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Income Tax Appellate Tribunal, “E”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)- Mumbai, dated 24-7-2012, for the assessment years 2009-2010, in the matter of order passed u/s.143(3) of the I.T.Act, wherein following grounds have been raised :- On the facts and circumstances of the case and in law, the CIT(A) has erred in upholding the Assessing Officer’s views for :
1. Restricting the appellant’s claim for depreciation at Rs.36,75,867/- as against Rs.73,51,734/-.
2. Treating the commission expenditure paid of Rs.82,67,850/- as a preliminary expenses u/s.35D of the Income Tax Act.
3. Treating travelling expenses of Rs.16,66,006/- as preliminary expenses u/s.35D of the Income Tax Act.
2. Rival contentions have been heard and record perused. During the course of scrutiny assessment, the AO disallowed assessee’s claim of 2 depreciation, preliminary expenses and partly travelling expenses. The CIT(A) has confirmed the disallowance, against which the assessee is in further appeal before us.
3. First ground is pertaining to restricting assessee's claim for depreciation at Rs.36.75 Lacs, as against Rs.73.51 Lacs, as claimed by the assessee. The AO has restricted the depreciation claim made by the assessee of Rs.79,53,859/- to Rs.42,77,992/-, on the plea that since license fee income was only earned from 01.11.2008, the depreciation claim of Rs.73,51,734/- stood restricted by him to Rs.36,75,867/-. Thus, the AO had restricted assessee’s claim to 50%. 3.1 We have considered rival contentions and perused the record carefully. The assessee is in the business of running a business service centre. The assessee was incorporated on 12.05.2008. The assessee had identified premises being 18,373 sq.ft. of area comprising of Unit Nos.21 & 22 in the month of May 2008 itself for carrying out its activities of running business service centre facility from these premises. Formal Leave & License agreement was entered into on 05.06.2008 (for a period of 36 months) with M/s. Kalpataru Properties Pvt. Ltd., (placed at Pages 20 to 80 of the PG No.1) for of the property situated at Kalpataru Synergy, permission for carrying out carpentry work etc. was granted to the assessee by Kalpataru Properties Pvt. Ltd. Insurance of the premises, computers, etc. were made by the assessee on 15.09.2008. 3.2 The Hon’ble Supreme Court in Shaan Finance Pvt. Ltd. - 231 ITR 308 has laid down a proposition that the test for the term "used" has to be 3 seen in the context of the business of the assessee and whether the asset is used for the purposed of business. The assessee's business is that of running of a business service centre, in this case, the assessee has let out Unit No.30 as per agreement dtd.15.09.2008 and therefore, the asset was used for the purposes of business. The Bombay High Court in Kotak Mahindra Finance Ltd. 317 ITR 236 by relying on the Supreme Court decision rendered in the matter of M. Corp Global Pvt. Ltd. - 309 ITR 434 has held that assessee carrying on business of leasing is entitled to claim depreciation, as soon as, the machinery is leased and rent is received, whether the lessee has installed the machinery or not is immaterial. In the above decision of the Bombay High Court, its earlier decision in the case of Dinesh Kumar Gulabchand Agarwal - 267 ITR 768 was considered and distinguished. In light of discussion above, the case laws as relied upon by the AO are not applicable to the facts of the assessee's case. 3.3 We, therefore, direct the AO to delete the disallowance of claim of depreciation so made.
The next grievance of the assessee relates to disallowance of brokerage. Facts in brief are that during the year under consideration, the assessee has paid commission of Rs.82,67,850/- to one M/s Jones Lang Lasalle for acquiring office space of 18,373 sq.ft.. The bill is dated 12.06.2008. The AO held that the certificate of incorporation was issued to the company on 12.05.2008 and therefore, holds that the commission expenditure being incurred prior to commencement of business is capital in nature, as against revenue claimed by the assessee.
4 4.1 By the impugned order the CIT(A) confirmed the disallowance. 4.2 We have considered rival contentions and found that the brokerage paid is as per Bill dtd.12.06.2008, whereas, the company was incorporated on 12.05.2008, therefore, no stretch of imagination this expenditure can be treated as pre-operative in nature, as it was incurred after the company was incorporated. Business is nothing more than a continuous course of activities and for commencement of business all activities which go to make up the business need not be started simultaneously. As soon as, an activity which is the essential activity in the course of carrying on business it is started, the business therefore, must be said to have commenced. For this purpose reliance can be placed on the Bombay High Court decision rendered in the case of Ralliwolf Ltd. - 121 ITR 262 (Bom.) Awaram Ltd. - 197 ITR 22 & Mumbai Tribunal in Accor Radhakrishna Corporate Services (P) Ltd. - 13 SOT 652. 4.3 In view of the above discussion, we do not find any merit for the disallowance so made by the AO.
The AO has also disallowed traveling expenses Rs.16,66,006/ - incurred in the month of May 2008, as pre-operative in nature & has proceeded to allow the assessee amortization u/s.35D of the Income Tax Act. According to the AO, these being pre-operative in nature, since incurred prior to commencement of business are capital in nature. 5.1 We have considered rival contentions and carefully perused the record. As per the AO the expenditure was incurred in the month of May 5 ITA No.6179/12 2008, whereas company was incorporated on 12-5-2008. It is not clear as to what is the exact time period on which expenses were incurred. In the interest of justice, we restore this ground back to the file of the AO and direct the AO to restrict the disallowance of travelling expenses for amortization under Section 35D in respect of expenditure incurred till the date of incorporation i.e. 12-5-2008. We direct accordingly.
In the result, appeal of the assessee is allowed in part.. Order pronounced in the open court on this 16/12/2015.