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2015 (6) TMI 710 - AT - Income TaxDisallowance of depreciation on the motor car - Held that - For all practical purposes the car was owned by the company. The expenses have been debited in the accounts of the company. A similar issue had come up in the case of CIT vs. Basti Sugar Mills Co. Ltd. (2002 (5) TMI 27 - DELHI High Court) wherein upheld the allowance of depreciation on the car which was not registered in the name of company but used for the business purposes of the company. Also see CIT vs. Navdurga Transport Co. (1997 (9) TMI 35 - ALLAHABAD High Court). Respectfully following these two decisions, we are of the view that assessee has established that for all practical purposes the car was owned by the company and it was used for the business purposes of the company, therefore, the depreciation is admissible to the assessee on the car. - Decided in favour of assessee. Treating the business loss suffered on sale of basement office as a short-term capital loss and allowed the same to be carried forward by CIT(A) - Held that - Assessee has never accounted this asset as a stock in trade in the accounts, therefore, it can never claim as business loss on sale of the office premises which is otherwise a capital asset. We do not find any error in the finding of ld. CIT(A). - Decided against assessee. Failure to deposit the PF contribution collected from the employees within the due date provided in the P.F. Act - Held that - This issue is covered against the assessee by the decision of Hon ble Jurisdictional High Court in the case of G.S.R.T. Corpn. reported in 2014 (1) TMI 502 - GUJARAT HIGH COURT wherein held that if assessee fails to deposit employees contribution within the due date provided under the P.F. Act then assessee will not be entitled for deduction. Accordingly, the ld. first appellate authority has rightly confirmed the disallowance. - Decided in favour of revenue. Lease rental income earned from the immovable property - business income OR income from house property - Held that - The main activity of the assessee was not earning rental income rather it was an activity of trading in the flats. Rental was an incidental income. Similar are the facts of other cases. The main activity of the assessee was not the earning of rental income. The Income-tax Act does not prohibit carrying out earning of rental income as a business income in an organized manner if that be so the income will be assessed as a business income and not under the head house property income . The ld. CIT(A) is not justified in changing the head which was accepted by the AO. In view of the above, the directions of the ld. CIT(A) for taking the remedial action in all other Assessment Years where it is possible as per law is concerned, these directions will automatically be extinguished because rental income in the case of the assessee is to be assessed as business income. Depreciation claim disallowed - Held that - Ajarmar Flats were purchased by the assessee before 30th September, 2006. Out of 17 flats, 9 flats were actually let out, exhibiting the fact that the asset was ready for use in the business. It is construed that assets were used passively for the purpose of business and, therefore, depreciation is admissible to the assessee. We direct the AO to grant depreciation on the value of these flats. As far as the properties purchased at Eternia Complex is concerned, these purchases were made on 31st March, 2007 i.e. last day of accounting year and the assessee could not bring any evidence on the record demonstrating that these flats were ready for use or giving them on rent. There is no evidence of this on record. Thus there cannot be any passive user of these flats. The assessee is not entitled for depreciation on these assets. We confirm the view of AO on this point - Decided partly in favour of assessee.
Issues Involved:
1. Disallowance of depreciation on the motor car. 2. Disallowance of motor car expenses. 3. Treatment of business loss on sale of basement office as a short-term capital loss. 4. Disallowance of PF contribution due to late deposit. 5. Disallowance of depreciation on buildings and classification of lease rental income. Issue-Wise Detailed Analysis: 1. Disallowance of Depreciation on the Motor Car: The appeals involved the disallowance of depreciation on a motor car for AYs 2006-07 and 2007-08. The car was purchased in the name of a director, but the company claimed depreciation. The AO disallowed the claim, stating the company was not the registered owner. The CIT(A) upheld the disallowance. Upon review, the tribunal considered the Board's resolution, the director's declaration of no personal interest, and the company's repayment of the car loan. Citing precedents from the Delhi High Court and Allahabad High Court, the tribunal concluded that the car was effectively owned by the company and used for business purposes. Thus, the depreciation claim was allowed for both years. 2. Disallowance of Motor Car Expenses: For AY 2006-07, the AO disallowed motor car expenses of Rs. 473 on the same grounds as the depreciation disallowance. Given the tribunal's findings on the ownership and use of the car, these expenses were also allowed. 3. Treatment of Business Loss on Sale of Basement Office: The assessee claimed a business loss of Rs. 4,50,500 on the sale of a basement office, arguing it was purchased for resale. The AO treated it as a short-term capital loss, as the property was shown as a capital asset, not stock-in-trade. The CIT(A) upheld this view, noting the property was listed as capital work in progress, not stock-in-trade. The tribunal agreed with the CIT(A), emphasizing the importance of how the asset was recorded in the books. Therefore, the loss was correctly treated as a short-term capital loss, and this ground was rejected. 4. Disallowance of PF Contribution Due to Late Deposit: For AY 2007-08, the AO disallowed Rs. 29,272 of PF contributions deposited late. The CIT(A) confirmed this disallowance, referencing the Gujarat High Court decision in G.S.R.T. Corpn., which mandates timely deposit of employee contributions for deduction eligibility. The tribunal upheld this disallowance, rejecting the ground of appeal. 5. Disallowance of Depreciation on Buildings and Classification of Lease Rental Income: The AO disallowed Rs. 13,11,225 of depreciation on buildings, arguing the properties were not used for business purposes and classified lease rental income as "income from house property" instead of "business income." The CIT(A) supported this, citing several judicial precedents. The tribunal, however, differentiated the facts, noting the assessee's organized rental income activity. It referenced the Allahabad High Court's decision in Prakash Agrihotri, supporting the classification of such income as business income. The tribunal directed the AO to grant depreciation for Ajarmar Flats, purchased before 30th September 2006, as they were ready for use. However, it denied depreciation for properties at Eternia Complex, purchased on 31st March 2007, due to lack of evidence of readiness for use. The directions for remedial action in other assessment years were nullified, as rental income was to be assessed as business income. Conclusion: Both appeals were partly allowed, with the tribunal providing specific directions on the treatment of depreciation, motor car expenses, business loss, PF contributions, and rental income classification. The order was pronounced on 29.5.2015.
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