Income-tax Appellate Tribunal - G Bench Mumbai , Before S Shri Rajendra,Accountant Member and Ram Lal Negi,Judicial Member . ITA 7249 Mum 2014, Assessment Years: 2010-11 Yogesh S. Rathod DCIT,Circle-3 2203, Richmond Thane. Vs. Hiranandani Garden, Powai Mumbai-400 076. PAN:AAAPR 5986 J ( Appellant) ( Respondent) Revenue by: Shri P.O. Meena-DR Assessee by: Shri Haresh P. Khunadia Date of Hearing: 16.08.2016 Date of Pronouncement: 14.09.2016 ,1961 254(1) Order u s.254(1)of Income-tax Act,1961(Act) PER RAJENDRA, AM- Challenging order dt.18.08.2014 of CIT(A)-I,Mumbai,the Assessee has filed appeal present appeal.Assessee-Company, engaged in business of textiles, filed its return of Income on 06.07.2010 declaring total at Rs.15,70,601 -.The AO completed assessment,on 08.03.2013,u .s143(3) of Act,determining income of assessee at Rs.3.71 crores. 2.Effective ground of appeal is about disallowance of depreciation claim,amounting to Rs.3. 80lakhs.During assessment proceedings,the AO found that assessee had paid Rs. 38.03 lakhs towards cost of land for Gala,that he had claimed depreciation on entire value of Gala.In his explanation, filed as per directions of AO, assessee stated that he had purchased Gala on first-floor,that as such question of purchase of land and there after construction of factory building thereon did not arise, that there was no purchase of land at all because agreement purchase of FSI was with developer and not with landowner, that cost of purchase of FSI was nothing but part and parcel of cost of construction of Gala. After considering submission of assessee,the AO held that as per provisions of Act FSI was not depreciable item,that value of FSI was clearly separable,that apprecia - tion claimed by him was not allowable that was claimed at rate of 10% . 3.Aggrieved by order of AO, assessee preferred appeal before First Appellate Authority (FAA).Before him,the assessee argued that agreement for purchase of FSI was with developer, that ownership of land remained with original landowner,that he had not entered into any agreement for purchase of land. He relied upon case of Hindustan Times Ltd. (231 ITR 741). 7249 M 14 Yogesh S. Rathod After considering submission of assessee and assessment order, FAA referred to purchase agreement dealing with purchasing FSI and held that assessee had purchased rights in land for construction of Gala on first floor, that value of right in question related to land and same was clearly demarcated,that AO had rightly disallow -ed depreciation in respect of price paid for buying right in land for construction of Gala. He further held that facts of case of Hindustan Times Ltd (supra) were different, that in that matter assessee had paid amount on account of commercialisation of additional area of construction. Finally, he dismissed appeal filed by assessee. However,he directed AO to work out WDV of FSI for earlier year and accordingly disallow depreciation at rate of 10%. 4.Before us, Authorised Representative(AR) reiterated arguments that were made before AO and FAA. He relied upon case of Hindustan Times Ltd (supra) and referred to agreement to purchase FSI. Departmental Representative (DR) supported order of FAA. 5.We have heard rival submissions and perused material before us. We find that assessee had purchased FSI for construction of Gala in earlier AY.,that it had claimed depreciation @10%,that FAA held that he was not entitled to depreciation as he had purchased right in land.In our opinion,the very concept of depreciation suggests that tax benefit on account of depreciation legitimately belongs to one who has invested in capital asset and is utilising it.Depreciation is allowed to assesses for losing investment gradually, made in assets,caused by wear and tear, and would need to replace it having lost its value fully over period of time.In case before us,none of essential ingredients for allowing depreciation exit.The FAA has given categorical finding of fact that assessee had acquired right in land for constructing gala.We do not find any legal infirmity in his order.We would like to mention that facts of case of Hindustan Times Ltd.(supra) were totally different.In that matter assessee had purchased existing residential building in year 1961. It wanted to use building for commercial purposes and for this purpose ,so paid certain additional charges to Development Officer of Government of India and also extra ground rent in respect of land. formal agreement was executed in this connection and under agreement assessee paid sum of Rs. 3,65, 875 -to Land Development Officer as commercialisation charges in addition to ground rent. In year 1965-66 assessee demolished original building and constructed new multi-storeyed building which was several times original area on said land. After 2 7249 M 14 Yogesh S. Rathod completion of construction in year 1973, assessee applied to Land Development Officer for using building for commercial purposes and paid sum of Rs. 36,96,516 -for such user.The assessee added sum of Rs. 36,96,516 -to cost of building construct - ed by it and claimed depreciation on same for assessment years 1973-74 and 1974-75. AO disallowed claim for depreciation and held that amount of Rs. 36,96,516 - had been paid for commercial use of land and hence it should be added to cost of land and adding amount to cost of building for purposes of depreciation was not justified. FAA as well as Tribunal held that sum of Rs. 36,96,516 - had been correctly added to cost of building constructed by assessee because amount had been paid in respect of commercial use of additional area constructed as result of multi-storeyed building being put up by assessee and it, therefore, pertained to building and not to land. On reference application, Hon ble Delhi High Court held that use of land had already been converted to commercial use in 1962 when assessee had paid additional amount of Rs. 3,65,875 - and there was no question therefore of any additional commercialisation of said plot, that amount had however been paid for additional construction which had been put up by assessee and hence formed part of cost of building, that for land assessee had paid additional ground rent under agreement dated March 5, 1973, which was separate amount, that, therefore, sum of Rs. 36,96,516 - had been laid out by assessee in order to construct additional space for office purposes and that payment had been made for construction of business asset and formed part of cost incurred by assessee in putting up building. On appeal to Supreme Court held that assessee was entitled to depreciation in respect of sum of Rs. 36,96,516 - as part of additional cost of construction of building constructed by it for business purposes.So,in our opinion,the FAA has rightly held that facts of both cases are distinguishable.Confirming his order,we decide effective ground of appeal against assessee. As result,appeal filed by assessee stands dismissed. . Order pronounced in open court on 14th September,2016. 14 ,2016 Sd - Sd - ( R.L.Negi ) ( Rajendra) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 14.09.2016. Jv.Sr.PS. 3 7249 M 14 Yogesh S. Rathod Copy of Order forwarded to : 1.Appellant 2. Respondent 3.The concerned CIT(A) , 4.The concerned CIT 5.DR G Bench, ITAT, Mumbai , 6.Guard File True Copy BY ORDER, Dy. Asst. Registrar , ITAT, Mumbai. 4 Yogesh S. Rathod v. DCIT, Circle-3 Thane