ACIT, CHENNAI V. R.K.Swamy BBDO (P) Ltd., CHENNAI

ITA 1525/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68718 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A S SRIRAM
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.1525/MDS/2013 ASST. YEAR : 2009-10 THE ASST. COMMISSIONER OF INCOME TAX, MEDIA CIRCLE II, CHENNAI. (APPELLANT ) V. M/S. R.K. SWAMY BBDO (P) LTD., FILM CHAMBER BUILDING, NO,.604, ANNA SALAI, CHENNAI 600 006. PAN : AACCR2213F. (RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL.CIT ASSESSEE BY : SHRI A.S. SRIRAM, ADVOCATE DATE OF HEARING : 11 SEP 2013 DATE OF PRONOUNCEMENT : SEP 2013 O R D E R PER S.S. GODARA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-VI, CHENNAI DATED 25.3.2013, PASSED IN APPEAL NO.294/11 -12 FOR ITA 1525/MDS/2013 2 ASSESSMENT YEAR 2009-10, IN PROCEEDINGS UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. BY REFERRING TO THE PLEADINGS RAISED IN THE G ROUNDS, 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 CONCE RN AND ALSO QUA THE DISALLOWANCE OF EXCESS DEPRECIATION ON LEA SEHOLD 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 YEA RS QUA THE FIRST TWO ISSUES, ITS APPEALS ARE PENDING BEFORE TH E HONBLE HIGH COURT. IN ADDITION TO THIS, IT FILES ANNEXURE-I OF THE ASSESSMENT ORDER REGARDING THE ISSUE OF DEPRECIATION, QUOTES C ASE LAW OF ITA 1525/MDS/2013 3 (2012) 21 ITR (TRIB) 634 ABT LIMITED V. ACIT (CHE NNAI) AND PRAYS FOR ACCEPTANCE OF THE APPEAL. 3. IN REPLY, SHRI AS SRIRAM, ADVOCATE, HAS PUT IN APPEARANCE FOR THE ASSESSEE AND PRAYS FOR ADJOURNME NT BY WAY OF FILING A PETITION. WE NOTICE THAT THE CASE WAS ALSO FIXED FOR HEARING ON 10.9.2013 IE YESTERDAY. AT THE REQUES T MADE BY THE ASSESSEE, WE ADJOURNED IT FOR TODAY. NOW AGAIN THE ADJOURNMENT PETITION HAS BEEN FILED. SINCE THE LEA RNED A.R. HIMSELF IS PRESENT IN THE COURT, WE REJECT THE ADJO URNMENT 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 CHALLENG E BY FILING THE ORDERS OF THE TRIBUNAL IN ASSESSMENT YEAR 1 996-97, 2001- 02, 2002-03 AND 1997-98 [AS RELIED UPON BY THE COMM ISSIONER OF INCOME TAX (APPEALS)] AND PRAYS FOR REJECTION OF TH E APPEAL. ITA 1525/MDS/2013 4 5. THE ASSESSEE IS A COMPANY NOT HAVING ANY SUBSTANTIAL INTEREST IN PUBLIC. IT IS ENGAGED IN T HE BUSINESS OF ADVERTISING AND FOLLOWS MERCANTILE SYSTEM OF ACCOUN TING. FOR THE IMPUGNED ASSESSMENT YEAR, IT HAD FILED ITS RETURN O N 29.7.2009 DISCLOSING INCOME OF ` .8,00,56,875/-. THE SAME WAS SUMMARILY PROCESSED. 6. IN THE COURSE OF SCRUTINY, THE ASSESSING OF FICER CAME ACROSS ASSESSEES PROFIT AND LOSS ACCOUNT AND ALL OTHER DETAILS FILED. THE ASSESSEE HAD TAKEN ON LEASE PRO PERTIES IN MUMBAI & DELHI BELONGING TO ANOTHER ENTITY BY THE NAME OF M/S. THIRUVENGADAM INVESTMENTS PVT. LTD. IT IS NOWHE RE DISPUTED THAT IT HAD SUBSTANTIAL INTEREST IN THE AFORESAID E NTITY. 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 ITA 1525/MDS/2013 5 TO CONCLUSION THAT THE LEASE RENT PAID BY THE ASSES SEE WAS MUCH MORE THAN THE MARKET RENT. SIMILARLY, QUA THE RENT AL DEPOSIT AFORESAID, HE WAS OF THE VIEW THAT THE ASSESSEE H AD PAID MORE THAN 27% OF THE VALUE OF THE PROPERTIES AND DEPOSIT S WHILE THE INVESTMENTS WERE JUST AT ` .1,35,36,000/-. 6. SIMILARLY, THE ASSESSEE HAD ALSO CLAIMED DEPREC IATION OF ` .54,92,416/- ON LEASEHOLD IMPROVEMENTS QUA MUMBA I PROPERTY @ 100% DEPRECIATION BY TERMING THE EXPENSE S 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 BETW EEN ` .200/- TO ` .275/- PER SQ. FT. SIMILARLY, IT JUSTIFIED THE OT HER RENTAL DEPOSIT. THIS FAILED TO CONVINCE THE ASSESSING OFF ICER, IN WHOSE OPINION, THE RENT CONTROL LEGISLATION RECOGNIZED ON LY 8.5% RETURN OF INVESTMENTS AS STANDARD RENT. THEREFOR E, HE COMPUTED THE SAME AS ` .1,33,49,490/-. THEN, A COMPARISON WAS ITA 1525/MDS/2013 6 DRAWN OF THE PROPERTIES AT MUMBAI AND DELHI. IN V IEW OF THIS, THE ASSESSING OFFICER MADE AN ADDITION OF A SUM OF ` .61,08,050/- IN THE SHAPE OF EXCESS RENT, AFTER HOLDING THAT FAI R MARKET RENT WAS EVEN LESS THAN THE STANDARD RENT. IN THE SAME TUNE, HE QUOTED CASE LAW OF CIT V. ABHISHEK INDUSTRIES LIMI TED (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/-. 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 C EILING AFTER HOLDING THAT THE SAME WERE NOT HAVING CHARACTER O F TEMPORARY WOODEN STRUCTURE, HENCE, DEPRECIATION WOULD BE ADMI SSIBLE ONLY AT NORMAL RATES. ACCORDINGLY, THE TAXABLE INCOME WA S ASSESSED TO ` .8,80,02,739/-. ITA 1525/MDS/2013 7 9. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). IN THE ORDER UNDER CHALLENGE, THE COMMISSIONER O F INCOME TAX (APPEALS) HAS DELETED THE FIRST TWO ADDI TIONS PERTAINING TO EXCESSIVE RENT UNDER SEC.40A(2) AS WE LL AS THE INTEREST AMOUNT (SUPRA) AFTER PLACING RELIANCE UPON THE ORDERS OF THE TRIBUNAL IN ASSESSEES CASES RELATING TO PRECED ING ASSESSMENT YEARS. REGARDING DEPRECIATION, THE FINDINGS OF TH E COMMISSIONER OF INCOME TAX (APPEALS); THOUGH VERY B RIEF; READ AS FOLLOWS :- I HAVE GONE THROUGH THE OBSERVATIONS OF THE AO. I T IS NOT CLEAR AS TO HOW THE TEMPORARY STRUCTURES OF ` .38,08,121/- WERE HELD TO BE ELIGIBLE AND THE REST WERE NOT ELIG IBLE. NO DETAILED WORKING HAS BEEN GIVEN. EVEN OTHERWISE, S INCE ALL THE ITEMS ARE CLAIMED TO BE TEMPORARY STRUCTURES INS TALLED ON A LEASEHOLD PREMISES, THE ASSESSEE SHOULD BE ELI GIBLE FOR 100% DEPRECIATION. ACCORDINGLY, THE DISALLOWANCE IS DIRECTED TO BE DELETED. THIS LEAVES THE REVENUE AGGRIEVED. ITA 1525/MDS/2013 8 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 T HE REVENUE IS THAT SINCE ITS APPEALS CHALLENGING THE TRIBUNALS D ECISIONS (SUPRA) DELETING THE EXCESSIVE RENT DISALLOWANCE AS WELL AS THAT PERTAINED TO THE INTEREST AMOUNT IN QUESTION ARE PENDING BEFO RE THE HONBLE HIGH COURT, ITS GROUNDS DESERVE ACCEPTANCE. WE DO NOT FIND ANY REASON TO INTERFERE ON THE GROUND THAT NEI THER THERE ARE ANY DISTINGUISHING FACTS POINTED OUT NOR MERE PEND ENCY OF APPEAL UNDER SEC.260A OF THE ACT FORMS ANY REASONAB LE BASIS SO AS TO ADOPT A DIFFERENT APPROACH IN THE PRESENT CAS E. 11. NOW, WE COME TO THE ISSUE OF DEPRECIATION. TH ERE IS NO STRIFE BETWEEN THE PARTIES THAT THE ASSESSEE IS 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 ITA 1525/MDS/2013 9 ` .54,92,416/-. THE ASSESSING OFFICER DISALLOWED A S UM OF ` .16,83,295/- BY HOLDING THAT THE SAME HAD BEEN INCU RRED FOR TEMPORARY STRUCTURE. THE ASSESSEE HAD STRONGLY PLA CED RELIANCE ON EXPLANATION(1) OF SEC.32(1) OF THE ACT. UNDISPU TEDLY, THE SAID STATUTORY PROVISION TREATS EVEN A LESSEE IN CURRING CAPITAL EXPENDITURE FOR THE PURPOSE OF BUSINESS AND PROFESS ION IN THE CONSTRUCTION OF RAISING ANY STRUCTURE ETC OR RENOVA TION AT PAR WITH THE OWNER OF THE BUILDING. THE ONLY CONTENTIO N OF THE REVENUE IS THAT THE EXPENDITURE WAS NOT INCURRED FO R RAISING TEMPORARY STRUCTURE AS STIPULATED IN THE DEPRECIATI ON SCHEDULE. WE FIND FROM THE RELEVANT CASE LAW QUOTED BY THE RE VENUE (SUPRA) THAT THEREIN, NO DETAILS WERE FORTHCOMING ABOUT THE NATURE OF EXPENSESINCURRED. THEREFORE, THE SAID C ASE LAW IS NOT APPLICABLE IN THE FACTS OF THE CASE. HENCE, KEEP ING IN MIND THE FACT THAT THE ASSESSING AUTHORITY HIMSELF HAD ALLOW ED MAJORITY OF THE EXPENSES AS ENTITLED FOR 100% DEPRECIATION, WE HOLD THAT THE REST OF THE EXPENSES OF FALSE CEILING, EXPANSION O F PREMISES AND WOODEN WORK ARE PURELY TEMPORARY STRUCTURES AND CO VERED BY ITA 1525/MDS/2013 10 THE HIGHER RATE OF DEPRECIATION BEING PURELY TEMPOR ARY ERECTIONS. IN OUR CONSIDERED OPINION, THE REVENUE HAS PROCEEDE D TO INTERPRET THE DEPRECIATION SCHEDULE IN A NARROW MAN NER. WE REITERATE THAT THE SCHEDULE OF DEPRECIATION, DESERV ES TO BE LIBERALLY INTERPRETED AND THE EXPRESSIONS USED PUR ELY TEMPORARY ERECTIONS SUCH AS WOODEN STRUCTURES HAVE TO BE TR EATED AS INCLUSIVE IN NATURE COVERING ALL TEMPORARY ERECTION S. THE WORDS SUCH AS THEMSELVES POINT THAT THE LATTER PORTION OF THE SENTENCE ONLY SUPPLEMENTS THE FORMER ONE AND DOES NOT HAVE O VERRIDING EFFECT ON THE MAIN PART. PROCEEDING ON THIS REASO NING, WE HOLD THAT THE SAID CLAUSE NOT ONLY COVERS WOODEN STRUCT URES 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 COMMISSIONE R OF INCOME TAX (APPEALS) UNDER CHALLENGE. ITA 1525/MDS/2013 11 12. CONSEQUENTLY, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THE, DAY OF SEPTEMBER 2013. ( ABRAHAM P. GEORGE ) ( S.S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : SEPTEMBER 2013 JLS. C.C : APPELLANT/RESPONDENT/CIT(A)/CIT/DR/G.FILE