ACIT, CHENNAI vs. R.K.SWAMY BBDO PVT. LTD., CHENNAI

O R D E R

PER DUVVURU RL REDDY, JUDICIAL MEMBER:

3. On appeal, after considering the submissions of the assessee and by following the decision of the Tribunal in assessee’s own case for earlier assessment year(s), the ld. CIT(A) allowed the appeal of the assessee.

5. At the time of hearing, both the parties have fairly conceded that the issues involved in the appeal is squarely covered in favour of the assessee by the decision of the Coordinate Benches of the Tribunal in assessee’s own case for earlier assessment year.

6. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to the first ground of depreciation on leasehold improvement, on perusal of the details filed by the assessee, the Assessing Officer has noticed that certain items does not have the character of being temporary structure and observed that depreciation can only be allowed at normal rates. Out of the total depreciation of ₹.13,46,998/- claimed by the assessee, an amount of ₹.10,10,248/- was disallowed, not relating to temporary structure in leasehold property and added to the total income of the assessee. On appeal, by following the order of the Tribunal in assessee’s own case, the ld. CIT(A) allowed the ground raised

by the assessee. We have also perused the latest decision of the Coordinate Bench of the Tribunal in assessee’s own case for the assessment year 2009-10 in dated 20.09.2013, wherein the Tribunal has observed and held as under:

11. Now, we come to the issue of depreciation. There is no strife between the parties that the assessee, a lessee, took on lease a property in Mumbai. It had incurred the expenses in question of wooden work, premises expansion, false ceiling etc and claimed depreciation at the rate of 100% for a sum of Rs.54,92,416/-. The Assessing Officer disallowed a sum of Rs.16,83,295/- by holding that the same had been incurred for temporary structure. The assessee had strongly placed reliance on Explanation (1) of sec.32(1) of the Act. Undisputedly, the said statutory provision treats even a lessee incurring capital expenditure for the purpose of business and profession in the construction of raising any structure etc or renovation at par with the owner of the building. The only contention of the Revenue is that the expenditure was not incurred for raising temporary structure as stipulated in the depreciation schedule. Hence, keeping in mind the fact that the assessing authority himself had allowed majority of the expenses as entitled for 100% depreciation, we hold that the rest of the expenses of false ceiling, expansion of premises and wooden work are purely temporary structures and covered by the higher rate of depreciation being purely temporary erections. In our considered opinion, the Revenue has proceeded to interpret the depreciation schedule in a narrow manner. We reiterate that the schedule of depreciation deserves to be liberally interpreted and the expressions used 'purely temporary erections such as wooden structures' have to be treated as inclusive in nature, covering all temporary erections alike wooden structures. The words 'such as' themselves point that the latter portion of the sentence only supplements the former one and not have overriding effect on the main part. Proceeding on this reasoning, we hold that the said clause not only covers structures of purely temporary erection, but also includes false ceiling as well as wooden works. Hence, we accept the contentions of the assessee and uphold the findings of the Commissioner of Income Tax (Appeals) under challenge. Consequently the appeal is dismissed.” 12.

7. The ld. DR could not controvert the above findings of the Tribunal. However, he has submitted that the Department has preferred an appeal before the Hon’ble Jurisdictional High Court, which cannot be a ground to take a different view unless the decision of the Tribunal is reverted or modified. Thus, respectfully following the above decision of the Coordinate Bench of the Tribunal, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue is dismissed.

8. The next ground raised by the Revenue is with regard deletion of disallowance of ₹.44,76,050/- made towards excess rent paid by the assessee. The Assessing Officer has noticed from the profit and loss account and other details that the assessee has claimed rent paid to M/s. Thiruvengadam Investments (P) Ltd. [TIPL in short] of a sum of ₹.1,02,12,200/-. Further, he has observed that M/s. Thiruvengadam Investments (P) Ltd. is a company in which the assessee has substantial interest. The auditors in their Tax Audit Report qualified the payments made to M/s. TIPL as payments made to persons specified under section 40A(2)(b) of the Act. Since the assessee paid rent to M/s. Thiruvengadam Investments (P) Ltd. for the properties located in prime areas in Mumbai and Delhi and are governed by the provisions of Rent Control Legislation, the Assessing Officer called for various details and after verification, he was of the view that the assessee’s transactions are governed under section 40A(2) of the Act and the properties are governed by the provisions of Rent Control Legislation. Where the Rent Control Legislation provides for fixation of standard rent, the landlord could not expect to receive any higher rent, in breach of law. Therefore, the tenant also not liable to pay more than the standard rent to the landlord because the standard rent prescribed by Rent Control Legislation. In view of the above, the Assessing Officer has worked out the excess rent of ₹.44,76,050/- and added to the total income of the assessee.

8.1 With regard to interest free advance, the Assessing Officer has found that the assessee has given interest free advance of ₹.3,50,00,000/- in respect of Mumbai property and ₹.75,00,000/- in respect of Delhi property being rental deposit to M/s. TIPL. The assessee did not furnish any evidence to show that the borrowed funds/interest bearing funds were not utilized for making the advances. Accordingly, the Assessing Officer worked out and restricted the interest amount at ₹.40,86,687/-.

8.2 Since both the issues are covered in favour of the assessee, by following the decision in assessee’s own case for the assessment year 2009-10 in vide order dated 20.09.2013, the ld. CIT(A) allowed the grounds raised by the assessee.

8.3 We have also perused the order of the Tribunal in assessee’s own case (supra), wherein, for the above two issues, the Tribunal has observed and held as under: “2. By referring to the pleadings raised in the grounds, the Revenue vehemently argues that the Commissioner of Income Tax (Appeals) has wrongly deleted additions made by the Assessing Officer of ₹.61,08,050/- under sec.40A(2) of the Act in the nature of rent paid to assessee’s group concern, that of ₹.1,54,519/- in the nature of interest disallowance on account of excess interest free deposit to the group concern and also qua the disallowance of excess depreciation on leasehold premises to the tune of ₹.16,83,295/-. The contention of the Revenue are that though the Commissioner of Income Tax (Appeals) has relied upon orders of the ‘tribunal’ in assessee’s own case pertaining to the preceding assessment years qua the first two issues, its appeals are pending before the hon’ble High Court. In addition to this, it files Annexure-I of the assessment order regarding the issue of depreciation, quotes case law of (2012) 21 ITR (Trib) 634 – ABT Limited v. ACIT (Chennai) and prays for acceptance of the appeal.

4. On merits, the A.R. strongly supports the order of Commissioner of Income Tax (Appeals) under challenge by filing the orders of the ‘tribunal’ in assessment year 1996-97, 2001-02, 2002-03 and 1997-98 [as relied upon by the Commissioner of Income Tax (Appeals)] and prays for rejection of the appeal.

6. Similarly, the assessee had also claimed depreciation of ₹.54,92,416/- on leasehold improvements qua Mumbai property @ 100% depreciation by terming the expenses to have been incurred for raising temporary structures.

9. Aggrieved, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). In the order under challenge, the Commissioner of Income Tax (Appeals) has deleted the first two additions pertaining to excessive rent under sec.40A(2) as well as the interest amount (supra) after placing reliance upon the orders of the tribunal in assessee’s cases relating to preceding assessment years. Regarding depreciation, the findings of the Commissioner of Income Tax (Appeals); though very brief; read as follows :- “I have gone through the observations of the AO. It is not clear as to how the temporary structures of ₹.38,08,121/- were held to be eligible and the rest were not eligible. No detailed working has been given. Even otherwise, since all the items are claimed to be temporary structures installed on a leasehold premises, the assessee should be eligible for 100% depreciation. Accordingly, the disallowance is directed to be deleted.” This leaves the Revenue aggrieved.