TMI Blog2015 (5) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... y the resolutions of the Board of Directors. The individual Directors have acquired the property in their names and the transfer of the property into the account books of the assessee company is merely by way of a book entry supported by the resolution of the Board of Directors. Such arrangement ostensibly does not invest the assessee with the dominion over the property to the exclusion of all others. Therefore, in the light of the legal position laid down by the Hon’ble Supreme Court in the case of Mysore Minerals Ltd. (1999 (9) TMI 1 - SUPREME Court ) and the fact-position in the present case, in our view, the lower authorities rightly held the assessee not entitled for depreciation u/s 32(1) of the Act with respect of the property in question. - Decided against assessee. Disallowance of various expenses - repairs & maintenance, interest on loan and electricity charges incurred in relation to the property ‘Shubhalaxmi’ - Held that:- The appellant company has been consistently asserting before the Assessing Officer as well as before the CIT(A) that the premises are being used for the business of the assessee and even before us various functions have been enumerated to justify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y - part of the property is used by the assessee, Dr. Avinash Phadnis and Or Mrs Amita Phadnis for their profession and part for their residence and hence as deduction allowed by the (earned CIT(A) to Dr. Avinash Phadnis for his self-occupied area, therefore deduction of balance interest calculated on the basis of proportionate area used by him for his profession be allowed at 100% - Held that:- 50% of the building can be said to have been used for the purposes of the business of the company itself. As a consequence Assessing Officer is directed to re-visit the aforesaid pleas of the assessee afresh and allow appropriate relief as per law. - Decided in favour of assessee for statistical purposes. Expenditure for securing the right to practice at Jahangir Hospital - whether the expenditure was incurred wholly and exclusively for the furtherance/continuation of the business and did not create any capital asset and should be consequently allowable as business expenditure u/s 37? - Held that:- The ownership of the asset represented by the impugned expenditure in the shape of IVF machinery and the renovation/restructuring of the IVF setup of the Jahangir Hospital vests with the Jahan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above grounds of appeal. 4. Before we proceed to adjudicate the specific Grounds of Appeal raised, it would be appropriate to refer to the background of the dispute. The captioned assessees comprise of a company incorporated under the provisions of the Companies Act, 1956 and one of its Directors, Dr. Avinash R. Phadnis. On 24.01.2007, a search action u/s 132(1) of the Act was carried out in the case of the Directors of Phadnis Clinic Pvt. Ltd., in the course of which certain documents were seized, which also included documents belonging to the captioned assessee company. Simultaneously on 24.01.2007, a survey action u/s 133A of the Act was also carried out at the business premises of the captioned assessee company i.e. Phadnis Clinic Pvt. Ltd.. As a consequence of the aforesaid, assessments in the hands of the individual Director has been made u/s 153A r.s.w. 143(3) of the Act whereas in the case of assessee company, Phadnis Clinic Pvt. Ltd. assessments have been made u/s 153C r.w.s. 143(3) of the Act for the captioned assessment years. 5. In this background, the first issue raised before us is by way of Ground of Appeal No.1 wherein it is contended that the assessment mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aviation Ltd. vs. DCIT, (2012) 20 taxmann.com 214 (Delhi). The Hon ble High Court in the case of SSP Aviation Ltd. (supra) has made the following observations in the context of section 153C of the Act :- There is no requirement in section 153C(1) that the Assessing Officer should also be satisfied that such valuable articles or books of account or documents belonging to the other person must be shown to conclusively reflect or disclose any undisclosed income. 9. If the facts of the present case are examined in the light of the aforesaid observations of the Hon ble Delhi High Court, it would be noticed that the search in the case of the individual Directors resulted in seizure of documents which belonged to the assessee company. The assessee company has also not disputed the aforesaid position but the claim setup is that the information in such documents was already available with the Revenue and was not of incriminating nature. The aforesaid objection of the assessee gets answered by the discussion made by the Hon ble Delhi High Court wherein it is observed that there is no requirement in section 153C(1) of the Act that the Assessing Officer should also be satisfied that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account books of the assessee company and taken as a part of its assets through a journal book entry. Simultaneously, the personal funds put into the purchase of property by the two Directors were transferred by way of book entries as liabilities of the assessee company. The ICICI Bank home-loan liability was also transferred by way of a book entry as a liability of the assessee company between the Director and the assessee company. The assessee company started reimbursing the repayment of installments of principal and interest which Dr. Avinash R. Phadnis was paying to the bank. Simultaneously, expenses on property tax, electricity bills, repairs and renovation, etc. were also incurred by the assessee company and claimed as an expenditure in its Profit Loss Account. The interest paid on loan from ICICI Bank home-loan was also claimed as an expenditure in the Profit Loss Account. In the return of income, assessee also claimed depreciation on the cost of the building on the ground that the building was owned and put to use for its business. 13. The Assessing Officer required the assessee to justify its claim of depreciation and other related expenditure on the ground that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects have been sought to be supported by the resolutions passed in the meeting of the Board of Directors of the assessee company, copies of which have also been placed in the Paper Book filed before us. 15. It was explained that as soon as the loan of ₹ 208 lakhs was raised by Dr. Avinash R. Phadnis from the bank, the liability of the same was transferred to the books of the assessee company by way of a journal entry. The repayment of the principal amount of the loan as well as interest is being made by the assessee company by way of reimbursement to Dr. Avinash R. Phadnis. It was therefore emphasized that in reality and actually, property belongs to the assessee company and is in its possession, though the documents of purchase are executed in the name of individual Directors. It was pointed out that the premises have been allotted to Dr. Avinash R. Phadnis and his family for his residence. The Ld. Representative, at the time of hearing, pointed out that prior to shifting into new property Dr. Avinash R. Phadnis along with his family was staying in the hospital premises itself. It was also pointed out that apart from the being used as a residence for Dr. Avinash R. Phadni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f registered deed of Conveyance on payment of appropriate stamp duty and that transfer by way of a journal/book entry would not act as a substitute for the statutorily required conveyance deed. Therefore, the Resolution passed at the meeting of the Board of Directors cannot be used to prove ownership of the immovable property for the purposes of claiming depreciation u/s 32(1) of the Act. 18. We have carefully considered the rival submissions. Section 32(1) of the Act permits depreciation on the cost of the prescribed assets which are owned by the assessee and used for the purposes of business or profession. It is well understood that in order to claim the allowance for depreciation with respect to an asset, assessee is not only required to put it to use for the purposes of its business but also should be its owner. In the present case, the building in question named, Shubhalaxmi consists of 14 apartments which have been acquired by the two Directors of the assessee company in their individual names i.e. the title deeds in respect of 14 apartments in the building stand in the name of the two Directors, Dr. Avinash R. Phadnis and Dr. (Mrs.) Amita Avinash Phadnis. The cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of all others. 20. The aforesaid discussion by the Hon ble Supreme Court shows that a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, Registration Act, etc. and yet an assessee can be said to be owner of the property within the meaning of section 32(1) of the Act. So however, it is further explained by the Hon ble Supreme Court that in the context of section 32(1) of the Act, an owner means the person who acquires possession over the building in his own right, uses the same for the purposes of business though a legal title may not have been conveyed to him but he is otherwise entitled to hold the property to the exclusion of all others . In the background of the said legal position, now we may examine the facts in the present case so as to determine whether assessee can be understood as an owner for the purposes of section 32(1) of the Act. 21. No doubt, in the present case, the formal deed of title of the property is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e car in its own rights and exercised a dominion to the exclusion of other and therefore allowed depreciation on the same. In the case before the Tribunal, the issue related to a movable property and considering the entirety of facts, it was concluded that the assessee company enjoyed dominion over the car to the exclusion of others. Whereas in the present case the factual findings are to the contrary and moreover the case before us relates to an immovable property and not a movable property being considered by the Tribunal in the case of Rohan Builders (India) Pvt. Ltd. (supra). Therefore, the ratio of the said decision is not applicable in the present case. 23. On the same analogy the decision of the Cochin Bench of the Tribunal in the case of Choice Trading Corporation Ltd. (supra) relied upon by the assessee is also not applicable in the present case as it related to a movable asset. 24. Similar is the situation with respect to the decision of the Hon ble Punjab Haryana High Court in the case of Fazilka Dabwali TPT Co. Pvt. Ltd. (supra). 25. The only other decision relied upon by the assessee before us is the judgement of the Hon ble Delhi High Court in the case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Maintenance - Rs.13,60,329/- Electricity Charges - Rs.20,970/- 28. In this context, the Assessing Officer noted that the property in question was not being used for direct business operations of the assessee and therefore such expenditure cannot be allowed as deduction while computing assessee s business income. The CIT(A) has also affirmed such stand of the Assessing Officer against which assessee is in appeal before us. 29. On this aspect, the Ld. Representative for the assessee vehemently pointed out that the expenses incurred on the premises are allowable even if it is held that the property is not owned by the assessee as on the basis of the use for business such expenses are allowable. It was reiterated that the property in question was being used for the company s business purposes as residence of Dr. Avinash Phadnism medical consultant on whom the business of the assessee depends as well as for other business purposes. It was pointed out that on various occasions Dr. Avinash R. Phadnis examined the patients at his residence also the administrative matters relating to the hospital were al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, it was a common point between the parties that the issues raised therein are parimateria to those considered by us in the appeal for assessment year 2003-04 in the earlier paras, therefore our decision in appeal for assessment year 2003-04 would apply mutatis-mutandis in the other aforestated appeals also. 34. In the result, the appeals of the assessee for assessment years 2001- 02 and 2003-04 to 2007-08 in the case of Phadnis Clinic Pvt. Ltd. are partly allowed. 35. Now, we take-up the appeals of the Revenue which relate to assessment year 2001-02, 2004-05 to 2006-07 vide ITA No.2013 to 2016/PN/2013 respectively in the case of M/s Phadnis Clinic Pvt. Ltd.. In all these appeals, a common issue has been raised by the Revenue arising out of the action of the CIT(A) in setting aside the action of the Assessing Officer of disallowing the deduction claimed by the assessee u/s 35(1)(iv) of the Act. 36. In brief, the relevant facts are that assessee had claimed deduction u/s 35(1)(iv) of the Act on account of expenditure of capital nature incurred on scientific research related to the business carried out by the assessee. The amount of such claim for the four assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer could not have disallowed the expenditure. In coming to such conclusion, the CIT(A) followed the judgement of the Hon ble Gujarat High Court in the case of DCIT vs. Mastek Ltd., (2012) 25 taxmann.com 133 (Guj.). In this context, the following discussion made by the CIT(A) in the context of assessment year 2001-02 is relevant :- 6.7 In the present case, the AO no doubt referred the matter to the Board. However not having received any reply from the Board as of the date of passing the assessment order, (which in fact was the last day of the limitation period), he completed the assessment by denying the appellant the benefit of the said exemption. The remand report received from the learned AO which is dated 05.07.2013 is also silent on this issue, from which, it can be inferred that even as of that day no reply had been received from the Board to the aforesaid reference made by the learned AO. As such, since no adverse decision has evidently been given by the prescribed authority holding the activity carried on by the appellant not to be of the nature of scientific research', and such a decision being a mandatory requirement as held by the Hon. Gujarat High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed authority holding that the impugned activity carried out by the assessee does not constitute scientific research. In this factual background, the CIT(A) cannot be faulted for having applied the judgement of the Hon ble Gujarat High Court in the case of Mastek Ltd. (supra) and setting-aside the disallowance made by the Assessing Officer. The Hon ble Gujarat High Court noted that in the absence of the Assessing Officer having obtained any adverse decision from the prescribed authority, there was no justification in rejecting assessee s claim for deduction of expenditure incurred for scientific research. As a consequence of the aforesaid discussion, in our view, the CIT(A) was justified in setting-aside the action of the Assessing Officer disallowing the claim of deduction u/s 35(1)(iv) of the Act relating to the capital expenditure income on scientific research. Thus, on this aspect, we hereby affirm the order of the CIT(A) and accordingly Revenue fails. 41. Resultantly, the captioned four appeals of the Revenue relating to assessment year 2001-02, 2004-05 to 2006-07 are dismissed. 42. Now, we may take-up the appeals in ITA Nos.2192 to 2197/PN/2013 which relate to Dr. Avina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Dr. Avinash Phadnis and expenditure for maintaining the property be also allowed separately, i.e. 'repairs and maintenance, taxes, electricity, etc. 3. The appellant requests for admission of additional evidences, it any, required in the course of appeal hearing. 4. The assessee prays to add, alter, amend and for withdrawal of any of the grounds of appeal as and when the occasion demands. 44. In so far as the first Ground of Appeal is concerned, the same relates to the stand of the Assessing Officer to the effect that the assessment order passed by the Assessing Officer by invoking section 153A r.w.s. 143(3) of the Act was invalid because the search carried out u/s 132(1) of the Act did not unearth any hidden wealth or undisclosed sources of income. The said plea of the assessee is somewhat similar to what has been raised in the case of M/s Phadnis Clinic Pvt. Ltd. in ITA No.2060/PN/2013 dealt with by us in earlier paras. Though, in the case of M/s Phadnis Clinic Pvt. Ltd. (supra) the issue was raised in the context of the Assessing Officer having invoked section 153C r.w.s. 143(3) of the Act whereas in the present case, the Assessing Officer has invoked section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assess or reassess the total income of all the six AYs; [iv] where an assessment had been completed vide assessment order passed prior to the date of initiation of search, the case would fall under the category of 'reassessment' u/s 153A; [v] once the AO has issued notice u/s 153A inviting the return of income, he is duty-bound to proceed with the reassessment proceedings; [vi] where there is no incriminating material found during the course of search relating to the assesses for the AY under consideration, the question whether the AO can make an addition in the reassessment proceedings u/s 153A depends on the nature of addition and the facts and circumstances of each case; [vii] where income, which was otherwise assessable to tax had escaped assessment, the same can be assessed during the proceedings u/s 153A. 47. In our considered opinion, the aforesaid discussion made by the CIT(A) does not justify the plea of the assessee challenging the validity of assessment u/s 153A r.w.s. 143(3) of the Act on the ground that additions to the income made by the Assessing Officer were not on the basis of any incriminating document. We hereby affirm the order of the CIT(A) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building in question was being partly used for the purposes of business or profession. Against such a decision of the CIT(A), assessee is in further appeal before us by way of Ground of Appeal No.2.1. 51. On this aspect, in our view, the matter deserves to be considered afresh by the lower authorities in view of our decision in the case of the company, i.e. M/s Phadnis Clinic Pvt. Ltd. for assessment year 2003-04 that 50% of the building can be said to have been used for the purposes of the business of the company itself. As a consequence of the aforesaid decision, the Assessing Officer is directed to re-visit the aforesaid pleas of the assessee afresh and allow appropriate relief as per law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before passing an order on this aspect in accordance with law. 52. Thus, in so far as the Ground of Appeal No.2.1 is concerned, assessee succeeds for statistical purposes. 53. In the result, appeal of the assessee for assessment year 2003-04 is partly allowed. 54. The decision in the appeal of the assessee for assessment year 2003- 04 (supra) covers all the Grounds of Appeal rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpand his business and therefore, it was to be allowed as a revenue expenditure. The Assessing Officer has rejected the plea of the assessee by making the following discussion in the assessment order :- 5.2 The submissions of the assessee have been considered. In this case, it is clear that the assessee incurred the expenditure to derive a long term benefit. It is an admitted fact that the assessee expected his own business to improve in the long run because of his association with Jahangir Hospital and therefore, he has incurred the expenditure. This is, therefore, clearly a capital expenditure. Hence, the assessee s claim of revenue expenditure of ₹ 32,74,564/- is disallowed. No depreciation allowance is worked out because the assessee handed over the related asset to Jahangir Hospital and is neither the owner of the asset nor did he use asset for his business. 57. The CIT(A) has also affirmed the stand of the Assessing Officer against which assessee is in further appeal before us. 58. The Ld. Representative for the assessee has vehemently canvassed that the assessee incurred such expenditure on business considerations. According to the Ld. Representative, the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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