Annual Letting Value Valid for Taxing Unsold Flats; Business Exemption Needs Active Use; Section 32AB Deduction Allowed

The HC upheld the application of Annual Letting Value (ALV) for taxing unsold flats under Income from House Property, affirming that ALV is a valid presumptive method irrespective of actual rental income, favoring the revenue. It ruled that occupation for business exemption requires active use of property in business, not mere possession. The court allowed the assessee's claim for deduction under Section 32AB on interest income, as eligibility was undisputed. Regarding depreciation, the HC confirmed the admissibility of 100% depreciation for plant assets, applying precedent that each bottle qualifies as plant, supporting the assessee's position and rejecting ITAT's contrary findings.

---

---

Issues Involved:
1. Disallowance of expenses incurred on maintenance of accommodation in Iraq.
2. Allowability of depreciation on motor cars purchased and used in Iraq.
3. Allowability of expenses claimed under provisions for completed expenses and expenses incurred on completed projects.
4. Taxability of annual letting value (ALV) of unsold flats as "income from house property."
5. Deduction under Section 32AB on interest income.
6. Claim of 100% depreciation on shuttering and scaffolding.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses on Maintenance of Accommodation in Iraq:
The Court noted that the first three questions had been previously answered in favor of the assessee in a judgment dated 25th September 2012. Therefore, the expenses incurred on the maintenance of accommodation provided to employees and executives in Iraq were not disallowable.

2. Allowability of Depreciation on Motor Cars Purchased and Used in Iraq:
Similarly, as per the previous judgment, the depreciation claimed on motor cars purchased and used in Iraq was allowable to the assessee.

3. Allowability of Expenses Claimed Under Provisions for Completed Expenses and Completed Projects:
The Court again referred to the previous judgment, holding that the expenses claimed by the assessee under the heads provisions for completed expenses and expenses incurred on completed projects were allowable, despite the Department not accepting the system of accounting followed by the assessee.

4. Taxability of ALV of Unsold Flats:
The Court examined whether the assessee could be assessed on the basis of the ALV of unsold flats. The assessee contended that the flats were its stock-in-trade and should not be taxed under "Income from house property." However, the AO added the notional value of unsold flats to the total income, which was set aside by the CIT(A) and upheld by the Tribunal. The Court held that the levy of income tax is based on ownership, not on whether the flats were let out. The ALV method is a rational and scientific approach to determine the tax. The Court rejected the argument that the flats should not be taxed on a notional basis and concluded that the taxability of the ALV of the unsold flats was justified, answering this question in favor of the revenue.

5. Deduction Under Section 32AB on Interest Income:
The Court considered whether the deduction under Section 32AB on interest income was justified. The assessee claimed the benefit under Section 32AB(1)(b) for purchasing new machinery or plant. The Supreme Court's decision in Apollo Tyres Ltd v CIT was referenced, which held that if a business qualifies for the benefit under Section 32AB, the assessee is entitled to a set-off of 20% of the profit of such eligible business. The Court noted that the eligibility of the assessee to claim the benefit was never questioned and answered this question in favor of the assessee.

6. Claim of 100% Depreciation on Shuttering and Scaffolding:
The Court examined the admissibility of 100% depreciation for plant. The AO allowed only 33% depreciation, but the CIT(A) and ITAT reversed this view, allowing 100% depreciation. The Court referred to previous decisions, including CIT Vs. Ansal Properties and Indus. Oversees Projects, which held that parts of scaffolding and shuttering are admissible for 100% depreciation. The Court upheld the ITAT's finding and answered this question in favor of the assessee.

Conclusion:
The revenue's appeal succeeded in part regarding the taxability of the assessee on the basis of the ALV of the unsold flats. All other questions in the appeals were answered in favor of the assessee. The appeals were disposed of without any order on costs.

---