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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ NEW DLEHI
Before: SHRI N.K. BILLAIYA & SHRI N.K. CHOUDHRY
PER N.K. CHOUDHRY, J.M.
This appeal has been preferred by the assessee against the order dated 27.01.2020, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-25, New Delhi (in short ‘Ld. Commissioner’), u/s. 250 of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2015-16.
The brief facts, relevant for adjudication of the instant appeal, are that the assessee by filing its return of income on 24.09.2015 declared loss of Rs.1,29,11,11,730/-, which was later on revised on dated 06.02.2017, whereby the loss was declared to the tune of Rs.72,22,14,330/-. Subsequently, the case of the assessee was selected for scrutiny and resulting into issuance of statutory notices
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and making of the disallowance of Rs.33,34,13,313/- under Rule 8D(2)(ii) of the Income-tax Rules, 1962 (for short ‘the Rules’) and of Rs.45,45,070/- on account of amortisation of lease rent as capital in nature, by the Assessing Officer .
2.1 The Assessee, being aggrieved by the said disallowances challenged the same before the ld. Commissioner, who vide para 4 of the impugned order, partly affirmed the addition made by the Assessing Officer on account of disallowance u/r 8D of the Rules, to the extent of Rs.15,000/- only and deleted the remaining. Further vide para No. 4.2 of the impugned order, the ld. Commissioner affirmed the disallowance of Rs.45,45,070/- on account of being amortisation of lease payments claimed as business expenditure by the assessee by holding as under : “4.2 In Ground No.2, the appellant has contested disallowance of Rs.45,45,070/- being amortization of lease payments claimed as business expenditure. The Assessing Officer has erred in law and on facts in disallowing an amount of Rs.45,45,070/- being amortization of lease payments. These are allowable as business expenditure for ascertaining the correct taxable profits. AO disallowed expenditure as the same was being disallowed by revenue since AY 2006-2007. AO failed to appreciate the fact that it was allowed up at AY 2005-2006. 4.2.1 The Assessing Officer considered reply of the assessee which was more or less same as in the preceding year. He also went through the cases relied upon by the assessee, which are distinguishable from the facts of the instant case. The assessee in its computation has claimed the deduction of Rs. 45,45,070/- as amortization of lease rent . In this regard, it is important to note that by merely changing the name of expenditure, the claim of the assessee does not become entitled u/s 37 whereas the allowability of depreciation is to be considered u/s 32. It is obvious from the nature of these expenses that they provide the assessee enduring benefits spread over several decades. Making the part of the payment annually does not change the nature of the expenditure. The assessee's claim is accordingly rejected
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u/s 37 of the income tax, Act 1961 which prohibits deduction of any capital expenditure. 4.2.2 The Assessing Officer pointed out that the Hon’ble Delhi High Court had dismissed the appeal of the assessee on this issue and the addition made by the AO has been upheld. Accordingly, the deduction on account of amortization of lease rent amounting to Rs. 45,45,070/- was disallowed and added back in the income of assessee. Similar and identical issue was adjudicated upon by my Ld. predecessor for A.Y. 2011-12 and 2012-13. The relevant portion of the appellate order for A.Y. 2012-13 is reproduced as under: “The issue involved is found to be covered one. The allowability of lease rental amortization came up for consideration before me for the A. Y. 2011-12, the relevant portion of which is reproduced below: "5.2.7-From the perusal of copy of lease deeds in respect of above two lands, it is noted that both the lease are renewable. It is also fact that all the charges — registration and stamp duty with regard to entering into the above lease were borne by the appellant. Though, so liberty has restrictions, have been imposed on the lessee but overall it is noted that en liberty has granted to transfer the rights subject to certain conditions and other hick restrictions, are consistent with the nature of interest created i.e. lease hold rights the similar as in case of Noida land. Therefore, considering the order of Hon'ble Delhi High Court exactly on the same issue in respect of A. Y. 2004-05, relevant portion of reproduced above, the addition made by the AO is upheld. Thus, ground no 5 to 8 dismissed for the reasons mentioned above and the addition of Rs.25.55.745/- is upheld. ” 4.2.3 Therefore, following the principle of judicial consistency, on similar facts and circumstances, I uphold the addition made by the AO of Rs.45,75,672/- following the appellate order passed for the assessment year 2011-12 in appeal no. 31/15- 16. Hence, ground No. 2 of appeal is dismissed.”
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The assessee being aggrieved with the affirmation of the said disallowances, preferred the instant appeal on the following grounds:
The ld. CIT (A) erred in law and on facts in confirming the disallowance of Rs. 45,45,070/- being amortization of lease payment. These are allowable business expenditure for determining the taxable income and should have been allowed. 2. The appellant contends that amortization of these expenses over the period of the lease is revenue expenditure and is in the nature of rent paid for the use of land. It is not in the nature of capital expenditure as the assessee does not get any legal title or any right over the land. 3. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 15,000/- u/s 14A r.w.r. 8D of the Income Tax Rule 1962 without recording any satisfaction for rejecting assessee’s claim. The disallowance is wrong and bad in law and should be deleted. 4. The ld. CIT(A) has failed to appreciate that the AO has not brought on record any material to show nexus between expenditure and earning of exempt income. No disallowance u/s 14A r.w.r. 8D can be made. 5. The ld. CIT(A) has failed to appreciate that Rule 8D can be invoked only when the A.O. from the books of accounts is able to demonstrate that some expenditure has been incurred for earning tax free income. Rule 8D has been mechanically invoked by A.O. without establishing such nexus. Consequently, the disallowance u/s 14A r.w.r. 8D of Rs. 15,000/- should be deleted. 6. The ld. CIT (A) has failed to appreciate that there is no exempt income claimed by assessee. The income referred of Rs. 15000/- is part of total income, claimed as deduction u/s Chapter VIA. The Hon’ble Delhi HC in assesses own case has held that 14A would not come into play. 7. The above grounds are independent and without prejudice to one and another. 8. The appellant also prays to add, amend, alter or forgo any of the grounds at the time of hearing.”
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Heard the parties and perused the material available on record. Ground No. 1 & 2 relates to the disallowance qua amortisation of lease payments. At the outset, our attention was drawn by the assessee to the order 04.01.2022 passed by the Hon’ble coordinate Bench in Assessee’s own case in ITA Nos. 5711/Del/2017 & 5754/Del/2017 for the AY 2012-13 decided on 04- 01-2022, wherein the Hon’ble coordinate Bench in para No. 8 and 9 of its order consideredthe similar issue qua disallowance on account of amortisable portion of lease premium payment and restored the issue concerning to the land at ‘Vishakhapatnam’ for construction of Rural Godown leased from Port Trust, Visakhapatnam and also the land at‘Tuticorin’ for construction of Godown leased from the Port Trust, Tuticorin, to the file of Assessing Officer for decision de novo in accordance with law.
4.1 Considering the peculiar facts and circumstances and the order referred above passed by the Hon’ble Coordinate Bench, we deem it appropriate to remit the issue related to the amortisation of lump sum amount paid as lease premium quo the lands at Visakhapatnam leased from Port Trust and atTuticorin for construction of godown leased from Port trustTuticorin, to the file of Assessing Officer for decision afresh in accordance with law. Hence ordered accordingly.
4.2.1 With regard to the amortisable portion of the lease taken from Noida Authority, before the Hon’ble co-ordinate Bench in the case pertains to previous AY referred above and before us as well, the Assesseeconceded that the issue has already been decided against the Assessee by the Hon’ble High Court in ITA no. 205/2010 decided on 12-07-2012, though the Assessee has preferred an appeal before the Hon’ble Apex Court, however, not pressing the
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same. As the decisions as stands today are against the Assessee, therefore the disallowance qua amortisable portion of the lease taken from Noida Authority, stands affirmed.
Consequently, ground Nos. 1 & 2 are partly allowed.
Ground Nos. 3 to 6 relate to the disallowance of Rs.15,000/- u/s. 14A r.w.r. 8D of the Rules. The assessee before us claimed that the ld. Commissioner wrongly affirmed the addition/disallowance of Rs.15,000/- for equity investment in NEFED on the ground having been received as dividend income whereas the income referred to Rs.15,000/- is part of the total income which was claimed as deduction under Chapter VI-A of the Act. The assessee further claimed that the ld. Commissioner, without recording any satisfaction for rejecting the Assessee’s claim, confirmed the disallowance of Rs.15,000/-, which is contrary to the law and facts, as the Assessing Officer has not brought on record any material to show nexus between the expenditure and earning of exempt income, therefore no disallowance u/s. 14A r.w.r. 8D is warranted.The assessee in support of its arguments also relied upon the judgment of Hon’ble High court in Assessee’s own case, i.e., ITA No. 444/2011 decided on 18.07.2012, where in para No. 32, the Hon’ble High Court has decided the identical issue by concluding as under:
“32. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words “do not form part of the total income under this Act” is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to
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be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced.”
5.1 Considering the peculiar facts and circumstances, and the decision referred above rendered by the Hon’ble High court in the Assessee’s own case qua identical issue, we deem it appropriate to remit the issue qua disallowance u/s. 14A r.w.r. 8D of the Rules to the extent of Rs.15,000/- to the file of the Assessing Officer for decision afresh in accordance with law, suffice to say while affording reasonable opportunity of being heard to the Assessee.
Ground No. 7 & 8 are general in nature and hence needs no independent adjudication.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 26/07/2022.
Sd/- Sd/- ( N.K. BILLAIYA) (N.K. CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER
*aks/-