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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri N.K.Billaiya, AM & Shri Amarjit Singh, JM
आदेश / O R D E R
Per N.K.Billaiya (AM) : These two appeals by the assessee are directed against the order of the Commissioner of Income-tax (Appeals) – 6, Mumbai, dated 09.08.2010 pertaining the assessment years 2005-2006 and 2006-2007.
As the first appellate authority has decided the appeals of two assessment years by consolidated order, both these appeals were heard together and are disposed off by this consolidated order for the sake of convenience.
The first ground relates to the treatment of income under the head income from house property. The assessee is aggrieved by the direction of the CIT(A) to determine the annual value of the property at 12% of the cost of land and building. At the very outset, the Counsel for the assessee fairly conceded that this issue has been decided against the assessee and in favour of the Revenue by the Tribunal vide a consolidated order dated 1st May, 2009 for assessment years 1999-2000, 2000-2001 and 2001-2002.
3.1 We find that this issue has been considered by the Tribunal in para 2.7 of its order and at 2.7.1, the Tribunal has followed the decision of the co- ordinate bench given for assessment years 1994-95 and 1995-96 to assessment year 1998-99. Following the decision of the Tribunal, the appeal of the assessee was dismissed. As the learned Senior Counsel has fairly conceded that since this issue has been decided against the assessee by the Tribunal, the same view should be taken. Respectfully following the finding of the co-ordinate bench in assessee’s own case (supra) ground no.1 is dismissed.
Ground no.2 with all its sub-grounds relate to the disallowance made u/s 14A of the Act read with rule 8D.
4.1 This issue is no more res integra as the applicability of Rule 8D has been held to be prospective from assessment year 2008-2009 by the decision of the Hon’ble High Court of Bombay in the case of Godrej & Boyce Ltd. Mfg. Co. v. DCIT [(2010) 328 ITR 81 (Bom.)]. We, therefore, restore this 3 & 7794/Mum/2010 M/s.Raymond Limited. issue to the file of the A.O. to be decided afresh without applying Rule 8D after giving a reasonable opportunity of being heard to the assessee. Ground no.2 with all its sub-grounds are treated as allowed for statistical purposes.
Ground no.3 relates to the treatment of premature repayment of sales- tax loan at net present value as revenue receipt chargeable for tax. This issue has been considered by the AO at para 5.2 of his order. While scrutinizing the return of income, the AO found that in the computation of income at Notes forming part of the computation, the assessee has mentioned that sale-tax deferment loan u/s 38 of Bombay Sales-tax Act, of Rs.1,19,14,723 has been repaid prematurely on net present value of Rs.57,97,097 and Rs.61,17,626 is credited to profit and loss account and the same has been treated as capital receipt. The assessee was asked to explain why the said receipt should not be treated as revenue receipt. The assessee explained that it has availed the benefit of premature repayment of sales-tax loan, thus, the benefit accrued to the assessee is on account of loan transaction in which no deduction or allowance was ever granted in earlier years, therefore, the said receipt is a capital receipt. This submission of the assessee was dismissed by the AO, who was of the firm belief that the benefit so derived by the assessee is nothing but akin to refund / subsidy of the sales-tax for which the assessee has already taken benefit, therefore, the same is held to be revenue receipt. The assessee carried the matter before the CIT(A), but without any success.
5.1 Before us, the Counsel for the assessee stated that this issue is now squarely covered by the Decision of the Special Bench of the Tribunal in the 4 & 7794/Mum/2010 M/s.Raymond Limited. case of DCIT v. Sulzer India Ltd. [(2012) 24 taxmann.com 24 (Mum.) (SB)] in favour of the assessee and against the Revenue. The Counsel further pointed out that this issue is also decided by the Hon’ble High Court of Karnataka in favour of the assessee in the case of CIT v. McDowell & Co. Ltd. [(2014) 52 Taxmann.com 15 (Karnataka)]. The Departmental Representative fairly conceded to this.
5.2 We have carefully perused the order of the authorities below in the light of the decisions relied upon by the learned Counsel. We find force in the contention of the learned Senior Counsel. The facts in issues are squarely covered in favour of the assessee and against the Revenue by the decisions cited hereinabove. The Hon’ble High Court of Karnataka has laid down the ratio that where the assessee, due to certain scheme, made premature payment of deferred sales-tax and on such payment entire liability to pay tax stood discharged, section 41(1) was not applicable. A similar view was taken by the Special Bench of the Tribunal in the case of Sulzer India Ltd. (supra). Respectfully following the decisions of the Hon’ble Karnataka High Court and the Special Bench, ground No.3 is decided in favour of the assessee and against the Revenue.
Ground No.4 is not pressed and the same is dismissed accordingly.
Ground No.5 relates to the denial of deduction claimed u/s 35D of the Act. During the course of scrutiny assessment proceedings, the AO found that the assessee has claimed deduction u/s 35D of the Act at Rs.60,00,150, which pertains to its Steel Division. The AO further noticed that the said claim was not made in the return of income. On further proof the AO found that the 5 & 7794/Mum/2010 M/s.Raymond Limited. assessee had already sold its Steel Division in financial year 2000-2001. The AO was of the firm belief that since the assessee does not have business on which such claim is asked, the same cannot be allowed. The AO accordingly denied the claim of deduction u/s 35D of the Act. The assessee carried the matter before the CIT(A), but without any success.
7.1 Before us the Counsel for the assessee drew our attention to the claim of deduction u/s 35D of the Act, in respect of Steel Division since assessment year 1996-97. It is the say of the Counsel that there is no provision in the Act by which the assessee can be denied the claim of deduction u/s 35D of the Act on sale of the unit on which the claim was already granted. The Departmental Representative strongly supported the finding of the Revenue authorities.
7.2 We have carefully perused the orders of the lower authorities. Section 35D of the Act relates to amortization of certain preliminary expenses whereby the assessee is allowed deduction of an amount equal to 1/10th of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commenced or as the case may be the previous year in which the extension of the undertaking is completed or the new unit commenced production or operation. The past history of the assessee was that there is no dispute insofar as the eligibility criteria of the assessee is concerned. The preliminary expenses were incurred by the assessee in assessment year 1996-97, which was the first year of the claim of 1/10th of the expenditure. Since then 1/10th was claimed and allowed till assessment year 2001-2002. The impugned assessment year, i.e.,
6 & 7794/Mum/2010 M/s.Raymond Limited. assessment year 2005-2006 is the last assessment year, i.e., the tenth year of claim of deduction, which has been denied since the Steel Unit has been sold by the assessee. On a perusal of section 35D shows that the Act is silent in the case when a unit is sold. Section 35D(5) of the Act refers to the transfer before the expiry of the period of 10 years to another Indian company in a scheme of amalgamation and section 35D(5A) refers to the transfer before the expiry of the period in a scheme of demerger. There is no clause in the section which debars the assessee from claiming the expenses as a write off on sale of the undertaking. We, therefore, do not find any reason for declining the claim of the assessee.
7.3 Let us consider this issue from another angle. The preliminary expenses were incurred in assessment year 1996-97 and as per well settled Accounting Principles, the assessee was entitled to claim the entire expenditure in the first year of incurring them. However, due to a specific provision in the Act, the amortization was allowed to be claimed at 1/10th in ten successive assessment years. Assuming that this provision is not there in the Act, then the entire claim was to be allowed in assessment year 1996- 97 irrespective of the fact that in subsequent year the undertaking was sold. By the same analogy if the undertaking is sold during the intervening period, then the claim cannot be denied. Further as mentioned elsewhere, the claim can be denied in the case of amalgamation and demerger but since the Act is silent in the case of sale of undertaking, in our understanding of the law, the Revenue authorities have erred in denying the claim. We accordingly set aside the finding of the CIT(A) and direct the AO to allow the claim of
In the result, the appeal is partly allowed.
First ground relates to the treatment of income under the head income from house property. An identical issue has been considered by us in qua ground No.1 of its appeal. For our detailed discussion therein ground No.1 is dismissed.
Ground No.2 relates to the disallowance made u/s 14A read with rule 8D. An identical ground is considered by us in qua Ground No.2 of the said appeal. For similar reasons, this grievance of the assessee is restored to the file of the AO to be decided afresh without applying Rule 8D. Accordingly, ground No.2 is treated as allowed for statistical purposes.
Ground No.3 relates to the treatment of premature repayment of sales- tax loan at net present value as revenue receipt. This issue has been decided in favour of the assessee and against the Revenue by us in qua ground No.3 of that appeal. For similar reasons, this ground of appeal is allowed.
In the result, the appeal is partly allowed.
Order pronounced on this 28th day of October, 2015. आदेश क� घोषणा �दनांकः को क� गई ।