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TMI Blog2020 (1) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the Assessing Officer to follow the decisions of earlier years. Accordingly, the ground of appeal No. 2.4 raised by the Revenue is partly allowed for statistical purpose. Addition on lease hold premises as revenue expenditure - contention of the assessee company is that they are temporary erection in the form of pipes, floor tiles, false ceiling and this expenditure was not brought into existence into new asset and therefore it should be allowed as revenue expenditure - HELD THAT:- The issue in the present grounds of appeal is decided against the assessee company and in favour of the Revenue by the Jurisdictional High Court in the cases of CIT vs. ETA Travel Agency (P) Ltd. [2019 (8) TMI 932 - MADRAS HIGH COURT] and CIT vs. Viswams[ 2019 (4) TMI 1127 - MADRAS HIGH COURT] - addition to leasehold premises cannot be allowed as revenue expenditure. Thus, the findings of the Ld. CIT(A) stands reversed. However, we direct the Assessing Officer to allow depreciation at the rate applicable to buildings. Depreciation on electrical fittings at the rate applicable to plant and machinery - CIT(A) allowed depreciation on electrical installation at the rate applicable to electrical f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. Excess depreciation on building - AO held that the additions cannot be allowed as revenue expenditure but allowed depreciation at 10% - HELD THAT:- Assessing Officer can allow depreciation at the rate applicable to buildings. From the perusal of the assessment order, it is clear that Assessing Officer had disallowed 90% of the opening value of written down which is not correct as assessee had not claimed it. However, the Ld. CIT(A) had rightly deleted the addition by holding it to be doubtful disallowance. The findings of the Ld. CIT(A) is based on proper appreciation of facts. We do not find any reason to interfere with the order of the Ld. CIT(A) on this issue Deduction as bad debts - allowance of claim of addition being amount paid to M/s. Vivro Financial Services Pvt. Ltd. and written off in the books of accounts as irrecoverable - HELD THAT:- Admittedly, this amount was paid during the course of carrying on the business of the assessee and the same should be allowed as deduction if not as bad debts in the light of decisions Devi Films Private Ltd. [ 1969 (4) TMI 12 - MADRAS HIGH COURT] and CIT v. Abdul Razak Co [ 1981 (2) TMI 27 - GUJARAT HIGH COURT]. - we direct the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income, the assessment was completed by the Joint Commissioner of Income Tax, Company Range VI, Chennai (hereinafter referred as Assessing Officer) vide order dated 28.03.2013 passed u/s. 143(3) r.w.s. 92CA(4) of the Income Tax Act, 1961 (in short "the Act") at total income of Rs. 37,76,49,093/-. While doing so, the AO disallowed ESOP expenditure of Rs. 2,52,80,000/- and depreciation on intangible assets of Rs. 64,16,093/-. 5. The Assessing Officer disallowed ESOP expenditure giving reasons which are extracted at para 5.3 of the assessment order and Assessing Officer also took note of the fact that Hon'ble Jurisdictional High Court in the case of CIT vs. PVP Ventures, 211 Taxman 554, wherein it was held that ESOP expenditure allowable as revenue expenditure, but noting that the decision of Jurisdictional High Court in the case of PVP Ventures (supra) is appealed before the Hon'ble Supreme Court and disallowed the expenditure. The Assessing Officer also disallowed depreciation on intangible assets of Rs. 500 lakhs acquired on amalgamation of Shriram Engineering Construction Ltd. during the previous year relevant to assessment year 2005-06 as same was disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESOP expenditure as revenue expenditure. The issue in the present appeal is squarely covered in favour of the assessee by the order of Hon'ble Delhi High Court in the case of Lemon Tree Hotel (supra) and by the decision of Hon'ble Jurisdictional High Court in the case of PVP Ventures Ltd. (supra), wherein it was held as follows. "29. As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal". Against the above decision of the Hon'ble Jurisdictional High Court, the SLP filed by the Department was dismissed by the Hon'ble Supreme Court vide order dated 28.03.2014 (2512/2014) and hence, the law laid down by the Hon'ble Madras High Court has become final. Thus, in view of the above judicial pronouncem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) failed to note that, this expenditure is not an allowable deduction either according to the provisions of section 30(a)(i) or according to the provisions of section 37. Since the expenditure incurred is in the nature of addition to buildings falling in the block of assets under the category 'buildings' which are not used mainly for residential purpose, the depreciation is allowable at 10% only 2.4 The Ld. CIT(A) erred in directing the AD to allow the ESOP expenses of ₹ 2,75,99,528/- 2.5 Ld. CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not relatable to regular business. 2.6 Ld. CIT(A) failed to appreciate the facts mentioned in the case of Brooke Bond India Ltd. and Punjab State Industrial Development Corporation that expenditure incurred in relation to increase in share capital is not allowable. 2.7 CIT(A) erred in directing the AO to allow the depreciation @15% on electrical installation instead of 10% allowed by the AO. 2.8 CIT(A) failed to consider the facts that electrical fittings are independent and their operation is no way directly linked to the operation of any specific plant. Hence, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an appeal before the Ld. CIT(A) who vide impugned order deleted all the additions except in respect of addition of Rs. 2,72,88,000/- made u/s. 43B of the Act which was restored to the file of the Assessing Officer for due verification. 17. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 18. Vide grounds of appeal No. 2 to 2.3, the revenue challenges the correctness of the decision of Ld. CIT(A) in allowing addition on lease hold premises as revenue expenditure. Admittedly, the assessee made temporary partitions on leased premises like pipes, floor tiles, false ceiling, refurbishing etc. The contention of the assessee company is that they are temporary erection in the form of pipes, floor tiles, false ceiling and this expenditure was not brought into existence into new asset and therefore it should be allowed as revenue expenditure by placing reliance on the decision of Jurisdictional High Court in the case of Thiru Arrooran Sugars Ltd. vs. DCIT, 213 Taxman 90. The issue in the present grounds of appeal is decided against the assessee company and in favour of the Revenue by the Jurisdictional High Court in the cases of CIT vs. ETA Travel Agenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal committed an error by allowing the expenditure incurred on repairs of the rented building as taxable expenditure under Section 37(1) of the Act ignoring Explanation 1 to Section 32 of the Act. 27. In the decision in the case of Viswams, the Court considered a similar question. The Court took note of the decision in the case of Silver Screen Enterprises Vs. CIT [reported in (1972) 85 ITR 578] wherein the Punjab and Haryana High Court held that the amounts spent for construction of the verandah, office room, side room and bath rooms brought into existence an asset of enduring nature, that the replacement of old wooden chairs by steel chairs was to attract larger and better customers and that this would go to show that the lessee (the assessee therein) brought into being an asset of enduring nature. After taking into consideration Explanation 1 to Section 32 of the Act, the Court held that the assessee had incurred substantial expenditure towards renovation leading to enduring benefit and that they are not merely repairs and ultimately rejected the contention raised by the assessee. 28. In the decision of the Kerala High Court in the case of Indus Motors Co. (P) Ltd., the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the words used and hence, we are bound to consider the question by giving the literal meaning to the expressions and phraseologies by the Legislature applied." 29. In the above decision, it was pointed out that so far as the expenditure incurred as contemplated in the explanation is concerned, a legal fiction is created, by which, the assessee, enjoying a leasehold right on a building, is treated as the owner of the building. It was further pointed out that after the introduction of Explanation 1 to Section 32 of the Act, there is no scope left out at all for any interpretation since, by a legal fiction, the assessee is treated as a owner of the building for the period of his occupation and this would mean that by refurbishing, decorating or by doing interior work in the building, an enduring benefit was derived by the assessee for the period of occupation and therefore, it is a capital expenditure and not revenue expenditure. 30. The factual position has been pointed out by us in the preceding paragraphs and it will be worthwhile to reiterate that the entire details of the expenditure incurred by the assessee for all the branch offices spread over the country were produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the Full Bench in the case of Indus Motors Co. Pvt. Ltd., read as follows: 33. As has been observed above, whether an expenditure incurred by assessee in a particular case is a capital expenditure or revenue expenditure has to be decided on the facts of that case by applying the relevant tests. Explanation 1 to Section 32(1)(i) does not intend to lay down that whenever expenditure has been incurred by the assessee for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement to the building, then such expenditure has to be mandatorily treated as capital expenditure. The explanation only meant that in the event any capital expenditure is incurred by the assessee, the provisions of Section 32(1) shall be applicable as if the said structure or work is a building owned by the assessee. We thus answer the reference holding that the ratio of the judgment of the Division Bench in Joy Alukkas case as expressed in paragraph 28 of the judgment needs no reconsideration. 34. We further hold that whether an expenditure incurred by the assessee is a capital expenditure or revenue exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear relevant to assessment year under consideration, the assessee company paid premium of forward contract to pledge against fluctuation in foreign currency payment made to M/s. Envirotherm GMBH Germany for supply of equipments to Amonia project. The premium paid was claimed to be revenue expenditure. The Assessing Officer disallowed the claim for want of evidence as assessee failed to establish the real nature of expenditure. On appeal before the Ld. CIT(A), the Ld. CIT(A) allowed the claim considering the same as mark to market loss. 24. Being aggrieved, the Revenue is in appeal before us in the present appeal. 25. We heard the rival submissions and perused the material on records. The claim was disallowed by the Assessing Officer for failure of the assessee to establish real nature of the expenditure. However, the Ld. CIT(A) after considering certain judicial precedents considered it to be mark to market loss and allowed the claim as revenue expenditure. From the perusal of the assessment order, it is clear that Ld. CIT(A) had not considered any material on records suggesting that it is mark to market losses. He simply accepted the contention of the assessee that it represents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) is contrary to law and facts of the case. 2. The Ld. CIT(A) erred in directing the AO to allow the [SOP expenses of ₹ 1,16,85,044/- 2.1. The Ld. CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not relatable to regular business. 2.2 Ld. CIT(A) failed to appreciate the facts mentioned in the case of Brooke Bond India Ltd. and Punjab State Industrial Development Corporation that expenditure incurred in relation to increase in share capital is not allowable. 2.3 CIT(A) erred in directing the AO to delete the addition of ₹ 2,19,02,210/- as the appellant had written off said amount as the power projects were abandoned. The CIT(A) also erred in directing the AO to delete the disallowance of ₹ 39,15,239/- as allowable expenditure u/s. 37. 2.4 CIT(A) failed to consider the facts that the expenses are capital in nature and not as bad debts 2.5 The Ld. CIT(A) erred in directing the AO to delete the disallowance u/s. 14A of ₹ 1,19,55,420/- 2.6. The Ld. CIT(A) failed to appreciate that the Boards circular No. 5/2014 is quite clear that disallowance u/s. 14A is attracted even when there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have written off the amount". The same was claimed as bad debts before the Assessing Officer. The Assessing Officer disallowed the claim by holding that the amount written off do not represents the debts. However, the Ld. CIT(A) allowed the claim as revenue expenditure considering that the expenditure was incurred for abandoned power projects by taking note of the fact that assessee is also in the business of power project by placing reliance on the decision of Mumbai Bench of the Tribunal in the case of Idea Cellular vs. Add. CIT in ITA No. 3260 and 3493/Mum/2008, dated 13.05.2016. 37. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us in the present appeal. The Ld. Departmental Representative contended that expenditure incurred in respect of abandoned project is capital in nature and the same cannot be allowed as revenue expenditure. As regards to the write off of Rs. 39,15,239/- he has no serious objections. 38. On the other hand, the Ld. Authorised Representative contended that assessee company is into the business of wind power generation and therefore the power generation is an extension of existing business, hence the same should be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the material on record. The only issue in the present grounds of appeal relates to disallowance u/s. 14A of the Act. Admittedly, no dividend income was earned by the assessee company during the previous year under consideration. Now the law is settled to the extent that in the absence of any exempt income resort to provisions of Section 14A of the Act cannot be made. Reference can be made to the following decisions (i) Redington (India) Ltd. vs. Addl. CIT, 392 ITR 633, (ii) CIT vs. Chettinad Logistics P. Ltd., 248 Taxman 55. Since the decision of the Ld. CIT(A) is in consonance with the ratio laid down by the above decisions, we do not find any reason to interfere with the order of the Ld. CIT(A). Grounds of appeal 2.5 to 2.7 raised by the Revenue stand dismissed. 46. Ground No. 2.8 challenges the decision of Ld. CIT(A) in deleting the addition made on account of excess depreciation on building of Rs. 11,84,407/-. 47. The Assessing Officer made addition of Rs. 11,84,407/- by alleging that assessee claimed excess depreciation on building. The facts of the case are that during the previous year relevant to assessment year 2010-2011, assessee made additions to lease build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id to M/s. Vivro Financial Services Pvt. Ltd. and the same was written off in the books of accounts. It is stated that the amount was paid during the course of carrying of business and the claim should be allowed as deduction as business loss, if not as bad debts. It is submitted that amount written off had become it recoverable and further it is submitted that the amount should be allowed as deduction placing reliance on the following decisions. (i) CIT vs. Sree Ganesh Stores, (2004) 137 Taxman 261 (ii) Seven Seas Petroleum (P) Ltd. 61 Taxman 80. 52. On the other hand, the Ld. Sr. Departmental Representative placed reliance on the orders of lower authorities. 53. We heard the rival submissions and perused the material on record. The only issue involved in the present appeal relates to allowance of claim of addition of Rs. 15,00,000/- being amount paid to M/s. Vivro Financial Services Pvt. Ltd. and written off in the books of accounts as irrecoverable. Admittedly, this amount was paid during the course of carrying on the business of the assessee and the same should be allowed as deduction if not as bad debts in the light of the following decisions. (i) Devi Films Private Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments are made out of own funds in the form of equity shares in subsidiary companies. 58. Being aggrieved, an appeal was preferred before Ld. CIT(A), who vide impugned order had confirmed the applicability of Section 14A of the Act. However directed the Assessing Officer to restrict the amount of disallowance to the extent of exempt income. 59. Being aggrieved, the assessee is in appeal before us in the present appeal. Ld. Authorised Representative contended that Assessing Officer should not have resorted to disallowance u/s. 14A of the Act without recording satisfaction as how the claim made by the assessee company is incorrect. He further submitted that no expenditure was incurred for earning exempt income and therefore the question of disallowance does not arise placing reliance on the decisions of Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd.,: 229 Taxman 143 and CIT vs. LP. Support Services India Pvt. Ltd.,: 378 ITR 240. 60. On the other hand, the Ld. Sr. Departmental Representative placed reliance on the orders of lower authorities. 61. We heard the rival submissions and perused the material on record. The only issue in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee incurs expenditure on leasehold premises for the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement, it is considered to be a capital expenditure and depreciation will be provided accordingly. 2.8 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored". 65. The grounds of appeal No. 1 & 2.8 are general in nature therefore, does not require any adjudication. 66. Grounds 2 to 2.2 challenges the decision of Ld. CIT(A) in allowing ESOP expenses as revenue expenditure. 67. This issue was raised by the Revenue for the assessment year 2009-2010 in ITA No. 2011/CHNY/2016, wherein we decided the issue in favour of the assessee vide para 10 of above. Fact situation being the same, grounds of appeal No. 2 to 2.2 of the Revenue for assessment year 2012-2013 also stand dismissed. 68. Grounds 2.3 to 2.5 challenges the action of the Ld. CIT(A) in restricting the disallowance u/s. 14A of the Act to the extent of exemption income. 69. The decision of the Ld. CIT(A) is in consonance with the law lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g taxable income. 2.6 The Ld. CIT(A) erred to allow the 100% depreciation on addition leased building of ₹ 3,36,89,844/-. 2.7. The Ld. CIT(A) failed to appreciate that addition made to leasehold premises when the expenditure incurred was towards interior and exterior decoration, partition work and related civil and electrical work for the purpose of creation of the office atmosphere which is having enduring benefit whereas depreciation @ 100% is available only for temporary wooden structures. 2.8. CIT(A) failed to note that the facts of the case of Amway India Enterprises vs. DCIT ITAT Delhi, it is to be noted that Amway India Enterprises was having the same premises for last several years and this fact was also considered. But in this case no information is furnished to show that premises was under occupation for several years. As the facts are difference on some counts, the decision cannot be applied to the case of the assessee. 2.9. CIT(A) failed to appreciate the facts that as per the explanation 1 to as per Sec. 32 of the IT Act, if an assessee incurs expenditure on leasehold premises for the construction of any structure or doing of any work in or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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