TMI Blog2013 (6) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... rd : 2/3rd). Bangalore project does not require any allocation as only land was purchased. Even one takes the operational under construction ratio, it is 3: 3 i.e. 50% capital and 50% revenue. Looking at it either way the allocation made by AO has no basis or logic. In view of this, the allocation made by assessee on cost of project basis which is the only rationale method on the given facts. Therefore, AO is directed to delete the amount so treated. In favour of assessee. Taxing the interest income arose during the preoperative period - Held that:- AO observed that assessee has credited interest income to the Capex Account of projects under completion & has not given any specific reason as to why this amount should be allowed as interest capitalized added it as revenue receipt and brought to taxation. The appellant earned an interest which was given to it by the Head Office. The said income is a income which cannot be capitalized and has to be treated as Income from other sources. The AO therefore, has rightly treated the income as income from other sources as held by CIT(A) - No reason to disturb the findings of AO and the CIT. Against assessee. Disallowance of Prior Period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt :Shri Vijay Mehta For the Respondent :Shri Girija Dayal, CIT(DR) ORDER:- Per: B Ramakotaiah: These are cross appeals by assessee and Revenue against the order of the CIT (A)-16 Mumbai, dated 01-12-2011. We have heard the learned Counsel and the learned DR and their arguments were incorporated wherever necessary. 2. Briefly stated, assessee is in the business of owning Multiplexes and screening of films. Some of the Multiplexes are in operation and some of them are in various stages of construction. Part of the area developed was leased. During the year, AO made addition on various issues including allocation of expenditure, preoperative period expense allocation, proportionate disallowances of depreciation, repairs etc. The learned CIT (A) gave partial relief. Therefore, cross appeals. ITA No.1382/Mum/2012: 3. This is an assessee appeal. Assessee raised the following grounds: 1. Revenue Expenses disallowed-Rs.1,69,97,820: a) The learned CIT (A) erred in law and facts in upholding order of AO treating further expenses of Rs.1,69,97,820 as capital in nature and disallowed, in addition to Rs.1,64,99,361 already capitalized by assessee. The reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction at various other locations in the country, assessee is also in the process of acquisition of various other real estate assets across the country. The expenses other than the three operational commercial complexes are capitalized. However, the expenses towards the corporate office maintained are to be proportionately distributed between the revenue earning sectors and projects under completion. For AY 2004-05, assessee had capitalized 93% of the head office expenses thereby claiming only 7% as revenue expenditure for the year. This year assessee claimed 68% of HO expenditure as revenue. AO noticed that assessee is in the process of construction of commercial complexes in more than four areas in addition to developing gaming centre at Andheri Complex. Substantial time, resources and devotion of the personnel and other infrastructure in the head office is invariably devoted to the newer projects under implementation. AO further held that it would be incorrect on the part of assessee to claim 68% of the total expenditure as revenue expenses. A break up of the head office expenses also indicate a high amount of expenses towards travel and tour, legal and professional fees, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept for the purchase of land. I find that the learned A/R of the appellant submitted that three projects have completed and three new projects were undertaken, naturally, the appellant claim that the Head Office expenses were to be apportioned in the ratio 68% to 32% (Revenue vs. Capital) doesn t inspire confidence as according to its own submission in the immediately preceding year the apportion made was of 3% to 97%. Therefore, looking to the facts of the appellant case that three projects were completed and three projects are at various implementation stages the allocation made by the learned AO in the ratio of 33.33% to 66.66% appears to be in order. There is no infirmity as to the fact that the appellant is actively pursuing the completion of the projects at Lucknow and Chembur as well as Bangalore. Therefore, the Head office expenditures are to be incurred/apportioned in the ratio of efforts put in by the Head Office staff including the directors. The apportionment made by the learned AO of revenue is to capital expenditure is perfectly in order as the appellant failed to give any cogent reason for the allocation made by it. The addition made by the learned AO is accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32.84% 67.16% 100.00% (a) - - - 19,51,461.09 - 19,51,461.09 5,26,007.70 - 5,26,007.70 81,29,255.74 - 81,29,255.74 5,57,405.55 - 5,57,405.55 14,022.06 - 14,022.06 52,95,343.30 - 52,95,343.30 25,866.38 - 25,866.38 1,64,99,361.83 - 1,64,99,361.83 27-Jul-01 - 365 - 1,28,74,514.42 1,28,74,514.42 08-Aug-03 - 365 - 1,50,80,734.74 1,50,80,734.74 29-Nov-03 - 365 - 57,91,158.78 57,91,158.78 3,37,46,407.93 3,37,46,407.93 1,64,99,361.83 3,37,46,407.93 5,02,45,769.76 4.5 As rightly contended, in earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be capitalized and has to be treated as Income from other sources. The AO therefore, has rightly treated the income as income from other sources. This ground of appeal is therefore, dismissed . 5.2 After considering the rival contentions, we do not see any reason to disturb the findings of AO and the CIT (A). The interest was rightly treated as income of the year. The ground is dismissed. 6. Ground No.3 is on prior period expenses. During the course of assessment proceedings, AO observed that assessee has debited a prior period expenditure of Rs.26,09,033. AO held that assessee has not given any specific and cogent reason as to how these expenses did crystallize only during the AY 2005-06. AO further held that any prior period expenses cannot be debited to Profit Loss A/c unless assessee brings conclusive proof that these expenses only crystallized during the year. It was also held by AO that assessee has also option of revising returns for the earlier years and claiming these expenses incurred in the subsequent period. Assessee neither filed revised return nor given any cogent reasons as to how these expenses crystallized during the current AY. AO therefore, disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only the expense part of prior period items. Without prejudice to the above assessee further submitted that the expenses are allowable in the year under assessment but even if AO s order is sustained, income of Rs.22,83,833 can be taxed and expenses of Rs.22,40,770 can be disallowed. Assessee further submitted that during the assessment proceedings assessee explained that prior period expenses are actually expenses of the year. Professional fees of Rs.6,99,000 and travelling expenses of Rs.4,19,080 were transferred by VSD Confin Ltd with whom assessee was having a joint development agreement for Chandigarh project. These expenses were transferred by VSD on termination of his agreement. They are provided and/or paid during the year since the liability thereof crystallized during the year. The expenses are relatable to previous year/s but the liability thereof crystallized or the information thereof was received as to its existence during the year hence have been charged to Profit Loss A/c during the year, though they are pertaining to previous year/s. As per the AS-5, the expenses/income though crystallized or become payable during the year, pertaining to previous year/s, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and expenditure of the year as they crystallized during the year. (c) CIT (A) erred in considering the expenditure to VMD as capital and if they were to be treated as capital, then the expenditure upto the date of operation of Chandigarh Multiplex has to be capitalized. It was also explained that the expenditure was in the nature of reimbursement of joint venture expenditure. The learned DR supported the order of AO CIT(A). 6.5 We have considered the rival contentions. As seen from the order of AO, AO has not examined the nature of expenditure inspite of giving the details. Otherwise, he would not have disallowed the depreciation which was actually disallowed by assessee in computation. Just because the income and expenditure was classified as prior period, they need not be excluded or disallowed. AO has to examine whether the expenditure crystallized during the year or not. Moreover, there may be some capital expenditure as noted by the CIT (A), but the same was not examined or adjusted to the project. These aspects require examination. Therefore, the issue in this ground is restored to AO for detailed examination and to consider the contention of assessee. AO is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious schemes of incentives. In line with these schemes the assessee company got exemption from the entertainment tax. The amount of entertainment tax collected against the value of ticket for admission to such multiplexes theater complex was allowed to be retained by way of subsidy for certain initial years of operation of multiplex theatre complex. The entertainment tax amount retained depends on policies of respective states. In some states it is allowed for certain years from the date of commencement. Whereas in some states in depends on the amount of investment made for the purpose of making multiplex. The appellant further submitted that the appellant claims that the "Subsidy in the form of Entertainment Tax Exemption" does not form part of Total Income to the extent of Rs.7,86,04,884/ - being grant received in the form of exemption from payment of entertainment tax for promotion of construction of multiplex theatres is a capital receipt not liable to tax. During the assessment year 2005-06, the company collected total entertainment tax in respect of its various multiplexes. Out of the same, the company has got subsidy from the various state governments by way of exemption fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the opinion that the issue requires examination by AO. The respective State Govt. Policies and the orders are required to be examined whether the contentions of assessee is correct or not. For examination of the facts and deciding the case after afresh keeping in mind the nature of subsidy and judicial precedents on the issue, the matter is restored to the file of AO for adjudication. Needless to say that assessee should be given due opportunity. AO can call for details, make necessary enquiries to analyze the issues. Ground is allowed for statistical purposes. 7.3 In the result appeal in ITA No.1382/Mum/2012 is partly allowed. ITA No.1480/Mum/2012: 8. The Revenue has raised the following two grounds: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the proportionate disallowance of depreciation of Rs.1,62,87,723/- on the assets which area not put to use during the relevant Financial Year ignoring the decision of the jurisdictional High Court in the case of Dinesh Kumar Gulabchand Vs. CIT (267 ITR 768) wherein the Hon'ble Court held that the language of Section 32 of the Act is such that depreciation is admissible only if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as business expenses. AO further observed that assessee has claimed repairs and maintenance of Rs.28,91,495 on building and house keeping charges of Rs.50,03,682. AO held 14.53% of this total of Rs.78,95,177 amounting to Rs.11,47,169 towards the unutilized portion of the commercial complex and disallowed from being claimed as revenue expenses. The Ld. AO held decapitation of Rs.1,62,87,723 and expenses of Rs.11,47,169 amounting to Rs.1,74,29,892 as proportionate expenses ascribed towards the unused portion of the commercial complex. 8.3 Before the CIT (A) assessee submitted that the entire commercial space was put to use but only part of it was sold/leased and income earned but that does not mean the unutilized area was used for non-business purposes or personal purposes and that assessee was owner of the entire building and Plant Machinery and they have entered the block so the depreciation cannot be disallowed. Regarding repairs and maintenance, it was submitted that these expenses were incurred for regular upkeep of premises of the common business. It also relied on various case law. The detailed submissions are in the order of the CIT (A) at Para 3.2 8.4 After cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regated has to be the recordkeeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income Tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture". 3.3.4 In CIT v. Bharat Aluminium Co. Ltd. (2010) 187 Taxman 111 (Del), question arose for allowability of depreciation on asset entering to block of assets. Delhi High Court held that prior to the introduction of new concept of block of assets with effect from 1-4-1988, the depreciation used to be claimed separately on each asset. The Legislature found that this was a cumbersome procedure leading to various difficulties. This necessitated introduction of the concept of block of assets and allowability of depreciation on such a block. The ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee exclusively for the purposes of business or profession carried on by him then the deduction under section 32(1)(ii) shall be restricted to a fair proportionate part thereof as may be determined by the assessing officer having regard to the user of such building, plant, machinery or furniture for the purposes of business or profession. It is to be noted that section 38(2) does not refer to intangible assets, hence the same will not be applicable in case of such assets. Prior to amendment of section 32, section 38(2) referred to reduction of deduction admissible in respect of depreciation, additional depreciation and terminal allowance but after the amendments by the Taxation Law (Amendment and Miscellaneous Provisions) Act, 1986, section 38(2) was also amended and hence now it refers only to allowance under section 3.3.6 Therefore, after the amendment by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 1-4-1988, the individual assets have lost their identity and for the purpose of allowing of depreciation, only the block of assets has to be considered. It has to be seen whether the particular block of assets is owned by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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