WOCKHARDT HOSPITALS LTD, MUMBAI V. ADDL CIT 10(1), MUMBAI

ITA 2376/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0748 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 16-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2011
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR VORA
• Assessee Lawyers: ARPIT AGRAWAL
• Keywords: Depreciation; Business expenditure; Commercial expediency
• Section: 143(3); 14A; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA, AM & SHRI SANJAY GARG , JM ./ ITA N O S . 2376 - 23 78 / MUM/20 1 1 ( / ASSESSMENT YEAR S : 20 0 5 - 06 TO 2007 - 08 ) WOCKHARDT HOSPITAL LTD. , WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400051 VS. ADCIT - 10(1), MUMBAI ./ ./ PAN/GIR NO. : A A AC W 3342 G ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO S . 2 856 - 2858 / MUM/20 11 ( / ASSESSMENT YEARS :2005 - 06 TO 2007 - 08 ) ADCIT - 10(1), MUMBAI VS. WOCKHARDT HOSPITAL LTD., WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA (E), M UMBAI - 400051 ./ ./ PAN/GIR NO. : A AACW 3342 G ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI KANCHUN KAUSHAL & SHRI ARPIT AGRAWAL /REVENUE BY : SHRI VIJAY KU MAR VORA / DATE OF HEARING : 15 TH APRIL , 201 5 / DATE OF PRONOUNCEMENT 10 TH JULY, 2015 / O R D E R PER R.C.SHARMA (A.M) : TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER O F CIT(A) FOR THE ASSESSMENT YEARS 2005 - 06 TO 2007 - 08, IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T.ACT. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 2 2. COMMON GROUNDS HAVE BEEN TAKEN IN ALL THE YEARS UNDER CONSIDERATION BOTH BY ASSESSEE AND REVENUE, THEREFORE, ALL THE APPEALS WERE HE ARD TOGETHER AND ARE NOW BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 3. R IVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SETTING UP AND RUNNING A HOSPITAL AND HAS BEEN EXPERTISE IN MANAGEMENT OF H EALTH CENTRES AND FACILITIES. DURING THE COURSE OF SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEAR 2005 - 06, THE AO DISALLOWED ASSESSEES CLAIM OF CLUB EXPENDITURE. IT WAS BROUGHT TO OUR NOTICE BY LD. AR THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. AY 2004 - 05, THE TRIBUNAL HAVE ALLOWED ASSESSEES CLAIM FOR CLUB EXPENDITURE AND AGAINST WHICH THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HONBLE HIGH COURT. WE ALSO FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF OTIS ELEVATORS CO. (INDIA) LTD., 195 ITR 682. WE HAVE ALSO FOUND THAT HONBLE SUPREME COURT IN THE CASE OF UNITED GLASS MFG. CO. LTD., C.A.NO.6447/2012(SC) HAS DECIDED THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE. THE FULL BENCH OF H ONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF GROZ BECKERT ASIA LTD., 351 ITR 196(P&H)(FULL BENCH) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE JURISDICTIONAL HIGH COURT AS WELL AS OTHER HIGH COURTS DISCUSS ED ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE AO FOR DISALLOWING ASSESSEES CLAIM OF CLUB EXPENSES. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 3 4. THE NEXT ISSUE PERTAINS TO DISALLOWANCE OF INTEREST PAID ON BORROWINGS UTILIZED FOR PURPOSE OF ACQUISITION OF 100% SHARE CAPITAL OF KANISHKA H OUSING DEVELOPMENT CO. LTD. 5. IT WAS CONTENDED BY LD. AR THAT NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE SINCE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS : - I) CIT VS.DELITE ENTERPRI SES, ITA NO.110/2009(BOM) II) CIT VS.WISDOM TEXTILE INDUSTRIES LTD., 319 ITR 204 (P&H) III) CIT VS. SHIVAM MOTORS (P) LTD., ITA NO.88/2014 (ALL) IV) CIT VS. MASCOT FOOTCARE, ITA NO. 67/2014(P&H) V) CIT VS. LAKHANI MARKETING INC., ITA NO.970/2008 (P&H) VI) CIT VS. CORRETCH ENERGY P.LTD., ITA NO.239/2014(GUJ) VII) HOLCIM (INDIA) PVT. LTD. VS. DCIT, 37 CCH 423(DEL) VIII) AVSHESH MERCANTILE P. LTD.,148 TTJ 607(MUM) IX) SHREE SHAMKAMAL FINANCE & LEASING CO. P. LTD., 21 SOT 42 (MUM) AND X) ACIT VS. LAFARGE INDIA HOL DINGS (P) LTD.,19 SOT 121 (MUM) 6. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT ASSESSEE HAS ACQUIRED SHARES OF KANISHKA IN ORDER TO ACQUIRE ITS LAND TO BUILD - UP HOSPITAL ON IT. THE INVESTMENTS WERE NOT MADE WITH THE INTENTION OF EARNING DIVIDEND INCOME NOR ANY DIVIDEND WAS EARNED DURING THE YEAR AS WELL AS IN FUTURE YEARS. IN THESE CIRCUMSTANCES, BY RELYING ON THE FOLLOWING THE DECISIONS, LD. AR CONTENDED THAT NO DISALLOWANCE SHOULD BE MADE U/S.36(1)(III) OF THE ACT : - I) ACIT VS. CHOICE TRADING CORP.LTD., 9 0 ITD 1 II) ATE ENTERPRISES LTD. VS. JCIT, 102 ITD 110; AND III) ACIT VS. LAFARGE INDIA HOLDINGS (P) LTD. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 4 7. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAS CLAIMED TO HAVE INVESTMENT FOR ACQUIRING LAND FOR CONSTRUCTING ITS HO SPITAL. ON SUCH INVESTMENT, NEITHER DURING THE YEAR NOR IN THE FUTURE YEARS ASSESSEE HAS EARNED ANY DIVIDEND INCOME. KEEPING IN VIEW THE JUDICIAL PRONOUNCEMENTS REFERRED BY THE LD. AR, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH AS PER LAW. 8. THE GROUND NO.3 WITH REGARD TO DISALLOWANCE OF ADMINISTRATIVE AND MANAGERIAL EXPENSES U/S.14A WAS NOT PRESSED BY LD. AR, THE SAME IS THEREFORE, DISMISSED IN LIMINE. 9. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEPRECIATION ON M ANAGEMENT RIGHTS OF NAGPUR HOSPITAL U/S.32(1)(II) OF THE ACT. FOR THIS PURPOSE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : - I) DCIT VS. WEIZMANN FOREX LTD. 51 SOT 525; II) SKYLINE CATERERS (P) LTD. VS. ITO, 118 TTJ 344; III) ONGC VIDESH LTD. VS. DC IT, 37 SOT 97; IV) TECHNO SHARES & STOCKS LTD. VS. CIT 327 ITR 327; AND V) AREVA T & D INDIA LTD. VS. DCIT, 345 ITR 421. 10. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT EXACTLY SIMILAR ISSUE WAS RESTORED BY THE TRIBUNAL TO THE FILE OF AO IN ASSESSEES OWN CASE IN THE PRECEDING YEAR. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE , WE RESTORE THIS ISSUE TO THE FILE OF AO FOR DECIDING AFRESH AFTER CONSIDERING THE DECISION CITED BY THE LD. AR IN SUPPORT OF ITS C ONTENTION THAT ASSESSEE IS ENTITLED FOR DEPRECIATION OF MANAGEMENT RIGHTS OF NAGPUR HOSPITAL U/S.32(1)(III) OF THE ACT. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 5 11. GROUND NO.5 RELATING TO DISALLOWANCE OF GUARANTEE COMMISSION WAS NOT PRESSED BY THE LD. AR, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 12. AS THE ISSUE WITH REGARD TO CLAIM OF DEPRECIATION ON MANAGEMENT RIGHTS HAS BEEN RESTORED BACK TO THE FILE OF AO, THE GROUND TAKEN BY THE ASSESSEE WITH REGARD TO DEPRECIATION ON GUARANTEE COMMISSION IS ALSO HEREBY RESTORED BACK TO THE FILE OF A O FOR DECIDING AFRESH AS PER LAW. 13. THE NEXT ISSUE IS DISALLOWANCE OF INTEREST OF RS. 96,16,870/ - AS INTEREST FREE FUNDS ADVANCED TO KANISHKA HOUSING DEVELOPMENT CO. LTD., DR. JAY PRASANNA, DR. BAIS, WOCKHARDT LTD. 14. THE CONTENTION OF LD. AR WAS THAT A SSESSEE HAS ADVANCED INTEREST FREE LOANS TO ITS SISTER CONCERN ON ACCOUNT OF COMMERCIAL EXPEDIENCY FOR WHICH RELIANCE WAS PLACED ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, 288 ITR1 AND ALSO ON THE FOLLOWING DECISIONS : - I. SURAJ DI AMOND CONSULTANCIES VS. DIT, ITA NO. 2120/M/2008(MUM); II. RAMKISHIN TEXTILES PVT. LTD. VS. ITO ITA NO. 3960/M/2009(MUM) ; III. INDUSTRIAL CABLES (INDIA) LTD. VS. ACIT 124 ITD 322 (CHD) RELIANCE WAS ALSO PLACED BY LD. AR ON THE DECISION OF COORDINATE BENCH IN THE CAS E OF SURAJ DIAMOND CONSULTANCIES ITA NO.2120/MUM/2008 IN SUPPORT OF THE PROPOSITION THAT INTEREST FREE TRADE ADVANCE GIVEN TO SISTER CONCERN IS AN ALLOWABLE EXPENDITURE. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 6 15. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE ADVANCE GIVEN TO KANISHKA HOUSING DEVELOPMENT CO. LTD. WAS GIVEN AS A COMMERCIAL EXPEDIENCY, THE SAME IS, THEREFORE, DIRECTED TO BE ALLOWED. WITH REGARD TO THE ADVANCE GIVEN TO DR. JAY PRASANNA, DR. BAIS, WOCKHARDT LTD., HOWEVER, NOTHING WAS PLACED ON RECORD TO SUPPORT THE CONTENT ION THAT ADVANCE WAS GIVEN TO THESE PERSONS AS A COMMERCIAL EXPEDIENCY. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE. 16. THE NEXT GROUND WITH REGARD TO DISALLOWANCE OF INTEREST ON BORROWINGS WHICH WERE UTILIZED FOR THE PURPOSE OF EXPANSION OF BUSINESS WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED IN LIMINE. 17. SINCE ASSESSEES CLAIM OF ALLOWING THE INTEREST EXPENDITURE WAS DECLINED AND HELD TO BE NOT REVENUE IN NATURE, THE ALTERNATIVE GROUND TAKEN FOR ALLOWING DEPRECIATION ON THE ABOVE INTEREST EXPENDITUR E CAPITALIZED BY THE AO, IS RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH. 18. THE REVENUE IN ITS APPEAL FOR A.Y.2005 - 06, IS AGGRIEVED BY THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE OF ONLY INCREMENTAL PROVISION OF LEAVE ENCASHMENT INSTEAD OF FULL AMOUNT OF PROVISION. 19. FROM THE RECORD WE FOUND THAT THE AO HAS MADE DISALLOWANCE OF CLOSING BALANCE OF LEAVE ENCASHMENT AMOUNTING TO RS.22,80,086/ - , WHEREAS THE PROVISION MADE DURING THE YEAR WAS ONLY AMOUNTING TO RS. 5,11,625/ - . WE THEREFORE, DO NOT FI ND ANY INFIRMITY IN THE ORDER OF ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 7 CIT(A) FOR RESTRICTING THE DISALLOW ANCE OF THE PROVISION MADE DURING THE YEAR AMOUNTING TO RS. 5,11,625/ - . 20. THE NEXT GRIEVANCE OF REVENUE RELATES TO DELETING DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT AND PROVISION FO R GRATUITY. WE FOUND THAT PROVISION WAS MADE FOR THE LIABILITIES PERTAINING TO THE YEARS UNDER CONSIDERATION. THESE LIABILITIES WERE CRYSTALISED DURING THE YEAR AND WERE PERTAINING TO THE YEAR UNDER CONSIDERATION. SINCE THE PROVISION WAS MADE ON THE BASIS OF ACTUAL OPERATION AND IS AN ASCERTAINED LIABILITY ALLOWABLE AS BUSINESS EXPENDITURE, THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF CIT(A) FOR CONSIDERING THE PROVISION MADE FOR LEAVE ENCASHMENT AND GRATUITY AS ASCERTAINED LIABILITIES NOT INCLUDIBLE W HILE COMPUTING PROFIT U/S.115JB. THERE IS NO INFIRMITY IN THE ORDER OF CIT(A). OUR VIEW IS SUPPORTED BY THE FOLLOWING DECISIONS : I) CIT VS. ENCHJAY FORGINGS LTD., 251 ITR 15; II) CIT VS. NATIONAL HYDRO ELECTRIC POWER CORPORATION LTD., 45 DTR 117; AND III) DRESSER VALUE INDIA PRIVATE LTD. VS.ACIT, 30 SOT 495. 21. THE ASSESSEE IN ITS APPEAL FOR A.Y.200 6 - 07 , IS AGGRIEVED FOR DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AMOUNTING TO RS.55,519/ - IS COVERED BY THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF ALOM EXTRUSION AND ALSO BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTHAN ORGANICS CHEMICALS LTD., ITXA NO. 399/2012 AND ALSO BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ONWARD TECHNOLOGIES LTD., ITA NO .5235/MUM/2010. IN VIEW OF ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 8 THESE JUDICIAL PRONOUNCEMENTS WE DO NOT FIND ANY MERIT FOR DISALLOWANCE OF EMPLOYEES CONTRIBUTION OF RS.55,519/ - . 22. THE GROUNDS TAKEN BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF CLUB EXPENSES AND INTEREST PAID ON DISALLOWAN CE OF BORROWINGS ARE SAME AS DISCUSSED FOR THE ASSESSMENT YEAR 2005 - 06, HEREINABOVE, THEREFORE, THE AO IS DIRECTED TO FOLLOW THE REASONING GIVEN BY US FOR THE ASSESSMENT YEAR 2005 - 06. 23. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF INTERE ST EXPENDITURE U/S.14A AMOUNTING TO RS. 18, 00, 412/ - . THE AO APPLIED RULE 8D AND COMPUTED THE DISALLOWANCE. IT WAS BROUGHT TO OUR NOTICE THAT ASSESSEES OWNED FUNDS ARE MORE THAN THE INVESTMENT MADE DURING THE YEAR, THEREFORE, NO DISALLOWANCE IS WARRANTED. F OR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF RELIANCE UTILITIES & POWER LTD., 313 ITR 340 AND HDFC BANK LTD., ITA NOS. 4529/MUM/2005 &ORS.. KEEPING IN VIEW THE PROPOSITION OF LAW LAID DOWN IN ABOVE JUDICIAL PRONOUNCEMENTS, WE RESTORE THE MATTER B ACK TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS OF ABOVE JUDICIAL PRONOUNCEMENTS. 24. THE GROUND WITH REGARD TO DISALLOWANCE OF ADMINISTRATIVE AND MANAGERIAL EXPENSES U/S.14A, WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED IN LIMINE. 25. GROUND NO.6 IS SAME AS GROUND NO.4 IN ASSESSEES APPEAL FOR A.Y.2005 - 06. FOLLOWING THE SAME REASONING THE AO IS DIRECTED TO DECIDE THE SAME. ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 9 26. IN THE ASSESSMENT YEAR 2006 - 07, THE GRIEVANCE OF THE REVENUE RELATES TO DISALLOWANCE ON ACCOUNT OF PROVISION FOR GRATUITY. AS DISCUSSED ABOVE IN THE AY 2005 - 06 OF ASSESSEES APPEAL, WE DIRECT THE AO TO ALLOW THE SAME FOLLOWING THE REASONING DISCUSSED ABOVE. ACCORDINGLY, NO ADDITION IS WARRANTED WHILE COMPUTING BOOK PROFIT U/S.115JB . 27. THE GROUNDS TAKEN FOR A.Y.2007 - 08 ARE C OMMON AS DISCUSSED IN THE ASSESSMENT YEAR 2005 - 06. WITH REGARD TO THE GROUND TAKEN FOR DISALLOWANCE OF INTEREST U/S.14A AMOUNTING TO RS. 3,54,011/ - , FOLLOWING THE REASONING GIVEN HEREINABOVE, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH. 28. THE NEXT GRIEVANCE RELATES TO DISALLOWANCE OF PROVISION FOR FRINGE BENEFIT TAX WHILE CALCULATING BOOK PROFIT U/S.115JB HAS B E EN DISCUSSED BY THE CIT(A) AT PAGE 8 PARA 10.1. AS PER OUR CONSIDERED VIEW, PROVISION FOR FRINGE BENEFIT TAX IS AN ALLOWABLE DEDUCTION WHILE COMPUTING BOOK PROFIT U/S.115JB AS PER THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF VINTAGE DISTILLERIES LTD., 37 DTR 303. 29. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED IN PART, WHEREAS APPEALS OF THE REVENUE ARE DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 / 07 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 10 / 07/ 201 5 . . /PKM , . / PS ITA NO S . 2376 - 78 / 1 1 & ITA NOS.2856 - 58/11 10 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//