2014 (11) TMI 679 - AT - Income Tax

Depreciation on asset disallowed Delhi Metro Project - Ownership of the assessee - Asset owned by NBCC or assessee company Held that - CIT(A) rightly was of the view that assessee has purchased office space in the building from NBCC and some portion of 5th floor was acquired from CRISIL - full price of the property has been paid though the ownership is yet to be in the name of DMRC Ltd. - The office space occupied by DMRC was earmarked for the Government and the same was provided to DMRC by the Government of India due to DMRC s social objectives and also due to the fact that DMRC is a joint venture of Government of India - it is not very clear from the assessment order as to why the appellant is not entitled for depreciation on the building - the transaction was between the DMRC and Government which is also a shareholder of DMRC assessee is entitled for depreciation on the principles of part performance by virtue of provisions of section 2(47)(v) the order of the CIT(A) is upheld Decided against revenue. Depreciation on installation of electric sub-station at ISBT Asset owned by Delhi Vidyut Board or assessee company Held that - CIT(A) rightly was of the view that there is no doubt that the expense on electric sub-station was incurred wholly and exclusively for the purpose of business - assesseeis entitled to claim the entire expense as revenue relying upon CIT Vs Saw Pipe Ltd. 2007 (1) TMI 101 - DELHI HIGH COURT expenses on electric sub-station was incurred wholly and exclusively for the purpose of business - the assessee was entitled for deduction of entire expenditure, though, it claimed only depreciation treating the expenditure in capital field Decided against revenue. Misc. income not offered for taxation disallowed Held that - CIT(A) rightly held that the assessee had capitalized two sectors of their construction projects namely Vishwavidyala Kashmere Gate sector and Inderlok Rithala sector - In the subsequent assessment year the appellant had capitalized two more sectors Kashmere Gate Centre Secretariat sector and Barakhamba Dwarka sector - this method of accounting has consistently been followed by assessee - the interest on advance pertained to construction work the order of the CIT(A) is upheld Decided against revenue. Excess provision of leave encashment u/s 43B(f) disallowed Held that - CIT(A) rightly deleted the addition observing that AO failed to note that the assessee had not debited this amount in their profit and loss account but instead capitalized the expenses - Since, the assessee had not claimed this as an allowable deduction, the provision of sec. 43B had no application in the case of leave encashment capitalized by the assessee Section 43B comes into play only when deduction is claimed by the assessee in its computation u/s 28 though not paid during the year - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of depreciation on the NBCC building.
2. Disallowance of depreciation on capital expenditure for an electric sub-station owned by Delhi Vidyut Board.
3. Addition of miscellaneous income, including interest on advance not offered for taxation.
4. Disallowance of excess provision of leave encashment under Section 43B(f) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on the NBCC Building:
The Assessing Officer (AO) disallowed the depreciation claimed by the assessee on office space acquired from NBCC, citing the absence of a formal lease agreement and ownership rights. The CIT(A) allowed the assessee's claim, referencing the previous year's order and evidence that the full price had been paid to the Government of India. The Tribunal upheld the CIT(A)'s decision, noting that the building was occupied and used for business purposes, and full consideration had been paid. The Tribunal found no infirmity in the CIT(A)'s order and dismissed this ground of appeal.

2. Disallowance of Depreciation on Capital Expenditure for Electric Sub-station:
The AO disallowed the depreciation on capital expenditure incurred for an electric sub-station owned by Delhi Vidyut Board, arguing that the asset was not owned by the assessee. The CIT(A) allowed the claim, citing the Delhi High Court's decision in CIT Vs Saw Pipes Ltd., which supported either allowing the entire expense as revenue expenditure or granting depreciation. The Tribunal noted that the department did not appeal the previous year's decision, and since the expenditure was incurred wholly and exclusively for business purposes, the CIT(A)'s order was upheld, and this ground of appeal was dismissed.

3. Addition of Miscellaneous Income Including Interest on Advance Not Offered for Taxation:
The AO added Rs. 9,29,59,567/- to the total income, noting that interest on advances was transferred to the balance sheet as capital work in progress and not taken into the profit and loss account. The CIT(A) deleted the addition, observing that the assessee consistently capitalized interest on advances related to construction work. The Tribunal upheld this decision, noting that the method of accounting was consistently followed, and the interest pertained to construction work. This ground of appeal was dismissed.

4. Disallowance of Excess Provision of Leave Encashment under Section 43B(f):
The AO added Rs. 22,81,852/- to the total income, citing Section 43B(f), which allows deductions only when the sum is actually paid. The CIT(A) deleted the addition, noting that the amount was capitalized and not debited in the profit and loss account. The Tribunal agreed, stating that Section 43B applies only when a deduction is claimed in the computation under Section 28. Since the assessee did not claim the deduction, the CIT(A)'s order was upheld, and this ground of appeal was dismissed.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The order was pronounced in the open court on 14th November 2014.