Income Tax Appellate Tribunal - Pune
Niramaya Medical Foundation & Research ... vs Department Of Income Tax on 4 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri Shailendra Kumar Yadav Judicial Member
and Shri R.K. Panda Accountant Member
ITA No. 708/PN/2012
(Assessment Year 2003-04)
DCIT, Circle-2,
Pune. .. Appellant
Vs.
M/s.Niramaya Medical Foundation
& Research Centre,
Gat No.105, P.No.245 to 249,
Valochi, Tal : Baramati, Dist.Pune .. Respondent
Appellant by : Shri D.S. Kotari
Respondent by : Shri P.D. Kudwa
Date of Hearing : 04-07-2013
Date of Pronouncement : 05-07-2013
ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 07-12-2011 of the CIT(A)-II, Pune relating to Assessment Year 2003-04.
2. Facts of the case, in brief, are that the assessee is a Pvt. Limited Company and is running a Hospital. It filed its original return of income on 29-11-2003 declaring total loss of Rs.64,93,600/- which was accepted by the Assessing Officer in the order passed u/s.143(3) on 16-11-2005. Subsequently, a notice u/s.148 of the Income Tax Act was issued and served on the assessee on 31-03-2010. During the course of assessment proceedings the Assessing Officer noted that as per the provisions of the Income Tax Act no depreciation was to be allowed on building used for 2 the business purposes unless the building in question was complete in all respect and fully used for the purpose for which it was envisaged. He observed that the assessee company during the A.Y. 2003-04 has claimed depreciation of Rs.23,00,596/- on Hospital building which was incomplete.
2.1 On being questioned by the Assessing Officer the assessee submitted the details and stated that due to financial difficulties the work has not been completed in all respect as per sanctioned plans and hence completion certificate from local authority is still awaited. The Assessing Officer asked the assessee to explain as to why depreciation amounting to Rs.23,00,596/- should not be disallowed. The assessee filed a detailed written reply which reads as under :
"4.2 In the I T return and assessment proceedings the assessee had furnished full details about the subject hospital building including expenditure incurred thereon, its use for the purpose of the business, and working of the claim for depreciation. The information on record includes ample evidence with regard to the building including architect certificate certifying the building, Municipal tax receipt and a valuation report dtd. 07.10.2005 by registered valuer Shri Nitn P Pharsole certifying the value of the building at Rs.2,32,40,200/- the A O therefore has come a conclusion based on appreciation of all the facts and circumstances of the case.
Without prejudice to the above, we submit that the assessee' s claim for depreciation on Hospital building is legitimate. The existence of the subject building and the assessee's ownership thereof is not in dispute. It is also not in dispute that the subject building has been utilized for the purpose of company's business. From the audited accounts it is seen that the company's turnover for the year jumped to Rs 1,27,28,062/- form Rs.26,88,092/- in the preceding year. This could not have been achieved without use of proper building and equipment. The assessee in the assessment proceedings has furnished elaborate particulars with regard to the building also the facilities available in the hospital giving particulars of use of various part of building The assessee was facing a liquidity crunch and was not able to complete the access to the building and finishing work of the entrance. Hence, the completion certificate could not be obtained at the 3 relevant time. However the hospital building otherwise was complete in all respects and fully utilized for the purpose of business. In fact the building has been certified as complete as on 26.01.2002 relevant to A Y 2002-03 and assessed to Municipal Tax. There remained a deficiency with regard to obtaining completion certificate of the hospital building. There is no adverse comment with regard to ownership or use of the hospital building for purpose of the company's business or the assessee's claim of depreciation either in the audit report under the Companies Act or the Income Tax Act in from 3CA & 3CD it is neither the Departmental auditor nor Department's case that the hospital building was not owned or used for the company's business.
In the Context of the facts, we invite attention to section 32 of the Income Tax Act which stipulates two conditions for allowing depreciation namely:
a That the building is owned wholly or partly by the assessee b That the asset is used for the purpose of business/profession.
We submit, that both the aforesaid conditions have been satisfied in the assessee's case. Section 32 does not stipulate any condition with regard to completion Certificate.
We submit that in the reassessment proceedings a different view is sought to be taken on the same set of facts. There facts have been verified in the course of assessment proceedings by the AO before passing order U/s 143(3) .
The proposed, reassessment is beyond the scope of Section 32 and section 147 We request :you to kindly drop the reassessment proceedings and accept the income returned and assessed U/s 143(3)"
2.2 However, the Assessing Officer was not satisfied with the explanation given by the assessee since the hospital building is not fully completed and since the completion certificate has not been obtained from the local authority. The Assessing Officer accordingly disallowed depreciation of Rs.23,00,596/- .
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3. In appeal the Ld.CIT(A) allowed the claim of the assessee by holding as under :
"4.3 I have considered the submission made by the appellant and also perused material on record, in order to avail depreciation one should satisfy the following conditions:
1) Asset must be owned by the assessee.
2) It must be used for the purpose of business and profession,
3) It should be used during the relevant previous year,
4) Depreciation is available on tangible as well as intangible
asset.
In order to be entitled to depreciation allowance, the assessee has to show that the asset is owned by it or the assessee is the co- owner of the asset as it is only the owner of the asset who is entitled to claim depreciation on them. The A.O. during the assessment proceedings has not disputed the ownership of the asset as well as the use of the asset during the assessment proceedings which are the two most important conditions for the allowance of depreciation. The A.O. has disallowed the depreciation on the ground that the hospital building is not: fully complete and that the completion certificate was not obtained from the local authority. The A.O. is thus disputing the fact that the appellant being not fully completed and not entitled to depreciation. The view that the assessee must be the owner is not controversial as had been laid down long since, in the case of CIT Vs Buckingham & Carnatic Co. Ltd. (1935) 3 ITR 384 (PC). In the case of CIT Vs Nandanam Constructions (1996) 222 ITR 737 (AP), the High Court had followed the Supreme Court's decision in the case of R.B. Jodha Mal Kuthiala (1971) 82 ITR 570, as clear and binding in that it has held the beneficial ownership is alone relevant and that such decision should be treated as applicable in all tax matters by recognizing the beneficial owner for liability as well as any deduction. It took the view that, such view is clear, equitable and consistent with justice and such a view cannot be lightly dismissed, while the Finance Act, 1987 recognised beneficial ownership for computation of property 'income for income-tax, capital gains tax, wealth-tax and gift-tax, the need for clarification in respect of depreciation allowance was overlooked. The controversy got settled in respect of right to depreciation for beneficial owner in the decision, of the Supreme Court in the, case of Mysore Minerals Ltd. oiled supra and also relied upon by the appellant. The concept of ownership in different context now gets reconciled consistent with earlier decision in the case of R.B. Jodha Mal Kuthiala Vs CIT cited supra and CIT Vs Poddar Cement Pvt. Ltd. cited supra. Hence, in view of these precedents, the Karnataka High Court had little difficulty in granting depreciation in respect of a property where the assessee had the use of the 5 property, though title vested with a cooperative society in the case of Surana Pharmaceuticals P. Ltd. Vs CIT (2000) 243 ITR 248 (Kar). The same view is taken in the case of CIT Vs Deepak Nitrite Lid. (2000) 243 ITR 825 (Guj), where possession had been taken over by the assessee after part payment of the price though not registered."
4. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds :
"The order of the Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.
1. The learned Commissioner of Income-tax (Appeals) grossly erred in allowing the assessee's claim of depreciation of Rs.23,00,596/- u/s. 32 in respect of the hospital building instead of confirming the disallowance made in the assessment on this issue.
2. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that no completion certificate had been issued by the local municipal authority to the hospital building which would certify that the said building was not complete in all respects so as to put to use for the purpose of business.
3. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that except for the contention regarding quantum jump in the turnover, no substantive evidence was produced by the assessee to prove that the entire newly constructed building was actually put to use for the purpose of business.
4. For these and such other grounds as may be urged at the time of the hearing, the order of the learned Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored."
5. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. There is no dispute to the fact that the building which is owned by the assessee and is used for running the hospital is incomplete since the completion certificate has 6 not been obtained by the assessee from the local authority and the building is not complete in every respect as per the approved plan. At the same time, there is also no dispute to the fact that the building has been used for the purpose of business. There is also no dispute to the fact that as against the turnover of Rs.26,88,092/- in the A.Y. 2002-03 the turnover during the year has increased to Rs.1,27,28,062/-. Therefore, the submission of the assessee before the Assessing Officer that the higher turnover could not have been achieved without use of the building and equipment should not have been brushed aside by the Assessing Officer. Merely because the completion certificate has not been obtained since the building was not complete in every respect as per the approved plan cannot be a ground to disallow the claim of depreciation especially when the building has been utilised for the purpose of business which is proved by the huge increase in turnover during the year. Under these circumstances and in absence of any contrary material we find no reason why depreciation should be disallowed. In this view of the matter and in view of the detailed discussion by the Ld.CIT(A) allowing the claim of depreciation we find no infirmity in his order. Accordingly, the same is upheld. Grounds raised by the Revenue are accordingly dismissed.
6. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the Open Court on this the 5th day of July 2013.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: 5th July 2013
Satish
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Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-II, Pune
4 CIT-II, Pune
5. The D.R, "B" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune