ACIT - 3(2), MUMBAI V. M/s. LINTAS (I) LTD., MUMBAI

ITA 1601/MUM/2006

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4468 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-07-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 08-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Notional interest; Revenue expenditure
• Section: 6; 10

Judgement Text

1 ITA NO1601 &1696/M/06 I II IN THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH D DD D MUMBAI MUMBAI MUMBAI MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI SHRI SHRI SHRI R R R R K PANDA, AM K PANDA, AM K PANDA, AM K PANDA, AM IT ITIT ITA NO A NO A NO A NOS 1696 & 1601/MUM/2006 S 1696 & 1601/MUM/2006 S 1696 & 1601/MUM/2006 S 1696 & 1601/MUM/2006 (ASSESSMENT YEARS 1998-99 & 1999-00) THE ASST COMMR OF INCOME TAX 3(2), MUMBAI VS M/S LINTAS (I) LTD EXPRESS TOWERS NARIMAN POINT MUMBAI 21 (APPELLANT) (RESPONDENT) PAN PAN PAN PAN AAACL0124F AAACL0124F AAACL0124F AAACL0124F ASSESSEE BY: SHRI PRAKASH JOTWANI REVENUE BY: SHRI R S SRIVASTAVA O OO O R RR R D DD D E EE E R RR R PER PER PER PER R RR R K PANDA K PANDA K PANDA K PANDA: :: : THE ABOVE TWO APPEALS FILED BY THE REVENUE ARE DIRE CTED AGAINST THE SEPARATE ORDERS DATED 16.12.2005 AND 27.12.2005 OF THE CIT(A)-III, MUMBAI RELATING TO ASSESSMENT YEARS 1998-99 & 1999-00 RES PECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 1696/MUM/2006 ITA NO. 1696/MUM/2006 ITA NO. 1696/MUM/2006 ITA NO. 1696/MUM/2006( AY1998 ( AY1998 ( AY1998 ( AY1998- -- -99) 99) 99) 99) 2 GROUNDS OF APPEAL NO.1 BY THE REVENUE READS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF `. 1,32,00,2 28/- MADE ON ACCOUNT OF REPAIRS AND MAINTENANCE. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSE E COMPANY HAS INCURRED REPAIR AND MAINTENANCE INCLUDING RENOVATION EXPENSE S OF BUILDING AT ` 63,02,936/-, MACHINERY AND EQUIPMENT AT ` 74,50, 202/- AND OTHERS AMOUNTING TO ` 1,37,82,221/- TOTALLING TO ` 2,75,35,359/ - AS AGAINST THE TOTAL EXPENDITURE OF ` 2,37,61,507/- IN THE PRECEDING ASSESSMENT YEA R. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NO TED THAT A SUM OF ` 6,15,227/- HAS BEEN CHARGED TO P&L ACCOUNT AS MAJ OR REPAIRS TO FLATS OWNED BY THE COMPANY AND ` 5,01,617/- HAS BEEN CHARGED TO P&L ACCOUNT AS REPAIRS TO FLATS TAKEN ON LEASE AND ` 26,84,949/- FOR REPAIR S AND MAINTENANCE OF CARS. A SUM OF ` 56,41,917/- HAS BEEN CHARGED TO P&L ACCO UNT AS MAINTENANCE TO 2 ITA NO1601 &1696/M/06 OFFICE PREMISES; ` 21,86,557/- TOWARD MAINTENANCE OF SOFTWARE; ` 32,20,510/- TOWARDS REPAIRS TO COMPUTER AND ` 20,43,135/- TOWA RDS OFFICE AND AV EQUIPMENTS. THE ASSESSING OFFICER ASKED THE ASSESS EE TO EXPLAIN AS TO WHY THE EXPENDITURE SHOULD NOT BE CAPITALISED. IT WAS SUB MITTED BY THE ASSESSEE THAT THERE IS A NEED TO KEEP THE COMPANYS ASSETS IN GOO D WORKING CONDITION ESPECIALLY FOR AN ADVERTISING AGENCY SUCH AS LINTAS , WHICH NEEDS TO PROJECT A PROFESSIONAL IMAGE TO ITS CLIENTS. IT WAS SUBMITTE D THAT AN ADVERTISING AGENCY NEEDS TO BE ABLE TO PROVE TO ITS CLIENTS THAT IT CA N MARKET THEIR PRODUCTS MOST EFFICIENTLY. IF THE AGENCY DOES NOT OPERATE FROM P ROFESSIONAL OFFICE PREMISES, THEN IT WILL HAVE A VERY NEGATIVE IMPACT ON ANY CLI ENT OR SUPPLIERS VISITING THE OFFICE. 2.2 NOT BEING SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF ` 17,62,0 00/- ON SOFTWARE MAINTENANCE AS CAPITAL IN NATURE. 2.3 SIMILARLY, HE ALSO TREATED THE EXPENDITURE INCU RRED TOWARDS MAINTENANCE AND REPAIRS OF COMPUTERS AT ` 16,90,057/- AS CAPITA L IN NATURE. FROM THE EXPENDITURE TOWARDS MAINTENANCE OF OFFICE PREMISES, HE DISALLOWED AN AMOUNT OF ` 4,65,875/- PAID TO PRASAD ENGINEERS AS CAPITAL I N NATURE ON THE GROUND THAT THE SAME HAS BEEN INCURRED EITHER TO ACQUIRE ASSET OR T OWARDS MAJOR REPAIR. 2.4 SIMILARLY, HE TREATED AN AMOUNT OF ` 1,03,57,12 6/- OUT OF THE EXPENSES TOWARDS REPAIRS OF LEASED OFFICE PREMISES AS CAPITA L IN NATURE ON THE GROUND THAT THEY HAVE BEEN INCURRED EITHER TO ACQUIRE ASSET OR TOWARDS MAJOR REPAIRS/RENOVATION. THE ASSESSING OFFICER FURTHER TREATED THE AMOUNT OF ` 10,19,287/- BEING EXPENDITURE INCURRED BY THE ASS ESSEE ON THE LEASED PREMISES AT LINTAS 4 TH FLOOR. THE ASSESSING OFFICER ALSO TREATED THE AMO UNT OF ` 6,15,227/- BEING EXPENDITURE INCURRED IN RESPECT OF FLAT OWNED BY THE ASSESSEE AS CAPITAL IN NATURE IN VIEW OF THE DECISION IN THE CASE OF BALLIMAL NAVAL KISHORE VS CIT REPORTED IN 224 ITR 414. ACCORDING TO HIM, THE ABOVE AMOUNT WAS NOT IN THE NATURE OF MAJOR RENOVATION AND CANNOT BE TREATE D AS MAJOR REPAIRS. THUS, HE TREATED THE AMOUNT OF ` 1,59,09,572/- OUT OF REPAIR S AND MAINTENANCE AS CAPITAL IN NATURE. 3 IN APPEAL, THE CIT(A) HELD THAT EXPENDITURE OF ` 16,90,057/- INCURRED BY THE ASSESSEE ON ACCOUNT OF UP-GRADATION OF THE MEMO RY OF THE COMPUTER IS CAPITAL IN NATURE AND THE ASSESSEE IS ENTITLE ONLY FOR DEPRECIATION. 3 ITA NO1601 &1696/M/06 3.1 THE SOFTWARE EXPENDITURE OF ` 17,62,000/- WAS H ELD BY HIM AS REVENUE EXPENDITURE IN VIEW OF THE DECISION FOR ASSESSMENT YEAR 1997-98. 3.2 SO FAR AS THE TREATMENT OF ` 4,65,875/- PAID TO PRASAD ENGINEERS FOR MAINTENANCE OF OFFICE PREMISES, HE HELD THE SAME T O BE REVENUE IN NATURE IN VIEW OF HIS ORDER FOR THE PRECEDING ASSESSMENT YEAR . FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1997-98, HE ALSO HELD THAT THE EX PENDITURE OF ` 1,03,57,126/- INCURRED ON REPAIRS OF LEASED OFFICE PREMISES; ` 10,09,287/- INCURRED FOR REPAIRS OF OFFICE PREMISES TAKEN ON LEASE AND ` 6,15,227/- INCURRED BY THE ASSESSEE ON ACCOUNT OF REPAIRS OF FLATS OWNED AND USED BY THE A SSESSEE AS REVENUE IN NATURE/ 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVE NUE IS IN APPEAL HERE BEFORE US. 5 AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE R ELATING TO THE TREATMENT OF EXPENDITURE OF ` 17,62,000/- INCURRED BY THE ASSESS EE TOWARDS SOFTWARE EXPENDITURE HAS TO GO BACK TO THE FILE OF THE ASSES SING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY ENTERPRISES REPORTED IN 301 ITR 1(AT) . ACCORDINGLY, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR F RESH ADJUDICATION IN ACCORDANCE WITH LAW AND AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6 SO FAR AS THE OTHER ITEMS ARE CONCERNED, IN VIEW OF OUR DECISION IN ASSESSES OWN CASE VIDE ITA NO. 1680/MUM/2006 FOR T HE ASSESSMENT YEAR 1997- 98, WE HOLD THAT THE ABOVE EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF REPAIRS HAVE TO BE HELD AS REVENUE IN NATURE. THE G ROUND RAISED BY THE REVENUE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURP OSE. 7 GROUNDS OF APPEAL NO.2 BY THE REVENUE READS AS U NDER: ON HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 1,35,260/ - BEING PAYMENT TOWARDS CLUB MEMBERSHIP FEES. 8 AFTER HEARING BOTH THE SIDES, WE FIND THIS ISSUE IS IDENTICAL TO THE GROUNDS OF APPEAL NO.2 IN ITA NO.1680/MUM/2006 FOR ASSESSME NT YEAR 1997-98. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND OF THE REV ENUE HAS BEEN DISMISSED. FOLLOWING THE SAME RATIO ON THIS ISSUE, THE GROUND RAISED BY THE REVENUE FOR THE YEAR UNDER CONSIDERATION IS ALSO DISMISSED. 4 ITA NO1601 &1696/M/06 9. GROUNDS OF APPEAL NO.3 BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE INTEREST OF ` 5,96,055/- CHA RGED U/S 234C 10 AFTER HEARING BOTH THE SIDES, WE FIND THE CIT(A) DELETED THE INTEREST CHARGED U/S 234C ON THE GROUND THAT THE ASSESSMENT ORDER DOES NOT CONTAIN ANY DIRECTION FOR CHARGING OF SUCH INTEREST. WHILE DO ING SO, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RACHNI CLUB LTD REPORTED IN 247 ITR 209. HOWEVER, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS ANJUM M H GHASWALA & OTHERS REPORTED IN 252 ITR 1 THE COORDINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT V IEW THAT CHARGING OF INTEREST U/S 234C IS MANDATORY AND CONSEQUENTIAL. THEREFORE, THIS ISSUE RAISED BY THE REVENUE IS ALLOWED. 11 GROUNDS OF APPEAL NO.4 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 3,17,090/- MAD E ON ACCOUNT OF NOTIONAL INTEREST 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE HAS GIVEN INTER CORPORATE DEPOSITS TO VARIOUS COMPANIES. FROM THE PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAS GIVEN SHORT TERM DEPOSITS TO VARIOUS COMPANIES AND RECEIVED INTERE ST AT VARYING RATES FROM 11.75% TO16.5%. HE ASKED THE ASSESSEE TO EXPLAIN W HY THEY HAVE RECEIVED DIFFERENT INTEREST RATE FROM DIFFERENT COMPANIES AN D SOMETIMES DIFFERENT RATE FROM THE SAME COMPANIES. IT WAS EXPLAINED BY THE A SSESSEE THAT THE SAME IS DUE TO THE INTEREST RATES OFFERED BY THE BANKS; TO THE SIZE, STANDING AND REPUTATION OF THE COMPANY AND TO THE REQUIREMENT OF THE COMPANY FOR MONEY. HOWEVER, NOT BEING SATISFIED WITH THE EXPLANATION G IVEN BY THE ASSESSEE AND OBSERVING THAT THE COMPANY HAS RECEIVED LESS THAN BANK RATE OF INTEREST I.E 18% FROM THE SAME COMPANIES, HE HELD THAT THE ASSESSEE HAS RECEIVED LESS INTEREST TO THE EXTENT OF `.3,17,090/- FROM THOSE COMPANIES . ACCORDING TO HIM, IF THOSE COMPANIES WOULD HAVE TAKEN LOAN FROM THE BANK, THEY WOULD HAVE PAID MINIMUM 18% INTEREST TO THE BANK. THUS, THE ASSESSING OFFIC ER HELD THAT THE NOTIONAL INTEREST FOREGONE BY THE ASSESSEE COMPANY BY PLACIN G SHORT TERM DEPOSITS WITH THE ABOVE MENTIONED COMPANIES SHOULD BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. HE, ACCORDINGLY MADE THE ADDITION OF ` 3,17,090/-. 5 ITA NO1601 &1696/M/06 11.2 IN APPEAL, THE CIT(A) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 1997-98 DELETED THE ADDITION. 11.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL HERE BEFORE US. 13 AFTER HEARING BOTH THE SIDES, WE FIND SIMILAR AD DITION HAS BEEN MADE BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT Y EAR AMOUNTING TO ` 1,14,040/-. ALTHOUGH THE CIT(A) HAS DELETED THE ADD ITION, THE REVENUE HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL ON THIS I SSUE ALTHOUGH THE REVENUE HAS FILED APPEAL ON OTHER GROUNDS FOR ASSESSMENT YEAR 1 997-98. THUS, THE REVENUE, IN THE ASSESSMENT YEAR 1997-98 HAS ACCEPTED THE DEC ISION OF THE CIT(A) ON THIS ISSUE. FURTHER, TAX CAN BE LEVIED ON INCOME WHICH HAS BEEN RECEIVED BY THE ASSESSEE OR ACCRUED TO IT. TAX CANNOT BE LEVIED ON AN ASSESSEE ON THE GROUND THAT OTHER PERSON WOULD HAVE PAID TO BANK HIGHER RA TE OF INTEREST. BY SAVING OF INCOME BY A THIRD PARTY, THE ASSESSEE, IN OUR OPINI ON, CANNOT BE LIABLE TO PAY TAX. IN THIS VIEW OF THE MATTER AND IN VIEW OF ACCEPTANC E OF THE ORDER OF THE CIT(A) BY THE REVENUE ON THIS ISSUE IN THE PRECEDING YEAR, TH E ORDER OF THE CIT(A) ON THIS ISSUE IS UPHELD. THE GROUND RAISED BY THE REVENUE I S DISMISSED. 14 IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1601/MUM/2006 ITA NO. 1601/MUM/2006 ITA NO. 1601/MUM/2006 ITA NO. 1601/MUM/2006 (ASSESSMENT YEAR 1999 (ASSESSMENT YEAR 1999 (ASSESSMENT YEAR 1999 (ASSESSMENT YEAR 1999- -- -00) 00) 00) 00) 15 GROUNDS OF APPEAL NO.1 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENSES ON R EPAIR OF FLATS OF ` 10,71,662/- AND OFFICE BUILDING ` 43,92,213/- 16 AFTER HEARING BOTH THE SIDES, WE FIND THIS ISSUE IS IDENTICAL TO THE GROUNDS OF APPEAL NO.1 IN ITA NO.1696/MUM/2006 FOR ASSESSME NT YEAR 1998-99. WE HAVE ALREADY DECIDED THIS ISSUE AND THE EXPENDITURE REL ATING TO SOFTWARE EXPENDITURE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFI CER AND THE OTHER EXPENDITURE RELATING TO MAJOR REPAIRS AND RENOVATIONS HAS BEEN HELD TO BE REVENUE IN NATURE. FOLLOWING THE SAME RATIO, THIS GROUND RAISED BY THE REVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSE. 17 GROUNDS OF APPEAL NO.2 READS AS UNDER: 6 ITA NO1601 &1696/M/06 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE INTEREST OF ` . 3,12,478/-CH ARGED U/S 234C OF THE I T ACT. 18 AFTER HEARING BOTH THE SIDES, WE FIND THIS ISSUE IS IDENTICAL TO GROUNDS OF APPEAL NO.3 IN ITA NO.1696/MUM/2006 FOR ASSESSMENT YEAR 1998-99. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE REVENUE HAS BEEN ALLOWED. FOLLOWING THE SAME RATIO, THIS GROUND RAI SED BY THE REVENUE FOR THE YEAR UNDER CONSIDERATION IS ALSO ALLOWED. 19 IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 18 TH DAY OF OCT 2010. SD/- SD/- ( (( ( D MANMOHAN D MANMOHAN D MANMOHAN D MANMOHAN) )) ) VICE PRESIDENT ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED:18 TH , OCT 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI