Asstt. Commissioner of Income Tax-6, Kanpur V. M/s Jama Corporation (P) Lt., Kanpur

ITA 112/LKW/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83293 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K DEY
• Assessee Lawyers: SURENDER KAKKAR
• Keywords: Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO S . 112 & 113/LKW2014 ASSESSMENT YEAR S : 2006 - 07 AND 2007 - 08 ASSTT. CIT - 6 KANPUR V. M/S JA MA CORPORATION (P) LTD. 8/2 - B, ARYA NAGAR KANPUR PAN: AACCN1582E (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. P. K. DEY, D.R. RESPONDENT BY: SHRI. SURENDER KAKKAR, FCA DATE OF HEARING: 01 09 2014 DATE OF PRONOUNCEMENT: 05 0 9 2014 O R D E R PE R SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDER OF THE LD. CIT(A) ON COMMON GROUNDS. FOR THE SAKE OF REFERENCE, WE EXTRACT THE GROUNDS RAISED IN APPEAL NO.112/LKW/2014 AS UNDER: - 1. THE CIT(A) HAS ERRED IN L AW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.12,91,500/ - MADE BY THE AO ON PROPERTY TAX PAID AT USA WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS ADMITTED THAT ITS OFFICE AT USA WAS TREATED AS A PERMANENT ESTABLISHMENT AS PER AMERICAN TAX LAWS AND TAXES - WERE PAID ON ITS PROFIT THERE AND THUS CARRYING OF EXPENSES RELATING THERETO TO INDIA FOR COMPUTING PROFIT AS PER INDIAN INCOME TAX LAW WAS NOT CORRECT. 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE UP TO 50% OF THE TOTA L ELECTRICITY EXPENSES OF PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : RS.3, 98 ,7 35/ - WITHOUT APPRECIATING THE FACT THAT SUCH EXPENDITURE WAS NOT INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS AND THERE EXISTS AN ELEMENT OF USE OF ELECTRICITY FOR PURPOSES OTHER THAN BUSINESS. 3. THE ORDER OF THE CI T (A), KANPUR BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO BE RESTORED. 2 . DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THE IMPUGNED ISSUES ARE COVERED BY PARAS 8 AND 10 OF THE OR DER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN I.T.A. NO.666 & 667/LKW/2010 FOR ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. 3 . THE LD. D.R. HAS SIMPLY PLACED RELIANCE UPON THE ASSESSMENT ORDER. 4 . HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES IN THE LIGHT OF THE ASSESSEES CONTENTION AND THE AFORESAID ORDER OF THE TRIBUNAL, WE FIND THAT THE IMPUGNED ISSUES ARE COVERED BY THE EARLIER ORDER OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF THE ORD ER OF THE TRIBUNAL AS UNDER: - 8. GROUND NO. 4 IN I.T.A. NO.667/LKW/2010 RELATES TO THE DISALLOWANCE OF RS. 2,74,110/ - PAID AS ELECTRICITY CHARGES FOR PREMISES NO. 8/2B, ARYA NAGAR, KANPUR. IN THIS REGARD IT IS NOTICED THAT THE ASSESSING OFFICER HAS DISAL LOWED THE ENTIRE ELECTRICITY CHARGES HAVING NOTED THAT SIGNIFICANT PORTION OF THE PREMISES NO.8/2B, ARYA NAGAR, KANPUR, WHICH HAPPENED TO BE THE REGISTERED OFFICE OF THE ASSESSEE COMPANY AS WELL AS RESIDENCE OF THE MANAGING DIRECTOR OF THE COMPANY OF THE A SSESSEE WERE NOT WHOLLY FOR THE BUSINESS PURPOSE. BEFORE THE CIT(A), IT WAS CONTENDED THAT THE ASSESSEE COMPANY HAD ITS OFFICE AT 8/2B, ARYA NAGAR, KANPUR, WHICH IS TWO STOREY BUILDING AND THE ASSESSEE COMPANY HAS REGISTERED ADMINISTRATIVE OFFICE ON THE ENTIRE GROUND FLOOR AND ALSO OCCUPIED ABOUT 40% SPACE ON THE FIRST FLOOR FOR THE PURPOSE OF OFFICE AND STORAGE. THUS, MORE THAN 70% OF THE WHOLE PREMISES IS USED FOR THE BUSINESS OFFICE ETC. THEREFORE, THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : ENTIRE DISALLOWANCE OF THE ELECTRICITY CHARGES CANNOT BE MADE. THE CIT(A) RE - EXAMINED THE ENTIRE ISSUE IN THE LIGHT OF ABOVE FACTS AND CAME TO THE CONCLUSION THAT THE ENTIRE PREMISES WERE USED BY THE REGISTERED OFFICE OF THE ASSESSEE COMPANY AND AS RESIDENCE OF THE DIRECTORS. HE ACCORDINGLY RESTRICT ED THE DISALLOWANCE TO 50% OF THE TOTAL CLAIM. 9. AGAINST THE ALLOWANCE OF 50%, THE REVENUE IS IN APPEAL. SINCE THE LEARNED D.R. COULD NOT RAISE PLAUSIBLE ARGUMENTS IN SUPPORT OF HIS CONTENTION, THE ENTIRE CLAIM OF THE ELECTRICITY CHARGES CANNOT BE DISA LLOWED. WE, THEREFORE, CONFIRM THE ORDER OF CIT(A) AS HE HAS MADE REASONABLE DISALLOWANCE. ACCORDINGLY, ORDER OF THE CIT(A) IS UPHELD. 10. GROUND NO. 5 OF I.T.A. NO.667/LKW/2010 RELATES TO THE DISALLOWANCE OF RS. 9,04,951/ - MADE OUT OF PROPERTY TAX PAID IN USA. IN THIS REGARD IT IS NOTICED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 13,00,951/ - UNDER THE HEAD RENT & TAXES. ON VERIFICATION IT WAS FOUND THAT THE PROPERTY TAX OF RS. 9,04,951/ - WAS PAID IN RESPECT OF PROPERTY SITUATED IN USA. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT OF RS. 9,04,951/ - REPRESENTING THE PAYMENT MADE ABROAD BE NOT DISALLOWED AS THE ASSESSEE HAS NOT BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ITS BRANCH AT USA AND HAS NOT B EEN PAYING TAXES ON ITS INCOME AT USA. BEING NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER MADE A DISALLOWANCE, AGAINST WHICH AN APPEAL WAS FILED BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE COMPANY PURCHASED A WAREH OUSE IN DENVER, U.S.A. ON 08/12/2003 AFTER TAKING THE LOAN FROM INDIAN OVERSEAS BANK, KANPUR. SINCE THE PROPERTY WAS PURCHASED AFTER TAKING TERM LOAN, THE BANK HAS KEPT EQUITABLE MORTGAGE OVER THE SAID PROPERTY IN ITS FAVOUR. THE PAYMENT OF PROPERTY TAX IS DONE FROM HEAD OFFICE AND PROOF OF PAYMENT IS SUBMITTED TO THE BANK AS THE SAME WAS ONE OF THE CONDITIONS FOR SANCTION OF TERM LOAN FOR PURCHASE OF PROPERTY. THE CIT(A) RE - EXAMINED THE ISSUE IN THE LIGHT OF RELEVANT EVIDENCE AND JUDICIAL PRONOUNCEMEN TS AND CAME TO THE CONCLUSION THAT THERE IS NO DISPUTE TO THE OWNERSHIP, USER AND PAYMENT OF TAX RELATING TO THE WAREHOUSE IN QUESTION. IT IS ALSO AN ADMITTED FACT THAT THE CONSOLIDATED BOOKS OF ACCOUNT WERE PREPARED AND NO SEPARATE BOOKS WERE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : MAINTAINED FOR THE ACTIVITIES CARRIED ON IN U.S.A. IF THE INCOME FROM OPERATIONS IN ABROAD IS INCLUDED IN THE PROFIT AND LOSS ACCOUNTS, THE EXPENDITURE HAS TO BE ALLOWED AS PER MATCHING PRINCIPLE. ACCORDINGLY THE CIT(A) HAS ALLOWED THE RELIEF TO THE ASSESSEE. 11 . NOW THE REVENUE IS BEFORE US AND PLACED RELIANCE UPON THE ORDER OF ASSESSING OFFICER WHEREAS THE ASSESSEE HAS STRONGLY CONTENDED THAT WHEN THE INCOME EARNED ABROAD IS TAXABLE IN INDIA, THE EXPENDITURE INCURRED IN EARNING THE SAME SHOULD BE ALLOWED AS PER THE MATCHING PRINCIPLE BESIDE PLACING HEAVY RELIANCE ON THE ORDER OF CIT(A). 12. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES, WE ARE OF THE VIEW THAT AS PER THE MATCHING PRINCIPLE WHENEVER INCOME EARNED ABROAD IS TAXED IN INDIA, THE EXP ENDITURE INCURRED IN EARNING THE SAME IS TO BE ALLOWED. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) AND CONFIRM THE SAME. 5 . SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW ON THE I MPUGNED ISSUES IN THE SIMILAR SET OF FACTS, WE FIND NO JU STIFICATION TO TAKE A CONTRARY VIEW IN THIS APPEAL. ACCORDINGLY, THE IMPUGNED ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE. WE, THEREFORE, DISMISS THE APPEALS OF THE REVENUE AND CONFIRM THE ORDER OF THE LD. CIT(A). 6 . IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENT I ONED ON THE CAPTION PAGE. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 5 TH SEPTEMBER , 2014 JJ: 0109 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : COPY FORWARDED TO: 1 . APPE LLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )