2017 (11) TMI 637 - AT - Income Tax

Disallowance of depreciation in respect of furniture and fixtures in the office and interest - addition of property was found residential and was not used for the purpose of office/profession - Assessee relied upon the assessment order for A.Y. 2010-2011 to show that A.O. did not disallow depreciation and interest - Held that - As noted here that the A.O. did not consider the issue of interest on depreciation in his order under section 143(3). It is a brief order passed by him without reference to deduction of the interest and depreciation. Further, the facts are totally different in assessment year under appeal because A.O. was deputed to make factual inspection of the property in question to justify the claim of the assessee of use of the residential property for business purpose only. This fact was not considered in A.Y. 2010-2011. Therefore, when new facts have been brought on record, the rule of consistency would not apply in the facts and circumstances of the case. Considering all CIT(A) correctly disallowed the balance amount of interest of ₹ 33,84,098 as having been incurred for purpose other than that of business. The depreciation on same analogy for sum of ₹ 2,54,511/- was rightly disallowed. The Ld. CIT(A) also noted that assessee did not produce any evidence that Ranikhet premises is used for the purpose of business. Therefore, depreciation have been correctly disallowed - Decided against assessee. Disallowance of service tax - assessee did not produce any evidence before authorities below to justify his claim of deduction - Held that - Claim of assessee cannot be verified whether service tax is paid for professional receipts earned by the assessee in assessment year under appeal. A.O. also noted that the total service tax payable by the assessee comes to ₹ 5,57,360 but assessee claimed payment of ₹ 1,83,856. Therefore, facts were not verifiable from the explanation of assessee. The assessee filed copy of the bank certificate of Axis Bank before Ld. CIT(A) which also did not reveal anything in favour of the assessee. The assessee has filed copy of the bank certificate from Axis Bank which only confirm that assessee paid service tax payment. But it is not clarified as to on which professional income assessee has paid the service tax. In the absence of clarification of the payment of service tax for earning professional income, no interference is called for in the matter. - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on furniture and fixtures.
2. Disallowance of interest on office/home loan.
3. Disallowance of service tax paid.

Issue-wise Detailed Analysis:

1. Disallowance of depreciation on furniture and fixtures:

The assessee argued that the CIT(A) erred in confirming the disallowance of ?52,015 in respect of furniture and fixtures at the Ranikhet office and only allowing ?23,067 for the Delhi Office. The assessee claimed depreciation on various assets, including office premises and furniture. However, the AO found that the Ranikhet office was not used for business purposes and disallowed the depreciation. The CIT(A) upheld this disallowance, noting that the assessee failed to establish the business use of the Ranikhet premises. For the Delhi office, the CIT(A) allowed depreciation proportionate to the business use, which was determined to be 8.31% of the total area, resulting in an allowance of ?23,067 and disallowance of ?2,54,511. The Tribunal upheld these findings, agreeing with the factual determination that only a small portion of the premises was used for business purposes.

2. Disallowance of interest on office/home loan:

The assessee claimed interest on a home loan as a business expense, arguing that the property was used for both residential and office purposes. The AO disallowed the entire interest of ?36,90,804, considering the property primarily residential. The CIT(A), after a remand report and physical inspection, found that only 8.31% of the property was used for business purposes and allowed interest proportionately, amounting to ?3,06,704, disallowing the remaining ?33,84,098. The Tribunal upheld this decision, noting that the factual inspection confirmed the limited business use of the property. The Tribunal also dismissed the argument regarding consistency with previous years, stating that the earlier assessment did not consider the detailed factual inspection conducted in the current year.

3. Disallowance of service tax paid:

The assessee claimed a deduction for service tax paid amounting to ?1,83,856. The AO disallowed this claim due to the absence of evidence, such as service tax returns or challans. The CIT(A) upheld this disallowance, noting that the bank certificate provided by the assessee did not specify whether the payment was for service tax, penalty, or related to professional work. The Tribunal agreed with the CIT(A), emphasizing the lack of evidence to verify the payment of service tax for professional receipts, thus upholding the disallowance.

Conclusion:

The Tribunal dismissed the appeal of the assessee, affirming the findings of the CIT(A) and the AO on all contested issues. The disallowance of depreciation, interest on the home loan, and service tax was upheld based on the factual determinations and lack of sufficient evidence provided by the assessee. The decision emphasized the importance of substantiating claims with appropriate documentation and the limited applicability of the consistency principle when new facts are presented.