YOGESH S. RATHOD, MUMBAI V. DCIT CIR 3, THANE

ITA 7249/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2968 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 03-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P O MEENADR
• Assessee Lawyers: HARESH P KHUNADIA
• Keywords: Capital asset; Depreciation
• Section: 2

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./ITA/7249/MUM/2014, /ASSESSMENT YEARS: 2010-11 YOGESH S. RATHOD 2203, RICHMOND HIRANANDANI GARDEN, POWAI MUMBAI-400 076. PAN:AAAPR 5986 J VS. DCIT,CIRCLE-3 THANE. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI P.O. MEENA-DR ASSESSEE BY: SHRI HARESH P. KHUNADIA / DATE OF HEARING: 16.08.2016 / DATE OF PRONOUNCEMENT: 14.09.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.18.08.2014 OF CIT(A)-I,MUM BAI,THE ASSESSEE HAS FILED APPEAL THE PRESENT APPEAL.ASSESSEE-COMPANY, ENGAGED IN THE BUS INESS OF TEXTILES, FILED ITS RETURN OF INCOME ON 06.07.2010 DECLARING TOTAL AT RS.15,70,60 1/-.THE AO COMPLETED ASSESSMENT,ON 08.03.2013,U/.S143(3) OF THE ACT,DETERMINING INCOME OF THE ASSESSEE AT RS.3.71 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DEPRECIATION CLAIM,AMOUNTING TO RS.3. 80LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FO UND THAT THE ASSESSEE HAD PAID RS. 38.03 LAKHS TOWARDS COST OF LAND FOR GALA,THAT HE H AD CLAIMED DEPRECIATION ON ENTIRE VALUE OF GALA.IN HIS EXPLANATION, FILED AS PER THE DIRECTION S OF THE AO, THE ASSESSEE STATED THAT HE HAD PURCHASED THE GALA ON FIRST-FLOOR,THAT AS SUCH QUES TION OF PURCHASE OF LAND AND THERE AFTER CONSTRUCTION OF FACTORY BUILDING THEREON DID NOT AR ISE, THAT THERE WAS NO PURCHASE OF LAND AT ALL BECAUSE AGREEMENT PURCHASE OF FSI WAS WITH DEVELOPE R AND NOT WITH THE LANDOWNER, THAT THE COST OF PURCHASE OF FSI WAS NOTHING BUT PART AND PA RCEL OF COST OF CONSTRUCTION OF GALA. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE AO H ELD THAT AS PER THE PROVISIONS OF THE ACT FSI WAS NOT A DEPRECIABLE ITEM,THAT THE VALUE OF FS I WAS CLEARLY SEPARABLE,THAT THE APPRECIA - TION CLAIMED BY HIM WAS NOT ALLOWABLE THAT WAS CLAI MED AT THE RATE OF 10% . 3.AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PR EFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,THE ASSESSEE A RGUED THAT THE AGREEMENT FOR PURCHASE OF FSI WAS WITH THE DEVELOPER, THAT THE OWNERSHIP O F THE LAND REMAINED WITH THE ORIGINAL LANDOWNER,THAT HE HAD NOT ENTERED INTO ANY AGREEMEN T FOR PURCHASE OF LAND. HE RELIED UPON THE CASE OF HINDUSTAN TIMES LTD. (231 ITR 741). 7249/M/14 YOGESH S. RATHOD 2 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA REFERRED TO THE PURCHASE AGREEMENT DEALING WITH PURCHASING T HE FSI AND HELD THAT THE ASSESSEE HAD PURCHASED RIGHTS IN LAND FOR CONSTRUCTION OF GALA O N THE FIRST FLOOR, THAT THE VALUE OF THE RIGHT IN QUESTION RELATED TO LAND AND SAME WAS CLEARLY DE MARCATED,THAT THE AO HAD RIGHTLY DISALLOW -ED THE DEPRECIATION IN RESPECT OF THE PRICE PAID F OR BUYING THE RIGHT IN LAND FOR CONSTRUCTION OF GALA. HE FURTHER HELD THAT THE FACTS OF THE CASE OF HINDUSTAN TIMES LTD (SUPRA) WERE DIFFERENT, THAT IN THAT MATTER THE ASSESSEE HAD PAID THE AMOUN T ON ACCOUNT OF COMMERCIALISATION OF ADDITIONAL AREA OF CONSTRUCTION. FINALLY, HE DISMIS SED THE APPEAL FILED BY THE ASSESSEE. HOWEVER,HE DIRECTED THE AO TO WORK OUT THE WDV OF F SI FOR EARLIER YEAR AND ACCORDINGLY DISALLOW THE DEPRECIATION AT THE RATE OF 10%. 4. BEFORE US, THE AUTHORISED REPRESENTATIVE(AR) REITER ATED THE ARGUMENTS THAT WERE MADE BEFORE THE AO AND THE FAA. HE RELIED UPON THE CASE OF HINDUSTAN TIMES LTD (SUPRA) AND REFERRED TO THE AGREEMENT TO PURCHASE FSI. THE DEPA RTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD PURCHASED FSI FOR CONSTRUCTION OF GALA IN THE EARLIER AY.,THAT IT HAD CLAIMED DEPRECIATION @10%,THAT THE FAA HELD THAT HE WAS NOT ENTITLED TO DEPRECIATION AS HE HAD PURCHASED RIGHT IN LAND.IN OUR OPINION,THE VERY CON CEPT OF DEPRECIATION SUGGESTS THAT THE TAX BENEFIT ON ACCOUNT OF DEPRECIATION LEGITIMATELY BEL ONGS TO ONE WHO HAS INVESTED IN THE CAPITAL ASSET AND IS UTILISING IT.DEPRECIATION IS ALLOWED T O THE ASSESSES FOR LOSING INVESTMENT GRADUALLY, MADE IN ASSETS,CAUSED BY WEAR AND TEAR, AND WOULD NEED TO REPLACE IT HAVING LOST ITS VALUE FULLY OVER A PERIOD OF TIME.IN THE CASE BEFOR E US,NONE OF THE ESSENTIAL INGREDIENTS FOR ALLOWING THE DEPRECIATION EXIT.THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THE ASSESSEE HAD ACQUIRED RIGHT IN THE LAND FOR CONSTRU CTING GALA.WE DO NOT FIND ANY LEGAL INFIRMITY IN HIS ORDER.WE WOULD LIKE TO MENTION THA T FACTS OF THE CASE OF HINDUSTAN TIMES LTD.(SUPRA) WERE TOTALLY DIFFERENT.IN THAT MATTER T HE ASSESSEE HAD PURCHASED AN EXISTING RESIDENTIAL BUILDING IN THE YEAR 1961. IT WANTED TO USE THE BUILDING FOR COMMERCIAL PURPOSES AND FOR THIS PURPOSE ,SO PAID CERTAIN ADDITIONAL CH ARGES TO THE DEVELOPMENT OFFICER OF THE GOVERNMENT OF INDIA AND ALSO EXTRA GROUND RENT IN R ESPECT OF THE LAND. A FORMAL AGREEMENT WAS EXECUTED IN THIS CONNECTION AND UNDER THE AGREE MENT THE ASSESSEE PAID A SUM OF RS. 3,65, 875/-TO THE LAND DEVELOPMENT OFFICER AS COMMERCIALI SATION CHARGES IN ADDITION TO THE GROUND RENT. IN THE YEAR 1965-66 THE ASSESSEE DEMOLISHED T HE ORIGINAL BUILDING AND CONSTRUCTED A NEW MULTI-STOREYED BUILDING WHICH WAS SEVERAL TIMES THE ORIGINAL AREA ON THE SAID LAND. AFTER THE 7249/M/14 YOGESH S. RATHOD 3 COMPLETION OF CONSTRUCTION IN THE YEAR 1973, THE AS SESSEE APPLIED TO THE LAND DEVELOPMENT OFFICER FOR USING THE BUILDING FOR COMMERCIAL PURPO SES AND PAID A SUM OF RS. 36,96,516/-FOR SUCH USER.THE ASSESSEE ADDED THE SUM OF RS. 36,96,5 16/-TO THE COST OF THE BUILDING CONSTRUCT - ED BY IT AND CLAIMED DEPRECIATION ON THE SAME FOR T HE ASSESSMENT YEARS 1973-74 AND 1974-75. THE AO DISALLOWED THE CLAIM FOR DEPRECIATION AND HE LD THAT THE AMOUNT OF RS. 36,96,516/- HAD BEEN PAID FOR COMMERCIAL USE OF THE LAND AND HE NCE IT SHOULD BE ADDED TO THE COST OF THE LAND AND ADDING THE AMOUNT TO THE COST OF THE BUILD ING FOR PURPOSES OF DEPRECIATION WAS NOT JUSTIFIED. THE FAA AS WELL AS THE TRIBUNAL HELD THA T THE SUM OF RS. 36,96,516/- HAD BEEN CORRECTLY ADDED TO THE COST OF THE BUILDING CONSTRU CTED BY THE ASSESSEE BECAUSE THE AMOUNT HAD BEEN PAID IN RESPECT OF THE COMMERCIAL USE OF T HE ADDITIONAL AREA CONSTRUCTED AS A RESULT OF THE MULTI-STOREYED BUILDING BEING PUT UP BY THE ASSESSEE AND IT, THEREFORE, PERTAINED TO THE BUILDING AND NOT TO THE LAND. ON A REFERENCE APPLIC ATION, THE HONBLE DELHI HIGH COURT HELD THAT THE USE OF THE LAND HAD ALREADY BEEN CONVERTED TO COMMERCIAL USE IN 1962 WHEN THE ASSESSEE HAD PAID AN ADDITIONAL AMOUNT OF RS. 3,65, 875/- AND THERE WAS NO QUESTION THEREFORE OF ANY ADDITIONAL COMMERCIALISATION OF THE SAID PLO T, THAT THE AMOUNT HAD HOWEVER BEEN PAID FOR THE ADDITIONAL CONSTRUCTION WHICH HAD BEEN PUT UP BY THE ASSESSEE AND HENCE FORMED A PART OF THE COST OF THE BUILDING, THAT FOR THE LAND THE ASSESSEE HAD PAID ADDITIONAL GROUND RENT UNDER THE AGREEMENT DATED MARCH 5, 1973, WHICH WAS A SEPA RATE AMOUNT, THAT, THEREFORE, THE SUM OF RS. 36,96,516/- HAD BEEN LAID OUT BY THE ASSESSEE I N ORDER TO CONSTRUCT THE ADDITIONAL SPACE FOR OFFICE PURPOSES AND THAT THE PAYMENT HAD BEEN MADE FOR CONSTRUCTION OF A BUSINESS ASSET AND FORMED A PART OF THE COST INCURRED BY THE ASSESSEE IN PUTTING UP THE BUILDING. ON APPEAL TO THE SUPREME COURT HELD THAT THE ASSESSEE WAS ENTITLED T O DEPRECIATION IN RESPECT OF THE SUM OF RS. 36,96,516/- AS PART OF THE ADDITIONAL COST OF CONST RUCTION OF THE BUILDING CONSTRUCTED BY IT FOR BUSINESS PURPOSES.SO,IN OUR OPINION,THE FAA HAS RIG HTLY HELD THAT FACTS OF BOTH THE CASES ARE DISTINGUISHABLE.CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DIS MISSED. ORDER PRONOUNCED IN TH E OPEN COURT ON 14 TH SEPTEMBER,2016. 14 ,2016 SD/- SD/- ( / R.L.NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14.09.2016. JV.SR.PS. 7249/M/14 YOGESH S. RATHOD 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI .