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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
IN THE INCOME TAX APPELLATE TRIBUNAL “ D ” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And MS. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No. 1562/Ahd/2015 (�नधा�रण वष�/Assessment Year : 2011-12 ) बनाम/ Torrent energy Ltd. The ITO Torrent House Ward-8(1) Vs. Nr.Dinesh Hall Ahmedabad Ashram Road, Ahmedabad �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AACCT 8570 B (अपीलाथ�/Appellant) (��यथ� / Respondent) .. अपीलाथ� ओर से/ Appellant by : Shri S.N. Soparkar & Shri Parikh Shah, AR ��यथ� क� ओर से/Respondent by: Shri G.C. Daxini, Sr.DR सुनवाई क� तार�ख/ Date of Hearing 28/01/2019 घोषणा क� तार�ख /Date of Pronouncement 19/03/2019 आदेश / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–8, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-XIV/516/13-14 dated 12.03.2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 21/02/2014 relevant to Assessment Year (AY) 2011-12.
The assessee has raised the following grounds of appeal: 1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in dismissing Ground No. 1 of the appellant's appeal before him challenging the very validity of the assessment order
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 2 - impugned before him, on the ground that it was general in nature and did not require adjudication by him.
Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred, even after appreciating that the sole ground for the learned Assessing Officer to disallow the appellant's claim for depreciation on the initial payment for leasehold rights to land @25% prescribed for intangible assets was that the appellant had made that claim only by addressing a letter during the course of the assessment proceedings and not by filing a revised return, and that it was incumbent upon him, as the Appellate Authority, to consider that claim, in rejecting it. He ought to have appreciated, inter alia, that the appellant's leasehold rights to land were intangible assets as defined by the Explanation to Section 32(1) and, therefore, its claim for depreciation was clearly allowable.
3.1 Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in rejecting the appellant's alternative claim for deduction for the full amount of initial payment for the leasehold rights in question as revenue expenditure, on the ground that the facts of the appellant's case were different from the facts in DCIT v. Sun Pharmaceutical Industries Ltd. (227 CTR 206) without considering the following VITAL facts of the appellant's case:
(a) That the appellant's facts, far from being different from the facts of the case before the jurisdictional Gujarat High Court as erroneously concluded by him, were not only similar but in fact better inasmuch as in the appellant's case, the annual lease rental was just Rupee 1 per sq. meter and the period of the lease was 30 years whereas in the case before the Gujarat High Court, the annual lease rental was much higher at Rs.40 per sq. meter and so also the period of lease which was 99 years, and being such, the ratio of that decision was applicable to the appellant's case with added force;
(b) That in arriving at its decision in DCIT v. Sun Pharmaceutical Industries Ltd. (227 CTR 206), the Gujarat High had applied the decisions of the Supreme Court in Empire Jute Co. Ltd. v. CIT (124 ITR 1) and CIT v. Madras Auto Service P. Ltd. (233 ITR 468) wherein it had been held that unless the
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 3 - expenditure was in the capital field, it could not be regarded as expenditure for the acquisition of an enduring benefit;
(c) that the Gujarat High Court had applied the above decisions of the Supreme Court even as it very well knew that the lease in the case before it was for as many as 99 years (whereas the period of lease in the appellant's present case was only 30 years).
The learned CIT(A) has further grossly erred in failing to appreciate that the facts of the appellant's case cannot be distinguished from the facts of the case before the Gujarat High Court in the manner he had done vide para 8.3 of his order and in particular, as under: "8.3 Thus what follows from the above is individual facts of the case are decisive to the issue. In none of the lease deeds filed before me, the lease rent is as low as Rs.40 per year. Thus the facts are not similar. None of the agreement is with GIDC. Hence facts cannot be said to be similar.—
He ought also to have appreciated that it was only axiomatic that but for the lease taken by the assessee in the case before the Gujarat High Court, that assessee too would not have been able to carry on that particular business which it could carry on in the premises leased by it and, therefore, it could not be open to him to conclude that the appellant's expenditure was in the capital field by merely suggesting that the appellant would not have been able to carry on its power distribution business without the impugned land taken by it under the lease, in total disregard of the vital facts concerning the decision of the jurisdictional Gujarat High Court pointed out by the appellant, as aforesaid.
3.2 In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has also grossly erred in failing to appreciate:
(a) that the appellant's claim for deduction of the entire amount of initial payment for acquiring leasehold rights in question as revenue expenditure pursuant to the ratio of the decision of the Gujarat High Court in DCIT v. Sun Pharmaceutical Industries Ltd. (227 CTR 206) did not convert that payment
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 4 - into rent as envisaged by Section 194-1 so that he may justify disallowance of the appellant's claim u/s. 40(a)(ia);
(b) that the appellant's claim pursuant to the ratio of the decision of the Gujarat High Court aforesaid cannot be denied on the ground that the appellant had taken possession of the land on 23-03-2009 which date fell in an earlier year; that, in any case, the appellant had neither made nor had it been allowed, this claim in any earlier year. 4. The appellant craves leave to add, amend and/or alter the ground or grounds of appeal either before or at the time of hearing of the appeal.”
First, we take up ground no. 3 of the assessee’s appeal. The issue raised in the ground no. 3 is that ld. CIT(A) erred in not allowing the premium paid in respect of leasehold land as revenue expenses.
The assessee is a limited company and engaged in the business of generation and distribution of electricity. During the assessment proceeding, the assessee made a fresh claim of depreciation by furnishing letter stating that it has acquired the lease-hold right in respect of Land at dahej SEZ for distribution of electricity in dhaej SEZ. The Cost of acquisition of the leasehold right is Rs. 5,56,19,181/- only. As per the assessee, such leasehold right is a business & commercial right and falls within the meaning of intangible assets as per provision of section 32(1)(ii) of the Income Tax Act. Therefore the assessee company is entitled to claim depreciation @25% on the value of such leasehold right. However, to avoid litigation, the assessee did not claim depreciation. Now the assessee claims deprecation during assessment proceeding.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 5 -
3.1. However, the AO rejected the assessee’s contention by observing that it can make any fresh claim before him only by filing the revised return u/s 139(5) of the Act. The AO placed reliance on the Supreme Court judgment in case of Goetze (India) Ltd. Vs. CIT reported 157 taxman 1. As the assessee has not filed the revised return, therefore no depreciation was allowed in respect of such leasehold right.
Aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) submitted that the decision of the Hon’ble Supreme Court on which AO has relied does not apply to the appellate authority. It is entitled to raise the additional claim at the forum of appellate authorities by way of legal submission.
4.1 The assessee placed his reliance on various judgment wherein it was held that assessee has the right to make new claims during the assessment proceeding without filing the revised return.
4.2 The assessee alternatively claimed that the entire lease premium paid is allowable as revenue expenses. The assessee in support of its claimed placed reliance on the judgment of Hon’ble Gujarat High Court in case of SUN Pharma reported in 227 CTR 206
4.3 The Ld.CIT (A) admitted the additional claim made by the assessee about allowing the entire lease premium as revenue expenses by placing
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 6 - reliance on the judgment of Bombay high court in case of CIT Vs. Prithvi Brokers and shareholders reported in 23 taxmann.com 23.
The Ld.CIT (A) observed that the assessee had obtained lease right of 65,434.33 sq meters land for Rs. 5,56,19,181/- (Rs. 850/- per sq meter of land). The assessee is also required to pay a token amount of Rs. 1/- per sq meter of land as yearly rent as per the deed.
However, the ld. CIT-A rejected the contention of the assessee concerning the claim of depreciation by observing that in the identical issue in the group concern of the assessee being torrent power limited for AY 2005-06 in ITA No. 3133 and 3331/AHD/2008 the ITAT Ahmedabad vide order dated 21-01-2011 decided the issue against the assessee.
4.4 Accordingly, the Ld.CIT (A) by following the ITAT order rejected the claim of the assessee regarding the depreciation on leasehold right.
4.5 Regarding the alternate claim of the assessee that the entire lease premium is allowable as revenue expenditure in the current year, the Ld.CIT (A) after the verification of the lease deed found that the facts in the case of Sun Pharmaceuticals Industries Ltd are not similar to the present facts on hand. There are certain differences enumerated as under: • The assessee is liable to pay rent of Re. 1/- per sq meter of land whereas in case of Sun Pharma the yearly rent is as low as Rs. 40 per year.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 7 - • The assessee obtained lease right for 30 years. However, Sun- Pharma obtained lease right for 99 years. • The assessee had a lease agreement with the Dahej SEZ limited whereas the Sun-pharma has a lease agreement with GIDC. • In the case of the assessee, the capital structure has changed whereas in case of Sun-pharma the capital structure has not undergone any change.
4.3. In view of the above, the Ld.CIT (A) held that the facts of the case on hand are different from the case of Sun Pharmaceutical industries ltd. Hence the claim of the assessee for the entire premium as revenue expense was dismissed.
4.4. It was also pointed out by the Ld.CIT (A) that to claim the premium as revenue expenses, there are some more conditions required to be satisfied. If it is presumed that premium paid is advance rent, then there is a condition to deduct TDS u/s 194I read with section 40(a)(ia) of the Act. Since the assessee has not done so, then the deduction for the same cannot be allowed. In view of the above, the ground of the assessee’s appeal in this regard was also dismissed.
Being aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.
The ld. AR before us filed a paper running from pages 1 to 85 and submitted that the premium paid on such lease rent should be allowed as
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 8 - deduction as revenue expenses. The learned AR in support of his claim relied on the judgment of Hon’ble Gujarat High Court in the case of sun pharmaceutical industries Ltd reported in 329 ITR 479.
The learned AR also claimed that the impugned payment represents the premium paid to acquire the right, thus the assessee is not liable to deduct TDS under section 194-I of the Act.
On the other hand, the learned DR submitted that the assessee has not furnished any details before the AO regarding such payment of premium on the lease land. The learner CIT (A) has also not called for any remand report from the AO on this issue. The learned DR vehemently supported the order of authorities below.
7.1. The learned AR in his rejoinder submitted that the Revenue has not come in appeal before the ITAT for admitting the additional claim of the assessee in contravention to the provisions of rule 46-A of Income Tax Rule. Therefore such issue cannot be raised before the ITAT. The learned AR further submitted that learned CIT (A) has used his coterminous power while deciding the issue on hand. Therefore there was no need to call for the remand report from the AO.
7.2. Regarding the non-deduction of TDS, the learned AR requested the bench to send the matter to the file of AO for verification in accordance to the 2nd proviso to section 40(a)(ia) of the Act.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 9 - 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.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 10 - 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 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:
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 11 - “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 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
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 12 - paragraph. But we disagree with the finding of the Ld.CIT (A) due to the following reasons: 1. 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 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. 3. 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.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 13 -
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 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.
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 14 - 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 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
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 15 - 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.
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
ITA No.1562/Ahd/2015 Torrent Energy Ltd. vs. ITO Asst.Year - 2011-12 - 16 - took on lease in the subsequent year in the event the deduction is allowed to the assessee treating such expenses as revenue in nature.
In view of the above, we allow the ground of appeal of the assessee in terms of the direction stated above. This Order pronounced in Open Court on 19/03/2019
-Sd- -Sd- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19 /03/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. संबं�धत आयकर आयु�त / Concerned CIT 3. आयकर आयु�त(अपील) / The CIT(A)-8, Ahmedabad 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad