TMI Blog2018 (8) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... these have been written-off is not clear from the record, In principle, while approving the submissions that the business losses written-off in ordinary course of business were allowable to assessee as business loss - Matter remanded back for verification. Addition u/s 40(a)(ia) for late deposit of TDS amount - Held that:- the amendment to Section 40(a)(ia) as made by Finance Act, 2010 was retrospective in nature and therefore the amount of TDS which is deposited late but before due date of filing of return of income enables the assessee to claim the deduction of the expenditure in the concerned year itself. - Decided in favor of assessee. Payment of compounding fee to RBI for default in obtaining approval form RBI for the purpose of FIPB and FEMA - Claim of expenditure u/s 37(1) - Held that:- the assessee applied for postSodexo facto approval of the same from FIPB which was granted subject to compounding of the same by Reserve Bank of India [RBI]. The aforesaid lapse, in the opinion of assessee, was merely procedural defect in nature and was in the nature of condonation subject to pecuniary payment and therefore, not hit by the explanation to Section 37(1). - Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, the findings conclusion of the Tribunal in first round is extracted below for ready reference:- 8. In the P L account filed along with its return of income, a sum of ₹ 3,91,699/- was debited by the assessee company on account of deferred revenue expenditure. In the computation of total income, a deduction of ₹ 15,66,797/- however, was claimed by it on account of deferred revenue expenditure. While justifying the claim for the said deduction, it was submitted on behalf of the assessee company before the A.O. that catering services were being provided by it to the clients through the space made available in the client's premises. It was submitted that in order to make the said space suitable for the purpose, expenditure was incurred on renovation and refurbishing of the area by way of changing the flooring, interiors, fittings etc. including construction of platforms and closets. It was contended that out of the expenditure so incurred, the amount spent on acquisition of requisite equipment s as well as movable furniture was duly capitalized whereas the expenditure incurred on renovation and refurbishing had been debited to deferred revenue expenditure ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure in the books of account was clearly covered by Explanation to section 32(1) and the same therefore was rightly treated by the A.O. as of capital nature. He, however, held that the said expenditure to the extent of ₹ 1,78,797/- being incurred by the assessee company for repairs of chairs and tables was liable to be treated as revenue expenditure as claimed by the assessee company. He therefore allowed the assessee s claim to that extent and disallowed the balance amount of ₹ 13,88,000/- treating the same as capital expenditure. 10. The learned counsel for the assessee, at the very outset, invited our attention to the details of expenditure in question placed at page No.20 to 23 of his paper book. He also invited our attention to the sample for lease placed at page No. 71 to 80 of his paper book to point out that the assessee company as lessee was not to make any structural addition or alteration to the demised premises. As further pointed by him, the assessee was alt required to put fully, mechanized kitchen equipments as well as furniture in the dining space and also to invest in food counters and other related infrastructure in the dining space. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delines laid down in several judicial pronouncements. In so far the reliance of the Ld. CIT(A) on Explanation 1 to section 32(1) while confirming the disallowance is concerned, we agree with the contention raised by the learned counsel for the assessee that any expenditure which is otherwise is of revenue nature cannot be treated as capital expenditure by applying the said Explanation and there is no such intention either explicit or even implicit in the provisions of the said Explanation inserted in the statute w.e.f. 01.04.89. The intention of the legislature to introduce the same is very clear that it any capital expenditure is incurred by the assessee for the purpose of business or profession on the building taken on lease, he shall be treated as deemed owner thereof in order to make him satisfy the condition of ownership for the purpose of claiming depreciation. 14. The First and foremost issue that is required to be decided thus is whether, the expenditure in question is basically of capital nature or revenue nature and the same has to be essentially decided irrespective of whether the assessee is the owner or tenant of the building. As already observed, the details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttings electrical items etc. are definitely of capital expenditure. To strengthen this view reliance is placed on the decision of hon ble Madras High Court in case of CIT Vs. Madura Coats 205 Taxman 357, wherein it was held that extensive repair/renovation carried out by the assessee on rented building being capital in nature could not be allowed u/s 37(1) of the I.T.Act. Similarly, hon ble Mumbai Tribunal in case of Living Room Designers Vs. ITO 34 SOT 34 has held that the assessee has taken a shop on lease license basis and incurred a total expenditure of ₹ 12,51,352/- for renovation of shop and claimed it as revenue expenditure. However, the A.O. has treated it as capital expenditure. The order of the A.O. was confirmed by CIT(A) and the tribunal has upheld the order of the CIT(A). From the perusal of the details submitted before the A.O. and before me, it is observed that the whole expenditure is not of capital nature because, the repairs and maintenance like painting, polishing, water-proofing, electrical repairs etc. are of the nature of revenue expenditure but purchase of tiles, granite, aluminium doors, air-conditioners, furniture fitting, gas-line etc. are natura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haracter of the expenditure and each claim has to be examined keeping in view the nature of expenditure and with reference to the statutory provisions. Further, there is no concept of deferred revenue expenditure under Income Tax Act. The expenditure is either capital expenditure which entitles the assessee to claim depreciation there-against or revenue expenditure allowable at one go in the relevant year irrespective of the fact that the benefit therefrom could accrue to the assessee over a number of years. In the above backdrop, we proceed to dispose-off the appeals. 3.2 The material on record reveal that the impugned expenditure has been incurred by the assessee for its project / site situated at Tidal park- Chennai, L T Infocity-Hyderabad Fortis Heart Institute-Mohali the lease period of which ranges between 3 to 9 years. As evident from details of expenditure placed on page numbers 99 to 101, the expenditure primarily pertains to construction of working slabs / counters for various purposes, teakwood partitions, stainless steel shutters, pipelines, purchase of tables, chairs, centrifugal blowers and fresh air inlets, duct fabrication, S.S.Hoods, POP ceilings, elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the quantum assessment order shall stand reversed. The Ld. AO is directed to verify the fact that deferred revenue expenditure debited in the subsequent year has been disallowed in the computation of income for those years, the requisite documentary evidences of which shall be provided by the assessee. The appeal stands allowed in terms of our above order. Cross Appeals for AY 2009-10 5.1 The cross appeals for AY 2009-10 contest the order of Ld. Commissioner of Income Tax (Appeals)-18, Mumbai [CIT(A)], Appeal No.CIT(A)-18/ACIT-8(3)/IT-171/2011-12 dated 31/08/2012. The assessee has been assessed u/s 143(3) at ₹ 617.17 Lacs after certain additions / disallowance as against returned income of ₹ 426.13 Lacs e-filed by the assessee on 12/07/2010. The following additions / disallowances made in the quantum assessment order are the subject matter of cross appeals:- No. Nature of Additions Amount (Rs.) 1. Disallowance u/s 14A read with Rule 8D 10,73,908/- Partly Allowed by Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of TDS on amount of ₹ 9,35,581/- and therefore the same was not allowable to the assessee in terms of Section 40(a)(ia). Another addition of ₹ 20,91,550/- was made u/s 40(a)(ia) for short deduction of TDS against contractual / professional / rental payments made by the assessee during impugned AY. 7. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 31/08/2012 where partial relief was granted by Ld. first appellate authority against disallowance made u/s 14A by directing the Ld. AO to pick up correct figures of interest expenditure. The disallowance u/s 37(1) read with explanation thereof was confirmed by Ld. CIT(A) whereas addition on account of advances written-off was deleted by placing reliance on certain judicial pronouncements. The disallowance made u/s 40(a)(ia) was deleted by making following observations:- 5.2. I have considered the submissions of the Ld. Counsel and it is noted that as far as the disallowance of ₹ 9,35,581/- is concerned, the same is squarely covered by the decision of Hon ble ITAT Mumbai in the case of Shri Piyush C. Mehta vs. ACIT (2012) 52 SOT 27 (AT). Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income during the impugned AY and the same is squarely covered by the following judicial pronouncements where it has been held that no disallowance u/s 14A is called for in case no income has been earned by the assessee during the year under question:- No. Case Law Judicial Authority Citation 1. CIT Vs. Holcim India P. Ltd. Hon ble Delhi High Court 111 DTR 158 2. Cheminvest Ltd Vs CIT Hon ble Delhi High Court 378 ITR 33 3. PCIT Vs IL FS Energy Dev. Co. Ltd. Hon ble Delhi High Court 84 Taxmann.com 186 4. PCIT Vs Empire Package Pvt. Ltd. Hon ble Punjab Haryana High Court 81 Taxmann.com 108 5. CIT Vs Lakhani Marketing Inc. Hon ble Punjab Haryana High Court 2015 4 ITR-OL 246 6. CIT Vs Hero Cycles Ltd Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n two account i.e. late payment of TDS and short deduction of TDS. So far as the late payment of TDS is concerned, we find that the matter stood covered in assessee s favour by the judgment of Hon ble Delhi High Court rendered in CIT Vs. Naresh Kumar [362 ITR 256] . It is evident from perusal of Tax Audit Report that although the TDS has been deposited by the assessee beyond due date but it is well before the due date of filing of return of income by the assessee. The facts of the issue are squarely covered by the ratio of cited decision of Hon ble Delhi High Court where it has been held that the provisions of Section 40(a)(ia) were to be interpreted liberally and equitably keeping in mind the object and purpose behind the same so that the assessee do not suffer unintended and deleterious consequences and therefore the amendment to Section 40(a)(ia) as made by Finance Act, 2010 was retrospective in nature and therefore the amount of TDS which is deposited late but before due date of filing of return of income enables the assessee to claim the deduction of the expenditure in the concerned year itself. Respectfully following the same, we confirm the stand of Ld. CIT(A) in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary, 2016 had the occasion to consider the binding nature of both the decisions and ultimately under para 8 of its order held as under: - 8. Before us the Ld. Counsel has pointed out that there is a divergent view also taken by the Hon'ble Kerala High Court in the case of P V M Memorial Hospital (supra). But such a decision may not have a persuasive value as it is quite a trite law that if there are two conflicting decisions of non- Hon'ble Jurisdictional High Courts, then the decision in favour of the assessee should be taken. We agree with such a contention raised by the assessee that, if there are two conflicting decisions and in absence of any Hon'ble Jurisdictional High Court, decision one favourable to the assessee should be preferred and this proposition has been long back settled by the Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra). Thus, we hold that, no disallowance under section 40(a)(ia) should be made on short deduction of tax under different or wrong provision of the section. Similarly, Visakhapatnam Bench of this Tribunal in the case of P.S.R. Associate v. ACIT [IT Appeal No. 345 (Viz) of 2013, dated 6-1-2016] v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y error or infirmity in the CIT(A)'s order, hence, we inclined to uphold the order of the CIT(A) and reject the ground raised by the Revenue. 16. No contrary decision of this Tribunal or of the Hon'ble Jurisdictional High Court or Hon'ble Supreme Court was placed before us. We, therefore, are bound to follow the decision of the Coordinate Bench. Therefore, we do not find any infirmity or illegality in the order of the CIT(A) in holding that provisions of Section 40(a)(ia) will not be applicable in the case of the assessee as there is nothing in the section to treat the assessee as defaulter where there is shortfall in deduction of TDS. We, therefore, affirm the CIT(A) and dismiss the grounds taken by the Revenue in both the appeals. Respectfully following the same, we confirm the stand of Ld. CIT(A). Accordingly, this ground of revenue s appeal stand dismissed. Finally, the revenue s appeal stand partly allowed for statistical purposes. 12.1 Now, we take up the remaining ground in assessee s appeal which is concerned with claim u/s 37(1) for ₹ 18 Lacs. Facts as emanating from the records are that the assessee paid aforesaid sum of ₹ 18 Lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the duration of the contravention till February, 2009 is three years approximately. In terms of Section 13 of the FEMA, penalty is leviable upto thrice the sum involved in such contravention upon adjudication. However, taking into account of the relevant facts and the post-facto approval granted by the FIPB. The RBI has levied a penalty of ₹ 18,00,000/- by taking a lenient view in the matter. In view of the above discussions, the amount has been paid for contravention of the FEMA provisions, the compounding fees are paid for regularizing procedural lapse. It is not in the nature of an offense for infraction of law-and is against public policy as prohibited by law-hence hit by Explanation to Section 37 and is therefore dismissed. Hence this ground of appeal is dismissed. Aggrieved, the assessee is in further appeal before us. 12.2 We have heard the submissions made by respective representatives before us, in this regard. The basic facts are not in dispute. The assessee has paid compounding fees of ₹ 18 Lacs to RBI for getting post-facto approval, which otherwise was required to be obtained in earlier point of time. We have perused the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (Notification No. FEMA.20/20000-RB, hereinafter). 2. The relevant facts of the case are as follows: The applicant is a private limited company incorporated under the Companies Act, 1956 on October 31, 1994. The applicant is engaged in the business of providing food and hospitality services, integrated facilities management and vending solutions. The applicant has submitted that they have made downstream investment as detailed below: Month of investment Investee company Investment (in Rs.) March 2001 Skyline Caterers Pvt.Ltd 100,000 February 2006 Unisol Infra Services Pvt.Ltd 25,155,000 Total 25,255,000 The applicant had not obtained prior and specific approval from the FIPB unit, Department of Economic Affairs, Ministry of Finance, Government of India for undertaking operating cum holding company activities, as they did not have authorization to undertake investment activities in terms of the extant guid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now sought for is contravention of the FEMA regulations issued in terms of paragraph 2(1) of Schedule 1 to Notification No FEMA.20/2000-RB. The contravention has occurred since the applicant was established under specific approval of the FIPB unit and earlier approvals obtained by the applicant from the FIPB have not authorized the applicant to undertake investment activities and make downstream investment without specific and prior approval of FIPB in terms of FDI policy, Press Note 9 (1999 series), Therefore the applicant has contravened provisions of Press Note 9 (1999 series) and thereby paragraph 2(1) of Schedule 1 to Notification No. FEMA.20/2000-RB. 6. The remaining issue is determination of the sum involved in the contravention given the facts and circumstances of the case. The applicant has made submission during the personal hearing and vide their letters dated May 14 and June 29, 2009 that the sum involved in the contravention may be considered on the basis of average value of shares. Further, the applicant has also submitted that the quantum relevant for the compounding of the contravention is the amount of downstream investment by the company in Skyline and U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.3 The perusal of RBI permission reveal that the assessee could be saddled with huge penalty running in to crores, which has been compounding for ₹ 18 Lacs. This fact leads us to conclude that the impugned amount was not penal in nature but it was more of compensatory in nature. At this juncture, we deem it fit to reproduce the explanation to Section 37(1) as inserted by Finance (No.2) Act, 1998 retrospectively with effect from 01/04/1962 and the same read as under:- Explanation - For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. According to the explanation, expenditure incurred for any purpose which is an offence or which is prohibited by law, is not entitled for deduction. The Ld. Senior Counsel has raised an alternative argument that the expenditure could not be disallowed since the payment is to a government agency and the same is not prohibited by any law. The same, in our o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06. The Reserve Bank of India after taking note of the arrangement noted that the lender was not the recognized lender in terms of guidelines for ECB under the provisions of FEMA Act, 1999. In view thereof, Reserve Bank of India approved pre- payment of all three ECBs raised by the assessee. However, proceedings were initiated against the assessee for noncompliance with the Rules/Regulations/Directions under FEMA Act, 1999. Under the Reserve Bank of India guidelines, a Circular is issued by Reserve Bank of India on compounding of contraventions under FEMA Act, 1999. The said Master Circular on compounding of contraventions under FEMA Act, 1999 is placed at pages 7 to 11 of the Paper Book. Under clause 3.5, it recognizes three types of contraventions, which are as under:- a. whether the contravention is technical and/or minor in nature and needs only an administrative cautionary advise; b. whether the contravention is serious in nature and warrants compounding of the contravention; and c. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework. 10. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was asked to pay compounding fees of ₹ 45 lakhs. In other words, the compounding fees charged to the assessee was not in the form of any penalty for committing an offence but was compensatory amount charged to the assessee for failing to comply with provisions of FEMA Act. It may be clarified herein that the provisions of FEMA Act, 1999 itself provides a measure to be taken by the authorities by charging compounding fees in respect of contravention, if any. Such a compounding fees charged to the assessee being compensatory in nature as is evident from the fact that though the amount to be charged could be up to ₹ 30.25 crores, the assessee was asked to pay sum of ₹ 45 lakhs in order to meet the ends of justice, established the case of assessee that the same was not in the form of penalty. Where the amount paid by the assessee is compensatory payment and was not by way of any penalty levied under the provisions of FEMA, then such amount is to be allowed as deduction in the hands of assessee. 12. Now, coming to the stand of authorities below that such payment is covered by Explanation to section 37(1) of the Act. We find no merit in the said s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee and delete the impugned additions of ₹ 18 Lacs as confirmed by Ld. first appellate authority. This ground stand allowed for statistical purposes. 13. Resultantly, the assessee s appeal stand allowed in terms of our above order whereas the revenue s appeal stand partly allowed for statistical purposes. Conclusion 14. All the appeal stands disposed-off in the following manner:- No. Appeal Number Appeal By AY Status 1. ITA/304/Mum/2014 Assessee 2002-03 Allowed 2. ITA/305/Mum/2014 Assessee 2003-04 Allowed 3. ITA/7042/Mum/2012 Assessee 2009-10 Allowed 4. ITA/6864/Mum/2012 Revenue 2009-10 Partly Allowed for statistical purposes Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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