THE DY CIT CIR-7(1), V. M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD.,

ITA 4022/MUM/2004

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48724 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-03-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 18-05-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARESH KUMAR BALODIA
• Assessee Lawyers: ARVIND V SONDE
• Keywords: Capital asset; Depreciation; Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3799/MUM/2004 (ASSESSMENT YEAR: 1998-99) M/S. NATIONAL STOCK EXCHANGE OF ADDL. CIT, SPECIAL RANGE 23 INDIA LTD., EXCHANGE PLAZA, AAYAKAR BHAVAN C-1, BLOCK G, BANDRA CURLA COMPLEX VS. MUMBAI 400020 BANDRA (W), MUMBAI 400051 PAN - AAACN 1797 L APPELLANT RESPONDENT ITA NO. 4022/MUM/2004 (ASSESSMENT YEAR: 1998-99) ADDL. CIT, SPECIAL RANGE 23 M/S. NATIONAL STOCK EXC HANGE OF AAYAKAR BHAVAN INDIA LTD., EXCHANGE PLAZA, MUMBAI 400020 VS. C-1, BLOCK G, BANDRA CURLA COMPLEX BANDRA (W), MUMBAI 400051 PAN - AAACN 1797 L APPELLANT RESPONDENT ASSESSEE BY: SHRI ARVIND V. SONDE REVENUE BY: SHRI NARESH KUMAR BALODIA O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS ARISING OUT OF THE ORDER OF THE CIT(A) XIX, MUMBAI DATED 03.03.2004. ASSESSEE AS WELL AS THE RE VENUE ARE AGGRIEVED ON THE ORDERS OF THE CIT(A). WE HAVE HEARD THE LD. COUNSEL AND THE CIT DR. ITA NO. 3799/MUM/2004 2. ASSESSEE HAS RAISED 4 GROUNDS IN THIS APPEAL. 3. IN GROUND NO. 1 ASSESSEE CHALLENGES THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF ` 1,13,25,250/- MADE BY THE A.O. ON ACCOUNT OF PREMIUM PAID TO BOMBAY METROPOLITAN REGIONAL DEV ELOPMENT AUTHORITY (BMRDA) TREATING THE SAME AS CAPITAL IN NATURE. THI S ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDERS IN EARLIER YEARS WHEREIN THE ISSUE WAS ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 2 EXAMINED IN DETAIL AND IN ITA NO. 2181/MUM/1999 FOR A.Y. 1995-96 THE ITAT CONSIDERED THE ISSUE IN DETAIL AND HELD AGAINS T THE ASSESSEE. PARA 13 OF THE ABOVE SAID ORDER IS AS UNDER: - 13. WE FIND UNDER IDENTICAL FACTS THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF MUKUND LTD., (SUPRA) AFTER CONSIDERING VARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. 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 ASSESSE E FOR OBTAINING LEASEHOLD LAND FROM MAHARASHTRA INDUSTRIAL DEVELOPM ENT CORPORATION IN ITS FAVOUR FOR A PERIOD OF 99 YEARS WAS CAPITAL IN NATURE AND ACCORDINGLY, IT WAS HELD THAT THE SAME WAS NOT ALLO WABLE AS DEDUCTION. WE FIND THE TRIBUNAL AT PARA 26 OF THE O RDER HAS OBSERVED AS UNDER:- 26. WE FIND THAT THE FACTS OF THE CASE BEFORE US AR E SIMILAR TO THE FACTS OF THE CASE IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). WE ARE NOT IMPRESSED BY THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE RATIO OF DECISION OF HON BLE BOMBAY HIGH COURT IN KHIMLINE PUMPS LTD. CASE (SUPRA) IS DISTINGUISHABLE SINCE IN KHIMLINE PUMPS LTD. CASE (SUPRA) THE ASSESSEE WAS NOT THE ORIGINAL LESSEE. THIS DISTINCT ION POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT SUSTAINABLE FOR THE REASON THAT THE DECISION OF THE HON BLE HIGH COURT IS NOT BASED O N THE FACT THAT THE ASSESSEE WAS NOT THE ORIGINAL LESSEE OF THE PREMISE S. ALL OTHER FACTS OF THE CASE OF THE ASSESSEE BEFORE US ARE SIMILAR TO THE F ACTS OF THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). THE RATIO OF THE DECIS ION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF KHIMLINE P UMPS LTD. (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. IN THIS CASE OF THE ASSESSEE ALL THE 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 NATURE ARE PRESENT. THE B ENEFIT CONFERRED ON THE ASSESSEE OF LEASE RIGHTS IS FOR 99 YEARS AGAINST TH E 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 PA ID 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, TH E ASSESSEE TERMINATES THE LEASE AGREEMENT AND HANDOVERS THE VACANT POSITI ON 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 AMOUNT OF RS. 2.04 CRORES PAID BY THE ASSESSEE. THERE IS ALSO NO MATERIAL ON RECORD TO SHOW THAT TH E ASSESSEE HAS MADE THE ADVANCE PAYMENT OF RENT FOR FUTURE YEARS TO SECURE ANY REDUCTION IN THE RENT PAYABLE FOR THE FUTURE YEARS OR FOR ANY OTHER BUSIN ESS CONSIDERATION. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND THE TERMS OF THE AGREEMENT DT. 5TH MARCH, 1992 ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND MIDC AS A WHOLE, WE HOLD THAT THE CONSIDERATION OF RS. 2.04 CRORES PAID BY THE ASSESSEE COMPANY FOR OB TAINING THE LEASEHOLD RIGHTS FROM MIDC IN FAVOUR OF THE ASSESSEE FOR A PE RIOD OF 99 YEARS IS CAPITAL IN NATURE AND THEREFORE, NOT ALLOWABLE AS DEDUCTION TO THE ASSESSEE. THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE S OF PANBARI TEA CO. LTD. (SUPRA), DURGA DAS KHANNA (SUPRA), ADITYA MINERALS (P) LTD. (SUPRA) AND HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF KHIMLINE PUMPS LTD. ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 3 (SUPRA) WOULD SQUARELY APPLY TO THE FACTS OF THE CA SE OF THE ASSESSEE, AND BEING BINDING IN NATURE, WE DECIDE THE ISSUE IN GRO UND OF APPEAL NO. 10 OF THE REVENUE IN FAVOUR OF THE REVENUE AND THE GROUND OF APPEAL NO. 10 OF THE REVENUE IS ALLOWED AND THE ISSUE REFERRED TO TH E SPECIAL BENCH BY THE PRESIDENT, TRIBUNAL IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. IN VIEW OF THIS FINDING IN THE EARLIER YEAR, THE GR OUND IS REJECTED. 4. GROUND NO. 2 PERTAINS TO THE ISSUE OF PRIOR PERIOD EXPENSES ON ACCOUNT OF PROFESSIONAL FEES OF ` 82,000/-, HIRE CHARGES OF ` 43,418/-, TRAVELLING EXPENSES OF ` 8,272/-, MEETINGS AND CONFERENCE EXPENSES OF ` 8,521/- AND SOFTWARE EXPENSES OF ` 73,510/-. EACH OF THE ISSUE IS DECIDED AS UNDER: - 3.1 PROFESSIONAL FEES: IT WAS SUBMITTED THAT THE BI LLS FOR PROFESSIONAL FEES DATED 13.02.1997 AND 16.01.1997 FOR ` 10,500/- AND ` 3,500/- RESPECTIVELY WERE RECEIVED AFTER 31 ST MARCH, 1997 FROM M/S. LABOUR LAWS AND MANAGERIAL SERVICES FOR ADVISE ON ESI/PPF MATTERS. THE BILL DA TED 06.12.1996 OF M/S. B.P.RAO & CO. FOR ` 30,000/- WAS RECEIVED BY THE COMPLIANCE DEPARTMENT OF THE COMPANY ON 12.05.1997 AND FORWARDED TO ACCOUNTS DEPARTMENT ON 10.06.1997. ANOTHER BILL DATED 31.03.1997 OF M/. GH OSH KHANNA & CO. FOR ` 30,000/- WAS RECEIVED ON 19.05.1997 BY THE ACCOUNTS DEPARTMENT OF THE COMPANY. PROFESSIONAL FEES OF ` 6,000/- FOR ATTENDING SAC ON 21.09.1996 CRYSTALLISED IN THE PREVIOUS YEAR RELEVANT TO A.Y. UNDER CONSIDERATION AND WERE PAID ON 03.06.1997 AND HENCE ACCOUNTED IN THIS YEAR. 3.1.1 SINCE THE BILLS WERE STATED TO HAVE BEEN RECE IVED DURING THE IMPUGNED YEAR, THOUGH THEY ARE DATED PRIOR TO THE YEAR THE A MOUNTS WERE CRYSTALLIZED DURING THE YEAR. ACCORDINGLY WE ARE OF THE OPINION THAT THE AMOUNT WERE ALLOWABLE EXPENDITURE FOR THE YEAR AS IT CRYSTALLIS ED DURING THE YEAR. THEREFORE, THE A.O. IS DIRECTED TO ALLOW THE AMOUNT OF ` 82,000/- DURING THE YEAR. 3.2 HIRE CHARGES OF ` 43,418/-: THIS AMOUNT WAS PAID TO M/S. ANIL ELECTRI C CO. ON 16.07.1997 TOWARDS HIRE CHARGES OF CUPBOARDS FROM OCTOBER 1996 TO MARCH 1997 AS HIRE CHARGES WERE ULTIMATELY PASSED F OR PAYMENT AND CRYSTALLISED IN THE CURRENT YEAR. THE CIT(A) HAS EX AMINED THE BILLS IN QUESTION AND AS THESE BILLS WERE DRAWN ON DATES ANT ERIOR TO THE PREVIOUS ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 4 YEAR UNDER CONSIDERATION HE DID NOT ALLOW. THERE I S NO EVIDENCE ON RECORD THAT THESE BILLS WERE RECEIVED DURING THE YEAR, WHI CH FINDING WAS ALSO GIVEN BY THE CIT(A). IN VIEW OF THIS, WE ARE UNABLE TO HO LD THAT THE EXPENDITURE HAS CRYSTALLISED DURING THE YEAR. SINCE IT PERTAINS TO PREVIOUS YEAR, THE SAME CANNOT BE ALLOWED IN THIS YEAR UNLESS IT IS CRYSTAL LISED DURING THE YEAR. THEREFORE, THE DISALLOWANCE CONFIRMED BY THE CIT(A) IS UPHELD. GROUND ON THIS ISSUE IS REJECTED. 3.3 SOFTWARE EXPENSES OF ` 73,510/-: THIS AMOUNT WAS ORIGINALLY ACCOUNTED FOR IN ACCOUNTING YEAR 1996-97 RELEVANT T O A.Y. 1997-98 AND THE PROVISION WAS WRONGLY DEBITED TO CAPITAL WORK-IN-PR OGRESS. DURING THE YEAR THE AMOUNT WAS REVERSED AND CLAIMED AS REVENUE IN N ATURE. THE CIT(A) GAVE A FINDING AFTER EXAMINING THE FACTS, THAT THE EXPEN SE CAME TO BE ACCOUNTED DURING THE YEAR ON ACCOUNT OF MISTAKE IN ACCOUNTING MADE BY THE ASSESSEE AND NOT BECAUSE LIABILITY FOR THE SAME HAS CRYSTALL ISED IN THIS YEAR. THEREFORE, THE DISALLOWANCE IS SUSTAINED. BEFORE US ALSO NO FURTHER FACTS WERE PLACED EXCEPT STATING THAT THIS AMOUNT WAS CLA IMED AS PRIOR PERIOD EXPENSES. SINCE THE AMOUNT WAS ALREADY ACCOUNTED FO R IN EARLIER YEAR AS A PROVISION, ASSESSEE SHOULD HAVE BEEN CAREFUL IN CLA IMING THE EXPENDITURE IN LATER YEAR BECAUSE, CORRECTION IN ACCOUNTING ENTRY CANNOT BE CONSIDERED AS AN AMOUNT CRYSTALLISED DURING THE YEAR FOR ALLOWANC E. THEREFORE, THE CLAIM CANNOT BE ALLOWED IN THIS YEAR. THE OBSERVATIONS MA DE WITH REFERENCE TO PRIOR PERIOD EXPENDITURE IN PARA 26 OF THE ORDER FO R A.Y. 1995-96 BY THE ITAT IN EARLIER YEAR ARE STILL VALID. ACCORDINGLY THIS E XPENDITURE CANNOT BE ALLOWED AS PRIOR PERIOD EXPENDITURE. 3.4 TRAVELLING EXPENSES OF ` 8,272/-: THIS EXPENDITURE IS REIMBURSEMENT OF TRAVELLING EXPENDITURE ` 8,272/- RECEIVED SUBSEQUENT TO FINALISATION OF ACCOUNTS. THE EXPENDITURE WAS ACCOUNTED AND PAID ON 17.06.1997 RELEVANT FOR ASSESSMENT YEAR UNDER CONSIDERATION. THE CIT(A) DID NOT ALLOW THE SAME STATING THAT THE BILLS WERE DATED 01.07.1996. EVENT HOUGH THE ORIGINALS WERE DATED 01.07.1996, THE CLAIM WAS MADE BY THE CONCERN ED PERSON VIDE LETTER DATED 22.05.1997 WHICH PERTAINS TO THE YEAR UNDER C ONSIDERATION. THEREFORE, ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 5 IT CAN BE CONSIDERED THAT THE LIABILITY HSS CRYSTAL LISED DURING THE YEAR. ACCORDINGLY THE A.O. IS DIRECTED TO ALLOW THE AMOUN T. 3.5 MEETING & CONFERENCE EXPENSES OF ` 8,5321/-: THIS EXPENDITURE PERTAINING TO MEETING HELD OF TRADING MEMBERS AT BA NGALORE. IT WAS THE SUBMISSION THAT THE BILL DATED 01.07.1996 WAS NOT R ECEIVED FROM THE PARTY AND COPIES OF THE BILLS WERE SENT ON 22.05.1997, TH EREFORE THE AMOUNT WAS CLAIMED IN THIS YEAR. AFTER EXAMINING THE DATES INV OLVED, WE ARE OF THE OPINION THAT THE AMOUNT HAS CRYSTALLISED DURING THE YEAR. ASSESSEE COULD NOT HAVE MADE PROVISIONS IN THE ABSENCE OF BILL RAI SED ON IT AND SINCE COPIES OF THE BILLS WERE RECEIVED FOR THE FIRST TIME ON 22 .05.1997 THE SAME CAN BE CONSIDERED AS CRYSTALLISED DURING THE YEAR. ACCORDI NGLY THE AMOUNT IS AN ALLOWABLE EXPENDITURE. THE A.O. IS DIRECTED TO ALLO W THE AMOUNT. 3.6 THIS GROUND IS CONSIDERED PARTLY ALLOWED. 5. GROUND NO. 3 PERTAINS TO THE ISSUE OF DISALLOWANCE OF AMOUNTS O F PF AND ESI PAID BELATEDLY. THE CIT(A) CONFIRMED AN AMO UNT OF ` 5,790/- PAID ON 27.04.1998 AND CONSIDERED IT AS PAID BEYOND THE DUE DATE. AN AMOUNT OF ` 11,058/- PERTAIN TO THE EMPLOYEE WHO JOINED THE NAT IONAL STOCK EXCHANGE ON DEPUTATION FROM THE SERVICE OF THE GOVERNMENT OF INDIA AND WHOSE PF CONTRIBUTION WAS REQUIRED TO BE REMITTED TO THE ACC OUNTANT GENERAL IN KARNATAKA. DUE TO CERTAIN FORMALITIES THE AMOUNT WA S REMITTED AFTER GIVING INFORMATION PERTAINING TO THE REMITTANCE. SINCE THE AMOUNTS ARE PAID BY THE TIME THE RETURN WAS FILED, THE QUESTION OF DISALLOW ANCE OF THE AMOUNT DOES NOT ARISE, IN VIEW OF THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306. THE A.O. IS DIRECTED TO ALLOW THE AMOUNTS. 6. GROUND NO. 4 PERTAINS TO THE ISSUE OF DISALLOWANCE OF EXPENDITU RE OF ` 7,79,836/- BEING 0.5% OF GROSS INTEREST EARNED ON T AX 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 VERY SAME ISSUE THE REVENUE IS ALSO IN APPEAL IN GROUND NO. 3 OF THE REVENUES APPEAL. CONSIDERING THE NATURE OF THE INCOME AND TH E ORDERS OF THE ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 6 AUTHORITIES WE ARE OF THE OPINION THAT DISALLOWANCE OF 1% WOULD MEET THE END OF JUSTICE. ASSESSEES GROUND ABOUT THE DISALLO WANCE OF 0.5% IS REJECTED. 7. ASSESSEE HAS RAISED AN ADDITIONAL GROUND AS BELOW: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES OUGHT TO HAVE ALLOWED DEDUCTION O F A SUM OF RS.1,78,562/- BEING PRIOR PERIOD EXPENSES DISALLOWE D AS DEDUCTION IN ASSESSMENT YEAR 1999-2000 AND NOT DOING SO IS WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, PROVISI ONS OF THE INCOME TAX ACT, 1961 AND RULES MADE THEREUNDER. 8. ASSESSEE RAISED THE ADDITIONAL GROUND BEING A LEGAL ISSUE FOR CLAIM OF EXPENDITURE DISALLOWED IN A.Y. 1999-2000 FOR NECESS ARY ALLOWANCE IN THIS YEAR. THIS BEING A LEGAL GROUND THE SAME IS ADMITTE D. THE ISSUE IN THIS GROUND IS WITH REFERENCE TO THE CLAIM OF PRIOR PERI OD EXPENDITURE MADE IN A.Y. 1999-2000 BUT DISALLOWED BY THE A.O. NOT PERTA INING TO THAT YEAR. ASSESSEE CLAIMED THE SAME IN THIS YEAR AS THE APPEA L WAS PENDING. HOWEVER, IT IS NOTICED THAT THE APPEAL FOR A.Y. 1999-2000 WA S ADJOURNED, CONSEQUENTLY THE QUESTION OF PRIOR PERIOD EXPENDITURE ALLOWANCE/ DISALLOWANCE COULD NOT BE DECIDED. THEREFORE, THIS ISSUE IS RESTORED TO TH E FILE OF THE A.O. TO CONSIDER THE EXPENDITURE, AFTER THE DECISION FOR A.Y. 1999-2 000 IS RENDERED BY THE ITAT FOR THAT YEAR. IN CASE THE EXPENDITURE HAS ALR EADY CRYSTALLISED AND ALLOWED IN THAT YEAR, THERE IS NO QUESTION OF ALLOW ING THE SAME IN THIS YEAR. OTHERWISE THE EXPENDITURE CAN BE CONSIDERED AS ALLO WABLE SUBJECT TO SATISFYING OTHER CONDITIONS AS PER LAW. WITH THIS D IRECTION THE ISSUE IS RESTORED TO THE FILE OF THE A.O. 9. APPEAL IS PARTLY ALLOWED. ITA NO. 4022/MUM/2004 10. REVENUE HAS RAISED 3 GROUNDS ON THREE ISSUES. GROUND NO. 3, AS DISCUSSED EARLIER, PERTAINS TO DISALLOWANCE OF AN E XPENDITURE IN CONNECTION WITH EARNING OF INTEREST INCOME EXEMPT UNDER SECTIO N 10(15). AS ALREADY STATED EARLIER IN ASSESSEES APPEAL THE A.O. DISALL OWED 2% OF ` 15,59,67,202/- RECEIVED AS INTEREST ON TAX FREE AMO UNTS. CONSIDERING THE NATURE OF THE INCOME WE ARE OF THE VIEW THAT THE DI SALLOWANCE CAN BE RESTRICTED TO 1% OF THE AMOUNT. ACCORDINGLY THE CIT (A)S ORDER IS MODIFIED. ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 7 THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE T O 1% OF THE INCOME RECEIVED. THIRD GROUND IS CONSIDERED PARTLY ALLOWED . 11. GROUND NO. 1 PERTAINS TO THE ISSUE OF TREATING THE EXPENDITURE OF ` 2,09,10,000/- AS REVENUE EXPENDITURE. THE ISSUE IS THAT THE ASSESSEE HAS CLAIMED THE ABOVE AMOUNT TOWARDS SHIFTING OF VSAT. THE A.O. ON NOTICING THAT THE COMPANY INCURRED AN EXTRA-ORDINARY EXPENDI TURE TOWARDS VSAT SHIFTING EXPENSES FOR REALIGNMENT OF VSAT TO MULTIP LE SATELLITES DUE TO DRIFTING AND WOBBLING OF THE EXISTING SATELLITE. TH E EXPENDITURE IS CONSIDERED AS CAPITAL IN NATURE AS IT HAS ENDURING BENEFIT. TH E CIT(A), AFTER ELABORATELY DISCUSSING THE NATURE OF THE EXPENDITURE AND THE RE ASONS FOR INCURRING THE EXPENDITURE IN PARA 3.1 TO 3.9 IN PAGES 4 TO 8 ALLO WED THE EXPENDITURE. HIS FINDINGS IN PARA 4 ARE AS UNDER: - 4.1. I HAVE VERY CAREFULLY CONSIDERED THE MATTER. THE UNDISPUTED FACT IS THAT THE VSAT SHIFTING DID NOT INVOLVE ANY PHYSI CAL SHIFTING OR RELOCATION OF THE ASSETS OF THE APPELLANT. AFTER TH E SHIFTING IN QUESTION, THE VSAT EQUIPMENT AT THE MEMBERS SITES AND THE HUB AT THE EXCHANGE REMAINED EXACTLY WHERE IT WAS BEFORE THE S HIFTING. ONLY THE ANTENNAE OF THE EQUIPMENT AT THE MEMBERS SITES WER E REALIGNED TO LOG ON TO THE DIFFERENT SATELLITE. THE SHIFTING WAS NOT DONE TO GAIN ANY NEW ADVANTAGE. IT WAS NOT EVEN DONE BY THE APPELLANT OF ITS OWN VOLITION OR AS A MATTER OF CHOICE. IT WAS DONE OUT OF SHEER NECESSITY. OTHERWI SE, THE OPERATIONS OF THE EXCHANGE JUST COULD NOT BE CARRIED ON. THE S HIFTING DID NOT EVEN RESULT IN ANY IDENTICAL ADVANTAGE TO THE APPELLANT. DOT, AS SERVICE PROVIDER, WAS OBLIGED TO PROVIDE CONNECTIVITY BETWE EN THE EXCHANGE AND ITS MEMBERS THROUGH ITS SATELLITES. AFTER VSAT SHIFTING WHAT THE APPELLANT HAD WAS THE SAME CONNECTIVITY AS IT HAD B EFORE. ONLY, THE CONNECTIVITY WAS THROUGH ANOTHER DOT SATELLITE. THE PROFIT MAKING APPARATUS OF THE APPELLANT COMPR ISED VSAT EQUIPMENT AND CONNECTIVITY BETWEEN THE EXCHANGE AND ITS MEMBERS PROVIDED BY DOT THOUGH ITS SATELLITES. THE VSAT SHI FTING IN QUESTION DID NOT ENTAIL EITHER ANY DISLOCATION OF CHANGE OF EQUIPMENT OR ANY CHANGE IN CONNECTIVITY OR OF SERVICE PROVIDER. THE APPELLANT MERELY HAD A RIGHT TO CONNECTIVITY TO BE PROVIDED BY DOT. THERE WAS NO IMPROVEMENT IN THIS RIGHT CONSEQUENT TO THE SHIFTIN G IN QUESTION. THE PROFIT EARNING APPARATUS, THEREFORE, REMAINED THE S AME AS BEFORE. ONLY THE MEDIUM OF CONNECTIVITY WAS A DIFFERENT SAT ELLITE. IT IS COMMON KNOWLEDGE THAT EVERY SATELLITE HAS A LIMITED USEFUL LIFE SPAN. AS SUCH, EVERY TIME AND SATELLITE PROVID ING CONNECTIVITY NEARS THE END OF ITS USEFUL LIFE OR DEVELOPS AN INT RACTABLE SNAG OR DOT SO REQUIRES FOR ANY OTHER REASON, THE APPELLANT WIL L HAVE TO SWITCH ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 8 OVER TO ANOTHER SATELLITE TO BE ABLE TO CONTINUE IT S OPERATIONS. AS BROUGHT OUT BY THE APPELLANT ABOVE, IT WAS REQUIRED TO SWITCH OVER FROM ONE SATELLITE TO ANOTHER IN QUICK SUCCESSION. THIS IS LIVING PROOF THAT SHIFTING FROM ONE SATELLITE TO ANOTHER IS NOT ONCE AND FOR ALL AND DOES NOT BESTOW ANY BENEFIT OR ADVANTAGE OF ENDURI NG NATURE. 4.2 THE AO HAS LIKENED THE SWITCH OVER FROM ONE SAT ELLITE TO ANOTHER TO SHIFTING OF A FACTORY FROM ONE SITE TO ANOTHER. TO MY MIND THIS ANALOGY IS NOT APPOSITE. IN THE INSTANT CASE THERE WAS NO TRANSLOCATION OF EQUIPMENT. THE COMPARISON WITH SHI FTING OF A FACTORY IS THEREFORE ODIOUS. THE EXPENDITURE INVOLVED IN TH E INSTANT CASE WAS NOT ON DISMANTLING AND RE-INSTALLATION OF MACHINES AT A DIFFERENT SITE. IT WAS MAINLY ON TRAVEL OF TECHNICAL PERSONNEL TO T HE NUMEROUS MEMBERS TECHNICAL SITES FOR REALIGNING THE VSAT AN TENNAE TO LOG ON TO THE NEW SATELLITE. THIS SURELY DOES NOT RESULT IN T HE CREATION OF ANY NEW ASSET OR ANY ADVANTAGE OF AN ENDURING NATURE. T HE NEW SATELLITE OR EVEN THE TRANSPONDER IN IT TO WHICH THE APPELLAN T IS HITCHED IS NOT OWNED BY THE APPELLANT NOR DOES THE APPELLANT ACQUI RE ANY KIND OF VESTED RIGHT IN IT. THE APPELLANT ONLY HAS THE RIGH T TO SATELLITE CONNECTIVITY. SHIFTING FROM ONE TO ANOTHER SATELLIT E AT THE BEHEST OF DOT DOES NOT IN ANY WAY IMPROVE THE SAID RIGHT. IN THIS VIEW OF THE MATTER THE ENTIRE CASE LAW CITED BY THE AO IN SUPPO RT OF HIS ANALOGY BECOMES INAPPLICABLE TO THE FACTS OF THE INSTANT CA SE. 4.3 FOR THE ABOVE REASONS I AM OF THE VIEW THAT, ON THE FACTS OF THE INSTANT CASE, THE EXPENDITURE ON SHIFTING OF VSAT W AS NOT ON CAPITAL ACCOUNT. IT HAD NONE OF THE INCIDENTS OF A CAPITAL EXPENSE. IT DID NOT RESULT IN THE CREATION OF ANY NEW ASSET OR ADVANTAG E OF ENDURING NATURE. IT DID NOT IMPACT THE INCOME EARNING APPARA TUS OF THE APPELLANT. QUITE TO THE CONTRARY, THE ESTABLISHED F ACTS CLEARLY SHOW THAT THE SAID EXPENSE WAS OF A RECURRING NATURE. IT WAS IN THE NATURE OF REPAIRS AND MAINTENANCE EXPENDITURE. IT WAS INCU RRED NOT TO PROCURE ANY NEW BENEFIT BUT ESSENTIALLY TO BE ABLE TO CARRY ON THE BUSINESS OPERATIONS. THE EXPENDITURE IN QUESTION TH EREFORE, HAS ALL THE FEATURES OF A REVENUE EXPENSE. THE A.O. IS ACCO RDINGLY DIRECTED TO ALLOW THE SAID EXPENSE OF ` 2,09,10,000 AS DEDUCTION. REVENUE IS AGGRIEVED. 12. THE LEARNED D.R. SUBMITTED THAT THE ASSESSEE DERIVE D AN ADVANTAGE OF PERMANENT NATURE AND THE SATELLITE INTERACTION NETW ORK IS CONSIDERED AS A PLANT AND THIS NETWORK IS SHIFTING FROM ONE SATELLI TE TO ANOTHER SATELLITE WHICH IS AKIN TO SHIFTING OF PLANT FROM ONE PLACE T O ANOTHER. THEREFORE THE EXPENDITURE SHOULD BE CONSIDERED AS CAPITAL IN NATU RE. HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SITALPUR SUGAR WORKS LTD. VS. CIT 49 ITR 160 WHICH ACCORDING TO HIM CLEA RLY APPLIES. HE ALSO RELIED ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF HARDIALLIA ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 9 CHEMICALS LTD. VS. CIT 218 ITR 598 TO SUBMIT THAT T HIS EXPENDITURE IS CAPITAL IN NATURE. HE ALSO SUBMITTED THAT THE HON'B LE DELHI HIGH COURT IN THE CASE OF INTERNATIONAL AIRPORTS AUTHORITY OF IND IA VS. CIT 254 ITR 657 CONSIDERED THE DEVELOPMENT OF AN ALTERNATIVE SITE A S CAPITAL EXPENDITURE AND THE PRINCIPLES ESTABLISHED THEREIN WILL EQUALLY APP LY. 13. THE LEARNED COUNSEL, HOWEVER, SUBMITTED THAT THE AS SESSEE HAS NOT GOT ANY ENDURING BENEFIT AND SINCE THE EXISTING SATELLI TE WAS ONLY REQUIRED SHIFTING OF TRANSPONDERS TO A NEW SATELLITE, ASSESS EE HAD TO SYNCHRONISE MOST OF THE TRANSPONDERS ALONE TO THE NEW SATELLITE. IT IS ALSO SUBMITTED THAT THE ASSESSEE HAD TO SHIFT ANOTHER SATELLITE AS THE SATE LLITE FAILED WITHIN SIX MONTHS, THEREFORE THERE IS NO ENDURING NATURE OF TH E EXPENDITURE AS RIGHTLY POINTED OUT BY THE CIT(A). 14. WE HAVE CONSIDERED THE ISSUE. WE ARE OF THE OPINION THAT THE EXPENDITURE IS REVENUE IN NATURE AS THE ASSESSEE HA S TO REALIGN THE EXISTING NETWORK WHICH IS SYNCHRONISED WITH EARLIER SATELLIT E TO A NEW SATELLITE WHICH DOES NOT GIVE ANY ENDURING ADVANTAGE. IT ALLOWED FO R SMOOTH CONDUCT OF THE EXISTING OPERATIONS WHICH ARE GENERALLY THROUGH THE SATELLITE ONLY FOR CONNECTIVITY WITH VARIOUS NSE CENTRES AND DEALERS A LL OVER INDIA. IN FACT AS STATED BY THE CIT(A), ASSESSEE IN A SHORT SPAN HAS TO DEPUTE TECHNICAL PERSONS TO VARIOUS CENTRES TO REALIGN THE TRANSPOND ERS TO THE SATELLITE. MOST OF THE EXPENSES ARE WITH REFERENCE TO SALARY AND TR AVEL EXPENSES PERTAINING TO THE OFFICIALS/ TECHNICAL PERSONNEL AND NOT TO PU RCHASE OF ANY ASSET. IN VIEW OF THIS, WE AGREE WITH THE FINDING OF THE CIT( A) THAT THE EXPENDITURE IS REVENUE IN NATURE. THE CASE LAW RELIED UPON BY THE LEARNED D.R. ARE GIVEN IN DIFFERENT CONTEXT OF SHIFTING PHYSICAL PLANTS EXIST ING IN ONE PLACE TO ANOTHER PLACE. THIS IS NOT LIKE THAT. THIS IS A CONNECTION NETWORK OF ADVANCED NATURE IN WHICH ONLY THE TRANSPONDERS WERE ALIGNED AND THE EXPENDITURE IS INCURRED FOR DEPUTING PERSONS TO DO THE JOB. THEREFORE, THE EXPENDITURE IS RIGHTLY CONSIDERED BY THE CIT(A) AS REVENUE EXPENDITURE. WE REJECT THE GROUND. 15. GROUND NO. 2 PERTAINS TO GRANT OF INTEREST OF ` 22,89,103/- UNDER SECTION 36(1)(III) THOUGH ASSESSEE ITSELF CAPITALIS ED IN ITS BOOKS OF ACCOUNT RELYING ON THE DECISION OF THE CIT(A) FOR EARLIER Y EARS 1995-96 TO 1997-98. ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 10 THE A.O. NOTICED THAT THE AMOUNTS OF ` 21,87,105/- AND ` 1,01,998/- TOTALLING TO ` 22,89,103/- WERE TOWARDS INTEREST PAYMENT TO SYNDIC ATE BANK & CANARA BANK RESPECTIVELY ON LOANS OBTAINED FOR PU RCHASE OF CAPITAL ASSETS. THESE AMOUNTS HAD BEEN CAPITALISED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE TOWARDS THE COST OF ACQUISITION OF THE CAP ITAL ASSETS. HOWEVER, IN THE COMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED THESE AMOUNTS AS REVENUE EXPENDITURE ALLOWA BLE UNDER SECTION 36(1)(VII). THE A.O. DISALLOWED THE CLAIM FOR DEDUC TION BECAUSE IN ITS OWN BOOKS OF ACCOUNT THE ASSESSEE HAD CAPITALISED THE S AID INTEREST. FURTHER, THE A.O. NOTED THAT THE ABOVE INTEREST ON BORROWED FUND S RELATED TO THE PERIOD PRIOR TO THE DATE OF USE OF THE SAID ASSET. HE OBSE RVED THAT AS PER EXPLANATION 8 TO SECTION 43(1) IF ANY AMOUNT IS PAI D OR PAYABLE AS INTEREST IN CONNECTION WITH ACQUISITION OF ANY ASSET, SO MUCH O F SUCH AMOUNT AS IS RELATABLE TO ANY PERIOD AFTER SUCH ASSET IS FIRST P UT TO USE, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET. FROM THIS THE A.O. INFERRED THAT THE AMOUNT OF INTEREST PRIOR TO THE PERIOD OF FIRST USE OF THE ASSET IS TO BE INCLUDED AS ACTUAL COST OF THE ASSET FOR THE PURPOS E OF DEPRECIATION. FOR THESE REASONS THE AMOUNTS OF ` 21,87,105/- AND ` 1,01,998/- WERE TREATED AS CAPITAL EXPENDITURE AND ADDED BACK TO ASSESSEES IN COME. ON THE SUBMISSION MADE BY THE ASSESSEE THE CIT(A) HELD THA T THE EXPENDITURE IS REVENUE IN NATURE. THE CIT(A), FOLLOWING HIS FINDIN GS IN A.Y. 1995-96 AND RELYING ON THE THIRD MEMBER DECISION IN THE CASE OF CORE HEALTH CARE LTD. VS. DCIT 78 ITD 1 AND OTHER LEGAL PRINCIPLES ALLOWE D THE CLAIM AS REVENUE EXPENDITURE. 16. THIS ISSUE WAS ALREADY CONSIDERED BY THE ITAT IN AS SESSEES OWN CASE IN ITA 7436/MUM/2007 FOR A.Y. 1994-95 WHICH WAS FOL LOWED IN A.Y. 1995- 96. THE FINDINGS OF THE ITAT IN PARA 17 IN ORDER DA TED 22.12.2008 ARE AS UNDER: - 17. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 7436/MUM/07 VIDE ORD ER DATED 27 TH MARCH, 2007 FOR THE ASSESSMENT YEAR 1994-95 HAS DIR ECTED THE ASSESSING OFFICER TO ALLOW THE VARIOUS EXPENSES AND DEPRECIATION FOR THE YEAR UNDER CONSIDERATION HOLDING THAT THE BUSIN ESS OF THE ASSESSEE HAS BEEN SET UP FOR THE PURPOSE OF CARRYIN G ON THE BUSINESS. ITA NOS. 3799& 4022/MUM/2004 M/S. NATIONAL STOCK EXCHANGE OF INDIA LTD. 11 ACCORDINGLY, THE EXPENDITURE INCLUDING THE DEPRECIA TION FOR THE YEAR UNDER CONSIDERATION WAS ALLOWED AS DEDUCTION. FURTH ER, WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF JCIT VS. U NITED PHOSPHOROUS LTD., 229 ITR 9 (SC) HAS HELD THAT THE INTEREST PAID IN RESPECT OF BORROWINGS FOR CAPITAL ASSET NOT PUT TO USE IN THE CONCERNED FINANCIAL YEAR IS AN ALLOWABLE DEDUCTION UNDER SECT ION 36(1)(III) OF THE INCOME TAX ACT. THE SAME VIEW HAS AGAIN BEEN TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF ACIT VS. ARVIND POLYCO T LTD. REPORTED IN 299 ITR 12 (SC). IN VIEW OF THE DECISION OF THE HON 'BLE SUPREME COURT CITED ABOVE, THE INTEREST EXPENDITURE CLAIMED BY TH E ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE GROUND RAISE D BY THE ASSESSEE IS ACCORDINGLY ALLOWED AND THE GROUND RAIS ED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 17. SINCE THE ISSUE IS ALREADY COVERED AGAINST REVENUE AND IN FAVOUR OF THE ASSESSEE AND SINCE THE CIT(A) FOLLOWED EARLIER YEARS ORDER FOR ALLOWING IN THIS YEAR, WE UPHOLD THE ORDER OF THE CIT(A) IN ALL OWING IT AS REVENUE EXPENDITURE. THEREFORE, THE GROUND OF THE REVENUE I S REJECTED. 18. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIX, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.