Khr Hospitality India Limited v. Commissioner Of Income Tax-Iii, Kolkata

O-39 ITA/102/2012IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE A.F.R. KHR HOSPITALITY INDIA LIMITEDVERSUSCOMMISSIONER OF INCOME TAX-III, KOLKATA BEFORE : THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIANDTHE HON’BLE JUSTICE RAJARSHI BHARADWAJ Date : 10[th] April, 2024. Appearance:Mr. J. P. Khaitan, Senior AdvocateMr. Sanjay Bhowmick, AdvocateMs. Swapna Das, Advocate… for the appellant.Ms. Smita Das De, Advocate… for the respondent. 1.Heard Sri J. P. Khaitan, learned senior advocate assisted by Sri SanjayBhowmick, learned counsel for the appellant/assessee and Ms. SmitaDas De, learned senior standing counsel for the respondent.Bhowmick, learned counsel for the appellant/assessee and Ms. SmitaDas De, learned senior standing counsel for the respondent. 2.The assessment years involved in the present appeal are AssessmentYear 1999-2000 and Assessment Year 2000-01. By order dated16.08.2012, this appeal was admitted on the following substantialquestions of law :-Year 1999-2000 and Assessment Year 2000-01. By order dated16.08.2012, this appeal was admitted on the following substantialquestions of law :- 1)Whether the assessing officer having resorted to section 147 ofthe Income Tax Act, 1961 on the facts and circumstances of thecase, was duty bound to compute such business income afterallowing statutory deduction including under section 43B inrespect of the interest paid to the financial institutions ofRs.3,63,33,321/- for the assessment year 1999-2000 andRs.60,50,250/- for the assessment year 2000-01 ?the Income Tax Act, 1961 on the facts and circumstances of thecase, was duty bound to compute such business income afterallowing statutory deduction including under section 43B inrespect of the interest paid to the financial institutions ofRs.3,63,33,321/- for the assessment year 1999-2000 andRs.60,50,250/- for the assessment year 2000-01 ? 2)Whether on a true and proper interpretation of the provisions ofsection 32 of the Income Tax Act, 1961 depreciation allowancein respect of hotel assets used for the purpose of the businesscan be reduced in any manner because of temporary closure ofthe hotel for part of the year and the purported findings of theTribunal restricting the allowance to 50% is arbitrary,unreasonable and perverse ?section 32 of the Income Tax Act, 1961 depreciation allowancein respect of hotel assets used for the purpose of the businesscan be reduced in any manner because of temporary closure ofthe hotel for part of the year and the purported findings of theTribunal restricting the allowance to 50% is arbitrary,unreasonable and perverse ? Facts:- Facts of Assessment year 1999-2000: 3.Briefly stated facts of the present case are that the appellant/assesseeis engaged in business of running hotel. For the assessment year 1999-2000, the assessee filed original return of income on 30.12.1999showing a loss of Rs.2,04,28,436/- under the head “profit and loss ofbusiness or profession”. Brought forward loss was Rs.3,53,30,569/-.Thus, total loss disclosed was Rs.5,57,59,010/-. During theassessment year in question, the assessee had leased the hotel videagreement dated 01.11.1998. Lease rent received by the assessee forthe period from 01.11.1998 to 31.3.1999 was Rs.15,00,000/-. Theis engaged in business of running hotel. For the assessment year 1999-2000, the assessee filed original return of income on 30.12.1999showing a loss of Rs.2,04,28,436/- under the head “profit and loss ofbusiness or profession”. Brought forward loss was Rs.3,53,30,569/-.Thus, total loss disclosed was Rs.5,57,59,010/-. During theassessment year in question, the assessee had leased the hotel videagreement dated 01.11.1998. Lease rent received by the assessee forthe period from 01.11.1998 to 31.3.1999 was Rs.15,00,000/-. The assessee filed a revised return of income on 30.11.2000 showing incomeof Rs.11,25,000/- under head “income from house property” i.e., leaserent Rs.15,00,000/- less Rs.3,75,000/- as deduction under Section24(1)(i)of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act,1961’). Thus, in the revised return the assessee disclosed income ofRs.11,25,000/- under the head ‘income from house property’ and lossof Rs.2,19,28,436/- under the head “profit or gain from business orprofession”. 4.On 07.11.2002, the assessee filed a revised computation of incomepursuant to the letter of the ACIT, Mumbai dated 16.08.2002 in whichhe disclosed a loss of Rs.5,67,61,657/- which included interest ofRs.3,63,33,221/- actually paid by the assessee during the previous year1998-99 as per OTS which was not claimed in earlier years. Thedepreciation was computed at Rs.1,14,95,443/- as per Income TaxRules. The total loss carried forward was Rs.12,54,21,003/-. Thedepreciation was claimed on the block assets which are mentioned inSchedule-5 (fixed assets) to the balance-sheet. The assessing officerhas not passed any assessment order on the basis of returns filed bythe assessee. Instead, subsequently, he issued a notice under Section148 of the Act, 1961 and passed an assessment order dated20.12.2002 under Section 143(3) r.w.s. 147 of the Act, 1961 whereby hedid not allow interest paid by the assessee on the ground that “re-assessment proceedings are initiated for the benefit of the revenue and it is not open to the assessee to claim certain deductionswhich were neither claimed nor allowed in the originalassessment.” He also referred to the judgment of Hon'ble SupremeCourt in CIT v. Sun Engineering Works (P) Limited (1992) 4 SCC363 and accordingly the claim of the assessee for interest ofRs.3,63,33,221/- as deductible expenditure was rejected under Section43B of the Act, 1961. However, the assessing officer accepted theincome from leasing of the hotel as income under the head “profits andgains from business and profession” and allowed depreciationrestricting it to 50% of the claimed amount i.e. 50% of Rs.1,14,95,443/-on the ground that the hotel was leased vide agreement dated01.11.1998 and thus was put to use for less than 180 days during theprevious year. Facts of Assessment Year 2000-01 5.For the assessment year 2000-01, the assessee filed original return on30.11.2000 disclosing Rs.31,50,000/- income under the head “incomefrom house property” and loss of Rs.5,57,59,010/-.under the head“profits and gains of business or profession”. He filed a revised returnon 30.01.2002 disclosing the same amount of income under the head“house property” and loss under the head “business or profession”, butthe loss carried forward was shown to be Rs.10,44,04,602/-. He alsofiled a letter dated 09.11.2002 in response to the letter of the ACIT, Facts of Assessment Year 2000-01 5.For the assessment year 2000-01, the assessee filed original return on30.11.2000 disclosing Rs.31,50,000/- income under the head “incomefrom house property” and loss of Rs.5,57,59,010/-.under the head“profits and gains of business or profession”. He filed a revised returnon 30.01.2002 disclosing the same amount of income under the head“house property” and loss under the head “business or profession”, butthe loss carried forward was shown to be Rs.10,44,04,602/-. He alsofiled a letter dated 09.11.2002 in response to the letter of the ACIT, Mumbai dated 09.09.2002 stating that it was by mistake and oversightthat the income of leasing hotel has been shown in the return under thehead “income from house property” and deduction in respect of suchincome has been wrongly claimed under Section 24. Accordingly, herequested the said income to be treated as income under the head“income from business or profession”. He also claimed interest ofRs.60,50,250/- as deductible expenditure being interest paid on loansto financial institutions during the previous year 1999-2000 as perOTS, which was not claimed or provided in earlier years. Thedepreciation was also claimed as per Section 32 of the Act, 1961 readwith Rule 5 of the Rules. No assessment order was passed by theassessing officer on the basis of returns filed by the assessee. Instead,the assessing officer issued notice under Section 148 and passed an“assessment order” dated 16.12.2002 under Section 143(3) r.w.s. 147of the Act, 1961. He allowed the depreciation, treated the income fromleasing under the head “business or profession” but rejected the claimof interest of Rs.60,50,250/- as deductible expenditure. Thus, theincome was assessed as loss of Rs.1,38,92,820/-. The carrying forwardof losses was not disputed. 6.Aggrieved with the aforesaid two assessment orders for the assessmentyears 1999-2000 and 2000-01, the appellant assessee filed two separateappeals before the Commissioner of Income Tax (Appeals) – IX, Mumbai,years 1999-2000 and 2000-01, the appellant assessee filed two separateappeals before the Commissioner of Income Tax (Appeals) – IX, Mumbai, which both were allowed by order dated 27.12.2010 in which theC.I.T.(A) concluded as under:- “3.4I have carefully considered the findings of theAssessing Officer and submissions of the appellant. I have alsogone through the various case laws relied by the AssessingOfficer as well as appellant. The Assessing Officer has acceptedthe claim of business income which was made in revised return.However, he has denied the claim of interest expenditure withthe plea that interest expenditure is related to earlier years andsecondly reassessment proceedings are not made for the benefitof appellant. It is seen from the various facts and statementsthat revised return was filed by the appellant on 30/11/2000which was a valid return in view of section 139(5) because asper section 139(5) last date of filing revised return was31/03/2001. The last date for issuing notice under section143(2) was 31/12/2000 which was not issued by the AssessingOfficer in spite of filing the revised return and he has chosen toissue notice under section 148 on 10/12/2001. Order undersection 143(3) read with section 147 was passed on20/11/2002. The Assessing Officer himself has accepted leaserent income as business income. Thus, the Assessing Officer hasaccepted one part of the revised return by accepting the rentalincome as business income; but he has refused allow businessexpenditure on technical ground that reassessment is not madefor the benefit of assessee. In fact in this case, time for issuingnotice under section 143(2) was available with the AssessingOfficer after filing the revised return but instead of that he hasissued notice under section 148. Therefore, I find force behindthe arguments of the appellant that the appellant should not suffer for the fault of the Assessing Officer who has not issued143(2) notices for taking the assessment under scrutiny. Further,though the assessment was completed under section 143(3)read with section 147 but for practical purposes it was firstscrutiny assessment because earlier the returns were processedunder section 143(1) only. The case of appellant is supported bythe decision of Madras High Court in the case of M/s. IndiaForge and Drop Stamping Limited Vs. CIT (1998) 223 ITR 112(Mad), the Hon'ble Supreme Court has also held in the case ofCollector of Land Acquisition Vs. Mstr. Katiji & ors. 167 ITR 471that when substantial justice and technical consideration arepitted against each other, the cause of substantial justicedeserves to be preferred for the other side cannot claim to havevested rights for injustice being done. The case of appellant isalso supported by the CBDT Circular No.14 dated 11/04/1995,wherein it was observed that officers of the department must nottake advantage of ignorance of an assessee as to his rights. It isone of their duties to assist a taxpayer in every reasonable wayparticularly in the matter of claiming and securing reliefs and inthis regard the officer should take the initiative in guiding a tax-payer where proceedings or other particulars before themindicate that some refund or relief is due to him. The case ofappellant is also supported by several other decisions whichhave been cited by the appellant in the aforesaid submissions.Further, the Assessing Officer as accepted the of income claim ofappellant regarding carry forward business losses insubsequent scrutiny assessments. This fact is also not disputedby the Assessing Officer that the interest liability was disputedwith the banks and was settled during this year in a onetimesettlement with the banks and thus the interest liability has crystallized in this year. Though it was related to earlier yearsbut the liability has crystallized this year and Assessing Officerhas assessed the rental income as business income he wassupposed to allow legitimate business expenditure and theliability which has crystallized this year only. The Madras HighCourt in the case of M/s. CIT Vs. TCP Limited (2010) 232 ITR346 (Mad) has held that in case 143(2) notice was not issued intime by Assessing Officer then the assessee should not suffer orshould not be held responsible for the laxity on the part of theAssessing Officer. The facts of the case and arguments of theappellant suggest that it was a commercial exploitation ofbusiness asset i.e. building and entire assets which were givenon lease and thus the receipt in question was business receipts,the same was by mistake claimed as rental income and wascorrect in time in revised return. The appellant was not intendedto close down its business; but it has exploited its commercialasset in a prudent manner at the lackdrop of its poor financialposition. So it was a temporary lull in the business and businesswas again started in full form which is evident from the resultsof subsequent years. The income earned from commercialexploitation of business asset is assessable as business incomethis view is supported by several decisions which are as under: 1) 114 ITR 778 (Cal) M/s. Everest Hotel Limited VS. CIT 2)84 TTJ (Del) 776 M/s. Onkar Engineers Private Limited Vs. ITO 3)46 ITR 181 (Bom) M/s. C.P. Pictures Limited Vs. CIT 4) (1981) 128 ITR 402 (Del) Addl. CIT Vs. M/s. Rajindra Flour &Allied Industries Private Limited and several other decisions.Allied Industries Private Limited and several other decisions. 3.5 The appellant has also given several decisions to supportits claim that liability of prior period is allowable in the year of crystallization. So, in view of all these facts and case laws and thefacts that the Assessing Officer himself has accepted the rentalincome as business income. The Assessing Officer is directed to allthe claim of interest as business expenditure. Thus, this ground ofappeal is allowed. … 1) 114 ITR 778 (Cal) M/s. Everest Hotel Limited VS. CIT 2)84 TTJ (Del) 776 M/s. Onkar Engineers Private Limited Vs. ITO 3)46 ITR 181 (Bom) M/s. C.P. Pictures Limited Vs. CIT 4) (1981) 128 ITR 402 (Del) Addl. CIT Vs. M/s. Rajindra Flour &Allied Industries Private Limited and several other decisions.Allied Industries Private Limited and several other decisions. 3.5 The appellant has also given several decisions to supportits claim that liability of prior period is allowable in the year of crystallization. So, in view of all these facts and case laws and thefacts that the Assessing Officer himself has accepted the rentalincome as business income. The Assessing Officer is directed to allthe claim of interest as business expenditure. Thus, this ground ofappeal is allowed. … 6.I have considered the findings of the Assessing Officer andsubmissions of the appellant. The Assessing Officer has denied the50% depreciation because the assets were used for less than 180days. While, doing so the Assessing Officer has overlooked the factsthat entire assets given on lease were old asset and depreciationwas allowed, fully depreciation on those asset in earlier years.Further the claim of the appellant is supported by the DCIT Vs.Finolex Cables Limited (2008) 114 TTJ (Pune) 785, wherein theHon'ble ITAT has said that the depreciation was allowed in respectof flats in question in earlier years that depreciation was allowableon entire block of assets in second year even though such flats werelying vacant and not put to use during the year in question. Theclaim is also supported by the Punjab & Haryana Court in the caseof CIT Vs. Pepsee Road Transport Corporation 253 ITR 303, CIT Vs.Refrigeration and Allied Industries Limited 113 TAXMAN 103 (Del)and CIT Vs. M/s. G.N. Agrawal (1994) 75 ΤΑΧΜΑΝ 30 (Bom). So, inview of all aforesaid facts and case laws relied by the appellant; Iam of the view that Assessing Officer was not correct in denying50% depreciation to the appellant he is directed to allow the fullclaim of the appellant.” 7.Aggrieved with the order of the CIT(A), the revenue filed ITA Nos.539and 540/Kol/2011 (assessment years 1999-2000 and 2000-01) which have been allowed by the impugned order dated 22.03.2012 passed bythe Income Tax Appellate Tribunal, Bench-A, Kolkata. 8.Aggrieved with the aforesaid order of the ITAT, the assessee has filed thepresent appeal.present appeal. Submissions:- 9.Learned counsel for the appellant submits that the interest paid tofinancial institutions/banks during the previous years in question, isallowable expenditure under Section 43B of the Act, 1961 which wasclaimed by the assessee. Pursuant to the returns filed by the assessee,no assessment order was passed by the assessing officer. Therefore,the order passed by the assessing officer under Section 143(3) r.w.s.147 of the Act, 1961 is an assessment order. The ratio of decision inthe case of Sun Engineering Works (P) Limited (supra) has beenerroneously applied by the assessing officer inasmuch as the orderpassed by the assessing officer is not a re-assessment order but anassessment order which is very much evident from the facts afore-noted. The assessee claimed deduction and agitated before theassessing officer to allow it which could not have been rejected. Hesubmits that for the assessment year 1999-2000 depreciation could notbe restricted to 50% inasmuch as the entire block of assets were oldand not acquired during the previous year relevant to the assessmentyear 1999-2000. Therefore, disallowing 50% depreciation is in conflict with the provisions of Section 32 of the Act read with Rule 5 of theIncome Tax Rules, 1962. 10.Learned counsel for the respondent has supported the impugned orderof the ITAT.of the ITAT. Decision and Findings 11.We have carefully considered the submissions of the parties andperused the paper book.perused the paper book. Substantial Question of Law (i) with the provisions of Section 32 of the Act read with Rule 5 of theIncome Tax Rules, 1962. 10.Learned counsel for the respondent has supported the impugned orderof the ITAT.of the ITAT. Decision and Findings 11.We have carefully considered the submissions of the parties andperused the paper book.perused the paper book. Substantial Question of Law (i) 12.It is undisputed that the assessee filed original return as well as revisedreturn of income much prior to the issuance of any notice underSection 148 of the Act, 1961. He claimed deduction of interest paid tofinancial institutions/banks during the previous year relevant to theassessment year in question. Even no intimation under Section143(1)(a) of the Act was sent by the assessing officer as alleged by theassessee. Even assuming that the acknowledgment of return wastreated to be an intimation under Section 143(1)(a) of the Act, 1961, yetit was not an assessment order. Reference in this regard may be had tothe judgment of Hon’ble Supreme Court in the case of AssistantCommissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers PrivateLimited, (2008) 14 SCC 208 (paras 14 to 16) in which Hon’ble SupremeCourt held as under :return of income much prior to the issuance of any notice underSection 148 of the Act, 1961. He claimed deduction of interest paid tofinancial institutions/banks during the previous year relevant to theassessment year in question. Even no intimation under Section143(1)(a) of the Act was sent by the assessing officer as alleged by theassessee. Even assuming that the acknowledgment of return wastreated to be an intimation under Section 143(1)(a) of the Act, 1961, yetit was not an assessment order. Reference in this regard may be had tothe judgment of Hon’ble Supreme Court in the case of AssistantCommissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers PrivateLimited, (2008) 14 SCC 208 (paras 14 to 16) in which Hon’ble SupremeCourt held as under : “14. It is to be noted that the expressions "intimation" and"assessment order" have been used at different places. The contextualdifference between the two expressions has to be understood in thecontext the expressions are used. Assessment is used as meaningsometimes "the computation of income", sometimes "the determination ofthe amount of tax payable" and Sometimes the whole procedure laiddown in the Act for imposing liability upon the taxpayer". 15. In the scheme of things, as noted above, theintimation underSection 143(1)(a) cannot be treated to be an order of assessment.The distinction is also well brought out by the statutory provisions asthey stood at different points of time. Under Section 143(1)(a) as it stoodprior to 1-4-1989, the assessing officer had to pass an assessment orderif return, but under the amended provision, the requirement of passingof an assessment order has been dispensed with and instead anintimation required to be sent. Various circulars sent by the CentralBoard of Direct Taxes spell out the intent of the legislature i.e. tominimise the departmental work to scrutinise each and every return andto concentrate on selective scrutiny of returns. These aspects werehighlighted by one of us (D.K. Jain,J.) in Apogee International Ltd. v.Union of India. 16. It may be noted above that under the first proviso to the newlysubstituted Section 143(1), with effect from 1-6-] 1999, except as theprovision itself, the acknowledgment of the return shall be deemed to bean intimation under Section 143(1) where (a) either no sum is payableby assessee, or (b) no refund is due to him. It is significant that theacknowledgment is not done by any assessing officer, but mostly byministerial staff. Can it be said that any 'assessment" is done by them?The reply is an emphatic "no'". The intimation under Section 143(1)(a)was deemed to be a notice of demand under Section 156, for the ofmaking machinery provisions relating to recovery of tax applicable. By 16. It may be noted above that under the first proviso to the newlysubstituted Section 143(1), with effect from 1-6-] 1999, except as theprovision itself, the acknowledgment of the return shall be deemed to bean intimation under Section 143(1) where (a) either no sum is payableby assessee, or (b) no refund is due to him. It is significant that theacknowledgment is not done by any assessing officer, but mostly byministerial staff. Can it be said that any 'assessment" is done by them?The reply is an emphatic "no'". The intimation under Section 143(1)(a)was deemed to be a notice of demand under Section 156, for the ofmaking machinery provisions relating to recovery of tax applicable. By apparent such application only recovery indicated to be payable in theintimation purpose became permissible. And nothing more can beinferred from the deeming provision. Therefore, there being noassessment under Section 143(1)(a), the question of change ofopinion, as contended, does not arise.” 13.The expression “assess” used in Section 147 of the Act, 1961 refers to asituation where assessment of income of an assessee for a particularyear is, for the first time made by resorting to the provisions of Section147 because the assessment had not been made in a regular mannerunder the Act. The expression “reassess” refers to a situation where anassessment has already been made but the Income Tax Officer has, onthe basis of information in his possession, reason to believe that therehas been under assessment on account of existence of any of thegrounds contemplated by the provisions of Section 147(b). Referencemay be had in this regard to the provisions of Section 147 itself as wellas the law laid down by Hon’ble Supreme Court in the case of SunEngineering Works P. Ltd. (supra) vide paragraph 39 (SCC) in whichHon’ble Supreme Court held as under – “39. As a result of the aforesaid discussion, we find that in proceedingsunder Section 147 of the Act, the Income Tax Officer may bring to chargeitems of income which had escaped assessment other than or inaddition to that item or items which have led to the issuance of noticeunder Section 148 and where ressessment is made under Section147 in respect of income which has escaped tax, the Income Tax “39. As a result of the aforesaid discussion, we find that in proceedingsunder Section 147 of the Act, the Income Tax Officer may bring to chargeitems of income which had escaped assessment other than or inaddition to that item or items which have led to the issuance of noticeunder Section 148 and where ressessment is made under Section147 in respect of income which has escaped tax, the Income Tax Officer's jurisdiction is confined to only such income which has escapedtax or has been under-assessed and does not extend to revising,reopening or reconsidering the whole assessment or permitting theassessee to reagitate questions which had been decided in the originalassessment proceedings. It is only the under-assessment which is setaside and not the entire assessment when reassessment proceedingsare