ACIT, Cir.-6., Pune V. Sakal Paper Ltd., Pune

ITA 724/PUN/2008

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6702 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 23-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODISHRI S P WALIMBE
• Assessee Lawyers: ASHOK KOTHARI
• Keywords: Related party transaction; Depreciation; Business expenditure; Fair market value; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 724 / P N/ 20 08 ASSESSMENT YEAR : 200 4 - 05 ASST. COMMISSIONER OF INCOME TAX, C IRCLE - 6, PUNE VS. S AKAL PAPERS LTD., 595, BUDHAWAR PETH, PUNE (APPELLANT) (RESPONDENT) PAN NO. AACCS 7605Q ITA NO. 736 /PN/20 08 ASSESSMENT YEAR : 200 4 - 05 SAKAL PAPERS LTD., 595, BUDHAWAR PETH, PUNE VS. ASST. COMMISSIONER OF INCOME TAX, CIRC LE - 6, PUNE (APPELLANT) (RESPONDENT) PAN NO. AACCS7605Q A SSESSEE BY: SHRI ASHOK KOTHARI R EVENUE BY: SHRI A.K. MODI / SHRI S.P. WALIMBE DATE OF HEARING : 22 - 0 4 - 2014 DATE OF PRONOUNCEMENT : 13 - 0 6 - 2014 ORDER PER R.S . PADVEKAR , JM : - THES E TWO CROSS APPEALS , ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE , ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - II, PUNE DATED 2 9 - 02 - 2008 FOR THE A.Y. 200 4 - 05 . 2. WE FIRST TAKE THE REVENUES APPEAL BEING ITA NO. 724/PN/2008 FOR DISPOSAL . IN THIS CASE THE REVENUE HAS FILED THE REVISED GROUNDS. THE GROUND NO. 2 IN REVENUES APPEAL READS AS UNDER: 2. THE LD. CIT(A) GROSSLY ERRED IN FAILING TO APPRECIATE THAT AS THE ASSESSEE HAD INCURRED HUGE EXPENSES OF RS.28,05,247/ - IN RESPECT OF A PROP ERTY BELONGING TO SISTER CONCERN WITHOUT THERE 2 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE BEING OBLIGATION TO DO SO, THE ASSESSEE MUST BE CONSIDERED TO HAVE PASSED ON UNDUE BENEFITS TO ITS SISTER CONCERN AND, THEREFORE, SECTION 40A(2)(B) WOULD PATENTLY APPLY. 3 . THE FIRST ISSUE IS IN RESPECT OF THE DISALLOWANCE FOR THE EXPENDITURE OF RS.28,05,247/ - INCURRED BY THE ASSESSEE ON THE LAND OWNED BY ITS SISTER CONCERN TREATING THE SAME AS A CAPITAL EXPENDITURE AND WHICH WAS ALLOWED BY THE LD. CIT(A) AND THIS ISSUE ARISES FROM GROUND NO. 2 IN THE REVENU ES APPEAL. THE FACTS WHICH ARE REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE COMPANY IS ENGAGED IN PRINTING AND PUBLISHING OF NEWSPAPERS AND PERIODICALS. THE NEWSPAPERS NAMELY SAKAL IS PUBLISHED FROM DIFFERENT TOW N S LIKE PUNE, MUMBAI, KOLHAUR, NA SHIK, AURANGABAD, SOLAPUR, NAGPUR, JALGAON ETC. THE ASSESSEE HAS ALSO STARTED A NEW PUBLICATION NAMELY MAHARASHTRA HERALD. THE ASSESSEE COMPANY FILED THE RETURN OF INCOME FOR THE A.Y. 2004 - 05 DECLARING TOTAL INCOME AT RS.25,92,74,910/ - AND THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME - TAX ACT VIDE ASSESSMENT ORDER DATED 30 - 10 - 2004. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF RS.80,84,617/ - PAID TO M/S . ABHIJEET JAGDANE & ASSOCIATES FOR LEVELING OF ENTIRE LAND AND CUTTING WORK FOR BLACK COTTON SOIL AND H ARD ROCK ETC. AT SOLAPUR PRESS . THE ASSESSEE HAS ALSO MADE THE IDENTICAL EXPENDITURE TO THE EXTENT OF RS.28,05,247/ - AT PUNE ALSO. THE ASSESSEE EXPLAI NED TO THE ASSESSING OFFICER THAT THE SAID EXPENDITURE WAS MADE MAINLY FOR THE PURPOSE OF EARTH FILLING AND LEVELING . THE ASSESSE ALSO EXPLAINED TO THE ASSESSING OFFICER THAT THE LAND AT SOLAPUR WAS OWNED BY THE ASSESSEE COMPANY AND THE SAME HAS BEEN DULL Y REFLECTED IN THE BALANCE SHEET , WHEREAS THE LAND AT PUNE PRESS IS OWNED BY ONE OF ITS SISTER CONCERNS NAMELY STAMFORD WAREHOUSING PVT. LTD. WHERE THE ASSESSEE COMPANY IS HAVING ITS PRESS , GODOWN ETC. 3 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE 4 . THE ASSESSING OFFICER HAS OBSERVED THAT SO FAR AS THE LAND AT SOLAPUR IS CONCERNED THE SAID LAND CONSISTS OF 12500 SQ. MTRS WHICH WAS PURCHASED IN THE YEAR 2001 AND THE COST OF LAND AT SOLAPUR IS SHOWN AT RS.7,78,900/ - . THE LAND AT PUNE IS AROUND 2.5 ACRES AND THE ASSESS EE IS PAYING RENT OF RS.1,96,063/ - PER MONTH FOR THE USE OF SAID PROPERTY . IN THE OPINION OF THE ASSESSING OFFICER , AS COMPAR E TO COST OF LAND AT SOLAPUR THE ASSESSEE HAS INCURRED THE HUGE EXPENDITURE TO EXTEND OF RS.80.84 LAKHS AND HENCE, THE SAID EXPENDITURE IS CAPITAL IN NATURE. IN RE SPECT OF THE PUNE LAND , IN HIS OPINION THERE WAS NO JUSTIFICATION TO INCUR EXPENDITURE OF RS.28.05 LAKHS. THE ASSESSEE ADMITTED THAT THERE IS NO REGULAR LEASE AGREEMENT WITH THE OWNER OF THE LAND, WHO HAPPENS TO BE THE SISTER CONCERN OF THE ASSESSEE . SO FAR AS THE EXPENDITURE ON SOLAPUR LAND IS CONCERNED THE ASSESSING OFFICER HELD THAT THE SAME IS CAPITAL IN NATURE AND SO FAR AS EXPENDITURE ON PUNE LAND IS CONCERNED THE ASSESSING OFFICER HELD THAT THE SAID EXPENDITURE OF RS.28,05,247/ - IS HIT BY SEC. 40A( 2)(B) OF THE ACT AND HE MADE THE DISALLOWANCE OF THE ENTIRE EXPENDITURE OF RS.1,08,89,864/ - . THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE FINDING OF THE ASSESSING OFFICER TO THE EXTENT OF RS.1,08,89,864/ - T REATING THE SAID EXPENDITURE AS A CAPITAL IN NATURE. AGAINST THE SAID FINDING THE ASSESSEE IS IN APPEAL BUT THE ALTERNATE FINDING OF THE ASSESSING OFFICER IN RESPECT OF THE EXPENDITURE ON THE PUNE LAND OF RS.28,05,247/ - THAT SEC. 40A(2)(A) CANNOT BE APPLI ED AND HENCE, THE ENTIRE EXPENDITURE IS TO BE A LLOWED AND AGAINST THE SAME FINDING THE REVENUE HAS RAISED THE GRIEVANCE. 5 . WE HAVE HEARD THE PARTIES. WE FIND THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THE ENTIRE EXPENDITURE OF RS.28.05 LAKHS WHICH HAS BEEN INCURRED FOR LEVELING AND CUTTING WORK ETC. ON THE PUNE LAND BY INVOKING THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER SHOULD HAVE BROUGHT S O ME DATA ON RECORD TO 4 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE COMPARE WITH RESPECT TO THE FAIR MARKET VALUE AND NO DISALLOWANCE ON THE ADHOC BASIS CAN BE MADE OF THE ENTIRE EXPENDITURE. IN OUR UNDERSTANDING ALSO SEC. 40A(2)(A) HAS GIVEN A POWER TO THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE OF THE EXPENDITURE IN THE CASES OF THE RELATED PARTY T RANSACTIONS IN A SITUATION IF THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS OR THE SERVICES FOR WHICH THE PAYMENT IS MADE OR LEGITIMATE NEEDS OF THE BUSINESS O R PROFESSION. IN OUR OPINION THE BURDEN IS ON THE ASSESSING OFFICER TO DEMONSTRATE THAT IN THE RELATED PARTY TRANSACTIONS THAT EXPENDITURE IS EXCESSIVE AND UNREASONABLE COMPARED TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES AND FOR THE PURPOSE THE ASS ESSING OFFICER HAS TO BEING ON RECORD SOME MATERIAL OR DATA TO SHOW COMPARABILITY . SEC. 40A(2)(A) , AS PER THE SCHEME OF THE SAID PROVISION , IS ONLY IN THE NATURE OF THE CAPPING PUT ON THE EXCESSIVE EXPENDITURE CLAIMED BY THE ASSESSEE AND NOT TO DISALLOWED THE ENTIRE EXPENDITURE AND THE ASSESSING OFFICER HAS TO CONSIDER THAT THERE WAS A LEGITIMATE NEEDS FOR THE BUSINESS OR AND THE SAID EXPENDITURE IS IN EXCESS OF THE FAIR MARKET VALUE AND ONLY EXCESSIVE OR UNREASONABLE EXPENDITURE IS TO BE DISALLOWED. WE F IND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS FINDING. WE, ACCORDINGLY, DISMISS THE GROUND NO. 2. 6 . THE NEXT GROUND NOS. 3, 4 AND 5 READ AS UNDER: 3. THE LD CIT(A) GROSSLY ERRED IN NOT CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.15,00,000/ - IN AS MUCH AS THE CONTRACT HAS BEEN TERMINATED ON ACCOUNT OF UNSATISFACTORY PERFORMANCE BY THE CONTRACTOR, AND IN THE CIRCUMSTANCES, THE FAILURE IN THIS REGARD AND CONSEQUENTIAL PENALTY COULD BY NO MEANCE BE FASTENED TO THE ASSESSEE. 4. THE ID. CIT(A) GROSSLY ERRED IN DELETING THE DISALLOWANCE OF RS.62,50,000/ - WITH REFERENCE TO THE PAYMENTS MADE BY THE ASSESSEE TO M/S SAI LOGISTIC MATERIAL HANDLING P. LTD. BY 5 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE TREATING THE SAID PAYMENT AS IN THE NATURE OF AN ADVANCE, THOUGH NO EVIDENCE IS PL ACED ON RECORD. 5. WITHOUT PREJUDICE TO THE FOREGOING, THE LEARNED CIT(A) IN ANY CASE GROSSLY ERRED IN NOT CONFIRMING THE DISALLOWANCE AT LEAST TO THE EXTENT OF RS.15,00,000/ - IN AS MUCH AS THE CONTRACT HAD BEEN TERMINATED ON ACCOUNT OF UNSATISFACTORY PER FORMANCE BY THE CONTRACTOR, AND IN THE CIRCUMSTANCES, THE FAILURE IN THIS REGARD AND THE CONSEQUENTIAL PENALTY COULD BY NO MEANS BE FASTENED TO THE ASSESSEE. 7 . IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURE TO THE EXTENT OF RS.64,23,164/ - UNDER THE HEAD PUBLICITY EXPENSES IN THE NAME OF PUNE UNIT. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S. SAI LOGISTIC M ATERI AL AND HANDLING PVT. LTD. FOR ADVERTISING AND DISPLAY THROUGH LOCAL TRAINS AND DECCAN QUEEN IN MUMBAI FOR ASSESSEE S PUBLICATION S AND FOR THE SAID PURPOSE THE SUM OF RS.62,50,000/ - WAS PAID TO THE ABOVE CONCERN. THE ASSESSING OFFICER ASKED FOR THE BILLS A ND PROOF OF THE NATURE OF SAID PAYMENT. T HE ASSESSE STATED THAT THE ARRANGEMENT MADE WITH THE ABOVE CONCERN DO NOT WORK OUT TO THE SPECIFICATION OF THE COMPANY AND, THEREFORE, THE PAYMENT WAS MADE BY THEM WAS CALLED BACK FORM THE PARTY. THE PARTY HAS REF UNDED A SUM OF RS.47,50,000/ - AND THE SAID AMOUNT IS OFFERED AS INCOME FOR THE A.Y. 2006 - 07. AS PER THE TERMS OF THE CONTRACT BETWEEN ASSESSEE AND M/S. SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. WHICH WAS DATED 16 - 08 - 2003 , MORE PARTICULARLY CONDITION NO . 6 OF THE SAID CONTRACT, IF F OR ANY REASON THE ASSESSEE HAS DECIDED TO TERMINATE THE CONTRACT BEFORE COMPLETION OF 3 YEARS , THE CANCELLATION CHARGES OF 7.5% BASED ON THE PRESENT ESTIMATE D VALUE I.E. RS.3 CRORES WERE TO BE PAID TO THE CONTRACTOR. THE ASSE SSEE COMPANY MADE FIRST PAYMENT OF RS.37,50,000/ - ON 15 - 09 - 2003 FOLLOWED BY ANOTHER PAYMENT OF RS.25 LAKHS ON 15 - 10 - 2003. VIDE LETTER DATED 30 - 6 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE 04 - 2005, THE ASSESSEE COMPANY HAS INTIMATED TO THE I.E. M/S. SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. THAT V ARIOUS DISPLAY FORMAT DESIGNED BY THE CONTRACTOR WERE NOT ACCEPTABLE TO THE ASSESSEE AND HENCE, THE ASSESSEE TERMINATED THE CONTRACT WITH M/S. SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. THE ASSESSING OFFICER NOTED THAT WHAT HAS BEEN GIVEN TO THE CONTACT OR IS ONLY AN ADVANCE AGAINST THE CONTACT AND THE SAME CANNOT BE TREATED AS EXPENDITURE OF THE YEAR AS IT GOES AGAINST SPIRIT OF MATCHING CONCEPT. IN RESPECT OF THE ASSESSEE SUBMISSION THAT THEY HAVE OFFER ED THE AMOUNT OF RS.47.50 LAKHS IN THE A.Y. 2006 - 0 7 , THE ASSESSING OFFICER OBSERVED THAT IT WOULD NOT CHANGE THE SITUATION. IN RESPECT OF THE ALTERNATE CLAIM OF RS.15 LAKHS MADE BY THE ASSESSEE FOR ALLOWING THE SAME IN THE A.Y. 2004 - 05 , THE ASSESSING OFFICER REJECTED THE SAME BY HOLDING THAT THE SAME CAN ONLY BE EXAMINED IN THE YEAR IN WHICH THE CONTACT WAS TERMINATED BUT NO PART OF SAID EXPENDITURE CAN BE ALLOWED IN THE YEAR 2004 - 05. THE ASSESSING OFFICER, THEREFORE, MADE THE DISALLOWANCE OF THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXTENT O F RS.62,50,000/ - PAID TO M/S. SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. T HE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE LD. CIT(A). THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE AT ENTIRETY. THE FINDING S OF THE LD. CIT(A) ARE AS UNDER: 7.2. I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS UNDISPUTED THAT A PAYMENT OF RS.62,50,000/ - WAS MADE TO SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. IN CONSEQUENCE OF A VALID CONTACT FOR ADVERTISING THOUGH DISPLAY IN LOCAL TRAINS AND DECCAN QUEEN. DISPLA Y FORMAT DESIGNS WERE SUBMITTED TO THE APPELLANT WHICH WERE NOT ACCEPTABLE TO THEM AND THE CONTRACT WAS TERMINATED ON 30 TH APRIL, 2005. THE OBSERVATION OF THE ASSESSING OFFICER THAT PRACTICALLY NO WORK HAD BEEN DONE DURING THE YEAR UNDER CONSIDERATION IS NOT BACKED BY ANY INVESTIGATION. AS PER THE VALUE OF CONTRACT, PUBLICITY EXPENSES IN LOCAL TRAINS WERE ESTIMATED AT RS.3 CRORES SPREAD OVER 3 YEARS FROM 15 TH SEPTEMBER, 2003. THE TERMS AND CONDITIONS ENJOINED THAT RS.37,50,000/ - WAS PAID AS ADVANCE FOR INI TIAL PARTIAL PAYMENT AND THE DETAILED PLAN WAS TO BE FINALIZED 7 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE FOR ACTUAL DISPLAY. FURTHER AMOUNT OF RS.25 LAKHS WAS MADE IN VIEW OF THE TERMS AND CONDITIONS LAID DOWN THAT 40% OF THE ESTIMATED VALUE OF THE CONTRACT MOSTLY TO COVER MOBILIZATION AND INITIAL OUT OF POCKET EXPENSES WAS TO BE PAID ON SIGNING THE CONTRACT. THE TOTAL PAYMENT OF RS.62,50,000/ - WAS MADE BUT THE DISPLAY FORMAT DESIGN BY SAI LOGISTIC & MATERIAL HANDLING PVT. LTD. WAS NOT ACCEPTABLE TO THE APPELLANT AND ALSO THE RESPONSE TO THE SUGGES TIONS MADE BY THE APPELLANT WAS NOT CARRIED OUT AND FURTHER THE PUBLICITY MATERIAL WAS NOT UPTO THE EXPECTATION OF THE APPELLANT AND, THEREFORE, VIDE LETTER DATED 30.4.2005, THE AGREEMENT WAS TERMINATED. AS PER THE TERMS AND CONDITIONS IF THE AGREEMENT WAS TERMINATED BEFORE COMPLETION OF 3 YEARS THE CANCELLATION CHARGES OF 7.50% SUBJECT TO A MINIMUM OF RS.15 LAKHS WAS PAYABLE BY THE APPELLANT. IN THE A.Y.2006 - 07 THE ENTIRE ARRANGEMENT WAS SETTLED AND OUT OF RS.62,50,000/ - THE APPELLANT RECEIVED BACK AN AMOU NT OF RS.47,50,000/ - WHICH WAS SHOWN AS INCOME U/S.41(1) OF THE INCOME - TAX ACT, 1961. THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE AMOUNT IN THE YEAR UNDER CONSIDERATION ONLY ON THE PLEA THAT SUCH AMOUNT WAS ONLY AN ADVANCE. ON THE OTHER HAND, THE APPEL LANT VIDE LETTER DATED 30.4.2005 THROUGH WHICH THE CONTRACT WAS TERMINATED HAD SPECIALLY BROUGHT OUT THE REASONS FOR SUCH TERMINATION ON RECORD WHEREIN IT WAS POINTED OUT AS UNDER: ' WE HAVE DISCUSSED THE MATTER FROM TIME TO TIME PERSONALLY WITH YOUR REPRES ENTATIVES , AND VARIOUS DISPLAY FORMAT DESIGNED BY YOU (ADVISED AS SUITABLE FOR PROPOSED SPACE IN TRANS) ARE NOT ACCEPTABLE TO US. YOUR RESPONSE TO OUR SUGGESTIONS HAS BEEN INDIFFERENT, THOUGH OVER ONE YEAR HAS PASSED SINCE OUR ASSOCIATION. WHILE WE APPRECI ATE YOUR TIE UP AND EFFORTS IN THIS REGARD FROM TIME TO TIME, IT IS CLEAR THAT THE PUBLICITY MATERIAL PROPOSED FROM TIME TO TIME IS NOT UP TO OUR EXPECTATION. IN THE CIRCUMSTANCES, AS DISCUSSED, WE ARE CONSTRAINED TO TERMINATE THE ARRANGEMENT AND REQUEST Y OU TO SETTLE THE MATTER AT YOUR EARLIEST.' 7.3. FROM THE ABOVE, IT IS CLEAR THAT VARIOUS DISPLAY FORMATS WERE DESIGNED BY SAI LOGISTIC & MATERIAL HANDLING PVT. LTD. WHICH WERE NOT ACCEPTABLE TO THE APPELLANT AND AS THE PUBLICITY MATERIAL PROPOSED WAS NOT U PTO THE EXPECTATION OF THE APPELLANT THE CONTRACT 8 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE WAS TERMINATED. THE APPELLANT CANNOT BE EXPECTED TO DEBIT THE ENTIRE EXPENDITURE OF RS.3 CRORES AS ESTIMATED AT THE END OF 3 YEARS FOR OTHERWISE THE AMOUNTS PAID DURING THE PERIOD OF 3 YEARS WOULD ALWAYS BE TREATED AS ADVANCE TILL SUCH ADVERTISEMENTS WERE ACTUALLY DISPLAYED. BUT SUCH EVENTUALITY WILL NEVER OCCUR IN A CASE WHERE THE CONTRACT IS TERMINATED BEFORE IT FRUCTIFIED. THE MATCHING CONCEPT DOES NOT MEAN THAT FOR EVERY EXPENDITURE INCURRED THERE HAS TO BE NECESSARILY SOME RECEIPT. SECTION 37(1) OF THE ACT LAYS DOWN THAT ANY EXPENDITURE, NOT BEING AN EXPENDITURE OF CAPITAL NATURE IS ALLOWABLE IF IT IS SHOWN TO HAVE BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFE SSION. IN VIEW OF THE AGREEMENT ENTERED INTO AND THE TERMINATION LETTER ISSUED BY THE APPELLANT AS EXTRACTED ABOVE, IT IS CLEAR THAT THE AMOUNT WAS INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND, THEREFORE, IT IS HELD TO BE AN ALLOWABLE DEDUCTION U/S.37(1) OF THE ACT. IT MAY BE POINTED OUT IN THE A.Y.2006 - 07 THE ASSESSEE FILED THE RETURN AT AN INCOME OF RS.29,07,60,184/ - AND THEREFORE, IT CANNOT BE STATED THAT BY CLAIMING THE AMOUNT IN A.Y. 2004 - 05 AND THEN SHOWING THE PART INCOME IN ASSESSMENT YEA R 2006 - 07 THE APPELLANT WAS FOLLOWING SOME TAX PLANNING SCHEME. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL NO. VI IS ALLOWED. NOW, THE REVENUE IS IN APPEAL BEFORE US. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RE ASONS RECO RDED BY THE AUTHORITIES BELOW FOR MAKING THE DISALLOWANCE BY THE ASSESSING OFFICER AND ALLOWING THE CLAIM OF THE ASSESSEE BY THE LD. CIT(A). THE ASSESSEE COMPANY HAS ENGAGED M/S. SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. BY WAY OF CONTRACT FOR DESIGNIN G DISPLAY BOARDS FOR ADVERTISEMENT OF ITS PUBLICATIONS. I T APPEARS THAT THE ASSESSEE COMPANY WAS NOT HAPPY WITH THE FORMAT DESIGNED BY SAI LOGISTIC AND IT TERMINATED THE CONTRACT ON 30 - 04 - 2005. AS PER THE VALUE OF THE CONTRACT EXPENSES IN THE LOCAL TRAIN WERE ESTIMATED OF RS.3 CRORES WHICH WERE TO BE SPRAYED OVER IN 3 YEARS FROM 15 - 09 - 2003. IN THE PART PER FORM ANCE OF THE CONTRACT , THE ASSESSEE PAID THE AMOUNT TO THE EXTENT OF THE RS.62.50 LAKHS INTO TWO INSTALLMENTS THAT WAS TO THE EXTENT OF 40% OF THE E STIMATED VALUE OF THE CONTRACT , MOSTLY TO COVER MOBILIZATION AND 9 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE INITIAL OUT OF POCKET EXPENSES. AS THE AGREEMENT WAS TERMINATED BEFORE THE COMPLETION OF 3 YEARS , THE ASSESSEE WAS LIABLE TO PAY 7.50% DAMAGES OR CANCELLATION CHARGES AS PER AGREEMENT OF RS. 1 5 LAKHS TO THE SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. IN THE A.Y. 2006 - 07 , THERE WAS A SETTLEMENT BETWEEN THE ASSESSEE AND SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. REFUNDED RS. 47.50 LAKHS WHICH WAS OFFERED BY THE ASSESSE AS AN INCOME FOR THE A. Y. 2006 - 07. AS PER THE TERMS OF THE AGREEMENT , THE ASSESSEE PAID 40% OF THE ESTIMATED COST OF THE CONTRACT WORK OF RS.3 CRORES. IN OUR OPINION THE SAID PAYMENT TO SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. CANNOT BE TREATED AS AN ADVANCE AS THERE WAS A LIABILITY ON THE ASSESSEE TO PAY 40% AMOUNT OF THE ESTIMATED CONTRACT WORK. THERE IS NO DISPUTE THAT CONTRACT WAS EXECUTED BETWEEN THE ASSESSEE COMPANY AND SAI LOGISTIC MATERIAL AND HANDLING PVT. LTD. IN OUR OPINION THE LD. CIT(A) HAS RIGHTLY ALLOWED TH E CLAIM OF THE ASSESSEE INCLUDING THE ALTERNATE CLAIM OF DEDUCTION TOWARDS THE DAMAGES FOR PRE - MATURE T ERMINATION OF THE CONTRACT. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). ACCORDINGLY, GROUND NOS. 3, 4 AND 5 ARE DISMISSED. GROUND NOS. 1, 6 AND 7 ARE GENERAL IN NATURE. 9 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. 10 . NOW, WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 736 /PN/2008 . THE FIRST ISSUE IS IN RESPECT OF THE DISALLOWANCE OF RS.90,70,080/ - AND EXPENDITURE INCUR RED BY THE ASSESSEE COMPANY FOR DEFENDING A LEGAL PROCEEDINGS AND THIS ISSUE ARISES FROM GROUND NOS. 1, 2, AND 3. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE COMPANY HAS DEBITED SUM OF RS.90,70,080/ - AS A LEGAL EXPENSES WHICH WERE INCURRED IN CON NECTION WITH THE DISPUTE WITH THE WIFE AND DAUGHTER OF THE FOUNDER OF THE ASSESSEE COMPANY, DR. N.B. PERULEKAR, IN THE SUPREME COURT. IT IS FURTHER STATED THAT THE SUIT IS FILED BY THE LEGAL HEIRS OF DR. N.B. PERULEKAR AGAINST THE ALLOTMENT OF SHARES TO P AWAR GROUP. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE DISPUTE 10 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE BETWEEN THE PARULEKAR FAMILY AND PAWAR GROUP PERTAINS TO CLAIM OF WRONGFUL ALLOTMENT OF SHARES TO ONE GROUP. AS NOTED BY THE ASSESSING OFFICER , THE SAID EXPENDITURE WAS INCURRED TO S ETTLE THE DISPUTE BETWEEN TWO GROUPS OF SHAREHOLDERS. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF ENTIRE EXPENDITURE OF RS.90,70,080/ - AND MADE THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). 1 1 . WE HAVE HEARD THE PARTIES. THE LD. AR FOR THE ASSESSEE IS FAIR TO SUBMIT THAT THE IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION IN ASSESSEES OWN CASE FOR THE A.Y. 2003 - 04 BEFORE THE HON'BLE TRIBUNAL AND THE TRIBUNAL HAS DECIDED THIS ISSUE AGAINST T HE ASSESSEE. THE LD. COUNSEL ALSO FILED THE COPY OF THE TRIBUNAL ORDER IN ITA NO. 927/PN/2008 ORDER DATED 21 - 04 - 2011 WHICH IS PLACED ON RECORD. THE OPERATIVE PART OF THE TRIBUNAL ORDER AND REASONS FOR CONFIRM ING THE DISALLOWANCE IN THE A.Y. 2003 - 04 ARE A S UNDER: 13. CONSIDERING THE ABOVE SUBMISSION, WE ARE OF THE VIEW THAT THE ASSESSEE COMPANY WAS A PARTY IN THE MATTER PENDING BEFORE THE HONBLE SUPREME COURT, BUT THE DISPUTE WAS BASICALLY BETWEEN WIFE AND DAUGHTER OF THE FOUNDER OF THE COMPANY DR N V PA RULEKAR ON THE QUESTION OF ALLOTMENT OF SHARES TO SOME OTHER GROUP. THUS, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED WAS BUSINESS EXPENDITURE, ESPECIALLY IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE MATTER WHEREBY COMPENSATION/DAMAGE OF RS 3 CRORES WAS DIRECTED TO BE PAID TO PARULEKARS, WHICH WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, BUT IT WAS PENAL IN NATURE. THE HONBLE SUPREME COURT IN ORDER TO PROTECT THE BUSINESS INTERESTS OF THE COMPANY ORDERE D THE ASSESSEE TO PAY COMPENSATION INSTEAD OF DISTURBING THE MANAGEMENT AND SHAREHOLDING PATTERN THEREBY AVOIDING DISTURBANCE IN THE FUNCTIONING OF THE COMPANY. THE DECISION IN THE CASE OF SHREE MEENAKSHI MILLS LTD. V. CIT 63 ITR 207 (SC) AND CIT V BENETT COLEMAN & CO LTD 116 ITR 297 (BOM) RELIED UPON BY THE LD AR, ARE HAVING DISTINGUISHABLE FACTS AND THUS ARE NOT HELPFUL TO THE ASSESSEE. IN THE CASE OF SHREE MEENAKSHI MILLS LTD. V. CIT (SUPRA), 11 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE THE ASSESSEE HAD TO INCUR LEGAL EXPENDITURE AGAINST THE ORDER PROHIBITING DELIVERY OF YARN TO OUTSIDER FOR WAVING. LIKEWISE IN THE CASE OF CIT V BENETT COLEMAN & CO. LTD. (SUPRA), THE EXPENDITURE ON LITIGATION INCURRED WAS HELD BONA FIDE TO PROMOTE THE INTEREST OF BUSINESS. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER ON THIS ISSUE, AS THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE CLAIMED EXPENDITURE WAS INCURRED FOR PROMOTING BUSINESS INTERESTS OF THE ASSESSEE. THE SAME IS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 1 2 . WE, THEREFORE, FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2003 - 04 CONFIRM THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. ACCORDINGLY, GROUND NOS. 1 TO 3 ARE DISMISSED. 1 3 . THE NEXT ISSUE IS DISALLOWANCE OF RS.1 ,08,89,804/ - INCURRED ON THE LANDS AT SOLAPUR AND PUNE. THE PART OF THE FINDING OF THE LD. CIT(A) ON THIS ISSUE ARE ALSO CONTESTED BY THE REVENUE IN IN ITS APPEAL. WHILE DEALING WITH THE ISSUE IN REVENUES APPEAL WE HAVE ALREADY NARRATED THE ENTIRE FACTS . NOW WE DIRECTLY COME TO THE FINDING OF THE LD. CIT(A) FOR CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE ASSESSEE HAS INCURRED EXPENDITURE ON THE LANDS AT SOLAPUR WHICH WAS OWNED BY THE ASSESSEE COMPANY AND LAND AT PUNE WHICH IS CLAIMED TO HAVE BEEN TAKEN ON RENT LEASE BASIS. SO FAR AS PUNE LAND IS CONCERNED THERE IS NO WRITTEN LEASE AGREEMENT BUT THE RENT PAID BY THE ASSESSEE HAS BEEN ALLOWED AS EXPENDITURE. THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER A T ENTIRETY BY APPROVING THE VIEW OF THE ASSESSING OFFICER THAT THE SAID EXPENDITURE PART AKE THE CHARACTER OF THE CAPITAL EXPENDITURE. THE REASONS AND FINDINGS OF THE LD. CIT(A) ARE AS UNDER: 5.6. I HAVE GONE THROUGH THE FACTS OF THE CASE. THE COST OF LA ND AT SOLAPUR PURCHASED BY THE APPELLANT IN 2001 WAS RS.7,78,900/ - . A BUILDING WAS CONSTRUCTED ON THIS LAND WHICH WAS CAPITALIZED AND APPARENTLY PUT TO USE IN THE A.Y. 2003 - 04. MAINTENANCE EXPENDITURE OF RS.80.84 LAKHS WAS INCURRED ADMITTEDLY IN THE A.Y. 2004 - 05 FOR 12 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE LEVELING OF THE ENTIRE LAND AND CUTTING WORK FOR BACK COTTON SOIL AND HARD ROCK ETC. IT IS TRITE LAW THAT ANY EXPENDITURE ON LAND IMPROVEMENT WOULD BE CAPITAL EXPENDITURE NOT ALLOWABLE UNDER THE I.T. ACT. THE ASSESSEE HAS, THEREFORE, PURCHASE D THE LAND FOR RS.7,78,900/ - ON WHICH A BUILDING WAS ERECTED WHICH WAS STATED TO HAVE BEEN PUT TO USE IN A.Y.2003 - 04. MAJOR EXPENDITURE OF RS.80.84 LAKHS WAS INCURRED ON THIS LAND IN THE YEAR UNDER CONSIDERATION AS MAINTENANCE EXPENDITURE FOR THE PURPOSE O F BUSINESS TO CLAIM SUCH EXPENDITURE AS REVENUE. 5. 7. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE'S COUNSEL WAS ASKED TO GIVE THE DETAILS OF EXPENDITURE IN EARLIER AND SUBSEQUENT YEARS ON MAINTENANCE AND REPAIRS. THE DETAILS OF REPAIRS EXPEND ITURE WAS FILED FOR THE RENTED LAND ONLY. IT IS UNIMAGINABLE THAT THE LAND WOULD BE PURCHASED FOR A SMALL AMOUNT ON WHICH A BUILDING WOULD BE ERECTED AND HUGE EXPENDITURE WOULD BE INCURRED TO CLAIM THAT AFTER THE LAND AND BUILDING WAS CAPITALIZED AND PUT T O USE THE TRANSPORTATION OF NEWS PRINT TO THE PRESS AND MOVEMENT OF WORKER WAS DIFFICULT DUE TO UNEVEN APPROACH AREA. THE LEVELING OF THE LAND FOR THE PURPOSE OF OPERATION OF MOVEMENT OF GOODS AND WORKERS HAS TO BE DONE ON THE LAND PRIOR TO MAKE IT AVAILAB LE FOR USE FOR THE SMOOTH RUNNING OF THE BUSINESS. CONSIDERING THE SURROUNDING CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES, IT IS CLEAR THAT THE EXPENDITURE IS SHOWN TO HAVE BEEN INCURRED AFTER THE BUILDING WAS SHOWN TO HAVE BEEN PUT TO USE. THE APPELLANT'S CONTENTION THAT FREQUENT MAINTENANCE DUE TO HEAVY MOVEMENT OF MATERIAL AND GOODS WAS CALLED FOR AND THEREFORE ANNUAL HEAVY MAINTENANCE WAS A CONTINUOUS PROCESS IS NOT BORNE FROM THE RECORDS. 5.8. IN THE CASE OF CIT VS. ASHOK LEYLAND LTD., 86 ITR 549 (S.C) IT WAS HELD THAT THE WORD 'CAPITAL' CONNOTES PERMANENCY AND CAPITAL EXPENDITURE IS, THEREFORE, CLOSELY AKIN TO THE CONCEPT OF SECURING SOMETHING, TANGIBLE OR INTANGIBLE PROPERTY, OR CORPOREAL OR INCORPOREAL RIGHT, SO THAT THEY COULD BE OF A LASTING OR ENDURING BENEFIT TO THE ENTERPRISE IN ISSUE. REVENUE EXPENDITURE, ON THE OTHER HAND, IS OPERATIONAL IN ITS PERSPECTIVE AND SOLELY INTENDED FOR THE FURTHERANCE OF THE ENTERPRISE. THIS DISTINCTION, THOUGH CANDID AND WELL ACCEPTED, YET IS SUSCEP TIBLE TO MODIFICATION UNDER PECULIAR AND DISTINCT CIRCUMSTANCES. IN OTHER WORDS, ORDINARILY 'CAPITAL' MEANS AN ASSET WHICH IS CAPABLE OF BEING A SOURCE OF INCOME AND, THEREFORE, 13 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE CAPITAL EXPENDITURE HAS GENERALLY BEEN UNDERSTOOD TO MEAN AN EXPENDITURE WHICH RESULTS IN THE ACQUISITION OF AN ASSET WHICH CAN BE USED REPEATEDLY IN BUSINESS OPERATIONS AND HELPS IN RUNNING THE BUSINESS AND GENERATE PROFITS. 5.9 IN CONTRAST TO CAPITAL EXPENDITURE, REVENUE EXPENDITURE IS THE EXPENDITURE INCURRED GENERALLY FOR DAY TO DAY RUNNING OF A BUSINESS. BRIEFLY, IT CAN BE SAID THAT AN EXPENDITURE WHICH IS NOT A CAPITAL EXPENDITURE WOULD BE A REVENUE EXPENDITURE FOR INCOME TAX PURPOSE PROVIDED IT SATISFIES THE OTHER CONDITIONS STIPULATED IN SECTION 37(1) OF THE ACT. 5.10 APPL YING THESE TESTS TO THE FACTS OF THE CASE OF THE ASSESSEE, AS NARRATED ABOVE, IT IS NOT FOR THE PURPOSE OF FACILITATING THE ASSESSEE'S TRADING OPERATION OR THE CONDUCT OF THE ASSESSEE'S BUSINESS BUT FOR THE PURPOSE OF INCLUDED CUTTING OF THE STONES ETC. AN D, THEREFORE, THE EXPENDITURE HAS A DIRECT NEXUS OR CONNECTION WITH THE PURCHASE OF LAND MADE AT A SMALL AMOUNT AND HAS NOT BEEN A RECURRING EXPENDITURE BUT THE EXPENDITURE WAS FOR THE INITIAL OUTLAY OR FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OF ENDURING BENEFIT TO THE BUSINESS THAT WAS BEING CARRIED ON AND, THEREFORE, A CAPITAL EXPENDITURE. 5.11. FURTHER, THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.28,05,247/ - ON A PIECE OF LAND OF 2.5 ACRES OWNED BY STAMPHERED WAREHOUSING PVT. LTD. A SISTER CONCERN. IT WAS STATED IN THE APPELLATE PROCEEDINGS THAT FREQUENT MAINTENANCE WAS REQUIRED FOR LEVELING AND ROCK CUTTING AS ALSO ON ACCOUNT OF HEAVY FLOW OF WATER DURING RAINS. WHEN SPECIFICALLY ASKED TO FILE THE DETAILS FOR EARLIER AND LATER YEARS, IT WAS STATED THAT EXPENDITURE ON REPAIRS OF DIVE GHAT SAKAL PRESS WERE ABOUT RS.2 LAKHS AND RS.8 LAKHS RESPECTIVELY DURING THE A.Y.2005 - 06 AND 2006 - 07. IT WAS ALSO STATED THAT THOUGH EXPENSES IN THOSE TWO YEARS WERE NOT VERY HIGH FREQUENT MA JOR EXPENSES COULD NOT BE AVOIDED IN FUTURE IN VIEW OF HEAVY FLOW OF WATER AND MOVEMENT OF HEAVY VEHICLES. IT IS SEEN THAT THE EXPENDITURE IN A.Y.2005 - 06 AND 2006 - 07 WAS MEAGRE AS COMPARED TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LAND IS ADMITTEDL Y OWNED BY A SISTER CONCERN. THERE IS NO REGULAR RENT OR LEASE AGREEMENT ENTERED INTO BY THE APPELLANT WITH THE SISTER CONCERN. THE ASSESSING OFFICER RELIED UPON THE BOMBAY HIGH COURT DECISION IN CIT VS. VASANT WEAVING FACTORY (SUPRA). THE CONTENTION 14 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE OF THE APPELLANT AGAINST THE APPLICATION OF THAT DECISION BY THE ASSESSING OFFICER IS THAT IN THE APPELLANTS CASE THE COMPANY WAS NOT THE LESSEE BUT ONLY A RENTEE. IN MY CONSIDERED VIEW, THE APPELLANT COULD NOT BE PLACED AT AN ADVANTAGE BY NOT ENTERING INTO AN AGREEMENT WITH THE SISTER CONCERN AND THEN TAKING THE PLEA THAT THE PREMISES WAS ON A RENT AND NOT A LEASE. THE PREMISES OWNED BY THE SISTER CONCERN AND GIVEN ON RENT WHERE THE PRESS OF THE APPELLANT WAS SITUATED ITSELF SHOWS THAT IT IS A LONG TERM ARRA NGEMENT FOR IF THE PROPERTY PERTAINED TO SOME THIRD PARTY, THE APPELLANT WOULD HAVE TO NECESSARILY ENTER INTO A LEASE AGREEMENT WITH THAT THIRD PARTY. THE APPELLANT BEING IN THE BUSINESS OF PUBLISHING DAILY NEWSPAPER COULD NOT BE EXPECTED TO CHANGE THE PRI NTING PRESS EVERY 11 MONTHS WHICH IS THE USUAL PERIOD OF A RENT AGREEMENT IN MAHARASHTRA. 5.12. THE TERM RENT HAS BEEN DEFINED IN EXPLANATION TO SECTION OF THE INCOME - TAX ACT, 1961 AS ANY PAYMENT BY WHATEVER NAME CALLED UNDER ANY LEASE, SUB LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF ANY LAND OR BUILDING (INCLUDING FACTORY BUILDING). THE DEFINITION OF RENT AS EXPANDED IN THE EXPLANATION REVEALS THAT THE SAME IS PROJECTED AS A GENERIC TERM WHICH INCLUDES WITHIN ITS AMBIT PAYMENT MADE ON ANY ACCOUNT WHATSOEVER FOR OCCUPATION OF A TENANT PORTION. THE WORD 'RENT' AS DEFINED U/S.194 I HAS A WIDER MEANING THAN RENT IN COMMON PARLANCE (UNITED AIRLINES VS. CIT, 287 ITR 281 (AAR). IT IS TRITE LAW THAT WHEN THE DEFINITION OF A TERM IS GIVEN IN THE ACT THAT DEFINITION HAS TO BE PREFERRED TO ANY OTHER DEFINITION IN ANY OTHER ACT. AS THE TERM RENT MEANS ANY PAYMENT UNDER ANY LEASE ALSO THE CONTENTION OF THE APPELLANT THAT THE DECISION IN THE CASE OF VASANT WEAVING FACTORY IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE, IN MY VIEW, IS NOT CORRECT. 5.13. EVEN IF IT IS ACCEPTED, THOUGH NOT ADMITTED, THAT IT WAS NOT A LEASE HOLD LAND BUT A RENTED LAND, THE FACT STILL REMAINS THAT THE EXPENDITURE INCURRED ON THE RENTED LAND ON ACCOUNT OF LEVELING AND RO CK CUTTING WAS NOT A REVENUE EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LAND IS ADMITTEDLY OWNED BY A SISTER CONCERN. THERE WAS NO REGULAR RENT OR LEASE AGREEMENT ENTERED INTO BY THE APPELLANT. THE CLAIM COULD HAVE PROBABLY BEEN JUSTIFIED ONLY IF THE LESSEE / RENTEE WAS NOT ENTITLED TO RECOVER ALL THE OUTLAY AT THE TIME OF TERMINATION OF RENT AGREEMENT OR LEASE AGREEMENT. AS THE APPELLANT HAS ADMITTEDLY NOT ENTERED INTO ANY AGREEMENT, IT MAY 15 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE FURTHER BE POINTED OUT THAT IN VIEW OF EXPLANATI ON TO SECTION 32(1), WHICH PROVIDES FOR DEPRECIATION ON ANY CAPITAL OUTLAY CARRIED OUT BY THE LESSEE BY WAY OF RENOVATION, EXTENSION, IMPROVEMENT ETC. ON THE STRUCTURE OR WORK ON A BUILDING NOT OWNED BY THE ASSESSEE, THE NORMAL ROUTE WOULD BE DEPRECIATION BY TREATING THE OUTLAY AS CAPITAL EXPENDITURE. IT IS COMMON KNOWLEDGE THAT IN CONSTRUING THE PROVISIONS OF A STATUTE, COURTS SHOULD BE SLOW TO ADOPT A CONSTRUCTION WHICH TENDS TO MAKE ANY PART OF THE STATUTE MEANINGLESS, AN ATTEMPT MUST ALWAYS BE MADE SO T O RECONCILE THE RELEVANT PROVISIONS AS TO ADVANCE THE REMEDY INTENDED BY THE STATUTE. 5.14. IN VIEW OF THE ABOVE, THE ACTION OF THE ASSESSING OFFICER IN TREATING THE AMOUNT AS CAPITAL EXPENDITURE IS CONFIRMED. GROUND OF APPEAL NO. (IV) IS DISMISSED. 1 4 . THE LD. COUNSEL SUBMITS THAT THE MAJOR EXPENDITURE IS INCURRED FOR DOING THE LEVELING OF THE AREA WHICH WAS VERY MUCH ESSENTIAL FOR TRANSPORTATION OF MATERIAL S AND NEWSPRINT TO THE PRESS AND MOVEMENT OF THE WORKERS AND VEHICLES AS SMOOTH MOVEMENT WAS B ECOMING DIFFICULT DUE TO UNEVEN APPROACH AREA. HE ARGUES THAT EXPENDITURE INCURRED AT THE SOLAPUR LAND TO THE EXTENT OF 80.84 LAKHS IS SUBSTANTIAL IN NATURE DUE TO ROCKY NATURE OF THE SURFACE BUT THERE WAS NO ENDURING BENEFIT TO THE ASSESSEE AS IT WAS THE BUSINESS OR THE COMMERCIAL EXPERIENCE FOR WHICH THE ASSESSEE WAS REQUIRED TO INCUR THE SAID EXPENDITURE TO MAKE THE MOVEMENT OF THE MATERIAL S AND GOODS SMOOTH. IN RESPECT OF THE PUNE LAND , IT IS ARGUE D THAT THE PRESS AREA LOCATED IN A HILLY TERRAIN AND T HERE WAS A COMMERCIAL EXPEDIENCY FOR MAKING THE LEVELING AND ROCK CUTTING AND INVOLVED FREQUENT MAINTENANCE ALSO DUE TO DAMAGE TO SURFACE CAUSED BY HEAVY FLOW OF WATER DURING RAINS. HE ARGUES THAT THE ASSESSEE WAS PAYING MONTHLY RENT OF RS.1.96 LAKHS FOR THE PREMISES AND NOT TO THE LAND AND HENCE THE EXPENDITURE OF THE LAND ON WHICH THE P RES S PREMISES ARE SITUATED , THE MAINTENANCE EXPENDITURE OF RS.28.05 LAKHS IS REASONABLE. THE SAID EXPENDITURE WAS THE COMMERCIAL EXPEDIENC Y TO 16 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE MAKE THE AREA SUITABLE FOR OPERATIONS OF THE ASSESSEE S PRESS AND HENCE IT CANNOT BE SAID THAT IT WAS THE CAPITAL EXPENDITURE. THE LD. COUNSEL RELIED ON THE FOLLOWING PRECEDENTS: I. CIT VS. AGRICULTURE PRODUCE MARKETING COMMITTEE 198 TAXMAN 403 (DELHI) II. DCIT VS. GULHAM HUSSAIN EBRAHIM MATCHBOXWALLA 97 ITR 24 (BOM) III. CIT VS. HARI VIGNESH MOTORS P. LTD. 282 ITR 338 (MADRAS) IV. VISWAMS VS. ACIT 186 TAXMAN 24 (CHENNAI) V. CIT VS. ESCORTS FINANCE LTD. 155 TAXMAN 559 (DELHI) VI. CIT VS. LAXMI TALKIES 275 ITR 125 (GUJ) VII. CIT VS. TALATHI AND PANTHAKY PVT. LTD. 343 ITR 309 (BOM) 1 5 . PER CONTRA, THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). SO FAR AS THE EXPENDITURE AT SOLAPUR LAND IS CONCERNED WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL . N OWHERE IT IS DISPUTE D BY THE AUTHORITIES BELOW THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OPERATION FROM THE SAID PROPERTIES NOBODY HAS EVEN DISPUTED THAT IT WAS A ROCKY SURFACE AND FOR THE SMOOTH MOVEMENT OF THE GOODS AND PERSONNEL AND VEHICLES IT WAS NECESSARY FOR THE AS SESSEE TO DO THE ROCK CUTTING AND LEVELING FOR WHICH SAID EXPENDITURE WAS REQUIRED TO BE INCURRED. THERE ARE CERTAIN TESTS BUT NOT A STRAIT JACKET FORMULA TO DECIDE A PARTICULAR EXPENDITURE IS A CAPITAL EXPENDITURE OR REVENUE EXPENDITURE . M ANY TIMES THER E MAY BE AN ILLUSION DUE TO THE QUANTUM OF THE EXPENDITURE BUT QUANTUM OF THE EXPENDITURE IS NOT DECISIVE ALWAYS. WE ARE, T HEREFORE, OF THE OPINION THAT THE EXPENDITURE INCURRED ON THE LAND AT THE SOLAPUR FOR MAKING THE LEVELING BY CUTTING THE ROCKS WHERE BY THE SMOOTH MOVEMENT OF THE PERSONNEL, VEHICLES TO FACILITATE THE BETTER OPERATION OF THE ASSESSEES BUSINESS IS EXPENDITURE OF THE REVENUE IN NATURE AND ALLOWABLE U/S. 37(1) OF THE ACT. SO FAR AS PUNE EXPENDITURE IS CONCERNED THE SAID IS ALSO 17 ITA NO S . 724 & 736/PN/2008, SAKAL PAPERS LTD., PUNE INCURRED FOR MAKING THE LEVELING AND FOR MAINTENANCE OF THE SURFACE . M OREOVER , THE PUNE LAND IS RENTED PREMISES AND AS HELD IN THE IN THE CASE OF ESCORTS FINANCE LTD. (SUPRA ) EXPENDITURE ON THE RENTED PREMISES CANNOT BE TREATED AS A CAPITAL IN NATURE OR HAVING ANY ENDURING BENEFIT . T HE SAME VIEW HAS BEEN TAKEN IN THE PLETHORA OF DECISION S INCLUDING THE DECISION IN THE CASE OF TALATHI AND PANTHAKY PVT. LTD. (SUPRA) OF THE HON'BLE HIGH COURT OF BOM BAY. IT IS PERTINENT TO NOTE THAT THE ASSESSEE COMPANY IS PAYING REN T WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER. WE, THEREFORE, HOLD THAT THE EXPENDITURE INCURRED AT PUNE LAND ALSO IS REVENUE IN NATURE AND HENCE, BOTH THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE SAID EXPENDITURE AS A CAPITAL EXPENDITURE. ACCORDINGLY, WE ALLOW THE GROUND NO. 4 TAKEN BY THE ASSESSEE. 1 6 . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED AND ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 13 - 0 6 - 2014 PRONOUNCED IN THE OPEN COURT ON - 05 - 201 4 SD/ - SD/ - ( R . K . PAN DA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 13 TH JUNE, 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I I, PUNE 4 THE CIT - I I, PUNE 5 TH E DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE