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2016 (8) TMI 46 - ITAT DELHI

2016 (8) TMI 46 - ITAT DELHI - TMI - Allocation of common expenditure between the rental income and service income - Held that:- There is no dispute that the income earned from rendering services to tenants has been assessed as business income and the primary source of assessee’s activities was to earn rental income. It was assessed under the head “Income from house property”, against which assessee got statutory deduction and, therefore no expenditure relating to earning of rental income could .....

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se auditors have audited the rental income also, which was reflected in the P&L A/c. Therefore, AO as well as ld. CIT(A) were justified in proportioning this expenditure. - As far as legal charges are concerned, before ld. CIT(A) the assessee had pointed out that the amount was paid to Associates Law Advisors, but it is not pointed out for which purpose the amount was paid. Therefore, both the lower revenue authorities rightly allocated this expenditure between rental income and service inco .....

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s and taxes are concerned, merely because the amount has been paid to Registrar of Companies for statutory compliance, will not entitle the assessee to claim the entire expenditure against the service receipts, because against rental income statutory deduction has been allowed, which includes expenses incurred for all such statutory compliances. - As regards bank charges, since the assessee has not specifically pointed out that the same was paid to bank where only service income was deposite .....

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italized to the cost of land to plant & machinery but to the cost of the land. We, accordingly, uphold the order of ld. CIT(A) on this count. - Additional depreciation on purchase of DG set - Held that:- The basic ingredient of the section is that the assessee should be engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power. Admittedly, the assessee was not at all engaged in the generation or gener .....

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titled for additional depreciation as per section 32(iia). This section is meant for those assessees, who installed plant and machinery after 31.03.3005 for manufacture or production of any article or thing. The assessee was not producing any such article or thing. It was only supplying electricity through D.G. Set installed by it. - ITA Nos. 282, 283 & 284//Del/2014 - Dated:- 25-7-2016 - Shri S. V. Mehrotra, Accountant Member Versus Shri C. M. Garg, Judicial Member For the Appellant : Sh. Santo .....

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ome-tax (Appeals) - V, New Delhi, dated 22.10.2013, is wrong on facts and bad in law; 2. That the Commissioner (Appeals) erred in confirming the disallowance of expenses of ₹ 6,18,802/- out of the total expenses of ₹ 7,83,363/- for (i) Auditors Remuneration: ₹ 3,32,190/-, (ii) Legal and Professional Expenses : ₹ 2,97,424/-, (iii) Travel and Conveyance: ₹ 87,744/-, (iv) Rate and Taxes: ₹ 3,000/- and (iv) Bank Charges : ₹ 63,005/- on proportionate basis, h .....

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mp; Machinery; 4. That the conclusions and inferences of the Assessing Officer and/or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant considerations; 5. That the reliefs prayed for may kindly be allowed and the order(s) of the Assessing Officer and/or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified; 6. That the aforesaid Grounds of Appeal are without prejudice to each other; 7. That the Appellant craves leave to va .....

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ease agreement that assessee was providing uninterrupted electricity and water supply, air conditioning/ heating systems, maintenance of building including water and sanitary pipes and facility of lift, etc. He further noticed that though all these services were mentioned in the lease agreement, the maintenance charges for maintaining these facilities were part of a separate agreement. On the basis of analysis of these agreements, the AO concluded that the revenue expenditure related to the serv .....

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he table of common expenses, which were to be allocated between rental income and service income as under: S. No. Details of expenses Amount (In Rs.) 1 Auditors remuneration 332190 2 Legal and professional 1267174 3. Travel and conveyance 87744 4. Rates and taxes 3000 5. Bank charges 63005 Total 1753113 4. The AO, accordingly, made addition of ₹ 13,84,837/-. 5. The AO further noticed that assessee had claimed depreciation on plant & machinery on the ground that the same was used for th .....

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sed for maintenance and services at ₹ 3,14,33,917/-, after considering the depreciation already claimed by the assessee. Further, considering the addition of asset during the year amounting to ₹ 4,76,696/-, the allowable depreciation to the assessee for its business income was computed at ₹ 79,77,653/- and since the assessee had claimed depreciation of ₹ 1,10,06,901/-, made a disallowance of ₹ 30,29,247/-. 6. Apropos first issue regarding allocation of common expens .....

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ng to capitalized lease rent on the ground that the plant & machinery was installed at that part of the land and, therefore, the lease rent relatable to that part of the land had to be capitalized. He, therefore, upheld the disallowance of depreciation on lease rent paid to DDA amounting to ₹ 3,84,684/-. 8. Being aggrieved, the assessee is in appeal before the Tribunal. 9. Ground nos. 1,4,5,6 & 7 are general in nature. 10. Ground no. 2: Apropos ground no. 2 ld. counsel for the asse .....

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1. As regards rates and taxes, ld. counsel submitted that the amount was paid to Registrar of Companies for statutory compliance. Further, the bank charges were paid to the bank. 12. Ld. counsel further submitted that assessee on its own had disallowed expenses aggregating to ₹ 4,63,70,175/- out of the total expenses of ₹ 6,73,43,612/- and had claimed only ₹ 2,09,73,437/- out of which disallowances have been made by AO. 13. We have considered the submissions of both the parties .....

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on expenditure had to be allocated between the rental income and service income. 14. Now we will consider to the specific items of expenditure which have been allocated by AO and confirmed by ld. CIT(A). 15. As far as auditors remuneration is concerned, the said expenditure have to be incurred by assessee company to meet the statutory requirements. But since assessee was deriving income, both rental as well as service income, therefore, the entire auditors remuneration could not be allocated onl .....

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l income and service income, because rental income has also been accounted for in the books of a/c. 17. As far as legal charges amounting to ₹ 1,22,649/- are concerned, before ld. CIT(A) the assessee had pointed out that the amount was paid to Associates Law Advisors, but it is not pointed out for which purpose the amount was paid. Therefore, both the lower revenue authorities rightly allocated this expenditure between rental income and service income. 18. As far as travel & conveyance .....

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the amount has been paid to Registrar of Companies for statutory compliance, will not entitle the assessee to claim the entire expenditure against the service receipts, because against rental income statutory deduction has been allowed, which includes expenses incurred for all such statutory compliances. 20. As regards bank charges, since the assessee has not specifically pointed out that the same was paid to bank where only service income was deposited, therefore the same has to be allocated b .....

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the same. 23. Assessee has relied on following decisions for the proposition that any expenditure incurred to put an asset to use is to be capitalized: - Challapalli Sugars Ltd. Vs. CIT 98 ITR 167 (SC) - CIT Vs. Food Specialities Ltd. 136 ITR 203 (Del.) - Protien Products Ltd. 167 ITR 157 (Ker.) 24. After considering the submissions of both the parties, we are not inclined to accept the proposition advanced by the ld. counsel for the assessee for the simple reason that no depreciation is allowab .....

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tax (Appeals) - V, New Delhi, dated 31.10.2013, is wrong on facts and bad in law; 2. That the Commissioner (Appeals) erred in confirming the disallowance of expenses of ₹ 13,00,437/- out of the total expenses of ₹ 16,30,2211- for (i) Auditors Remuneration : ₹ 55,1001-, (ii) Legal and Professional Expenses : ₹ 15,40,509/-, (iii) Travel and Conveyance: ₹ 12,0601- and (iv) Rate and Taxes: ₹ 22,552/- on proportionate basis, holding that the same were incurred for .....

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and inferences of the Assessing Officer and/or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant considerations; 5. That the reliefs prayed for may kindly be allowed and the order(s) of the Assessing Officer and/or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified; 6. That the aforesaid Grounds of Appeal are without prejudice to each other; 7. That the Appellant craves leave to vary, alter, amend or add to the aforesa .....

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ent that only accounting charges of ₹ 3,42,360/- were paid to M/s Perfect Accounting System for writing the books for the year. Therefore, this had to be allocated between rental income and service income, because rental income has also been accounted for in the books of a/c. 30. As far as legal charges amounting to ₹ 11,98,149/- are concerned, we find that the amount was paid to Associates Law Advisors, S.R. Batliboi & Co. ERNST & Young and CB Richard. The assessee has point .....

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ome. 31. As far as travel & conveyance expenses are concerned, in view of our discussion on this issue for AY 2004-05, we hold that the expenses in question were to be allowed in full against the service income. 32. As far as rates and taxes are concerned, facts being identical as in AY 2004-05, the same course will follow herein also. 33. In view of above discussion, the assessee s ground is partly allowed. 34. Ground no. 3: Undisputedly the facts are identical to AY 2004- 05. Therefore, in .....

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/- out of the total expenses of ₹ 1,23,4461- for (i) Auditors Remuneration: ₹ 56,1201-, (ii) Legal and Professional Expenses: ₹ 57,9861-, and (iii) Travel and Conveyance: ₹ 9,3401- on proportionate basis, holding that the same were incurred for the purposes of earning income by way of rent. -He failed to appreciate that the said expenses were incurred for the purposes of the business of the Appellant; 3. That the Commissioner (Appeals) erred in confirming the disallowance .....

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inferences of the Assessing Officer and/or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant considerations; 7. That the reliefs prayed for may kindly be allowed and the order(s) of the PI: sessing Officer and/or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified; 8. That the aforesaid Grounds of Appeal are without prejudice to each other; 9. That the Appellant craves leave to vary, alter, amend or add to the aforesaid .....

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nt of ₹ 2,72,122/- had been claimed as additional depreciation on purchase of DG set amounting to ₹ 13,60,612/- made in the block of plant & machinery and equipment. The AO disallowed this claim, inter alia, observing that as per clause (iia) to section 32 of the Act, such deduction is allowable if the assessee is engaged in the business of manufacture or production of any article or thing. He pointed out that since no activities were carried on by the assessee company, the asses .....

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y to be provided to tenants when there was electricity or power failure. He pointed out that this was covered u/s 32(iia). 42. We have considered the submissions of both the parties and have perused the record of the case. 43. In order to properly appreciate the contention of ld. counsel for the assessee, we reproduce Section 32(iia) hereunder : (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005 .....

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