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TMI Blog2015 (4) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... ils of the break-up of the expenses, it is seen that most of these expenses relate to professional and technical fees for geotechnical investigations and various other expenses for advertisement, etc. It is not in dispute that these expenses have been incurred by the assessee in pursuance of the activities assigned to it. Now that these expenses have been offered for tax in the assessment year 1999-2000, when the same has been recovered from the concerned persons then there is no occasion to disallow the same in this year. - Decided in favour of assessee. Disallowance of deprecation on assets acquired under sale and leaseback transactions with Maharashtra Esters and Keytones P. Ltd. and Konkan Railway Corp. Ltd. - Held that:- No reason to deviate from the findings of the learned Commissioner (Appeals) that the depreciation on the asset has to be disallowed which is claimed on normal lease transactions. Moreover, the Department has also accepted similar nature of normal lease transactions from the assessment year 1999-2000 onwards. Thus, the disallowance on normal lease transaction is set aside and is decided in favour of the assessee. Coming to the sale and leaseback transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness income, these expenditures cannot once again be deducted from the dividend income for the purpose of computing deduction under section 80M and the deduction has to be granted with reference to the gross dividend. - Decided against revenue. Disallowance under section 14A on account of proportionate administrative expenses - Held that:- The Bombay High Court, in Godrej and Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] has held that in case of earning of an exempt income, some reasonable basis for allocating the expenditure has to be worked out. The Assessing Officer has worked out an expenditure of ₹ 64,28,000, which, in our opinion, is too high and excessive looking to the fact that the assessee is not engaged mainly in the investment. Since the assessee is buying shares of the company by way of financing to promote such companies for industrial development in backward area, certain administrative cost has to be allocated. In our considered opinion, one percent (1 per cent.) of the administrative expenses should be disallowed and that would be a reasonable allocation of administrative expenses for the purpose of earning exempt income. Thus, the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. 3. The assessee, in the present case, is an undertaking set-up by the Government of Maharashtra for providing finance for industrial development. It is mainly engaged in the business of leasing along with the other financing activities for the industrial development. The business of leasing is being carried out from the last several years on which it was assessed to tax. Assessee's appeal in I. T. A. No. 7901/Mum./2013, for assessment year 1997-98. 4. In ground No. 1, the assessee has challenged the disallowance of survey charges of ₹ 19,75,520. 5. The assessee, for the implementation of port development programme of the Government of Maharashtra, was required to spend survey charges which included preparing of offer documents, evaluation of bids for the development of minor ports, etc. These expenditures were to be recovered from the successful bidders later on when the contract has been awarded for the port development. These expenses were shown as receivables and accounted under the head Account receivables in the assessment years 1997-98. However, during the relevant year, the bidders could not be found for the projects. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the learned Commissioner (Appeals), submitted that when the expenditure has been incurred on behalf of other persons and the same was to be recovered by the assessee, then there was no need for claiming it as an expenditure. However, he has not disputed the fact that this amount has already been offered for tax in the assessment year 1999- 2000. 9. We have given our anxious consideration to the rival contentions and perused the relevant material on record. The assessee was acting as an advisor to the Government of Maharashtra and was required to implement port development programme in Maharashtra. For this purpose, it has to incur various expenses which was recoverable from the successful bidders. As apparent from the records, these expenses have been incurred in the assessment year 1997-98. The only reason given by the learned Commissioner (Appeals) is that, since these expenses were incurred on behalf of others which was recoverable, the assessee should not have debited the expenses to the profit and loss account. Such a view cannot be affirmed because the assessee could have either shown this amount in the balance- sheet as expenses recoverable or could have d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions as they were entered to gain the benefit of depreciation and reduce the legitimate tax liability ; firstly, the assets were not owned by the assessee but were held by the assessee only for the purpose of security and secondly, it was purely for financing various industries. His detail findings have been given from pages 8 to 26 of the assessment order. 12. The learned Commissioner (Appeals), looking to the various nature of lease agreements, held that there were mainly two categories of lease transactions one was in the nature of sale and leaseback transactions and other finance lease, i.e., normal lease transactions. The break-up of these categories have been given by him as under : Category of lease Depreciation (Rs.) Sale and leaseback transactions 5,46,58,200 Other finance leases 17,30,26,176 Total 22,76,84,377 13. In so far as the normal lease transactions are concerned, the learned Commissioner (Appeals) held that nature of transactions are directly covered by the ratio of the jurisdictional High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Rajan R. Vora, appearing on behalf of the assessee, first of all, raised a preliminary submission that out of the total disallowance of depreciation of ₹ 22,78,84,378, the depreciation aggregating to ₹ 15,58,39,334, pertains to the assets which were leased out in the earlier years and on some assets opening written down value was shown in the block of assets as on April 1, 1996. The depreciation of these written down value assets now cannot be disallowed in this year. His other main contention was that in the subsequent years also the Department has allowed the depreciation on similar assets which were on similar nature of transactions, thus, the disallowance of depreciation for in between period cannot be upheld. He gave the details of written down value of lease assets and the depreciation claimed on these assets under normal lease as well as sale and leaseback transactions. In case of depreciation on normal lease, he submitted that depreciation on opening written down value comes to ₹ 14,71,07,522, which is the subject matter of the Departmental appeal and the depreciation on opening written down value in relation to sale and leaseback transaction is ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) CIT v. Cosmo Films Ltd. [2011] 338 ITR 266 (Delhi) ; (ii) CIT v. Punjab State Electricity Board [2010] 320 ITR 469 (P H) ; (iii) CIT v. Gujarat Power Co. Ltd., Income-tax Appeal No. 215/2010, judgment dated August 1, 2011 ; and (iv) First Leasing Co. of India Ltd. v. Asst. CIT, Madras High Court, Income-tax Appeal No. 107 of 2007, judgment dated February 21, 2010. He further referred to the decision of the Tribunal, Mumbai Bench, in Development Credit Bank Ltd. v. Deputy CIT [2013] 26 ITR (Trib) 209 (Mum). 17. Further, he submitted that even the decision of the Special Bench of the Tribunal in IndusInd Bank Ltd. v. Addl. CIT [2012] 15 ITR (Trib) 89 (Mum) [SB], the issue of sale of leaseback transaction have been decided in favour of the assessee and in support of this, he referred to para 6.7 of the order. He also pointed out the comparison of the facts in the case of Indusind Bank with that of the assessee and then again facts of the case in Prakash Industries Ltd. as decided by the Bombay High Court and Indusind Bank vis-a-vis the assessee's case and submitted that even on the facts, the Special Bench decision supports the case of the assessee. Lastly, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited by either party. In this case, the preliminary issue is that in most of the leased assets, depreciation aggregating to ₹ 15,58,39,334 has been disallowed on the assets which were leased earlier and the depreciation has been allowed. These assets are also forming part of the block of assets . Not only this, the depreciation has also been allowed in the subsequent assessment years wherein the Department is not in contest. Once these assets have found to be a part of the block of assets and depreciation has been allowed in the earlier years, the depreciation on some assets cannot be disallowed on the opening written down value by taking a new stand on exactly similar nature of transaction. Though the principle of res judicata does not apply in income tax proceedings, however, if the similar facts are permeate through all assessment years and both parties have accepted a particular stand, then the principle of consistency has to be followed. In this case, out of total disallowance of depreciation for sums aggregating to ₹ 22,76,84,378, depreciation on opening written down value on normal lease transactions and sale and leaseback transactions comes to ₹ 15,58,39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, we do not find any reason to deviate from the findings of the learned Commissioner (Appeals) that the depreciation on the asset has to be disallowed which is claimed on normal lease transactions. Moreover, the Department has also accepted similar nature of normal lease transactions from the assessment year 1999-2000 onwards. Thus, the disallowance on normal lease transaction is set aside and is decided in favour of the assessee. 21. Coming to the sale and leaseback transactions, the learned Commissioner (Appeals) has confirmed the disallowance of depreciation in Maharashtra Esters and Keytones P. Ltd. and Konkan Railway Corp. Ltd., mainly on the ground that there was no physical delivery of the assets as it already belong to them and therefore the transactions itself was not genuine. In case of the other two parties, namely, Fujitsu ICIM Ltd. and Datar Switchgear Ltd., he has allowed the same mainly on the ground that sale transactions and leaseback after the purchase are genuine transactions. In case of Maharashtra Esters and Keytones P. Ltd., it is seen that this transaction of sale and leaseback took place in the earlier previous year and the depreciation has been allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes. We now take up the Revenue's appeal in I. T. A. No. 7955/Mum./2003, for the assessment year 1997-98. 