2015 (7) TMI 950 - AT - Income Tax

Disallowance of claim of depreciation on (i) Residential house property at 10, Mistry Manor, 62A, Napean Sea Road, Mumbai and (ii) Premises at C-6, Corianthian, 17 Off Arthur Bunder Road, Colaba, Mumbai - CIT(A) allowed claim - Held that - D.R. even though vehemently relied on the order of the Assessing Officer but could not adduce any cogent material or evidence before us, which may compel us to reverse the finding of the CIT(Appeals). It is not denied that the property No. 10, Mistry Manor, 62A, Napean Sea Road, Mumbai was allotted to Smt. Anita Krishna, Di rec tor so that she can look after business activity carried on by the assessee-company in Mumbai. Similarly in respect of property at C-6, Corianthian, 17 Off Arthur Bunder Road, Colaba, Mumbai, no evidence was brought to our knowledge by the ld. D.R. which may prove that the assessee was not having its Office there - Decided in favour of assessee. Addition of annual value as income from house property under section 22 for two properties - Held that - Since we have already confirmed the order of CIT(Appeals) that both the properties acquired by the assessee during the year were being used for the purpose of business and, therefore, the assessee was entitled for the depreciation, and no question of adding annual value as income from house property under section 22 arises. - Decided in favour of assessee. Addition on set off of the past business losses - CIT(A) deleted addition - Held that - Provisions of section 79 are applicable where there is a change on the last day of the previous year the shares of the company carrying not less than 51% of the voting power were beneficially held by the persons who beneficially held shares of the company not less than 51% of the voting power on the last date of the year or years in which the loss was incurred. The preamble of this section requires that there must be a change in the shareholding. In the case of the assessee, we noted that there is no change in the shareholding pattern, the old 10 shareholders, who were having the entire share capital as on 31.03.2004 continues to hold the shares as on 31.03.2007. In the case of the assessee the change in the shareholding pattern is due to the induction of the fresh capital not due to the transfer of the shares from one shareholder to another. In view of this fact, we do not find any illegality or infirmity in the order of the CIT(Appeals). We accordingly confirm the order of the CIT(Appeals) directing the Assessing Officer to allow the set off of brought forward loss from the assessment year 2004-05. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of depreciation claims on two properties.
2. Use of properties for business activities.
3. Notional addition of income from house property.
4. Deletion of disallowance under Section 79 of the Income Tax Act.

Detailed Analysis:

1. Deletion of Disallowance of Depreciation Claims:
The Revenue appealed against the deletion of disallowance of depreciation claims amounting to Rs. 35,21,646/- for two properties located at 10, Mistry Manor, Napean Sea Road, Mumbai, and C-6, Corianthian, Colaba, Mumbai. The Assessing Officer disallowed the depreciation on the grounds that the properties were not used for business purposes. The CIT(A) deleted the disallowance, citing that the properties were used for business activities, referencing cases such as CIT vs. Delhi Cloth and General Mills Co. Ltd. and Jamshedpur Engineering and Machine Manufacturing Co. Ltd. The Tribunal upheld the CIT(A)'s decision, confirming that the properties were used for business purposes and thus eligible for depreciation.

2. Use of Properties for Business Activities:
The CIT(A) observed that the property at 10, Mistry Manor was allotted to a director for business activities in Mumbai, and the property at C-6, Corianthian was used as an office. The Tribunal agreed, noting the lack of evidence from the Revenue to contradict the use of these properties for business purposes. Consequently, the Tribunal dismissed the Revenue's grounds and confirmed the CIT(A)'s findings.

3. Notional Addition of Income from House Property:
The Revenue's contention that notional income should be added under the head "Income from house property" was dismissed by the Tribunal. Since the properties were confirmed to be used for business purposes, the question of adding notional income did not arise. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

4. Deletion of Disallowance under Section 79:
The Revenue challenged the deletion of disallowance of Rs. 30,67,863/- under Section 79, which pertains to the carry forward and set off of losses. The Assessing Officer disallowed the set-off, citing a change in shareholding. However, the CIT(A) found that the old shareholders continued to hold their shares, and the change was due to the induction of fresh capital, not a transfer of shares. The Tribunal agreed with the CIT(A), noting that the provisions of Section 79 were not applicable as there was no change in the shareholding pattern. The Tribunal confirmed the CIT(A)'s order, allowing the set-off of brought forward losses.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The properties were used for business purposes, eligible for depreciation, and no notional income addition was warranted. Additionally, the disallowance under Section 79 was correctly deleted as there was no change in the shareholding pattern. The appeal was dismissed in its entirety.