M/s. NATIONAL STOCK EXCHANGE OF INDIA LTD., MUMBAI V. ACIT. CIR. - 7(1), MUMBAI

ITA 2512/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49382 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 15-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Keywords: Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI T.R. SOOD (AM ) I.T.A.NO.2120/MUM/2007 (A.Y. 2003-04) ASST. COMMR. OF INCOME-TAX, CIR. 7(1), 622, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. NATIONAL STOCK EXCHANGE OF INDIA LTD., EXCHANGE PLAZA, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051. PAN: APPELLANT RESPONDENT I.T.A.NO.2512/MUM/2007 (A.Y. 2003-04) NATIONAL STOCK EXCHANGE OF INDIA LTD., EXCHANGE PLAZA, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051. PAN: VS. ASST. COMMR. OF INCOME-TAX, CIR. 7(1), 622, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT DEPARTMENT BY SHRI SANJIV DUTT. ASSESSEE BY SHRI SUN IL NAHTA. O R D E R PER T.R. SOOD, AM : ITA NO.2120/MUM/07: IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE EXP ENDITURE CONNECTED WITH EARNING OF INTEREST INCOME EXEMPT U/ S. 10(15) FROM 2% TO 0.5%. ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO T O GRANT DEPRECIATION AS CLAIMED BY THE ASSESSEE ON VSAT EQUIPMENT INSTALLED AT THE PREMISES OF THE MEMBER BROKER AS AGAINST PROPORTIONATE DISALLOWANCES MADE BY THE AO BY INVOKING THE PROVISIONS OF SEC. 38(2). GROUND NO.1: AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD RECEIVED CERTA IN INTEREST ON TAX FREE BONDS. THE AO WAS OF THE VIEW THAT EXPENSES INCURRED FOR E ARNING THIS INCOME WERE NOT ALLOWABLE U/S.14A AND ULTIMATELY 2% OF THE AMOUNT O F INCOME WAS DISALLOWED. 2. ON APPEAL, THE LD. CIT(A) FOLLOWING THE EARLIER YEAR ORDER, REDUCED THE DISALLOWANCE TO 0.5% OF THE INTEREST INCOME. 3. BOTH THE PARTIES AGREED THAT THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE EARLIER YEAR AND, THEREFORE, IS COVERED BY THAT ORDER AND THE ISSUE MAY BE DECIDED AS PER THAT ORDER. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF TRIBUNAL FOR EARLIER ORDER IN ITA NOS. 7492/MUM/2005, 7493/MUM/2005 AND 9390/MUM/2004 IN THE ASSESSEES O WN CASE AND THE SAME WAS DECIDED VIDE PARA-11 THEREOF, WHICH IS AS UND ER : 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFU LLY, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERAT ION OF THE TRIBUNAL FOR THE A.Y. 1998-99 AND THE SAME WAS DECI DED BY THE TRIBUNAL VIDE PARA-6 WHICH IS AS UNDER : 6. GROUND NO.4 PERTAINS TO THE ISSUE OF DISALLOWANCE OF EXPENDITURE OF 7,79,836/- BEING 0.5 % OF GROSS INTEREST EARNED ON TAX FREE BONDS AND CLAIMED AS EXEMPT UNDER SECTION 10(15) OF THE I.T. ACT. THE A.O. DISALLOWED 2% OF THE EXPENDITURE WHEREAS THE CIT(A) RESTRICTED IT TO 0.5%. ON THE VE RY SAME ISSUE THE REVENUE IS ALSO IN APPEAL IN GROUND NO.3 OF THE REVENUES APPEAL. CONSIDERING THE NATUR E OF THE INCOME AND THE ORDERS OF THE AUTHORITIES WE ARE OF THE OPINION THAT DISALLOWANCE OF 1% WOULD ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 3 MEET THE END OF JUSTICE. ASSESSEES GROUND ABOUT TH E DISALLOWANCE OF 0.5% IS REJECTED. FOLLOWING THE ABOVE ORDER, WE HOLD THAT EXPENDITURE IN RESPECT OF INTEREST ON TAX FREE BONDS SHOULD BE EST IMATED AT 1% AND AO IS DIRECTED TO MAKE DISALLOWANCE OF ONLY 1%. ACCORDINGLY THIS GROUND IS PARTLY ALLOWED. FOLLOWING THE ABOVE ORDER, WE HOLD THAT EXPENDITURE IN RESPECT OF INTEREST ON TAX FREE BONDS SHOULD BE ESTIMATED AT 1% AND THE AO IS DIRECTED TO MAKE DISALLOWANCE OF ONLY 1%. THEREFORE, THIS GROUND IS PARTLY ALLOWED. GROUND NO. 2: 5. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD INSTALLED ITS VSAT NETWORK AFTER OBTAINING LICENSE FROM THE DEPARTMENT OF TELECOMMUNICATION, G OVT. OF INDIA. PART OF THE EQUIPMENT, I.E, VSAT AND MONITOR, WAS INSTALLED WIT H THE BROKER. ACCORDING TO THE AO, THEREFORE, THIS ASSET WAS NOT FULLY USED FOR TH E PURPOSES OF BUSINESS AND HE RESTRICTED THE ALLOWANCE OF DEPRECIATION U/S.38 AND ALLOWED 40% DEPRECIATION ON VSAT EQUIPMENT. 6. ON APPEAL, THE LD. CIT(A) HELD THAT EVEN IF VS AT WAS PROVIDED TO BROKER, BUT THE SAME WAS USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. FOLLOWING THE EARLIER YEAR ORDER, HE ALLOWED FULL DEPRECIATIO N. 7. BOTH THE PARTIES WERE HEARD. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IDENTICAL ISSUE CAME BEFORE THE TRIBUNAL FOR EARLIER YEARS IN ITA NOS.74 92, 7493/MUM/2005 & 9390/MUM//MUM/2004 AND THE SAME WAS DECIDED AGAINST THE REVENUE VIDE PARAS 22 TO 26 THEREOF, WHICH ARE AS UNDER : 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT WITH A VIEW TO GIVE BOOST TO THE FINA NCIAL REFORMS GOVERNMENT OF INDIA DECIDED TO ENSURE IMPROVEMENT IN TRADING PRACTICES FOR TRANSPARENCY A ND ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 4 SPEEDY SETTLEMENT A NATIONAL STOCK EXCHANGE WAS SUPPOSED TO BE ESTABLISHED IN THE BUDGET FOR F.Y. 1 993-94. ULTIMATELY, ASSESSEE COMPANY WAS INCORPORATED BY NATIONALIZED BANKS TO START SCREEN BASED TRADING TO REPLACE THE EXISTING FLOOR BASED TRADING IN STOCKS AND SHAR ES. FOR THIS SCREEN BASED TRADING THE ASSESSEE COMPANY WAS REQUIRED TO INSTALL VSAT NET WORK WHICH CONSISTED O F A HUB AND VSAT ANTENNA AND MONITOR. THE HUB WAS INSTALLED IN THE PREMISES OF THE ASSESSEE COMPANY, WHEREAS VSAT ANTENNA AND MONITOR WERE INSTALLED IN THE PREMISES OF MEMBER BROKERS. THE WHOLE ELECTRONIC SYSTEM WAS INS TALLED WITH A PRIOR PERMISSION OF DOT UNDER WHICH THE WHOL E SYSTEM WAS REQUIRED TO BE OWNED BY THE ASSESSEE AND WAS TO BE OPERATED ON NO PROFIT NO LOSS BASIS BECAUSE C ERTAIN CONCESSIONS WERE GIVEN IN RESPECT OF CUSTOMS DUTY. THERE WAS A FURTHER CONDITION THAT ALL TRANSACTIONS WERE TO BE CARRIED OUT THROUGH THIS SYSTEM ONLY AND BROKERS CO ULD NOT TRADE TRANSACTIONS ON THE SYSTEM OWNED BY THEM WHIC H MEANS THAT THE WHOLE SYSTEM WAS TO BE OWNED BY THE ASSESSEE AND EVEN THE PART OF THE SYSTEM WHICH WAS ALSO TO BE OWNED BY THE ASSESSEE COMPANY FOR THE USAGE OF T HIS SYSTEM BY HE MEMBERS, ASSESSEE HAD CHARGED ONLY USA GE CHARGES AS PER THE COST. NO DOUBT, PART OF THE SYS TEM HAD BEEN USED BY THE BROKERS ALSO BUT THE QUESTION IS W HETHER THE BUSINESS OF THE ASSESSEE WAS POSSIBLE WITHOUT T HE INSTALLATION OF VSAT ANTENNA AND MONITOR IN THE PRE MISES OF MEMBERS. IN THE ABSENCE OF INSTALLATION OF VSAT ANT ENNA AND MONITOR IN THE PREMISES OF THE MEMBERS, MEMBER BROKERS COULD NOT HAVE EXECUTED VARIOUS TRANSACTION S IN THE STOCK EXCHANGE. THEREFORE, NATURALLY, THE SYSTEM W AS MEANT FOR THE BUSINESS OF THE ASSESSEE. IN ANY CASE , THE ASSESSEE HAS NOT CHARGED RENT FROM THE MEMBERS, WIL L NOT MAKE THE SYSTEM NOT FOR THE PURPOSE OF ASSESSEES BUSINESS. FURTHER, THE MEMBER BROKERS COULD NOT HAV E POSSIBLY USED THE SYSTEM FOR ANY OTHER PURPOSE THAN TO EXECUTE THE SHARE TRANSACTIONS WITH THE ASSESSEE, E VEN IF ASSUMING THAT BROKERS ALSO GOT SOME BENEFIT OUF OF THIS SYSTEM, IT CANNOT BE SAID THAT SAME HAS SNOT BEEN U SED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 23. THE HONBLE SUPREME COURT IN THE CASE OF IN THE CASE OF EASTERN INVESTMENT LTD. VS. CIT [SUPRA] HAD OBSE RVED AT PAGE-5 AS UNDER : THE NEXT POINT ON WHICH SOME STRESS WAS PLACED WAS THAT THERE WAS COMPLETE IDENTITY OF PERSON BETWEEN THE PERSON WHOSE SHARES WERE SOLD AND THE PERSON WHO TOOK THE DEBENTURES AND HAT THE TRANSACTION RESULTED IN CONSIDERABLE BENEFIT TO HIM . IN THE ABSENCE OF A SUGGESTION OF FRAUD THIS IS NOT RELEVANT AT ALL FOR GIVING EFFECT TO THE PROVISIONS OF ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 5 SECTION 12(2) OF THE INCOME-TAX ACT. MOST COMMERCIAL TRANSACTIONS ARE ENTERED INTO FOR THE MUTUAL BENEFIT OF BOTH SIDES, OR AT ANY RATE EACH S IDE HOPES TO GAIN SOMETHING FOR ITSELF. THE TEST FOR PRESENT PURPOSES IS NOT WHETHER THE OTHER PARTY BENEFITED, NOR INDEED WHETHER THIS WAS A PRUDENT TRANSACTION WHICH RESULTED IN ULTIMATE GAIN TO THE APPELLANT, BUT WHETHER IT WAS PROPERLY ENTERED INTO AS A PART OF THE APPELLANTS LEGITIMATE COMMERCIAL UNDERTAKINGS IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON OF ITS BUSINESS. THUS, FROM THE ABOVE, IT IS CLEAR THAT GENERALLY CO MMERCIAL TRANSACTIONS ARE ENTERED INTO FOR THE MUTUAL BENEFI TS AND EVEN SOME BENEFIT ACCRUED TO THE OTHER PARTY, IT CA NNOT BE SAID THAT THE SAME WAS NOT FOR CARRYING ON THE BUSI NESS OF THE ASSESSEE. AGAIN THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. [SUPRA] AT PAG E-610 HAS HELD AS UNDER : ANOTHER FACT THAT EMERGES FROM THESE CASES IS THAT IF THE EXPENSE IS INCURRED FOR FOSTERING THE BUSINESS OF ANOTHER ONLY OR WAS BY WAY OF DISTRIBUTION OF PROFI TS OR WAS WHOLLY GRATUITOUS OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS THEN THE EXPENSE IS NOT DEDUCTIBLE. IN DECIDING WHETHER A PAYMENT OF MONEY IS A DEDUCTIBLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION QUESTIONS OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLE OF ORDINARY COMMERCIAL TRADING. IF THE PAYMENT OR EXPENDITURE I S INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESS EE IT DOES NOT MATTER THAT THE PAYMENT MAY INURE TO TH E BENEFIT OF A THIRD PARTY (USHERS WILTSHIRE BREWERY LTD. VS. BRUCE). ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF T HE ASSESSEES LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS ; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS T HERE : EASTERN INVESTMENTS LTD. VS. CIT (SUPRA). BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE. FROM THE ABOVE IT IS CLEAR THAT IT IS THE COMMERCIA L EXPEDIENCY WHICH HAS TO BE SEEN WHILE DECIDING THE ALLOWABLE OF EXPENDITURE. IN THE CASE BEFORE US, WI THOUT INSTALLATION OF THIS SYSTEM, IT WAS NOT EXPEDIENT T O CARRY ON THE BUSINESS OF THE ASSESSEE. 24. IN ANY CASE, LD. COUNSEL OF THE ASSESSEE HAD RI GHTLY RELIED ON THE DECISION OF THE HONBLE DELHI HIGH CO URT IN THE ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 6 CASE OF CIT VS. GOYAL GASES PVT. LTD. [SUPRA]. IN T HIS CASE ASSESSEE WAS CARRYING ON THE BUSINESS OF FILLING GA S BOUGHT BY IT IN THE CYLINDERS AND SUPPLYING THE SAME TO TH E CUSTOMERS. THOUGH CYLINDERS ARE DIRECTLY USED BY TH E CUSTOMERS, BUT THE ASSESSEE COULD NOT HAVE CARRIED OUT ITS BUSINESS WITHOUT GIVING SUCH CYLINDERS TO THE CUSTO MERS. THEREFORE, IT WAS HELD THAT THE ASSESSEE WAS ENTITL ED TO DEDUCTION OF REPAIRS AS WELL AS DEPRECIATION ON SUC H CYLINDERS. IN THE CASE BEFORE US, THE ANALOGY OF GA S CYLINDERS IS FULLY APPLICATION THE VSAT ANTENNA AND MONITOR INSTALLED IN THE PREMISES OF THE BROKER MEMBERS BEC AUSE WITHOUT IT ASSESSEE COULD NOT HAVE CARRIED ON ITS B USINESS. AGAIN IN THE CASE OF CIT VSAT. INDIAN EXPRESS (MAD URAI) PVT. LTD. [SUPRA], WHEREIN THE ASSESSEE COMPANY HAD PURCHASED A TELE TYPESETTER WHICH WAS LOCATED IN TH E PREMISES OF ASSESSEES SISTER CONCERN AT BOMBAY BUT IT WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE DEPRECIATION WAS RESTRICTED U/S.38(2). BEFORE DECID ING THIS ISSUE, THE HONBLE MADRAS HIGH COURT QUOTED THE OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. CHANDULAL KESHAVLAL & CO. [SUPRA] AS UNDER : THE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC) : 16R. 507, HELD THAT IF THE PAYMENT OR EXPENDITURE I INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOES NO T MATTER THAT THE PAYMENT MAY INURE TO THE BENEFIT OF A THIRD PARTY. THE COURT ALSO HELD THAT IF THE EXPENDITURE IS INCURRED FOR FOSTERING THE BUSINESS OF ANOTHER ONLY, OR WAS MADE BY WAY DISTRIBUTION OF PROFITS, OR WAS WHOLLY GRATUITOUS, OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS, THEN THE EXPENSE IS NOT DEDUCTIBLE. THE COURT FURTHER HELD THAT ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF T HE ASSESSEES LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS ; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS THEREBY. BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE TRADE OR BUSINES S OF THE ASSESSEE. IN THE ABOVE BACKGROUND, IT WAS ULTIMATELY HELD TH AT THE MACHINE WAS USED EXCLUSIVELY FOR THE BUSINESS A ND PROFESSION OF THE ASSESSEE. 25. AS FAR AS THE DECISION RELIED ON BY THE LD. DR IN THE CASE OF L.P. HOSPITALITY (P) LTD. [SUPRA] IS CONCER NED, IN THAT CASE THE ASSESSEE COMPANY DURING THE ASSESSMEN T ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 7 YEAR HAD ENTERED INTO AN AGREEMENT WITH MOETS KABA BS BY VIRTUE OF WHICH IT TRANSFERRED 85% OF ITS DAILY RES TAURANT AND BAR SALES TO MOETS KABABS IN LIEU OF MATERIAL AND LABOUR SUPPLIED BY IT. THE AO IN THIS CASE OBSERVED THAT T HE ASSESSEE DID NOT RUN THE BUSINESS OF BAR AND RESTAU RANT DURING THE YEAR AS IT HAD NOT PURCHASE ANY RAW MATE RIAL OR EMPLOYED ANY MAN POWER AND IT WAS MOETS WHO DID EVERYTHING AND EVEN THE BAR LICENSE FEE HA NOT BEEN PAID BY THE ASSESSEE. ON THESE FACTS, DISALLOWANCE OF DEPRE CIATION U/S. 39(2) WAS UPHELD BY THE HONBLE HIGH COURT BEC AUSE FIXED ASSETS WERE NOT EXCLUSIVELY USED FOR THE PURP OSE OF ASSESSEES OWN BUSINESS; WHEREAS, IN THE CASE BEFOR E US, VSAT ANTENNA AND MONITOR HAVE BEEN USED FOR THE PUR POSE OF ASSESSEES BUSINESS. 26. SIMILARLY, IN THE CASE OF PUNJAB BONE MILLS VS. CIT [SUPRA], DISALLOWANCE OF DEPRECIATION U/S. 38(2) WA S HELD TO BE VALID BECAUSE A BOILER INSTALLED BY THE ASSESSEE WAS PARTLY USED BY THE SISTER CONCERN OF THE ASSESSEE F OR THEIR BENEFIT AND EVEN EXPENSES WERE SHARED BY THE ASSESS EE WITH THE SISTER CONCERN. IN THE CASE BEFORE US, THE EQUIPMENTS INSTALLED WITH THE MEMBERS HAVE BEEN EXCLUSIVELY USED FOR THE PURPOSE OF ASSESSEES BUSI NESS. SIMILARLY, IN THE CASE OF CIT VS. K.L. BASIN & CO. [SUPRA], DISALLOWANCE OF DEPRECIATION U/S. 38(2) IN RESPECT OF CAR AT 1/4 TH WAS HELD TO ;BE NOT ALLOWABLE BECAUSE SUCH CAR WAS PARTLY USED FOR THE PERSONAL BENEFIT OF THE PARTNER . IN THE CASE BEFORE US, THERE IS NO ALLEGATION HAT EQUIPMEN TS INSTALLED WITH THE MEMBERS HAVE BEEN USED FOR PERSO NAL BENEFITS OF SUCH MEMBERS. IN VIEW OF THE ABOVE DISC USSION, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT [A] AND CONFIRM THE SAME. FOLLOWING THE ABOVE ORDER, WE DECIDE THE ISSUE AGAI NST THE REVENUE. 9. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED. ITA NO.2512/MUM/07: 10. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS : 1. THE CIT(A) RESTRICTING THE EXPENDITURE CONNECTED WI TH EARNING OF INTEREST INCOME EXEMPT U/S.10(15) FROM 2% TO 0.5%. 2. CONFIRMATION OF DISALLOWANCE ON SHIFTING EXPENSES A MOUNTING TO RS.10,71,035/-. ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 8 3. CONFIRMATION OF DISALLOWANCE OF AMORTIZATION OF LEA SE PREMIUM PAID TO BMRDA. 4. CONFIRMATION OF DISALLOWANCE OF PRIOR PERIOD EXPENS ES AMOUNTING TO RS.2,99,912/-. ISSUE NO.1: 11. AFTER HEARING BOTH THE PARTIES, WE FIND THAT IS SUE NO.1 IS IDENTICAL TO THE ISSUE DECIDED IN THE REVENUES APPEAL ABOVE WHICH W AS RAISED IN GROUND NO. 1. THAT ISSUE HAS BEEN ADJUDICATED PARTLY IN FAVOUR OF REVENUE BY ESTIMATING THE AMOUNT OF EXPENDITURE AT 1%. THEREFORE, THE ISSUE R AISED BY THE ASSESSEE IS REJECTED AND ACCORDINGLY THIS GROUND IS DISMISSED. ISSUE NO.2: 12. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD INCURRED CERTA IN SHIFTING EXPENDITURE WHICH WAS CLUBBED UNDER THE HEAD OTHER EXPENSES AND CLA IMED AS REVENUE EXPENSES. IT WAS NOTED BY THE AO THAT THE EXPENDITURE WAS INC URRED ON FOLLOWING ITEMS : DETAILS OF OFFICE SHIFTING EXPENSES FOR THE PERIOD 01.04.2002 TO 31.03.2003 PARTY NAME RS. DETAILS OF SERVICE PROVIDED LEMOUR PACKERS 27,800.10 S HIFTING OF RECORDS FROM TW TO BKC REMOVING OF 5 NOS. OF 15 TR MICROPROCESSOR AC UNITS FROM ITS EXISTING INSALLATION AT NSEIL PUNE AND PACKING, SHIFTING, REINSTALLATION AND COMMISSIONG OF THE SAME AT EMERSON NETWORK POWER INDIA 822,790.80 CHENNAI BCP SITE SHIFTING, INSTALLATION, TESTING AND COMMISSIONING OF 2 NOS. OF 40KVA, 2 NOS. OF 30KV AND 4NOS. OF 80KVA UPS SYSTEMS FROM MT & TW TO EXCHANGE PLAZA. EMERSON NETWORK POWER INDIA 153,071.25 UNINSTALLING, CHECKING OF AVAILABLE ACCESS CONTROL SYSTEMS FROM PUNE, ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 9 TRADE WORLD AND REINSTALLING AND COMMISSIONING THE SAME AT DIGITAL ALARM TECHNOLOGY 51,840.00 CHE NNAI PREMISES. LABOUR CHARGES FOR SHIFTING OF PCS L.G. GAVHANE 11,233.33 A ND BOXES CONTAINING FILES RECORD OF CLEARING HOUSE AND UNUSED PC PACKED FROM TRADE L.G. GAVHANE 4,300.00 WORLD TO BKC ON 15.11.2002 TOTAL 10,71,035. 48 THE AO WAS OF THE VIEW THAT THE EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE AND, THEREFORE, ISSUED A SHOW CAUSE NOT ICE, IN RESPONSE TO WHICH THE ASSESSEE REPLIED THAT THE EXPENDITURE WAS INCURRED BASICALLY TOWARDS RELOCATION CHARGES OF BCP SITE FROM PUNE TO CHENNAI AND FURTHE R TOWARDS SHIFTING OF OFFICE MATERIALS AND RECORDS FROM ITS TRADE WORLD OFFICE T O MAHINDRA TOWERS. THEREFORE, THE EXPENDITURE WAS OF REVENUE NATURE AND, IN THIS REGARD, RELIANCE WAS ALSO PLACED ON VARIOUS CASE LAWS. THE AO OBSERVED THAT T HIS EXPENDITURE WAS NOT INCURRED IN THE NORMAL COURSE OF BUSINESS AND THE S AME WAS HELD TO BE OF CAPITAL NATURE BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SITLAPUR SUGAR WORKS LTD. VS. CIT (49 ITR 160) AND OTHER DEC ISIONS. 13. ON APPEAL, THE DISALLOWANCE WAS CONFIRMED BY TH E LD. CIT(A). 14. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE S UBMITTED THAT THE EXPENDITURE WAS MAINLY INCURRED FOR SHIFTING OF BCP SITE, WHIC H IS A KIND OF EMERGENCY FACILITY FOR CARRYING OUT THE TRADE IN CASE OF NATU RAL DISASTER, AND THE OTHER EXPENDITURE WAS FOR SHIFTING OF THE OFFICE. THEREFO RE, THE SAME SHOULD HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. IN THIS REGARD, HE RELIED ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. MADURA COA TS (253 ITR62) AND CIT VS. KARANPURA DEVELOPMENT CO. LTD. (144 ITR 538). 15. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT SHIFTING OF MACHINERY CONSTITUTES AS REVENUE EXPENDITURE AND IN THIS REGA RD HE RELIED ON THE DECISION OF ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 10 HONBLE SUPREME COURT IN THE CASE OF SITLAPUR SUGA R WORKS LTD. (SUPRA) AND CIT VS. JAMSHEDPUR ENGG. & MACHINE MFG. CO.LTD. (157 IT R 730 (PAT) AND CIT VS. OTIS ELEVATOR CO. (I) LTD.[TAX LR 33 (BOM.)]. 16. IN THE REJOINDER, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE DECISIONS IN THE CASE OF SITLAPUR SUGAR WORKS LTD. AND OTIS ELEVATOR CO. (I) LTD. WERE RENDERED IN CASES WHERE THE ORIGINAL FACTORIES WERE CLOSED, WHEREAS IN ASSESSEES CASE, SOME OF THE FACILITIES HAVE BEEN S HIFTED AND, THEREFORE, ARE NOT APPLICABLE. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT IN THE CASE OF SITLAPUR SUGAR WORKS LTD. THE SUPREME COURT WAS CONCERNED WITH THE ISSUE WHETHER THE ASSESSEE HAD INCURRED SOME EXPEND ITURE IN DISMANTLING AND SHIFTING OF THE FACTORY BECAUSE SUGARCANE WAS NOT E ASILY AVAILABLE IN THE AREA WHERE THE FACTORY WAS SITUATED AND THE SAME WAS SH IFTED TO THE PLACE WHERE SUGARCANE WAS AVAILABLE. ON THESE FACTS, THE HONBL E COURT HELD THAT SUCH EXPENDITURE HAS TO BE CONSTRUED AS CAPITAL EXPENDIT URE. SIMILAR VIEW WAS TAKEN BY THE HONBLE BOMBAY HIGH COURT WHERE AGAIN THE FA CTORY WAS SHIFTED FROM LEASED PREMISES TO OWNED PREMISES. THEREFORE, IT CA NNOT BE SAID THAT IN THESE CASES THE ORIGINAL FACTORIES WERE CLOSED. THE DECIS ION RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE IN THE CASE OF MADURA COATS (SUPRA) IS NOT AGAIN DIRECTLY APPLICABLE BECAUSE IN THAT CASE THE EXPENDITURE INC URRED IN SHIFTING ADMINISTRATIVE OFFICE WAS CLAIMED AS REVENUE EXPENDITURE. THEREFOR E, IT IS CLEAR THAT ALL THESE DECISIONS HAVE BEEN RENDERED ON THE FACTS OF EACH C ASE AND SINCE THE AO HAS NOT DISCUSSED IN DETAIL THE FACTS OF ASSESSEES CASE WH ETHER IT IS A CASE OF SHIFTING OF PLANT & MACHINERY OR OFFICE EQUIPMENT AND THE REASO N FOR SHIFTING THE SAME, WE DEEM IT FIT TO SET ASIDE THE ORDER OF LD. CIT(A) AN D REMIT THE MATTER BACK TO THE ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 11 FILE OF AO TO RE-EXAMINE THE ISSUE AND DECIDE THE SAME AFTER ASCERTAINING THE DETAILS AND KEEPING ALL THE DECISIONS REFERRED TO A BOVE IN MIND. ISSUE NO.3: 18. AFTER HEARING BOTH THE PARTIES, WE FIND THAT ID ENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN EARLIER YEAR AND T HE SAME WAS DECIDED BY PARA- 37 THEREOF, WHICH IS AS UNDER : 37. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFU LLY, WE FIND THAT IN THE EARLIER YEAR IN THE ASSESSEES OWN CASE, THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF JCIT VS. MUKUND LTD. [13 SOT 558] (MUM) (S.B) VIDE PARAS 13 & 14 WHICH ARE AS UNDER : 13. WE FIND UNDER IDENTICAL FACTS THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF MUKUND LTD., [SUPRA], A FTER CONSIDERING VARIOUS DECISIONS INCLUDING THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VSAT. KHIMLINE PUMPS LTD. [SUPRA] AND THE VARIOUS OTHER DECISIONS CITED BY BOTH THE SIDES HAS HELD IN THAT CASE THAT THE CONSIDERATION OF RS.2.04 CRORES PAID BY THE ASSESSEE FOR OBTAINING LEASEHOLD LAND FROM MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION IN I TS FAVOUR FOR A PERIOD OF 99 YEARS WAS CAPITAL IN NATU RE AND ACCORDINGLY, IT WAS HELD THAT THE SAME WAS NOT ALLOWABLE AS DEDUCTION. WE FIND THE TRIBUNAL AT PAR A 26 OF THE ORDER HAS OBSERVED AS UNDER : 26. WE FIND THAT THE FACTS OF THE CASE BEFORE US ARE SIMILAR TO THE FACTS OF THE CASE IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). WE ARE NOT IMPRESSED B Y THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE RATIO OF DECISION OF HONBLE BOMBAY HIGH C OURT IN KHIMLINE PUMPS LTD. CASE (SUPRA) IS DISTINGUISHA BLE SINCE IN KHIMLINE PUMPS LTD. CASE (SUPRA) THE ASSES SEE WAS NOT THE ORIGINAL LESSEE. THIS DISTINCTION POINT ED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT SUSTAINABLE FOR THE REASON THAT THE DECISION OF THE HONBLE HIGH COURT IS NOT BASED ON THE FACT THAT T HE ASSESSEE WAS NOT THE ORIGINAL LESSEE OF THE PREMISE S. ALL OTHER FACTS OF THE CASE OF THE ASSESSEE BEFORE US A RE SIMILAR TO THE FACTS OF THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). THE RATIO OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KHIMLINE P UMPS LTD. (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 12 OF THE ASSESSEE. IN THIS CASE OF THE ASSESSEE ALL T HE ESSENTIAL INGREDIENTS OF TREATING THE AMOUNT OF RS. 2.04 CRORES PAID BY THE ASSESSEE FOR ACQUISITION OF LEAS EHOLD RIGHTS FOR 99 YEARS IN THE LAND AS CAPITAL IN NATUR E ARE PRESENT. THE BENEFIT CONFERRED ON THE ASSESSEE OF L EASE RIGHTS IS FOR 99 YEARS AGAINST THE LUMP SUM PAYMENT OF RS.2.04 CRORES IS OF ENDURING NATURE. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE SUM OF RS.2. 04 CRORES HAD BEEN PAID BY WAY OF ADVANCE RENT NOR WAS THERE ANY PROVISION FOR ITS ADJUSTMENT TOWARDS RENT OR FOR ITS REPAYMENT TO THE ASSESSEE. WE FIND THAT IN CASE, THE ASSESSEE TERMINATES THE LEASE AGREEMENT AND HANDS OVER THE VACANT POSITION OF THE LAND TO MIDC (LESSOR) PRIOR TO THE EXPIRY OF LEASE PERIOD OF 99 YEARS, IT SHALL NOT BE ENTITLED TO ANY REFUND OUT OF THE A MOUNT OF RS.2.04 CRORES PAID BY THE ASSESSEE. THERE IS AL SO NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS MA DE THE ADVANCE PAYMENT OF RENT FOR FUTURE YEARS TO SEC URE ANY REDUCTION IN THE RENT PAYABLE FOR THE FUTURE YE ARS OR FOR ANY OTHER BUSINESS CONSIDERATION. CONSIDERING T HE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE TERMS OF THE AGREEMENT DT. 5 TH MARCH, 1992 ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND MIDC AS A WHOLE, WE HOLD THAT THE CONSIDERATION OF RS.2.04 CR ORES PAID BY THE ASSESSEE COMPANY FOR OBTAINING THE LEASEHOLD RIGHTS FROM MIDC IN FAVOUR OF THE ASSESSE E FOR A PERIOD OF 99 YEARS IS CAPITAL IN NATURE AND THEREFORE, NOT ALLOWABLE AS DEDUCTION TO THE ASSESS EE. THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SES OF PANBARI TEA CO. LTD. 57 ITR 422 (SC), DURGA DAS KHANNA 72 ITR 796 (SC), ADITYA MINERALS (P) LTD. VS . CIT 239 ITR 817 (SC) AND HONBLE JURISDICTIONAL HIG H COURT IN THE CASE OF KHIMLINE PUMPS LTD. 258 ITR 45 9 (BOM) WOULD SQUARELY APPLY TO THE FACTS OF THE CASE OF THE ASSESSEE, AND BEING BINDING IN NATURE, WE DECID E THE ISSUE I GROUND OF APPEAL NO.10 OF THE REVENUE I N FAVOUR OF THE REVENUE AND THE GROUND OF APPEAL NO.1 0 OF THE REVENUE IS ALLOWED AND THE ISSUE REFERRED TO THE SPECIAL BENCH BY THE PRESIDENT, TRIBUNAL IS ANSWERE D IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. 14. FURTHER, WE ALSO DO NOT FIND ANY MERIT IN THE CHART FILED BY THE ASSESSEE TO JUSTIFY THE SAVINGS ON ACCOUNT OF LOWER RENT PAID PER SQ. FT. AS AGAINST THE HIGHER RENT, SINCE THIS, IN OUR OPINION IS ONLY A SELF SERVING DOCUMENT WITHOUT ANY AUTHENTICITY. SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT OF THE CASE (MUKUND LTD. [SUPRA]) DECIDED BY THE SPECIAL BENCH OF THE TRIBUNAL, WHICH IN TURN HAS FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 13 CASE OF KHIMLINE PUMPS LTD. [SUPRA], THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE CIT [A] WAS JUSTIFIED IN UPHOLDING THE AOS ACTION IN TREATING THE PAYMENT OF LEASE PREMIUM AMOUNTING TO RS.7,75,736/- AS CAPITAL IN NATURE. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ACCORDINGLY DISMISSED. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. ISSUE NO.4: 19. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD DEBITED CERTAI N PRIOR PERIOD EXPENSES AS DETAILED BELOW : ELECTRICITY CHARGES .. RS. 5,066 FEES & SUBSCRIPTION .. RS.2, 45,263 MISC. ITEMS .. R S. 5,000 REPAIR & MAINTENANCE CHARGES .. RS 44,583 ON ENQUIRY, IT WAS EXPLAINED THAT THESE EXPENSES HA VE CRYSTALLIZED DURING THE YEAR AND THAT IS WHY CLAIMED IN THIS YEAR. THE AO O BSERVED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND, THER EFORE, PRIOR PERIOD EXPENSES COULD NOT BE ALLOWED IN THIS YEAR. 20. ON APPEAL, THE ADDITION WAS CONFIRMED BY THE LD . CIT(A). 21. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT AS FAR AS ELECTRICITY EXPENSES ARE CONCERNED, THE ASSESSEE HA D MADE A PROVISION BUT THE ACTUAL BILL WAS MORE AND THAT IS WHY THE ACTUAL CHA RGES HAVE BEEN PAID. IN RESPECT OF FEES & SUBSCRIPTION, HE SUBMITTED THAT T HIS AMOUNT WAS PAID TO SOME ORGANIZATION IN SINGAPORE WHERE THE ASSESSEE WAS M EMBER EARLIER. INITIALLY, IT WAS DECIDED NOT TO CONTINUE THE MEMBERSHIP BUT LATE R ON IT WAS DECIDED TO CONTINUE THE MEMBERSHIP AND THIS AMOUNT WAS PAID LA TER BUT RELATED TO THE ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 14 EARLIER YEAR. IN RESPECT OF REPAIR & MAINTENANCE, H E SUBMITTED THAT BILLS FOR REPAIR & MAINTENANCE CHARGES RECEIVED IN THE MONTH OF OCTO BER ONLY AND THAT IS WHY THE SAME COULD NOT BE PROVIDED EARLIER. NO ARGUMENT WAS MADE FOR MISC. EXPENSES. 22. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPOR TED THE ORDER OF CIT(A). 23. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D FORCE IN THE SUBMISSIONS IN RESPECT OF ELECTRICITY CHARGES BECAUSE THE SAME CAN BE PROVIDED ONLY ON ESTIMATE BASIS AND IF THE ACTUAL IS MORE, THE ASSESSEE HAS T O PAY THE SAME. THEREFORE, WE HOLD THAT AS FAR AS ELECTRICITY EXPENSES ARE CONCER NED, THE SAME ARE ALLOWABLE. AS FAR AS OTHER EXPENSES ARE CONCERNED, NO EVIDENCE IS THERE TO SHOW THAT THEY GOT CRYSTALLIZED ONLY IN THIS YEAR. NO COPY OF THE RESO LUTION FOR CONTINUATION OF MEMBERSHIP FOR THE SINGAPORE ORGANIZATION HAS BEEN FILED. SIMILARLY, THERE IS NO EVIDENCE BEFORE US TO SHOW THAT BILLS FOR MAINTENAN CE CHARGES ETC. WERE RECEIVED LATE. IN FACT, THE MAINTENANCE CHARGES HAVE BEEN PA ID TO ONE SUVARNA ELECTRONICS AND SEEMS TO BE ALLOWABLE CHARGES AND COULD HAVE BE EN EASILY PROVIDED IN THE YEAR CONCERNED. THEREFORE, WE FIND NOTHING WRONG WI TH THE ORDER OF THE LD. CIT(A) IN RESPECT OF DISALLOWANCE OF THESE PRIOR PERIOD EX PENSES. IN THE RESULT, THIS GROUND IS PARTLY ALLOWED. 22. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 24TH DAY OF JUNE, 201 1. SD/- SD/- (D.K. AGARWAL) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 24TH JUNE , 2011. ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 15 NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-XIX,MUMBAI. 4 CIT,CITY-7,MUMBAI. 5.DR,I BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 2120 & 2512/M/07 NATIONAL STOCK EXCHANGE OF INDIA LTD. 16 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 15-06-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 17-06-11 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER