ACIT, CHENNAI vs. R.K.SWAMY BBDO (P) LTD., CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

2 & 1111/13-14, dated 29.09.2014 for the assessment year 2011-2012 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).

ITA No.47/Mds/2015. :- 2 -:

The first ground raised by the Revenue is that Commissioner 2. of Income Tax (Appeals) erred in deleting an addition of �56,86,250/- made towards excess rent paid to M/s. Tiruvengadam Investments Private Ltd were the assessee has substantial interest.

ITA No.47/Mds/2015. :- 3 -: range on comparing to fair market value and the Rental advances provided by the assessee company and the market conditions and location of properties at Mumbai and Delhi and the ld. Assessing Officer issued show cause notice in respect of rent and the assessee has made submissions as referred at para 2 of his order as under:- "We would like to submit that the, disallowance has happened earlier because as per IT Department's contention the rent paid is higher. The IT Department took the historical cost of the building for arriving at the Rents, ignoring the current market reality at the time of Assessment. The rentals have gone up in last 15 years. We attach the latest Reat Estate quote received from Mumbai Real Estate Contractor towards Rent per square feet at various locations in Mumbai If you go through the same, the rent at Fort area is ranging between Rs. 200 to 275 per square feet, whereas we are paying a lent of Rs. 192/-: per sq. ft. inclusive of interest for the deposit. I attach a chart, which clearly shows the rent what we are paying in comparison with the market rent is very low. The IT Department should consider the current market reality for the rents and alIow the expenses."

The ld. Assessing Officer considering the submissions and relied on the decision of the Delhi High Court in the case of Dewan Daulat Rai Kapoor vs. New Delhi Municipal Committee and another (122 ITR 700) discussed on the various aspects of applicability of the rent and also tenancy and definitions of the standard rent and reasonable rent and ITA No.47/Mds/2015. :- 4 -: finally concluded that the assessee’s transactions are covered u/s.40A(2) of the Act and properties are governed by provisions of Rent Control Legislation and due to fixation of standard rent, payment of higher rent more than the standard rent fixed by the Rent Control Legislation is unreasonable or excessive and therefore considering Rent Control Legislation which recognizes 8.5% return of investments as measure of standard rent and the ld. Assessing Officer relied on the decision of ITO vs. Chem Mech Pvt. Ltd 82 ITR 427(Bombay) and calculated 8.5% of the cost of impugned properties of M/s.

Tiruvengadam Investments Private Limited being �1,33,49,490/- and also calculated fair rental value of Mumbai and Delhi property referred at page 5 in his order in comparison and disallowed rent paid of �56,86,200/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative of the assessee argued the grounds and explained the facts and situations of payment of Rent. The ld. Commissioner of Income Tax (Appeals) has discussed on the findings of the ld. Assessing Officer and written submissions filed by the assessee dated 19.04.2014. The ld. Authorised Representative has mentioned that the disallowance of rent dispute continued from assessment years 1996 -

ITA No.47/Mds/2015. :- 5 -:

97 to 2009-2010 before Commissioner of Income Tax (Appeals) and the Hon’ble Tribunal allowed in favour of the assessee and ld. Commissioner of Income Tax (Appeals) relied on assessee’s own case in dated 20.09.2013 and has allowed the appeal by observing as under:-

‘’5.6. After going through the assessment orders, written submissions and grounds, orders of the CIT(Appeals) and Hon'ble ITAT, I find that the facts relating to the present assessment years which are now in appeal and those in which the CIT(A) and the ITAT have passed orders in favour of the assessee are similar. In such circumstances, following the law of precedence respectfully following the same I allow the second and third grounds namely, disallowance of deemed interest and disallowance of deemed interest on deposits respectively raised by the appellant in favour of the appellant’’.

Aggrieved by the order of the Commissioner of Income Tax (Appeals) the Revenue assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 5. the Commissioner of Income Tax (Appeals) has erred in deleting the addition of excess rent paid and the assessee is having substantial interest as defined under Companies Act being the same management.

ITA No.47/Mds/2015. :- 6 -:

Further, the ld. Commissioner of Income Tax (Appeals) has not appreciated the action of the ld. Assessing Officer is fair and reasonable by adopting 8.5% investments of TIPL and the ITAT decision relied by the ld. Commissioner of Income Tax (Appeals) has not become final and is being contested at Higher forums and prayed for allowing the appeal.

Contra, the ld. Departmental Representative relied on the 6. findings of the Commissioner of Income Tax (Appeals) order and opposed the grounds.

We heard rival submissions, perused the material on record 7. and judicial decisions. The Commissioner of Income Tax (Appeals) deleted the addition of excess rent payment and discussed elaborately in his order considering the assessee’s submissions and earlier assessment years finding of the Tribunal. The Tribunal has held in favour of the assessee in dated 29.09.2013 and was dealt by the ld. Commissioner of Income Tax (Appeals) in page 5 to 8 of his order and earlier years accepted by the Revenue.

The only contention of the Department before this Tribunal is that the Revenue has not accepted the order of Tribunal and an appeal has already been filed before Hon’ble High Court and the same is pending

ITA No.47/Mds/2015. :- 7 -: before the High Court. This Tribunal is of the considered opinion that mere pendency of appeal before Hon’ble High Court cannot be a reason to take a different view. The order of Tribunal is binding on all the authorities in the State of Tamil Nadu and Union Territory of Pondicherry. Therefore, the Commissioner of Income Tax (Appeals) has rightly allowed the claim of the assessee by following the Co- ordinate Bench decision of assessee’s own case. Therefore, this Tribunal do not find any infirmity in the order of the Commissioner of Income Tax (Appeals). The ground of the Revenue is dismissed.

The ld. Assessing Officer found that assessee has paid 9.

Rs.4,25,00,000/- as rental deposit to the owner M/s. Tiruvengadam Investments Private Limited, while deposit is more than the value of investments. The ld. Assessing Officer relied on the decision of CIT vs. Abhishek Industries Limited 286 ITR 1 and has calculated excess interest disallowance in respect of Delhi and Mumbai property referred at page 6 of his order being �1,54,519/-. Aggrieved by the order, the ITA No.47/Mds/2015. :- 8 -: assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld.CIT(A) has deleted 10. the disallowance on deeming interest on deposits relying on assessee’s own case. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the Revenue assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 11. the assessee has diverted funds to sister concern and the ld. Assessing Officer is right in making disallowance as borrowed funds were utilized for payment of deposits. Further the provisions of sec.

40A(2) of the Act are attracted being the assessee firm has provided higher percentage of deposit compared to the value of the property and prayed for set aside the CIT(A) order.

ITA No.47/Mds/2015. :- 9 -: year for 2009-2010 relied by the ld. Commissioner of Income Tax (Appeals). Therefore, respectfully following the decisions of Co- Ordinate Bench, we upheld the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue.

The last ground raised by the assessee is with regard to 14. disallowance of depreciation on leasehold improvements of �22,49,700/-.

In the scrutiny proceedings, the ld. Assessing Officer found 15. that the assessee has incurred expenditure on leasehold premises and claimed 100% depreciation and supported the expenditure with details and statements. The ld. Assessing Officer is of the opinion that the expenditure incurred on leasehold improvements are in the nature of capital expenditure and depreciation under normal rates are applicable u/s.32(1) of the Act and deprecation. The contention of the ld. Authorised Representative that 100% depreciation is allowable on leasehold improvements at corporate office and Mumbai Office and being purely temporary structures. The ld. Assessing Officer found that the temporary structures are eligible for 100% depreciation under Rule I(4) to Par A Appendix I of Income Tax Rules r.w.s 32(1) whereas the claim of the expenditure does not have the character of temporary structures and charged depreciation at normal rates and disallowed

ITA No.47/Mds/2015. :- 10 -: even deprecation of �22,49,700/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Commissioner of 16.

Income Tax (Appeals) found that the assessee company has spent for interior renovation of lease hold property were the ld. Assessing Officer findings are that such expenditure are having enduring life.

The ld. Commissioner of Income Tax (Appeals) discussed the issue and relied on Tribunal decision on assessee’s own case in 1766, 1767 & 2195/Mds/2006 for the assessment years 1998-1999 to 2000-2001 & 2003-2004 and deleted the addition. Aggrieved by the order of the Commissioner of Income Tax (Appeals) the Revenue assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative argued that 17. the ld. Commissioner of Income Tax (Appeals) erred in deleting excess deprecation of �22,49,700/- without considering the findings of the ld. Assessing Officer and that the expenditure also include expenses of wood work and false ceiling and the same cannot be considered as temporary structures and prayed for allowing the appeal.

ITA No.47/Mds/2015. :- 11 -:

We heard the rival submissions, perused the material on 19. record and judicial decision cited. The crux of the issue being disallowance of assessee’s excess deprecation on leasehold improvements. In this year also, the assessee has incurred expenditure on leasehold premises which the ld. Assessing Officer has dealt in his order and ld. Commissioner of Income Tax (Appeals) relied on the assessee’s own case for earlier assessment year referred at page no.3 & 4 of his order and deleted the addition. The contention of the ld. Departmental Representative that ld. Commissioner of Income Tax (Appeals) has not verified the nature of temporary structures and deleted the addition. The ld. Authorised Representative submitted that the expenditure is purely in the nature of temporary structures and eligible for 100% deprecation and we found that similar issue was considered by the Co-Ordinate Bench of the Tribunal for the assessment year 2009-2010 in and the Tribunal at para 11 at page 8 observed as under:

‘’11. Now, we come to the issue of depreciation. There is no strife between the parties that the assessee is lessee, took on lease a property in Mumbai. It had incurred the expenses in question of wooden work, premises

ITA No.47/Mds/2015. :- 12 -: expansion, false ceiling etc and claimed depreciation at the rate of 100% for a sum of ₹54,92,416/-. The Assessing Officer disallowed a sum of ₹16,83,295/- by holding that the same had been incurred for temporary structure. The assessee had strongly placed reliance on Explanation(1) of sec.32(1) of the Act. Undisputedly, the said statutory provision treats even a lessee incurring capital expenditure for the purpose of business and profession in the construction of raising any structure etc or renovation at par with the owner of the building. The only contention of the Revenue is that the expenditure was not incurred for raising temporary structure as stipulated in the depreciation schedule. We find from the relevant case law quoted by the Revenue(supra) that therein, no details were forthcoming about the nature of expenses incurred. Therefore, the said case law is not applicable in the facts of the case. Hence, keeping in mind the fact that the assessing authority himself had allowed majority of the expenses as entitled for 100% depreciation, we hold that the rest of the expenses of false ceiling, expansion of premises and wooden work are purely temporary structures and covered by the higher rate of depreciation being purely temporary erections. In our considered opinion, the Revenue has proceeded to interpret the depreciation schedule in a narrow manner. We reiterate that the schedule of depreciation, deserves to be liberally interpreted and the expressions used ‘purely temporary erections such as wooden structures’ have to be treated as inclusive in nature cove ring all temporary erections. The words ‘such as’ themselves point that the latter portion of the sentence only supplements the former one and does not have overriding effect on the main part. Proceeding on ITA No.47/Mds/2015. :- 13 -: this reasoning, we hold that the said clause not only covers wooden structures of purely temporary erection, but also includes false ceiling as well as wooden works. Hence, we accept the contentions of the assessee and uphold the findings of the Commissioner of Income Tax (Appeals) under challenge’’.

We respectfully, following the decision of Co-ordinate Bench, dismiss the ground of the Revenue.

Order pronounced on Thursday, the 30th day of June, 2016, at Chennai.