TaxTMI 
TaxTMI 
2015 (5) TMI 304
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.... :- "1] The asst. u/s 153C r.w.s. 143(3) is bad in law and hence, the same may be declared as null and void. 2] The learned CIT(A) erred in disallowing the expenses of Rs. 50,10,056/- claimed on account of depreciation, repairs and maintenance, interest on loan and electricity charges in respect of the property 'Shubhalaxmi'. 3] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal." 4. Before we proceed to adjudicate the specific Grounds of Appeal raised, it would be appropriate to refer to the background of the dispute. The captioned assessees comprise of a company incorporated under the provisions of the Companies Act, 1956 and one of its Directors, Dr. Avinash R. Phadnis. On 24.01.2007, a search action u/s 132(1) of the Act was carried out in the case of the Directors of Phadnis Clinic Pvt. Ltd., in the course of which certain documents were seized, which also included documents belonging to the captioned assessee company. Simultaneously on 24.01.2007, a survey action u/s 133A of the Act was also carried out at the business premises of the captioned assessee company i.e. Phadnis Clinic Pvt. Ltd.. As a consequence of the aforesa....
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....s regards the specific issue of depreciation/expenses of residential property, the same has been claimed by the assessee in the statement of accounts already with the Department alongwith the returns of income filed in the normal course. 8. In this context, we find that the CIT(A) has disagreed with the assessee by following the ratio of the judgement of the Hon'ble Delhi High Court in the case of SSP Aviation Ltd. vs. DCIT, (2012) 20 taxmann.com 214 (Delhi). The Hon'ble High Court in the case of SSP Aviation Ltd. (supra) has made the following observations in the context of section 153C of the Act :- "There is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to conclusively reflect or disclose any undisclosed income." 9. If the facts of the present case are examined in the light of the aforesaid observations of the Hon'ble Delhi High Court, it would be noticed that the search in the case of the individual Directors resulted in seizure of documents which belonged to the assessee company. The assessee company has also not disputed the af....
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....00/- TOTAL Rs.2,60,09,920/- 12. The loan from ICICI Bank was raised by the Director, Dr. Avinash R. Phadnis in his individual capacity. Once the property was acquired by the two Directors in their individual names, it was transferred/incorporated into the account books of the assessee company and taken as a part of its assets through a journal book entry. Simultaneously, the personal funds put into the purchase of property by the two Directors were transferred by way of book entries as liabilities of the assessee company. The ICICI Bank home-loan liability was also transferred by way of a book entry as a liability of the assessee company between the Director and the assessee company. The assessee company started reimbursing the repayment of installments of principal and interest which Dr. Avinash R. Phadnis was paying to the bank. Simultaneously, expenses on property tax, electricity bills, repairs and renovation, etc. were also incurred by the assessee company and claimed as an expenditure in its Profit & Loss Account. The interest paid on loan from ICICI Bank home-loan was also claimed as an expenditure in the Profit & Loss Account. In the return of income, ass....
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.... name of the Director instead in the name of the assessee company. It was explained that Dr. Avinash R. Phadnis agreed to take the loan in his name on the condition that the assessee company took over the responsibility for the repayment of loan and interest thereon. All these aspects have been sought to be supported by the resolutions passed in the meeting of the Board of Directors of the assessee company, copies of which have also been placed in the Paper Book filed before us. 15. It was explained that as soon as the loan of Rs. 208 lakhs was raised by Dr. Avinash R. Phadnis from the bank, the liability of the same was transferred to the books of the assessee company by way of a journal entry. The repayment of the principal amount of the loan as well as interest is being made by the assessee company by way of reimbursement to Dr. Avinash R. Phadnis. It was therefore emphasized that in reality and actually, property belongs to the assessee company and is in its possession, though the documents of purchase are executed in the name of individual Directors. It was pointed out that the premises have been allotted to Dr. Avinash R. Phadnis and his family for his residence. The Ld. R....
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....idual names. The title of the property is being held by the two individual Directors and it could not be said that assessee had purchased the property at any stage. According to the Ld. Departmental Representative, an immovable property cannot be transferred otherwise than by way of registered deed of Conveyance on payment of appropriate stamp duty and that transfer by way of a journal/book entry would not act as a substitute for the statutorily required conveyance deed. Therefore, the Resolution passed at the meeting of the Board of Directors cannot be used to prove 'ownership' of the immovable property for the purposes of claiming depreciation u/s 32(1) of the Act. 18. We have carefully considered the rival submissions. Section 32(1) of the Act permits depreciation on the cost of the prescribed assets which are owned by the assessee and used for the purposes of business or profession. It is well understood that in order to claim the allowance for depreciation with respect to an asset, assessee is not only required to put it to use for the purposes of its business but also should be its owner. In the present case, the building in question named, "Shubhalaxmi" consists of 14 apa....
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....lding owned by the assessee" the expression as occurring in section 32(1) of the Income tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others." 20. The aforesaid discussion by the Hon'ble Supreme Court shows that a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, Registration Act, etc. and yet an assessee can be said to be 'owner' of the property within the meaning of section 32(1) of the Act. So however, it is further explained by the Hon'ble Supreme Court that in the context of section 32(1) of the Act, an 'owner' means the person who acquires possession over the building in his own right, uses the same for the purposes of business though a legal title may not have been conveyed to him but he is otherwise entitled to hold the property "to the exclusion of all others". In the backg....
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.... also found that the assessee had stated before the RTO that the car actually belonged to the company and it paid differential road tax in respect of the car also. Considering the entirety of circumstances, the Tribunal came to conclude that assessee company was in possession of the car in its own rights and exercised a dominion to the exclusion of other and therefore allowed depreciation on the same. In the case before the Tribunal, the issue related to a movable property and considering the entirety of facts, it was concluded that the assessee company enjoyed dominion over the car to the exclusion of others. Whereas in the present case the factual findings are to the contrary and moreover the case before us relates to an immovable property and not a movable property being considered by the Tribunal in the case of Rohan Builders (India) Pvt. Ltd. (supra). Therefore, the ratio of the said decision is not applicable in the present case. 23. On the same analogy the decision of the Cochin Bench of the Tribunal in the case of Choice Trading Corporation Ltd. (supra) relied upon by the assessee is also not applicable in the present case as it related to a movable asset. 24. Similar....
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.... various expenses, viz. repairs & maintenance, interest on loan and electricity charges incurred in relation to the property 'Shubhalaxmi'. The details of such expenses are as under :- Interest on loan - Rs.10,27,165/- Repairs & Maintenance - Rs.13,60,329/- Electricity Charges - Rs.20,970/- 28. In this context, the Assessing Officer noted that the property in question was not being used for direct business operations of the assessee and therefore such expenditure cannot be allowed as deduction while computing assessee's business income. The CIT(A) has also affirmed such stand of the Assessing Officer against which assessee is in appeal before us. 29. On this aspect, the Ld. Representative for the assessee vehemently pointed out that the expenses incurred on the premises are allowable even if it is held that the property is not owned by the assessee as on the basis of the use for business such expenses are allowable. It was reiterated that the property in question was being used for the company's business purposes as residence of Dr. Avinash Phadnism medical consultant on whom the business of the assessee depends as well as for other busin....
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..... In the result, appeal of the assessee is partly allowed. 33. In so far as the other captioned appeals of the assessee pertaining to assessment years 2001-02 and 2004-05 to 2007-08 are concerned, it was a common point between the parties that the issues raised therein are parimateria to those considered by us in the appeal for assessment year 2003-04 in the earlier paras, therefore our decision in appeal for assessment year 2003-04 would apply mutatis-mutandis in the other aforestated appeals also. 34. In the result, the appeals of the assessee for assessment years 2001- 02 and 2003-04 to 2007-08 in the case of Phadnis Clinic Pvt. Ltd. are partly allowed. 35. Now, we take-up the appeals of the Revenue which relate to assessment year 2001-02, 2004-05 to 2006-07 vide ITA No.2013 to 2016/PN/2013 respectively in the case of M/s Phadnis Clinic Pvt. Ltd.. In all these appeals, a common issue has been raised by the Revenue arising out of the action of the CIT(A) in setting aside the action of the Assessing Officer of disallowing the deduction claimed by the assessee u/s 35(1)(iv) of the Act. 36. In brief, the relevant facts are that assessee had claimed deduction u/s 35(1)....
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....e Act, the Assessing Officer could not have disallowed the expenditure. In coming to such conclusion, the CIT(A) followed the judgement of the Hon'ble Gujarat High Court in the case of DCIT vs. Mastek Ltd., (2012) 25 taxmann.com 133 (Guj.). In this context, the following discussion made by the CIT(A) in the context of assessment year 2001-02 is relevant :- "6.7 In the present case, the AO no doubt referred the matter to the Board. However not having received any reply from the Board as of the date of passing the assessment order, (which in fact was the last day of the limitation period), he completed the assessment by denying the appellant the benefit of the said exemption. The remand report received from the learned AO which is dated 05.07.2013 is also silent on this issue, from which, it can be inferred that even as of that day no reply had been received from the Board to the aforesaid reference made by the learned AO. As such, since no adverse decision has evidently been given by the prescribed authority holding the activity carried on by the appellant not to be of the nature of 'scientific research', and such a decision being a mandatory requirement as held by the Hon. G....
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....iven by the prescribed authority holding that the impugned activity carried out by the assessee does not constitute scientific research. In this factual background, the CIT(A) cannot be faulted for having applied the judgement of the Hon'ble Gujarat High Court in the case of Mastek Ltd. (supra) and setting-aside the disallowance made by the Assessing Officer. The Hon'ble Gujarat High Court noted that in the absence of the Assessing Officer having obtained any adverse decision from the prescribed authority, there was no justification in rejecting assessee's claim for deduction of expenditure incurred for scientific research. As a consequence of the aforesaid discussion, in our view, the CIT(A) was justified in setting-aside the action of the Assessing Officer disallowing the claim of deduction u/s 35(1)(iv) of the Act relating to the capital expenditure income on scientific research. Thus, on this aspect, we hereby affirm the order of the CIT(A) and accordingly Revenue fails. 41. Resultantly, the captioned four appeals of the Revenue relating to assessment year 2001-02, 2004-05 to 2006-07 are dismissed. 42. Now, we may take-up the appeals in ITA Nos.2192 to 2197/PN/2013 which ....
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....used for profession by Dr. Avinash Phadnis and expenditure for maintaining the property be also allowed separately, i.e. 'repairs and maintenance, taxes, electricity, etc. 3. The appellant requests for admission of additional evidences, it any, required in the course of appeal hearing. 4. The assessee prays to add, alter, amend and for withdrawal of any of the grounds of appeal as and when the occasion demands." 44. In so far as the first Ground of Appeal is concerned, the same relates to the stand of the Assessing Officer to the effect that the assessment order passed by the Assessing Officer by invoking section 153A r.w.s. 143(3) of the Act was invalid because the search carried out u/s 132(1) of the Act did not unearth any hidden wealth or undisclosed sources of income. The said plea of the assessee is somewhat similar to what has been raised in the case of M/s Phadnis Clinic Pvt. Ltd. in ITA No.2060/PN/2013 dealt with by us in earlier paras. Though, in the case of M/s Phadnis Clinic Pvt. Ltd. (supra) the issue was raised in the context of the Assessing Officer having invoked section 153C r.w.s. 143(3) of the Act whereas in the present case, the Assessing Officer ha....
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....ngs, the AO is empowered to assess or reassess the total income of all the six AYs; [iv] where an assessment had been completed vide assessment order passed prior to the date of initiation of search, the case would fall under the category of 'reassessment' u/s 153A; [v] once the AO has issued notice u/s 153A inviting the return of income, he is duty-bound to proceed with the reassessment proceedings; [vi] where there is no incriminating material found during the course of search relating to the assesses for the AY under consideration, the question whether the AO can make an addition in the reassessment proceedings u/s 153A depends on the nature of addition and the facts and circumstances of each case; [vii] where income, which was otherwise assessable to tax had escaped assessment, the same can be assessed during the proceedings u/s 153A." 47. In our considered opinion, the aforesaid discussion made by the CIT(A) does not justify the plea of the assessee challenging the validity of assessment u/s 153A r.w.s. 143(3) of the Act on the ground that additions to the income made by the Assessing Officer were not on the basis of any incriminating document. We hereby affir....
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....ot establish that the building in question was being partly used for the purposes of business or profession. Against such a decision of the CIT(A), assessee is in further appeal before us by way of Ground of Appeal No.2.1. 51. On this aspect, in our view, the matter deserves to be considered afresh by the lower authorities in view of our decision in the case of the company, i.e. M/s Phadnis Clinic Pvt. Ltd. for assessment year 2003-04 that 50% of the building can be said to have been used for the purposes of the business of the company itself. As a consequence of the aforesaid decision, the Assessing Officer is directed to re-visit the aforesaid pleas of the assessee afresh and allow appropriate relief as per law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order on this aspect in accordance with law. 52. Thus, in so far as the Ground of Appeal No.2.1 is concerned, assessee succeeds for statistical purposes. 53. In the result, appeal of the assessee for assessment year 2003-04 is partly allowed. 54. The decision in the appeal of the assessee for assessment year 2003- 04 (supra) covers all the ....
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.... in order to expand his business and therefore, it was to be allowed as a revenue expenditure. The Assessing Officer has rejected the plea of the assessee by making the following discussion in the assessment order :- "5.2 The submissions of the assessee have been considered. In this case, it is clear that the assessee incurred the expenditure to derive a long term benefit. It is an admitted fact that the assessee expected his own business to improve in the long run because of his association with Jahangir Hospital and therefore, he has incurred the expenditure. This is, therefore, clearly a capital expenditure. Hence, the assessee's claim of revenue expenditure of Rs. 32,74,564/- is disallowed. No depreciation allowance is worked out because the assessee handed over the related asset to Jahangir Hospital and is neither the owner of the asset nor did he use asset for his business." 57. The CIT(A) has also affirmed the stand of the Assessing Officer against which assessee is in further appeal before us. 58. The Ld. Representative for the assessee has vehemently canvassed that the assessee incurred such expenditure on business considerations. According to the Ld. Representati....