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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘A’
Before: SHRI RAJPAL YADAV & SHRI AMARJIT SINGH
आदेश/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-8, Ahmedabad dated 4.7.2017 passed for the Asstt.Year 2012-13.
The assessee has taken following grounds of appeal:
“1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in conforming deduction u/s 35D for Rs.41,84,012/- being 1/5th of Rs.2,09,20,060/- stating that no such
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ground has been taken in subsequent years by the appellant. The Assessing Officer may be directed to delete the same.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has erred in upholding addition of Rs.7,32,288/- out of total disallowance of Rs.33,65,433/- made by Assessing Officer.
2.1 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in upholding action of AO for making disallowance u/s 14A while computing book profit u/s 115JB.
In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in confirming the depreciation of Rs.1,04,28,596/-, at the rate of 25% on lease-hold right acquired in respect of land at Dahej SEZ (being an intangible asset), on opening WDV calculated on the basis of claim made by the appellant during assessment proceedings for A.Y, 2011-12. The claim shall be duly allowed.”
At time of hearing, the ld.counsel for the assessee did not press ground no.1, hence, it is rejected.
Ground nos.2 and 2.1:
Brief facts of the case are that the assessee has filed its return of income on 29.09.2012 declaring total loss at (-) Rs.6,66,96,895/-. On scrutiny of the accounts, it revealed to the AO that the assessee has dividend income of Rs.85,06,365/- which is claimed as exempt. He examined the expenses required to be disallowed in relation to earning of this income under section 14A r.w. rule 8D. The ld.AO has worked out expenditure of Rs.33,65,433/-. He made disallowance of the above amount under regular provisions while computing the income of the assessee. The AO has further added back this amount for computing book profit for the purpose of section 115JB of the Act.
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On appeal, the ld.CIT(A)has restricted this disallowance to Rs.7,32,288/-. The assessee has given a calculation wherein it has calculated the amount required to be disallowed under section 14A. This calculations have been accepted by the ld.CIT(A). With the assistance of the ld.representatives, we have gone through the page nos.4 and 5 of the CIT(A) where such calculations have been reproduced. The case of the assessee was that the AO has erred in considering the average total assets while applying the formulate under Rule 8D. The ld.CIT(A) found that re-working made by the assessee is in order, and therefore, restricted this disallowance to Rs.7,32,288/- against Rs.33,65,433/- made by the AO.
In ground no.2, the case of the assessee is that the ld.CIT(A) has erred in upholding the addition of Rs.7,32,288/-. If this addition is being raised qua disallowance made by the AO and added back in the total income while determining the income under regular provisions, then we do not find any error in the order of the ld.CIT(A), because calculation has been made by the assessee itself. It has not worked out any amount required to be disallowed in the account. This addition to that extent in the regular provision is justified.
However, in ground no.2.1 the assessee has pleaded that this amount cannot be added back in the book profit for the purpose of section 115JB. The ld.counsel for the assessee for buttressing this point relied upon the decision of Special Bench in the case of ACIT Vs. Vireet Investments P.Ltd., 165 ITD 27 (SB) wherein it is held that no increase or decrease can be effected in
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the book profit calculated under section 115JB on account of certain disallowance made under section 14A.
Considering the above facts, we are of the view that Special Bench of the ITAT in the case of Vireet Investment P.Ltd. (supra) has formulated following question for adjudication on this issue:
“Whether the expenditure incurred to earn exempt income computed u/s.14A could not be added while computing book profit u/s.115JB of the Act.”
Special Bench answered this question in favour of the assessee and held that computation for the purpose of clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A r.w. rule 8D. Respectfully following the above decision of the Special Bench, we allow this ground of appeal and direct the AO not to make adjustments in book profit for the purpose of MAT liability on the basis of calculations made with Rule 8D of the Income Tax Rules.
In the next ground issue involved is, whether depreciation at the rate of 25% on leasehold right acquired in respect of land at Dahej SEZ is admissible to the assessee or not.
The ld.counsel for the assessee at the very outset contended that the ld.CIT(A) has not recorded any independent finding in this year, but simply followed the findings of her predecessor in the Asstt.Year 2011-12. In the Asstt.Year 2011-12 appeal has been heard by the Tribunal and outcome of that be followed.
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We find that the ITAT has decided similar issue in the Asstt.Year 2011-12 in ITA No.1562/Ahd/2015 vide order dated 19.3.2019. The discussion made by the Tribunal on this issue reads as under: “8. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has acquired a piece of land on lease from Dahej SEZ in the year 2009 admeasuring 65,434.33 square meters. The assessee in respect of such land paid one time premium of Rs. 5,56,19,181/- being Rs. 850/- per square meter. The assessee besides the above was also liable to pay rent of Rs. 1/- per square meter on an annual basis.
8.1. The commercial activity of the assessee was commenced in the year under consideration. However, the assessee did not make any claim for the deduction of such premium in its profit and loss account. But the assessee claimed the deduction in the form of depreciation at the rate of 25% during the assessment proceedings by way of furnishing a letter to the AO.
2. However, the AO rejected the claim of the assessee on the ground that the assessee made such claim without filing the revised return of income.
8.3. The assessee before the Ld.CIT (A) in addition to its claim of depreciation made a fresh claim by submitting that it is entitled to the deduction of one- time premium paid on such lease land as revenue expenditure. In this connection, the assessee placed his reliance on the judgment of Hon’ble Gujarat High Court in the case of DCIT Vs. Sun Pharmaceuticals industries Ltd reported in 227 CTR 206.
8.4. However, the Ld.CIT (A) rejected the claim of the assessee on account of depreciation in respect of the premium paid on such lease land on the ground that in the group company of the assessee namely torrent Power Ltd in ITA number 3133 & 3331/AHD/2008 vide
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order dated 21-1-2011 the ITAT has rejected the identical claim.
8.5. Similarly, the Ld.CIT (A) after admitting the fresh claim of the assessee, i.e. treating the premium as revenue expenses also held that the case law relied upon by the assessee, i.e. Sun Pharmaceuticals Industries Ltd is distinguishable from the facts of the present case.
Now the 1st question arises for our consideration whether the assessee is entitled to claim the premium paid on the leased land as revenue expenses. To our understanding, the assessee after making the payment of the premium on the leased land does not acquire any fixed assets other than the right to use such land for its commercial activities. There was also no disclosure of any fixed assets in the balance sheet of the assessee on account of the payment of such premium. Indeed the assessee acquired the right to use such lease land after registering the lease deed with Dahej SEZ. But in our considered view the registration of the deed does not change the character of the lease premium.
9.1. At this relevant point of time, we find it important to refer the judgment of the Hon’ble Gujarat High Court in the case of DCIT Vs. Sun Pharmaceuticals industries ltd supra wherein it was held as under:
“The assessee-company claimed deduction of a sum of Rs. 48,02,616 being payment to Gujarat Industrial Development Corporation (GIDC). The Assessing Officer called upon the assessee to substantiate the said claim. It was contended that the lease rent in respect of the land allotted to the assessee-company being very nominal. i.e., at the rate of Rs. 40 per year, the said payment was nothing else but advance rent and, hence, allowable as revenue expenditure. After going through the lease agreement the Assessing Officer disallowed the claim holding that the
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assessee had acquired a benefit of enduring nature in the form of use of land for a period of 99 years; that the land had been transferred through a registered deed involving transfer of immovable property; and, thus, the assessee had acquired a fixed asset in the form of a parcel of land. The Tribunal held that the land in question was not acquired by the assessee and that merely because the deed was registered the transaction in question would not assume a different character. The Tribunal observed that the lease rent was very nominal; by obtaining the land on lease the capital structure of the assessee did not undergo any change; the assessee only acquired a facility to carry on the business profitably by paying nominal lease rent. Therefore, the Tribunal allowed the assessee's claim. Held that, it was a case which warranted no interference. Even the Assessing Officer had recorded that the payment was for use of land. There was no legal infirmity committed by the Tribunal. Thus, the Tribunal was justified in holding that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure.”
On perusal of the above judgment, we are of the view that the principles laid down by the Hon’ble Gujarat High Court are is squarely applicable to the facts on hand.
However, the Ld.CIT (A) has held that the facts of the case of the assessee are different from the facts of the case of Sun Pharma (supra) on certain reasons which have already been elaborated in the preceding paragraph. But we disagree with the finding of the Ld.CIT (A) due to the following reasons:
The agreement of Sun Pharma and the assessee is with the GIDC. Thus the finding of the Ld.CIT (A) that the assessee does not have the agreement with GIDC is wrong. The copy of the agreement between the assessee and the GIDC is placed on pages 64 to 79 of
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the paper book. The relevant extract of the agreement is reproduced as under:
“ LEASE DEED Of Residential Plot Nos.B-15, B-16, B-17, B-18, B-19, B- 20, B-21, B-22, B-23, B-24, B-25, B-26, B-27 and B-28 Atali Housing (Dahej) Industrial Estate Name of Party M/s.Torrent Energy Limited
“LEASE DEED
THIS IDENTURE OF LEASE made at Agra on 13th day of April the year Two Thousand Eleven between the Gujarat Industrial Development Corporation, Corporation constituted under the Gujarat Industrial Development Act, 1962 and having its Head Office at…..”
The difference in the amount of rent paid by the assessee and the Sun Pharma cannot be a ground to hold that the facts are different.
There is also no change in the capital structure of the assessee as well as sun Pharma on account of such land taken on these.
11.1. We also note that claim for treating such premium as revenue expenses was made 1st time before the Ld.CIT (A) which was duly admitted as per the provisions of law by him. But after admitting the claim of the assessee, the same was rejected by the Ld.CIT (A) for the reasons discussed here-in-above. Regarding this, we note that the Ld.CIT (A) has not called for any remand report from the AO on the issue of such premium payment as revenue expenditure. Thus there remains no ambiguity that the AO did not verify this fact. In our considered view, the Ld.CIT (A) should have called for the remand report from the AO on the impugned issue of such premium paid on the leased land. Thus we are inclined to restore this issue to the file of AO to decide the matter
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afresh in the light of the judgment of Hon’ble Gujarat high court in the case of Sun Pharma as discussed above.
11.2. We are also conscious of the fact that the issue of remand report is not arising from the order of authorities below. However, to meet the end of justice, we are of the view that the fair opportunity should also be given to the AO.
11.3. We also note that the Ld.CIT (A) has decided the impugned issue against the assessee after having a reliance on the judgment of Hon’ble Delhi High Court in the case of Gail India ltd Vs JCIT reported in 211 taxman 587.
11.4. However, we are reluctant to place of reliance on the aforesaid judgment in view of the fact that the impugned issue is covered by the Hon’ble jurisdictional High Court which has a binding force on us in the given facts and circumstances.
11.5. We also note that the assessee is paying less amount of rent on account of payment of the premium on such land took on the lease. To our understanding, had the assessee not paid such amount of premium, then it would have been paying a higher amount of rent to Dahej SEZ which would have been allowed as a deduction to the assessee being an expenditure incurred exclusively for the business. In this regard, we find support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT vs. Madras Auto service (P) ltd. reported in 233 ITR 468 wherein it was held as under:
“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 such construction. 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
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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, the assessee 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 appeared to be revenue expenditure. The building was never belonged to the assessee. Right from the inception, the building was under the ownership of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court had, therefore, rightly considered this as obtaining a business advantage. The expenditure was, therefore, to be treated as revenue expenditure. Since the asset created by spending the amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus, saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court had rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure.” 11.6. For the time being, we are not inclined to adjudicate the issue raised by the assessee in its grounds of appeal whether the assessee is entitled to depreciation on the payment of such premium on the land taken on lease. As such we keep the issue open.
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11.7. It is also important to note that, in case the AO allows the deduction to the assessee treating the amount of premium as revenue expenses than he will ensure the compliance of the provisions of section 194 I read with the 2nd proviso to section 40a(ia) of the Act to meet the end of justice.
11.8. We also find pertinent to direct the AO to ensure that the assessee should not claim the deduction for such payment of premium on the land took on lease in the subsequent year in the event the deduction is allowed to the assessee treating such expenses as revenue in nature.”
Since there is no independent finding recorded by the ld.CIT(A) in this year except putting reliance on the order of the ld.CIT(A) in the Asstt.Year 2011-12 and that order has already been set aside by the ITAT and the issue has been remitted to the file of AO for adjudication afresh. Similar procedure be followed in this year also. Respectfully following the order of the Co-ordinate Bench, we allow this ground of appeal for statistical purpose and restore the issue to the file of the AO who will follow directions given by the ITAT in the Asstt.Year 2011-12.
In the result, appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the Court on 26th March, 2019.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 26/03/2019
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :