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Income Tax Appellate Tribunal, AHMEDABAD ‘B’ BENCH, AHMEDABAD
Per Pramod Kumar, AM:
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 2 of 8 1. These cross appeals challenge correctness of the order dated 09.09.2015 passed by the learned CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter), for the assessment year 2011-12.
In the appeal filed by the assessee, following grievances are raised.
In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-I, Baroda, erred in confirming disallowances and additions and the observations made by the assessing officer in the assessment order in respect of the following points. He erred in:
In respect of disallowance u/s 14A:
a) In confirming the disallowance of Rs.5,93,89,179/- u/s 14A read with Rule 8D. He ought to have deleted the disallowance made by the assessing officer.
b) In concluding that the claim of interest in respect of borrowings to acquire controlling interest in a company engaged in the same business cannot be treated as revenue expenditure and same cannot be allowed u/s 36(1)(iii). He ought to have appreciated that acquisition of controlling interest in a company engaged in the same business is merely an expansion of existing business and hence the interest is allowable u/s 36(1)(iii).
c) In not appreciating that the company has not earned dividend on this investment or any other investment and also the said company is subsequently amalgamated with the appellant company and hence no disallowance is required u/s.14A. He ought to have appreciated that in view of the aforesaid facts, no disallowance u/s.14A is required.
d) In not appreciating that there is no dividend income which is claimed as not forming part of total income and consequently no disallowance under sec.14A can be made for the relevant assessment year.
e) In not appreciating that the appellants own funds and non-interest bearing funds exceeds investment in tax-free securities. 3. Notwithstanding elaborate wording of the grounds of appeal raised before us, short grievance of the assessee, in substance, is that on the facts and circumstances of the case, the CIT(A) erred in upholding disallowance of Rs.5,93,89,179/- under section 14A red with Rule 8D.
To adjudicate on this grievance it is sufficient to take note of the fact that in the present year the assessee did not have any income from dividend and yet a disallowance of Rs.5,93,89,179/- has been made on the ground that these expenses were incurred in earning dividend income which is exempt from tax. It is by now settled
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 3 of 8 legal position that disallowance under section 14A of the Act cannot exceed the related exempt income, and that in a case in which the assessee does not have earned any tax exempt income in the particular year, the disallowance under section 14A of the Act cannot be made either. In assessee’s own case for the assessment year 2010-11, vide order dated 10.02.2017, a co-ordinate bench of this Tribunal has inter alia held as follows :-
“19. We have carefully considered the orders of the authorities below. It is not in dispute that the assessee has not received any exempt income during the year under consideration. The disallowance has been made on finding of the fact that the assessee has made certain investments out of borrowed funds. In our considered opinion, since the assessee has not earned any exempt income, no disallowance u/s. 14A read with Rule 8D is called for. Our view is also fortified by the decision of the Hon’ble High Court of Gujarat in the case of Corrtech Energy Ltd. 372 ITR 97. Held “that the Tribunal had recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. Hence, no disallowance could be made u/s. 14A of the I.T. Act.” 5. Respectfully following the above legal position and having noted that the assessee did not have any tax exempt income during the relevant previous year, we uphold the grievance of the assessee and delete the impugned disallowance of Rs.5,93,89,179/-.
In the result, appeal of the assessee is allowed.
We now take up the appeal filed by the Assessing Officer.
In the first ground of appeal, the Assessing Officer has raised the following grievance:-
“1) On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in by allowing the entertainment exemption tax of Rs.102278787/- by ignoring the fact that it was a revenue receipts by observing that the exemptions was availed by the assessee after the commencement of commercial operations of the multiplexes.” 9. Learned representatives fairly agree that this issue is also covered by the order dated 10.02.2017 passed by the co-ordinate bench of this Tribunal in assessee’s own case for the assessment year 2010-11 wherein the Tribunal has inter alia held as follows :-
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 4 of 8
“10. We have given a thoughtful consideration to the orders of the authorities below qua the rival contentions. The claim of subsidy can be summarized in the following chart:-
Sr.No Multiplex at Amount (Rs.) Brief 1 Baroda (Gujarat) 20,616,897 Held to be a capital receipt not exigible to tax for Assessment Years 20O3-04 to Assessment years 2009- 10 by CIT(A) and the same confirmed by ITAT, Ahmedabad for AY 2003-04 to 2005-06 2 Nariman Point 33,578,000 Held to be capital receipt not exigible (Maharashtra) to tax for Assessment Years 2006-O7 to 2009-10 by CIT(A). The applicable policy covered in favour of the appellant by IT AT, Ahmedabad's Common Order for AY 20O3-04 to AY2OO5-06 3 Burdwan (West Bengal) 3,050,769 Held to be a capital receipt not exigible to tax for Assessment year 2009-10 by CIT(A). The applicable policy covered in favour of the appellant by IT AT, Ahmedabad's Common Order for AY 2003-04 to AY 2005-O6 4 Lucknow (Uttar Pradesh) 14,656,794 Held to be a capital receipt not exigible to tax for Assessment Years 2008-09 to 2009-10 by CIT(A) 5 Indore (Madhya 5,656,806 Held to be a capital receipt not Pradesh) exigible to tax for Assessment Years 2006-07 to 2009-10 Assessment Year by CIT(A) 6 Nagpur2 (Maharashtra) 11,372,664 First year of claim. However, same facts as in Pune and Nariman Point apply. The applicable policy covered in favour of the appellant by IT AT, Ahmedabad's Common Order for AY2003-04 to 2005- 06 7 Darjeeling (West Bengal) 2,633,719 Held to be a capital receipt not exigible to tax for Assessment Years 2008-09 to 2009-10. The applicable policy covered in favour of the appellant by IT AT, Ahmedabad's Common Order for AY 2003-04 to AY 2005-06. 8 Raja hat (West Bengal) 4,050,745 First year of claim. However, same facts as in Salt Lake, Darjeeling
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 5 of 8
and Burdwan apply. The applicable policy covered in favour of the appellant by IT AT, Ahmedabad' Indore 2 (Madhya First year of claim. However, same 9 5,641,334 Pradesh) facts as in Indore apply. First year of claim. New Policy 10 Crystal Palm (Rajasthan) 5,731,329 applies. Total (Rs.) 106,989,057
We find that the claim of subsidy at various Multiplexes from Serial No. 1 to 9 above have been accepted as capital receipt in earlier years. This has not been disputed by any of the lower authorities. The only dispute relates to the subsidy received from the Government of Rajasthan in respect of Item No. 10 above. It is also not in dispute that in pursuance of the terms of scheme introduced by the Government of Rajasthan to encourage construction of new cinema halls, assessee was running a cinema hall. It is also not in dispute that the assessee could receive the subsidy only after the fulfillment of the mandatory conditions. These facts have not been controverted by any of the lower authorities. 12. The Hon’ble High Court of Rajasthan had the occasion to consider a similar issue before it the facts of which read as under:-
* The assessee firm was running a cinema hall. It had shown certain receipts, which included entertainment tax. In the profit and loss account, the assessee had transferred a part of receipts to entertainment subsidy account and claimed same to be exempt from tax being in the nature of capital receipts. * The assessee explained that there was a scheme of the Government of Rajasthan to encourage construction of new cinema halls by providing such a subsidy in the form of entertainment tax for a particular period. A copy of notification issued in this regard was placed before the Assessing Officer. But the Assessing Officer did not agree with the assessee and treated said amount as its income. * The Commissioner (Appeals), however, accepted the plea of the assessee after re lying, inter alia, on the State Government's notification and deleted the entire addition by treating the entertainment subsidy as a capital receipt because said amount had been credited in the books of account of the assessee as a liability under the head "Capital Subsidy". * The Tribunal upheld the order of the Commissioner (Appeals). 13. And on appeal, the Hon’ble High Court held as under:-
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 6 of 8 *In the instant case, it is more than apparent that the State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall constructed, subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31-3-2000. *In the scheme of the Rajasthan Entertainments and Advertisements Tax Act, 1957, where entertainment tax is determined and recoverable from the proprietor of the entertainment and is levied with reference to the number of admissions to the entertainment, when the State Government had exempted such proprietor of new cinema hall from payment of entertainment tax on the given condition, the object was clearly to promote the construction of new cinema halls. * Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall. As held consistently by the Courts, the source of funds for construction of such cinema hall is irrelevant; and it would also not matter if the grant would be available after the business has been set up. * In the totality of the circumstances; and particularly looking to the scheme of the Act of 1957 as also the object and purport of the exemption notification, the assistance in question cannot be said to be an operational subsidy so as to be taken as a revenue receipt. * The submission that once the assessee has collected the entertainment tax from the persons admitted to the entertainment and has not deposited the same with the Government, it is required to be treated as revenue receipt remains devoid of substance. The remission by the Government had been to the proprietor of the entertainment and not to the person admitted to the entertainment. The remission had been the methodology adopted by the State Government to provide assistance to the new cinema hall; and had been essentially in the nature of a subsidy, ie., the assistance from the Government to the new cinema hall [Paras 15,16 & 17] * Accordingly, it is held that the Tribunal was justified in affirming the deletion of addition, being the amount of entertainment tax capitalized as subsidy. [Para 18] * In view of the above, the appeal fails and is, therefore, dismissed. [Para 19] 14. As no distinguishing decision has been brought on record before us. Respectfully following the decision of the Hon’ble High Court of Rajasthan (supra), we direct the A.O. to treat the amount of Rs. 5731329/- also as a capital receipt. Ground no. 1 is accordingly allowed.” 10. We see no reasons to take any other view of the matter than the view so taken by the co-ordinate bench in assessee’s own case for the immediately preceding assessment year. Respectfully following the same, we confirm the action of the ld.
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 7 of 8 CIT(A) who had merely followed the stand in the assessment year 2010-11. Grievance of the Assessing Officer is accordingly rejected.
Groundno.1 is thus dismissed.
In ground no.2, the Assessing Officer has raised the following grievance:-
“2) On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) erred in by holding Employee’s stock option plan amounting to Rs.1621904/- as an allowable expenditure u/s.37(1) of the Income Tax Act, 1961 without appreciating the findings of Assessing Officer .” 13. Learned representatives fairly agree that this issue is also covered in favour of the assessee by Tribunal’s decision in assessee’s own case for the assessment year 2008-09 wherein the Tribunal has inter alia observed as follows :-
“7. We have carefully considered the orders of the authorities below. We find force in the contention of the ld. counsel. The Co-ordinate Bench in the case of the Cera Sanitaryware Ltd. (supra) has considered this issue at para 9 of its order and at para 10, the Tribunal considered the decision of the Special Bench in the case of Biocon Ltd. 25 ITR (Trib.) 602 and after considering the decision of the Special Bench directed the A.O to claim of deduction.
The Hon’ble High Court of Madras in the case of PVP Ventures Ltd. 25 Taxmann.com 286 has allowed such claim as business expenditure and the Hon’ble High Court of Delhi in the case of Lemon Tree Hotels Ltd. in ITA No. 107/2015 has followed the decision of the Hon’ble High Court of Madras held that cost of ESOP could be debited in Profit and Loss account of the assessee. Respectfully following the aforementioned decisions, we direct the A.O to allow the claim of deduction on account of remuneration to ESOP. Ground No. 1 is accordingly allowed.”
We see no reasons to take any other view of the matter than the view so taken by the co-ordinate bench in assessee’s own case for the assessment year 2008-09. Respectfully following the same, we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. Grievance of the Assessing Officer is accordingly rejected.
Ground no.2 is thus dismissed.
In the result, appeal of the Assessing Officer is dismissed.
ITA Nos.3330 & 3362/Ahd/2015 Assessment year: 2011-12 Page 8 of 8 17. To sum up, while appeal of the assessee is allowed, appeal of the Assessing Officer is dismissed. It was so pronounced in the open court on this 5th day of January, 2018.
Sd/- Sd/- S S Godara Pramod Kumar (Judicial Member) (Accountant Member) Dated: 5th January, 2018.
PBN/*
Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File
By order
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad