M/s. AVM Productions, CHENNAI V. ACIT, CHENNAI

ITA 983/CHNY/2012

• Counselvise Citation: 98321714 RSA 2012
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R VISWANATHAN
• Keywords: Depreciation; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.982 & 983/MDS/2012 ASST. YEAR : 2007-08 & 2008-09 M/S. AVM PRODUCTIONS NO.38, ARCOT ROAD, VADAPALANI, CHENNAI 600 034. PAN : AADFA 1418R (APPELLANT) V. THE ADDL . COMMISSIONER OF INCOME TAX, MEDIA RANGE, CHENNAI. (RESPONDENT) APPELLANT BY : SHRI R. VISWANATHAN, CA RESPONDENT BY : SHRI M.N. MURTHY NAIK, JCIT DATE OF HEARING : 22 AUGUST 2012 DATE OF PRONOUNCEMENT : SEPTEMBER 2012 O R D E R PER BENCH : THESE TWO ASSESSEES APPEALS ARE DIRECTED AGAINST T HE ORDERS OF CIT(APPEALS)-VI, CHENNAI DATED 13.2.2012 IN ITA NO.229/2009-10 AND ITA NO.559/2010-11 FOR THE ASST. YEAR 2007-08 AND 2008-09 RESPECTIVELY IN PROCEEDINGS UNDER SEC.143(3) OF THE INCOME TAX ACT 1961, IN SHORT 'THE ACT'. ITA NO.982 & 983/MDS/12 2 2. WE FIND THAT THE GROUNDS RAISED IN THE APPEALS INVOLVE IDENTICAL ISSUES. THE AUTHORISED REPRESENTATIVE HAS MADE STA TEMENT TO THIS EFFECT AS WELL. HENCE, FOR THE SAKE OF CONVENIENCE AND BREVITY WE A RE TAKING UP ITA NO.982/MDS/2012. 3. IN ITS GROUNDS OF APPEAL, THE ASSESSEE HAS RAIS ED VARIOUS PLEAS THAT THE CIT(APPEALS) HAS ERRED IN UPHOLDING DISALLOWANC E OF DEPRECIATION ON COMPENSATION OF F 3 CRORES PAID BY THE ASSESSEE. T HE REVENUE, ON THE OTHER HAND, HAD SUPPORTED THE ORDER OF THE CIT(APPEALS). THEREFORE, WE FRAME THE FOLLOWING ISSUE FOR OUR ADJUDICATION IN CORRECT PER SPECTIVE :- WHETHER THE CIT(APPEALS) HAS ERRED IN CONFIRMING D ISALLOWANCE OF DEPRECIATION ON COMPENSATION ALLEGEDLY PAID BY THE ASSESSEE TOWARDS EASEMENT RIGHTS AND CRYSTALIZED ALONG WITH THE COST OF CONSTRUCTION OF ITS OFFICE BLOCK? 4. BRIEF FACTS OF THE CASE AS NOTICED FROM THE REC ORD ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF PRODU CTION, DISTRIBUTION AND EXPLOITATION OF CINE FEATURE FILMS ETC. ON 29.10.2 007,, IT FILED ITS RETURN ADMITTING INCOME OF F 58,28,592/-. IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ADDED AN AMOUNT OF F 3 CRORES QUA BUILDING BLOCK ALLEGED TO HAVE BEEN PAID TO ONE M. BALASUBRAMANIAN (HEREIN AFTER CALLED MB). THE ASSESSEES EXPLANATION OFFERED IN SUPPORT THEREOF W AS THAT THE SAID MB HAD FILED A ITA NO.982 & 983/MDS/12 3 WRIT PETITION BEFORE THE HONBLE MADRAS HIGH COURT AS HE OBJECTED TO THE CONSTRUCTION RAISED BY THE ASSESSE AND OBTAINED STA Y AGAINST THE CONSTRUCTION. PER ASSESSEE, HE WITHDREW FROM THE SAID PROCEEDINGS ONL Y AFTER RECEIVING AN AMOUNT OF F 3 CRORES FROM THE ASSESSEE. SO, THE ASSESSEE S VERSION WAS THAT WITHOUT PAYMENT OF THE SAME AMOUNT OF F 3 CRORES ITS CONSTR UCTION COULD NOT HAVE BEEN RAISED. THE ASSESSING OFFICER WAS NOT CONVINCED AS SESSEES REASONING. THEREFORE, HE HELD THAT SINCE DEPRECIATION ON THE S AID AMOUNT HAD NOT LED TO ACQUISITION OF ANY RIGHT ETC. IN ASSESSEES FAVOUR, SO, THE SAME WAS NOT ALLOWABLE. ACCORDINGLY, IN ASSESSMENT ORDER DATED 30.12.2009, AN AMOUNT OF F 15 LAKHS WAS DISALLOWED AND ADDED IN THE ASSESSEES TOTAL INCOME . 5. THE ASSESSEE PREFERRED APPEAL WHEREIN THE CIT(A PPEALS) HAS ALSO CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICE R (SUPRA)BY HOLDING AS UNDER:- CAREFUL STUDY OF THE SAID COMPROMISE DEED REVEAL T HAT THE SAID AGREEMENT IS BETWEEN SHRI M. SARAVANAN AND SHRI M. BALASUBRAMANIAN IN CONNECTION WITH CONSTRUCTION OF PROPERTY. THEREFORE, THE CONTRACT OF COMPROMISE N LAW IS BE TWEEN TWO INDIVIDUALS WITH REGARD TO THEIR RIGHTS CONSEQUENT TO SEPARATION OF THEIR JOINT BUSINESS AND RELATED DELINEATION OF THE IR RESPECTIVE PROPERTIES AND ITS DEPLOYMENT/ENJOYMENT. THE APPEL LANT IS A PARTNERSHIP FIRM AND A DISTINCT ENTITY ASSESSABLE U NDER THE ACT HAS ONLY UTILIZED THE LAND PROVIDED BY ONE OF ITS PARTN ER FOR PUTTING UP BUILDING WHICH TRIGGERED DISPUTE CONSEQUENT TO WHIC H THE OWNER ITA NO.982 & 983/MDS/12 4 OF THE LAND AND PARTNER OF THE APPELLANT FIRM ENTER ED INTO COMPROMISE AGREEMENT WITH THE LITIGANT TO FACILITAT E PUTTING UP THE BUILDING BY THE APPELLANT FIRM. THEREFORE, THE EN TIRE COMPENSATION PAYMENT MADE AS PART OF COMPROMISE AGR EEMENT IS AN EXPENDITURE INCURRED BY SHRI M. BALASUBRAMANIAN IN HIS INDIVIDUAL CAPACITY AND IT NATURALLY GETS ADDED TO THE COST OF THE LAND. UNDER NO STRETCH OF IMAGINATION, THIS EXPEND ITURE COULD BE CHARGED TO BUILDING ACCOUNT AS THE SAID BUILDING IS OWNED BY THE FIRM AND EVEN IF THE COMPENSATION AMOUNT IS FUNDED BY THE FIRM, SHRI M. SARAVANANS ACCOUNT IS REQUIRED TO BE DEBI TED WITH THIS SUM AS EXPENDITURE PAID ON BEHALF OF HIM. IN VIEW OF THE ABOVE, I HOLD THAT THE SAID COMPENSATION PAID BY SHRI M. SAR AVANAN IS A CONTRACTUAL LIABILITY IN HIS PERSONAL CAPACITY, THE SAID AMOUNT IN NO WAY CAN BE RELATABLE TO THE BUILDING CONSTRUCTED BY THE FIRM WHICH IS A DISTINCT ENTITY ASSESSABLE UNDER THE ACT AND H ENCE THE DEPRECIATION CLAIM ON THE SAID COMPENSATION IS NOT ALLOWABLE AND THE ORDER OF THE A.O. ON THIS GROUND IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 6. THEREFORE, THE ASSESSEE IS AGGRIEVED. 7. BEFORE US, THE AUTHORISED REPRESENTATIVE HAS RE ITERATED VARIOUS SUBMISSIONS RAISED IN THE ASSESSEES GROUNDS OF APP EAL BY HIGHLIGHTING THE FACTUAL POSITION AS STATED HEREIN ABOVE. HE HAS ALSO REFER RED TO CASE LAWS IE. (1955) 27 ITR 34(SC) ASSAM BENGAL CEMENT V. UNION OF INDIA ; (1997) 93 TAXMAN 157 KARNATAKA HIGH COURT CIT V. MOTOR INDUSTRIES; (2004 ) 135 TAXMAN 12 MADRAS HIGH COURT CIT V. ASSOCIATED ELECTRICAL AGENCIES RE GARDING ALLOWABILITY OF THE ITA NO.982 & 983/MDS/12 5 AMOUNT IN QUESTION ON THE BASIS OF COMMERCIAL EXPED IENCY. FURTHER, HE HAS ARGUED THAT EVEN IF THE EXPENDITURE INCURRED IS UNA UTHORIZED, THE SAME IS ALSO LIABLE TO BE ACCEPTED BY CITING HONBLE RAJASTHAN H IGH COURT JUDGMENT REPORTED AS (1995) 212 ITR 293. ACCORDINGLY, HE PRAYED FOR ACCEPTANCE OF THE APPEAL. 8. THE REVENUE HAS DRAWN SUPPORT FROM CIT(APPEALS) S ORDER AND ALSO REFERRED TO THE COMPROMISE IN LIEU OF WHICH THE ASS ESSEE HAD ALLEGEDLY MADE THE PAYMENT TO MB AND CONTENDED THAT THE ASSESSEE WAS N OT EVEN A PARTY IN THE SAME. THEREFORE, IT CANNOT DRAW ANY BENEFIT FROM T HE TERMS OF COMPROMISE. IN THE LIGHT OF THESE SUBMISSIONS HE ALSO RELIED ON CA SE LAW (1967) 65 ITR 377 CIT V. ALPS THEATRE AND SUBMITTED THAT THE ALLEGED DEPRECI ATION COULD NOT BE ALLOWED IN RESPECT OF LAND AND PRAYED FOR REJECTION OF THE APP EAL. 9. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND AL SO PERUSED THE RELEVANT FINDINGS, CONTENTS OF PAPER BOOK REFERRED AS WELL AS THE CASE LAW (SUPRA). IT TRANSPIRES THAT MB HAD INSTITUTED A WRIT PETITI ON AGAINST ONE M. SARAVANAN (MS) IN THE HONBLE MADRAS HIGH COURT ALLEGING THEREIN T HAT THE CONSTRUCTION SOUGHT TO BE RAISED ON THE LAND IN QUESTION WAS UNAUTHORISED. WE FIND THAT IN THE ARRAY OF RESPONDENTS IN THE PETITION, THE ASSESSEES NAME NO WHERE FIGURES OUT. THE OTHER RESPONDENTS IN THE WRIT PETITION ARE COMMISSIONER, CORPORATION OF CHENNAI AND MEMBER SECRETARY, CHENNAI METROPOLITAN DEVELOPMENT AUTHORITY. SINCE COPY OF INJUNCTION ORDER DATED 27.4.2006 IS ALSO AVAILABLE ON RECORD, WE FURTHER OBSERVE ITA NO.982 & 983/MDS/12 6 THAT THE ASSESSEE IS NOWHERE MENTIONED IN THE SAME. THEREAFTER, THE WRIT PETITION WAS WITHDRAWN ON 8.2.2007 (COPY OF THE ABOVE SAID P ROCEEDINGS ARE AVAILABLE AT PAGE 4 TO 8 OF THE PAPER BOOK). THEREAFTER, NB AND MS (SUPRA) ENTERED INTO A COMPROMISE ON 25.1.2007 WHEREIN MS PAID F 3 CRORES TO MB THROUGH BANKERS CHEQUE. THE MEMORANDUM OF COMPROMISE WHICH IS AVAI LABLE AT PAGE 21 TO 24 OF THE PAPER BOOK READS AS UNDER :- NOW THIS MEMORANDUM OF COMPROMISE WITNESSETH AS UND ER : (1) THE MS GROUP HEREBY AGREES TO COMPENSATE THE MB GRO UP FOR THEIR LOSS OF EASMENTARY RIGHTS ON ACCOUNT OF THE M S GROUP PUTTING UP OF A CONSTRUCTION ADJOINING THE PREMISES AND TO GIVE UP THEIR EASEMENTARY RIGHTS, IF ANY, TO ENABLE THE MS GROUP TO OBTAIN NECESSARY SANCTIONS/APPROVALS FROM THE STATU TORY AUTHORITIES IN RESPECT OF THE SAID CONSTRUCTION. T HE SAID COMPENSATION HAS BEEN MUTUALLY AGREED TO BE A SUM O F F3,00,00,000 (RUPEES THREE CRORES ONLY). (2) THE PARTY OF SECOND PART AGREES TO RECEIVE THE AFOR ESAID SUM OF RUPEES THREE CRORES IN FULL QUITS OF ALL CLAIMS OF THE MB GROUP AGAINST THE MS GROUP IN THE CONSTRUCTION PUT UP BY THEM. THE MB GROUP CONSEQUENTLY HEREBY EXPRESSES AND CONF IRM THEIR NO OBJECTION TO THE MS GROUP IN OBTAINING NECESSA RY SANCTIONS APPROVALS FROM THE STATUTORY AUTHORITIES AND THE GO VERNMENT OF TAMILNADU IN RESPECT OF THE SUBJECT CONSTRUCTION AT THE B & C BLOCK (DELINEATED IN RED IN THE PLAN ATTACHED TO TH E ANNEXURE TO THIS AGREEMENT). ITA NO.982 & 983/MDS/12 7 (3) THE AFORESAID COMPENSATION OF F3.00 CRORES HAS THIS DAY BEEN TENDERED BY MS GROUP VIDE BANKERS CHEQUE NO.871255 DATED 24 TH JANUARY 2007 DRAWN IN FAVOUR OF M. BALASUBRAMANIAN ON INDIAN OVERSEAS BANK, KODAMBAKKAM, CHENNAI 600 024 AND MB GROUP HEREBY AGREES TO UNCONDITIONALLY WITHDRAW THE W.P. NO.5670/2006 AS WELL AS THE CONTEMPT PETITION NO.52 9/2006 PRESENTLY PENDING ON THE FILE OF THE HONBLE MADRAS HIGH COURT. THE AFORESAID DEMAND DRAFT HAS THIS DAY BEEN HANDED OVER TO THE MEDIATOR MR. L. SURESH OF ANANDA FILMS, WHO WIL L HAND OVER THE SAME TO MB GROUP ON RECEIVING THE ORDERS IN ORI GINAL FROM THE HONBLE HIGH COURT OF MADRAS IN CONFIRMATION TH AT THE ABOVE MENTIONED W.P. NO.5670/2006 AND CONTEMPT PETITION NO.526/2006 HAVE BEEN UNCONDITIONALLY WITHDRAWN. AFTER PERUSING THE TERMS AND CONDITIONS OF PAYMENT AS WELL AS MODE OF PAYMENT, IT BECOMES CRYSTAL CLEAR THAT MS HAD MADE THE PAYM ENT THROUGH CHEQUE AND THE ASSESSEES NAME NOWHERE FINDS MENTION. THEREFORE, ONCE IT DOES NOT FIND ANY MENTION QUA THE PROOF OF PAYMENT IN THE TERMS OF CO MPROMISE NOTE, WE ARE UNABLE TO ACCEPT THE CONTENTION THAT THE ASSESSEE H AD MADE ANY PAYMENT AT ALL TO MB. HENCE, WE ARE CONSTRAINED TO HOLD THAT NO PAYM ENT HAD BEEN MADE BY THE ASSESSEE TO MB. ITA NO.982 & 983/MDS/12 8 10. WITHOUT PREJUDICE TO OUR ABOVE CONCLUSION REGA RDING PAYMENT MADE BY THE ASSESSE, EVEN IF WE ACCEPT THE CLAIM THAT IT HAD MADE THE PAYMENT, THEN ALSO, IN OUR OPINION, THERE IS NO COMMERCIAL EXPEDI ENCY INVOLVED, BECAUSE AS ALREADY STATED THE WRIT PETITION WAS WITHDRAWN MUCH BEFORE THE TERMS OF COMPROMISE(SUPRA). ONCE THE PETITION WAS WITHDRAWN , THE INJUNCTION GRANTED BY THE HIGH COURT IMMEDIATELY STOOD VACATED. THEREAFT ER, THERE IS NO JUSTIFICATION AS TO WHY THE ASSESSEE IN COMMERCIAL EXPEDIENCY (WHICH IS ORDINARY BUSINESS PRUDENCE) WOULD HAVE MADE PAYMENT OF F 3 CRORES TO MB THAT TOO AFTER A PERIOD OF ABOUT 7 MONTHS FROM THE DATE OF WITHDRAWAL OF TH E PETITION. HENCE, WE ALSO HOLD THAT THERE WAS NO COMMERCIAL EXPEDIENCY INVOLV ED IN ASSESSEE MAKING THE ALLEGED PAYMENT IN QUESTION. AS FAR AS CASE LAW CI TED BY THE ASSESSEE IS CONCERNED, WE NOTICE THAT THE SAID PRECEDENT OF HON BLE SUPREME COURT AS WELL AS VARIOUS HONBLE HIGH COURTS DO NOT HELP THE ASSESSE ES CONTENTIONS BEING DISTINGUISHABLE IN VIEW OF OUR DISCUSSION AS ABOVE. THEREFORE, WE SEE NO REASON TO INTERFERE IN THE WELL REASONED FINDINGS OF THE C IT(APPEALS). ACCORDINGLY, THE APPEAL IS DISMISSED. ITA 983/MDS/2012 : 11. SINCE BOTH PARTIES ARE AD IDEM WITH OUR FINDI NGS HEREIN ABOVE QUA ITA NO.982/MDS/2012 (SUPRA) ALSO COVER THE SOLE ISSUE INVOLVED IN THIS CASE, WE DISMISS THIS APPEAL. ITA NO.982 & 983/MDS/12 9 12. ORDER PRONOUNCED IN THE OPEN COURT AFTER HEARI NG ON WEDNESDAY, THE 5TH DAY OF SEPTEMBER 2012. SD/- SD/- ( N.S. SAINI ) (S.S. GODARA ) ACCOUNTAT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 05 TH SEPTEMBER 2012 JLS. COPY TO :- (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R. (6) GUARD FILE