Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 19.10.2010 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2005-06.
The first issue raised by the assessee is against the order of Ld. CIT(A) affirming the disallowance of interest of Rs.24,08,118/- as disallowed by the AO for delayed payment of dues on the ground that the interest is penal in nature and not admissible u/s 37 of the Act.
2 M/s. BFIL Finance Ltd.
The facts in brief are that during the course of assessment proceedings AO observed that assessee has charged interest of Rs.24,08,118/- paid to society M/s. Lakshmi Finance and Leasing Companies Commercial Premises Co-operative Society Ltd. towards interest for delayed payment of charges as levied by the society for maintenance and outstanding stamp duty payable by the assessee in respect of the property owned and allotted in the society. The AO asked the assessee to justify the claim as to how the said amount was incurred for the purpose of business. Finally, the AO added the same to the income of the assessee by holding that the amount of interest was penal in nature and was not spent towards earning of income during the year under consideration.
In the appellate proceedings, the Ld. CIT(A) upheld the order of AO on this issue by observing that the interest payments were penal in nature as assessee has defaulted in the payment of installments of stamp duty and maintenance charges of the society and thus the payment was not contractual but for the delayed installments and thus justified the addition by the AO.
After hearing both the parties and perusing the material on record, we observe that the said amount of interest was paid by the assessee delayed installments towards payment of stamp duty and maintenance charges payable to the society. The assessee owned a property in the said society. We observe that during 1993-94, non banking finance companies got together and formed a society named as M/s. Lakshmi Finance and Leasing Companies Commercial Premises Co-operative Society
3 M/s. BFIL Finance Ltd. Ltd. which had received a piece of land on lease from Mumbai Metropolitan Region Development Authority in Bandra Kurla Complex for construction of commercial premises. The assessee became member of the said society and assessee had to contribute cost of construction and related expenses in installments depending upon the progress of the construction towards 5000 sq. ft. super built up area allotted to the assessee however due to financial constraints the assessee could not pay the installments to the society towards stamp duty and maintenance charges on time. The assessee even decided to part with the said commercial allotment by selling the same in the market as the substantial amount was due to the society by the assessee. The said society charged interest on the unpaid and outstanding installments before giving NOC for transfer of that built up area allotted to the assessee and thus assessee had to pay Rs.24,08,118/- to the society towards interest. We have examined and perused the various documents placed on record such as circular of the society dated 21.11.2002 addressed to the members specifying therein that managing committee after due consultation in annual general body meeting has decided to collect maintenance charges from the member w.e.f. 01.12.2002 and if the amount is not paid, interest would be charged @ 21% per annum. We have also examined page No.39 of the paper book which contained the details of outstanding balance and the interest charged by the society from the assessee. After taking into account the facts and circumstances of the case we observe that the interest paid by the assessee on the outstanding installments of maintenance expenses and stamp duty is in no way a penal in nature but towards the default committed by the 4 M/s. BFIL Finance Ltd. assessee in the payment of installments. The case of the assessee is supported by a series of decisions referred and relied by the Ld. A.R. during the course of hearing namely (i) ITA No.302/PN/2013 A.Y. 2009-10 order dated 24.12.2013 in the case of ACIT vs. Maharashtra Co-operative Development Co- operation Ltd.(ii) CIT vs. Catholic Syrian Bank Ltd. (2013) 130 Taxman 447 (Ker.-HC) and CIT vs. New Alpine Forests (2000) 113 taxman 316 (J&K). In the case of ACIT vs. Maharashtra Development Corporation Ltd.(supra) the co-ordinate bench of the Tribunal has held that penal interest charged by the bank is not penal in nature in fact but for failure to give the contractual commitment by the assessee which can not be equated with offence which is contemplated in explanation to section 37 of the Act and thus upheld the order of Ld. CIT(A) deleting the disallowance of the penal interest. In the case of CIT vs. New Alpine Forests (supra) the Hon’ble J & K High Court has held that interest on delayed payment of royalty was compensatory in nature and allowable under section 37(1) of the Act. Underlying facts in the case CIT vs. New Alpine Forests (supra) were that the assessee was a forest contractor who took on lease certain forests from the government on which it was required to pay royalty to the forest department which was not paid in time and resulted in the interest payment on the delayed payment of royalty. Therefore , we are of the considered view that the payment of interest for delayed payment of installments of maintenance charges and stamp duty were not in penal in nature but more of contractual. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.
5 M/s. BFIL Finance Ltd. 6. The issue raised in 2nd ground of appeal is against the confirmation of disallowance of Rs.33,24,300/- by Ld. CIT(A) as made by the AO towards depreciation of plant and machinery.
The facts in brief are that the AO noticed during the course of assessment proceedings that assessee has claimed depreciation in respect of plant and machinery of Rs.33,24,300/-. The AO noted that during the year the assets were not put to use because company was not having any business since last so many years and thus assets were also not giving any lease income. The AO further noted that the assessee was winding up his business operation. The A.O. following the decision of co-ordinate bench of the Tribunal in the case of Rishiroop Polymers Ltd. 102 ITD 128 wherein it has been held that where the plant and machinery were not put to use because of lock out and strike, the depreciation was not allowable.
In the appellate proceedings, the Ld. CIT(A) dismissed ground raised by the assessee on this issue after taking into consideration the contentions of the assessee by following the order of predecessor the Ld. CIT(A) for A.Y. 2002-03 in assessee’s own case and thus confirmed the addition.
The Ld. A.R., at the outset, submitted before the Bench that issue involved in the present ground is covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in assessee’s own case in A.Y. 2003-04 and 2004-05 in order dated 07.10.2009 and ITA No.386/M/2009 A.Y. 2004-05. The Ld. A.R. prayed before the
The Ld. D.R., on the other hand, relied on the order of authorities below and grounds of appeal by submitting that the assessee has made misleading submissions on lease agreements before the Ld. CIT(A) qua use of these assets for the business purpose. Ld. D.R. submitted that onus is on the assessee to prove as for what use these assets were put during the year towards business. The Ld. D.R. submitted that since the assessee’s business was totally closed down and assessee has not received any lease rent from these assets, therefore it can not be said that assets were being put to use for the business purposes. The Ld. D.R. submitted that in earlier years the assets were different and therefore issue is not covered in favour of the assessee by the coordinate bench decisions. The Ld. D.R. prayed that since the assessee has not met the necessary conditions for claiming depreciation, therefore the order of Ld. CIT(A) may be affirmed.
We have heard the rival submissions of both the parties and perused the material on record including the decision cited by the Ld. A.R. in assessee’s own case in A.Y. 2003-04 and 2004-05. We find that the issue is squarely covered by the said decisions in favour of the assessee. We further note that in A.Y. 2004-05 the co-ordinate bench of the Tribunal has followed the decision of the co-ordinate bench of the Tribunal in assessee’s own case in A.Y. 2003-04. The operative part of the case in A.Y. 2004-05 is reproduced as under: “7. We find that this issue is covered by Tribunals’ decision in assessee’s own case for the AY 2003-04 in ITA No. 6124/Mum/2008 order dated 07-10- 2009, wherein
7 M/s. BFIL Finance Ltd. vide Para 4 the depreciation was allowed as under: - “4. We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of depreciation on the leased assets. There is no dispute that the assessee was owner of the assets and the same had leased to the lesees. The depreciation has been disallowed only on the ground that in the relevant year the assessee had not received any rental income in the form of lease rent. In our view only on the ground that no income was received during the year depreciation could not be disallowed when the assets had been actually leased. We also note that in the earlier year the depreciation in respect of same leased assets have already been allowed by the authorities which shows that there was no doubt about genuineness of lease. The matching principle requires that the income and expenses must relate to the same period and does not mean that expenses incurred cannot be allowed only because no income has been earned. It is a settled legal position that expense incurred wholly and exclusively for eating of income has to be allowed even if no income is actually earned. No case has been made before us that no income was possible from the lease of assets or that income was not includible in total income. We therefore, on the facts of the case held that depreciation has to be allowed.”
Since the facts of the present case are similar to one as decided by the co-ordinate bench of the Tribunal in A.Y. 2004- 05, we ,therefore, respectfully following the same, set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation.
The issue raised in ground No.3 is against the confirmation of disallowance as made by the AO on account of telephone deposits written off of Rs.91,500/-.
The facts in brief are that assessee has charged Rs.3.50 lakhs under the head miscellaneous expenses which included Rs.91,500/- on account of writing off of the deposits with the telecom department. The AO asked the assessee to justify the claim which was replied by the assessee vide letter dated 10.12.2007 by submitting that during initial period when the company was incorporated in 1991 the assessee has deposited Rs.91,500/- with MTNL towards deposits for various telephone connections taken for its operation. The Ld. A.R. submitted that in view of the huge losses incurred, entire staff of the company
8 M/s. BFIL Finance Ltd. had left and its operations were only handled by the managers of the holding company. The Ld. A.R. submitted that during the audit of the accounts of the assessee, the statutory auditors raised objection on non availability of deposit receipts of Rs.91,500/- which could not be found despite best efforts and ultimately , the aforesaid amount of Rs.91,500/- was written off as business/trading loss during the year. The assessee submitted that in absence of any documentary evidences, it would not be possible to claim the refund of the said security deposits and thus reasoned the writing off of the security as business loss. The Ld. A.R. rejected the contention of the assessee by referring to instruction No.943 issued by the SBDT wherein it has been provided that it is open to subscriber either to claim the entire amount paid under the OYT Scheme in the year in which payment was made or proportionately in the years for which advance payment of rent is made. Thus the AO held that the said deposits could have been written off in the year in which the connection was taken and held that it can not be allowed as revenue expenditure.
In the appellate proceedings, the Ld. CIT(A) upheld the order of AO by holding that the said disallowance was correctly made.
After hearing both the parties and perusing the material on record, we observe that the refund of security deposit for taking connection in the year 1991 when the company was formed could not be claimed due to non availability of payment receipt. The statutory auditor of the company raised the issue of non availability of receipts during the audit and consequently it was 9 M/s. BFIL Finance Ltd. decided to write off the said deposit as the same could not be refunded due to non availability of receipt of payment. In our view, the assessee has rightly written off the amount as business/trading loss as the said deposits were given in the ordinary course of business for availing telephone line and has become bad only due to non availability of payment receipt. We do not find any merit in the argument of the Ld. D.R. that mere non availability of payment receipt would not convert the deposits into trading/business loss. So far the instruction no. 943 is concerned it provides that it can be written off as provided therein but does not place any bar to write off in subsequent year due to bonafide reasons. Therefore, under these circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.
The issue raised in ground No.4 is against the order of Ld. CIT(A) upholding the order of AO assessing the short term capital gain on sale of offices at Bandra Kurla Complex at Rs.2,11,542/-.
The facts in brief are that during the year, the assessee has sold its office space at Bandra Kurla complex, Mumbai for Rs.3,12,50,000/-. The assessee was asked to furnish documentary evidences towards the cost of acquisition of the asset and called upon to explain as to why it should not be assessed under the head capital gain. The assessee replied that the said premises was not an asset and therefore not liable for capital gain. It was also stated that the said asset was shown in the balance sheet as capital work in progress at Rs.281.73 lakhs and also not included in the fixed assets and consequently no 10 M/s. BFIL Finance Ltd. depreciation was claimed. According to the AO the contention of the assessee is not acceptable and said premises were essentially an asset and therefore has to be treated as assets and as such the sale proceeds were liable for capital gain tax. The assessee also furnished the copy of ledger account as a proof of cost of the said assets and as per the accounts of the assessee till 30.06.2004 assessee had paid total amount of Rs.3,58,65,845/- and had an outstanding arrears of Rs.2,97,590/- payable to the society. According to the AO the society got an occupation certificate on 02.11.2002 from the authority concerned and came to the conclusion that the said premises were converted in 2002 whereas the transfer was affected on 30.06.2004 and thus the asset was held for less than three years and thus is a short term capital asset and therefore liable for short term capital gain assets. The AO also wrote to the society to supply information about the cost of said assets. On the basis of information supplied by the society, the AO calculated the cost of the property at Rs.3,10,38,458/- whereas the sale consideration of the property was Rs.3,12,50,000/- and brought the different to tax under the head short term capital gain.
In the appellate proceedings, the Ld. CIT(A) also affirmed the order of the AO on this point by holding that interest paid by the assessee to the society can not be treated as part of the cost of the acquisition and thus upheld the addition.
After hearing both the parties and perusing the material on record, we observe that the cost according to the assessee was Rs.4,23,69,716/- whereas the cost as calculated on the basis of 11 M/s. BFIL Finance Ltd. information collected by the AO from the society was Rs.3,10,38,458/- comprising Rs.2,89,38,458/- as contribution paid by the assessee towards construction and Rs.21,00,000/- as stamp duty charges and thus the short term capital gain was computed at Rs.2,11,542/-. While calculating the cost of acquisition, the AO did not consider the maintenance charges and the interest charges paid by the assessee as part of cost of acquisition. We, further, find that the cost as shown by the assessee in the balance sheet has been accepted by the AO in the earlier year but that does not mean that information collected by the AO as to the cost of acquisition of the assessee can not be applied. In our opinion the interest cost if not allowed under any other provisions of the Act , then it has to be allowed. Under these facts, we observe that the issue required to be examined at the level of the AO again with respect to cost of acquisition as per the books of accounts of the assessee. We, therefore, restore back the issue to the file of the AO with the direction to decide the same as per facts and law after having a reasonable opportunity of hearing to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 24.06.2019.