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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI KUL BHARAT & DR. B.R.R. KUMAR
assessee, are directed against the order of the learned Commissioner of Income-tax (Appeals)-4, Mumbai, dated 30.01.2018, pertaining to the assessment year 2014-
15. Both the matters were heard together and are being disposed of by this common order for the sake of convenience.
2. The Revenue has raised following grounds of appeal: “1. Ld. CIT(A) has erred by treating the entertainment tax subsidy as capital in nature while same is revenue in nature.
2. Ld. CIT(A) has erred by allowing the depreciation to the assessee while entertainment tax subsidy is revenue in nature.
3. Ld. CIT(A) has erred by not taken into consideration the fact that payment of service tax is to be allowed purely on payment basis which the Assessing Officer had categorically mentioned in the assessment order.
4. The Ld. CIT(A) has erred by not taking into the consideration that the matter has not attained legal finality as the judgment of Honorable Supreme Court on the issue is still awaited and any change in the liability would have direct bearing on the issue at hand.
5. That the appellant craves for the permission to add, delete or amend grounds of appeal before or at the time of hearing of appeal.
CO No. 152/Del/2018 3. The assessee has raised following cross-objections:
“Without prejudice to the judgment of the Ld. CIT (A), the Respondent raises the following cross-objections: 1. The Assessing Officer erred in law and facts in framing the assessment order under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) in the name of Fun Multiplex Private Limited without appreciating that the said entity stood dissolved consequent to its merger with Cinepolis India Private Limited w.e.f. 01.04.2014. The Assessing Officer failed to appreciate that assessment order on a non- existing company is invalid and liable to be quashed;
The Respondent craves leave to add, amend or alter all or any of the objections raised thereto.”
Facts giving rise to the present appeal are that assessee filed its return of income for A.Y.2014-15 on 29.11.2014 declaring income at Nil. The case was taken up for scrutiny assessment and the AO completed the assessment u/s 143(3) of the Income-tax Act, 1961 (the “Act”) on 30.12.2016 at a total income of Rs. 35,89,83,352/-, by making additions relating to – (i) treatment of entertainment tax-concession Rs. 8,43,52,253/-; (ii) excess claim of depreciation amounting to Rs. 6,58,41,746/-; and (iii) exceptional items debited to P&L A/c. Rs. 10,48,55,322/-. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals) who allowed the appeal of the assessee in respect to - treatment of entertainment tax concession; depreciation; and service tax provision.
The learned CIT(A), however, rejected the claim of assessee relating to issue
CO No. 152/Del/2018 relating to assessment completed on non-existing company. Aggrieved against the order of learned CIT(Appeals), the Revenue has preferred appeal challenging the deletion of additions made by the AO whereas the assessee has preferred cross- objection against CIT(A)’s finding relating to assessment being completed on non- existing company.
We have heard learned representatives of the parties and perused the material available on record.
At the outset learned counsel for the assessee submitted that the issues involved in Revenue’s appeal are squarely covered in favour of the assessee by earlier decision of the ITAT in assessee’s own case.
On the other hand learned DR relied on the assessment order. However, he fairly conceded that the issues are covered by the decision of the Tribunal.
We have heard rival submissions and perused the material available on record.
9. Apropos to ground no. 1, learned counsel for the assessee submitted that the issue relating to taxability of entertainment tax subsidy received by the assessee, involved in ground no. 1 is squarely covered in favour of the assessee by the earlier decision of the ITAT Delhi Bench ‘F’ rendered in assessee’s own case for A.Y.
CO No. 152/Del/2018 2010-11, 2011-12 and 2013-14 vide common order dated 30.09.2022 in ITA nos.
3630/Del/2019, 3631/Del/2019 & ITA 6317/Del/2017 respectively. Learned counsel also submitted that the issue in question is squarely covered in favour of the assessee by decision of the Hon’ble Supreme Court in the case of CIT Vs. Chapalkar Brothers (400 ITR 279).
