DCIT, Cir-5(1), Kolkata. , Kolkata V. M/s. Balmer Lawrie and Co Ltd. , Kolkata

ITA 259/KOL/2023

AI Insights

The case involves the Deputy Commissioner of Income-tax appealing against the order of the CIT(A), which allowed certain deductions and deletions in the assessment of Balmer Lawrie & Co. Ltd. for the assessment year 2013-14. The main issues in the appeal were the allowance of business expenditure claimed as lease premium, the treatment of prior period expenses, and the application of section 80IA concerning infrastructure development. The Tribunal examined precedents and judicial decisions relevant to these issues, particularly focusing on the treatment of lease premiums and the recognition of prior period expenses under the mercantile system of accounting.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124994 (ITAT-KOLKATA)
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 26-03-2023
• Other Referred Cases: (2019) 111 taxmann.com 316 (Cal), Dy.CIT Vs Century Plyboards India Ltd, Enterprising Enterprises Vs CIT, Madras Industrial Investment Corporation Ltd. Vs. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Question of law; Notional interest; Capital expenditure
• Section: 32; 143(3); 115JB; 37(1); 80IA; 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.259/Kol/2023 Assessment Year: 2013-14 Deputy Commissioner of Income-tax, Circle-5(1), Kolkata Vs. Balmer Lawrie & Co. Ltd., 21, N. S. Road, Kolkata-700001 (PAN: AABCB0984E) (Appellant) (Respondent) Present for: Appellant by : Shri Akkal Dudhwewala, FCA, AR Respondent by : Shri P. P. Barman, Addl. CIT, Sr. DR Date of Hearing : 17.05.2023 Date of Pronouncement : 24.05.2023 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide Order No. ITBA/NFAC/S/250/2022-23/1047509567(1) dated 18.11.2022 against the assessment order of ACIT, Circle-5(2), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 16.12.2016 for AY 2013-14. 2. There are three issues involved in the present appeal by the revenue for which grounds of appeal are reproduced as under: “I. That on the facts and circumstances of the case, Ld. CIT(A) has erred in law in allowing the expenditure to the tune of Rs 79,68,169/- claimed by the assessee as business expenditure as deduction on account of lease premium. 2 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 2. That on the facts and circumstances of the case, Ld CIT(A) has erred In law in not holding the prior period expenses of Rs. 57,34,000/- as in allowable expenses in the instant assessment year which is patently wrong in as much as the assessee is following mercantile systems of accounting and as such the prior period expenses cannot be allowed during the assessment in separate and distinct. 3. That on the facts and circumstances of the case, Ld CIT(A) has erred in law and fact, in deleting the addition u/s 80IA of the Act to the tune of Rs. 2,57.88,469/-. 4. That the appellant craves for leave to add, delete amend or modify any ground before or at the time of appellate proceedings.” 3. Brief facts of the case are that assessee filed its return of income on 26.11.2013 reporting total income of Rs.189,71,76,970/- and a book profit of Rs.230,07,60,406/- u/s. 115JB of the Act. Assessee is engaged in the business of manufacturing of Industrial container, Grease & Lubricants, Leather Chemicals, Trading in Tea, Logistic Infrastructure (CFS) Engg. & Technology Service Division and Travel & Tour Services. Case of the assessee was selected for scrutiny through CASS for which statutory notices were issued and served on the assessee which were duly complied with. Issues raised by the Ld. AO in completing the assessment are legacy issues which are covered by the decision of Coordinate Bench of ITAT, Kolkata as well as by the Hon’ble jurisdictional High Court of Calcutta in assessee’s own case from the preceding years. Ld. Counsel for the assessee has submitted a summary chart on the three grounds of appeal by correlating as to how each of the ground is covered by the decision in assessee’s own case relating to the preceding years. The chart is reproduced as under: 3 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 3.1. Along with this chart, Ld. Counsel has placed on record, copies of relevant decisions stated in the chart above, in the form of a judicial paper book. On confrontation of these submissions of the Ld. Counsel to the Ld. Sr. DR, nothing positive was brought on record to controvert the same . Based on the above, we deal with each of the ground in seriatim. 4. Ground no. 1 relating to disallowance of deduction claimed on account of proportionate leasehold premium of Rs.79,68,169/-, the issue was dealt by the Hon’ble jurisdictional High Court of Calcutta in assessee’s won case relating to AY 2008-09 reported in (2019) 111 taxmann.com 316 (Cal). The substantial question of law before the Hon’ble Court on this issue was – “Whether the learned Tribunal has committed error in not following its earlier order dated 11 th April, 2008 passed in assessee company’s own case in ITA 348/Kol/2007 while interpreting the five years lease deeds to hold that proportionate premium on lease hold lands was nothing but advance payment of 4 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. rent and the same was not a capital expenditure and as such, the business deduction should be allowed under Section 37(1) of the Income Tax Act, 1961.” 4.1. Hon’ble Court answered the question in affirmative and in favour of the assessee by observing as under: “10. Special Bench of the Tribunal gave its view regarding advance payment of rent to be capital expenditure on findings, inter alia, that there was termination clause, by which premature termination did not provide for refund of premium, claimed to be advanced rent, there was no clause in the agreement to show that the amount of Rs.2.04 crore was paid by the assessee as advance rent for all future years and the lump sum payment of future years rent had been paid to avail some concession for advance payment of rent or for some other business consideration. It is clear from our perusal of terms of leases between assessee and its lessors, such terms are not there between them. We are unable to appreciate that fact of rent being depressed rent can only be appreciated as such if there is recital about it in the lease rent. That substantial amount of money was paid as premium, claimed and shown by assessee to be advance rents and where rents reserved are as above, it follows there was no contention raised before the Tribunal regarding the rents reserved corresponding to market rate of rent. We have no hesitation to infer that rents reserved are depressed rents. 11. Finding by the Tribunal that assessee's agreements are exactly similar with the agreements before Special Bench, considered and dealt with in Mukund Ltd. (supra) is perverse as based on no material or contrary to material before it.” 4.2. This issue also came up in assessment year 2012-13 and 2014-15 before the Coordinate Bench of ITAT, Kolkata wherein on analogous facts, claim of assessee was allowed. In the decision for AY 2014-15, relevant observations and findings of the Coordinate Bench are reproduced as under: “13. We also note that the assessee’s claim for amortization of lease premium principally related to leases of four plots of land at Mumbai & Kolkata which are used for setting up Container Freight Stations (CFS), considered as ‘infrastructure facility’ for the purposes of Section 80IA of the Act. With the permissions obtained from the Ministry of Finance, Dept. of Revenue, the assessee has set up devel CFSs on the leased premises. The issue of allowability of amortization of lease premium paid in respect of leased land on which CFS was set up, was considered by the coordinate bench of this Tribunal in the case of Dy.CIT Vs Century Plyboards India Ltd (supra). In that case also the assessee had paid lease 5 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. premium of Rs.156 lacs for obtaining lease of land from Kolkata Port Trust for a period of 15 years. In its books as well as in the return of income the assessee claimed amortization of the lease premium over the period of 15 years. This claim was rejected by the AO. On appeal the Ld. CIT(A) allowed the deduction by following the CBDT Circular No. 9/2014 dated 23.04.2014. On appeal relying on the judgment of the Hon’ble Supreme Court in the case of Enterprising Enterprises Vs CIT (supra) the Revenue claimed that such expenditure being capital in nature was not allowable in computing business income of the assessee. The Tribunal however noted that the judgment of the Hon’ble Supreme Court was rendered on 04.12.2006 but thereafter the CBDT issued the Circular on 23.04.2014 wherein expenditure of such nature was permitted to be spread over the lease period after the commencement of business. The relevant findings of the coordinate Bench of this Tribunal was as follows: 16. We have heard rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The issue in the instant case revolves to the amount of the lease premium amortized by the assessee over a lease period as discussed above. The assessee after the commencement of the business has claimed the proportionate deduction of the aforesaid expenditure pertaining to the year under consideration. Undisputedly the proportionate deduction was claimed by assessee u/s 37(1) of the Act after the commencement of its business. 16.1. Indeed, case law relied on by Ld DR as discussed above is against the assessee wherein it has been held by the Hon’ble Madras High Court in the case of Enterprising enterprise (supra) and aforesaid judgement was delivered by the Hon’ble Madras High Court vide order dated 01.04.2004 which was subsequently affirmed by Hon’ble Supreme Court vide order dated 04.12.2006. However, subsequent to the aforesaid judgment, we find that the CBDT has issued a Circular 9/2014 dated 23.04.2014 wherein the impugned expenditure was allowed over the lease period after the commencement of business and relevant extract of the Circular is reproduced below:- 2. In such project, the developer (hereinafter referred to as “assessee”), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and 6 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income, assessee are generally claiming depreciation on such capitalized expenditure treating it as an ‘intangible asset’ in terms of section 32(1)(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the tax payer which is an essential condition for claiming depreciation and further right to collect toll does not fall in an of the categories of ‘intangible assets’ specified in sub-clause (ii)of sub-section (1) of section 32 of the Act. 3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authorityfor the purposes of Construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. It also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owner of the property, either wholly or partly, for purposes of allowability of depreciation under section 32(1)(ii) of the Act. Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non fulfilment of ownership criteria in such cases. 4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the constructions cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT in 225 ITR 802= 2002-TIOL-290-SC-IT-LB allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of 7 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost ‘so reduced’ shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. 9. This, may be brought to the notice of all concerned. The aforesaid Circular was issued on 23.04.2014 and subsequent to the judgment of Hon’ble Madras High Court as well as Hon’ble Supreme Court. The Circular being beneficial to the assessee is binding on the lower authorities. In our considered view, the AO before making any disallowance should have referred to the aforesaid Circular. In the background of the above discussion and precedent of the cases we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. This ground of Revenue is dismissed. 14. We thus find that the on identical facts the coordinate Bench of this Tribunal by applying the CBDT Circular No. 9/2014 dated 23.04.2014 granted the assessee’s claim for amortization of lease premium over the effective life of lease. For the reasons discussed in the foregoing therefore we do not find any infirmity in the order of the Ld. CIT(A) granting amortization of lease premium of Rs.79,68,169/- in computing business income of the assessee. In the result, the appeal of the Revenue fails.” 4.3. In the decision for AY 2012-13 similar findings are given by the Coordinate Bench of ITAT, Kolkata and Ld. Counsel has submitted that no other appeal was preferred by the revenue before the Hon’ble High 8 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. Court against this decision and, therefore, the matter has attained finality. 4.4. Thus, considering the facts in present case which are analogous to the preceding years wherein the claim of assessee has been allowed for amortisation of lease premium over the effective life of lease the same is allowed in this year also. For the reasons discussed above in reference to the judicial precedence in assessee’s own case, we do not find any infirmity in the order of Ld. CIT(A) granting amortization of lease premium of Rs.79,18,169/- in computing the business income of the assessee. Accordingly, ground no. 1 of the appeal by Revenue is dismissed. 5. Ground no. 2 is relating to disallowance of prior period expenditure of Rs.57,34,000/-. It is stated that the issue is covered by the decision of the Hon’ble jurisdictional High Court of Calcutta in assessee’s own case for AY 2012-13 in ITA No. 259/Kol/2022 dated 13.03.2023, the relevant finding given by the Hon’ble Court in para 5 is extracted below: “5. The learned senior standing counsel submitted that merely because the assessee was state undertaking, it cannot be stated that it cannot do any wrong and the learned tribunal did not examine the facts of the case. We do not agree with the said submission as we have found that both the CIT(A) as well as the tribunal has examined the facts. In fact, the examination of facts by .the CIT(A) is more elaborate and more importantly as noted by the tribunal, the revenue was not able to place any material to disprove that the assessee explanation furnished before the authorities in support of its claim that the liability to pay the expenses charged under the head "prior period" crystallized during the financial year 2011-2012. Thus, we find that no substantial question of law arises for consideration under the head prior period expenses.” 5.1. In order to examine the facts for the year under consideration, so as to apply the aforesaid judgment of the Hon’ble High Court, Ld. Counsel was asked to provide the details of prior period expenses which has been debited in the P&L Account. To this effect, Ld. Counsel 9 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. submitted the details along with the description of the expenses charged to the P&L Account. The same are extracted below for ease of reference: 10 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 11 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 5.2. Thus, from the perusal of these above details, we find that the facts are analogous so as to get the benefit of the decision of the Hon’ble High Court in the year under consideration also. Respectfully following the decision of the Hon’ble High Court, we do not find any reason to interfere with the findings given by the Ld. CIT(A) in allowing the claim of the assessee in respect of prior period expenditure of Rs.57,34,000/-. Accordingly, ground no.2 taken by the Revenue is dismissed. 6. Ground no. 3 is in respect of deletion of addition made u/s. 80IA of the Act for Rs.2.57,88,469/-. Ld. Counsel referred to the decision of the Coordinate Bench of ITAT, Kolkata in assessee’s own case for AY 2014- 15 in ITA No. 2483/Kol/2017 wherein this issue has been held in favour of the assessee. In this respect, Ld. Counsel for the assessee referred to the stand alone financials of the eligible unit u/s. 80IA of the Act to demonstrate that notional interest charged/credited intra unit to the head office while computing the amount of deduction has been adjusted. Extracts of the same are reproduced as under: 12 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 13 ITA No.259/Kol/2023 Balmer Lawrie & Co. Ltd., AY: 2013-14. 6.1. Thus, considering the above facts as demonstrated by the ld. Counsel in respect of notional interest adjusted in computing the claim made u/s. 80IA and the judicial precedent in assessee’s own case for AY 2014-15 (supra), we do not find any reason to interfere with the finding given by the Ld. CIT(A) in deleting the addition made in respect of claim made u/s. 80IA of the Act. Accordingly, ground no. 3 taken by the Revenue is dismissed. 7. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 24th May, 2023. Sd/- Sd/- (Rajpal Yadav) (Girish Agrawal) Vice President Accountant Member Dated: 24 th May, 2023 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent 3. CIT(A), National Faceless Appeal Centre (NFAC), Delhi 4. CIT , 5. DR, ITAT, Kolkata Bench, Kolkata //True Copy// By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata