TMI Blog2020 (1) TMI 1290X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue is partly allowed for statistical purpose. Addition on lease hold premises as revenue expenditure - contention of the assessee company is that they are temporary erection in the form of pipes, floor tiles, false ceiling and this expenditure was not brought into existence into new asset and therefore it should be allowed as revenue expenditure - HELD THAT:- The issue in the present grounds of appeal is decided against the assessee company and in favour of the Revenue by the Jurisdictional High Court in the cases of CIT vs. ETA Travel Agency (P) Ltd. [2019 (8) TMI 932 - MADRAS HIGH COURT] and CIT vs. Viswams[ 2019 (4) TMI 1127 - MADRAS HIGH COURT] - addition to leasehold premises cannot be allowed as revenue expenditure. Thus, the findings of the Ld. CIT(A) stands reversed. However, we direct the Assessing Officer to allow depreciation at the rate applicable to buildings. Depreciation on electrical fittings at the rate applicable to plant and machinery - CIT(A) allowed depreciation on electrical installation at the rate applicable to electrical fittings - Contention of the assessee is that this electrical fitting form part of the plant and machinery and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure but allowed depreciation at 10% - HELD THAT:- Assessing Officer can allow depreciation at the rate applicable to buildings. From the perusal of the assessment order, it is clear that Assessing Officer had disallowed 90% of the opening value of written down which is not correct as assessee had not claimed it. However, the Ld. CIT(A) had rightly deleted the addition by holding it to be doubtful disallowance. The findings of the Ld. CIT(A) is based on proper appreciation of facts. We do not find any reason to interfere with the order of the Ld. CIT(A) on this issue Deduction as bad debts - allowance of claim of addition being amount paid to M/s. Vivro Financial Services Pvt. Ltd. and written off in the books of accounts as irrecoverable - HELD THAT:- Admittedly, this amount was paid during the course of carrying on the business of the assessee and the same should be allowed as deduction if not as bad debts in the light of decisions Devi Films Private Ltd. [ 1969 (4) TMI 12 - MADRAS HIGH COURT] and CIT v. Abdul Razak Co [ 1981 (2) TMI 27 - GUJARAT HIGH COURT]. - we direct the Assessing Officer to allow the deduction while computing the income under the head c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed. Against the said return of income, the assessment was completed by the Joint Commissioner of Income Tax, Company Range VI, Chennai (hereinafter referred as Assessing Officer) vide order dated 28.03.2013 passed u/s. 143(3) r.w.s. 92CA(4) of the Income Tax Act, 1961 (in short the Act ) at total income of Rs. 37,76,49,093/-. While doing so, the AO disallowed ESOP expenditure of Rs. 2,52,80,000/- and depreciation on intangible assets of Rs. 64,16,093/-. 5. The Assessing Officer disallowed ESOP expenditure giving reasons which are extracted at para 5.3 of the assessment order and Assessing Officer also took note of the fact that Hon'ble Jurisdictional High Court in the case of CIT vs. PVP Ventures, 211 Taxman 554, wherein it was held that ESOP expenditure allowable as revenue expenditure, but noting that the decision of Jurisdictional High Court in the case of PVP Ventures (supra) is appealed before the Hon'ble Supreme Court and disallowed the expenditure. The Assessing Officer also disallowed depreciation on intangible assets of Rs. 500 lakhs acquired on amalgamation of Shriram Engineering Construction Ltd. during the previous year relevant to assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges the decision of Ld. CIT(A) in allowing ESOP expenditure as revenue expenditure. The issue in the present appeal is squarely covered in favour of the assessee by the order of Hon'ble Delhi High Court in the case of Lemon Tree Hotel (supra) and by the decision of Hon'ble Jurisdictional High Court in the case of PVP Ventures Ltd. (supra), wherein it was held as follows. 29. As far as the Employees Stock Option Plan is concerned, as rightly pointed out by the Tribunal, the assessee had to follow SEBI direction and by following such direction, the assessee claimed the ascertained amount as liability for deduction. We do not find that there exists any error to disturb the order of the Tribunal and in turn the Assessing Authority. In the circumstances, we agree with the submission of learned senior counsel appearing for the assessee in this regard by upholding the order of the Tribunal . Against the above decision of the Hon'ble Jurisdictional High Court, the SLP filed by the Department was dismissed by the Hon'ble Supreme Court vide order dated 28.03.2014 (2512/2014) and hence, the law laid down by the Hon'ble Madras High Court has become final. Thus, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CIT Delhi reported in 55 ITR 550 2.3 CIT(A) failed to note that, this expenditure is not an allowable deduction either according to the provisions of section 30(a)(i) or according to the provisions of section 37. Since the expenditure incurred is in the nature of addition to buildings falling in the block of assets under the category 'buildings' which are not used mainly for residential purpose, the depreciation is allowable at 10% only 2.4 The Ld. CIT(A) erred in directing the AD to allow the ESOP expenses of ₹ 2,75,99,528/- 2.5 Ld. CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not relatable to regular business. 