Income Tax Appellate Tribunal - Delhi
M/S. Pace Industries Pvt. Ltd., New ... vs Dcit, New Delhi on 8 August, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI 'D' BENCH,
NEW DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER, AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER,
ITA No. 6062/DEL/2015
[Assessment Year: 2007-08]
M/s Pace Industries Pvt. Ltd.(for Erstwhile DCIT,
Institure of Quality Ltd.), Circle-11(1),
L2A, Hauz Khas Enclave, New Delhi
New Delhi-110016
PAN-AAACI2845N
Appellant Respondent
Assessee by Shri Rohit Jain & Shri Deepesh Jain &
Ms.Menal Goyal
Revenue by Shri Naina Soni Kapil CIT-DR
Date of Hearing 06/08/2019
Date of Pronouncement 08/08/2019
ORDER
PER T. S. KAPOOR, ACCOUNTANT MEMBER,
This is an appeal filed by the assessee against the order of Ld. CIT(A)-4, dated 17/09/2015. The assessee has taken following grounds of appeal:-
1. That the Commissioner of Income Tax (Appeals) ['CIT(A)'] erred on facts and in law in upholding disallowance of depreciation of Rs.3,72,783 claimed by the appellant in respect of "Building - I", 1.1 That the CIT(A)/ assessing officer erred on facts and in law in not appreciating that the appellant had disallowed 50% of eligible depreciation as per section 32(1 )(ii) r.w.s 38(2) of the Income Tax Act, 1961 ('the Act')-
2. That on the facts and circumstances of the case, the CIT(A) erred on facts and in law in upholding ad-hoc disallowance to the extent of 50% of expenses amounting to Rs.22,56,316 paid by the appellant 2 ITA No.6062/Del/2015 between October 2006 and March 2007, without considering the nature of such expenditure and the period in relation to which the same had been incurred,
2.1 That the CIT(A)/ assessing officer failed to appreciate that "professional consultancy fees" amounting to Rs. 14,87,669 (and included in the aforesaid amount of Rs.22,56,316) related to the period when the business was in operation.
2.2 That the CIT(A) erred on facts and in law in not admitting and considering additional evidences filed by the appellant under Rule 46A of the Income Tax Rules. 1962 ("the Rules"), despite the fact that remand report was received thereon from the assessing officer.
2. At the outset, the Ld. AR submitted that the assessee had discontinued its business from October 2006, therefore, the assessee had claimed depreciation on building-1 @50% in accordance with provisions of section 32(1) r.w.s 38(2) of the Act. However, the Assessing Officer disallowed the same by holding that the claim of 50% of the depreciation is applicable only to the items of purchase of fixed assets acquired during the year. The ld. AR submitted that the order of the Assessing Officer is contradictory in itself as in respect of depreciation on other fixed assets, the Assessing Officer has himself restricted the claim of the assessee to 50% on the basis of provisions of section 38(2) of the Act. Therefore, it was prayed that the order of the ld. CIT(A) who had confirmed the addition should be set-aside.
3. Arguing the other ground of appeal, the Ld. AR submitted that the claim of the expenses incurred by the assessee were disallowed to the extent of 75% as in the opinion of the Assessing Officer, these were 3 ITA No.6062/Del/2015 incurred from October 2006 to March 2007 when the business of assessee was not being carried out. The Ld. AR in this respect filed a chart explaining the headwise expenses and argued that these expenses were incurred before September 2006 (when the business was running) but the payments thereof were made during the months between October 2006 to March 2007.
4. The ld. AR in this respect submitted that the assessee had filed additional evidences under Rule-46A with the Ld. CIT(A) and the Ld. CIT(A) had obtained remand report from the Assessing Officer also, but he has not dealt with the remand report and simply upheld the disallowances. Therefore, it was prayed that the appropriate relief may be granted to the assessee.
5. The Ld. DR on the other hand, placed her reliance on the order of authorities below.
6. We have heard rival parties and have gone through the material placed on record. As regards, ground no. 1, we find that the Assessing Officer did not allow depreciation on building marked as building No.1 as in his opinion, the 50% depreciation can only been allowed in a case where the asset is acquired during the previous year and that asset must have been put to use for business purposes. He held that the assessee did not acquire building during the year and therefore, the claim of 4 ITA No.6062/Del/2015 depreciation was disallowed. We observe that in respect of claim of depreciation and other assets (where the assessee had claimed 100% depreciation), the Assessing Officer himself has restricted the claim of depreciation to 50% by relying on provisions of section 38(2) of the Act. The findings of the Assessing Officer in this respect are quite relevant which for the sake of completeness are reproduced below:-
"Further, as per a chart submitted by the assessee detailing Monthwise Income earned by the assessee under various heads, it is observed that the assessee was earning revenues from its business under the heads. Training income and Seminar income only till September, 2006. Thereafter, the only source of revenue for the assessee was rental income from October, 2006 to March, 2007. This rental income has been offered for taxation as Income from house property. So it can be safely concluded that the assessee was engaged in business only till September, 2006 and thereafter was earning income from house property. So the above assets were not being exclusively used for the purpose of business throughout the year.
In this regard, the provisions of section 38(2) of the IT Act, 1961 are reproduced below. -
38(2) Where any building, machinery, plant or furniture is not exclusively used for the purpose of business or profession, the deductions under clause (ii) of clause (a) and clause (c) of section 30, clause (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine having regard to the user of such building, machinery, plant or furniture for the purposes of business or profession.
So in view of the above law, the assessee can't be allowed full claim of depreciation under the head income, as has been claimed by the assessee in the Computation of income. Therefore, exercising the powers given under section 38(2), the claim of the assessee for depreciation under the head income from business is restricted to 50% of the amount claimed by the assessee. This 50% figures has been arrived at keeping in mind that for the period of 6 months (April-06 to Sept-06) the assessee was carrying on the normal business activities of conducting training and seminars. For the remaining 6 months (Oct-06 to 5 ITA No.6062/Del/2015 March-07) the assessee was not carrying the business but its source of income was rent which was offered for taxation under the head Income from House property. As a 30% deduction is allowed u/s 24(a) from the rental income so in a way all the expenses including depreciation is assumed to be subsumed within this 30% deduction. Therefore, restricting the claim to 50%, a deduction on account of depreciation is allowed only to the extent of Rs.2,08,585/- (Rs. 417770/- divided by 2). As such an addition of Rs.2,08,585/- is made to the total income. Since the assessee has furnished inaccurate particulars of income I am satisfied that penalty proceedings u/s 271(1)(C) of the Act should be initiated which are accordingly done."
7. In the above findings, the Assessing Officer has himself restricted the claim of depreciation in respect of other assets to 50% by holding that assessee was into business only till September 2006. Therefore, there is no reason for the Assessing Officer to disallow the claim of 50% depreciation in respect of building marked as building No.1. Therefore, we reverse the order of the ld. CIT(A) to this extent and allow ground no.1 of the appeal.
8. Now coming to ground no.2, we find that the Assessing Officer has made a categorical finding at page 7 of his order that the expenses were incurred after October 2006. It is an admitted fact that the assessee had closed its business in September 2006. Before us, the Ld. AR has argued that these expenses were incurred before October 2006, however, the payments were made during the period October 2006 to March 2007. We also observe that the assessee had filed additional evidences under Rule 46A with the Ld. CIT(A) and ld. CIT(A) had also obtained the remand report from the Assessing Officer which he has not mentioned in his 6 ITA No.6062/Del/2015 order, therefore, we deem it appropriate to remit the issue back to the office of the Ld. CIT(A) to readjudicate the issue of expenses in accordance with law. Needless to say that assessee will be provided sufficient opportunity of being heard. In view of the above, ground no.2 of the appeal filed by assessee is allowed for statistical purposes.
9. Finally, the appeal of the assessee is partly allowed and partly allowed for statistical purposes.
The order is pronounced in the open court on 08/08/2019.
Sd/- Sd/-
[BHAVNESH SAINI] [T.S. KAPOOR]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Delhi; Dated: 08/08/2019.
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Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi