W.H. BRADY & LTD, MUMBAI v. ITO 2(3)(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH MUMBAI BEFORE SHRI S.V. MEHROTRA ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER ITA NO. 4765/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S. W.H. BRADY & LTD. DCIT 2(3) BRADY HOUSE 4TH FLOOR 5TH FLOOR AAYAKAR BHAVAN 12-14 VEER NARIMAN ROAD VS. M.K. ROAD MUMBAI 400020 FORT MUMBAI 400001 PAN - AAAC2 0913 B APPELLANT RESPONDENT APPELLANT BY: SHRI R.C. JAIN RESPONDENT BY: SHRI MOHD. USMAN O R D E R PER S.V. MEHROTRA A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXX MUMBAI DATED 27.05.2009 2. ASSESSEE HAS RAISED A SOLITARY GROUND AS BELOW: - 1. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE D ISALLOWANCE OF DEPRECIATION OF RS.24 47 233/- AS AGAINST RS.6 89 5 39/- WORKED OUT BY THE APPELLANT AS RELATABLE TO LET OUT PROPER TY WHILE COMPUTING INCOME FROM BUSINESS BY THE ASSESSING OFFICER. 3. THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YE AR CARRIED ON THE BUSINESS OF MARKETING OF MATERIAL HANDLING EQUI PMENTS SUCH AS CHAIN PULLEY BLOCKS CRANES AND INSTALLATION OF FIRE HYDR ANT SYSTEMS THROUGH ITS BRANCHES AT NEW DELHI COIMBATORE KOLKATA AHMEDAB AD BANGALORE AND CHENNAI. THE COMPANY WAS ALSO SELLING TEXTILE CONEW INDING MACHINES ASSEMBLED AT AHMEDABAD GODOWN AND ALSO DEALING IN S PARES OF TEXTILE MACHINERY ITEMS. APART FROM ABOVE THE COMPANY OWNE D BRADY HOUSE BUILDING IN MUMBAI AND RECEIVED RENT FROM THE SAID PROPERTY. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INCOME DECLARING TO TAL INCOME OF RS.8 23 774/-. THE A.O. EXAMINED ASSESSEES CLAIM I N RESPECT OF EXPENSES ATTRIBUTABLE TO LET OUT PROPERTY AND NOTICED FROM T HE DEPRECIATION CHART THAT ITA NO. 4765/MUM/2009 M/S. W.H. BRADY & LTD. 2 THE ASSESSEE HAS CLAIMED TOTAL DEPRECIATION OF RS.2 9 15 791/- ON BUILDING ON LEASEHOLD LAND. HE OBSERVED THAT THE ASSESSEE OWNED ONLY ONE HOUSE PROPERTY NAMED BRADY HOUSE. HE FURTHER NOTICED TH AT IN THE COMPUTATION OF BUSINESS INCOME THE ASSESSEE COMPANY ON ITS OWN DIS ALLOWED 75% OF EXPENSES ON ACCOUNT OF INSURANCE OF LET OUT PROPERT Y REPAIRS OF LET OUT PROPERTY AND RENT RATES AND TAXES OF RS.61 699/- RS.28 30 560/- AND RS.U 772/- (AGGREGATING TO RS.29.00 031/-) RESPECTI VELY. HE OBSERVED THAT WHILE DOING SO ASSESSEE DID NOT GIVE ANY CONSIDERA TION TO THE DEPRECIATION AMOUNT OF RS.29 15 791/- CLAIMED ON BRADY HOUSE OF WHICH MAJOR PORTION WAS LET OUT AND REMAINING PORTION WAS OCCUPIED BY T HE ASSESSEE. HE ALSO DID NOT AGREE WITH THE DISALLOWANCE TO THE EXTENT OF 75 % ONLY AS IN HIS OPINION SHOULD HAVE BEEN 83.93% AS SELF OCCUPIED PORTION WA S ONLY 4600 SQ.FT. OUT OF TOTAL AREA OF 28620 SQ.FT. AFTER CONSIDERING AS SESSEES SUBMISSIONS AS REPRODUCED AT PAGES 3 & 4 OF THE ASSESSMENT ORDER THE A.O. INTER ALIA DISALLOWED 83.93% OF DEPRECIATION AND ALSO THE DIFF ERENCE BETWEEN 83.93% AND 75% IN RESPECT OF OTHER EXPENSES. THUS HE MADE AN AGGREGATE DISALLOWANCE OF RS.57 30 726/- OUT OF TOTAL EXPENSE S OF RS.68 27 971/-. THE DISALLOWANCE WITH REGARD TO DEPRECIATION WAS RS.24 47 233/- OUT OF ASSESSEES TOTAL CLAIM OF RS.29 15 791/-. IN APPEAL BEFORE THE CIT(A) VIDE LETTER DATED 04.11.2006 THE ASSESSEE EXPLAINED THE CIRCUMSTANCES UNDER WHICH THE DEPRECIATION REMAINED TO BE DISALLOWED. T HE ASSESSEE POINTED OUT THAT THE AGGREGATE DISALLOWANCE INCLUDING DEPRECIAT ION SHOULD HAVE BEEN RS.37 16 185/- AS AGAINST RS.5730 726/- MADE BY THE A.O. THE LEARNED CIT(A) DISMISSED ASSESSEES APPEAL INTER ALIA OBS ERVING THAT THE A.O. HAD WORKED OUT THE DISALLOWANCE AS PER THE RATIO GIVEN BY THE ASSESSEE. 4. THE LEARNED COUNSEL REFERRED TO PAGE NO. 13 OF THE PAPER BOOK WHEREIN THE ASSESSEES STATEMENTS DATED 13.11.2006 ARE CONT AINED. IN THIS LETTER IT HAD BEEN STATED THAT REVISED CLAIM OF DEPRECIATION FOR A.Y. 2004-05 WAS RS.37 16 185/- AS AGAINST RS.44 05 724/-. THE LEARN ED COUNSEL REFERRED TO PAGE NO. 15 OF THE PAPER BOOK WHEREIN THE STATEMENT SHOWING REVISED WORKING OF DEPRECIATION PERMISSIBLE UNDER INCOME TA X RULES IS CONTAINED AND POINTED OUT THAT DEPRECIATION HAD BEEN ALLOWED FOR THE ENTIRE PROPERTY. HE REFERRED TO PAGE NO. 16 OF THE PAPER BOOK TO DEM ONSTRATE THE REVISED ITA NO. 4765/MUM/2009 M/S. W.H. BRADY & LTD. 3 CLAIM MADE BY THE ASSESSEE FOR DEPRECIATION FOR A.Y . 2004-05 WHICH IS AS UNDER: - STATEMENT SHOWING REVISED ORKING DEPRECIATION PERM ISSABLE UNDER I.T. RULES 1962 ASSESSMENT YEAR 2004-05 ASST YEAR W.D.V. AS ON 1.4.2003 ADDITION RATE PERMISSABLE DEPRECIATION W.D.V. AS ON 31.3.2004 DEPRECIATION ON LETOUT PROPERTY PUNJAB NATIONAL BANK RS. 5648849 RS. 125000 10% RS. 577385 RS. 5196464 RS. 433039 (9 MONTHS) BELAPUR SUGAR & ALLIED INDUSTRIES LTD 3420000 - 10% 342000 3078000 256500 (9 MONTHS) BRADY & MORRIS ENGG. CO LTD 19946061 - 10% 1996406 1796406 NOT LET OUT TOTAL 29032910 125000 2915791 26242119 689539 SUMMARY RS. DEPRECIATION PERMISSIBLE AS FILED WITH RETURN OF IN COME 4405724 LESS: DEPRECIATION ON LETOUT PORTION (DISALLOWABLE) 689539 _________ REVISED PERMISSIBLE DEPRECIATION 3716185 ------------ 5. WITH REFERENCE TO THE ABOVE DETAILS THE LEARNED CO UNSEL SUBMITTED THAT THE ASSESSEE DID NOT CLAIM THE DEPRECIATION FO R THE PERIOD FOR WHICH THE PROPERTY HAD BEEN LET OUT AND THE SAID AMOUNT WAS R S.6 89 539/- ONLY AS AGAINST THE DISALLOWANCE MADE BY THE A.O. FOR THE E NTIRE PERIOD. THE LEARNED COUNSEL SUBMITTED THAT BOTH THE LOWER REVENUE AUTHO RITIES HAVE NOT AT ALL CONSIDERED THIS ASPECT AND HAVE DISALLOWED DEPRECIA TION FOR THE ENTIRE YEAR THOUGH THE PROPERTY HAD NOT BEEN LET OUT FOR THE EN TIRE PERIOD. 6. THE LEARNED D.R. SUBMITTED THAT DEPRECIATION IS TO BE ALLOWED AS PER THE SCHEME OF THE ACT. HE SUBMITTED THAT THE DEPREC IATION IS ALLOWABLE ON ITA NO. 4765/MUM/2009 M/S. W.H. BRADY & LTD. 4 THE OPENING WDV OF THE YEAR AND SINCE THE ASSET HAD BEEN LET OUT THEREFORE THE SAME DID NOT FORM PART OF THE BLOCK OF ASSETS A ND HENCE NO DEPRECIATION WAS ALLOWABLE. IN THIS REGARD HE REFERRED TO SECTI ON 43(6)(C) WHICH DEALS WITH WRITTEN DOWN VALUE IN THE CASE OF BLOCK OF ASSETS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD. ADMITTEDLY THE A.O. HAD DISALLOWED 83.93% OF THE TO TAL EXPENSES CLAIMED BY THE ASSESSEE. THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE IN REGARD TO DEPRECIATION WAS RS.29 15 791/- OUT OF WHICH RS.24 47 233/- WAS DISALLOWED. THUS THE A.O. HAS MADE THE DISALLOWANCE ON THE BASIS OF AREA USED BY THE ASSESSEE FOR BUSINESS PURPOSES WITHOUT HAVING REGARD TO THE PERIOD FOR WHICH THE IMPUGNED PROPERTIES WERE ACTUA LLY LET OUT. THE ASSESSEE IS ENTITLED FOR DEPRECIATION FOR THE PERIOD FOR WHI CH THE PROPERTY HAD ACTUALLY BEEN PUT TO USE FOR BUSINESS PURPOSES BECAUSE IN TH E BLOCK OF ASSETS ALL THE ADDITIONS AND DEDUCTIONS ARE TAKEN INTO CONSIDERATI ON IN THE OPENING WDV FOR DETERMINING THE WDV AT WHICH DEPRECIATION IS TO BE CHARGED. THE ASSESSEES CONTENTION IS THAT IN THE EARLIER YEAR F ULL DEPRECIATION HAD BEEN ALLOWED AS IS EVIDENT FROM THE PAPER BOOK PAGE NO. 15 WHEREAS IN THE CURRENT YEAR THE A.O. DISALLOWED 83.93%. THE ASSESS EES CLAIM AS PER THE DETAILS REPRODUCED ABOVE HAVE NOT AT ALL BEEN TAKEN INTO CONSIDERATION BY THE A.O. THEREFORE WE RESTORE THIS MATTER TO THE F ILE OF THE A.O. FOR THE LIMITED PURPOSE OF EXAMINING THE PERIOD FOR WHICH T HE PROPERTY HAD BEEN LET OUT IN RESPECT OF WHICH DEPRECIATION IS NOT TO BE A LLOWED. HOWEVER FOR THE PERIOD FOR WHICH THE PROPERTY WAS NOT LET OUT DEPR ECIATION IS TO BE ALLOWED IN ACCORDANCE WITH LAW IF THE ASSET WAS USED FOR BUSI NESS PURPOSE. THE A.O. WILL EXAMINE THE CONTENTS OF THE PAPER BOOK PAGE NO . 16 AS REPRODUCED EARLIER AND ALLOW ASSESSEES CLAIM IN ACCORDANCE W ITH LAW. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON 9 TH APRIL 2010. SD/- SD/- (V. DURGA RAO) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEM BER MUMBAI DATED: 9 TH APRIL 2010 ITA NO. 4765/MUM/2009 M/S. W.H. BRADY & LTD. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXX MUMBAI 4. THE CIT II MUMBAI CITY 5. THE DR G BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P. ITA NO. 4765/MUM/2009 M/S. W.H. BRADY & LTD. 6 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 30.03.10 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 31.03.10 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR. PS/PS 7 FILE SENT TO THE BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER