DCIT, NEW DELHI vs. M/S. CENTRAL WAREHOUSING CORP., NEW DELHI

ORDER PER SUDHANSHU SRIVASTAVA, JM:

This appeal is preferred by the Department against the order dated 30.04.2014 passed by the Learned Commissioner of Income Tax (Appeals)-VI, New Delhi {CIT (A)} for Assessment Year 2007-08.

2.0 The brief facts of the case are that the assessee is a Corporation incorporated u/s 3 of the Warehousing Corporation Act, 1964 for the purpose of marketing of commodities. The assessee Corporation derives bulk of its income from letting out of godowns/warehouses for storage, processing and facilitating the marketing of its commodities. The original return of income for the year under consideration was filed declaring income under normal provisions of Income Tax Act, 1961 (hereinafter called ‘the Act’) at Rs. Nil after set off of brought forward losses of earlier years. The book profit u/s 115JB of the Act was declared at Rs.1,25,90,89,126/- with the total tax liability of Rs.14,12,69,800/- which was adjusted against TDS amount of Rs.27,40,39,959/- thereby seeking refund of Rs.13,27,70,159/-.

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp.

2.1 Subsequently, the return of was revised declaring total income at Rs. NIL under normal provisions of the Act and a book profit of Rs.1,25,58,42,049/- u/s 115JB with a MAT liability of 14,00,54,479/- and thereby claiming a refund of Rs.17,69,72,954/-.

2.2 The case was selected for scrutiny and assessment was completed u/s 143(3) of the Act computing the income at Rs.38,74,93,520/- under the normal provisions of the Act and a book profit of Rs.1,64,65,82,376/- u/s 115JB of the Act.

2.3 Subsequently, the assessment was reopened by issuing notice u/s 148 of the Act. In response to the notice, the assessee submitted that the revised return filed by it may be treated as the return filed in response to notice u/s 148 of the Act. The assessee asked for the reasons for reopening which were duly made available to the assessee. The assessment was completed u/s 147 r.w.s 143(3) of the Act wherein the income of the assessee was computed at Rs.43,00,71,395/- after a making a disallowance of alleged excess claim of depreciation amounting

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. to Rs.1,25,28,875/- and another addition of Rs.3,00,49,000/- being claims against contractors/third parties.

2.4 Aggrieved, the assessee filed an appeal before the Ld. CIT (A) challenging the reopening and also challenged the additions on merits. The Ld. CIT (A), however, upheld the reopening. With reference to the additions of Rs.3,0049,000/- pertaining to claim against Contractors and other parties, the Ld. CIT (A) noted that an identical issue had been decided in favour of the assessee in Assessment Year 2003-04 by the then Ld. CIT (A). Following the same, the Ld. CIT (A) given relief to the assessee and directed the Assessing Officer (AO) to delete the addition. With respect to the second issue pertaining to alleged excess depreciation claim of Rs.1,25,28,875/- on registration and license fees paid to Indian Railways for running containers trains, the Ld. CIT (A) held that since the license was not owned by the assessee, depreciation had been rightly disallowed. The Ld. CIT (A) also noted that the Assessing Officer had committed a mistake apparent from record due to the fact that the licence fee paid had to be amortised over a period of 20 years (after treating

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. the same as deferred revenue expenditure) and the disallowance, accordingly, should have been Rs.3,75,28,875/- whereas the Assessing Officer had allowed double deduction by way of twice allowing the deferred revenue expenditure of Rs.2.5 Crores. The Ld. CIT (A) directed the Assessing Officer to enhance the assessment by Rs. 2.5 Crores.

2.5 Now, the Department, aggrieved by the order passed by the Ld. CIT (A) is in appeal before this Tribunal whereas the assessee has preferred filing a Cross Objection. The respective grounds raised by both the parties are as under:

Grounds of appeal in -

1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of Rs.3,00,49,000/- on account of claim against contractor/parties following the order of his predecessor for A.Y. 2003-04 ignoring the fact that the assessee was following mercantile system of accounting and all sums receivable during the previous year must be accounted for and also that the facts of this year are different as compared to A.Y.2003-04.

2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp.

Grounds of appeal in Cross Object No.95/Del/2015-

1) Both in the facts and law the re-opening of assessment u/s 147 and accordingly notice issued u/s 148 dated 30.03.2012 is wrong and bad in law. The re-opening is to be annulled as there is no failure on the part of the Appellant Corporation in disclosing the full material.

2) It is contended that the CIT (Appeals) had erred in enhancing a sum of Rs.2,50,00,000/- without appreciating the facts of the case.

3) It is contended that the Corporation is entitle to depreciation of Rs.50,00,00,000/- being the license fee for the period of 20 years.

3.0 The Ld. Authorized Representative submitted that ground No.1 of the assessee’s Cross Objection challenged the reopening. It was submitted that this ground was not being pressed. Accordingly ground No.1 of assessee’s Cross Objection is dismissed as not pressed.

3.1 The Ld. Authorized Representative further submitted that ground No.3 of the assessee’s Cross Objection prayed for depreciation being allowed on Rs.50 Crores being license fee paid for 20 years. In this regard, it was submitted that the assessee company has capitalized the registration fee paid to C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. the Ministry of Railways as it was an intangible asset and has claimed depreciation on it. It was submitted that this fee was paid for the Concession Agreement for operation of container trains on Indian Railways Network and the said license dated 04.01.2007 had been granted to the assessee company for the said purpose. It was submitted that this license/agreement was to operate for 20 years and, therefore, the assessee had rightly claimed depreciation on it by treating it as an intangible asset. It was further submitted that the Assessing Officer, however, was of the opinion that the impugned fee paid to the Ministry of Railways cannot be considered as an intangible asset and, therefore, he had disallowed the depreciation claimed while allowing amortization @ 1/20 thereby making a net addition of Rs.1,25,28,875/-. It was submitted that that Ld. CIT (A) had not only upheld the action of the Assessing Officer but had also directed the Assessing Officer to enhance the assessee’s income by Rs. 2.5 Crores on the ground that the Assessing Officer had allowed double deduction. It was submitted that an identical issue has arisen before this Tribunal in the case of Container

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp.

Corporation of India Ltd. vs. DCIT in and 2167/Del/2014 for Assessment Year 2009-10 wherein vide order dated 19.01.2017 and an identical issue had been decided in favour of the assessee i.e. Container Corporation of India Ltd. The Authorized Representative drew our attention to the relevant findings of the Tribunal as contained in paragraphs 7 to 14 of the said order and submitted that in this case also the Department had disallowed the assessee’s claim of depreciation on Licence Fee paid and had given the benefit of amortization of the same for a period of 20 years but the ITAT had held that the license fee paid was in the nature of intangible asset eligible for depreciation and, therefore, had to be allowed.

3.2 The Ld. Authorized Representative further submitted that ground No. 2 of the assessee’s Cross Objection was linked to Ground No.3 argued as above.

4.0 In response, the Ld. Sr. Departmental Representative (DR) read out the relevant portions from the Assessment Order and the order of the Ld. CIT (A) and C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. vehemently argued that the amortization had been rightly granted and that the assessee was not eligible for depreciation.

5.0 With respect to the Department’s appeal challenging the action of the Ld. CIT (A) in deleting the addition of Rs.3,00,49,000/- on account of claim against Contractors, the Ld. SR. DR again placed reliance on the findings and observations of the Assessing Officer and submitted that the Ld. CIT (A) was incorrect in deleting the addition by following the order of his predecessor in Assessment Year 2003-04.

6.0 In response, the Ld. Authorized Representative submitted that the Ld. CIT (A) had been correct in deleting the addition in as much as the assessee company had made full disclosure regarding the issue in its printed accounts under the head ‘notes on accounts’ which was a part of the assessment records. It was submitted that the assessee had not accounted the claim against contractors/parties amounting to Rs.300.49 lacs pending its realization due to uncertainty in realization of this amount because they were being disputed by the parties and the recovery was highly doubtful even if the claim was settled in C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. favour of the assessee corporation. It was submitted that the assessee has being consistently following the policy of accounting and offering for tax, the amount in the year it is realized and this practice has been accepted even by the C & AG which carries out the audit of the assessee corporation. The Ld. Authorized Representative also submitted that even as per Accounting Standard-9 dealing with Revenue Recognition, which has been issued by the Institute of Chartered Accountants of India, income which has to be credited to the profit and loss account should comply with the accrual norms i.e., the amount should be capable of being quantified and there should be no uncertainty in realization of the same. The Ld. Authorized Representative also submitted that identical issue had been allowed by the Ld. CIT (A) in Assessment Years 2003-04 & 2004-05 against which the Department had not filed any appeal before the Tribunal.

6.0.1 On a query from the Bench, the Ld. SR. DR accepted that no appeals had been preferred by the Department on the issue in Assessment Year 2004-05 and that also no appeal was pending for Assessment Year 2003-04 before the Tribunal.

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp.

7.0 We have heard the rival submissions and have also perused the material on record. We now take up the appeal of the Department first.

7.1 The sole issue under challenge before us by the Department is the deletion of disallowance of Rs.3,00,49,000/- on account of claim against Contractors/Third Parties. In this regard it is seen that the amount under the question has been duly disclosed by the assessee corporation in its notes to accounts in Point No.18 wherein it has been stated that the Corporation has not accounted its claim against Contractors/Parties for Rs.300.49 lacs pending its realization.

The Ld. CIT (A), while allowing relief to the assessee, has primarily relied on the order of the Ld. CIT (A) in Assessment Year 2003-04 in Appeal No.9206/2007 vide order dated 28.12.2007. The Ld. CIT (A) has also noted that the assessee’s submission is tenable in as much as it has not accounted for the claim against Contractors/Third Parties for Rs.300.49 pending its realization due to inherent uncertainty in the ultimate realization of the said amount. The Ld. CIT (A) has also noted

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. that the assessee has been consistently following Accounting Standard-9 dealing with Revenue Recognition issued by the Institute of Chartered Accountant of India. In the proceedings before us, the Ld. SR. DR could not bring to our notice any perversity in the said order of the Ld. CIT (A). We also note that a similar issue had been decided in favour of the assessee by the Ld. CIT (A) in Assessment Years 2003-04 and 2004-05 which have been accepted by the Department. Therefore, in such a situation, following the principle of consistency, we find no reason to deviate from the findings of the Ld. CIT(A) on the issue.

Accordingly, we dismiss ground No.1 of the Department Appeal.

7.2 Ground No.2 of the Department’s appeal is general in nature not requiring any separate adjudication.

7.3 In the result, the appeal of Department stands dismissed.

8.0 Coming to the Cross Objection filed by the assessee, Ground No.1 is being dismissed as not pressed.

8.1 Ground Nos. 2 & 3 of the assessee’s Cross Objection are linked and challenge the action of the Lower

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp.

Authorities in treating the license fee paid to Indian Railways as deferred revenue expenditure eligible for amortization over a period of 20 years but not being eligible for depreciation. In this regard, it has been brought to our notice that an identical issue had been decided by this Tribunal in the favour of the assessee in the case of Container Corporation of India Ltd. vs. DCIT (supra) vide order dated 19.01.2017. It is seen that in this case, the assessee had paid the registration fee of Rs.50 Crores to Ministry of Railways for movement of Container Train on Indian Railways Network as non refundable registration fees. The assessee claimed depreciation @ 25%. However, the Assessing Officer disallowed the claim of depreciation and allowed 1/20th of the amount as a deduction. When the matter came up before the Tribunal, the Co-ordinate Bench, in the said order placed reliance on the judgment of the Hon’ble Delhi High Court in the case of Areva T&D India Ltd. vs. DCIT reported in 345 ITR 420 wherein it had been held that intangible assets include business claims, business information, business records and assets which are invaluable for carrying on the business of the assessee. It

C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. was further held by the Hon’ble Delhi High Court that intangible assets were comparable to a license to carry on the existing business and that in absence of such intangible asset, it would be difficult for the assessee to carry on its business and, therefore, such intangible assets were eligible for depreciation in terms of section 32 (1)(ii) of the Act. Following the judgment of the Hon’ble Delhi High Court, in the case of Container Corporation of India Ltd. vs. DCIT (supra), vide order dated 19.01.2017, this Tribunal noted that in this case, the assessee had earned a benefit of enduring nature of plying on Indian Railways Tracks for a period of 20 years which was a valuable commercial right available to the assessee for a considerable period of time and, therefore, the same was eligible for depreciation u/s 32(1) (ii) of the Act. During the course of proceedings before us in the present appeal, the Department could not bring to our notice any judgment contrary to the above said adjudication and in favour of the Revenue on the issue.

Therefore, respectfully following the judgment of the Hon’ble Delhi High Court in the case of Areva T&D vs. DCIT (supra) and C.O. No.95/Del/2015 DCIT vs. M/s Central Warehousing Corp. also the order of the Tribunal in the case of Container Corporation of India (supra), we allow Ground Nos. 2 & 3 of the assessee’s Cross Objection and direct that benefit of depreciation on the registration fee of Rs.50 Crores paid to Indian Railways be allowed the benefit of depreciation.

8.3 In the result, the Cross Objection of the assessee stands partly allowed.

9.0 In the final result, the appeal of the Department stands dismissed whereas the Cross Objection of the assessee stands partly allowed.