ACIT, Pune V. M/s. Mahindra Composites Ltd., Pune

ITA 625/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56514 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R D ONKAR
• Assessee Lawyers: S PRAVEENA SR
• Keywords: Capital expenditure
• Section: 14A

Judgement Text

1 ITA 625/PN/2009 MAHINDRA COMPOSITES LTD. IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C.SUDHIR, JM AND SHRI D. KARUNAKARA RAO, AM ITA NO.625/PN/2010 ASST.YEAR:2006-07 ASST.COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE APPELLANT VS. MAHINDRA COMPOSITES LTD., PUNE PAN ABDFS4839H RESPONDENT APPELLANT BY : SHRI R.D.ONKAR, AR RESPONDENT BY : MS S.PRAVEENA, SR AR ORDER PER D. KARUNAKARA RAO, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, PUNE DT. 5-2-2009 FOR THE ASSESSMENT YEAR 2005-06. 2. FOLLOWING ARE THE GROUNDS OF APPEAL RAISED BY TH E REVENUE IN ITS APPEAL. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLO WANCE OF RS.12.16,666 ON ACCOUNT OF RENT PAID BY THE ASSESSE E WHICH WAS TREATED AS CAPITAL EXPENDITURE BY THE ASSESSING OFF ICER. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) WAS JUSTIFIED IN NOT UPHOLDING THE DI SALLOWANCE MADE 2 ITA 625/PN/2009 MAHINDRA COMPOSITES LTD. BY THE AO ON PROPORTIONATE BASIS, IN ACCORDANCE WIT H THE PROVISIONS OF SUBSECTION (20 AND (3) OF SEC. 14A OF THE IT ACT AND IN REDUCING AND RESTRICTING THE DISALLOWANCES MADE BY THE AO U/ S 14A FROM RS.53,322 TO RS.26,661/- 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) WAS JUSTIFIED IN NOT APPLYING THE RAT IO OF THE RECENT DECISION OF THE HONBLE ITAT SPECIAL BENCH MUMBAI I N THE CASE OF ITO V. M/S DAGA CAPITAL MANAGEMENT PVT.LTD.., M/S M AXOPP INVESTMENT LTD. V. ACIT, M/S CHEMINVEST INVESTMENTL TD. V. ITO W.R.T. PROPORTIONATE DISALLOWANCE OF EXPENDITURE U/ S 14A OF THE IT ACT, 1961. 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE MENTIONED THAT THE GROUND RELATING TO THE APPLICABILITY OF SEC.14A OF THE INCOME TAX ACT, 1961 (THE ACT) SHALL NOT BE PRESSED. ACCORDINGLY, THE SAME IS DISMISSED AS NOT PRESSED. 4. THE OTHER SOLITARY GROUND WHICH IS THE BONE OF C ONTENTION RELATES TO THE DISALLOWANCE OF LEASE RENT OF RS.12,15,666/- PAID BY THE ASSESSEE WHICH IS GROUPED UNDER CAPITAL WORK IN PROGRESS A CCOUNT IN THE BOOKS OF THE ASSESSEE. IN THIS REGARD, THE LEARNED COUNSEL F OR THE ASSESSEE SUMMARILY MENTIONED THAT THE ISSUE IS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL I N THE ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR 2004-05 AND THE FACTS ARE IDENTICAL. IN THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE TOOK US THROUGH PARAGRAPHS 4 AND 5 OF THE SAID ORDER OF THE TRIBUNAL FOR DEMONSTRATING THAT THE ISSUE IS COVERED. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD, INCLUDING THE ORDER OF THE TRIBUNAL SO R EFERRED TO ABOVE. WE HAVE PERUSED PARAGRAPHS 4 AND 5 AND FIND THAT THE I SSUE IS THE SAME. FOR 3 ITA 625/PN/2009 MAHINDRA COMPOSITES LTD. THE SAKE OF COMPLETENESS OF THIS ORDER, WE REPRODUC E THE SAID PARAGRAPHS IN THIS ORDER BELOW. 4. NONE OF THE PARTIES ARE SATISFIED BY THE PARTIA L RELIEF OR PARTIAL CONFIRMATION OF DISALLOWANCE WHILE, AS NOTED ABOVE, THE ASSESSEE IS AGGRIEVED OF CIT(A)S CONFIRMING THE DISALLOWANCE T O THE EXTENT OF RS.11,4,924/- THE REVENUE IS ALSO AGGRIEVED OF THE RELIEF GIVEN BY THE CIT(A) TO THE EXTENT OF LEASE RENT PAYMENT O F RS.7,20,000/- 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF TH E CASE AS APPLICABLE TO THE ISSUE. WE FIND THAT ADMITTEDLY T HE LEASE PERIOD FOR WHICH THE PROPERTY WAS TAKEN ON LEASE WAS NINE YEARS AND THEREFORE, IT CANNOT BE SAID TO BE A LONG-TERM LEAS E. BEARING IN MIND THIS FACT AS ALSO THE RATIO OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT V. HOECHST PHARMACEUTICALS LTD. (19 78) 113 ITR 877, WHEREIN THEIR LORDSHIPS HAVE HELD THAT EXPENS ES INCURRED BY WAY OF BROKERAGE AND STAMP DUTY FOR ACQUIRING OFFIC E PREMISES ON LEASE FOR A SORT PERIOD OF FIVE YEARS ARE ALLOWABLE DEDUCTIONS IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE., WE AR E OF THE CONSIDERED VIEW THAT THE CIT(A) INDEED ERRED IN CON FIRMING THE DISALLOWANCE ON ACCOUNT OF REGISTRATION FEES FOR LE ASE, ARCHITECT FEES AND PROPERTY TAX. AS WE HOLD SO, WE ALSO NOTE A FA CT THAT NOT ONLY THE LEASE PERIOD WAS FOR A SHORT PERIOD OF NINE YEA RS, IT WAS IN THE COURSE OF EXTENSION OF EXISTING BUSINESS THAT ADDIT IONAL PREMISES WEE TAKEN ON LEASE. SIMILARLY, AS HELD BY THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. R.TOLAT & CO. (1980) 12 6 ITR 551 DISALLOWANCE OF LEASE RENT OF RS.7,20,0/- PIAD BY T HE ASSESSEE WAS NOT JUSTIFIED EITHER AND THE CIT(A) WAS QUITE JUSTI FIED IN DELETING THE SAID DISALLOWANCE. THIS INFERENCE HAS BEEN GIVEN O N THE FACT THAT THESE EXPENSES WERE CAPITALIZED AS WORK IN PROGRESS IN THE BOOKS OF ACCOUNTS AND FOR THAT REASON THE DEDUCTION WAS NOT ADMISSIBLE. WE DO NOT SEE ANY MERIT IN THIS PLEA EITHER. ADMISSIB ILITY OF DEDUCT IN THE COMPUTATION OF TAXABLE INCOME IS NOT DEPENDENT ON WRONG TREATMENT GIVEN BY THE ASSESSEE TO AN OTHERWISE ADM ISSIBLE EXPENDITURE. IN THE CASE OF DCIT V. CORE HEALTHCAR E LTD. (2010) 251 TR 61 THEIR LORDSHIPS OF HONBLE GUJARAT HIGH C OURT WERE IN SCISSION OF A SITUATION IN WHICH WHILE THE ASSESSEE HAS CAPITALIZED THE INTEREST EXPENDITURE IN THE BOOS OF ACCOUNTS, Y ET, HIS CLAIM OF DEDUCTION U/S 36(1)(III) WAS FOUND TO BE ADMISSIBLE . THIS DECISION HAS BEEN RECENTLY CONFIRMED BY THE SUPREME COURT IN THE JUDGMENT REPORTED AS CIT V. CORE HEALTHCARE LTD. (298 ITR 19 14). SIMILAR WAS THE SITUATION IN THE CASE OF CIT V. KASTHURI & SONS (2000) 241 ITR 412. IN OUR UNDERSTANDING WHAT IS TO BE SEEN F OR THE PURPOSES 4 ITA 625/PN/2009 MAHINDRA COMPOSITES LTD. OF EXAMINING THE TAXABILITY OF EXPENDITURE, THE NAT URE OF EXPENDITURE AND WHETHER IT DOES CONSTITUTE PERMISSI BLE DEDUCTION UNDER THE SCHEME OF THE ACT, MERE FACT THAT WHICH H AS BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT IN OUR HUMBLE U NDERSTANDING WILL NOT BE DETERMINATIVE OF ADMISSIBILITY OR OTHERWISE AS A DEDUCTION. IN VIEW OF THIS DISCUSSION AS WELL, WE UPHOLD THE G RIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.11,42,924/- AS DISCUSSED ABOVE, WE CONFIRM THE ACTION OF THE CIT(A) FOR GRANT OF DEDUCTION OF RS.7,20,000/-. THUS, GROUND NO.1 OF THE ASSESSEE IS ALLOWED WHILE THE GR OUND NO.1 OF THE REVENUE IS DISMISSED. FROM THE ABOVE EXTRACT, IT IS EVIDENT THAT THE ISSU E REALTES TO THE DISALLOWANCE OF LEASE RENT PAYMENT OF RS 7.2 LAKHS AND THE TRIBUNAL CONFIRMED THE DECISION OF THE CIT(A) IN GRANTING RE LIEF TO THE ASSESSEE. CONSIDERING THE HOMOLOGY OF THE FACTS ON THE ISSUE, WE ARE OF THE OPINION THAT THE GROUND RAISED BY THE ASSESSEE IS COVERED B Y THEABOVE DECISION IN THE ASSESSEES OWN CASE AND THEREFORE RELEVANT GROU ND OF THE ASSESSEE IS ALLOWED . 7. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE COURT ON 05-10-2011. SD/- SD/- (I.C.SUDHIR) (D.KARUNA KARA RAO) JUDICIAL MEMBER ACCOUNTANT M EMBER PUNE, DATED THE 05.10.2011 *VNR COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEES AS MENTIONED IN THE CAUSE TITLE 2. ACIT, CIRCLE 9, PUNE 3. CIT (A)-III, PUNE 4. CIT CONCERNED, 5. D.R. ITAT B BENCH, PUNE. 6. GUARD FILE 5 ITA 625/PN/2009 MAHINDRA COMPOSITES LTD. BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE