DCIT, New Delhi V. M/s. C.B. Richard Ellis South Asia Pvt. Ltd., New Delhi

ITA 775/DEL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3031 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR SENIOR
• Assessee Lawyers: PIYUSH KUMAR KAMAL S
• Keywords: Capital asset; Depreciation; Business expenditure; Charitable institution; Maximum Marginal Rate; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.709/DEL./2012 (ASSESSMENT YEAR : 2007-08) ITA NO.775/DEL./2013 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 3 (1), VS. M/S. C.B. RICHARD ELLIS SO UTH ASIA PVT. LTD., NEW DELHI. GROUND FLOOR, PTI BU;ILDING, 4, PARLIAMENT STREET, NEW DELHI 110 001. (PAN : AAACC9308A) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI GAUTAM JAIN AND PIYUSH KUMAR KAMAL, ADVOCATES REVENUE BY : SHRI B.R.R. KUMAR, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST S EPARATE ORDERS PASSED BY CIT (APPEALS)-VI, NEW DELHI DATED 28.11.2 011 AND 19.11.2012 FOR ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY. 2 SINCE COMMON ISSUES WERE INVOLVED, THE APPEALS WE RE HEARD TOGETHER AND ARE THUS BEING DISPOSED OFF BY THIS CO NSOLIDATED ORDER. 3. IN ITA NO.709/DEL/2012 FOR THE ASSESSMENT YEAR 2 007-08, THE GROUNDS RAISED ARE AS UNDER: 2 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 1 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 2,85,55,000/- ON ACCOUNT OF DISALLO WANCE U/S 36(1)(II) OF THE INCOME TAX ACT. 2 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN H OLDING THAT RULE 8D OF THE IT RULES FOR MAKING DISALLOWANCE U/S 14A OF THE IT ACT WILL APPLY ONLY FROM A.Y. 2008-09 ONWARDS 3 THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING ADDITION OF RS. 1,08,735/- ON ACCOUNT OF EXTRA DEPR ECIATION CLAIMED ON COMPUTER PERIPHERALS. 4 THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGH T TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEA L AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. BRIEFLY STATED THE FACTS ARE THAT ASSESSEE COMPA NY IS ENGAGED IN THE BUSINESS OF REAL ESTATE, CONSULTANCY SERVICES, SITE MANAGEMENT SERVICES, PROFESSIONAL ADVISORY AND PROJECT MANAGEMENT SERVIC ES. IT FILED A RETURN OF INCOME ON 31.10.2007 DECLARING AN INCOME OF RS. 29,58,90,498/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX A CT, 1961 (HEREINAFTER THE ACT) ON 30.03.2009. THE AO COMPLETED THE ASS ESSMENT U/S 143(3) OF THE ACT DATED 10.12.2010 AT AN INCOME OF RS. 32, 47,12,801/- AFTER MAKING FOLLOWING DISALLOWANCES; I) RS.2,85,55,000/- ON ACCOUNT OF DISALLOWANCE U/S 36(1)(II) OF THE ACT; II) RS.1,58,568/- ON ACCOUNT OF DISALLOWANCE U/S 14 A OF THE ACT; AND III) RS.1,08,735 ON ACCOUNT OF DISALLOWANCE OF DEPR ECIATION U/S 32 OF THE ACT 5. THE CIT (A) FOLLOWING THE DECISION OF DELHI BENC H OF TRIBUNAL IN THE CASE OF CREATIVE TRAVEL (P) LTD. VS. ACIT IN IT A NO. 190/DEL/2010 3 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 FOR A.Y. 2006-07 DATED 13.5.2011 AFFIRMED BY THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S CREATIVE TRAV EL (P) LTD. IN ITA NO.1672/D/2010 DELETED THE DISALLOWANCE OF RS.2,88, 55,000/- ON ACCOUNT OF DISALLOWANCE U/S 36(1)(II) OF THE ACT. HE ALSO DELETED THE DISALLOWANCE OF RS.1,58,568/- U/S 14A AND RS. 1,08,735/- ON ACCO UNT OF DISALLOWANCE OF DEPRECATION U/S 32 OF THE ACT. 6. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). BEFORE US THE LEARN ED DR SUPPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE A SSESSEE SUPPORTED THE FINDINGS OF CIT(A). 7. GROUND NO.1 IS REGARDING DISALLOWANCE OF RS.2,85 ,55,000/- REPRESENTING COMMISSION PAID TO SH. ANSHUMAN MAGAZI NE, DIRECTOR OF THE ASSESSEE COMPANY BY INVOKING SECTION 36(1)(II) OF THE ACT. 8. THE RELEVANT FACTS ARE THAT THERE WERE TWO SHARE HOLDERS OF ASSESSEE IN THE YEAR UNDER CONSIDERATION, NAMELY, ANSHUMAN M AGAZINE (99%) AND RASHMI MAGAZINE (1%). OUT OF TWO SHAREHOLDERS, ANSH UMAN MAGAZINE WAS BEING PAID SALARY, WHICH INCLUDED INCENTIVE OF RS. 2.85 CRORES. HE IS W.E.F. 01.06.2003 IS THE MANAGING DIRECTOR OF THE C OMPANY. AS PER RESOLUTION OF THE BOARD DATED 27.05.2003, ANSHUMAN MAGAZINE IS ENTITLED TO INCENTIVE IN THE FORM OF COMMISSION AT 30% OF TH E NET PROFITS FOR EACH YEAR AFTER ADDING BACK DEPRECIATION. SIMILAR INCEN TIVE PAID IN EARLIER 4 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 YEARS HAS BEEN ACCEPTED IN ASSESSMENT FRAMED U/S 14 3(3) OF THE ACT AND, TO OTHER EMPLOYEES STANDS ALLOWED AS DEDUCTION INCL UDING INCENTIVE OF RS.2.21 CRORES TO MANISH KASHYAP IN THE INSTANT YEA R. THE AO OBSERVED IN THE CASE OF ASSESSEE COMPANY PROFIT OF RS. 28,41 ,79,791/- HAS BEEN WORKED OUT FOR THIS FINANCIAL YEAR AS PER THE STATE MENT OF TAXABLE INCOME FILED ALONG WITH THE RETURN, HOWEVER NO DIVIDEND HA S BEEN PROPOSED OR DISTRIBUTED AMONG THE SHAREHOLDERS WHO ARE ALSO DIR ECTOR OF THE COMPANY. HE THUS WAS OF THE OPINION THAT, SUM OF RS.2,85,55, 000/- HAS BEEN APPARENTLY PAID AS COMMISSION AND BONUS AND NOT AS DIVIDEND TO REDUCE THE INCOME OF THE COMPANY AND TO AVOID DIVIDEND DIS TRIBUTION TAX. THEREAFTER, HE DIRECTED THE ASSESSEE TO SHOW CAUSE FOR ADMISSIBILITY OF BONUS/ COMMISSION TO DIRECTORS AND ON CONSIDERATION OF THE REPLY, HE DISALLOWED THE CLAIM OF DEDUCTION BY HOLDING THAT, HAD THE COMPANY DECLARED DIVIDEND, SH. ANSHUMAN MAGAZINE WOULD HAVE GOT THE MAJORITY SHARE OF THE DIVIDEND AND THE COMPANY WOULD ALSO HA VE TO PAY DIVIDEND DISTRIBUTION TAX ON THE SAME WHICH HAS NOT BEEN DON E BY THE COMPANY. HE HELD THAT, THE ASSESSEES ARGUMENT THAT THE ENTIRE ARRANGEMENT IS TAX NEUTRAL IS NOT CORRECT BECAUSE MAXIMUM MARGINAL RAT E IN THE CASE OF COMPANIES IS MORE THAN THE MAXIMUM MARGINAL RATE IN THE CASE OF INDIVIDUALS. THE CIT(A) DELETED THE DISALLOWANCE M ADE OF RS.2,85,55,000/- U/S 36(1)(II) OF THE ACT. 5 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. THE CIT(A) HAS DELETED THE DISALLOWANCE FOR THE FOLLOWING REASONS STATED IN THE ORDER:- I) THAT LEARNED OFFICER HAS DISALLOWED THE CLAIM O F DEDUCTION ESSENTIALLY ON THE ASSUMPTION THAT APPELLANT COMPANY HAS NOT DE CLARED DIVIDEND AND PAID DIVIDEND DISTRIBUTION TAX AND AS SUCH THE CLAIM OF THE APPELLANT THAT THE ARRANGEMENT IS TAX NEUTRAL IS NOT TENABLE. IT WAS S UBMITTED THAT, IN HOLDING SO, THE LEARNED OFFICER OVERLOOKED THAT IN THE YEAR UND ER CONSIDERATION APPELLANT COMPANY HAD DECLARED DIVIDEND OF RS. 13,89,93,870 A ND ALSO PAID DIVIDEND DISTRIBUTION TAX OF RS. 1,94,93,890/- AND AS SUCH T HE BASIS ADOPTED IS IN DISREGARD OF THE FACTS ON RECORD AND THUS NOT TENAB LE. A CHART TABULATING DETAILS OF THE DIVIDEND PAID ALONG WITH DIVIDEND DISTRIBUTI ON TAX PAID FOR ASSESSMENT YEAR 004-05 TO ASSESSMENT YEAR 2007-08 WAS ALSO PLA CED ON RECORD AND IS AS UNDER:- ASSESSMENT YEAR DIVIDEND PAID (RS.) DIVIDEND DISTRIBUTION TAX PAID (RS.) 2004-05 1,22,64,165/- 1,573,346/- 2005-06 2,04,40,275/- 26,71,286/ 2006-07 2,24,84,303/- 31,53,424/- 2007-08 13,88,93,870/- 1,94,93,890/- II)) THAT UNDER SUB CLAUSE II) OF SECTION 36(1) OF THE ACT, IT IS PROVIDED THAT, WHERE ANY SUM IS PAID TO AN EMPLOYEE AS BONUS OR CO MMISSION FOR SERVICES RENDERED, THE LIMB THAT, A DEDUCTION SHALL BE ALLO WED, IN RESPECT OF AN AMOUNT PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERV ICES RENDERED AND, SINCE IT WAS AS A RESULT OF EFFORT OF SHRI ANSHUMAN MAGAZ INE THAT THERE IS TREMENDOUS INCREASE OF TURNOVER, YEAR AFTER YEAR, A S HE RELENTLESSLY MADE EFFORTS TO TAKE THE COMPANY TO GREATER HEIGHTS THE SAME IS ALLOWABLE AS DEDUCTION. REFERENCE WAS MADE TO CHART TABULATING T HE SALES, PROFIT AND, INCENTIVE PAID TO SHRI ANSHUMAN MAGAZINE FROM ASSES SMENT YEAR 2004-05 TO ASSESSMENT YEAR 2007-08, WHICH IS AS UNDER: A.Y. SALES(RS.) PROFIT (RS) INCENTIVE PAID TO SHRI ANSHUMAN MAGAZINE (RS.) 2004 - 05 54,35,88,969/ - 10,40,92,862/ - 1,19,48,350/ - 2005 - 06 72,17,39,964/ - 10,69,57,576/ - 1,91,75,160/ - 2006-07 1,02,42,92,452/- 18,53,73,829/- 3,81,76,000/- 2007-08 1,55,45,13,626/- 24,86,29,998/- 2,89,55,000/- IT WAS SUBMITTED THAT, NO DOUBT SECOND LIMB OF THE SAID CLAUSE PROVIDE THAT, WHERE SUCH SUM SHOULD NOT HAVE BEEN PAYABLE TO HIM, AS PROFITS OR DIVIDEND, HAD IT NOT BEEN PAID AS BONUS OR COMMISSION, HOWEVE R THE SAME IS NOT THE FACT IN THE INSTANT CASE. 6 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 III) THAT IN THE INSTANT CASE, THE AMOUNT CLAIMED A S DEDUCTION HAS BEEN PROVIDED TO BE PAID BECAUSE OF THE RESOLUTION PASSE D BY THE BOARD OF DIRECTORS TO PAY COMMISSION ON ACCOUNT OF EXCELLENT PERFORMAN CE OF THE EMPLOYEE AND, THEREFORE THERE WAS NO JUSTIFICATION TO HAVE DISALL OWED THE CLAIM OF EXPENDITURE, WHATSOEVER AS IT IS NOT A CASE WHERE S UCH AMOUNT WAS PAYABLE TO DIRECTOR BY WAY OF DIVIDEND. IN THE CONTEXT IT WAS SUBMITTED THAT, SHRI ANSHUMAN MAGAZINE W.E.F. 1.06.2003 RELEVANT TO ASSE SSMENT YEAR 2004-05 BECAME MANAGING DIRECTOR OF THE APPELLANT COMPANY, AS WOULD BE EVIDENT FROM RESOLUTION OF THE BOARD DATED 7.05.2003 (PAGES 43 TO 44 OF PAPER BOOK). IT IS SUBMITTED THAT, AS PER THE RESOLUTION, HE WAS ENTITLED TO COMMISSION AT 30% OF THE NET PROFITS FOR EACH YEAR AFTER ADDING B ACK DEPRECIATION. IT WAS SUBMITTED THAT, THE INCENTIVE SO PAID TO SHRI ANSHU MAN MAGAZINE FROM ASSESSMENT YEAR 2004-05 HAS BEEN ASSESSED AS SALAR Y AS WOULD BE EVIDENT FROM THE TABULAR CHART HEREUNDER: A.Y. INCENTIVE (RS) TOTAL SALARY DECLARED AND ASSESSED AS SALARY BY ANSHUMAN MAGAZINE IN HIS RETURN OF INCOME (PAGES OF PAPER BOOK) ASSESSMENT U/S (PAGES OF PAPER BOOK) 2004 - 05 1,19,48,350/ - 1,82,95,160/ - (74) 72 143(3) (90-92) 2005 - 06 1,91,75,160/ - 2,69,01,560/ - (94) 93 143(1) 2006 - 07 3,81,76,000/ - 4,72,10,880/ - (104) 102 143(3) (113) 2007 - 08 2,89,55,000/ - 4,07,24,000/ - (115) 113 143(1) IV) THAT SIMILAR INCENTIVE HAS BEEN PAID TO VARIOUS OTHER SENIOR EMPLOYEES OF APPELLANT COMPANY, AS WOULD BE EVIDENT FROM TABU LATION HEREUNDER: A.Y. NUMBER OF EMPLOYEES TO WHOM INCENTIVE GIVEN TOTAL SALARY FOR THE YEAR TO SUCH EMPLOYEES TOTAL INCENTIVE FOR THE YEAR 2004 - 05 344 11,46,72,189/ - 2,55,71,348/ - 2005 - 06 536 18,27,78,117/ - 5,64,39,455/ - 2006-07 601 29,84,15,605/- 9,59,43,058/- 2007-08 680 55,79,07,291/- 24,19,96,004/- ON ILLUSTRATIVE BASIS, INCENTIVE PAID TO SHRI MANIS H KASHYAP, ONE OF THE EMPLOYEE WAS ALSO PAID, THE DETAIL OF WHICH IS AS U NDER:- 7 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 F.Y. A.Y. SALE (RS) PROFIT (RS) INCENTIVE PAID TO SHRI MANISH KASHYAP (RS.) 2003 - 04 2004 - 05 54,35,88,969/ - 10,40,92,862/ - 8,65,000/ - 2004-05 2005-06 72,17,39,964/- 10,69,57,576/- 61,36,000/- 2005-06 2006-07 1,02,42,92,452/- 18,53,73,829/- 1,02,57,037/- 2006-07 2007-08 1,55,45,13,626/- 24,86,29,998/- 2,21,76,276/- V) THAT INCENTIVE PAID IN THE FORM OF COMMISSION TO SHRI ANSHUMAN MAGAZINE, HAS BEEN ALLOWED IN THE PAST AS WOULD BE EVIDENT TABULAR CHART HEREUNDER: A.Y. INCENTIVE (RS.) DISALLOWANCE IF ANY (RS.) ASSESSMENT U/S 2001-02 23,00,000/- --- 143(1) 2002-03 28,50,000/- --- 143(1) 2003-04 25,00,000/- --- 143(3 (49-58) 2004-05 1,19,48,350/- (78) --- 143(1) 2005 - 06 1,91,75,160/ - --- 143(3) (58A-58G) 2006 - 07 3,81,76,000/ - --- 143(1) RELIANCE WAS PLACED ON RULE OF CONSISTENCY AS HELD BY HON'BLE APEX COURT IN THE CASE OF RADHA SAOMI SATSANG VS. CIT 193 ITR 321 AND CIT VS. J. K. CHARITABLE TRUST 308 ITR 161 VI) THAT BURDEN WAS UPON THE ASSESSING OFFICER AND NOT ON THE ASSESSEE TO ESTABLISH THAT, WHAT HAD BEEN PAID BY WAY OF COMMIS SION WOULD HAVE BEEN PAYABLE BY WAY OF DIVIDEND, WHICH ON THE FACTS OF A PPELLANT REMAINS UNDISCHARGED VII) THAT SINCE THERE EXISTED NO STATUTORY REQUIRE MENT UNDER THE INCOME TAX ACT , 1961 OR EVEN UNDER THE COMPANIES ACT' 1956 FO R A COMPANY TO DECLARE THIS SUM OF RS. 2,85,55,000/- AS DIVIDEND OUT OF TH E PROFITS, PARTICULARLY WHEN DIVIDEND HAS BEEN SEPARATELY DECLARED. IT WAS SUBMI TTED THAT, UNLESS A DIVIDEND IS DECLARED, WHICH CAN ONLY BE DECLARED OUT OF PROF ITS, WHICH PROFITS CAN BE DETERMINED ONLY AFTER DEDUCTING ALL LEGITIMATE EXPE NSES, THERE IS NO QUESTION OF ANY SUM PAYABLE AS DIVIDEND VIII) RELIANCE WAS ALSO PLACED ON THE FOLLOWING JU DICIAL PRONOUNCEMENTS: A) ITA NO. 1900/2011MIS CREATIVE TRAVEL (P) LTD. V S. ALIT FOR ASSESSMENT YEAR 2006-07 DATED 13.05.2011 B) ITA NO. 4746/DE1/2010 DCIT VS CELSIUS REFRIGERA TION (P) LTD. FOR ASSESSMENT YEAR 2007-2008 8 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 C) 139 TTJ 48 (DEL) ACIT VS CAREER LAUNCHER INDIA LTD. D) 36 SOT 456 (DEL) ACIT VS. BONY POLYMERS (P) LTD . IX) THAT, THE REVENUE CANNOT ADOPT INCONSISTENT PO SITIONS SINCE THE SUM OF RS. 2,85,55,000/- HAS BEEN ASSESSED ON 'SALARY' IN THE HANDS OF SHRI ANSHURNAN MAGAZINE AND THEREFORE, THE SAME CANNOT B E NOW REGARDED AS DIVIDEND. INTACT, THE ASSESSING OFFICER SINCE ASSES SMENT YEAR 2004-05, EVEN IN THE HANDS OF THE APPELLANT COMPANY, HAS HELD SUC H SUM TO BE ELIGIBLE DEDUCTION U/S 36(1)(II) OF THE ACT IN ALL THE PRECE DING AND SUCCEEDING YEARS. X) THAT, EVEN OTHERWISE, THE ENTIRE DISALLOWANCE I S REVENUE NEUTRAL AS THERE IS NO VARIATION IN TAX RATES. IT HAS BEEN HEL D THAT, IF THE DISALLOWANCE MADE IS REVENUE NEUTRAL THAT NO SUCH DISALLOWANCE I S WARRANTED. RELIANCE IS PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: A) 33 ITR 681 (BORN) CFI VS. NAGRI MILLS CO. LTD. B) 331 ITR 10 (DEL) CIT VS DINESH KUMAR GOEL C) 196 TAXMAN 94 (DEL) CIT VS TRIVENI E IGD. AND I NDUSTRIES LTD. D) 53 DTR 1 (DEL) CYBER MEDIA (INDIA) LTD VS. CIT IN VIEW OF THE AFORESAID SUBMISSIONS, IT WAS MOST R ESPECTFULLY SUBMITTED COMMISSION PAID TO SHRI ANSHUMAN MAGAZINE FOR THE A FORESAID YEARS BE ALLOWED AND DISALLOWANCE OF RS. 2,85,55,0001- MAY K INDLY BE DELETED. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, MATERIA L PLACED ON RECORD, ORDER OF ASSESSMENT AND SUBMISSIONS MADE BY THE LEARNED COUN SEL FOR THE ASSESSEE. IN THE YEAR UNDER CONSIDERATION, APPELLANT COMPANY HAS PAID SALARY OF RS. 4,07,24,000/- INCLUDING COMMISSION OF RS. 2,85,55,0 001- TO SH. ANSHUMAN MAGAZINE. SH. ANSHUMAN MAGAZINE IS MANAGING DIRECTO R OF THE APPELLANT COMPANY. HE ALSO HOLDS 99.99% SHAREHOLDING OF THE A PPELLANT COMPANY. THE AFORESAID SUM HAS BEEN PAID UNDER RESOLUTION OF THE BOARD DATED 27.05.2003 APPOINTING HIM THE MANAGING DIRECTOR OF THE APPELLA NT COMPANY. HOWEVER, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX H AS HELD THAT SUM IS NOT ALLOWABLE IN VIEW OF SECTION 36(1)(II) OF THE ACT. ACCORDING TO THE LEARNED OFFICER, APPELLANT COMPANY HAS THROUGH WORKED OUT P ROFIT OF RS. 28.42 CRORES BUT NO DIVIDEND HAS BEEN PROPOSED OR DISTRIBUTED AM ONGST THE SHAREHOLDER AND THEREFORE SUM OF RS. 2,85,55,000/- HAS BEEN PAID AS COMMISSION AND NOT AS DIVIDEND TO REDUCE THE INCOME AND AVOID DIVIDEND DI STRIBUTION TAX. HE HAS OBSERVED IN PARA 3.2 AS UNDER: IN THE CASE OF THE ASSESSEE COMPANY PROFIT OF RS. 28,41,79,791/- HAS BEEN WORKED OUT FOR THIS FINANCIAL YEAR AS PER THE STATE MENT OF TAXABLE INCOME FILED ALONGIWTH THE RETURN. HOWEVER, NO DIVIDEND HAS BEEN PROPOSED OF DISTRIBUTED AMONG THE SHARE HOLDERS WHO ARE ALSO DIRECTORS OF T HE COMPANY SUMS MENTIONED ABOVE HAVE BEEN APPARENTLY PAID AS COMMIS SION AND BONUS AND NOT AS DIVIDEND TO REDUCE THE INCOME OF THE COMPANY AND TO AVOID DIVIDEND DISTRIBUTION TAX. 9 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 5.4 I HAVE PERUSED THROUGH THE FINANCIAL STATEMENT FILED BY THE APPELLANT COMPANY FOR THE FINANCIAL YEAR 2006-07 RELEVANT TO THE INSTANT ASSESSMENT YEAR. IT IS EVIDENT THERE FORM THAT, PROFIT DECLARE D FOR THE INSTANT YEAR IS RS. 24.46 CRORES AND FOR THE PRECEDING YEAR IS OF RS. 1 8.54 CRORES. IT IS FURTHER SEEN THAT ON THE AFORESAID PROFIT, THE ASSESSEE HAD DECL ARED DIVIDEND OF RS. 13.90 CRORES IN THE INSTANT YEAR AND RS. 31.53 LACS IN TH E PRECEDING YEAR HAS BEEN PAID. THE CHALLANS FOR DISTRIBUTION TAX PAID WERE A LSO CALLED FOR IN THE COURSE OF APPELLATE PROCEEDINGS AND PLACED ON RECORD. IT IS T HUS NOT A CASE WHERE THE APPELLANT HAS NOT PROPOSED OR DISTRIBUTED ANY DIVID END EITHER IN THE INSTANT YEAR OR PRECEDING YEAR. THE ASSESSING OFFICER ESSEN TIALLY HAS ADOPTED THE FIGURE OF PROFIT AT RS. 28.40 CRORES WHICH WAS THE INCOME DECLARED UNDER THE HEAD PROFIT AND GAIN FROM BUSINESS OR PROFESSION IN COMPUTATION OF INCOME AND THUS, OVERLOOKED THE FIGURE OF PROFIT OF RS. 24.46 CRORES IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE BASIS ADOPTED TO DENY THE C LAIM OF DEDUCTION OVERLOOKS THE FACTUAL POSITION. EVEN OTHERWISE, IT IS SEEN TH AT COMMISSION ALONGWITH SALARY HAS BEEN PAID TO SH. ANSHUMAN MAGAZINE YEAR AFTER YEAR BASED ON THE IMPROVED FINANCIAL POSITION OF THE COMPANY, AS IS E VIDENT FROM THE CHART HEREUNDER: A.Y. SALES (RS) PROFIT (RS) SALARY COMMISSION TOTAL SALARY 2004-05 54,35,88,969/- 10,40,92,862/- 63,46,810 1,19,48,350 1,82,95,160 2005-06 72,17,39,964/- 10,69,57,576/- 77,26,400 1,91,75,160 2,69,01,560 2006-07 1,02,42,92,452/- 18,53,73,829/- 90,34,880 3,81,76,000 4,72,10,880 2007-08 1,55,45,13,626/- 24,86,29,998/- 1,17,69,000 2,89,55,000 4,07,24,000 5.5 THE ABOVE SALARY INCLUDING INCENTIVE HAS BEEN A SSESSMENT U/S 143(3) FOR ABOVE, SIMILAR INCENTIVES HAS ALSO BEEN PAID TO OTHER EMPLOYEES. INFACT, OUT OF TOTAL SALARY OF RS. 55.79 CRORES INCENTIVE PAID IN THE YEAR UNDER CONSIDERATION WAS OF RS. 24.20 CRORES. IT MAY BE RE LEVANT TO STATE HERE THAT, ONE OF THE EMPLOYEES SH. MANISH KASHYAP HAS RECEIVED IN CENTIVE OF RS. 1.02 CRORES IN THE INSTANT YEAR. MOREOVER DIVIDEND HAS B EEN DECLARED CONSISTENTLY BY THE APPELLANT COMPANY AND DIVIDEND DISTRIBUTION TAX HAS BEEN SEPARATELY PAID AS WOULD BE EVIDENT FROM THE TABULAR CHART HER EUNDER: ASSESSMENT YEAR DIVIDEND PAID DIVIDEND DISTRIBUTION TAX PAID (RS.) 2004-05 1,22,64,165/- 15,73,346 2005-06 2,04,40,275/- 26,71,286/- 2006-07 2,24,84,303/- 31,53,424/- 2007-08 13,88,93,870/- 1,94,93,890/- 5.6 FURTHER, THE SUM SO PAID HAS BEEN ASSESSED TO T AX IN THE HANDS OF SHRI ANSHUMAN MAGAZINE AS SALARY IN ASSESSMENT MADE OF S H. ANSHUMAN MAGAZINE INCLUDING ASSESSMENT U/S 143(3) FOR ASSESS MENT YEAR 2004-05 AND ASSESSMENT YEAR 2006-07. IN THE LIGHT OF THE AFORES AID, IN MY OPINION, THE SUM SO PAID IS ALLOWABLE AS DEDUCTION. INFACT, HONBLE DELHI HIGH COURT IN THE CASE OF M/S CREATIVE TRAVEL (P) LTD. IN 'TA NO. 1672/D/2 010 NOTED IN THE CASE OF 10 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 M/S CREATIVE TRAVEL (P) LTD. VS. ACTT IN 1TA NO. 19 0/D/2010 FOR ASSESSMENT YEAR 2006-07 DATED 13.05.2011 HAS HELD A S UNDER: 'ON THE FACTS OF THIS CASE, THE INCOME TAX APPELLAT E TRIBUNAL HAS ALLOWED THE PAYMENT OF BONUS AND COMMISSION TO THE EMPLOYEE-DIR ECTORS OF THE ASSESSEE COMPANY UNDER SECTION 36(1)(II) OF THE INCOME TAX A CT AND ONE OF THE REASONS GIVEN BY THE TRIBUNAL, WHICH HAS SPECIFICALLY WEIGH ED WITH IT, IS THAT IN THE PAST SIMILAR COMMISSION WAS PAID TO THE WORKING DIR ECTORS AND IT WAS NEVER DISALLOWED. MR. AGGARWAL, LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SUCH A DEDUCTION IS ALLOWED UNDER SECTION 36(1)(II) OF THE ACT FOR THE PAST 30 YEARS. IN VIEW OF THIS, WE ARE OF THE OPINION THAT NO QUES TION OF LAW ARISES. THE APPEAL IS DISMISSED.' 5.7 THUS, FOLLOWING THE AFORESAID JURISDICTIONAL HI GH COURT WHEREIN IT HAS / BEEN HELD THAT, IF THE COMMISSION PAID TO EMPLOYEE- DIRECTORS HAS BEEN ALLOWED IN THE PAST, NO DISALLOWANCE IS WARRANTED W S 36(1)( ) OF THE ACT. THE SAME IS SQUARELY APPLICABLE TO THE FACTS AND AS SUC H, NO DISALLOWANCE OTHER WARRANTED. SECTION 36(1)(II) OF THE ACT, READS AS U NDER: '36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWI NG CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN CO MPUTING THE INCOME REFERRED TO IN SECTION 28 (I) --------- (IA) --------- (IB) ------- II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISS ION FOR SERVICES RENDERED. (WHERE SUCH SUM WOULD NOT HAVE BEEN PAYAB LE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONUS OR COMMIS SION;) 5.8 THE AFORESAID PROVISION PROVIDES THAT DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED UNLESS SUCH SUM WOULD HAVE BEEN PAYABLE TO HIM OR DIVIDEND OR PROFIT. IN THE INSTANT CASE, THERE IS ENOUGH MATERI AL ON RECORD TO ESTABLISH THAT SUM OF RS. 2,85,55,000/- HAS BEEN PAID AS COMMISSIO N FOR SERVICES RENDERED BY SH. ANSHUMAN MAGAZINE AND THEREFORE THE SAME IS ALLOWABLE AS DEDUCTION. THERE IS NO MATERIAL BROUGHT ON RECORD TO SUGGEST T HE AFORESAID SUM WAS PAYABLE AS PROFIT OR DIVIDEND. ON THE CONTRARY, THE BASIS ADOPTED TO HOLD THE SUM PAID OF RS. 2,85,55,000/- IS PROFIT OR DIVIDEND WAS THAT, NO DIVIDEND HAS DECLARED IN THE YEAR UNDER CONSIDERATION WHICH HAS BEEN FOUND TO BE FACTUALLY INCORRECT AND THUS NOT TENABLE. IN VIEW OF THE AFOR ESAID, DISALLOWANCE MADE OF RS. 2,85,55,000/- IS DELETED AND GROUNDS RAISED BY THE APPELLANT ARE ALLOWED. 10. THE LEARNED DR HAS NOT BEEN ABLE TO POINT OUT A NY INACCURACY EITHER FACTUAL OR LEGAL IN THE AFORESAID REASONS AD OPTED BY THE CIT(A) TO 11 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 DELETE THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S 3 6(1)(II) OF THE ACT. IT IS NOTED THAT THE AO PROCEEDED TO MAKE DISALLOWANCE ON INCORRECT ASSUMPTION OF FACT THAT NO DIVIDEND HAS BEEN DISTRI BUTED AMONGST THE SHAREHOLDERS IN THE INSTANT YEAR; WHEREAS AS A MATT ER OF FACT THAT DIVIDEND OF RS.13.90 CRORES WAS DECLARED IN THE INSTANT YEAR . MOREOVER IT IS ALSO NOTICED THAT IDENTICAL COMMISSION PAID TO MD ANSHUM AN MAGAZINE HAS BEEN ALLOWED AS DEDUCTION IN THE PRECEDING ASSESSME NTS U/S 143(3) OF THE ACT AND ALSO CORRESPONDINGLY SUCH INCENTIVE STANDS ASSESSED AS SALARY IN THE HANDS OF ANSHUMAN MAGAZINE FOR THE INSTANT YEAR . FURTHER, LIKEWISE INCENTIVE PAID TO OTHER EMPLOYEES HAS ALSO BEEN ALL OWED AS DEDUCTION. DURING THE COURSE OF HEARING THE LEARNED COUNSEL FO R ASSESSEE SUPPORTED THE ORDER BY RELYING OF THE JUDGMENTS OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF AMD METPLAST (P) LTD. V DCIT 341 ITR 563 (DEL) AND CONTROLS & SWITCHGEAR CONTRACTORS LTD. V. DCIT 269 CTR 44 (DEL). 11. HAVING GONE THROUGH THE AFORESAID JUDGMENTS, WE NOTICE THAT HONBLE COURT IN THE CASE OF CONTROLS & SWITCHGEAR CONTRACTORS LTD. (SUPRA) HAS HELD AS UNDER: 7. THE NEXT ASPECT THAT HAS TO BE CONSIDERED IS W HETHER PAYMENT OF SUCH COMMISSIONS ARE LIABLE TO BE DISALLOWED AS AN EXPENSE BY VIRTUE OF SECTION 36(1)(II) OF THE ACT. AT THIS STAGE IT I S NECESSARY TO REFER THE SECTION 36(1)(II) OF THE ACT, WHICH READS AS UNDER: 12 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 'ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BEEN PAYABL E TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PAID AS BONU S OR COMMISSION..' 8. IT IS ALSO APPARENT FROM THE READING OF THE AFO RESAID PROVISION THAT BONUS OR COMMISSION PAID TO AN EMPLOYEE IS EXP RESSLY ALLOWED AS DEDUCTION. THE ONLY EXCEPTION IS WHERE THE BONUS OR COMMISSION PAID TO THE EMPLOYEE WOULD OTHERWISE BE PAYABLE TO HIM A S PROFITS OR DIVIDENDS, IN THE EVENT THE SAME HAD NOT BEEN PAID AS COMMISSION. IT IS CLEAR THAT THE EXCEPTION WOULD BE APPLICABLE ONLY W HERE AN EMPLOYEE WOULD BE ENTITLED TO RECEIVE THE AMOUNT PAID AS COM MISSION, AS PROFITS OR DIVIDENDS. IN THE PRESENT CASE, THE DIRECTORS WO ULD NOT BE ENTITLED TO RECEIVE THE AMOUNT PAID TO THEM AS COMMISSION, AS D IVIDENDS BECAUSE EVEN IF IT IS ASSUMED THAT NON-PAYMENT OF COMMISSIO N WOULD ADD TO THE KITTY OF DISTRIBUTABLE PROFITS THE SAME WOULD HAVE TO BE DISTRIBUTED PRO- RATA TO ALL THE SHAREHOLDERS AND NOT SELECTIVELY TO THE SAID DIRECTORS. DIVIDEND IS PAID BY A COMPANY AS DISTRIBUTION OF PR OFITS TO ITS SHAREHOLDERS IN THE RATIO OF THEIR SHAREHOLDING IN THE COMPANY. IN THE PRESENT CASE, THE DIRECTORS WERE NOT THE ONLY SHARE HOLDERS OF THE COMPANY AND, THEREFORE, IN THE EVENT THE COMMISSION HAD NOT BEEN PAID BY THE ASSESSEE IT COULD NOT HAVE BEEN DISTRIB UTED TO THEM AS DIVIDENDS. 9. THIS COURT IN THE CASE OF AMD METPLAST (P.) LTD . (SUPRA) ALSO POINTED OUT THIS DISTINCTION BETWEEN DISTRIBUTION O F DIVIDENDS AND PAYMENT FOR SERVICES IN THE FOLLOWING WORDS: '....PAYMENT OF DIVIDEND IS MADE IN TERMS OF THE CO MPANIES ACT, 1956. DIVIDEND HAS TO BE PAID TO ALL SHAREHOLDERS EQUALLY . THIS POSITION CANNOT BE DISPUTED BY THE REVENUE. DIVIDEND IS A RE TURN ON INVESTMENT AND NOT SALARY OR PART THEREOF. HEREIN THE CONSIDER ATION IN THE FORM OF COMMISSION WHICH WAS PAID TO ASHOK GUPTA WAS FOR SE RVICES RENDERED BY HIM AS PER TERMS OF APPOINTMENT AS A MANAGING DI RECTOR.' 10. THUS, IN OUR VIEW, THE TRIBUNAL AND THE INCOME TAX AUTHORITIES BELOW ERRED IN HOLDING THAT THE PAYMENTS OF COMMISS ION TO THE DIRECTORS FELL WITHIN THE EXCLUSIONARY LIMB OF SECT ION OF 36(1)(II) OF THE ACT. 12. ALSO IN THE CASE OF AMD METPLAST (P) LTD. (SUPR A) IT HAS BEEN HELD AS UNDER: WE FAIL TO UNDERSTAND HOW THE AFORESAID OBSERVATIO NS ASSIST AND HELP THE REVENUE IN THE FACTUAL MATRIX OF THE PRESENT CA SE. ASHOK GUPTA IS THE MANAGING DIRECTOR AND IN TERMS OF THE BOARD RES OLUTION IS ENTITLED TO RECEIVE COMMISSION FOR SERVICES RENDERED TO THE COM PANY. IT IS A TERM OF EMPLOYMENT ON THE BASIS OF WHICH HE HAD RENDERED SERVICE. 13 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 ACCORDINGLY, HE WAS ENTITLED TO THE SAID AMOUNT. CO MMISSION WAS TREATED AS A PART AND PARCEL OF SALARY AND TDS HAS BEEN DEDUCTED. ASHOK GUPTA WAS LIABLE TO PAY TAX ON BOTH THE SALAR Y COMPONENT AND THE COMMISSION. PAYMENT OF DIVIDEND IS MADE IN TERM S OF THE COMPANIES ACT, 1956. DIVIDEND HAS TO BE PAID TO ALL SHAREHOLDERS EQUALLY. THIS POSITION CANNOT BE DISPUTED BY THE RE VENUE. DIVIDEND IS A RETURN ON INVESTMENT AND NOT SALARY OR PART THERE OF. HEREIN THE CONSIDERATION IN THE FORM OF COMMISSION WHICH WAS P AID TO ASHOK GUPTA WAS FOR SERVICES RENDERED BY HIM AS PER TERMS OF APPOINTMENT AS A MANAGING DIRECTOR. 13. THE AFORESAID JUDGMENTS ARE SQUARELY APPLY TO T HE FACTS OF THE ASSESSEE COMPANY. HERE TOO, THE COMMISSION HAS NOT BEEN PAID TO RASHMI MAGAZINE, OTHER SHAREHOLDER OF ASSESSEE COMP ANY AND COMMISSION WAS PAID TO ANSHUMAN MAGAZINE FOR SERVIC ES RENDERED BY HIM AS PER TERMS OF APPOINTMENT AS A MANAGING DIREC TOR, WHICH HAS BEEN TAXED AS SALARY IN HIS HANDS IN THE INSTANT YEAR. HAVING REGARD TO THE ABOVE JUDICIAL POSITION, THE GROUND RAISED BY THE R EVENUE IS REJECTED. 14. GROUND NO.2 RELATED TO DISALLOWANCE OF RS.1,58, 568/- U/S 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOT H THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. WE FIND THAT CIT(A) HAS DIRECTED THE AO TO COMPUTE THE DISALLOWA NCE IN ACCORDANCE IN THE MANNER HELD IN PARA 42 OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 347 ITR 272 (DEL). THE RELEVANT PORTION OF THE JUDGMENT READS AS UNDER :- 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SEC TIONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING O FFICER IS NOT TO 14 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM O F THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISF IED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUI RED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASON ABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT SHARE & STOCK BROKE RS (P.) LTD. (SUPRA) TO THE FOLLOWING EFFECT:- 'THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON- TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S ECTION 14 A.' SO, EVEN FOR THE PRE-RULE8D PERIOD, WHENEVER THE IS SUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST O F ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WI LL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING O FFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPEND ITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFI CER IS TO ACCEPT THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DIS ALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE ASSESS ING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING TH E ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REA SONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. H E IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 16. RESPECTFULLY FOLLOWING THE ABOVE, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF CIT(A). NO REASONS HAVE BEEN STATED B Y THE LD. DR TO DEVIATE FROM THE ABOVE CONCLUSION. THUS, IN LIGHT OF THE ABOVE, GROUND RAISED BY THE REVENUE IS REJECTED. 15 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 17. GROUND NO.3 IS REGARDING DISALLOWANCE OF DEPREC ATION OF RS. 1,08,735/- ON COMPUTER ACCESSORIES. THE AO HAS HE LD THAT ASSESSEE IS ELIGIBLE FOR DEPRECIATION AT 15% AND NOT AT THE RAT E OF 60%. IT WAS STATED THAT THIS ISSUE IS COVERED BY THE DECISION OF CALCU TTA BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR 280 ITR 7 4 (AT) WHEREIN IT HAS BEEN HELD THAT, PRINTERS AND SCANNERS ARE INTEG RAL PART OF THE COMPUTER AND THEREFORE, THE SAME ARE ALSO ENTITLED FOR HIGHE R RATE OF DEPRECATION I.E. 60%. RELIANCE WAS ALSO PLACED IN THE FOLLOWING CAS ES: A) 25 SOT 184 (MUM) VENTURE INFOTEK GLOBAL (P) LTD. VS. DCIT B) 118 TTJ 652 (DEL) EXPEDITORS INTER. INDIA (P) LT D. VS. ADDL. CIT C) ITA NO. 1266/2010 (DEL) CIT V. BSES RAJDHANI POW ERS LTD. D) 11 TAXMANN.COM 417 (DEL) CIT VS. ORIENT CERAMICS & INDS. LTD. E) 118 TTJ 652 (DEL) EXPEDITORS INTERNATIONAL (INDI A) (P) LTD. VS. LD. CIT F) 136 TTJ 505 (DEL) BIRLASOFT INDIA LTD. VS DCIT I TAT 18. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. IN OUR OPINION, SINCE COMPUTER ACCESSORIES IN THE AFORESAID DECISIO NS HAVE BEEN HELD TO BE PART OF COMPUTER, THEREFORE THEY ARE ALSO ENTITL ED TO HIGHER RATE OF DEPRECATION. HENCE, THE FINDING OF LD. CIT(A) DELE TING THE DISALLOWANCE IS UPHELD AND GROUND RAISED BY THE REVENUE IS DISMI SSED. 19. NOW WE WILL DEAL WITH THE APPEAL IN ITA NO. 775 /DEL/2012 FOR THE ASSESSMENT YEAR 2008-09. 20. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER :- 16 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 1. WHETHER THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION MADE U/S 36(1)(II) AMOUNTI NG TO RS.6,47,27,888/- IGNORING THE FACT THAT (A) THE ASSESSEE COMPANY HAS PAID BONUS/EX-GRATIA ALLOWANCE OF SHRI ANSHUMAN MAGAZINE ONE OF ITS DIRE CTORS HAVING 24% SHAREHOLDING THE COMPANY. (B) AS PER THE PROVISIONS OF SECTION 36(1)(II) BONUS AN D OR COMMISSION PAID TO AN EMPLOYEE IS ALLOWABLE AS DEDU CTION IF AND ONLY IF IT IS NOT PAYABLE AS PROFIT OR DIVIDEND . 2. WHETHER THE LD. CIT (A) HAS ERRED ON FACTS AND I N LAW IN DELETING THE ADDITION MADE ON ACCOUNT OF DEPRECI ATION ON COMPUTER PERIPHERALS AMOUNTING TO RS.17,955/- IGNOR ING THE FACTS THAT AS PER THE I.T. RULES, ONLY THE COMPUTER S AND COMPUTER SOFTWARE ARE ELIGIBLE FOR DEPRECIATION OF 60% AND THE SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS. 3. WHETHER THE LD. CIT (A) HAS ERRED ON FACTS AND I N LAW IN DELETING THE ADDITION OF RS.27,22,514/- ON ACCOU NT OF RECRUITMENT & TRAINING EXPENSES IGNORING THE FACT T HAT THE ASSESSEE IS SET TO DERIVE LONG TERM BENEFITS FROM T HE RECRUITMENT AND TRAINING OF THE EMPLOYEES. THE EMP LOYEES ARE RECRUITED AND A MAJORITY OF THEM WORK FOR A LON G TIME THEREBY GIVING ENDURING BENEFIT TO THE EMPLOYER. 4. WHETHER THE LD. CIT (A) HAS ERRED ON FACTS AND I N LAW IN DELETING THE ADDITION ON ACCOUNT OF RENOVATION E XPENSES AMOUNTING TO RS.35,60,431/- IGNORING THE FACT THAT THE EXPENDITURE WAS INCURRED FOR RENOVATION OF CAPITAL ASSETS AND ACCORDINGLY THE SAME QUALIFIES AS CAPITAL EXPENDITU RE. 21. GROUND NO.1 IS REGARDING DISALLOWANCE OF RS. 6,47,2 7,888/- REPRESENTING COMMISSION PAID TO SHRI ANSHUMAN MAGAZ INE, DIRECTOR OF THE ASSESSEE COMPANY BY INVOKING SECTION 36(1)(II) OF THE ACT. 17 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 22. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. WE NOTICE THAT IDENTICAL DISALLOWANCE WAS MADE BY THE AO IN ORDER OF ASSESSMENT AND DELETED BY CIT(A) FOR ASSESSMENT YEAR 2007-08, WHIC H FINDING STANDS AFFIRMED ON APPEAL. THUS, IN LIGHT OF THE DISCUSSI ONS MADE IN ITA NO.709/DEL/2012, IT IS CLEAR THAT THE ISSUE IS SQUA RELY COVERED IN THIS APPEAL. THUS, THE GROUND RAISED BY THE REVENUE IN THIS INSTANT APPEAL IS REJECTED. 23. GROUND NO.2 IS REGARDING DISALLOWANCE OF DEPREC IATION OF RS. 17,995/- U/S 32 OF THE ACT ON COMPUTER ACCESSORIES. 24. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOT H THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. IN LIGHT OF THE DISCUSSIONS IN GROUND NO.3 IN ITA NO.709/DEL/2012, IT IS CLEAR THAT THE ISSUE IS SQUARELY COVERED. THUS, FOLLOWING THE SAI D REASONS, THE GROUND RAISED BY THE REVENUE IS REJECTED. 25. GROUND NO.3 IS REGARDING DISALLOWANCE OF RS. 27 ,22,514/- OUT OF RECRUITMENT AND TRAINING EXPENSES 26. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. THE CIT(A) HAS DELETED THE DISALLOWANCE FOR THE FOLLOWING REASONS STATED IN THE ORDER: 7.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY THE LD. AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. THE AO HAS HELD THAT 18 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 EXPENDITURE ON RECRUITMENT AND TRAINING OF EMPLOYEE S IS DEFERRED REVENUE EXPENDITURE ON THE BASIS THAT, OUT OF 752 E MPLOYEES RECRUITED IN THE YEAR UNDER CONSIDERATION 650 EMPLOYEES REMAI NED IN SERVICE IN THE SUCCEEDING YEARS. HE HOWEVER HAS NOT DISPUTED EITHER GENUINENESS OF THE EXPENDITURE OR THAT SUCH EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT COMPANY. THE BASIS ADOPTED IS CONTRARY TO JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. REPORT ED IN 228 CTR132. THE FACTS OF THE SAID CASE WERE THAT, ASSESSEE WAS ENGAGED IN THE BUSINESS OF GRANTING LOANS AND ADVANCE TO VARIOUS I NDUSTRIAL CONCERNS. FOR MEETING ITS LENDING REQUIREMENTS, THE ASSESSEE ALSO RAISES FOREIGN CURRENCY BORROWINGS. THE ASSESSEE SWAPPED SUCH FOR EIGN CURRENCY INTO INDIAN RUPEES IN ORDER TO AUGMENT ITS RUPEE RE SOURCES FOR MEETING ITS LENDING REQUIREMENTS. THE FOREIGN CURRENCIES B ORROWED WERE REPAYABLE TO THE FOREIGN LENDERS ON LATER DATES FAL LING WITHIN THE CURRENT PREVIOUS YEAR ENDING ON 31.3.1995 AND IN SOME CASES FALLING WITHIN THE CURRENT PREVIOUS YEAR ENDING ON 31.3.1995 AND IN SO ME CASES FALLING IN THE NEXT PREVIOUS YEAR RELEVANT TO SUBSEQUENT ASSES SMENT YEAR. FOR REPURCHASING THESE CURRENCIES ON THEIR RESPECTIVE D UE DATE OF REPAYMENT, THE ASSESSEE ENTERED INTO FORWARD CONTRA CTS WITH BANKS AS A SAFEGUARD AGAINST FOREIGN CURRENCY FLUCTUATIONS. T HE ASSESSEE RECOGNIZED THE DIFFERENCE BETWEEN THE FORWARD CONTR ACT RATE AND, THE EXCHANGE RATE ON THE DATE OF THE TRANSACTION. THE ASSESSEE THUS DETERMINED THE EXCHANGE DIFFERENCE OF RS. 8,172.85 LAKHS ARISING OUT OF REALIGNMENT OF FOREIGN CURRENCY BORROWINGS COVERED AGAINST FORWARD CONTRACTS AND TREATED THE SAME AS COST OF BORROWING S. IN ITS BOOKS OF ACCOUNT, A SUM OF RS. 1,466.65 LAKHS WAS CHARGED TO THE PROFIT AND LOSS ACCOUNT DURING THE YEAR ITSELF AND THE BALANCE OF R S. 67,06,33,245 WAS TREATED AS DEFERRED REVENUE EXPENDITURE, WHICH WAS TO BE CHARGED OVER THE BALANCE PERIOD OF FORWARD COVER WHICH SPILLED O VER INTO THE NEXT ASSESSMENT YEAR. HOWEVER, IN THE COMPUTATION OF IN COME, THE ASSESSEE CLAIMED THE SUM OF RS. 67,06,33,245/- AS DEDUCTIBLE FROM THE TOTAL INCOME. THE ASSESSING OFFICER DID NOT ALLOW THE AF ORESAID CLAIM OF RS. 67.06 CRORES ON THE GROUND THAT THE EXPENDITURE CLA IMED PERTAIN TO THE FUTURE PERIOD AND NOT TO EH PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IN AS MUCH AS, THE TRANSACTION IN QU ESTION WAS TO SAFEGUARD AGAINST FUTURE CURRENCY FLUCTUATIONS. TH E CIT(A) HELD THAT WHILE THE ASSESSING OFFICER WAS WRONG IN TREATING A PORTION OF THE EXPENDITURE, NOT RELATING TO THE CURRENT ASSESSMENT YEAR, AS CAPITAL EXPENDITURE BUT, AT THE SAME TIME, DISALLOWANCE WAS SUSTAINED ON THE GROUND THAT SUCH EXPENDITURE DID NOT RELATE TO THE CURRENT ASSESSMENT YEAR. ON APPEAL THE ITAT ALLOWED THE CLAIM OF EXPE NDITURE. THE CONCLUSION OF THE TRIBUNAL WAS ENDORSED BY THE HON BLE HIGH COURT AFTER CONSIDERING THE JUDGMENT OF APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT REPO RTED IN 225 ITR 802. IT WAS HELD AS UNDER: 20. WHEN WE APPLY THE AFORESAID PRINCIPLE TO THE FA CTS OF THIS CASE, THE IRRESISTIBLE CONCLUSION WOULD BE THAT THE ITAT RIGHTLY HELD THAT THE 19 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF RS. 67. 06 CRORES INCURRED IN CONNECTION WITH SWAPPING OF FOREIGN CURRENCY FUNDS IN THE YEAR UNDER CONSIDERATION, I.E., THE ASSESSMENT YEAR 1995-96. I T IS CLEAR FROM THE NATURE OF THE TRANSACTION, THAT THE ASSESSEE HAD RA ISED FOREIGN CURRENCY BORROWINGS AND SWAPPED SUCH FOREIGN CURRENCY INTO I NDIAN RUPEES IN ORDER TO AUGMENT ITS RUPEE RESOURCES FOR MEETING IT S LENDING REQUIREMENTS. THE FOREIGN CURRENCIES BORROWED WERE REPAYABLE TO THE FOREIGN LENDERS ON LATER DATES FALLING WITHIN THE C URRENT PREVIOUS YEAR ENDING ON 31-3-1995 AND IN SOME CASES FALLING IN TH E NEXT PREVIOUS YEAR RELEVANT TO SUBSEQUENT ASSESSMENT YEAR. IN ORD ER TO ENSURE THAT IT IS ABLE TO REPAY THE FOREIGN LENDERS IN THE FOREIGN CU RRENCY ON THEIR RESPECTIVE DUE DATES OF REPAYMENTS, THE ASSESSEE HA D ENTERED INTO FORWARD CONTRACTS AS A SAFEGUARD AGAINST FOREIGN CU RRENCY FLUCTUATIONS. IT IS THE DIFFERENCE BETWEEN THE FORWARD CONTRACT R ATE AND THE EXCHANGE RATE ON THE DATE OF TRANSACTION WHICH WAS CLAIMED A S DEDUCTION IN THAT VERY YEAR. THE FORWARD CONTRACT IS AN AGREEMENT BET WEEN TWO PARTIES, REQUIRING THE DELIVERY AT SOME SPECIFIED FUTURE DAT E OF A SPECIFIED AMOUNT OF FOREIGN CURRENCY BY ONE OF THE PARTIES, A GAINST PAYMENT IN DOMESTIC CURRENCY TO THE OTHER PARTY, AT THE PRICE AGREED UPON IN THE CONTRACT. THE RATE OF EXCHANGE APPLICABLE TO THE FO RWARD CONTRACT IS CALLED THE FORWARD EXCHANGE RATE AND THE MARKET FOR FORWARD TRANSACTIONS IS KNOWN AS THE FORWARD MARKET. THUS, IN CASE OF A FORWARD CONTRACT, ASSESSEE ENTERS INTO A LEGALLY BINDING, E NFORCEABLE CONTRACT FOR PURCHASE OF FOREIGN CURRENCY ON A FUTURE DATE AT TH E PRE-DETERMINED RATES. THE DATE AND THE RATE OF PURCHASE OF THE FOR EIGN CURRENCY ARE DECIDED AT THE TIME OF ENTERING INTO CONTRACT. THE DIFFERENCE BETWEEN THE FORWARD CONTRACT AND THE EXCHANGE RATE ON THE D ATE OF ENTERING INTO THE CONTRACT HAS TO BE RECOGNIZED AS INCOME OR EXPE NSES, WHICH IS ASCERTAINED AND DEFINITE, IN TERMS OF THE CONTRACT AND CANNOT BE REGARDED AS NOTIONAL OR CONTINGENT. IT IS CLEAR THA T THE SWAPPING COST INCURRED BY THE ASSESSEE IS CAPABLE OF DETERMINATIO N AT THE TIME OF EXECUTION OF THE FORWARD CONTRACT AND SUCH DETERMIN ATION DOES NOT GET POSTPONED. 21. THEREFORE, THE TEST LAID DOWN IN THE AFORESAID JUDGMENTS TO TREAT IT AS BUSINESS EXPENDITURE IN THE SAME YEAR, THOUGH PA RT OF THE LIABILITY OCCURS ON A FUTURE DATE, IS ALLOWABLE AS EXPENDITUR E IN THIS VERY YEAR. IT WAS A DEBT OWED BY THE ASSESSEE, WHICH ACCRUED ON T HE DATE OF ENTERING INTO THE FORWARD CONTRACT ITSELF, THOUGH AS PER THE CONTRACT, PART PAYMENT WAS TO BE MADE IN SUCCEEDING YEARS. THE EXP ENDITURE UNDER THE ACCRUAL SYSTEM OF ACCOUNTING HAD, THUS, CRYSTAL LIZED ON THE DATE OF THE CONTRACT. 7.7 IT WAS FURTHER HELD AS UNDER: 4. WHAT FOLLOWS FROM THE ABOVE IS THAT NORMALLY THE ORDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS, IF THE ASSESSEE C LAIMS THAT EXPENDITURE IN THAT YEAR, THE INCOME-TAX DEPARTMENT CANNOT DENY THE SAME. 20 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 HOWEVER, IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD THE EXPENDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF MATCHING CONCEPT IS SATISFIED, WHI CH UP TO NOW HAS BEEN RESTRICTED TO THE CASES OF DEBENTURES. 7.8 THE ABOVE JUDGMENT SQUARELY APPLIES TO THE FACT S OF THE CASE OF APPELLANT IN AS MUCH AS THE EXPENDITURE IS ON REVEN UE ACCOUNT AND HAS BEEN INCURRED IN THE YEAR UNDER CONSIDERATION AND H ENCE IS AN ELIGIBLE EXPENDITURE. IT IS NOT THE CASE OF THE ASSESSEE TH AT SUCH EXPENDITURE BE SPREAD OVER AND HENCE THE DISALLOWANCE IS CONTRARY TO ABOVE JUDGMENT. I MAY HERE ALSO MAKE A GAINFUL REFERENCE TO ANOTHER JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CI TI FINANCIAL CONSUMER FINANCE LTD. REPORTED IN 335 ITR 29 WHEREI N IT WAS HELD AS UNDER: THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS UNIMPR ESSED WITH THIS ARGUMENT AND FOUND THAT THE ASSESSEE WAS SPREADING OVER THE INCOME DURING THE NUMBER OF YEARS THAT THE FINANCING IS SP READ OVER AND, THEREFORE, EXPENDITURE ON THE AFORESAID COUNTS WAS REQUIRED TO BE SPREAD OVER. THE INCOME-TAX APPELLATE TRIBUNAL, HOW EVER, DENOUNCED THIS REASONING OF THE COMMISSIONER OF INCOME-TAX (A PPEALS) AND ACCEPTED THE PLEA THAT THE EXPENDITURE INCURRED HAD NOTHING TO DO WITH THE PERIOD OF LENGTH OF TIME AND HAD NO LINKAGE, WH ATSOEVER, TO ANY PERIOD, THE ENTIRE EXPENDITURE WAS ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED. THE TRIBUNAL HAS FURTHER HELD THAT THE EX PENDITURE IS INCURRED ONCE AND FOR ALL IN THE FORM OF STAMPING DUTY AS WE LL AS COMMISSION PAID TO THE DIRECT SELLING AGENTS FOR PROCURING THE LOAN ASSIGNMENTS AND IT IS NOT DEPENDENT UPON THE WORKING OUT OF THE AGR EEMENTS ULTIMATELY ENTERED INTO BETWEEN THE ASSESSEE AND THE CUSTOMERS . SINCE THE COMMISSION IS PAID TO THE DIRECT SELLING AGENTS, FO R THEIR SERVICES IN SOURCING HIRE IN THE YEAR IN WHICH THE LOAN IS DISB URSED, IT IS TO BE ALLOWED AS BUSINESS EXPENDITURE. THE TRIBUNAL, TO A RRIVE AT THIS FINDING TOOK INTO CONSIDERATION THE CLAUSES OF THE AGREEMEN T RELATING TO MODE OF PAYMENT OF CONSIDERATION AS WELL AS 'TERMINATION' C LAUSE IN THE AGREEMENT. THUS, AS THE ENTIRE EXPENDITURE WAS INCU RRED WHICH ADMITTEDLY HAVE A NEXUS WITH THE BUSINESS OF THE AS SESSEE, IT WAS TREATED AS BUSINESS EXPENDITURE ALLOWABLE UNDER SEC TION 37 OF THE ACT. THE TRIBUNAL ALSO RELIED UPON THE JUDGMENT OF THE S UPREME COURT IN THE CASES OF CALCUTTA COMPANY LTD. V. CIT[1959] 37 ITR 1 (SC), CITV. ASSOCIATED CEMENT COMPANIES LTD.[1988] 172 ITR 257 (SC), EMPIRE JUTE CO. LTD. V. CIT[1980] 124 ITR 1 ( SC) AND THE JUDGMENT OF THIS COURT IN CIT V. SALORA INTERNATION AL LTD.[2009] 308 ITR 199 (DELHI). 7.9 FOR THE REASONS STATED ABOVE, DISALLOWANCE MAD E OF RS. 27,22,514/- OUT OF TOTAL CLAIM OF EXPENDITURE OF RS . 34,03,142/- IS DELETED. GROUNDS RAISED BY THE APPELLANT ARE ALLOW ED. 21 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 27. FROM THE AFORESAID, IT IS APPARENT THAT DISALLO WANCE MADE HAS BEEN DELETED FOLLOWING THE JUDGMENT OF JURISDICTIONAL HI GH COURT IN THE CASE OF CIT V INDUSTRIAL FINANCE CORPORATION OF INDIA LTD. (SUPRA) AND CIT V CITI FINANCIAL CONSUMER FINANCE LTD. (SUPRA). FOLLOWING THE ABOVE PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) . NO REASONS HAVE BEEN STATED BY THE LD. DR IN THE COURSE OF HEARING TO ARRIVE AT ANOTHER CONCLUSION. THUS, IN LIGHT OF THE ABOVE, GROUND RA ISED BY THE REVENUE IS REJECTED. 28. GROUND NO.4 IS REGARDING DISALLOWANCE OF RS.35, 60,431/- OUT OF THE TOTAL VALUE OF EXPENDITURE OF RS.77,88,935/- REPRES ENTING EXPENDITURE INCURRED ON REPAIR AND MAINTENANCE OF BRANCH OFFICE S AT PUNE AND BANGALORE 29. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL PLACED ON THE R ECORD. THE CIT(A) HAS DELETED THE DISALLOWANCE FOR THE FOLLOWING REASONS STATED IN THE ORDER: 8.5 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, MATERIAL PLACED ON RECORD, ORDER OF ASSESSMENT AND SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE EXPENDITURE DISALLOW ED OF RS. 35,60,431/- COMPRISES OF RS. 30,00,000/- BEING REPA IR CHARGES OF THE OFFICE AT BANGALORE AND RS. 5,60,431/- BEING REPAIR CHARGES OF THE OFFICE AT PUNE. BOTH THE ABOVE EXPENDITURE ARE UND ISPUTEDLY FOR LEASED PREMISES AND AS SUCH ALLOWABILITY OF EXPENDITURE HA S TO BE EXAMINED IN TERMS OF SECTION 30(A)(I) WHICH PROVIDES AS UNDER: 30 IN RESPECT OF RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR PREMISES, USED FOR THE PURPOSE OF THE BUSINESS OR P ROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED- A) WHERE THE PREMISES ARE OCCUPIED BY THE ASSESSEE - 22 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 I) AS A TENANT THE RENT PAID FOR SUCH PREMISES; AN D FURTHER IF HE HAS UNDERTAKEN TO BEAR THE COST OF REPAIRS TO THE PREMI SES THE AMOUNT PAID ON ACCOUNT OF SUCH REPAIRS. 8.5 THE HONBLE DELHI HIGH COURT HAS INTERPRETED T HE ABOVE PROVISION AND HELD IN THE CASE OF CIT VS. HI LINE P ENS (P) LTD. 306 ITR 182 AS UNDER: AFTER HAVING CONSIDERED THE ARGUMENTS ADVANCED BY LEARNED COUNSEL FOR THE PARTIES AND EXAMINED THE DECISIONS CITED BY THEM, WE ARE OF THE VIEW THAT THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 30(A)(I) HAS BEEN RIGHTLY ALLOWED BY THE TRIBUNAL. THE DECISION S CITED BY LEARNED COUNSEL FOR THE REVENUE RELATE TO CURRENT REPAIRS . THERE IS A CLEAR DISTINCTION BETWEEN THE EXPRESSION REPAIRS AND TH E EXPRESSION CURRENT REPAIRS. IT IS OBVIOUS THAT THE WORD RE PAIRS IS MUCH WIDER THAN THE EXPRESSION CURRENT REPAIRS. THIS FACT H AS ALSO BEEN TAKEN NOTE OF BY THE SUPREME COURT IN THE CASE OF SARAVAN A SPINNING MILLS P. LTD. [2007] 293 ITR 201. THE EXPRESSION CURRENT R EPAIRS IS MUCH MORE RESTRICTED THAN THE WORD REPAIRS BECAUSE THE LATTER IS QUALIFIED BY THE WORD CURRENT. WHAT THE ASSESSEE HAS DONE IN THE PRESENT CASE HAS BEEN CONSTRUED TO BE REPAIRS BY THE TRIBUNAL AS A FINDING OF FACT. IT HAS NOT BROUGHT ABOUT ANY NEW ASSET AND MORE IMPORT ANTLY IT WAS NOT THE INTENTION OF THE ASSESSEE TO BRING ABOUT ANY NE W CAPITAL ASSET. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WERE TO WARDS REPAIRING THE PREMISES TAKEN ON LEASE SO AS TO MAKE IT MORE CONDU CTIVE TO ITS BUSINESS ACTIVITY. SUCH EXPENSES WOULD CLEARLY FAL L WITHIN THE EXPRESSION OF REPAIRS TO THE PREMISES AS APPEARING IN SECTION 30(A)(I). THE LEGISLATURE HAS MADE A DISTINCTION BETWEEN EXPE NSES INCURRED BY A TENANT FOR REPAIRS OF THE PREMISES AND EXPENSES I NCURRED BY A PERSON WHO IS NOT A TENANT TOWARDS CURRENT REPAIRS TO TH E PREMISES. THIS DISTINCTION WAS THAT A TENANT WOULD, BY THE VERY NA TURE OF HIS STATUS AS A TENANT, NOT UNDERTAKE EXPENDITURE AS WOULD ENDURE B EYOND HIS LIKELY PERIOD OF TENANCY OR CREATE A NEW ASSET. WHEREAS, AN OWNER MAY UNDERTAKE EXPENDITURE SO AS TO EVEN BRING ABOUT NEW ASSETS OF CAPITAL NATURE. IT WAS, THEREFORE, NECESSARY TO QUALIFY TH E EXPENDITURE ON REPAIRS. THE DEDUCTION WAS, THEREFORE, LIMITED TO EXPENDITURE ON CURRENT REPAIRS ONLY. IT FOLLOWS, THEREFORE, THA T THE COST OF REPAIRS THAT HAVE BEEN INCURRED BY A TENANT IN RESPECT OF SUCH P REMISES WOULD HAVE TO BE ALLOWED UNDER SECTION 30(A)(I). THE QUESTION OF DISALLOWING SUCH AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DEPRECIATION. IT HAS CLAIMED DEDUCTION UNDER SECTION 30(A)(I). ONCE THE ASSESSEES CLAIM FALLS WITHIN THAT PROVISION THERE IS NO QUESTION OF CONSIDERING THE QUESTION OF APPLICABILITY OF SECTION 32. CONSEQUEN TLY, THE QUESTION THAT HAS BEEN FRAMED IS ANSWERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. THE APPEAL IS DISMISSED. 8.6 ALSO IN THE CASE OF CIT VS. DELHI PRESS SAMACHA R PATRA (PRIVATE) LIMITED 322 ITR 590, IT WAS HELD AS UNDER : 23 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 WE FIND THAT THE TRIBUNAL HAS ADEQUATELY AND IN GR EAT DETAIL DEALT WITH THE ENTIRE ISSUE. THE ASSESSEE HAS A PRESS BUILDING WHICH IS USED FOR THE PURPOSES OF ITS BUSINESS WHICH INCLUDES THE PRINTIN G AND PUBLICATION OF MAGAZINES. THE SAID PRESS BUILDING WAS CONSTRUCTED IN THE YEAR 1975 AND HAS A BUILT UP AREA OF 130680 SQ. FEET. REPAIRS HAVE BEEN CARRIED OUT IN THE SAID BUILDING FROM TIME TO TIME. THE ASS ESSEE INCURRED A SUM OF RS. 35,51,245 IN THE YEAR IN QUESTION ON THE FOL LOWING WORKS: '(I) WATER PROOFING OF ROOFS WITH STONES. (II) REINFORCEMENT OF OLD BEAMS IN WHICH STEEL BARS AND PLASTERS WERE CORRODED. (III) RELAYING OF WORN OUT FLOORING OF PRINT SHOP/P ROCESS ROOMS, ETC. (IV) REPAIRING AND RELAYING/CARPETING OF ROADS RUNN ING INSIDE THE PRESS COMPOUND. (V) REPAIRING AND REPLACEMENT OF WORKERS WASH ROOMS , HAND WASH AREAS, DAMAGED GLASS, WOOD WORK. (VI) REPAIRING AND RELAYING BOUNDARY WALLS AND GATE S. (VII) REPAIRING AND RECONSTRUCTIONS OF COOLING TOWE RS AREA. (VIII) REPAIRING OF CEMENT SHEETS AND LAYING OF FIB ER COATED SHEETS TO PREVENT SEEPAGE, WATER AND AIR. (IX) REPAIRING OF AC CHILLER ROOMS AND PLANTS.' THE SAID SUM WAS CLAIMED BY THE ASSESSEE AS AN ALLO WABLE EXPENSE UNDER THE HEAD OF CURRENT REPAIRS AS DEFINED IN SEC TION 31 (I) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE SAID ACT') THE TRIBUNAL, AFTER EXAMINING THE FACTS OF THE CASE , CAME TO THE CONCLUSION THAT THE EXPENDITURE WAS INCURRED ON REP AIRS, REINFORCEMENT, REPLACEMENT OF DILAPIDATED BEAMS, PILLARS, WALLS, E TC., OF THE EXISTING PRESS BUILDING AND THAT THE ASSESSEE DID NOT BRING INTO EXISTENCE ANY NEW ASSET OVER AND ABOVE THE EXISTING BUILDING. THE TRIBUNAL ALSO OBSERVED THAT THE ASSESSEE HAD BEEN INCURRING SUCH EXPENDITURE IN THE PAST AS AND WHEN THE NEED AROSE AND IT WAS TOWARDS PRESERVING AND MAINTAINING THE EXISTING ASSET. THE TRIBUNAL ALSO N OTED SEVERAL DECISIONS OF THE SUPREME COURT INCLUDING THAT OF CI T V. SARAVANA SPINNING MILLS P. LTD. [2007] 293 ITR 201. THE TRIB UNAL ALSO NOTED THAT THE DEPARTMENT DOUBTED THE NATURE OF THE EXPEN DITURE CONSIDERING THE MAGNITUDE OF THE EXPENDITURE INCURRED IN THE CU RRENT YEAR COMPARED TO THE EXPENDITURE IN THE EARLIER YEARS. THE TRIBUN AL OBSERVED THAT THE AUTHORITIES BELOW HAD ACTED ON THE PRESUMPTION THAT A PART OF THE 24 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 BUILDING HAD BEEN DEMOLISHED AND THAT THE ITEMS HAD ACTUALLY BEEN USED FOR ERECTION OF A NEW STRUCTURE. HOWEVER, THE TRIBU NAL ALSO OBSERVED THAT FOR THIS CONCLUSION, THE DEPARTMENT COULD NOT BRING ON RECORD ANY EVIDENCE TO JUSTIFY THE STAND THAT THE EXPENDITURE WAS ACTUALLY FOR ERECTION OF A NEW BUILDING OR ASSET. THE TRIBUNAL A LSO NOTICED THAT THE CONTENTION OF THE ASSESSEE THAT IT HAD UNDERTAKEN M AJOR REPAIRS TO PUT THE DILAPIDATED COLUMNS, BEAMS, ROOFS, ETC., IN ITS ORIGINAL POSITION, WHICH HAD BECOME DANGEROUS AND UNSAFE FOR THE WORKM EN AND HINDERED THE NORMAL OPERATION OF THE BUSINESS, WAS NOT CONTROVERTED BY THE DEPARTMENTAL REPRESENTATIVE NOR HAD ANY EVIDENC E TO THE CONTRARY BEEN PRODUCED BEFORE THE TRIBUNAL OR THE AUTHORITIE S BELOW. IT WAS ULTIMATELY CONCLUDED THAT EMPLOYING THE TEST INDICA TED IN SARAVANA SPINNING MILLS P. LTD. [2007] 293 ITR 201 (SC), THE ASSESSEE HAD INCURRED THE SAID EXPENDITURE ONLY TO PRESERVE AND MAINTAIN THE EXISTING ASSET AND THAT THE EXPENDITURE WAS NOT OF A NATURE WHICH BROUGHT INTO BEING A NEW ASSET OR CREATED A NEW ADVANTAGE OF AN ENDURING NATURE. CONSEQUENTLY, THE TRIBUNAL DELETED THE DISALLOWANCE . 8.7 IN THE CASE OF CIT VS. IMPERIAL FASTNERS (P) LT D. IN ITA NO. 160/2012, THE ASSESSEE HAD DEBITED A SUM OF RS. 31, 54,844/- TOWARDS REPAIR AND MAINTENANCE. THE ASSESSING OFFICER OPIN ED THAT THE SAME WAS GIVING ENDURING BENEFIT TO THE ASSESSEE FOR A P ERIOD OF 10 YEARS I.E. THE PERIOD OF LEASE. HENCE ASSESSING OFFICER DISAL LOWED THE CLAIM BY TREATING THE ENTIRE EXPENSES AS INCOME ON CAPITAL A CCOUNT. LEARNED CIT(A) AFFIRMED THE AFORESAID ORDER OF THE ASSESSIN G OFFICER. HOWEVER THE TRIBUNAL HELD THAT THE EXPENDITURE WAS REVENUE IN NATURE SHOULD BE ALLOWED. THE HONBLE DELHI HIGH COURT IN THIS REGA RD, CONSIDERED THE ISSUE AND CONCLUDED AS UNDER: COUNSEL FOR THE REVENUE HAS NOT BEEN ABLE TO POINT OUT AND SHOW THAT THE AFORESAID EXPENSES WERE NOT INCURRED ON REPLACE MENT OF PARTS, LUBRICATION ETC. NO NEW ASSET CAME INTO EXISTENCE. THE EXPENDITURE WAS INCURRED TO MAKE THE PLANT OPERATIONAL AND FUNC TIONAL. 8.8 RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, IT I S HELD THAT, SINCE THE EXPENDITURE HAS BEEN INCURRED FOR CIVIL WORK FA LSE CEILING, BINDS, WIRING CABLES, EARTHING AT TWO LEASED PREMISES, WHI CH ARE NOT IN THE NATURE OF ANY PERMANENT ALTERATIONS/CHANGES BUT WER E INCURRED TO ENABLE THE APPELLANT TO CARRY ON ITS BUSINESS EFFIC IENTLY IS NOT A CAPITAL EXPENDITURE BUT REVENUE EXPENDITURE. HENCE, DISALL OWANCE MADE IS DELETED. 30. FROM THE AFORESAID, IT IS APPARENT THAT DISALLO WANCE MADE HAS BEEN DELETED FOLLOWING THE JUDGMENT OF JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS. HI LINE PENS (P) LTD. (SUPRA), CIT VS. DELH I PRESS SAMACHAR 25 ITA NO.709/DEL./2012 ITA NO.775/DEL./2013 PATRA (PRIVATE) LIMITED AND CIT VS. IMPERIAL FASTNE RS (P) LTD (SUPRA). FOLLOWING THE ABOVE PRECEDENT, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF CIT(A). NO REASONS HAVE BEEN STATED BY THE LD. DR IN THE COURSE OF HEARING TO ARRIVE AT ANOTHER CONCLUSION. THUS IN L IGHT OF THE ABOVE, GROUND RAISED BY THE REVENUE IS REJECTED. 31. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF MARCH, 2016. SD/- SD/- (PRASHANT MAHARISHI) (A.T. VARKEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 7 TH DAY OF MARCH, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.