TaxTMI 
TaxTMI 
2017 (1) TMI 390
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....pany engaged in the business of manufacturing and trading of ceramics. Return of income for Asst. Year 2007-08 was filed on 29.10.2007 declaring total income of Rs. 11,43,52,419/-. The case was selected for scrutiny assessment. Necessary details were filed and the case was discussed. Assessment u/s 143(3) of the Act was framed on 22.12.2009 assessing total income at Rs. 11,91,42,258/- after making addition of Rs. 47,89,841/- which inter alia included disallowance of depreciation on show room building at Rs. 7,80,826/-. The present appeal is confined to the levy of penalty u/s 271(1)(c) of the Act on disallowance of depreciation of Rs. 7,80,826/-. 4. Brief facts relating to this disallowance of depreciation of Rs. 7,80,826/- are that assessee purchased a show room building at Mumbai on 5.3.2007 for a sum of Rs. 1,51,18,160/-. Assessee started construction of "Bath Studio" in this showroom which was completed and put to use on 31.05.2007. For Asst. Year 2007-08 assessee claimed depreciation of Rs. 7,80,826/- on the cost of show room building of Rs. 1,51,18,160/-. However, during the course of assessment proceedings ld. Assessing Officer observed that the building was actually put to....
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....fferent Court decisions the issue is highly debatable and two opinions are possible on the same. Another addition of Rs. 1,61,000/- is in respect of disallowance of preliminary expenses u/s. 35D. This addition is also of technical nature in respect of which levy of penalty is not justified. Ground no. 1 of appeal is thus partly allowed. 6. Aggrieved, assessee is now in appeal before the Tribunal. 7. Ld. AR submitted that assessee company is having a huge turnover and has declared income of Rs. 11,43,52,419/-. Books of account are regularly audited. Depreciation on building was claimed with the contention that the building was acquired on 5.3.2007 and work relating to 'Bath Studio' was started. The basis of claiming depreciation of Rs. 7,80,826/- was that the showroom building is a separate asset in itself and is capable to be put to use and further as per the provisions of section 32 of the Act, depreciation is to be allowed on assets which are owned and used for the purpose of business and as the building was purchased and its use was started by way of starting construction of 'Bath Studio', depreciation was claimed on the cost of the building. This claim was duly supported by t....
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....epreciation. The AO in his order has observed that the asset has not been put to use during the year rather after acquisition, the "Bath Studio" was being built on it. Under these facts, we have to x examine whether the assessee would be entitled for the depreciation as claimed despite the undisputed fact that the assessee had only purchased the building during the year under consideration and carried out certain furnishing work for the purpose of establishing the "Bath Studio". The contention of the assessee is that the premises were put to use for business purpose as the work of furnishing was being carried out for the purpose of establishing a ''Bath Studio''. Therefore, the depreciation on the premises cannot be denied as per provisions of section 32 of the I.T. Act, 1961. In support of this contention, the assessee had relied upon the following case-laws :- "1. CIT vs. India Tea & Timber Trading Co. (1966) 221 ITR 857 (Gauh). 2. Capital Bus Services Pvt.Ltd. vs. CIT (1980) 123 ItR 404 (Del) 3. CIT Vs. G.N. Agrawat (1996) 217 ITR 250 (Bom). 4. CIT vs. Vayithri Plantations (1981) 128 ITR 675 (Mad.) 5. Liquidators ofPursa Ltd. vs. CIT (1954) 25 ITR 2....
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....., 1965-66) may be quoted. Sec. 32(1), so far as it is material for our purposes, reads as under: "32(1) In respect of depreciation of building, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of s. 34, be allowed....... (ii) in the case of building, machinery, plant or furniture, other than ships covered by cl. (i), such percentage on the written down value thereof, as may in any case or class of cases be prescribed.....,," (Emphasis supplied) Rule 5 of the rules, so far as it is material for our purposes reads as under: "5. Depreciation-(1) Subject to the provisions of sub-rr. (2) and (3), the allowance under cl. (i) or cl. (ii) or sub-s. (1) of s. 32 in respect of depreciation of building, machinery, plant or furniture shall be at a percentage of the actual cost or the written down value, as the case may be, equal to (i) 100 per cent, (ii) fifty per cent, or (Hi) nil per cent of the number shown in the corresponding entry in the second column of the statement in Part I Appendix I to these Rules according as the building, machinery, plant or ....
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.... argument. The fallacy will become evident if the argument is tested by envisioning an hypothetical situation. Take the case of a building which was completed, say in 1970, and the installation of the machinery was commenced in 1971, but could not be completed, for say five years thereafter, till 1974. Could it then be contended that the building was "used" for the purposes of the "business" of the assessee and could the assessee have claimed depreciation for these five years? Five years even before the machinery became functional and the plant was commissioned? In other words, even before it could have commenced trial production let alone actual production? The answer is obviously "no". Depreciation, it must not be overlooked, if inseparable from the actual user for business. And, depreciation allowance is permissible only on that account, ft is not an allowance for natural wear and tear by reason of the aging process. In a way, every building must have started aging from the day it was constructed. But depreciation cannot be claimed in that behalf by way of compensation for such diminution in life span and value. It is claimable only on account of its user for business which can ....
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....nd also, although the appellant had purchased the building for business purpose and furnishing of the same was being carried out for actual use. Therefore, in view of the binding precedent of the Hon'ble Jurisdictional High Court in the case of CIT vs. Suhrid Geigy Ltd., we are not inclined to accept the arguments advanced by the ld. Sr. counsel for the assessee, same are hereby rejected on this issue. Thus, Ground Nos.l to 4 of assessee's appeal are rejected. 10. From going through the decision of the Co-ordinate Bench we observe that the issue relating to "use of asset" has been discussed. The contention of the assessee is that the depreciation claimed is justified as the show room building was purchased on 5.3.2007 and it was started for business purposes by way of starting the interior work relating to 'Bath Studio' and, therefore, depreciation was claimed only to the extent of cost spent for show room building and the amount spent for Bath Studio was shown as capital work in progress. However, the Co-ordinate Bench confirmed the view of the Assessing Officer and ld. CIT(A) by following the judgment of Hon. Jurisdictional High Court in the case of CIT vs. Suhrid Geigy ....
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....ed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report. 19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We arc satisfied that the assessee had commi....