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TMI Blog2016 (10) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... e has raised following grounds: Ground No. 1: On the facts an d in the circumstances of the case and in l aw, the learned CIT (A) erred in confirming action of the AO in disallowing depreciation on intangible assets of Rs. 85,20,330 (25% of Rs. 3,40,81,320). The appellant prays that the depreciation on FSI may kindly be allowed @ 25%. Ground No.2 Without prejudice to ground no. 1, on the facts and circumstances of the case, the learned CIT(A) erred in holding that only Rs. 68,16,264 being amount spent during the year for acquiring rights of FSI is to be added to the block of Buildings". The appellant prays that entire consideration towards FSI of Rs. 3,40,81,320/- may be added towards the book of building and the depreciation may be accordingly allowed. The Appellant craves leave to add, alter, amend or withdraw any of the Grounds of appeal herein above and to submit such further arguments, statements, documents and papers as may be considered necessary either at or before the hearing of the appeal. 3. Brief facts and background of the case are that, the assessee company is in the hoteliering business (earlier known as M/s Tulip Star Hotel). It had filed its origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment was erroneous and prejudicial to the revenue as it is totally silent about this and therefore there is lapse of omission on the part of the assessing officer In the light of above facts, the assessment order u/s 143(3) dated 31.10.2005 passed by Jt. CIT(OSD), Range 3(3), Mumbai is found to be erroneous and prejudicial to the interest of revenue and therefore is hereby set aside to be made afresh. While completing the fresh assessment proceedings, the AO will give proper opportunities to the assessee and will also examine and consider all the submissions as well as evidences which the assessee may wish to produce before him and thereafter decide this issue on merits in a speaking order ". Thus, his directions were, firstly, that the claim of the assessee needs to be examined by the AO with reference to all the primary records; secondly, possession of additional FSI is not a business / commercial rights and therefore, deprecation cannot be allowed under section 32(1)(ii), that is, @ 25%; and lastly, there was omission on the part of the AO to examine this fact and accordingly, he was directed to examine and consider the submissions as well as evidences which asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble CIT vide its order passed u/s. 263 dated 23.03.2009 set aside the said assessment order of A. 0. and directed the A.O. to pass the fresh assessment order after considering all the evidences in connection with the said claim, of depreciation @25% on PSI, made by the assessee company. In this regard, at the outset, we would like to submit before your goodself that the assessee company had submitted all the evidences with regard to claim of depreciation on PSI. It is just a difference of opinion between the two tax authorities. Hence, the assessee company does not have to submit any additional documentary evidences to back up its claim, as the nature of payment is not in dispute. Now coming to the allowability of depreciation on FSI, we submit as under: The assessee company is in the hoteliering business. During the year the assessee had acquire an additional FSI amounting to Rs. 3,40,81,320. FSI is defined as the ratio of the total floor area of buildings on a certain location to the size of the land of that location. Granting of additional FSI means the right to construct the additional storeys on account of increase in floor space index (FSI) by virtue of regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is only a payment made to the Government for increasing the building size/ extra floor. It can only be used to construct additional floor on its hotel and such FSI is not in the nature of any right of any type. Hence, assessee cannot claim depreciation of such a FSI because, at the very first instances, it is not a business asset accordingly, he disallowed entire claim of depreciation at Rs. 85,20,330/- and was added to the total income of the assessee company and finally, the income was assessed at loss of Rs. 38,55,51,470/-. 6. In the first appeal against the said assessment order dated 25.11.2009, assessee preferred first appeal before the CIT(A) and gave detailed submissions as to how FSI is an additional business/ commercial right, which would enable the assessee company to expand its business operations and hence it will falls within the scope and ambit of 'intangible asset'. The Ld. CIT(A) held that, the assessee was unable to explain as to how and under which item mentioned in section 32(1)(ii) of the Act, the FSI will fall. He observed that, even if it is accepted that FSI is a commercial right which will improve the business interest of the assessee but in no way, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out underlying land as well as unitl and unless the additional construction is carried out by using the FSI. It is only an addition in the value of land not eligible for depreciation. The decisions relied upon by the Ld. AR are not applicable in the facts of the present case because the Commissioner has not given the finding on a different issue that of the show-cause notice. The observation of the Commissioner that the AO has not looked into the issue if factually correct. Even, otherwise, the main issue is allowability of depreciation on FSI and not conducting the enquiry by the AO is only in respect of the main issue and cannot be treated as a different issue". 10. xxx 11. xxx 12. The subject matter of the revision order is allowability of claim of depreciation on FSI on the ground that it is not a business asset until and unless additional construction is carried out. As we have discussed in the foregoing para of this order that the FSI has not independent existence de hors the land on which it is to be used. It is only an addition in the usable value of the land and, therefore, unless and until it is used for construction of additional space on a particular land no ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of the total floor area of buildings on a certain location to the size of the land of that location. Granting of additional FSI means, the right to construct the additional storey/s on account of increase Floor Space Index by virtue of "Regulation for Greater Bombay, 1991 (DCR). Under the section 33 of DCR 1991 pertaining to 'Additional Floor Space Index' which may be allowed in certain categories, sub-section (4) dealing with building of "starred categories" of residential hotels has been defined in the following manner:- (4) Buildings of Starred Category Residential Hotels:-With the previous approval of Government and subject to payment of such premium as may be fixed by Government (out of which 50 percent shall be payable to the Corporation), and subject to such other terms and conditions as it may .specify, the floor space indices in Table 14 may be permitted to be exceeded in the case of buildings of all starred category residential hotels in independent plots and under one establishment as approved by the Department of Tourism, by a maximum of 50 per cent over the normal permissible floor space index in the F and G wards of the Island City and by a maximum of 100 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is noticed that, there is no affidavit filed by any officer or any bona fide reasons have been given for filing of Cross Objection after a lapse of period of 5 years. 10. Before us, the Ld. CIT DR submitted that, there is sufficient cause for condoning the delay, because in assessee's own case the Tribunal has clearly held that the 'additional FSI' is not eligible for depreciation, since it is only addition in the value of land and on land no depreciation is allowable. The subsequent order of the Tribunal in assessee's own case should be considered as a reasonable cause for filing of cross objection belatedly. When it was pointed out to ld. CIT DR that, once the order of the Tribunal is dated 01.04.2015 and admittedly, the order was also received by the Commissioner in month of April, 2015, then why the cross objection has filed on 9th March, 2016 which is after time period of 10 months, Ld. DR in response submitted that, there are various stages of approvals which are required from the concerned hierarchy of authorities before filing of the appeal, hence, there was further delay in filing of the cross objection. 11. The Ld. Counsel for the assessee, Mr. Vijay Mehta objecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation that the file was kept pending for several months/years due to considerable degree of procedural red-tape in the process. The government departments are under a special obligation to ensure that they perform their duties with diligence and commitment. Condonation of delay is an exception and should not be used as an anticipated benefit for government departments. The law shelters everyone under the same light and should not be swirled for the benefit of a few. Considering the fact that there was no proper explanation offered by the Department for the delay except mentioning of various dates, according to us, the Department has miserably failed to give any acceptable and cogent reasons sufficient to condone such a huge delay. Accordingly, the appeals are liable to be dismissed on the ground of delay". He, further referred and strongly relied upon in the case of Somerset Place CHS Ltd. vs ITO, reported in [2015] 279 ITR (Bom) 146, wherein they have concluded that, if the assessee has initially taken conscious decision not to pursue further proceedings against the adverse order of the Tribunal then, decision rendered by the High Court in favour of the assessee on the same iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedures involved in filing of the appeal. Their Lordships have held that, there cannot be a separate period on limitation for the Government Department. Their observations as incorporated above, truly answers the reasons cited by the Department before us. Thus, on the facts and circumstances of the case, we hold that, it is not a fit case for condoning the delay and accordingly, we are dismissing the Cross Objection filed by the revenue on the ground of limitation. Thus, Cross Objection filed by the Department is dismissed. 13. Now, we come to the assessee's appeal, wherein ground no.1, relates to disallowance of deprecation @ 25% by treating the FSI received as intangible asset. As discussed above, the assessee had contended that it is in the business of hoteliering and acquisition of FSI for building extra floor space is a business right which is useful for expanding the business operation of the assessee company. The acquisition of FSI is nothing but an additional business/commercial right which is to be treated as 'intangible asset' under the meaning and scope of section 32(1)(ii). Such business rights are eligible for depreciation @ 25%. 14. Before us, the Ld. Counsel Mr. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such a right in favour of the developer amounts to transfer of capital asset. It is held that transfer of TDRs amounts to transfer of a 'Capital Asset [Para 15]" "The reasoning and the logic given by the Assessing Officer and the Commissioner (Appeals) that these development rights were embedded with the land and therefore, the sum chargeable to cost has to be ascribed, it l's held, is not tenable for the reason that these development rights have been available to the assessee as per the DCR, 1911 and is separate and distinct from the original right in land and hence, it cannot be held that such a right was embedded in the land. Therefore, the conclusion drawn by the Assessing Officer and the Commissioner (Appeals) on this score gets failed. Mr. Mehta argued that such an observation of the Tribunal de hors the issue before it falls within the realm of obiter dicta and not a ratio decidendi or finding given on the issue involved. In any case, the subject matter of issue arising in assessee's appeal is only whether the 'additional FSI' increases the value of building or not and whether the depreciation should be allowed on the whole of the amount of the FSI, that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account, the assessee company had debited the whole amount of Rs. 3,40,81,320/- in the Schedule of 'fixed assets' as "Floor Space Index" and a corresponding credit entry was made as a liability payable to Government/ BMC. In the Balance sheet as on 31st March, 2005, under the Schedule "B" showing 'current liabilities and the provision', the assessee has shown the liability under the head "premium payable" at Rs. 2,72,65,056/- (i.e., Rs. 340,81,320 - Rs. 68,16,264). The assessee had claimed depreciation @ 25% on the ground that it is a some kind of business or commercial rights, therefore, it falls within the realm and scope of "intangible assets" allowable for depreciation @ 25% under section 32(1)(ii). This has been negated by the Ld. CIT(A) on the ground that the FSI does not fall within the scope and ambit of section 32(1)(ii). However, he accepted the assessee's contention that, the amount spent for the business purpose will go to the add to the value of the existing building as additional FSI, which will enable the assessee company to add more floors to the existing structure and its relates to building complex of assets. Thus, he directed to allow the depreciation applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the entire or balance premium (say Rs. 2,72,65,056) on FSI to the Government/ BMC, then assessee would have debited the entire amount to FSI account under the head 'fixed assets' and credited to the bank and disclosed it as its liability in the Balance sheet. Now, if assessee has paid the premium on installment scheme, then assessee would debit the whole amount on the asset side and make a credit to the vendor account by showing it as liability payable to him for the amount which remains to be paid. It is immaterial whether for many years that liability or installment has been paid subsequently or not. Once the corresponding liability in the accounts has been shown, then depreciation on the asset should be given irrespective of the fact that this year only part payment was made for the acquisition of that asset. Thus, we hold that, assessee would be eligible for depreciation for the entire amount of Rs. 3,40,81,320/- debited to the account of asset. 18. Now, coming to the rate of depreciation, whether it has to be allowed @ 10% or 25%, we do not find any merits in the contention of the assessee that the additional FSI is a business or commercial rights falling within the realm a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by in the assessee's appeal for the AY 2005-06 and the issues involved are permeating from identical set of facts, therefore, the finding given above in the appeal for the AY 2005-06 will apply mutatis mutandis in this year also. Thus, ground No.1 is treated as dismissed whereas, ground no.2 is allowed. 22. In the result appeal of the assessee stands partly allowed. 23. In the revenue's appeal following grounds have been raised:- "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing depreciation on intangible assets of Rs. 4,88,08,717/-; 2. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary". 24. Besides this, the revenue has also raised filed an additional ground which reads as under:- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the assessing officer to add the amount spent on FSI during the year to the building block of asset and allow depreciation as per law. 2. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 13.2 We have considered rival contentions and perused the record. We found that the CIT(A) in its earlier order for AY 2003-04 has deleted the disallowance of depreciation after having the following observation:- 10.4 I have carefully considered the assessment order and the submissions made by the appellant during appellate proceedings. The depreciation on intangible assets of Rs. 465,27,78,949/- at Rs. 11,50,94,737/- was claimed by the appellant in respect of the running business which was acquired on "slump sale basis". There is no dispute about the computation of depreciation at Rs. 11,50,94,737/-. The claim of depreciation for assessment year under consideration is the first year of such a claim. The AO has also accepted that intangible assets were part of slump sale. The AO has, however, relied mainly on three propositions for the purpose of denying the depreciation. Briefly stated, they are: (i) The appellant had not bifurcated the amount to different assets: (ii) The appellant had not proved that the intangible assets were used for the purposes of its business; and (iii) The appellant failed to prove that the condition precedent referred to in Section 32 hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and to the allowed to predecessor owner. In our considered opinion, we would like to state that the said proviso to section 32 is not applicable to the facts of the assessee's case. The said provisions are applicable to the following cases only:- (1) Transfer of capital assets by a firm to a company as contemplated in section 47(xiii); (2) Transfer of capital assets by a sole proprietary concern to a company in terms of section 47(ivx); (3) Succession of business, referred to, in section 170; (4) Transfer of assets by a amalgamating company to the amalgamated company and; (5) Transfer of assets in a demerger by the demerged company to the resulting company. Firstly, it is submitted that it is not a case of succession. The assessee had purchased the said hotel in an open bid from the Government owned Corporation i.e. Hotel Corporation of India, and by purchasing, the assessee has become owner of the said hotel. The purchase of Hotel by the assessee from Hotel Corporation of India does not amount to succession in as much as that the said company was not only running the said single hotel sold to assessee. Thus, by effecting the sale of single hotel does not tantam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,50,94,737/- is admissible as the same were used for the purpose of appellant's business." 13.3 We found that allocation of cost of acquisition for each block of asses in a fair and reasonable manner as permitted by law had to be accepted. Further, the CIT(A) observed that even the AO had not denied that the hotel business could not be carried out without the said licenses and permits. The CIT(A) further stated that 5th proviso to section 32 of the Act would not be attracted to the case of the assessee. We, therefore, do not find any reason to interfere in the order of CIT(A) in this regard". 27. The assessee in this year also has claimed the depreciation of Rs. 4,88,08,717/- on intangible asset and claimed it to be in the nature of licenses, arrangements and other business and commercial rights. The AO has followed the assessment order of the AO for the AYs 2003- 04 to 2005-06. The Ld. CIT(A) too has followed the earlier years order for giving relief. Now, that Tribunal has confirmed the order of the CIT(A) deciding the appeal in favour of the assessee, then consistent with the view taken in earlier years, we do not find any merit in the grounds raised by the revenue and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly allowed. 33. In the revenue's appeal, following grounds have been raised:- "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition made by the A.O. on count of Luxury tax payments of Rs. 8.00.000/- and interest on Term Loans of Rs. 2,00,00,000/- being deduction claimed u/s.43B of the IT Act. "2. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that such claims of deduction should have been made, if permissible, by filing a revised Return of Income as per law, and if no claim was made in the original/ revised return, the deduction is not allowable in view of the ratio laid down by the Hon'ble Supreme Court in the case of M/s. Goetze India Ltd. reported in 284 ITR 323 (SC)." "3. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate and give a finding on the applicability of ration of the Hon'ble Supreme Court's decision cited supra and relied upon by the A.O., while making disallowances u/s. 43 B of the Act." "4. On the facts and in the circumstances of the case and in law, the learned CIT(A) er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 crores under section 43B. The assessee before the AO submitted that, the same should be allowed on payment basis u/s 43B, because due to inadvertent mistake, the same could not be claimed at the time of filing of the return and time for submitting the revised return has lapsed. The Ld. AO relying upon the decision of Hon'ble Supreme Court in the case of M/s. Goetze India Ltd. reported in 284 ITR 323, disallowed the claim on the ground the same should have been claimed by way of revised return only. 37. The Ld. CIT(A) has allowed the said claim after observing that it is an undisputed fact that such a payment was otherwise allowable under section 43B and, therefore, he directed the AO to allow the said expenditure as deduction. 38. After hearing both the parties and on perusal of the impugned orders, we find that the only reason for disallowing the claim by the AO is that, the assessee has not claimed the said deduction by way of revised return of income, while saying so, he has relied upon the decision of Hon'ble Supreme Court in the case of M/s. Goetze India Ltd. (supra). However, there are no fetters on the power of the appellate authorities to entertain such a claim and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,917/- made u/s. 43B on account of non-payment of service tax liability, holding that service tax charge cannot be disallowed u/s. 436 as it is not debited to the P & L account, without appreciating the fact that the Service Tax is part of trading receipt." 1(ii) On the facts and circumstances of the case and in law, the learned CIT(A) has failed to appreciate that Service Tax is a statutory levy and is covered by provisions of section 43B of the I.T. Act, 1961. 2 On the facts and in the circumstances of the case and in Jaw, the Ld. CIT(A) erred in allowing depreciation on intangible assets at Rs. 2,74,54,904/-. 3 The appellant prays that the order of the CIT (A) on the above ground be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary". 44. Besides this, revenue has also raised following as additional grounds:- "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the assessing officer to add the amount spent on FSI during the year to the building block of asset and allow depreciation as per law" 2. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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