TORRENT ENERGY LIMITED (NOW MERGED WITH TORRENT POWER LIMITED),AHMEDABAD V. THE ACIT CIRCLE 4(1)(1), AHMEDABAD

ITA 160/AHD/2023

AI Insights

The case involves Torrent Energy Limited, which acquired leasehold rights over land for setting up electricity distribution infrastructure and paid a one-time lease premium. Initially, the lease premium was not claimed as an expense, but later, during the assessment proceedings, the company sought to treat it as a revenue expenditure. The Assessing Officer disallowed the claim citing procedural inadmissibility, referencing the Supreme Court's decision in Goetze (India) Ltd. v. CIT. The CIT(A) upheld this decision, leading to the company's appeal to the Tribunal. The Tribunal found that the lower authorities had not followed its earlier directions to examine the claim on merits and thus remanded the matter back to the CIT(A) for a detailed examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361152 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: Goetze (India) Ltd. v. CIT, CIT v. Prithvi Brokers & Shareholders (P) Ltd., DCIT v. Sun Pharmaceuticals Industries Ltd., Torrent Power Ltd. in ITA No. 1577/Ahd/2015
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE DEDUCTION OF; TRUPTI PATEL
• Assessee Lawyers: VARTIKCHOKSHI
• Keywords: Set aside; Capital asset; Revised return; Revenue expenditure; Depreciation; TDS
• Section: 143(3); 142(1); 37(1); 40(a)(ia); 139(5)

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘D’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.160/Ahd/2023 Asstt.Year : 2011-12 Torrent Energy Limited (Now Merged with Torrent Power Ltd) Samanvay, 600, Tapovan Ambawadi, Ahmedabad PAN : AACCT 8570 B The ACIT, Cir.4(1)(1) Ahmedabad. (Applicant) (Responent) Assessee by : Shri Vartik Chokshi, AR Revenue by : Smt.Trupti Patel, Sr.DR सुनवाई क तारीख/Date of Hearing : 08/05/2025 घोषणा क तारीख /Date of Pronouncement: 21/05/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal by the assessee is directed against the order dated 24.01.2023 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as \"Ld. CIT(A) (NFAC)\"], under section 250 read with section 251 of the Income Tax Act, 1961[hereinafter referred to as “the Act”] for the Assessment Year 2011–12, whereby the Ld. CIT(A) upheld the disallowance made by the Assessing Officer, National Faceless Assessment Centre (NFAC), Delhi [hereinafter referred to as “Assessing Office (NFAC)”], vide assessment order dated 13.09.2021 passed under section 143(3) read with section 254 of the Act. ITA No.160/Ahd/2023 2 Facts of the Case 2. The brief facts of the case, as emanating from the records, are that the assessee is a company engaged in the business of generation and distribution of electricity. During the relevant previous year, the assessee had acquired leasehold rights over land admeasuring 65,434.33 square meters situated at Dahej SEZ for setting up its electricity distribution infrastructure. The lease agreement was executed with Dahej SEZ Limited for a tenure of 60 years (including renewable period of 30 years), and the assessee paid a one-time lease premium of Rs.5,56,19,181/- during the previous year relevant to assessment year 2011–12. The said expenditure was not claimed in the return of income originally filed by the assessee. However, during the course of assessment proceedings under section 143(3), the assessee filed a written submission dated 07.11.2011 before the then Assessing Officer claiming depreciation on the leasehold rights under section 32(1)(ii) of the Act, treating the rights as “intangible assets.” Subsequently, to avoid protracted litigation, the assessee chose not to press the claim for depreciation but alternatively contended that the lease premium should be allowed as revenue expenditure under section 37(1) of the Act. 3. The Assessing Officer, in the original round of assessment, disallowed the claim on the ground that the same was a fresh claim made otherwise than by way of a revised return under section 139(5). Relying upon the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC)], the claim was rejected as procedurally inadmissible. ITA No.160/Ahd/2023 3 The assessee preferred an appeal before the CIT(A) - 8, Ahmedabad, who, vide order dated 12.03.2015, accepted the alternative plea of allowability of lease premium as revenue expenditure and granted relief relying on the decision of the Hon’ble Bombay High Court in CIT v. Prithvi Brokers & Shareholders (P) Ltd. [(2012) 23 taxmann.com 23]. However, the claim for depreciation was rejected on the basis of the ITAT’s decision in the group concern Torrent Power Ltd. in ITA Nos. 3133 & 3331/Ahd/2008 for A.Y. 2005–06. 4. Revenue preferred an appeal before this Co-ordinate Bench. The Coordinate Bench, in its order dated 19.03.2019 in ITA No. 1562/AHD/2015, after noting the judgment of the Hon’ble Gujarat High Court in DCIT v. Sun Pharmaceuticals Industries Ltd. [227 CTR 206], held that the allowability of lease premium as revenue expenditure was not properly examined by the Assessing Officer or the CIT(A) with reference to the binding precedent. Accordingly, the Co-ordinate Bench set aside the issue to the file of the Assessing Officer with a specific direction to re-examine the matter on merits in the light of the judicial precedent in case of Sun Pharmaceuticals Industries Ltd. (Supra). 5. Pursuant to the aforesaid remand, the Assessing Officer (NFAC) issued notice under section 142(1) dated 03.08.2021 and called upon the assessee to furnish the original return, computation, lease agreement, comparative chart with earlier years, and justification of its claim. In response, the assessee submitted detailed written submissions dated 10.08.2021 and 31.08.2021 enclosing copies of the lease agreement with Dahej SEZ, the comparative chart vis-à-vis Sun Pharma, factual narration of capital structure and purpose of the ITA No.160/Ahd/2023 4 lease and reiterated that the lease premium was revenue in nature and squarely covered by the jurisdictional High Court's decision. 6. The assessee also submitted a request for video conferencing through the Income-tax portal on 31.08.2021, in accordance with clause (ix) of section 144B(6) of the Act. However, the AO did not issue any draft order or notice of proposed variation as required under section 144B(1)(xvi) and (xxiii), nor was the request for video hearing responded to. 7. Thereafter, the Assessing Officer (NFAC) proceeded to pass the final assessment order dated 13.09.2021 under section 143(3) r.w.s. 254, rejecting the assessee’s claim solely on the basis of non-filing of a revised return, once again invoking the decision in Goetze (India) Ltd. (supra). No examination of the factual or legal merits of the claim was undertaken, nor was the direction of this Co-ordinate Bench duly followed. The total income was assessed as returned (loss of Rs. 1,79,399/-) without allowing the claim for revenue deduction of Rs.5,56,19,181/-. The Assessing Officer (NFAC), while passing the order under section 143(3) read with section 254 on 13.09.2021, did not carry out the mandate laid down by the Co-ordinate Bench. Instead of evaluating the claim on merits in accordance with the direction, the AO merely reiterated the objection that the claim was not made through a revised return, relying on the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC)]. No discussion whatsoever was made by the AO on the nature of the lease premium, the clauses of the sub-lease deed, or the applicability of Sun Pharmaceuticals. In essence, the direction of the Co-ordinate Bench was not followed. ITA No.160/Ahd/2023 5 8. The assessee carried the matter in appeal before the Ld. CIT(A) and raised legal and factual grounds challenging the assessment order. It was contended that the AO failed to comply with the specific direction of the Co-ordinate Bench to adjudicate the matter on merits and the rejection of the claim merely on procedural grounds was impermissible in light of the binding remand. It was also contended that the assessment order was void ab initio due to violation of section 144B inasmuch as no draft order or video hearing was granted despite request. 9. In the appeal before the CIT(A), the assessee specifically raised the grievance that the AO failed to adjudicate the issue on merits, contrary to the binding remand direction. However, the Ld. CIT(A) also failed to address this grievance and instead reiterated the same reasoning as the AO, again relying on Goetze (India) Ltd. to hold that the claim could not be entertained in the absence of a revised return under section 139(5). The CIT(A) did not adjudicate the merits of the claim, did not examine the lease deed, and did not deal with the judicial precedents cited by the assessee including the binding decision in Sun Pharmaceuticals. Thus, the impugned appellate order is also contrary to the direction of this Co-ordinate Bench and amounts to non-compliance with a binding remand. 10. Aggrieved by the order of CIT(A), the assessee is now in appeal before us raising following grounds: 1. In law and in facts and circumstances of the case, Ld. CIT (Appeals-NFAC) erred in law and on facts in confirming action of Assessing Officer (NFAC) of not allowing additional claim of Rs.5,56,19,181/- in respect of leasehold expense as revenue expenditure, despite the specific direction issued by the Hon'ble ITAT vide its order dated 19.03.2019 in ITA No 1562/AHD/2015 in this regard. ITA No.160/Ahd/2023 6 2. In law and in facts and circumstances of the case, Ld. CIT(Appeals-NFAC) ought to have nullified the action of assessing officer (NFAC) as the same is contrary to the express direction of Hon'ble ITAT and further ought to have allowed the claim of appellant on merit of the case in view of the direction of Hon'ble ITAT vide its order dated 19.03.2019 in ITA No 1562/AHD/2015. 3. In law and in facts and circumstances of the case, Ld. CIT(Appeals- NFAC) and Ld AO (NFAC) both have grossly erred in not following the express direction of Hon'ble ITAT vide its order dated 19.03.2019 in ITA No 1562/AHD/2015 and without following such direction disallowed the additional claim of assessee, which is ultra-vires and against the law. 11. During the course of hearing before us the learned Authorised Representative (AR) for the assessee submitted that the impugned assessment order dated 13.09.2021 passed by the Assessing Officer (NFAC) under section 143(3) read with section 254 of the Act is patently in disregard of the binding directions issued by the Co- ordinate Bench in ITA No. 1562/Ahd/2015 dated 19.03.2019. It was submitted that in para 11.1 and 11.2 of its order the Bench had categorically restored the matter to the file of the AO for the limited purpose of examining the allowability of lease premium of Rs.5,56,19,181/- as revenue expenditure in light of the judgment of the Hon’ble Gujarat High Court in the case of DCIT v. Sun Pharmaceutical Industries Ltd. [(2010) 227 CTR 206 (Guj)]. Thus, the scope of remand was confined only to re-examination on merits, and not to entertain jurisdictional objections with respect to admissibility of additional claim. The AR submitted that the assessee had already raised the said claim before the CIT(A) in the original round of proceedings, and the CIT(A) had duly admitted the claim on merits relying upon the Hon’ble Bombay High Court judgment in CIT v. Prithvi Brokers & Shareholders [(2012) 23 taxmann.com 23 (Bom)], which held that a new legal claim can be considered at the appellate stage even without filing a revised return. The Department had not preferred any appeal before the Tribunal against this finding, and therefore, it had attained finality. ITA No.160/Ahd/2023 7 12. The AR pointed out that the Co-ordinate Bench did not disturb this finding but merely restored the matter to the AO to verify the allowability of the lease premium on merits as the CIT(A) had not called for the remand report from the AO. The AR contended that the AO, instead of adjudicating the issue on merits as directed, declined the claim by solely relying on the judgment of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC)], holding that a fresh claim cannot be admitted during assessment proceedings unless made through a revised return under section 139(5). However, it was submitted that this reliance is wholly misplaced in the present case, as the issue of admissibility had already been adjudicated in assessee’s favour by the CIT(A) and not disturbed by the Co-ordinate Bench. The limited mandate before the AO was to re-examine the claim on merits, not to reopen the admissibility issue. It was further submitted that the Supreme Court in Goetze (India) Ltd. itself clarified that the decision was limited to the powers of the AO and did not restrict the jurisdiction of appellate authorities. 13. The Ld. Authorised Representative placed on record a copy of the Lease Agreement dated 29.03.2011 entered into between the assessee company, Torrent Energy Ltd., and Dahej SEZ Ltd. (DSL), a company promoted by GIDC. The AR submitted that the key terms of the lease clearly establish that the assessee acquired leasehold rights in land admeasuring 65,434.33 square meters at a one-time premium of Rs.5,56,19,181/-, calculated at Rs.850 per square meter. The annual lease rent was nominal at Rs. 1/- per square meter, with a provision for escalation every five years. The lease was granted for an initial period of 30 years, extendable for another 30 years, aggregating to 60 years. The AR drew attention to the relevant clauses of the lease agreement and submitted that as per Clause 1.2 and Clause 1.3 (Page ITA No.160/Ahd/2023 8 5 of the Lease Deed), leasehold rights were granted solely for the purpose of enabling the assessee to carry out its industrial activities in SEZ, and ownership of the land continued to vest with GIDC, as recorded on Page 3 of the Lease Deed. It was contended that the lease was in the nature of a commercial arrangement for use of land and did not result in transfer of capital asset or acquisition of ownership. The Ld. AR submitted a comparative chart (as per internal page 2 of the additional note dated 08.05.2025) juxtaposing the key terms of the present lease with those in the case of DCIT v. Sun Pharmaceuticals Industries Ltd., reported in 227 CTR 206 (Guj), to establish that the factual matrix was materially similar. Both cases involved long-term leases for industrial land, with one-time non- refundable lease premium and nominal recurring rent, and in both cases the lessor (GIDC) retained ownership of the land. Therefore, the AR contended that the conclusion drawn by the Ld. CIT(A) in the impugned order—distinguishing the facts from Sun Pharmaceuticals—is based on minor or immaterial variations and ignores the substantive equivalence in the legal and commercial characteristics of the lease. The Ld. AR also submitted that the payment made to DSL is not subject to TDS under Chapter XVII-B of the Act since DSL is located in a notified SEZ and is exempt from income tax. A Form 26A certificate from the Chartered Accountant was submitted in support, and copies of the same were placed at pages 52 to 56 of Paper Book Vol. 2. It was thus submitted that there was no default under section 40(a)(ia) or section 201 of the Act and the entire lease premium paid should be allowed as revenue expenditure under section 37(1). Lastly, reliance was also placed on the decision of ITAT Ahmedabad in the case of Torrent Power Ltd. in ITA No. 1577/Ahd/2015, wherein on identical facts and same lease structure, the coordinate bench had allowed the assessee’s claim for ITA No.160/Ahd/2023 9 deduction of lease premium as revenue expenditure. The AR pointed out that Torrent Energy Ltd. subsequently merged into Torrent Power Ltd., and therefore, the ITAT’s decision in the group case is binding and fully applicable. It was submitted that the earlier order of ITAT Ahmedabad in ITA No. 1562/Ahd/2015 had already settled the legal issue by holding that the claim of the assessee is covered by the judgment of the Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals (supra), and the matter was restored to the AO merely for limited factual verification. With regard to judicial finality, the AR also drew attention to the fact that the SLP filed by the Revenue in the case of Sun Pharmaceuticals Industries Ltd. against the Gujarat High Court judgment reported in 227 CTR 206 had been dismissed by the Hon’ble Supreme Court, and therefore, the decision has attained finality. It was thus urged that the directions of the Hon’ble ITAT in the earlier round should be enforced in letter and spirit, and the disallowance sustained by the Ld. CIT(A) be deleted in full. 14. In response, the Ld. Departmental Representative supported the findings of the Assessing Officer and the Commissioner of Income-tax (Appeals). It was submitted that the disallowance of the assessee’s claim was in accordance with the binding decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC)], wherein it has been held that no new claim can be entertained by the Assessing Officer unless it is made through a revised return under section 139(5) of the Act. The DR also supported the conclusion drawn by the CIT(A) at Pages 25 and 26 of the appellate order that the facts of the assessee’s case were distinguishable from the case of Sun Pharmaceuticals Industries Ltd. (227 CTR 206), ITA No.160/Ahd/2023 10 particularly in light of the terms of the lease deed, and that the payment in question was capital in nature. 15. We have carefully considered the rival submissions, perused the material available on record including the sub-lease deed, the earlier order of the Co-ordinate Bench dated 19.03.2019 in ITA No. 1562/Ahd/2015, and the impugned assessment and appellate orders. The controversy before us pertains to the allowability of Rs.5,56,19,181/- claimed by the assessee as revenue expenditure, being the one-time lease premium paid to Dahej SEZ Ltd. for acquiring leasehold rights in land situated within the notified SEZ area. In the earlier round, this very issue was set aside by the Coordinate Bench to the file of the Assessing Officer with a specific and limited direction to examine the allowability of such lease premium on merits, in light of the binding judgment of the Hon’ble Gujarat High Court in Sun Pharmaceuticals Industries Ltd. [(2009) 227 CTR 206 (Guj)]. The Co- ordinate Bench did not leave the question open or remand the matter in general terms; rather, it laid down a precise mandate requiring evaluation of the nature and purpose of the payment. 16. Despite the above, it is apparent from the assessment order passed by the Assessing Officer under section 143(3) read with section 254 that no such exercise on merits was undertaken. The AO confined himself once again to procedural objections, reiterating that the claim could not be entertained in the absence of a revised return under section 139(5), and relying solely on Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC)]. This approach not only violates the express direction of the Co-ordinate Bench but also renders the remand otiose. ITA No.160/Ahd/2023 11 17. The first appellate authority, i.e. the Ld. CIT(A), NFAC, in the impugned order dated 24.01.2023, has also not dealt with the allowability of the lease premium on merits. Although acknowledging the remand direction of the Co-ordinate Bench, the Ld. CIT(A) again invoked Goetze (India) Ltd. to hold that the claim could not be entertained for want of a revised return and concluded that the AO was justified in his action. Not a single paragraph in the CIT(A)’s order addresses the lease deed terms, the business context of the expenditure, or the binding ratio of Sun Pharmaceuticals. No effort was made to undertake the factual or legal adjudication directed by the Co-ordinate Bench. In essence, the direction issued by this Co- ordinate Bench in its earlier order has remained unimplemented. 18. It is well settled that orders passed in defiance of remand directions are liable to be set aside. It is equally well settled that while the Assessing Officer may be constrained by the procedural limitations laid down in Goetze (India) Ltd., the appellate authorities are not so fettered. Once the Tribunal had restored the matter with an express direction to examine the allowability on merits, it was incumbent upon the AO and, subsequently, the CIT(A), to discharge that mandate in substance and in spirit. 19. The Tribunal, being the final fact-finding authority under the Income Tax Act, is empowered to adjudicate issues on merits. However, in the present case, we find that detailed examination of facts—particularly the interpretation of the lease deed, the business necessity of the expenditure, and its treatment in the books—has not been undertaken by the lower authorities. While the assessee has placed on record several documents and judicial precedents including Sun Pharmaceuticals (supra), Empire Jute Co. Ltd. v. CIT [1980] 124 ITA No.160/Ahd/2023 12 ITR 1 (SC) and CIT v. Madras Auto Service P. Ltd.[1998] 233 ITR468 (SC) which were relied and followed in case of Sun Pharmaceuticals, and the decision of Co-ordinate Bench in Torrent Power Ltd.(supra), we are of the view that a fair and complete assessment of these materials, in the first instance, must be carried out by the fact-finding authority as mandated by the earlier order of this Co-ordinate Bench. 20. Accordingly, and with great reluctance, we are constrained to restore the matter once again. We set aside the impugned appellate order dated 24.01.2023 and direct the Ld. CIT(A), NFAC, to adjudicate the allowability of the assessee’s claim for lease premium of Rs. 5,56,19,181/- on merits, in accordance with the direction issued earlier by this Co-ordinate Bench in ITA No. 1562/Ahd/2015 dated 19.03.2019. The CIT(A) shall examine the terms of the sub-lease deed, the nature and purpose of the expenditure, and the judicial precedents relied upon by the assessee including Sun Pharmaceuticals Industries Ltd. (supra), Empire Jute Co. Ltd. [(1980) 124 ITR 1 (SC)], and Madras Auto Service (P) Ltd. [(1998) 233 ITR 468 (SC)]. Adequate opportunity of hearing shall be afforded to the assessee, and a reasoned speaking order shall be passed in accordance with law. 21. Before parting, we deem it necessary to place on record our serious concern over the manner in which the lower authorities—both the Assessing Officer and the Ld. CIT(A), NFAC—have failed to comply with the specific and binding directions issued by this Co-ordinate Bench in its earlier order dated 19.03.2019. The Co-ordinate Bench had restored the matter to the file of the AO with a clear and limited mandate to examine the allowability of the lease premium on merits in light of the decision of the Hon’ble Gujarat High Court in Sun ITA No.160/Ahd/2023 13 Pharmaceuticals Industries Ltd. (227 CTR 206). However, the AO, instead of carrying out the said direction, mechanically reiterated a procedural objection relying on Goetze (India) Ltd. (284 ITR 323), without undertaking any discussion on the merits of the claim. The Ld. CIT(A), NFAC, in turn, while acknowledging the remand, has once again dismissed the claim solely on the same procedural ground, completely sidestepping the Co-ordinate Bench’s directive. Such disregard for appellate directions not only defeats the purpose of remand but reflects a serious lapse in the discharge of statutory functions. 22. This kind of conduct, particularly in the context of faceless assessments and appeals, undermines the credibility and effectiveness of the faceless scheme which is intended to improve transparency, efficiency, and judicious application of law. We are constrained to observe that the appellate machinery cannot function meaningfully if binding remand directions of the Tribunal are rendered nugatory by perfunctory reiteration of objections already adjudicated. 23. Accordingly, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Court on 21st May, 2025 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 21/05/2025 vk* "