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M/s. Bharat Homes Ltd. Versus Asst. CIT 9 (1) , Mumbai

2016 (6) TMI 25 - ITAT MUMBAI

Disallowance of depreciation - whether price paid for purchase of flat will be taken as the cost of flats or to be bifurcated between land and flat - Held that:- In the instant case, the assessee has paid the purchase price for purchase of flats and it is not discernible from the sale deed that it has paid anything separately for land. On the contrary, the sale deed makes it very clear that what was conveyed was only the super structure of the flats. On the contrary, it is an undisputed fact tha .....

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facilities. Hence we are of the view that the tax authorities are not justified in bifurcating the selling price between the land and building without bringing any material to support their view.

It is an undisputed fact that the assessing officer has allowed depreciation on the flats in AY 2006-07 and 2007-08. Hence, we are of the view that it may not be proper on his part to draw adverse inferences during the instant year, on the basis of certain presumptions entertained by him, th .....

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yan For the Department : Smt. Rajeshwari Motwani ORDER Per B. R. Baskaran, AM The appeal filed by the assessee is directed against the order dated 30.08.2011 passed by Ld CIT(A)-19, Mumbai for assessment year 2008-09, wherein the Ld CIT(A) has confirmed the disallowance of depreciation made by the AO. 2. The facts relating to thereto are set out in brief. The assessee is engaged in the business as builders and developers of real estate. The assessee had purchased two flats, viz., one at 3rd floo .....

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007-08, the assessing officer has allowed the claim of depreciation. Thus, the depreciation came to be allowed both in AY 2006-07 and 2007-08. 3. In the year under consideration, the AO examined the claim of depreciation afresh and took the view that the cost of purchase of above said properties would include cost of land also. Accordingly he took the view that the depreciation claimed on the value relating to land is not allowable under the Act. The assessee submitted that such kind of segregat .....

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hat the depreciation is allowable on the above said amount of ₹ 75.28 lakhs only, since the remaining portion of the purchase value represents land cost. 4. The AO computed the total income by adopting the profit shown in the profit and loss account. He added depreciation claimed in the books of account and other disallowable expenses to the profit. Then he should have reduced only the depreciation allowable under the Income tax Act, i.e., ₹ 7,89,205/- in order to arrive at the total .....

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nsferred to it and it is still owned by the builder. Further it was submitted that, in any case, the land shall be transferred to the co-operative society that shall be formed in future. Accordingly it was contended that the assessee shall not become owner of the land at any point of time. The Ld CIT(A), however, expressed the view that the undivided share in the land in respect of flats constructed in high rise buildings is well defined and determinable. The Ld CIT(A) referred to the definition .....

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co-operative society is a creation of the flat owners and even if the land is owned by the co-operative society, the undivided share in land could be ascertained on the basis of shareholding. The Ld CIT(A) further observed that, since the land has not been transferred, in the instant case, to the co-operative society and it is still being held by the builder, the Undivided share in land should be allocated to the flats purchased by the assessee. The Ld CIT(A) referred to the decision rendered b .....

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-07 and 2007-08, the Ld CIT(A) placed reliance on the decision rendered by Hon ble Supreme Court in the case of Karnani Properties Ltd (1971)(82 ITR 547 @ 554) and held that the principle of res-judicata shall not apply to income tax proceedings. The Ld CIT(A) placed reliance on the decision rendered by Hon ble Supreme Court in the case of Saharanpur Electric Supply Company Ltd Vs. CIT (1992)(194 ITR 294), wherein it was held that the definition of Written Down Value in section 43(6) envisages c .....

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scertained the construction cost of flats from the Ready Reckoner rate prescribed by the Stamp duty authorities. Apparently, the sale consideration paid over and above the cost of construction as determined by the AO, was taken as the value attributable to the land. The Ld CIT(A) held that the value of undivided share of land should be ascertained on the basis of stamp duty valuation prescribed for ascertaining the value of land. Accordingly he directed the AO to work out the depreciation allowa .....

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Accordingly he submitted that the observations made by the tax authorities about the co-operative society, constructive possession etc., are not applicable to the year under consideration. Even if the land is transferred to cooperative society, the ownership shall remain with it and the assessee cannot be considered to be one of the deemed owners, since co-operative society is a separate legal entity. He further submitted that the case laws relied upon by Ld CIT(A) has been rendered on differen .....

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ch of ITAT has also considered an identical issue and it has held in the case of JCIT Vs. Rajesh Exports (9 SOT 28)(Bang.) as under:- Under section 32(1) of the Act, the word building is to be interpreted as the superstructure and not land. Where the assessee purchases building and the purchase price (as per sale deed) is a composite one (sale deed does not indicate the prices of land and building separately), then no distinction at least in the consideration paid to the vendor can be made. Howe .....

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decision rendered by the Ld CIT(A). He submitted that the costs of flats are not identical in all the areas and they would normally differ depending upon the area where it is located. He submitted that the difference mainly arises due to difference in the prices of land. Accordingly he submitted that the Ld CIT(A) was justified in holding that the cost of flats include the price of land also. He further referred to the CBDT Circular No.9 dated 25.03.1968 [F.No.8/2/69-IT(AI)] and submitted that .....

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o the fact that the two flats, referred above, are owned by the assessee and they are used for its business also. It is also an undisputed fact that the AO has allowed depreciation on these two flats in AY 2006-07 and 2007-08 on the value declared by the assessee accepting the cost declared by the assessee. 11. The controversy is with regard to the value of flats purchased by the assessee. The tax authorities have taken the view that the sale consideration paid for purchase of flats should be bi .....

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) ALL THAT the said premises admeasuring 8977 sq. feet super built-up area (5811 sq. feet carpet area) situate on the 3"1 floor of the building known as Aman Chambers' (formerly known as Kodak House) alongwith three (3) car parkings in the compound of the building Aman Chambers' having ground plus five floors constructed on the land bearing C.S.No.1098, Final Plot No.1121, Mahim Division. With regard to the property described in the Second Schedule, the vendor has stated as under in .....

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escribed in the Second Schedule hereunder written and hereinafter collectively referred to as "the said Premises", constructed on all that piece or parcel of land or ground bearing C.S. No. 1098 of Mahim Division, Final Plot No. 1121 of Town Planning Scheme, Bombay City No. IV and which 3rd floor premises are shown delineated on floor plan "A" thereof hereto annexed, surrounded by a red coloured boundary line TOGETHER WITH ALL AND SINGULAR the benefit of open parking spaces i .....

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mbers thereof to belong or be appurtenant thereto. A careful perusal of the Second Schedule would show that the property that was transferred or intended to be transferred was only the super structure. With regard to the land, it has been stated as under:- AND THAT the Vendor hereby covenants that they shall cause to be executed the Deed of Conveyance or any other such document/documents of Transfer in respect of the said property along with the said building constructed thereon, which Conveyanc .....

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hall be conveyed in favour of co-operative society and/or limited company and/or any association of person and/or condominium of apartment owners etc. It is further made clear that the assessee shall not dispute or challenge the right of the vendor in that behalf, meaning thereby, the assessee does not any right to either dispute or to challenge the same and the decision of the vendor is binding upon the assessee. 12. A careful perusal of the clauses extracted above from the Sale deed would make .....

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shows that the said Act only states that each apartment owner shall be entitled to an interest in the common areas and facilities available in the apartment in the percentage expressed in the declaration. It does not declare anything about the value of land embedded in the cost of flat. 14. We notice that the Ld CIT(A) has referred to the decision rendered by Hon ble Supreme Court in the case of Mc Dowell and Co. (supra). But we find that the assessee has not adopted any colourable device in th .....

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he case of Millennium Spire India Management (P) Ltd (referred above) are applicable to the facts prevailing in the instant case. In the instant case, the assessee has paid the purchase price for purchase of flats and it is not discernible from the sale deed that it has paid anything separately for land. On the contrary, the sale deed makes it very clear that what was conveyed was only the super structure of the flats. On the contrary, it is an undisputed fact that the ownership of the land has .....

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