DCIT, CHENNAI V. M/s. Sundaram BNP Paribas AMC Ltd., CHENNAI

ITA 710/CHNY/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1293 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN, JUDICIAL MEMBER .. I.T.A. NOS. 518 & 519/MDS/2010 ASSESSMENT YEAR: 2006-07 M/S. SUNDARAM BNP PARIBAS ASSET MANAGEMENT COMPANY LTD., SUNDARAM TOWERS 2 ND FLOOR, 46, WHITES ROAD, ROYAPETTAH, CHENNAI-600 014. V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, LARGE TAX PAYER UNIT, CHENNAI. (PAN: AAICS4257J) A N D I.T.A. NO. 710/MDS/2010 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF V. M/S. SUN DARAM BNP PARIBAS INCOME-TAX, LARGE TAX PAYER UNIT, AMC LTD., 46, WHITES ROAD, CHENNAI. CHENNAI-600 014. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI R. VIJAYARAGHAVAN DEPARTMENT BY : SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : ITA NO. 518/MDS/2010 IS AN APPEAL FILED BY THE ASS ESSEE AND ITA NO. 710/MDS/2010 IS AN APPEAL FILED BY THE REVENUE AGAI NST THE ORDER OF THE LEARNED I.T.A. NOS. 518, 519 & 710/MDS/2010 2 CIT(APPEALS), LTU, CHENNAI IN ITA NO./ 52/08-09/LTU (A) DATED 24-02-2010 FOR THE ASSESSMENT YEAR 2006-07. ITA NO. 519/MDS/2010 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A), L TU IN FBT NO. 02/08- 09/LTU(A) DATED 12-02-2010 FOR THE ASSESSMENT YEAR 2006-07. 2. SHRI R. VIJAYARAGHAVAN, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI P.B. SEKARAN, LEARNED CIT-DR REPRESENTED O N BEHALF OF THE REVENUE. 3. ITA 518/MDS/2010: IN THE ASSESSEES APPEAL IN REGARD TO GROUNDS NO. 2 TO 5 IT WAS SUBMITTED BY THE LEARNED AUTHORIS ED REPRESENTATIVE THAT THE ISSUE WAS AGAINST THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANCE OF THE EXPENSES OF ` 19,61,421/- INCURRED ON THE INTERIOR DECORATION, E XTENSION AND RENOVATION OF VARIOUS BUILDINGS TAKEN BY THE AS SESSEE ON LEASE. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO PAG E 2 OF THE PAPER BOOK WHICH SHOWED THAT ALL THE VARIOUS EXPENSES INCURRED ARE I N THE NATURE OF ELECTRICAL FITTINGS, ELECTRIFICATION, CABINET, WORK STATION/PA RTITION/CUPBOARD/STAND, MANAGER CHAMBER, FRONT DESK, CONFERENCE ROOM AND PANTRY. I T WAS THE SUBMISSION THAT THE RENOVATION WAS MORE IN THE NATURE OF INTERIOR W ORKS FOR MAKING THE LEASED PREMISES SUITABLE FOR THE OFFICE RUNNING. IT WAS T HE SUBMISSION THAT NONE OF THE EXPENSES WAS IN THE CAPITAL FIELD. IT WAS THE SUBM ISSION THAT EVEN AS PER THE EXPLANATION 1 TO SECTION 32(1) WHAT WAS LIABLE TO BE TREATED AS CAPITAL EXPENDITURE ON WHICH DEPRECIATION WAS ALLOWABLE, WA S ANY MODIFICATION, RENOVATION, EXTENSION OR IMPROVEMENT TO THE BUILDIN G. HE DREW OUR ATTENTION TO I.T.A. NOS. 518, 519 & 710/MDS/2010 3 THE WORD STRUCTURE OR WORK AS MENTIONED IN THE SAID EXPLANATION TO SUBMIT THAT IT WAS ANY MODIFICATION OR RENOVATION TO THE B UILDINGS AS SUCH WHICH WAS LIABLE TO BE CONSIDERED AS A CAPITAL EXPENDITURE. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. TVS LEAN LOGISTICS LTD. REPORTED IN 293 ITR 432 TO SUBMIT TH AT EVEN THE HON'BLE HIGH COURT HAD CATEGORICALLY GIVEN A FINDING THAT THE RE NOVATION OR THE IMPROVEMENT MUST BE TO THE BUILDING. IT WAS THE SUBMISSION THA T AS THE EXPENDITURES AS HAD BEEN INCURRED BY THE ASSESSEE WERE IN THE NATURE OF TEMPORARY PARTITION AND TEMPORARY FIXTURES, THE SAME WERE IN THE NATURE OF FURNITURE AND FITTINGS WHICH ARE LIABLE TO BE TREATED AS REVENUE EXPENDITURE. 4. IN REPLY, THE LEARNED DR VEHEMENTLY SUPPORTED TH E ORDER OF THE LEARNED CIT(A). IT WAS THE SUBMISSION THAT IN VIEW OF THE PROVISIONS OF SECTION 32(1) AND THE EXPLANATION 1 THERETO, THE EXPENDITURE AS INCURR ED BY THE ASSESSEE WAS LIABLE TO BE HELD AS A CAPITAL EXPENDITURE ON WHICH DEPREC IATION HAD ALSO BEEN ALLOWED BY THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE BREAK UP OF THE EXPENSES WHICH HAVE BEEN DISALLOWED CLEARLY SHO WS THAT THE EXPENDITURES ARE ON THE INTERIOR DECORATIONS AND CREATION OF THE OFFICE ATMOSPHERE. THE EXPENDITURE HAS NOT RESULTED IN ANY BUILDING COMING INTO EXISTENCE NOR HAS THE EXISTING BUILDING BEEN MODIFIED OR THE STRUCTURE AL TERED. AS THE EXISTING BUILDING HAS NOT BEEN ALTERED AND THERE IS NO CHANGE TO ITS STRUCTURE AS A RESULT OF THE I.T.A. NOS. 518, 519 & 710/MDS/2010 4 EXPENDITURE INCURRED BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE CAPITAL FIELD. FURTHER A PERUSAL OF THE EXPENDITURE CLEARLY SHOWS THAT IT IS IN THE REVENUE FIELD. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT THE EXPENDITURE ON THE REPAIRS AND MAINTENANCE IN THE FORM OF ELECTRICAL FITTINGS, ELECTRIFICATION, CABINET, W ORK STATION, PARTITION, CUPBOARD, STAND ETC. ARE LIABLE TO BE TREATED AS A REVENUE E XPENDITURE. IN THE CIRCUMSTANCES, THE ORDERS OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER ARE REVERSED ON THIS ISSUE AND THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE THE CLAIM OF REVENUE EXPENDITURE IN REGARD TO THE S AID EXPENDITURE. CONSEQUENTLY, THE DEPRECIATION AS ALLOWED BY THE AS SESSING OFFICER ON THE SAID EXPENDITURE WHICH HAS BEEN CAPITALIZED WOULD STAND REVERSED. 6. IN REGARD TO GROUNDS NO.6 TO 8 IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ISSUE WAS AGAINST THE ACTIO N OF THE LEARNED CIT(A) IN ENHANCING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER U/S. 14A OF THE INCOME TAX ACT, 1961 BY APPLYING THE PROVISIONS OF RULE 8D. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE A SSESSING OFFICER HAD DISALLOWED 2% OF THE DIVIDEND EARNED AS DISALLOWABL E U/S. 14A. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD ENHANCED THE SAME WITHOUT GIVING ANY ENHANCEMENT NOTICE AND HAD APPLIED THE DECISION OF THE SPECIAL BENCH OF THE I.T.A.T. IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. IN ITA NO. 8057/MUMBAI/3 DATED 20.10.2008 AND HAD DIRECTED THA T RULE 8D WAS TO BE I.T.A. NOS. 518, 519 & 710/MDS/2010 5 APPLIED. HOWEVER, HE FAIRLY AGREED THAT NO GROUND HAS BEEN RAISED IN REGARD TO THE ENHANCEMENT BY THE LEARNED CIT(A) WITHOUT GIVIN G A SHOW CAUSE NOTICE. IT WAS FURTHER FAIRLY AGREED BY BOTH SIDES THAT THE IS SUE IN REGARD TO THE DISALLOWANCE BY APPLYING THE PROVISIONS OF SEC. 14A COULD BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION AFTER CONSIDERING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B VOYCE MFG. CO. LTD. V. DCIT IN IT APPEAL NO. 626 OF 2010 & WRIT PETN. NO. 758 O F 2010 DATED 12-08-2010. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS IT IS NOTICED THAT THE ISSUE OF ENHANCEMENT HAS NOT BEEN CHALLENGED BY THE ASSES SEE, WE ARE OF THE VIEW THAT THIS ISSUE CANNOT BE ADJUDICATED BY US. HOWEV ER, AS IT HAS BEEN AGREED BY BOTH SIDES, THE ISSUE OF DISALLOWANCE BY APPLICATI ON OF SEC. 14A IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION I N ACCORDANCE WITH LAW AFTER GRANTING THE ASSESSEE ADEQUATE OPPORTUNITY TO SUBST ANTIATE ITS CASE. THE ASSESSING OFFICER SHOULD ALSO TAKE INTO CONSIDERATI ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD., REFERRED TO SUPRA, WHILE ADJUDICATING ON THIS ISSUE. 8. GROUNDS NO.1 AND 9 ARE GENERAL IN NATURE AND DO NOT CALL FOR ANY ADJUDICATION. CONSEQUENTLY, THE APPEAL OF THE ASSE SSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9. ITA NO. 710/MDS/2010: IN THIS APPEAL THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DELE TING AN ADDITION OF ` I.T.A. NOS. 518, 519 & 710/MDS/2010 6 1,52,00,000/- REPRESENTING THE PRIOR PERIOD EXPENSE S WHEN COMPUTING THE BOOK PROFIT U/S. 115JB OF THE INCOME TAX ACT, 1961. IT WAS SUBMITTED BY THE LEARNED DR THAT IN VIEW OF THE DECISION OF THE HON'BLE MADR AS BENCH OF THE ITAT IN THE CASE OF SREE RAJENDRA MILLS LTD. V. DEPUTY COMMISSI ONER OF INCOME-TAX, REPORTED IN 63 TTJ 697, THE PRIOR PERIOD EXPENSES WERE LIABL E TO BE INCLUDED FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. 