2022 (8) TMI 1209 - AT - Income Tax

Depreciation on FSI - CIT(A) had allowed depreciation @ 10% on the actual payment - HELD THAT - CIT(A) noticed that the identical issue has been decided by the ITAT in assessee s own case 2016 (10) TMI 490 - ITAT MUMBAI relating to A.Y. 2005- wherein the Tribunal has held that the depreciation is allowable @ 10% and depreciation has to be allowed on the whole consideration towards FSI. Disallowance of depreciation on intangible assets - HELD THAT - As decided in own case relating to A.Y. 2004-05 allocation of cost of acquisition for each block of assets in a fair and reasonable manner as permitted by law had to be accepted. Further, the CIT(A) observed that even the Assessing Officer has not denied that the hotel business could not be carried out without the sale licenses and permits. CIT(A) further stated that 5 proviso to Section 32 of the Act would not be attracted to the case of the assessee. We, therefore, do not find any reason to interfere in the order of CIT(A). Disallowance of interest expenses paid to M/s Cox Kings - assessee justified payment of interest @ 24% stating that the debentures could not be redeemed on the date of maturity and it was constrained to roll over the maturity for further period after accepting the terms and condition that the interest shall be paid at rate of 24% - AO was not convinced with the explanations of the assessee and accordingly, he restricted the interest rate on Debentures @ 12% - HELD THAT - We notice that the Tribunal has deleted an identical disallowance made in AY 2010-11 following the decision rendered by Jaipur bench of Tribunal passed 2016 (7) TMI 1657 - ITAT JAIPUR wherein it was observed that the revenue has not placed any material under identical facts and circumstances that the fair market rate of interest is lower than what the assessee has claimed. It was further held that the AO has to give a finding having regard to fair market rate. Accordingly, it was held that the AO could not have made disallowance u/s 40A(2)(a) of the Act. We notice that the Hon ble Bombay High Court, vide its order 2021 (12) TMI 22 - BOMBAY HIGH COURT , has upheld the view expressed by the co-ordinate bench in AY 2010-11. In the years under consideration also, the AO has not given any finding having regard to the fair market rate. The Ld A.R further submitted that the assessee has been continuously incurring losses and the said losses could not be set off by the assessee for want of profits. Accordingly, he submitted that there was no tax benefit to the assessee by paying interest at the alleged higher rate. - Decided against revenue. Disallowance of interest u/s 36(1)(iii) - AO noticed that the assessee has given interest free advances to its sister concerns, while it was paying interest on moneys borrowed by it - AO disallowed proportionate interest expenditure in all the five years under consideration - CIT-A deleted the addition - HELD THAT - We notice that the quantum of interest free funds taken by the assessee from its related parties are more than the amount of interest free advances given to other related parties. Under identical set of facts, the co-ordinate bench has deleted the disallowance of interest expenses in AY 2010-11 following the decision rendered in the case of Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT - Accordingly, following the above said decision, we confirm the orders passed by Ld CIT(A) in deleting the disallowance in all the years. Disallowance of travelling expenses - as no details like proof of payment, nature and allowability of travelling expenses were furnished, the AO disallowed entire claim - HELD THAT - We notice that the AO has made disallowance only in AY 2012-13 and in all other years, the claim has been allowed. Since the assessee has failed to furnish the details, some disallowance is called for. We find that the disallowance of 50% made by CIT(A) is reasonable. Accordingly, we uphold the order passed by Ld CIT(A) on this issue. Disallowance of claim made u/s 40(a) - deduction/payment of tax deducted at source - HELD THAT - In the earlier paragraphs, we had upheld the decision rendered by the Ld CIT(A) on the issue of disallowances made u/s 40(A)(2)(a) and 36(1)(iii) in AY 2013-14 and 2014-15. Hence the claim made by the assessee u/s 40(a) in AY 2014-15 and 2015-16 was rightly allowed by Ld CIT(A). Accordingly, we uphold the order passed by Ld CIT(A) on this issue in AY 2014-15 and 2015- 16.

Summary

Issues Involved:
1. Depreciation on FSI.
2. Depreciation on intangible assets.
3. Disallowance of interest expenses paid to M/s Cox & Kings.
4. Disallowance of interest u/s 36(1)(iii).
5. Disallowance made out of travelling expenses.
6. Disallowance of claim made u/s 40(a).

Detailed Analysis:

1. Depreciation on FSI:
The first common issue involves the depreciation on Floor Space Index (FSI). The assessee had paid Rs. 68.16 lakhs for acquiring FSI costing Rs. 3.40 crore and claimed depreciation at 25%. The Assessing Officer (AO) allowed depreciation at 10% on the Written Down Value (WDV) of Rs. 36.22 lakhs, disallowing the balance amount. The CIT(A) followed the ITAT's decision in the assessee's own case for A.Y. 2005-06, directing the AO to allow depreciation at 10% on the whole cost of Rs. 3.40 crore. The ITAT upheld the CIT(A)'s decision, confirming that depreciation is allowable at 10% on the entire consideration towards FSI.

2. Depreciation on Intangible Assets:
The second issue concerns depreciation on intangible assets such as licenses, franchises, and other business rights. The AO disallowed the depreciation claimed by the assessee, consistent with earlier years. The CIT(A) referred to the ITAT's decision for A.Y. 2004-05, which allowed the assessee's claim. The ITAT noted that the CIT(A) had followed the ITAT's earlier decision and upheld the CIT(A)'s order, confirming the allowance of depreciation on intangible assets.

3. Disallowance of Interest Expenses Paid to M/s Cox & Kings:
The third issue relates to the disallowance of interest expenses paid to M/s Cox & Kings. The AO restricted the interest rate on debentures to 12%, disallowing the excess interest claimed at 24%. The CIT(A) deleted the disallowance, following the ITAT's decision for A.Y. 2010-11. The ITAT upheld the CIT(A)'s decision, noting that the AO had not provided any material to justify that the fair market rate of interest was lower than what the assessee had paid. The Bombay High Court also upheld this view, confirming the ITAT's decision for A.Y. 2010-11.

4. Disallowance of Interest u/s 36(1)(iii):
The fourth issue involves the disallowance of interest u/s 36(1)(iii) due to interest-free advances to sister concerns. The AO disallowed proportionate interest expenditure. The CIT(A) deleted the disallowance, noting that interest-free funds available with the assessee exceeded the interest-free advances given. The ITAT upheld the CIT(A)'s decision, referencing the Bombay High Court's decision in Reliance Utilities and Power Ltd., confirming that the interest-free funds were more than the advances given.

5. Disallowance Made Out of Travelling Expenses:
The fifth issue pertains to the disallowance of travelling expenses. The AO disallowed the entire claim of Rs. 18,41,075/- due to lack of details. The CIT(A) restricted the disallowance to 50%. The ITAT upheld the CIT(A)'s decision, considering the absence of details furnished by the assessee and finding the 50% disallowance reasonable.

6. Disallowance of Claim Made u/s 40(a):
The final issue deals with the disallowance of claims made u/s 40(a) for deduction/payment of tax deducted at source. The AO disallowed the claims in A.Y. 2014-15 and 2015-16, reasoning that the disallowed amounts were not made u/s 40(a). The CIT(A) deleted the disallowance, following the deletion of related disallowances in earlier years. The ITAT upheld the CIT(A)'s decision, confirming the allowance of claims made u/s 40(a) in the respective years.

Conclusion:
The ITAT dismissed all the appeals filed by the Revenue, upholding the CIT(A)'s decisions across all issues. The judgments were consistent with previous rulings in the assessee's own cases and supported by higher court decisions where applicable. The order was pronounced in the open court on 20.07.2022.