Media Video Ltd, New Delhi V. DCIT CC-20, New Delhi

ITA 2640/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2095 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 26-10-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 06-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K GAUTAM
• Assessee Lawyers: TARAN DEEP SINGH ACA
• Keywords: Capital asset; Depreciation; Commercial expediency; Capital expenditure
• Section: 143(3); 153A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI VIMAL GANDHI, PRESIDENT AND SHRI DEEPAK R. SHAH, ACCOUNTANT MEMBER I.T.A.NOS.2640 & 2641/DEL/2008 ASSESSMENT YEARS : 1999-2000 & 2001-02 M/S. MEDIA VIDEO LTD., DY. COMMISSIONER OF INCOME -TAX, B-86/1, OKHLA INDL. AREA, VS. CENTRAL CIRCLE-20, N EW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TARAN DEEP SINGH, ACA. RESPONDENT BY : SHRI M.K. GAUTAM, CIT-DR. O R D E R PER DEEPAK R. SHAH, ACCOUNTANT MEMBER. BOTH THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I, NEW DELHI, DATED 16 TH MAY, 2008 AND 23 RD MAY, 2008 FOR THE ASSESSMENT YEARS 1999-2000 AND 2001-02 IN APPEALS AGAINST ASSESSMENTS FRAMED UNDER SECTION 153A READ WITH SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (TH E ACT). 2. THE FIRST ISSUE IN BOTH THE APPEALS IS AGAINST D ISALLOWANCE OF RS.1,63,239/- OUT OF BUILDING REPAIR EXPENSES TREAT ED AS CAPITAL EXPENDITURE AS PER ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 19 96-97 ALLOWED TO BE AMORTIZED OVER PERIOD OF 5 YEARS. 2 3. THE ASSESSING OFFICER ON THE BASIS OF SEARCH CON DUCTED AT THE PREMISES OF THE ASSESSEE INITIATED ACTION FOR FRAMI NG ASSESSMENT UNDER SECTION 153A OF THE ACT. THE ASSESSING OFFICER NOT ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AMOUNTING TO RS.3,26,400/- @ 2 0% ON A BUILDING IN THE HEAD OFFICE. THE ASSESSING OFFICER HELD THAT T HE RATE APPLICABLE TO BUILDING IS 10% AND HENCE EXCESS CLAIM AMOUNTING TO RS.1,63,200/- WAS DISALLOWED. THE COMMISSIONER (APPEALS) NOTED THAT THE ASSESSEE HAS CARRIED OUT BUILDING REPAIRS AND CAPITALIZED IT AT 20% PER YEAR. THE INVESTMENT CANNOT BE CAPITALIZED. THEREFORE, THE ACTION OF TH E ASSESSING OFFICER IS CORRECT IN RESPECT OF ALLOWING DEPRECIATION AT 10% AS PER INCOME-TAX RULES. 4. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINING THE FACT SUBMITTED THAT THE ORDER UNDER SEC.153A DATED 29 TH DECEMBER, 2006 (COPY FURNISHED AS ANNEXURE-A OF THE PAPER BOOK) WAS RECTIFIED BY THE A.O. VIDE ORDER DATED 15 TH FEBRUARY, 2007 UNDER SECTION 154. THE CLAIM OF TH E ASSESSEE WAS ALLOWED AND IT WAS BASED ON DIRECTIONS ISSUED BY IT AT IN ASSESSEES CASE FOR A.Y. 1996-97. BEFORE THE CIT(A) THE GROUND OF APPE AL NO.3 AGAINST ASSESSING OFFICERS ORDER UNDER SECTION 153A DATED 29 TH DECEMBER, 2006 WAS NOT PRESSED SINCE THE ASSESSING OFFICER UNDER S EC.154 HAD ALREADY ALLOWED NECESSARY RELIEF. THUS THE CIT(A) ON FACTS ERRED IN UPHOLDING ASSESSING OFFICERS ORIGINAL ORDER WITHOUT TAKING COGNIZANCE OF THE FACT THAT 3 THE A.O. HIMSELF HAD ALLOWED RELIEF UNDER SEC.154 W HICH FACT WAS DULY BROUGHT TO HIS NOTICE. IT IS THUS SUBMITTED THAT ST ATUS QUO POST AOS ORDER UNDER SECTION 154 BE RESTORED BACK. THE LEARNED DR ON THE OTHER HAND RELIED