9911796707
TMI Blog2020 (1) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 The 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 The Ld. CIT(A) erred to direct the AO to allow depreciation of Rs. 64,16,093/- as depreciation on intangible assets. 2.4 The Ld. CIT(A) erred in directing the AO to allow i.e. depreciation based on his predecessor orders for A.Ys. 05-06 to 08-09 since appeals have been filed against all the above order before ITA T on 24.03.2016 and the departments appeal has not yet reached its finality on this issue on similar grounds 2.5. 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". 4. The respondent-assessee namely "M/s. Shriram EPC Limited", is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of integrated designing, engineering, procurement, construction and projection management. The return of income for the AY 2009-10 was filed on 29.09.2009 disclosing total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of Ld. CIT(A) to allow depreciation on technical knowhow as identical issue in earlier years was restored to the file of the Assessing Officer. 8. On the other hand, Ld. Authorised Representative submitted that ESOP cost debited to Profit and Loss account is not national loss but only business expenditure incurred wholly for the purpose of business and the same should be allowed as deduction, placing reliance on the decision of Hon'ble High Court of Madras in the case of PVP Ventures (supra). He further submitted that the Hon'ble Supreme Court had dismissed the SLP filed against the order of Jurisdictional High Court in the case of PVP Ventures(supra). As regards to depreciation, he submitted that the technical knowhow acquired under slump sale agreement is in the nature of business or commercial rights or right of similar nature are eligible for depreciation under Section 32(1)(ii) of the Act. He placed reliance on the decision of Co-ordinate Bench of the Tribunal in assessee's own case in ITA No. 895 to 897/Mds/2012, for assessment years 2005-06 to 2007-2008, dated 10th September, 2012. 9. We heard the rival submissions and perused the material on record. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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. 12. In the result, the appeal filed by the Revenue in ITA No. 2011/CHNY/2016 for assessment year 2009-2010 is partly allowed for statistical purpose. 13. Now, we take up appeal of the Revenue in ITA No. 2012/CHNY/2016 for assessment year 2010-2011 for adjudication. 14. The Revenue has raised the following grounds of appeal:- "1. The order of the learned CIT(A) is contrary to law and facts of the case. 2. The Ld. CIT(A) erred in directing the AO to allow the 100% depreciation on addition to leased building of Rs. 13,16,008/-. 2.1 CIT(A) erred in wrongly applying the facts of the case of M/s. Amway India Enterprises vs. DCIT ITAT Delhi. It is to be noted that M/s. 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. 2.2 CIT(A) failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Woodward Governor reported in 312 ITR 254 squarely applies to this case. 3. 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". 15. The return of income for the AY 2010-11 was filed on 27.09.2010 disclosing total income of Rs. 36,19,28,086/- and the same was revised on 30.03.2012 disclosing total income of Rs. 25,90,69,900/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Company Range VI(2) Chennai (hereinafter referred as Assessing Officer) vide order dated 30.03.2013 passed u/s. 143(3) of the Income Tax Act, 1961 (in short "the Act") at total income of Rs. 38,71,57,712/-, after making the following additions. Depreciation on plant and machinery disallowed 22,12,713 Depreciation on windmills disallowed 2,60,27,878 Depreciation on intangible assets of 07-08 disallowed 14,20,281 Depreciation on buildings disallowed 13,16,008 ESOP expenses additionally claimed disallowed 2,75,99,528 ESOP expenses disallowed 2,75,99,528 Depreciation on electrical fittings disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as if the said structure or work is a building owned by the assessee." 25. A reading of the above Explanation clearly shows that where the business or profession of the assessee is carried on in a building, which is not owned by him, but has been leased out, in respect of which the assessee holds a lease or other right of occupancy, if any expenses are incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of the said Clause shall apply as if the said structure or work is a building owned by the assessee. The effect of Explanation 1 was considered in the decision in the case of Madura Coats. 26. After referring to various other decisions, the Court pointed out that the extensive repairs and renovations carried out by the assessee cannot be said to be incurred to preserve and maintain an already existing asset since many new objects have been brought into as could be seen from the list of construction made and thus, the object of expenditure made by the assessee is definitely to bring a ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. So far as the question regarding the expenditure incurred by the assessee for refurbishing the building taken on lease is concerned, we are of the considered opinion that after the introduction of Explanation 1 to Section 32(1) of the Act, there is no scope left at all for any interpretation since, by a legal fiction, the assessee is treated as the owner of the building for the period of his occupation. This means 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, is a capital expenditure and not revenue expenditure. So also as contended by the learned Senior Counsel for the Revenue, the criteria that is to be adopted for identifying the enduring benefit is the nature of enhancement and advantage that the assessee has derived by putting the building to use for business purposes. According to us, by adding Explanation 1 to Section 32(1), Parliament has manifested its legislative intention to treat the expenditure incurred by the assessee on leasehold building as capital expenditure and therefore, Explanation 1 to Section 32(1) cannot be subjected to any other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the CIT(A) did not take note of Explanation 1 to Section 32 of the Act. In the light of the said Explanation, it has become immaterial as to whether the assessee is the owner of the building or the lessee and there is no scope left for any interpretation since, by legal fiction, the assessee is treated as the owner of the building for the period of their occupation. 34. At the risk of repetition, it is not out of place to mention here that the decision of the Division Bench of the Kerala High Court in the case of Indus Motors Co. Pvt. Ltd. was referred to a Full Bench for reconsideration of the decision rendered in Joy Alukkas India (P) Ltd. Ultimately, the Full Bench of the Kerala High Court in the decision reported in (2016) 382 ITR 0503 reiterated that the observations and opinion expressed by Division Bench in the case of Joy Alukkas India (P) Ltd., for holding that the expenditure incurred by the assessee in the above case was not a capital expenditure, but was only revenue expenditure were based on facts of that case, that the relevant test was applied by the Division Bench and that the observation made by the Division Bench in paragraphs 29 and 30 in the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 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. 2.4 to 2.6 of the Revenue for assessment year 2010-2011 also stand dismissed. 21. Grounds 2.7 to 2.9 raised by the Revenue challenges the correctness of the decision of the Ld. CIT(A) to allow depreciation on electrical fittings at the rate applicable to plant and machinery. The Ld. CIT(A) allowed depreciation on electrical installation at Rs. 1,55,613/- at the rate applicable to electrical fittings. Contention of the assessee is that this electrical fitting form part of the plant and machinery and therefore depreciation should be allowed at the rate applicable to plant and machinery. Submission of the assessee that electrical installation are part of plant and machinery are not disputed by the Assessing Officer. Therefore the Ld. CIT(A) had rightly allowed depreciation at the rate applicable to plant and machinery. Accordingly, we do not find any reason to interfere with the order of the Ld. CIT(A). Grounds of appeal No. 2.7 to 2.9 raised by the Revenue stand dismissed. 