STANDARD CHARTERED INVESTMENTS & LOANS (INDIA) LTD., MUMBAI V. ADDL. C.I.T. -1(3), MUMBAI

ITA 2792/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0575 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 31-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M MS STANDARD; NAVEEN GUPTA LD DR ITA NO
• Assessee Lawyers: SANJIV M SHAH LD
• Keywords: Capital asset; Depreciation; Additional evidence; Revenue expenditure
• Section: 43B; 143(3); 115JB; 37; 139

Judgement Text

ITA NO2792 & 2908/M/2011 STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) LIMIT ED ASSESSMENT YEAR 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 2792/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) STANDARD CHARTERED INVESTMENTS & LOANS (INDIA) LIMITED (CIN U65990MH2003PLC142829) ORIENTAL BUILDING 364, DR. D.N. ROAD, FORT MUMBAI 400 001 / VS. ADDITIONAL COMMISSIONER OF INCOME TAX 1(3) AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020 ./ ./PAN/GIR NO. AAHCS-3462-N ( /APPELLANT ) : ( !' / RESPONDENT ) & ./I.T.A. NO. 2908/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) JOINT COMMISSIONER OF INCOME TAX 1(3) OSD AAYKAR BHAVAN M.K. ROAD MUMBAI-400 020 / VS. STANDARD CHARTERED INVESTMENTS & LOANS (INDIA) LIMITED ORIENTAL BUILDING 364, DR. D.N. ROAD, FORT MUMBAI 400 001 ./ ./PAN/GIR NO. AAHCS-3462-N ( /APPELLANT ) : ( !' / RESPONDENT ) A SSESSEE BY : SANJIV M. SHAH, LD. AR RE VENUE BY : NAVEEN GUPTA , LD. DR ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 2 / DATE OF HEARING : 04/05/2017 / DATE OF PRONOUNCEMENT : 02 /06/2017 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE ARE TWO APPEALS-ONE EACH BY ASSESSEE AND REVE NUE FOR ASSESSMENT YEAR [AY] 2006-07 WHICH ASSAILS THE ORDE R OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, MUMBAI DATE D 21/01/2011 ON DIFFERENT GROUNDS OF APPEAL. SINCE, BOTH APPEALS SP RINGS OUT OF THE SAME ORDER, WE DISPOSE-OFF BOTH THE APPEALS BY WAY OF TH IS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST, WE TAKE UP REVENUES APPEAL ITA NO. 2908/MUM/2011 WHERE THE SOLE GROUND RAISED BY REVENUE CONTEST DELETION OF DISALLOWANCE OF LEASEHOLD / REFURBISHMENT EXPENSES OF RS.135,53,555/-. 2. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED AS NBFC, WAS ASSESSED FOR IMPUGNED AY U/S 143(3) VIDE ASSESSING OFFICER [AO] ORDER DATED 30/12/2009 AT RS .27.17 CRORES AFTER CERTAIN ADJUSTMENTS / DISALLOWANCES AS AGAINST RETU RNED INCOME OF RS.15.47 CRORES E-FILED BY ASSESSEE ON 08/11/2006. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE CLAIM ED AN AMOUNT OF ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 3 RS.1.35 CRORES AS REFURBISHMENT EXPENSES ON LEASEHOLD PROPERTY AS REVENUE EXPENDITURE WHICH WERE CAPITALIZED IN THE B OOKS OF ACCOUNTS AND AGAINST WHICH DEPRECIATION WAS PROVIDED. HOWEVE R, THE ASSESSEE, IN THE COMPUTATION OF INCOME, DISALLOWED THE DEPRECIAT ION AND CLAIMED FULL EXPENSES OF RS.1.35 CRORES AS REVENUE EXPENDITURE. THE AO NOTED THAT THE SAME WERE INCURRED IN CONNECTION WITH STARTING OF NEW CONSUMER BUSINESS BY THE ASSESSEE WHICH WAS ALTOGETHER A NEW LINE OF BUSINESS AND HENCE THE SAME WERE CAPITAL IN NATURE. THE DEPR ECIATION ON THESE EXPENSES WAS DISALLOWED BY THE LD. AO ON THE PREMIS ES THAT THE ASSESSEE FAILED TO SUBSTANTIATE THAT LEASEHOLD ASSE TS WERE PUT TO USE DURING THE IMPUGNED AY. 3. AGGRIEVED, THE ASSESSEE ASSAILED THE SAME SUCCES SFULLY BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 21/01/2011 WHERE T HE LD. CIT(A) NOTED THAT THE ASSESSEE, BEING A NBFC, WAS ALREADY ENGAGED IN CORPORATE FINANCING AND INCURRED THE EXPENDITURE IN THE COURSE OF VENTURING INTO RETAIL FINANCING BUSINESS AND THEREFORE, BOTH BUSINESS BEING RELATED BUSINESS ONLY AND SINCE EXPENDITURE W AS INCURRED TO REFURBISH THE LEASEHOLD PREMISES WHICH WERE NOT OWNED BY THE ASSESSEE, THE SAME BEING REVENUE EXPENDITURE, WAS A LLOWABLE TO THE ASSESSEE. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US . 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] CONTEND ED THAT THE ASSESSEE INCURRED THE SAID EXPENDITURE IN THE COURS E OF ENTERING INTO NEW LINE OF BUSINESS AND INCURRED HEAVY EXPENDITURE TOWARDS THE ESTABLISHMENT THEREOF AND SINCE THE BENEFIT THEREOF WAS EXPECTED TO BE RECEIVED OVER A LONGER PERIOD OF TIME, THE SAME WER E CAPITAL IN NATURE ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 4 AGAINST WHICH THE DEPRECIATION WAS AVAILABLE TO THE ASSESSEE PROVIDED THE ASSETS WERE PUT TO USE. HOWEVER, THE ASSESSEE C OULD NOT SUBSTANTIATE START OF NEW LINE OF BUSINESS DURING T HE IMPUGNED AY AND THEREFORE, RIGHTLY NOT ELIGIBLE TO CLAIM EVEN THE D EPRECIATION. 5. PER CONTRA, THE LD. COUNSEL FOR ASSESSEE [AR] PLACED RELIANCE O N THE FINDINGS OF LD. CIT(A) AND CONTENDED THAT THE A SSESSEE WAS NOT ENTERING INTO ANY NEW LINE OF BUSINESS AS WRONGLY N OTED BY LD. AO. FURTHER, THE ASSESSEE INCURRED REVENUE EXPENDITURE AGAINST LEASEHOLD PROPERTIES AND THEREFORE, WAS QUITE ELIGIBLE TO CLA IM THE SAME AND THE CONTENTION OF THE REVENUE WAS MISPLACED THAT THE AS SESSEE RECEIVED BENEFIT OF ENDURING NATURE IN VIEW OF THE FACT THAT THE ASSESSEE DID NOT OWNED THE SAID PREMISES AND DID NOT ACQUIRE ANY NEW CAPITAL ASSET. RELIANCE WAS PLACED ON THE JUDGMENT OF APEX COURT I N CIT VS. MADRAS AUTO SERVICES P. LTD. [233 ITR 468]. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE, BEING NBFC, WAS ALREADY ENGAGED IN CORPORATE FINANCING . IT PROPOSED TO ENTER INTO RETAIL FINANCE SEGMENT AND DURING THE COURSE, INCURRED THE IMPUGNED EXPENDITURE. THEREFORE, AS RIGHTLY NOTED BY LD. CIT (A), THERE WAS NO NEW LINE OF BUSINESS. FROM THE MATERIAL AVAILABLE ON RE CORD, IT IS EVIDENT THAT IMPUGNED EXPENDITURE WAS INCURRED AGAINST SEVERAL P ROPERTIES LOCATED OVER DIFFERENT PLACES AND WERE INCURRED MAINLY ON A CCOUNT OF INTERIOR WORK, ELECTRICAL WORKS, CABLING & WIRING, CARPETS, SIGNAGE EXPENSES, ARCHITECTS FEES, BROKERAGE EXPENSES, CONSULTANTS FEES ETC. WHICH PRIMA FACIE, ARE EXPENSES OF REVENUE IN NATURE. IT IS WELL SETTLED PRINCIPLE THAT ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 5 ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT CONCLUSIVE / DETERMINATIVE OF TAXABILITY OF INCOME AND THEREFORE, ISSUE OF TAXABI LITY HAS TO BE ADJUDGED WITHIN THE STATUTORY FRAMEWORK ONLY. AT THIS JUNCTU RE, IT WOULD BE PRUDENT TO REPRODUCE THE RELEVANT OBSERVATIONS OF APEX COUR T IN CIT VS. MADRAS AUTO SERVICES (P) LTD. [SUPRA]:- 11. ALL THESE CASES HAVE LOOKED UPON EXPENDITURE W HICH DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPANY AS REVEN UE EXPENDITURE WHEN THE EXPENDITURE DID NOT BRING INTO EXISTENCE ANY CAPITA L ASSET FOR THE COMPANY. THE ASSET WHICH WAS CREATED BELONGED TO SOMEBODY ELSE A ND THE COMPANY DERIVED AN ENDURING BUSINESS ADVANTAGE BY EXPENDING THE AMO UNT. IN ALL THESE CASES, THE EXPENSES HAVE BEEN LOOKED UPON AS HAVING BEEN M ADE FOR THE PURPOSE OF CONDUCTING THE BUSINESS OF THE ASSESSEE MORE PROFIT ABLY OR MORE SUCCESSFULLY. IN THE PRESENT CASE ALSO, SINCE THE ASSET CREATED BY S PENDING THE SAID AMOUNTS DID NOT BELONG TO THE ASSESSEE BUT THE ASSESSEE GOT THE BUSINESS ADVANTAGE OF USING MODERN PREMISES AT A LOW RENT, THUS SAVING CO NSIDERABLE REVENUE EXPENDITURE FOR THE NEXT 39 YEARS, BOTH THE TRIBUNA L AS WELL AS THE HIGH COURT HAVE RIGHTLY COME TO THE CONCLUSION THAT THE EXPEND ITURE SHOULD BE LOOKED UPON AS REVENUE EXPENDITURE.' THEREFORE, WE FIND THAT THE ASSESSEE MAY HAVE RECEI VED BENEFIT OF ENDURING NATURE BUT THE SAME WAS NOT SOLE AND DECIS IVE FACTOR OF DETERMINING THE NATURE OF IMPUGNED EXPENDITURE. THE IMPUGNED EXPENSES WERE ONLY TO CONDUCT THE BUSINESS MORE PRO FITABLY AND THEREFORE, ALLOWABLE TO THE ASSESSEE AS REVENUE EXP ENDITURE. THEREFORE, AFTER CONSIDERING ALL THE FACTORS AS DISCUSSED ABOV E AND NOTING THAT THE IMPUGNED EXPENDITURE DID NOT BRING INTO EXISTENCE A NY CAPITAL ASSET, WE SEE NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) AND HENCE, THE EXPENDITURE BEING REVENUE IN NATURE AND INCURRE D TOWARDS REFURBISHMENT OF LEASEHOLD PROPERTIES WERE ALLOWABL E TO THE ASSESSEE AS REVENUE EXPENDITURE. THE REVENUES APPEAL STANDS DI SMISSED WITH A DIRECTION TO LD. AO TO VERIFY THE FACT THAT THE ASS ESSEE HAS DISALLOWED ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 6 DEPRECIATION AGAINST THE SAME IN SUCCEEDING YEARS A ND THE ASSESSEE, IN TURN, IS ALSO DIRECTED TO DEMONSTRATE THE SAME BEFO RE LD. AO. 7. NOW, WE TAKE UP ASSESSEES APPEAL ITA NO. 2792/M /2011 WHERE THE ASSESSEE IS AGGRIEVED BY ADDITION OF CERTAIN IN COME ACCRUED ON PREFERENCE SHARE CAPITAL AND DISALLOWANCE OF DEBT ISSUE EXPENSES AND EMPLOYEES CONTRIBUTION TO PROVIDENT FUND. 8. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT THE ASSESSEE HAD PURCHASED CERTAIN PREFERENCE SHARES WHICH WERE CLASSIFIED AS HELD TO MATURITY / LONG TERM CAPITAL ASSETS AND CERTAIN INCOME OF RS.8.56 CRORES IN RESPECT THEREOF WAS CREDITED TO PROFIT & LOSS ACCOUNT BUT THE SAME WAS REDUCED WHILE COMPUTING THE TOTAL INCOME. THE ASSESSEE CONTENDED THAT THE PREFERENCE SHARES, BEING LONG TE RM IN NATURE, WERE CAPITAL ASSETS OF THE ASSESSEE AND CHARGEABLE UNDER THE HEAD CAPITAL GAINS AT THE TIME OF SALE OF THESE SHARES. SINCE THERE W AS AN ASSURED RETURN AT THE TIME OF REDEMPTION OF PREFERENCE SHAR ES, THE ASSESSEE RECOGNIZED THE ACCRUED RETURN OVER THE LIFE OF PREF ERENCE SHARES WHICH WERE