CIT CHANDIGARH vs. M/S STAR RESORTS P LTD.MOHALI

PDF · subscribers
ITA/54/2009HC Punjab & HaryanaPHHC01084658200904 March 2009Author: MR.JUSTICE J.S. KHEHAR,MR. JUSTICE NAWAB SINGH2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court upheld the order of the Income Tax Appellate Tribunal. The Tribunal had remanded the matter to the Assessing Officer to provide the assessee an opportunity to lead evidence and establish the actual cost incurred in the construction of the Holiday Resort. The High Court found no infirmity in this decision, reasoning that depreciation on construction expenses must be based on actual cost, not estimates. The Court clarified that if the assessee fails to produce evidence of actual cost, the Assessing Officer could revert to the District Valuation Officer's report. The ratio decidendi is that an assessee must be given an opportunity to prove actual costs for depreciation claims, and remand is an appropriate remedy for this purpose. The operative direction was to uphold the ITAT's order of remand.

What were the facts?

The assessee, M/s Star Resorts (P) Ltd., for assessment year 2003-04, returned an estimated cost for the construction of a Holiday Resort. The Revenue, unable to determine depreciation under Section 32 of the Income Tax Act, 1961, based on this estimate, referred the matter to the District Valuation Officer for actual cost determination. The Assessing Officer, using this determination, allowed depreciation. The assessee appealed to the Commissioner of Income Tax (Appeals), who accepted the appeal. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the Revenue's appeal and remanded the matter back to the Assessing Officer to allow the assessee an opportunity to lead evidence to establish the actual cost of construction.

What were the issues?

1. Whether the Income Tax Appellate Tribunal erred in remanding the matter back to the Assessing Officer to allow the assessee an opportunity to lead evidence to establish the actual cost of construction of the Holiday Resort, thereby impacting the determination of depreciation under Section 32 of the Income Tax Act, 1961. Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the ITAT. However, the fact that the CIT(A) accepted the assessee's appeal suggests the assessee argued for the allowance of depreciation based on actual costs. Revenue's Contention: The Revenue contended that the depreciation could not be determined on the basis of a rough estimate and that the Assessing Officer's determination based on the District Valuation Officer's report was appropriate.

Which sections of the Income-tax Act were involved?

Section 32

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision : 4.3.2009. Commissioner of Income Tax-II, Chandigarh ....Appellant Versus M/s Star Resorts (P), Ltd. C-104, Industrial Area, Phase-VII, Mohali. ....Respondent CORAM: Hon'ble Mr. Justice J.S. Khehar Hon'ble Mr. Justice Nawab Singh Present : Ms. Urvashi Dhugga, Advocate, for the appellant. J.S. Khehar. J. (Oral) It is not a matter of dispute that the respondent-assessee while submitting his income tax return for the assessment year 2003-04 depicted cost incurred towards the construction activity for a Holiday Resort by depicting estimated cost thereof. It is apparent, that on the basis of estimated cost, it was not possible for the Revenue to determine the quantum of depreciation that had to be allowed to the respondent-assessee under Section 32 of the Income Tax Act, 1961. The Assessing Officer required the actual cost to be determined by the District Valuation Officer and on the basis thereof, allowed a deduction thereof in the nature of depreciation to the respondent-assessee. The aforesaid determination rendered by the Assessing Officer by his order dated 29.3.2006 was impugned by the respondent-assessee by preferring an appeal before the Commissioner of Income Tax (Appeals), Chandigarh. The Commissioner of Income Tax (Appeals) accepted the aforesaid appeal vide his order dated 27.12.2006. Dis-satisfied with the order rendered by the Commissioner of Income Tax (Appeals), Chandigarh dated 27.12.2006, the Revenue (2) preferred an appeal before the Income Tax Appellate Tribunal. The aforesaid appeal was further dismissed by an order dated 23.7.2008. It is apparent from the order passed by the Income Tax Appellate Tribunal dated 23.7.2008, that the issue in hand, namely, depreciation on the expenses incurred by the respondent-assessee on the construction of its Holiday Resort could not have been determined on the basis of any rough estimate. In order to afford an opportunity to the respondent-assessee to lead evidence, so as to establish the actual cost incurred by him in the construction of the aforestated Holiday Resort, the Income Tax Appellate Tribunal remanded the matter back to the Assessing Officer so as to enable the respondent-assessee to lead evidence to establish the actual cost incurred. We find no infirmity in the aforesaid determination at the hands of the Income Tax Appellate Tribunal. Needless to mention that in case the respondent-assessee is not in an effective position to produce evidence to substantiate the actual cost incurred by him (on the construction of the Holiday Resort) it will be open to the Assessing Officer to fall back on the report tendered by the District Valuation Officer.

For the reasons recorded hereinabove, as well as, the clarification depicted in the foregoing paragraph, we uphold the order passed by the Income Tax Appellate Tribunal dated 23.7.2008. Dismissed. (J.S. Khehar)

Judge

(Nawab Singh) Judge 4.3.2009. SN

More judgments on Section 32

All 2,762 judgments and leading authorities on Section 32 →

Recent GST High Court judgments

Search GST case law →