TaxTMI 
TaxTMI 
2026 (4) TMI 1539
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts of the case. 2. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer regarding disallowance of depreciation amounting to Rs. 2,85,081/- on account of conversion charges as the same has been incurred in the interest of appellant's business. This addition is uncalled for and deserves to be deleted 3. That any other ground may kindly be allowed to be taken at the time of appeal with due permission. 3.1 Further, at the outset, the Ld. AR submitted that the assessee has also moved a prayer requesting for admission of the following additional grounds of appeal: " That the appellant be allowed to claim the instalment of conversion charges of Rs. 57,01,628/- paid to Chandigarh Administration during the year as Revenue Expenditure being incurred in the due course of the appellant's business." "That the appellant be allowed to claim the interest of Rs. 17,84,954/- paid on conversion charges to Chandigarh Administration during the year as Revenue expenditure being incurred in due course of appellant's business." 3.2 It was submitted that these are legal gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d depreciation thereon. It was thus contended that the assessee cannot be permitted to change its stand at such a belated stage. 7. We have given our thoughtful consideration to the rival submissions and the judicial precedents relied upon. There is no quarrel with the settled legal proposition laid down by the Hon'ble Supreme Court in National Thermal Power Co. Ltd. (supra) that the Tribunal has wide powers to entertain a new ground, provided the same is a pure question of law arising from the facts already on record and having a bearing on the tax liability of the assessee. Similarly, the decision in Oswal Woollen Mills Ltd. (supra) also supports the proposition that a claim can be entertained where sufficient material is already available on record. 7.1 However, the applicability of the aforesaid ratio is contingent upon the condition that the additional ground is purely legal and does not require fresh investigation into facts. In the present case, we find that the issue sought to be raised by the assessee is not merely a legal issue simpliciter but is a mixed question of law and fact. The determination of whether the conversion charges and interest thereon are capita....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion does not advance the case of the assessee. 7.6 We also note that there is a considerable delay in raising the additional grounds. No satisfactory explanation has been brought on record as to why such claim, which is now sought to be raised, was not made either in the return of income or before the Assessing Officer or the Ld. CIT(A). The conduct of the assessee, in our view, indicates that the present claim is an afterthought. 7.7 In view of the foregoing discussion, we are of the considered opinion that the additional grounds sought to be raised by the assessee are not purely legal in nature, but involve investigation into fresh facts and also amount to taking a contradictory stand from that taken earlier. Accordingly, the same are not maintainable. 8. In the result, the additional grounds raised by the assessee are dismissed. 9. Briefly stated, the facts of the case are that the assessee filed its return of income on 30.09.2010 declaring a loss of Rs. 45,32,461/-. The case was subsequently selected for scrutiny and, inter alia, the Assessing Officer examined the claim for depreciation on conversion charges. On perusal of the Balance Sheet, Profit & Loss Account an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting to Rs. 2,85,081/- claimed by the assessee was disallowed and added back to its income. 10. Being aggrieved the assessee carried the matter in appeal before the Ld. CIT(A). The finding of the Ld. CIT(A) are as under: "I have considered the submission of the appellant. The facts in this regard is not disputed in the submission. It is also not denied that the payment of conversion charges is in the nature of capital expenditure and gives a long term enduring benefit. The issue here is to decide that who is eligible to capitalized such payment in its account and claim depreciation over such capitalized asset. The appellant has taken the plot of land on lease from one of its sister concern. The appellant is eligible to claim expenses on account of such payment of lease rent to M/s Punjab Packages Pvt. Ltd. As per Explanation 1 of section 32, the assessee is very much entitled to claim depreciation on the capital expenditure incurred on the construction of any building over any land not owned by the assessee. In the present case, the appellant is rightfully claiming depreciation over such building. Now, as far as the expenses on account of conversion charges is concerned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....application to M.D., CITCO in the prescribed proforma Annexure 'B' along with full conversion fee in the shape of D.D./Pay Order drawn on any scheduled bank in favour of CITCO, Chandigarh. The application from the sub-lessees of CITCO shall be submitted with the recommendations of the CITCO. ii) The conversion fee to be paid by the applicant who apply for conversion during the first year of the scheme shall be 40% of the average price per square yard for all the auctions held by the Estate Office for commercial sites during the last three years. Applications during the second year will attract conversion fee at the rate of 50%. These charges/fee shall be deflated in proportion to the minimum FAR permissible. For purposes of calculation it shall be taken that the FAR allowed for commercial properties auctioned by the Estate Office is three. See Annexure 'C' (Statement showing calculation of conversion fee). iii) CITCO will process the cases of conversion and convey the decision within a period of 15 days of receiving the application. If no decision is conveyed within stipulated period, permission will be deemed to have been granted. iv) All....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3)-2005/6658 dated 19.09.2005. It was submitted that such conversion was a pre-condition for carrying on the appellant's business of retail trading and servicing of Honda cars from the said premises. The Ld. AR further drew our attention to the copies of the Government notification, Letter of Intent, application and ledger account placed in the paper book in support of the said contention. 11.5 The Ld. AR further submitted that the impugned payment of conversion charges, being in the nature of capital expenditure resulting in an enduring benefit, was duly capitalised by the appellant in its books of account and depreciation thereon was claimed in accordance with law. It was emphasised that the liability to pay such conversion charges was statutory in nature, arising directly from the Government scheme, and the appellant had no option but to incur the same in order to lawfully carry on its business activities. It was thus argued that the expenditure was incurred wholly and exclusively for the purposes of business and on grounds of commercial expediency. However, the Assessing Officer, without appreciating the factual and legal position, disallowed the claim of depreciation me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of CIT vs. Hindustan Times Ltd. (231 ITR 741) (SC), Raza Buland Sugar Co. Ltd. VS. CIT (122 ITR 817) (All HC) and Cooper Engineering Ltd. vs. CIT (169 ITR 66) (Bom HC), wherein it has been held that depreciation is allowable to a person who has made investment in the asset and uses the same for business, even if legal ownership vests in another person. Drawing an analogy, it was submitted that although the land is owned by M/s Punjab Packages Pvt. Ltd., the appellant, having incurred the expenditure and being the user of the premises for its business, is entitled to claim depreciation on the conversion charges as well. 11.9 Without prejudice to the above submissions, the Ld. AR contended that even if, for any reason, the impugned expenditure is not treated as capital in nature, the same is otherwise allowable as revenue expenditure under section 37(1) of the Act, as it has been incurred wholly and exclusively for the purposes of business. It was thus prayed that the appellant be granted appropriate relief either by allowing depreciation on the capitalised amount or, in the alternative, by allowing the same as revenue expenditure, with consequential benefit of carry forward of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he other company and was claiming depreciation on the building asset and on the same analogy the conversion charges paid to use the said building was also capitalized and depreciation claimed as per Lxpl. 1 to section 32 of the I.T. Act. 1961 ● Though the charges were paid for conversion of the land use but the land is appurtenant to the building and in order to carry on the business in the building the conversion charges had to be paid under a statutory liability. ● The contention of the Department that the conversion charges pertain to land only which is owned by the other party cannot override the fact that the entire payment has been made by the appellant in due course of its business and the depreciation can be claimed even if the asset is not owned. ● The other contention that the amount paid should have been shown as Investment with M/s Punjab Packages Pvt. Ltd. is also not justified as the said company is not doing any business till date and does not have such an Authorized Capital (Paper Book Pg. No. 38-48). The investment would have been a dead investment without any return. Moreover, it is a sister concern owned by same family....
X X X X Extracts X X X X
X X X X Extracts X X X X
....242 (Delhi - Trib.) - 11.11 Further during the course of hearing the Ld. AR also placed reliance on the decision of Co-ordinate Bench Chandigarh in case of 475 & 476/Chd/2019 vide order dt. 18/08/2022. 12. Per contra, the Ld. Ld. DR vehemently supported the orders of the lower authorities and submitted that the conversion charges of Rs. 57,00,000/- was paid by the assessee on which the assessee has claimed depreciation. The AO disallowed the depreciation holding that the assessee is not a owner of land and hence the expenditure does not pertains to the assessee but to the owner. Further on appeal the Ld. CIT(A) upheld the disallowance stating that the assessee is not the owner that the assessee paid lease rent to the owner M/s Punjab Packages Pvt. Ltd. were paid to use the plot of land for commercial purposes and it was also held that the liability to pay conversion charges is only of the owner and not of the assessee. 12.1 It was accordingly submitted that in the present case the assessee is not the owner. The assessee paid lease rent for use of land to the owner. The conversion charges for change of land use from industrial activity to commercial service activity is liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a settled position of law that land is not a depreciable asset and any expenditure incurred in relation to land or for altering its character or use does not qualify for depreciation. In support of this proposition, reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of M/s Hotel Shiv vs. CIT in W.P.