23. In ground No. 1, the Revenue has challenged the deletion of disallowance of ₹ 36,59,755, on account of renovation expenses out of the total amount disallowed by the Assessing Officer of ₹ 73,19,509. 24. The assessee had incurred an expenditure of ₹ 77,66,359, for renovating its office premises at Mumbai, Nasik and Chiplon. The Assessing Officer disallowed the same as capital expenditure. It was submitted by the assessee that out of total expenditure of ₹ 77,66,359, it has capitalised an amount of ₹ 4,46,850, and the balance amount of ₹ 73,19,509, was claimed as revenue expenditure. It was also submitted that all these expenses were incurred on the rented premises which could not have been shifted by the assessee. 25. Before the learned Commissioner (Appeals), the assessee filed details of such expenditure along with the copy of bills and vouchers relating to such expenditure. Reliance was also placed on various case law for the proposition that such a claim of expenses on a rented premises is a revenue expenditure. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have to be treated as revenue expenditure. Once 50 per cent. of the expenditure has been disallowed as capital expenditure, we do not find any reason to deviate from such findings, as allowance of 50 per cent. of revenue expenditure actually meet the ends of justice in these facts and circumstances. Thus, ground No. 1, is treated as dismissed. 29. In ground No. 2, the Department has challenged the allowance of depreciation on various leased assets by the assessee. This issue has already been discussed in detail while discussing the assessee's appeal in ground No. 2 raised by the assessee in I. T. A. No. 7901/Mum/2003, wherein we have directed the Assessing Officer to examine the issue of depreciation of assets which were procured during the year in case of sale and leaseback transaction and in so far as allowance of depreciation on normal lease transaction is concerned, the same has been allowed by us in the assessee's appeal cited supra. Hence, the findings of the learned Commissioner (Appeals) on the issue of allowance of depreciation are confirmed. On the issue of sale and leaseback transaction, in the assessee's appeal cited supra, the matter has been restor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom) is squarely applicable, wherein the High Court has held that interest on borrowing and other expenditures incurred during the course of carrying on the business are allowable as deduction while computing the business income, these expenditures cannot once again be deducted from the dividend income for the purpose of computing deduction under section 80M and the deduction has to be granted with reference to the gross dividend. Thus, we do not find any merit in the grounds raised by the Department and the same stands dismissed. 35. Grounds Nos. 4 and 5, being general in nature, no separate adjudication is required. 36. In the result, the Revenue's appeal for the assessment year 1997-98 is treated as partly allowed for statistical purposes. We now take up the assessee's appeal in I. T. A. No. 2337/Mum./2004 for the assessment year 1998-99. 37. Ground No. 1, relates to disallowance out of exemption claimed under section 10(23G). 38. Learned counsel for the assessee contended before us that he did not wish to press this ground. The learned Departmental representative also did not object to the submissions made by learned counsel. Consequently, this ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. We now take up the Revenue's appeal in I. T. A. No. 4719/Mum./2004, for the assessment year 1999-2000. 46. The only issue arising in this appeal relates to disallowance under section 14A on account of proportionate administrative expenses. 47. The Assessing Officer observed that the assessee has received dividend income of ₹ 9,18,96,361 and held that the assessee must have incurred certain establishment/administrative expenses towards earning such income. Accordingly, he worked out proportionate expenditure for earning the income and worked out the disallowance at ₹ 64,28,000 and reduced the dividend income by such amount and allowed deduction under section 10(33) of the dividend income at ₹ 8,54,68,361. 48. The learned Commissioner (Appeals) held that once the investment has been made, there is no further effort on the part of the investor to receive and realised the dividend income as it is received without any incurring of expenditure. The administrative expenditure and establishment cost cannot be held to have been incurred for earning dividend income. Accordingly, he held that no administrative expenditure are attributable or allocable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, is too high and excessive looking to the fact that the assessee is not engaged mainly in the investment. Since the assessee is buying shares of the company by way of financing to promote such companies for industrial development in backward area, certain administrative cost has to be allocated. In our considered opinion, one percent (1 per cent.) of the administrative expenses should be disallowed and that would be a reasonable allocation of administrative expenses for the purpose of earning exempt income. Thus, the disallowance is restricted to one per cent. of administrative expenses. Thus, ground raised by the Revenue is treated as partly allowed. 