Ricoh India Ltd., Mumbai vs Department Of Income Tax

श्री आर.सी. शर्मा, ऱेखा सदस्य एवुं श्री विजयपमऱ रमि, न्याययक सदस्यके समक्ष

BEFORE SHRI R.C. SHARMA, ACCOUNTATN MEMBER AND SHRI VIJAYPAL RAO, JUDICIAL MEMBER

आमकय अऩीर सं. / ITA no.4464/Mum./2012 (ननधधायण वषा / Assessment Year : 2006-07)

Asstt. Commissioner of Income Tax ................. अऩीरधथी / Circle-3(3), Aayakar Bhavan 101, M.K. Road, Mumbai 400 020 Appellant

फनधभ v/s

M/s. Ricoh India Ltd. 1201, 1st Floor, Building no.12 Solitaire Corporate Park ................... प्रत्मथी / Andheri Ghatkopar Link Road Respondent Andheri (E), Mumbai 400 093 PAN - AAACR4151J

आमकय अऩीर सं. / ITA no.4465/Mum./2012 (ननधधायण वषा / Assessment Year : 2007-08)

Dy. Commissioner of Income Tax ................. अऩीरधथी / Circle-3(3), Aayakar Bhavan 101, M.K. Road, Mumbai 400 020 Appellant

फनधभ v/s

M/s. Ricoh India Ltd. 1201, 1st Floor, Building no.12 Solitaire Corporate Park ................... प्रत्मथी / Andheri Ghatkopar Link Road Respondent Andheri (E), Mumbai 400 093 PAN - AAACR4151J

ननधधारयती की ओय से / Assessee by : Shri r. Santhanam a/w Shri Suresh Malik यधजस्व की ओय से / Revenue by : Shri Love Kumar

सन ु वधई की तधयीख / आदे श घोषणध की तधयीख / Date of Hearing - 29.04.2015 Date of Order - 29.05.2015 M/s. Ricoh India Ltd.

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आदे श / ORDER

विजयपमऱ रमि, न्याययक सदस्य के द्वारा / PER VIJAYPAL RAO, JUDICIAL MEMBER

The present appeals by the Revenue are directed against two

separate impugned orders dated 15th February 2012, for the

assessment year 2006-07 and order dated 21th February 2012, for

the assessment year 2007-08, passed by the learned Commissioner

(Appeals)-7, Mumbai.

2. We first proceed to adjudicate the Revenue's appeal for the

assessment year 2006-07, vide which, following grounds have been

raised:-

"1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition of' 4,46,029/-, being security deposits paid to Electricity Authorities and Sales tax Authorities, without appreciating that advance given is capital in nature and the same cannot be claimed as bad debt as per the provisions of sec. 36(2) r.w.S 36(1)(vii).

2. On the facts and in the circumstances of the case and in law, the Ld. Cl'T (A) erred in treating the value of the property at' 1,40,00,0001- instead of at its stamp value of' 3,07,71,0001-, as done by the AO uls SOC, by placing reliance on the decision ofHon'ble Tribunal in the case of Atul G. Puranik vs. I.T.O ITR (Trib) 120, without appreciating that the case relied upon is distinguishable from the facts of the assessee's case in as much as in the case relied upon there was transfer of lease rights for 60 years in the plot and not land itself whereas in the present case the assessee is holding land on lease deed signed with MIDC which is sold for Rs.1,40,00,000/- thereby attracting the provisions of sec. 50C.

3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored."

M/s. Ricoh India Ltd.

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3. Ground no.1, is regarding deletion of addition made by the

Assessing Officer on account of security deposit with Maharashtra

State Electricity Board (MSEB) and sales tax authorities.

4. The Assessing Officer, during the assessment proceedings, noted

that the assessee has inter-alia claimed ` 1,15,333, made towards

security deposit with MSEB and ` 3,30,696, with the sales tax

department. The Assessing Officer asked the assessee as to why these

deposits should not be disallowed. The assessee claimed that the

assessee has sold the factory and, therefore, these amounts become

irrecoverable and accordingly, the assessee had written-off these

deposits and claimed the same as business loss. The Assessing Officer

did not accept this submission of the assessee and disallowed the

claim of written-off this amounts on the ground that it does not satisfy

the conditions of section 36(2) and further, the assessee failed to

prove that the deposit has become bad.

5. On appeal, the learned CIT(A) has allowed the claim of the

assessee and deleted the addition made by the Assessing Officer.

6. Before us, the learned Departmental Representative submitted

that the assessee has claimed the deposit made with the Government

Departments as irrecoverable deposits and written-off the same. He

further contended that the assessee has not produced any record to M/s. Ricoh India Ltd.

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establish that the amounts in question become irrecoverable. He relied

upon the order of the Assessing Officer.

7. On the other hand, the learned Counsel for the assessee

submitted that since the assessee has sold its Nasik plant and

premises, therefore, the electricity connection at the factory premises

was no more with the assessee and, accordingly, security deposit with

the MSEB has been written-off by the assessee as irrecoverable.

Similarly, the deposit with the Sales Tax Department has been

written-off by the assessee because the assessee has sold its factory

and the said deposit cannot be used by the assessee for business

purpose. He has relied upon the decision of the Hon'ble Jurisdictional

High Court in Harshad J. Choksy v/s CIT, [2012] 349 ITR 250 (Bom.)

and submitted that the Hon'ble High Court has allowed the claim as

business loss even if the same is not been allowable as bad debt.

8. We have considered the rival contentions and the relevant

material on record. The question arises whether the deposits made by

the assessee with MSEB and Sales Tax Department can be treated as

non-recoverable amount and, consequently, the same can be allowed

as business loss under section 28 or 37(1) of the Act on being written-

off by the assessee. It is pertinent to note that the two amounts being

deposits with the Government Department cannot be treated as bad

debt or the amounts become irrecoverable. Even otherwise when the M/s. Ricoh India Ltd.

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assessee has sold its factory where this electricity connection was

installed, then the deposit with the MSEB is part of the sale

consideration of the factory premises. We do not agree with the

findings of the learned CIT(A) as well as the contention of the assessee

that since the assessee has sold the business premises / factory and,

therefore, the amount of security deposits with the MSEB and Sales

Tax Department become irrecoverable. If the assessee decided to

disconnect the electricity connection and take back the security deposit

amount, then there is no impediment in the right of the assessee to

receive back the amount. It appears that the assessee has transferred

the factory premises along with the electricity connection. Therefore,

no separate claim of business loss on account of security deposit of

electricity connection is allowable when the same is transferred along

with the factory premises. Similarly, the deposit with the Sales Tax

Department cannot be treated as irrecoverable amount. Merely

because the assessee decided to written-off these amounts in the

books of account would not automatically become an allowable

deduction being business loss. We further note that for the assessment

year 2007-08, this claim of the assessee has been disallowed by the

learned CIT(A) and the assessee has not filed any appeal against the

disallowance made by the learned CIT(A). Consequently, the order of

the learned CIT(A) qua this issue is set aside and the order of the

Assessing Officer is restored.

M/s. Ricoh India Ltd.

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9. Ground no.2, is regarding the applicability of section 50C, in

respect of the sale of lease hold property.

10. The assessee has sold the factory which is on the lease hold plot

for ` 1.40 crores and offered capital gain. The Assessing Officer

adopted full value consideration as determined by the stamp duty

authority at ` 3,07,71,000. The Assessing Officer has also referred the

valuation of the property to the DVO who has valued the property at `

2,05,96,600. However, the Assessing Officer has considered the full

sale consideration by adopting the stamp duty valuation for the

purpose of working out the capital gain.

11. Before the learned CIT(A), the assessee challenged the action of

the Assessing Officer and questioned the applicability of section 50C in

case of lease hold rights. The learned CIT(A) has accepted the claim of

the assessee and held that provisions of section 50C, is not applicable

in assessee's case where the assessee has sold the lease hold rights.

The learned CIT(A) has followed the decision of the Tribunal, Mumbai

Bench, in Atul G. Puranik v/s ITO, ITA no.3051/Mum./2010, order

dated 13th May 2011.

12. Before us, the learned Departmental Representative has

submitted that there is no difference in the title of the property in

question being the land, therefore, the provisions of section 50C, are M/s. Ricoh India Ltd.

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applicable in the case of assessee. He relied on the order of the

Assessing Officer.

13. The learned Counsel for the assessee, on the other hand,

submitted that the lease hold rights cannot be equated with the

ownership of the land and, therefore, the deemed provisions of section

50C, cannot be applied in case of transfer of lease hold rights. He has

relied upon the following decisions:-

i) ITO v/s Pradeep Steel Re-rolling Mills Pvt. Ltd., [2013] 155 TTJ 294 (Mum.);

ii) Atul G. Pauranik v/s ITO, ITA no.3051/Mum./2010, order dated 13th May 2011; and

iii) Shri Hemant R. Tandel, ITA no.1934, 1835, 1935, 1836, 1941, 1837/Mum./2012, order dated 16th April 2015

14. We have considered the rival contentions as well as the relevant

material on record. There is no dispute that what is transferred by the

assessee is the lease hold property and, therefore, until and unless the

property is converted into free hold the lessee holds only lease hold

rights over the property. In the case of ITO v/s Pradeep Steel Re-

rolling Mills Pvt. Ltd., the Tribunal, while dealing with an identical

issue, has held as under:-

"4. The revenue is in appeal. We are unable to find fault with the decision of the CIT(A) that section sac cannot be invoked to a transfer of leasehold rights. The section applies only to capital assets being land or building or both. It does not in terms include leasehold rights in the land or building within its scope. The Assessing Officer's M/s. Ricoh India Ltd.

8 conclusion to the contrary is based on section 27(iiib) of the Act, which says that a person who acquires any rights, excluding any rights by way of a lease from month to month or for a period not exceeding one year, in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof. Firstly, this provision has been expressly limited in its application to sections 22 to 26 of the Act, which deal with the computation of the income under the head "Income from house property". It has not been made applicable to the computation of capital gains. Secondly, the rights mentioned in the provision are rights over the building and any rights over the land have not been included in the section. In any case, since the section 27(iiib) has not been extended to the computation of capital gains under section 45 and is limited to the computation of the income under the head "Income from house property", the conclusion of the CIT(A) that section sac cannot be invoked where leasehold rights in land or building are transferred, seems to us, to be correct. We accordingly affirm the decision of the CIT(A) and dismiss the appeal filed by the revenue with no order as to costs."

15. Similar view has been taken by the Tribunal in Atul (supra) as

well as in the case of Shri Hemant R. Tandel (supra). Following the

decision of the Tribunal cited supra, we do not find any error or

illegality in the order of the learned CIT(A) qua this issue.

16. ऩरयणधभत् यधजस्व की ननधधायण वषा 2006-07 की अऩीर आंशशक स्वीकृत की जधती है ।

16. In the result, Revenue's appeal for the A.Y. 2006-07 is partly

allowed.

We now take up Revenue's appeal for the assessment year

2007-08, vide which, following grounds have been raised:-

M/s. Ricoh India Ltd.

9 a) On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition of ` 4,18,056/- being deduction claimed on account of advance written off in respect of tender amount due from the government, without appreciating that advance given is capital in nature and the same cannot be claimed as bad debt as per the provisions of sec. 36(2) r.w.s 36(I)(vii).

b) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of' 2,87,353/-, being advances written off in respect of old/Ex-employees balances appearing in their impressed/advances accounts, without appreciating that there is no evidence furnished by the assessee to show that the amount has been offered to tax in earlier years as per the provisions of sec. 36(2).

c) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting' 3,75,888/-, being deposits made to EGIL, without appreciating that there is no evidence furnished by the assessee to show that the amount has been offered to tax in earlier years as per the provisions of sec.

36(2).

17. Ground no.1(a) is regarding deduction claimed on account of

disallowance written-off in respect of the tender amount due from the

Government.

18. We have considered the rival contentions as well as the material

on record. Since this was a deposit with the Government, therefore,

the said amount cannot be treated as either bad debt or irrecoverable

amount. In view of our findings given above on the similar issue for

the assessment year 2006-07 regarding deposits with the MSEB and

Sales Tax Department, we set aside the order of the learned CIT(A)

qua this issue and restore the order of the Assessing Officer.

M/s. Ricoh India Ltd.

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19. Ground no.1(b), is regarding deduction claimed on account of

advance written-off in respect of old / ex-employees balance.

20. The assessee claimed deduction, inter-alia, in respect of the

amount of ` 4,18,056, written-off towards earnest money deposit for

leased premises for their employees. The Assessing Officer disallowed

the claim of the assessee on the ground that this expenditure has not

been incurred for the purpose of business and further it does not fulfill

the condition prescribed under section 36(2)(i) of the Act.

21. On appeal, the learned CIT(A) has allowed the claim of the

assessee.

22. The learned Departmental Representative supported the order of

the Assessing Officer and submitted that the advance was deposited

for the purpose of hiring the accommodation for the employees of the

assessee, therefore, it does not fulfill the conditions as prescribed

under section 36(2). Further, the assessee has not proved that this

amount has become irrecoverable.

23. On the other hand, the learned Counsel for the assessee

supported the order of the learned CIT(A) and submitted that the

amount was paid for procuring the accommodation for the employees

who have already left the services of the assessee, therefore, now this M/s. Ricoh India Ltd.

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amount has become irrecoverable and is allowable deduction as

business loss.

24. We have considered the rival contentions as well as the material

on record. We find that the learned CIT(A) has allowed the claim of the

assessee by following the orders of the Tribunal as well as the decision

of the Hon'ble Jurisdictional High Court in IBM World Trade Corporation

v/s CIT, [1990] 186 ITR 412 (Bom.), wherein the High Court has held

as under:-

"The question that arises for consideration is whether the fact that the present case the amounts have been advanced to the landlord in pursuance of the agreement before the execution of the lease deed would make any difference. In our opinion, it will not. It is not disputed that the assessee required factory premises for its business and that it did not get ready factory for that purpose. It took a business decision to enter in agreements with the landlord who owned the land which did not have the factory shed and other structures required by the assessee. The landlord expressed difficulty in constructing the factory building and other structures. The assessee, in pursuance of other agreements entered in advanced moneys which were in the beginning to be adjusted against the future rents, but subsequently were agreed to be refunded to the assess on a fixed date. It is true that if the landlord had failed to construct t, factory building and other structures as agreed to, the agreements would have fallen through and there was no penalty clause as such. However, one cannot get away from the fact that all this was done by the assessee with a view to acquire the factory premises on lease. The mere fact that the factory would be ready in a year or so would not make any difference.

We are in agreement with Shri Dastur that the principles in this regard are laid down by the Supreme Court in its judgment in CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649. The relevant observations in this case have already been noted by us earlier in Empire Jute Co. Ltd. v. CIT, [1980] 124 ITR 1 (SC). Apart from the fact that this court had already held that the length of the lease agreement is not very material for the purpose of determining the nature of the expenditure incurred on lease agreement, the Supreme Court has clearly laid down in Empire Jute Co. Ltd. [1980] 124 ITR 1, that even assuming that a lease for a period of 10, 15 or 20 years would amount to an advantage of enduring nature, it is M/s. Ricoh India Ltd.

12 not that every advantage of enduring nature would result in a capital outlay. What is required to be seen is whether the advantage of enduring nature is in the capital field. As the acquisition of premises on lease would not ordinarily; be in the capital field, we have no hesitation in holding that the moneys advanced by the assessee in pursuance of these agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefore, when such advances are lost to the assessee, the loss would be a business loss and not a capital loss. The decisions relied upon by Dr. Balasubramanian, according, to us, have no bearing on the question involved herein. In the Supreme Court decision, the question was of a third party's liability to pay estate duty and the discharge by an assessee. It was obviously a purpose unconnected with the business of the assessee. The other two decisions, viz. Uttar Bharat Exchange Ltd. v. C[T [1965) 55 ITR 550 (Punj) and Taj Mahal Hotel v. CIT [1967) 66 ITR 303 (AP) refer to the expenditure incurred by an assessee on alterations and additions made by an assesse in leasehold premises. No doubt, such expenditure was held to be of capital nature. We fail to understand how those decisions have any bearing on the point in issue before us.

Having regard to the above discussion, the question posed before us is answered in the affirmative and in favour of the assessee. No order as to costs."

25. Following the judgment of the Hon'ble Jurisdictional High Court

cited supra, we do not find any error or illegality in the order of the

learned CIT(A) qua this issue. This ground is thus dismissed.

26. Ground no.1(c), is regarding deduction on account of written-off

amount being deposit made to EGIL.

27. We have considered the rival contentions as well as the material

on record. The assessee has claimed deduction of ` 3,75,880, written-

off on account of deposit made for an old premises by EGIL which were

merged with the assessee and subsequently the amount was identified

as irrecoverable after the merger. In view of our findings given ground M/s. Ricoh India Ltd.

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no.1(b) above, we decide this issue in favour of the assessee and

against the Revenue.

28. ऩरयणधभत् यधजस्व की ननधधायण वषा 2006-07 एवं 2007-08 की अऩीरें आंशशक स्वीकृत की जधती है ।

28. In the result, Revenue's appeals for the A.Y. 2006-07 and 2007- 08 are partly allowed.

Order pronounced in the open Court on 29.5.2105

Sd/- Sd/-

आर.सी. शर्मा विजयपमऱ रमि, ऱेखा सदस्य न्याययक सदस्य R.C. SHARMA VIKAYPAL RAO ACCOUNTANT MEMBER JUDICIAL MEMBER

मुंबई MUMBAI, ददनाुंक DATED: 29.5.2015

आदे श की प्रनतशरपऩ अग्रेपषत / Copy of the order forwarded to:

(1) ननधधारयती / The Assessee;

(2) यधजस्व / The Revenue;

(3) आमकय आमुक्त(अऩीर) / The CIT(A);

(4) आमकय आमुक्त / The CIT, Mumbai City concerned; (5) पवबधगीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / The DR, ITAT, Mumbai; (6) गधर्ा पधईर / Guard file.

सत्मधपऩत प्रनत / True Copy आदे शधनुसधय / By Order प्रदीऩ जे. चौधयी / Pradeep J. Chowdhury वरयष्ठ ननजी सधचव / Sr. Private Secretary उऩ / सहधमक ऩंजीकधय / (Dy./Asstt. Registrar) आमकय अऩीरीम अधधकयण, भुंफई / ITAT, Mumbai