TMI Blog2016 (9) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA - Decided in favour of the assessee Writing off trade advance as revenue expenditure in terms of Section 37 - HELD THAT:- Amount paid by the assessee to M/s. Cibi International for the purpose of establishing and maintaining infrastructure facilities for manufacture of knitted garments and if M/s. Cibi International maintains the said facility exclusively for the benefit of assessee, the assessee cannot claim the same as refund. On the other hand, if the M/s.Cibi International failed to maintain the said facility, for the exclusive benefit of assessee for a period of 10 years than the assessee has a right to claim the same as refund. The same was examined by the Tribunal on earlier occasion for assessment year 2010-11 and it was allowed as deduction in the hands of assessee u/s.37 - we are not in a position to take contrary v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax(A)-3, Coimbatore, both order passed under section 143(3) of the Act dated 27.10.2015. Another appeal of the Revenue is directed against the order of the Learned Commissioner of Income Tax(A)-3, Coimbatore, dated 27.10.2015 pertaining to assessment year 2011-12 passed under section 271(1)(c) of the Act. Since issues involved in all these Revenue s appeals are common in nature, these appeals are clubbed together, heard together, disposed off by this common order for the sake of convenience. ITA No.101/Mds./16(A.Y: 2011-12) 2. The first ground in this appeal is with regard to deletion of addition made by AO on account of disallowance of deduction u/s.80-IA of the Act amounting to ₹ 2,89,77,784/-. 3. We have heard both the parties and perused the material on record. In our opinion, this issue is squarely covered by the order of the jurisdictional High court in the case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT 340 ITR 477, wherein it was held that:- from reading of sub-s (1) of s. 80IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-s(5) does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. There is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under S.80-IA(2). In Tax Case No.918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the relevant year. Therefore, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate is provided in S. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under appeal. According to the assessee, the payment has been made for the purpose of carrying on of its business in a substantial manner so as to honour the commitment of export for a period of 10 years. The assessee identified M/s. Cibi International as an associate for the purpose of production for the reason that M/s. Cibi International has trained and skilled labour force of around 40000 with them, who could execute the work without any problem. M/s. Cibi International also possessed expertise to manufacture knitted garments according to the buyer s specifications. The assessee paid the sum of ₹ 650 lakhs M/s. Cibi International to prepare and commit to the work entrusted by the assessee company without any hitch or hindrance. The assessee felt that instead of acquiring its own infrastructural facilities, it is more economical to utilize the facilities of a competent associate, so that the assessee need not incur recurring expenditure for the maintenance of infrastructural and operational facilities. Once the assessee paid ₹ 650 lakhs to M/s. Cibi International, the said associate would procure all the necessary facilities to make the operations to the satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1, relied on by the learned counsel appearing for the assessee. 11. The assessee has paid the sum of ₹ 650 lakhs to M/s. Cibi International on the basis of a business agreement. The business agreement casts duties and obligations on the assessee as well as on M/s. Cibi International. As far as the assessee is concerned, it must pay ₹ 650 to M/s. Cibi International to improve and update its operational facilities to undertake the work entrusted by the assessee company in contemplation of fulfilling its export obligations. M/s. Cibi International, on the other hand, was bound to execute production orders in conformity to the quality standard prescribed by the foreign buyers. As per the agreement, M/s. Cibi International was also bound to repay the sum of ₹ 650 lakhs to the assessee company, if M/s. Cibi International fails to perform the obligations cast on it. Since such a liability is cast on M/s. Cibi International as per the agreement, M/s. Cibi International might have shown the amount of ₹ 650 lakhs as a liability in its balance sheet. Such a disclosure in the balance sheet of M/s. Cibi International need not influence in deciding the real character ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecute the export order. If those facilities were created in assessee s own premises, it would have been definitely held as an expenditure incurred for the purpose of business carried on by the assessee. 15. The question is that whether the character of the expenditure would be altered, if the assessee entrusts the work to another associate on the basis of an agreement. There is no doubt that sufficient facilities are necessary for the assessee to execute the export orders. Instead of creating facilities for itself, the assessee entered into an agreement with M/s. Cibi International so that, the production facilities available with the latter would be utilized for producing the knitted goods required by the assessee company for meeting its export commitments. While taking the decision to rely on M/s. Cibi International for availing production facilities rather than acquiring such facilities by itself, the assessee company has assessed the economy of scale and all other operational and business considerations. In its wisdom, the assessee found that it is more economical to pay a lump sum amount to M/s. Cibi International to develop the production facilities for assessee s own bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive benefit of assessee for a period of 10 years than the assessee has a right to claim the same as refund. The same was examined by the Tribunal on earlier occasion for assessment year 2010-11 and it was allowed as deduction in the hands of assessee u/s.37 of the Act. Being so, we are not in a position to take contrary view as a judicial discipline requires consistency in its proceedings. Hence, we decline to interfere with the order of CIT(A) on this issue. This ground raised by the Revenue is dismissed. 6. The next ground for our consideration is with regard to allowing the deduction towards cost of building construction on leasehold land as a revenue expenditure. 6.1 The facts of the issue are that the AO had treated the amount as capital expenditure as the super structure of the building has been constructed on leased land by the assessee. The main reason for disallowance by the AO is that huge amount of money has been spent without getting ownership over the land which is leasehold. The AO has invoked the Explanation 1 to sec.32(1) to hold that expenditure is capital in nature and the claim made by the assessee is rejected. On appeal, the Ld.CIT(A) relied on jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure and what does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or work in relation to and by way of renovation, extension or improvement to a building taken on lease by the assessee for carrying on his business and profession but not in a case of construction of any structure or doing any work where such building is put up or constructed for the purpose of the business or profession of the assessee in land taken on lease by the assessee. The assessee did not acquire a capital asset but had put up a construction of the building only for business advantage with the result that the entire construction cost was admissible as revenue expenditure. 2. In the case of CIT Vs.Bombay Dyeing Mfg. Co. Ltd., reported in 219 ITR 521(SC) wherein held that A company was amalgamated with the assesseecompany. In that connection an expenditure of ₹ 10,350 was incurred by the assessee-company towards professional charges paid to a firm of solicitors. In the assessment proceedings, deduction of the said amount was claimed as revenue expenditure. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f jurisdiction to record a decision entirely on conclusion reached by any Co-ordinate Bench on the same set of facts and circumstances. 8. In the case of ACIT Vs. Aurangabad Holdiay Resorts P. Ltd. in 111 TTJ 741 (Pune) wherein held that decision of non-jurisdictional High Court is a binding precedent for the Tribunal unless a contrary decision given by any other High Court. 6.4 We have heard both the parties and perused the material on record. In the present case, the assessee has taken the land on leasehold on which the assessee constructed super structure and claimed as revenue expenditure. The same was allowed by the Ld.CIT(A). The ld.D.R contended that the assessee constructed the building in the leased land and it is not the case of renovation of the leased building or improvement of the leased building. For settling the controversy, we have to go through the Explanation 1 to sec.32(1) of the Act which was inserted by the Taxation Laws (amendment and Miscellaneous Provisions) Act, 1986 w.e.f 1.4.1998 which deals with the situation where the expenditure has been incurred by the assessee on construction of any structure on lease hold premises. The Explanation 1 is reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee. 6.7 The Hon ble Supreme Court of India in the case of Madras Auto Service (P) Ltd., 233 1TR 468 while dealing with a similar controversy has observed as under: 5 In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for 214/Coch/2014 such reconstruction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee for the purposes of business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of improvement to, building then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 8. To fall within the ambit of Explanation 1 questions which are to be answered are: (i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy? (ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension or improvement in the building. 9. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to sec. 32(1). In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of project for processing of coir. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vantage did the assessee get by constructing a building which belonged to somebody else and spending money for such reconstruction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. 12. Thereafter, the Apex Court referring to several cases decided held as under: 11. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such reconstruction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. 13. Thereafter, the Apex Court referring to several cases decided held as under: 11. All these cases have looked up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue or capital in nature and decide afresh. 6.11 Further, the Co-ordinate Bench in the case of M/s. Jayakrishna Flour Mills Pvt. Ltd., in ITA No.700/Mds./2013 dated 27.10.2014 held as follows:- 5. We have heard the submissions made by the representatives of both the sides. We have also perused the orders of the authorities below, as well as, the decisions/judgments on which both the sides have placed reliance. The only issue in appeal is: Whether the expenditure of 53,88,776I- incurred by assessee on construction of sheds on lease-hold land is revenue or capital in nature? The assessee has been allotted four storage depots by Tamil Nadu Foodgrains Marketing Yard Limited. The assessee contributed more than 53.00 Lakhs for construction of sheds to be used for storage of wheat etc., and claimed the same as Revenue expenditure. Whereas, the contention of the Revenue is that after insertion of Explanation-i to Section 32(1), any construction made on leasehold premises is to be treated as capital expenditure. Before proceeding further, let us first examine Explanation-i which reads as under: Explanation 1.--Where the business or profession of the assessee is carried on in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s plain and unambiguous, the court shall not interpret the same in a different manner, only because of harsh consequences arising therefrom : and it is well known that the court can iron out the creases but it cannot change the texture of the fabric, cannot enlarge the score of legislation or intention when the language of the provision i plain and unambiguous, cannot add or subtract words to a statute or read something into it which is not there and cannot rewrite or recast legislation, vide Nasiruddin v. Sita Ram Agarwal (200312 SCC 577. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the Iftera! rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislation, the court cannot correct or make up the deficiency, especially when a ilteral reading t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a revenue expenditure. Thus, the contribution made by assessee initially would save revenue expenditure in later years. Thus, in the light of judgements discussed above, it can be safely construed that the expenditure incurred towards construction of sheds by the assessee is revenue in nature. 7. In view of the above judgements, we are of the opinion that the AO has to see that the expenditure incurred on construction of any super structure on the leasehold land resulted in savings of any revenue expenditure in the form of monthly rent at the subsequent stage in future or not. Since there is no finding by the lower authorities regarding savings of the future revenue expenditure by the assessee so as to say it is a Revenue expenditure. As such, we are not in a position to appreciate the facts of the case. Accordingly, we remit the issue to the file of AO to decide the issue afresh in the light of judgement of jurisdictional High Court and Supreme Court cited supra as discussed above. 8. In the result, the appeal of Revenue is partly allowed for statistical purposes. ITA No.103/Mds./16(A.Y: 2012-13) 9. The first ground in this appeal is with regard to deletion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the addition made on disallowance of depreciation of intangible assets. The AO elaborately discussed in the penalty order the reasons for levying penalty and levied a penalty of ₹ 1,76,63,327/- u/s.271(1)(c of the Act. 10.3. We have heard both the parties and perused the material on record. In our opinion, it is preposterous to decide the issue of penalty levied u/s.271(1)(c) of the Act at this stage, since certain issue relating to addition of deletion by the Ld.CIT(A) are remitted by us to the file of AO for fresh consideration for the assessment year under consideration. Hence, at this stage, the assessment order on the basis of which penalty has been levied, still the subject matter of litigation, which is not . Hence, in our opinion, the AO is at liberty to initiate the penalty proceedings only after giving effect to the Tribunal order by him in the issue of quantum addition. Accordingly, we vacate the penalty order at this stage. As such we dismiss this appeal of Revenue as infructuous. 11. In the result, the appeals of the Revenue in ITA No.101/Mds./2016 ITA No.103/Mds./2016 are partly allowed for statistical purposes and ITA No.102/Mds./2016 is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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