ACIT Non Corporate Circle 20(1), CHENNAI V. R.K.Swamy BBDO Pvt Ltd., CHENNAI

ITA 1391/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8772 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 25-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: N ARJUN RAJ
• Keywords: Depreciation; Proportionate interest; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NOS. 1391 & 1392/CHNY/2018 / ASSESSMENT YEARS: 2013-14 & 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 20(1), CHENNAI. VS. M/S. R.K. SWAMY BBDO PVT. LTD., FILM CHAMBER BUILDING, NO. 604, ANNA SALAI, CHENNAI 600 006. [PAN:AACCR2213F] ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI R. CLEMENT RAMESH KUMAR, ADDL. CIT / RESPONDENT BY : SHRI N. ARJUN RAJ, C.A. / DATE OF HEARING : 18.03.2019 /DATE OF PRONOUNCEMENT : 03.04.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BOTH THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 14, CHENNAI, BOTH DATED 30.10.2017 RELEVANT TO THE ASSESSMENT YEARS 2013-14 & 2014-15. THE COMMON GROUNDS CHALLENGED IN BOTH THE APPEALS OF THE REVENUE ARE THAT THE LD. CIT(A) HAS ERRED IN (I) DELETION OF DISALLOWANCE OF EXCESS DEPRECIATION ON LEASE HOLD IMPROVEMENTS, (II) DELETION OF ADDITION TOWARDS EXCESS RENT PAID, AND (III) DELETION OF ADDITION ON ACCOUNT OF INTEREST ON INTEREST FREE DEPOSITS. I.T.A. NOS. 1391 & 1392/M/18 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15 ADMITTING TOTAL INCOME OF .3,36,08,670/- AND .4,83,52,570/- RESPECTIVELY. AFTER VERIFYING THE DETAILS FILED BY THE ASSESSEE AGAINST STATUTORY NOTICES, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY ASSESSING TOTAL INCOME OF THE ASSESSEE AT .4,47,53,830/- AND .5,79,44,939/- FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15 RESPECTIVELY, AFTER DISALLOWING THE FOLLOWING EXPENSES: NATURE OF EXPENSES 2013-14 2014-15 A) EXCESS RENT PAID . 45,36,050/- 43,65,050/- B) INTEREST ON INTEREST FREE DEPOSITS . 40,86,687/- 40,86,687/- C) DEPRECIATION ON LEASE HOLD IMPROVEMENT . 25,22,423/- 11,40,632/- 3. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR, THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO THE FIRST GROUND OF DEPRECIATION ON LEASEHOLD IMPROVEMENT, SIMILAR GROUND WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012-13 AND VIDE ORDER IN I.T.A. NO. 504/MDS/2016 DATED 16.02.2017, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE REVENUE BY FOLLOWING COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NOS. 1391 & 1392/M/18 3 I.T.A. NO. 1525/MDS/2013 DATED 20.09.2013, WHEREIN, IN THAT CASE, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 11. NOW, WE COME TO THE ISSUE OF DEPRECIATION. THERE IS NO STRIFE BETWEEN THE PARTIES THAT THE ASSESSEE, A LESSEE, TOOK ON LEASE A PROPERTY IN MUMBAI. IT HAD INCURRED THE EXPENSES IN QUESTION OF WOODEN WORK, PREMISES EXPANSION, FALSE CEILING ETC AND CLAIMED DEPRECIATION AT THE RATE OF 100% FOR A SUM OF RS.54,92,416/-. THE ASSESSING OFFICER DISALLOWED A SUM OF RS.16,83,295/- BY HOLDING THAT THE SAME HAD BEEN INCURRED FOR TEMPORARY STRUCTURE. THE ASSESSEE HAD STRONGLY PLACED RELIANCE ON EXPLANATION (1) OF SEC.32(1) OF THE ACT. UNDISPUTEDLY, THE SAID STATUTORY PROVISION TREATS EVEN A LESSEE INCURRING CAPITAL EXPENDITURE FOR THE PURPOSE OF BUSINESS AND PROFESSION IN THE CONSTRUCTION OF RAISING ANY STRUCTURE ETC OR RENOVATION AT PAR WITH THE OWNER OF THE BUILDING. THE ONLY CONTENTION OF THE REVENUE IS THAT THE EXPENDITURE WAS NOT INCURRED FOR RAISING TEMPORARY STRUCTURE AS STIPULATED IN THE DEPRECIATION SCHEDULE. HENCE, KEEPING IN MIND THE FACT THAT THE ASSESSING AUTHORITY HIMSELF HAD ALLOWED MAJORITY OF THE EXPENSES AS ENTITLED FOR 100% DEPRECIATION, WE HOLD THAT THE REST OF THE EXPENSES OF FALSE CEILING, EXPANSION OF PREMISES AND WOODEN WORK ARE PURELY TEMPORARY STRUCTURES AND COVERED BY THE HIGHER RATE OF DEPRECIATION BEING PURELY TEMPORARY ERECTIONS. IN OUR CONSIDERED OPINION, THE REVENUE HAS PROCEEDED TO INTERPRET THE DEPRECIATION SCHEDULE IN A NARROW MANNER. WE REITERATE THAT THE SCHEDULE OF DEPRECIATION DESERVES TO BE LIBERALLY INTERPRETED AND THE EXPRESSIONS USED 'PURELY TEMPORARY ERECTIONS SUCH AS WOODEN STRUCTURES' HAVE TO BE TREATED AS INCLUSIVE IN NATURE, COVERING ALL TEMPORARY ERECTIONS ALIKE WOODEN STRUCTURES. THE WORDS 'SUCH AS' THEMSELVES POINT THAT THE LATTER PORTION OF THE SENTENCE ONLY SUPPLEMENTS THE FORMER ONE AND NOT HAVE OVERRIDING EFFECT ON THE MAIN PART. PROCEEDING ON THIS REASONING, WE HOLD THAT THE SAID CLAUSE NOT ONLY COVERS STRUCTURES OF PURELY TEMPORARY ERECTION, BUT ALSO INCLUDES FALSE CEILING AS WELL AS WOODEN WORKS. HENCE, WE ACCEPT THE CONTENTIONS OF THE ASSESSEE AND UPHOLD THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) UNDER CHALLENGE. 12. CONSEQUENTLY THE APPEAL IS DISMISSED. 6. SIMILARLY, WITH REGARD DELETION OF DISALLOWANCE MADE TOWARDS EXCESS RENT PAID AS WELL AS DELETION OF ADDITION BEING PROPORTIONATE INTEREST DISALLOWANCE ON ACCOUNT OF INTEREST FREE DEPOSITS, WERE ALSO AGITATED IN I.T.A. NOS. 1391 & 1392/M/18 4 APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2012-13. VIDE ORDER IN I.T.A. NO. 504/MDS/2016 DATED 16.02.2017, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE REVENUE BY FOLLOWING COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO. 1525/MDS/2013 DATED 20.09.2013, WHEREIN, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 8.3 WE HAVE ALSO PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA), WHEREIN, FOR THE ABOVE TWO ISSUES, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2. BY REFERRING TO THE PLEADINGS RAISED IN THE GROUNDS, THE REVENUE VEHEMENTLY ARGUES THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY DELETED ADDITIONS MADE BY THE ASSESSING OFFICER OF .61,08,050/- UNDER SEC.40A(2) OF THE ACT IN THE NATURE OF RENT PAID TO ASSESSEES GROUP CONCERN, THAT OF .1,54,519/- IN THE NATURE OF INTEREST DISALLOWANCE ON ACCOUNT OF EXCESS INTEREST FREE DEPOSIT TO THE GROUP CONCERN AND ALSO QUA THE DISALLOWANCE OF EXCESS DEPRECIATION ON LEASEHOLD PREMISES TO THE TUNE OF .16,83,295/-. THE CONTENTION OF THE REVENUE ARE THAT THOUGH THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RELIED UPON ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE PERTAINING TO THE PRECEDING ASSESSMENT YEARS QUA THE FIRST TWO ISSUES, ITS APPEALS ARE PENDING BEFORE THE HONBLE HIGH COURT. IN ADDITION TO THIS, IT FILES ANNEXURE-I OF THE ASSESSMENT ORDER REGARDING THE ISSUE OF DEPRECIATION, QUOTES CASE LAW OF (2012) 21 ITR (TRIB) 634 ABT LIMITED V. ACIT (CHENNAI) AND PRAYS FOR ACCEPTANCE OF THE APPEAL. 3. IN REPLY, SHRI AS SRIRAMAN, ADVOCATE, HAS PUT IN APPEARANCE FOR THE ASSESSEE AND PRAYS FOR ADJOURNMENT BY WAY OF FILING A PETITION. WE NOTICE THAT THE CASE WAS ALSO FIXED FOR HEARING ON 10.9.2013 IE YESTERDAY. AT THE REQUEST MADE BY THE ASSESSEE, WE ADJOURNED IT FOR TODAY. NOW AGAIN THE ADJOURNMENT PETITION HAS BEEN FILED. SINCE THE LEARNED A.R. HIMSELF IS PRESENT IN THE COURT, WE REJECT THE ADJOURNMENT PETITION AND PROCEED TO DECIDE THE CASE ON MERITS. 4. ON MERITS, THE A.R. STRONGLY SUPPORTS THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) UNDER CHALLENGE BY FILING THE ORDERS OF THE TRIBUNAL IN ASSESSMENT YEAR 1996-97, 2001-02, 2002- 03 AND 1997-98 [AS RELIED UPON BY THE COMMISSIONER OF INCOME TAX (APPEALS)] AND PRAYS FOR REJECTION OF THE APPEAL. I.T.A. NOS. 1391 & 1392/M/18 5 5. THE ASSESSEE IS A COMPANY NOT HAVING ANY SUBSTANTIAL INTEREST IN PUBLIC. IT IS ENGAGED IN THE BUSINESS OF ADVERTISING AND FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. FOR THE IMPUGNED ASSESSMENT YEAR, IT HAD FILED ITS RETURN ON 29.7.2009 DISCLOSING INCOME OF .8,00,56,875/-. THE SAME WAS SUMMARILY PROCESSED. 6. IN THE COURSE OF SCRUTINY, THE ASSESSING OFFICER CAME ACROSS ASSESSEES PROFIT AND LOSS ACCOUNT AND ALL OTHER DETAILS FILED. THE ASSESSEE HAD TAKEN ON LEASE PROPERTIES IN MUMBAI & DELHI BELONGING TO ANOTHER ENTITY BY THE NAME OF M/S. THIRUVENGADAM INVESTMENTS PVT. LTD. IT IS NOWHERE DISPUTED THAT IT HAD SUBSTANTIAL INTEREST IN THE AFORESAID ENTITY. IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE IS STATED TO HAVE MADE RENT PAYMENTS TO THE TUNE OF .1,55,22,720/-. ALONG WITH THE SAME, IT HAD ALSO PAID AN AMOUNT OF .4.25 CRORES IN THE SHAPE OF RENTAL DEPOSIT. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD MADE THE RENT PAYMENTS OF LEASE MONEY AT EXORBITANT RATES WHICH ATTRACTED SEC.40A(2)(B) OF THE ACT AND PRIMA FACIE CAME TO CONCLUSION THAT THE LEASE RENT PAID BY THE ASSESSEE WAS MUCH MORE THAN THE MARKET RENT. SIMILARLY, QUA THE RENTAL DEPOSIT AFORESAID, HE WAS OF THE VIEW THAT THE ASSESSEE HAD PAID MORE THAN 27% OF THE VALUE OF THE PROPERTIES AND DEPOSITS WHILE THE INVESTMENTS WERE JUST AT .1,35,36,000/-. 6. SIMILARLY, THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION OF .54,92,416/- ON LEASEHOLD IMPROVEMENTS QUA MUMBAI PROPERTY @ 100% DEPRECIATION BY TERMING THE EXPENSES TO HAVE BEEN INCURRED FOR RAISING TEMPORARY STRUCTURES. 7. WE NOTICE FROM THE ASSESSMENT ORDER DATED 29.12.2011 THAT QUA THE FIRST TWO PAYMENTS, IT HAD JUSTIFIED THE SAME BY PLEADING THAT THE FORMER SUM STOOD PAID AT THE RATE OF .192/- PER SQ. FT; WHEREAS THE MARKET RENT WAS BETWEEN .200/- TO .275/- PER SQ. FT. SIMILARLY, IT JUSTIFIED THE OTHER RENTAL DEPOSIT. THIS FAILED TO CONVINCE THE ASSESSING OFFICER, IN WHOSE OPINION, THE RENT CONTROL LEGISLATION RECOGNIZED ONLY 8.5% RETURN OF INVESTMENTS AS STANDARD RENT. THEREFORE, HE COMPUTED THE SAME AS .1,33,49,490/-. THEN, A COMPARISON WAS DRAWN OF THE PROPERTIES AT MUMBAI AND DELHI. IN VIEW OF THIS, THE ASSESSING OFFICER MADE AN ADDITION OF A SUM OF .61,08,050/- IN THE SHAPE OF EXCESS RENT, AFTER HOLDING THAT FAIR MARKET RENT WAS EVEN LESS THAN THE STANDARD RENT. IN THE SAME TUNE, HE QUOTED CASE LAW OF CIT V. ABHISHEK INDUSTRIES LIMITED (286 ITR 1)(P&H) AND CONCLUDED THAT THE REASONABLE INTEREST FREE ADVANCE HAD TO BE WORKED OUT WHICH WAS TO BE RESTRICTED QUA INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT AMOUNTING TO .1,54,519/-. I.T.A. NOS. 1391 & 1392/M/18 6 8. COMING TO THE ASSESSEES CLAIM OF DEPRECIATION (SUPRA), WE NOTICE THAT THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM TO THE EXTENT OF .16,83,295/- WHICH PERTAINS TO EXPANSION OF LEASEHOLD PREMISES, ITS WOODEN WORK AND FALSE CEILING AFTER HOLDING THAT THE SAME WERE NOT HAVING CHARACTER OF TEMPORARY WOODEN STRUCTURE, HENCE, DEPRECIATION WOULD BE ADMISSIBLE ONLY AT NORMAL RATES. ACCORDINGLY, THE TAXABLE INCOME WAS ASSESSED TO .8,80,02,739/-. 9. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). IN THE ORDER UNDER CHALLENGE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE FIRST TWO ADDITIONS PERTAINING TO EXCESSIVE RENT UNDER SEC.40A(2) AS WELL AS THE INTEREST AMOUNT (SUPRA) AFTER PLACING RELIANCE UPON THE ORDERS OF THE TRIBUNAL IN ASSESSEES CASES RELATING TO PRECEDING ASSESSMENT YEARS. REGARDING DEPRECIATION, THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS); THOUGH VERY BRIEF; READ AS FOLLOWS :- I HAVE GONE THROUGH THE OBSERVATIONS OF THE AO. IT IS NOT CLEAR AS TO HOW THE TEMPORARY STRUCTURES OF .38,08,121/- WERE HELD TO BE ELIGIBLE AND THE REST WERE NOT ELIGIBLE. NO DETAILED WORKING HAS BEEN GIVEN. EVEN OTHERWISE, SINCE ALL THE ITEMS ARE CLAIMED TO BE TEMPORARY STRUCTURES INSTALLED ON A LEASEHOLD PREMISES, THE ASSESSEE SHOULD BE ELIGIBLE FOR 100% DEPRECIATION. ACCORDINGLY, THE DISALLOWANCE IS DIRECTED TO BE DELETED. THIS LEAVES THE REVENUE AGGRIEVED. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE CASE FILE, DEPRECIATION SCHEDULE/ANNEXURE-I OF THE ASSESSMENT ORDER AS WELL AS THE CASE LAW QUOTED BY THE PARTIES (SUPRA). COMING TO THE FIRST TWO ADDITIONS, THE ONLY PLEA RAISED BY THE REVENUE IS THAT SINCE ITS APPEALS CHALLENGING THE TRIBUNALS DECISIONS (SUPRA) DELETING THE EXCESSIVE RENT DISALLOWANCE AS WELL AS THAT PERTAINED TO THE INTEREST AMOUNT IN QUESTION ARE PENDING BEFORE THE HONBLE HIGH COURT, ITS GROUNDS DESERVE ACCEPTANCE. WE DO NOT FIND ANY REASON TO INTERFERE ON THE GROUND THAT NEITHER THERE ARE ANY DISTINGUISHING FACTS POINTED OUT NOR MERE PENDENCY OF APPEAL UNDER SEC.260A OF THE ACT FORMS ANY REASONABLE BASIS SO AS TO ADOPT A DIFFERENT APPROACH IN THE PRESENT CASE. 8.4 IN VIEW OF THE ABOVE DECISION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THUS, BOTH THE ABOVE ISSUES RAISED BY THE REVENUE ARE DISMISSED. I.T.A. NOS. 1391 & 1392/M/18 7 THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. HOWEVER, HE HAS SUBMITTED THAT THE DEPARTMENT HAS PREFERRED AN APPEAL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT, WHICH CANNOT BE A GROUND TO TAKE A DIFFERENT VIEW UNLESS THE DECISION OF THE TRIBUNAL IS REVERTED OR MODIFIED. THUS, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE COORDINATE BENCH OF THE TRIBUNAL, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). ACCORDINGLY, ALL THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED FOR BOTH THE ASSESSMENT YEARS. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 03 RD APRIL, 2019 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 03.04.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.