DCIT, New Delhi V. M/s. HFCL Infotel Ltd., Chandigarh

ITA 3924/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5093 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 08-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AAKASH SINGHAL
• Keywords: Capital asset; Depreciation; Proportionate interest
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. KULDIP SINGH , JM ITA NO. 3924 /DEL/201 4 : ASSTT. YEAR : 2009 - 10 DCIT, CENTRAL CIRCLE - 1, NEW DELHI VS M/S HFCL INFOTEL LTD., B - 71, INDUSTRIAL AREA, PHASE - VII, MOHALI, CHANDIGARH - 160055 (APPELLANT) (RESPONDENT) PAN NO. A A ACE3979K ASSESSEE BY : SH. AAKASH SINGHAL , CA REVENUE BY : SH. ARUN KUMAR YADAV, SR. DR DATE OF HEARING : 03 .08 .201 7 DATE OF PRONOUNCEMENT : 08 . 0 8 .201 7 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 30.04.2014 OF LD. CIT(A) - I II , NEW DELHI . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 57 ,40, 488/ - MADE BY AO U/S 35ABB FOR EXPENSES INCURRED TOWARDS LIQUIDATED DAMAGES AND INTEREST THEREON PAID TO DEPARTMENT OF T ELECOMMUNICATION S. 2. ON THE FAC TS AND IN THE C IRCUMSTANCES OF THE CASE, THE CI T(A) HAS ERRED IN DELETING THE ADDITION OF RS. 72,56, 740 / - MADE BY AO ON ACCOUNT OF EXPEND ED FOR CAPITAL WORK IN PROGRESS. ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 2 3. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE CIT (A) HAS ERRED IN DELETIN G THE ADDITION OF RS. 49,274 / - MADE BY AO ON ACCOUNT OF MEMBERSHIP FE E PAID TO VARIOUS CLUBS. 4. THE ORDER OF THE CIT(A) IS ERRO NEOUS AND IS NOT TENABLE ON FACT S AND IN LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD , ALTER OR AMEND ANY/ALL OF THE GROUNDS OF A PPEAL BEFORE OR DURING THE COURSE OF THE HEARING OF THE APPEAL. 3. VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF EXPENSES INCURRED TOWARDS LIQUIDATED DAMAGES U/S 35ABB OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 4. AS REGARD TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT IT IS SQUARELY COVERED IN ASSESSEE S FAVOUR VIDE COMMON ORDER DATED 31.07.2017 BY THIS BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO.1305/DEL/2010, 5038 TO 5044/DEL/2012 FOR THE ASSESSMENT YEARS 2006 - 07, 2002 - 03 TO 2008 - 09 RESPECTIVELY (COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 5. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN ADJUDICATED IN ASSESSEE S OWN CASE VIDE ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 3 AFORESAID REFERRED TO ORDE R DATED 31.07.2017 WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 3.6 WHICH READ AS UNDER: 3.6 CONSIDERING ABOVE SUBMISSIONS, WE FIND THAT UNDISPUTEDLY PAYMENT OF LIQUIDATED DAMAGES AND INTEREST CHARGES THEREON HAVE BEEN MADE AS PER CLAUSES 12.2 TO 12. 4 OF THE AFORE - MENTIONED LICENSE AGREEMENT BETWEEN THE ASSESSEE AND DOT, WHEREBY IT HAS BEEN MADE OBLIGATORY ON THE PART OF THE ASSESSEE COMPANY TO PAY INTEREST AND LIQUIDATED DAMAGES IN CASE OF FAILURE TO DELIVER THE SERVICES OR PART THEREOF WITHIN THE PE RIOD PRESCRIBED. LIQUIDATED DAMAGES AND INTEREST THEREON HAVE BEEN MADE TO DOT DUE TO NON - FULFILLMENT OF OBLIGATIONS SPECIFIED IN THE AGREEMENT IN TIME, WHERE TIME WAS AN ESSENCE. THESE PAYMENTS HAVE BEEN INCURRED IN THE COURSE OF OBTAINING THE RIGHTS TO O PERATE TELECOMMUNICATION SERVICES AND NOT FOR ANY BREACH / VIOLATION OF ANY LAW. AS PER THE DECISION IN THE CASE OF CIT VS. INDO ASIAN SWITCH GEARS P. LTD. (SUPRA) THE PAYMENT OF DAMAGES IS FOR BREACH OF CONTRACT AND NOT ON ACCOUNT OF INFRACTION OF LAW AND , THEREFORE, THE SAME IS ADMISSIBLE AS EXPENSES HAVING BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. WHEN WE EXAMINE THE FACTS OF THE PRESENT CASE IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE CITED DECISION, WE FIND THAT THE ASSESSEE IN THE PRESENT CASE HAS PAID LIQUIDATED DAMAGES AND INTEREST THEREON DUE TO BREACH OF THE AGREEMENT AND NOT AS A BREACH OF LAW. THUS, THE EXPENDITURE CLAIMED DOES NOT FALL WITHIN EXPLANATION TO SECTION 37(1) OF THE ACT, AND SINCE IT WAS INCIDENTAL TO BUSINES S, IT CANNOT BE DISALLOWED. THE ID. CIT (A) WAS THUS JUSTIFIED IN DELETING THE DISALLOWANCE IN QUESTION. THE SAME IS UPHELD. THE ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 4 6 . SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 31.07.2017 IN ASSESSEE S OWN CASE FOR THE EARLIER ASSESSMENT YEARS, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 7 . NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF EXPENDED AMOU NT FOR CAPITAL WORK IN PROGRESS. 8 . AS REGARDS TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS ALSO INVOLVED IN THE AFORESAID REFERRED TO APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS VIZ., 2006 - 07, 2002 - 03 TO 2008 - 09 WHEREIN VIDE ORDER DATED 31.07.2017, THE ISSUE HAS BEEN DECIDED IN ASSESSEE S FAVOUR. THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 9. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS BEEN DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 31.07.2017 IN THE AFORESAID REFERRED TO ORDER WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 6.1 TO 6.4 WHICH READ AS UNDER: 6.1 IN SUPPORT OF THE GROUNDS ON THE ISSUE, THE ID. CIT [DR] HAS PLACED RELIANCE ON THE ASSESSMENT ORDER. SHE SUBMITTED THAT IT IS NOT IMPORTANT AS TO WHETHER FRESH LOAN WAS TAKEN OR NOT DURING THE PREVIOUS YEAR, WHAT IS IMPORTANT IS WHETHER BORROWED MONEY (FRESH OR OLD) FOR ACQUISITION OF CAPITAL ASSET ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 5 UNDER CONSIDERATION. SINCE HEAVY LOANS HAVE BEEN RAISED FOR BUSINESS PURPOSES AND THE EQUIPMENTS, WHICH ARE PART OF WORK IN PROGRESS, ARE ALSO ACQUIR ED FOR BUSINESS PURPOSE, THEREFORE, THE APPARENT IS THAT PART OF BORROWED FUNDS HAVE BEEN UTILIZED FOR ACQUISITION OF SAID EQUIPMENTS. THE ASSESSEE HAS GIVEN A BALD AVERMENT THAT BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR WORK IN PROGRESS, BUT THE ASSESSEE FAILED TO SUBSTANTIATE THIS AVERMENT WITH ANY DOCUMENTARY EVIDENCE. THE ID. CIT [DR] SUBMITTED THAT THE DECISIONS OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD, 313 ITR 340 (BOM.) RELIED UPO N BY THE ID. CIT (A) IS NOT APPLICABLE IN THE PRESENT CASE. THE RATIO LAID DOWN THEREIN WHETHER SUPPORTS THE CASE OF THE REVENUE I.E. PRESCRIPTION THAT BUSINESS RELATED EXPENDITURE IS OUT OF BORROWED FUNDS/ SHE - ALSO PLACED R ELIANCE ON THE DECISION OF HON B LE SUPREME COURT IN THE CASE OF DCI T VS. CORE HEALTH CARE LTD. (2008) 167 TAXMAN 206 (SC). 6.2 THE ID. AR, ON THE OTHER HAND, PLACED RELIANCE ON THE FIRST APPELLATE ORDER .ON THE ISSUE. HE REITERATED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW W ITH EMPHASIS THAT NO FRESH LOAN WAS TAKEN BY THE ASSESSEE DURING THE YEARS UNDER CONSIDERATION FOR ACQUIRING THE CAPITAL ASSETS AS THE LOAN FIGURE OF RS.605 CRORES REMAINS THE SAME AS OF THE PREVIOUS YEAR. IN SUPPORT HE REFERRED PAGE NO. 54 OF THE PAPER BO OK FILED ON BEHALF OF THE ASSESSEE I.E. COPY OF THE BALANCE SHEET SCHEDULES. HE SUBMITTED THAT THERE IS NO NEXUS BETWEEN THE LOANS ALREADY TAKEN AND THE CAPITAL ASSETS ACQUIRED DURING THE YEAR. NO SUCH DISALLOWANCE WAS MADE IN THE ASSESSMENTS FOR THE ASSES SMENT YEARS 2003 - 04, 2003 - 04 AND 2004 - 05. THE FINDING OF CAPITAL WORK IN PROGRESS WAS MADE FROM INTEREST - FREE OWNED FUNDS WHICH IS APPARENT FROM THE TABLE GIVEN ON THE ABOVE - STATED PAGE NO. 54 OF THE PAPER BOOK . HE SUBMITTED THAT INVESTMENT MADE DURING THE YEAR WAS CAPITAL WORK IN PROGRESS FOR BUSINESS PURPOSES ONLY. THE ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 6 COMPANY IS ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES IN PUNJAB CIRCLE. CAPITAL WORK IN PROGRESS COMPRISES EQUIPMENTS, COMPONENTS, INCLUDING ADVANCES GIVEN FOR PURCHASE OF CAPITAL ASSE TS MEANT EXCLUSIVELY FOR USE IN PROVIDING TELECOM SERVICES. AS AN ACCOUNTING PRACTICE, PURCHASE OF C AP ITAL ASSET IS SHOWN UNDER THE HEAD 'CAPITAL WORK IN PROGRESS' TILL ASSET IS ACTUALLY PUT TO USE FOR BUSINESS PURPOSE. AS AND WHEN ASSETS ARE PUT TO USE FO R BUSINESS PURPOSE, THEY ARE TRANSFERRED TO FIXED ASSET ACCOUNT AND THEREAFTER DEPRECIATION IS CHARGED. THE ASSESSING OFFICER WAS THUS NOT JUSTIFIED IN MAKING THE DISALLOWANCE AS INTEREST BY TREATING THE SAME TO HAVE BEEN EXPENDED FOR CAPITAL WORK IN PROGR ESS WITHOUT BRINGING ON RECORD ANY FACTS TO SUPPORT THE SAME. IN SPITE OF FACTS PLACED ON RECORD, THE ASSESSING OFFICER MADE ASSUMPTIONS THAT LOANS TO THE TUNE OF RS.605 CRORE TAKEN FROM FINANCIAL INSTITUTIONS AND BANKS WERE FOR CAPITAL WORK IN PROGRESS. T HE ID. AR PLACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. VS. CIT (2009) 313 I TR 340 (BOM.). 6.3 THE ID. AR MADE IT CLEAR REGARDIN G GROUND NO, 1 OF THE APPEAL FOR THE REVENUE FOR THE ASSESSMENT Y EAR 2005 - 06 PERTAINING TO DIFFERENCE AND INCREMENT ON THE LOAN AMOUNT FROM RS.646 CRORES (PAGE NO. 5 OF FIRST APPELLATE ORDER FOR ASSESSMENT YEAR 2004 - 05) TO RS.709 CRORES (PAGE NO. 8 OF THE FIRST APPELLATE ORDER FOR ASSESSMENT YEAR 2005 - 06), THAT THE DIFF ERENCE IS BECAUSE OF ADDITIONS MADE IN VEHICLE LOAN AND INTEREST FREE 0% OPTIONAL FULLY CONVERTIBLE DEBENTURES AND INTEREST ACCRUED THEREOF, WHICH IS EVIDENCED BY THE RELEVANT EXTRACTS OF THE AUDITED BALANCE SHEETS FOR FINANCIAL YEAR 2004 - 05 ATTACHED AS PE R ANNEXURE 'A', MADE AVAILABLE ON RECORD. 6.4 HAVING GONE THROUGH THE ABOVE CITED DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 7 LTD. VS. CIT (SUPRA), WE FIND THAT IT HAS BEEN RIGHTLY RELIED UPON.BY THE ID. CIT (APPEALS) T O DECIDE THE ISSUE UNDER CONSIDERATION BEFORE US. THE HON'BLE BOMBAY HIGH COURT IN THAT CASE HAS BEEN PLEASED TO HOLD THAT IF THERE ARE FUNDS BOTH INTEREST FREE AND OVER DRAFT AND / OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, WITH THE INTEREST FREE FUNDS WERE SUFFICIENT TO - MEET THE INVESTMENT. THERE IS NO DISPUTE IN THE PRESENT CASE THAT THE ASSESSEE DURING THE YEARS UNDER CONSIDERATION HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MEET OUT INVESTMENT IN THE CAPITAL WORK IN PROGRESS. THE ID. CIT (APPEALS) WAS THUS JUSTIFIED IN DELETING THE ADDITION BEING THE PROPORTIONATE INTEREST ON THE SUM EXPENDED BY THE ASSESSEE FOR CAPITAL WORK IN PROGRESS UNDER S ECTION 36(1)(III) OF THE ACT, THE FIRST APPELLATE ORDER IS ACCORDINGLY UPHELD. THE GROUNDS INVOLVING THE ISSUE ARE ACCORDINGLY REJECTED. 10. SO, RESPECTFULLY FOLLOWING THE AFORESAID ORDER DATED 31.07.2017 IN ASSESSEE S OWN CASE FOR THE PRECEDING ASSESSME NT YEARS, THIS ISSUE IS DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. 11. VIDE GROUND NO. 3, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION MADE BY THE AO ON ACCOUNT OF MEMBERSHIP FEE PAID TO VARIOUS CLUBS. 12. AS REG ARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE IS ALSO COVERED VIDE ORDER DATED 31.07.2017 IN THE PRECEDING ASSESSMENT YEARS. THE LD. CIT DR COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 13. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE DEPARTMENT AND IN ITA NO. 3924 /DEL /201 4 HFCL INFOTEL LTD. 8 FAVOUR OF THE ASSESSEE VIDE AFORESAID REFERRED TO ORDER DATED 31.07.2017 WHEREIN RELEVANT FINDINGS HAVE BEEN G IVEN IN PARA 4.3 OF THE ORDER WHICH READ AS UNDER: 4.3 CONSIDERING THE ABOVE SUBMISSIONS AND THE DECISIONS CITED IN SUPPORT WE DO NOT FIND ANY INFIRMITY IN THE FIRST APPELLATE ORDER ON THE ISSUE AS CONSIDERING THE EXPENDITURE INCURRED AND NATURE OF INDUST RY, THE AMOUNT INCURRED BY THE ASSESSEE FOR CORPORATE CLUB MEMBERSHIP FEES IS HELD FOR BUSINESS PROMOTION. THE FIRST APPELLATE ORDER IN THIS REGARD IS THUS UPHELD. THE ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. THE RELATED GROUNDS OF THE APPEALS ARE ACCORDINGLY REJECTED. 14. SO, RESPECTFULLY FOLLOWING THE AFORESAID ORDER DATED 31.07.2017 FOR THE ASSESSMENT YEARS 2006 - 07 AND 2002 - 03 TO 2008 - 09 IN ASSESSEE S OWN CASE, THIS ISSUE IS ALSO DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. 1 5 . IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 08 /0 8 /2017 ) SD/ - SD/ - ( KULDIP SINGH ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTAN T MEMBER DAT ED: 08 /08 /2017 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR