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2010 (12) TMI 1080 - AT - Income TaxExcessive depreciation claimed in respect of building - contention of the assessee is that the payment of these amounts to NDMC was part of the total consideration amount payable by that company to Government of India for taking over of Hotel Kanishka - CIT(A) was of the view that these payments were part of the bid amount submitted by the company at the time of disinvestments of Hotel Kanishka owned by ITDC and these amounts were paid for regularization of procedural lapses and only after payment of these amounts completion certificate of hotel was issued by NDMC - HELD THAT - The order of the CIT(A) does not require any interference. The same is based on the decision in the case of LOKE NATH AND CO. (CONSTRUCTION) 1984 (1) TMI 53 - DELHI HIGH COURT which is the subject-matter of detailed discussions in para 3.3 of the order of CIT(A). It must be appreciated that qua the assessee it is only a part of purchase consideration paid and the payments were made to perfect the title of the buyer in the property which it had acquired from the Government of India under the disinvestment policy. The assessee has paid certain amounts which were accepted as part of purchase consideration. The payment of purchase consideration was made to different people having regard to the liabilities of the erstwhile ITDC which was the owner. In fact it could not have had a perfect title to the property which it had purchased had it not got these things regularized from NDMC by payment of the sums in question - The payments made for perfecting the title or ownership of the business asset represent the expenditure for the purpose of the business and the assessee has rightly capitalized the sums in question which also represent as a part of purchase consideration of the asset. Excessive depreciation claimed in respect of UPS and printers - AO classified the same as part of general machinery and allowed 25 per cent per annum instead of 60 per cent claimed by the assessee - HELD THAT - The issue is now concluded by the decision of Delhi High Court in COMMISSIONER OF INCOME TAX VERSUS BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. 2010 (8) TMI 58 - DELHI HIGH COURT wherein their Lordships have agreed with the view of the Tribunal and expressed that computer accessories and peripherals such as printers scanners and server etc. form an integral part of the computer system. In fact the computer system cannot be used in isolation or without the computer accessories and peripherals. Accordingly the High Court upheld the assessee s claim for higher rate of depreciation at 60 per cent - Following the same there arise no need to interfere in the order of the CIT(A) who directed the allowance of higher depreciation on these peripherals and computer accessories at the same rate as applicable to computers. Addition of interest income which was added by the AO as income from other sources - HELD THAT - Respectfully following the decision of the jurisdictional High Court in the case of INDIAN OIL PANIPAT POWER CONSORTIUM LIMITED NEW DELHI 2009 (2) TMI 32 - DELHI HIGH COURT wherein their Lordships have clearly laid down the principle that when interest earned is inextricably linked with the setting up of the plant such income is required to be set off against pre-operative expenses. There is no dispute that the interest income earned by the assessee in the instant case is inextricably linked with the setting up of the hotel the bank guarantees and letter of credit required the margin money and the margin money has been provided in the form of fixed deposit which incidentally earned some interest. Such interest is inextricably linked with the setting up of the hotel and the order of the CIT (A) having regard to the facts and circumstances of the case cannot be found fault with. The orders of the CIT(A) on this issue in the respective assessment years are confirmed. Allowability of landscaping expenses - AO was of the view that the term building does not specifically include landscaping under the IT Rules and the claim of depreciation on the expenses incurred on landscaping cannot be allowed as deduction - HELD THAT - The term building has not been defined in the Act. The nature of the asset has to be ascertained and we have to understand the meaning of the term building depending upon the context to which a reference has been made. Here the assessee is in a hotel business. His building is not merely a structure of four walls but includes all such things as are necessary to give the building a better look and is a matter of attraction for the customers to use it. Having regard to the assessee s nature of business it cannot be said that the landscaping done by the assessee cannot be considered as a building. After all the assessee has given a better look to this building by provision of this landscaping which has become an integral part of the building to be used as a hotel - The CIT(A) has correctly applied the principle laid down in DELHI AIRPORT SERVICE. 2001 (9) TMI 39 - DELHI HIGH COURT and also the decision of GWALIOR RAYON SILK MANUFACTURING CO. LIMITED 1992 (4) TMI 3 - SUPREME COURT and the decision of SOUTHERN PETRO CHEMICAL INDUSTRIES CORPORATION LIMITED 1998 (6) TMI 85 - MADRAS HIGH COURT to give an extended and more meaningful definition of the term building - this view is thus agreed upon. Addition made on account of the liabilities - AO went through the balance sheet and found that certain constant amounts were outstanding from the assessee for more than 3 years and are being carried forward as a liability from year to year and there has been no transaction during the year - HELD THAT - There are no material to come to a view that the liabilities in question have ceased to exist on the date of the balance sheet. Merely because the accounts have become non-operational or the period of 3 years has expired it does not mean that such liability has ceased to exist. It is not open to the AO to conclude that such liabilities have ceased to exist. The liability cannot become unenforceable merely because the period of 3 years has expired. Moreover in this case the assessee has not even written off such liability to its P L a/c. Having regard to the facts and circumstances of the case there are no error in the order of the CIT(A) on this point. Appeal of Revenue dismissed.
Issues Involved:
1. Addition made by the AO on the ground of excessive depreciation claimed in respect of building. 2. Claim of excessive depreciation on UPS and printers. 3. Deletion of interest income added by the AO as income from other sources. 4. Claim of depreciation on landscaping expenses. 5. Addition on account of liabilities that ceased to exist. Issue-wise Analysis: 1. Addition on Excessive Depreciation Claimed in Respect of Building: The common ground in all these appeals relates to the addition made by the AO on the ground of excessive depreciation claimed in respect of building. The assessee, a company, acquired Hotel Kanishka from ITDC under the disinvestment policy of the Government of India during the relevant period. The AO observed that certain payments made to NDMC were penalties for unauthorized occupation and construction, and added the depreciation claimed on these amounts as excessive. The assessee contended that these payments were part of the total consideration for acquiring the hotel and were made to regularize procedural lapses. The CIT(A) accepted the assessee's contention, viewing the payments as part of the bid amount for disinvestment and necessary for obtaining the completion certificate. The Tribunal upheld the CIT(A)'s decision, stating that the payments were made to perfect the title of the property and should be capitalized as part of the purchase consideration. 2. Claim of Excessive Depreciation on UPS and Printers: The next common dispute relates to the claim of excessive depreciation on UPS and printers. The assessee classified these items as part of the computer system and claimed a higher depreciation rate of 60%. The AO classified them as general machinery, allowing only 25% depreciation. The Tribunal, following the Delhi High Court's decision in CIT v. BSES Yamuna Powers Ltd., upheld the assessee's claim, recognizing that computer accessories and peripherals form an integral part of the computer system and are eligible for the higher depreciation rate. 3. Deletion of Interest Income Added by the AO as Income from Other Sources: For the assessment years 2004-05 to 2006-07, the issue was the deletion of interest income added by the AO as income from other sources. The assessee explained that the interest earned on FDRs, kept as margin money for bank guarantees required for renovation under EPCG licenses, was deducted from the expenses capitalized during the pre-construction period. The CIT(A), following the Delhi High Court's decision in Indian Oil Panipat Power Consortium Ltd. v. ITO, held that the interest income was inextricably linked with the renovation of the hotel and should reduce the cost of construction. The Tribunal confirmed the CIT(A)'s order, agreeing that the interest income was linked with the setting up of the hotel and should be treated as part of the cost of construction. 4. Claim of Depreciation on Landscaping Expenses: In the assessment year 2007-08, the issue was the claim of depreciation on landscaping expenses. The AO disallowed the claim, stating that 'building' does not include landscaping under the IT Rules. The CIT(A) accepted the assessee's claim, considering the landscaping as an integral part of the building necessary for the hotel business. The Tribunal agreed, noting that the term 'building' should be interpreted in context, and landscaping enhances the building's appeal, making it an essential part of a hotel. The Tribunal also noted that the Department had accepted the CIT(A)'s order for the previous year, and could not challenge it in the subsequent year. 5. Addition on Account of Liabilities that Ceased to Exist: In the assessment year 2007-08, the AO added Rs. 86,83,766, considering certain liabilities that had been outstanding for more than three years as ceased to exist. The CIT(A) disagreed, stating that the liabilities had not ceased to exist and could still be enforced by the creditors. The Tribunal upheld the CIT(A)'s decision, noting that the mere passage of time does not extinguish a liability, and there was no evidence that the liabilities had ceased to exist. Conclusion: In conclusion, the Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s orders on all the issues. The Tribunal affirmed that the payments made for regularizing procedural lapses were part of the purchase consideration, computer peripherals are eligible for higher depreciation, interest income linked to renovation reduces the cost of construction, landscaping expenses are part of the building, and liabilities do not cease to exist merely due to the passage of time.
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