initiated. The Income Tax Officer cannot make an order ofreassessment inconsistent with the original order of assessmentin respect of matters which are not the subject-matter ofproceedings under Section 147. An assessee cannot resist validlyinitiated reassessment proceedings under this Section merely byshowing that other income which had been assessee originally was attoo high a figure except in cases under Section 152(2). The words "suchincome" in Section 147 clearly referred to the income which ischargeable to tax but has "escaped assessment" and the IncomeTax Officers' jurisdiction under the Section is confined only tosuch income which has escaped assessment. It does not extend toreconsidering generally the concluded earlier assessment. Claims whichhave been disallowed in the original assessment proceeding cannot bepermitted to be reagitated on the assessment being reopened forbringing to tax certain income which had escaped assessment becausethe controversy on reassessment is confined to matters which arerelevant only in respect of the income which had not beenbrought to tax during the course of the original assessment. Amatter not agitated in the concluded original assessmentproceedings also cannot be permitted to be agitated in thereassessment proceedings unless relatable to the item sought tobe taxed as 'escaped income'. Indeed, in the reassessmentproceedings for bringing to tax items which had escapedassessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of thatincome or the non-taxability of the items at all. Keeping in viewthe object and purpose of the proceedings under Section 147 ofthe Act which are for the benefit of the Revenue and not anassessee, an assessee cannot be permitted to convert thereassessment proceedings as his appeal or revision, in disguise,and seek relief in respect of items earlier rejected or claim reliefin respect of items not claimed in the original assessmentproceedings, unless relatable to 'escaped income', and reagitatethe concluded matters. Even in cases where the claims of theassessee during the course of reassessment proceedings relating to theescaped assessment are accepted, still the allowance of such claimshas to be limited to the extent to which they reduce the income to thatoriginally assessed. The income for purposes of 'reassessment' cannotbe reduced beyond the income originally assessed.” 14.In the case of Sun Engineering Works P. Ltd. (supra) Hon’ble SupremeCourt had dealt with a reassessment proceeding and in that contextheld that the Income Tax Officer cannot make an order of reassessmentinconsistent with the original order of assessment in respect of matterswhich are not the subject matter of proceedings under Section 147. Inthe reassessment proceedings it would be open to an assessee to putforward claims for deduction of any explanation in respect of thatincome or the non-taxability of the items at all relating to escapedincome. The object and purpose of the proceedings under Section 147 ofthe Act is for the benefit of the revenue and not an assessee and theassessee cannot be permitted to convert the reassessment proceedings 14.In the case of Sun Engineering Works P. Ltd. (supra) Hon’ble SupremeCourt had dealt with a reassessment proceeding and in that contextheld that the Income Tax Officer cannot make an order of reassessmentinconsistent with the original order of assessment in respect of matterswhich are not the subject matter of proceedings under Section 147. Inthe reassessment proceedings it would be open to an assessee to putforward claims for deduction of any explanation in respect of thatincome or the non-taxability of the items at all relating to escapedincome. The object and purpose of the proceedings under Section 147 ofthe Act is for the benefit of the revenue and not an assessee and theassessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise and seek relief in respect of itemsearlier rejected or claim relief in respect of items not claimed in theoriginal assessment proceedings, unless relatable to escapedincome and reagitate to conclude matters. In the present set of factssince there was no original assessment proceeding and no assessmentorder, therefore, the question of reassessment does not arise. Theorders passed by the assessing officer were the assessment orderspassed on original and revised return and claims made by the assesseeduring the assessment proceedings and, as such, the interest paid tofinancial institutions/banks being an allowable expenditure underSection 43B of the Act, 1961 was bound to be allowed. 15.In the case of Commissioner of Income Tax, Mumbai Vs. WallfortShares and Stock Broker Pvt. Ltd. (2010) 8 SCC 137 (para 8) Hon’bleSupreme Court considered the scheme of Sections 30 to 37 of the Actand held that the scheme of Sections 32 to 37 is that the profits andgains must be computed subject to certain allowances fordeductions/expenditures. The charge is not gross receipts. It is onprofits and gains. Profits have to be computed after deducting lossesand expenditures incurred for the business. A deduction forexpenditure or loss which is not within the prohibition must beallowed if it is on facts of the case a proper debit item to becharged against incomings of the business in ascertaining the trueprofits. 16.In thepresent set of facts it is undisputed that the interest paid by theassessee during the assessment year in question was an allowableexpenditure under Section 43B of the Act, 1961. The expenditureclaimed by the assessee was rejected by the assessing officer andupheld by the ITAT on a misconceived ground that it could not havebeen claimed or allowed in reassessment proceedings whereas the factwas that the order passed by the assessing officer was not areassessment order but an assessment order pursuant to the originaland revised return filed by the assessee and claims made duringassessment proceedings.assessee during the assessment year in question was an allowableexpenditure under Section 43B of the Act, 1961. The expenditureclaimed by the assessee was rejected by the assessing officer andupheld by the ITAT on a misconceived ground that it could not havebeen claimed or allowed in reassessment proceedings whereas the factwas that the order passed by the assessing officer was not areassessment order but an assessment order pursuant to the originaland revised return filed by the assessee and claims made duringassessment proceedings. 17.The judgment of the Hon’ble Supreme Court in Sun Engineering WorksP. Ltd. (supra) has been explained by the High Court of Karnataka inKarnataka State Co-Operative Apex Bank Ltd. Vs. DeputyCommissioner of Income-tax, Circle 3(1) Bangalore (2021) 283 Taxmann98 (Karnataka) and it was held as under :P. Ltd. (supra) has been explained by the High Court of Karnataka inKarnataka State Co-Operative Apex Bank Ltd. Vs. DeputyCommissioner of Income-tax, Circle 3(1) Bangalore (2021) 283 Taxmann98 (Karnataka) and it was held as under : 17.The judgment of the Hon’ble Supreme Court in Sun Engineering WorksP. Ltd. (supra) has been explained by the High Court of Karnataka inKarnataka State Co-Operative Apex Bank Ltd. Vs. DeputyCommissioner of Income-tax, Circle 3(1) Bangalore (2021) 283 Taxmann98 (Karnataka) and it was held as under :P. Ltd. (supra) has been explained by the High Court of Karnataka inKarnataka State Co-Operative Apex Bank Ltd. Vs. DeputyCommissioner of Income-tax, Circle 3(1) Bangalore (2021) 283 Taxmann98 (Karnataka) and it was held as under : “11. In the instant case, admittedly, there is no originalassessment order in the case of the assessee and it was only anintimation under section 143(1) of the Act, which cannot be treated to bean order in view of decision of the Supreme Court in Rajesh Jhaveri(supra). Therefore, the question of reassessment of the income ofthe assessee by the Assessing Officer does not arise. In theproceeding under section 148 of the Act, it was the first assessment andthe same could have been done considering all the claims of theassessee. Therefore, the decision rendered by the Supreme Court in SunEngineering Works (P.) Ltd. had no application to the fact situation of thecase. Even assuming for the sake of argument that if an intimation under section 143(1) of the Act is considered to be an order ofassessment, in the subsequent reassessment proceeding, the originalassessment proceeding get effaced and the Assessing Officer wasrequired to consider the proceeding de novo and to consider the claim ofthe assessee.” 18.Thus, we are of the considered view that there being no originalassessment order in the case of the assessee, there was no question ofreassessment by the assessing officer. The order passed by theassessing officer was assessment order. The assessee claimed interestas deductible expenditure under Section 43B of the Act 1961 and itsadmissibility was not disputed by the assessing officer. The proceedingsbefore the assessing officer not being reassessment proceedings, theassessee lawfully claimed interest as a deductible expenditure whichthe assessing officer was bound to allow. The charge of income tax is onthe income and not on gross receipts. It is the profits and gains ofbusiness or profession which has to be computed after deducting lossesand expenditures incurred for business. Since the interest claimed bythe assessee is not within the prohibition, it must have been allowed bythe assessing officer in the facts of the present case. The tribunal hascommitted a manifest error of law and passed the impugned orderwithout application of mind on the presumption that the proceedingbefore the assessing officer was reassessment proceeding whereasproceeding before the assessing officer was the assessment proceedingand the order passed by him was assessment order. Therefore, the ratio of decision in the case of Sun Engineering Works P. Ltd. (supra) was notapplicable on facts of the present case. The substantial question of law(i) deserves to be answered in favour of the assessee and against therevenue. 19.The impugned order of the ITAT in so far as it upheld the rejection ofinterest, deserves to be set aside.interest, deserves to be set aside. Substantial Question of Law (ii) of decision in the case of Sun Engineering Works P. Ltd. (supra) was notapplicable on facts of the present case. The substantial question of law(i) deserves to be answered in favour of the assessee and against therevenue. 19.The impugned order of the ITAT in so far as it upheld the rejection ofinterest, deserves to be set aside.interest, deserves to be set aside. Substantial Question of Law (ii) 20.Section 32 of the Act, 1961 provides for allowing deductions in respectof depreciation on certain assets owned wholly or partly by an assesseeand used for the purpose of business or profession, as may beprescribed. Rule 5(1) of the Income Tax Rules, 1962 provides thatsubject to the provisions of sub-rule (2), the allowance under clause (ii)of sub-section (1) of section 32 in respect of depreciation of any block ofassets shall be calculated at the percentages specified in the secondcolumn of the Table in Appendix I to these rules on the written downvalue of such block of assets as are used for the purposes of thebusiness or profession of the assessee at any time during theprevious year.of depreciation on certain assets owned wholly or partly by an assesseeand used for the purpose of business or profession, as may beprescribed. Rule 5(1) of the Income Tax Rules, 1962 provides thatsubject to the provisions of sub-rule (2), the allowance under clause (ii)of sub-section (1) of section 32 in respect of depreciation of any block ofassets shall be calculated at the percentages specified in the secondcolumn of the Table in Appendix I to these rules on the written downvalue of such block of assets as are used for the purposes of thebusiness or profession of the assessee at any time during theprevious year. 21.The expression “block of assets” has been defined in Section 2(11) ofthe Act, 1961 to mean a group of assets falling within a class of assetscomprising (a) tangible assets being building, machinery, plant orfurniture; (b) intangible assets being knowhow, patents, copyrights,the Act, 1961 to mean a group of assets falling within a class of assetscomprising (a) tangible assets being building, machinery, plant orfurniture; (b) intangible assets being knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercialrights of similar nature in respect of which the same percentage ofdepreciation is prescribed. Second and third proviso to Section 32(1) ofthe Act, 1961 provide that if an asset is acquired by the assesseeduring the previous year and is put to use for the purposes of businessor profession for a period of less than 180 days in that previous year,the deduction under the said sub-section in respect of such asset, shallbe restricted to 50% of the amount calculated at the percentageprescribed for an asset. 22.In the present set of facts, it is an admitted fact that the block of assetson which the depreciation has been claimed by the assessee are old andnone of it were acquired during the previous year relevant to theassessment year in question. Therefore, the second and third proviso tosub-Section (1) of Section 32 shall not apply. The assets in question onwhich the depreciation has been claimed was being used for thepurpose of business or profession from earlier years and was also usedduring the assessment years in question and, as such, there was noquestion to disallow 50% of the depreciation claimed. Section 32 of theAct, 1961 read with Rule 5 of the Rules, 1962 does not prohibit allowingof depreciation for the whole of the previous year where asset has beenused for the purposes of business or profession by the assessee at anytime during that previous year. Lesser depreciation is allowable wherethe asset has been acquired during the previous year and is put to use for less than 180 days in that previous year. Therefore, in view of thelaw settled by the Hon’ble Supreme Court in the case of Wallfort Shares& Stock Brokers Pvt. Ltd. (supra) the deduction for expenditure claimedby the assessee being not prohibited under law, must have been allowedby the assessing officer. It is not in dispute that the block of assets onwhich the appreciation for the whole year has been claimed was readyto use during the entire year. 23.Thus, the substantial question of law No. (ii) deserves to be answered infavour of the assessee and against the revenue and the impugned orderof the ITAT to that extent deserves to be set aside.favour of the assessee and against the revenue and the impugned orderof the ITAT to that extent deserves to be set aside. 24.For all the reasons afore-stated, the impugned order passed by the ITATcannot be sustained and is hereby set aside. Both the substantialquestions of law are answered in favour of the assessee and against therevenue. The order of the CIT(A) is accordingly affirmed.cannot be sustained and is hereby set aside. Both the substantialquestions of law are answered in favour of the assessee and against therevenue. The order of the CIT(A) is accordingly affirmed. 25.The appeal (ITA/102/2012) is allowed to the extent indicated above. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.)