The ACIT, Circle-4, Baroda V. M/s. Metro Heritage Pvt.Ltd., Baroda

ITA 754/AHD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72983 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Business income; Depreciation; Cost of acquisition; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO.754/AHD/2013 A.Y. 2006-07 THE ACIT CIRCLE-4, BARODA. V/S. M/S. METRO HERITAGE PVT. LTD. 3 RD FLOOR ORIENT BUSINESS CENTRE, OPP. SURAJ PLAZA BUILDING, SAYAJIGUNJ, BARODA PAN: AAECM 2161M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI O.P. BATHEJA, SR.D.R. ASSESSEE(S) BY : NONE / DATE OF HEARING : 17/02/2014 / DATE OF PRONOUNCEMENT: 21/02/2014 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF LEARNED CIT(A)-III, BARODA, DATED 07.12.2012. TH E GROUNDS RAISED ARE AS UNDER: 1. ON THE FACTS AND ON THE CIRCUMSTANCES AND IN LA W, THE CIT(A)-III BARODA HAS ERRED IN DELETING THE ADDITION OF RS.22, 21,571 MADE BY THE ASSESSING OFFICER WHO HAD RESTRICTED THE CLAIM OF D EPRECIATION @ 5% AGAINST THE CLAIM OF 10% ON THE BUILDING NAMELY DH IRAJ WITHOUT APPRECIATING THE FACT THAT IT WAS NEVER ESTABLISHED THAT THE BUILDING WAS USED AS HOTEL OR BOARDING AND THERE WAS NO IOTA OF SUSCEPTIBLE DOCUMENTARY EVIDENCES TO PROVE THAT PERMISSION WAS GRANTED BY RELEVANT AUTHORITIES, LOCAL BODIES OR STATE BODIES TO THE ASSESSEE TO RUN THE HOTEL OR BOARDING AND THERE IS NO WHISPER OF WO RDS IN THE APPELLATE ORDER AS TO WHETHER LD. CIT(A) HAD EVE DE SIRED SUCH DOCUMENTS FROM THE ASSESSEE. 2. ON THE FACTS AND ON THE CIRCUMSTANCES AND IN LAW , THE CIT(A)-III, BARODA HAS ERRED IN DELETING THE ADDITION OF RS.1,0 6,383/- MADE BY THE ITA NO.754/AHD/2013 ACIT VS. M/S. METRO HERITAGE PVT. LTD.. A.Y. 2006- 07 - 2 - ASSESSING OFFICER OUT OF THE CLAIM OF DEPRECIATION ON THE BUILDING NAMELY PIONEER WITHOUT APPRECIATING THE FACT THAT THE SAID BUILDING WAS PURCHASED IN THE NAMES OF DIRECTORS SH. DARSHAN A. SHAH/MRS. SHYAMLI D. SHAH AND NOT IN THE NAME OF THE COMPANY AND AS SUCH, THE ASSESSEE COMPANY WAS NOT ENTITLED FOR DEPRECIATION. 2. AT THE OUTSET, WE HAVE BEEN INFORMED THAT THE LE GAL ISSUES RAISED IN THESE TWO GROUNDS OF THE REVENUE ARE INTE RCONNECTED; HENCE, HEREINBELOW DISPOSED OF ACCORDINGLY. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 147 DATED 21.12.2010 WERE THAT THE ASSESSEE COMPANY WAS RUNNING A BUSINESS OF LETTING OUT OF SERVICE APARTMENTS TO CORPORATE SECTOR. THOSE SERVICE APAR TMENTS WERE STATED TO BE USED FOR THE STAY OF CORPORATE GUESTS. THE CASE WAS REOPENED U/S.147 OF THE IT ACT FOR THE YEAR UNDER C ONSIDERATION BECAUSE OF THE FACT THAT IN THE ORIGINAL ASSESSMENT YEAR THE ASSESSEE WAS ALLOWED DEPRECIATION ON THE BUILDING, NAMELY, D HEERAJ & PIONEER BUILDING @ 10% BY TREATING THOSE BUILDINGS AS HOTEL BUILDING. ON ACCOUNT OF REOPENING OF THE ASSESSMENT , THE DEPRECIATION WAS REDUCED AND ON THIS ACCOUNT THE AD DITION WAS MADE AS FOLLOWS: 4.5 SINCE, THE ASSESSEE DID NOT ESTABLISH THAT THE BUILDING IS USED AS HOTEL OR BOARDING & NOT USED FOR RESIDENTIAL PURPOS E. MOREOVER, THE SAID DHIRAJ BUILDING WAS TRANSFERRED IN THE NAME OF THE ASSESSEE COMPANY IN DECEMBER 2005 FOR A CONSIDERATION OF RS. 1,63,70,000/- WITHOUT STAMP DUTY, REGISTRATION FEE AND OTHER RELA TED EXPENSES. THE ASSESSEE WAS, THEREFORE, ELIGIBLE FOR DEPRECIATION ON THE SAID BUILDING AT THE HALF RATE OF 5% ON THIS BUILDING I.E. 2.5% O N CONSIDERATION OF RS.1,36,70,000/- WHICH COMES TO RS.4,09,250/-. FURT HER, ON THE OTHER HAND PIONEER BUILDING WAS PURCHASED IN THE NAME OF DIRECTORS SHRI DARSHAN A. SHAH / MRS. SHYAMLI D. SHAH AND THE SAID BUILDING WAS NOT OWNED BY THE ASSESSEE COMPANY. HENCE, DEPRECIAT ION IS NOT ALLOWABLE TO THE ASSESSEE COMPANY ON PIONEER BUILD ING. IN VIEW OF THIS, THE ALLOWABLE DEPRECIATION AMOUNTING TO RS.19 ,18,704/- ITA NO.754/AHD/2013 ACIT VS. M/S. METRO HERITAGE PVT. LTD.. A.Y. 2006- 07 - 3 - (23,27,954 4,09,250/-) IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, LEARNED CIT(A) HAS DECIDED THE ISSUE IN RESPECT OF BOTH THE BUILDINGS AS UNDER: 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, OBSER VATION OF THE AO AS WELL AS THE SUBMISSION OF THE AR. SO FAR AS THE RAT E OF DEPRECIATION ON THE BUILDING ARE CONCERNED FROM THE FACTS SUBMITTED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS APPELLATE PROCEEDINGS, IT IS EVIDENT THAT THE APPELLANT IS US ING THESE BUILDINGS AS HOTEL OR BOARDING HOUSE. INCOME FROM THESE BUILDING S HAD BEEN TAXED BY THE AO HIMSELF AS BUSINESS INCOME. UNDER SUCH CI RCUMSTANCES, THE AO'S CLAIM THAT THESE BUILDINGS ARE BEING USED FOR RESIDENTIAL PURPOSES IS NOT CORRECT. ONCE THE APPELLANT HAS BEEN ABLE TO ESTABLISH THAT THE BUILDING HAS BEEN USED AS A HOTEL OR BOARDING HOUSE , THE RATE OF DEPRECIATION HAS TO BE ADOPTED AT.10%. 5.3.1. SO FAR AS THE PERIOD FOR WHICH DEPRECIATION IS TO BE ALLOWED ON DHIRAJ BUILDING IS CONCERNED, THE APPELLANT WAS HAV ING POSSESSION OF THE BUILDING THROUGH OUT THE YEAR AND WAS RUNNING I TS BUSINESS USING THIS BUILDING. UNDER SUCH CIRCUMSTANCES, THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE DECISION OF MYSORE MINERALS LTD, V. CIT (SUPRA). HENCE, THE AO IS DIRECTED TO ALLOW DEPRECI ATION FOR THE ENTIRE YEAR ON THIS BUILDING AND ALSO THE ENTIRE COST SHOW N IN THE DEPRECIATION CHART INCLUDING THE ADDITIONS MADE TO THIS -BUILDING SHOULD BE CONSIDERED FOR THIS PURPOSE . 5.3.2 SO FAR AS DEPRECIATION RELATING TO PIONEER BU ILDING IS CONCERNED, THE APPELLANT HAS CLAIMED SUCH DEPRECIATION ONLY ON THE AMOUNT RELATING TO THE EXPENSES UNDER THE HEAD 'CIVIL WORK , INTERIOR DECORATION, PAINTING ETC,' INCURRED BY IT ON THIS B UILDING FOR UTILIZING IT AS HOTEL OR BOARDING HOUSE. HENCE, AS PER THE EXPLA NATION-1 TO THE SECTION 32, THE APPELLANT IS ELIGIBLE FOR DEPRECIAT ION ON THE VALUE OF SUCH ASSETS. HENCE, THE AO IS DIRECTED TO ALLOW DEP RECIATION, AS CLAIMED BY THE APPELLANT. 5. ON THE DATE OF HEARING NO ONE HAS APPEARED FROM THE SIDE OF THE ASSESSEE BUT CONSIDERING THE SMALLNESS OF THE I SSUE, WE HAVE DECIDED TO PROCEED EX-PARTE QUA THE ASSESSEE AFTER HEARING LEARNED SR.D.R., MR. O.P. BATHEJA WHO HAS PLACED RELIANCE O N THE DECISION ITA NO.754/AHD/2013 ACIT VS. M/S. METRO HERITAGE PVT. LTD.. A.Y. 2006- 07 - 4 - OF HONBLE DELHI HIGH COURT IN THE CASE OF M.M. FISHERIES PVT. LTD. , 152 TAXMANN.COM 247 (DEL.). 6. WE HAVE PERUSED THE ORDERS OF THE REVENUE AUTHOR ITIES AND THEREUPON NOTICED THAT THE BUILDING KNOWN AS DHEER AJ BUILDING IS SITUATED IN MUMBAI AND THE PURCHASE WAS MADE IN THE FINANCIAL YEAR 2004-05 FOR AN AMOUNT OF RS.194.52 LACS. ON OB TAINING THE POSSESSION OF THE BUILDING, THE ASSESSEE HAS COMMEN CED THE BUSINESS OF PROVIDING SERVICE APARTMENT. RENTAL INC OME WAS EARNED FROM THE ROOMS RENTED OUT AND THE INCOME EAR NED WAS STATED TO BE AS UNDER: FOOD AND BEVERAGES RS.29,735/- LAUNDRY INCOME RS. 1,255/- ROOM INCOME RS.9,66,944/- TELEPHONE INCOME & OTHER INCOME RS. 10,182/- 6.1 IT HAS ALSO BEEN INFORMED THAT CERTAIN ADDITION S HAVE BEEN MADE IN THE SAID BUILDING AND FURTHER AN INVESTMENT OF RS.47,34,875/- WAS MADE BY THE ASSESSEE. IT HAS ALS O BEEN INFORMED TO LEARNED CIT(A) THAT THE ASSESSEE HAS IN CURRED EXPENDITURE SUCH AS ELECTRICITY, KITCHEN EXPENSES, REPAIRS, SALARY TO HOTEL STAFFS, ETC. 6.2 IN RESPECT OF PIONEER BUILDING, IT WAS INFORMED THAT AN AGREEMENT WAS MADE WITH ONE SRI DARSHAN SINGH AND S MT. SHYAMLI SHAH. THOSE WERE CONDUCTING THE BUSINESS OF RUNNING A HOTEL JOINTLY ON THE SAID PROPERTY. AFTER ENTERING INTO AN AGREEMENT ASSESSEE HAD INCURRED EXPENSES ON CIVIL WORK, PLUMB ING, INTERIOR DECORATION, ETC., AND THEREAFTER PUT TO USE THE PRO PERTY FOR RUNNING ITA NO.754/AHD/2013 ACIT VS. M/S. METRO HERITAGE PVT. LTD.. A.Y. 2006- 07 - 5 - THE HOTEL. ON THE EXPENDITURE INCURRED, THE ASSESSE E HAD CLAIMED DEPRECIATION. THE ASSESSEE HAS DISCLOSED INCOME FRO M THE SAID PREMISES AFTER CLAIMING THE CONNECTED EXPENDITURE. THE ARGUMENT OF THE ASSESSEE WAS THAT THE ASSESSEE WAS SHARING T HE INCOME WITH THE ONUS; HENCE, ON THE CAPITAL EXPENDITURE INCURRE D THE CLAIM OF DEPRECIATION DESERVES TO BE ALLOWED. 6.3 ON ONE HAND, THE REVENUE DEPARTMENT HAS PLACED RELIANCE ON MM FISHERIES, 152 TAXMANN.COM 247, FOR THE LEGAL PROPOSITION THAT IF AN ASSET IS IN THE NAME OF THE DIRECTOR OF THE COMPANY WHETHER THE ASSESSEE IS ENTITLED FOR THE CLAIM OF D EPRECIATION. IN THE SAID PRECEDENT, THERE WAS NOTHING TO SHOW THAT THE ASSESSEE COMPANY HAD THE DOMINION OVER THE VEHICLE; HENCE, I T WAS HELD THAT THE ASSESSEE COMPANY WAS NOT ENTITLED FOR THE DEPRECIATION. ON THE OTHER HAND, THERE ARE FEW DECISIONS WHICH ARE I N FAVOUR OF THE ASSESSEE, NAMELY, MIRZA ATAULLAH BAIG, 202 ITR 291 (BOM.), MAHADEO R. MAHADIK, 66 ITD 558 (PUNE), FAZILKA DALW ALI TPT CO., 270 ITR 398 (P & H). 6.5 AFTER DUE CONSIDERATION OF THE FACTS AND CIRCUM STANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT IN A SI TUATION WHEN A DOMINION OVER THE PROPERTY IN QUESTION WAS ESTABLIS HED BY THE ASSESSEE AND THAT THE COST OF ACQUISITION OF THE BU ILDING OR THE FIX ASSETS HAVE BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND THAT THE PROPERTY IN QUESTION HAVE BEEN PUT TO USE BY THE ASSESSEE FOR RUNNING SERVICE APARTMENTS / HOTELS TH EN IN THE LIGHT OF THE CASE LAWS REFERRED SUPRA, WE FIND THAT THERE WA S NO FALLACY IN ITA NO.754/AHD/2013 ACIT VS. M/S. METRO HERITAGE PVT. LTD.. A.Y. 2006- 07 - 6 - THE DECISION OF LEARNED CIT(A). THE SAME IS HEREBY CONFIRMED AND THE GROUNDS RAISED BY THE REVENUE ARE THEREFORE DIS MISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. SD/- SD/- (N.S. SAINI) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED 21/02/2014 PRABHAT KR. KESARWANI, SR. P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD