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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Waseem Ahmed & Shri Soundararajan K
Appellant by:Sri.Shivadas Chettoor, CA Respondent by: Smt.Girly Albert, Sr.DR Date of Date of Hearing : 01.10.2024 Pronouncement : 21.10.2024 O R D E R Per Bench : These two appeals and as many as stay applications by the assessee arise against the orders of the CIT(A)-12, Bengaluru, dated 13.05.2022 and 15.12.2021 for the assessment years 2013-2014 and 2014-2015, respectively, in the proceedings u/s143(3) of the Income-tax Act, 1961; in short “the Act” hereinafter.
Since common issues are involved in these appeals, they were heard together and are being disposed of by this consolidate order, for the sake of convenience and brevity.
2 ITA 227-228 & SA 28-29/Coch/2024. Sri.KizhakkanikodeThankappan Manojkumar.
The first issue raised by the assessee is that the learned CIT(A) erred in not allowing depreciation on the building ready to use amounting to Rs.42,74,300 only. The Assessing Officer during the assessment proceedings found that the assessee has claimed depreciation on the building for which the license was not granted by the competent authority. Accordingly, the AO was of the view that the depreciation on the building cannot be allowed as deduction. Thus, the AO made the disallowance of Rs.42,74,300 and added the same to the total income of the assessee. On appeal, the ld.CIT(A) upheld the order of the AO by observing as under:
“9. The assessee has put up an alternative claim that the property had been fully constructed and it was ready to be used. However, assessee has not submitted any details to establish the fact that the property had been fully constructed and that it was ready for use. It is further noted that property had not been operationalized in the subsequent years also. On account of the above, it is seen that the alternative ground of assessee is also devoid of any merit.”
Being aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The learned AR before us submitted that the building was ready to use but the activity was not commenced due to non-availability of license from the competent authority. Furthermore, the assessee has also shown income from the use of such building for organizing function. Therefore, it cannot be said that the building was not ready to use.
On the other hand, the learned DR vehemently submitted the orders of the authorities below.
3 ITA 227-228 & SA 28-29/Coch/2024. Sri.KizhakkanikodeThankappan Manojkumar.
We have heard the contentions of both the parties and perused the materials available on record. Admittedly, the assessee has shown profit from the activity of banquet function, which was carried out in the impugned building. In our considered view, had the building not been completed, it was not possible to carry out such function in such a incomplete building. It is also an admitted fact on record that the income shown by the assessee from the banquet function was also admitted by the Revenue. Therefore, we are of the view that the building in dispute was ready to use, and therefore, the depreciation thereon cannot be disallowed to the assessee. Thus, the ground of appeal of the assessee is hereby allowed.
The next issue raised by the assessee is that the ld.CIT(A) erred in denying the fees paid for the bar license amounting to Rs.22,25,000 on the reasoning of prior period expenses. The AO during the year under consideration found that the fees for bar license of Rs.22,25,000 pertains to the prior period, and therefore, the same is not eligible for deduction u/s37(1) of the Act. However, at the outset, we note that the issue regarding bar license fees has not been adjudicated by the ld.CIT(A) in his order. Therefore, in the interest of justice and fair play, we are inclined to restore the same to the file of the ld.CIT(A) for fresh adjudication as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
4 ITA 227-228 & SA 28-29/Coch/2024. Sri.KizhakkanikodeThankappan Manojkumar. 8. In the result, the appeal of the assessee is partly allowed for the statistical purposes. for assessment year 2014-2015.
The first issue raised by the assessee is that the ld.CIT(A) erred in disallowing the depreciation claimed by the assessee amounting to Rs.40,60,585 on the building, which was ready to use. Since, we have decided identical issue in assessment year 2013-2014, following the view taken by us therein, we allow the depreciation claimed by the assessee. Thus, this ground of appeal of the assessee is hereby allowed.
11. The second issue raised by the assessee is that the ld.CIT(A) erred in disallowing the interest on the loan amounting to Rs.34,02,020 used for the construction of the building.
12. The AO during the assessment proceedings found that the assessee has used borrowed funds on the construction of the building, which was not put to use in the year under consideration, and accordingly, the AO disallowed the same and added to the total income of the assessee. On appeal, the learned CIT(A) confirmed the same.
Being aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
5 ITA 227-228 & SA 28-29/Coch/2024. Sri.KizhakkanikodeThankappan Manojkumar. 14. The learned AR before us contended that the building in dispute was ready to use, and therefore, the interest thereon cannot be denied. The learned AR in support of his contention relied on the judgment of the Hon’ble Karnataka High Court in the case of CIT v. Insotex (P.) Ltd. (1984) 150 ITR 195 (Kar), wherein it was held as under:
“For giving the benefit of section 36(1)(iii) to the assessee, what is necessary to examine is whether the assessee has used the borrowed capital for the purpose of business. If that is found true, then one need not examine further as to whether the asset purchased from the borrowed capital has been in fact used by the assessee. Therefore, the interest paid was allowable as revenue expenditure under section 36(1)(iii).”
On the other hand, the learned DR vehemently supported the orders of the authorities below.
We have heard the rival contentions of both the parties and perused the materials on record. At the outset, we note that in the first grounds of appeal raised by the assessee for the AY 2013-14, we have held that the building was ready to use and accordingly the depreciation thereon was allowed. In our considered view, the same analogy has also to be adopted in respect of the disallowance of interest made by the authorities below on account of non-commencement of business activities. In addition to the above, we draw support and guidance from the judgment of the Hon’ble Karnataka High Court, cited supra, and accordingly hold that the assessee is eligible for deduction with respect to the interest paid on the money borrowed, which was utilized for the 6 ITA 227-228 & SA 28-29/Coch/2024. Sri.KizhakkanikodeThankappan Manojkumar. impugned building. Hence, the ground of appeal of the assessee is hereby allowed.
Since we have disposed of the appeals, the corresponding stay petitions are rendered infructuous, and accordingly, the same are dismissed as infructuous.
In the result, the appeal filed by the assessee for assessment year 2013-2014 is partly allowed for statistical purposes and the appeal for assessment year 2014-2015 is allowed.