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2015 (5) TMI 304 - AT - Income TaxDepreciation u/s 32 - ownership - building in question named, Shubhalaxmi consists of 14 apartments which have been acquired by the two Directors of the assessee company in their individual names - whether arrangement entitles the assessee to be understood as an owner of the property qua the provisions of section 32(1)? - Held that - In the present case, the formal deed of title of the property is not executed and registered in the name of assessee company. The moot question is as to whether assessee can be said to have acquired possession over the property in its own right and is using it for the purposes of business and is entitled to hold the property to the exclusion of all others. We say so for the reason that in the present case, the assessee cannot be said to have acquired possession of the property in his own right or exercising such dominion over it as would enable others being excluded therefrom. Admittedly, the only mechanism in terms of which assessee is using the property is the arrangement with the individual Directors, which is supported by the resolutions of the Board of Directors. The individual Directors have acquired the property in their names and the transfer of the property into the account books of the assessee company is merely by way of a book entry supported by the resolution of the Board of Directors. Such arrangement ostensibly does not invest the assessee with the dominion over the property to the exclusion of all others. Therefore, in the light of the legal position laid down by the Hon ble Supreme Court in the case of Mysore Minerals Ltd. (1999 (9) TMI 1 - SUPREME Court ) and the fact-position in the present case, in our view, the lower authorities rightly held the assessee not entitled for depreciation u/s 32(1) of the Act with respect of the property in question. - Decided against assessee. Disallowance of various expenses - repairs & maintenance, interest on loan and electricity charges incurred in relation to the property Shubhalaxmi - Held that - The appellant company has been consistently asserting before the Assessing Officer as well as before the CIT(A) that the premises are being used for the business of the assessee and even before us various functions have been enumerated to justify the usage of the property for the business of the assessee. Though, there is no clinching evidence in favour of the assertions of the assessee but at the same time the Assessing Officer has also not lead any material to prove any falsity in the assertions of the assessee; therefore, in our view, it would meet the ends of justice if it is to be understood that 50% of the expenses relating to repair, maintenance, electricity bills, municipal taxes and water expenses incurred on property are relatable to the carrying on of the hospital business of the assessee. Thus, we set-aside the order of the CIT(A) and direct the Assessing Officer to allow only 50% of the expenses on electricity bills, repair & maintenance, municipal taxes and water expenses, and disallow the balance - Decided partly in favour of assessee. Benefit of exemption u/s 35(1)(iv) denied - assessee contended that the impugned sums of capital nature were expended on scientific research related to the business carried on by it - Held that - The Hon ble Gujarat High Court in DCIT vs. Mastek Ltd. 2012 (9) TMI 264 - GUJARAT HIGH COURT noted that in the absence of the Assessing Officer having obtained any adverse decision from the prescribed authority, there was no justification in rejecting assessee s claim for deduction of expenditure incurred for scientific research. As a consequence of the aforesaid discussion, in our view, the CIT(A) was justified in setting-aside the action of the Assessing Officer disallowing the claim of deduction u/s 35(1)(iv) of the Act relating to the capital expenditure income on scientific research. Thus, on this aspect, we hereby affirm the order of the CIT(A) - Decided in favour of assessee. Validity of assessment u/s 153A - Held that - No justification on the plea of the assessee challenging the validity of assessment u/s 153A r.w.s. 143(3) of the Act on the ground that additions to the income made by the Assessing Officer were not on the basis of any incriminating document. - Decided against assessee. Owner of property at Shubhalaxmi - Held that - The income-tax authorities were justified in holding that the property Shubhalaxmi belongs to assessee Dr. Avinash Ramchandra Phadnis and partly to Dr. (Mrs.) Amita Avinash Phadnis and not to M/s Phadnis Clinic Pvt. Ltd., as contended by the assessee. - Decided against assessee. Proportional use of property - part of the property is used by the assessee, Dr. Avinash Phadnis and Or Mrs Amita Phadnis for their profession and part for their residence and hence as deduction allowed by the (earned CIT(A) to Dr. Avinash Phadnis for his self-occupied area, therefore deduction of balance interest calculated on the basis of proportionate area used by him for his profession be allowed at 100% - Held that - 50% of the building can be said to have been used for the purposes of the business of the company itself. As a consequence Assessing Officer is directed to re-visit the aforesaid pleas of the assessee afresh and allow appropriate relief as per law. - Decided in favour of assessee for statistical purposes. Expenditure for securing the right to practice at Jahangir Hospital - whether the expenditure was incurred wholly and exclusively for the furtherance/continuation of the business and did not create any capital asset and should be consequently allowable as business expenditure u/s 37? - Held that - The ownership of the asset represented by the impugned expenditure in the shape of IVF machinery and the renovation/restructuring of the IVF setup of the Jahangir Hospital vests with the Jahangir Hospital. On this aspect, there is no dispute. The Assessing Officer has also accepted the position that assessee incurred such expenditure with the expectation that his own business would improve in the long run because of the association with Jahangir Hospital.Once the objective of the expenditure being improvement in business prospects is accepted, then it has to follow that such an enduring benefit is in the revenue field. If the benefit, though long term is in the revenue field, then the corresponding expenditure which has resulted in such benefit is liable to be considered revenue in nature following the parity of reasoning laid down by the Hon ble Supreme Court in the case of Empire Jute Company Ltd. vs. CIT, 1980 (5) TMI 1 - SUPREME Court . Therefore, on this aspect of the matter, we accept the plea of the assessee that the expenditure of ₹ 32,74,564/- in question is liable to be treated as a revenue expenditure. - Decided in favour of assessee.
Issues Involved:
1. Validity of assessment under section 153C read with section 143(3) of the Income-tax Act. 2. Disallowance of expenses claimed by the assessee. 3. Ownership and depreciation claim on the property "Shubhalaxmi." 4. Allowability of expenses related to the property "Shubhalaxmi." 5. Deduction claimed under section 35(1)(iv) of the Income-tax Act. 6. Additional grounds of appeal in related assessment years. 7. Revenue's appeals regarding the disallowance of the deduction claimed under section 35(1)(iv). 8. Validity of assessment under section 153A read with section 143(3) of the Income-tax Act. 9. Allowability of expenditure incurred for securing the right to practice at Jahangir Hospital. Issue-Wise Detailed Analysis: 1. Validity of Assessment under Section 153C read with Section 143(3): The assessee contended that the assessment made by invoking section 153C read with section 143(3) was bad in law due to the absence of incriminating documents. The Tribunal upheld the validity of the assessment, referencing the Hon'ble Delhi High Court's judgment in SSP Aviation Ltd., which clarified that there is no requirement for documents found during the search to conclusively reflect undisclosed income. The CIT(A)'s decision was affirmed, dismissing the assessee's plea. 2. Disallowance of Expenses Claimed by the Assessee: The assessee's claim for depreciation and other expenses related to the property "Shubhalaxmi" was disallowed by the Assessing Officer and upheld by the CIT(A). The Tribunal found that the property was purchased in the names of the individual directors and not the company, and thus the company could not claim depreciation. The Tribunal also directed the Assessing Officer to allow 50% of the expenses on electricity bills, repair & maintenance, municipal taxes, and water expenses, as they were partially used for business purposes. 3. Ownership and Depreciation Claim on the Property "Shubhalaxmi": The Tribunal held that the ownership of the property did not vest with the assessee company as it was purchased by its directors in their individual names. The company could not claim depreciation on the property as it was not the rightful owner. The Tribunal referenced the Supreme Court's judgment in Mysore Minerals Ltd. to support its decision. 4. Allowability of Expenses Related to the Property "Shubhalaxmi": The Tribunal allowed 50% of the expenses related to the property "Shubhalaxmi" as they were used for business purposes. The CIT(A)'s decision to disallow these expenses was partially overturned, and the Assessing Officer was directed to allow the proportionate expenses. 5. Deduction Claimed under Section 35(1)(iv): The Tribunal upheld the CIT(A)'s decision to allow the deduction claimed under section 35(1)(iv) for scientific research expenses. The CIT(A) noted that the Assessing Officer was not competent to decide whether the activity constituted scientific research without a decision from the prescribed authority. The Tribunal affirmed this view, referencing the Gujarat High Court's judgment in Mastek Ltd. 6. Additional Grounds of Appeal in Related Assessment Years: The Tribunal applied its decision for assessment year 2003-04 to the related assessment years 2001-02 and 2004-05 to 2007-08, partially allowing the appeals of the assessee. 7. Revenue's Appeals Regarding the Disallowance of the Deduction Claimed under Section 35(1)(iv): The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to allow the deduction claimed under section 35(1)(iv) for scientific research expenses. 8. Validity of Assessment under Section 153A read with Section 143(3): The Tribunal upheld the validity of the assessment under section 153A read with section 143(3), dismissing the assessee's plea that no incriminating evidence was found during the search. The Tribunal referenced the Mumbai Bench's decision in Scope (P) Ltd., which clarified that initiation of proceedings under section 153A is mandatory following a search. 9. Allowability of Expenditure Incurred for Securing the Right to Practice at Jahangir Hospital: The Tribunal allowed the assessee's claim for revenue expenditure incurred for securing the right to practice at Jahangir Hospital. The expenditure was considered incurred for business purposes and was thus allowable under section 37(1) of the Income-tax Act. Conclusion: The Tribunal's judgment partially allowed the appeals of the assessee and dismissed the Revenue's appeals, providing a detailed analysis of each issue based on legal precedents and the facts of the case. The Tribunal's decision emphasized the importance of ownership and the purpose of expenses in determining their allowability under the Income-tax Act.
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