TMI Blog2019 (12) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of decision of Hon ble Gujarat High Court in the case of Sun Pharmaceuticals India Ltd [ 2009 (3) TMI 587 - GUJARAT HIGH COURT ] Disallowance of lease premium being included in the maintenance expenses - Held that:- Since the issue of disallowance of lease amortization premium of ₹ 1,29,52,157/- has been restored back to the file of ld AO supra, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue also to the file of ld AO for denovo adjudication in accordance with law. Treatment of maintenance charges recovered together with rental income - Held that:- As all these issues are interlinked with each other, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue also to the file of ld AO for denovo adjudication in accordance with law. Rate of depreciation on computer software. - Held that:- Earlier, tribunal by placing reliance on the Special Bench decision in the case of Amway India Enterprises vs DCIT [ 2008 (2) TMI 454 - ITAT DELHI ] had allowed depreciation at the rate of 60% on computer software. - Decided in favor of assessee. Bad debts - amounts written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mprising of interest on tax free bonds of ₹ 9,32,86,760/- and dividend income of ₹ 18,09,99,321/- as exempt u/s 10 of the Act in the return of income. We find that the assessee made suo moto disallowance of expenses u/s 14A of the Act computed at 0.1% of exempted income as expenditure attributable to earning of tax free income. The ld AO adopted the computation mechanism provided in Rule 8D(2) of the Rules and made the following disallowance :- Under Rule 8D(2)(i) consisting of amount disallowed by Assessee in the return of income 2,74,286 Under Rule 8D(2)(iii) 2,65,23,192 Total Disallowance 2,67,97,478 2.2. We find that the ld CITA reduced the quantum of disallowance u/s 14A of the Act by directing the ld AO to consider the average value of investments by applying a particular formula and directed to apply 0.5% of such investments and work out the disallowance. 2.3. We find that the year under consideration is Asst Year 2007-08, for which year, the computation mechanism provided in Rule 8D(2) of the Rules cannot be made applicable as it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase had found on analysis of the relevant lease agreement that the land in question was not acquired by the assessee. The lease Deed was registered because as per the Registration Act it was compulsory to do so. There was no change in the ownership of the land and the lease rent payable was very nominal. Keeping in view all these facts, it was held by the Tribunal that the benefit accrued to the assessee was only in the nature of an advantage for carrying on the business by paying nominal rent of the land and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. Keeping in view all these findings of fact recorded by the Tribunal, which were not specifically disputed by the Revenue, the Hon ble Gujarat High Court did not find any infirmity in the order of the Tribunal deleting the disallowance made on account of lease rent paid by the assessee to GIC treating the same as Revenue expenditure. In our opinion, before the ratio of the decision of Hon ble Gujarat High Court in the case of Sun Pharmaceuticals Ind. Ltd. (supra) is applied in the present case, the relevant facts are required to be verified, we therefore restore this issue to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 70 (SC). The assessee submitted that the said decision is factually distinguishable and also brought out the factual differences on record. The assessee placed reliance on certain decisions in support of its facts of the case. However, the contentions of the assessee were not appreciated by the lower authorities. 4.2. We have heard the rival submissions and perused the materials available on record. We find that the assessee had incurred maintenance charges of ₹ 2,05,42,418/- and had recovered maintenance charges to the tune of ₹ 1,68,61,573/- and the net maintenance charges of ₹ 36,80,845/- has been disallowed by the assessee under the head income from business in the computation of income. The maintenance charges expenditure was incurred in relation to providing the facilities and other services to the licensees from whom the maintenance charges were recovered. We find that the assessee had tried to give a different treatment for rental income, which is offered under the head income from house property and for maintenance charges recovered, which is offered under the head income from business. It would be pertinent to look into the details of maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agency Commission charges for -Oracle India P. Ltd. Security Charges(Chennai) 5,108,030.00 1,394,061.00 417,830.00 322222.73 1519000 156996.5 2565.00 2,488,784.81 1,394,061.00 70,55523 Property Tax (Chennai) Housekeeping (Chennai} 260,596.00 1,181,073.00 15190.00, 15190.00 2565.00 2565.00 44,004.53 199,437.28 Total Expenses 41,909,565.08 20,542,418.50 Details of Maintenance Recovery Party Amt. (Rs.) Intel Technology India Pvt. Ltd. CA (India) Technologies Pvt- Ltd. 776,203.00 1,589,28400 NCDEX Oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of lease amortization premium of ₹ 1,29,52,157/- which admittedly is included in the total maintenance charges expenditure of ₹ 2,05,42,418/- as could be evident from the table reproduced in previous grounds supra. As all these issues are interlinked with each other, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue also to the file of ld AO for denovo adjudication in accordance with law. Needless to mention that the assessee be given a reasonable opportunity of being heard. We find that the ld AR had made several arguments with regard to the impugned issue but we refrain to give any opinion on such arguments and all arguments made by the ld AR are left open to be stated before the ld AO afresh. The assessee is also at liberty to adduce fresh evidences, if any, in support of its various contentions. Accordingly, the Ground Nos. 4(a) to 4(d) raised by the assessee are allowed for statistical purposes. 6. The Ground No. 5 raised by the assessee is with regard to the rate of depreciation on computer software. 6.1. We have heard the rival submissions. It is not in dispute that the assessee had made investment in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee gave a detailed explanation in this regard as under:- BKC Debris Written Off- ₹ 4,07,920 The assessee during the previous year relevant to the captioned assessment year has written off deposits BKC Debris amounting to ₹ 3,33,000/-. The assessee had also written off a deposit of ₹ 61200/-given to Municipal Corporation of Greater Mumbai for obtaining permission for temporary monsoon protection sheds at Exchange Plaza. The said deposits were given under the understanding that on removal of the debris / monsoon shed, the said security deposit would be refunded. However even after persistent follow up with the Municipal authorities, the deposit amounts were not refunded. Considering the business expediency, the management had decided to write off the said deposits in the books of accounts in the captioned assessment year. Further, similar deposits aggregating to ₹ 13720/- for erecting temporary monsoon protection sheds every year, at the rented premises of the assessee at Trade World are also written off as the same is not recoverable from the Municipal authorities. Details of the same are enclosed at Annexure4(b). It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is allowable as business loss / expenditure u/s. 28 / u/s. 37(1) . 7.2. The ld AO addressed the aforesaid issue in the context of provisions of bad debts u/s 36(1)(vii) of the Act and observed that the aforesaid two items were not in the nature of income in terms of section 36(2)(i) of the Act and hence they cannot be granted deduction on write off as bad debts u/s 36(1)(vii) of the Act. Later the ld AO observed that since the deposits paid were capital in nature, the write off of the same due to irrecoverability would only result in capital expenditure and hence cannot be allowed as deduction u /s 37(1) of the Act. With these observations, he disallowed the sum of ₹ 58,23,274/- in the assessment. The action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 7.3. We have heard the rival submissions. At the outset, we find that the assessee had given certain deposits as detailed supra in the ordinary course of its business. It is not in dispute that those deposits became irrecoverable despite several efforts taken by the assessee. It is not in dispute that these deposits were actually written off as irrecoverable in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08,088 as a business loss. The claim was disallowed by the Income-tax Officer and the disallowance was confirmed by the Appellate Assistant Commissioner who, inter alia, observed that the agreement had nothing to do with the current business of the assessee and related to a capital project and in connection with the setting up of a new factory. The decision rendered by the Hon ble Bombay High Court is as under:- 10. We have carefully gone through the statement of the case and the annexures, particularly the four agreements dated March 2, 1960, March 24, 1961, June 7, 1962, and October 23, 1962, entered into between the assessee and the landlord of the premises in question. It is seen that the assessee is carrying on the business of manufacturing accounting and computing machines. It is also selling them as well as hiring them and also giving service after sales. The factory premises, as the clause relied upon by Shri Dastur, viz., Clause IX(i)(j) of the agreement dated March 2, 1960, and Clause (2) of the agreement dated October 23, 1962, clearly indicated, was being acquired for its existing business. Moreover, as pointed out by Shri Dastur, the Income-tax Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement with Shri Dastur that the principles in this regard are laid down by the Supreme Court in its judgment in CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649. The relevant observations in this case have already been noted by us earlier in Empire Jute Co. Ltd. v. CIT . Apart from the fact that this court had already held that the length of the lease agreement is not very material for the purpose of determining the nature of the expenditure incurred on lease agreements, the Supreme Court has clearly laid down in Empire Jute Co. Ltd. [1980] 124 ITR 1, that even assuming that a lease for a period of 10, 15 or 20 years would amount, to an advantage of enduring nature, it is not that every advantage of enduring nature would result in a capital outlay. What is required to be seen is whether the advantage of enduring nature is in the capital field. As the acquisition of premises on lease would not ordinarily be in the capital field, we have no hesitation in holding that the moneys advanced by the assessee in pursuance of these agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when there is a categorical finding by the ld. DRP that the landlord had suffered major losses on account of acquisition of excessive real estate, which eventually led to wound up his business, the irrecoverability of the deposit paid by the assessee stands duly proved. The assessee had also duly written off the said irrecoverable deposit in its books. We also find that the ground raised by the Revenue itself is patently wrong inasmuch as the Revenue is expecting the assessee to comply with the conditions of section 36(2) of the Act by offering the income in the hands of the assessee in earlier years. The ground also suggests that the assessee had made claim u/s 36(1)(vii) of the Act, which in the instant case is not claimed by the assessee. The assessee has claimed deduction only u/s 28 of the Act after duly satisfying the conditions laid down for such claim. Hence, the Ground No.1 raised by the Revenue deserves to be dismissed on this count itself. Hence, in our considered opinion, the same is allowable as deduction u/s 28 of the Act, which have been rightly deleted by the ld. DRP, which does not require any interference. Accordingly, Ground No.1 raised by the Revenue is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h equal force for Asst Year 2008-09 also except with variance in figures. Accordingly, the Ground Nos. 3(a) to 3(e) raised by the assessee are allowed for statistical purposes. 14. The Ground Nos. 1(a) to 1(c) raised for the Asst Year 2009-10 is with regard to the disallowance u/s 14A of the Act read with Rule 8D of the Rules. 14.1. We have heard the rival submissions. We find that the assessee had earned tax free income being dividend from mutual funds and equity shares amounting to ₹ 18,76,27,624/- and claimed the same as exempt u/s 10 of the Act in the return of income. We find that the assessee had made suo moto disallowance of ₹ 2,14,67,000/- u/s 14A of the Act read with Rule 8D of the Rules in the return of income. We find that before the ld AO , the assessee had submitted that the amount disallowed u/s 14A of the Act in the sum of ₹ 2,14,67,000/- in the return of income was excessive and that the correct amount of disallowance would only be ₹ 1,55,93,916/- and requested for adoption of the revised figure of disallowance u/s 14A of the Act while completing the assessment. This disallowance was worked out by the assessee based on the salary of cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ground Nos. 2(a) to 2(d) raised by the assessee for this asst year is similar to the Ground Nos. 2(a) to 2(d) raised by the assessee for the Asst Year 2007-08 and hence the decision rendered thereon would apply with equal force for Asst Year 2008-09 also except with variance in figures. Accordingly, the Ground Nos. 2(a) to 2(d) raised by the assessee are allowed for statistical purposes. 17. Both the parties fairly agreed before us that the Ground Nos. 3(a) to 3(e) raised by the assessee for this asst year is similar to the Ground Nos. 4(a) to 4(d) raised by the assessee for the Asst Year 2007-08 and hence the decision rendered thereon would apply with equal force for Asst Year 2008-09 also except with variance in figures. Accordingly, the Ground Nos. 3(a) to 3(e) raised by the assessee are allowed for statistical purposes. 18. Both the parties fairly agreed before us that the Ground Nos. 1(a) to 1(c ) raised by the assessee for this asst year is similar to the Ground Nos. 1(a) to 1(c) raised by the assessee for the Asst Year 2008-09 and hence the decision rendered thereon would apply with equal force for Asst Year 2009-10 also except with variance in figures. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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