Mohan Lal Syal V. Commissioner of Income-Tax, Chandigarh

ITA/295/2011

AI Insights

The case involves Mohan Lal Syal, the appellant, who is engaged in the business of commercial coaching and operates as a franchise of Akash Institute, Delhi. A survey conducted in 2005 led to the surrender of unaccounted income, and subsequent assessments and appeals addressed various income declarations and deductions claimed by the appellant. The primary legal issues revolved around the entitlement to depreciation deductions under Section 32(1) and the applicability of Section 40(a)(ia) concerning non-deduction of tax at source on rent payments. The Tribunal's decision, which partly allowed the appellant's appeal, was contested in the High Court, leading to the current judgment.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 676710 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 12-09-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: URVASHI DHUGGA
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Chargeable income; Depreciation; House construction; Income from Capital Gain; Income from other sources; Unaccounted cash
• Section: 143(3); 143(1); 133A; 40(a)(ia); 260A; 32(1); 194I

Judgement Text

"ITA No. 295 of 2011 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 295 of 2011 Date of Decision: 12.9.2012 Mohan Lal Syal ....Appellant. Versus Commissioner of Income-Tax, Chandigarh ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE G.S. SANDHAWALIA. PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Ms. Urvashi Dhugga, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal filed under Section 260A of the Income Tax Act, 1961 (in short “the Act”) is against the order dated 25.4.2011 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 1182/Chandi/2010, for the assessment year 2006-07. On January 13, 2012 notice of motion was issued with respect to the following substantial questions of law:- 1. Whether under the facts and circumstances of the case, nature of business, the Tribunal's action for declining the claim and Allowance of Depreciation u/s 32(1) Exp.5 w.e.f. 01.04.2002, ITA No. 295 of 2011 -2- cannot be entertained since ground not raised before CIT(A) which is emerging from material on record? 2. Whether under the facts and circumstances, the allowance is mandatory u/s 40 (a)(ia), while considering the provisions of Section 194I proviso (unnumbered), in the determination of the 'Chargeable Income'? 2. Briefly stated, the facts necessary for adjudication of the present appeal as narrated therein are that the assessee is engaged in the business of commercial coaching for PMT (Pre Medical Test) and the activities are being carried as Franchise of Akash Institute, Delhi. A survey was conducted on 3.5.2005 under Section 133A of the Act and the surrender of ` 25 lacs towards house construction and ` 10 lacs towards unaccounted cash was made. The return of income was filed on 30.10.2006 at an amount of ` 1,79,75,708/- containing income from capital gain of ` 3,50,000/-, ` 5,25,717/- as income from others sources and loss of ` 90,327/- under the head income from House Property. The said return was processed under Section 143(1) of the Act and scrutiny proceedings were initiated. The assessment was completed under Section 143(3) of the Act at an amount of ` 2,05,89,895/- vide order dated 26.12.2008 (Annexure A-1). Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [hereinafter referred to as “the CIT(A)”]. The CIT(A) vide order dated 2.6.2010 (Annexure A-2) dismissed the appeal of the assessee. Against the said ITA No. 295 of 2011 -3- order dated 2.6.2010 (Annexure A-2), the assessee approached the Tribunal by way of second appeal. The Tribunal vide order dated 25.4.2011 (Annexure A-5) partly allowed the appeal of the assessee which gave rise to the assessee to file the present appeal. 3. We have heard learned counsel for the parties. 4. Adverting to question No.1, it would be expedient to refer to Explanation 5 to Section 32(1) of the Act which was inserted by Finance Act, 2001 w.e.f. 1.4.2002. It read thus:- “Explanation 5.- For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income.” 5. A plain reading of the aforesaid Explanation spells out that the provisions of Section 32 relating to depreciation shall apply wherever the assessee may or may not have claimed deduction in respect of depreciation in computing the income. In other words, the effect of the aforesaid Explanation is that the Assessing Officer is duty bound to allow depreciation even without there being claim by the assessee wherever the same is admissible to the assessee. 6. Learned counsel for the revenue was unable to controvert that the aforesaid Explanation was applicable to the present case and in view thereof, the Tribunal was not right in rejecting the claim of the assessee for sending back the case to the Assessing Officer for computation of deduction/allowance on account of depreciation. ITA No. 295 of 2011 -4- Accordingly, question No.1 is answered in favour of the assessee and against the revenue. The Assessing Officer shall examine the issue regarding allowability of depreciation to the assessee subject to fulfilment of conditions enumerated in Section 32 of the Act. 7. As regard question No.2, learned counsel for the revenue drew the attention of this Court to the following observations recorded by the Tribunal while adjudicating the same in para 21, which read thus:- “At the time of hearing, the ld. counsel for the assessee fairly stated that the assessee was statutorily obliged to deduct tax at source out of rent paid by him but it was not deducted at source by the assessee and, therefore, the provisions of section 40(a)(ia) were applicable. It was further submitted that tax out of rent was deducted at source in subsequent year though it was not so deducted at source in the year under appeal. Thus, the admitted position is that the tax required to be deducted at source out of rent was not so deducted at source in the year under appeal. The deductibility of the impugned expenses is hit by section 40(a)(ia) and, therefore, the AO has rightly disallowed the impugned expenses, which, on appeal, has been correctly confirmed by the CIT(A). Ground No.5 is dismissed.” 8. On the strength of the aforesaid observations, it was contended by the revenue that once the counsel for the assessee had admitted, the assessee was statutorily to deduct tax at source out of the ITA No. 295 of 2011 -5- rent paid by him but had failed to do so, therefore, the provisions of Section 40(a)(ia) of the Act were applicable and the question now claimed by the assessee does not arise. 9. Learned counsel for the assessee submitted that the Tribunal factually incorrectly recorded that the assessee had admitted regarding its obligation to deduct tax at source out of the rent paid whereas no such plea was accepted before the Tribunal. There is no material before us to come to a different conclusion from what has been recorded by the Tribunal or to put it differently, it cannot be said that the Tribunal had recorded the observations noted above erroneously. Once that is so, question No.2 as claimed by the assessee does not arise. It shall, however, be open to the appellant to take recourse to the legal remedies available to him in accordance with law with regard to question No.2. 10. In view the above, the present appeal stands disposed of in the manner indicated above. (AJAY KUMAR MITTAL) JUDGE September 12, 2012 (G.S. SANDHAWALIA) gbs JUDGE "