2020 (4) TMI 854 - AT - Income Tax

Tribunal directs AO to re-compute disallowances & additions, emphasizes importance of legal principles

The Tribunal partly allowed the appeals, directing the AO to re-compute certain disallowances and additions based on established judicial precedents and ... Characterization of income - One time membership entrance fees as one time membership fees for life time membership of club (15 years) - AO treated the said receipt as revenue receipt against the assessee’s treatment for treating it as a capital receipt - HELD THAT:- Considering the decision in the case of E.D. Sasoon, [1954 (5) TMI 2 - SUPREME COURT], Madras Industrial Corporation Ltd. [1997 (4) TMI 5 - SUPREME COURT], Calcutta Co. Ltd. [1959 (5) TMI 3 - SUPREME COURT] and in the case of Rotork Controls India Pvt. Ltd. [2009 (5) TMI 16 - SUPREME COURT] it was held that membership fee received for 33/25 years was liable to spread over the period of time for which such fee is received. Respectfully following the same, we direct the AO to tax following the earlier orders of ITAT i.e [2015 (11) TMI 1810 - ITAT MUMBAI] Disallowance on account of amortization of additional premium paid on lease hold land - HELD THAT:- As in Associated Cement Co. Ltd. [1988 (5) TMI 2 - SUPREME COURT] held that it is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. In the instant case, the advantage which was secured by the assessee by making the expenditure in question was the securing of absolution or immunity from liability to pay municipal rates and taxes under normal conditions for a period of 15 years. If the liability had to be paid, the payments would have been on revenue account and, hence, the advantage secured was in the field of revenue and not capital. And as a result of the expenditure incurred, there was no addition to the capital assets of the assessee and no change in its capital structure. With utmost regard to the decision of Hon’ble Supreme Court, in our humble view, the ratio of the decisions are not helpful to the assessee. In the present case, there is no obligation under lease agreement to pay amortization of lease premium by assessee to the super lesser. There is no evidence on record that the land which was released by UDA was under the occupation of assessee or is part of business asset, in other word it was a part and partial of the plot of land leased to assessee. Thus, the ratio of the decision of Hon’ble Apex Court is not applicable on the present case. In the result, ground of appeal raised by assessee is dismissed. Disallowance under section 14A r.w.r. 8D - HELD THAT:- On appeal before the ld. CIT(A), directed not to consider the investment made in Lift and Shift India Pvt. Ltd., being made in group companies. And rest of the disallowance under Rule 8D(2)(iii) was affirmed. Assessing Officer wrongly deducted ₹ 1739/- from disallowance of Rule 8D(2)(iii) which was directed to be rectified. Before us, the ld. AR of the assessee vehemently argued that only those investment which yielded the exempt income should be considered for considering the average value of investment for disallowance under Rule 8D(2)(iii). Considering the decision of Special Bench of Delhi Tribunal in Vireet Investment Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] we direct the AO to re-compute the disallowance under Rule 8D(2)(iii) by considering only those investment which yielded exempt income. Needless to direct that before computing the disallowance, the Assessing Officer shall grant opportunity to the assessee. This ground of appeal is party allowed. However, we may make it clear that in case any other investment made in group concern and generated exempt income be also considered for taking average value of investment, if those investment yielded exempt income as per the decision of Special Bench of Vireet Investment (supra). Professional Fees Payment - disallowance of professional fees paid to Bhagwan Madhav on the ground that no projects were undertaken by assessee during the Assessment Year under consideration - CIT(A) affirmed the action of Assessing Officer that professional charges paid for housing developed project in the past cannot be accepted for reasons that assessee failed to establish against which professional charges were incurred and that assessee failed to establish the nexus - HELD THAT:- Assessee is engaged in construction activities. The services of Civil Engineer are integral part of civil project construction activities. The Assessing Officer has not made any investigation about the genuineness of payment and services rendered by the Civil Engineer. The Assessing Officer simply disallowed the charges paid to Civil Engineer by taking view that project is yet to start. Similarly, the ld. CIT(A) the action of Assessing Officer holding that assessee failed to establish the nexus between the expenses and corresponding income without disputing the fact that services of Civil Engineer are integral part of civil construction activities. Considering the fact that professional charges paid to Civil Engineer are disallowed without bringing any adverse evidence on record and business of assessee is not in dispute, we direct the Assessing officer to delete the addition. In the result, this ground of appeal is allowed. Issues Involved:1. Disallowance of Rs. 1,11,30,167/- on account of amortization of additional premium paid on leasehold land.2. Addition under Section 14A of the Income Tax Act.3. Addition of Rs. 1,20,54,127/- under Section 40(a)(ia) of the Income Tax Act.4. Disallowance of Rs. 8,20,356/- on account of professional charges paid.5. Addition on account of non-refundable one-time entrance fees collected by the company.Detailed Analysis:1. Disallowance of Rs. 1,11,30,167/- on Account of Amortization of Additional Premium Paid on Leasehold Land:The assessee claimed a deduction for amortization of lease premium, which was treated as capital expenditure by the Assessing Officer (AO). The AO concluded that the cost incurred on land is always capital in nature unless the assessee is engaged in dealing in land. The CIT(A) upheld this view, noting that the premium paid was for releasing land from the Urban Land Ceiling Authority (ULCA), which was not part of the assessee's business assets. The Tribunal affirmed this decision, stating that there was no obligation under the lease agreement for the assessee to pay the premium on behalf of the lessor, and thus, the payment was not a revenue expenditure.2. Addition under Section 14A of the Income Tax Act:The AO made a disallowance under Section 14A read with Rule 8D, considering the assessee's investments that generated exempt income. The CIT(A) directed to exclude investments made in group companies while calculating the disallowance. The Tribunal directed the AO to re-compute the disallowance by considering only those investments that yielded exempt income during the relevant assessment year, in line with the decision of the Special Bench of the Delhi Tribunal in Vireet Investment Pvt. Ltd.3. Addition of Rs. 1,20,54,127/- under Section 40(a)(ia) of the Income Tax Act:The assessee did not press this ground during the hearing. Consequently, the Tribunal dismissed this ground as not pressed.4. Disallowance of Rs. 8,20,356/- on Account of Professional Charges Paid:The AO disallowed the professional charges paid to Bhagwan Madhav, a Civil Engineer, on the ground that no projects were undertaken during the assessment year. The CIT(A) upheld this disallowance, stating that the assessee failed to establish the nexus between the expenses and corresponding income. The Tribunal, however, directed the AO to delete the addition, noting that the services of a Civil Engineer are integral to the construction activities, and the disallowance was made without proper investigation into the genuineness of the payment and services rendered.5. Addition on Account of Non-Refundable One-Time Entrance Fees Collected by the Company:The AO treated the one-time membership entrance fees as revenue receipt, while the assessee treated it as capital receipt. The CIT(A) granted partial relief by spreading the fee over the membership period. The Tribunal followed its earlier decision in the assessee's own case for previous years, directing the AO to tax 1/25th of the fee each year, rather than the entire sum in the year of receipt.Conclusion:The appeals were partly allowed, with specific directions to the AO for re-computation and reconsideration of certain issues based on established judicial precedents and the assessee's previous cases. The Tribunal's order provided a detailed analysis of each issue, ensuring that the legal principles and factual matrix were thoroughly examined and applied.