2020 (5) TMI 545 - AT - Income Tax

Depreciation on letting out of building for business purposes - HELD THAT - The assessee has declared income from letting out building as income from business for the assessment year 2010-11 and 2011-12. It is an admitted fact that the assessee had let out 25% of the building in the assessment years under consideration. It cannot be said that the portion of the building is not entitled for depreciation. In our opinion, the order of the Tribunal in assessee s own case we direct the Assessing Officer to assess the income from letting out building under the head income from business and to grant depreciation for the assessment years 2010-11 and 2011-12. For the assessment year 2012-13, the assessee itself has offered income from letting out property as income from house property. As such, the assessee cannot have any grievance and is entitled to only deduction u/s. 24 of the I.T. Act. Disallowance u/s. 14A r.w.s. 8D - Whether assessee had sufficient interest free own funds available to make the above investments? - HELD THAT - Assessee has not established in the cash flow statements about the availability of enough own funds at the time of making investments in the exempted income yielding assets before the lower authorities. Hence, it is appropriate to verify the fact whether enough own funds are available with the assessee as on the date of making investments in the exempted income yielding assets. Being so, the assessee is directed to produce cash flow statements showing availability of enough own funds for making such investments with supporting documents which have to be examined by the Assessing Officer before making disallowance u/s. 14A read with Rule 8D of the I.T. Rules. Accordingly, we remit this entire issue in dispute to the file of the Assessing Officer for fresh consideration - Appeals filed by the assessee are partly allowed for statistical purposes.

Summary

Issues Involved:
1. Depreciation on letting out of building for business purposes.
2. Disallowance made under Section 14A read with Rule 8D of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Depreciation on Letting Out of Building for Business Purposes:

Facts:
The assessee declared income from letting out property as income from business for the assessment years 2010-11 and 2011-12, and under the head income from house property for the assessment year 2012-13. The Assessing Officer (AO) disallowed depreciation on the building, stating it was not used for business purposes, based on an inspection report indicating that 75% of the building was vacant and the rest was rented out.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, noting that the building was not being used for business purposes and directed the AO to disallow the total depreciation claim, assessing the building space as income from house property.

Tribunal's Decision:
The Tribunal referred to a previous order in the assessee’s own case (ITA No.99/Coch/2016), which allowed depreciation on the building since it was found to be used for business purposes, including staff occupation and training. The Tribunal directed the AO to assess the income from letting out the building under the head income from business and grant depreciation for the assessment years 2010-11 and 2011-12. However, for the assessment year 2012-13, since the assessee itself declared the income under the head house property, the Tribunal dismissed the appeal, allowing only the deduction under Section 24 of the I.T. Act.

2. Disallowance Made Under Section 14A Read with Rule 8D of the Income Tax Act:

Facts:
The assessee made investments in equity shares totaling ?13.82 crores, which were treated as exempt income bearing investments. The AO applied Rule 8D read with Section 14A, disallowing expenses related to these investments, arguing that interest-bearing funds were used for these investments.

CIT(A) Decision:
The CIT(A) upheld the AO's decision, noting that the assessee failed to provide bank account details to prove that interest-bearing funds were not used for the investments.

Tribunal's Decision:
The Tribunal noted the assessee's claim of having sufficient interest-free funds to make the investments. However, it found that the assessee did not establish the availability of enough own funds at the time of making the investments before the lower authorities. The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to produce cash flow statements and supporting documents to demonstrate the availability of interest-free funds at the time of investment.

Conclusion:
The appeals for the assessment years 2010-11 and 2011-12 were allowed concerning the depreciation issue, while the appeal for the assessment year 2012-13 was dismissed. The disallowance under Section 14A read with Rule 8D was remitted back to the AO for fresh consideration, with directions to the assessee to provide necessary documentation. The appeals were partly allowed for statistical purposes.