UPON TH E APPELLATE ORDER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE ISSUE REGARDING CLAIM OF EXPENDITURE ON ACCOUNT OF REPAIR S TO PREMISES TAKEN ON LEASE FIRST AROSE BEFORE THE TRIBUNAL IN CROSS APPE AL FOR A.Y. 1996-97 IN ITA NOS.4208/DEL/1999 & 4280/DEL/99. THE TRIBUNAL BY I TS ORDER DATED 8.9.2000 HELD AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS SE TTLED LAW THAT THE CAPITAL EXPENDITURE IS THE EXPENDITURE WHICH EITHER BRINGS INTO EXISTENCE OF NEW CAPITAL ASSET OR GIVES LONG ENDURING BENEFIT. AS THE BUILDING WAS TENANTED ONE, NO NEW ASSET IS CREATED BY INCURRING THE EXPENSES ON RENOVATION OF OFFICE BUILDING. THUS, IT HAS TO BE CONSIDERED WHETHER BY INCURRING SUCH EXPENDITURE, ANY LONG ENDURING BENEFIT WAS OBT AINED OR NOT. WE HAVE, THEREFORE, EXAMINED THE NATURE OF TH ESE EXPENSES. SEC. 30 OF THE INCOME-TAX ACT PROVIDES F OR DEDUCTION OF EXPENSES ON REPAIRS TO PREMISES USED FOR BUSINES S. CLAUSE- (A)(I) OF SEC.30 OF THE ACT PROVIDES THAT WHERE THE ASSESSEE IS TENANT IN THE PREMISES, THE COST OF REPAIRS TO THE PREMISES WAS ALLOWABLE DEDUCTION ONLY IF THE TENANT HAS UNDERTAK EN TO BEAR THE COST OF REPAIRS. IN THE INSTANT CASE, NO EVIDE NCE, HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE ASSESSEE HAD UNDERTAKEN THE RESPONSIBILITY OF BEARING THE COST OF REPAIRS T O THE BUSINESS PREMISES. IT WAS UNDER THESE CIRCUMSTANCES THAT TH E CIT(A) WHILE RELYING ON THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF MADRAS AUTO SERVICES (SUPRA) HAD ALLOWED 20 % DEDUCTION IN EACH OF FIVE YEARS. WE DO NOT FIND AN Y INFIRMITY IN HIS FINDING AND ACCORDINGLY UPHOLD THE SAME. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 4 IN VIEW OF THE FINDING BY THE TRIBUNAL, THE EXPENSE S ON REPAIRS TO THE BUSINESS PREMISES TAKEN ON LEASE ARE TO BE AMORTIZE D OVER A PERIOD OF 5 YEARS COMMENCING FROM A.Y. 1996-97. THE TRIBUNAL HAS DIR ECTED TO ALLOW REPAIR EXPENSES FOR A PERIOD OF 5 YEARS AND HAS NOT HELD T HAT THE EXPENSES ARE CAPITAL IN NATURE SO AS TO BE TREATED AS PART OF BU ILDING. THEREFORE, IT IS INCORRECT TO HOLD THAT THE DEPRECIATION IS ALLOWABL E AS PER THE RATE APPLICABLE TO THE BUILDING. RATHER IT IS A CASE OF AMORTIZATIO N OF THE EXPENSES OVER A PERIOD OF 5 YEARS. THEREFORE, THE ISSUE TO BE DECI DED IN THIS APPEAL IS LIMITED TO THE EXTENT OF GIVING EFFECT TO THE ORDER OF TRIB UNAL FOR A.Y. 1996-97. EVEN THE ASSESSING OFFICER NOTED THE MISTAKE AND BY ORDER UNDER SEC. 154, HAS ALLOWED THE FURTHER CLAIM IN RESPECT OF AMORTIZ ATION OF BUILDING REPAIR EXPENSES. THEREFORE, THERE IS NO JUSTIFICATION TO DISALLOW PART OF THE BUILDING REPAIR EXPENDITURE CLAIMED AS AMORTIZATION DURING T HE YEARS UNDER APPEAL ALSO. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF AMORTIZATION OF RS.3,26,479/- FOR THE YEARS UNDER A PPEAL ALSO. 6. THE NEXT GROUND IN APPEAL FOR ASSESSMENT Y EAR 1999-2000 IS AGAINST DISALLOWANCE OF ADVANCE OF RS.7,50,000/- OUT OF INT EREST EXPENSES. 7. THE A.O. NOTED THAT ON ANY GIVEN DATE A S UM OF RS.50 LACS WAS OUTSTANDING AGAINST THE SISTER CONCERN THROUGHOUT T HE YEAR ON WHICH NO INTEREST HAS BEEN CHARGED. THE APPELLANT HAS ADVAN CED INTEREST BEARING FUND 5 EVEN THOUGH THERE WAS HEAVY BALANCE OUTSTANDING AGA INST MEDIA INDUSTRIES LTD. THE ADEQUACY OF THIS MAGNITUDE COULD NOT BE P ROVED. THE LEARNED CIT(A) CONFIRMING THE ORDER HELD THAT PAYING THE IN TEREST AND ALLOWING HUGE MONEY IS A CONTRADICTORY PRACTICE. THEREFORE, THE ADDITION OF RS.7,50,000/- IS TO BE CONFIRMED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT BOTH THE ASSESSING OFFICER AND CIT(A) HAVE ERRED IN NOT CON SIDERING THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION WITH M/S . MEDIA INDUSTRIES LTD. THOUGH FOLLOWING DOCUMENTS WERE FILED: (A) WRITTEN SUBMISSIONS DATED 18 TH FEBRUARY, 2008 FILED BEFORE CIT(A). (COPY FURNISHED AT PAGES 1 TO 4 OF THE PAPER BOOK RELEVANT PAGE 2 PARA 3 ONWARDS). (B) CHART FOR COMPUTATION OF OWN FUNDS, OPENING AND CLOSING BALANCE, SALES AND PURCHASES MADE WITH SISTER CONCERN, SUMMARY OF LEDGER ACCOUNT OF M/S. MEDIA INDUSTRIES (REFER PAGES 5 AND 5A OF THE PAPER BOOK). BOTH ASSESSING OFFICER AND CIT(A) HAVE ERRED IN NOT ACCEPTING THAT THE ASSESSEE WAS MAINTAINING A TRADING ACCOUNT WITH M/S . MEDIA INDUSTRIES WHEREIN FOLLOWING DEBITS/CREDITS TOOK PLACE. (I) PURCHASES MADE FROM M/S. MEDIA INDUSTRIES LTD. (II) SALES MADE TO M/S. MEDIA INDUSTRIES. (III) RENT AND SERVICE CHARGES RECOVERED FROM M/S. MEDIA INDUSTRIES SINCE THEY WERE USING OFFICE SPACE AND OTHER AMENITIES PR OVED BY THE ASSESSEE. 6 THE ADVANCES GIVEN TO M/S. MEDIA INDUSTRIES LTD. WE RE FOR PURCHASES TO BE MADE FROM IT BY THE ASSESSEE. ADMITTEDLY THERE IS AN OPENING BALANCE OF RS.25.88 LACS, TO THIS EXTENT IN ANY CASE NO DISALL OWANCE CAN BE MADE. FURTHER NEXUS HAS NOT BEEN ESTABLISHED BY THE ASSES SING OFFICER. IT WAS FURTHER SUBMITTED THAT IN SPITE OF THESE EVIDENCES FILED AND FACTS HAVING BEEN BROUGHT TO THE KNOWLEDGE OF THE COMMISS IONER (APPEALS), THE DISALLOWANCE IS SUSTAINED. THEREFORE, TO GIVE A FI NDING WHETHER THE OUTSTANDING BALANCE IS IN RESPECT OF TRADING TRANSA CTION OR WHETHER THE OUTSTANDING BALANCE IS OUT OF OPENING BALANCE ETC., THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER SO THAT THE ISSUE CAN BE DECIDED AFRESH. THE LEARNED DR SUBMITTED THAT TO EXAMINE AND TO GIVE A FINDING THE MATTER NEEDS TO BE RESTORED BACK TO THE ASSESSING O FFICER. 9. ON CAREFUL CONSIDERATION OF RELEVANT FACTS WE ARE INCLINED TO AGREE WITH THE SUGGESTION MADE BY BOTH THE COUNSELS. WE FIND THAT IN SPITE OF EVIDENCES AS STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THERE IS NO FINDING BY THE COMMISSIONER (APPEALS) AS TO WHETHER THE OUTSTANDING BALANCE ARISING OUT OF MAINTAINING THE TRADING ACCO UNT WITH MEDIA INDUSTRIES LTD. OR WHETHER THE ADVANCES ARE IN THE COURSE OF B USINESS. WE ARE, THEREFORE, UNABLE TO APPLY THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR 7 THE ASSESSEE INCLUDING THAT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS, 288 ITR 1. THEREFORE, TO EXAMINE THE FAC TS AFRESH AND TO GIVE A FINDING AS TO THE NATURE OF TRANSACTION, THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER ON EXAMINING THE NATURE OF TRANSACTION, MAY DECIDE WHETHER THE INTEREST ON THE AMOUNT BORROWED IS ALLOWABLE OR NOT. 10. THE NEXT GROUND OF APPEAL FOR THE A.Y. 200 1-02 IS AGAINST DISALLOWANCE OF RS.1,00,000/- STATED TO BE PAID FOR RESERVATION OF RENTED PREMISES FORFEITED BY THE BROKER. 11. THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAS PAID A SUM OF RS.1,00,000/- AS EARNEST MONEY FOR PURCHASE OF SOME PIECE OF LAND WHICH WAS LATER FORTIFIED BY THE SELLER. SINCE THE AMOUN T WAS SPENT FOR PURCHASE OF CAPITAL ASSET, THE SAME WAS TREATED AS CAPITAL EXPE NDITURE AND HENCE NOT ALLOWABLE. THE LEARNED COMMISSIONER (APPEALS) CONF IRMED THE SAME AND HENCE THIS GROUND. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMI TTED THAT BOTH THE ASSESSING OFFICER AND THE CIT(A) HAVE ERRONEOUSLY R ECORDED THAT THE MONEY WAS PAID AS EARNEST MONEY FOR PURCHASE OF LAND. IN THIS REGARD REFERENCE IS INVITED TO WRITTEN SUBMISSION DATED 18 TH FEBRUARY, 2008 FILED BEFORE THE CIT(A) (COPY FURNISHED AT PAGES 1 TO 4 OF THE PAPER BOOK RELEVANT PAGE 3 8 PARA 3). IT IS SUBMITTED THAT THE PAYMENT OF RS.1, 00,000/- WAS MADE FOR TAKING AN ADDITIONAL GROUND SPACE ON RENT FROM MR. RAJIV CHABRA. THE DEAL WAS STRUCTURE THROUGH MR. C. LAL ESTATE AGENT AND T HE EARNEST MONEY OF RS.1,00,000/- WAS PAID FOR RESERVING THE SPACE. NO RENT DEED WAS ENTERED INTO SINCE THE ASSESSEE WAS UNABLE TO SHIFT. ATTEN TION WAS ALSO INVITED TO PAGE 5 OF THE PAPER BOOK WHEREIN C. LAL AT BOTTOM O F PAGE ACKNOWLEDGES FORFEITURE OF SAID SUM OF MONEY. CONSIDERING THE F ACTS AS STATED BEFORE LOWER AUTHORITIES AT PAGES 3 AND 5 THAT THE MONEY W AS PAID NOT FOR PURCHASE OF LAND BUT FOR RENT OF PROPERTY. UNFORTUNATELY TH E ASSESSEE WAS UNABLE TO MAKE USE OF THE PREMISES ON ACCOUNT OF BUSINESS CON STRAINTS. THE A.O. AND CIT(A) THUS ERRED IN ALLEGING THAT IT WAS A CAPITAL EXPENDITURE. THE LEARNED DR ON THE OTHER HAND, SUBMITTE D THAT BEFORE THE ASSESSING OFFICER IT WAS NEVER CONTENDED THAT THE AMOUNT IS P AID FOR OBTAINING A PREMISES ON RENT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. BEFORE THE COMMISSIONER (APPEALS) IT WAS SUBMITTED THAT THE PAYMENT OF RS.1 ,00,000/- WAS PAID FOR ADDITIONAL GROUND SPACE TO BE TAKEN ON RENT FROM MR . RAJIV CHABRA THROUGH MR. C. LAL, THE ESTATE AGENT. AFTER THE INITIAL DE POSIT THE ASSESSEE WAS ASKED TO EXECUTE THE LEASE DEED ALSO AND ON FAILURE OF TH E ASSESSEE THE ADVANCE LEASE MONEY PAID HAD BEEN FORFEITED. THIS FACT HAS ALSO BEEN CONFIRMED BY 9 THE BROKER AS PER PAGE 5 OF THE PAPER BOOK WHEREIN MR. C. LAL ACKNOWLEDGES THE FORFEITURE OF SAID MONEY. THUS TH E AMOUNT PAID WAS NOT FOR ACQUIRING ANY CAPITAL ASSET BUT TO OBTAIN THE P REMISES ON LEASE. THE AMOUNT HAVING BEEN PAID IN THE COURSE OF BUSINESS A ND BEING FORFEITED DUE TO FAILURE OF THE ASSESSEE TO EXECUTE THE LEASE DEED A ND TAKE POSSESSION OF THE PREMISES, IT AMOUNTS TO LOSS IN CARRYING ON BUSINES S AND HENCE ALLOWABLE AS SUCH. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS .1,00,000/-. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 1999- 2000 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES WHEREAS APPEAL FOR ASSESSMENT YEAR 2001-02 IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11-12-2009. SD/- SD/- (VIMAL GANDHI) (DEEPAK R. SHAH) PRESIDENT ACCOUNTANT MEMBER DATED: 11.12.2009. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.