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2016 (4) TMI 802 - AT - Wealth-taxDeduction of liabilities on pro rata basis - Held that - Following the ratio of the judgment in the case of CIT vs. Vaidyanathan (1982 (11) TMI 1 - MADRAS High Court) we hold that liabilities can be deducted on pro-rata basis. In identical circumstances, it has been held by the ITAT, Mumbai Bench in the case of Lloyds Realty Ltd. vs. DCIT (2003 (7) TMI 264 - ITAT BOMBAY-WT ) that the debts owed by the assessee have to be allowed on pro-rata basis. The AO is accordingly directed to allow appropriate deduction in this regard in all the three years under appeal.
Issues Involved:
1. Disallowance of property tax deduction. 2. Disallowance of liabilities deduction. Issue-wise Detailed Analysis: 1. Disallowance of Property Tax Deduction: In WTA No. 51/Del/2012, the assessee company claimed a deduction of Rs. 5,45,831/- on property tax levied, but the deduction was limited to Rs. 3,90,979/- based on the property tax actually paid by the assessee. The assessee did not press this ground during the appeal, and thus, it was dismissed. 2. Disallowance of Liabilities Deduction: The core issue across all three appeals (WTA Nos. 51, 52, and 53) pertains to the disallowance of liabilities deductions claimed by the assessee. WTA No. 51/Del/2012: The assessee claimed a deduction of Rs. 30,42,575/- on account of liabilities, which was disallowed by the AO due to lack of evidence. The Ld. CWT (A) upheld this disallowance. The assessee argued that due to the passage of 18 years, it was unable to provide the necessary details, as the records were not available. The assessee contended that the liabilities should be correlated to the building block using a specific formula. The Ld. AR relied on the decision of the Mumbai 'WT' Bench in the case of Lloyds Realty Ltd. vs. DCIT 90 ITD 710. WTA No. 52/D/2007: The assessee claimed a deduction of Rs. 26,11,890/- on account of liabilities for the year ended 31.3.1989. This addition/disallowance was upheld by the Ld. CWT (A), and the assessee contested the same, taking the same plea as in AY 1988-89. WTA No. 53/D/2007: For the year ended 31.3.1992, the assessee claimed a deduction of Rs. 20,56,494/- on account of prorate liabilities, which was disallowed by the AO and confirmed by the Ld. CWT (A). The assessee took the same plea as in the previous years. Judgment Analysis: The Tribunal considered the submissions and reviewed the relevant legal provisions, particularly Section 2(m) of the WT Act, which allows the deduction of debts incurred in relation to the assets included in the net wealth. The Tribunal noted that although specific records were unavailable, the balance sheets indicated that borrowed funds were likely used to acquire the assets due to the meager capital and reserves of the assessee. The Tribunal referred to the judgment of the Hon'ble High Court of Madras in CIT vs. K.S. Vaidyanathan 153 ITR 11 (Mad.), which allowed for the apportionment of debts on a pro-rata basis even in the absence of explicit statutory provisions. The Tribunal also cited the ITAT Mumbai Bench's decision in Lloyds Realty Ltd. vs. DCIT, which supported the pro-rata deduction of debts. Conclusion: The Tribunal held that liabilities can be deducted on a pro-rata basis and directed the AO to allow appropriate deductions for all three years under appeal. Consequently, WTA 51 was partly allowed, and WTA 52 and 53 were allowed. Order Pronouncement: The order was pronounced in the Open Court on 29th February 2016.
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