DCIT, CHENNAI V. Shriram EPC Limited, CHENNAI

ITA 2012/CHNY/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9248 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2020
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 14A; 260A; 37(1); 13; 32; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NOS.1604 & 1740/CHNY/2016. #$% &$ / ASSESSMENT YEARS : 2011-12 AND 2012-2013. SHRIRAM EPC LTD, 18/03, RUKMANI LAKSHMIPATHY ROAD, 1 ST FLOOR, R.A.BUILDING, EGMORE, CHENNAI 600 008. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 6(1) CHENNAI 600 034. [PAN AAFCS 1410C] !' ./I.T.A. NOS.2011, 2012, 2013, 2014 AND 2744/CHNY/2016. #$% &$ / ASSESSMENT YEARS :2009-10, 2010-11, 2011-12, 20 12-13 AND 2013-14. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 6(1) CHENNAI 600 034. VS SHRIRAM EPC LTD, 18/03, RUKMANI LAKSHMIPATHY ROAD, 1 ST FLOOR, R.A.BUILDING, EGMORE, CHENNAI 600 008. [PAN AAFCS 1410C] ( / APPELLANT) ( /RESPONDENT) DEPARTMENT BY : SHRI. A. SUNDARARAJAN, ADDL. CIT ASSESSEE BY : SHRI. R. SIVARAMAN, ADVOCATE # * + , /DATE OF HEARING : 15-10-2019 -.&% + , /DATE OF PRONOUNCEMENT : 08-01-2020 ITA NOS.1604-1740-201114-2744/16 :- 2 -: / O R D E R PER BENCH THESE ARE APPEALS AND CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI ( IN SHORT CIT(A) FOR ASSESSMENT YEARS 2009-10, 2010-11, 2011-12, 2012-13 AND 2013-14. 2. FIRST WE TAKE UP REVENUE APPEAL IN ITA NO.2011/CHN Y/2016 FOR ASSESSMENT YEAR 2009-10 FOR ADJUDICATION. 3. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL . 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LD CIT(A) ERRED TO DIRECT THE AO TO ALLOW TH E ESOP EXPENSES FOR RS. 2, 52,80,000/- 2.1 THE LD CIT(A) FAILED TO APPRECIATE THAT ESOP EX PENDITURE IS INCURRED IN RELATION TO ISSUE OF SHARES AND IS NOT RELATABLE TO REGULAR BUSINESS. 2.2 THE LD CIT(A) FAILED TO APPRECIATE THE FACTS ME NTIONED IN THE CASE OF BROOKE BOND INDIA LTD AND PUNJAB STATE INDU STRIAL DEVELOPMENT CORPORATION THAT EXPENDITURE INCURRED I N RELATION TO INCREASE IN SHARE CAPITAL IS NOT ALLOWABLE. 2.3 THE LD CIT(A) ERRED TO DIRECT THE AO TO ALLOW D EPRECIATION OF RS.64,16,093/- AS DEPRECIATION ON INTANGIBLE ASSETS . 2.4 THE ID. CIT(A) ERRED IN DIRECTING THE AO TO ALL OW I.E DEPRECIATION BASED ON HIS PREDECESSOR ORDERS FOR A. YS.05-06 TO 08-09 SINCE APPEALS HAVE BEEN FILED AGAINST ALL THE ABOVE ORDER BEFORE ITAT ON 24.03.2016 AND THE DEPARTMENTS APPE AL HAS NOT YET REACHED ITS FINALITY ON THIS ISSUE ON SIMILAR G ROUNDS ITA NOS.1604-1740-201114-2744/16 :- 3 -: 2.5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. THE RESPONDENT- ASSESSEE NAMELY M/S. SHRIRAM EPC LIMITED, IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF T HE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF INTEGRATED DESIGNING, ENGINEERING, PROCUREMENT, CONSTRUCTION AND PROJECTI ON MANAGEMENT. THE RETURN OF INCOME FOR THE AY 2009-10 WAS FILED O N 29.09.2009 DISCLOSING TOTAL INCOME OF RS.34,59,53,000/- AND T HE SAME WAS REVISED ON 05.01.2010 DISCLOSING SAME TOTAL INCOME AS THE ORIGINAL RETURN OF INCOME FILED. AGAINST THE SAID RETURN O F INCOME, THE ASSESSMENT WAS COMPLETED BY THE JOINT COMMISSIONER OF INCOME TAX, COMPANY RANGE VI, CHENNAI (HEREINAFTER REFERRED AS ASSESSING OFFICER) VIDE ORDER DATED 28.03.2013 PASSED U/S.143 (3) R.W.S. 92CA(4) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF D37,76,49,093/-. WHILE DOING SO, THE AO DISALLOWED ESOP EXPENDITURE OF D2,52,80,000/- AND DEPRECIATION ON INTANGIBLE ASSETS OF D64,16,093/-. 5. THE ASSESSING OFFICER DISALLOWED ESOP EXPENDITURE GIVING REASONS WHICH ARE EXTRACTED AT PARA 5.3 OF THE ASSE SSMENT ORDER AND ITA NOS.1604-1740-201114-2744/16 :- 4 -: ASSESSING OFFICER ALSO TOOK NOTE OF THE FACT THAT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PVP VENTURES, 2 11 TAXMAN 554, WHEREIN IT WAS HELD THAT ESOP EXPENDITURE ALLOWAB LE AS REVENUE EXPENDITURE, BUT NOTING THAT THE DECISION OF JURISD ICTIONAL HIGH COURT IN THE CASE OF PVP VENTURES (SUPRA) IS APPEALED BEF ORE THE HON'BLE SUPREME COURT AND DISALLOWED THE EXPENDITURE. TH E ASSESSING OFFICER ALSO DISALLOWED DEPRECIATION ON INTANGIBLE ASSETS OF D500 LAKHS ACQUIRED ON AMALGAMATION OF SHRIRAM ENGINEERING CO NSTRUCTION LTD DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2005-06 AS SAME WAS DISALLOWED ITS INITIAL ASSESSMENT YEAR IS 200 5-06. 6. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESS EE-COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO VIDE IMP UGNED ORDER ALLOWED ESOP EXPENDITURE FOLLOWING THE DECISIONS O F HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PVP VENTU RES LTD (SUPRA) AND HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. LE MON TREE HOTEL IN ITA NO.107/2015, DATED 18.08.2015. AS REGARDS TO T HE ISSUE OF DEPRECIATION, THE LD. CIT(A) DIRECTED THE ASSESSIN G OFFICER TO ALLOW DEPRECIATION ON TECHNICAL KNOWHOW. 7. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. THE LD. SR. DEPARTMENTAL REPRESENTA TIVE CONTESTED ITA NOS.1604-1740-201114-2744/16 :- 5 -: THAT LD. CIT(A) OUGHT NOT HAVE ALLOWED ESOP EXPEND ITURE AS REVENUE EXPENDITURE AS IT IS NOTIONAL EXPENDITURE AND CAPI TAL IN NATURE. HE FURTHER SUBMITTED THAT THE DECISION OF JURISDICTION AL HIGH COURT IN THE CASE OF PVP VENTURES (SUPRA) IS BEING CHALLENGED BEFORE THE HON'BLE SUPREME COURT. THE LD. SR. DEPARTMENTAL REPRESENTA TIVE ALSO CHALLENGED THE DECISION OF LD. CIT(A) TO ALLOW DEP RECIATION ON TECHNICAL KNOWHOW AS IDENTICAL ISSUE IN EARLIER YEA RS WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER. 8. ON THE OTHER HAND, LD. AUTHORISED REPRESENTATIVE S UBMITTED THAT ESOP COST DEBITED TO PROFIT AND LOSS ACCOUNT I S NOT NATIONAL LOSS BUT ONLY BUSINESS EXPENDITURE INCURRED WHOLLY FOR T HE PURPOSE OF BUSINESS AND THE SAME SHOULD BE ALLOWED AS DEDUCTIO N, PLACING RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF PVP VENTURES (SUPRA). HE FURTHER SUBMITTED THAT THE HON'BLE SUPREME COURT HAD DISMISSED THE SLP FILED AGAINST T HE ORDER OF JURISDICTIONAL HIGH COURT IN THE CASE OF PVP VENTU RES(SUPRA). AS REGARDS TO DEPRECIATION, HE SUBMITTED THAT THE TEC HNICAL KNOWHOW ACQUIRED UNDER SLUMP SALE AGREEMENT IS IN THE NATU RE OF BUSINESS OR COMMERCIAL RIGHTS OR RIGHT OF SIMILAR NATURE ARE EL IGIBLE FOR DEPRECIATION UNDER SECTION 32(1) (II) OF THE ACT. HE PLACED RELI ANCE ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA ITA NOS.1604-1740-201114-2744/16 :- 6 -: NO.895 TO 897/MDS/2012, FOR ASSESSMENT YEARS 2005-0 6 TO 2007-2008, DATED 10 TH SEPTEMBER, 2012. 9. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE GROUNDS OF APPEAL NO.1 & 2.4 ARE GENER AL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 10. GROUNDS 2 TO 2.2 CHALLENGES THE DECISION OF LD. CI T(A) IN ALLOWING ESOP EXPENDITURE AS REVENUE EXPENDITURE. THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF LE MON TREE HOTEL (SUPRA) AND BY THE DECISION OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF PVP VENTURES LTD (SUPRA), WHEREIN IT WAS HELD AS FOLLOWS. 29. AS FAR AS THE EMPLOYEES STOCK OPTION PLAN IS CONCE RNED, AS RIGHTLY POINTED OUT BY THE TRIBUNAL, THE ASSESSEE H AD TO FOLLOW SEBI DIRECTION AND BY FOLLOWING SUCH DIRECTION, THE ASSESSEE CLAIMED THE ASCERTAINED AMOUNT AS LIABILITY FOR DED UCTION. WE DO NOT FIND THAT THERE EXISTS ANY ERROR TO DISTURB THE ORDER OF THE TRIBUNAL AND IN TURN THE ASSESSING AUTHORITY. IN TH E CIRCUMSTANCES, WE AGREE WITH THE SUBMISSION OF LEAR NED SENIOR COUNSEL APPEARING FOR THE ASSESSEE IN THIS REGARD B Y UPHOLDING THE ORDER OF THE TRIBUNAL. AGAINST THE ABOVE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT, THE SLP FILED BY THE DEPARTMENT WAS DISMISSED BY THE HO NBLE SUPREME COURT VIDE ORDER DATED 28.03.2014 (2512/2014) AND H ENCE, THE LAW LAID DOWN BY THE HONBLE MADRAS HIGH COURT HAS BECO ME FINAL. THUS, IN ITA NOS.1604-1740-201114-2744/16 :- 7 -: VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENT, WE FIND N O INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND ACCORDING LY, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. HENCE, GROUNDS O F APPEAL NO.2 TO 2.2 STAND DISMISSED. 11. GROUND NO.2.4 CHALLENGES THE DECISION OF LD. CIT( A) IN ALLOWING DEPRECIATION ON TECHNICAL KNOWHOW HOLDIN G IT TO BE INTANGIBLE ASSETS. ADMITTEDLY, THERE IS NO ADDITIO N MADE TO THE INTANGIBLE ASSETS DURING THE YEAR UNDER CONSIDERATI ON. THE DEPRECIATION WAS DISALLOWED BY THE ASSESSING OFFIC ER FOLLOWING ITS DECISION IN EARLIER YEARS. THIS ISSUE WAS SUBJECT MATTER OF APPEAL BEFORE APPELLATE FORUM. IT APPEARS THAT THE CO-ORDI NATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.895 TO 897/MDS/2012, FOR ASSESSMENT YEARS 2005-06 TO 2007-2008, DATED 10 TH SEPTEMBER, 2012 HAD DISMISSED THE APPEAL FILED BY THE REVENUE. ACC ORDINGLY, SINCE THE CLAIM IS ONLY CONSEQUENTIAL IN NATURE, IF THE DEPRE CIATION IS ALLOWED IN THE INITIAL YEAR, THE SAME SHOULD BE ALLOWED IN TH E YEAR UNDER CONSIDERATION AND THIS ISSUE IS REMITTED BACK TO TH E FILE OF THE ASSESSING OFFICER TO FOLLOW THE DECISIONS OF EARLIE R YEARS. ACCORDINGLY, THE GROUND OF APPEAL NO.2.4 RAISED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.1604-1740-201114-2744/16 :- 8 -: 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I TA NO.2011/CHNY/2016 FOR ASSESSMENT YEAR 2009-2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.2012/CHNY/2016 FOR ASSESSMENT YEAR 2010-2011 FOR ADJUDICATION. 14. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.THE ID CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE 100% DEPRECIATION ON ADDITION TO LEASED BUILDING OF RS.1 3,16,008/- 2.1) CIT(A) ERRED IN WRONGLY APPLYING THE FACTS OF THE CASE OF M/S AMWAY INDIA ENTERPRISES VS DCIT ITAT DELHI. IT IS TO BE NOTED THAT M/S AMWAY INDIA ENTERPRISES WAS HAVING T HE SAME PREMISES FOR LAST SEVERAL YEARS AND THIS FACT WAS A LSO CONSIDERED. BUT IN THIS CASE NO INFORMATION IS FURNISHED TO SHO W THAT PREMISES WAS UNDER OCCUPATION FOR SEVERAL YEARS. AS THE FACTS ARE DIFFERENCE ON SOME COUNTS, THE DECISION CANNOT BE APPLIED TO THE CASE OF THE ASSESSEE. 2.2) CIT(A) FAILED TO APPRECIATE THE FACTS OF THE D ECISION OF DELHI HIGH COURT IN THE CASE OF UTTAR BHAAT WOOL EXCHANGE LTD VS CIT DELHI REPORTED IN 55 ITR 550 2.3) CIT(A) FAILED TO NOTE THAT, THIS EXPENDITURE I S NOT AN ALLOWABLE DEDUCTION EITHER ACCORDING TO THE PROVISI ONS OF SECTION 30(A) (I) OR ACCORDING TO THE PROVISIONS OF SECTION SECTION 37. SINCE THE EXPENDITURE INCURRED IS IN THE NATURE OF ADDITION TO BUILDINGS FALLING IN THE BLOCK OF ASSETS UNDER THE CATEGORY BUILDINGS WHICH ARE NOT USED MAINLY FOR RESIDENTI AL PURPOSE, THE DEPRECIATION IS ALLOWABLE AT 10% ONLY. 2.4) THE LD CIT(A) ERRED IN DIRECTING THE AD TO ALL OW THE ESOP EXPENSES OF RS. 2,75,99,528/ - ITA NOS.1604-1740-201114-2744/16 :- 9 -: 2.5) LD CIT(A) FAILED TO APPRECIATE THAT ESOP EXPEN DITURE IS INCURRED IN RELATION TO ISSUE OF SHARES AND IS NOT RELATABLE TO REGULAR BUSINESS. 2.6) LD CIT(A) FAILED TO APPRECIATE THE FACTS MENTI ONED IN THE CASE OF BROOKE BOND INDIA LTD AND PUNJAB STATE INDU STRIAL DEVELOPMENT CORPORATION THAT EXPENDITURE INCURRED I N RELATION TO INCREASE IN SHARE CAPITAL IS NOT ALLOWABLE. 2.7 CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE D EPRECIATION @15% ON ELECTRICAL INSTALLATION INSTEAD OF LO% ALLO WED BY THE AO. 2.8 CIT(A) FAILED TO CONSIDER THE FACTS THAT ELECTR ICAL FITTINGS ARE INDEPENDENT AND THEIR OPERATION IS NO WAY DIRECTLY LINKED TO THE OPERATION OF ANY SPECIFIC PLANT. HENCE, FOR THE PUR POSE OF DEPRECIATION, THESE ASSETS ARE TO BE CONSIDERED TO THE BLOCK OF ASSETS TO WHICH THEY RELATE AND DEPRECIATION TO BE CONSIDERED ACCORDINGLY. 2.9 CIT(A) FAILED TO APPRECIATE THE DECISION OF BOM BAY HIGH COURT IN THE CASE OF CIT VS HOECHST DYES AND CHEMIC ALS PVT LTD (240 ITR 1) WHEREIN IT IS HELD THAT THE ELECTRICAL FITTINGS AND OTHER APPARATUS DO NOT QUALIFY AS PLANT BUT FORMS P ART OF ELECTRICAL FITTINGS. 3. THE LD CIT(A) ERRED IN DIRECTING THE AO TO DELET E THE DISALLOWANCE OF FOREIGN EXCHANGE LOSS OF RS.1,44,68 ,263/- 3.1 THE LD CIT(A) OUGHT TO HAVE NOTED THAT THE ASSE SSEE ENTERED INTO FE FORWARD CONTRACT AGAINST PAYMENT TO BE MADE TO A GERMAN COMPANY FOR THE SUPPLY OF EQUIPMENTS FOR T HE ASSESSEES PROJECT AND EXPLANATION 3 OF SECTION 43A SQUARELY APPLIES. 3.2 THE LD CIT(A) OUGHT TO HAVE NOTED THAT EXPENSES INCURRED TOWARDS FE FLUCTUATION IN CONNECTION WITH ACQUISITI ON OF CAPITAL ASSET NEEDS TO BE CAPITALIZED IN VIEW OF SEC 43A. 2.4 THE CIT(A) FAILED TO APPRECIATE THAT THE DECISI ON OF SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR REPORTED IN 312 ITR 254 SQUARELY APPLIES TO THIS CASE. ITA NOS.1604-1740-201114-2744/16 :- 10 -: 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED . 15. THE RETURN OF INCOME FOR THE AY 2010-11 WAS FILED ON 27.09.2010 DISCLOSING TOTAL INCOME OF RS. 36,19,28 ,086/- AND THE SAME WAS REVISED ON 30.03.2012 DISCLOSING TOTAL INC OME OF D25,90,69,900/-. AGAINST THE SAID RETURN OF INCOM E, THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCO ME TAX, COMPANY RANGE VI (2) CHENNAI (HEREINAFTER REFERRED AS ASSESSING OFFICER) VIDE ORDER DATED 30.03.2013 PASSED U/S.143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOM E OF D38,71,57,712/-, AFTER MAKING THE FOLLOWING ADDITIONS. DEPRECIATION ON PLANT AND MACHINERY DISALLOWED 22,12,713 DEPRECIATION ON WINDMILLS DISALLOWED 2,60,27,878 DEPRECIATION ON INTANGIBLE ASSETS OF 07-08 DISALLOWED 14,20,281 DEPRECIATION ON BUILDINGS DISALLOWED 13,16,008 ESOP EXPENSES ADDITIONALLY CLAIMED DISALLOWED 2,75, 99,528 ESOP EXPENSES DISALLOWED 2,75,99,528 DEPRECIATION ON ELECTRICAL FITTINGS DISALLOWED 1,5 5,613 FOREIGN EXCHANGE LOSS DISALLOWED 1,44,68,263 DISALLOWANCE U/S.43B 2,72,88,000 ITA NOS.1604-1740-201114-2744/16 :- 11 -: 16. B EING AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO VIDE IMPUGNED ORDER DELETED ALL THE ADDITIONS EXCEPT IN RESPECT OF ADDITION OF 2,72,88,000/- MADE U/S.43B OF THE ACT WHICH WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DUE VERIFICATION. 17. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US. 18. VIDE GROUNDS OF APPEAL NO.2 TO 2.3, THE REVENUE C HALLENGES THE CORRECTNESS OF THE DECISION OF LD. CIT(A) IN A LLOWING ADDITION ON LEASE HOLD PREMISES AS REVENUE EXPENDITURE. ADMITTE DLY, THE ASSESSEE MADE TEMPORARY PARTITIONS ON LEASED PREMISES LIKE PIPES, FLOOR TILES, FALSE CEILING, REFURBISHING ETC. THE CONTENTION OF THE ASSESSEE COMPANY IS THAT THEY ARE TEMPORARY ERECTION IN THE FORM OF PIPES, FLOOR TILES, FALSE CEILING AND THIS EXPENDITURE WA S NOT BROUGHT INTO EXISTENCE INTO NEW ASSET AND THEREFORE IT SHOULD B E ALLOWED AS REVENUE EXPENDITURE BY PLACING RELIANCE ON THE DEC ISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF THIRU ARR OORAN SUGARS LTD VS. DCIT, 213 TAXMAN 90. THE ISSUE IN THE PRESENT GR OUNDS OF APPEAL IS DECIDED AGAINST THE ASSESSEE COMPANY AND IN FAVOU R OF THE REVENUE BY THE JURISDICTIONAL HIGH COURT IN THE CASES OF C IT VS. ETA TRAVEL AGENCY (P) LTD, 109 TAXMANN.COM 66 AND CIT VS. VIS WAMS,105 TAXMANN.COM 289 WHEREIN IT WAS HELD AS UNDER:- ITA NOS.1604-1740-201114-2744/16 :- 12 -: 24. SECTION 32 OF THE ACT DEALS WITH DEPRECIATION. SECTION 32(1A) OF THE ACT WAS INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 1970 WITH EFFECT FROM 01.4.1971. I T WAS OMITTED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FRO M 01.4.1988. BY THE SAME AMENDMENT ACT, 1986, SUB~SECTION (1A) STOOD INTERPOLATED AS EXPLANA TION 1 TO SECTION 32 OF THE ACT WITH EFFECT FROM 01.4.1988 . EXPLANATION 1 TO SECTION 32 OF THE ACT READS AS FOL LOWS : WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHE R RIGHT OF OCCUPANCY AND ANY CAPITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO , AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 25. A READING OF THE ABOVE EXPLANATION CLEARLY SHOW S THAT WHERE THE BUSINESS OR PROFESSION OF THE ASSESSEE IS CARRIED ON IN A BUILDING, WHICH IS NOT OWNED BY HIM, BUT HA S BEEN LEASED OUT, IN RESPECT OF WHICH THE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY, IF ANY EXPENSES ARE INCUR RED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS OR PROFES SION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY W ORK IN OR IN RELATION TO, AND BY WAY OF RENOVATION OR EXTENSI ON OF, OR IMPROVEMENT TO, THE BUILDING, THEN, THE PROVISIONS OF THE SAID CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. THE EFFECT OF EXPLA NATION 1 WAS CONSIDERED IN THE DECISION IN THE CASE OF MADUR A COATS. 26. AFTER REFERRING TO VARIOUS OTHER DECISIONS, THE COURT POINTED OUT THAT THE EXTENSIVE REPAIRS AND RENOVATI ONS CARRIED OUT BY THE ASSESSEE CANNOT BE SAID TO BE IN CURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET SIN CE MANY NEW OBJECTS HAVE BEEN BROUGHT INTO AS COULD BE SEEN FROM THE LIST OF CONSTRUCTION MADE AND THUS, THE OBJECT OF EXPENDITURE MADE BY THE ASSESSEE IS DEFINITELY TO B RING A NEW ASSET INTO EXISTENCE TO OBTAIN NEW ADVANTAGE FU RTHER ITA NOS.1604-1740-201114-2744/16 :- 13 -: GIVING ENDURING BENEFIT TO THE ASSESSEE. THE COURT FURTHER POINTED OUT THAT THE TRIBUNAL COMMITTED AN ERROR BY ALLOWING THE EXPENDITURE INCURRED ON REPAIRS OF THE RENTED B UILDING AS TAXABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT IGNORING EXPLANATION 1 TO SECTION 32 OF THE ACT. 27. IN THE DECISION IN THE CASE OF VISWAMS, THE COU RT CONSIDERED A SIMILAR QUESTION. THE COURT TOOK NOTE OF THE DECISION IN THE CASE OF SILVER SCREEN ENTERPRISES V S. CIT [REPORTED IN (1972) 85 ITR 578] WHEREIN THE PUNJAB AND HARYANA HIGH COURT HELD THAT THE AMOUNTS SPENT FOR CONSTRUCTION OF THE VERANDAH, OFFICE ROOM, SIDE ROO M AND BATH ROOMS BROUGHT INTO EXISTENCE AN ASSET OF ENDUR ING NATURE, THAT THE REPLACEMENT OF OLD WOODEN CHAIRS B Y STEEL CHAIRS WAS TO ATTRACT LARGER AND BETTER CUSTOMERS A ND THAT THIS WOULD GO TO SHOW THAT THE LESSEE (THE ASSESSEE THEREIN) BROUGHT INTO BEING AN ASSET OF ENDURING NATURE. AFT ER TAKING INTO CONSIDERATION EXPLANATION 1 TO SECTION 32 OF T HE ACT, THE COURT HELD THAT THE ASSESSEE HAD INCURRED SUBSTANTI AL EXPENDITURE TOWARDS RENOVATION LEADING TO ENDURING BENEFIT AND THAT THEY ARE NOT MERELY REPAIRS AND ULTIMATELY REJECTED THE CONTENTION RAISED BY THE ASSESSEE. 28. IN THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF INDUS MOTORS CO. (P) LTD., THE DIVISION BENCH ELABO RATED THE EFFECT OF EXPLANATION 1 TO SECTION 32 OF THE ACT. A S THE DIVISION BENCH ENTERTAINED A DOUBT AS TO THE CORREC TNESS OF THE DECISION OF THE DIVISION BENCH OF THE KERALA HI GH COURT IN THE CASE OF JOY ALUKKAS INDIA PRIVATE LIMITED VS. A CIT [ITA. NO.230 OF 2013 DATED 20.1.2014], THE MATTER WAS REF ERRED TO A FULL BENCH. WE QUOTE THE RELEVANT PORTIONS IN THE DECISION OF THE DIVISION BENCH IN THE CASE OF INDUS MOTOR CO . (P) LIMITED, WHICH READ AS HEREUNDER : 24. ACCORDING TO US, ON A READING OF EXPLANATION, I T IS CATEGORIC AND CLEAR THAT SO FAR AS THE EXPENDITU RE INCURRED AS CONTEMPLATED IN THE EXPLANATION IS CONCERNED, A LEGAL FICTION IS CREATED, BY WHICH, TH E ASSESSEE ENJOYING A LEASE HOLD RIGHT ON A BUILDING IS TREATED AS THE OWNER OF THE BUILDING. SO, ACCORDING TO US, THE QUESTION TO BE CONSIDERED IN SUCH A CASE IS WHETHER THE ASSESSEE HAS ACQUIRED ANY ENDURING BENEFIT BY PUTTING THE REFURBISHED BUILDING TO USE ITA NOS.1604-1740-201114-2744/16 :- 14 -: OVER A PERIOD OF TIME IN ACCORDANCE WITH THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE BUILDING OWNER. 25. SO FAR AS THE QUESTION REGARDING THE EXPENDITUR E INCURRED BY THE ASSESSEE FOR REFURBISHING THE BUILDING TAKEN ON LEASE IS CONCERNED, WE ARE OF THE CONSIDERED OPINION THAT AFTER THE INTRODUCTION OF EXPLANATION 1 TO SECTION 32(1) OF THE ACT, THERE IS NO SCOPE LEFT AT ALL FOR ANY INTERPRETATION SINCE, BY A LEGAL FICTION, THE ASSESSEE IS TREATED AS THE OWNER OF THE BUILDING FOR THE PERIOD OF HIS OCCUPATION. THIS MEANS THAT BY REFURBISHING, DECORATING OR BY DOING INTERIOR WORK IN THE BUILDING, AN ENDURING BENEFIT WAS DERIVED BY THE ASSESSEE FOR THE PERIOD OF OCCUPATION AND THEREFORE, IS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. SO ALSO AS CONTENDED BY THE LEARNED SENIOR COUNSEL FOR THE RENENUE, THE CRITERIA THAT IS TO BE ADOPTED FOR IDENTIFYING THE ENDURING BENEFIT IS THE NATURE OF ENHANCEMENT AND ADVANTAGE THAT THE ASSESSEE HAS DERIVED BY PUTTING THE BUILDING TO USE FOR BUSINESS PURPOSES. ACCORDIN G TO US, BY ADDING EXPLANATION 1 TO SECTION 32(1), PARLIAMENT HAS MANIFESTED ITS LEGISLATIVE INTENTION TO TREAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON LEASEHOLD BUILDING AS CAPITAL EXPENDITURE AND THEREFORE, EXPLANATION 1 TO SECTION 32(1) CANNOT BE SUBJECTED TO ANY OTHER INTERPRETATION. FURTHER, THE LANGUAGE OF EXPLANATION 1 IS VERY PLAIN AND CLEAR AND THERE WAS NO SCOPE FOR PROVIDING A DIFFERENT MEANING FOR THE WORDS USED AND HENCE, WE ARE BOUND TO CONSIDER THE QUESTION BY GIVING THE LITERA L MEANING TO THE EXPRESSIONS AND PHRASEOLOGIES BY THE LEGISLATURE APPLIED. 29. IN THE ABOVE DECISION, IT WAS POINTED OUT THAT SO FAR AS THE EXPENDITURE INCURRED AS CONTEMPLATED IN THE EXP LANATION IS CONCERNED, A LEGAL FICTION IS CREATED, BY WHICH, THE ASSESSEE, ENJOYING A LEASEHOLD RIGHT ON A BUILDING, IS TREATED AS THE OWNER OF THE BUILDING. IT WAS FURTHER POINTE D OUT THAT AFTER THE INTRODUCTION OF EXPLANATION 1 TO SECTION 32 OF THE ACT, THERE IS NO SCOPE LEFT OUT AT ALL FOR ANY INTE RPRETATION SINCE, BY A LEGAL FICTION, THE ASSESSEE IS TREATED AS A OWNER OF ITA NOS.1604-1740-201114-2744/16 :- 15 -: THE BUILDING FOR THE PERIOD OF HIS OCCUPATION AND T HIS WOULD MEAN THAT BY REFURBISHING, DECORATING OR BY DOING I NTERIOR WORK IN THE BUILDING, AN ENDURING BENEFIT WAS DERIV ED BY THE ASSESSEE FOR THE PERIOD OF OCCUPATION AND THEREFORE , IT IS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 30. THE FACTUAL POSITION HAS BEEN POINTED OUT BY US IN THE PRECEDING PARAGRAPHS AND IT WILL BE WORTHWHILE TO R EITERATE THAT THE ENTIRE DETAILS OF THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ALL THE BRANCH OFFICES SPREAD OVER THE COUNTRY WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE EXP ENSES INCURRED WERE FOR PROVIDING FURNITURE, INTERIOR DEC ORATION AND OFFICE EQUIPMENT AND ALSO CONSULTATION CHARGES. THE SE DETAILS WERE ONCE AGAIN PLACED BEFORE THE CIT(A), W HEN THE ASSESSEE FILED APPEAL AGAINST THE ASSESSMENT ORDER. THE CIT(A) TOOK NOTE OF THE VARIOUS CATEGORIES OF EXPEN SES INCURRED BY THE ASSESSEE AND FROM THE DETAILS GIVEN IN PARAGRAPH 5 OF THE ORDER PASSED BY THE CIT(A) DATED 09.7.2007, IT IS CLEAR THAT THE ASSESSEE HAD SPENT SUBSTANTIAL FUNDS IN CREATING OFFICE SPACE WITH A PARTICULAR DE SIGN TO SUIT THEIR REQUIREMENT. IN FACT, THE ASSESSEE HAD ALSO A DMITTED THAT THEY WERE GRANTED AGENCY BY M/S.MALAYSIAN AIRL INES AND THAT THEY HAD TO DESIGN THE SHOWROOM WITH A PARTICU LAR DESIGN AS INSTRUCTED BY THE SAID AIRLINES. 31. FURTHERMORE, THE EXPENSES, WHICH WERE INCURRED, CLEARLY SHOW THAT THEY ARE FIXED AND ARE CAPITAL IN NATURE AND THAT THE TEST APPLIED BY THE CIT(A) TO STATE THAT THE AS SESSEE CANNOT REMOVE THE SAME AT THE TIME OF VACATING THE PREMISES IS AN INCORRECT TEST APPLIED BY THE CIT(A) BECAUSE THE CIT(A) DID NOT TAKE NOTE OF EXPLANATION 1 TO SE CTION 32 OF THE ACT. IN THE LIGHT OF THE SAID EXPLANATION, I T HAS BECOME IMMATERIAL AS TO WHETHER THE ASSESSEE IS THE OWNER OF THE BUILDING OR THE LESSEE AND THERE IS NO SCOPE LEFT F OR ANY INTERPRETATION SINCE, BY LEGAL FICTION, THE ASSESSE E IS TREATED AS THE OWNER OF THE BUILDING FOR THE PERIOD OF THEI R OCCUPATION. 34. AT THE RISK OF REPETITION, IT IS NOT OUT OF PLA CE TO MENTION HERE THAT THE DECISION OF THE DIVISION BENCH OF THE KERALA HIGH COURT IN THE CASE OF INDUS MOTORS CO. PVT. LTD . WAS REFERRED TO A FULL BENCH FOR RECONSIDERATION OF THE DECISION RENDERED IN JOY ALUKKAS INDIA (P) LTD. ULTIMATELY, THE FULL ITA NOS.1604-1740-201114-2744/16 :- 16 -: BENCH OF THE KERALA HIGH COURT IN THE DECISION REPO RTED IN (2016) 382 ITR 0503 REITERATED THAT THE OBSERVATION S AND OPINION EXPRESSED BY DIVISION BENCH IN THE CASE OF JOY ALUKKAS INDIA (P) LTD., FOR HOLDING THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE IN THE ABOVE CASE WAS NOT A CAPITAL EXPENDITURE, BUT WAS ONLY REVENUE EXPENDITURE WERE BASED ON FACTS OF THAT CASE, THAT THE RELEVANT TEST WAS A PPLIED BY THE DIVISION BENCH AND THAT THE OBSERVATION MADE BY THE DIVISION BENCH IN PARAGRAPHS 29 AND 30 IN THE DECIS ION IN THE CASE OF JOY ALUKKAS INDIA (P) LTD., HAD TO CONFINE TO THE FACTS OF THAT CASE. FURTHER, THE RELEVANT PORTIONS IN THE JUDGMENT RENDERED BY THE FULL BENCH IN THE CASE OF INDUS MOT ORS CO. PVT. LTD., READ AS FOLLOWS : 33. AS HAS BEEN OBSERVED ABOVE, WHETHER AN EXPENDITURE INCURRED BY ASSESSEE IN A PARTICULAR CA SE IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE HAS TO BE DECIDED ON THE FACTS OF THAT CASE BY APPLYING THE RELEVANT TESTS. EXPLANATION 1 TO SECTION 32(1)(I) D OES NOT INTEND TO LAY DOWN THAT WHENEVER EXPENDITURE HAS BE EN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINES S OR PROFESSION ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO OR BY WAY OF RENOV ATION OR IMPROVEMENT TO THE BUILDING, THEN SUCH EXPENDITU RE HAS TO BE MANDATORILY TREATED AS CAPITAL EXPENDITUR E. THE EXPLANATION ONLY MEANT THAT IN THE EVENT ANY CA PITAL EXPENDITURE IS INCURRED BY THE ASSESSEE, THE PROVIS IONS OF SECTION 32 (1) SHALL BE APPLICABLE AS IF THE SAI D STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESS EE. WE THUS ANSWER THE REFERENCE HOLDING THAT THE RATIO OF THE JUDGMENT OF THE DIVISION BENCH IN JOY ALUKKAS C ASE AS EXPRESSED IN PARAGRAPH 28 OF THE JUDGMENT NEEDS NO RECONSIDERATION. 34. WE FURTHER HOLD THAT WHETHER AN EXPENDITURE INC URRED BY THE ASSESSEE IS A CAPITAL EXPENDITURE OR REVENUE EX PENDITURE IS TO BE DECIDED ON THE FACTS OF EACH CASE BY APPLY ING THE RELEVANT TESTS. 35. IN THE LIGHT OF THE ABOVE DISCUSSIONS, THE ABOV E TAX CASE APPEAL IS ALLOWED, THE ORDERS PASSED BY BOTH THE CI T(A) AS WELL AS THE TRIBUNAL ARE SET ASIDE AND THE ORDER PA SSED BY THE ASSESSING OFFICER IS RESTORED. CONSEQUENTLY, TH E SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE REVENUE. NO COSTS. ITA NOS.1604-1740-201114-2744/16 :- 17 -: RESPECTFULLY FOLLOWING THE RATIO DECISION OF HONBL E JURISDICTIONAL HIGH COURT IN THE CASES CITED SUPRA, WE ARE OF THE CON SIDERED OPINION THAT ADDITION TO LEASEHOLD PREMISES CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THUS, THE FINDINGS OF THE LD. CIT(A) STANDS REVERSED. HOWEVER, WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION AT THE RATE APPLICABLE TO BUILDINGS. ACCORDINGLY, GROUNDS OF APPEAL NOS.2 TO 2.3 OF THE REVENUE STANDS PARTLY ALLOWED. 19. GROUNDS OF APPEAL NO.2.4 TO 2.6, THE CHALLENGES TH E DECISION OF LD. CIT(A) IN ALLOWING ESOP EXPENSES AS REVENUE EXPENDITURE. 20. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2009-2010 IN ITA NO. 2011/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 10 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2.4 TO 2.6 O F THE REVENUE FOR ASSESSMENT YEAR 2010-2011 ALSO STAND DISMISSED. 21. GROUNDS 2.7 TO 2.9 RAISED BY THE REVENUE CHALLENGE S THE CORRECTNESS OF THE DECISION OF THE LD. CIT(A) TO AL LOW DEPRECIATION ON ELECTRICAL FITTINGS AT THE RATE APPLICABLE TO PLA NT AND MACHINERY. THE LD. CIT(A) ALLOWED DEPRECIATION ON ELECTRICAL INST ALLATION AT D1,55,613/- AT THE RATE APPLICABLE TO ELECTRICAL FI TTINGS. CONTENTION OF THE ASSESSEE IS THAT THIS ELECTRICAL FITTING FORM PART OF THE PLANT AND ITA NOS.1604-1740-201114-2744/16 :- 18 -: MACHINERY AND THEREFORE DEPRECIATION SHOULD BE A LLOWED AT THE RATE APPLICABLE TO PLANT AND MACHINERY. SUBMISSION OF T HE ASSESSEE THAT ELECTRICAL INSTALLATION ARE PART OF PLANT AND MACHI NERY ARE NOT DISPUTED BY THE ASSESSING OFFICER. THEREFORE THE LD. CIT(A) HAD RIGHTLY ALLOWED DEPRECIATION AT THE RATE APPLICABLE TO PLANT AND MACHINERY. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). GROUNDS OF APPEAL NO.2.7 TO 2.9 R AISED BY THE REVENUE STAND DISMISSED. 22. GROUNDS 3 TO 3.4 RELATES TO THE DECISION OF LD. CIT (A) IN ALLOWING FOREIGN EXCHANGE LOSS OF D1,44,68,263/-. 23. THE BRIEF FACTS OF THE ISSUE ARE AS UNDER:- DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YE AR UNDER CONSIDERATION, THE ASSESSEE COMPANY PAID PREMIUM OF FORWARD CONTRACT TO PLEDGE AGAINST FLUCTUATION IN FOREIGN CURRENCY PAYMENT MADE TO M/S. ENVIROTHERM GMBH GERMANY FOR SUPPLY OF EQUIPMENTS TO AMONIA PROJECT. THE PREMIUM PAID WAS CLAIMED TO BE REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR WANT OF EVIDENCE AS ASSESSEE FAILED TO ESTABLISH THE REAL NATURE OF EXPENDITURE. ON APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A) ALLOWED THE CLAIM CONSIDERING THE SAME AS MARK TO MARKET LOSS. ITA NOS.1604-1740-201114-2744/16 :- 19 -: 24. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE U S IN THE PRESENT APPEAL. 25. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORDS. THE CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER FOR FAILURE OF THE ASSESSEE TO ESTABLISH REAL NATURE OF THE EXP ENDITURE. HOWEVER, THE LD. CIT(A) AFTER CONSIDERING CERTAIN JUDICIAL P RECEDENTS CONSIDERED IT TO BE MARK TO MARKET LOSS AND ALLOWED THE CLA IM AS REVENUE EXPENDITURE. FROM THE PERUSAL OF THE ASSESSMENT OR DER, IT IS CLEAR THAT LD. CIT(A) HAD NOT CONSIDERED ANY MATERIAL ON RECOR DS SUGGESTING THAT IT IS MARK TO MARKET LOSSES. HE SIMPLY ACCEPTED T HE CONTENTION OF THE ASSESSEE THAT IT REPRESENTS MARK TO MARKET LOSS A ND ALLOWED THE EXPENDITURE. THE APPROACH OF THE LD. CIT(A) CANNOT BE SUSTAINED AND THEREFORE WE REMIT THE ISSUE BACK TO THE FILE OF T HE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER EXAMINING TRUE NATURE OF THE CLAIM. ACCORDINGLY, GROUNDS 3 TO 3.4 RAISED BY THE REVEN UE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 26. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.2012/CHNY/2016 FOR ASSESSMENT YEAR 2010-2011 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 27. NOW WE TAKE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY IN ITA NO.1604/CHNY/2016 AND ITA NO. 2013/CHNY /2016 ITA NOS.1604-1740-201114-2744/16 :- 20 -: FOR ASSESSMENT YEAR 2011-2012. 28. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011- 12 WAS FILED ON 29.09.2011 DISCLOSING TOTAL INCOME OF D67,57,69,760/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT W AS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIR CLE VI(2), CHENNAI (HEREINAFTER REFERRED AS ASSESSING OFFIC ER) VIDE ORDER DATED 30.03.2014 PASSED U/S. 143(3) OF THE INCOME TAX ACT , 1961 (FOR SHORT THE ACT) AT TOTAL INCOME OF D 70,53,32,202/-. WH ILE DOING SO, THE ASSESSING OFFICER MADE THE FOLLOWING DISALLOWANCES :- DEPRECIATION ON ASSETS 5,16,933 ESOP EXPENSES 1,16,85,044 BAD DEBTS WRITTEN OFF 2,73,17,449 LOSS ON SALE OF ASSETS 21,000 DISALLOWANCE U/S.40(A)(I) 10,16,961 DISALLOWANCE U/S.14A 1,19,55,420 DEPRECIATION ON INTANGIBLE ASSETS ADDED DISALLOWED DURING ASSESSMENT YEAR 2007-08 10,65,211 EXCESSIVE DEPRECIATION ON ADDITIONS TO BUILDINGS DISALLOWED DURING ASSESSMENT YEAR 2010-11 11,84,407 DEPRECIATION ON PLANT AND MACHINERY DISALLOWED DURING ASSESSMENT YEAR 2010-2011 18,80,807 ITA NOS.1604-1740-201114-2744/16 :- 21 -: 29. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESS EE- COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A), WH O VIDE IMPUGNED ORDER PARTLY ALLOWED THE APPEAL BY SETTING ASIDE THE ISSUE OF CREDIT FOR TDS AND ALSO THE ISSUE OF DEPRECIATION OF PLANT AND MACHINERY TO THE FILE OF THE ASSESSING OFFICER, LD. CIT(A) CON FIRMED THE ADDITION OF 15,00,000/- CLAIMED AS BAD DEBTS IN RELATION TO ADV ANCE PAID TO VIVERO FINANCIAL P. LTD HAS NO SERVICES WERE RENDER ED AND ALLOWED OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 30. FIRST, WE TAKE UP REVENUE APPEAL IN ITA NO.2013/CHNY/2016, FOR ASSESSMENT YEAR 2011-2012 F OR ADJUDICATION. 31. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LD CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE [SOP EXPENSES OF RS. 1,16,85,044/-- 2.1. THE LD CIT(A) FAILED TO APPRECIATE THAT ESOP E XPENDITURE IS INCURRED IN RELATION TO ISSUE OF SHARES AND IS NOT RELATABLE TO REGULAR BUSINESS. 2.2 LD CIT(A) FAILED TO APPRECIATE THE FACTS MENTIO NED IN THE CASE OF BROOKE BOND INDIA LTD AND PUNJAB STATE INDU STRIAL DEVELOPMENT CORPORATION THAT EXPENDITURE INCURRED I N RELATION TO INCREASE IN SHARE CAPITAL IS NOT ALLOWABLE. 2.3 CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.2,19,02,210/- AS THE APPELLANT HAD WRITTEN OFF S AID AMOUNT AS THE POWER PROJECTS WERE ABANDONED. THE CIT(A) ALSO ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF RS.3 9,15,239/- AS ALLOWABLE EXPENDITURE U/S 37. ITA NOS.1604-1740-201114-2744/16 :- 22 -: 2.4 CIT(A) FAILED TO CONSIDER THE FACTS THAT THE EX PENSES ARE CAPITAL IN NATURE AND NOT AS BAD DEBTS 2.5 THE LD CIT(A) ERRED IN DIRECTING THE AO TO DELE TE THE DISALLOWANCE U/S.14A OF RS.1,19,55,420/- 2.6. THE LD CIT(A) FAILED TO APPRECIATE THAT THE BO ARDS CIRCULAR NO.5/2014 IS QUITE CLEAR THAT DISALLOWANCE U/S 14A IS ATTRACTED EVEN WHEN THERE IS NO EXEMPT INCOME EARNED DURING T HE YEAR. 2.7 THE LD CIT(A) FAILED TO APPRECIATE THAT AS PER THE SCHEDULES ENCLOSED TO THE P&L ACCOUNT IT IS SEEN THAT THE APP ELLANT HAD MADE LONG TERM INVESTMENTS IN SHARES OF CERTAIN COM PANIES. THESE LONG TERM INVESTMENTS IN SHARES WERE MADE WIT H THE MOTIVE OF EARNING DIVIDEND WHICH IS EXEMPT FROM INC OME TAX. 2.8 THE LD CIT(A) ERRED TO DIRECT THE AO TO DELETE THE EXCESS DEPRECIATION OF RS.11,84,407/- ON BUILDING. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 32. GROUNDS 1 & 3 ARE GENERAL IN NATURE, THEREFORE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 33. IN GROUNDS 2 TO 2.2, THE REVENUE CHALLENGES THE CORRECTNESS OF THE DECISION OF LD. CIT(A) IN DELE TING THE ESOP EXPENDITURE. 34. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2009-2010 IN ITA NO. 2011/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 10 OF A BOVE. FACT SITUATION ITA NOS.1604-1740-201114-2744/16 :- 23 -: BEING THE SAME, GROUNDS OF APPEAL NO.2 TO 2.2 OF THE REVENUE FOR ASSESSMENT YEAR 2011-2012 ALSO STAND DISMISSED. 35. GROUNDS 2.3 & 2.4 CHALLENGES THE DECISION OF TH E LD. CIT(A) IN DELETING THE EXPENDITURE INCURRED ON AB ANDONED PROJECTS. 36. THE BRIEF FACTS OF THE ISSUE ARE AS UNDER:- ASSESSEE MADE TOTAL CLAIM OF D2,73,17,449/- AS BAD DEBTS. THE BREAKUP OF BAD DEBTS ARE AS UNDER:- NOTE ON BAD DEBTS WRITTEN OFF RS.2,73,17,449/- 1. SHRIRAM LNFRASTRCTURE AND POWER LTD -RS.2,19,02, 210/- SHRIRAM INFRASTRUCTURE AND POWER LTD WANTED TO DEVE LOP 4 TO 5 POWER PROJECTS IN TAMIL NADU, JABALPUR, TURICORIN, ETC.,. WE WANTED TO PARTICIPATE IN THE PROJECT AND FUNDED THE PROJECT EXPENSES. DUE TO SEVERAL REASONS THE PROJECT COULD SUCCEED AND HAD TO BE ABDONDENED. HENCE WE HAVE WRITTEN OFF THE AMOUNT. 2. ALPHA ENERGY SYSTEMS LTD RS.39, 15,239/- WE GA VE CONTRACT WORK TO ALPHA ENERGY SYSTEMS LTD AND PAID RS.39, 15,239/-. THEY DID NOT COMPLETE THE CONTRACT NOR RETURNED THE MONEY. SINCE THE MONEY COULD NOT RECOVERED WE HAVE WRITTEN OFF THE AMOUNT. 3. VIVRO FINANCIAL SERVICES P LTD RS. 15,00,000/- WE HAVE PAID RS. 15,00,000/- FOR THE PURPOSE OF FINANCIAL S ERVICE. THEY DID NOT RENDER ANY SERVICES. THEY ALSO DID NOT RETU RN THE MONEY. AS THE AMOUNT COULD NOT BE RECOVERED WE HAVE WRITTEN OFF THE AMOUNT. THE SAME WAS CLAIMED AS BAD DEBTS BEFORE THE ASSESS ING OFFICER. THE ASSESSING OFFICER DISALLOWED THE CLAIM BY HOLDING THAT THE AMOUNT ITA NOS.1604-1740-201114-2744/16 :- 24 -: WRITTEN OFF DO NOT REPRESENTS THE DEBTS. HOWEVER, THE LD. CIT(A) ALLOWED THE CLAIM AS REVENUE EXPENDITURE CONSIDER ING THAT THE EXPENDITURE WAS INCURRED FOR ABANDONED POWER PROJEC TS BY TAKING NOTE OF THE FACT THAT ASSESSEE IS ALSO IN THE BUS INESS OF POWER PROJECT BY PLACING RELIANCE ON THE DECISION OF MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF IDEA CELLULAR VS. ADD. CIT IN ITA NO.32 60 AND 3493/MUM/2008, DATED 13.05.2016. 37. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. THE L D. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT EXPENDITURE INCURRE D IN RESPECT OF ABANDONED PROJECT IS CAPITAL IN NATURE AND THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. AS REGARDS TO THE WRITE OF F OF D39,15,239/- HE HAS NO SERIOUS OBJECTIONS. 38. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATI VE CONTENDED THAT ASSESSEE COMPANY IS INTO THE BUSIN ESS OF WIND POWER GENERATION AND THEREFORE THE POWER GENERATION IS AN EXTENSION OF EXISTING BUSINESS, HENCE THE SAME SHOULD BE ALLOWE D AS DEDUCTION. AS REGARDS TO THE ADVANCE PAID TO M/S. ALPHA ENERGY S YSTEMS LTD, IT IS SUBMITTED THAT THE ADVANCE WAS MADE IN THE COURSE O F BUSINESS, SINCE ITA NOS.1604-1740-201114-2744/16 :- 25 -: THE AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT S THE SAME SHOULD BE ALLOWED AS DEDUCTION AS TRADING LOSS, IF NOT AS BAD DEBT. 39. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORDS. ADMITTEDLY, AN AMOUNT OF D2,19,02,210/- WAS INCURRED BY THE ASSESSEE IN CONNECTION WITH NEW POWER PROJECTS . THE POWER PROJECTS WERE ABANDONED FOR VARIOUS REASONS. THER EFORE THE QUESTION THAT ARISES BEFORE US IS WHETHER THIS CAN BE ALLOW ED AS REVENUE EXPENDITURE. ADMITTEDLY, ASSESSEE IS ALSO IN THE B USINESS OF WIND POWER GENERATION. THE BUSINESS OF POWER GENERATION IS AN EXISTING ONE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION IF THERE IS UNITY OF CONTROL OF TWO MANAGEMENT AS HELD BY BOMBAY HIGH C OURT IN THE CASE OF CIT VS. IDEA CELLULAR 76 TAXCOMM. 77 AND HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONNET INDUSTRIES LTD , 332 ITR 627. 40. AS REGARDS TO WRITE OFF OF AMOUNT PAID TO M/S. AL PHA ENERGY SYSTEMS LTD. ADMITTEDLY, ADVANCE WAS PAID DURING THE COURSE OF BUSINESS OF THE ASSESSEE. SINCE THE AMOUNT HAD BEC OME IRRECOVERABLE THE SAME SHOULD BE ALLOWED AS DEDUCTION AS REVENUE LOSS IF NOT AS BAD DEBTS AS HELD BY THE HONBLE JURISDICTIONAL HIGH C OURT IN THE CASE OF DEVI FILMS PRIVATE LTD VS. CIT, 75 ITR 301 AND HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. ABDUL RAZAK & CO, 13 6 ITR 825. IN THE LIGHT OF THE ABOVE FACTS, THE GROUNDS OF APPEAL 2.3 AND 2.4 FILED BY ITA NOS.1604-1740-201114-2744/16 :- 26 -: THE REVENUE HAS NO MERITS, HENCE, WE DISMISS THE GR OUNDS RAISED BY THE REVENUE. 41. GROUNDS OF APPEAL 2.5 TO 2.7 CHALLENGES THE DECISI ON OF LD. CIT(A) IN DELETING THE ADDITION MADE U/S.14A OF T HE ACT ON THE GROUND THAT IN THE ABSENCES OF EXEMPT INCOME NO D ISALLOWANCE CAN BE MADE. 42. THE ASSESSING OFFICER DISALLOWED A SUM OF D1,19,55, 420/- U/S.14A OF THE ACT BY HOLDING THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE EVEN IN CASE OF INVESTMENTS WHICH NOT YIELDED ANY DIVIDEND INCOME. 43. ON APPEAL BEFORE THE LD. CIT(A), LD. CIT(A) DELETE D THE ADDITION BY HOLDING THAT IN THE ABSENCE OF ANY EXE MPT INCOME, NO DISALLOWANCE U/S.14A OF THE ACT CAN BE MADE. 44. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 45. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE IN THE PRESENT GROUNDS OF A PPEAL RELATES TO DISALLOWANCE U/S.14A OF THE ACT. ADMITTEDLY, NO D IVIDEND INCOME WAS EARNED BY THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR UNDER ITA NOS.1604-1740-201114-2744/16 :- 27 -: CONSIDERATION. NOW THE LAW IS SETTLED TO THE EXTEN T THAT IN THE ABSENCE OF ANY EXEMPT INCOME RESORT TO PROVISIONS OF SECT ION 14A OF THE ACT CANNOT BE MADE. REFERENCE CAN BE MADE TO THE FOLLO WING DECISIONS (I) REDINGTON (INDIA) LTD VS. ADDL. CIT, 392 ITR 633, (II) CIT VS. CHETTINAD LOGISTICS P. LTD, 248 TAXMAN 55. SINCE THE DECISION OF THE LD. CIT(A) IS IN CONSONA NCE WITH THE RATIO LAID DOWN BY THE ABOVE DECISIONS, WE DO NOT FIND A NY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). GROUNDS OF APPEAL 2.5 TO 2.7 RAISED BY THE REVENUE STAND DISMISSED. 46. GROUND NO.2.8 CHALLENGES THE DECISION OF LD. CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF EXCESS DE PRECIATION ON BUILDING OF D11,84,407/-. 47. THE ASSESSING OFFICER MADE ADDITION OF D11,84,407/ - BY ALLEGING THAT ASSESSEE CLAIMED EXCESS DEPRECIATION ON BUILDING. THE FACTS OF THE CASE ARE THAT DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2010-2011, ASSESSEE MADE ADDITIONS TO LEASE BUILDINGS OF D 14,62,232/- AS REVENUE EXPENDITURE AND THE SAME WAS DISALLOWED. THE ASSESSING OFFICER HELD THAT THE A DDITIONS CANNOT BE ALLOWED AS REVENUE EXPENDITURE BUT ALLOWED DEPRECIA TION AT 10% AND ACCORDINGLY, MADE ADDITION. IN THE YEAR 2010-2011 THE LD. CIT(A) ALLOWED THE CLAIM AS REVENUE EXPENDITURE. HOWEVER , THE TRIBUNAL IN ITA NOS.1604-1740-201114-2744/16 :- 28 -: ITA NO.2012/CHNY/2016 FOR ASSESSMENT YEAR 2010-201 1 IN ASSESSEES OWN CASE AT PARA 17 ABOVE HAD REVERSED THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, THE ASSESSING OFFICER CAN ALLOW DEPREC IATION AT THE RATE APPLICABLE TO BUILDINGS. FROM THE PERUSAL OF THE A SSESSMENT ORDER, IT IS CLEAR THAT ASSESSING OFFICER HAD DISALLOWED 90% OF THE OPENING VALUE OF WRITTEN DOWN WHICH IS NOT CORRECT AS ASSE SSEE HAD NOT CLAIMED IT. HOWEVER, THE LD. CIT(A) HAD RIGHTLY DEL ETED THE ADDITION BY HOLDING IT TO BE DOUBTFUL DISALLOWANCE. THE FINDIN GS OF THE LD. CIT(A) IS BASED ON PROPER APPRECIATION OF FACTS. WE DO NOT FI ND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND OF APPEAL NO.2.8 FILED BY THE REVENUE STAND S DISMISSED. 48. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I TA NO.2013/CHNY/2016 FOR ASSESSMENT YEAR 2011-2012 STA NDS DISMISSED. 49. NOW WE TAKE UP ASSESSEE APPEAL IN ITA NO.1604/CHNY/2016 FOR ASSESSMENT YEAR 2011-2012 FOR ADJUDICATION. 50. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL . THE ORDER OF THE CIT (APPEALS) IS AGAINST LAW AND FACT OF THE CASE. 2. THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS OF RS.15,00,000. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE AMOUNT IS ALLOWABLE AS BUSINESS LOSS. ITA NOS.1604-1740-201114-2744/16 :- 29 -: 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT A SUM OF RS.50 LAKHS WAS ADVANCED TO VIVRO FINANCIAL SERVICE S PVT LTD FOR PROVIDING FINANCIAL SERVICES ON 27/03/2007 AND THEY DID NOT DO ANY SERVICE AND THEY RETURNED RS.25 LAKHS ON 27/12/ 2007 AND RS.10 LAKHS ON 24/11/2008 AND AS NO SERVICES WERE R ENDERED AND THE BALANCE AMOUNT OF RS.15 LAKHS WAS NOT RETURNED BY THE PARTY, THE APPELLANT CLAIMED RS.15LAKHS AS IT IS A LOSS. 5 .FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED BEFORE OR AT THE TIME OF HEARING THE HONBLE ITAT MAY BE PLEASED TO DELETE THE ADDITION OF BAD DEBTS. 51. ASSESSEE COMPANY CHALLENGES THE DECISION OF THE LO WER AUTHORITIES IN CONFIRMING THE ADDITION OF D15,00,0 00/- BEING ADVANCE PAID TO M/S. VIVRO FINANCIAL SERVICES PVT LTD AND THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. IT IS STATED THAT TH E AMOUNT WAS PAID DURING THE COURSE OF CARRYING OF BUSINESS AND THE C LAIM SHOULD BE ALLOWED AS DEDUCTION AS BUSINESS LOSS, IF NOT AS BA D DEBTS. IT IS SUBMITTED THAT AMOUNT WRITTEN OFF HAD BECOME IT R ECOVERABLE AND FURTHER IT IS SUBMITTED THAT THE AMOUNT SHOULD BE ALLOWED AS DEDUCTION PLACING RELIANCE ON THE FOLLOWING DECISIONS. (I) CIT VS. SREE GANESH STORES, (2004) 137 TAXMAN 261 (II) SEVEN SEAS PETROLEUM (P) LTD, 61 TAXMAN 80. 52. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. ITA NOS.1604-1740-201114-2744/16 :- 30 -: 53. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE INVOLVED IN THE PRESENT A PPEAL RELATES TO ALLOWANCE OF CLAIM OF ADDITION OF D15,00,000/- BEIN G AMOUNT PAID TO M/S. VIVRO FINANCIAL SERVICES PVT LTD AND WRITTEN O FF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE. ADMITTEDLY, THIS AMOUNT WAS PAID DURING THE COURSE OF CARRYING ON THE BUSINESS OF THE ASS ESSEE AND THE SAME SHOULD BE ALLOWED AS DEDUCTION IF NOT AS BAD DEBTS IN THE LIGHT OF THE FOLLOWING DECISIONS . (I) DEVI FILMS PRIVATE LTD VS. CIT, 75 ITR 301 (MAD) (II) CIT V. ABDUL RAZAK & CO, 136 ITR 825 (GUJ) ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALL OW THE DEDUCTION OF D15,00,000/- WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS. 54. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.1604/CHNY/2016 FOR ASSESSMENT YEAR 2011-2012 STA NDS ALLOWED. 55. NOW, WE TAKE UP CROSS APPEALS NO. 1740/CHNY/2016 AN D 2014/CHNY/2016 FILED BY ASSESSEE AND REVENUE RESPE CTIVELY FOR ASSESSMENT YEAR 2012-2013. 56. THE ASSESSEE IN ITA NO.1740/CHNY/2016 HAS RAISED T HE FOLLOWING GROUNDS OF APPEAL. ITA NOS.1604-1740-201114-2744/16 :- 31 -: THE ORDER OF THE CIT (APPEALS) IS AGAINST LAW AND FACT OF THE CASE. 2. THE CIT (A) ERRED IN CONFIRMING PART OF THE DISA LLOWANCE MADE U/S 14A R.W .RULE 8D. 3.THE CIT (APPEALS) ERRED IN NOT APPRECIATING THE F ACT THAT THE AO APPLIED RULE 8D WITHOUT RECORDING HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT AS TO WHY HE WAS NOT SATI SFIED WITH THE CORRECTNESS OF THE APPELLANTS CLAIM THAT NO EXPEND ITURE WAS INCURRED IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF TOTAL INCOME. IN THIS CONNECTION THE APPELLANT RELY ON THE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. TAIKISHA ENGINEERING INDIA LTD(229 TAXMAN 143) AND CIT VS. I.P. SUPPORT SERVICES INDIA PVT LTD (378 ITR 240). 4. WITHOUT PREJUDICE TO THE APPELLANTS GROUND THAT THE DISALLOWANCE U/S 14A RW RULE 8D IS NOT ATTRACTED TH E FOLLOWING GROUNDS ARE RAISED. A) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME FROM THE INVESTMENT MADE IN ASSOCIATE ENTERPRISES, SUBSIDIAR Y COMPANIES, JOINT VENTURES, ASSOCIATES AND OTHER COM PANIES AND IN THE LIGHT OF THE FOLLOWING JUDGMENTS THE INVESTM ENTS MADE IN THE ABOVE COMPANIES NEED NOT BE TAKEN IN TO ACCOUNT FOR COMPUTATION OF DISALLOWANCE U/S 14A R.W. RULE 8D (2 )(III). I. REI AGRO LTD VS.DCIT CENTRAL CIRCLE XXVII KOLKAT TA (144 LTD 141) II. INTERGLOBE ENTERPRISES LTD VS. DCIT(ITA NO.1362 &1032/DEL/2013 DATED 04/04/2013) ITAT, DELHI. III. ITAT CHENNAI DECISION IN THE CASE OF EIH ASSOC IATED HOTELS LTD VS. DCIT IN ITA NO.1503 /MDS/2012 DATED 17/07/2 013. 57. THE BRIEF FACTS OF THE CASE ARE AS UNDER:- ITA NOS.1604-1740-201114-2744/16 :- 32 -: THE ASSESSING OFFICER MADE AN ADDITION OF D1,39,34 ,748/- U/S.14A OF THE ACT REJECTING THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TOWARDS EARNING EXEMPT INC OME AND THE INVESTMENTS ARE MADE OUT OF OWN FUNDS IN THE FOR M OF EQUITY SHARES IN SUBSIDIARY COMPANIES. 58. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDER HAD CONFIRMED THE APPLICABI LITY OF SECTION 14A OF THE ACT. HOWEVER DIRECTED THE ASSESSING OFF ICER TO RESTRICT THE AMOUNT OF DISALLOWANCE TO THE EXTENT OF EXEMPT INC OME. 59. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. LD. AUTHORISED REPRESENTATIVE CONT ENDED THAT ASSESSING OFFICER SHOULD NOT HAVE RESORTED TO DISA LLOWANCE U/S.14A OF THE ACT WITHOUT RECORDING SATISFACTION AS HOW THE CLAIM MADE BY THE ASSESSEE COMPANY IS INCORRECT. HE FURTHER SUBMITT ED THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME AND THEREFORE THE QUESTION OF DISALLOWANCE DOES NOT ARISE PLACING RE LIANCE ON THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS. TAIKISHA ENGINEERING INDIA LTD, 229 TAXMAN 143 AND CIT VS. I .P. SUPPORT SERVICES INDIA PVT LTD, 378 ITR 240. 60. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. ITA NOS.1604-1740-201114-2744/16 :- 33 -: 61. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE IN THE PRESENT GROUNDS OF A PPEAL RELATES TO DISALLOWANCE U/S.14A OF THE ACT. ADMITTEDLY, NO D IVIDEND INCOME WAS EARNED BY THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR UNDER CONSIDERATION. NOW THE LAW IS SETTLED TO THE EXTEN T THAT IN THE ABSENCE OF ANY EXEMPT INCOME RESORT TO PROVISIONS OF SECT ION 14A OF THE ACT CANNOT BE MADE. REFERENCE CAN BE MADE TO THE FOLLO WING DECISIONS (III) REDINGTON (INDIA) LTD VS. ADDL. CIT, 392 ITR 633, (IV) CIT VS. CHETTINAD LOGISTICS P. LTD, 248 TAXMAN 55. IN VIEW OF THE ABOVE JUDGMENTS, WE ALLOW THE APPEA L FILED BY THE ASSESSEE. 62. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.1740/CHNY/2016 FOR ASSESSMENT YEAR 2012-2013 STA NDS ALLOWED. 63. NOW WE TAKE UP CROSS APPEAL OF THE REVENUE IN ITA NO.2014/CHNY/2016 FOR ASSESSMENT YEAR 2012-2013. 64. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. 1.THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.THE LD CIT(A) ERRED IN DIRECTING THE AD TO ALLOW ESOP EXPENSES FOR RS. 14,43,000/- 2.1 LD CIT(A) FAILED TO NOTE THAT ESOP EXPENDITURE IS INCURRED IN RELATION TO ISSUE OF SHARES AND IS NOT RELATABLE RE GULAR BUSINESS. ITA NOS.1604-1740-201114-2744/16 :- 34 -: 2.2 LD CIT(A) FAILED TO NOTE THE FACTS MENTIONED IN THE CASE OF BROOKE BOND INDIA LTD AND PUNJAB STATE INDUSTRIAL D EVELOPMENT CORPORATION THAT EXPENDITURE INCURRED IN RELATION T O INCREASE IN SHARE CAPITAL IS NOT ALLOWABLE. 2.3 THE LD CIT(A) ERRED IN DIRECTING THE AD TO ALLO W THE U/S 14A R.W. 8D EXPENSES FOR RS.1,39,34,748/-. 2.4.THE LD CIT(A) FAILED TO NOTE THAT AS PER THE SC HEDULES ENCLOSED TO THE P&L ACCOUNT, IT IS SEEN THAT THE AP PELLANT HAD MADE LONG TERM INVESTMENTS IN SHARES OF CERTAIN COM PANIES. THESE LONG TERM INVESTMENTS IN SHARES WERE MADE WIT H THE MOTIVE OF EARNING DIVIDEND WHICH IS EXEMPT FROM INC OME TAX. 2.5 THE LD CIT (A) FAILED TO NOTE THAT THE DISALLOW ANCE U/S 14A IS ATTRACTED EVEN IN A CASE WHERE THERE IS NO EXEMPT I NCOME EARNED AS HELD IN THE CHENNAI ITAT DECISION IN THE CASE OF SIVA INDUSTRIES & HOLDINGS LTD VS ACIT (54 SOT 49) AND WHICH IS IN CONFORMITY WITH DEPARTMENT VIEW AS CLARIFIED VIDE CIRCULAR NO. 5/2014. 2.6 THE LD CIT(A) ERRED IN DIRECTING THE AD TO ALLO W THE EXCESS DEPRECIATION ON ADDITION MADE TO LEASED BUILDING OF RS.2,02,55,619/- 2.7 THE ID. CIT(A) FAILED TO NOTE THE FACTS THAT AS PER THE EXPLANATION 1 TO SEC 32 OF THE IT ACT WHICH STATED THAT IF AN ASSESSEE INCURS EXPENDITURE ON LEASEHOLD PREMISES F OR THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO OR BY WAY OF RENOVATION OR IMPROVEMENT, IT IS CO NSIDERED TO BE A CAPITAL EXPENDITURE AND DEPRECIATION WILL BE PROV IDED ACCORDINGLY. 2.8 FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 65. THE GROUNDS OF APPEAL NO.1 & 2.8 ARE GENERAL IN NAT URE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. ITA NOS.1604-1740-201114-2744/16 :- 35 -: 66. GROUNDS 2 TO 2.2 CHALLENGES THE DECISION OF LD. CIT (A) IN ALLOWING ESOP EXPENSES AS REVENUE EXPENDITURE. 67. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2009-2010 IN ITA NO. 2011/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 10 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2 TO 2.2 OF THE REVENUE FOR ASSESSMENT YEAR 2012-2013 ALSO STAND DISMISSED. 68. GROUNDS 2.3 TO 2.5 CHALLENGES THE ACTION OF THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF EXEMPTION INCOME. 69. THE DECISION OF THE LD. CIT(A) IS IN CONSONANCE W ITH THE LAW LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF REDINGTON (INDIA) LTD VS. ADDL. CIT, 392 ITR 633 A ND CIT VS. CHETTINAD LOGISTICS P. LTD, 248 TAXMAN 55. THEREFOR E, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. C IT(A). GROUNDS OF APPEAL 2.3 TO 2.5 RAISED BY THE REVENUE STAND DISMI SSED. 70. GROUNDS 2.6 AND 2.7 CHALLENGES THE DECISION OF LD . CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF EXCESS DE PRECIATION ON BUILDING OF D2,02,55,619/-. ITA NOS.1604-1740-201114-2744/16 :- 36 -: 71. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2010-2011 IN ITA NO. 2012/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 18 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2.6 AND 2.7 OF THE REVENUE FOR ASSESSMENT YEAR 2012-2013 ALSO STAND DISMISS ED. 72. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.2014/CHNY/2016 FOR ASSESSMENT YEAR 2012-2013 STA NDS DISMISSED. 73. NOW, WE TAKE UP REVENUE APPEAL IN ITA NO.2744/CHNY/2016 FOR ASSESSMENT YEAR 2013-2014. 74. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL . 1.THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2.)THE LD CIT(A) ERRED TO DIRECT THE AO TO ALLOW TH E ESOP EXPENSES OF RS. 1,99,602/- 2.1. LD CIT(A) FAILED TO APPRECIATE THAT ESOP EXPEN DITURE IS INCURRED IN RELATION TO ISSUE OF SHARES AND IS NOT RELATABLE REGULAR BUSINESS. 2.2) LD CIT(A) FAILED TO APPRECIATE THE FACTS MENTI ONED IN THE CASE OF BROOKE BOND INDIA LTD AND PUNJAB STATE INDU STRIAL DEVELOPMENT CORPORATION THAT EXPENDITURE INCURRED I N RELATION TO INCREASE IN SHARE CAPITAL IS NOT ALLOWABLE 2.3 THE LD CIT(A) ERRED TO DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS.1,17,70,125/- U/S 14A OF THE IT ACT. ITA NOS.1604-1740-201114-2744/16 :- 37 -: 2.4. THE LD CIT(A) FAILED TO APPRECIATE THAT THE DE CISION OF THE HONOURABLE ITAT RELIED UPON LEARNED CIT(A) IN THE A SSESSEES GROUP CASE, FOR THE ASSESSMENT YEARS 2010-11& 2011- 12 ORDER HAS NOT BECOME FINAL AND THE DEPARTMENT HAS PREFERR ED APPEAL BEFORE THE HONOURABLE HIGH COURT OF MADRAS U/S 260A . 2.5 THE LD CIT(A) FAILED TO APPRECIATE THAT THE ADD ITION MADE U/S 14A ON THE REASONING THAT ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR OVERLOOKING THE FACT THE ASS ESSEE MADE INVESTMENTS IN ASSETS EARNING EXEMPT INCOME AND INC URRED EXPENDITURE TOWARDS SUCH INVESTMENTS DURING THE YEA R WHICH WAS CLAIMED AS DEDUCTION WHILE COMPUTING TAXABLE INCOME . 2.6THE LD CIT(A) ERRED TO ALLOW THE 100% DEPRECIATI ON ON ADDITION LEASED BUILDING OF RS.3,36,89,844/-. 2.7. THE LD CIT(A) FAILED TO APPRECIATE THAT ADDITI ON MADE TO LEASEHOLD PREMISES WHEN THE EXPENDITURE INCURRED WA S TOWARDS INTERIOR AND EXTERIOR DECORATION, PARTITION WORK AN D RELATED CIVIL AND ELECTRICAL WORK FOR THE PURPOSE OF CREATION OF THE OFFICE ATMOSPHERE WHICH IS HAVING ENDURING BENEFIT WHEREAS DEPRECIATION @ 100% IS AVAILABLE ONLY FOR TEMPORARY WOODEN STRUCTURES. 2.8) CIT(A) FAILED TO NOTE THAT THE FACTS OF THE CA SE OF AMWAY INDIA ENTERPRISES VS DCIT ITAT DELHI, IT IS TO BE N OTED THAT AMWAY INDIA ENTERPRISES WAS HAVING THE SAME PREMISE S FOR LAST SEVERAL YEARS AND THIS FACT WAS ALSO CONSIDERED. BU T IN THIS CASE NO INFORMATION IS FURNISHED TO SHOW THAT PREMISES W AS UNDER OCCUPATION FOR SEVERAL YEARS. AS THE FACTS ARE DIFF ERENCE ON SOME COUNTS, THE DECISION CANNOT BE APPLIED TO THE CASE OF THE ASSESSEE. 2.9) CITI(A) FAILED TO APPRECIATE THE FACTS THAT AS PER THE EXPLANATION 1 TO AS PER SEC 32 OF THE IT ACT, IF AN ASSESSEE INCURS EXPENDITURE ON LEASEHOLD PREMISES FOR THE CONSTRUCT ION OF ANY STRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO OR BYWAY OF RENOVATION OR IMPROVEMENT, IT IS CONSIDERED TO BE A CAPITAL EXPENDITURE AND DEPRECIATION WILL BE PROVIDED ACCO RDINGLY. HENCE, IN THIS CASE EXPENDITURE INCURRED BY ASSESSE E FOR IMPROVEMENT IN LEASEHOLD BUILDING IS TREATED AS CAP ITAL EXPENDITURE. ITA NOS.1604-1740-201114-2744/16 :- 38 -: 3 THE LD CIT(A) FAILED TO APPRECIATE THAT THE DECIS ION OF THE EARLIER CIT(A)S ORDER IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2012-13 HAS NOT BECOME FINAL AND TH E DEPARTMENT HAS PREFERRED APPEAL BEFORE THE ITAT CHE NNAI VIDE ITA NO 275/CIT(A) -15 DATED 22/03/2016. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. 75. THE GROUNDS OF APPEAL NO.1 & 4 ARE GENERAL IN NATUR E THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 76. GROUNDS 2 TO 2.2 CHALLENGES THE DECISION OF LD. CIT (A) IN ALLOWING ESOP EXPENSES AS REVENUE EXPENDITURE. 77. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2009-2010 IN ITA NO. 2011/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 10 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2 TO 2.2 OF THE REVENUE FOR ASSESSMENT YEAR 2012-2013 ALSO STAND DISMISSED. 78. GROUNDS 2.3 TO 2.5 CHALLENGES THE DECISION OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF D1,17,70,125/- MADE U/ S.14A OF THE ACT. ITA NOS.1604-1740-201114-2744/16 :- 39 -: 79. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2011-2012 IN ITA NO. 2013/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 45 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2.3 TO 2.5 O F THE REVENUE FOR ASSESSMENT YEAR 2013-2014 ALSO STAND DISMISSED. 80. . GROUNDS 2.6 TO 2.9 CHALLENGES THE DECISION OF LD. C IT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF EXCESS DE PRECIATION ON BUILDING OF D3,36,89,844/-. 81. THIS ISSUE WAS RAISED BY THE REVENUE FOR THE ASSES SMENT YEAR 2010-2011 IN ITA NO. 2012/CHNY/2016, WHEREIN WE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE PARA 18 OF A BOVE. FACT SITUATION BEING THE SAME, GROUNDS OF APPEAL NO.2.6 TO AND 2.9 OF THE REVENUE FOR ASSESSMENT YEAR 2012-2013 ALSO STAND DISMISS ED. 82. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I TA NO.2744/CHNY/2016 FOR ASSESSMENT YEAR 2013-2014 ST ANDS DISMISSED. 83. TO SUMMARIZE THE RESULTS, THE APPEALS OF THE ASSESS EE FOR ITA NOS. 1604 & 1740/CHNY/2016 FOR ASSESSMENT YEARS 2011-12 AND 2012-2013 STAND ALLOWED, WHEREAS THE APPEALS OF THE REVENUE FOR ITA NOS.1604-1740-201114-2744/16 :- 40 -: ITA NOS.2011 & 2012/CHNY/2016 FOR ASSESSMENT YEARS 2009-10 AND 2010-2011 ARE PARTLY ALLOWED FOR STATISTICAL PURPOS ES AND ITA NOS. 2013 & 2014, 2744/CHNY/2016 FOR ASSESSMENT YEARS 2 011-12, 2012- 2013 AND 2013- 2014 STAND DISMISSED. ORDER PRONOUNCED ON 8TH DAY OF JANUARY, 2020 AT CHENNAI. SD/- SD/- ( . ! ) (DUVVURU RL REDDY) ' # /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER / #* / CHENNAI 0# / DATED: 8 TH JANUARY, 2020. KV 1 + 2,3 4' !5 4&, / COPY TO: 1 . !' 67 / APPELLANT 3. 8, (!' ) / CIT(A) 5. 4 ;< 2,#= / DR 2. 2>67 / RESPONDENT 4. 8, / CIT 6. <$ ?* / GF