KPR Mill Limited, CHENNAI V. DCIT, Coimbatore

ITA 2047/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81289 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . !' , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.2047/MDS/2014 ( / ASSESSMENT YEAR : 2009-10) M/S KPR MILL LIMITED, NO.9, GOKUL BUILDING, ASK NAGAR, THADAGAM ROAD, COIMBATORE 641 001. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS CIRCLE, COIMBATORE. PAN : AACCK 0893 N ( %& / APPELLANT ) ( '(%& / RESPONDENT ) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI S. DAS GUPTA, JCIT / DATE OF HEARING : 29.10.2014 ! /DATE OF PRONOUNCEMENT : 05.12.2014 ITA NO. 2047/MDS/2014 2 ) / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-II, COIMB ATORE DATED 16.06.2014 IN IT APPEAL NO. 02/13-14. 2. THE ASSESSEE HAS RAISED TEN GROUNDS IN ITS APPE AL, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE ASSESSEE IS AGGRI EVED BY THE ORDER OF LD. CIT(A) WHO HAD INVOKED PROVISIONS OF SECTION 20 1(1) AND 201(1A) OF THE ACT AND LEVIED INTEREST OF ` 28,80,000/- FOR FAILURE TO DEDUCT TDS UNDER SECTION 194-I OF THE ACT. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A LIMIT ED COMPANY ENGAGED IN MANUFACTURING AND MARKETING READYMADE KN ITTED GARMENTS, KNITTED FABRICS AND COTTON YARN. DURING THE COURSE OF INSPECTION CARRIED OUT BY THE TDS CIRCLE OF THE REV ENUE AUTHORITIES, IT WAS FOUND THAT THE ASSESSEE-COMPANY HAD ENTERED INT O LEASE AGREEMENTS OF LAND WITH SHRI K.P. RAMASAMY, SHRI KP D SIGAMANI AND SHRI P. NATARAJ. ALL THE AGREEMENTS WERE DATED 7 TH DECEMBER, 2006 FOR A LEASE PERIOD OF FIVE YEARS AT A FIXED RE NT OF ` 5,00,000/-, ITA NO. 2047/MDS/2014 3 ` 5,00,000/-, ` 3,00,000/- AND ` 3,00,000/- TO SHRI K.P. RAMASAMY, SHRI KPD. SIGAMANI AND SHRI P. NATARAJ RESPECTIVELY , WITHOUT ANY DEDUCTION. THE LEASE PERIOD WAS RENEWABLE FOR ANOT HER PERIOD OF FIVE YEARS AT THE PREVAILING MARKET RENTAL VALUE. BEFOR E THE COMPLETION OF THE AGREEMENT DATED 7 TH DECEMBER, 2006, THE LESSORS AND THE LESSEE HAD ENTERED INTO A MEMORANDUM OF AGREEMENT DATED 14 TH MARCH, 2009. AS PER THIS AGREEMENT, THE ASSESSEE PAID AN ADVANCE OF ` 6,00,00,000/- TO THE LESSORS WITHOUT INTEREST. THE AFORESAID AMOUNT OF ` 6,00,00,000/- WAS TO BE ADJUSTED TOWARDS SALE CONS IDERATION FOR THE SALE OF THE LAND IN FUTURE TO THE ASSESSEE, WH ICH IS PRESENTLY LEASED OUT TO THE ASSESSEE. FURTHER, IN THE MEMOR ANDUM OF AGREEMENT DATED 14 TH MARCH, 2009, THE LEASE RENT WAS REDUCED FROM ( ` 5,00,000 ` 5,00,000 ` 3,00,000 ` 3,00,000) ` 16,00,000 TO ( ` 25,000 ` 25,000 ` 15,000 ` 15,000) ` 80,000. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE LESSORS AND THE LE SSEE HAD ENTERED INTO THIS AGREEMENT BY REDUCING THE RENT FROM ` 16,00,000/- TO ` 80,000/- IN ORDER TO AVOID TDS ON RENT UNDER SECTIO N 194-I OF THE ACT. HOWEVER TAKING CUE FROM THE MODIFIED MEMORAND UM OF UNDERSTANDING DATED 14 TH MARCH, 2009, THE LD. AO TREATED THE ITA NO. 2047/MDS/2014 4 ASSESSEE IN DEFAULT FOR NOT DEDUCTING TDS FOR THE P AYMENT OF ` 6,00,00,000/- WHICH HE CONSIDERED TO BE ADVANCE REN T PAID AND INVOKED THE PROVISIONS OF SECTION 194-I AND 201(1A) OF THE ACT BY MAKING AN ADDITION OF ` 28,80,000/-. WHEN THE MATTER CROPPED UP BEFORE LD. CIT(A), HE CONFIRMED THE ORDER OF LD. AO BY HOLDING AS UNDER:- THE EARNEST MONEY DEPOSIT PAID BY THE ASSESSEE COM PANY TO THE LAND OWNERS TO RESERVE THE OPTION FOR BUYING THE PROPERTY WITHIN THE CURRENT LEASE PERIOD OF 10 YEARS BY VIRTUE OF T HE MEMORANDUM OF AGREEMENT DATED 14/3/2009 IS AN ADVANCE AND DEPOSIT (CAPITAL EXPENDITURE) IN THE HANDS OF THE ASSESSEE COMPANY. FURTHER, DEDUCTION/ADJUSTMENT OF FUTURE RENT AGAINST THE SAI D ADVANCE & DEPOSIT IS NOT ENVISAGED IN THE MOA, DE HORS THE A DVANCE FOR FUTURE PURCHASE WHEREAS THE SAID AMOUNT TO BE REFUNDED TO THE ASSESSEE COMPANY BY THE LAND OWNERS IN CASE OF FAILURE ON TH E PART OF THE ASSESSEE COMPANY UNLIKE SIPCOT CASE, WHERE THE UPFR ONT CHARGES FOR LEASE WAS NOT REFUNDABLE BUT SPREAD OVER TO THE LEASE PERIOD (ITAT CHENNAI C BENCH IN ITA NO.492/MDS/2012 IN T HE CASE OF SIPCOT). HENCE THE ABOVE REFERRED CASE IS NOT APPL ICABLE TO OUR TRANSACTION. ACCORDING TO THE MOA, THE ASSESSEE COMPANY HAS EX ERCISED ITS OPTION ON 14.03.2009 BY FIXING A SALE CONSIDERA TION OF ` 15.25 CRORES FOR THE LANDS MEASURING 13.98 ACRES SITUATED IN INDIAMPALAYAM VILLAGE, SATHYAMANGALAM TALUK (SCHEDU LE I OF MOA) ALONGWITH ADJOINING LANDS MEASURING ABOUT 5.54 ACRE S OWNED BY THE LAND OWNERS (TOTAL 19.52 ACRES). THREE SALE DEED W ERE EXECUTED AND REGISTERED ON 13.03.2014 AND THE ADVANCE OF ` 6 CRORES WAS ADJUSTED AGAINST THE SALE CONSIDERATION, AS AGREED IN MOA. PAYMENT OF LEASE IS DIFFERENT FROM FOR OBTAINING A LEASE ONLY FORMER IS SUBJECT TO TDS UNDER SECTION 194-I. FROM THE MOA DATED 14/3/2009, IT IS CLEAR THAT THE ADVANCE & DEPOSIT W AS NOT PAID UNDER A LEASE BUT WAS PAID AS AN ADVANCE PRICE FOR FUTURE P URCHASE OF THE LEASED LAND. THEREFORE, IT CANNOT BE EQUATED WITH THE RENT WHICH WAS PAID PERIODICALLY. THE CASE OF CIT V. KHIMLINE PUM PS LIMITED (2002) ITA NO. 2047/MDS/2014 5 125 TAXMAN 104 (BOM) AND THE BOMBAY ITATS FINDINGS BY FOLLOWING THE ABOVE CASE IN ITO (TDS) V. WADHWA& ASSOCIATES R EALTORS (P) LTD. (2013) 36 TAXMANN.COM 526 (MUMBAI-TRIBUNAL) AR E SQUARELY AND DIRECTLY APPLICABLE TO THE FACTS OF OUR CASE WH EREIN IT WAS HELD THAT PAYMENT FOR ACQUIRING DIFFERENT LEVELS. THE A CCOUNTING TREATMENT OF THE RECEIPTS IN THE BOOKS OF ACCOUNT CANNOT OVER RIDE THE STATUTORY OBLIGATIONS FLOWING OUT OF THE ORIGINAL LEASE DEED. STATUTORY OBLIGATIONS CANNOT BE NEGATED BY ENTERING INTO AGRE EMENTS LATER. THE ASSESSEE IS LIABLE TO DEDUCT TAX AS PER THE ORI GINAL LEASE AGREEMENT. SINCE THE ASSESSEE HAS NOT EFFECTED TDS , THE ASSESSING OFFICERS ACTION IN INVOKING SECTION 201( 1) AND 201(1A) IS CORRECT AS PER THE EXISTING PROVISIONS OF LAW. 3. LD. AR SUBMITTED BEFORE US THAT THE AMOUNT OF ` 6,00,00,000/- WAS PAID BY THE ASSESSEE AS AN ADVANCE FOR PURCHASE OF LAND. HE FURTHER SUBMITTED THAT AS A RESULT OF THE MEMORANDU M OF AGREEMENT DATED 14 TH MARCH, 2009, THE AGREEMENT DATED 7 TH DECEMBER, 2006 STOOD CANCELLED AND THE LATER AGREEMENT PREVAILED. AS PER THE MODIFIED AGREEMENT, THE RENT WAS RESCHEDULED SINCE AN ADVANCE AMOUNT OF ` 6,00,00,000/- WAS PAID AND THE LAND WAS TO BE PURCH ASED FROM THE LESSORS. HE THEREFORE PLEADED THAT PROVIS IONS OF SECTION 194-I OF THE ACT WILL NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE AND THEREFORE THE PROVISIONS OF SECTION 201(1A) OF THE ACT CANNOT BE INVOKED FOR LEVYING INTEREST. LD. DR, ON THE OTHE R HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE AND FURTHER SU BMITTED THAT AS PER THE MODIFIED AGREEMENT, THE ASSESSEE HAD PAID A N ADVANCE OF ITA NO. 2047/MDS/2014 6 ` 6,00,00,000/- FOR EXERCISING AN OPTION FOR PURCHAS E OF LAND DURING THE CURRENT TERM OF LEASE WHICH IS NOTHING BUT A DEVICE PLANED TO TREAT THE ADVANCE RENT PAID AS ADVANCE PAID FOR PUR CHASE OF THE LEASED PROPERTY. HE THEREFORE PRAYED THAT THE ORDE RS OF THE REVENUE MAY BE SUSTAINED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY P ERUSED THE MATERIALS ON RECORD AND THE PAPER-BOOK CONTAINING P AGES 1 TO 88. ON PERUSING THE MEMORANDUM OF AGREEMENT DATED 14 TH MARCH, 2009 (PAPER-BOOK PAGES 11 TO 22), IT EMERGES THAT THE LE ASE RENTALS WERE REVISED FROM ` 16,00,000 PER ANNUM TO ` 80,000 PER ANNUM. THERE ARE OTHER FEW NOTABLE MODIFICATIONS STIPULATED IN T HE MEMORANDUM OF AGREEMENT DATED 14 TH MARCH, 2009 SUCH AS:- (1) OPTION TO PURCHASE THE LAND DURING THE LEASE TE NURE (2) ASCERTAINMENT OF MARKET VALUE BY APPOINTING IND EPENDENT VALUER UNCONNECTED WITH THE PARTIES AT THE TIME OF EXERCISING THE OPTION OF PURCHASE OF LAND. (3) INTEREST FREE ADVANCE PAYMENT OF ` 6,00,00,000 FOR PURCHASE OF LAND. ITA NO. 2047/MDS/2014 7 FROM THE ABOVE IT IS APPARENT THAT THE LEASE RENT O F ` 16,00,000/- PER ANNUM IS CONSIDERABLY REDUCED TO ` 80,000/- PER ANNUM IN THE FOLLOWING MANNER:- LAND ANNUAL LEASE RENT UNDER CLAUSE-3 OF THE LAND LEASE AGREEMENT REDUCED ANNUAL RENT SCHEDULE-I LAND ` 5,00,000/- ` 25,000/- SCHEDULE-II LAND ` 5,00,000/- ` 25,000/- SCHEDULE-III LAND ` 3,00,000/- ` 15,000/- SCHEDULE-IV LAND ` 3,00,000/- ` 15,000/- THE LD. ARS EXPLANATION WAS THAT SINCE THE ASSESSE E HAD PAID ` 6,00,00,000/- AS ADVANCE FOR PURCHASE OF LAND WITHO UT INTEREST, THE LEASE RENT WAS CONSIDERABLY REDUCED. THE LD. DR HA D ARGUED THAT THE ENTIRE ` 6,00,00,000/- SHOULD BE TREATED AS ADVANCE PAYMENT OF RENT. HOWEVER CONSIDERING THE EARLIER RENT PAID BY THE ASSESSEE WHICH IS ` 16,00,000/- PER ANNUM, TEN YEARS LEASE RENTAL WOULD BE ONLY ` 1,60,00,000/- ( ` 16,00,000 X 10). THEREFORE, WE DO NOT FIND IT APPROPRIATE TO CORRELATE THE PAYMENT OF ` 6,00,00,000/- BY THE ASSESSEE AS ADVANCE PAYMENT OF RENT. THERE COULD BE AN IMPRESSION THAT THE INTEREST FREE ADVANCE MAY HAVE BEEN PAID BY THE ITA NO. 2047/MDS/2014 8 ASSESSEE IN ORDER TO EQUATE WITH THE EARLIER RENT R ECEIVED OF RS.16,00,000 PER ANNUM. HOWEVER IF THE INTEREST I S WORKED AT THE NORMAL RATE OF 10% PER ANNUM ON RS. 6,00,00,000/- I T WOULD AMOUNT TO ` 60,00,000/-. THEREFORE THIS AMOUNT OF ` 60,00,000/-CAN ALSO NOT BE EQUATED WITH THE RENT OF ` 16,00,000/- PER ANNUM. IN THIS SITUATION, NONE OF THE ABOVE STATED INFERENCE CAN BE DRAWN. O N PERUSING THE MEMORANDUM OF AGREEMENT DATED 14 TH MARCH, 2009, IT IS CLEAR THAT THE AMOUNT OF ` 6,00,00,000/- WAS PAID AS ADVANCE FOR THE CONSIDERATION OF SALE OF LAND. IN OUR VIEW THERE I S NO COLOURABLE DEVICE OR MALAFIDE INTENTION EMERGING OUT FROM THIS TRANSACTION. THE ASSESSEE HAD ALSO NOT ACTED AGAINST ANY PROVISIONS OF LAW BY ENTERING INTO SUCH AGREEMENT. IN THIS SITUATION, W E ARE OF THE CONSIDERED VIEW THAT THE PAYMENT OF ` 6,00,00,000/- BY THE ASSESSEE TO THE LESSORS OF THE LAND CANNOT BE TREATED AS ADV ANCE RENT. THEREFORE, WE HEREBY DIRECT THE LD. ASSESSING OFFIC ER TO DELETE THE ADDITION MADE UNDER SECTION 201(1A) OF THE ACT FOR ` 28,80,000/- ON ACCOUNT OF INTEREST. ITA NO. 2047/MDS/2014 9 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 05 TH DECEMBER, 2014. SD/- SD/- (V. DURGA RAO) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 05 TH DECEMBER,2014. KRI. '# $%&% /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. '() /CIT(A) 4. ' /CIT 5. %*+ , /DR 6. +-. /GF