2019 (9) TMI 148 - AT - Income Tax

Rate of depreciation on golf-course - building OR plant and machinery - According to the revenue authorities, it is a building and not a plant whereas the assessee contends that it is a plant - HELD THAT - Coordinate bench in case of Deputy Commissioner of Income Tax vs. JP greens Ltd 2010 (3) TMI 1248 - ITAT DELHI , on identical facts and circumstances considered golf course as plant and depreciation at the rate of 25% was allowed holding that assessing officer himself has allowed depreciation at that rate in past in that particular case. The decision relied upon by the learned CIT DR that Toll Road does not qualify as a plant for higher rate of depreciation as held in the Moradabad Toll Road Co Ltd vs. Asst Commissioner of income tax 2014 (11) TMI 354 - DELHI HIGH COURT was decided as road was specifically considered as part of building in the part A of appendix 1 of The Income tax Rules 1962. Thus, the fact of that case is distinguishable. Further, it was not stated before us that revenue has not accepted the decision of the coordinate bench in DCIT vs. JP greens Ltd where golf course was held to be plant. Therefore, it stands concluded that golf course is a plant looking to the nature of business of the assessee. Further, the judicial precedents relied upon by the parties also only lays down the proposition established by the higher judicial forum supports the above view. In view of this, ground number 1 of the appeal of the assessee is allowed reversing the views of the lower authorities, holding that golf course is a plant on which assessee is entitled to the depreciation at the rate of 25% under the income tax act. Disallowing the expenses on account of golf course on repairs and maintenance - HELD THAT - It is a fact that assessee has submitted the details of such expenses. The books of the accounts of the assessee are duly audited and the learned assessing officer has also not pointed out any specific debate the defect in the details of such expenses. The merely because there is an increase in the expenditure compared to the golf course income the disallowance cannot be made. Further the assessing officer has also not established that those expenditure have not been incurred wholly and exclusively for the purposes of the business. In view of this we do not find any infirmity in the order of the learned CIT A in deleting the above disallowance. Addition u/s 41(1) - HELD THAT - CIT-A noted that a sum of INR 1 54606/ was disallowed by the assessee in assessment year 2000 01, ₹ 2886114 in assessment year 2001 02 and ₹ 3333882/ in assessment year 2003 04 and therefore he held that the assessee itself has disallowed the above sum amounting in all INR 2 6374602/ in the earlier years and therefore out of the sum of INR 80 416051/ a sum of INR 6 374602 is not following under the provisions of section 41 (1). He therefore held that the addition made by the learned assessing officer to that extent of INR 6 374602/ is not sustainable. We do not find any infirmity in the order of the learned CIT A to that extent. Further with respect to the disallowance of INR 2 041449/ of the balance sum sustained by the learned CIT A, the assessee could not show that whether these expenditure have already been disallowed by the assessee in the earlier years or not and therefore in absence of such details, the additions cannot be deleted. In view of this we find no infirmity in the order of the learned CIT A in upholding the disallowance of INR 2 041449/ Addition of security deposit received - Accrual of income - advance receipt of golf course membership fee - HELD THAT - Merely because the income, which is pertaining to subsequent years, is received by the assessee in earlier years does not become the income of the earlier years under section 5 of the income tax act in case of either business income or u/s 28. Hence, according to us, the membership fee income of the assessee should be chargeable to tax in the year to which it pertains. Therefore, we reverse the finding of the learned CIT A in holding that that a sum of INR 3 5288416 received as golf course membership fee is chargeable to tax as income. As such, it is the claim of the assessee that subsequently such income has already been offered for taxation therefore for the year to which it pertains. Therefore, we direct the learned assessing officer to tax the above income as Income for the impugned assessment year to which it pertains to. Therefore, if the assessee has offered the income, to the year to which it pertains to, the addition is required to be deleted. Taxability of the security deposit against the golf course membership fee - HELD THAT - The identical issue arose before the honourable Gujarat High Court in principal Commissioner of income tax vs. Gulmohar Green Golf and country club Ltd 2016 (12) TMI 1559 - GUJARAT HIGH COURT wherein it was been held that the security deposit recovered from the members at the time of their enrolment as a member is refundable on occurrence of the contingency mentioned in the rules and regulation and bylaws, therefore it is required to be treated as a deposit, thus, a capital receipt. Therefore, it was held that it is not an income of the assessee. As in the case of the assessee also the security deposit is refundable hence respectfully following the decision above, we also hold that the sum of refundable security deposit received from the members of the assessee is a capital receipt and cannot be charged to tax as income. Accordingly, we direct the learned assessing officer to delete the addition to the extent of refundable deposit received from the members Disallowance of bad debt/advances written off in the normal course of the business - HELD THAT - We are not impressed to allow the claim of the assessee, as none of the decision cited before us relates to advances written off for purchase of a capital asset given in earlier years was involved. Further, for the claim of allowability u/s 28, loss should be of revenue nature. For the claim of allowability u/s 37 (1) of the act, the expenditure should be of revenue nature. Therefore, the prime condition that is required to be satisfied by the assessee is that that expenditure is revenue in nature. According to us the advances given for purchase of capital goods, cannot be considered to be revenue in nature, when they are written off. In view of this, we do not find any infirmity in the order of the learned CIT A, in principle, that the advances given for the purchase of capital goods he further written off in this year is a capital expenditure. With respect to the allowability of bad debts, there is no infirmity in the order of the CIT A mentioned in his order that such advances should have been shown as income in the earlier years. - Decided against assessee Undisclosed income on sale of land - HELD THAT - In the case of CIT v. George Henderson And Co. Ltd. 1967 (4) TMI 18 - SUPREME COURT it is held that, the expression full value of the consideration could not be construed as the market value but must be taken to be the price bargained for by the parties to the sale. Further the assessee before the learned CIT-A has clearly stated that the comparable sale of land to ITC Ltd that the above agreement did not materialize and subsequently it was cancelled since the assessee was not able to obtain the required permission and it is still continues to be owned and possessed by the assessee. Even further, the comparison of the sale of the plot of land with the sale of flat in the adjoining area is not comparing apples with Apple but Apple with oranges. Thus, in absence of any corroborative evidence of having received the consideration higher than what has been stated in the sale deed and in the books of account, the addition made by the learned assessing officer is not in accordance with the law. Long-term capital gain on transfer of ownership of ITC Ltd - above addition has been made subject to the exact details of the date on acquisition cost of the land on protective basis and on substantive made a basis the addition has been made in assessment year 2001 02 and 2003 04 on the basis of agreement to sale dated 16th/2/2001 and 17/3/2003 - HELD THAT - As the revenue could not point out that what is the trigger point of taxing the above amount in this year and further in which year the transfer of the capital asset has happened, the above addition has rightly been deleted by the learned CIT A. In view of this we do not find any infirmity in the order of the learned CIT A deleting the protective addition Addition on account of interest disallowances - HELD THAT - No infirmity in the order of the learned CIT A wherein it has been held that that fresh borrowing of INR 7.75 crore were utilized for repayment of loan pertaining to earlier years and the purpose of the loan has been accepted by the learned assessing officer, the disallowance made by the learned assessing officer is not sustainable. We also do not find any infirmity in the order of the learned CIT A mentioning the reasons for deletion of the disallowance Penalty u/s 271(1)(c) - Defective notice - HELD THAT - None of the twin charges have been struck off by the learned assessing officer in notice dated 18/05/2007. Honourable Delhi High Court in M/S. SAHARA INDIA LIFE INSURANCE COMPANY, LTD. 2019 (8) TMI 409 - DELHI HIGH COURT as per paragraph number 21 of that order has also upheld the view of the coordinate bench that notice issued by the learned assessing officer would be bad in Law if it did not specify under which limb of section 271 (1) (c), penalty proceedings had been initiated. Advance membership fees chargeable to tax in this year or not - HELD THAT -w e hold that membership fees received by the assessee as advance membership fees, and shall be chargeable to tax on the basis of the accrual income to which it pertains. For such verification as in assessment year 2005 06, we set aside the issue back to the file of the learned assessing officer. With respect to the issue of taxability of the non-refundable security deposit we have already hold that such receipt is not an income of the assessee. Accordingly, we hold for this year too that non-refundable security deposit received by the assessee is not an income chargeable to tax. Accordingly, ground number of the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Classification of Golf Course for Depreciation Purposes.
2. Validity of Reassessment Proceedings.
3. Taxability of Membership Fees and Security Deposits.
4. Disallowance of Bad Debts/Advances Written Off.
5. Addition on Account of Undisclosed Income from Sale of Land.
6. Addition on Account of Long-Term Capital Gains.
7. Disallowance of Interest Expenditure.
8. Penalty under Section 271(1)(c).

Detailed Analysis:

1. Classification of Golf Course for Depreciation Purposes:
The core issue was whether the golf course should be classified as "plant and machinery" or "building" for depreciation purposes. The Tribunal held that the golf course qualifies as "plant" based on the functional test, which considers whether the asset is a tool of the business. The Tribunal noted that the golf course is a specialized structure involving various equipment and systems integral to its operation, thus eligible for depreciation at 25%.

2. Validity of Reassessment Proceedings:
The reassessment proceedings were initiated under Section 147 based on certain audit objections. The Tribunal restored the issue to the Assessing Officer (AO) for fresh adjudication, emphasizing that any prima-facie observations made in earlier proceedings stood obliterated, requiring a de-novo consideration without prejudice from earlier orders.

3. Taxability of Membership Fees and Security Deposits:
The Tribunal dealt with the taxability of membership fees and security deposits received by the assessee. It was held that:
- Membership fees received in advance should be taxed on an accrual basis in the year to which they pertain.
- Refundable security deposits are capital receipts and not taxable as income.

4. Disallowance of Bad Debts/Advances Written Off:
The Tribunal examined the disallowance of bad debts and advances written off. It held that advances given in the ordinary course of business, which become irrecoverable, should be allowed as a trading loss under Section 28. The Tribunal referred to various judicial precedents supporting the allowance of such claims.

5. Addition on Account of Undisclosed Income from Sale of Land:
The AO had made an addition by estimating a higher sale consideration for land sold by the assessee. The Tribunal deleted the addition, stating that no evidence was provided by the AO to substantiate the allegation of suppression of sale consideration. The Tribunal emphasized that the actual consideration received, as documented, should be accepted unless proven otherwise.

6. Addition on Account of Long-Term Capital Gains:
The AO made a protective addition for long-term capital gains based on agreements to sell land to ITC Ltd. The Tribunal noted that the agreements were eventually canceled, and the money was refunded. Since the substantive addition for earlier years was deleted, the protective addition for the current year was also deleted.

7. Disallowance of Interest Expenditure:
The AO disallowed a portion of interest expenditure, alleging that borrowed funds were used for non-business purposes. The Tribunal upheld the CIT(A)'s deletion of the disallowance, noting that the fresh borrowings were used for repaying old loans, and no evidence was provided to show non-business use of funds.

8. Penalty under Section 271(1)(c):
The AO levied penalties for various disallowances and additions. The Tribunal addressed the issue of whether the penalty notice specified the charge (concealment of income or furnishing inaccurate particulars). The Tribunal, following judicial precedents, held that the penalty notice must clearly specify the charge. Since the notice did not specify the charge, the penalty was deemed invalid.

Conclusion:
The Tribunal's detailed analysis and decisions on each issue provided clarity on the classification of assets for depreciation, the validity of reassessment proceedings, the taxability of various receipts, the allowance of business losses, and the imposition of penalties. The decisions emphasized the need for proper evidence and adherence to legal principles in tax assessments and penalties.