TMI Blog2014 (10) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the date when the trial production commenced and the date when the actual production commenced - the date on which the trial production commenced was irrelevant for the purposes of claiming depreciation and that it cannot be said that the company had set up its business at the point of time when the trial production had commenced - the company had not commenced its business from the standpoint of the right to claim depreciation for the user of a building or machine in the business of the assessee-company - although the assessee had purchased the building for business purpose and furnishing of the same was being carried out for actual use - the arguments of the assessee cannot be accepted – Decided against assessee. Deduction on amortization of ESOP Scheme - Deduction allowable u/s 28 r.w. section 37 or not – Held that:- The assessee has claimed business expenditure on ESPO – following the decision in Biocon Ltd. Vs. Dy.CIT [2013 (8) TMI 629 - ITAT BANGALORE] - the assessee-company was a closely held company in the previous year and as such there was no question of listing of its shares and having some market price at the time of grant of options - Ordinarily, the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability under Employees Stock Option Scheme was remuneration / Staff Welfare Scheme for the employees being an incentive to employees entitling deduction u/s.28 r/w 37 of the Act. 7. The Ld. CIT (Appeals) has erred in not deleting the Interest charged U/s. 234B of ₹ 11,43,780/- and U/s.234C of ₹ 5,25,159/- of the Act. 8. That the Ld. Commissioner of Income-tax (Appeals) has erred in confirming the initiation of penalty proceeding U/s. 271(1)(c) of the Act. 9. In view of the above and others that may urged at the time of hearing, it is prayed that: (i) The disallowance/additions made and confirmed by the CIT(A) to the income of the appellant company may please be deleted and deduction and relief claimed may please be allowed. (ii) That the Interest charged U/s. 234B of the Act of ₹ 11,43,780/-and U/s. 234C of the Act is of ₹ 5,25,159/- may be cancelled. (iii) Penalty proceedings initiated u/s.271(1)(c) may please be cancelled and notice be vacated. (iv) Such other relief or reduction as the facts and circumstances of the case so require be granted. 2.1. Briefly stated facts are that the return for AY 2007-08 was filed on 29/10/2007 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. Agrawal (1996) 217 ITR 250 (Bom). 4. CIT vs. Vayithri Plantations (1981) 128 ITR 675 (Mad.) 5. Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC) 6. CIT vs. Geotech Construction Corpn. 162 CTR 528 (Ker.) 7. CIT vs. Pepsu Road Transport Corpn. (2002) 253 IT 303 (P H). 8. CIT vs. Refrigeration Allied Industries Ltd. 113 Taxman 103(Del.) 4.1. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofession, 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 (iii) 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 furniture, have been used by the assessee in his business or profession during the previous year, (i) for a period of 180 days or more (ii) for a period of less than 180 days but more than 30 days, or (iii) for a period of thirty days or less than thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It 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 result in profits or gains. This can happen only when production commences. Another illustration may also make the position abundantly clear. Take the case of a factory which has totally closed down its business operations for five years during which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.1 to 4 of assessee s appeal are rejected. 5. Now, we take up Ground Nos.5 6 of assessee s appeal which are inter-connected and, therefore, the same are decided together. 5.1. The ld.Sr.counsel for the assessee submitted that the authorities below were not justified in making the disallowance of Employee s Stock Option Scheme (ESOP) amounting to ₹ 24,30,554/- made u/s.28 r.w.s. 37 of the Act. The ld.Sr.counsel for the assessee submitted that these issues are squarely covered in favour of the assessee by the decision of Hon ble Special Bench of the Tribunal (ITAT Bangalore Bench Special Bench) rendered in the case of Biocon Ltd. Vs. Dy.CIT reported at (2013) 155 TTJ 649:: 35 taxmann.com 335 (Bangalore- Trib.)(SB). 5.2. On the contrary, ld.Sr.DR supported the orders of the authorities below and submitted that the authorities below were justified in making the disallowance. 6. We have heard rival submissions, perused the material available on record and gone through the orders of the authorities be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Considering the above and the discussion in assessment order, I find this claim frivolous, unsustainable and not as per the provisions of law. Accordingly the addition made by the assessing officer is confirmed. 6.1. It is not disputed that the assessee has claimed business expenditure on ESPO. The similar issue was before the Hon ble Special Bench of ITAT Bangalore rendered in the case of Biocon Ltd. Vs. Dy.CIT(supra), wherein the Hon ble Tribunal has decided the issue in favour of the assessee by observing as under:- In the present case, the assessee-company was a closely held company in the previous year relevant to the assessment year 2003-04 and as such there was no question of listing of its shares and having some market price at the time of grant of options. Ordinarily, the amount of discount on premium which is written off over the vesting period represents the market price of the shares listed on the stock exchange on the date of grant of option as reduced by the price at which option is given to the employees. However, since there was no availability of any market price of such shares on the date of grant of option as the company came to be listed on a stock ..... X X X X Extracts X X X X X X X X Extracts X X X X
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