Dy. CIT Cir- 2 Pune, Pune V. M/s Niramaya Medical Foundation & Research Centre, Pune

ITA 708/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67113 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 09-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S KOTARI
• Assessee Lawyers: P D KUDWA
• Keywords: Gift; Depreciation; Valuation report; Reassessment proceedings
• Section: 143(3); 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 708/PN/2012 (ASSESSMENT YEAR 2003-04) DCIT, CIRCLE-2, PUNE. .. APPELLANT VS. M/S.NIRAMAYA MEDICAL FOUNDATION & RESEARCH CENTRE, GAT NO.105, P.NO.245 TO 249, VALOCHI, TAL : BARAMATI, DIST.PUNE .. RESPONDENT APPELLANT BY : SHRI D.S. KOTARI RESPONDENT BY : SHRI P.D. KUDWA DATE OF HEARING : 04-07-2013 DATE OF PRONOUNCEMENT : 05-07-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 07-12-2011 OF THE CIT(A)-II, PUNE RELATING TO ASSESSMENT YEAR 2003-04. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PVT. LIMITED COMPANY AND IS RUNNING A HOSPITAL. IT FILED ITS OR IGINAL RETURN OF INCOME ON 29-11-2003 DECLARING TOTAL LOSS OF RS.64,93,600/ - WHICH WAS ACCEPTED BY THE ASSESSING OFFICER IN THE ORDER PASSED U/S.14 3(3) ON 16-11-2005. SUBSEQUENTLY, A NOTICE U/S.148 OF THE INCOME TAX AC T WAS ISSUED AND SERVED ON THE ASSESSEE ON 31-03-2010. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT AS PER THE PROVISIONS OF THE INCOME TAX ACT NO DEPRECIATION WAS TO BE ALLOWED ON BUILDING USED FOR 2 THE BUSINESS PURPOSES UNLESS THE BUILDING IN QUESTI ON WAS COMPLETE IN ALL RESPECT AND FULLY USED FOR THE PURPOSE FOR WHICH IT WAS ENVISAGED. HE OBSERVED THAT THE ASSESSEE COMPANY DURING THE A.Y. 2003-04 HAS CLAIMED DEPRECIATION OF RS.23,00,596/- ON HOSPITAL BUILDING WHICH WAS INCOMPLETE. 2.1 ON BEING QUESTIONED BY THE ASSESSING OFFICER TH E ASSESSEE SUBMITTED THE DETAILS AND STATED THAT DUE TO FINANC IAL DIFFICULTIES THE WORK HAS NOT BEEN COMPLETED IN ALL RESPECT AS PER SANCTI ONED PLANS AND HENCE COMPLETION CERTIFICATE FROM LOCAL AUTHORITY IS STIL L AWAITED. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DEPRECIATION AMOUNTING TO RS.23,00,596/- SHOULD NOT BE DISALLOWE D. THE ASSESSEE FILED A DETAILED WRITTEN REPLY WHICH READS AS UNDER : 4.2 IN THE I T RETURN AND ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED FULL DETAILS ABOUT THE SUBJECT HOSPITAL B UILDING INCLUDING EXPENDITURE INCURRED THEREON, ITS USE FOR THE PURPO SE OF THE BUSINESS, AND WORKING OF THE CLAIM FOR DEPRECIATION . THE INFORMATION ON RECORD INCLUDES AMPLE EVIDENCE WITH REGARD TO TH E BUILDING INCLUDING ARCHITECT CERTIFICATE CERTIFYING THE BUIL DING, MUNICIPAL TAX RECEIPT AND A VALUATION REPORT DTD. 07.10.2005 BY R EGISTERED VALUER SHRI NITN P PHARSOLE CERTIFYING THE VALUE OF THE BUILDIN G AT RS.2,32,40,200/- THE A O THEREFORE HAS COME A CONCL USION BASED ON APPRECIATION OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE. WITHOUT PREJUDICE TO THE ABOVE, WE SUBMIT THAT THE ASSESSEE' S CLAIM FOR DEPRECIATION ON HOSPITAL BUILDING IS LEGI TIMATE. THE EXISTENCE OF THE SUBJECT BUILDING AND THE ASSESSEE' S OWNERSHIP THEREOF IS NOT IN DISPUTE. IT IS ALSO NOT IN DISPUT E THAT THE SUBJECT BUILDING HAS BEEN UTILIZED FOR THE PURPOSE OF COMPA NY'S BUSINESS. FROM THE AUDITED ACCOUNTS IT IS SEEN THAT THE COMPA NY'S TURNOVER FOR THE YEAR JUMPED TO RS 1,27,28,062/- FORM RS.26, 88,092/- IN THE PRECEDING YEAR. THIS COULD NOT HAVE BEEN ACHIEVED W ITHOUT USE OF PROPER BUILDING AND EQUIPMENT. THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS HAS FURNISHED ELABORATE PARTICULARS WIT H REGARD TO THE BUILDING ALSO THE FACILITIES AVAILABLE IN THE HOSPI TAL GIVING PARTICULARS OF USE OF VARIOUS PART OF BUILDING THE ASSESSEE WAS FACING A LIQUIDITY CRUNCH AND WAS NOT ABLE TO COMPLETE THE ACCESS TO THE BUILDING AND FINISHING W ORK OF THE ENTRANCE. HENCE, THE COMPLETION CERTIFICATE COULD NOT BE OBTA INED AT THE 3 RELEVANT TIME. HOWEVER THE HOSPITAL BUILDING OTHERW ISE WAS COMPLETE IN ALL RESPECTS AND FULLY UTILIZED FOR THE PURPOSE OF BUSINESS. IN FACT THE BUILDING HAS BEEN CERTIFIED AS COMPLETE AS ON 26.01.2002 RELEVANT TO A Y 2002-03 AND ASSESSED TO MUNICIPAL T AX. THERE REMAINED A DEFICIENCY WITH REGARD TO OBTAINING COMP LETION CERTIFICATE OF THE HOSPITAL BUILDING. THERE IS NO A DVERSE COMMENT WITH REGARD TO OWNERSHIP OR USE OF THE HOSPITAL BUILDING FOR PURPOSE OF THE COMPANY'S BUSINESS OR THE ASSESSEE'S CLAIM OF DEPRE CIATION EITHER IN THE AUDIT REPORT UNDER THE COMPANIES ACT OR THE INC OME TAX ACT IN FROM 3CA & 3CD IT IS NEITHER THE DEPARTMENTAL AUDIT OR NOR DEPARTMENTS CASE THAT THE HOSPITAL BUILDING WAS NO T OWNED OR USED FOR THE COMPANY'S BUSINESS. IN THE CONTEXT OF THE FACTS, WE INVITE ATTENTION TO SECTION 32 OF THE INCOME TAX ACT WHICH STIPULATES TWO CONDITIONS FOR ALLOWING DEPRECIATION NAMELY: A THAT THE BUILDING IS OWNED WHOLLY OR PARTL Y BY THE ASSESSEE B THAT THE ASSET IS USED FOR THE PURPOSE OF BUSINESS/PROFESSION. WE SUBMIT, THAT BOTH THE AFORESAID CONDITIONS HAVE BEEN SATISFIED IN THE ASSESSEE'S CASE. SECTION 32 DOES N OT STIPULATE ANY CONDITION WITH REGARD TO COMPLETION CERTIFICATE. WE SUBMIT THAT IN THE REASSESSMENT PROCEEDINGS A DI FFERENT VIEW IS SOUGHT TO BE TAKEN ON THE SAME SET OF FACTS . THERE FACTS HAVE BEEN VERIFIED IN THE COURSE OF ASSESSMENT PROCEEDIN GS BY THE AO BEFORE PASSING ORDER U/S 143(3) . THE PROPOSED, REASSESSMENT IS BEYOND THE SCOPE OF SECTION 32 AND SECTION 147 WE REQUEST : YOU TO KINDLY DROP THE REASSESSMENT PROCEEDINGS AND ACCEPT THE INCOME RETURNED AND ASSESSED U/S 143 (3)' 2.2 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE SINCE THE HOSPITA L BUILDING IS NOT FULLY COMPLETED AND SINCE THE COMPLETION CERTIFICATE HAS NOT BEEN OBTAINED FROM THE LOCAL AUTHORITY. THE ASSESSING OFFICER AC CORDINGLY DISALLOWED DEPRECIATION OF RS.23,00,596/- . 4 3. IN APPEAL THE LD.CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER : 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND ALSO PERUSED MATERIAL ON RECORD, IN ORDER TO AVAIL DEPRECIATION ONE SHOULD SATISFY THE FOLLOWING CONDITIONS: 1) ASSET MUST BE OWNED BY THE ASSESSEE. 2) IT MUST BE USED FOR THE PURPOSE OF BUSINESS AND PROFESSION, 3) IT SHOULD BE USED DURING THE RELEVANT PREVIOUS Y EAR, 4) DEPRECIATION IS AVAILABLE ON TANGIBLE AS WELL AS INTANGIBLE ASSET. IN ORDER TO BE ENTITLED TO DEPRECIATION ALLOWANCE, THE ASSESSEE HAS TO SHOW THAT THE ASSET IS OWNED BY IT OR THE ASSESS EE IS THE CO- OWNER OF THE ASSET AS IT IS ONLY THE OWNER OF THE A SSET WHO IS ENTITLED TO CLAIM DEPRECIATION ON THEM. THE A.O. DU RING THE ASSESSMENT PROCEEDINGS HAS NOT DISPUTED THE OWNERSH IP OF THE ASSET AS WELL AS THE USE OF THE ASSET DURING THE AS SESSMENT PROCEEDINGS WHICH ARE THE TWO MOST IMPORTANT CONDIT IONS FOR THE ALLOWANCE OF DEPRECIATION. THE A.O. HAS DISALLOWED THE DEPRECIATION ON THE GROUND THAT THE HOSPITAL BUILDI NG IS NOT: FULLY COMPLETE AND THAT THE COMPLETION CERTIFICATE WAS NO T OBTAINED FROM THE LOCAL AUTHORITY. THE A.O. IS THUS DISPUTIN G THE FACT THAT THE APPELLANT BEING NOT FULLY COMPLETED AND NOT ENT ITLED TO DEPRECIATION. THE VIEW THAT THE ASSESSEE MUST BE TH E OWNER IS NOT CONTROVERSIAL AS HAD BEEN LAID DOWN LONG SINCE, IN THE CASE OF CIT VS BUCKINGHAM & CARNATIC CO. LTD. (1935) 3 ITR 384 (PC). IN THE CASE OF CIT VS NANDANAM CONSTRUCTIONS (1996) 22 2 ITR 737 (AP), THE HIGH COURT HAD FOLLOWED THE SUPREME COURT 'S DECISION IN THE CASE OF R.B. JODHA MAL KUTHIALA (1971) 82 I TR 570, AS CLEAR AND BINDING IN THAT IT HAS HELD THE BENEFICIA L OWNERSHIP IS ALONE RELEVANT AND THAT SUCH DECISION SHOULD BE TREATED AS APPLICABLE IN ALL TAX MATTERS BY RECOGNIZING THE BE NEFICIAL OWNER FOR LIABILITY AS WELL AS ANY DEDUCTION. IT TOOK THE VIEW THAT, SUCH VIEW IS CLEAR, EQUITABLE AND CONSISTENT WITH JUSTIC E AND SUCH A VIEW CANNOT BE LIGHTLY DISMISSED, WHILE THE FINANCE ACT, 1987 RECOGNISED BENEFICIAL OWNERSHIP FOR COMPUTATION OF PROPERTY 'INCOME FOR INCOME-TAX, CAPITAL GAINS TAX, WEALTH-T AX AND GIFT-TAX, THE NEED FOR CLARIFICATION IN RESPECT OF DE PRECIATION ALLOWANCE WAS OVERLOOKED. THE CONTROVERSY GOT SETTLED IN RESPECT OF RIGHT TO DEPRECIATION FOR BENEFICIAL OWN ER IN THE DECISION, OF THE SUPREME COURT IN THE, CASE OF MYSO RE MINERALS LTD. OILED SUPRA AND ALSO RELIED UPON BY THE APPE LLANT. THE CONCEPT OF OWNERSHIP IN DIFFERENT CONTEXT NOW GETS RECONCILED CONSISTENT WITH EARLIER DECISION IN THE CASE OF R.B . JODHA MAL KUTHIALA VS CIT CITED SUPRA AND CIT VS PODDAR CEMEN T PVT. LTD. CITED SUPRA. HENCE, IN VIEW OF THESE PRECEDENTS, TH E KARNATAKA HIGH COURT HAD LITTLE DIFFICULTY IN GRANTING DEPREC IATION IN RESPECT OF A PROPERTY WHERE THE ASSESSEE HAD THE US E OF THE 5 PROPERTY, THOUGH TITLE VESTED WITH A COOPERATIVE SO CIETY IN THE CASE OF SURANA PHARMACEUTICALS P. LTD. VS CIT (2000) 243 ITR 248 (KAR). THE SAME VIEW IS TAKEN IN THE CASE OF CIT VS DEEPAK NITRITE LID. (2000) 243 ITR 825 (GUJ), WHERE POSSESSION HA D BEEN TAKEN OVER BY THE ASSESSEE AFTER PART PAYMENT OF THE PRIC E THOUGH NOT REGISTERED. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEA LS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF DEPRECIAT ION OF RS.23,00,596/- U/S. 32 IN RESPECT OF THE HOSPITAL B UILDING INSTEAD OF CONFIRMING THE DISALLOWANCE MADE IN THE ASSESSME NT ON THIS ISSUE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT NO COMPLETION C ERTIFICATE HAD BEEN ISSUED BY THE LOCAL MUNICIPAL AUTHORITY TO THE HOSPITAL BUILDING WHICH WOULD CERTIFY THAT THE SAID BUILDING WAS NOT COMPLETE IN ALL RESPECTS SO AS TO PUT TO USE FOR TH E PURPOSE OF BUSINESS. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT EXCEPT FOR THE CONTENTION REGARDING QUANTUM JUMP IN THE TURNOVER, NO SUBSTANT IVE EVIDENCE WAS PRODUCED BY THE ASSESSEE TO PROVE THAT THE ENTI RE NEWLY CONSTRUCTED BUILDING WAS ACTUALLY PUT TO USE FOR TH E PURPOSE OF BUSINESS. 4. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME-TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY BOTH THE SIDES. THE RE IS NO DISPUTE TO THE FACT THAT THE BUILDING WHICH IS OWNED BY THE ASSESS EE AND IS USED FOR RUNNING THE HOSPITAL IS INCOMPLETE SINCE THE COMPLE TION CERTIFICATE HAS 6 NOT BEEN OBTAINED BY THE ASSESSEE FROM THE LOCAL AU THORITY AND THE BUILDING IS NOT COMPLETE IN EVERY RESPECT AS PER TH E APPROVED PLAN. AT THE SAME TIME, THERE IS ALSO NO DISPUTE TO THE FAC T THAT THE BUILDING HAS BEEN USED FOR THE PURPOSE OF BUSINESS. THERE IS AL SO NO DISPUTE TO THE FACT THAT AS AGAINST THE TURNOVER OF RS.26,88,092/- IN THE A.Y. 2002-03 THE TURNOVER DURING THE YEAR HAS INCREASED TO RS.1, 27,28,062/-. THEREFORE, THE SUBMISSION OF THE ASSESSEE BEFORE TH E ASSESSING OFFICER THAT THE HIGHER TURNOVER COULD NOT HAVE BEEN ACHIEV ED WITHOUT USE OF THE BUILDING AND EQUIPMENT SHOULD NOT HAVE BEEN BRUSHED ASIDE BY THE ASSESSING OFFICER. MERELY BECAUSE THE COMPLETION C ERTIFICATE HAS NOT BEEN OBTAINED SINCE THE BUILDING WAS NOT COMPLETE I N EVERY RESPECT AS PER THE APPROVED PLAN CANNOT BE A GROUND TO DISALLO W THE CLAIM OF DEPRECIATION ESPECIALLY WHEN THE BUILDING HAS BEEN UTILISED FOR THE PURPOSE OF BUSINESS WHICH IS PROVED BY THE HUGE INC REASE IN TURNOVER DURING THE YEAR. UNDER THESE CIRCUMSTANCES AND IN ABSENCE OF ANY CONTRARY MATERIAL WE FIND NO REASON WHY DEPRECIATIO N SHOULD BE DISALLOWED. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED DISCUSSION BY THE LD.CIT(A) ALLOWING THE CLAIM OF D EPRECIATION WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, THE SAME I S UPHELD. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 5 TH DAY OF JULY 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA ) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED: 5 TH JULY 2013 SATISH 7 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, PUNE 4 CIT-II, PUNE 5. THE D.R, B PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE