SAVITRI LEASING FINANCE LTD,JAIPUR vs. INCOME TAX OFFICER, WARD - 4(2), JAIPUR, JAIPUR

ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A)- 4, Jaipur dated 15-11-2023 for the assessment year 2017-18 wherein the assessee has raised the following grounds of appeal. ‘’1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the order of the Learned Assessing Officer in determining income at Rs. 4043060/- as against returned loss of Rs. 14,58,716/- and thereby wrongly upholding addition of Rs. 55,01,776/-.

2.1 Apropos Ground No. 1 to 4 of the assessee, the ld. CIT(A) has dismissed the appeal of the assessee by observing as under: ‘’6.6 The appellant has repeatedly claimed in the reply that the depreciation has not been claimed and has submitted the computation of income. However from the perusal of the computation it is seen that the appellant has claimed the current year depreciation has unabsorbed depreciation and carried it forward so the claim of the appellant that the depreciation has not been claimed is not factually correct. The notice of enhancement was issued with respect to depreciation on air conditioners however from the reply of the appellant it is seen that the depreciation is not on air conditioners but on other common assets used both for business income and also for earrings rental income. The appellant has given the reply on the issue of depreciation against the enhancement on merits on the facts of the case. The issue of enhancement is being decided on the basis of the facts submitted by the appellant. Earlier, the facts and replies submitted by the appellant in the appeal proceedings are not on the facts of the case and has also raised an issue in ground of appeal no. 2 which is not emanating from the assessment order.

3 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR 6.7 The learned assessing officer in the assessment order has held that the proportionate expenses pertaining to the earning of rental income are not allowable to the appellant and this stand is as per the revised computation submitted by the appellant himself during the assessment proceedings. It is undeniable fact that the depreciation on the assets is also an expense in the computation of income and in case it has not been claimed only because of the reason that it has been carried forward as unabsorbed depreciation in such a scenario the proportionate depreciation allocable to / pertaining to the income from house property will not be eligible for carry forward following the same approach adopted in the assessment order. This issue is interlinked and emanating from the revised computation submitted by the appellant to the assessing officer and also to the findings of the assessing officer in the assessment order and it can be said that the depreciation was overlooked inadvertently by the Id AO as the same was only carried forward and not expressly reduced in the computation of income whereas in the assessment order that learned assessing officer has referred to the depreciation in the context of double deduction / which needs to be disallowed. As per the revised computation submitted by the appellant after the inquiry by the learned officer which is mentioned in the order the loss from business is 1,02,11,023 whereas the loss from business head as per the revised re of income (filed on 26-12-2017) is Rs. 1,42,73,092. In view of this, the proportionate amount of depreciation (in the same proportion in which all other expenses have be disallowed) is not allowed to be carried forward as unabsorbed depreciation assessment is enhanced accordingly. The penalty proceedings u/s 270A(9) are initiated on the enhancement for misreporting of income by suppression of facts and the same shall be included in or clubbed with the penalty proceedings which were initiates by the assessing officer in the assessment order. Reference in this regard is also made to section 275(1A) of the Act. Before parting it is stated that even though the claimed modified ground of appeal number 1 of the appellant has not been admitted, without prejudice, it is stated that the ground raised by the appellant stands covered by the above detailed discussion and the ground of appeal number 1 raised by the appellant stands answered accordingly against the appellant.

4 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR 7. Additional claims submitted by the appellant. The appellant has submitted in this regard as under- "During the year under consideration, the assessee has paid lease rent to JDA Rs.3,78,283/- and has also paid UD tax to Municipal Corporation of Rs. 2,20,505/- both totaling to Rs.5,98,788/- (378283+220505). Out of this, an amount of Rs. 1,59,038/ pertains to common area, hence, the claim against house property is restricted to Rs 4,39,750/- (598788-159038). In support of the above, receipts from JDA and Municipal Corporation are available on Paper Book Page No.83."

The appellant has raised the additional claim on the issue of lease rent and municipal taxes however the same is not seen to be arising from any disallowance from the assessment order. The assessment has been finalized by the Learned assessing officer as per the revised computation of income submitted by the appellant during the assessment proceedings and in such computation the issue of deduction of these expenses is already covered and thereby the cause for raising the additional clain on these aspects do not arise. Accordingly the above the additional claims are dismissed.’’

is that the appellant craves right to add, alter or amend any of the grounds of appeal. 8.1. The appellant has amended the Ground No. of appeal No. 1 & 2 which has been discussed and adjudicated by me in the above para. Accordingly, such mention by the appellant in its ground is treated as disposed off.

9. In the result, the appeal of the appellant is dismissed and assessment is enhanced.’’ 5 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR 2.2 During the course of hearing, the ld. AR of the assessee reiterated the same submissions as made before the ld. CIT(A) and also prayed to delete addition as ld. CIT(A) is not justified in confirming the action of the AO. 2.3 On the other hand, the ld DR relied upon the order of the ld. CIT(A). 2.4 We have heard both the parties and perused the materials available on record. In this case, it is noted that the assessee company is engaged in the business of leasing out its land and building and real estate development and construction. Further, the assessee company had earned rental income by letting out its premises during the year under consideration. The assessee company e-filed its return of income on 29-10-2017 declaring total loss at (-) Rs.14,58,716/- for the assessment year under consideration. The case of the assessee company was selected for scrutiny u/s 143(3) of the Act on the basis of CASS. Finally, the AO completed the assessment u/s 143(3) of the Act vide his order dated 31-12-1019 at a total income of Rs.40,43,040/- by making an addition of Rs.55,01,755/- in business income on the basis of revised computation filed by the assessee company. In first appeal, the ld. CIT(A) dismissed the appeal of the assessee. From the records, it is noted that the assessee furnished return declaring loss of Rs.14,58,516/- as well as unabsorbed depreciation of Rs.15,57,319/-. Copy of return and computation are available at PBP 1-7. It is also noted that during the course of assessment 6 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR proceedings, the AO issued show-cause on 04/09/2019 mentioning therein as under:- "Para 2….it is worth-mentioning that when you have already claimed deduction u/s 24(a) of the Income Tax Act, 1961 against the rental receipts, then why are expenses being claimed on the same receipts in the profit and loss account. On perusal of computation as well it is clearly evident that you have not added the expenses attributable to rental income. You are claiming the benefit of standard deduction by showing majority of income under the head "income from house property" and at the same time claiming expenses on the same rental receipts in the P&L account." "Para 3..It is imperative to mention that you can't be allowed to claim the benefits of deduction mentioned in the Act on the same amount twice. The provision of standard deduction of 30% of the Net Annual Value or rent is already provided in the Income Tax Act, 1961 in order to cover up for all the expenses pertaining to that part of income or rental income. Therefore, it is clear that when you were treating the rental receipts as income from house property, then no other expenses can be claimed except standard deduction of 30% as stipulated in the Act." From the above, it indicates that the AO failed to appreciate the facts of the case in proper perspective. The assessee was deriving rental income against which expenditure of interest and deduction u/s 24(a) was claimed. No other expenditure as alleged by the AO was claimed either of depreciation or other expenditure. The assessee also derived income from Common Area Maintenance Charges disclosed under the head "Business or profession". However, even against these Common Area Charges, the assessee had not claimed any depreciation on building or on Air conditioners as alleged by the lower authorities. Therefore, the very basis of the show-cause notice was wrong. However, on account of the show-cause notice, the 7 ITA NO. 738/JP/2023 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR assessee was misled and erroneously submitted a revised computation during the course of assessment proceedings computing income at Rs. 40,43,059/-. A copy of this computation submitted under letter dated 13/09/2019 is placed at Paper Book Page No.55-57. It is noted that the AO completed the assessment on 31/12/2019 determining income at Rs.40,43,060/- accepting the aforesaid revised computation submitted during the course of assessment proceedings but the action of the AO in assessing income at Rs.40,43,060/- was based on incorrect facts. It is also noted that the AO issued show-cause notice on 04/09/2019 without appreciating the computation of income filed along with the return of income which is scanned below :-

The perusal of the aforesaid computation of income reveals that the rental income has been computed as under :- b. Rent Rs.4,01,90,319/- Less : (i)Deduction u/s 24(a) Rs.12057096 (ii)Interest paid which Pertains to lease out building Rs.1,53,18,847 Rs.2,73,75,943/- Net income from house property Rs. 1,28,14,376/- Thus, it is apparent that assessee has claimed only allowable expenditure under the provisions of Sec. 24 against income from rent. These expenses are statutory deduction @ 30% and interest paid by the assessee. Therefore, the claim of the assessee against rental income is in order. The AO was of the view that against receipts of common area maintenance, the assessee had wrongly claimed depreciation repairs and maintenance expenditure on the same building against which rental income was disclosed and statutory deduction @ 30% was claimed. In the view of the AO, the assessee was availing 30% statutory deduction as well as other expenses under the head depreciation, repairs and maintenance. This perception of the AO does not hold good with reference to the computation of income filed by the assessee. We noted that no depreciation has been claimed on 12 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR the building from where rental income is received. The computation of income is as under which was attached with the return of income. Income from business & profession Net profit as per P&L a/c inclusive of rent Rs.50,39,709/- as well as CAM Add : Depreciation Rs.72,88,674/- Interest considered separately Considered against income from House property Rs.1,53,18,847 Rs.2,26,07,521/- Rs.2,76,47,230 Less : Provision for deferred tax Rs17,30,003 Rental receipts considered Separately under the head Income from house property Rs.40190319 Rs.41920322 Net loss Rs.14273092 After adjusting income of Rs.1,28,14,376/- under the head "income from house property", the resultant loss comes as under :-

Income under the head house property Rs.1,28,14,376/- Loss under the head income from business (-)Rs.1,42,73,092 Net loss Rs.14,58,716/- We also noted that no depreciation has been claimed either against income from house property or against income from business and profession. Copy audit report, profit and loss account and supportings disclosing income of Rs. 50,39,709/- are available along with audited accounts. It is further noted that in 13 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR the audited accounts, the assessee had claimed depreciation as per Companies Act of Rs.72,88,674/-,which has been added back in the computation of income under the head "business and profession". Now while furnishing the return of income, the assessee claimed depreciation as per income tax act only of Rs.15,57,319/-. The details of these are as under as per chart, which is scanned below :-

The aforesaid chart discloses that major part of depreciation of Rs.15,08,451/- is on car and depreciation on office building is of Rs.40,551/- which establishes that the assessee has not claimed any depreciation on the entire building from which rent is derived. It is also noted that no depreciation has been claimed on Air conditioners (letter of CIT(A) dated 23/10/2023 and also no depreciation has been claimed on the building as alleged by the AO in para 3 of the assessment order. It is further noted that there being loss in the return of income of Rs.1458,716/-, there was no case for setting off the depreciation of Rs. 15,57,319/-. In these circumstances, while filing the return of income, the assessee has carried forward current year loss of Rs.14,58,716/- as well as current year unabsorbed depreciation 14 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR of Rs. 15,57,319/-. These facts are verifiable with reference to the computation sheets available with the return of income filed on 26/12/2017 and scanned above. The above position of facts very clearly establishes that the assessee had not claimed any depreciation on that part of building which was yielding rental income. Depreciation was claimed only of Rs.40,551/- on that part of building where office is maintained. Further, no depreciation was claimed on Air Conditioners. This was a wrong perception on the part of the Ld CIT(A) that the assessee had claimed depreciation on air conditioners. Further, the total claim of depreciation is only of Rs. 15,57,319/- which being unabsorbed was carried forward. It is noted that the mistake on the part of the AO as well as on the part of the Learned CIT(A) regarding observation of depreciation on building and air conditioners occurred on account of such figures worked out by the auditors in the audited accounts as per companies Act (Rs.72,88,674). A copy of this chart of depreciation is available (PB 52). It is in this chart that there is claim of depreciation on leased building of Rs. 25,46,235/-. However, these figures were not required to be taken into consideration by the AO as well as by the Ld. CIT(A) as the assessee had not claimed such expenditure while filing the return of income and had added back the same (Rs.72,88,674) in the computation of income. In view of these facts, it is clear that the AO as well as the Ld. CIT(A) were not justified in holding that there was double claim of expenditure against rental 15 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR income first by claiming deduction u/s 24(a) and later on claiming depreciation on the same building. In these circumstances, the order passed by the AO as well as the appellate order passed by the Learned CIT(A) are erroneous. Further, it is noted that ld. CIT(A) has erred in both in confirming the order of the AO as well as in denying the benefit of carry forward of current year depreciation of Rs. 15,57,319/-. We noticed that during the course of assessment proceedings, the AO issued show-cause notice dated 04/09/2019. In this notice that the AO objected to the claim of expenses of Rs.4,87,67,277/- in the profit and loss account on the ground that such expenditure was not allowable when deduction u/s 24(a) already stood claimed. The details of expenditure of Rs.4,87,67,277/- are as under as per audited P&L account :- i. Interest Exp. Rs. 1,60,70,054 (ii)Depreciation Rs. 72,88,674 (iii)Other expenses (Administrative Exp.) Rs.2,54,08,549 Total Rs.4,87,67,277/- It is noted that the assessee has claimed interest expenditure of Rs.1,53,18,847/- against rental receipts, which is in order. The remaining interest expenditure is pertaining to loan on car and office building. Thus, the claim of interest expenditure is not faulty in any way. As regards depreciation of Rs. 72,88,674/-, the same has been fully added back while computing income under the head "business and profession". Therefore, no further disallowance was called for on 16 ITA NO. 738/JP/2023 SAVITRI LEASING FINANCE LTD VS ITO, WARD 4(2), JAIPUR account of it. The assessee has claimed depreciation as per Income Tax Act only on car and office building, both totaling to Rs.15,57,319/-, which being unabsorbed, was carried forward. The remaining item is only of other expenses under the head "administrative expenses etc" amounting to Rs. 2,54,08,549/-. The expenditure has been claimed against receipts from CAM charges of Rs.1,03,19,764/-. The main expenditure is as under out of Rs. 2,54,08,549/- :-