TMI Blog2016 (10) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 3,40,81,320/- debited to the account of asset. Rate of depreciation on intangible assets - whether it has to be allowed @ 10% or 25% - Held that:- 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 and scope of ‘intangible asset’ within the scope of section 32(1)(ii). The FSI only relates to giving of the right to construct additional floor to the assessee which only goes to enhance the value or cost of the existing asset / building. It strictly pertains to the addition in the building only and, therefore, depreciation allowable would be at the rates applicable to the buildings only and for not some kind of intangible right u/s 32(1)(ii). Accordingly, we uphold the observation and order of the Ld. CIT(A) to the extent that the depreciation allowable wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 original return of income for the AY 2005-06 under section 139(1) on 31.10.2005 declaring loss of ₹ 61,26,06,726/-. The said return of income was subjected to scrutiny proceedings and assessment was completed under section 143(3) vide order dated 26.12.2007, whereby loss was assessed at ₹ 23,23,66,290/-. Later on, the Ld. Commissioner of Income-tax-III, Mumbai, under his revisionary jurisdiction under section 263 called for the assessment records and came to the conclusion that, the assessment order passed was prima facie erroneous and pre-judicial to the interest of the revenue, primarily on the ground that assessee has claimed depreciation of 25% on Floor Space Index (FSI) on the addition of ₹ 3,40,81,320/- which was debited to the Fixed Block of Asset on which depreciation amounting to ₹ 85,20,330/- was claimed. The Assessing Officer had allowed the said claim of depreciation on FSI. The Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 assessee may choose to produce for adjudicating for the purpose of the assessment on merits. 4. In pursuance thereof, the AO initiated the reassessment proceedings. In response to the show cause notice, the assessee firstly , brought to the notice of the AO that against the original assessment order, assessee had preferred first appeal before the CIT(A) in which substantial relief was granted by the CIT(A) vide his order dated 30th April, 2008. Regarding the issue in hand, that is, the allowability of depreciation on the additional FSI, the assessee stated the entire facts how it received the FSI and tried to substantiate its claim of depreciation @ 25% on such FSI which was added to the building block of asset, in the following manner:- During the year under consideration, the assessee company acquired certain rights in the form of Additional PSI in pursuance of a letter- dated 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had acquire an additional FSI amounting to ₹ 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 14 of the Development Control Regulation for Greater Bombay, 1991 (DCR). From the above definition it is crystal clear, that the assessee has acquired business rights on which the assessee has claimed depreciation at 25%. The assessee company has acquired such a right on payment of premium. To substantiate the fact that the acquisition of FSI is a business right, we state that the assessee company is into business of hoteliering. To expand the business operations of the assessee company, the assessee approached for the acquisition of additional FSI, which would enable the assessee company to construct additional floors and thereby utilizing the same for the business purposes of the assessee company. In view of the same, the acquisition of FSI is nothing but a additional business / commercial right for the assessee company, which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 will fall within the nature of knowhow, patent, copyright, trademark, licenses, franchise etc as mentioned in clause(ii) of subsection (1) of section 32. Accordingly, he upheld the action of the AO that the claim of depreciation on the entire amount cannot be allowed @ 25%. However, he accepted the assessee s other contention that depreciation should be allowed at @ 10% applicable to building, but he restricted to the amount actually spent for the purpose of business, that is ₹ 68,18,265/- paid towards the FSI, which is for enduring nature as it adds to the value of the existing building. The additional FSI will enable the company to add more floors over and above the existing structure. Since it relates to the building block of assets , the overall cost of the building block will increase by this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 new asset came into existence either tangible or intangible. Accordingly, we concur with the view of the Commissioner. As regards the objection of giving the finding by the Commissioner that the AO has not looked into the issue and directed the AO to examine the issue afresh, we note that in the show-cause notice the Commissioner has not stated that the AO has conducted an enquiry, therefore, the finding cannot be said to be contrary to the show-cause notice. We have already given our finding that there is a complete lack of enquiry on this issue by the AO, therefore, it makes no difference even if the AO is asked to examine the issue because the jurisdiction of the AO is circumscribed by the finding and observation of the revision order. The AO is not free to take the independent view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 cent over the normal permissible floor space index in wards of the suburbs and extended suburbs- From this clause, it is quite evident that, FSI is connected with the building alone, that is, right to construct additional floors and such an FSI is never embedded to the land. FSI is the quotient of ratio of the combined gross floor area of all the floors. The assessee got additional FSI of 10022.94 sq. meters which was an additional FSI of 1.5. It is for this additional FSI, the assessee was required to make the payment of premium to Government of Maharashtra and BMC for sums amounting to ₹ 3,40,81,830/- against which assessee has paid the first installment of ₹ 68,16,864/-. Since it is neither the case of the AO nor the case of the ld. CIT(A) in the appeal im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 to the filing of the cross objection belatedly, submitted that there is huge delay of 5 years and onus is on the Department to show that, there was a reasonable cause for such a huge delay. In the present case, the Department has taken a conscious decision not to file the appeal before the Tribunal against the decision/order of the CIT(A) which was in pursuance of the proceedings post revisionary order under section 263. Even the contention of the ld. DR that the CO has been filed after the order of the Tribunal, then also there is a huge delay of more than 10 months after the receiving of the Tribunal order for which there is no justification. In support of his argument, he strongly placed reliance on the decision of Hon ble Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, 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 issue in later assessment year cannot be said to be sufficient cause for condoning the delay of 5 years in filing the appeal before the Court. Thus, he submitted that, once the Department has consciously accepted the order of the CIT(A), then merely because a subsequent order of the Tribunal has decided the issue in favour of the Department does not mean, it is a sufficient and reasonable cause. 12. We have considered the rival contentions on the matter of condonation of delay. It is an admitted fact that, the order of the CIT(A) which is impugned before us was accepted by the Department and conscious decision was taken not to file any further second appeal or pursue any remedy. Now, the Department seeks to file the Cross Objection in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Vijay Mehta, after explaining the entire facts and referring to the contention raised by the assessee before the CIT(A), reiterated that, assessee is eligible for depreciation @ 25%, because assessee has received the right to construct additional floors in the form of Additional FSI which is directly related to its business. In any case, alternatively he submitted that, it is a part of block of asset, because the assessee has shown it in the Schedule of block of assets as FSI for the sums amounting to ₹ 3,40,81,320/-. Since it is part of the block of asset relating to building, depreciation @ 10% should be allowed to the whole of the amount and not for the part of the amount as held by the Ld CIT(A). This argument h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner (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, of ₹ 3,40,81,320/- or on the amount paid of ₹ 68,16,264/-. As regards the ld. CIT(A) s observation that depreciation should be allowed only on the part payment, he submitted that, once the payment has been made in respect of FSI in the building and the ownership lies with the assessee then depreciation has to be allowed on the full value of the asset. In support, he strongly relied upon the decision of Hon ble Supreme Court in the case of Mysore Minerals Ltd. vs CIT, reported in 231 ITR 775. 15. On the other hand, Ld. CIT DR submitted that, the FSI can neither be considered under the building block of assets nor it can be taken as block of intangible asset. The value of FSI should be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the building, that is, @ 10%. However, he has restricted the said depreciation on the amount paid during the year ₹ 68,16,264/- and not to the entire amount as payable to the Government. 17. As observed in the earlier part of our order, the Floor Space Index is the ratio of the total floor of the building on a certain location to the size of the land of that location. In other words, it is quotient of the ratio of the combined gross floor area of all the floors. Granting of additional FSI gives the right to construct the additional floor/s on account of increase in Floor Space Index by virtue of DCR, 1991. Here in this case, it is undisputed fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orresponding 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 ₹ 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 and scope of intangible asset within the scope of section 32(1)(ii). The FSI only relates to giving of the right to construct additional floor to the assessee which only goes to enhance the value or cost of the existing asset / building. It strictly pertains to the addition in the building only and, therefore, depreciation allowable would be at the rates applicable to the buildings only and for not some kind of intangible right u/s 32(1)(ii). Accordingly, we uphold the observation and order of the Ld. CIT(A) to the extent that the depreciation allowable would be on rates applicable to the building only that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on intangible assets of ₹ 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. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the additional FSI is a permission to construct additional space on plot of and therefore, would add to the value of land by increasing the constructible area/space and has no independent value without underlying land as well until and unless the additional construction is carried out by using the FSI and it is only as addition in the value of land not eligible for depreciation. 3. The appellant prays that the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was acquired on slump sale basis . There is no dispute about the computation of depreciation at ₹ 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 have not been fulfilled. 10.5 The AO s contention that the appellant has not bifurcated the amount to different assets is not based on the facts of the case as the appellant had purchased all the intangible assets on slump sale basis and had not paid separate price for each of such intangible assets. Further, all the intangible assets fall under block of assets on which depreciation is allowable @ 25%. The AO having accepted the fact that intangible assets were acquired by ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion 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 tantamount to succession of the while business. In this regard, the reliance is placed on the decision of Gujarat High Court in the case of Premji Khimraj Shah vs ITO (118 ITR 216). The said proviso to section 32 is applicable only in those cases which are covered by sub-clause (xiii) and (xiv) of section 47 or section 170 of the Act. The proviso to sub-section (xiii) (xiv) of section 47 indicates that subsection (xiii) is applicable only where any tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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 ₹ 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 same is dismissed. 28. So far as the additional grounds raised on account of amounts spent on FSI during the year to the building block of assets and allowability of depreciation, this issue has already been decided by us in the appellate order for AY 2005-06, wherein, we held that, deprecation has to be allowed in full, that is, for the entire value of the FSI amount @ 10%. Once, we have directed that the depreciation has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) erred in allowing depreciation on intangible assets of ₹ 3,20,51,976/-. 5. 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. 6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. Besides this, revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has been clarified by the Hon ble Supreme Court in the said decision itself, wherein, their Lordships have held that, it is only limited to the power of the AO and does not impinge upon the power of the Tribunal under section 254. Thus, we do not find any infirmity in the order of the CIT(A) for allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring the fact that the additional FSI is a permission to contrast additional space on plot of land and therefore, would add to the va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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