22. Grounds 3 to 3.4 relates to the decision of Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t') at total income of Rs. 70,53,32,202/-. While doing so, the Assessing Officer made the following disallowances:- Depreciation on assets 5,16,933 ESOP expenses 1,16,85,044 Bad debts written off 2,73,17,449 Loss on sale of assets 21,000 Disallowance u/s.40(a)(i) 10,16,961 Disallowance u/s.14A 1,19,55,420 Depreciation on intangible assets addeddisallowed during assessment year 2007-08 10,65,211 Excessive depreciation on additions to buildings disallowed during assessment year 2010-11 11,84,407 Depreciation on plant and machinery disallowed during assessment year 2010-2011 18,80,807 29. Being aggrieved by the above additions, the assessee-company preferred an appeal before Ld. CIT(A), who vide impugned order partly allowed the appeal by setting aside the issue of credit for TDS and also the issue of depreciation of plant and machinery to the file of the Assessing Officer, Ld. CIT(A) confirmed the addition of Rs. 15,00,000/- claimed as bad debts in relation to advance paid to Vivero Financial P. Ltd. has no services were rendered and allowed other grounds of appeal raised by the assessee. 30. First, we take up Revenue appeal in ITA No. 2013/C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal No. 2 to 2.2 of the Revenue for assessment year 2011-2012 also stand dismissed. 35. Grounds 2.3 & 2.4 challenges the decision of the Ld. CIT(A) in deleting the expenditure incurred on abandoned projects. 36. The brief facts of the issue are as under:- Assessee made total claim of Rs. 2,73,17,449/- as bad debts. The breakup of bad debts are as under:- "Note on Bad Debts written off Rs. 2,73,17,449/- 1. Shriram Infrastructure and Power Ltd. - Rs. 2,19,02,210/- Shriram Infrastructure and Power Ltd. wanted to develop 4 to 5 power projects in Tamil Nadu, Jabalpur, Tuticorin, etc.,. We wanted to participate in the project and funded the project expenses. Due to several reasons the project could succeed and had to be abandoned. Hence we have written off the amount. 2. Alpha Energy systems Ltd. -- Rs. 39,15,239/-. We gave contract work to Alpha Energy Systems Ltd. and paid Rs. 39,15,239/-. They did not complete the contract nor returned the money. Since the money could not recovered we have written off the amount. 3. Vivro Financial Services P. Ltd. -- Rs. 15,00,000/- We have paid Rs. 15,00,000/- for the purpose of financial service. They did not render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, advance was paid during the course of business of the assessee. Since the amount had become irrecoverable the same should be allowed as deduction as revenue loss if not as bad debts as held by the Hon'ble Jurisdictional High Court in the case of Devi Films Private Ltd. vs. CIT, 75 ITR 301 and Hon'ble Gujarat High Court in the case of CIT v. Abdul Razak & Co, 136 ITR 825. In the light of the above facts, the grounds of appeal 2.3 and 2.4 filed by the Revenue has no merits, hence, we dismiss the grounds raised by the Revenue. 41. Grounds of appeal 2.5 to 2.7 challenges the decision of Ld. CIT(A) in deleting the addition made u/s. 14A of the Act on the ground that in the absences of exempt income no disallowance can be made. 42. The Assessing Officer disallowed a sum of Rs. 1,19,55,420/- u/s. 14A of the Act by holding that the provisions of Section 14A of the Act are applicable even in case of investments which not yielded any dividend income. 43. On appeal before the Ld. CIT(A), Ld. CIT(A) deleted the addition by holding that in the absence of any exempt income, no disallowance u/s. 14A of the Act can be made. 44. Being aggrieved by the order of the Ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 48. In the result, the appeal filed by the Revenue in ITA No. 2013/CHNY/2016 for assessment year 2011-2012 stands dismissed. 49. Now we take up assessee appeal in ITA No. 1604/CHNY/2016 for assessment year 2011-2012 for adjudication. 50. The assessee raised the following grounds of appeal. "The order of the CIT (Appeals) is against law and fact of the case. 2. The CIT (A) erred in confirming the disallowance of Bad Debts of Rs. 15,00,000. 3. The CIT(A) erred in not appreciating the fact that the amount is allowable as business loss. 4. The CIT(A) erred in not appreciating the fact that a sum of Rs. 50 Lakhs was advanced to Vivro Financial Services Pvt. Ltd. for providing financial services on 27/03/2007 and they did not do any service and they returned Rs. 25 Lakhs on 27/12/2007 and Rs. 10 Lakhs on 24/11/2008 and as no services were rendered and the balance amount of Rs. 15 Lakhs was not returned by the party, the appellant claimed Rs. 15 Lakhs as it is a loss. 5. For these and other grounds that may be adduced before or at the time of hearing the Hon Me ITAT may be pleased to delete the addition of Bad debts". 51. Assessee company challenges the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant rely on the Delhi High court judgment in the case of CIT Vs. Taikisha Engineering India Ltd. (229 Taxman 143) and CIT Vs. I.P. Support Services India Pvt. Ltd. (378 ITR 240). 4. without prejudice to the appellants ground that the disallowance u/s. 14A r.w. Rule 8D is not attracted the following grounds are raised. a) The CIT(A) erred in not appreciating the fact that the appellant has not received any dividend income from the investment made in Associate Enterprises, Subsidiary Companies, Joint Ventures, Associates and other companies and in the light of the following judgments the investments made in the above companies need not be taken in to account for computation of disallowance u/s. 14A r.w. Rule 8D (2)(iii). i. REI Agro Ltd. Vs. DCIT Central Circle XXVII Kolkatta (144 ITD 141) ii. Interglobe Enterprises Ltd. Vs. DCIT (ITA No. 1362 & 1032/DEL/2013 dated 04/04/2013) ITAT, Delhi. iii. ITAT Chennai decision in the case of EIH Associated Hotels Ltd. Vs. DCIT in ITA No. 1503/Mds/2012 dated 17/07/2013". 57. The brief facts of the case are as under:- The Assessing Officer made an addition of Rs. 1,39,34,748/- u/s. 14A of the Act rejecting the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and is not relatable regular business. 2.2 Ld. CIT(A) failed to note 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 The Ld. CIT(A) erred in directing the AD to allow the u/s. 14A r.w. 8D expenses for Rs. 1,39,34,748/-. 2.4. The Ld. CIT(A) failed to note that as per the schedules enclosed to the P&L account, it is seen that the appellant had made long term investments in shares of certain companies. These long term investments in shares were made with the motive of earning dividend which is exempt from income tax. 2.5 The Ld. CIT(A) failed to note that the disallowance u/s. 14A is attracted even in a case where there is no exempt income earned as held in the Chennai ITAT decision in the case of Siva Industries & Holdings Ltd. vs. ACIT (54 SOT 49) and which is in conformity with department view as clarified vide circular No. 5/2014. 2.6 The Ld. CIT(A) erred in directing the AD to allow the excess depreciation on addition made to leased building of Rs. 2,02,55,619/- 2.7 The Ld. CIT(A) failed to note the facts that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw and facts of the case. 2. The Ld. CIT(A) erred to direct the AO to allow the ESOP expenses of Rs. 1,99,602/- 2.1. Ld. CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not re la table 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. The Ld. CIT(A) erred to direct the AO to delete the disallowance of Rs. 1,17,70,125/- u/s. 14A of the IT Act. 2.4. The Ld. CIT(A) failed to appreciate that the decision of the Honourable ITAT relied upon Learned CIT(A) in the assessees group case, for the assessment years 2010-11 & 2011-12 order has not become final and the department has preferred appeal before the Honourable High Court of Madras u/s. 260A. 2.5. The Ld. CIT(A) failed to appreciate that the addition made u/s. 14A on the reasoning that assessee did not earn any exempt income during the year overlooking the fact the assessee made investments in assets earning exempt income and incurred expenditure towards such investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the same, grounds of appeal No. 2 to 2.2 of the Revenue for assessment year 2012-2013 also stand dismissed. 78. Grounds 2.3 to 2.5 challenges the decision of Ld. CIT(A) in deleting the disallowance of Rs. 1,17,70,125/- made u/s. 14A of the Act. 79. This issue was raised by the Revenue for the assessment year 2011-2012 in ITA No. 2013/CHNY/2016, wherein we decided the issue in favour of the assessee vide para 45 of above. Fact situation being the same, grounds of appeal No. 2.3 to 2.5 of the Revenue for assessment year 2013-2014 also stand dismissed. 80. Grounds 2.6 to 2.9 challenges the decision of Ld. CIT(A) in deleting the addition made on account of excess depreciation on building of Rs. 3,36,89,844/-. 81. This issue was raised by the Revenue for the assessment year 2010-2011 in ITA No. 2012/CHNY/2016, wherein we decided the issue in favour of the assessee vide para 18 of above. Fact situation being the same, grounds of appeal No. 2.6 to and 2.9 of the Revenue for assessment year 2012-2013 also stand dismissed. 82. In the result, the appeal filed by the Revenue in ITA No. 2744/CHNY/2016 for assessment year 2013-2014 stands dismissed. 83. To summarize the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
