TODI INDUSTRIES PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER - 8(3)(2), MUMBAI

A.Y. 2015-16 Todi Industries Pvt. Ltd. 4.2 The Appellant prays that carry forward of the unabsorbed depreciation u/s. 72 of the Act be allowed. GROUND NO. 5: NON-GRANT OF MAT CREDIT AMOUNTING TO RS. 6,14,510/-: 5.1. On the facts and in the circumstances of the case and in law, the Id. AO erred in not granting the MAT credit amounting to Rs. 6,14,510/-. 5.2. The Appellant prays that MAT credit u/s. 115JAA of the Act be granted. GROUND NO. 6: INCORRECT COMPUTATION OF INCOME: 6.1 On the facts and in the circumstances of the case and in law, the Id. AO erred in incorrectly computing the assessed income of the Appellant. 6.2 Ld. AO erred in considering the returned income/ (loss) at (Rs. 88,186/- instead of (Rs. 8,81,186/-) in the assessment order, resulting into assessed income being inflated by Rs. 7,93,000/- 6.3 The Appellant prays that the Id. AO be directed to consider the correct amounts and recompute the income, tax payable and tax demand. GROUND NO. 7: INTEREST U/S. 234B & 234D OF THE ACT AMOUNTING TO RS. 63,492/- AND RS. 1,00,323/- RESPECTIVELY: 7.1 On the facts and in the circumstances of the case and in law, the Id. AO erred in levying interest u/s. 2348 amounting to Rs. 63,492/- and 234D amounting to Rs. 1,00,323/- 7.2 The Appellant prays that the AO be directed to delete/ appropriately reduce the interest u/s. 234B and 234D of the Act. GROUND NO. 8: RECOVERY OF INTEREST U/S. 244A OF THE ACT AMOUNTING TO RS. 2,57,321/-: 8.1 On the facts and in the circumstances of the case and in law, the Id. AO in recovery of interest u/s. 244A amounting to Rs. 2,57,321/- granted earlier. 8.2 The Appellant prays that the AO be directed to delete/ appropriately reduce the recovery of interest u/s. 244A of the Act.”

A.Y. 2015-16 Todi Industries Pvt. Ltd. claimed as a revenue expenditure on account of payment for surrender of tenancy rights. 4. Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A). Ld. CIT(A) upheld the addition of Rs. 1 cr. made by the Ld. AO on account of compensation paid for surrender of tenancy rights. 5. Aggrieved with the order of Ld. CIT(A), the assessee is in appeal before the Tribunal. As many as 8 grounds of appeal are raised in this appeal.

6. Ground No. 1: Disallowance of expenditure on account of compensation paid for surrender of tenancy rights - Rs. 1 cr. 6.1 Brief facts of the issue are that the assessee had paid a compensation of Rs. 1 cr. for surrender of tenancy rights in its revised return of income. It was submitted, during the course of assessment proceedings, that the compensation had been paid to obtain the compensation from the old tenant out of business necessity and commercial expediency as the tenant was paying rent of Rs. 17,000/- per month only and a suit had been filed by the assessee in September 2014 against the said tenant due to which the tenant approached the assessee for settlement. Based on this statement, the aforesaid compensation was paid by the assessee to the tenant for vacating the premises. Thereafter, the assessee was able to find a new tenant at a substantially higher rent of Rs. 3,75,000/- per month for the same premises.

A.Y. 2015-16 Todi Industries Pvt. Ltd. 6.2 Before us, Ld. AR has cited several decisions wherein it has been held that the expenditure incurred by way of lump sum compensation to an existing tenant with a view to earn higher rental income from new tenants is allowable on account of commercial expediency. It has also been submitted that the issue is squarely covered in the assessee’s own case for AY 2016-17 wherein the co- ordinate bench has decided it in favour of the assessee. With regard to the question raised during the course of the hearing, regarding the applicability of the decision of the Hon’ble Apex Court in the case of Goetze India Ltd v/s CIT (2006) 284 ITR 323, Ld. AR has made the following written submissions: “1.6 ...................................................... In this regard, at the outset the Appellant Assessee humbly submits that the ld. AO has not invoked the decision of Apex Court in Goetze (India) Ltd. (supra). The ld. AO has acknowledged that Appellant Assessee has filed a revised return of income. The claim is denied on the alleged ground that the expenditure is of capital nature. The Appellant Assessee most humbly invites attention to the decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. (supra) wherein it was held as under: 2. The question raised in this appeal relates to whether the appellant-assessee could make a claim for deduction other than by filing a revised return, The assessment year in question was 1995-96. The return was filed on 30-11-1995 by the appellant for the assessment year in question. On 12-1-1998, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income-tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return.

3. This appellant's appeal before the Commissioner of Income-tax (Appeals) was allowed. However, the order of the further appeal of the Department before the Income-tax Appellate Tribunal was allowed. The appellant has approached this Court and has submitted that the Tribunal was wrong in upholding the Assessing Officer's order. He has relied upon the decision of this Court in National Thermal Power Co. Ltd. v. CIT[1998] 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal.

A.Y. 2015-16 Todi Industries Pvt. Ltd.

