M/s.Shanders Property Developers Pvt. Ltd., Bangalore V. Income Tax Officer, Bangalore

ITA 531/BANG/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5333 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS JT BENGALURU
• Assessee Lawyers: S V SHIVARAMA IYER
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.531/BANG/2017 ASSESSMENT YEAR : 2012-13 SHANDERS PROPERTIES PVT. LTD., NO.1097 (OLD) 58 (NEW), 18 TH B MAIN ROAD, RAJAJINAGAR, BENGALURU 560 010. PAN: AAOCS 0912Q VS. THE INCOME TAX OFFICER, WARD 12(2), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI S.V. SHIVARAMA IYER, CA RESPONDENT BY : SMT. SWAPNA DAS, JT.CIT(DR)(ITAT)-2, BENGALURU DATE OF HEARING : 18.05.2017 DATE OF PRONOUNCEMENT : 26.05.2017 O R D E R THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- GROUND 1: GENERAL 1.1 THE ORDER OF THE LEARNED CIT(A)IS ERRONEOUS AN D BAD IN LAW AS IT CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER. FURTHER THE ORDER IS ERRONEOUS AS IT ROUTI NELY AND INCORRECTLY UPHELD THE ASSESSING OFFICER'S GROUND T O DISALLOW THE EXPENSES. GROUND 2: STAMP DUTY ON CONVERTIBLE DEBENTURES 2.1 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LA W IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED IN ITA NO.531/BANG/2017 PAGE 2 OF 9 RELATION TO ISSUE OF DEBENTURES AMOUNTING TO RS 19, 38,800 (ONLY 2 ITEMS), AS CAPITAL EXPENDITURE. 2.2 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LA W TO APPRECIATE THAT WHERE THE STAMP DUTY IS INCURRED BY THE APPELLANT TOWARDS ISSUE OF DEBENTURES, THE SAME IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37 OF THE ACT. 2.3 THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN L AW TO APPRECIATE THAT THE STAMP DUTY FOR ISSUE OF DEBENTU RE, IS AN ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF THE A CT, AS THE SAID STAMP DUTY IS COMPULSORY LEVY UNDER THE COMPANIES ACT. 2.4 THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH AT THE MONEY RAISED BY ISSUE OF CONVERTIBLE DEBENTURES IS IN THE NATURE OF BORROWING AND NOT IN THE NATURE OF SHARE CAPITAL. 2.5 THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERIN G THE WRITTEN SUBMISSIONS MADE BY THE APPELLANT, IN THIS REGARD. 2.6 THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERIN G THE JUDICIAL PRECEDENTS RELIED ON BY THE APPELLANT INCL UDING THAT OF THE JURISDICTIONAL HIGH COURT . 2.7 THE LEARNED CIT(A) HAS ERRED IN NOT DIRECTING THE LEARNED ASSESSING OFFICER TO VERIFY WHETHER AN AMOUNT OF RS 29,419 WAS DISALLOWED BY THE COMPANY AS THE SAID AM OUNT WAS INCURRED TOWARDS CHARGES TO ROC, AS THE COMPANY IN ITS RETURN OF INCOME ITSELF HAD VOLUNTARILY DISALLO WED THE SAID AMOUNT. GROUND 3: SPONSORSHIP CHARGES 3.1 THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO IN RELATION TO SPONSORSHIP CHARGES INCURRED BY THE APPELLANT. 3.2 THE LEARNED CIT(A) ERRONEOUSLY PROCEEDED TO UP HOLD THE CONTENTIONS OF THE AO AND ERRED IN CONCLUDING THAT THE SPONSORSHIP FEE NEEDS TO BE DISALLOWED. 3.3 THE LEARNED CIT(A) AND AO HAVE ERRED IN FACTS AND IN LAW TO APPRECIATE THAT THE COMPANY IS ENGAGED IN THE BU SINESS ITA NO.531/BANG/2017 PAGE 3 OF 9 OF REAL ESTATE DEVELOPMENT AND TO PROJECT ITS BRAND IT IS REQUIRED TO INCUR THE ADVERTISEMENTS THROUGH SPONSO RSHIP OF EVENTS. 3.4 THE LEARNED CIT(A) AND AO HAVE FAILED TO APPREC IATE THAT SPONSORSHIP OF EVENTS ARE INCIDENTAL TO THE BUSINES S OF THE ASSESSEE TO PROMOTE ITS PRODUCT AND THEREFORE IS AN ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF THE ACT. 3.5 THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERIN G THE WRITTEN SUBMISSIONS MADE BY THE APPELLANT, IN THIS REGARD 3.6 THE LEARNED CIT(A) HAS ERRED IN NOT CONSIDERIN G THE JUDICIAL PRECEDENTS RELIED ON BY THE ASSESSEE. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED MY ATTENTION THAT EXPENDITURE INCURRED IN R ELATION TO DEBENTURES IS REVENUE EXPENDITURE IN THE LIGHT OF JUDGMENT OF HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT & ANR. V. ITC HOTELS LTD., 338 ITR 109; WHEREAS THE CIT(APPEALS) HAS DECIDED THE APPEAL OF ASSESSEE FOLLOWING THE JUDGMENT OF HONBLE GUJARAT HIGH COURT AND MUMBAI B ENCH OF THE TRIBUNAL. THE LD. COUNSEL FURTHER CONTENDED THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE FOLLOWING THE JUDGMENT OF HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. SECURE METERS LTD. REPORTED AT 321 ITR 611 IN WHICH THE HONBLE HIGH COURT HAS EXAMINED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS. THE SLP FILED AGAINST THE JUDGMENT OF HONBLE RAJASTHAN HIGH COURT WAS ALSO DISMISSED BY THE HON BLE APEX COURT. THEREFORE, THE VIEW TAKEN BY THE HONBLE RAJASTHAN HIGH COURT WHICH WAS ITA NO.531/BANG/2017 PAGE 4 OF 9 FOLLOWED BY THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V. ITC HOTELS LTD. (SUPRA) ATTAINED FINALITY. 3. WITH REGARD TO SPONSORSHIP CHARGES, IT WAS CONTE NDED THAT THE ASSESSEE HAS PAID THE SPONSORSHIP CHARGES ON ACCOUN T OF BUSINESS NEED. THE EXPENDITURE WAS INCURRED TOWARDS MUSIC FESTIVAL TO TECHNOLOGY ALUMNI ASSOCIATION WHICH IS AN ALUMNI ASSOCIATION OF IIT, KHARAGPUR, THEREFORE THE SAID EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITU RE. 4. ON THE OTHER HAND, THE LD. DR HAS PLACED RELIANC E UPON THE ORDER OF CIT(APPEALS) WITH REGARD TO EXPENDITURE INCURRED IN RELATION TO ISSUE OF DEBENTURES AND WITH RESPECT TO DISALLOWANCE OF SPON SORSHIP EXPENSES, THE LD. DR HAS SUBMITTED THAT NO EVIDENCE HAS BEEN FILE D WITH REGARD TO EXPENSES EITHER BEFORE THE AO OR THE CIT(APPEALS). THEREFORE, THE REVENUE AUTHORITIES WERE RIGHT IN DISALLOWING THE C LAIM. 5. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGMENTS REFERRED TO IN THE LIGHT OF RIVAL SUBMISS IONS, WE FIND THAT THE ISSUE OF EXPENDITURE INCURRED IN RELATION TO ISSUE OF DEB ENTURES WAS EXAMINED BY THE CIT(APPEALS) IN THE LIGHT OF JUDGMENT OF HONBL E GUJARAT HIGH COURT AND THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL AND HELD THAT THIS EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. WHEREAS , THE HONBLE RAJASTHAN HIGH COURT HAD EXAMINED THIS ISSUE IN THE LIGHT OF THE HONBLE APEX COURT JUDGMENT AND VARIOUS JUDGMENTS OF DIFFER ENT HIGH COURTS AND FINALLY CONCLUDED THAT DEBENTURE WHEN ISSUED IS A L OAN, AND, THEREFORE, ITA NO.531/BANG/2017 PAGE 5 OF 9 WHETHER IT IS CONVERTIBLE OR NON-CONVERTIBLE, DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE, BEING LOAN, AND THEREFORE THE EXPENDITURE INCURRED WOULD BE ADMISSIBLE AS REVENUE EXPENDITURE. THE RE LEVANT OBSERVATIONS OF THE HONBLE RAJASTHAN HIGH COURT ARE EXTRACTED HERE UNDER FOR THE SAKE OF REFERENCE:- 6. COMING TO THE SECOND QUESTION, THE LEARNED TRI BUNAL IN THIS REGARD HAS HELD THAT THE DECISION OF THE HON'B LE SUPREME COURT IN BROOKE BOND INDIA LTD. V. CIT REPORTED IN [1997] 225 ITR 798 IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE BECAUSE THAT WAS A SITUATION IN WHICH EXPENDITURE ON ISSUE OF SHARES WAS HELD TO BE INELIGIBLE FOR DEDUCTION, WHILE THE ASSE SSEE HAS ISSUED DEBENTURES FOR WHICH RS. 44 LAKHS WAS CLAIMED AS DE DUCTION AND IT WAS CONSIDERED THAT THIS ASPECT IS SETTLED BY SE VERAL DECISIONS OF VARIOUS HIGH COURTS AND IT HAS BEEN HELD BY THE HON BLE SUPREME COURT IN INDIA CEMENTS LTD. V. CIT REPORTED IN [196 6] 60 ITR 52, THAT A LOAN IS NOT AN ASSET OR ADVANCE OF ENDURING NATURE AND THE PURPOSE OF TAKING LOAN IS TOTALLY AN IRRELEVANT CON SIDERATION AND HENCE THE DEDUCTION ON ACCOUNT OF INTEREST ON LOANS CANNOT BE DENIED. THEN, THE LEARNED TRIBUNAL ALSO PROCEEDED T O RELY UPON ANOTHER JUDGMENT OF THE JAIPUR BENCH OF THE TRIBUNA L IN THE CASE OF RAJASTHAN FINANCIAL CORPORATION V. DEPUTY CIT [1 997] TW- 501, HOLDING THAT THE EXPENDITURE INCURRED FOR RAIS ING CAPITAL THROUGH BONDS IN BUSINESS WAS REVENUE IN NATURE AND IT WAS HELD THAT SINCE IN THE PRESENT CASE THE ASSESSEE HAD INC URRED EXPENSES OF RS. 44 LAKHS ON ISSUANCE OF DEBENTURES BEING A L OAN, IN OUR CONSIDERED OPINION, THERE IS NO BASIS FOR NOT ALLOW ING DEDUCTION FOR THE ENTIRE SUM AND THUS THIS ADDITION WAS DELET ED. 7. WE HAVE GONE THROUGH THE JUDGMENT IN BROOKE BO ND INDIA LTD.' S CASE [1997] 225 ITR 798 (SC) AND FIND THAT THAT WAS A CASE WHERE THE REGISTRATION FEE TO THE TUNE OF RS. 1,50, 000 WAS PAID TO THE REGISTRAR OF COMPANIES FOR INCREASING THE SHARE CAPITAL OF THE COMPANY, WHILE IN THE CASE OF INDIA CEMENTS LTD. [1 966] 60 ITR 52 , THE MATTER RELATED TO THE BORROWING OF RS.40 LAKH S FROM A FINANCIAL INSTITUTION, WHICH LOAN WAS SECURED BY A CHARGE ON THE FIXED ASSETS OF THE COMPANY. THE HON'BLE SUPREME CO URT IN THIS JUDGMENT CONSIDERED VARIOUS ASPECTS OF THE MATTER I NCLUDING THE ITA NO.531/BANG/2017 PAGE 6 OF 9 PREVIOUS ENGLISH JUDGMENTS AND COUPLE OF JUDGMENTS OF THE ENGLISH COURTS BASED ON THE ENGLISH INCOME TAX ACT AND PROCEEDED TO DRAW DISTINCTION BETWEEN THE INCOME TA X LAW IN ENGLAND AND INDIA. NOT ONLY THIS, THE HONBLE SUPRE ME COURT FURTHER PROCEEDED TO EXAMINE A NUMBER OF CASES DECI DED BY VARIOUS HIGH COURTS LIKE KERALA, ANDHRA PRADESH, CA LCUTTA, BOMBAY, ETC., AND HAD GONE TO THE EXTENT OF HOLDING THAT SOME OF THE JUDGMENTS WERE WRONGLY DECIDED. THEN, THE HONB LE SUPREME COURT PROCEEDED TO HOLD AS UNDER (PAGE 63) : '10. TO SUMMARISE THIS PART OF THE CASE, WE ARE OF THE OPINION THAT : (A) THE LOAN OBTAINED IS NOT AN ASSE T OR ADVANTAGE OF AN ENDURING NATURE ; (B) THAT THE EXPE NDITURE WAS MADE FOR SECURING THE USE OF MONEY FOR A CERTAI N PERIOD ; AND (C) THAT IT IS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAINED.' THUS, IT WAS HELD THAT THE EXPENDITURE INCURRED IN PROCURING THE LOAN WAS REVENUE EXPENDITURE WITHIN SECTION 10(2)(X V) OF THE OLD INCOME-TAX ACT, WHICH CORRESPONDS TO SECTION 37 OF THE PRESENT ACT. BY GOING THROUGH THE SAID JUDGMENT, IT FURTHER TRANSPIRES THAT THE HON'BLE SUPREME COURT ALSO PROCEEDED TO EXAMINE THE ASPECT OF PURPOSE OF RAISING LOAN AND ITS IMMEDIATE OR SUB SEQUENT UTILISATION FOR DIFFERENT PURPOSE AND EXAMINED THAT EVEN IF A LOAN IS RAISED FOR PURCHASING RAW MATERIAL AND AFTER RAI SING THE LOAN THE COMPANY FINDS IT UNNECESSARY TO BY RAW MATERIAL AND SPENDS THE AMOUNT ON CAPITAL ASSET, STILL IT CANNOT BE SAID TO BE CAPITAL EXPENDITURE, AS IT WAS HELD THAT THE PURPOSE FOR WH ICH THE NEW LOAN WAS REQUIRED WAS IRRELEVANT TO THE QUESTION AS TO WHETHER THE EXPENDITURE FOR OBTAINING LOAN WAS REVENUE OR CAPIT AL EXPENDITURE. WE ARE TOLD THAT RELYING ON THIS JUDGM ENT MANY OF THE HIGH COURTS OF THE COUNTRY HAVE CONSISTENTLY TA KEN THE VIEW THAT THE EXPENDITURE INCURRED IN ISSUING ANY DEBENT URES AND RAISING LOAN ON DEBENTURES IS ADMISSIBLE OBVIOUSLY BECAUSE THE DEBENTURE IS ALSO A LOAN. 8. AT THIS STAGE IT WAS CONTENDED BY THE LEARNED C OUNSEL FOR THE REVENUE THAT A DISTINCTION SHOULD BE DRAWN BETW EEN THE CONVERTIBLE AND NON-CONVERTIBLE DEBENTURES INASMUCH AS IF THE DEBENTURE IS CONVERTED INTO SHARES THEN IT PARTAKES OF THE CHARACTER OF CAPITAL AND IN THAT EVENT THE EXPENDIT URE WOULD NOT BE REVENUE EXPENDITURE AND WOULD BE CAPITAL EXPENDI TURE. LEARNED COUNSEL FOR THE ASSESSEE INFORMS THAT THOUG H IT HAS NOT ITA NO.531/BANG/2017 PAGE 7 OF 9 COME ON RECORD SO FAR BUT AS A MATTER OF FACT THE D EBENTURES ISSUED WERE OF CONVERTIBLE NATURE. THEN, THE LEARNE D COUNSEL FOR THE ASSESSEE ARGUED RELYING UPON THE JUDGMENT OF TH E CALCUTTA HIGH COURT IN CIT V. EAST INDIA HOTELS LTD. REPORTE D IN [2001] 252 ITR 860 , THAT THE EXPENDITURE INCURRED EVEN IN RAISING LOA N BY CONVERTIBLE DEBENTURE WOULD ALSO BE ADMISSIBLE AS R EVENUE EXPENDITURE. THE CALCUTTA HIGH COURT HAD ADOPTED TH E REASONING THAT CONVERSION OF DEBENTURES RESULTS IN REPAYMENT OF LOAN AND ISSUANCE OF SHARES. THIS IS ONE ASPECT OF THE MATTE R. IN OUR VIEW, THE OTHER MORE IMPORTANT ASPECT OF THE MATTER IS TH AT THE HONBLE SUPREME COURT IN INDIA CEMENTS' CASE [1966] 60 ITR 52 HAS CLEARLY EXCLUDED THIS ASPECT FROM CONSIDERATION BY HOLDING THAT IT IS IRRELEVANT TO CONSIDER THE OBJECT WITH WHICH THE LOAN WAS OBTAINED. 9. ADMITTEDLY, THE DEBENTURES WHEN ISSUED IS A LO AN AND, THEREFORE, WHETHER IT IS CONVERTIBLE OR NON-CONVERT IBLE DOES NOT MILITATE AGAINST THE NATURE OF THE DEBENTURE, BEING LOAN AND, THEREFORE, THE EXPENDITURE INCURRED WOULD BE ADMISS IBLE AS REVENUE EXPENDITURE. 6. AGAINST THIS JUDGMENT, A SLP WAS FILED AND THE S AME WAS DISMISSED BY THE HONBLE SUPREME COURT IN SPECIAL LEAVE APPEA L (CC) NO.10548 OF 2009. THE JUDGMENT OF THIS HONBLE RAJASTHAN HIGH COURT WAS FOLLOWED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V. ITC HOTELS LTD. (SUPRA) BY MAKING THE FOLLOWING OBSERVATIONS:- 5. AFTER HEARING THE LEARNED COUNSEL FOR THE PAR TIES, WE HAVE COME ACROSS A JUDGMENT OF THE RAJASTHAN HIGH COURT IN CIT V. SECURE METERS LTD. [2010] 321 ITR 611 (RAJ) (INCOME-TAX APPEAL NO. 8 OF 2007JODHPUR BENCH OF THE RAJASTHAN HIGH C OURT) CONSIDERING THE VARIOUS ASPECTS HAS COME TO THE CON CLUSION THAT EVEN IF THE DEBENTURE WERE TO BE CONVERTED INTO SHA RE AT A LATER DATE, THE EXPENDITURE INCURRED ON SUCH CONVERTIBLE DEBENTURE HAS TO BE TREATED AS A REVENUE EXPENDITURE. THE ORDER O F THE JODHPUR BENCH WAS TAKEN UP BEFORE THE HONBLE SUPREME COURT IN SPECIAL ITA NO.531/BANG/2017 PAGE 8 OF 9 LEAVE APPEAL CC 10548 OF 2009. THE HONBLE APEX COU RT HAS DISMISSED THE SPECIAL LEAVE PETITION. 6. THEREFORE, WE ARE OF THE VIEW THAT THE POINT RA ISED IN THIS APPEAL HAS BEEN DECIDED IN VIEW OF THE DISMISSAL OF THE SPECIAL LEAVE PETITION BY THE HONBLE APEX COURT. 7. FOLLOWING THE AFORESAID DECISION, WE ARE OF THE VIEW THAT EVEN IF THE DEBENTURE HAS TO BE CONVERTED INTO A SH ARE AT A LATER DATE, THE EXPENDITURE SO INCURRED FOR COLLECTION OF DEBENTURE HAS TO BE TREATED AS REVENUE EXPENDITURE. 7. IN THE LIGHT OF THESE JUDGMENTS, I FIND THAT THE IMPUGNED ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREF ORE, I SET ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE AO TO ALLOW TH E EXPENDITURE INCURRED IN RELATION TO ISSUANCE OF DEBENTURES AS REVENUE EX PENDITURE. 8. WITH REGARD TO SPONSORSHIP CHARGES, I FIND THAT THE CLAIM OF ASSESSEE WAS DENIED FOR WANT OF EVIDENCE OF THE EXPENDITURE INCURRED ON ACCOUNT OF SPONSORSHIP. DURING THE COURSE OF HEARING, NO EVID ENCE IS FILED BEFORE THE TRIBUNAL, THEREFORE I FIND NO INFIRMITY IN THE ORDE R OF CIT(APPEALS). ACCORDINGLY, THE ORDER OF CIT(APPEALS) IS CONFIRMED IN THIS REGARD. 9. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MAY, 2017. SD/- (SUNIL KUMAR YADAV ) JUDICIAL MEMBER BANGALORE, DATED, THE 26 TH MAY, 2017. / D ESAI S MURTHY / ITA NO.531/BANG/2017 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.