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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, VP & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 10.03.2015 passed by the Commissioner of Income Tax (Appeals)-15, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2010-11.
The assessee has raised the following grounds: - 2.
“1. The learned CIT(A) erred in confirming the disallowance of the Revenue Expenses of Rs.1,92,30,263/- only oil ground that the assessee has shown the expenses under the head preoperative expenses in the books of account.
ITA. No3236/M/2015 A.Y. 2010-11
The learned 01(A) failed to appreciate that entries in the books of accounts cannot determinate the allowability of revenue expenses as the expenses were of revenue nature and the assesse has a running business in the assessment 2006-07 hence the revenue expenditure may be allowed as business expenditure.
Without prejudice to above, unit at Delhi and Hyderabad become operational during the F.Y. 2009- 2010 i.e. A.Y. 2010 - 2011, therefore expenses incurred in nature of revenue may be allowed as business expenditure. 4. The Assessee denies the levy of interest u/s. 234A, 234B and 234C of the Act. 5. The appellant craves leave to add, amend, alter or delete any of the grounds of appeal." The brief facts of the case are that the assessee filed its return of 3. income on 29.09.2010 declaring total income to the tune of Rs.3,00,83,340/- for the A.Y. 2010-11. The return was processed u/s 143(1) of the I. T. Act. Subsequently, the case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the I. T. Act, 1961 were issued and served upon the assessee. The assessee was engaged in the business of Restaurants & Hospitality Services operating through various unit in different parts of the country. The assessee claimed the unit Pre-operative expenses and a part of which has been written off in the books of accounts and deferred the remaining for return of the subsequent years. The Pre-operative expenses were in sum of Rs.2,08,64,540/-. The claim of the assessee has allowed to the extent of claim raised in the books of accounts and the remaining in sum of Rs.1,92,30,263/- was disallowed. Feeling aggrieved, the assessee A.Y. 2010-11 filed an appeal before the CIT(A) who confirmed the order of the AO, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. It is argued that it is not in dispute that the assessee has claimed partly pre-operative expenses and remaining was deferred in the subsequent years and same has been shown in the books of accounts but at the time of return, the assessee claimed whole pre-operative expenses which was declined by the AO wrongly and illegally, therefore, the claim of the assessee is liable to be allowed in the interest of justice and in this regard the Ld. Representative of the assessee has placed reliance upon the decision of the Hon’ble ITAT in the case of ACIT Vs Kopran Ltd. (2011) 14 taxmann.com 176 Mumbai and Amar Raja Batteries Ltd. Vs. ACIT (2004) 91 ITD 280 (Hyderabad). However, on the other hand, the Ld. Representative of the revenue has strongly relied upon the order passed by the CIT(A) in question. The facts are not disputed. It is not to be seen whether the claim of the assessee is allowable in the relevant A.Y.2008-09. The matter of controversy has been adjudicated by ITAT in the case of ACIT Vs Kopran Ltd. (2011) 14 taxmann.com 176 Mumbai Bench in which the relevant finding is hereby reproduced as under.:- “4. Having heard the rival contentions and having perused the material on record, we are of the considered view that the conclusions arrived by the CIT(A) do not call for any interference.
ITA. No3236/M/2015 A.Y. 2010-11 A Co-ordinate Bench of this Tribunal (which had one of us, i.e., the learned Vice President, in its coram) in the case of Amar Raja Batteries Ltd. v. Asstt. CIT [2004] 85 TTJ (Hyd) 20 / 91 ITD 280 (Hyd.) after an elaborate analysis of the relevant legal principles, inter alia, concluded as follows : "10. We have carefully considered the rival submissions. The undisputed fact is that the expenditure is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. The Hon'ble Supreme Court in the case of Madras High Court in Madras Industrial Investment Corpn. (supra) held as follows : Sec. 37(1) further requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit-making process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. Any liability incurred for the business of obtaining a loan would be revenue expenditure. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purposes of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books, over a period of years. However, the facts may justify an assessee who has incurred expenditure in a Particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Issuing debentures is an instance where, although the assessee has incurred the liability to Pay the discount in the year of issue of debenture, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of debentures. 'From this judgment, it is very clear A.Y. 2010-11 that though the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred, if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business. The Hon'ble Supreme Court observed that in certain cases, the facts may justify the assessee to spread over and claim the expenditure over a period of ensuing years.' 11. In this case, the assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to take off in the year of launch itself may have a long life as a product. There is no way in which it can definitely be estimated that the benefit of the expenditure would last for a particular period of time, and on this count, we agree with the arguments of the learned counsel for the assessee. Reliance placed by the Revenue in the case of Shreyas Shipping Ltd. (supra) does not come to its rescue, for in that case, dry dock and special survey expenses were incurred by the assessee and these expenses have to be incurred statutorily twice over a period of five years. That dry docking in the case of ships is mandatory. The benefit of the expenditure can be reasonably estimated over a period of 2½ years. Moreover, there was a trade practice in that case and the assessee followed that trade Practice and wrote off that expenditure over a period of 2½ years. It is not the case here, as it is not a mandatory expenditure, nor can the period for which the benefit of the expenditure can be derived be estimated with a least reasonable accuracy. The Bombay Bench of the Tribunal distinguished the judgment of its jurisdictional High Court in the case of CIT v. Chowgule & Co. (P) Ltd. [1995] 125 CTR (Bom.) 442 : [1995] 214 ITR 523 (Bom.) holding that in that case it was not a case of current repairs and was also not a case which did not bring into existence or obtain a new or different advantage. Therefore, this decision of the Mumbai Bench of the Tribunal in the case of Shreyas Shipping Ltd. (supra) is distinguishable on facts. Coming to the Supreme Court decision in the case of Madras Industrial Investment Corpn. Ltd. (supra), it was a case where the assessee had paid upfront discount for the debentures issued. The lump sum payment of discount which is an upfront, one time payment, secured benefit to that assessee over a number of years. In fact the upfront payment is calculated by A.Y. 2010-11 discounting the future instalments of interest payable and it is like pre-paid interest. The period for which the assessee secured benefit is specified. That assessee by making one time payment had avoided paying interest on debentures in each of the next five years. The annual compulsorily incurable expenditure on interest has been discounted and paid upfront as a one time payment. In fact the entire expenditure of upfront payment in that case does not pertain to one year. Interest is a yearly commitment. Thus on facts the Hon'ble Supreme Court held that interest of that particular year only is to be allowed. Thus, this decision is also distinguishable from the facts of the present case. Thus, both in the case of Shreyas Shipping Ltd. (supra) before the Tribunal and in the case of Madras Industrial Investment Corpn. Ltd. (supra) before the Hon'ble Supreme Court, the period for which the assessee secured the benefit has been categorically specified either by way of contractual obligations or by way of statutory requirement. There is no such circumstance in this case. The matching concept, which is heavily relied upon in both the above cases, fails in this case. The number of years for which the benefit can be said to have been derived cannot be estimated in this case. Deferment is based on the 'matching concept', that is matching costs with revenue. The assessee is required to claim expenses year-wise to the extent of income, which can be said to have arisen from such expenses. The income relatable to that expenditure should arise for a number of years and when a nexus can be definitely found between both income and expenditure, the matching concept comes into play. The ratio of the order of the Mumbai Bench cannot be universally applied and as held by the Hon'ble Supreme Court, has to be restricted to the particular facts of that case. The decisions relied (upon) by Revenue have limited application and can be invoked when expenditure is incurred in lump sum, essentially to get rid of future annual expenditure which is necessarily to be incurred to carry on the business. This is not a case where annual future mandatory expenditure is done away with by a lump sum upfront expenditure.
As far as the entries in the books of account are concerned, it is well-settled that they do not clinch the issue either way, and they do not determine the allowability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) and in the case of CIT v. India Discount Co. Ltd. [1970] 75 A.Y. 2010-11 ITR 191 (SC) are clear on the issue. If the argument of the learned Departmental Representative that the entries in the books of account are sacroscent and have to be accepted is to be valid, then in the case of depreciation also, the claim of the assessee is to be disallowed, as the depreciation depicted in the books of account is something different from what is claimed and allowed, while computing the income under the IT Act. In the circumstances, this argument of the learned Departmental Representative has necessarily to be rejected. We agree with the submissions of the assessee and hold that the entire advertisement expenditure for product launching is to be allowed in this year."
We are in considered agreement with the view so expressed by the Co-ordinate Bench and the decision taken by the CIT(A) is also in harmony with the above views so expressed by the Co-ordinate Bench. As regards AO's observations regarding contradiction in stand of the assessee by treating the sale proceeds of a brand as a capital receipt, and expenditure to build that brand as a revenue expenditure, we have noted that this observation proceeds on the fallacious assumption that the expenses are related to acquisition of a brand whereas the expenditure in question is admittedly revenue expenditure in nature which has nothing to do with the brand sold by the assessee. All other issues raised by the AO have been comprehensively dealt with in the Co-ordinate Bench's order, and we adopt the reasoning therein. In this view of the matter, we uphold and affirm the conclusions arrived at by the CIT(A) and decline to interfere.
The issues raised by the AO in the asst. yr. 2003-04 are same in the asst. yr. 2004-05. In line with our observations in the asst. yr. 2003-04, we also decline to interfere with the order of the CIT(A).” 5. In view of the above mentioned decision it can be said that the pre-operative expenses can be claimed fully in the relevant assessment year. No doubt the assessee has claimed the partly pre-operative expenses and the remaining was deferred in the subsequent years. The claim of the assessee is not liable to be declined because the same is A.Y. 2010-11 liable to be claimed in the relevant assessment year in which the expenditure has been incurred. In this regard, we also find of the support of the decision of the Hon’ble ITAT in the case of ACIT Vs Kopran Ltd. (supra). Accordingly, we set aside the finding of the CIT(A) on these issues and allowed the claim of the assessee.
Reasons for delay in pronouncement of order 6.1 Before parting, we would like to enumerate the circumstances which have led to delay in pronouncement of this order. The hearing of the matter was concluded on 07/02/2020 and in terms of Rule 34(5) of Income Tax (Appellate Tribunal) Rules, 1963, the matter was required to be pronounced within a total period of 90 days. As per sub-clause (c) of Rule 34(5), every endeavor was to be made to pronounce the order within 60 days after conclusion of hearing. However, where it is not practicable to do so on the ground of exceptional and extraordinary circumstances, the bench could fix a future date of pronouncement of the order which shall not ordinarily be a day beyond a further period of 30 days. Thus, a period of 60 days has been provided under the extant rule for pronouncement of the order. This period could be extended by the bench on the ground of exceptional and extraordinary circumstances. However, the extended period shall not ordinarily exceed a period of 30 days. 6.2 Although the order was well drafted as well as approved before the expiry of 90 days, however, unfortunately, on 24/03/2020, a nationwide lockdown was imposed by the Government of India in view of adverse circumstances created by pandemic covid-19 in the country. The lockdown A.Y. 2010-11 was extended from time to time which crippled the functioning of most of the government departments including Income Tax Appellate Tribunal (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices.
6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon’ble President and Hon’ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: -
However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5)The pronouncement may be in any of the following manners: — (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement.
ITA. No3236/M/2015 A.Y. 2010-11 (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile(emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances.
Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the A.Y. 2010-11 functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term „force majeure‟ has been defined in Black’s Law Dictionary, as „an event or effect that can be neither anticipated nor controlled‟ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.
ITA. No3236/M/2015 A.Y. 2010-11
In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excludingat least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order A.Y. 2010-11 thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case. Driving strength from the ratio of aforesaid decision, we exclude the period of lockdown while computing the limitation provided under Rule 34(5) and proceed with pronouncement of the order.