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Income Tax Appellate Tribunal, “SMC - A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC - A” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT ITA No.238/Bang/2022 Assessment Year :2016-17 M/s. Elim Resorts Pvt. Ltd., Vs. ITO, No.175, Nettigere Village, Ward – 3(2)(2), Uttarahalli Hobli, Bengaluru. Bengaluru – 560 061. PAN : AADCE 0682 J APPELLANT RESPONDENT Assessee by : Shri. B. S. Balachandra, Advocate Revenue by : Shri. Ganesh R. Ghale, Standing Counsel for Department. Date of hearing : 25.07.2022 Date of Pronouncement : 26.07.2022 O R D E R Per N. V. Vasudevan, Vice President : This is an appeal by the assessee against the order dated 27.02.2020 of CIT(A)-2, Bengaluru, relating to AY 2016-17.
The first issue raised by the assessee is with regard to disallowance of Depreciation on Buildings of Rs.3,19,208/-. The opening WDV as on 01.04.2014 and as on 01.04.2015 as per the Books of Accounts of the assessee was as follows:
WDV AS ON 01.04.2014 3,57,47,371 ADDITION: MORE THAN 180 DAYS 7,51,689 LESS THAN 180 DAYS 9,45,822 GROSS VALUE( A) 3,74,44,882
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LESS: DEPRECIATION FULL RATE @10%- RS.(3,57,47,371+7,51,689) 36,49,906 HALF RATE @5% RS.9,45,822 47,291 TOTAL DEPRECIATION( B) 36,97,197
NET WDV AS ON 31.03.2015 (A-B) 3,37,47,685
WDV AS ON 01.04.2015 3,37,47,685 ADDITION: MORE THAN 180 DAYS LESS THAN 180 DAYS 15,28,784 GROSS VALUE( A) 3,52,76,469
LESS: DEPRECIATION FULL RATE @10%- RS.3,37,47,685 33,74,768 HALF RATE @-5% RS.15,28,784 76,439 TOTAL DEPRECIATION( B) 34,51,208 NET WDV AS ON 31.03.2016 (A-B) 3,18,25,261
The assessee claimed depreciation of Rs.34,51,208/-. According to the AO, the assessee issued shares at a premium during Assessment Year 2014-15. To justify share premium, the assessee filed report of Valuer valuing land and building. As per the said valuation report, the land and building were valued at Rs.3,48,00,000/-. According to the AO, the opening WDV as on 01.04.2014 should have been adopted at Rs.3,48,00,000/- and not at Rs.3,57,47,371/- as per books of accounts of the assessee. The AO therefore worked out the allowable depreciation as follows:
“Keeping the amount of Rs.3.48 Crores as base for WDV as on 31/03/2014(FY 2013-14) relevant to the assessment year 2014-15, the correct WDV and depreciation allowable as per section 32 of the I.T.Act, 1961, even though the assessee has not claimed. The assessee’s claim of addition made to the asset is not considered in the absence of any proof furnished by the assessee substantiating the same.
Opening W.D.V. as on 01/04/2014 Rs. 3,48,00,000/- Less : Depreciation © 10% Rs. 34,80,000/-
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Closing W.D.V. as on 31/03/2015 Rs. 3,13,20,000/- Opening W D V as on 01/04/2015 Rs. 3,13,20,000/- Less : Depreciation @ 10% Rs. 31,32,000/- Closing W.D.V. as on 31/03/2016 Rs. 2,81,88,000/-
Therefore the actual depreciation to be allowed is taken at Rs.31,32,000/- as against Rs.34,51,208/- reported in Schedule DOA of the balance sheet and Closing W.D.V. as on 31/03/2016 Is Rs.2,81,88,000/-. Therefore the excess depreciation of Rs. 3,19,208/- is disallowed and added back. The assessee's letter uploaded on 10/12/2018 is not taken into consideration, which is contradicting to the Schedule DOA filed with the return of income.”
Before CIT(A), the assessee contended that the learned A.O. has taken the value as determined in the valuation report prepared for the purpose of the working out the share premium in allowing the depreciation. It was submitted that this is not in accordance with the provisions section 43(1)(6) of the Income Tax Act, 1961 (Act) according to which the actual cost of asset as adjusted for interest payments and forex variations, and as reduced by the WDV of the elapsed years should be taken as the WDV for the year under consideration. The appellant has followed this method. Adopting the cost ignoring 'the actual cost by valuation report taken for a different purpose, is contrary to the provisions of law and not authorised by the law for the purpose of section 32 of the Act.
The CIT(A), however, upheld the order of the AO observing that no details were filed by the assessee before the AO to demonstrate as to how the conclusion of the AO was not correct.
Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. After hearing the rival submissions which was reiteration of submissions made before the AO/CIT(A) and reliance by the learned DR on the order of the CIT(A), I am of the view that as per the provisions of section
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43(1)(6) WDV of an asset as per the books of accounts has to be arrived at only by adding to opening WDV assets acquired during the previous year and reducing the value of assets sold or discarded during the previous year and thereafter closing WDV has to be arrived at after providing for depreciation. Sec.32 of the Act mandates depreciation to be allowed as deduction on the W DV as understood under section 43(1)(6) of the Act. The AO therefore could not have tampered with the WDV of the Building Block of Assets based on a valuation report prepared for a different purpose. The addition is not warranted in the facts and circumstances of the case and hence, the same is directed to be deleted.
The next issue is with regard to addition made of Rs.29,00,637/- being unpaid service tax liability under section 43-B of the Act. The AO found that service tax payable was shown in the balance sheet as outstanding liability and had not been paid. When the assessee was asked to explain as to why the sum of Rs.29,00,637/- be disallowed under section 43B, the assessee has replied that since the service tax payabale as shown in the balance sheet was not debited to the profit and loss account and hence not disallowed in the computation of total income. The assessee's claim was not accepted by the AO for the reason that as per Section 43B(a) of the Act, 'Certain deductions are to be allowed only on actual payment, which includes deduction on account of any tax, fee or duty under any law for the time being in force. Therefore the sum of Rs.29,00,637/- was disallowed since it is a statutory payment required to be paid before the filing of return of income whether debited in P & L Account or not. The AO held that this sum can be claimed in the year of payment. Accordingly the sum of Rs.29,00,637/- was disallowed and brought to tax.
On appeal by the assessee, the CIT(A) confirmed the order of the AO. After hearing the rival submissions, we are of the view that the addition cannot
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be sustained. In CIT Vs Noble And Hewitt (I) (P) Ltd. (Delhi High Court) (2008) 305 ITR 324 (Delhi) the assessee maintained a mercantile system of accounting. It had collected service tax during the previous year relevant to the assessment year in question. Out of the service tax so collected the assessed had deposited part of the amount but an amount of Rs. 14.40 lakhs was not deposited by the assessed with the concerned authorities. The assessed did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit & Loss Account. The assessing officer as well as the Commissioner (Appeals) (‘Commissioner (Appeals)’) nevertheless disallowed the amount and added it back to the income of the assessed. The Commissioner (Appeals) was of the view that the assessee had not followed the correct accounting procedure. If it had done so, the amount would have had to be debited to Profit & Loss Account and thereafter the assessed could claim a deduction thereon. The Commissioner relied upon decision of the Calcutta High Court in Chowringhee Sales Bureau (P) Ltd. v. CIT. In appeal, the Tribunal was of the opinion that in view of the provisions of Section 43B of the Income Tax Act, 1961 (‘Act’), since the assessed had not claimed a deduction there was no question of disallowing the deduction which was not even claimed. The relevant extract of Section 43B of the Act reads as follows: Sec.43B: Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of Ads by (a) any sum payable by the assessed by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, (b) to (f) ** ** ** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessed according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.
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The Revenue relied on the decision of the Calcutta High court in Chowringhee Sales Bureau (P.) Ltd.’s case (supra). The Hon’ble Court did not agree with the argument and held that in the case of Chowringhee Sales Bureau (supra) it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessed was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities.
The Court held that the assesse who has not even claimed any deduction on the ground of service tax and has not debited the amount to its Profit & Loss Account, the Revenue cannot invoke sec.43B of the Act. The Hon’ble Bombay High Court in the case of CIT Vs. Knight Frank (India) Pvt.Ltd., ITA Nop.247 of 2014 judgment dated 16.8.2016 and in the case of CIT Vs. Ovira Logistics Pvt.Ltd. ITA No.1023 of 2013 judgment dated 17.4.2015 also took a similar view. The decision rendered by the SMC Bench in the case of M/s. Wyzmindz Solutions Private Ltd., Vs. The ITO ITA No.3417/Bang/2018 order dated 30.1.2020 is a case where the Bench decided the issue based on the principle laid down in Chowringhee sales Bureau case 110 ITTR 385(SC). That decision has been explained and distinguished by the Hon’ble Delhi High Court as not applicable to the provisions of Sec.43B of the Act. In view of the decision of the Hon’ble Delhi High Court in the case of Noble & Hewitt India (P) Ltd., we are of the view that the said decision is not relevant and applicable to the facts of the case.
In the case of Boraiah Shivanajaiah Vs. ACIT ITA No.680/Bang/2020 order dated 11.4.2022, the decision rendered in the case of M/s. Wyzmindz Solutions Private Ltd. (supra) was followed and it was held that if the assessee has received the service tax from its customers, then the amount has to be
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disallowed under section 43B, if not paid to the credit of the Government. The aspect that section 43B of the Act will apply only when a deduction is claimed by the assessee and not otherwise has not been considered by the Bench in the aforesaid case. Hence, the decision of the Hon’ble Delhi High Court on this issue is being followed. Consequently, the disallowance made by the AO and sustained by CIT(A) is directed to be deleted.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (PADMAVATHY S) (N. V. VASUDEVAN) Accountant Member Vice President Bangalore. Dated: 26.07.2022. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.