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TMI Blog2020 (9) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of business and was of enduring nature; since it related to the building block of the asset, the overall cost of the building block would increase by this amount; therefore CIT(A) directed the Assessing Officer to add the amount spent during the year to the building block of asset and allow depreciation as per law i.e. on the rate applicable to the building which is 10% and not 25%. Documents placed on record that the order of the CIT(A) was accepted by the revenue and a conscious decision was taken not to file further appeal. When the revenue sought to file cross-objection belatedly the same was dismissed on the ground of limitation. That apart, having not filed appeal against such decision of CIT (A), revenue cannot now raise a dispute as to percentage of depreciation. No good ground to disturb the finding of the Tribunal on this point. Therefore, we are of the view that no substantial question of law arises from the order of the Tribunal on this issue. - Decided against revenue. - INCOME TAX APPEAL (IT) NO.1734 OF 2017 - - - Dated:- 21-9-2020 - UJJAL BHUYAN MILIND N. JADHAV, JJ. Mr. A.R. Malhotra with Mr. N.A. Kazi, Advocates for the Appellant. Mr.P ercy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67,319.00 on the FSI @ 10% of total consideration. 9. Assessee is a company assessed under the Act. It is engaged in hoteliering business. For the assessment year under consideration, it filed its return of income disclosing loss of ₹ 26,36,59,486.00. In the course of the assessment proceeding, Assessing Officer observed that the assessee had claimed depreciation of ₹ 63,90,248.00 on FSI; on an opening written down value (WDV) of ₹ 2,55,60,990.00, depreciation @ 25% was claimed. Assessee was asked to explain. Reply of the assessee was examined. In the assessment order dated 13th October, 2008 passed under section 143(3) of the Act, Assessing Officer rejected the said claim of the assessee and added back the said sum to the total income of the assessee. It was held thus:- 3.4 The reply of the assessee has been examined in the light of the provisions of Income Tax Act and the nature of payment for purchase of FSI. 3.5 The brief facts have been stated by the assessee. The assessee paid a premium of ₹ 3,40,81,320/- to the Government of Maharashtra and BMC in lieu of grant of additional FSI of 10022.94 sq.mts. This additional grant of FSI was 0.476 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has paid during the year ₹ 68,16,264/only although the value of FSI is ₹ 3,40,81,320/and had claimed depreciation on whole amount @ 25% as intangible asset u/s.32(1)(ii). The question is, whether FSI is an intangible asset of similar nature of know how, patent, copyright, trade mark, licenses, franchises, etc. as provided in section 32(1)(ii) of the Act to be eligible for depreciation under Income tax Act. The appellant, while arguing that FSI is a commercial right, has not explained to which of the items mentioned in the section 32(2)(ii) of the Act the FSI has a similar nature. Even if it is accepted as a commercial right which will improve the business interest of the assessee, in no way it is of similar nature of know how, patent, copyright, trade mark license franchise etc. Accordingly, the action of A.O. in disallowing the claim of depreciation u/s.32(2)(ii) of the Act amounting to ₹ 85,20,330/- is upheld. However I accept that the amount spent is for the purpose of business and being of enduring nature, it will add value to the existing building as additional FSI will enable the company to add more floors over and above the existing structure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of requisite premium to the Government and the BMC, additional FSI of 10022.94 sq.meters would be granted to the assessee which would be additional FSI of 0.476 over and above the existing FSI of 1.5. Subsequently, order from the Government was received on 04.08.2004 wherein the assessee had to make the payment of the premium to the Government and the BMC amounting to ₹ 3,40,81,320/-. Such a payment was to be made under the installment Scheme. In pursuance thereof, the assessee paid its first installment of ₹ 68,16,264/-. Thus, the assessee received the rights in the form of additional FSI which has been capitalized in the books of accounts. In the books of account, the assessee company had debited the whole amount of ₹ 3,40,81,320/- in the Schedule of fixed assets as Floor Space Index and a corresponding credit entry was made as a liability payable to Government/BMC. In the Balance sheet as on 31 st March, 2005, under the Schedule B showing current liabilities and the provision , the assessee has shown the liability under the head premium payable at ₹ 2,72,65,056/- (i.e., ₹ 340,81,320 ₹ 68,16,264). The assessee had claimed dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered on the full amount debited i.e. ₹ 3,40,81,320/-. Before us, the Ld. DR reiterated the finding of CIT(A) that the depreciation cannot be allowed on the whole of the amount, because the assessee had only paid the first installment of ₹ 68,16,264/-. However we are unable to accept this contention, because once the assessee receives the right to construct extra floor/storey, it enhances the value/cost of the building and assessee under the principle of accounting has debited the entire amount of FSI right to the block of asset of the building by making a corresponding entry as liability in the Balance-sheet. This can also be explained by way of an example; suppose, assessee would have taken a bank loan for paying the entire or balance premium (say ₹ 2,72,65,056) on FSI to the Government/BMC, then assessee would have debited the entire amount to FSI account under the head fixed assets and credited to the bank and disclosed it as its liability in the Balance sheet. Now, if assessee has paid the premium on installment scheme, then assessee would debit the whole amount on the asset side and make a credit to the vendor account by showing it as liability payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f additional FSI gave theright to construct additional floors to the assessee, Tribunal further noted about the entries in the books of account and the balance sheet. Thereafter, a view was taken that once the entire amount has been debited to the fixed assets and has been brought in the balance sheet in the schedule of fixed asset i.e. to the block of a building then depreciation would have to be considered on the full amount of premium debited. This is because once the assessee receives the right to construct extra floor it enhances the value of the building; assessee under the principle of accounting had debited the entire amount of FSI right to the block of asset of the building by making a corresponding entry as liability in the balance sheet. If assessee had paid the premium on installment scheme, then assessee would debit the whole amount on the asset side and make a credit to the vendor account by showing it as a liability payable by it for the amount which remained to be paid, irrespective of the number of years that liability remained pending. Once the corresponding liability in the accounts has been shown, the depreciation on the asset should be given irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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