UNNATHI LEISURE VENTURES PVT LTD,HYDERABAD vs. DCIT, CIRCLE- 8(1), HYDERABAD

The assessee raised the following grounds: “1. The order of the Assessing Officer is contrary to the law, facts and circumstances of the case.

The Assessing Officer erred in disallowing an amount of Rs.52,26,061/- being depreciation claimed on the building owned by the assessee.

The Assessing Officer erred in coming to a conclusion that the building does not belong to the assessee in the relevant A.Y. 4. Any other grounds which the assessee may urge either before or at the time during the hearing”.

The brief facts of the case are that the assessee is engaged in the business of operating wedding hall/convention Centre and give out on hire the premises and also do catering. The assessee filed a return of income for the A.Y 2018-19 on 29/10.2018 declaring total loss of Rs.85,68,511/-. The case was selected for scrutiny and during the course of assessement proceedings, the Assessing Officer noticed that the assessee has claimed depreciation on building for Rs.52,26,061/-. The Assessing Officer called upon the assessee to file necessary details including ownership of asset on which depreciation was claimed. In response, the assessee submitted that it has taken on lease a land from M/s. Palanati Ram Reddy Charitable Trust, a family trust and constructed a building on said land by spending an amount of Rs.5,22,60,611/- and also used the building for the purpose of business of the assessee. The Assessing Officer further called upon the assessee to file lease deed or any other document to prove the ownership of the building. In response, the assessee has filed copy of lease deed executed on 31.01.2019 and claimed that since the land belong to family Trust, no lease rent was paid by the company. The assessee further contended that before

Page 2 of 7 31.01.2019, the ownership of land was with the company on the basis of oral lease agreement with M/s. Palanati Ram Reddy Charitable Trust. The Assessing Officer however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, in order to claim depreciation u/s 32 of the I.T. Act, 1961, the asset must be owned by the person who claims depreciation and further, the asset should be used for the purpose of business during the relevant period. Since the appellant has got right over the land by way of lease deed dated 31.01.2019 i.e. in the financial year 2018-19, for the impugned A.Y, the assessee is not entitled to claim depreciation on building. Therefore, disallowed depreciation claimed by the assessee of Rs.52,26,061/- and added back to the income.

On appeal, the learned CIT (A) confirmed the addition made by the Assessing Officer.

Aggrieved by the order of the learned CIT (A), the assessee is in appeal before the Tribunal.

The learned Counsel for the assessee submitted that the learned CIT (A) is erred in confirming disallowance of depreciation of Rs.52,26,061/- on the building constructed by the appellant on lease hold land from family trust without appreciating fact that as per Explanation(1) of section 32(1) of the Page 3 of 7 I.T. Act, 1961, even if the appellant holds lease or other right of occupancy and incur expenditure in the form of a capital expenditure for any building or structure, then such structure or building shall be deemed to be building owned by the assessee and accordingly, he is eligible to claim depreciation. Therefore, he submitted that the depreciation claimed by the assessee should be allowed.

The learned DR, on the other hand, supporting the orders of the learned CIT (A) submitted that as per Explanation (1) of section 32(1) of the I.T. Act, 1961, ownership of the asset must be with the person who claim depreciation and further, the asset should be used for the business of the assessee. Since the appellant failed to prove ownership of asset, even by way of lease deed, the Assessing Officer has rightly disallowed depreciation and thus, order of the learned CIT (A) should be upheld.

We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. The appellant claims to have constructed building on leasehold land taken from M/s. Palanati Ram Reddy Charitable Trust. The appellant has incurred Rs.5,22,16,611/- for construction of building and claimed depreciation @ 10% for Rs.52,22,061/-. The appellant claimed that since the land was taken on lease from the Family Trust, there was no formal lease agreement and the property was taken on lease by oral agreement

We have gone through the reasons given by the learned CIT (A) to uphold the addition made by the Assessing Officer towards disallowance of depreciation in light of provisions of section 32(1) and Explanation (1) provided therein along with argument of the learned Counsel for the assessee. As per Explanation (1) of section 32(1) of the I.T. Act, 1961, where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. As per Explanation (1) any building or structure can be considered to be owned by the assessee in case the appellant incurs any capital expenditure on construction of Page 5 of 7 any building or structure on a lease land or other right of occupancy. That means, even if the assessee constructed a building and used the said building for his business on any land on which it had any other right of occupancy, but not only the right of ownership or right of lease, then depreciation can be claimed on said building. In the present case, the Assessing Officer simply disallowed depreciation only on the ground that the assessee does not have any lease deed for the impugned A.Y. however, not examined whether the appellant is having any other right of occupancy or not. In case the appellant carries on its business in the said premises, then it can be said that the assessee is having other right of occupancy. But, facts are not clear from the assessment order or even the assessee is unable to file any other evidence to prove any other right of ownership. Therefore, we are of the considered view that the issue needs to go back to the file of the Assessing Officer for further verification. Thus, we set aside the order passed by the learned CIT (A) and restore the issue back to the file of the Assessing Officer and also direct the Assessing Officer to verify the claim of the assessee in light of provisions of section 32(1) and Explanation (1) provided therein in light of any evidence that may be filed by the assessee to prove any kind of ownership on land including lease hold right or any other right of occupancy.

In the result, appeal filed by the assessee is allowed for statistical purposes.