2019 (8) TMI 1318 - AT - Income Tax

Disallowance of proportionate write off of lease premium - payment made to the lessors in respect of different lands taken on lease for the purpose of business - HELD THAT - As decided in own case 2019 (8) TMI 569 - CALCUTTA HIGH COURT it is clear from our perusal of terms of leases between assessee and its lessors, such terms are not there between them. We are unable to appreciate that fact of rent being depressed rent can only be appreciated as such if there is recital about it in the lease rent. That substantial amount of money was paid as premium, claimed and shown by assessee to be advance rents and where rents reserved are as above, it follows there was no contention raised before the Tribunal regarding the rents reserved corresponding to market rate of rent. Identical facts the coordinate Bench of this Tribunal 2019 (7) TMI 177 - ITAT KOLKATA by applying the CBDT Circular No. 9/2014 dated 23.04.2014 granted the assessee's claim for amortization of lease premium over the effective life of lease. For the reasons discussed in the foregoing therefore we do not find any infirmity in the order of the CIT(A) granting amortization of lease premium in computing business income of the assessee. - Decided against revenue Deduction u/s 80IA - other income - HELD THAT - We note that for allowing the deduction u/s80IA as well as Section 80IB the income must be derived from the operation of the eligible undertaking/facility. In the assessee s case the nature of other income in respect of CFS facility as well as industrial undertakings eligible u/s 80IB was same. In the context of Section 80IB deduction, the Revenue has accepted that such other income had first degree nexus with the operations of the industrial undertakings and therefore no second appeal was filed in this year. We therefore see no reason to take a different view in the context of allowing deduction u/s 80IA. We also find before us no material was brought by the Revenue to controvert the CIT(A) s findings that such other income was derived from the CFS facility of the assessee. We therefore see no reason to interfere with the order of ld. CIT(A). Ground No. 2 is accordingly dismissed. Disallowance u/s 14A - retrospectively of rule 8D - HELD THAT - The issue whether Rule 8D can be applied retrospectively or not, is no longer res integra. The Hon ble Bombay Court in the case of Godrej Boyce Mfg Co Ltd 2010 (8) TMI 77 - BOMBAY HIGH COURT has held that Rule 8D can be applied only from AY 2008-09 and onwards and therefore it cannot be applied in the relevant year in consideration. Respectfully following the judgment of the Hon ble Bombay Court, we therefore reject the Revenue s ground against the ld. CIT(A) s action of deleting the disallowance computed by the AO in accordance with Rule 8D. CIT(A) s action of attributing administrative expenses towards earning of dividend income, we find that this Tribunal is consistently holding that prior to AY 2008-09 i.e. introduction of Rule 8D, some disallowance u/s 14A was warranted. Coordinate benches of this Tribunal have consistently held that such disallowance should be restricted to 1% of the dividend income. We therefore see no reason to interfere with the order of the CIT(A) which is in conformity with the view consistently adopted by this Tribunal in several cases. Accordingly we dismiss the cross objection of the assessee.

Summary

Issues Involved:
1. Disallowance of proportionate write-off of lease premium.
2. Deduction under Section 80IA for Container Freight Station (CFS) income.
3. Disallowance under Section 14A.

Issue-wise Detailed Analysis:

1. Disallowance of Proportionate Write-off of Lease Premium:

The primary issue was whether the lease premium paid for various plots of land, which was amortized over the lease period, should be considered as capital expenditure or revenue expenditure. The assessee claimed this as a revenue expenditure, spreading the premium over the lease period and deducting it from business income. The Assessing Officer (AO) disallowed this, treating it as capital expenditure. However, the CIT(A) allowed the deduction, following a previous Tribunal decision in favor of the assessee for AY 2003-04.

The Tribunal noted that the Calcutta High Court had reversed a later Tribunal decision which had denied the deduction, referencing the Special Bench decision in Mukund Ltd. The High Court concluded that the lease premium should be treated as advance rent, thus allowable as a business deduction under Section 37(1) of the Income Tax Act, 1961. The Tribunal upheld this view, citing consistency with judicial precedents, including the Supreme Court's judgments in CIT vs. Panbari Tea Co. Ltd and CIT vs. Associated Cement Co Ltd, which supported the treatment of lease premium as advance rent.

2. Deduction under Section 80IA for Container Freight Station (CFS) Income:

The second issue was whether certain incomes derived from the operation of CFS, such as interest on delayed payments, warehousing charges, and sale of scrap, should qualify for deduction under Section 80IA. The AO denied the deduction, arguing that these incomes did not have a direct nexus with the CFS activity.

The CIT(A) disagreed, allowing the deduction by noting that such incomes were integral to the CFS operations. The Tribunal upheld the CIT(A)'s decision, emphasizing that similar deductions under Section 80IB for other units had been accepted by the Revenue in earlier years. The Tribunal found no reason to differentiate the nature of income for Section 80IA from that of Section 80IB, thus dismissing the Revenue's appeal on this ground.

3. Disallowance under Section 14A:

The third issue involved the disallowance of expenses related to earning exempt income (dividends) under Section 14A. The AO applied Rule 8D retrospectively, disallowing ?23,57,060. The CIT(A) held that Rule 8D could not be applied retrospectively, thus invalidating the AO's computation but still estimated a disallowance of 1% of the dividend income, amounting to ?1,76,349.

The Tribunal confirmed that Rule 8D could not be applied retrospectively, following the Bombay High Court's decision in Godrej & Boyce Mfg Co Ltd. It also upheld the CIT(A)'s estimation of disallowance at 1% of the dividend income, in line with consistent Tribunal practice for years prior to the introduction of Rule 8D. Consequently, both the Revenue's appeal and the assessee's cross-objection on this issue were dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection for AY 2007-08, while allowing the assessee's appeal for AY 2009-10. The judgments adhered to established legal principles and precedents, ensuring consistency and fairness in the application of tax laws. The order was pronounced in the open court on 23rd August 2019.