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Income Tax Appellate Tribunal, BENCH ‘B’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER Per N.V.Vasudevan, JM is an appeal by the Assessee while ITA No.2571/Kol/2011 is an appeal by the Revenue. Both these appeals are directed against the order dated 26.07.2013 of CIT(A)-I, Kolkata, relating to AY 2009-10. ITA No.2571/Kol/2011 (Revenue’s appeal) 2. Grounds of appeal raised by the revenue read as follows :- “1. That on the facts and in the circumstances of the case, deleting the addition of Rs..31 ,76,275/- relating to the stamp duty and registration charges paid for acquiring lease-hold properties wrongly treat the same as revenue expenditure.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in deleting the addition of Rs.41,320/- relating to title searching for lease-hold properties wrongly treating the same as revenue expenditure.”
3. The Assessee is a company. It is engaged in the business of manufacture and trading of footwear and leather accessories and retail super stores. The assessee had claimed as deduction while computing its income from business expenses on account &2571/Kol/2013-M/s.Khadim India Limited-A.Y.2009-10 stamp duty and registration charges. This expenditure comprises of stamp duty and registration charges on properties which were taken on lease by the assessee for the purpose of its business. The Assessee claimed expenses of Rs. 31,76,275/- under the head Stamp Duty and Registration charges on the lease hold properties. The claim of the Assessee was that expenditure on stamp duty and registration have been capitalised in the books of accounts as per Accounting Standard 19 on Leases issued by the Institute of Chartered Accountants of India, however since the stamp. duty and registration charges which were paid on properties that are not owned by the Assessee, the said expenses are allowable as deduction while computing total income under the Act as revenue expenditure in connection with business of an Assessee. The Assessee placed reliance on the following decisions in support of its claim, CIT vs. Hoechst Pharmaceuticals Ltd. (1978) 113 ITR 878 (Bom)/CIT vs. Khatihar Jute Mills (P) Ltd. (1979) 116ITR 781 (Cal).
4. The AO called upon the Assessee to furnish full details regarding the new lease hold properties acquired during the year. From a perusal of the details furnished by the Assessee the AO noticed that the Assessee had taken on lease 8 properties situated all over the country. In respect of 2 of the properties taken on lease, the lease period was for 09 years, for another 2 properties the lease period was for 12 years and for the rest of 4 properties it was for 15, 18, 20 and 22 years respectively. The AO was of the view that considering the tenure of lease, the leases in question would yield enduring benefit to the Assessee and therefore was capital expenditure in nature. The AO therefore disallowed the claim of the Assessee for deduction of Rs.31,76,275/- as it was of the nature of capital expenditure.
The Assessee had also incurred legal expenses of Rs.41,320/- in respect of scrutiny of title relating to properties taken on lease during the previous year. Even this was held to be capital expenditure by the AO consequent to his conclusion that the leases would give the Assessee enduring benefit.
On appeal by the assessee on the aforesaid issue the CIT(A) deleted the addition made by the AO by following the order of CIT(A) in assessee’s own case for A.Y.2008-09 :- &2571/Kol/2013-M/s.Khadim India Limited-A.Y.2009-10
“2.3 The submissions of the Appellant and the case laws relied upon by it have been considered. It is seen that on identical facts and circumstances in the Appellant's own case for the Assessment Year 2008-09, the CIT(A)-I, Kolkata in his order dated 08.03.2012 had deleted the addition. The operative part of the CIT(A)-I, Kolkata's order is reproduced as under:- "After careful consideration of the written submission and assessment order, it is noticed that the assessee is manufacturing footwear and other leather accessories and have debited RS.36,36,661/- in the computation of income under the head stamp duty and registration charges on eight properties all over the country. The A. O. disallowed the above expenditure an held that these expenses were capital in nature since the lease period was for number of years. The assessee relied upon various case laws of Bombay High Court(Supra) and [TAT Mumbai Bench to support its case. Taking premises on lease for different periods did not amount to acquisition of a capital asset nor an advantage of enduring nature since ownership of assets was not with the assessee company. Keeping view these facts and circumstances, addition of Rs.36,36,661/- is deleted and the expenditure for stamp duty and registration charges for new lease hold properties during the year is held as revenue expenditure. Hence, Ground No.1 and 2 are allowed. Therefore considering that the facts and circumstances in the current year are “ identical, in the current year also the addition of Rs.31,76,275/- is deleted and grounds of appeal no.1 and 2 are allowed.”
7. With regard to the legal expenses on scrutiny of title deeds, the CIT(A) held that the same are found to be related to the property claimed to have been taken on lease i.e for property located at Bantala, Bhopal, Gariahat, Gwalior, Rajkot. Therefore, the claim of the Assessee to this extent was allowed by the CIT(A) as revenue expenditure.
8. Aggrieved by the order of CIT(A) the revenue has preferred the aforesaid grounds before the Tribunal. At the time of hearing of this appeal it was brought to our notice that identical issues arise in assessee’s own case for A.Y.2008-09 and 2006-07 in 955/Kol/ and 713/Kol/2012 and this Tribunal on identical issue held as follows :- “9. We have heard both the counsel and perused the records. We find that the issue involved is covered in favour of the assessee by various decisions of the higher courts. In this regard we note the decision of Hon’ble Bombay High Court in the case of CIT vs Bombay Cycle & Motor Agency 118 ITR 42 (Bom) where the matter pertains to treatment of brokerage of stamp duty paid for acquisition of lease hold properties. The Hon’ble High Court held that the period of the lease was one of ten years, it does not constitute startling difference as would appeal to us to apply a different test than the &2571/Kol/2013-M/s.Khadim India Limited-A.Y.2009-10
one which we applied in Hoechst Pharmaceuticals Ltd’s case 113 877 (Bom). It was held that in their view the expenses were rightly considered by the Tribunal as being of revenue in nature. Similarly the Hon’ble Bombay High Court in the case of CIT vs Cinceita Private Limited 137 ITR 652 considered the issue where the period of lease was 20 years. The Hon’ble Bombay High Court held that it must also be noted that the expenditure was in respect of stamp duty, registration charges and professional fee. There was no element of the premium in the amount claimed as expenditure. Moreover, this expenditure would have been the same even if the lease had been of a shorter duration provided the period of lease was more than one year. 9.1. Thus in the background of the aforesaid discussion and precedent we find no infirmity in the order of the ld. CIT(A) and accordingly we uphold the same.”
In view of the above said decisions of the Hon’ble Tribunal we are of the view that there is no merit in this appeal by the revenue. Grounds of appeal
by the revenue are dismisses.
10. In the result the appeal of the revenue is dismissed. (Assessee’s appeal): “1. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the disallowance of Rs.2,51,074/- made by the A.O. under the head Provision for leave encashment.”
11. As far as ground no1 raised by the assessee is concerned the Hon’ble Calcutta High Court held that section 43B(f) was unconstitutional in the case of Exide Industries Limited. The revenue has however carried the matter in an appeal before the Hon’ble Supreme Court and the Hon’ble Supreme Court had stayed operation of the Hon’ble Calcutta High Court. It is not in dispute that the provisions of section 43B(f) of the Act are applied, deduction on account of provision of leave encashment cannot be legally made by the assessee. But since the issue is pending before the Hon’ble Supreme Court, we are of the view that it would be in the interest of justice to set aside the order of CIT(A) and to remand the issue to the AO for fresh consideration, to be decided in accordance with law after the decision of the Hon’ble Supreme Court.
12. Ground No.2 raised by the ssessee reads as follows :- “2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the disallowance to the extent of Rs.7,89,888/- out of the total disallowance &2571/Kol/2013-M/s.Khadim India Limited-A.Y.2009-10 of Rs.8,31,208/- made by the A.O. on account of legal expenses incurred in connection with floating of IPO.”
13. As far as ground No.2 raised by the assessee is concerned the issue is with regard to the expenses incurred by the assessee in connection with public issue of shares. It has been held by the Hon’ble Supreme Court that expenditure incurred for public issue of shares are capital in nature cannot be allowed as deduction. In the case of Punjab State Industrial Development Ltd. Vs. CIT 225 ITR 792 (SC) The CIT(A) has followed the aforesaid decision and confirmed the disallowance made by the AO. We do not find any ground to interfere with the order of CIT(A). Consequently ground No.2 raised by the assessee is dismissed.
In the result the appeal of the assessee is partly allowed for statistical purposes.
In the result the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the Court on 01.06.2016. Sd/- Sd/-
[M.Balaganesh ] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 01.06.2016. [RG PS] Copy of the order forwarded to: 1.M/s. Khadim India Limited, 6, Russel Street, 5th Floor, Kolkata-700071. 2.DCIT, Circle-3, Kolkata 3. CIT(A)-I, Kolkata 4. CIT-I, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,