(C) No. 3094 of 2013 dated 21.02.2014. 12.5 The Ld. DR also sought to distinguish the decision of the Co-ordinate Bench of the Chandigarh Tribunal relied upon by the assessee, by submitting that in the case is distinguishable on facts. In view of the above, it was submitted that the findings recorded by the Ld. CIT(A) are well-reasoned and in accordance with law, and no interference is called for. 13. We have heard the rival submissions and perused the material available on record. The issue before us is whether the assessee is entitled to claim depreciation on conversion charges paid for the change of land use in respect of land not owned by it but taken on lease. The undisputed factual position emerging from the record is that the Chandigarh Administration had notified the policy for conversion of industrial land into commercial use on 11.07.2005....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilding not owned by it but held under a lease or other right of occupancy, any capital expenditure incurred on construction of a structure or on renovation, extension or improvement of such building is to be treated as a building owned by the assessee for the limited purpose of allowing depreciation. 13.5 However, for invoking the said provision, the sine qua non is that the expenditure must be incurred on a "building" or on any work in or in relation to the building by way of construction, renovation, extension or improvement. In the present case, the impugned expenditure on conversion charges is not in respect of any building or structure, but relates exclusively to change of land use from industrial to commercial purposes. Such conversion is a statutory permission attached to the land itself and does not partake the character of construction or improvement of a building. 13.6 We find that the building in question was admittedly constructed subsequent to the notification of the conversion policy and the conversion charges were not incurred for bringing into existence or improving any superstructure, but only to alter the permissible use of the land. Therefore, the essential....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l settled that such deeming fiction has to be construed strictly and cannot be extended beyond the purpose for which it has been enacted. A legal fiction, though required to be carried to its logical conclusion, cannot be enlarged by importing another fiction or by extending it to situations not contemplated by the legislature. 13.10 Applying the aforesaid principles, it is clear that Explanation 1 to section 32 is confined in its operation to capital expenditure incurred on a "building" or work in relation thereto. The fiction cannot be extended to cover expenditure which is not relatable to a building or structure. In particular, expenditure which is intrinsically connected with land or with rights in land cannot be brought within the ambit of the said provision, as land is not a depreciable asset under the scheme of the Act. 13.11 Further, the deeming provision does not create a new category of depreciable assets but only treats specified capital expenditure on leased premises as a deemed building for the limited purpose of depreciation. The scope of the fiction is thus both specific and restricted, and cannot be invoked to convert every capital outlay connected with premi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he land-owning entity, i.e., M/s Punjab Packages Pvt. Ltd. The expenditure incurred does not result in creation of any depreciable asset in the hands of the assessee but merely facilitates use of land belonging to another entity. Therefore, the factual foundation on which the decision in the case of Chandigarh Bottling Co. Pvt. Ltd. was rendered is absent in the present case. 15. We have carefully considered the reliance placed by the Ld. AR on the decision of the Co-ordinate Bench in the case of M/s Chandigarh Bottling Co. in ITA Nos. 475 & 476/Chd/2019 dated 18.08.2022. On a perusal of the said order, we find that the issue before the Tribunal therein was whether the conversion charges paid for change of land use were allowable as revenue expenditure under section 37(1) of the Act. The Tribunal, on the peculiar facts of that case, held that the expenditure was incurred for the removal of business restrictions and for the retention of possession of the plot and, therefore, allowable as revenue expenditure. 15.1 However, the facts of the present case are materially distinguishable. In the case of Chandigarh Bottling Co., it was an admitted position that the assessee itself wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onversion was made by the owner on 15.09.2006 and approval was granted on 10.10.2006. Thus, the conversion was embedded in the ownership rights of the land and cannot be equated with a case where an assessee is compelled to incur expenditure merely to remove operational restrictions in an already existing business setup. 15.6 In view of the above distinguishing features, we are of the considered view that the ratio laid down in the case of Chandigarh Bottling Co. is not applicable to the facts of the present case. The reliance placed thereon by the assessee is, therefore, misplaced and is hereby rejected. 15.7 We have also considered the alternative contention of the assessee that the interest component comprised in the instalments of conversion charges be allowed as a deductible expenditure. However, we find ourselves unable to accept the said plea. It is trite law that for an expenditure to qualify for deduction either under section 37(1) or under section 36(1) (iii) of the Act, the same must be incurred wholly and exclusively for the purposes of the business of the assessee or, in the case of section 36(1) (iii), for the purposes of acquisition of a capital asset of the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ersion charges of Rs.57,01,268/- paid to the Chandigarh Administration being Revenue in nature as it has been incurred in due course of appellant's business. 5. That any other ground may kindly be allowed to be taken at the time of appeal with due permission. 18. We have carefully considered the rival submissions and perused the material available on record. Insofar as Ground Nos. 2 and 3 of the present appeal are concerned, we find that the issue squarely covers the assessee. In the preceding paragraphs of this order, we have already held that the assessee is not entitled to claim depreciation on the capital expenditure incurred by the parent company, namely M/s Punjab Package Pvt. Ltd. Once such a finding has been rendered, there remains no scope for taking a contrary view on identical facts in the present grounds. Accordingly, we do not find any merit in Ground Nos. 2 and 3 raised by the assessee, and the same are dismissed. 19. Coming to Ground No. 4, relating to the allowability of interest amounting to Rs. 17,84,954/- paid on conversion charges, it is an admitted position that the said conversion charges pertain to land owned by M/s Punjab Package Pvt. Ltd.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been rendered, there remains no scope for taking a contrary view on identical facts in the present grounds. Accordingly, we do not find any merit in Ground No. 2 raised by the assessee, and the same is dismissed. 24. Now we shall deal with the appeal in ITA No. 930/Chd/2017 for A.Y. 2013- 14 wherein Assessee has raised the following grounds: 1. That the order of the Learned Commissioner of Income Tax (Appeals), Chandigarh is defective both in law and facts of the case. 2. That the Learned Commissioner of Income Tax (Appeals). Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer regarding disallowance of depreciation amounting to Rs. 13,14,225/- on account of conversion charges of Rs. 57,01,268/- paid to the Chandigarh Administration being capitalised by the appellant to Building as it is Capital in nature. This addition is uncalled for and deserves to be deleted. 3. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of Ld. Assessing Officer regarding disallowance of cumulative depreciation of Rs. 13,14,225/- calculated by including earlier years as the depreciation in ea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act, it is a sine qua non that interest paid in respect of capital borrowed for the purposes of business or profession for acquisition of assets in the books of account of the assessee must be utilized for the purposes of the business of the assessee. The capital assets must be owned by the assessee and used for the purposes of its business. In the present case, these essential conditions are not satisfied, inasmuch as the asset continues to remain in the name of M/s Punjab Package Pvt. Ltd. In these circumstances, the interest expenditure claimed by the assessee cannot be said to be allowable either under section 36(1) (iii) or under any other provision of the Act. 28. Now we shall deal with the appeal in ITA No. 931/Chd/2017 for A.Y. 2013- 14 wherein Assessee has raised the following grounds: 1. That the order of the Learned Commissioner of Income Tax (Appeals), Chandigarh is defective both in law and facts of the case. 2. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer regarding disallowance of depreciation amounting to Rs.5,89,700/- on account of conversion charges of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 30. Now we shall deal with the appeal in ITA No. 167/Chd/2021 for A.Y. 2014- 15 wherein Assessee has raised the following grounds: 1. That the order of the Learned Commissioner of Income Tax (Appeals) 1, Chandigarh is defective both in law and facts of the case. 2 That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer regarding disallowance of depreciation amounting to Rs. 5,89,883/- on account of conversion charges of Rs. 58,98,831/- paid to the Chandigarh Administration being capitalized by the appellant to Building as it is Capital in nature. This addition is uncalled for and deserves to be deleted. 3. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer and in the alternative the appellant may be allowed the whole of the expenditure of Rs. 58,98,831/- on account of conversion charges paid to the Chandigarh Administration being Revenue in nature as it has been incurred in due course of appellant's business. 4. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eal is due to the fault of the Counsel's office as the appellant had handed over the required documents well in time. The Affidavit of the counsel in this regard is submitted herewith for your kind consideration. In this regard, I further draw your kind attention to the following noted case laws :- ● Manoj Ahuja and Another v. Inspecting Assistant Commissioner of Income- Tax, Acquisition Range [150 ITR 696], it was held by the Hon'ble Punjab and Haryana High Court that :- "Appeal-Limitation-Delay in presenting appeal Can be condoned- An appeal may be admitted after the prescribed period if the appellant satisfies the court that he had sufficient cause for not preferring the appeal within such period." ● Collector, Land Acquisition v. Mst. Katiji and Others [167 ITR471], it was held by the Hon'ble Supreme Court of India that :- "Limitation-Delay-Power to condone delay for "sufficient cause"-Is for doing substantial justice-Courts should have a pragmatic and liberal approach. The Legislature has conferred power to condone delay in order to enable the courts to do substantial justice to parties by disposing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olding the order of the Ld. Assessing Officer on account of levying penalty of Rs. 4,06,095/- u/s 271(1) (c) of the I.T. Act, 1961 as there is neither any concealment of income nor furnishing of inaccurate particulars of income. This penalty is uncalled for and deserves to be deleted. 3. That any other ground may kindly be allowed to be taken at the time of appeal with due permission. 34. The present appeal has been preferred by the assessee against the order passed by the Learned Commissioner of Income Tax (Appeals), NFAC, whereby the penalty of Rs. 4,06,095/- levied under section 271(1) (c) of the Income Tax Act, 1961 has been sustained. 35. At the outset, the assessee has challenged the impugned order as being bad in law and on facts, contending that the Learned CIT(A) erred in upholding the penalty despite there being neither concealment of income nor furnishing of inaccurate particulars. It has been vehemently argued that the penalty has been levied merely on account of a difference of opinion and, therefore, the same is unsustainable in the eyes of law. 36. During the course of hearing, the Learned Authorised Representative invited our attention to the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowance of depreciation on conversion charges is concerned, the same was disclosed by the appellant but the AO and the Ld. CIT(A) did not accept the explanation of the appellant. It is not the case of the Revenue that some new facts were discovered or AO had dug out some fresh information from the reply to the questionnaire of the AO. It is also not a case where assessee has not been able to explain any expenditure or failed to give any details and the AO added the same to the income. Merely because there is difference of opinion as to allowability of the payment between the assessee and the AO, it cannot be said that the assessee had intention to conceal income or furnish inaccurate particulars of income. Therefore, there was no concealment of income or furnishing of inaccurate particulars by the assessee and penalty levied u/s 271(1) (c) is deleted. The Ground of Appeal No. 2 is allowed." Thus, it is clear that the Ld. CIT(A) has decided the appeal of the assessee on the pretext that the assessee has taken one of the possible view and the issue is debatable. 39. It is a settled proposition of law that penalty under section 271(1) (c) cannot be levied merely because the cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the time of appeal with due permission. 44. We have carefully considered the rival submissions and perused the material available on record. Since we have already discussed these issues in earlier appeal i.e; ITA No. 749/Chd/2022 for A.Y. 2013-14 therefore our finding given in the said appeal shall apply mutatis mutandis to this appeal as well. In the result, the appeal of the asesse is allowed. 45. Now we shall deal with the appeal in ITA No. 394/Chd/2022 for A.Y. 2013- 14 wherein Assessee has raised the following grounds: 1. That the order of the Learned Commissioner of Income Tax (Appeals), NFAC is defective both in law and facts of the case. 2. That the Learned Commissioner of Income Tax (Appeals), NFAC is unjustified in upholding the penalty of Rs. 8,46,000/- levied by the Ld. Assessing Officer u/s 271(1) (c) of the I.T. Act, 1961 as there is neither any concealment of income nor furnishing of inaccurate particulars of income. The penalty levied is uncalled for and deserves to be deleted. 3. That any other ground may kindly be allowed to be taken at the time of appeal with due permission. 46. We have carefully considered the rival submissio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Dated: 10/10/06 Sh. Vikram Joshi. Director Punjab Package Pvt. Ltd .. House Ne.154 Sector 38-A. Chandigarh. Subject :- Conversion of Land Use of Industrial Site No. 67 in Industrial Area, Phase-IL Chandigarh into Commercial activity/Services under the " Chandigarh Conversion of Land Use of Industrial Site Into Commercial Activity/ Services in Industrial Area, Phase-1/ Phase-II, Chandigarh Scheme-2005." 1 Reference your application dated 15.9 .. 2006 for seeking conversion of Land Use of Industrial Site No.67 Industrial Area, Phase-IL Chandig ... h into commercial Activity covered under the above scheme published by the Chandigarh Administration, Finance Department UT, Chandigarh vide notification No. 28/8/51/UTFI(3)-2005/6658 dated 19.9.2005. 2 The above said Industrial site measuring 2175.93 Sq. Yds, was allotted in the name of M/s Punjab Packages Pvt. Lidl vide letter No. 12531/Ind/536/ dated 15.11.77 on the terms and conditions contained in Original Allotment Letter and Lease Deed executed on 9.1.78. 1 As the Estate Officer UT Chandigarh has issued 'No Objection Certificate' for conversion of land use of the above Industrial site into commercial activ....