10. We have heard rival submissions and perused the material available on record. The learned CIT(Appeals) has adjudicated the ground, inter alia, by observing as under:
“6.3 I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. The issue is covered in the appellant’s own case for the A.Yr 2008-09 and A.Yr 2009-10 wherein it was held by the Hon’ble ITAT that entertainment duty subsidy is a capital receipt. The Hon'ble ITAT held as under: “After carefully going through the findings of the Assessing officer and Ld. Commissioner (Appeals), we find that this issue of entertainment subsidy in case of multiplexes and theaters has been dealt by the jurisdictional High Court after analyzing the object and the purpose of the subsidy and came to the conclusion that it is a capital receipt. The Jurisdictional High Court has referred and relied upon the decision of the hon’ble Supreme Court in Pooni Sugar and Chemicals Ltd., [2008] 306 ITR 392 (SC) and Sahney Steel andPress Works Ltd. v/s CIT, [1997] 228 ITR 253 (SC). …… In view of the aforesaid decision of the Jurisdictional High Court which applies mutatis mutandis to the facts of the present case also, we do not find any merit in the ground raised by the revenue and, therefore, the findings given by the learned Commissioner (Appeals) is hereby affirmed. Thus, ground no. 1 is treated as dismissed. Further, the Hon'ble Bombay High Court has also ruled in favour of the CO No. 152/Del/2018 appellant in the case of CIT v/s. Chaphalkar Bros. 351 ITR 309 (Bom). In AY 10-11, AY 11-12 and A.Yr. 12-13 on identical issue, my Ld. Predecessor has decided the appeal in favour of the appellant. Respectfully following the decision of the jurisdictional ITAT and High Court and keeping in view principles of consistency, it is held that the receipt of Rs. 8,43,52,253/- in form of entertainment tax concession is capital in nature. In view of the above, the AO is directed to allow the entertainment tax concession as capital receipt. In the result, Ground No. 1 is allowed.”
We find that the issue in question came up for adjudication before Coordinate Bench of this Tribunal in assessee’s own case for earlier years wherein the Tribunal vide its common order dated 30.09.2022 in 3631/Del/2019 & ITA 6317/Del/2017 (supra) has adjudicated the issue in favour of the assessee, inter alia, by observing as under:
“7. We have heard the parties and perused the material available on record.
8. It is common point before us that the issue is squarely covered by the decision of Hon'ble Supreme Court in case of CIT Vs. Chapalkar Brothers (400 ITR 279).
On a perusal of the aforesaid judgment of the Hon'ble Apex Court. It is observed, while considering the nature and character of entertainment tax subsidy received by multiplexes/cinema hall owners under the very same Scheme the Hon’ble Apex Court has held that the entertainment tax subsidy received is in the nature of capital receipt. In fact, in assessee's own case in assessment years 2008-09 and 2009-10, Hon'ble Bombay High Court while dismissing the appeals filed by the Revenue has upheld the decision of the Tribunal holding that the entertainment tax subsidy received by the assessee is in the nature of capital receipts. Further, in case of CIT vs. Bougainvillea Multiplex Entertainment Centre (P) Ltd. (55 taxmann.com 26), the Hon'ble Delhi High Court has expressed identical view.
Undisputedly, learned Commissioner (Appeals) while deciding the issue has followed the ratio laid down in the decisions cited supra. That being the case, we do not find any infirmity in the order of learned Commissioner (Appeals) on this issue. Accordingly, the order in upheld and grounds raised by the revenue are dismissed.”
12. The order of the learned CIT (Appeals) being in consonance with earlier decision of the Tribunal in assessee’s own case as also the issue being squarely covered in favour of the assessee by the decision of the Apex Court in the case of Chapalkar Brothers (supra), we see no reason to interfere with the order of learned CIT(Appeals) on the issue in question. Ground is rejected.
13. Apropos to ground no. 2, learned counsel for the assessee submitted that the issue relating to depreciation, involved in ground no. 2 is also squarely covered in favour of the assessee by the aforesaid decision dated 30.09.2022 of the ITAT in assessee’s own case (supra), wherein the Tribunal has followed the decision of Coordinate Bench in the case of PVR Ltd. Vs. Addl. CIT (ITA No. 1897/Del/2010 dated 20.04.2012).
We have heard rival submissions and perused the material available on record. The learned CIT(Appeals) has adjudicated this issue as under:
“7.3 I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. It is pertinent to mention that the Jurisdictional High Court in the case of Chapalkar Bros. (351 ITR 309)on CO No. 152/Del/2018 the identical facts and the Hon’ble Delhi ITAT in the case of PVR Ltd. have decided the issue in favour of the appellant. The issue has also been decided by the Hon’ble ITAT in favour of the appellant in its own case following decision in the case of Chapalkar Bros (Supra). Further, for AY 10-11, AY 11-12 and A.Yr, 12-13, this issue has been also decided in favour of the appellant by my Ld. Predecessor. Thus, respectfully following the decision of Jurisdictional High Court, Hon’ble ITAT and keeping in view principles of consistency, the AO is directed to delete the disallowance of depreciation made by virtue of explanation 10 to Section 43(1). In the result, Ground No. 2 is allowed.
We find that this issue also came for adjudication before the Tribunal in assessee’s own case for A.Y. 2010-11, 2011-12 and 2013-14 wherein vide common order dated 30.09.2022 (supra), the Tribunal has decided the issue in favour of the assessee, inter alia, observing as under:
“11. The next common issue arising in these appeals is, in case, the entertainment tax subsidy is held to be capital in nature, whether, it will go to reduce the cost of acquisition of capital assets resulting in disallowance of depreciation claimed by the assessee on plant and machinery to that extent. While framing the assessment, the assessing officer held that in case the appellate authorities hold that the entertainment tax subsidy received is in the nature of capital receipt, then, in terms of Explanation 10 to section 43(1) of the Act, subsidy should be reduced from the written down value of plant and machinery and thereafter depreciation is to be allowed. While, deciding this issue, learned Commissioner (Appeals) held that no such disallowance out of depreciation can be made, as, the incentives are provided for the purpose of cinema industry as a whole and not for any specified assets directly or indirectly. He held, since, the subsidy granted is not used for payment of actual cost of any fixed asset, it cannot be reduced from the written down value of the assets for computing depreciation. While doing so, he followed the decision of Tribunal in case of PVR Ltd. vs. Addl. CIT, dated 20.04.2012.
Before us, both the parties agreed that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate Bench in case of of PVR Ltd. (supra).
Having considered the submissions of the parties and examined the facts on record in the light of decisions cited before us, we are of the view that that entertainment tax subsidy granted by the State Government is not for the purpose of utilizing on any particular or specified assets. That being the factual position emerging on record, the reasoning of the assessing officer that such subsidy would go to reduce the cost of assets is unacceptable. More so, when the revenue has failed to bring any material on record to demonstrate that the subsidy has actually gone to reduce the cost of any specified assets on which the assessee claimed depreciation. That being the factual position, no part of the subsidy can be reduced from the written down value to compute depreciation.
14. Accordingly, we uphold the decision of the first appellate authority by dismissing the grounds.”
The order of the learned CIT(Appeals) being in consonance with the earlier order of the Tribunal and there being no change in facts and circumstance for the assessment year under consideration we see no reason to interfere in the order of learned CIT(A). Ground is rejected.
Apropos to ground no. 3, we find that the Ld. CIT(A) has adjudicated the issue relating to payment of service tax in favour of the assessee, inter alia, by observing as under:
“8.3 I have carefully considered the facts of the case, oral contentions and written submission of the assessee, discussion of the AO in the assessment order and material available on record. It is the fact not disputed by the AO that the provision in respect of the service tax liability created by the Appellant was factually correct and was in accordance with its service tax liability which has arisen on the appellant because of the enactment of Finance Act, 2010 with effect from 01.06.2010. It is also the fact of the case
CO No. 152/Del/2018 that post such enactment, the matter was carried by various stakeholders to High Courts of Bombay, Gujarat, Karnataka, Orissa, Punjab and Haryana. In their decisions, the Hon’ble High Courts have upheld the levy of service tax along with the validity of retrospective amendment. Accordingly, as far as assessee is concerned, the jurisdictional High Court has upheld such levy of service tax on it along with the validity of retrospective amendment. Under such facts and circumstances, it would become imperative for any assessee to either pay the amount of service tax or provide for the same in its books of accounts in order to reflect the true and correct position of its financial statements. It is further stated that once the law has been enacted by the Govt, of India, further the jurisdictional High Court has upheld the levy of service tax and the validity of retrospective amendment, only for the reason that the matter is being agitated before the Hon’ble Supreme Court and is pending, it will not make such liability to pay service tax as unascertained liability. It is further stated that the provision so created and quantified has not been found to be either overstated or disproportionate to the appellant’s actual liability which as on today exists and would finally be paid depending upon the outcome of the decision of the Hon’ble Supreme Court. It is in respect of such situations when the liability is fairly ascertainable and legally existing that the accounting standard 29 stipulates making a provision for such liabilities. In view of such facts and circumstances and discussion hereinabove, the conclusion of the A.O that such provision created by the appellant towards the liability of service tax is an unascertained liability and therefore, not allowable as deduction is not found to be justifiable. Accordingly, the disallowance so made by the AO is directed to be deleted. The AO has also added the amount of provision towards service tax while working out the book profit of the Appellant, however, he has not discussed the issue in the assessment order. On the other hand, the appellant has contended that such provision created cannot be added back while working out the book profit u/s 115JB of the Act. In this regard, it is stated that in the discussion hereinabove, such liability towards service tax has been held to be existing and which has been created because of the enactment of the Finance Act, 2010 w.e.f. 01.06.2010, legality and validity thereof have been upheld by the Hon’ble High Courts including the jurisdictional High Court. In such view of the matter, the A.O’s action in making the disallowance of the said sum under the normal provisions of Income-tax has not been found to be justifiable. Further, it is not the case that the accounts of the assessee have not been prepared in accordance with the schedules of the Companies Act and therefore, there is no justification
CO No. 152/Del/2018 seen in making addition of this sum while working out the book profit u/s 115JB of the Act. This ground of appeal is accordingly allowed.”
The short issue is whether provision of service tax is an allowable deduction.
The objection of the AO in this regard is that such provision is not allowable under the Income-tax Act. He has categorically stated that the liability has not been crystallized. However, the learned CIT(A) has elaborately discussed this issue in the impugned order. In Note No. 27 to accounts, forming part of the Financial Statement, the assessee company has recorded that the Finance Act, 2010 has imposed a levy of service tax on renting of immovable properties given for commercial use, retrospectively with effect from June 1, 2007. Special Leave Petition filed before the Hon’ble Supreme Court against the order of Delhi and other High Courts that had upheld the constitutional validity of amendment made to section 65(105)(zzzz) of the Finance Act in connection with the levy of service tax on renting of immovable property are pending before the Hon’ble Supreme Court. As per the Hon’ble Supreme Court interim order dated 14th October 2011, the company has paid 50% of its arrear of Service Tax dues till 30th September 2011 and for the balance 50% it has furnished solvent surety to the satisfaction of its jurisdictional Commissioner. Out of abundant precaution the company has provided for/charged off service tax obligation of Rs. 10,48,55,322/- (including Rs.
CO No. 152/Del/2018 3,17,36,567/- released to service provider in earlier years) in the current financial year.
The AO disallowed the claim of the assessee on the ground that liability being contingent and dependent on the outcome of the verdict of the Hon’ble Supreme Court on this issue. In our considered view, the AO erred in treating the liability being contingent. It is undisputed fact that amount of liability is clear, since 50% of such liability was directed to be paid in three equal installments by the Hon’ble Supreme Court and for balance 50%, surety was required to be furnished. Therefore, we do not see any good reason for interfering into well reasoned finding of the learned CIT(Appeals), same is hereby affirmed. Ground of appeal is dismissed.
Appeal of the Revenue is dismissed.
C.O. No. 152/Del/2018:
Now we take up the cross objection of the assessee. We find that the learned CIT(Appeals) has elaborately discussed the issue in para 9.3 of his order. We do not see any good reason to interfere in the finding of learned CIT(Appeals). The same is hereby affirmed. Moreover, the assessee filed return in the name of Fun Multiplex Private Ltd. The reasoning of the learned CIT(Appeals) that if the assessee is to be treated to have been merged w.e.f. 01.04.2014 in that event the CO No. 152/Del/2018 return so filed would also become non-est. Considering the totality of facts, we dismiss the ground of cross-objection. 22. Cross Objection of the assessee is dismissed.
In the result Revenue’s appeal as well as assessee’s cross-objection stand dismissed..
Order pronounced in open court on 30th August, 2023.