THE issues before the Bench are - Whether the commission expenses paid to agent for sale of property which the assessee could not prove, is liable to be disallowed; Whether even if one business of the assessee is closed, the unabsorbed depreciation from the said business can be set off against other business income and Whether the subsidy received to the assessee, which was not directly attributable to any fixed assets, is correctly treated as capital receipt. And the answers go in favour of the assessee.
Facts of the case
A) Assessee claimed commission expenses to agent for facilitating sale of land and building and deducted tax at source on it. AO issued summon to agent through inspector but inspector reported back that the said house was owned by some other person and was never let out to the agent. Assessee claimed that TDS had already been deducted. AO did not accept the claim of assessee stating that TDS returns had nothing to do with genuineness of the payment and since the assessee has failed to prove the payment, the same was not allowable. In respect of other parties enquiries were made by writing a letter u/s 133(6) but no response was received. Thus, AO disallowed commission.
Before CIT (A), assessee contended that agent was a real estate agent and payment was made to him to facilitate land deal and commission was paid. CIT (A) deleted the addition observing that there was no dispute regarding selling of food processing unit and it was common knowledge that commission of 1 to 2% is paid. Assessee had already deducted tax and commission was paid through cheque and the same was allowable.
Revenue contended that AO made specific enquiries from the address given by the assessee and agent was not found at the given address. Assessee was also confronted with the fact that this person was not available on the given address. Assessee stated that the assessee had no more comments to offer and failed to produce such persons. Even PAN was also not furnished. The burden is on the assessee to prove the genuineness of such expenses.
B) Assessee claimed set off of unabsorbed depreciation of earlier years against long term capital gains earned during the year. AO noted that the assessee had sold complete unit of food processing at Dera Bassi He further noted that the assessee had sold complete unit of food processing at Dera Bassi and hence the business of processing of fruits and vegetables was closed permanently. Assessee submitted that the assessee has earned long term capital gains on sale of land and short term capital gains on depreciable assets and therefore, unabsorbed depreciation can be set off against such gains. AO observed that the assessee had sold out entire processing unit. When the unit remained non - functional during the year, there was no question of set off of unabsorbed depreciation.
Before CIT (A) assessee contended that as per section 32(2) the depreciation which cannot be set off in a particular year because of deficiency of profits then such depreciation can be carried forwarded to the next year and is allowable as current years depreciation for such succeeding year. CIT (A) allowed the claim of assessee.
C) Assessee received a capital subsidy from National Horticulture Board. It was claimed that this subsidy was not directly attributable to any fixed assets and therefore subsidy was treated as capital reserved and was not reduced from cost of any fixed assets. AO observed that as per Section 43(1) actual cost means actual cost to the assessee reduced by that portion which has been met directly or indirectly by any other person or authority. Accordingly to him the subsidy given by National Horticulture Board, Government of India for establishing unit on fixed percentage of fixed assets so acquired was specifically given on specified assets of land and building, therefore, same is required to be reduced from the actual cost. CIT (A) confirmed the addition.
Assessee contended that the subsidy cannot be called direct subsidy for meeting the cost of assets. It was a back ended subsidy which has nothing to do with the fixed assets. Assessee further stated that in preceding year also the assessee treated the subsidy as capital reserve and depreciation has been claimed in full value of the assets which was allowed through this assessment order. Now the revenue could not take uturn and change this position.
After hearing both the parties, the ITAT held that,
A) ++ when large amount of commission is paid to a party then the assessee is expected to know that person. The assessee has not even filed copy of PAN. Before CIT (A) it was stated that photocopy of the receipt was produced but no copy of such receipt has been placed in the paper book. Agent was not available at the address given which seems to be fake address because the said house belongs to another person and flat was also not let out. Merely to show the payment by cheque and deduction of tax is not sufficient for claiming expenses because it is well settled position that the person who claims the expenses the burden is always on him to prove the genuineness of expenditure. It is not possible to believe that a person who has received a commission amounting to Rs.15.00 lakhs would give fake address and that person is not available at the time of assessment proceedings or appellate proceedings. Thus, the addition is confirmed;
B) ++ the plain reading of section 32(2) shows that if the depreciation cannot be fully adjusted against profits and gains chargeable in the relevant year because of insufficiency of the profits then the same would be added to the depreciation of the following year. This means that unabsorbed depreciation which cannot be set off in a particular year, would become current year’s depreciation in the following year and there is no restriction against such set off. Therefore, un-absorbed depreciation which is carry forward as current depreciation u/s 32(2) is clearly available for setting off. As per the decision of Apex Court in the case of CIT Vs. Varmani Industries it was not necessary that same business should be carried on even in the subsequent year. Even assets on which such unabsorbed depreciation got generated need not be in existence in the subsequent year. Assessee has carried on some business. It is not necessary that the same business should have been carried on during the latter year for obtaining benefit of set off of carry forward unabsorbed depreciation. In view of this fact also carry forward unabsorbed depreciation can be set off against the income from other heads and CIT (A) has correctly allowed set off of unabsorbed depreciation against other heads of income;
C) ++ if the subsidy was treated as capital reserve for Assessment year 2004-05 then the same could not have been added in this year because that would mean depreciation has been allowed without reducing the subsidy in the earlier years. Even if this amount was being reduced from cost of acquisition for the purpose of long term capital gains/short term capital gains even then same cannot be reduced at this stage because as per Section 50 which prescribes the method for computation of short term capital gains on depreciable assets clearly provides that written down value at the beginning of the previous year is to be reduced from the full value of consideration. Since the assessee has already claimed depreciation which was allowed as claimed without reducing the subsidy the written down value of the assets already stands reduced at the beginning of the year and no further adjustment is possible.
A) Assessee claimed commission expenses to agent for facilitating sale of land and building and deducted tax at source on it. AO issued summon to agent through inspector but inspector reported back that the said house was owned by some other person and was never let out to the agent. Assessee claimed that TDS had already been deducted. AO did not accept the claim of assessee stating that TDS returns had nothing to do with genuineness of the payment and since the assessee has failed to prove the payment, the same was not allowable. In respect of other parties enquiries were made by writing a letter u/s 133(6) but no response was received. Thus, AO disallowed commission.
Before CIT (A), assessee contended that agent was a real estate agent and payment was made to him to facilitate land deal and commission was paid. CIT (A) deleted the addition observing that there was no dispute regarding selling of food processing unit and it was common knowledge that commission of 1 to 2% is paid. Assessee had already deducted tax and commission was paid through cheque and the same was allowable.
Revenue contended that AO made specific enquiries from the address given by the assessee and agent was not found at the given address. Assessee was also confronted with the fact that this person was not available on the given address. Assessee stated that the assessee had no more comments to offer and failed to produce such persons. Even PAN was also not furnished. The burden is on the assessee to prove the genuineness of such expenses.
B) Assessee claimed set off of unabsorbed depreciation of earlier years against long term capital gains earned during the year. AO noted that the assessee had sold complete unit of food processing at Dera Bassi He further noted that the assessee had sold complete unit of food processing at Dera Bassi and hence the business of processing of fruits and vegetables was closed permanently. Assessee submitted that the assessee has earned long term capital gains on sale of land and short term capital gains on depreciable assets and therefore, unabsorbed depreciation can be set off against such gains. AO observed that the assessee had sold out entire processing unit. When the unit remained non - functional during the year, there was no question of set off of unabsorbed depreciation.
Before CIT (A) assessee contended that as per section 32(2) the depreciation which cannot be set off in a particular year because of deficiency of profits then such depreciation can be carried forwarded to the next year and is allowable as current years depreciation for such succeeding year. CIT (A) allowed the claim of assessee.
C) Assessee received a capital subsidy from National Horticulture Board. It was claimed that this subsidy was not directly attributable to any fixed assets and therefore subsidy was treated as capital reserved and was not reduced from cost of any fixed assets. AO observed that as per Section 43(1) actual cost means actual cost to the assessee reduced by that portion which has been met directly or indirectly by any other person or authority. Accordingly to him the subsidy given by National Horticulture Board, Government of India for establishing unit on fixed percentage of fixed assets so acquired was specifically given on specified assets of land and building, therefore, same is required to be reduced from the actual cost. CIT (A) confirmed the addition.
Assessee contended that the subsidy cannot be called direct subsidy for meeting the cost of assets. It was a back ended subsidy which has nothing to do with the fixed assets. Assessee further stated that in preceding year also the assessee treated the subsidy as capital reserve and depreciation has been claimed in full value of the assets which was allowed through this assessment order. Now the revenue could not take uturn and change this position.
After hearing both the parties, the ITAT held that,
A) ++ when large amount of commission is paid to a party then the assessee is expected to know that person. The assessee has not even filed copy of PAN. Before CIT (A) it was stated that photocopy of the receipt was produced but no copy of such receipt has been placed in the paper book. Agent was not available at the address given which seems to be fake address because the said house belongs to another person and flat was also not let out. Merely to show the payment by cheque and deduction of tax is not sufficient for claiming expenses because it is well settled position that the person who claims the expenses the burden is always on him to prove the genuineness of expenditure. It is not possible to believe that a person who has received a commission amounting to Rs.15.00 lakhs would give fake address and that person is not available at the time of assessment proceedings or appellate proceedings. Thus, the addition is confirmed;
B) ++ the plain reading of section 32(2) shows that if the depreciation cannot be fully adjusted against profits and gains chargeable in the relevant year because of insufficiency of the profits then the same would be added to the depreciation of the following year. This means that unabsorbed depreciation which cannot be set off in a particular year, would become current year’s depreciation in the following year and there is no restriction against such set off. Therefore, un-absorbed depreciation which is carry forward as current depreciation u/s 32(2) is clearly available for setting off. As per the decision of Apex Court in the case of CIT Vs. Varmani Industries it was not necessary that same business should be carried on even in the subsequent year. Even assets on which such unabsorbed depreciation got generated need not be in existence in the subsequent year. Assessee has carried on some business. It is not necessary that the same business should have been carried on during the latter year for obtaining benefit of set off of carry forward unabsorbed depreciation. In view of this fact also carry forward unabsorbed depreciation can be set off against the income from other heads and CIT (A) has correctly allowed set off of unabsorbed depreciation against other heads of income;
C) ++ if the subsidy was treated as capital reserve for Assessment year 2004-05 then the same could not have been added in this year because that would mean depreciation has been allowed without reducing the subsidy in the earlier years. Even if this amount was being reduced from cost of acquisition for the purpose of long term capital gains/short term capital gains even then same cannot be reduced at this stage because as per Section 50 which prescribes the method for computation of short term capital gains on depreciable assets clearly provides that written down value at the beginning of the previous year is to be reduced from the full value of consideration. Since the assessee has already claimed depreciation which was allowed as claimed without reducing the subsidy the written down value of the assets already stands reduced at the beginning of the year and no further adjustment is possible.
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