TaxTMI 
TaxTMI 
2016 (2) TMI 1299
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....s the Revenue has filed an appeal in ITA No.1107/Del/2012. We shall first take up for consideration appeal filed by the Revenue. The grounds of appeals are as follows :- "1. The Ld. CIT(A) has erred on facts and in law in deleting of Rs. 6,96,49,795/- on account of notional income from house property. 2. The Ld. CIT(A) has erred on facts and in law in deleting disallowance of Rs. 7,33,602/- on account of interest on loan and advances. 3. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 27,768/- on account of extra depreciation claimed on computer peripherals. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. In Ground No. 1 revenue is aggrieved by the action of Ld. CIT(A) in deleting the addition of Rs. 6,96,49,795/- made by the AO on account of notional income under the head "Income from House Property". This issue is discussed at length by the AO at pages 1-8 of the assessment order. It is observed by the Ld. AO at page 6 of his order that identical addition was made by the tax department in ....
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..... Admittedly, this building is not used for hotel business of the assessee, but the apartments of this building were given on sub-licence basis to different parties for carrying on business as specified on the sub-licence agreements. The licence agreement which was entered into between the assessee and the NDMC permits the assessee to sub-licence the portion of the premises. It is on the basis of this authorization given in the licence deed that the assessee has sub-licenced offices and apartments in the West Tower to the various parties. The sub-licences given to these parties are for a period of 9 years and 11 months, which is renewable at the request for the sub-licensees. The assessee is not charging any rent lease or licence fee from these parties instead, the assessee has received interest free security deposits in the year of original sub-licence, which receipt was shown by the assessee-company as unsecured loan in its balance sheet. The sub-licence deeds, which are executed by the assessee with the sub-licensees also permit the sub-licensees to transfer the same to any other person on payment of transfer charges to the assessee-company. Thus, the sub-licensee is entitled to....
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....deeds in respect of those portions and it could not be deemed as 'letting' of the property and for this reason also provisions of section 22 of the Act would not be applicable, as the assessee continued to be in the legal occupation and possession. (d) The use of the premises by the sub-licensees was to assist the assesseecompany in getting hotel accommodation booked for the guests, delegates of the sub-licensees, apart from the increase in catering and restaurants' activities used by the sub-licensees. Therefore, the use of certain portion by the sub-licensees was not for the purpose of or for the benefit of the business of the assessee-company. 7. The Assessing Officer, however, did not accept the aforesaid explanation furnished by the assessee. He was of the view that the license agreement with the NDMC was for a period of 99 years with the right of constructing and developing the property which makes the assessee-company owner of the property. He also opined that the assessee-company had sub-licensed the offices and apartments to various persons, some of whom had further sub-licensed the same; the assessee was not charging any rent, fees etc. on th....
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....nt entered into between the NDMC and the assessee on the basis of which it has come to the conclusion that it is the NDMC, which is the "owner of the premises and remains to be the owner of the premises in question". The Tribunal has further accepted the submissions of the assessee that in view of the provisions of section 27(iii) of the Act, it is the sub-licensee who would be "deemed owner" of those premises which the sub-licensees whereof transferred to the present occupiers and those occupiers are paying rent/licence fee to the sublicensees. On that basis, the Tribunal has set aside the addition made by the Assessing Officer and deleted this component of income holding that the same would not be chargeable to tax. 11. This is how the Department has filed the appeals pertaining to different assessment years. As pointed out above, though the issues before the Assessing Officer, CIT(A) as well as the Tribunal were numerous, in these appeals primarily one question of law which is formulated and reproduced above has been pressed by the Department. 12. For the aforesaid reasons, we are of the view that the approach of the Tribunal in deciding the aforesaid issue is ....
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....pported the finding of CIT(A) before us. After careful consideration of the issue we do not find any infirmity in the view adopted by CIT(A) and hence the same is upheld ground No.2 of the Revenue appeal is therefore dismissed. 5. In Ground No.3 the Revenue is aggrieved by the action of Ld. CIT(A) in deleting an addition of Rs. 27,768/- on account of extra depreciation claimed on computer peripherals. Case records show that during the year under consideration assessee has claimed depreciation on computer peripherals at the rate of 60%, however, this was restricted by the Ld. AO to the rate of 15%. Ld. CIT(A) has deleted the disallowance by following the decision of Hon'ble Delhi High Court in the case of BSES Yamuna Power Ltd. reported in 358 ITR 47 (Del). During the course of hearing Ld. AR invited our attention towards a recent pronouncement of Delhi High Court in the case of Orient Ceramics and Industries reported in 200 Taxmann 64 (Del) wherein, the Delhi High Court has reiterated the earlier view in case of BSES Yamuna (supra). After careful consideration of the case records we find no reason not to uphold the view taken by CIT(A) by following decision of jurisdictional....
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....ning exempt income. It was submitted that recording of satisfaction having regard to books of account was a jurisdictional prerequisite before invoking provision of Rule 8D. In support of his proposition the Ld. AR placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd. reported in 370 ITR 338 (Del). We principally agree with the said contention of the assessee. The AO should have first examined the books of accounts of the assessee and only thereafter if he was not satisfied with the claimed by the assessee that it had not incurred any expenditure for the purpose of any exempt income that he could have invoked provisions of Rule 8D. In the instant case Ld. AO has failed to adopt this mandatory procedure. It is also seen that even the assessee has not been able to substantiate its claim before the lower authority. In our considered opinion this issue requires fresh examination at the end of the AO. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to examine this issue afresh in light of discussions made supra. 10. In Grounds Nos.3 and 3.1 the assesse is aggrieved by the action....
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....debited an amount of Rs. 12,00,00,000/- in the P & L Account towards license fees paid to NDMC. As per schedule 14 note 2(iv) of notes to accounts the above payment has been classified as contingent liability which is an unascertained liability. It cannot be acceptable that on one hand a liability is shown as contingent liability and on the other it is claimed as an ascertained liability without sufficient material evidence in support of such a claim. Further it has been held in following case laws that :- "Law in well settled that expenditure which is deductible for income tax purpose is towards a liability actually existing in the year of account. Contingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting. The income tax law makes a distinction between the actual liability in praesenti and a liability de future which, for the time being, is only contingent. The former is deductible but not the latter. Indian Molasses Co. Pvt. Ltd. vs. CIT (1959) 37 ITR 66 (SC) See : Standard Mills Co. Ltd. vs. CIT (1998) 2290 ITR 366 (Bom)." "Expend....
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....fee, it is not understood as to how the appellant claims that the liability of Rs. 12 crores was a present, ascertained and quantified liability. Further, even the statutory auditors have found it appropriate to qualify their audit report and this is why they have noted that the payment of Rs. 12 crores is only a contingent liability. Therefore, in the present circumstances the claim of Rs. 12 crores may be at best termed as a provision towards payment of license fee till the issue is finally adjudicated upon by the Hon'ble High Court. Now coming to the directions of the Hon'ble High Court which have been heavily relied upon by the ld. Counsel for the appellant. On a careful consideration, I find that the Hon'ble Court has not issued any directions as such. A perusal of the order dated 06.02.2002 suggest that it was a suo-motto offer by Mr. A.S. Chandhiok, Senior Counsel for the appellant to pay Rs. 1 crore per month from August, 2002. The Hon'ble Court has not commented anything about the merits of this offer and they have simply listed the matter for hearing on 8th April, 2002 in the category of "after noticed miscellaneous matters". Therefore, I am not i....
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....uted between NDMC and 'A' 58, last para 07-12-1989 Notice was sent by NDMC to make payment of the arrears of license fee amounting to Rs. 6,84,091,331.89 and to show cause why allotment of land be not cancelled. 59, middle 06-03-1990 NDMC called upon the plaintiffs to stop the use of the plot of land and hand over vacant possession and further pay the amount of more than Rs. 13 crores being the arrears of license fee. 59, last 7 lines 16-10-1990 Upon the aforesaid threats being given, the plaintiffs filed a suit being Suit No. 1193/90 under section 20 of the Arbitration Act, 1940 for appointment of an arbitrator. This suit for an ad-interim injunction was dismissed. 60, top Para 11-03-1991 An appeal was preferred against the judgment dated 16-10-1990 and during the pendency of this appeal, an out of Court settlement was arrived at between the parties which resulted in the execution of a Supplementary Agreement - installments agreed upon 62, last para 04-08-1995 & 31-03- 1998 T....
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....rder dated 18-05-2001 passed by the Single Judge before a division bench of Delhi High Court. Division bench directed as under: "Mr Chandhiok, Sr Counsel for the appellants says that he will pay Rs. 75 lakhs per month fro February 2002 and if the appeal is not heard till the next date of hearing then he will pay Rs. 1 crore per month from August 2002. List the matter on 8th April, 2002 in the category of "after notice miscellaneous matters". Till the next date of hearing operation of the judgment is stayed. If the amount as stated by Sr Counsel for the appellant body is not paid month by month then this appeal shall be deemed to have been dismissed" 95 21-04-2015 Suit No. 610/2000 disposed off by the Delhi High Court 108 - 109 14. Shri Syali further submitted that vide order dated 06th February 2002 while directing payment of Rs. 1 cr per month the High Court had further held that "if the amount as stated by Sr. Counsel for the appellant today is not paid month by month then this appeal shall be deemed to have been dismissed". Under the circumstances it was claimed, that the assessee was mandatorily required to....
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....Court which has now become final. It was then submitted by Mr Syali that the Ld AO has wrongly concluded in his order that the statutory auditors have certified the expense as contingent. Referring to the relevant note appended to Audited Accounts for year ending March 2008 it was submitted by him that what is shown therein as contingent liability was the amount which may be payable to NDMC in future subject to outcome of litigation before High Court. It was submitted by the Shri Syali to the extend amount actually paid i.e Rs. 12 crores it is stated by the auditors that the same is debited to the P&L account and hence there is no question this being contingent. Lastly, it was submitted by Shri Syali that subsequent events in the case vindicate the stand taken by the assesse. In this regard it was submitted that recently vide assessment order dated 18th March 2015 passed by the Ld AO for AY 2012-13 it has been held by him that the amount of Rs. 12 crores paid by the assessee as license fees to NDMC is not a contingent liability. Claim made for deduction of Rs. 12 crores as a business expense has been was allowed by the Ld AO after taking into consideration clarification issued by N....
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....erted that licence fee upto the year 2003 stood paid and no amount was payable by them to the NDMC. Thereafter certain meetings took place between the parties, however, no amicable solution was arrived at between them. A notice dated 12th November, 1999 was then issued by the NDMC to the plaintiffs informing the plaintiffs that the re-valuation of the licence fee was neither possible nor warranted. A meeting of the plaintiffs representative also took place with the Chairman of the NDMC on 22nd November, 1999. Plaintiffs allege that in that meeting the Chairperson of the plaintiffs hotel agreed to pay a sum of Rs. 3 crores on the clear understanding that an Independent agency / committee would be constituted by the NDMC to determine the fair and equitable quantum/rate of licence fee. However, the chairperson refused to have agreed to the appointment of any such committee and gave one week's time to the plaintiffs to make payment failing which it was threatened that the licence would be cancelled and possession of the hotel would be taken. On this threat being given, the Plaintiffs filed a petition being Civil Writ Petition No.7163/99 in this Court. In the aforesaid Writ....
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.... showing the annual gross turnover of the hotel from 1988-89 to 1998-99 and the amount of licence fee payable by the plaintiffs has been calculated in terms of the said annual gross turn over. ...... ....... ....... Though, it is mentioned in the agreement that it is the gross turnover of the hotel as certified by the certified auditors of the hotel on which the licence fee is payable by the plaintiffs, however, prima facie, in my view, plaintiffs may not be entitled to all the appropriations mentioned by the auditors in their certificates. Prima facie, it appears to the Court that only that income which is compulsorily payable by the plaintiffs in terms of an agreement which it might have arrived at with the third party or statutory liability necessarily payable may only have be deducted for the purpose of arriving at the gross turn over to the hotel. The franchisee fee payable is 3% by the NDMC to the franchisee and it is only the 97% of the receipts which are received by the hotel. Prima facie, this 3% may have to be deducted from the room tariff. Luxury tax on behalf of the Government is also received by the hotel at the time of providing its services to the g....
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....in terms of the aforesaid paragraph. The plaintiff being prima-facie liable to pay licence fee at the rate of 21% of the gross turnover of the hotel, in my opinion, there is no question of the plaintiff suffering irreparable loss in case it has to pay the licence fee in terms of the agreement. Defendant-NDMC is a civic authority and for purposes of providing service to the people it requires funds. Public benefit in the present case outweighs the case of the plaintiffs in withholding the amount legitimately due to the NDMC. Balance of convenience clearly lies in favour of the larger public interest rather than in favour of the plaintiffs. The only indulgence to which the plaintiffs may be entitled is to pay the arrears of licence fee in installments. Since the amount which may be calculated on the basis of the above formula may be quite heavy, the plaintiffs will be at liberty to deposit the said amount in four equal quarterly installments, first of which will be paid within three weeks from the date of this order. I, accordingly, restrain dependent-NDMC, its agents and employees from interfering with the possession of the plaintiffs over the land and building situate at 1....
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....ld not to be a trading receipt of the assessee and, hence, not liable to tax. The decisions so relied on are: CIT v. Mysore Sugar Co. Ltd. [1990] 183 ITR 113 / 51 Taxman 208 (Kar.), CIT v. Seksaria Biswan Sugar Factory (P.) Ltd. [1992] 195 ITR 778 /[1991] 59 Taxman 453 (Bom.) and CIT v. Chodavaram Co-operative Sugars Ltd. [1987] 163 ITR 420/ 30 Taxman 615 (AP). We have carefully perused the decisions. It is clear from the facts stated by the High Courts that in each of the cases, the assessee's right to realise the excess price was the subject-matter of dispute pending in the High Court and the High Courts had passed different interim orders pursuant to which the respective assessees were collecting the excess price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realisation of the excess price by the respective assessees was hedged by several conditions, one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the Court. Thus, the receipt of the amount by the assessee was....
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....nt appeal on this ground." Even as per the above decision of Hon'ble Jurisdictional High Court once liability is paid and accepted by NDMC then it cannot be termed as contingent. Appeal of revenue was dismissed at admission stage itself as no question of law arose. We further note that in assessment order for AY 2012-13 again the claim made by the appellant has been allowed by the AO by observing as under: "5.5 I have carefully considered the submission made by the assessee. During the course of assessment proceedings Assessee was directed to submit as to why addition / disallowances made in past be not repeated. In reply vide submission dated 07.01.2015 and 28.02.2015 it was argued by the Assessee that vis-à-vis disallowance of license fee of Rs. 12 crores paid to NDMC the predecessor assessing authorities have not properly appreciated the factual and legal position of the instant case. The Ld. AR clarified that the liability to pay license fee is not in dispute however, actual quantification of same is currently pending final adjudication by the Hon'ble Delhi High Court. Undisputedly, the liability to pay license fee is a contractual liability. NDMC vid....
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....to NDMC are of ascertainable legitimate business expenditure." 18. During the course of hearing Ld CIT(DR) requested assesse to furnish break up of Rs. 150.09 cr finally paid by it as arrears upto year 2013-14 as per High Court directions dated 21st April 2015. In reply appellant submitted the following chart:- The above break up further exonerates the claim made by the assessee. As per interim order dated 06th February 2002 assessee has been making payments to NDMC from FY 2001-02 onwards. For all these years i.e FYs 2001-02 FY 2013-14 even after payment of Rs. 75 lakhs per month initially and Rs. 1 crore per month thereafter the final liability determined in year 2015 was much more. Contingency if at all during FYs 2001-02 to 2013-14 was vis a vis Rs. 150.09 cr which finally became determinable in year 2015. However for the year under consideration the payment of Rs. 12 cr was a confirmed liability, which NDMC accepts as not being subject to further litigation before Delhi High Court. Considering the peculiar facts of the present case we therefore hold that the appellant was entitled to claim deduction of Rs. 12 crores paid by it to NDMC as License Fees under License Deed d....
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....2. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,53,268/- on account of extra depreciation on computer peripherals ignoring the facts that only the computers and computer software are eligible for depreciation of 60% and the same cannot be extended to computer accessories and peripherals." We have already considered both these issues while deciding revenue appeal for AY 2008-09 above in ITA No. 1107/Del/2012. Conclusions recorded by us in ITA No. 1107/Del/2012 would apply mutatis mutandis to ITA No. 218/Del/2013. As result revenue appeal in ITA No. 218/Del/2013 is dismissed. 22. Assessee in its appeal for AY 2009-10 in ITA No. 386/Del/2013 has raised following grounds of appeal: "1. That on facts and in law, CIT(A) erred in upholding the disallowance made by the AO on account of license fee of Rs. 12,00,00,000/- paid to NDMC during the year under consideration. 2. That on facts and circumstances of the case levy of interest u/s 234B & 234D of the Income Tax Act, 1961 is bad in law. 3. That on facts and in law the Commissioner of Income Tax (Appeals) erred in upholding the order of AO partly and not allowing r....
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....enges levy of interest u/s 234B and 234D and withdrawal of interest u/s 244A of the Act. Levy of interest will be consequential in the instant case. No separate directions need be issued in this regard. 26. Ground No. 4 is general in nature and does not require a specific adjudication. 27. This leaves us with ground no. 1 to 1.2 of the appeal challenging assumption of jurisdiction u/s 147 of the Act. Notice u/s 148 in this case was issued on 26th February 2010 i.e four years after the end of relevant assessment year. Original assessment in this case was framed by the Ld AO u/s 143(3) of the Act vide order dated 28th March 2006. Reasons for reopening the case recorded by the Ld AO u/s 148(2) of the Act are as under: "The return in this case for the AY 2003-04 was filed on 28.11.2003 declaring an income of Rs. 1,14,49,935/- which was processed u/s 143(1) of the I.T. Act, 1961 on 06.03.2004. The case was selected for scrutiny and the asstt. Was completed u/s 143(3) of the Act on 20.08.2006 at an income of Rs. 9,16,82,026/-. The perusal of asstt. Records for the AY 2003-04 reveals that the assessee had debited an amount of Rs. 11,00,00,000/- in the P/L Account t....
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....rds carefully. It is undisputed that during the course of original assessment proceedings vide questionnaire dated 09th December 2005 in query no. 8 Ld AO directed the appellant to furnish copy of High Court order w.r.t the license fee paid to NDMC. Thereafter vide questionnaire dated 30th January 2006 the Ld AO directed the appellant to furnish a reply on the following query raised by him: "5. It is seen from the notes that the assessee company has paid payment aggregating to Rs. 11 crores to NDMC basing on supplementary agreement and orders of the Hon'ble Delhi High Court, though the dispute is pending. The copy of the Delhi High Court order is also furnished and it is seen that the Hon'ble Delhi High Court has not specifically directed the assessee company to make the payment. It is also stated in the 'NOTES' that the loans and advances includes Rs. 983.72 lacs paid to NDMC pursuant to agreement with NDMC and orders of Delhi High Court that this amount has been debited without prejudice to the company's rights to refund and interest. From the above, it is clear that the assessee company reserved the right to claim the refund and since the dispute was....
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....e pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings....
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....essment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion; (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assesse. Reassessment proceedings in the said cases will be hit by principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." Above ratio propounded by the jurisdictional High Court is clearly applicable to the instant case. 31. We moreover observe that there is also no ....
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....sessing Officer had applied his mind to the issue of the share application money and had accepted the assessee's claim after due verification......." 32. For the reasons stated above we concur with the submission made by the appellant that the assumption of jurisdiction u/s 147 of the Act in this instant case by issuance of notice u/s 148 dated 26th February 2010 is bad in law. Ground Nos 1 to 1.2 are therefore allowed. 33. As a result appeal of assesse in ITA No. 771/Del/2012 is allowed. 34. To conclude, appeals filed by revenue in ITA Nos.1107/Del/2012 and 218/Del/2013 are dismissed. Appeal filed by assessee in ITA Nos.787/Del/ 2012 is partly allowed for statistical purposes, whereas appeals filled by assessee in ITA Nos.386/Del/2013 and 771/Del/2012 are allowed. Order pronounced in open court on this 5. 02. 2016. ============= Document 1 ARREAR & INTEREST CALCULATION FROM 1982 TREATING THE GTO AS CUM LICENCE FEE AMOUNT S.NO. YEAR PAYABLE AMOUNT AMOUNT PAID BALANCE INTEREST 10% 1 1982-83 26800000 26800000 0 0 2 1983-84 26800000 26800000 2680000 3 1984-85 26800000 53600000 5360000 4 1985-8....