DCIT 9(3), MUMBAI V. THE INDIAN HOTELS COMPANY LTD ( SUCCESSOR OF TAJ LAND END LTD), MUMBAI

ITA 2430/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100978 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Department
• Bench Allotted: I
• Next Hearing Date: 12-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 01-04-2013
• Court: TRIBUNAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI PAWAN SINGH , J M ./ ITA NO . 2430 / MUM/20 1 3 ( / ASSESSMENT YEAR : 200 6 - 20 07 ) DCIT - 9(3), MUMBAI VS. M/S THE INDIAN HOTELS COMPANY (SUCCESSOR OF TAJ LANDS END LTD.), MANDLIK HOUSE, 3 RD FLOOR, MANDLIK ROAD, COLABA, MUMBAI - 400001 ./ ./ PAN/GIR NO. : A A ACE 0852 H ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI SUNIL KUMAR AGRAWAL /ASSESSEE BY : SHRI DHARMESH SHAH / DATE OF HEARING : 1 2 /0 8 / 2015 / DATE O F PRONOUNCEMENT 09/09 / 2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) , MUMBAI , DATED 4 - 1 - 2013 FOR THE ASSESSMENT YEAR 200 5 - 0 6 , IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S147 OF THE I.T.ACT, WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(') ERRED IN DELETING TH E DISALLOWANCE OF RS.17,53, 193/- HOLDING THAT THE EXPENDITURE ON PREMIUM INCURRED BY THE ASSESSEE FOR SPECIFIC FISCAL EVENT INSURANCE POLICY WAS FOR SAFE GUARDING THE INTEREST OF THE BUSINESS AND COULD NOT BE PRESUMED AS CAPITAL EXPENDITURE EVEN THOUGH ANY INSURANCE EXPENSE INCURRED IN RESPECT OF SASA (SHARE ACQUISITION AND SUBSCRIPTION AGREEMENT) IS CAPITAL IN NATURE. ITA NO. 2430 /1 3 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.87,65,967/ - MADE ON ACCOUNT OF PAYMENT OF PREMIUM FOR REPRESENTATION AND WARRANTY INSURANCE POLICY B Y HOLDING THAT THE PREMIUM FOR SUCH POLICY IS AN ALLOWABLE EXPENDITURE, EVEN THOUGH PREMIUM PAID TOWARDS REPRESENTATION AND WARRANTY INSURANCE POLICY IS CONTINGENT IN NATURE AND NOT DIRECTLY LINKED TO EARNING OF CURRENT INCOME. 3. THE APPELLANT PRAYS THA T THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE MAIN GRIEVANCE OF THE REVENUE RELATES TO DISALLOWANCE OF PREMIUM INCURRED FOR SPECIFIC FISCA L EVENT INSURANCE POLICY OF RS .17,53, 193/ - AND REPRESENTATION AND WARRANTY INSURANCE POLICY OF RS .87,65,967/ - . ACCORDING TO THE ASSESSING OFFICER SUCH EXPENDITURE IS NOT ALLOWABLE BECAUSE ASSESSEE WAS HAVING APPREHENSION THAT AT THE TIME OF TAKING OF SUCH POLICY, FUTURE PENALTY WOULD BE LEVIED BY THE GOVERNMENT AUTHORITIES. ACCORDING TO THE ASSESSING OFFICER SPECIFIC FISCAL EVENT INSURANCE POLICY IS CONCERNED WITH ANY LIABILITY ARISING AS A RESULT OF VIOLATION OF URBAN LAND (CEILING AND REGULATION ACT 1976) CLEARLY ANY INSURANCE PREMIUM PAID FOR FUTURE LEGAL EXPENSE ARISING FOR VIOLATION OF ANY LAW SHALL BE IN VIOLATION OF EXPLANATION TO SUB SECTION 1 TO SECTION 37 OF THE INCOME TAX ACT. FURTHER, IT ALSO COVERS THE CONTINGENCY ARISING DUE TO ANY DEMAND FOR T RANSFER FEE OR SIMILAR LEVY OR FOR THE RESUMPTION OF THE EXEMPTED LAND IN RESPECT OF TRANSFER OF SHARES PURSUANT TO THE SHARE ACQUISITION AND SUBSCRIPTION AGREEMENT ENTERED INTO BETWEEN THE SHAREHOLDERS OF THE INSURED AND THE APPELLANT COMPANY AND ICICI VE NTURE FUNDS. THEREFORE, ACCORDING TO THE ASSESSING OFFICER ANY INSURANCE EXPENSE INCURRED IN RESPECT OF SASA AGREEMENT IS CAPITAL IN NATURE HENCE SAME CANNOT BE ALLOWED U/S.37 OF ITA NO. 2430 /1 3 3 THE LT. ACT. AS REGARDS, REPRESENTATION AND WARRANTY INSURANCE POLICY, IT IS ARGUED BY THE ASSESSING OFFICER THAT NATURE OF SUCH EXPENSES IS ALSO CONTINGENT AND NOT DIRECTLY RELATING TO EARNING OF INCOME PRESEN T. 3. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER : - 6.3 I HAVE CONSIDERED THE RI VAL SUBMISSION OF THE APPELLANT VIS - A - VIS REASONING OF THE ASSESSING OFFICER, CAREFULLY. I FIND THAT SPECIFIC EVENT INSURANCE POLICY IS TAKEN TO SAFE GUARD THE INTEREST OF THE BUSINESS HENCE CANNOT BE PRESUMED TO BE CAPITAL EXPENDITURE. THE APPELLANT HAS PAID INSURANCE PREMIUM FOR THREE YEARS AND HAS SPREAD OVER SUCH EXPENDITURE IN THREE YEARS HENCE IN ONE YEAR ENTIRE PREMIUM CAN NOT BE DISALLOWED. IT IS WRONG TO PRESUME THAT POLICY COVERS EXPENDITURE ON ACCOUNT OF TRANSFER FEES AND THEREFORE IT SHOULD BE PRESUMED TO BE CAPITAL IN NATURE. I FIND FORCE IN ARGUMENT OF THE LD. A.R. THAT SUCH EXPENDITURE IS INCURRED IN ORDER TO SAFEGUARD INTEREST OF BUSINESS OF THE APPELLANT COMPANY. MERELY BECAUSE INSURANCE WOULD HAVE SAVED THE APPE LLANT COMPANY FROM POSSIBLE LIABILITY OF TRANSFER FEE WOULD NOT MEAN THAT PREMIUM PAID IS CAPITAL IN NATURE. ARGUMENTS ADVANCED B LD. ASSESSING OFFICER IS NOT CONVINCING ONE. IT IS WRONG TO PRESUME THAT SUCH INSURANCE COVERS FUTURE LIABILITY HENCE IT IS CONTINGENT LIABILITY NO RELA TED TO BUSINESS OF THE APPELLANT. CONTRARY TO SUCH PRESUMPTION, ALL INSURANCE RELATE TO FUTURE OCCURRENCE, NEVERTHELESS PREMIUM IS REGARDED AS REVENUE EXPENDITURE. I FIND NO MERIT IN THE ARGUMENT OF THE LD. ASSESSING OFFICER THAT SUCH INSURANCE PREMIUM IS EITHER CAPITAL IN NATURE OR RELATED TO VIOLATION OF CONDITION OF ULC ACT 1976. THIS PRESUMPTION IS BASELESS DESERVES TO APPROVAL. SIMILARLY, A PREMIUM OF REPRESENTATION AND WARRANTY INSURANCE POLICY IS ALLOWABLE EXPENDITURE WHEN COMPANY HAD ACQUIRED THE E NTIRE RUNNING BUSINESS OF LHPL AND SEVERAL REPRESENTATION WARRANTIES WERE GIVEN AT THE .TIME OF ENTERING INTO THE AGREEMENTS WHICH CAN NOT BE PRESUMED TO BE CONTINGENT IN NATURE BECAUSE IT IS CAUSED IN THE INTEREST OF BUSINESS OF THE APPELLANT. SUCH LIABIL ITIES ASCERTAINED ACCRUED AND PAID LIABILITY THEREFORE SAME CANNOT BE IGNORED. VARIOUS CASE LAWS RELIED UPON BY THE LD. A.R. ALSO SUPPORTS THE CONTENTION OF THE APPELLANT, HENCE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, ASSESSING OFFICER IS DIR ECTED TO DELETE THE DISALLOWANCE OF INSURANCE PREMIUM AMOUNTING TO RS.1,05,19,160/ - FROM THE ASSESSMENT. 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT INSURANCE PREMIUM SO PAID WAS REVENUE IN NATURE AND DID NOT RELATE TO ANY VIOLATION OF CONDITI ON OF ULC ACT, 1976, SO AS TO DISALLOW THE SAME UNDER THE ITA NO. 2430 /1 3 4 EXPLANATION TO SECTION 37 OF THE I.T.ACT. THE DETAILED FINDING RECORDED BY THE CIT(A) WITH REGARD TO THE NATURE OF PREMIUM AS WELL AS PURPOSE OF ITS PREMIUM HAS NOT BEEN CONTROVERTED BY LD. DR. ACCO RDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED ON INSURANCE PREMIUM. 5 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 09/09 / 201 5 . SD/ - SD/ - ( ) ( PAWAN SINGH ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 09/09 /201 5 . . /PKM , . / PS / 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//