ACIT, V. M/sCineplex Pvt. Ltd.,

ITA 1673/BANG/2013

• Counselvise Citation: 167321114 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 19-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 03-12-2013
• Court: TRIBUNAL
• Keywords: Business expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.1673(BNG.)/2013 (ASSESSMENT YEAR : 2010-11) THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2(1), MANGALORE APPELLANT VS M/S CINEPLEX PRIVATE LIMITED, 2-17-1508/31, BHARATH MALL, BEJAI, MANGALORE-575 004 PAN NO.AACCC5030H RESPONDENT AND C.O.NO.54(BNG)/2014 (IN ITA NO.1673(BNG)/2013) (ASSESSMENT YEAR : 2010-11) (BY ASSESSEE) REVENUE BY : SHRI SUNIL KUMAR AGARWALA, JCIT ASSESSEE BY : SMT. SHEETAL, ADVO CATE DATE OF HEARING : 19-10-2015 DATE OF PRONOUNCEMENT : 30-10-2015 PER SHRI ABRAHAM P GEORGE, AM: THESE ARE APPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY DIRECTED AGAINST AN ORDER DAT ED 17-07-2013 OF CIT(A), MYSORE. THE APPEAL OF THE REVENUE IS TAK EN UP FIRST FOR DISPOSAL. 2. THE REVENUE HAS RAISED SEVEN GROUNDS OF APPEAL OF WHICH GROUND 1,7 &8 ARE GENERAL IN NATURE NEEDING NO SPECIFIC AD JUDICATION. 2 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 3. VIDE ITS GROUND NO.2 TO 4, GRIEVANCE OF THE REV ENUE IS THAT THE CIT(A) DELETED AN ADDITION OF RS.44,42,893/- MADE B Y THE AO ON INTEREST PAID ON UNSECURED LOANS. AS PER THE REVENUE, THE CI T(A) HAD MISINTERPRETED THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LTD VS CIT (1993) 209 ITR 174. 4. FACTS APROPOS ARE THAT THE ASSESSEE OPERATING A MULTIPLEX THEATRE IN BHARATH MALL, HAD FILED ITS RETURN OF IN COME FOR THE IMPUGNED ASSESSMENT YEAR ON 01-10-2010 DECLARING A TOTAL INC OME OF RS.95,59,410/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE AO NOTED THAT A SUM OF RS.88,85,787/- WAS CHARGED AS I NTEREST IN THE P&L ACCOUNT. SINCE THERE WAS NO SIMILAR CHARGE OF INTER EST IN THE PRECEDING ASSESSMENT YEAR, THE ASSESSEE WAS REQUIRED TO EXPLA IN. THE EXPLANATION OF THE ASSESSEE READ AS UNDER; THE FOLLOWING IS THE DETAILS OF INTEREST PAID DUR ING THE PREVIOUS YEAR INTEREST @7%D ON UNSECURED LOANS ANAND G PAI RS.9,49,608.30 ANATHA G PAI RS.9,49,611.39 SUBRAYA M PAI RS.6,07,753.00 SUDHIR M PAI RS.6,99,263.00 VENKATESH M PAI RS.6,07,754.00 ADLABS FILMS LTD RS.50,71,797.00 RS.88,85,786.69 3 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 THE TAX WAS DEDUCTED AT SOURCE ON THE INTEREST PAID , THE SAME WAS PAID ON 07-06-2010. THE COPY OF THE CHALLAN IS ENCLOSED FOR YOUR KIND PERUSAL. AS PER THE ASSESSEE THE UNSECURED LOAN CREDITORS HA D ISSUED A THREAT OF WITHDRAWING THE MONEY, UNLESS THE INTEREST WAS PAID . FURTHER, AS PER THE ASSESSEE THOUGH, THE INTEREST WAS CALCULATED FROM A N EARLIER PERIOD, THE LIABILITY HAD CRYSTALLIZED ONLY DURING THE RELEVANT PREVIOUS YEAR. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE APEX COUR T IN THE CASE OF CIT VS SWADESHI COTTON & FLOOR MILLS (P) LTD., 53 ITR 1 34(SC), HIMACHAL PRADESH HIGH COURT IN THE CASE OF CIT VS HIMACHAL PRADESH STATE FOREST CORPN.320 ITR170(HP) AND THAT OF ALLAHABAD HIGH COU RT IN THE CASE OF M/S APOLLO TEXTILES AGENCY (2006) 283 ITR 591(ALL.) 5. HOWEVER, THE AO WAS NOT IMPRESSED BY THE ABOVE EXPLANATION. ACCORDING TO HIM, THE LOANS WERE GIVEN BY ASSESSEE S SHARE HOLDERS AND THE INTEREST PAYMENT WAS BASED ON AN INHOUSE ARRANG EMENT. AS PER THE LEARNED AO, THE ASSESSEE COULD NOT SHOW ANY THREAT OR DISPUTE WITH THE LOAN CREDITORS. FURTHER, AS PER THE LEARNED AO TH E JUDGMENT OF THE APEX COURT IN THE CASE OF SWADESHI COTTON & FLOOR MILLS (P) LTD., 53 ITR 134(SUPRA) WAS IN RELATION TO A LIABILITY ARISING O N DECLARATION OF BONUS AND WAS ENTIRELY DIFFERENT ON FACTS. LEARNED AO AL SO NOTED THAT THE QUESTION BEFORE HONBLE HIMACHAL PRADESH HIGH COUR T IN THE CASE OF CIT 4 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 VS HIMACHAL PRADESH STATE FOREST CORPN.320 ITR170(H P)(SUPRA) WAS LIABILITY TO PAY INTEREST ON BELATED PAYMENT OF ROY ALTY, AND THEREFORE, THE FACTS WERE ENTIRELY DIFFERENT. AS FOR THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S APOLLO TEXTILES AGENC Y(2006) 283 ITR 591(SUPRA), LEARNED AO WAS OF THE OPINION THAT THE QUESTION THERE WAS THE LIABILITY OF EXPENDITURE U/S 43B OF THE IT ACT, 1961 ON PAYMENT BASIS AND HAD NO RELEVANCE. HE THUS, HELD THAT INTEREST CLAIMED BY THE ASSESSEE FOR THE PERIOD PRIOR TO 01-04-2009 COULD N OT BE CONSIDERED FOR ALLOWANCE. THE INTEREST FOR FINANCIAL YEAR 2008-09 CAME TO RS.44,42,893/-. THUS, OUT OF THE TOTAL RS.88,85,78 7/- THE AO DISALLOWED RS.44,42,893/-. 6. IN ITS APPEAL BEFORE THE CIT(A), THE ARGUMENT O F THE ASSESSEE WAS THAT WHATEVER EXPENDITURE WAS INCURRED COULD BE CLA IMED. ACCORDING TO THE ASSESSEE PAYMENT OF INTEREST ON THE UNSECURED L OANS WAS MADE PURSUANT TO A DECISION OF ITS BOARD OF DIRECTORS IN THEIR MEETING HELD ON 25-03-2010. ASSESSEE ALSO SUBMITTED THAT LENDERS H AD CLAIMED INTEREST SINCE 2007 AND ASSESSEE WAS NOT IN A POSITION TO PA Y SINCE ITS BUSINESS HAD JUST STARTED. AS PER THE ASSESSEE WHEN THREATE NED WITH WITHDRAWAL OF THE LOANS, ITS BOARD OF DIRECTORS HAD DECIDED TO PAY INTEREST AT THE RATE OF 7% PER ANNUM W.E.F. 01-04-2008. ASSESSEE ALSO DI STINGUISHED THE 5 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 FACTS VIS--VIS JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LTD VS CIT ( SUPRA). 7. LEARNED CIT(A) AFTER GOING THROUGH THE SUBMISSI ONS OF THE ASSESSEE WAS OF THE OPINION THAT THE ASSESSEE COULD PRODUCE LETTERS FROM THE SHARE HOLDERS WHICH PROVED THAT THE INTEREST EX PENDITURE WERE INCURRED DURING THE RELEVANT PREVIOUS YEAR THOUGH, IT PERTAINED TO EARLIER PERIODS ALSO. AS PER THE LEARNED CIT(A) SHARE HOLD ERS WHO WERE THE LENDERS WERE ALSO IN THE HIGHEST TAX BRACKET AND TH EREFORE THERE WAS NO REVENUE LOSS. IT SEEMS LEARNED CIT(A) ALSO WENT TH ROUGH THE E-MAIL COPIES PRODUCED BY THE ASSESSEE. HE HELD THAT THE CLAIM OF INTEREST EVEN FOR THE PRECEDING YEAR WAS ALLOWABLE. HE DELETED T HE DISALLOWANCE. 8. NOW BEFORE US, LEARNED DR STRONGLY ASSAILING TH E ORDER OF THE CIT(A) SUBMITTED THAT IT WAS NOT A CONTRACTUAL LIA BILITY. ASSESSEE HAD NEVER PRODUCED ANY CONTRACT WHICH IT HAD WITH THE L OAN CREDITORS THAT COULD SHOW THAT THERE WAS ANY ACCRUAL OF ANY INTERE ST EXPENDITURE. THE CLAIM WAS BASED ON CHOICE. NO DOUBT, AS PER THE LE ARNED DR, ASSESSEE HAD OBTAINED LETTERS FROM THE LOAN CREDITORS THREAT ENING WITHDRAWAL OF THE AMOUNTS UNLESS THE INTEREST WAS PAID FROM THE D ATE OF THE INVESTMENTS. HOWEVER, AS PER THE LEARNED DR, THIS WOULD NOT SHOW THAT THERE WAS ANY LEGAL LIABILITY ON THE ASSESSEE TO PA Y THE INTEREST. FURTHER, 6 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 AS PER THE LEARNED DR, THE COPIES OF LETTERS WHICH WAS RELIED ON BY THE LEARNED CIT(A) FOR GIVING RELIEF TO THE ASSESSEE WA S NEVER BEFORE THE AO. RELIANCE WAS PLACED ON THE DECISION OF THE AHMEDABA D BENCH OF THIS TRIBUNAL IN THE CASE OF CADILA PHARMACEUTICALS LTD VS ACIT 25 TAXMAN.COM 519(AHD.) 9. PER CONTRA, LEARNED AR SUBMITTED THAT THERE WAS NO FRESH EVIDENCE PRODUCED BY THE ASSESSEE. ACCORDING TO H ER, THE AO HIMSELF WAS PRESENT DURING THE COURSE OF HEARING BEFORE THE LEARNED CIT(A) AND ALL THE PARTICULARS WERE GIVEN TO HIM FOR VERIFICAT ION. THEREFORE, AS PER THE LEARNED AR, THERE WAS NO MERIT IN THE CONTENTIO N OF THE REVENUE THAT ANY FRESH DOCUMENTS WERE CONSIDERED BY THE LEARNED CIT(A). FURTHER, AS PER THE LEARNED AR, THE MINUTES OF BOARD OF DIRECTO RS MEETING HELD ON 25-03-2010 PLACED AT PAPER BOOK AT PAGE-29 READ ALO NG WITH THE LETTERS SENT BY THE VARIOUS LOAN CREDITORS PLACED AT PAPER BOOK PAGES-15 TO 28 WOULD SHOW THAT IT WAS A COMMERCIAL DECISION TAKEN BY THE ASSESSEE TO AVOID RE-PAYMENT OF HUGE LOANS AT ONE GO. THUS, A CCORDING TO HER, THE CLAIM WAS CORRECTLY ALLOWED BY THE LEARNED CIT(A). 10. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. LEARNED CIT(A) HAD CONSIDERED THE LETTERS ISSUED BY THE CREDITORS DEMANDING INTEREST AND THREATENING WITHDRAWAL OF MO NEY FOR COMING TO A CONCLUSION THAT THE INTEREST PAYMENT WAS A GENUINE ALLOWABLE, BUSINESS 7 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 EXPENDITURE. THERE IS NO DISPUTE THAT 50% OF THE T OTAL INTEREST OUTGO PERTAINED TO PRECEDING YEAR. ASSESSEE HAS ALSO NOT DISPUTED THE CLAIM OF THE REVENUE THAT THERE WAS NO CONTRACT WITH THE CRE DITORS FOR PAYMENT OF ANY INTEREST. HOWEVER, AS PER THE ASSESSEE IT HAD TAKEN A DECISION DURING THE RELEVANT PREVIOUS YEAR, IN THE MEETING O F ITS BOARD OF DIRECTORS HELD ON 23-03-2010 TO PAY INTEREST FROM 01-04-2008 AT THE RATE OF 7%. ASSESSMENT ORDER STATES THAT ASSESSEE COULD NOT PRO DUCE ANY EVIDENCE REGARDING ANY DISPUTE THAT SHARE HOLDERS/DIRECTORS ON THE QUESTION OF INTEREST. NO DOUBT, ASSESSEE IS RELYING ON A RESOL UTION OF ITS BOARD OF DIRECTORS FOR PAYMENT OF INTEREST. NEVERTHELESS, W E ARE OF THE OPINION, THAT AT LEAST SOME OF THE RECORDS PRODUCED BY THE A SSESSEE BEFORE THE CIT(A) WERE NOT BEFORE THE AO. JUST BECAUSE AO WAS PRESENT AT THE TIME OF PROCEEDINGS BEFORE THE CIT(A), WE CANNOT SAY THA T REQUIREMENTS OF RULE 46A OF IT RULES STOOD SATISFIED. WE ARE OF THE OPIN ION THAT THE ISSUE THEREFORE, REQUIRES A FRESH LOOK BY THE AO FOR VERI FYING THE ALLOWABILITY OF THE CLAIM IN ACCORDANCE WITH LAW. WE THEREFORE, SE T ASIDE THE ORDERS OF THE AUTHORITIES BELOW WITH REGARD TO THE ALLOWANCE OF INTEREST BACK TO THE FILE OF THE AO FOR CONSIDERATION AFRESH IN ACCORDAN CE WITH LAW. NEEDLESS TO SAY ASSESSEE SHALL PRODUCE ALL DOCUMENTS IN SUPP ORT OF ITS CLAIM BEFORE THE AO. GROUND NO.2 TO 4 OF THE REVENUE STAN DS ALLOWED FOR STATISTICAL PURPOSES. 8 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 11. VIDE ITS GROUND NO.5 TO 7, GRIEVANCE RAISED BY THE REVENUE IS THAT THE CIT(A) HELD THAT A SUM OF RS.10,07,484/-CO NSIDERED BY THE ASSESSEE AS PRIOR PERIOD ITEMS AS AN ALLOWABLE EXPE NDITURE FOR THE RELEVANT PREVIOUS YEAR AND HAD VIOLATED THE PROVISI ONS OF RULE 46A OF THE IT RULES. 13. ASSESSEE HAD CLAIMED A SUM OF RS.10,07,484/- AS PRIOR PERIOD EXPENDITURE WHILE COMPUTING ITS PROFITS. THE DETAI LS OF SUCH PRIOR PERIOD EXPENDITURE AS FURNISHED BEFORE THE AO READ AS UNDE R; DISTRIBUTORS SHARE RS. 7,304,00 CAM CHARGES RS. 9,89,139.46 PROPERTY TAX RS. 6,594.00 SHORT PRVI. FOR BONUS 2008-09 RS. 4,447.00 TOTAL RS.10,07,484.46 AO REQUIRED THE ASSESSEE HOW THE COMMON AMENITIES A ND MAINTENANCE CHARGES WHICH RELATED TO AN EARLIER YEAR COULD BE A LLOWED IN THE RELEVANT PREVIOUS YEAR. ASSESSEE REPLIED THAT IT WAS AN ASCE RTAINED CONTRACTUAL LIABILITY WHICH ACCRUED AND CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR. AS PER THE ASSESSEE, THERE WAS A DISPUTE WITH M/S B HARATH MALL, WHOSE PREMISES IT WAS USING FOR RUNNING THE THEATRE AND S UCH A DISPUTE WAS RESOLVED ONLY DURING THE RELEVANT PREVIOUS YEAR LEA DING TO THE PAYMENT OF EXTRA CAM CHARGES. HOWEVER, THE AO WAS OF THE OPIN ION THAT NO EVIDENCE 9 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 WAS PRODUCED BY THE ASSESSEE WITH REGARD TO DISPUTE WITH M/S BHARTH MALL OR FOR RESOLUTION OF SUCH DISPUTE. HE HELD TH AT PRIOR PERIOD EXPENDITURE COULD NOT BE ALLOWED. RELIANCE WAS PLA CED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S MADRAS FERTILIZERS LTD (SUPRA). 12. IN ITS APPEAL BEFORE THE CIT(A), ARGUMENT OF TH E ASSESSEE WAS THAT ASSESSEE WAS A JOINT VENTURE BETWEEN ONE M/S ADLABS FILMS LTD.,AND PARTNERS OF BHARATH BUILDERS. AS PER THE ASSESSEE I TS MULTIPLEX WAS LOCATED IN BHARATH MALL. THERE WAS A DISPUTE WITH BHARATH MALL ON CAM CHARGES. THOUGH, THERE EXISTED A CLAIM IN THIS REG ARD PREFERRED BY BHARATH MALL, AS PER THE ASSESSEE, THE DISPUTE WAS SETTLED DURING THE RELEVANT PREVIOUS YEAR. 13. LEARNED CIT(A) WAS APPRECIATIVE OF THE ABOVE CO NTENTIONS. ACCORDING TO HIM, THE AO HAD NOT CONSIDERED THE EVI DENCE WITH REGARD TO THE DISPUTE WITH M/S BHARATH MALL, PRODUCED BY THE ASSESSEE. LEARNED CIT(A) ALSO NOTED THAT ASSESSEE HAD PRODUCED EVIDEN CE IN THE NATURE OF E- MAILS BEFORE HIM. ACCORDING TO HIM, ASSESSEE WAS R EGULARLY PAYING CAM CHARGES OF RS.4.5 LAKHS AND THE PAYMENT FOR THE REL EVANT PREVIOUS YEAR WHICH PERTAINED TO AN EARLIER PERIOD WAS ONLY ON AC COUNT OF DIFFERENCE ARISING OUT OF THE SETTLEMENT OF THE DISPUTE. ACCOR DING TO HIM, IT WAS NOT A PRIOR PERIOD EXPENDITURE. HE DELETED THE DISALLO WANCE. 10 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 14. NOW BEFORE US, LEARNED DR STRONGLY ASSAILING TH E ORDER OF THE CIT(A) MADE SUBMISSIONS SIMILAR TO THE ONE HE RAISE D IN GROUND NO2 TO 4 OF THE REVENUE. PER CONTRA, LEARNED AR SUPPORTING THE ORDER OF THE CIT(A) REPLIED ON THE SAME LINE. 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. GRIEVANCE OF THE REVENUE IS THAT THE EVIDENCE PRODU CED BY THE ASSESSSEE BEFORE THE CIT(A) WERE NOT BEFORE THE AO. IN OUR OPINION, THE QUESTION WHETHER THERE WAS ANY DISPUTE WITH REGARD TO CAM CH ARGES BETWEEN THE ASSESSEE AND M/S BHARATH MALL AND SUCH DISPUTE, IF IT EXISTED, WHETHER SETTLED, REQUIRE A DETAILED ANALYSIS BEFORE COMING TO A CONCLUSION REGARDING THE ALLOWABILITY OF THE CLAIM MADE BY THE ASSESSEE. UNLESS AND UNTIL SUCH AN EXERCISE IS CARRIED OUT, IT CANNO T BE ASCERTAINED WHETHER THE CLAIM IS ONE OF PRIOR PERIOD EXPENDITUR E OR BUSINESS EXPENDITURE INCURRED DURING THE RELEVANT PREVIOUS Y EAR. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT THIS ISSU E ALSO REQUIRES A FRESH LOOK BY THE AO. WE THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING ALLOWANCE OF PRIOR PE RIOD EXPENDITURE OF RS.10,07,484/- ALSO BACK TO THE FILE OF THE AO FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. GROUND NO.5 TO 6 OF THE REVEN UE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11 ITA NO.1673(B)/2013 & CO NO.54(B)/2014 16. CROSS OBJECTION FILED BY THE ASSESSEE IN SUPPO RT OF THE ORDER OF THE CIT(A), SINCE WE HAVE ALLOWED REVENUES APPEAL, THE CROSS OBJECTION HAVE BECOME INFRUCTUOUS. 17. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES, WHEREAS THE CROSS OBJECTION FILED BY THE ASSESSEE I S DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH OCTOBER, 2015. SD/- SD/- ( VIJAY PAL RAO ) ( ABRAHAM P GEORGE ) JUD I CIAL MEMER ACCOUNTANT MEMBER BANGALORE: D A T E D : 30-10-2015 AM COPY TO : APPELLANT RESPONDENT CIT(A)-IV, BANGALORE. CIT DR, ITAT, BANGALORE. GUARD FILE (1+1) ASST. REGISTRAR ITAT, BANGALORE