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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI PADMAVATHY S
Per George George K., Judicial Member
This appeal at the instance of assessee is directed against the order of the CIT(Appeals)-VI, Bangalore dated 28.2.2014. The relevant assessment year is 2007-08.
The assessee has raised several grounds on the legal issue and also on merits. However, during the course of hearing, the ld. AR limited his submissions to ground No.5 which reads as follows:-
“5. Without prejudice to the above, the learned CIT(A) is not justified in sustaining the depreciation claimed by the appellant to the tune of Rs.3,30,946/- by holding that the capitalized asset is non-existent and non substantiated asset under the facts and circumstances of the appellant’s case.”
The brief facts of the case are as follows. The assessee paid the amount to M/s. Divyasree Realtors towards civil contract works and capitalized the sum. On the capitalized amount, the assessee claimed depreciation. The AO disallowed depreciation for the reason that the sub- contract work carried out by M/s. Divyasree Realtors was not genuine and it was only on paper.
Aggrieved, the assessee filed an appeal to the first appellate authority. The CIT(Appeals) confirmed the AO’s order on merits by observing as under:-
After going through the arguments of the appellant as also its written submissions, it is observed that no new details or evidences have been produced by the appellant to show that the work was actually carried out by MIs Divyasree Realtors. The Assessing Officer has given a detailed findings in this regard in the case of M/s Divyasree Realtors for AY. 2007-08 dealt with by me in my order of even date in 2(2)/B'lore/CIT(A)-VI/B'lore/2009-2010, where, I have upheld the findings of the Assessing Officer to show that the work carried out by M/s Divyasree Realtors for M/s Coretech Realty is not a genuine contract work in the facts and circumstances of the case. Under the facts and circumstances as brought out in detail by the Assessing Officer and which have not been contradicted with any substantial evidence by the appellant, the findings of the Assessing Officer are upheld.
Aggrieved by the order of the CIT(Appeals), the assessee has filed this appeal before us. The ld. AR submitted that the Tribunal in the case of Divyasree Realtors in ITA No.808/Bang/2014 (order dated 6.1.2016) has held that the contract work carried on by M/s. Divyasree Realtors is genuine and the AO is not justified in shifting the source of income from business to other sources.
The ld. DR has filed brief written submissions reiterating the findings of the AO and the CIT(Appeals).
We have heard the rival submissions and perused the material on record. The Tribunal in the case of M/s. Divyasree Realtors (supra) had held that the contract work undertaken by them is genuine and the AO is not justified in treating the income as income from other sources. The relevant finding of the Tribunal in the case of M/s. Divyasree Realtors (supra) reads as follows:-
12. Since Shri. P. Shyamaraju was also a partner of the assessee firm, I cannot find any fault in him exercising control over the accounts of the assessee as well. Copy of the partnership deed placed at paper book page 34 to 40 also show that Shri. P. Shyama Raju was a partner of the assessee firm. In any case we find that the statement of Shri. V. Samba Moorthy was neither put to the assessee nor assessee was given an opportunity to cross examine in the fact of this. I am of the opinion that the lower authorities were not justified in placing reliance on the statement of Shri. V. Samba Moorthy and ignoring the evidence filed by the assessee. Assessee, in my opinion had produced sufficient records to prove that it was doing contract work. It could very well rely on Section 44 AD of the Act since its turnover was less than Rs.40 lakhs. I am of the opinion that CIT(A) was therefore not justified in shifting the source of income from business to other sources. Ground 5 of the assessee therefore stands allowed.
In view of the above order of the Tribunal, wherein it was held that contract work is genuinely undertaken by M/s. Divyasree Realtors, the reasoning of the AO for denying the claim of depreciation in the instant case has lost its substratum. Accordingly we hold that the assessee is entitled to depreciation on the amounts capitalized (amounts paid for civil works undertaken by M/s. Divyasree Realtors). It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed.
Pronounced in the open court on this 03rd day of April, 2022.