10. IN REPLY THE LEARNED DR SUBMITTED THAT THE DECI SION OF THE ITAT, MADRAS BENCH IN THE CASE OF SREE RAJENDRA MILLS LTD. WAS N O MORE GOOD LAW IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF APOLLO TYRES LTD. V. CIT REPORTED IN 255 ITR 273 AS ALSO THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. KHAITAN CHEMICALS AND FERTILIZERS LTD. RE PORTED IN 307 ITR 150. IT WAS THE SUBMISSION THAT THE LEARNED CIT(A) HAD CONSIDER ED THESE TWO DECISIONS WHILE GRANTING THE RELIEF TO THE ASSESSEE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE DECISION IN THE CASE OF SREE RAJENDRA MILLS LTD. SHOWS THAT THE SAI D DECISION WAS RENDERED IN 1998 MUCH BEFORE THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF APOLLO TYRES LTD., REFERRED TO SUPRA. AFTER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF APOLLO TYRES LTD. THE DECISION IN THE CASE OF SREE RAJENDRA MILLS LTD. NO MORE REMAINS A GOOD LAW. FURTHER A P ERUSAL OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KHAITAN CHE MICALS AND FERTILIZERS LTD. SHOWS THAT THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT THE EXPENSES I.T.A. NOS. 518, 519 & 710/MDS/2010 7 WHICH HAVE BEEN DISCLOSED AS FOR PRIOR PERIOD ITEMS /EXTRA-ORDINARY ITEMS ARE PART OF THE PROFIT & LOSS ACCOUNT AND PROPERLY DEDUCTIBL E IN COMPUTING THE BOOK PROFITS. IT IS ALSO NOTICED THAT THE LEARNED CIT(A ) HAS FOLLOWED THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KHAITAN CHE MICALS AND FERTILIZERS LTD. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FIND ING OF THE LEARNED CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. IN THE CIRCUMSTANCES, THE APPEAL OF THE REVENUE IS DISMISS ED. 12. ITA NO. 519/MDS/2010: IN THIS APPEAL IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ISSUE WA S AGAINST THE ACTION OF THE LEARNED CIT(A) IN TREATING THE LTA BENEFIT GRANTED TO THE EMPLOYEES AS BEING LIABLE TO BE FRINGE BENEFIT TAX IN THE HANDS OF THE ASSESSEE COMPANY. THE LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO THE LETTER OF APPOINTMENT OF THE CONCERNED EMPLOYEES AS ALSO TO THE COST TO C OMPANY STATEMENT AS ALSO TO THE FORM 12BA STATEMENT AS PRESCRIBED IN RULE 26A(2 ) WHICH SHOW THE PARTICULARS OF THE PERQUISITES, FRINGE BENEFITS OR AMENITIES AND PROFITS IN VIEW OF SALARY WITH THE VALUE THEREOF WHICH SHOWED THAT THE LTA WAS TREATED AS A PERQUISITE AND TDS HAD BEEN DEDUCTED THEREON. HE F URTHER DREW OUR ATTENTION TO CIRCULAR NO. 8/2005 ISSUED BY THE CBDT WHICH GAV E CLARIFICATION ON VARIOUS MATTERS OF FRINGE BENEFIT TAX MORE SPECIFICALLY QUE STION NO. 44 WHICH WAS EXTRACTED BY THE LEARNED CIT(A) IN PAGE 2 PARA 4 OF HIS ORDER. IT WAS THE I.T.A. NOS. 518, 519 & 710/MDS/2010 8 SUBMISSION THAT AS PER THE SAID CIRCULAR AS THE LTA HAD BEEN TREATED AS SALARY, FRINGE BENEFIT TAX WAS NOT APPLICABLE TO THE SAME. 13. IN REPLY, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS I T IS NOTICED THAT THE LTA IS TREATED AS A PERQUISITE AND PART OF THE SALARY AND TDS HAS ALSO BEEN DEDUCTED THEREFROM, IN VIEW OF THE CIRCULAR ISSUED BY THE CB DT THE SAME IS NOT LIABLE FOR THE FRINGE BENEFIT TAX. IN THE CIRCUMSTANCES, THE ORDERS OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER ON THIS ISSUE STAND REVER SED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 518/MDS/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, APPEAL OF THE REV ENUE IN ITA NO. 710/MDS/2010 IS DISMISSED AND THE APPEAL OF THE ASSESSEE IN ITA NO. 519/MDS/2010 IS ALLOWED. 16. THE ORDER WAS PRONOUNCED IN THE COURT ON 07/1/2 011. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 7 TH JANUARY, 2011. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE