TaxTMI 
TaxTMI 
2020 (11) TMI 303
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.... and in the circumstances of the appellant's case. 3. The learned CIT[A] is not justified in upholding the disallowance of Rs. 6,05,41,088/- being interest claimed paid u/s.36[1][iii] of the Act in respect of the amounts borrowed for construction of the building holding that the appellant has not put the building to use during the year under appeal under the facts and in the circumstances of the appellant's case. 3.1 Without prejudice to the above, the learned CIT[A] ought to have appreciated that the proviso to sec. 36[1][iii] of the Act has no application to the capital borrowed by the appellant for the building "Business @ Mantri" at Pune as the said capital borrowed was not in connection with extension of business and hence, the interest ought to have been allowed. 4. The learned CIT[A] is not justified in upholding the A.O.'s refusal to deduct a sum of Rs. 6,73,97,716/- from out of the taxable income being the deemed dividend that was erroneously reported by the appellant in the return of income under the facts and in the circumstances of the appellant's case. 5. Without prejudice to the right to seek waiver with the Hon'....
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....at on page 96 of the paper book, it is specified that the Lease commencement date is 31.01.2013 and the term of lease is 15 years expiring on 30.01.2028 and on page 97 of the paper book, it is specified that the Rent Commencement Date is 01.08.2013 (or occupation by the Lessee, whichever is earlier) for the First and Third Tranches and it is 01.07.2014 (or occupation by the Lessee, whichever is earlier) for the Second Tranche. At this juncture, this was the query of the bench as to why, no rental income is declared by the assessee in the present year and why it is not brought to tax by the AO also when rent commencement date is 01.08.2013. In reply, learned AR of the assessee submitted that such detail is not readily available with him and he will file written submissions along with evidence in this regard within three days and accordingly, he filed Memo of Clarification on 11.09.2020 along with Deed of Cancellation of Lease Deed between the assessee company and HSBC Software Development (India) Private Limited dated 12.07.2013. For ready reference, we reproduce the contents of this Memo of Clarification for ready reference, it reads as under:- "I, V. SRINIVASAN, Advocate ....
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....Mr. Sushil Mantri and Mr. Juggy Marwaha. In lieu of the above both parties agreed, therefore that it would not be feasible or possible for the Parties to proceed with the transaction contemplated under the said Lease Deed and the Parties hereto have mutually and amicably agreed to cancel / terminate the said Lease Deed". 3. In as much as the lease deed entered into by the appellant with M/s HSBC was cancelled, there was no income during the year from the building at Pune which is ready for use as evidenced by the Occupancy Certificate dated 24/09/2013 [Placed at page 65 of Paper Book] and electricity bills from October 2013 [Placed at pages 84 to 89 of Paper Book]. Hence, no notional rent or real rent arises in the appellant's case for the year under appeal based on the lease deed dated 31/01/2013 from 1St August 2013. 4. It may also be mentioned here that subsequently, the appellant has entered into a lease agreement with M/s.Vodofone India Services Pvt. Ltd., dated 12/02/2015 [See pages 170 to 238 of Paper Book] and the appellant has offered the rental income to tax during the assessment year 2015-16." 5. As against this, learned DR of the revenue support....
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....ective during the trial runs. This disallowance of depreciation was deleted by CIT (A) and tribunal in that case by holding that since the Machinery was installed and merely because it did not effectively function is not a valid ground to reject the claim of depreciation. An appeal was filed by the revenue before the Hon'ble Karnataka High Court in that case. Under these facts of that case as noted above, Hon'ble Karnataka high Court decided the issue in favour of the assessee and its relevant para is reproduced hereinbelow for ready reference from page 2 of the case law Paper Book. The interpretation of "used for the purpose of business" by the hon'ble Supreme Court in the decision cited lays down that machinery should be installed. The observation of the hon'ble Supreme Court does not deal with a situation when the machinery installed becomes defective and does not function, in such case whether it could be said that machinery was not used for the purpose of business. The interpretation of "used for the purpose of business" by the hon'ble Supreme Court in the decision cited lays down that machinery should be installed. The observation of the hon'ble Supreme ....
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....abling the owner to carry on the business and earn profits in the business. In other words, the machinery or plant must be used for the purpose of the business which is actually carried on and the profits of which are assessable under section 10(1). The word 'used' has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is, however, clear that in order to attract the operation of clauses (v), (vi) and (vii) the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso also does not come into operation." 9. Hence, it is seen that as per this Judgment of Hon'ble apex court, "the words "used for the purpose of business" mean used for the purpose of enabling the owner to carry on business and earn profits in the business. ....
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....revious year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable: Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to res....
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....ctfully following the judgments noted above, we hold that the 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. 11. Now we decide the issue about allowability of interest u/s 36 (1) (iii). For disallowance of interest, the AO has invoked the provisions of the proviso to section 36 (1) (iii) and the argument of the learned AR of the assessee is this that if depreciation is allowable, interest is also allowable. As per learned CIT (A) also, for the same reasons due to which he has confirmed the disallowance of depreciation, he has confirmed the disallowance of interest also and no....