2.6 Ld. CIT(A) failed to appreciate the facts mentioned in the case of Brooke Bond India Ltd. and Punjab State Industrial Development Corporation that expenditure incurred in relation to increase in share capital is not allowable. 2.7 CIT(A) erred in directing the AO to allow the depreciation @15% on electrical installation instead of 10% allowed by the AO. 2.8 CIT(A) failed to consider the facts that electrical fittings are independent and their operation is no way d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y claimed disallowed 2,75,99,528 ESOP expenses disallowed 2,75,99,528 Depreciation on electrical fittings disallowed 1,55,613 Foreign exchange loss disallowed 1,44,68,263 Disallowance u/s.43B 2,72,88,000 16. Being aggrieved, assessee preferred an appeal before the Ld. CIT(A) who vide impugned order deleted all the additions except in respect of addition of Rs. 2,72,88,000/- made u/s. 43B of the Act which was restored to the file of the Assessing Officer for due verification. 17. Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. 18. Vide grounds of appeal No. 2 to 2.3, the revenue challenges the correctness of the decision of Ld. CIT(A) in allowing addition on lease hold premises as revenue expenditure. Admittedly, the assessee made temporary partitions on leased premises like pipes, floor tiles, false ceiling, refurbishing etc. The contention of the assessee company is that they are temporary erection in the form of pipes, floor tiles, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtensive repairs and renovations carried out by the assessee cannot be said to be incurred to preserve and maintain an already existing asset since many new objects have been brought into as could be seen from the list of construction made and thus, the object of expenditure made by the assessee is definitely to bring a new asset into existence to obtain new advantage further giving enduring benefit to the assessee. The Court further pointed out that the Tribunal committed an error by allowing the expenditure incurred on repairs of the rented building as taxable expenditure under Section 37(1) of the Act ignoring Explanation 1 to Section 32 of the Act. 27. In the decision in the case of Viswams, the Court considered a similar question. The Court took note of the decision in the case of Silver Screen Enterprises Vs. CIT [reported in (1972) 85 ITR 578] wherein the Punjab and Haryana High Court held that the amounts spent for construction of the verandah, office room, side room and bath rooms brought into existence an asset of enduring nature, that the replacement of old wooden chairs by steel chairs was to attract larger and better customers and that this would go to show that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utting the building to use for business purposes. According to us, by adding Explanation 1 to Section 32(1), Parliament has manifested its legislative intention to treat the expenditure incurred by the assessee on leasehold building as capital expenditure and therefore, Explanation 1 to Section 32(1) cannot be subjected to any other interpretation. Further, the language of Explanation 1 is very plain and clear and there was no scope for providing a different meaning for the words used and hence, we are bound to consider the question by giving the literal meaning to the expressions and phraseologies by the Legislature applied. 29. In the above decision, it was pointed out that so far as the expenditure incurred as contemplated in the explanation is concerned, a legal fiction is created, by which, the assessee, enjoying a leasehold right on a building, is treated as the owner of the building. It was further pointed out that after the introduction of Explanation 1 to Section 32 of the Act, there is no scope left out at all for any interpretation since, by a legal fiction, the assessee is treated as a owner of the building for the period of his occupation and this would mean that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alukkas India (P) Ltd., for holding that the expenditure incurred by the assessee in the above case was not a capital expenditure, but was only revenue expenditure were based on facts of that case, that the relevant test was applied by the Division Bench and that the observation made by the Division Bench in paragraphs 29 and 30 in the decision in the case of Joy Alukkas India (P) Ltd., had to confine to the facts of that case. Further, the relevant portions in the judgment rendered by the Full Bench in the case of Indus Motors Co. Pvt. Ltd., read as follows: 33. As has been observed above, whether an expenditure incurred by assessee in a particular case is a capital expenditure or revenue expenditure has to be decided on the facts of that case by applying the relevant tests. Explanation 1 to Section 32(1)(i) does not intend to lay down that whenever expenditure has been incurred by the assessee for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement to the building, then such expenditure has to be mandatorily treated as capital expenditure. The explanation only meant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not disputed by the Assessing Officer. Therefore the Ld. CIT(A) had rightly allowed depreciation at the rate applicable to plant and machinery. Accordingly, we do not find any reason to interfere with the order of the Ld. CIT(A). Grounds of appeal No. 2.7 to 2.9 raised by the Revenue stand dismissed. 22. Grounds 3 to 3.4 relates to the decision of Ld. CIT(A) in allowing foreign exchange loss of Rs. 1,44,68,263/-. 23. The brief facts of the issue are as under:- During the previous year relevant to assessment year under consideration, the assessee company paid premium of forward contract to pledge against fluctuation in foreign currency payment made to M/s. Envirotherm GMBH Germany for supply of equipments to Amonia project. The premium paid was claimed to be revenue expenditure. The Assessing Officer disallowed the claim for want of evidence as assessee failed to establish the real nature of expenditure. On appeal before the Ld. CIT(A), the Ld. CIT(A) allowed the claim considering the same as mark to market loss. 24. Being aggrieved, the Revenue is in appeal before us in the present appeal. 25. We heard the rival submissions and perused the material on records. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,84,407 Depreciation on plant and machinery disallowed during assessment year 2010-2011 18,80,807 29. Being aggrieved by the above additions, the assessee-company preferred an appeal before Ld. CIT(A), who vide impugned order partly allowed the appeal by setting aside the issue of credit for TDS and also the issue of depreciation of plant and machinery to the file of the Assessing Officer, Ld. CIT(A) confirmed the addition of Rs. 15,00,000/- claimed as bad debts in relation to advance paid to Vivero Financial P. Ltd. has no services were rendered and allowed other grounds of appeal raised by the assessee. 30. First, we take up Revenue appeal in ITA No. 2013/CHNY/2016, for assessment year 2011-2012 for adjudication. 31. The Revenue raised the following grounds of appeal. 1. order of the Learned CIT(A) is contrary to law and facts of the case. 2. The Ld. CIT(A) erred in directing the AO to allow the [SOP expenses of ₹ 1,16,85,044/- 2.1. The Ld. CIT(A) failed to appreciate that ESOP expenditure is incurred in relation to issue of shares and is not relatable to regular business. 2.2 Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten off ₹ 2,73,17,449/- 1. Shriram Infrastructure and Power Ltd. - ₹ 2,19,02,210/- Shriram Infrastructure and Power Ltd. wanted to develop 4 to 5 power projects in Tamil Nadu, Jabalpur, Tuticorin, etc.,. We wanted to participate in the project and funded the project expenses. Due to several reasons the project could succeed and had to be abandoned. Hence we have written off the amount. 2. Alpha Energy systems Ltd. -- ₹ 39,15,239/-. We gave contract work to Alpha Energy Systems Ltd. and paid ₹ 39,15,239/-. They did not complete the contract nor returned the money. Since the money could not recovered we have written off the amount. 3. Vivro Financial Services P. Ltd. -- ₹ 15,00,000/- We have paid ₹ 15,00,000/- for the purpose of financial service. They did not render any services. They also did not return the money. As the amount could not be recovered we have written off the amount . The same was claimed as bad debts before the Assessing Officer. The Assessing Officer disallowed the claim by holding that the amount written off do not represents the debts. However, the Ld. CIT(A) allowed the claim as revenue expenditure cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co, 136 ITR 825. In the light of the above facts, the grounds of appeal 2.3 and 2.4 filed by the Revenue has no merits, hence, we dismiss the grounds raised by the Revenue. 41. Grounds of appeal 2.5 to 2.7 challenges the decision of Ld. CIT(A) in deleting the addition made u/s. 14A of the Act on the ground that in the absences of exempt income no disallowance can be made. 42. The Assessing Officer disallowed a sum of Rs. 1,19,55,420/- u/s. 14A of the Act by holding that the provisions of Section 14A of the Act are applicable even in case of investments which not yielded any dividend income. 43. On appeal before the Ld. CIT(A), Ld. CIT(A) deleted the addition by holding that in the absence of any exempt income, no disallowance u/s. 14A of the Act can be made. 44. Being aggrieved by the order of the Ld. CIT(A), the appellant is in appeal before us in the present appeal. 45. We heard the rival submissions and perused the material on record. The only issue in the present grounds of appeal relates to disallowance u/s. 14A of the Act. Admittedly, no dividend income was earned by the assessee company during the previous year under consideration. Now the law is settled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact of the case. 2. The CIT (A) erred in confirming the disallowance of Bad Debts of ₹ 15,00,000. 3. The CIT(A) erred in not appreciating the fact that the amount is allowable as business loss. 4. The CIT(A) erred in not appreciating the fact that a sum of ₹ 50 Lakhs was advanced to Vivro Financial Services Pvt. Ltd. for providing financial services on 27/03/2007 and they did not do any service and they returned ₹ 25 Lakhs on 27/12/2007 and ₹ 10 Lakhs on 24/11/2008 and as no services were rendered and the balance amount of ₹ 15 Lakhs was not returned by the party, the appellant claimed ₹ 15 Lakhs as it is a loss. 5. For these and other grounds that may be adduced before or at the time of hearing the Hon Me ITAT may be pleased to delete the addition of Bad debts . 51. Assessee company challenges the decision of the lower authorities in confirming the addition of Rs. 15,00,000/- being advance paid to M/s. Vivro Financial Services Pvt. Ltd. and the same was written off in the books of accounts. It is stated that the amount was paid during the course of carrying of business and the claim should be allowed as deduction as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following grounds are raised. a) The CIT(A) erred in not appreciating the fact that the appellant has not received any dividend income from the investment made in Associate Enterprises, Subsidiary Companies, Joint Ventures, Associates and other companies and in the light of the following judgments the investments made in the above companies need not be taken in to account for computation of disallowance u/s. 14A r.w. Rule 8D (2)(iii). i. REI Agro Ltd. Vs. DCIT Central Circle XXVII Kolkatta (144 ITD 141) ii. Interglobe Enterprises Ltd. Vs. DCIT (ITA No. 1362 1032/DEL/2013 dated 04/04/2013) ITAT, Delhi. iii. ITAT Chennai decision in the case of EIH Associated Hotels Ltd. Vs. DCIT in ITA No. 1503/Mds/2012 dated 17/07/2013 . 57. The brief facts of the case are as under:- The Assessing Officer made an addition of Rs. 1,39,34,748/- u/s. 14A of the Act rejecting the contention of the assessee that no expenditure was incurred towards earning exempt income and the investments are made out of own funds in the form of equity shares in subsidiary companies. 58. Being aggrieved, an appeal was preferred before Ld. CIT(A), who vide impugned order had confirmed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is not allowable. 2.3 The Ld. CIT(A) erred in directing the AD to allow the u/s. 14A r.w. 8D expenses for ₹ 1,39,34,748/-. 2.4. The Ld. CIT(A) failed to note that as per the schedules enclosed to the P L account, it is seen that the appellant had made long term investments in shares of certain companies. These long term investments in shares were made with the motive of earning dividend which is exempt from income tax. 2.5 The Ld. CIT(A) failed to note that the disallowance u/s. 14A is attracted even in a case where there is no exempt income earned as held in the Chennai ITAT decision in the case of Siva Industries Holdings Ltd. vs. ACIT (54 SOT 49) and which is in conformity with department view as clarified vide circular No. 5/2014. 2.6 The Ld. CIT(A) erred in directing the AD to allow the excess depreciation on addition made to leased building of ₹ 2,02,55,619/- 2.7 The Ld. CIT(A) failed to note the facts that as per the explanation 1 to sec. 32 of the IT Act which stated that if an assessee incurs expenditure on leasehold premises for the construction of any structure or doing of any work in or in relation to or by way of renovation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to issue of shares and is not re la table regular business. 2.2. Ld. CIT(A) failed to appreciate the facts mentioned in the case of Brooke Bond India Ltd. and Punjab State Industrial Development Corporation that expenditure incurred in relation to increase in share capital is not allowable. 2.3. The Ld. CIT(A) erred to direct the AO to delete the disallowance of ₹ 1,17,70,125/- u/s. 14A of the IT Act. 2.4. The Ld. CIT(A) failed to appreciate that the decision of the Honourable ITAT relied upon Learned CIT(A) in the assessees group case, for the assessment years 2010-11 2011-12 order has not become final and the department has preferred appeal before the Honourable High Court of Madras u/s. 260A. 2.5. The Ld. CIT(A) failed to appreciate that the addition made u/s. 14A on the reasoning that assessee did not earn any exempt income during the year overlooking the fact the assessee made investments in assets earning exempt income and incurred expenditure towards such investments during the year which was claimed as deduction while computing taxable income. 2.6 The Ld. CIT(A) erred to allow the 100% depreciation on addition leased building of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the decision of Ld. CIT(A) in deleting the disallowance of Rs. 1,17,70,125/- made u/s. 14A of the Act. 79. This issue was raised by the Revenue for the assessment year 2011-2012 in ITA No. 2013/CHNY/2016, wherein we decided the issue in favour of the assessee vide para 45 of above. Fact situation being the same, grounds of appeal No. 2.3 to 2.5 of the Revenue for assessment year 2013-2014 also stand dismissed. 80. Grounds 2.6 to 2.9 challenges the decision of Ld. CIT(A) in deleting the addition made on account of excess depreciation on building of Rs. 3,36,89,844/-. 81. This issue was raised by the Revenue for the assessment year 2010-2011 in ITA No. 2012/CHNY/2016, wherein we decided the issue in favour of the assessee vide para 18 of above. Fact situation being the same, grounds of appeal No. 2.6 to and 2.9 of the Revenue for assessment year 2012-2013 also stand dismissed. 82. In the result, the appeal filed by the Revenue in ITA No. 2744/CHNY/2016 for assessment year 2013-2014 stands dismissed. 83. To summarize the results, the appeals of the assessee for ITA Nos. 1604 1740/CHNY/2016 for assessment years 2011-12 and 2012-2013 stand allowed, whereas the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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