2020 (11) TMI 303 - AT - Income Tax

Tribunal allows appeal on depreciation & interest, deems building ready for use. Interest levy upheld.

The Tribunal allowed the appeal in favor of the assessee regarding the disallowance of depreciation and interest, recognizing the building as ready for ... Disallowance of Depreciation on the building known as “Business @ Mantri “at Pune - Asset used for business purposes OR house property - HELD THAT:- This is not in dispute that the assessee is in the business of leasing out building and once the building is completed, it is being used for the purposes of the business Even if the building is not actually let out and the assessee is not occupying the same for the purpose of business, Annual Value of the building is to be estimated at the sum for which the property might reasonably be expected to let from year to year and it is brought to tax. Hence, actual use is not a precondition to bring the property to tax under the head Income from House Property. Section 22 is not applicable in a case where the property is occupied by the assessee for business purpose and we find that in the present case, the property is ready on 24.09.2013 but still, the AO has not brought its Annual Value to tax in the present year under the head Income from House Property and this also indicates in our opinion that the AO also accepts silently that the building in question is occupied by the assessee for business purpose and he states this objection only that it was not put to use in the present year because actual let out has happened subsequently AO should allow the claim of depreciation on this basis that the building was put to use for the purposes of the business on 24.09.2013 i.e. the date of completion and keeping this in mind that the assessee was already in the hunt for lessee and keeping this also in the mind that this is not the case of the AO or CIT (A) that income from this house property is taxable under the head income from house property and not under the head income from business because had it been the case of the AO or CIT (A), Annual Value would have been brought to tax and deduction would have been allowed of interest u/s 24 and only depreciation would have been disallowed. Disallowance of interest u/s 36 (1) (iii) in respect of funds borrowed for construction of the same building known as “Business @ Mantri” at Pune - disallowances alleging that the said building was not put to use by the assessee in the present year - HELD THAT:- Requirement of section 32 and proviso to section 36 (1) (iii) is similar and once, we hold that the building was put to use and depreciation is allowable, the conditions specified in this proviso to section 36 (1) (iii) also gets satisfied and interest is also allowable from the date of completion of the building i.e. 24.09.2013 in the present case. Accordingly, we delete the disallowance of interest also and Ground Nos. 2 and 3 are allowed. Deemed Dividend u/s 2 (22) - HELD THAT:- We find force in the submissions of assessee that the learned CIT (A) should have decided this issue on merit instead of upholding the assessment order by following the Judgment of Hon’ble apex court rendered in the case of Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT]. Accordingly, we set aside the order of CIT (A) on this issue and restore this matter back to CIT (A) for a decision on merit. Issues Involved:1. Disallowance of depreciation on the building 'Business @ Mantri' at Pune.2. Disallowance of interest claimed under Section 36(1)(iii) of the Income Tax Act.3. Refusal to deduct a sum reported as deemed dividend.4. Levy of interest under Section 234-B of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on the Building 'Business @ Mantri' at Pune:The assessee contested the disallowance of Rs. 9,65,57,179/- claimed as depreciation on the building 'Business @ Mantri' at Pune. The disallowance was based on the assertion that the building was not put to use during the year under appeal. The assessee provided the Final Completion Certificate dated 24.09.2013 from Pune Municipal Corporation, arguing that the building was ready for use, and actual use is not a precondition for claiming depreciation. The Tribunal referenced several judicial pronouncements supporting the interpretation that an asset being ready for use suffices for it to be considered 'used for the purpose of business.' The Tribunal concluded that the building was ready for use from 24.09.2013, thus allowing the depreciation claim.2. Disallowance of Interest Claimed Under Section 36(1)(iii):The assessee also challenged the disallowance of Rs. 6,05,41,088/- as interest under Section 36(1)(iii) for funds borrowed for constructing the same building. The basis for disallowance was the same as for depreciation—the building was not put to use during the year. The Tribunal noted that once the building was considered ready for use on 24.09.2013, the conditions for allowing interest under Section 36(1)(iii) were also met. Consequently, the Tribunal allowed the interest claim from the date of completion of the building.3. Refusal to Deduct a Sum Reported as Deemed Dividend:The assessee reported a sum of Rs. 6,73,97,716/- as deemed dividend under Section 2(22)(e) but later requested its exclusion without filing a revised return. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] rejected this request, citing the judgment in Goetze (India) Ltd. vs. CIT, which restricts the AO from entertaining claims not made through a revised return. However, the Tribunal noted that this restriction does not apply to appellate authorities. Therefore, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the CIT(A) for a decision on merit.4. Levy of Interest Under Section 234-B:The assessee denied liability for interest charged under Section 234-B, arguing that the levy was unjustified under the facts and circumstances. The Tribunal did not provide a detailed analysis on this issue, implicitly suggesting that it did not find sufficient grounds to overturn the levy of interest.Conclusion:The Tribunal allowed the appeal in favor of the assessee on the issues of depreciation and interest disallowance, recognizing the building as ready for use from 24.09.2013. The issue of deemed dividend was remanded to the CIT(A) for a decision on merit. The Tribunal did not explicitly address the issue of interest under Section 234-B, implying acceptance of the levy.Pronouncement:The judgment was pronounced in the open court as indicated on the caption page.