9911796707
TMI Blog2016 (2) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... 1107/Del/2012. We shall first take up for consideration appeal filed by the Revenue. The grounds of appeals are as follows :- "1. The Ld. CIT(A) has erred on facts and in law in deleting of Rs. 6,96,49,795/- on account of notional income from house property. 2. The Ld. CIT(A) has erred on facts and in law in deleting disallowance of Rs. 7,33,602/- on account of interest on loan and advances. 3. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 27,768/- on account of extra depreciation claimed on computer peripherals. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. In Ground No. 1 revenue is aggrieved by the action of Ld. CIT(A) in deleting the addition of Rs. 6,96,49,795/- made by the AO on account of notional income under the head "Income from House Property". This issue is discussed at length by the AO at pages 1-8 of the assessment order. It is observed by the Ld. AO at page 6 of his order that identical addition was made by the tax department in assessee's own case for A.Y. 2001-02 to A.Y. 2003-04. Ld. CIT(A) on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apartments of this building were given on sub-licence basis to different parties for carrying on business as specified on the sub-licence agreements. The licence agreement which was entered into between the assessee and the NDMC permits the assessee to sub-licence the portion of the premises. It is on the basis of this authorization given in the licence deed that the assessee has sub-licenced offices and apartments in the West Tower to the various parties. The sub-licences given to these parties are for a period of 9 years and 11 months, which is renewable at the request for the sub-licensees. The assessee is not charging any rent lease or licence fee from these parties instead, the assessee has received interest free security deposits in the year of original sub-licence, which receipt was shown by the assessee-company as unsecured loan in its balance sheet. The sub-licence deeds, which are executed by the assessee with the sub-licensees also permit the sub-licensees to transfer the same to any other person on payment of transfer charges to the assessee-company. Thus, the sub-licensee is entitled to transfer the said sub-licence to third party as well. However, at the time of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on also provisions of section 22 of the Act would not be applicable, as the assessee continued to be in the legal occupation and possession. (d) The use of the premises by the sub-licensees was to assist the assesseecompany in getting hotel accommodation booked for the guests, delegates of the sub-licensees, apart from the increase in catering and restaurants' activities used by the sub-licensees. Therefore, the use of certain portion by the sub-licensees was not for the purpose of or for the benefit of the business of the assessee-company. 7. The Assessing Officer, however, did not accept the aforesaid explanation furnished by the assessee. He was of the view that the license agreement with the NDMC was for a period of 99 years with the right of constructing and developing the property which makes the assessee-company owner of the property. He also opined that the assessee-company had sub-licensed the offices and apartments to various persons, some of whom had further sub-licensed the same; the assessee was not charging any rent, fees etc. on the sub-licensing of these properties, except interest free security deposits which were taken by the assessee at the time of sublic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises and remains to be the owner of the premises in question". The Tribunal has further accepted the submissions of the assessee that in view of the provisions of section 27(iii) of the Act, it is the sub-licensee who would be "deemed owner" of those premises which the sub-licensees whereof transferred to the present occupiers and those occupiers are paying rent/licence fee to the sublicensees. On that basis, the Tribunal has set aside the addition made by the Assessing Officer and deleted this component of income holding that the same would not be chargeable to tax. 11. This is how the Department has filed the appeals pertaining to different assessment years. As pointed out above, though the issues before the Assessing Officer, CIT(A) as well as the Tribunal were numerous, in these appeals primarily one question of law which is formulated and reproduced above has been pressed by the Department. 12. For the aforesaid reasons, we are of the view that the approach of the Tribunal in deciding the aforesaid issue is perfectly justified. There is no reason to interfere with the same. We clarify that the assessee would not be entitled to depreciation on this purpose. We, thus, ans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue appeal is therefore dismissed. 5. In Ground No.3 the Revenue is aggrieved by the action of Ld. CIT(A) in deleting an addition of Rs. 27,768/- on account of extra depreciation claimed on computer peripherals. Case records show that during the year under consideration assessee has claimed depreciation on computer peripherals at the rate of 60%, however, this was restricted by the Ld. AO to the rate of 15%. Ld. CIT(A) has deleted the disallowance by following the decision of Hon'ble Delhi High Court in the case of BSES Yamuna Power Ltd. reported in 358 ITR 47 (Del). During the course of hearing Ld. AR invited our attention towards a recent pronouncement of Delhi High Court in the case of Orient Ceramics and Industries reported in 200 Taxmann 64 (Del) wherein, the Delhi High Court has reiterated the earlier view in case of BSES Yamuna (supra). After careful consideration of the case records we find no reason not to uphold the view taken by CIT(A) by following decision of jurisdictional high court noted above. As such ground No.3 of Revenue Appeal is also dismissed. 6. As a result, revenue appeal in ITA No.1107/Del/2012 is dismissed. 7. We shall now take up for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision rendered by Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd. reported in 370 ITR 338 (Del). We principally agree with the said contention of the assessee. The AO should have first examined the books of accounts of the assessee and only thereafter if he was not satisfied with the claimed by the assessee that it had not incurred any expenditure for the purpose of any exempt income that he could have invoked provisions of Rule 8D. In the instant case Ld. AO has failed to adopt this mandatory procedure. It is also seen that even the assessee has not been able to substantiate its claim before the lower authority. In our considered opinion this issue requires fresh examination at the end of the AO. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to examine this issue afresh in light of discussions made supra. 10. In Grounds Nos.3 and 3.1 the assesse is aggrieved by the action of lower authorities in making a disallowance of Rs. 12,00,00,000/- on account of license fees paid by the assesse to New Delhi Municipal Corporation (NDMC). Facts in brief in this regard are that in year 1982, a plot of land on which the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat on one hand a liability is shown as contingent liability and on the other it is claimed as an ascertained liability without sufficient material evidence in support of such a claim. Further it has been held in following case laws that :- "Law in well settled that expenditure which is deductible for income tax purpose is towards a liability actually existing in the year of account. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. The income tax law makes a distinction between the actual liability in praesenti and a liability de future which, for the time being, is only contingent. The former is deductible but not the latter. Indian Molasses Co. Pvt. Ltd. vs. CIT (1959) 37 ITR 66 (SC) See : Standard Mills Co. Ltd. vs. CIT (1998) 2290 ITR 366 (Bom)." "Expenditure which is deductible for income tax purposes is one which is towards a liability actually existing at the time; but putting aside of money which may become expenditure on the happening of an event is not expenditure. Where the liability itself is contingent, as contrasted from payment being contingent, there can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be at best termed as a provision towards payment of license fee till the issue is finally adjudicated upon by the Hon'ble High Court. Now coming to the directions of the Hon'ble High Court which have been heavily relied upon by the ld. Counsel for the appellant. On a careful consideration, I find that the Hon'ble Court has not issued any directions as such. A perusal of the order dated 06.02.2002 suggest that it was a suo-motto offer by Mr. A.S. Chandhiok, Senior Counsel for the appellant to pay Rs. 1 crore per month from August, 2002. The Hon'ble Court has not commented anything about the merits of this offer and they have simply listed the matter for hearing on 8th April, 2002 in the category of "after noticed miscellaneous matters". Therefore, I am not in agreement with the ld. Counsel for the appellant that the payment of Rs. 12 crores was made in terms of the court directions. 5.5 In view of the aforesaid facts and having regard to the fact narrated in the show cause issued by the NDMC on 12.11.1999 that there has been no agreement executed between the assessee company and the NDMC after 31.03.1998, I have no hesitation in holding that the payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f license fee. 59, last 7 lines 16-10-1990 Upon the aforesaid threats being given, the plaintiffs filed a suit being Suit No. 1193/90 under section 20 of the Arbitration Act, 1940 for appointment of an arbitrator. This suit for an ad-interim injunction was dismissed. 60, top Para 11-03-1991 An appeal was preferred against the judgment dated 16-10-1990 and during the pendency of this appeal, an out of Court settlement was arrived at between the parties which resulted in the execution of a Supplementary Agreement - installments agreed upon 62, last para 04-08-1995 & 31-03- 1998 Two further Supplementary Agreements executed between parties. Amount of installments agreed upon vide Supplementary Agreement dated 11-03-1991 increased. 64, 2nd Para top - In between representations were made by 'A' with NDMC to reconsider amount of license fee as the amount being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r notice miscellaneous matters". Till the next date of hearing operation of the judgment is stayed. If the amount as stated by Sr Counsel for the appellant body is not paid month by month then this appeal shall be deemed to have been dismissed" 95 21-04-2015 Suit No. 610/2000 disposed off by the Delhi High Court 108 - 109 14. Shri Syali further submitted that vide order dated 06th February 2002 while directing payment of Rs. 1 cr per month the High Court had further held that "if the amount as stated by Sr. Counsel for the appellant today is not paid month by month then this appeal shall be deemed to have been dismissed". Under the circumstances it was claimed, that the assessee was mandatorily required to make the payments to NDMC to safeguard the hotel business being carried on by it. It was also submitted before us that in order dated 06th February 2002 it has nowhere been held by the High Court that in case the assessee succeeds in its claims then the amount of Rs. 12 cr paid by it to NDMC would be refundable to it. In this regard support was drawn from the decision of Hon'ble Apex in case of KCP Limited reported in 245 ITR 421(SC). Ld Senior Counsel thereafter submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extend amount actually paid i.e Rs. 12 crores it is stated by the auditors that the same is debited to the P&L account and hence there is no question this being contingent. Lastly, it was submitted by Shri Syali that subsequent events in the case vindicate the stand taken by the assesse. In this regard it was submitted that recently vide assessment order dated 18th March 2015 passed by the Ld AO for AY 2012-13 it has been held by him that the amount of Rs. 12 crores paid by the assessee as license fees to NDMC is not a contingent liability. Claim made for deduction of Rs. 12 crores as a business expense has been was allowed by the Ld AO after taking into consideration clarification issued by NDMC vide letter dated 26th September, 2014. 15. Per contrary Ld CIT(DR) Shri Sunil Sharma vehemently supported the disallowance made by the Ld AO and upheld by Ld CIT(A). He not only placed reliance upon conclusions recorded by the Ld AO in the assessment order and by Ld CIT(A). During the course of his submissions he referred to the final order dated 21st April 2015 passed by Delhi Court High Court disposing of the Civil Suit in which it is noted that a compromise is reached between ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber, 1999. Plaintiffs allege that in that meeting the Chairperson of the plaintiffs hotel agreed to pay a sum of Rs. 3 crores on the clear understanding that an Independent agency / committee would be constituted by the NDMC to determine the fair and equitable quantum/rate of licence fee. However, the chairperson refused to have agreed to the appointment of any such committee and gave one week's time to the plaintiffs to make payment failing which it was threatened that the licence would be cancelled and possession of the hotel would be taken. On this threat being given, the Plaintiffs filed a petition being Civil Writ Petition No.7163/99 in this Court. In the aforesaid Writ Petition filed by the plaintiffs, they prayed for issue of a Writ of Certiorary or any other appropriate writ order or direction for quashing the show cause notice dated 28th June, 1999 and 12th November, 1999 and for issue of an appropriate writ order or direction directing the respondents to constitute a committee of independent persons to evaluate the legitimate / fair licence fee payable in respect of the land having regard to the licence fee paid by other hotels which were similarly situate as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors in their certificates. Prima facie, it appears to the Court that only that income which is compulsorily payable by the plaintiffs in terms of an agreement which it might have arrived at with the third party or statutory liability necessarily payable may only have be deducted for the purpose of arriving at the gross turn over to the hotel. The franchisee fee payable is 3% by the NDMC to the franchisee and it is only the 97% of the receipts which are received by the hotel. Prima facie, this 3% may have to be deducted from the room tariff. Luxury tax on behalf of the Government is also received by the hotel at the time of providing its services to the guests and since this tax does not come in the hands of the hotel, this may also have to be deducted from the gross turn over of the hotel. The other amount which may have to be deducted from out of the gross turn over of the hotel as shown in the balance sheets is the credit card commission as the amount which is received by the hotel on payments received through credit cards is net of commission charged by the credit card companies. Other component which may have to be deducted from the gross turn over is the interest income on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvenience clearly lies in favour of the larger public interest rather than in favour of the plaintiffs. The only indulgence to which the plaintiffs may be entitled is to pay the arrears of licence fee in installments. Since the amount which may be calculated on the basis of the above formula may be quite heavy, the plaintiffs will be at liberty to deposit the said amount in four equal quarterly installments, first of which will be paid within three weeks from the date of this order. I, accordingly, restrain dependent-NDMC, its agents and employees from interfering with the possession of the plaintiffs over the land and building situate at 1, Windsor Place, Janpath, New Delhi in any manner whatsoever and from disconnecting, withholding or causing to be withheld any amenities including water and / or electricity to the plaintiffs hotel, subject to the plaintiffs depositing the entire licence fee in the matter directed in this Order calculated @ 21% of the gross turnover of the hotel arrived at on the basis on the observations made in this order. Prima facie, I am also of the opinion that the plaintiff will also have to pay interest on this amount calculated for the time being at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute pending in the High Court and the High Courts had passed different interim orders pursuant to which the respective assessees were collecting the excess price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realisation of the excess price by the respective assessees was hedged by several conditions, one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the Court. Thus, the receipt of the amount by the assessee was clearly associated with a liability to refund the amount which liability was ascertainable and quantified. Such is not the case at hand......." 17. We further observe that in past the tax department itself had allowed the claim made by the appellant. Baring reassessment proceedings for AY 2003-04, which too are premised upon a change of opinion (as held by us later in this order) the claim made by the appellant has been allowed in AYs 2004-05, 2005-06, 2006-07 and 2012-13. In fact in AY 2004-05 liability of Rs. 12 crores being actually paid was held allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition / disallowances made in past be not repeated. In reply vide submission dated 07.01.2015 and 28.02.2015 it was argued by the Assessee that vis-à-vis disallowance of license fee of Rs. 12 crores paid to NDMC the predecessor assessing authorities have not properly appreciated the factual and legal position of the instant case. The Ld. AR clarified that the liability to pay license fee is not in dispute however, actual quantification of same is currently pending final adjudication by the Hon'ble Delhi High Court. Undisputedly, the liability to pay license fee is a contractual liability. NDMC vide a recent communication dated 26/9/14 has clarified as under :- "The Chairperson Hotel CJ International (Le-Meridien) Windsor Place, Janpath New Delhi - 110 001 Subject:- Submission of audited balance sheets and calculations of GTO for determination of License Fees to NDMC in respect of premises situated at Janpath Road, Windsor Place, New Delhi (known as Le-Meridien) Dear Madam, Please refer to your letter dated 11.09.2014 on the subject cited above, in the respect for the purposes of records, please note that the amount rendered as license fee in terms of Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was much more. Contingency if at all during FYs 2001-02 to 2013-14 was vis a vis Rs. 150.09 cr which finally became determinable in year 2015. However for the year under consideration the payment of Rs. 12 cr was a confirmed liability, which NDMC accepts as not being subject to further litigation before Delhi High Court. Considering the peculiar facts of the present case we therefore hold that the appellant was entitled to claim deduction of Rs. 12 crores paid by it to NDMC as License Fees under License Deed dated 14th July 1984. Decisions relied upon by the Ld AO in his order of assessment are also not relevant since these are decisions wherein certain provisions made in books of accounts were sought to be claimed as a deduction, per contrary this is a case where liability actually being discharged is being claimed as deduction. We accordingly hold that appellant merits succeeding in its claim. Ground Nos 3 and 3.1 are therefore allowed. 19. In ground no. 4 appellant challenges levy of interest u/s 234B and 234D. Levy of interest will be consequential in the instant case. No separate directions need be issued in this regard. 20. Appeal filed by the assessee in ITA No. 787/Del/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal: "1. That on facts and in law, CIT(A) erred in upholding the disallowance made by the AO on account of license fee of Rs. 12,00,00,000/- paid to NDMC during the year under consideration. 2. That on facts and circumstances of the case levy of interest u/s 234B & 234D of the Income Tax Act, 1961 is bad in law. 3. That on facts and in law the Commissioner of Income Tax (Appeals) erred in upholding the order of AO partly and not allowing relief as claimed. 4. That on facts and in law the orders passed by the Assessing Officer {hereinabove referred to as the "AO" is bad in law and void ab initio." Sole issue involved in this appeal pertains to disallowance of license fee of Rs. 12 crores paid to NDMC during the year under consideration. We have also considered this issue in appeal filed by assesse for AY 2008-09 above in ITA no. 787/Del/2012. For reasons stated above claim made by the assesse is allowed. As a result appeal of assesse in ITA No. 386/Del/2013 is allowed. 23. For AY 2003-04 only assessee has filed an appeal in ITA No. 771/Del/2012. Following grounds of appeal have been raised by the assessee: "1. That on facts and in law the Commissioner of Income Tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of Rs. 1,14,49,935/- which was processed u/s 143(1) of the I.T. Act, 1961 on 06.03.2004. The case was selected for scrutiny and the asstt. Was completed u/s 143(3) of the Act on 20.08.2006 at an income of Rs. 9,16,82,026/-. The perusal of asstt. Records for the AY 2003-04 reveals that the assessee had debited an amount of Rs. 11,00,00,000/- in the P/L Account towards license fees paid to NDMC. It is revealed that as per schedule 14 note 2 (iii) of notes to accounts the above payment has been classified as contingent liability which is an unascertained liability and should have been added back. The I.T. Act, 1961 provides that - "a provision made in the accounts for an accrued or is known liability is an admissible deduction, while other provisions made do not qualify for deduction. It has been judicially held that for a loss to be deductible, it must have actually arisen and incurred and not merely anticipated as certain to occur in future. In view of above facts of the case, I have reason to believe that the income to the tune of 11,00,00,000/- has escaped assessment owing to the failure on part of assessee to disclose fully and truly material facts necessary for asstt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans and advances includes Rs. 983.72 lacs paid to NDMC pursuant to agreement with NDMC and orders of Delhi High Court that this amount has been debited without prejudice to the company's rights to refund and interest. From the above, it is clear that the assessee company reserved the right to claim the refund and since the dispute was still pending, why the amount paid should not be disallowed." In reply vide submissions dated 15th February 2006 the appellant submitted following reply to the Ld AO: "In your letter dated 30.01.06, you have required the company to show why the amount paid of Rs. 11.00 Crores to NDMC should not be disallowed. The Company is required to pay 21% of the turnover or Rs. 2.68 Crores whichever is higher as License Fee to NDMC as per Clause 3 of the License Deed. On the turnover of Rs. 6900.17 lacs the amount at 21% works out to Rs. 1449.04 lacs. The company has claimed Rs. 1100.00 lacs, which is less than the above. The matter is pending for adjudication before the Hon'ble Delhi High Court, pending final order we have been directed to pay Rs. 75 lacs per month from February 2002 and Rs. 1 Crore per month August, 2002 onwards. Since this amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." Above ratio propounded by the jurisdictional High Court is clearly applicable to the instant case. 31. We moreover observe that there is also no failure or omission on part of appellant to disclose material facts to the Ld AO. This is a jurisdictional precondition, which must be satisfied as per proviso to section 147 of the Act. Facts relied upon by the Ld AO in support of his reasons to belief i.e note no. 2(iii) was duly considered by him during the course of original assessment. No fresh facts have also come to the knowledge of Ld AO justifying a fresh initiation of action u/s 147 of the Act. It is trite law that when a specific query raised by the AO is replied to by the assessee during the course of original assessment then it cannot be said that there is any failure or omission attributable to the assesse. Jurisdictional High Court in case of Haryana Acrylic Mfg reported in 308 ITR 38(Del) has held as under: "........Explanation I to section 147 also makes it clear that mere production before the Assessing Officer of account books or other evid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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