Case Number: ITA 1195/DEL/2020
Appellant: Krishak Bharati Cooperative Ltd., New Delhi
Respondent: ACIT, Circle-29(1), New Delhi
Assessment Year: 2015-16
Result: 2015-16
Case Filed on: 2020-06-17
Order Type: Final Tribunal Order
Date of Order: 2022-07-26
Pronounced on: 2022-07-26
Court: IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’, NEW DELHI
BEFORE:
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND
SHRI N.K. CHOUDHRY, JUDICIAL MEMBER
PER N.K. CHOUDHRY, J.M.:
This appeal has been preferred by the assessee against the order dated 27.01.2020, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-25, New Delhi (in short ‘Ld. Commissioner’), u/s 250 of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2015-16.
Brief Facts:
The brief facts, relevant for adjudication of the instant appeal, are that the assessee by filing its return of income on 24.09.2015 declared a loss of Rs.1,29,11,11,730/-, which was later revised on 06.02.2017, whereby the loss was declared to the tune of Rs.72,22,14,330/-. Subsequently, the case of the assessee was selected for scrutiny and resulted in the issuance of statutory notices and the making of the disallowance of Rs.33,34,13,313/- under Rule 8D(2)(ii) of the Income-tax Rules, 1962 (for short ‘the Rules’) and of Rs.45,45,070/- on account of amortisation of lease rent as capital in nature, by the Assessing Officer.
The Assessee, being aggrieved by the said disallowances, challenged the same before the ld. Commissioner, who vide para 4 of the impugned order, partly affirmed the addition made by the Assessing Officer on account of disallowance u/r 8D of the Rules, to the extent of Rs.15,000/- only and deleted the remaining. Further vide para No. 4.2 of the impugned order, the ld. Commissioner affirmed the disallowance of Rs.45,45,070/- on account of being amortisation of lease payments claimed as business expenditure by the assessee by holding as under:
“4.2 In Ground No.2, the appellant has contested disallowance of Rs.45,45,070/- being amortization of lease payments claimed as business expenditure. The Assessing Officer has erred in law and on facts in disallowing an amount of Rs.45,45,070/- being amortization of lease payments. These are allowable as business expenditure for ascertaining the correct taxable profits. AO disallowed expenditure as the same was being disallowed by revenue since AY 2006-2007. AO failed to appreciate the fact that it was allowed up at AY 2005-2006.
4.2.1 The Assessing Officer considered the reply of the assessee which was more or less the same as in the preceding year. He also went through the cases relied upon by the assessee, which are distinguishable from the facts of the instant case. The assessee in its computation has claimed the deduction of Rs.45,45,070/- as amortization of lease rent. In this regard, it is important to note that by merely changing the name of expenditure, the claim of the assessee does not become entitled u/s 37 whereas the allowability of depreciation is to be considered u/s 32. It is obvious from the nature of these expenses that they provide the assessee enduring benefits spread over several decades. Making the part of the payment annually does not change the nature of the expenditure. The assessee’s claim is accordingly rejected u/s 37 of the Income Tax Act, 1961 which prohibits the deduction of any capital expenditure.
4.2.2 The Assessing Officer pointed out that the Hon’ble Delhi High Court had dismissed the appeal of the assessee on this issue and the addition made by the AO has been upheld. Accordingly, the deduction on account of amortization of lease rent amounting to Rs.45,45,070/- was disallowed and added back to the income of the assessee.
Similar and identical issue was adjudicated upon by my Ld. predecessor for A.Y. 2011-12 and 2012-13. The relevant portion of the appellate order for A.Y. 2012-13 is reproduced as under:
“The issue involved is found to be a covered one. The allowability of lease rental amortization came up for consideration before me for the A. Y. 2011-12, the relevant portion of which is reproduced below:
“5.2.7 From the perusal of the copy of lease deeds in respect of the above two lands, it is noted that both the leases are renewable. It is also a fact that all the charges — registration and stamp duty with regard to entering into the above lease were borne by the appellant. Though, some liberty has restrictions, have been imposed on the lessee but overall it is noted that some liberty has been granted to transfer the rights subject to certain conditions and other restrictions, consistent with the nature of interest created i.e., leasehold rights similar to in the case of Noida land. Therefore, considering the order of Hon’ble Delhi High Court exactly on the same issue in respect of A.Y. 2004-05, relevant portion of reproduced above, the addition made by the AO is upheld. Thus, ground no 5 to 8 dismissed for the reasons mentioned above and the addition of Rs.25.55.745/- is upheld.”
4.2.3 Therefore, following the principle of judicial consistency, on similar facts and circumstances, I uphold the addition made by the AO of Rs.45,75,672/- following the appellate order passed for the assessment year 2011-12 in appeal no. 31/15-16. Hence, ground No. 2 of the appeal is dismissed.”
The assessee being aggrieved with the affirmation of the said disallowances, preferred the instant appeal on the following grounds:
1. The ld. CIT (A) erred in law and on facts in confirming the disallowance of Rs. 45,45,070/- being amortization of lease payment. These are allowable business expenditures for determining the taxable income and should have been allowed.
2. The appellant contends that amortization of these expenses over the period of the lease is revenue expenditure and is in the nature of rent paid for the use of land. It is not in the nature of capital expenditure as the assessee does not get any legal title or any right over the land.
3. The ld. CIT(A) has erred in law and on facts in confirming the disallowance of Rs. 15,000/- u/s 14A r.w.r. 8D of the Income Tax Rule 1962 without recording any satisfaction for rejecting assessee’s claim. The disallowance is wrong and bad in law and should be deleted.
4. The ld. CIT(A) has failed to appreciate that the AO has not brought on record any material to show a nexus between expenditure and the earning of exempt income. No disallowance u/s 14A r.w.r. 8D can be made.
5. The ld. CIT(A) has failed to appreciate that Rule 8D can be invoked only when the A.O. from the books of accounts is able to demonstrate that some expenditure has been incurred for earning tax-free income. Rule 8D has been mechanically invoked by A.O. without establishing such a nexus. Consequently, the disallowance u/s 14A r.w.r. 8D of Rs. 15,000/- should be deleted.
6. The ld. CIT (A) has failed to appreciate that there is no exempt income claimed by the assessee. The income referred of Rs. 15000/- is part of total income, claimed as deduction u/s Chapter VIA. The Hon’ble Delhi HC in the assessee’s own case has held that 14A would not come into play.
7. The above grounds are independent and without prejudice to one another.
8. The appellant also prays to add, amend, alter or forgo any of the grounds at the time of hearing.
Decision:
Heard the parties and perused the material available on record. Ground No. 1 & 2 relates to the disallowance qua amortization of lease payments. At the outset, our attention was drawn by the assessee to the order dated 04.01.2022 passed by the Hon’ble coordinate Bench in Assessee’s own case in ITA Nos. 5711/Del/2017 & 5754/Del/2017 for the AY 2012-13 decided on 04-01-2022, wherein the Hon’ble coordinate Bench in para No. 8 and 9 of its order considered a similar issue qua disallowance on account of amortizable portion of lease premium payment and restored the issue concerning to the land at ‘Vishakhapatnam’ for construction of Rural Godown leased from Port Trust, Visakhapatnam and also the land at ‘Tuticorin’ for construction of Godown leased from the Port Trust, Tuticorin, to the file of Assessing Officer for decision de novo in accordance with law.
Considering the peculiar facts and circumstances and the order referred above passed by the Hon’ble Coordinate Bench, we deem it appropriate to remit the issue related to the amortization of lump sum amount paid as lease premium quo the lands at Visakhapatnam leased from Port Trust and at Tuticorin for construction of godown leased from Port Trust Tuticorin, to the file of Assessing Officer for decision afresh in accordance with law. Hence ordered accordingly.
4.2.1 With regard to the amortizable portion of the lease taken from Noida Authority, before the Hon’ble co-ordinate Bench in the case pertains to the previous AY referred above and before us as well, the Assessee conceded that the issue has already been decided against the Assessee by the Hon’ble High Court in ITA no. 205/2010 decided on 12-07-2012, though the Assessee has preferred an appeal before the Hon’ble Apex Court, however, not pressing the same. As the decisions stand today are against the Assessee, therefore the disallowance qua amortizable portion of the lease taken from Noida Authority, stands affirmed. Consequently, ground Nos. 1 & 2 are partly allowed.
Ground Nos. 3 to 6 relate to the disallowance of Rs.15,000/- u/s. 14A r.w.r. 8D of the Rules. The assessee before us claimed that the ld. Commissioner wrongly affirmed the addition/disallowance of Rs.15,000/- for equity investment in NEFED on the ground of having been received as dividend income whereas the income referred to Rs.15,000/- is part of the total income which was claimed as a deduction under Chapter VI-A of the Act. The assessee further claimed that the ld. Commissioner, without recording any satisfaction for rejecting the Assessee’s claim, confirmed the disallowance of Rs.15,000/-, which is contrary to the law and facts, as the Assessing Officer has not brought on record any material to show a nexus between the expenditure and the earning of exempt income, therefore no disallowance u/s. 14A r.w.r. 8D is warranted. The assessee in support of its arguments also relied upon the judgment of the Hon’ble High court in the Assessee’s own case, i.e., ITA No. 444/2011 decided on 18.07.2012, wherein para No. 32, the Hon’ble High Court has decided the identical issue by concluding as under:
“32. Section 14A states that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred in relation to the income which does not form part of the total income under this Act. It does not state that income which is entitled to deduction under Chapter VIA has to be excluded for the purpose of the said Section. The words “do not form part of the total income under this Act” is significant and important. As noticed above, before allowing deduction under Chapter VIA we have to compute the income and include the same in the total income. In this manner, the income which qualifies for deductions under Sections 80C to 80U has to be first included in the total income of the assessee. It, therefore, becomes part of the income, which is subjected to tax. Thereafter, the deduction is to be allowed in accordance with and subject to the fulfillment of the conditions of the respective provisions. This is also subject to Section 80AB and 80A(1) and (2). Chapter VIA does not postulate or state that the incomes which qualify for the said deduction will be excluded and not form part of the total income. They form part of the total income but are allowed as a deduction and reduced.”
Considering the peculiar facts and circumstances, and the decision referred above rendered by the Hon’ble High court in the Assessee’s own case qua identical issue, we deem it appropriate to remit the issue qua disallowance u/s. 14A r.w.r. 8D of the Rules to the extent of Rs.15,000/- to the file of the Assessing Officer for a decision afresh in accordance with law, suffice to say while affording reasonable opportunity of being heard to the Assessee.
Ground No. 7 & 8 are general in nature and hence need no independent adjudication.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 26/07/2022.
Sd/- Sd/- (N.K. BILLAIYA) (N.K. CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER
Krishak Bharati Cooperative Ltd. vs. ACIT, Circle-29(1), New Delhi – ITA 1195/DEL/2020
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