Case Law Details
Sophia Automotive Private Vs ITO (ITAT Chennai)
The assessee has claimed a total depreciation of Rs.51,60,173/- in the profit and loss account towards factory building. While completing the scrutiny assessment for the assessment year 2012-13, the Assessing Officer noted that 50% of the factory building was let out to two different parties as such only 50% of the building was actually used by the assessee and 50% depreciation claim was disallowed for the assessment year 2012-13. On verification of the lease deed for letting out the factory building, the Assessing Officer noted that the same was let out from the year 2009-10 onwards and the assessee was in receipt of rental income for letting out the factory building in the company’s hand for the assessment year 2011-12. As per lease deed dated 11.05.2009, M/s. Vinay Autoparts Pvt. Ltd. and M/s. Ushas Auto Gears Private Limited have taken on rent the 50% of assessee’s factory building from May 2009 onwards, the Assessing Officer was of the opinion that the assessee was using only 50% of the balance factory building and thus, the assessee is eligible for 50% of depreciation on factory building. Accordingly, the Assessing Officer restricted the claim of eligible depreciation to 50% and the balance claim was brought to tax. Further, the assessee company had offered the rental income of Rs. 9.30 lakhs as income from other sources. However, on verification of the lease deeds concerning the let out properties, the Assessing Officer noted that the agreed lease consideration works out to Rs. 12.56 lakhs yearly and accordingly, the rental income from letting out of the two portions of the assessee’s building was taken at Rs.12,56,400/- and assessed as “Income from House Property”.
ITAT gone through the judgement relied upon by the assessee in the case of Chennai Properties and Investments Limited 373 ITR 673 (SC), wherein, the main object of the assessee-company, as stated in its memorandum of association, was to acquire and hold the properties known as “Chennai House” and “Firhavin Estate” both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. The entire income which accrued and was assessed was from letting out of these properties and there was no other income of the assessee except the income from letting out of these two properties. Therefore, the Hon’ble Supreme Court has held that the rental income earned by the assessee cannot be treated as “Income from the house property”.
Whereas, in this case, the assessee is engaged in manufacturing of automobile components and let out 50% of its factory building on lease and earned rental income. Thus, the ld. CIT(A) has rightly held the rental income as income under the head “house property”. Having the rental income held as income under the head “house property”, the assessee is not eligible for claim of depreciation on the let out portion.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
Both the appeals filed by the assessee are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 16, Chennai dated 30.11.2018 relevant to the assessment year 2012-13 and order dated 19.09.2018 for the assessment year 2011-12.
2. When the appeal in I.T.A. No. 322/Chny/2019 for the assessment year 2012-13 was taken up for hearing, the ld. Counsel for the assessee has submitted that the appeal filed before the ld. CIT(A) was dismissed on the ground that the delay in filing the appeal before the CIT(A) was not properly substantiated. It was further submission that the ld. CIT(A) has not adjudicated the case on merits. The ld. Counsel for the assessee has also submitted no details pertaining to the travel details of the Authorized person for signing the Form 35 were called for, in fact, the flight tickets substantiating the travel detail of the Authorized person were readily available. By filing the travel details of the Authorized person for signing the Form 35, who was out of the country, the ld. Counsel for the assessee prayed for condoning the delay in filing the appeal before the ld. CIT(A) and may be directed the ld. CIT(A) to adjudicate the case on merits by affording an opportunity of being heard to the assessee.
3. On the other hand, the ld. DR has not raised any objection.
4. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. On perusal of the appellate order, we find that there was delay of 44 days in filing the appeal before the ld. CIT(A) for which the assessee filed a condonation petition stating that the authorised person for signing Form 35 was out of India for last 2 months due to some unavoidable circumstances and therefore the delay was due to the circumstances beyond the control of the assessee and prayed for condoning the delay. However, the ld. CIT(A) has not condoned the delay in filing the appeal on the ground that the AR did not give the basic details like (i) who was the authorised person for signing Form 35, (ii) when did he leave the country, (iii) where did he go and (iv) when did he come back to India and evidences for the same. It was the submission of the ld. Counsel that no details were called for from the assessee and simply the ld. CIT(A) dismissed the appeal for want of the above details without adjudicating the appeal on merits. However, by filing the details as required by the ld. CIT(A), the ld. Counsel prayed for condoning the delay in filing the appeal and adjudicating the appeal on merits. In view of the above, we direct the assessee to file complete the details as required by the ld. CIT(A) and the ld. CIT(A) is also directed to consider the details as may be submitted by the assessee for condonation of delay in filing the appeal afresh and decide the case on merits in accordance with law after affording an opportunity of being heard to the assessee. Thus, the appeal filed by the assessee is allowed for statistical purposes.
I.T.A. No. 3383/Chny/2018 FAY: 2011-12]
5. By filing Memorandum of additional grounds of appeal, the first ground raised by the assessee relates to reopening of assessment under section 147 of the Act. However, the above ground was not raised before the ld. CIT(A). In this case, the return of income for the assessment year 2011-12 was filed on 28.09.2011 admitting a loss of Rs.23,59,601/-. The return was processed under section 143(1) of the Act. After recording reasons, the Assessing Officer issued notice under section 148 of the Act dated 27.03.2015 for reopening of assessment. In response to the notice, the assessee’s AR filed a letter dated 09.04.2015 stating that the return of income filed for the assessment year 2011-12 on 28.09.2011 may be treated as the return of income filed in response to notice under section 148 of the Act. After following due process, the Assessing Officer has completed the assessment order under section 143(3) r.w.s. 147 of the Act dated 11.03.2016. Before the Tribunal, the assessee has agitated the jurisdiction for reopening of assessment under section 147 of the Act, which was not raised before the authorities below.
6. We have heard the rival contentions and gone through the orders of authorities below. On perusal of the records, we find that the assessment was reopened by issuing notice under section 148 of the Act on 27.03.2015 and after following due process, the assessment was completed under section 143(3) r.w.s. 147 of the Act dated 11.03.2016, which is well within four years of time limit provided in the statute. Accordingly the ground raised by the assessee is dismissed being devoid of merits.
7. The next ground raised in the appeal of the assessee relates to confirmation of 50% disallowance of depreciation.
8. The assessee has claimed a total depreciation of Rs.51,60,173/- in the profit and loss account towards factory building. While completing the scrutiny assessment for the assessment year 2012-13, the Assessing Officer noted that 50% of the factory building was let out to two different parties as such only 50% of the building was actually used by the assessee and 50% depreciation claim was disallowed for the assessment year 2012-13. On verification of the lease deed for letting out the factory building, the Assessing Officer noted that the same was let out from the year 2009-10 onwards and the assessee was in receipt of rental income for letting out the factory building in the company’s hand for the assessment year 2011-12. As per lease deed dated 11.05.2009, M/s. Vinay Autoparts Pvt. Ltd. and M/s. Ushas Auto Gears Private Limited have taken on rent the 50% of assessee’s factory building from May 2009 onwards, the Assessing Officer was of the opinion that the assessee was using only 50% of the balance factory building and thus, the assessee is eligible for 50% of depreciation on factory building. Accordingly, the Assessing Officer restricted the claim of eligible depreciation to 50% and the balance claim was brought to tax. Further, the assessee company had offered the rental income of Rs. 9.30 lakhs as income from other sources. However, on verification of the lease deeds concerning the let out properties, the Assessing Officer noted that the agreed lease consideration works out to Rs. 12.56 lakhs yearly and accordingly, the rental income from letting out of the two portions of the assessee’s building was taken at Rs.12,56,400/- and assessed as “Income from House Property”.
9. On appeal, after considering the submissions of the assessee as well various case law, the ld. CIT(A) has observed as under:
The appellant’s contentions above has been carefully considered. The assessee has confirmed that it was in receipt of rental income from two concerns who have taken the assessee’s factory building for rent. M/s. Vinay Auto Parts (P) Limited and M/s. Usha Autogears (P) Limited from May 20-09 onwards as agreed upon vide lease deed dated 11.05.2009. Thus, once the rental income is earned by the lessor from letting out of building/premises, the income needs to be offered for taxation under the head “income from house property” only. The AO has therefore rightly brought the rental income under the head house property which the assessee himself has claimed under the head ‘other sources’ and claimed dividend and claimed depreciation. The appellant ground on this issue is accordingly dismissed.
On the issue of depreciation the appellant contended that the very nature and purpose of allowing depreciation for the exploitation of assets will be defeated if the income is taken under the head “income from House Property” and the assessee is denied depreciation.
Having the rental income held as income under the head ‘house property’, the assessee is not eligible for claim of depreciation. The ground of appeal on the issue is therefore dismissed.”
We have gone through the judgement relied upon by the assessee in the case of Chennai Properties and Investments Limited 373 ITR 673 (SC), wherein, the main object of the assessee-company, as stated in its memorandum of association, was to acquire and hold the properties known as “Chennai House” and “Firhavin Estate” both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. The entire income which accrued and was assessed was from letting out of these properties and there was no other income of the assessee except the income from letting out of these two properties. Therefore, the Hon’ble Supreme Court has held that the rental income earned by the assessee cannot be treated as “Income from the house property”.
Whereas, in this case, the assessee is engaged in manufacturing of automobile components and let out 50% of its factory building on lease and earned rental income. Thus, the ld. CIT(A) has rightly held the rental income as income under the head “house property”. Having the rental income held as income under the head “house property”, the assessee is not eligible for claim of depreciation on the let out portion. We find no infirmity in the order passed by the ld. CIT(A) and thus, the grounds raised by the assessee are dismissed.
10. In the result, the appeal filed by the assessee in I.T.A. No. 322/Chny/2019 is allowed for statistical purposes and the appeal in I.T.A. No. 3383/Chny/2018 is dismissed.
Order pronounced on 31st January, 2022 at Chennai.
