2020 (8) TMI 71 - AT - Income Tax

Revision u/s 263 - claim for depreciation on the leasehold rights - claim of depreciation of capitalized amount of stamp duty paid - HELD THAT - Stamp duty expenses incurred for taking the property under consideration on lease for a period of 33 years was to be construed as an intangible asset within the meaning of Sec. 32(1)(ii), and thus eligible for depreciation, cannot be accepted. Apart from that, we are also unable to comprehend that as to how a simpliciter payment of stamp duty expenses on the lease agreement (pending registration), would bring into existence an intangible asset of the same genus, as that of the six specified categories of assets, viz., knowhow, patents, copyrights, trademarks, licenses or franchises, as contemplated in Sec. 32(1)(ii) . Insofar the plethora of judicial pronouncements that have been pressed into service by the assessee, in order to drive home its claim that the expenses incurred towards payment of stamp duty expenses on the lease agreement (pending registration) was in the nature of an intangible asset falling within the meaning of Sec. 32(1)(ii) same being distinguishable on facts would thus not assist its case. A.R had not brought to our notice any judicial pronouncement/order, wherein it has been held that the stamp duty expenses incurred on a lease agreement (pending registration) was to be construed as an intangible asset eligible for depreciation u/s 32(1)(ii) - We are unable to comprehend that as to on what basis the A.O while framing the assessment had vide his order passed u/s 143(3), dated 12.02.2015, therein allowed the assessee s claim for depreciation on the capitalised amount of stamp duty expenses (pending registration). Allowing of the assessee s claim for depreciation on the stamp duty expenses (pending registration) by the A.O cannot be held to a possible view in law, therefore, no infirmity arises from the order passed by the Pr. CIT u/s 263, dated 30.03.2017, observing, that the allowing of the assessee s claim for depreciation of ₹ 1,39,11,652/- i.e @25% on the amount of stamp duty deposited, had rendered the order passed by the A.O u/s 143(3), dated 12.02.2015, as erroneous insofar it was prejudicial to the interest of the revenue. On finding no infirmity in the order passed by the Pr. CIT u/s 263 - Decided against assessee.

Summary

Issues Involved:
1. Breach of the Principles of Natural Justice
2. Legality of the Revision Order
3. Merits of the Depreciation Claim

Issue-Wise Detailed Analysis:

1. Breach of the Principles of Natural Justice:
The assessee argued that the Principal Commissioner of Income Tax (Pr. CIT) framed the revision order under Section 263 of the Income Tax Act, 1961 without giving a proper, sufficient, and effective opportunity of being heard, thus breaching the principles of natural justice. The Tribunal examined whether the Pr. CIT confronted the assessee with all issues before drawing adverse inferences. It was found that the Pr. CIT had drawn adverse inferences without confronting the assessee on certain issues, which violated the principles of natural justice. Therefore, the Tribunal vacated the observations of the Pr. CIT that were made without giving the assessee an opportunity to respond.

2. Legality of the Revision Order:
The assessee contended that the Pr. CIT erred in passing the order under Section 263, revising the assessment order passed by the Assessing Officer (A.O) under Section 143(3) of the Act. The Tribunal analyzed whether the conditions for invoking Section 263 were met, i.e., whether the assessment order was erroneous and prejudicial to the interest of the revenue. It was observed that the A.O had allowed the assessee’s claim for depreciation on leasehold rights without proper application of mind, rendering the assessment order erroneous and prejudicial to the revenue. The Tribunal upheld the Pr. CIT’s jurisdiction under Section 263, noting that the dual conditions of the order being erroneous and prejudicial were satisfied.

3. Merits of the Depreciation Claim:
The primary issue was whether the depreciation claimed on the stamp duty paid for leasehold rights qualified as an "intangible asset" under Section 32(1)(ii) of the Act. The Tribunal examined whether the leasehold rights fell within the meaning of "any other business or commercial rights of similar nature" as specified in Section 32(1)(ii). It was concluded that the stamp duty expenses did not par take the character of a business or commercial right similar to know-how, patents, copyrights, trademarks, licenses, or franchises. The Tribunal referred to various judicial pronouncements, including the Hon’ble High Court of Delhi in Areva T & D India Ltd. vs. DCIT, which clarified that the nature of "business or commercial rights" must be of the same genus as the specified assets. The Tribunal held that the stamp duty expenses incurred for the lease agreement did not qualify as an "intangible asset" under Section 32(1)(ii), and thus, the A.O’s allowance of depreciation was not a possible view in law.

Conclusion:
The Tribunal upheld the Pr. CIT’s order under Section 263, directing the A.O to disallow the depreciation claim and re-compute the income, as the original assessment order was found to be erroneous and prejudicial to the revenue. The appeal filed by the assessee was dismissed, and the Tribunal’s order was pronounced after considering the extraordinary circumstances due to the COVID-19 lockdown, which extended the usual time limits for pronouncement.