If Asset owned by the assessee used for business purpose depreciation cannot be disallowed and provision of income tax written back cannot be consider deemed income

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- ‘B” CALCUTTA

Before Shri Pramod Kumar,

Accountant Member and

Shri N.Vijaya Kumaran,

Judicial Member

ITA No. 1243/Kol/2008

(Assessment Year: 2002-03)

I.T.O Ward 4(2), Kolkata

(APPELLANT)

Vs

M/s. Mukti Properties (P) Ltd.

PAN: AACCM 0424D

 (RESPONDENT)

For the Appellant: Shri A.K. Pramanick, ld.DR

For the Respondent: Shri S.M Surana,, ld.AR

Date of Hearing: 06-03-2012

Date of Pronouncement: 23.-03-2012

ORDER

Shri N. Vijaya Kumaran, Judicial Member

This appeal by the department is for the assessment year 2002-03. It is directed against

the order of the learned Commissioner of Income-tax (Appeals)-IV, Kolkata dated 28-04-

2008.

2. The department has raised the following effective grounds of appeal:-

1. That the ld.CIT(A) had erred in deleting disallowance of Rs.8,66,798/- as disallowed by the AO which was claimed by the assessee as business loss.

2. That the ld.CIT(A) had erred in deleting the addition of Rs.1,36,620/- made by the AO as suppressed income of the assessee from the contract business.

3. That the ld.CIT(A) had erred in directing the AO in recalculate the amount of depreciation. The AO disallowed an amount of Rs.4,85,114/- as depreciation as claimed by the assessee.

4. That the ld.CIT(A) had erred in deleting the treatment of Rs.25,98,820/- as made by the AO as interest on borrowed money. The AO disallowed the amount of interest of payment, made by the assessee, to the tuen of Rs.25,98,820/-.

5. That the ld.CIT(A) had erred in deleting the addition of Rs.3,348/- made by the AO as ‘Excess Provision of Income Tax Written Back’.

3. Facts relevant for consideration are that the assessee company is engaged in the business of development of land and construction of commercial/residential flats for ultimate sale on ownership basis. In the process of such activity of business, it is also in receipt of rent in respect of unsold part of 4 Clive Row, Kolkata. The assessee is also in receipt of maintenance charges from tenant and various owners for rendering services.

4. First we will discuss Ground no.4 relates to disallowance of interest on borrowed fund of Rs. 25.98,820/-. The AO was of the view that it should be computed under the head ‘house property’. By invoking the provision of section 24(1) he disallowed the interest. In other words, heads of income under which the income has to be charged is the dispute. The same dispute is with regard to ground no.1, which is also another disallowance on a/c of alleged business loss.

5. On appeal the learned Commissioner of Income-tax (Appeals) found that similar disallowances for the AY 1996-97 were deleted. Therefore, he preferred to follow the consistency and deleted the disallowance of interest for the AY 1998-99. The claim of interest payment was allowed by accepting the income as business income. There is no controversy in respect of allowability of interest on borrowed fund in the AYs 1999-2000 & 2001-02 respectively.

6. The learned DR relied on the assessment order. On the other hand, the learned counsel for the assessee would submit that the interest claimed in the subsequent AY 2003-04 never disallowed and in the same way this issue for the AY 1998-99 was fully allowed as per the decision/order dated 21-12-2010 [ in Income Tax Appeal No.95 of 2009 in assessee’s own case] of the Hon’ble Jurisdictional Kolkata High Court [available in assessee’s paper book pages 40-57, at page 56]. The Hon’ble Kolkata High Court decided the issue by accepting the plea of the assessee. Hence, this issue is now settled that the same was allowed partly under the head ‘business’ and partly under the head ‘income from house property’. Subsequently, the interest was fully allowed under the head ‘income from house property’ for AYs. 2004-05 and 2005-06. The computation of income for the AYs. 2004-05 & 2005-06 was filed before the AO, which he already accepted. That being the position, the consistency has to be followed. There is no application of res judicata and principle of consistency has to be followed. Even that unless there is change in facts. Hence, we confirm the impugned order of the learned Commissioner of Income-tax(Appeals), who has rightly disallowed the interest on borrowed fund.

7. Now turning. connected issue is ground no.1, which is the disallowance of business loss. The loss arose as such, it is declared in the return under the head ‘business. The AO was of the view that it is not allowable under the head ‘business.’. It was explained by the assessee before the learned Commissioner of Income-tax (Appeals) regarding the nature of the assessee’s business and allocation of various expenses relatable to the business and rental income. It was also explained that such allocation was needed as per direction given in AY 1998-99. This was accepted by the department. Once, the department accepted it. Thus, the loss claim of assessee is allowable under the head ‘business’. However, the AO has not given any reason for disallowing the claim of business loss.

8. On appeal, the learned Commissioner of Income-tax (Appeals) found this loss is incidental to the business. The learned Commissioner of Income-tax(Appeals) also based the reasons on similar set of facts in assessee’s own case for succeeding AY 2003-04 dated 10-10-06, which fact is available on record, wherein it is assessee’s business activity and resultant loss has to be taken into consideration ignoring the business is untenable. He accepted the claim.

9. After considering the rival submissions and perusing the material available on record, we are of the view that the department cannot allow to blow hurt and cold taking facts and circumstances and nature of the company, which is engaged in the business of development of land and construction of commercial and residential flats for ultimate sale on ownership basis. In the process of such activity of business, the assessee company is also in receipt of rent in respect of unsold part of 4 Clive Row, Kolkata The assessee is also in receipt of maintenance charges from tenant and various owners for rendering services. That being the position, we agree with the given findings of the learned Commissioner of Income tax(Appeals) with regard to ground nos. 4 & 1, which are inter-connected.

10. Ground no.2 i.e. deletion of addition of Rs.1,36,620/- under the head ’suppressed income of the assessee from the contract business’.

11. We have considered the rival submissions and perused the material available on record. The learned Commissioner of Income-tax (Appeals) found that on perusal of the maintenance account the assessee received from various owners of 4 Clive Row (2nd floor to 5th floor), which is not owned by the assessee company and from Vijaya Bank in first floor, which is let out by the assessee company. These were supported by bills raised by the assessee. Against such receipts the company incurred such expenses under various heads for providing services like amenities etc. The net debit balance comes to Rs.67,321.63. That being the position, the sum of Rs.1,63,944/- receivable as per Form 16A granted by Vijaya Bank, which is already included in total bill of Rs.20,77,842.87/-.. This has rightly been pointed out by the learned counsel for the assessee. The ld.AO went on and added this amount as per TDS certificate, which is not justified. This receipt has already been included in the total bill as found by the ld.CIT(A) in the maintenance account. There cannot be any double taxation. It cannot be taken as suppressed income also. The receipts and expenses were found record in the books. The bills were also raised by the assessee. That being the position, we agree with the given findings of the learned Commissioner of Income-tax(Appeals) under the head ‘suppressed income from contract business’ as there is no suppressed at all.

12. Coming to ground no.3 i.e on account of depreciation of Rs.4,85,114/-.

13. We have considered the rival submissions and perused the material available on record. It is not disputed before us that basement and ground floor were fully owned by the assessee and used for the purpose of business by the assessee. This was accepted by the department in the AY 1998-99 as per details available on record. Once, the assessee is the owner of the asset and put the assessee for the purpose of business during the relevant FY, then the depreciation has to be allowed as per the details. That being the position, the direction of the learned Commissioner of Income-tax (Appeals) to allow the depreciation as admissible in law in respect of assets other than building on the basis of WDV thereof. The ld. CIT(A) further directed the AO that so far as depreciation admissible on building he should restrict allowability of depreciation relatable to basement and ground floor. As it is established that the assessee is the owner of the basement and ground floor and use of assessee for the purpose of its business wholly and exclusively during the relevant year. We find no justification to interfere with the order of the learned Commissioner of Income-tax(Appeals). This ground of revenue’s appeal is decided against the revenue and in favour of the assessee.

14. Coming to last effective ground is on deletion of addition of Rs.3,348/- under the head ‘excess provision of Income-tax written back’.

15. The learned Commissioner of Income-tax(Appeals) found that section 41(1) will not come. Hence, there cannot be any addition on such deemed income. In this case the written back of such provision in the P&L account cannot be considered as deemed income. It was explained by the ld. Counsel for the assessee that this provision for income-tax when created was not allowed as deduction and such excess provision went written back in the P & L Appropriation account, which is available in APB page 8. That being the position, the impugned order of the learned Commissioner of Income-tax (Appeals) is quite justified and it is in accordance with law. Hence, we decline to interfere with the impugned order of the learned Commissioner of Income-tax (Appeals). This ground of the department is dismissed.

16. In the result, the departmental appeal is dismissed.

THIS ORDER IS PRONOUNCED IN OPEN COURT ON Dt. 23.-03-2012

                                                         Sd/-                              Sd/-

                                                Pramod Kumar          N.Vijaya Kumaran

                                          (Accountant Member)      (Judicial Member)

Dated: 23-03-2012

Pronounced on 23/3/12

                                                      Sd/-                               Sd/-

                                                     [JM]                             [AM]

Copy of the order forwarded to:

1. Appellant- I.T.O W 4(2), P-7 Chowringhee Sq, R.No.11E, 8th Fl., Kol-69.

2 Respondent: M/s. Mukti Properties (P) Ltd 4 Clive Row, Kol-1.

3. CIT,

4. CIT (A),

5. DR, Kolkata Benches, Kolkata

True Copy

By order,

Asstt Registrar