THE PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR vs. GUJARAT POWER CORPORATION LTD.

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TAXAP/61/2020HC GujaratGJHC24009653202017 February 2020Author: HONOURABLE MR. JUSTICE J.B.PARDIWALA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal. Regarding the first issue concerning the Section 35D claim, the Court noted that the ITAT had not given an independent finding for the assessment year under appeal but had followed its earlier decision in the assessee's own case (ITA No. 84/Ahd/2007), which had attained finality. Therefore, the appeal was dismissed on this ground alone. For the second issue concerning rent, rates, and taxes, the Court found that both the CIT(A) and the ITAT had concurrently held that the payments were revenue in nature, necessary to fulfill statutory requirements for land ownership, and not capital expenses. Since there was a concurrent finding of fact, no substantial question of law arose. The third question was declined as it did not arise from the Tribunal's order.

What were the facts?

The appeal by the Revenue challenges an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2005-06. The ITAT had upheld the deletion of additions made by the Assessing Officer (AO). The first disputed addition was Rs. 25,16,488/- claimed by the assessee, Gujarat Power Corporation Ltd., under Section 35D of the Income Tax Act, 1961, for amortization of preliminary expenses. The second disputed addition was Rs. 2,72,81,590/- on account of rent, rates, and taxes. The AO had disallowed the Section 35D claim, but the CIT(A) and ITAT deleted the addition based on consistency with prior years where the AO had allowed the claim. For the rent, rates, and taxes, the CIT(A) and ITAT held the expenses to be revenue in nature, not capital.

What were the issues?

1. Whether the Appellate Tribunal erred in law and on facts by upholding the deletion of the addition of Rs. 25,16,488/- claimed under Section 35D of the Income Tax Act, 1961. - Assessee's contention: The ITAT relied on its earlier decision in the assessee's own case (ITA No. 84/Ahd/2007), which had attained finality, and therefore the claim should be allowed based on the doctrine of consistency, as the AO had allowed it in the first year. - Revenue's contention: The Tribunal erred in upholding the deletion as the assessee was not entitled to the deduction under Section 35D, as the expenses were incurred post-commencement of business and not substantiated in connection with setting up or extension of an industrial undertaking. The Tribunal's own observation in paragraph 16.1 indicated ineligibility. 2. Whether the Appellate Tribunal erred in law and on facts by upholding the deletion of the addition of Rs. 2,72,81,590/- on account of Rent, Rates and Taxes. - Assessee's contention: The expenses were revenue in nature, necessary to maintain control over assets, and did not bring into existence any advantage of enduring nature. They were statutory requirements for ownership. - Revenue's contention: The expenses related to lands where business activities had not commenced and should be capitalized.

Which sections of the Income-tax Act were involved?

Section 35D,Section 260A,Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
C/TAXAP/61/2020 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 61 of 2020 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, GANDHINAGAR Versus GUJARAT POWER CORPORATION LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 17/02/2020

ORAL ORDER (PER : HONOURABLE MR.JUSTICE BHARGAV D. KARIA)

1.

This appeal is at the instance of the revenue filed under Section 260A of the Income Tax Act, 1961 (for short ‘the Act, 1961’) and is directed against the order dated 31.07.2019 passed by the Income Tax Appellate Tribunal, Ahmedabad “B” Bench, Ahmedanad in ITA No.3578/Ahd/2008 for the assessment year 2005-06. 2. The Revenue has proposed the following questions of law as substantial questions of law, for consideration of this Court: “[A] Whether the Appellate Tribunal has erred on facts and in law, in upholding the order of CIT(A) deleting the addition of Rs.25,16,488/- on account of claim under Section 35D of the Act?” [B] Whether the Appellate Tribunal has erred on facts and in law, in upholding the order of CIT(A) deleting the addition of Rs.2,72,81,590/- on account of Rent, Rates and Taxes? [C] Whether the Appellate Tribunal has erred in law and on facts in confirming the order passed by CIT(A) directing the Assessing Officer to give deduction for principal part of rent received from the taxable income without there being a corresponding claim in the return or before the Assessing Officer during assessment proceedings?"

3.

The issue raised by the Revenue in this appeal is with regard to deleting the addition by the CIT (A) for claim made by the assessee of Rs.25,16,488/- under Section 35D of the Act.

4.

The assessee claimed deduction, under Section 35D of the Act, 1961, for the first time in the year 2004-05. The issue of dis-allowance, under Section 35D of the Act, was subject matter of the appeal, for the assessment year 2003-04 and also for the assessment year 2004-05. 5. Learned advocate Ms.Mauna M. Bhatt for the appellant submitted that the Tribunal on the merits of the case has held that the assessee is not entitled to the claim deduction under Section 35D of the Act which provides for amortization of certain preliminary expenses. She relied upon the observations made by the Tribunal in paragraph No.16.1, which reads thus:

“16. 1. From the mindful reading of the above section 35D of the Act it can be construed that ROC fee is allowable only when paid for registration of the company. Printing charges are to be for printing of Memorandum or Article of Association or printing of prospectus. There is no specific mention about the allowance of stamp fee in the given section. We observe that the payment made to the ROC is not for registration and the same has been established by the AO in his order which is not disputed by the Ld. AR. Moreover it is also noted that these expenditures were incurred post commencement of business. Besides this the same could not“16. 1. From the mindful reading of the above section 35D of the Act it can be construed that ROC fee is allowable only when paid for registration of the company. Printi be substantiated to have been incurred in connection with the setting up or extension of an industrial undertaking. In the light of above observation it is evident that the deduction claimed u/s 35D of the Act was not eligible and ought not to have been allowed in the very first assessment u/s 143(3) of the Act. It is further observed that the case of the Hon’ble Rajasthan HC in Agro Transport Ltd. v CIT (224 ITR 90) was in context to expenditure for obtaining registration which is different from present case hence the same cannot aid the present case in hand.”

6.

However, the CIT (A) as well as the Tribunal both relied upon the fact that once the Assessing Officer has allowed the claim under Section 35D of the Act in the first year of allowance, it could not have been cured and therefore, in view of the doctrine of consistency, the claim made by the assessee is required to be allowed for the year under consideration.

7.

The Tribunal therefore followed the decision taken by in assessee’s own case being ITA No.84/Ahd/2007 and dismissed the appeal of the Revenue.

8.

Learned advocate for the appellant submitted that the decision in ITA No.84/Ahd/2007 is not carried further and challenged before this Court, which has attained finality.

9.

In view of the aforesaid facts and more particularly, as the Tribunal has not given any independent finding for the year under appeal and followed its earlier decision in assessee’s own case in ITA No.84/Ahd/2007, which has attained finality,

the appeal requires to be dismissed only on that ground.

10.

With regard to the Question [B], the facts are that the assessee possesses several pieces of lands in Bhavnagar and Amreli Districts where the activities of the assessee was not commenced till the year under consideration despite the fact that these lands were acquired by it in the earlier year.

11.

The assessee therefore filed an appeal before the CIT (A). The CIT (A) after considering the submissions, held as under:

“5. 3. The matter has been given due consideration and I am inclined to agree with the arguments of the Authorized Representative. Besides the fact that the expenses involved are recurring in nature and do not bring into existence any new fixed assets, as emphasized by the Authorized Representative, laying out of such expenses is a necessity to keep control of the assets. Payment of taxes of any kind, whether one time or recurring nature, never enhance the value of the asset being used in question nor brings into existence of any advantage of enduring nature. Clearly, land revenue, through levied on the land, a fixed asset for the appellant, in itself is not a capital expense but is only revenue expenses paidout to fulfill the statutory requirement emanating out of the ownership of the land. Hence, after considering in totality, I hold that the sum of Rs.2,72,81,590/- is revenue in nature and hence an allowable expenses.”

12.

The appellant-Revenue therefore being aggrieved by the order passed by the CIT (A), preferred an appeal before the Tribunal. The Tribunal, considering the facts and materials available on record, held as under:

“29. We

have heard

the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the rent and taxes paid by the assessee with respect to the land where the activity has not been commenced are liable to be capitalized. From the preceding discussion, we note that the assessee has been incurred such expenditure year after year and it is not getting any benefit of enduring nature out of such expenditure. We also note that the purchase of the land for the business purpose is routine activity of the assessee and its commercial activities are already in operation in respect other projects. Therefore, in our considered view the expenditures claimed by the assessee are revenue in nature.

Accordingly there cannot be any disallowance on accont of such expenses treating them as capital in nature. Hence, we uphold the finding of the learned CIT(A). Thus the ground of appeal of the Revenue is dismissed.”

13.

Thus, the CIT(A) as well as the Tribunal have arrived at concurrent finding of the fact that the payment of rent and taxes, paid by the assessee, is not capital expenses but is only revenue expenses paid out to fulfill the statutory requirement for the purpose of continuing the ownership of the land.

14.

In such circumstances, no question of law much less any substantial question of law can be said to be arisen out of the impugned order of the Tribunal.

15.

With regard to the Question “C” is concerned, the same does not arise out of the order of the Tribunal and therefore, we decline to answer the same.

16.

The Appeal therefore fails and is accordingly, dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) PALAK

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