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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: DR. MANISH BORAD & SRI ANIKESH BANERJEE
order
: March 13th, 2024 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2015-16 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by the Commissioner of Income-tax (Appeals)-NFAC, Delhi [in short ld. ‘CIT(A)’] dated 25.07.2023 arising out of the assessment order framed u/s 143(3) of the Act dated 13.10.2016.
I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. 2. Registry has informed that the appeal filed by the assessee is time barred by 66 days. Condonation application has been filed by the assessee stating as follows: “I, Samirendra Nath Dutta, son of Jagabandhu Dutta, aged 82 years, by religion Hindu, working for the gain at 1/A, Jatin Bagchi Road, Gariahat, Kolkata - 700029, do hereby solemnly affirm and state as follows-
1. 1. That I am the managing partner of The Incoda. As such, I am competent to swear this affidavit on behalf of the said assessee-firm.
2. That an appeal was filed on 24.01.2018 on behalf of the assessee before the Commissioner of Income Tax (Appeal) against the assessment order dated 13.10.2016 for A.Y. 2015-2016.
3. That the said appeal was dismissed by the CIT(A)-NFAC by passing an order dated 25.07.2023 wherein he sustained the disallowance of depreciation of Rs. 71,78,052/- made by the A.O.
4. That your petitioner was unaware about the said appellate order since the same was sent to the email id of the accountant, Shri Sukanto Dey, who at the relevant time resigned and left the firm.
5. That later, the new accountant, Sri Mizanur Rahaman got access to the password after a time lag and while checking the old mails on or around 23.11.2023, it came to his notice that the order was passed on 25.07.2023.
6. That then I approached Shri Subash Agarwal, Advocate to take necessary steps in the matter and handed over all the relevant papers to him on 24.11.2023 and then the appeal was prepared by him on 25.11.2023 and finally deposited in the office of ITAT on 30.11.2023 after a delay of 66 days.
7. That the facts stated in para 1 to 6 are true to the best of my knowledge and belief.” 2.1. Considering the condonation application and the reasons stated therein, we are satisfied that the assessee was prevented for reasonable cause from filing the instant appeal within statutory I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. time limit. We, therefore, condone the delay and admit the appeal for adjudication on merits. 3. The assessee is in appeal before this Tribunal raising the following grounds: “
1. For that the Ld. CIT(A) was not justified in confirming the disallowance of depreciation made by the A.O. of Rs. 71,78,052/- by treating Commercial rights to display advertisement on Police Booth as Plant & Machinery instead of intangible assets.
2. Without prejudice to the above, the revenue authorities be directed to treat the entire cost of Traffic Console Booths as revenue expenditure in view of the decision of the Hon’ble Tribunal, Kolkata Bench in the case of ACIT vs M/s Suman Industries, order dated 29.02.2016.
3. The appellant craves leave to add further grounds of appeal or alter the grounds at the time of hearing.”
4. The facts in brief are that the assessee is partnership firm engaged in business of making handcraft decorative items, advertisement etc. Income of Rs. 59,08,011/- declared in the return of income for AY 2015-16 furnished on 05.10.2015. Case selected for limited scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. The reason for selecting the case for limited scrutiny was introduction of intangible asset during the year. While examining the said issue, ld. AO observed that the assessee has claimed depreciation at the rate of 25% at Rs. 1,79,45,129/- on Shielded Control Unipols under the head ‘intangible assets’. Ld. AO called for the details and noticed that the assessee had incurred expenditure on cost of traffic console booths. Against the incurring of said cost of traffic console booths, the physical ownership of the console booths was handed over to I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. Kolkata Police. But in consideration, assessee was provided rights to display advertisement on the top portion of the police booth. Even the day to day repair and maintenance of such public booths were to be borne by the assessee. The assessee treated the incurring of the cost of traffic console booths as intangible asset and claimed depreciation at the rate of 25%. However, ld. AO was of the view that the cost incurred by the assessee is towards plant and machinery and assessee is eligible for depreciation at the rate of 15% and not 25%. Accordingly excess claim of depreciation at Rs. 71,78,052/- disallowed and income assessed at Rs. 1,30,86,060/-.
5. Aggrieved, the assessee preferred appeal before ld. CIT(A) and reiterated the submissions as made before the AO, but failed to succeed.
6. Aggrieved, the assessee is now in appeal before this Tribunal.
Ld. Counsel for the assessee vehemently argued referring to the submissions made before the lower authorities and also referred to the paperbook containing 21 pages dated 23.01.2024 which also includes audited financial statement as well as a letter dated 05.08.2014 placed at page 18 of the paperbook containing the terms & conditions for installation of taxi booths and also giving rights of commercial advertisement on the taxi booths. Ld. Counsel for the assessee contended that the cost incurred towards Shielded Control Unipols (traffic console booths) has been incurred by the assessee. But the right to use the property has been transferred to the Kolkata Police and in consideration assessee has I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. received commercial rights. Therefore, since the assessee do not have any ownership of the Shielded Control Unipols and it has acquired commercial advertisement rights against incurring of such cost, the assessee is eligible to claim depreciation at the rate of 25% applicable to intangible assets.
8. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.
9. We have heard rival contentions and perused the records placed before us. The only issue for our consideration is whether ld. CIT(A) was justified in denying the claim of depreciation on intangible assets at the rate of 25% as against 15% allowed by the AO. We note that the assessee has been incurring cost for purchasing Shielded Control Unipols. As on 01.04.2014 opening WDV of the cost of Shielded Control Unipols is shown in the Audit report at Rs. 4,76,49,519.66 and there is further addition of Rs. 3,34,42,000/- during the year. The depreciation on the said cost of Shielded Control Unipols has been claimed at the rate of 25% treating it as intangible asset. Both the lower authorities have denied this claim observing that the asset purchased by the assessee is purely plant and machinery and is eligible for 15% depreciation only and by no stretch can be treated as intangible asset.
Now, Section 2(11) of the Act defines the "block of assets". One of the class of assets is intangible asset being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature. If an asset falls I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. under the category of intangible asset, depreciation is allowed at the rate of 25% depending upon the period of use. We observe that the assessee has purchased the Shielded Control Unipols in the past as well as in the present for handing them over to the Kolkata Police and in return/consideration, the assessee has been given the commercial rights/permission for displaying the advertisement on the booths. The letter dated 05.08.2014 given by Dy. Commissioner of Police, Traffic Department, Kolkata states that “As per the decision held in the sponsorship committee meeting dated 25.07.2014, you firm has been selected to install a taxi booth at Sealdah complex against right of commercial advertisement under the usual terms & conditions laid down in Annexure-A which is to be abided by your firm.”
Further, Annexure-A referred in this letter provides for the terms & conditions for installation of taxi booths and the same reads as under: “1. The contract shall remain valid for a period of 3 (Three) years from the date of issue 2. Your firm will maintain and repair the Taxi Booth according to the instructions of traffic department of Kolkata Police.
The firm will bear the cost towards the compensation for theft/accidental damage/any other loss to the Taxi Booth.
Any complain regarding Taxi Booth should be attended within 48 hours. If complaints are not attended within 72 hours contract can be Suo - moto terminated. Kolkata Traffic Police will be at liberty to remove all advertisement material thereof.
The firm will maintain the painting and cleaning of the Taxi Booth according to our instructions/ specifications.
I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda.
Necessary permission should be obtained from KMC / other competent authority before displaying the advertisement on the booth.
7. The firm will bear the cost for procurement of electric mater from CESE and necessary electricity charges.
Necessary clearance from PWD/KMC or any other competent authority to be obtained from your end.
The firm will bear the cost towards the charges imposed by the KMC or any other Govt. Authority from time to time.
10. Any contract between agencies/Company and any other party of the advertising agency shall have no bearing on the decision taken by Kolkata traffic police.
11. All advertisements should be tasteful and approved by DC. TP before display.
Advertisement material should not effect visibility, of signals or distract vision of road users.
Kolkata Traffic Police Department reserves the right to cancel the contract without showing any reasons.
Construction work must be completed within one (1) month from issue this letter with all formalities.
One face of the Taxi Booth mostly visible shall be dedicated for POLICE HELP LINE MESSAGE throughout the year for public interest.”
12. From perusal of the above terms & conditions and the letter issued by DCP, Traffic Department, Kolkata we find that the assessee has incurred the cost for Shielded Control Unipols and the ownership right in such Shielded Control Unipols has been conferred to the police traffic department and against conferring of such right of ownership, the assessee has received commercial rights for displaying advertisement of various companies/persons subject to the terms & conditions. In other words, the cost of the commercial rights acquired by the assessee is the cost incurred towards Shielded Control Unipols. Though in the fixed asset chart Page 7 of 9 I.T.A. No.: 1304/KOL/2023 Assessment Year: 2015-16 The Incoda. prepared by the tax auditor, the name of the asset has been mentioned as Shielded Control Unipols, but for all practical purposes the name of the asset should be the commercial right for advertisement. Certainly, there is some lapse on the part of the assessee in giving a proper accounting treatment to the said transactions. But the facts remains that the cost on which depreciation at the rate of 25% is claimed is basically an asset in the form of commercial right which undoubtedly falls in the category of intangible asset. Therefore, the assessee is eligible for 25% depreciation on the cost of such commercial rights. We, thus, set aside the finding of ld. CIT(A) and allow the claim of depreciation at Rs. 1,79,45,129/- claimed at the rate of 25% as against depreciation allowed by ld. AO at the rate of 15% at Rs. 1,07,67,078/-. Thus, disallowance made by the AO at Rs. 71,78,052/- is hereby deleted. The effective grounds of appeal
raised by the assessee are allowed.