A.Y. 2015-16 Todi Industries Pvt. Ltd. Ltd. (supra) to observe that the purpose of assessment is to tax real income. This court taking note of the decisions of the Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 and National Thermal Power Co. Ltd. (supra) in the case of Mitesh Impex (supra) had observed as under (page 103 of 367 ITR): "It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. v. CIT (supra) is confined to the powers of the Assessing Officer and accepting a claim without revised return. This is what the Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd. v. CIT (supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd. v. CIT (supra). When it comes to the power of the Appellate Commissioner or the Tribunal, the courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the Assessing Officer. Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the Assessing Officer. (emphasis supplied) 1.8 As can be seen from the above decisions, while an additional claim before the AO can be made only by way of revised return of income, there is no bar on the assessee to make such additional claim before the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal. In any case, the Appellant Assessee has claimed the deduction of Rs. 1,00,00,000/- in the revised return of income filed within the statutory timelines and therefore in the Appellant Assessee's humble view, the decision of Goetze (India) Ltd. (supra) would have no adverse implications in its case. 1.9 Further, the Appellant Assessee submits that the assessee can file revised return as many number of times so long as it is within the limitation period prescribed under section 139(5) of the Act. In this regard the Appellant Assessee places reliance on the decision of Hon'ble Bangalore Tribunal in the case of ACIT v. Samson Distilleries (P.) Ltd [2006] 9 SOT 24 (Bangalore Trib.) (URO) [Copy of judgement is enclosed as Annexure - 5 at page no. 24 to 26].”

A.Y. 2015-16 Todi Industries Pvt. Ltd. 6.3 Ld. DR, on the other hand, relied on the orders of the lower authorities and the decision of the Hon’ble Apex Court in Goetze India (supra). He further pointed out that Ld. CIT(A) has rightly held that the compensation paid for the surrender of tenancy rights which is claimed beyond the audited accounts and not routed through the Profit and Loss account could not be treated as a business expenditure. He, therefore, argued that the decision of the Ld. CIT(A) deserves to be upheld. 6.4 We have heard the rival submissions and perused the material placed before us. We notice that the issue stands covered in favour of the assessee by the order of the co-ordinate bench in the assessee’s own case for AY 2016-17. The relevant portion of the order is as under: “35. After hearing both the parties and on perusal of the material placed on record, it is seen that assessee has paid compensation of Rs. 1,18,66,667/- to the existing tenants for surrendering the tenancy rights. The assessee had filed a suit against these tenants to restrain them from creating any third party rights and the tenant had approached the assessee for settlement and based on this consent terms assessee had to pay the compensation to other tenants. We find that this issue is covered by the decision of Hon'ble Calcutta High Court in the case of Shyam Burlap Co. Ltd. v. CIT (supra) wherein it was held that rental income earned by the assessee was taxable as business income, then compensation paid by the assessee to existing tenants to obtain vacant possession of building so as to earn higher rental income by letting out to new tenants was to be regarded as business expenditure allowable u/s.37(1). In para 14 & 15 of the Judgment the Hon'ble High Court held as under:- The Assessing Officer and the Tribunal had rejected the assessee's claim for treating the rental income as income from business as assessee in the preceding years had declared it as income from house property and there was no change in the facts of the case in this assessment year Then the issue is whether in the earlier assessment years whether assessee had declared the rental income as business income and was it considered in the light of the Memorandum The answer is in the negative Though as noted in earlier assessment years the assessee had shown rental income as income from house property however, in relevant assessment year it has claimed rental income as business income in view of the object as set out in clause 4 of the memorandum A.Y. 2015-16 Todi Industries Pvt. Ltd. Though before the Tribunal the Memorandum was relied on to put forward the case that the income was part of the business and payment of compensation was to earn higher income, it was not at all considered. Since in relevant assessment year the assessee had claimed rental income as business income and as previously there was no adjudication or decision considering the Memorandum, and as being the owner of the premises, payment of compensation ie the expenditure was wholly and exclusively for commercial expediency, in the said circumstances the principle of consistency cannot be made applicable. Again, the Assessing Officer and the Tribunal had rejected the claim of the assessee as there was no change in the facts of the case during the relevant assessment year Though the assessee had claimed that the rental income earned by it was assessable under the head business and the compensation was paid by it for obtaining possession from lessee/tenant so as to earn a higher income, as an admissible revenue deduction in spite of Memorandum permitting the assessee to carry on business by letting out properties, the Assessing Officer and the Tribunal ruled otherwise. Since the object in the Memorandum permitted the assessee to carry on business in letting out properties and as 85 per cent of the income of assessee was by way of deriving rent and lease rentals, income from rent constituted the business income of the appellant Since compensation was paid by the appellant, the landlord of the premises, to obtain possession from the lessee/tenant so as to earn a higher rental income, it had arisen out of business necessity and commercial expediency. Since there was no question of acquiring a property it cannot be said that the payment made was for having a benefit of enduring nature. Rather the compensation was paid to the existing tenants to have their portions vacated to have new tenants with higher rent and thus to have a higher rental income which was a business activity permitted by the Memorandum. [Para 14] 36. Similar view has been reiterated by the Hon'ble Kerala High Court as relied upon by the Id. Counsel. Since, no contrary judgment has been brought on record before us therefore, respectfully following two decisions of Calcutta High Court in the case of CIT v. Auto Distributor Ltd.; Shyam Burlap Co. Ltd. v. CIT and Hon'ble Kerala High Court judgment, we allow this issue in favour of the assessee and held that the compensation paid to the existing tenant for surrendering of tenancy rights is allowable u/s. 37(1).” As the issue has been decided in favour of the assessee after detailed examination of the facts and circumstances, respectfully following the decision of the co-ordinate bench, we hereby hold that the assessee is entitled to deduction u/s 37(1) of the Act in respect of the compensation paid for the surrender of tenancy rights amounting to Rs. 1 cr.

A.Y. 2015-16 Todi Industries Pvt. Ltd.

A.Y. 2015-16 Todi Industries Pvt. Ltd. 10. Ground No. 7 & 8: Regarding charging of interest u/s 234B & 234D and recovery of interest u/s 244A. These two grounds are consequential in nature and hence need no separate adjudication. 11. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 26.03.2025.