Tribunal grants assessee's appeal, disallows addition under sec 40(a)(i) & directs 50% depreciation recalculation. Revenue's appeal dismissed.

The Tribunal allowed the assessee's appeal, deleting the addition under section 40(a)(i) and directing the re-computation of depreciation at 50%. The Revenue's appeal was dismissed, affirming the CIT(A)'s decision to allow the deduction under section 80IB(10).

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Issues Involved:

1. Addition of Rs. 2,78,20,447/- under section 40(a)(i) of the Income-tax Act, 1961.
2. Denial of allowance of depreciation on Honda Motor Car @ 50%.
3. Deduction under section 80IB(10) of the Income-tax Act, 1961.

Detailed Analysis:

1. Addition of Rs. 2,78,20,447/- under section 40(a)(i) of the Income-tax Act, 1961:

The primary issue in the assessee's appeal was the addition of Rs. 2,78,20,447/- made by the income-tax authorities under section 40(a)(i) of the Act. The Assessing Officer had concluded that payments made to a non-resident concern, M/s. Arthur Gensler and Associates, were in the nature of fees for technical services and were liable for deduction at source. Since the assessee did not deduct the requisite tax at source, the Assessing Officer invoked section 40(a)(i) and added the amount to the returned income. The CIT(A) affirmed this addition.

The assessee raised a preliminary objection, arguing that section 40(a)(i) was not applicable as the payment was capitalized in the capital work-in-progress and not claimed as a deduction in computing the income chargeable under the head "profits and gains of business or profession." This argument was supported by the Punjab & Haryana High Court's decision in CIT Vs. Mark Auto Industries Limited, which held that no expenditure could be disallowed under section 40(a)(i) if it was capitalized and not claimed as revenue expenditure.

The Tribunal found merit in the assessee's argument, noting that the payment was not debited to the Profit and Loss Account and thus did not fall within the purview of section 40(a)(i). Consequently, the addition of Rs. 2,78,20,447/- was deleted.

2. Denial of allowance of depreciation on Honda Motor Car @ 50%:

The second issue was the denial of depreciation on Honda Motor Car at the enhanced rate of 50%. The assessee claimed depreciation at 50% on the ground that the car was a 'light motor vehicle' and thus covered under the CBDT Notification No.10/2009, which allowed enhanced depreciation on new commercial vehicles acquired and put to use within a specified period.

The Assessing Officer allowed depreciation at the normal rate of 15%, arguing that the enhanced rate applied only to trucks and heavy vehicles, not motor cars. The CIT(A) upheld this view.

The Tribunal, however, noted that the Depreciation Table in the Income Tax Rules, 1962, classified 'light motor vehicles' under the category eligible for enhanced depreciation. Therefore, the claim for 50% depreciation was found to be justified, and the Assessing Officer was directed to re-compute the depreciation accordingly.

3. Deduction under section 80IB(10) of the Income-tax Act, 1961:

The Revenue's cross-appeal involved the deduction claimed by the assessee under section 80IB(10) for a housing project named 'Emerald City' at Baner, Pune. The Assessing Officer disallowed the deduction, stating that the project did not meet the completion requirements as no completion certificate was issued by the local authority (PMC) by the stipulated date.

The CIT(A) allowed the deduction, noting that the assessee had applied for the completion certificate well before the deadline and had complied with all necessary formalities. The CIT(A) also referenced the Pune Bench Tribunal's decision in Satish Bora and Associates, which supported the concept of deemed completion if the local authority did not issue objections or refusals within a specified period.

The Tribunal upheld the CIT(A)'s decision, agreeing that the project was deemed complete based on the absence of objections from the PMC. This approach was consistent with the Pune Bench Tribunal's decision and the Gujarat High Court's judgment in CIT vs. Tarnetar Corporation, which allowed for substantial compliance with statutory requirements.

Conclusion:

The Tribunal allowed the assessee's appeal, deleting the addition under section 40(a)(i) and directing the re-computation of depreciation at 50%. The Revenue's appeal was dismissed, affirming the CIT(A)'s decision to allow the deduction under section 80IB(10). The order was pronounced in the open Court on 31st December, 2014.

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