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TMI Blog2018 (8) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 3.88 Lacs as claimed by the assessee. The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax, Circle -8(3), Mumbai [AO] u/s 143(3) read with section 254 of the Income Tax Act, 1961 on 31/12/2010.The assessee is in second round of appeal before us since the matter in the first round was remitted back by the Tribunal to the file of Ld. AO for re-adjudication vide ITA No.1880/Mum/2008 dated 30/07/2009. The sole ground raised in the appeal reads as under: - 1.1 On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT(A)] erred in holding, on an ad-hoc basis that a sum of Rs. 10,00,000/- out of the total amount spend by the appellant on repairs, renovation and re-furbishing the premises to make it suitable for the purposes of its business be treated as Revenue Expenditure and balance sum of Rs. 3,88,000/- be treated as Capital Expenditure. 1.2 The learned CIT(A) and the learned Assessing Officer failed to appreciate the explanation/details furnished by the appellant in respect of deduction for above referred expenditure and the rule of law laid down by various Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es was claimed to be revenue expenditure fully deductible while computing its business income by the assessee company. 9. The A.O. did not accept the contentions raised on behalf of the assessee before him and rejecting the same, he proceeded to hold that the assessee company itself having treated the expenditure in question as deferred revenue expenditure, the same was allowable only to the extent of Rs. 3,91,699/- being the amount debited in the P&L account. The matter was carried before the Ld. CIT(A) who required the assessee company to explain as to why Explanation to section 32(1) should not be invoked to treat the expenditure in question incurred on renovation and refurbishing of the premises as capital expenditure. In reply, it was submitted on behalf of the assessee company before the Id. CIT(A) that Explanation to Section 32(1) was not applicable to the expenditure in question incurred by it having regard to its very nature. It was also contended that the said Explanation has been introduced to give benefit of depreciation to the assessee taking premises on lease or rent and the same therefore could not be invoked to treat any expenditure of capital nature which was ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t they could be taken away after expiry of lease. He submitted that the said expenditure in any case had resulted in enduring benefit to the assessee and the same therefore was of capital nature as rightly treated by the Revenue Authorities. 12. In the rejoinder, the learned counsel for the assessee submitted that even though the period of lease was 9 years in one case as pointed by the Ld. D.R., the said lease as finally terminated within 3 years. He also submitted that the assessee only can judge as to whether any item of furniture could be removed or not. He further submitted that Explanation to section 32(1) does not make any expenditure to be of capital nature which Otherwise is of revenue nature. 13. We have considered the rival submissions and also perused the relevant material on record. It is observed that the expenditure in question incurred by the assessee mainly on renovation and refurnishing of the premises taken on lease was treated by the A.O. as capital expenditure relying entirely on the accounting treatment given by the assessee company to the said expenditure as, deferred, revenue expenditure., it is a well settled position that the accounting treatment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Finally, a net addition of Rs. 12,49,200/- has been made in the hands of the assessee. Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 05/11/2013 where Ld. CIT(A), after considering the factual matrix and remand report furnished by Ld. AO, has concluded the matter in the following manner:- From the perusal of the remand report and submissions of the appellant, it is observed that the deferred revenue expenditure was incurred by the appellant on civil & structural works including fencing & grill work water-proofing, purchase of tiles, purchase of granite, ceiling, painting etc. The expenditure was also incurred on purchase of furniture & fitting, air-conditioners, gas-linings, electrical equipment, aluminium door partitions and other electrical items purchased. The first objection of the appellant is that it was a rented premises and it has not got any enduring benefit, therefore, the expenditure may be treated as of revenue nature. To deal with this objection of the AR, it is held that the question of ownership of the premises is not relevant but the nature of expenditure has to be seen. It is true that the whole ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the fact that assessee was engaged in providing catering / canteen services to various entities in the impugned AY and was operating from the premises / space provided by these entities and was not the owner of the premises. With the support of documents placed in the paper-book, it has been submitted that the impugned expenditure has been incurred to facilitate business operations. Reliance has been placed on several judicial pronouncements to support the submissions. Per Contra, Ld. Departmental Representative, Shri V.Justin, submitted that the stand of Ld. CIT(A) was fair on factual matrix since expenditure incurred by the assessee were composite in nature. 3.1 We have carefully heard the rival contentions and perused relevant material on record including cited case laws. The undisputed fact is that the assessee is not the owner of the premises for which such expenditure has been incurred by the assessee. Secondly, the genuineness of the expenditure has not been doubted by the revenue rather the dispute is related to the fact that whether the impugned expenditure was allowable to the assessee at one go as revenue expenditure or it was capital expenditure eligible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he depreciation allowed against the same in the quantum assessment order shall stand reversed. The Ld. AO is directed to verify the fact that the deferred expenditure as claimed by the assessee in subsequent years has been disallowed in the computation of income for those years. The assessee is directed to provide requisite documentary evidences in this regard. The assessee's appeal stands allowed in terms of our above order. Assessee's Appeal for AY 2003-04, ITA No. 305/Mum/2014 4. In the captioned appeal for AY 2003-04, the assessee is similarly aggrieved by disallowance of deferred revenue expenditure to the extent of Rs. 69,91,986/-. In this year, the assessee has incurred expenditure for its site situated at ITPL-Bangalore & Mumbai Central, IRCTC, the lease period of which ranges between 3 to 9 years. The order of Ld. first appellate authority is common order for AY 2002-03 & 2003-04. The details of expenditure as placed on page numbers 86 & 87 reveal that the nature of expenditure is similar as in earlier AY. The factual matrix being the same, taking the same stand, we concur with the stand of assessee in this regard and allow the claim of the assessee on similar lines. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rning of exempt income. Accordingly, applying Rule 8D, Ld. AO computed aggregated disallowance of Rs. 10.73 Lacs on account of interest expenditure and administrative expenses. 6.2 Upon perusal of Tax Audit Report, it was noted that the assessee incurred an expenditure of Rs. 18 Lacs as penalty towards contravention of Foreign Exchange Management Act, 1999 and therefore the same in the opinion of Ld. AO, being penal in nature, could not be allowed to the assessee in terms of explanation to Section 37(1). 6.3 Upon perusal of financial statements, it was noted that the assessee wrote-off advances of Rs. 115.52 Lacs which were disallowed for want of proper justification / explanation thereof. 6.4 The last addition pertains to disallowance for want of compliance of Tax Deduction at Source [TDS] provisions. Upon perusal of Tax Audit Report, it was noted that there was a delay in payment of TDS on amount of Rs. 9,35,581/- and therefore the same was not allowable to the assessee in terms of Section 40(a)(ia). Another addition of Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was penal in nature which was for infraction of law and therefore, the same could not be allowed to the assessee in terms of explanation to Section 37(1). Regarding issues raised in revenue's appeal, it was submitted that the assessee failed to provide the requisite details / information before Ld. AO with respect to advances written-off and therefore, Ld. CIT(A) erred in providing relief to the assessee. Regarding short deduction of TDS u/s 40(a)(ia), reliance has been placed on the judgment of Hon'ble Kerala High Court rendered in CIT Vs. PVS Memorial Hospital Ltd. [ITA No. 16 of 2014 dated 20/07/2015]. 9. We have carefully heard the rival contentions and perused relevant material on record. So far as the disallowance u/s 14A is concerned, it is undisputed fact that the assessee has not earned any exempt dividend 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 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off the same in the impugned AY. This ground of revenue's appeal stand allowed for statistical purposes. 11.1 So far as disallowance u/s 40(a)(ia) is concerned, we find that this disallowance has been made on 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Kerala High Court, therefore, did not consider the decision of the Calcutta High Court. This Tribunal in the case of CIT v. Zuben J. Gandevia [IT Appeal No. 3357 (Mum.) of 2014] dated 1st February, 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared to be an assessee in default under sec. 201 of the Act and no disallowance can be made by invoking the provisions of sec. 40(a)(ia) of the Act. Therefore, we do not find any 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is noted that in the order of RBI that the contraventions in question relate to an amount of Rs. 22,71,00,000/- 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 Rs. 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 Rs. 18 Lacs to RBI for getting post-facto approval, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 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 guidelines. 3. The applicant made an application on December 13, 2008 to the FIPB unit, Department of Economic Affairs, Ministry of Finance, Government of India seeking approval inter alia for the classification of Radhakrishna Hospitality Services Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier 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 Unisol i.e. Rs. 25,255,000/-. I have considered the submissions made by the applicant and the documents available on record. I find Rs. 22,71,00,000/- (50,00,000 x 45.42) the fair value of total foreign equity participation in Radhakrishna Hospitality Services Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 opinion, do not hold much water since it is purpose test, which impugned expenditure has to pass before becoming eligible to be claimed as deduction. On the basis of preceding discussion, we have already reached a conclusion that the aforesaid payment by assessee was compensatory in nature and not penal one. 12.4 So f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 contravention as per sub-clauses (a) and (b) of clause 3.5 are to be referred to the Reserve Bank of India and the contravention, if any, under sub- clause (c) are to be decided by the Enforcement Directorate. As per clause 4, the scope and manner of compounding is provided and as per clause 4.3, the application for compounding is to be disposed of on me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Rs. 30.25 crores, the assessee was asked to pay sum of Rs. 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 stand of CIT (A). The Explanation to section 37(1) of the Act was inserted in respect of any expenditure incurred for any purpose which was an offence or which was prohibited by law. The Circular of Reserve Bank of India itself provided that where the assessee had committed an irregularity while dealing in foreign earnings or expenditure outgoes, then such an action of applicant could be compoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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