52. In the result, the Revenue's appeal for the assessment year 1999-2000 is treated as partly allowed. We now take up the assessee's appeal in I. T. A. No. 5094/Mum./2004, for the assessment year 1999-00. 53. In ground No. 1, the assessee has challenged the disallowance of ₹ 15,08,000, out of exemption claimed under section 10(23G). 54. Learned counsel for the assessee contended before us that he did not wish to press this ground. The learned Departmental representative also did not object to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner (Appeals) whereas the learned Departmental representative submitted that certain expenditure has to be allocated for the purpose of disallowance under section 14A as the assessee has earned a huge dividend income, which is exempt. 62. After hearing both parties, we find that this issue had also come up for consideration in the earlier Department's appeal and this ground is similar to the ground decided in the Revenue's appeal in I. T. A. No. 4719/Mum./ 2004, wherein we have held that one per cent. of the administrative expenditure would be sufficient for allocation of expenditure which can be said to be attributable to earning of dividend income. Accordingly, we direct the Assessing Officer to disallow only one per cent. of the administrative expenditure. Thus, ground No. 1, raised by the Revenue is treated as partly allowed. 63. In ground No. 2, the Department has challenged the deletion of disallowance made on account of repairing expenses of ₹ 14,85,671, which was treated as capital expenditure. 64. The Assessing Officer noted that the assessee has incurred expenditure which were in the nature of renovation, repairs and renewals. These e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Likewise, the judgment of Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) the provisions of leave salary is also not an unascertained liability, therefore, the same was also to be excluded from the book profit. Relying upon this decision, the learned Commissioner (Appeals) excluded the said provisions for bad debt and leave salary. 70. Before us, it has been admitted by both parties that now this issue stands covered by the judgment of the hon'ble Supreme Court in CIT v. HCL Comnet Systems and Services Ltd. [2008] 305 ITR 409 (SC). In view of the admitted position of law declared by the hon'ble Supreme Court in the aforesaid case, we affirm the findings given by the learned Commissioner (Appeals) and hold that the provisions for bad debt and leave salary cannot be included in the computation of book profit and the same has to be excluded. Thus, ground No. 3, is treated as dismissed. 71. Ground Nos. 4 and 5 being general in nature, hence, no separate adjudication is required. 72. In the result, the Revenue's appeal for the assessment year 2000-01 is treated as partly allowed. We now take up the assessee's appeal in I. T. A. No. 6586/Mum./2005, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee's appeal for the assessment year 2000-01 is treated as partly allowed for statistical purposes. We now take up the Revenue's appeal in I. T. A. No. 5153/Mum./2005, for the assessment year 2001-02. 83. The only issue arising in this appeal relates to disallowance under section 14A on account of proportionate administrative expenses exempt under section 10(33). 84. After hearing both parties, we find that this ground is similar to the ground decided in the Revenue's appeal in I. T. A. No. 4719/Mum./2004, for the assessment year 1999-2000. Therefore, the findings given therein will apply mutatis mutandis on this issue also wherein it has been held that one per cent. of administrative expenses would be disallowed. Consequently, ground is treated as partly allowed for statistical purposes. 85. In the result, the Revenue's appeal for the assessment year 2001-02 is treated as partly allowed for statistical purposes. We now take up the assessee's appeal in I. T. A. No. 6587/Mum./2005, for the assessment year 2001-02. 86. Ground No. 1, relates to disallowance claimed exempt under section 10(23G), which relates to interest income of ₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as partly allowed for statistical purposes. We now take up the assessee's appeal in I. T. A. No. 6588/Mum./2005, for the assessment year 2002-03. 96. The only dispute in this appeal relates to disallowance of exemption claimed with regard to the interest income in the absence of notification for eligibility under section 10(23G). 97. After hearing both parties, we find that this ground is similar to the ground raised in the assessment years 2000-01 and 2001-02 and, therefore, in view of the findings given therein, this issue is restored to the file of the Assessing Officer who shall verify the notification of section 10(23G), which has been claimed by the assessee that the same is available now, the Assessing Officer will verify the same and will grant exemption in accordance with law. Thus, this ground raised by the assessee is treated as allowed for statistical purposes. 98. In the result, the assessee's appeal for the assessment year 2002-03 is treated as partly allowed for statistical purposes. 99. To sum up, all the assessee's appeals as well as the Revenue's appeals are treated as partly allowed for statistical purposes. The order pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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