|CORAM:||Jason P. Boaz (AM), Rajpal Yadav (JM)|
|SECTION(S):||153A, 234B, 234C, 32|
|CATCH WORDS:||advance tax, Depreciation, Interest, Search assessment|
|DATE:||December 5, 2014 (Date of pronouncement)|
|DATE:||December 8, 2014 (Date of publication)|
|AY:||2008-09 to 2010-11|
|FILE:||Click here to download the file in pdf format|
|(i) S. 153A: Even in non-pending assessments where no incriminating material is found, AO is not limited to assessing “undisclosed” income, (ii) revenue expenditure on leased premises is not hit by sub-section (1A) to s. 32 or Explanation 1 to s. 32, (iii) Even income voluntarily disclosed in search is liable for 2. 234B/C interest|
(i) The circumstance where proceedings are not pending and no incriminating material is found in the course of search has been left unanswered by the Delhi High Court in Anil Kumar Bhatia 352 ITR 493 (Del). In this case, the Court has held that even if the assessment order has been passed in respect of one or any of the six relevant assessment years, either under section 143(1)(a) or 143(3) of the Act prior to the initiation of search, the AO is still empowered to reopen those proceedings u/s 153A of the Act without any fetters and reassess the total income taking note of undisclosed income, if any, unearthed during the search. It is clear that the Court dealt with a situation in which some incriminating material was found in respect of a non-pending assessment. It was in this background that the Court held that section 153A of the Act applies if incriminating material is found in the course of search even if assessments are completed. The question as to whether any addition can be made in respect of completed assessments when no incriminating material was found was apparently left open. The observation in the judgement appears to indicate a doubt in the mind of the High Court as to whether the proceedings under section 153A of the Act can still be initiated if no incriminating material is found in the course of search. To our minds, had it been an open and shut case, i.e. acquiring of jurisdiction under section 153A of the Act does not depend upon recovery and of seizure of any incriminating material, the Court would not have so commented. It is in this context that the decision of the High Court of Karnataka in the case of Canara Housing Development Co. assumes significance where it is held that once the assessment is reopened, the Assessing Officer can take note of the income disclosed in the earlier return, any undisclosed income found during the course of search and also any other income which is not disclosed in the earlier return of income OR which is not unearthed in the course of search under section 132 of the Act, in order to find out and determine what is the ‘total income’ of each year and then pass the order of assessment.
(ii) The question that arises for consideration is when the assessee has incurred expenditure on renovation of the hotel taken on lease, then whether the assessee is entitled for deduction of the expenditure incurred on such repairs as revenue expenditure OR whether it has to be treated as capital expenditure in view of Explanation 1 to section 32 of the Act. On a careful perusal of the provisions of section 32(1A) of the Act and the circumstances in which it was introduced in the statute, it is clear that in case revenue expenditure was incurred by the assessee on the premises taken on lease, the question of allowing any depreciation u/s 32(1A) of the Act would not arise for consideration. In other words, section 32(1A) of the Act introduced w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970 would not be applicable in case the assessee incurred revenue expenditure on the leased premises. However, sub-section 1A of Section 32 of the Act introduced by Taxation Laws (Amendment) Act, 1970 was omitted and Explanation 1 to Section 32 was introduced by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. This was done when the concept of depreciation on individual asset was changed to depreciation on the block of assets. When Parliament introduced depreciation on block of assets, sub-section (1A) of Section 32 of the Act was deleted, an identical provision was incorporated in Explanation 1 to Section 32 of the Act. Therefore, the position of law as it remains after the introduction of sub-section 1A of Section 32 of the Act w.e.f. 1.4.1971 continued to be the same in respect of revenue expenditure incurred by the assessee on premises taken on lease. In other words, the concept of allowing depreciation on the capital expenditure in relation to renovation, extension or improvement of the premises taken on lease continued to be the same w.e.f. 1.4.1971. Therefore, whenever the assessee incurred the expenditure, in the process of earning profit while carrying on the business in the leased premises, the expenditure has to be treated as revenue expenditure and neither sub-section (1A) to Section 32 OR Explanation 1 to Section 32 of the Act would come in the way of allowing the same as revenue expenditure. However, when the assessee incurred expenditure which is of capital nature, then the Parliament allows the benefit to the assessee for claiming depreciation on such capital expenditure in relation to renovation, extension or improvement w.e.f. 1.4.1971 u/s. 32(1A) and in accordance with the provisions of Explanation 1 to Section 32 of the Act w.e.f. 1.4.1988. Hence, this is a benefit allowed to the assessees who have taken premises on lease and incurred expenditure in the capital field. However, as explained earlier, if the expenditure incurred falls in the revenue field, the assessee is entitled to claim it as revenue expenditure irrespective of Section 32(1A) or Explanation 1 of Section 32 of the Act.
(iii) The contentions of the assessee that the additional income voluntarily disclosed in the course of search proceedings and such additional income was not related to any incriminating document or material found during search action under section 132 of the Act and that since the additional income was offered in the course of search action, the assessee was not aware of the income at the time of payment of advance tax and therefore interest under section 234B and 234C of the Act is not acceptable. The reliance on P. Indra Kumar V ITO 322 ITR 454 is misplaced as the facts are distinguishable.