ONLY AN ACCOUNTING METHODOLOGY TO ACCRUE THE I NCOME OVER THE TENURE OF THE INVESTMENTS. HOWEVER, NOT CONVINCED, LD. AO TREATED THE SAME AS INTEREST INCOME AND ADDED THE SAME TO THE I NCOME OF THE ASSESSEE. ANOTHER ADDITION WAS RELATED WITH DEBT ISSUE EXPENSES OF RS.1.78 CRORES WHICH WAS MADE BY THE AO FOLLOWING T HE DECISION IN ASSESSEES OWN CASE FOR AY 2004-05 & 2005-06. THE THIRD ADDITION OF RS.40,505/- WAS RELATED WITH EMPLOYEES CONTRIBUTION TO PROVIDENT FUND WHICH WAS DEPOSITED AFTER THE DUE DATE AND HENCE DI SALLOWED BY AO U/S 43B. ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 7 9. AGGRIEVED, THE ASSESSEE CONTESTED ALL THE ADDITI ONS BEFORE LD. CIT(A) WITHOUT ANY SUCCESS VIDE IMPUGNED ORDER DATE D 21/01/2011 AND RAISED SIMILAR CONTENTIONS. THE LD. CIT(A) NOTED TH AT THE PREFERENCE SHARES CARRIED FIXED RATE OF RETURN AND HAD NO LINK AGE WITH PROPORTIONATE HOLDING OF THE ASSESSEE AND THEREFORE, NOT DIVIDEND IN NATURE BUT INTEREST INCOME AND THEREFORE, RIGHTLY BEEN ADDED TO THE INC OME OF THE ASSESSEE. THE DISALLOWANCE OF DEBT ISSUE EXPENSES WAS CONFIRM ED UPON NOTING THAT THE IDENTICAL MATTER IN ASSESSEES OWN CASE FO R AY 2004-05 WAS REMITTED BACK TO THE FILE OF LD. AO BY THE TRIBUNAL AND THE SAME WAS PENDING. THE THIRD ADDITION U/S 43B FOR RS.40,505/- WAS ALSO CONFIRMED ON THE PREMISES THAT THE SAME WAS DEPOSITED LATE. A GGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE LD. COUNSEL FOR ASSESSEE, FIRST OF ALL DRE W OUR ATTENTION TO THE FACT THAT IDENTICAL ISSUE OF DEBT ISSUE EXPENSES AR OSE IN ASSESSEES OWN CASE FOR AY 2004-05 & 2005-06 AND THE TRIBUNAL, IN BOTH THE YEARS, RESTORED THE MATTER BACK TO THE FILE OF LD. AO FOR SOME VERIFICATION AND RE-ADJUDICATION AND HENCE FOLLOWING THE SAME, THE M ATTER MAY BE REMITTED BACK ON SIMILAR LINES. THE LD. DR FAIRLY C ONCEDED THE SAME. 11. UPON PERUSAL OF RECORDS, WE NOTE THAT THE ISSUE OF DEBT ISSUE EXPENSES AROSE IN ASSESSEES OWN CASE FOR AY 2004-0 5 & 2005-06 AND THE TRIBUNAL IN ITA NO. 6978/MUM/2007 ORDER DATED 2 2/09/2009 FOR AY 2004-05 AND ITA NO. 1474/MUM/2009 ORDER DATED 25/03 /2011 FOR AY 2005-06 RESTORED THE MATTER BACK TO THE FILE OF AO WITH THE FOLLOWING DIRECTIONS:- ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 8 6.WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ALLOWABILITY OF THE EXPENSES ONLY TO BE SEEN IN THE LIGHT OF SECTION 37 OF THE ACT AND NOT IN ACCORDANCE WITH THE BOOKS OF ACC OUNTS OF THE ASSESSEE. THEREFORE, WE DO NOT AGREE WITH THE REVENUE THAT IN THE BOOKS OF ACCOUNT THE EXPENSES WERE TREATED AS DEFERRED REVENUE EXPENSES AND THE SAME CANNOT BE CLAIMED U/S 37 OF THE ACT. THE EXPENSES INCURRED IN RESPECT OF STAMP DUTY REGISTRATION FEES AND LEGAL FEES FOR OBTAINING LOAN ARE OF REVENUE EXPENDITURE AND THE SAME ARE ALLOWABLE U/S 37 OF THE ACT AS HELD BY THE APEX COURT IN THE CASE OF INDIA CEMENTS LTD. CITED SUPRA. THE JUDGMENT OF THE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL CORPORATION LTD. (SUPRA) IS DISTI NGUISHABLE ON FACTS AS IN THAT CASE THE ISSUE WAS IN RESPECT OF DISCOUNT GIVEN ON ISSUE OF DEBENTURES WAS AN INBUILT CONDITION OF THE TRANSACTION AS DEBENTURES WERE ISS UED AT A DISCOUNT OF 2% REDEEMABLE AFTER 12 YEARS. THE LIABILITY WAS FOR 12 YEARS AND MATCHING PRINCIPLE DEMANDS THAT IT SHOULD BE ALLOWABLE OVER TWELVE YEA RS. UNDER THE CIRCUMSTANCES, THE APEX COURT ALLOWED TO DISCOUNT WRITTEN OFF PROP ORTIONATELY WRITTEN OFF EACH YEAR OVER A PERIOD OF REDEMPTION. IN PRINCIPLE, BOTH THE JUDGMENTS OF THE APEX COURT IN THE CASE OF INDIA CEMENTS LTD. AND MADRAS INDUSTRIA L CORPORATION CITED SUPRA HAVE LAID DOWN THE LAW CONSIDERING THE FACTS OF THE RESP ECTIVE CASE. IN THE CASE UNDER CONSIDERATION, THE ASSESSEE FILED CRISIL AND THE RA TINGS ARE SAID TO BE A CERTIFICATE ISSUE BY CRISIL , DATED 12.07.2005, WHICH IS THE DA TE FALLING AFTER THE END OF THE RELEVANT YEAR I.E. 31 ST MARCH, 2004. THE LEARNED AR CLARIFIED THAT THIS CE RTIFICATE HAS WRONGLY ENDORSED WHEREAS THE CORRECT CERTIFICATE HA S BEEN PLACED AT PAGE 13 OF THE ASSESSEES PAPER BOOK WHICH IS DATED 5 TH MARCH, 2004. THE NATURE OF EXPENDITURE OF BOTH THE AMOUNTS OF RS.8,64,000/- TOWARDS RATING CH ARGES PAID TO CRISIL AND RS.36,000/- FOR STAMPING CHARGES FOR CPS ARE NOT AV AILABLE ON RECORD AS NO RELEVANT RECEIPTS WERE PRODUCED. WHETHER SUCH CERTIFICATES A MOUNT TO LOAN PAPER. THE NATURE OF THE DOCUMENT HAS NOT BEEN EXAMINED BY THE REVENUE AUTHORITIES AFTER CONSIDERING RELEVANT RULES & PROCEDURES AND UTILIZA TION OF THE CERTIFICATE. THE RELEVANT FACTS ARE REQUIRED TO BE PUT ON RECORD AFT ER NECESSARY VERIFICATION. FURTHER, IT IS NOT CLEAR FROM THE RECORD THAT THE AMOUNT PAI D TO CRISIL LTD. IS IN RESPECT OF CERTIFICATE DATED 5 TH MARCH, 2004 OR 12.07.2005. THE RELEVANT DETAILS OF PARTICULARS OF TOTAL COMMERCIAL PAPERS PERTAINING TO THE YEAR UNDE R CONSIDERATION ARE ALSO NOT ON RECORD, WHICH ARE NECESSARY FOR DECIDING THE ISSUE UNDER CONSIDERATION. UNDER THESE CIRCUMSTANCES, SINCE THE ABOVE FACTS ARE REQU IRED TO BE BROUGHT ON RECORD AFTER VERIFICATION, WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER CONSIDERING THE DISCUSSIO N MADE AS ABOVE AND AFTER PROVIDING THE OPPORTUNITY OF HEARING TO THE ASSESSE E. SINCE LD. AR HAS CONTENDED THAT THE MATTER IS IDENT ICAL AND SIMILAR IN ALL RESPECT, FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE REMIT THE ISSUE BACK TO LD. AO WITH SIMILAR DIRE CTIONS OF VERIFICATION AND ADJUDICATION AS PER LAW AFTER PROVIDING DUE OPP ORTUNITY OF BEING ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 9 HEARD TO THE ASSESSEE. THIS GROUND OF ASSESSEES AP PEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 12. REGARDING DISALLOWANCE OF RS.40,505/- U/S 43B, BEING LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND , RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. GHATGE PATIL TRANSPORTS LTD. [2015 53 TAXMANN.COM 141]. THE LD. DR CONTENDED THAT THE SAME WAS REQUIRED TO BE DEPOSITED BEFORE DUE DA TE AS PER THE RELEVANT PROVIDENT FUND ACT AND THEREFORE, RIGHTLY BEEN DISALLOWED. 13. AFTER HEARING BOTH SIDES, WE FIND THAT ISSUE ST AND SQUARELY COVERED BY THE CITED JUDGMENT OF HONBLE BOMBAY HIGH COURT, WHERE THE JURISDICTIONAL COURT HAS MADE THE FOLLOWING OBSERVA TIONS:- 14. FROM A READING OF ABOVE, IT IS CLEAR THAT THE EMPL OYER-ASSESSEE WOULD BE ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION TO T HE EMPLOYEE'S WELFARE FUND STOOD CREDITED ON OR BEFORE THE DUE DATE AND NOT OTHERWIS E. IT TRANSPIRES THAT INDUSTRY ONCE AGAIN MADE REPRESENTATIONS TO THE MINISTRY OF FINAN CE TO REMOVE THIS ANOMALY. THE RESULT WAS THAT AN AMENDMENT WAS INSERTED WHICH CAM E INTO FORCE WITH EFFECT FROM 1ST APRIL, 2004 AND TWO CHANGES WERE MADE IN SECTIO N 43B FIRSTLY BY DELETING THE SECOND PROVISO AND FURTHER AMENDMENT IN THE FIRST P ROVISO WHICH READS AS UNDER: ' PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN HIS CASE FOR FURNISHING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SECTION 139 IN RESPECT OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED AS AFORESAID AND THE EVIDENCE OF SUCH PAYMENT IS FURNI SHED BY THE ASSESSEE ALONG WITH SUCH RETURN.' 15. IN THIS MANNER, THE AMENDMENT PROVIDED BY FINANCE ACT, 2003 PUT ON PAR THE BENEFIT OF DEDUCTIONS OF TAX, DUTY, CESS AND FEE ON THE ONE HAND WITH CONTRIBUTIONS TO VARIOUS EMPLOYEES' WELFARE FUNDS ON THE OTHER. ALL THIS CAME UP FOR CONSIDERATION BEFORE THE HON'BLE SUPREME COURT IN THE CASE OF ALO M EXTRUSIONS LTD. (SUPRA). THE TRIBUNAL IN THE CASE AT HAND RELIED UPON THE SAID J UDGMENT. THERE IS NO REASON TO FAULT THE ORDER PASSED BY THE TRIBUNAL. WE ARE OF T HE VIEW THAT THE DECISION OF THE SUPREME COURT IN ALOM EXTRUSIONS LTD. (SUPRA) APPLI ES TO EMPLOYEES' CONTRIBUTION AS WELL AS EMPLOYERS' CONTRIBUTION. QUESTION NOS.2, 3 & 4 ARE ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 10 RESPECTFULLY FOLLOWING THE SAME, WE FIND THAT SINCE THE CONTRIBUTION HAS BEEN DEPOSITED BY THE ASSESSEE BEFORE DUE DATE OF F ILING OF RETURN OF INCOME, NO DISALLOWANCE IS CALLED FOR IN TERMS OF S ECTION 43B. THE IMPUGNED ADDITION STANDS DELETED. THIS GROUND OF AS SESSEES APPEAL SUCCEEDS. 14. REGARDING ADDITION ON ACCOUNT OF ACCRUED INTERE ST ON PREFERENCE SHARES, THE LD. AR, DRAWING OUR ATTENTION TO THE DO CUMENTS PLACED IN THE PAPER BOOK, CONTENDED THAT THE ASSESSEE HELD PREFER ENCE SHARES OF SEVERAL COMPANIES AS LONG TERM INVESTMENTS AS CAPITAL ASSETS ON HELD- TO-MATURITY BASIS AND REFLECTED AS SUCH IN THE BALANCE SHEET. T HE ASSESSEE COULD EARN FIXED PRE-DETERMINED RETURN IN THE FORM OF DIVIDEND ON THESE SHARES AND THE ASSESSEE, FOLLOWING CONSIST ENT ACCOUNTING POLICY, RECOGNIZED THE ACCRUED DIVIDEND INCOME ON T HESE SHARES OVER THE TENURE OF THE SHARES. BUT NEVERTHELESS, THE SHA RES CONSTITUTED CAPITAL ASSETS IN THE HANDS OF THE ASSESSEE, BEING TAXABLE UNDER THE HEAD CAPITAL GAINS U/S 45 UPON THEIR MATURITY / SALE. EV EN OTHERWISE, THE FINAL REDEMPTION / MATURITY AMOUNT WAS NOTHING BUT SUM OF PRINCIPAL AND PRE- DETERMINED FIXED DIVIDEND THEREUPON WHICH HAS BEEN RECOGNIZED AS INCOME IN THE BOOKS OF THE ASSESSEE OVER THE TENURE OF THE SHARES AND TAXING THE SAME AS INTEREST WOULD AMOUNT TO DOUBLE TAXATION IN VIEW OF THE FACT THAT THESE SHARES MATURED IN SUCCEEDING YE ARS AND OFFERED TO TAX AS CAPITAL GAINS IN AY 2007-08 & 2008-09 WHICH HAS BEEN ACCEPTED IN 143(3) ASSESSMENTS. 15. IT WAS FURTHER CONTENDED THAT THE REVENUE COULD NOT RE-WRITE THE TERMS OF THE AGREEMENT OF ISSUANCE OF PREFERENCE SH ARES, ACCORDING TO ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 11 WHICH, THE ASSESSEE COULD EARN ONLY DIVIDEND ON THO SE SHARES AS AGAINST INTEREST INCOME TREATED BY REVENUE, WHICH W AS NEVER POSSIBLE. THESE SHARES COULD NEVER FETCH INTEREST INCOME BUT ONLY DIVIDEND INCOME AND THERE WAS CLEAR DISTINCTION BETWEEN THE TERMS DEBT AND CAPITAL AS PER OBSERVATION OF HONBLE BOMBAY HIGH COURT IN CIT VS. ENAM SECURITIES PRIVATE LTD. [345 ITR 64]. THE DIVIDEND WAS NEVER DECLARED BY THE ISSUER AND THEREFORE, FROM THIS ANG LE ALSO, NO RIGHT TO RECEIVE DIVIDEND ACCRUED IN FAVOR OF ASSESSEE AT AN Y TIME DURING IMPUGNED AY AND THE ASSESSEE WAS BOUND TO PAY TAXES ON ITS REAL INCOME ONLY. MORE SO, ENTRIES / TREATMENT IN BOOKS OF ACCOUNTS WERE NOT CONCLUSIVE TO DETERMINE THE TAXABLE EVENT. 16. PER CONTRA , LD. DR PLACED RELIANCE ON THE FINDINGS OF LOWER AUTHORITIES AND CONTENDED THAT THE ASSESSEE DID NOT PROVIDE ANY CALCULATIONS TO DEMONSTRATE THAT THE ACCRUED INCOME ON THE SHARES HAS BEEN INBUILT INTO THE REDEMPTION / MATURITY AMOUNT. NO DETAIL OF CAPITAL GAINS WAS EVER PROVIDED BY HIM TO SUBSTANTIATE THE VARIOUS CONTENTIONS. MOREOVER, THESE SHARES DID NOT CARRY ANY VOTING RIG HT WHICH IS A DISTINCT FEATURE OF PREFERENCE SHARES. THE ASSESSEE WAS ENTI TLED FOR PRE- DETERMINED FIXED RATE OF RETURN ON THESE INSTRUMENT S AND THEREFORE, THE SAME WAS NOTHING BUT INTEREST INCOME EARNED BY THE ASSESSEE WHICH HE WAS OBLIGED TO OFFER TO TAX DURING IMPUGNED AY FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. FIRST OF ALL, A PERUSAL OF ASSESSEES BA LANCE SHEET AS ON 31/03/2006 PLACED AT PAGE-26 OF THE PAPER-BOOK , REVEALS THAT THE ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 12 PREFERENCE SHARES HAS BEEN SHOWN UNDER THE HEAD LONG TERM INVESTMENTS , THE DETAILED BREAK-UP OF WHICH HAS BEEN PROVIDED ON PAGE- 32 OF THE PAPER-BOOK ACCORDING TO WHICH THE ASSESSEE IS HOLDING PREFERENCE SHARES OF FOUR COMPANIES NAMELY (I) IDEA CELLULAR LTD. (II)A.V.DIGITAL NETWORKS PVT. LTD. (III) DECCAN DIG ITAL NETWORKS PVT. LTD. & (IV) METRO DIGITAL NETWORKS PVT. LTD. 18. A PERUSAL OF TERMS OF PREFERENCE SHARES OF IDEA CELLULAR LTD. AS CONTAINED IN AMENDMENT AGREEMENT DATED 31/10/2005 R EVEALS THAT THE ASSESSEE COULD EARN TWO STREAMS OF INCOME ON THESE SHARES VIZ. RIGHT TO RECEIVE FIXED CUMULATIVE PREFERENTIAL DIVIDEND AND SECONDLY, CERTAIN PRE- DETERMINED REDEMPTION PREMIUM AS PER THE ATTACHED A NNEXURE. 19. FURTHER, A PERUSAL OF COPIES OF FINANCIAL STATE MENTS OF ISSUER COMPANIES AND RELEVANT SHARES CERTIFICATES PLACED I N THE PAPER-BOOK REVEALS THAT THESE INSTRUMENTS HAVE BEEN CLASSIFIED AS PREFERENCE SHARES IN THE BOOKS OF ISSUER AS PART OF SHARE CAPI TAL. 20. AS PER NOTE NO. 3 FORMING PART OF COMPUTATION A ND RETURN OF INCOME FOR IMPUGNED AY, IT IS STATED THAT THE ASSES SEE, FOLLOWING APPLICABLE ACCOUNTING GUIDELINES, HOLD PREFERENCE S HARES ON HELD TO MATURITY BASIS / LONG TERM CAPITAL ASSETS AND ACCORDINGLY, INCOME CREDITED TO PROFIT & LOSS ACCOUNT ON THESE SHARES H AS BEEN DEDUCTED FROM COMPUTATION OF INCOME AND WOULD BE OFFERED TO TAX IN ACCORDANCE WITH SECTION 45. THE AMOUNT SO ACCRUED AND DEDUCTED IN AY 2006-07, 2007-08 & 2008-09 IS RS. 8.56 CRORES, RS.18.76 CROR ES & RS.5.54 CRORES RESPECTIVELY. THE ASSESSEE HAS REFLECTED SHORT TERM CAPITAL GAINS ON SALE OF IDEA CELLULAR PREFERENCE SHARES IN AY 2007- 08 FOR RS.8.44 CRORES ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 13 & RS.8.47 CRORES AS LONG TERM CAPITAL GAINS ON SALE OF PREFERENCE SHARES IN AY 08-09 WHICH HAS BEEN ACCEPTED BY THE R EVENUE IN 143(3) ASSESSMENTS. THE SAME REVEALS CONSISTENCY IN THE AR GUMENTS OF THE LD. AR VIS--VIS FINANCIAL STATEMENTS / DOCUMENTS PLACE D BEFORE US. 21. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE FIND STRENGTH IN VARIOUS ARGUMENTS OF LD. AR THAT THE PR EFERENCE SHARES BEING HELD AS LONG TERM INVESTMENTS AS CAPITAL ASSETS WERE ASSESSABLE TO TAX UNDER THE HEAD CAPITAL GAINS U/S 45. THE REVENUE COULD NOT BRING ANY MATERIAL TO ESTABLISH THE FACT THAT ANY DIVIDEN D WAS ACTUALLY DECLARED BY THESE COMPANIES DURING THE IMPUGNED AY. FURTHER, THE CAPITAL GAINS OFFERED BY ASSESSEE UPON SALE OF PREFERENCE SHARES HAS BEEN ACCEPTED BY THE REVENUE IN SUCCEEDING YEARS IN SECTION 143(3 ) PROCEEDINGS AND THEREFORE, WE FIND NO REASON TO INTERFERE WITH THOS E ASSESSMENTS. 22. CERTAIN ADDITIONAL EVIDENCES IN THE FORM OF PAP ER-BOOK DATED 24/10/2013 HAS BEEN PRODUCED BEFORE US IN SUPPORT O F CALCULATIONS OF ACCRUAL OF INCOME ON PREFERENCE SHARES/ MATURITY VA LUE ETC., WHICH REQUIRE, APPRECIATION AT THE LEVEL OF LD. AO SINCE THE LD. AR HAS ASSERTED THAT WHATEVER DIVIDEND / INCOME HAS BEEN A CCRUED / RECEIVED ON THESE INSTRUMENTS, THE SAME HAS BEEN INBUILT INT O THE MATURITY VALUE AND THERE IS NO REVENUE LEAKAGE. THEREFORE, IN PRIN CIPAL, WHILE UPHOLDING THE CLAIM OF THE ASSESSEE THAT THE INCOME ON THESE SHARES WAS ASSESSABLE UNDER THE HEAD CAPITAL GAINS UPON THEIR MATURITY, WE REMIT THE MATTER BACK TO THE FILE OF AO FOR THE PURPOSE O F VERIFYING THE FACT WHETHER ALL INCOME ACCRUED / RECEIVED ON THESE SHAR ES WAS INBUILT INTO THE MATURITY / REDEMPTION / SALE VALUE AND THERE WA S NO REVENUE ITA NO2792 & 2908/M/2011 M/S STANDARD CHARTERED INVESTMENTS & LOANS(INDIA) L IMITED ASSESSMENT YEAR 2006-07 14 LEAKAGE. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBS TANTIATE THE SAME FORTHWITH, FAILING WHICH THE LD. AO SHALL BE AT LIB ERTY TO DISPOSE-OFF THE ISSUE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE ASSESSEES GROUND OF APPEAL STANDS ALLOWED FOR STATISTICAL PUR POSES. 23. THE LD. AO IS DIRECTED TO RECOMPUTED BOOK PROFI T U/S 115JB AND BROUGHT FORWARD/SET-OFF OF LOSSES, IF REQUIRED. 24. IN NUTSHELL THE REVENUES APPEAL STANDS DISMISS ED WHEREAS THE ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND JUNE, 2017. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED :02.06.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. ) ( ) / THE CIT(A) 4. ) / CIT CONCERNED 5. !$, , , , / DR, ITAT, MUMBAI 6. -. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI