THOMAS COOK (I) LTD, MUMBAI V. DCIT RG 1(3), MUMBAI

ITA 9156/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71637 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 15-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 30-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN; NEERAJ PRADHAN
• Assessee Lawyers: ARPIT AGARWAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A; 32

Judgement Text

K IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , . , BEFORE SHRI B.R. MITTAL, JM AND SHRI D. KARUNAKARA RAO, AM ./ I.T.A. NO. 2465/M/2011(AY: 2005 - 2006 ) ACIT - 1(3), R.NO.540/564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020. / VS. THOMAS COOK (I) LTD., THOMAS COOK BLDG., DR. D.N.ROAD, FORT, MUMBAI - 40001. ( / APPELLANT) .. ( / RESPONDENT ) ./ I.T.A. NO. 9156/M/2010 (AY: 2006 - 2007 ) THOMAS COOK (I) LTD., THOMAS COOK BLDG., DR. D.N.ROAD, FORT, MUMBAI - 40001. / VS. DCIT - 1(3), R.NO.540/564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020. ./ PAN : AAACT 4050 C ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI DHANESH BAFNA & SHRI ARPIT AGARWAL / REVENUE BY : SHRI NEERAJ PRADHAN AND SHRI AJEET KUMAR JAIN / DATE OF HEARING : 15 .10.2013 / DATE OF PRONOUNCEMENT : 31 .10.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. I.T.A. NO. 2465/M/2011 (AY: 2005 - 2006) IS FILED BY THE REVE NUE AND THE I.T.A. NO. 9156/M/10 (AY: 2006 - 2007) IS FILED BY THE ASSESSEE. SINCE, THE ISSUES INVOLVED IN THESE TWO APPEARS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, T HEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER . APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2 ITA NO. 2465/M/2011 AY 2005 - 06 2. FIRSTLY, WE SHALL TAKE UP ITA NO. 2465/M/2011, WHICH IS FILED BY THE REVENUE ON 29.3.2011 AGAINST THE ORDER OF THE CIT (A) - 15, MUMBAI DATED 25.1.2011 FOR THE ASSESSMENT YEAR 2005 - 2006. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE ADDITION OF RS. 6,08,935/ - MADE ON ACCOUNT O F TRANSFER PRICING ADJUSTMENT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN RESTRICTING THE DISALLOWANCES MADE U/S 14A TO 2% OF EXEMPT INCOME I.E., RS.1,12,843/ - AGAINST DISALLOWANCE OF RS. 9,09,636/ - MADE B Y THE AO. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FOREIGN EXCHANGE DEALER, TRAVEL AGENT, TOUR OPERATOR ETC AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 38,88,50,360/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DECLARING THE TOTAL INCOME OF RS. 39.30 CRS (ROUNDED OFF) . DURING THE ASSESSMENT PROCEEDINGS, AO MADE CERTAIN ADDITIONS I.E., (I) ON ACCOUNT OF TRANSFER PRICING (TP) ADJUSTMENT AMOUNTING TO RS. 7,46,243/ - ; AND (II) DISALLOWANCE U/S 14A A MOUNTING TO RS. 9,09,636/ - . ADDITION WISE FACTS AND THE ADJUDICATION IS GIVEN AS FOLLOWS. 4. T HE FACTS RELATING TO THE ISSUE RELATING TO TP ADJUSTMENT ARE THAT THE ASSESSEE DID NOT CHARGE ANY FEES FROM ITS ASSOCIATED ENTERPRISES (AE) (NAMELY HSBC, TRAVEL LEX AND TCMOL) , WHILE HE IS CHARGING THE SAME FROM OTHER RELATED PARTIES. APPLYING THE ARMS LENGTH PRICE (ALP) PROVISIONS, TPO MADE AN ADDITION OF RS. 7,46,243/ - . MATTER TRAVELLED TO THE CIT (A). DURING THE PROCEEDING BEFORE THE CIT (A), ASSESSEE SUBMIT TED THAT IN CASE OF EXPORTS TO NON - AES I.E., UNRELATED PARTIES, ASSESSEE INCURRED LOSSES AS COMPARED TO THE PARTIES TO THE AE (TCMOL), THEREFORE, IT IS A REVENUE LOSS. FURTHER, HE POINTED OUT THAT WITH REGARD TO EXPORTS TO THE AES, ASSESSEE WAS NOT SUBJE CT TO ANY COUNTING FEES CHARGED BY AES, UNLIKE THIRD PARTIES (HSBC / TRAVELEX). NORMALLY, COUNTING FEES PAID IS OFTEN MORE THAN AN INCENTIVE RECEIPT. IF THE 3 BOTH SERVICE FEES AND COUNTING FEES WERE TAKEN, IT WOULD LEAD TO LOSS OF INCOME TO THE ASSESSEE. THE ASSE SSEE RELIED ON VARIOUS TP GUIDELINES OF ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT ( OECD ) IN FAVOUR OF SUCH COUNTING PRINCIPLE AND SUBMITTED THAT ALP PRINCIPLE NEED NOT BE INVOKED IN SUCH CIRCUMSTANCES. CIT (A) CONSIDERED THE SAME AND A LLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE ADJUSTMENT AS SEEN FROM PARA 2.10 OF THE IMPUGNED ORDER. 5. DURING THE PROCEEDINGS BEFORE US, LD DR RELIED ON THE ORDER OF THE AO AND THE TPO AND SUBMITTED THAT EVERY TRANSACTION HAS TO BE INDEPENDENTLY BEN CHMARKED. HOWEVER, THERE IS NO SPECIFIC SUBMISSION BY THE LD DR TO COUNTER THE REASONING GIVEN BY THE CIT (A) WHILE GRANTING THE RELIEF TO THE ASSESSEE. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. I T IS A FACT THAT THE ASSESSEE HAS NOT CHARGED FROM AE. FURTHER, IT IS ALSO EQUALLY TRUE THAT AE CHARGES COUNTING FEES ALSO ON THE TRANSACTIONS OF THE ASSESSEE. IF BOTH ARE TAKEN INTO ACCOUNT QUANTITATIVELY, IT IS THE CLAIM OF THE ASSESSEE THAT THE ASSESS EE WILL PUT TO LOSSES AND THE SAME IS NOT ACCOUNTED BY THE INCOME FACT OF FIGURES. THESE KIND OF ACCOUNTING ISSUES ARE OUTSIDE THE SCOPE OF TP PRINCIPLES AS DISCUSSED IN PARA 2.9 OF THE IMPUGNED ORDER. THE CIT (A) DISCUSSED THE ISSUE AT LENGTH IN PARA 2. 10 OF HIS ORDER, GIVING THE REASONING. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, THE SAID PARA 2.10 IS REPRODUCED HERE UNDER: 2.10. I HAVE PERUSED THE FACTS OF THE CASE AND WRITTEN SUBMISSIONS AND VERBAL ARGUMENTS OF THE APPELLANT. THE TPO HAS VIEWS TH E WHOLE ARRANGEMENT OF THE APPELLANT WITH ITS AE IN ISOLATION. HE HAS FAILED TO TAKE INTO ACCOUNT THE FACT THAT THE APPELLANT IS REQUIRED TO PAY COUNTING FEES TO ITS AE AS WELL AS THIRD PARTIES (HSBC / TRAVELEX) IN RESPECT OF CURRENCY EXPORTED AND CORRESP ONDING COUNTING FEES PAID IS MORE THAN WHAT IT RECEIVED BY WAY OF INCENTIVE / SERVICE FEE. AS SUCH IF BOTH THE SERVICE FEES AND COUNTING FEE ARE INCLUDED / TAKEN TOGETHER IN TRANSACTIONS WITH THE AE, THE APPELLANT WOULD BE WORSE OFF. AS SUCH IT DISCONTIN UED THIS ARRANGEMENT. THE APPELLANT BY AN INTERNAL CUP (TRAVELEX / HSBC) HAS DEMONSTRATED THAT COUNTING FEES FOR EXPORT OF CURRENCY ENTAILS MORE EXPENSE THAN CORRESPONDING SERVICE FEES OR / INCENTIVE RECEIPTS. THUS, IT HAS PASSED THE TEST OF COMPARABILIT Y. IT IS A FACT THAT COUNTING FEES FOR CURRENCY EXPORTED IS CHARGED BY THIRD PARTIES (HSBC / TRAVELEX) AND SO IF THE APPELLANT AE DID NOT CHARGE IT LAST YEAR OR THIS YEAR, DOES NOT IN ANY WAY NEGATE THE CRUCIAL FACT THAT A THIRD INDEPENDENT PART WOULD HAV E CHARGED IT ANY CASE. 4 THE FUNDAMENTALS UNDERLYING TRANSFER PRICING INVOLVES SETTING OF PRICES WITHIN AN MNE IN LINE WITH WHAT THIRD PARTIES WOULD HAVE NEGOTIATED IN SIMILAR CIRCUMSTANCES. IN THE PRESENT CASE HAD THE AE INSISTED ON CHARGING COUNTING FEE S FOR CURRENCY EXPORTED THEN IT WOULD HAVE BEEN MORE THAN THE CORRESPONDING INCENTIVES / SERVICE FOR INCOME AND THE APPELLANT WOULD HAVE BEEN WORSE OFF. TO SUM UP, THE DISCONTINUANCE OF EARLIER ARRANGEMENT OF NOT PAYING ANY COUNTING FEES TO ITS AE AT MAU RITIUS AND ALSO FOREGOING THE CORRESPONDING SERVICE / INCENTIVE FEES, DOES NOT ERODE THE TAX BASE IF ONE KEEPS IN MIND THE RATIO OF SUCH RECEIPTS AND PAYMENT MADE WHICH IS TILTED IN FAVOUR OF THE PAYMENT SIDE. MOREOVER, THE APPELLANT HAS DEMONSTRATED BY A N INTERNAL CUP (HSBC / TRAVELEX) ON THIS ASPECT TO ESTABLISH ITS CASE. THE ADJUSTMENT OF RS. 7,46,243/ - SO MADE IS THEREFORE, DELETED. 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCO RDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 8. GROUND NO.2 RELATES TO THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 56,42,139/ - AND CLAIMED EXEMPTION. A O INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE - 8D OF THE IT RULES, 1962 AND COMPUTED THE DISALLOWANCE AT RS. 9,09,636/ - TOWARDS ADMINISTRATIVE EXPENSES. NO DISALLOWANCE WAS MADE UNDER CLAUSE (I) AND (II) OF RULE - 8D(2) ON ACCOUNT OF DIRECTLY RELAT ED EXPENDITURE AND INTEREST EXPENDITURE. 9. DURING THE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE SUBMITTED THAT INVESTMENTS ARE SUBSTANTIALLY REDUCED FROM RS. 26.18 CRS TO RS. 2.4 CRS AND THE INVESTMENTS ARE MET OUT OF OWN FUNDS. WITHOUT PREJUDICE, ASSESS EE SUBMITTED THAT THERE IS AN ERROR IN THE CALCULATIONS TO THE EXTENT THAT TAXABLE INCOME WAS ALSO CONSIDERED PARTLY. IF THE APPROPRIATE CALCULATIONS ARE MADE, THE DISALLOWANCE UNDER RULE - 8D WOULD BE 7,14,417/ - AND NOT RS. 9,09,636/ - AS DETERMINED BY THE AO . CIT (A) HELD THAT IN VIEW OF THE JUDGMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT, THE PROVISIONS OF RULE - 8D CANNOT BE APPLIED TO THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION 2005 - 2007. ACCORDINGLY, 2% OF THE EXEMPT INCOME WAS C ONSIDERED AS REASONABLE DISALLOWANCE U/S 14A. THIS FIGURE IS APPROXIMATELY WORKS OUT TO 5% OF THE INVESTMENTS AS ON 31.3.2005. 5 10. DURING THE PROCEEDINGS BEFORE US, LD DR MENTIONED THAT THE 2% IS ON LOWER SIDE CONSIDERING THE QUANTUM OF DIVIDEND RECEIVED BY THE ASSESSEE AND THE INVESTMENTS MADE BY THE ASSESSEE. 11. ON THE OTHER HAND, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 17 OF THE PAPER BOOK AND MENTIONED THAT THERE ARE 6 INVESTMENTS, PURC HASE AND SALES DURING THE YEAR AND THERE IS NO SPECIFIC EMPLOYE ES OR ADMINISTRATIVE EXPENSES PARTICULARLY INCURRED IN CONNECTION WITH SUCH INVESTMENT ACTIVITY. FURTHER, HE MENTIONED THAT THE DIVIDEND INCOME OF RS. 56,95,429/ - WAS EARNED ON CURRENT INVESTMENTS NON TRADE ON UNITS OF MUTUAL AND THESE ARE ALL DIVIDEN DS ELECTRONICALLY TRANSMITTED TO THE ACCOUNTS OF THE ASSESSEE AND HE DOES NOT INVOLVE ANY MANUAL LABOUR. FURTHER, ASSESSEE FILED A BIN DING JUDGMENT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011 DATED 8.1.2013 FOR TH E PROPOSITION THAT MAKING DISALLOWANC E TOWARDS EXPENSES U/S 14A @ 2% OF THE TOTAL EXEMPT INCOME WOULD BE CONSIDERED REASONABLE FOR THE AY 2005 - 2006. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: 4. SO FAR AS Q UESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDE NT - ASESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER, THE TRIBUNAL HAS REMAND ED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. 12. FURTHER, LD COUNSEL ALSO FILED A COPY OF A DECISION OF THE ITAT, MUMBAI IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD VS. ITO VIDE ITA NO.4538/M/2010 FOR THE AY 2005 - 2006, DATED 3.7.2013, WHEREIN AM IS ONE OF THE PARTY. IN THIS ORDER, THE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME AND RELI ED ON THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA). 6 13. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE MATERIAL PLACE BEFORE US AS WELL AS THE CITED DECISIONS BY THE LD COUNSEL. ON HEARING BOTH THE SIDES AND CONSIDERING THE PRECEDENTS AS WELL AS THE BINDING JUDGMENT, WE FIND THAT THE ORDER OF THE CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED . 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ./ I.T.A. NO.9156/M/2010 (AY: 2006 - 2007 ) (BY ASSESSEE) 15. THIS APPEAL FILED BY THE ASSESSEE ON 30.12.2010 IS AGAINST THE ORDER OF THE DISPUTE RESOLUTION PANEL - II, DATED 24.9.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 16. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE AY 2006 - 07 DECLARING THE TOTAL INCOME OF RS. 33.40 CRS. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 33,61,97,858/ - . DURING THE ASS ESSMENT PROCEEDINGS AO MADE CERTAIN ADDITIONS ON ACCOUNT OF TP ADJUSTMENT OF RS. 2,70,074/ - AND DISALLOWANCE U/S 14A AMOUNTING TO RS. 6,62,699/ - ETC. 17. AT THE OUTSET, LD COUNSEL MENTIONED THAT GROUND NO.1 RELATED TO INCORRECT APPLICATION OF SECTION 92C(3 ) OF THE ACT AND THE SAME BEING GENERAL IN NATURE, IT DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION. ACCORDINGLY, GROUND NO.1 IS DISMISSED . 18. REFERRING TO GROUND NO.2 , IE NON CHARGING OF FEE FROM THE AES, LD COUNSEL MENTIONED THAT THE ISSUE RAISED IN THIS GROUND IS EXACTLY SAME AS THAT OF THE GROUND NO.1 RAISED BY THE REVENUE AND ADJUDICATED BY US IN THE ABOVE PARAS OF THIS ORDER VIDE ITA NO. 2465/M/2011 FOR THE AY 2005 - 06. CONSIDERING THE SIMILARLY OF THE FACTS, AFTER HEARING THE LD REPRESENTATIVES OF BO TH THE PARTIES, WE GRANT RELIEF TO THE ASSESSEE. ACCORDINGLY, GROUND NO.2 IS ALLOWED . 7 19. GROUND NO.3 RELATES TO THE DISALLOWANCE OF RS. 6,62,699/ - U/S 14A TOWARDS THE EXPENSES RELATABLE TO THE DIVIDEND INCOME. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS 72,58,873/ - . DURING THE ASSESSMENT, AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE - 8D OF THE IT RULES, 1962 AND DETERMINED THE DISALLOWANCE OF RS. 6,62,699/ - (RS. 3,13, 350/ - TOWARDS INTEREST UNDER RULE - 8D(2)(I I) AND RS. 34,93,496/ - TOWARDS ADMINISTRATIVE EXPENSES). DURING THE PROCEEDINGS BEFORE THE DRP, ASSESSEE MADE VARIOUS SUBMISSIONS AGAINST THE DISALLOWANCES. DRP CONSIDERED THE ABOVE SUBMISSIONS AND REMANDED THE MATTER TO THE AO WITH A DIRECTION TO DISALL OW ONLY THE DIRECT AND INDIRECT EXPENSES WHICH ARE PROXIMITY WITH THE EARNING OF EXEMPT INCOME. IN THE REMAND PROCEEDINGS, AO REPEATED THE SAME ADDITIONS. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL REITERATED THE SUBMISSIONS MADE IN CONNECTION THE SIMI LAR GROUND RAISED BY THE REVENUE BEFORE TH E TRIBUNAL FOR THE AY 2005 - 2006 AND ALSO THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF 3DPLM SOFTWARE SOLUTIONS LTD VS. ITO VIDE ITA NO.4538/M/2010 FOR THE AY 2005 - 2006, DATED 3.7.2013, WHEREIN THE TRIBUNAL HAS R ESTRICTED THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME . CONSIDERING OUR ADJUDICATION GIVEN IN THE ABOVE PARAGRAPHS, WHILE DEALING WITH THE SAME ISSUE RAISED BY THE REVENUE, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF 2% OF THE EXEMPT INCOME IS FAIR AND REASONABLE . ACCORDINGLY, GROUND NO.3 IS ALLOWED . 20. GROUND NO.5 RELATES TO THE DISALLOWANCE OF RS. 10 LACS OF PAYMENT MADE TO TAMARA CAPITAL ADVISORS PVT. LTD , WHERE ONE OF THE DIRECTORS IS COMMON WITH THE ASSESSEE COMPANY. AT THE OUTSET, LD COUNSEL ME NTIONED THAT THE AUTHORITIES BELOW MADE DISALLOWANCE FOR WANT OF EVIDENCES IN SUPPORT OF RENDERING OF SERVICES. IN THIS REGARD, LD COUNSEL FILED A COPY OF THE INVOICE NO. A/0103/06, DATED 8 TH MARCH, 2006 AND MENTIONED THAT THE SAID COPY OF THE INVOICE WAS NOT FILED BEFORE THE REVENUE AUTHORITIES AS THERE IS NO DEMAND FROM THEM. IN THIS REGARD, HE PRAYED FOR REMANDING THE MATTER TO THE AO FOR FRESH ADJUDICATION AND DECIDING THE ISSUE AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.5 IS ALLOWED FOR STATISTICAL PURPOSES. 8 21. GROUND NO.6 RELATES TO THE DISALLOWANCE OF DEPRECIATION OF RS. 2,20,817/ - RELATING TO LEASEHOLD PREMISES. LOWER AUTHORITIES DISALLOWED THE SAME FOR THE REASONS THAT THE SAID PREMISE WAS ACQ UIRED BY THE ASSESSE PERPETUAL LEASE BASIS. HOWEVER, HE FAIRLY SUBMITTED THAT THE ASSET WAS NOT PUT TO USE NOT ONLY DURING THE YEAR BUT ALSO TILL DATE. THE SAID PREMISE WAS NOT USED AS THE SAME IS NOT FIT FOR COMMERCIAL USE. DURING THE PROCEEDINGS BEFOR E US, IT WAS DISCUSSED ABOUT THE ALLOWABILITY OF THE DEPRECIATION WHEN THE ASSET IS ADMITTEDLY UNUSED, THOUGH THE SIX YEARS ARE LAPSED TILL DATE. IN THIS REGARD, LD COUNSEL ARGUED THAT THE ASSET ONCE INCLUDED IN THE BLOCK OF ASSETS, THE SAME WILL LOOSE IT S INDIVIDUAL IDENTITY, THEREFORE, THE DEPRECIATION SHOULD BE ALLOWED ON THE BLOCK OF ASSETS. PER CONTRA, IT IS THE ARGUMENT OF THE LD DR THAT WHEN AN INELIGIBLE ASSET IS INCLUDED IN THE BLOCK OF ASSETS, IT IS JUSTIFIED THAT THE ASSET SHOULD NOT BE EXCLUDE D AND IS INELIGIBLE FOR GRANT OF DEPRECIATION. 22. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. IT IS AN UNDISPUTED FACT THAT THE ASSET WAS NEVER PUT TO USE TILL DATE AND THEREFORE, IT IS NOT LEGALLY CO RRECT THAT THE LEASED PREMISE WAS CAPITALIZED AND ADDED TO THE BLOCK OF ASSETS. THEREFORE, SUCH INELIGIBLE ASSET, WHICH IS NOT FULFILLED THE CONDITIONS OF SECTION 32 OF THE ACT SHOULD NOT HAVE BEEN INCLUDED IN THE BLOCK OF ASSETS. THERE ARE NUMBER OF DEC ISIONS TO SUPPORT THE SAID VIEW. CONSEQUENTLY, THE DECISION GIVEN BY THE DRP IN PARA 6 AND THE CONCLUSION OF THE AO GIVEN IN PARA 7 OF THE ASSESSMENT ORDER ARE SUSTAINED . IT ALSO STATED THAT THE ASSESSEE STOPPED MAKING DEPRECIATION ON THESE ASSETS . ACCORDINGLY, THE GROUND NO.6 RAISED BY THE ASSESSEE IS DISMISSED . 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER IS PRON OUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2013. SD/ - SD/ - (B.R. MITTAL) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 31. 10.2013 9 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI