M/S JOSHI AUTOZONE PVT. LTD.,CHANDIGARH vs. DCIT, CHANDIGARH

आदेश/Order PER LALIET KUMAR, J.M: These are the set of appeals filed by respective assesses against the respective orders of Ld. CIT(A) for A.Y’s 2010-11 to 2014-15.

That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in 2. upholding the order of the Ld. Assessing Officer regarding disallowance of depreciation amounting to Rs.2,85,081/- on account of conversion charges as the same has been incurred in the interest of appellant's business. This addition is uncalled for and deserves to be deleted 3. That any other ground may kindly be allowed to be taken at the time of appeal with due permission.

3.1 Further, at the outset, the Ld. AR submitted that the assessee has also moved a prayer requesting for admission of the following additional grounds of appeal: u That the appellant be allowed to claim the instalment of conversion charges of Rs. 57,01,628/- paid to Chandigarh Administration during the year as Revenue Expenditure being incurred in the due course of the appellant's business." "That the appellant be allowed to claim the interest of Rs. 17,84,954/-paid on conversion charges to Chandigarh Administration during the year as Revenue expenditure being incurred in due course of appellant's business."

3.2 It was submitted that these are legal grounds as to whether the conversion charges paid by us are revenue in nature, all the facts are also on record, and there is no dispute regarding the facts that the expenditure has

been incurred by the assessee in the due course of its business. It was accordingly submitted that the additional grounds so raised by the assessee may be allowed and in support the reliance was placed on the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT 229 ITR 383 and decision of Punjab & Haryana High Court in case of CIT Vs. Oswal Woolen Mills Ltd. 163 ITR 0484 besides other decisions.

5.1 The Ld. AR submitted that the issue raised by way of additional grounds is purely legal in nature, namely, whether the expenditure in question is capital or revenue. It was contended that all primary facts are already on record and no further investigation is required. Reliance was placed on the judgment of the Hon’ble Supreme Court in National Thermal Power Co. Ltd. vs. CIT (229 ITR 383) and the decision of Hon’ble Punjab & Haryana High Court in CIT vs. Oswal Woollen Mills Ltd. (163 ITR 484), besides other decisions including Khanna Watches Ltd., Atlas Cycle Industries Ltd., Indian Hotels Co. Ltd. and Micron Instrument Pvt. Ltd., to contend that additional grounds raising a pure question

of law can be admitted at any stage.

7.1 However, the applicability of the aforesaid ratio is contingent upon the condition that the additional ground is purely legal and does not require fresh investigation into facts. In the present case, we find that the issue sought to be raised by the assessee is not merely a legal issue simpliciter but is a mixed question of law and fact. The determination of whether the conversion charges and interest thereon are capital or revenue in nature necessarily requires examination of various factual aspects such as the nature and purpose of payment, the rights acquired by the assessee, and whether the expenditure results in an enduring benefit. These aspects were neither examined by the Assessing Officer nor by the Ld. CIT(A), as the assessee itself had treated the expenditure as capital and claimed depreciation thereon.

7.2 Further, we find that the assessee has, in its return of income as well as during the course of assessment and appellate proceedings, consistently taken a stand that the impugned expenditure is capital in nature. It is only at a later stage, after filing of the appeal before the Tribunal on 17.02.2016, that the assessee has sought to change its position by filing the present application on 07.05.2018. In our considered view, permitting such a change would amount to allowing the assessee to approbate and reprobate, which is not permissible in law.

7.3 Coming to the other decisions relied upon by the assessee, we find that the same are distinguishable on facts. In Khanna Watches Ltd. and Atlas Cycle Industries Ltd., the additional grounds were admitted as the relevant facts were already on record and no new factual investigation was required. Similarly, in Indian Hotels Co. Ltd., the Tribunal permitted substitution of a ground where the broad issue regarding allowability of expenditure was already under consideration and all material facts were available on record.

7.4 In contrast, in the present case, the assessee had never claimed the expenditure as revenue before the lower authorities and the authorities below had no occasion to examine the claim from that perspective. Therefore, the admission of the additional grounds would necessitate fresh examination of facts, which is beyond the scope of a pure legal issue.

7.5 As regards the reliance placed on the decision in Micron Instrument Pvt. Ltd., we note that in that case the Tribunal allowed the claim considering that the asset was already in existence and the business was being carried on from the same premises, and the nature of expenditure was apparent from the record. However, in the present case, the factual matrix relating to the nature of conversion charges, the rights acquired, and their impact on the capital

structure has not been examined by the lower authorities, and hence the said decision does not advance the case of the assessee.

7.6 We also note that there is a considerable delay in raising the additional grounds. No satisfactory explanation has been brought on record as to why such claim, which is now sought to be raised, was not made either in the return of income or before the Assessing Officer or the Ld. CIT(A). The conduct of the assessee, in our view, indicates that the present claim is an afterthought.

7.7 In view of the foregoing discussion, we are of the considered opinion that the additional grounds sought to be raised by the assessee are not purely legal in nature, but involve investigation into fresh facts and also amount to taking a contradictory stand from that taken earlier. Accordingly, the same are not maintainable.

9.1 In response, the assessee vide its submission dated 28.12.2012 submitted that it is engaged in the business of sale and purchase of motor vehicles and spare parts and, therefore, requires substantial space for carrying on its business activities. It was further submitted that as per the rules and regulations of the Chandigarh Administration, only specified industrial activities are permitted in the Industrial Area. The assessee had taken the land on lease and constructed the building thereon in earlier years, as reflected in its Balance Sheet. During the year under consideration, the assessee paid conversion charges to the UT Administration to enable it to carry on its business activities smoothly from the said premises. It was contended that the said expenditure was capital in nature, had been rightly capitalized under the head “building”, and depreciation had been claimed thereon on the ground that it conferred enduring benefit to the assessee for the purpose of its business.

9.2 The Assessing Officer, however, did not find merit in the submissions so advanced by the assessee. It was observed that the land in question was owned by M/s Punjab Package Pvt. Ltd. and not by the assessee company. Accordingly, the Assessing Officer held that the conversion charges paid were not relatable to the assessee but pertained to the said company which owned the land.

9.3 The Assessing Officer further observed that the assessee company had made an investment of Rs. 2.65 crores in M/s Punjab Package Pvt. Ltd., and therefore, according to the Assessing Officer, the impugned conversion charges were in the nature of investment in the said company. On this premise, it was held that the assessee was not entitled to claim depreciation on such conversion charges and, accordingly, depreciation amounting to Rs. 2,85,081/- claimed by the assessee was disallowed and added back to its income.

“I have considered the submission of the appellant. The facts in this regard is not disputed in the submission. It is also not denied that the payment of conversion charges is in the nature of capital expenditure and gives a long term enduring benefit. The issue here is to decide that who is eligible to capitalized such payment in its account and claim depreciation over such capitalized asset. The appellant has taken the plot of land on lease from one of its sister concern. The appellant is eligible to claim expenses on account of such payment of lease rent to M/s Punjab Packages Pvt. Ltd. As per Explanation 1 of section 32, the assessee is very much entitled to claim depreciation on the capital expenditure incurred on the construction of any building over any land not owned by the assessee. In the present case, the appellant is rightfully claiming depreciation over such building. Now, as far as the expenses on account of conversion charges is concerned, it was made only to be eligible to use the plot of land for the purpose of commercial activity. The appellant has taken such plot of land from its sister concern for which it is agreed to pay a lease rental every month. The lease rental is therefore paid for the use of the said land for commercial purposes only. So whatever the amount of lease rental is fixed to be paid to M/s Punjab Packages Pvt. Ltd., it has given due consideration that the plot of land will be provided by the lessor to the appellant without any encumbrances and liability and will be ready to use the same for commercial purposes. In view of the same, the liability to pay conversion charges is only on the lessor i.e. M/s Punjab Packages Pvt. Ltd. and not on the appellant. Further, the ownership over the land is not vested in the hands of the appellant and therefore cannot be taken into the schedule of fixed assets of the appellant. In view of the above discussion, I agree with the Assessing Officer that the expenses on account of conversion charges for the land not owned by the appellant cannot be capitalized in the books of the appellant and therefore the depreciation over such capitalized conversion charges cannot be allowed. Hence, the disallowance of depreciation of Rs. 2,85,081/- is confirmed. Ground of appeal No. 4 is dismissed.”

11.1 The Chandigarh Administration has notified a policy on 11/07/2005. Wherein various owner / lessee / GPO Holder/Tenant were permitted to get the land use of industrial sites to commercial subject to fulfilment of various

conditions. The conditions are given at page 8 of compilation which are as under: 6. Conditions for conversion of land use of Industrial sites to commercial. i) The lessee/owner/GPA holder or tenant (with the consent of owner) shall make an application to M.D., CITCO in the prescribed proforma Annexure 'B' along with full conversion fee in the shape of D.D./Pay Order drawn on any scheduled bank in favour of CITCO, Chandigarh. The application from the sub-lessees of CITCO shall be submitted with the recommendations of the CITCO. ii) The conversion fee to be paid by the applicant who apply for conversion during the first year of the scheme shall be 40% of the average price per square yard for all the auctions held by the Estate Office for commercial sites during the last three years. Applications during the second year will attract conversion fee at the rate of 50%. These charges/fee shall be deflated in proportion to the minimum FAR permissible. For purposes of calculation it shall be taken that the FAR allowed for commercial properties auctioned by the Estate Office is three. See Annexure 'C' (Statement showing calculation of conversion fee). iii) CITCO will process the cases of conversion and convey the decision within a period of 15 days of receiving the application. If no decision is conveyed within stipulated period, permission will be deemed to have been granted. iv) All arrears of lease money, premium or part due, interest etc. in respect of Industrial Sites shall be paid by the applicant, before the application for conversion is submitted. v) In case where the site is resumed/cancelled, conversion shall not be allowed until the resumption/cancellation order is set aside and the site is restored to the owner. vi) Conversion of land use shall not be allowed in cases where the title of the property is disputed. vii) Industrial sites which have been mortgaged with the Bank/Financial Institutions will be allowed conversion only when the lessees/allottees submit 'No Objection Certificate' from the mortgagee. viii) Sites which were allotted on lease hold or free hold basis will remain as such, after conversion. ix) No sub division of sites shall be permitted. Amalgamation of sites shall be permissible as per rules.

11.2 The assessee, had applied for Honda dealership and the Honda Seil Cars vide letter dt. 05/08/2006 has issued the letter of intent to Shri Vikram Joshi for granting the dealership (page 11 to 13 of paper book).

11.3 The Chandigarh Housing Board vide letter dt. 10/10/2006 has granted the permission of conversion of land of industrial site no. 67 from Industrial site into commercial activities. The said letter was issued to Mr. Vikram Joshi Director

Punjab Package Pvt. Ltd. (page 14 of the paper book) which read as under:

11.4 The Ld. AR submitted that, as per the Rules and Regulations of the Chandigarh Administration, only those entities which are engaged in manufacturing activities are permitted to operate from premises situated in the Industrial Area. It was contended that M/s Punjab Packages Pvt. Ltd., though the owner of the industrial plot, had not been carrying on any business activity for a considerable period and was also not possessed of sufficient financial resources. In these circumstances, and purely on grounds of business and commercial expediency, the appellant undertook the obligation to pay conversion charges aggregating to Rs.3,91,66,740/- in instalments for change of land use from industrial to commercial activity under the scheme titled “Chandigarh Conversion of Land Use of Industrial Sites into Commercial Activity/Services in Industrial Area, Phase I and Phase II, Chandigarh Scheme, 2005”, notified vide Notification No. 28/8/51/UTFI(3)-2005/6658 dated 19.09.2005. It was submitted that such conversion was a pre-condition for carrying on the appellant’s business of retail trading and servicing of Honda cars from the said premises. The Ld. AR further drew our attention to the copies of the Government notification, Letter of Intent, application and ledger account placed in the paper book in support of the said contention.

11.5 The Ld. AR further submitted that the impugned payment of conversion charges, being in the nature of capital expenditure resulting in an enduring benefit, was duly capitalised by the appellant in its books of account and depreciation thereon was claimed in accordance with law. It was emphasised that the liability to pay such conversion charges was statutory in nature, arising directly from the Government scheme, and the appellant had no option but to incur the same in order to lawfully carry on its business activities. It was thus argued that the expenditure was incurred wholly and exclusively for the purposes of business and on grounds of commercial expediency. However, the Assessing Officer, without appreciating the factual and legal position,

disallowed the claim of depreciation merely on the premise that the land belonged to another group concern, namely M/s Punjab Packages Pvt. Ltd., and that the payment ought to have been treated as an investment, which finding, according to the Ld. AR, is misconceived and unsustainable.

11.6 It was further contended that the entire payment has been made by the appellant directly to the Chandigarh Administration from its own funds during the year under consideration and the same has been utilised exclusively for the purposes of its business. It was argued that such payment cannot, by any stretch of imagination, be regarded as an “investment” in the hands of the appellant, inasmuch as no asset has been acquired by or transferred to the other group company pursuant to such payment. Rather, the appellant has itself constructed building, furniture and fixtures on the said land and has been claiming depreciation thereon, which position has not been disputed by the Revenue. On the same parity of reasoning, the conversion charges paid to render the premises commercially usable for the appellant’s business ought also to be treated as part of the capital cost of the business asset and be eligible for depreciation. It was further highlighted that M/s Punjab Packages Pvt. Ltd. is not carrying on any business and has merely leased out the land to the appellant.

11.7 The Ld. AR placed strong reliance on Explanation 1 to section 32 of the Income-tax Act, 1961, and submitted that the said provision clearly envisages a situation where an assessee carries on business in a building not owned by it but in respect of which it holds a lease or other right of occupancy, and incurs capital expenditure on construction, renovation, extension or improvement thereto. In such cases, the law deems such capital expenditure to be on a building owned by the assessee for the limited purpose of allowing depreciation. It was thus submitted that the appellant, having incurred expenditure towards conversion charges for making the premises fit for its business use, is squarely

covered by the said provision.

11.8 The Ld. AR further submitted that it is a settled proposition of law that ownership of the asset is not a sine qua non for claiming depreciation, provided the assessee has incurred the expenditure and the asset is used for the purposes of its business. In this regard, reliance was placed on the judgments in the cases of CIT vs. Hindustan Times Ltd. (231 ITR 741) (SC), Raza Buland Sugar Co. Ltd. vs. CIT (122 ITR 817) (All HC) and Cooper Engineering Ltd. vs. CIT (169 ITR 66) (Bom HC), wherein it has been held that depreciation is allowable to a person who has made investment in the asset and uses the same for business, even if legal ownership vests in another person. Drawing an analogy, it was submitted that although the land is owned by M/s Punjab Packages Pvt. Ltd., the appellant, having incurred the expenditure and being the user of the premises for its business, is entitled to claim depreciation on the conversion charges as well.

11.9 Without prejudice to the above submissions, the Ld. AR contended that even if, for any reason, the impugned expenditure is not treated as capital in nature, the same is otherwise allowable as revenue expenditure under section 37(1) of the Act, as it has been incurred wholly and exclusively for the purposes of business. It was thus prayed that the appellant be granted appropriate relief either by allowing depreciation on the capitalised amount or, in the alternative, by allowing the same as revenue expenditure, with consequential benefit of carry forward of losses in accordance with law.

11.10 During the course of hearing the Ld. AR submitted as under:

That the appellant company is engaged in the business of running a Honda • Car Dealership and claimed depreciation of Rs.2.85.081/- on conversion charges of Rs.57.01.628/- paid to the Chandigarh Administration under the scheme called 'Chandigarh Conversion of Land Use of Industrial Sites into Commercial Activity/Services in Industrial Area, Phase I and Phase I I . Chandigarh Scheme 2005' published by the Chandigarh Administration. Finance Department U.T. Chd. vide notification no.

28/8/5l/UTFI(3)-2005/6658 dated 19-09-2005 which has been disallowed by the Ld. Assessing Officer.

• That the appellant took vacant land. Plot No. 67. Industrial Area. Phase II. Chandigarh, on lease from its sister concern M/s Punjab Packages Pvt. Ltd. and is running a car dealership in the building constructed by the appellant.

That as per the Rules of Chandigarh Administration only the manufacturing • industries was allowed to function in the Industrial Area. However, in 2005 the Chandigarh Administration came out of with this scheme under which a person can pay conversion charges and carry on any commercial business.

• That the owner of the land M/s Punjab Packages Pvt. Ltd. is not doing any business till date and did not have any funds. So the appellant had to pa\ the entire conversion charges of Rs.3,91,66,740/- with interest @8.25% p.a. in installments.

• That the appellant had to compulsorily pay the statutory conversion charges to the Government for change of land use from industrial to commercial activity in order to carry on its business smoothly. Otherwise, the appellant had to close down its business and the investments made in crores would have gone waste. The Gov eminent Scheme. Letter of Intent, Application and Ledger a/c is at Paper Book Page No. 7-16.

That the payment of conversion charges is a capital expenditure as it has a • long term enduring benefit which was capitalized by the appellant to the building in which the business was being carried on and claimed depreciation on the same. Hence, it was done for the commercial expediency of the business.

That the appellant had constructed the building with furniture and fixtures on • the land belonging to the other company and was claiming depreciation on the building asset and on the same analogy the conversion charges paid to use the said building was also capitalized and depreciation claimed as per Lxpl. 1 to section 32 of the I.T. Act. 1961

• Though the charges were paid for conversion of the land use but the land is appurtenant to the building and in order to carry on the business in the building the conversion charges had to be paid under a statutory liability.

The contention of the Department that the conversion charges pertain to land • only which is owned by the other party cannot override the fact that the entire payment has been made by the appellant in due course of its business and the depreciation can be claimed even if the asset is not owned. The other contention that the amount paid should have been shown as • Investment with M/s Punjab Packages Pvt. Ltd. is also not justified as the said company is not doing any business till date and does not have such an Authorized Capital (Paper Book Pg. No. 38-48). The investment would have been a dead investment without any return. Moreover, it is a sister concern owned by same family and making investment will attract other problems u/s 2(22)(e). 36(l)(iii). 14A.

Case Laws - Cit Vs. Hindustan Times Ltd (231 ITR 741) (SC), CIT vs. Gwalior • Rayon Silk Manufacturing Co. Ltd. (SC) (196 ITR 0149). CIT vs. Herdillia Chemicals

Ltd. (Bom HC) ( 216 ITR 0742 ) and DSM Sinochem Pharma India (P) Ltd. Vs. DC IT (Chd ITAT) (176 TTJ 322) Additional Ground of appeal No. 1:-

• There is no doubt that the appellant has paid installment of conversion charges of Rs.57.01,628/- to Chandigarh Administration as the other company M/s Punjab Packages Pvt. Ltd. is not doing any business and does not have any funds.

There is also no doubt that the payment has been made in due course of its • business as otherwise the business would have closed down.

That it is the duty of the Ld. AO to assist and aid the assessee in matter of • taxation as per CBDT Circular No. 14(XL-35) of 1955 dated 1 1-04-1955 as held in the case of Vijay Gupta Vs. CIT (Delhi HC) (386 ITR 643).

• That if the appellant is not allowed to capitalize the amount then it may be allowed to claim the entire expenditure of Rs.57,01.628/- as Revenue expenditure. The appellant had taken this alternative plea in written submissions before Ld. CIT(A) which has been ignored. Case laws - DCIT Vs. Haldiram Products Pvt. Ltd. (ITAT Delhi) ( I I A • 5158/Del/2012) and ITO Vs. Baljeet Singh (ITAT Delhi) (44 CCH 0099)

Additional Ground of appeal No. 2:

That the installment of conversion charges of Rs.57,01,628/- paid to • Chandigarh Administration includes interest of Rs. 17.84,954/- charged @8.25% p.a. (paper book pg. no. 49) which is a Revenue expenditure and is allowable as it has been incurred in due course of appellant's business.

That the said interest is allowable as per Explanation 8 to section 43(1) as the • land was already being put to use for business by the appellant and the payment of interest on conversion charges after the land was first put to use for commercial activities shall not form part of actual cost of such land and be allowable as Revenue expenditure.

Even the Ld. CIT(A) agreed to this in AY 2011-12 but did not allow as not • claimed before. Case Law - Deputy Director of Income-tax v. Micron Instruments (P.) Ltd. |2015] 38 ITR (T) 242 (Delhi - Trib.) -

11.11 Further during the course of hearing the Ld. AR also placed reliance on the decision of Co-ordinate Bench Chandigarh in case of 475 & 476/Chd/2019 vide order dt. 18/08/2022.

paid by the assessee on which the assessee has claimed depreciation. The AO disallowed the depreciation holding that the assessee is not a owner of land and hence the expenditure does not pertains to the assessee but to the owner. Further on appeal the Ld. CIT(A) upheld the disallowance stating that the assessee is not the owner that the assessee paid lease rent to the owner M/s Punjab Packages Pvt. Ltd. were paid to use the plot of land for commercial purposes and it was also held that the liability to pay conversion charges is only of the owner and not of the assessee.

12.1 It was accordingly submitted that in the present case the assessee is not the owner. The assessee paid lease rent for use of land to the owner. The conversion charges for change of land use from industrial activity to commercial service activity is liability that accrued to the owner of the land and not the lessee. No depreciable asset has been created and being a settled legal position that the depreciation is not allowable on land and any expenditure incurred with regard to land and its use is not depreciable. In support the reliance was placed on the decision of Hon’ble Delhi High court in the case of M/s Hotel Shiv Vs. CIT in WP(A) No. 3094 of 2013 order dt. 21/02/2014.

12.2 It was further submitted that the decision of Co-ordinate Bench Chandigarh is distinguishable on facts as in that case the assessee was the owner of the land and in those peculiar facts the matter was decided in favour of the assessee. It was accordingly submitted that there is no infirmity in the findings of the Ld. CIT(A) wherein he has disallowed the depreciation so claimed by the assessee.

12.3 Ld. DR further submitted that the assessee had claimed depreciation on conversion charges amounting to Rs.57,00,000/-, which was rightly disallowed by the Assessing Officer. It was contended that the Assessing Officer, after due

examination, had categorically held that the assessee is not the owner of the land in question and, therefore, the impugned expenditure does not pertain to the assessee but to the actual owner, namely M/s Punjab Packages Pvt. Ltd. It was further submitted that the Ld. CIT(A), upon appreciation of the facts and legal position, has rightly upheld the said disallowance by observing that the assessee is merely a lessee paying lease rent to the owner for use of the plot and that the liability to pay conversion charges, being intrinsically linked to the ownership of land, rests solely with the owner and not with the assessee.

12.4 The Ld. DR submitted that it is an undisputed position that the assessee is not the owner of the land and is only using the same on payment of lease rentals. The conversion charges for change of land use from industrial to commercial activity arise out of rights attached to ownership of land and, therefore, such liability accrues only to the landowner. It was argued that the assessee, being a lessee, cannot assume such liability so as to claim depreciation thereon. It was further contended that no independent or identifiable depreciable asset has come into existence in the hands of the assessee on account of such payment. The expenditure, in substance, relates to land, and it is a settled position of law that land is not a depreciable asset and any expenditure incurred in relation to land or for altering its character or use does not qualify for depreciation. In support of this proposition, reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of M/s Hotel Shiv vs. CIT in W.P.(C) No. 3094 of 2013 dated 21.02.2014.

12.5 The Ld. DR also sought to distinguish the decision of the Co-ordinate Bench of the Chandigarh Tribunal relied upon by the assessee, by submitting that in the case is distinguishable on facts. In view of the above, it was submitted that the findings recorded by the Ld. CIT(A) are well-reasoned and in accordance with law, and no interference is called for.

13.1 From the above chronology of events, it is evident that the enabling policy for conversion as well as the approval thereof were already in place and stood crystallised in favour of the landowner prior to the assessee carrying on its business activities from the said premises. The conversion of land use is a right flowing from ownership of land, and the corresponding statutory permissions were admittedly granted to M/s Punjab Packages Pvt. Ltd. The assessee, being only a lessee, cannot derive a depreciable right on such expenditure, which is fundamentally linked to ownership.

13.2 It is a settled proposition of law that no depreciation is allowable on land. In the present case, the impugned conversion charges have been incurred solely for change in the character and permissible use of land. Such expenditure does not bring into existence any independent or identifiable depreciable asset in the hands of the assessee but merely facilitates the use of land. Therefore, the

same cannot be regarded as forming part of any depreciable asset eligible for allowance under section 32 of the Act.

13.3 The contention of the assessee regarding commercial expediency or business necessity also does not hold merit in the facts of the present case. The relevant triggering events, namely, the notification of the conversion policy, issuance of Letter of Intent and the application and grant of conversion approval, had all taken place either prior to or independent of the assessee’s business requirements. Therefore, the argument that the expenditure was incurred under business compulsion does not stand.

13.4 We shall now deal with the contention of the assessee based on Explanation 1 to section 32 of the Act. The said Explanation creates a legal fiction whereby, in a case where the assessee carries on business in a building not owned by it but held under a lease or other right of occupancy, any capital expenditure incurred on construction of a structure or on renovation, extension or improvement of such building is to be treated as a building owned by the assessee for the limited purpose of allowing depreciation. 13.5 However, for invoking the said provision, the sine qua non is that the expenditure must be incurred on a “building” or on any work in or in relation to the building by way of construction, renovation, extension or improvement. In the present case, the impugned expenditure on conversion charges is not in respect of any building or structure, but relates exclusively to change of land use from industrial to commercial purposes. Such conversion is a statutory permission attached to the land itself and does not partake the character of construction or improvement of a building. 13.6 We find that the building in question was admittedly constructed subsequent to the notification of the conversion policy and the conversion

charges were not incurred for bringing into existence or improving any superstructure, but only to alter the permissible use of the land. Therefore, the essential condition for applicability of Explanation 1 to section 32, namely nexus with a building or structure, is clearly absent in the facts of the present case. 13.7 Further, the legal fiction created under Explanation 1 cannot be extended beyond its clear mandate so as to include expenditure relating to land or rights in land. It is trite law that a deeming provision has to be construed strictly and cannot be enlarged to cover situations not contemplated by the legislature. Since land is not a depreciable asset and the impugned expenditure is intrinsically linked to land, the same cannot be brought within the ambit of Explanation 1.In view of the above, we hold that the reliance placed by the assessee on Explanation 1 to section 32 is misconceived and does not entitle it to claim depreciation on the conversion charges. Accordingly, this contention of the assessee is rejected. 13.8 We further find that the reliance placed by the assessee on the deeming fiction contained in Explanation 1 to section 32 is also liable to be tested on the well-settled principles governing interpretation of such provisions. It is a settled position of law that a deeming provision has to be construed strictly and cannot be extended beyond the purpose for which it has been enacted. 13.9 We have considered the scope and import of the deeming provision contained in Explanation 1 to section 32 of the Act. It is a settled position of law that a deeming provision creates a legal fiction whereby a state of affairs which does not exist in reality is assumed to exist for a limited statutory purpose, and the consequences flowing from such assumed state of affairs are to be given effect to. In the context of Explanation 1 to section 32, the legislature has created a limited legal fiction to the effect that where an assessee, not being the owner of a building but holding it under a lease or other right of occupancy,

incurs capital expenditure on construction, renovation, extension or improvement of such building, the same shall be treated as a building owned by the assessee for the purpose of allowing depreciation. The object of the said provision is thus to remove the disability arising on account of the absence of legal ownership and to allow depreciation where the assessee has, in substance, made an investment in a business asset in the nature of a building. However, it is equally well settled that such deeming fiction has to be construed strictly and cannot be extended beyond the purpose for which it has been enacted. A legal fiction, though required to be carried to its logical conclusion, cannot be enlarged by importing another fiction or by extending it to situations not contemplated by the legislature. 13.10 Applying the aforesaid principles, it is clear that Explanation 1 to section 32 is confined in its operation to capital expenditure incurred on a “building” or work in relation thereto. The fiction cannot be extended to cover expenditure which is not relatable to a building or structure. In particular, expenditure which is intrinsically connected with land or with rights in land cannot be brought within the ambit of the said provision, as land is not a depreciable asset under the scheme of the Act. 13.11 Further, the deeming provision does not create a new category of depreciable assets but only treats specified capital expenditure on leased premises as a deemed building for the limited purpose of depreciation. The scope of the fiction is thus both specific and restricted, and cannot be invoked to convert every capital outlay connected with premises into a depreciable asset. 13.12 In view of the above settled legal position, the applicability of Explanation 1 to section 32 has to be tested strictly within the confines of its language and

purpose, and any attempt to extend the said fiction beyond expenditure on building or structure is not permissible in law. 14. We shall now deal with the judicial precedents relied upon by the assessee. The assessee has placed reliance on various decisions including CIT vs. Hindustan Times Ltd., Raza Buland Sugar Co. Ltd. vs. CIT and Cooper Engineering Ltd. vs. CIT to contend that ownership is not a sine qua non for claiming depreciation. There is no quarrel with the proposition laid down in the said decisions. However, on careful perusal, we find that in all those cases, the assessee had incurred expenditure on tangible depreciable assets, such as buildings, plant, or machinery, which were used for business purposes, and the dispute was only with regard to legal ownership. The Courts, in those circumstances, held that beneficial ownership coupled with user for business purposes would entitle the assessee to depreciation. 14.1 The facts of the present case stand on a completely different footing. Here, the expenditure has not resulted in the creation of any tangible depreciable asset in the hands of the assessee. The conversion charges have been paid for change of land use, which is a right attached to ownership of land. As already held hereinabove, land is not a depreciable asset and no depreciation can be claimed on expenditure relatable to land. Therefore, the ratio of the aforesaid decisions, which deal with depreciable assets, cannot be extended to the present case. 14.2 The assessee has also placed reliance on the decision of the Co-ordinate Bench of the Tribunal in the case of Chandigarh Bottling Co. Pvt. Ltd. in ITA No. 475/Chd/2019 dated 18.08.2022. On perusal of the said decision, we find that the same is clearly distinguishable on facts. In that case, the assessee was either the owner of the land or had rights akin to ownership and the expenditure in

question was directly relatable to the business asset owned/controlled by the assessee. It was in those peculiar facts that the Tribunal allowed the claim. 14.3 In the present case, however, the assessee is admittedly not the owner of the land and the conversion permission has been granted to the land-owning entity, i.e., M/s Punjab Packages Pvt. Ltd. The expenditure incurred does not result in creation of any depreciable asset in the hands of the assessee but merely facilitates use of land belonging to another entity. Therefore, the factual foundation on which the decision in the case of Chandigarh Bottling Co. Pvt. Ltd. was rendered is absent in the present case. 15. We have carefully considered the reliance placed by the Ld. AR on the decision of the Co-ordinate Bench in the case of M/s Chandigarh Bottling Co. in ITA Nos. 475 & 476/Chd/2019 dated 18.08.2022. On a perusal of the said order, we find that the issue before the Tribunal therein was whether the conversion charges paid for change of land use were allowable as revenue expenditure under section 37(1) of the Act. The Tribunal, on the peculiar facts of that case, held that the expenditure was incurred for the removal of business restrictions and for the retention of possession of the plot and, therefore, allowable as revenue expenditure. 15.1 However, the facts of the present case are materially distinguishable. In the case of Chandigarh Bottling Co., it was an admitted position that the assessee itself was the allottee/owner of the industrial plot and had been carrying on business on the said plot since 1969. The conversion of land use was necessitated due to a change in Government policy and was thrust upon the assessee to avoid eviction and to continue its existing business. The Tribunal, therefore, held that the payment was for the removal of a restriction and did not result in the acquisition of any capital asset.

15.2 In contradistinction, in the present case, the assessee is admittedly not the owner of the land but only a lessee. The conversion permission has been applied for and granted to M/s Punjab Packages Pvt. Ltd., the land-owning entity. The conversion charges, therefore, are intrinsically linked to ownership rights in land and not to any independent business right of the assessee. Thus, the foundational fact which weighed with the Tribunal in Chandigarh Bottling Co.— namely ownership and pre-existing business rights over the land—is absent in the present case. 15.3 Further, in Chandigarh Bottling Co., the Tribunal was concerned with the allowability of the expenditure as revenue expenditure, whereas in the present case, the assessee has itself treated the expenditure as capital in nature and has claimed depreciation thereon. Once the assessee itself proceeds on the footing that the expenditure is capital, the question before us is confined to whether such capitalised expenditure results in a depreciable asset under section 32, which, for the reasons already recorded, is answered in the negative. 15.4 We also note that in Chandigarh Bottling Co., the Tribunal proceeded on the premise that no capital asset had come into existence and that the payment merely enabled continuation of business by removing restrictions. However, the important aspect, i.e., the conversion of land use, is not merely the removal of a business impediment but is a statutory alteration in the character of land, which vests as a right in the owner and not in the lessee, and was neither discussed nor examined, having reference to the terms of the scheme. Therefore, the nature and legal character of the expenditure itself stand on a different footing. 15.5 Moreover, in the present case, as already discussed, the chronology of events shows that the policy for conversion was notified on 11.07.2005, the Letter of Intent was issued on 05.08.2006, the application for conversion was made by

the owner on 15.09.2006 and approval was granted on 10.10.2006. Thus, the conversion was embedded in the ownership rights of the land and cannot be equated with a case where an assessee is compelled to incur expenditure merely to remove operational restrictions in an already existing business setup. 15.6 In view of the above distinguishing features, we are of the considered view that the ratio laid down in the case of Chandigarh Bottling Co. is not applicable to the facts of the present case. The reliance placed thereon by the assessee is, therefore, misplaced and is hereby rejected. 15.7 We have also considered the alternative contention of the assessee that the interest component comprised in the instalments of conversion charges be allowed as a deductible expenditure. However, we find ourselves unable to accept the said plea. It is trite law that for an expenditure to qualify for deduction either under section 37(1) or under section 36(1)(iii) of the Act, the same must be incurred wholly and exclusively for the purposes of the business of the assessee or, in the case of section 36(1)(iii), for the purposes of acquisition of a capital asset of the assessee. In the present case, as discussed hereinabove, the underlying expenditure itself does not pertain to any asset owned by the assessee and is intrinsically linked to land belonging to another entity. Consequently, the interest paid on such instalments cannot be said to have been incurred for acquisition of a capital asset of the assessee so as to fall within the ambit of section 36(1)(iii) of the Act. Further, the assessee has also failed to demonstrate that the said interest expenditure was incurred wholly and exclusively for the purposes of its business so as to qualify for deduction under section 37(1) of the Act. The nexus between the impugned expenditure and the business operations of the assessee is not established in a manner contemplated under the provisions of the Act.

facts in the present grounds. Accordingly, we do not find any merit in Ground Nos. 2 and 3 raised by the assessee, and the same are dismissed.

alternative the appellant may be allowed the whole of the expenditure of Rs.57,01,268/- on account of conversion charges paid to the Chandigarh Administration being Revenue in nature as it has been incurred in due course of appellant's business. 5. That the Learned Commissioner of Income Tax (Appeals), Chandigarh is unjustified in upholding the order of the Ld. Assessing Officer and in the alternative the appellant may be allowed to claim the interest of Rs.17,84,954/- included in the conversion charges of Rs.57,01,268/- paid to the Chandigarh Administration being Revenue in nature as it has been incurred in due course of appellant's business. 6. That any other ground may kindly be allowed to be taken at the time of appeal with due permission.

allowable expense. This addition is uncalled for and deserves to be deleted. 6. That any other ground may kindly be allowed to be taken at the time of appeal with due permission.

unjustified in upholding the order of the Ld. AO and in the alternative the appellant may be allowed to claim the interest of around Rs. 18,00,000/- (approx.) included in the conversion charges of Rs.58,98,831/- paid the Chandigarh Administration being Revenue in nature as it has been incurred in due course of appellant's business. to 5. That any other ground may kindly be allowed to be taken at the time of appeal with due permission

Sub: Application for Condonation of delay in the case of M/s Joshi Autozone Pvt. Ltd., Plot No 84-85, Industrial Area, Phase 2 Chandigarh for the A.Y. 2014-15 (ΡΑΝ AABCJ7708C). Hon'ble Sir/Madam, I have the honor to humbly submit that the appeal in the above noted case was decided by the Ld. Commissioner of Income-Tax (Appeals), Shimla vide order dated 08-07-2019 which was received by the appellant on 08-07-2019. The appellant is now filing the appeal before your Honor after a delay of 658 days and the Reasonable Cause for the said delay is submitted as under: 1) That the counsel of the appellant M/s Joshi Autozone Pvt. Ltd. for the A.Y. 2014-15 is Sh. Harry Rikhy (Advocate). 2) That the appellant's counsel duly attended the assessment proceedings before the Ld. Deputy Commissioner of Income Tax, Circle 1(1), Chandigarh in which all the required details were submitted and order was passed on 16-12- 2016. 3) That the appellant's counsel filed an appeal before the Ld. Commissioner of Income-Tax (Appeals) 1, Chandigarh within time on 14-01-2017 and duly attended the appellate proceedings in which written submissions were filed and the order was passed on 08-07-2019. 4) That the above said order remained in the office file of the Counsel and the appeal could not be filed due to an oversight by the office of the Counsel. 5) That the Counsel of the appellant checked the file after receiving the penalty notice u/s 271(1)(c) of the I.T. Act, 1961 dated 23-05-2021 for the year under consideration which is submitted herewith and immediately started the procedure of filing the appeal. 6) That the delay is filing the appeal is due to the fault of the Counsel's office as the appellant had handed over the required documents well in time.

The Affidavit of the counsel in this regard is submitted herewith for your kind consideration. In this regard, I further draw your kind attention to the following noted case laws:-  Manoj Ahuja and Another v. Inspecting Assistant Commissioner of Income- Tax, Acquisition Range [150 ITR 696], it was held by the Hon'ble Punjab and Haryana High Court that :- "Appeal-Limitation-Delay in presenting appeal--Can be condoned- An appeal may be admitted after the prescribed period if the appellant satisfies the court that he had sufficient cause for not preferring the appeal within such period."  Collector, Land Acquisition v. Mst. Katiji and Others [167 ITR471], it was held by the Hon'ble Supreme Court of India that :- "Limitation-Delay-Power to condone delay for "sufficient cause"-Is for doing substantial justice-Courts should have a pragmatic and liberal approach. The Legislature has conferred power to condone delay in order to enable the courts to do substantial justice to parties by disposing of matters on merits. The expression "sufficient cause" is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice-that being the life-purpose of the existence of the institution of courts. A justifiably liberal approach has to be adopted on principle. When substantial justice and technical considerations are pitted against each other. the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non- deliberate delay." It is further submitted that the appellant is already in appeal before the Hon'ble Income Tax Appellate Tribunal, Chandigarh for the earlier A.Y. 2013-14 (ITA No. 931/Chandi/2017) having identical issue. It is, therefore, humbly prayed that in view of the above submitted facts, circumstances and legal position of the case the delay of 658 days may kindly be condoned and the appeal may kindly be decided on merits in the Interest of Equity and Natural Justice.

parent company, namely M/s Punjab Package Pvt. Ltd. Once such a finding has been rendered, there remains no scope for taking a contrary view on identical facts in the present grounds. Accordingly, we do not find any merit in Ground Nos. 2 to 4 raised by the assessee, and the same are dismissed. Since we have already discussed these issues in earlier appeal ITA No. 651/Chd/2017 for A.Y. 2011-12 therefore our finding given in the said appeal shall apply mutatis mutandis to this appeal as well.

“ 5.2.1. On perusal of facts of the case and reply of the assessee and case laws relied by him, it is my considered opinion that the appellant has shown all the particulars of his income and expenses etc in the return of income and the balance sheet. The Ld. AO has merely disallowed these expenses and the same were partly conformed by the Ld.CIT(A). Appellant has disclosed and explained all these transactions which were not accepted by the AO. It is trite law that merely because there is difference of opinion as to allowability of the payment between the assessee and the AO, it cannot be said that the assessee had intention to conceal income or furnish inaccurate particulars of income. In the case of loans and advances given by the assessee, it was explained that these are duly covered by the assessee's own and interest free funds as stated above and no nexus has been proved between the advances made and the interest bearing loans. Capitalization of Rs.60,048/- on account software expenditure

being enduring in nature is merely disallowance of expenses. As regards the addition of Rs.2,85,081/- on account of disallowance of depreciation on conversion charges is concerned, the same was disclosed by the appellant but the AO and the Ld.CIT(A) did not accept the explanation of the appellant. It is not the case of the Revenue that some new facts were discovered or AO had dug out some fresh information from the reply to the questionnaire of the AO. It is also not a case where assessee has not been able to explain any expenditure or failed to give any details and the AO added the same to the income. Merely because there is difference of opinion as to allowability of the payment between the assessee and the AO, it cannot be said that the assessee had intention to conceal income or furnish inaccurate particulars of income. Therefore, there was no concealment of income or furnishing of inaccurate particulars by the assessee and penalty levied u/s 271(1)(c) is deleted. The Ground of Appeal No.2 is allowed. Thus, it is clear that the Ld. CIT(A) has decided the appeal of the assessee on the pretext that the assessee has taken one of the possible view and the issue is debatable.

Order pronounced in the open Court on 20/04/2026.

Sd/- Sd/- कृणव� सहाय लिलत कुमार (KRINWANT SAHAY) (LALIET KUMAR) लेखा सद�/ ACCOUNTANT MEMBER �ाियक सद� /JUDICIAL MEMBER AG आदेश की �ितिलिप अ�ेिषत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��थ�/ The Respondent 3. आयकर आयु�/ CIT 4. आयकर आयु� (अपील)/ The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय आिधकरण, च�ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar