THE SOLE GROUND OF THE REVENUE IS ALLOWED FOR STATI STICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.08. 2016. SD/- SD/- (J.S. REDDY) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08 TH AUGUST, 2016 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI