M/s. Prateek Apparels Pvt. Ltd, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 1875/BANG/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7594 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR
• Assessee Lawyers: H N KHINCHA
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 1 875 / BANG/201 6 ASSESSMENT YEAR : 20 1 0 - 1 1 M/S. PRATEEK APPARELS PVT. LTD., NO. 113, KRISHNA REDDY INDL. AREA, 7 TH MILE, KUDLU GATE, HOSUR ROAD, BANGALORE 560 068. PAN: AAACP7190B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12 (2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI H.N. KHINCHA, CA RESPONDENT BY : SHRI P. DHIVAHAR, ADDL. CIT (DR) DATE OF HEARING : 0 9 .0 7 .2018 DATE OF PRONOUNCEMENT : 20 .0 7 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND IT IS DIRE CTED AGAINST THE ORDER OF LD. CIT(A)-12, BANGALORE DATED 24.08.2016 FOR ASSESSMEN T YEAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1.1 THE LEARNED ASSESSING OFFICER HAD ERRED IN DISALLOW ING THE RENTAL DEPOSITS WRITTEN OFF ON THE GROUND THAT THE RENTAL DEPOSITS WERE CAPITAL IN NATURE AND THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) HAS ERRED IN CONFIRMING THE SAME. ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND THE LAW APPLICABLE, THE CONCLUSION OF AUTH ORITIES BELOW BEING TOTALLY ERRONEOUS IS TO BE DISREGARDED. 1.2 THE AUTHORITIES BELOW HAVE ERRED IN NOT APPRECI ATING THE FACT THAT THE DEPOSITS WRITTEN OFF ARE IN THE NATURE OF LICEN SE FEES FOR USAGE OF PREMISES FOR BUSINESS PURPOSES AND CONSTITUTED REVE NUE EXPENDITURE IN THE HANDS OF THE APPELLANT. 1.3 THE APPELLANT HAD RIGHTLY WRITTEN OFF THE RENTA L DEPOSITS OF RS. 50,67,620/- AND SAME IS TO BE ALLOWED AS REVENUE EX PENDITURE AS CLAIMED BY THE APPELLANT. ITA NO.1875/BANG/2016 PAGE 2 OF 4 2.THE APPELLANT DENIES LIABILITY TO PAY THE INTERES T. THE INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED. 3. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE DISALLOWANCE O F RENTAL DEPOSITS AS MADE/SUSTAINED BE DELETED AND INTEREST LEVIED BE DE LETED. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT FROM PAGE NO. 52 OF THE PAPER BOOK IS THE DETAILS OF VARIOUS DEPOSITS MADE WITH THE LA NDLORD FOR TAKING VARIOUS PREMISES ON RENT ALONG WITH DETAIL OF DEPOSITS RECO VERED AND THE DEPOSITS WRITTEN OFF ALONG WITH THE REMARKS AS TO WHY THE RE COVERIES WERE WRITTEN OFF. HE ALSO SUBMITTED THAT ON PAGES 53 TO 69 OF PAPER BOOK IS THE SAMPLE COPY OF LEAVE AND LICENSE DEED WITH M/S. DYNAMIC CONTINENTA L PVT. LTD. AND THE REMAINING LEAVE AND LICENSE DEEDS ARE SIMILAR BUT T HE MATTER HAS TO GO BACK TO THE FILE OF AO/CIT(A) FOR FRESH DECISION BECAUSE THE RELEVANT LEAVE AND LICENSE DEEDS WERE NOT EXAMINED BY THE AUTHORITIES BELOW. REGARDING THE JUDGEMENTS FOLLOWED BY CIT(A) BEING THE JUDGEMENT O F HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. TRIVENI ENGG. & INDUSTRIES LTD. [2010] 8 TAXMANN.COM 135 (DELHI) AND VARIOUS OTHER JUDGEMENT S FOLLOWED BY HIM, IT WAS SUBMITTED THAT THESE JUDGEMENTS ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. A) CIT VS. MYSORE SUGAR LTD., 46 ITR 649 (SC) B) A.V. THOMAS & CO. LTD. VS. CIT, 1964 AIR 569 C) HASIMARA INDUSTRIES LTD. VS. CIT, [1998] 230 ITR 927 (SC) D) HASIMARA INDUSTRIES LTD. VS. CIT, [1998] 231 ITR 842 (SC) THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHO RITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE ISSUE HAS BEEN DECIDED BY BOTH AUTHORITIES BELOW ON THIS BASIS ALO NE THAT THE SECURITY DEPOSITS MADE FOR SECURING THE RENTAL PREMISES WERE FOR ACQU IRING CAPITAL ASSET AND THE LOSS ARISING ON FORFEITURE OF SUCH DEPOSITS WAS A C APITAL LOSS AND NOT A LOSS ARISING IN THE ORDINARY COURSE OF CARRYING OUT ITS BUSINESS AND THEREFORE, THE LOSS IS NOT ALLOWABLE FOR COMPUTING BUSINESS UNDER SECTI ON 28 OF IT ACT. IN OUR CONSIDERED OPINION, THIS BASIS ADOPTED BY THE AUTHO RITIES BELOW TO DECIDE THIS ISSUE IS ERRONEOUS BECAUSE WE FIND THAT AS PER THE SAMPLE COPY OF LEAVE AND LICENSE DEED WITH M/S. DYNAMIC CONTINENTAL PVT. LTD . AVAILABLE ON PAGES 53 TO ITA NO.1875/BANG/2016 PAGE 3 OF 4 69 OF PAPER BOOK, THERE IS A CLAUSE NO. 5.4 OF THIS DEED AVAILABLE ON PAGE NO. 63 OF PAPER BOOK THAT IF THE LEAVE AND LICENSE IS T ERMINATED BEFORE THE EXPIRY OF LOCK-IN-PERIOD, APART FROM THE RIGHT OF THE LICENSO R TO APPLY THE PROVISIONS OF CLAUSE 5.2 ABOVE, THE LICENSOR SHALL ALSO BE ENTITL ED TO FEES FOR THE BALANCE UNEXPIRED PERIOD OF THE LOCK-IN-PERIOD. THE LOCK-I N-PERIOD IS THREE YEARS FROM 06.10.2007 TO 05.10.2010 AS PER CLAUSE B ON ANNEXUR E III OF THIS LEAVE AND LICENSE DEED AVAILABLE ON PAGE NO. 68 OF PAPER BOOK . AS PER PARA 5.1 OF THIS LEAVE AND LICENSE DEED, THE LICENSEE HAS TO SERVE U PON LICENSOR A WRITTEN NOTICE OF MINIMUM 3 MONTHS BEFORE TERMINATION OF TH IS LEAVE AND LICENSE DEED. BUT THIS IS ALSO PROVIDED THAT THIS LEAVE AND LICEN SE CAN ONLY BE TERMINATED ON THE EXPIRY OF LOCK-IN-PERIOD OR EXPIRY OF THE NOTIC E PERIOD OF 3 MONTHS WHICHEVER IS LATER OR PAYMENT OF FEE IN LIEU THEREO F. HENCE IT IS SEEN THAT AS PER THESE CLAUSES OF LEAVE AND LICENSE DEED, IF THE LIC ENSEE BEING THE PRESENT ASSESSEE TERMINATES THE LEAVE AND LICENSE DEED BEFO RE EXPIRY OF LOCK-IN- PERIOD THEN FOR THE UNEXPIRED LOCK-IN-PERIOD, THE A SSESSEE HAS TO MAKE PAYMENT OF LICENSE FEES AND IF THE SECURITY DEPOSIT IS ADJUSTED TOWARDS SUCH PAYMENT OF LEAVE AND LICENSE FEES IN RESPECT OF UNE XPIRED LOCK-IN-PERIOD THEN IT CANNOT BE SAID THAT SUCH PAYMENT OF LEAVE AND LI CENSE FOR UNEXPIRED LOCK IN PERIOD IS NOT A BUSINESS EXPENDITURE BUT THIS CLAIM OF THE ASSESSEE HAS TO BE EXAMINED BY THE AUTHORITIES BELOW AND THEN THE ISSU E SHOULD BE DECIDED AFRESH. IF IT IS FOUND THAT THE ASSESSEE HAS IN FA CT TERMINATED THE LEASE DEED BEFORE THE EXPIRY OF LOCK-IN-PERIOD AND THE SECURIT Y DEPOSIT HAS BEEN ADJUSTED BY THE LICENSOR AGAINST FEES PAYABLE FOR THE UNEXPI RED LOCK-IN-PERIOD THEN TO THAT EXTENT, THE FORFEITURE OF SECURITY DEPOSIT CAN NOT BE DISALLOWED AS CAPITAL EXPENDITURE AND THE SAME IS ALLOWABLE AS REVENUE EXPENDITURE. SINCE THIS ASPECT HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORIT IES BELOW, WE FEEL IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF CIT(A) FO R FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO BOTH SIDES. WE ORDER ACCORDINGLY. 5. REGARDING THE VARIOUS JUDGMENTS CITED BY LD. AR OF ASSESSEE, WE HOLD THAT THE APPLICABILITY OF THESE JUDGMENTS SHOULD BE EXAMINED AFTER EXAMINING THE FACTS OF PRESENT CASE AND THEREFORE, AT THE PRESENT STAGE , WE DO NOT EXAMINE THE ITA NO.1875/BANG/2016 PAGE 4 OF 4 APPLICABILITY OF THESE JUDGEMENTS AND DIRECT THE CI T(A) TO EXAMINE THE APPLICABILITY OF THESE JUDGEMENTS ALSO AFTER VERIFY ING THE FACTUAL ASPECT AS DISCUSSED ABOVE. IF SOME MORE JUDGEMENTS ARE RELIE D UPON BY THE ASSESSEE OR COMES TO THE NOTICE OF THE CIT(A), THE SAME SHOULD ALSO BE CONSIDERED BUT AFTER CONFRONTING THE SAME TO THE OTHER SIDE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DA TE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH JULY, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.