2017 (3) TMI 1903 - AT - Income Tax

Depreciation on FSI - CIT-A restricting the claim of depreciation on FSI to 10% as against that claimed by the assessee at 25% - HELD THAT - As respectfully following the decision of the coordinate bench in assessee s own case 2016 (10) TMI 490 - ITAT MUMBAI and in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assesse, we also hold that assesse entitled to depreciation @ 10% on the whole of the consideration towards FSI. In the result, this ground of appeal is dismissed. Depreciation on intangible assets - running business which. was acquired slump sale basis - HELD THAT - We have considered the aforementioned order in assessee s own case wherein we found similar ground raised in the aforementioned appeals and identical question involved in the present case has already been decided by the coordinate bench of ITAT Mumbai in assessee s own case. Disallowance u/s 40A(2) - claim of interest to the assessee - Addition on the account that Mr. Ajay Ajit Peter Kerker, Chairman of the assessee company was the Director of M/s Cox Kind India Ltd during the relevant period - HELD THAT - We have noticed that the Revenue has not placed on record any material or findings of the AO under the identical facts and circumstances that the rate of interest paid as claimed by the assessee is either excessive or unreasonable as laid out in section 40A(2)(b) of the Act, we therefore, respectfully follow the order of Coordinate bench of Hon ble ITAT, Jaipur bench 2016 (7) TMI 1657 - ITAT JAIPUR - Keeping in view the above facts and while considering the facts that the AO has not recorded any finding or collected any material to show that the interest paid by the assessee was in excess of the fair market rate of interest. In the circumstances of the present case, we are of the considered view that the claim of interest to the assessee be allowed and delete the disallowance u/s 40A(2). Disallowance of proportionate of interest u/s. 36(1)(iii) - interest free loans advanced to various parties - HELD THAT - We find that interest free funds available with the assessee were more than the interest free loans given by the assessee. Further, even the Assessing Officer has not proved any nexus between the borrowed funds and its utilization for providing interest free loans. Therefore, while following the judgment in the case of CIT V. Reliance Utilities and Power Ltd.. 2009 (1) TMI 4 - BOMBAY HIGH COURT and considering the facts of the present case, we are of the considered view that the Assessing Officer was not right in making the proportionate disallowance of interest u/s 36(1)(iii) of the Income Tax Act. Accordingly, we delete the disallowance made by the Assessing Officer and allow this ground raised by the assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on FSI.
2. Disallowance of depreciation on intangible assets.
3. Disallowance of interest claim on fully convertible debentures.
4. Disallowance of proportionate interest u/s 36(1)(iii) of the Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on FSI:
The assessee challenged the CIT(A)'s decision confirming the AO's action of disallowing depreciation on FSI amounting to Rs. 16,19,421 by restricting the rate to 10% instead of 25%. The assessee argued that the entire consideration towards FSI of Rs. 3,40,81,320 should be added to the block of assets, and depreciation should be allowed on the opening Written Down Value (WDV). The Tribunal referred to its earlier decision in the assessee's own case (ITA No. 3189/Mum/2011), where it was held that FSI is not an 'intangible asset' under section 32(1)(ii) but pertains to the building, thus eligible for depreciation at 10%. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing this ground of appeal.

2. Disallowance of Depreciation on Intangible Assets:
The assessee contested the CIT(A)'s decision confirming the AO's disallowance of depreciation on intangible assets amounting to Rs. 1,54,43,383. The Tribunal noted that similar issues were decided in the assessee's favor in previous years (ITA No. 4783 & 5517/Mum/2008). The CIT(A) had allowed depreciation on intangible assets, recognizing them as part of a slump sale and essential for the business. The Tribunal found no reason to deviate from its earlier decisions, thus allowing the assessee's claim and deleting the disallowance made by the AO.

3. Disallowance of Interest Claim on Fully Convertible Debentures:
The assessee argued against the disallowance of interest claim amounting to Rs. 1,60,22,465 on debentures issued to M/s. Cox & Kings India Ltd. at an enhanced rate of 24%. The Tribunal referred to the Coordinate Bench's decision in ITA No. 760/JP/2015, which emphasized that the AO must provide evidence that the interest rate claimed is excessive. The Tribunal found that the AO failed to demonstrate that the interest rate was unreasonable. Therefore, it directed the AO to allow the interest claim, deleting the disallowance under section 40A(2) of the Act.

4. Disallowance of Proportionate Interest u/s 36(1)(iii):
The assessee challenged the disallowance of Rs. 93,35,011, arguing that interest-free loans were advanced from interest-free funds received from M/s. Tulip Star Hotel Ltd. The Tribunal referred to the Bombay High Court's judgment in CIT vs. Reliance Utilities and Power Ltd., which held that if sufficient interest-free funds are available, no disallowance should be made. The Tribunal found that the AO did not establish a nexus between borrowed funds and interest-free loans. Consequently, it deleted the disallowance made by the AO and allowed this ground of appeal.

Conclusion:
The Tribunal partly allowed the appeal, upholding the disallowance of depreciation on FSI but allowing the claims for depreciation on intangible assets, interest on debentures, and proportionate interest u/s 36(1)(iii). The order was pronounced in the open court on 16th March 2017.