ITO, WARD-35(3),KOLKATA, KOLKATA vs. SHRI LAXMIPAT SURANA, KOLKATA

For the Appellant : Shri Arindam Bhattacharjee, Addl. CIT For the Respondent : Shri Anil Kochar, Advocate Date of Hearing : 19.02.2018 Date of Pronouncement : 07.03.2018 ORDER Per M.Balaganesh, AM

2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in allowing depreciation to the assessee who is not the legal owner of the C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13 property, in the facts and circumstances of the case. The interconnected issue involved in the cross objection of the assessee is as to whether the Ld. CIT(A) was justified in confirming the disallowance of interest u/s 43B of the Act, in the sum of Rs. 1,56,90,438/-, in the facts and circumstances of the case.

C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13 proceedings, the assessee however, took a stand that the said income was inadvertently declared in the return as income from business or profession instead of income from house property. This stand of the assessee was not found acceptable by the ld. AO relying inter alia on the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. reported in 157 Taxman 1 (SC) wherein, it was held that no amendment can be made in the return at the assessment stage without revising the return. The ld. AO also held that the assessee was only a licensee to develop and construct commercial complex on the vacant land owned by the Railways and he was not owner of the property. He, accordingly, held that the assessee was not entitled to claim depreciation on the cost of the said property in the assessment completed under section 143(3) of the Act dated 27.03.2015. The ld. AO disallowed the sum of Rs. 1,56,90,438/- towards interest on loan from scheduled banks which was not paid u/s 43B of the Act and arrived at the total business income of Rs. 1,57,62,197/- in the assessment. Before the Ld. CIT(A), the assessee pleaded that the income derived by the assessee towards license fee should be taxed only under the head income from business and not income from house property. Further, it was pleaded that depreciation on building was the source of the income being derived by the assessee being granted to the assessee. The assessee also placed reliance on the decision of his predecessor in its own case for the assessment year 2011-12 to this effect. The Ld. CIT(A) followed the order of his predecessor for the assessment year 2011-12 by observing as under: “07. DECISION 1. I have carefully considered the action of the ld. AO for the subject assessment year 2012-13. There was a similar action by the ld. AO in the immediately previous assessment year 2011-12, and the same has been adjudicated by me in Appeal No. 42/CIT(A)-10/Wd.35(3)/2014-15/Kol dated 9th November, 2015. In the matter of sec. 43B the matter has been adjudicated against the appellant in that year. However, I had directed that once the income is held to be from business, the appellant would be entitled to depreciation. The relevant portion of the adjudication for the assessment year 2011-12 is reproduced as below:

C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13

C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13

C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13

The grounds therefore stand partly allowed.”

1. On the facts and in the circumstance of the case, the Ld. CIT(A) has erred in allowing the depreciation to the assessee who is not the legal owner of the property.

2. That the appellant craves leave to make an addition, alteration and modification of grounds at the appellate stage.

4.1. The assessee has preferred cross objection before us on the following grounds: 1. For that the Ld. CIT(A) erred in confirming the addition/disallowance of Rs. 1,56,90,438/- on alleged grounds.

2. For that the Ld. CIT(A) ought to have held that the income of the appellant, being rentals, is to be assessed under the head “income from house property” and not “business income”.

3. For that further grounds of appeal may kindly be allowed to be taken at the time of hearing of the appeal.

“6. We have heard the arguments of both the sides and also perused the relevant material available on record. The first contention raised by the learned DR is that the assessee having not claimed depreciation on the licenced property in the return of income, the Ld. CIT (A) was not justified to allow the claim of the assessee for depreciation which was not made either in the original return or even by filing revised return. We are unable to accept this contention of the learned DR. In our opinion, the restriction laid down by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) which is relied upon by the Assessing Officer is applicable only at the assessments stage and the Ld. CIT (A) being an appellate authority is sufficiently empowered to entertain the claim made by the assessee for depreciation for the first time before him without even filing the revised return as clarified by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) itself. Even the old circular of the CBDT dated 31.08.1965 relied upon by the learned DR was issued in a different 6 C.O.14/Kol/2017 Shri Laxmipat Surana A.Yr.2012-13 context and the same therefore is not & C.O. No. 19/Kol/2016 Sri Laxmipat Surana applicable in the present context. As regards the claim of the assessee for depreciation on merit, the learned DR has relied on the decision of Hon'ble Supreme Court in the case of Mother Hospital Pvt. Ltd. vs CITrendered on March 2, 2017 wherein it was held that lessee under Explanation 1 to Section 32 is entitled to depreciation on the cost of construction incurred by him but not on the cost incurred by the owner. As clarified by the learned counsel for the assessee in this regard, depreciation in the present case was claimed by the assessee only on the cost of construction incurred by him. We, therefore, find no infirmity in the impugned order of the Ld. CIT (A) allowing the claim of the assessee for depreciation on the cost of licenced property incurred by him and upholding his impugned order on this issue, we dismiss this appeal filed by the revenue.

7. At the time of hearing before us, the learned counsel for the assessee has not pressed the issues raised in the cross-objection filed by the assessee. The cross-objection filed by the assessee is accordingly dismissed as not pressed.”

Respectfully following the aforesaid decision we direct the ld. AO to grant depreciation on the cost of license property incurred by the assessee.

6.The ld. AR prayed for following of the same order of the assessment year 2011-12 for year under consideration also. Accordingly, respectfully following the same as stated in para 7 supra in the Tribunal order for assessment year 2011-12, the cross objection filed by the assessee is dismissed.

Order pronounced in the Court on 07.03.2018