Income Tax Appellate Tribunal - Mumbai
Elel Hotels & Investments Ltd. vs Joint Cit on 7 January, 2005
Equivalent citations: [2005]2SOT659(MUM)
ORDER
R.P. Rajesh, A.M. This is an appeal by the assessee against the order of CIT(A)-XLII, Mumbai passed on 2-3-2001 in respect of assessment year 1993-94. Since the original grounds taken were argumentative, the assessee has filed concise grounds. While submitting the concise grounds the assessee has sought permission to raise two additional grounds supported by an application dated 18-12-2004 under rule 11 of the ITAT Rules, 1963. The concise grounds alongwith the additional grounds (ground Nos. 2 and 4) are as under:
"1.1 The learned CIT(A)-XLII, Mumbai ("Ld. CIT(A)") erred in directing the assessing officer to bring to tax hire charges and late fee chargeable on delay in payment of said hire charges in respect of trucks given on lease by the Appellant.
1.2 Without prejudice, since learned CIT(A) has held that notional income from trucks had accrued. She ought to have allowed depreciation on the trucks.
2.1 The learned CIT(A) erred in not adjudicating the ground regarding the disallowance to depreciation, which was specifically raised before him.
2.2 It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for.
3.1 The learned CIT(A) erred in not allowing the claim of appellant for deduction of an amount of Rs. 9,87,32,500 for repair of damages caused to the Hotel on account of bomb blast.
3.2 It is submitted that in the facts and the circumstances of the case, and in law, the disallowance was allowable while computing total income of the appellant.
4.1 The learned CIT(A) erred in not adjudicating the ground regarding addition of Rs. 92,27,566 made by the assessing officer on account of license fees receivable from ITC.
4.2 It is submitted that in the facts and the circumstances of the case, and in law, no such addition was called for."
2. We have gone through the application for admission of additional grounds. The assessee has submitted that non-incorporation of these two grounds in the original grounds of appeal was purely inadvertent lapse and unintentional and definitely not due to any carelessness and negligence on the part of the assessee. It is submitted that the assessee had raised these two grounds specifically before the CIT(A). However, the CIT(A) has not dealt with the two grounds and this was the reason that while filing the appeal before the Hon'ble ITAT, through oversight these two grounds remained to be incorporated. It is submitted that as far as the fourth ground regarding license fees is concerned, the assessee had filed rectification petition urging the CIT(A) to dispose of this ground that remained to be disposed of by the CIT(A). The assessee was under bona fide, though mistaken belief that as the ground was not adjudicated by the CIT(A), the course open was to first file rectification letter before the CIT(A) and carry the matter further only if the leaned CIT(A) refused to entertain this application. Lastly it is submitted that for adjudicating these two grounds no complicated fresh facts are required to be gone into and these grounds can be disposed of on the basis of facts already on record. Accordingly, we have perused the grounds taken before the CIT(A) and it is found that the assessee had actually raised these two grounds before the CIT(A) but the same were not disposed of. In the case of Byramji & Co. v. CIT (1943) 11 ITR 286 (Nagpur), it was held that the new ground can be admitted if it does not involve a further investigation into the fact. The Tribunal has the discretion, in appropriate case to allow any party to the appeal to raise new contention before it. Such power is spelt out from rule 11 of ITAT Rules. In the case of Vijay Kumar Jain v. CIT (1975) 99 ITR 349 (Punj. & Har.), it was held that the Tribunal may allow a party to press a ground which he did not press before the first appellate authority although he has taken and included it in the ground of the first appeal. In this view of the matter we are satisfied about the bona fide on the assessee in filing the additional grounds. Accordingly the two new grounds i.e., ground Nos. 2 and 4 as above are admitted.
3. Brief facts of the case leading to the present appeal before us are as follows: The assessee is in the business of, inter alia, running hotel and entering into agreement/ arrangement with others to run hotels. The assessee owned a hotel at Bandra known as Hotel Sea Rock. After running the hotel for some time the assessee entered into an agreement with M/s. ITC in the year 1986, by which the entire running of hotel was entrusted to M/s. ITC and in lieu of that the assessee was paid annual license fees, which was office (sic.-offered) for taxation. In the year 1993, there occurred a bomb blast (12-3-1993). The hotel was damaged especially the 18th floor was severely damaged which required extensive repair. The assessee got the evaluation of the cost of repair by architects and engineers. The cost was evaluated at Rs. 14,87,32,500. The assessee made insurance claim of Rs. 5 crores and the balance amount of Rs. 9,87,32,500 was claimed as deduction being the cost of repair in the return for assessment year 1993-94. The assessee was filed return of income on 27-12-1993 declaring a loss of Rs. 5,76,13,739. The same was revised to loss of Rs. 5,81,89,890. The assessing officer completed the assessment on 27-12-1995 under section 143(3) and assessed the total taxable income at Rs. 4,33,19,342. The computation of total income is reproduced below:
Net loss as per Profit & Loss A/c.
Rs. 5,65,88,774 Less : Depreciation considered separately Rs. 29,92,860 Add: Depreciation claimed as per statement filed Rs. 35,65,627 Rs. 5,35,95,884 Less: (a) Plant & Machinery as discussed Rs. 29,275
(b) Trucks as discussed Rs. 14,19,078 Rs. 14,48,353/ Rs. 21,17,274 Rs. (-) 5,57,13,158 Add.- Deduction disallowed as discussed Rs. 9,87,32,500 Total income-tax Rs. 4,30,19,342 Aggrieved by the order the assessee filed appeal before the CIT(A). The learned CIT(A) disposed of the appeal on 13-11-1996, and upheld the decision of the assessing officer in respect of disallowance of repair expenditure but restored the issue of claim of depreciation of Rs. 14,48,353 which was disallowed by the assessing officer. The assessee carried the matter further before the ITAT and the Tribunal vide its order dated 18-12-1997 set aside the issue of claim of repair expenses to the file of the assessing officer. The Tribunal did not express any opinion on deductibility and the lability in respect of repair expenses. The assessing officer was left free to examine the issue from all angles and decide the matter de novo.
4. In the set aside proceedings, the assessing officer adjudicated the issues relating to the claim of depreciation as well as the claim of repair expenses. The assessing officer completed the assessment on 25-3-1999 and repeated the disallowance of depreciation of Rs. 14,48,353 and repair expenses amounting to Rs. 9,87,32,500 apart from these two disallowance, the assessing officer further made an addition of Rs. 92,27,566 on account of license fees receivable from M/s. ITC. In this way the total income was computed at Rs. 5,22,46,880. The assessee came before the CIT(A) in second round. The learned CIT(A) disposed of the appeal vide order dated 2-3-2001 and sustained the disallowance made by the assessing officer. Further he enhanced the income by way of directing the assessing officer to bring to tax the hire charges of trucks given on lease by the assessee and late fee chargeable on delay in payment of hire charges. Aggrieved by the order the assessee is before us with the above grounds.
5. Ground No. 1Coming to the first ground, the learned Authorised Representative vehemently objected to the direction of the learned CIT(A) to bring to tax the hire charges and late fee charges in respect of trucks given on lease by the assessee. It was submitted that the assessee had given certain trucks on lease to various parties. The lease rental income was being offered to tax on regular basis in the past and correspondingly depreciation being claimed on the leased trucks was also allowed in the past. Subsequently, serious disputes arose between the assessee and the lessee which led to filing of suites in the courts of law. Under the circumstances, the lessee stopped paying the rent and they did not return the trucks as well. Due to this reason the assessee did not offer any lease rental income in its return. However, since the assets continued to remain employed in leasing business, the assessee continued to claim depreciation on the said leased trucks amounting to Rs. 14,48,353. It is submitted that when the original assessment was completed the assessing officer did not tax such hypothetical income. It is submitted that when the issue of depreciation was set aside by the CIT(A) it was categorically mentioned by the CIT(A) that only the ownership of the vehicle is to be established. If this test of ownership is specifically explained, the assessee can be allowed depreciation notwithstanding the fact that hire charges were not received during the year. With these guidelines the CIT(A) referred back the issue back to the file of the assessing officer for being done afresh. Thus, from the above, it is clear that very limited issue and narrow direction to explain and prove the ownership over the asset by the assessee was referred back. The department did not challenge the decision of the CIT(A). While re-deciding the issue of depreciation the assessing officer required the assessee to file certain details on the failure on the part of the assessee to file the details to the satisfaction of the assessing officer, depreciation was again disallowed. Therefore, the assessee went in appeal to the CIT(A) for the second time on the issue of depreciation. It is at this second stage the CIT(A) touched the issue of taxability of hire charges income and late payment fees for the first time by issuing notice under section 251 of the Income Tax Act.
6. The learned counsel submitted that the learned CIT(A) did not have the requisite jurisdiction to touch this issue of taxing hire charges income and late fee for the first time in the second inning of the appeal. It is submitted that since the assessing officer had no jurisdiction to make any addition on account of hire charges, the CIT(A) in course of exercising his appellate jurisdiction under section 251 cannot seek to give direction to the assessing officer to tax such income. The learned counsel submitted that it is very well settled legal position that the jurisdiction of the assessing officer while giving effect to an order passed by an appellate authority that has set aside the matter with a very specific and narrow direction, is very limited and strictly confined to the directions so given. He is not permitted to travel beyond such direction and to proceed to tax any other income or to disallow any other claim. In this connection, he placed reliance on the following decisions:
CIT v. Mahindra & Co. (2004) 269 ITR 426 (Raj.) CIT v. S. V. Divakar ( 1993) 201 ITR 914 (Ori.) CIT v. Late Jawaharlal Nagpal (1988) 171 ITR 136 (MP) Surrendra Overseas Ltd. v. CIT (1979) 120 ITR 872 (Cal.) ITO v. V.S. Chabbra (1986) 25 TTJ (Bom.) 101
7. On the other land, the learned departmental Representative relied on the order of the CIT(A). According to him income had accrued as per the terms of agreement and, therefore, it was liable to be included in the total income of the assessee.
8. We have considered the submissions from both the sides. We have also carefully perused the orders of the authorities below. In our opinion the assessee succeeds on this preliminary ground itself, that is the issue regarding the jurisdiction to tax such income in second round of appeal. A bare perusal of the direction given by the CIT(A) in the first round makes it clear that what was set aside by the CIT(A) was only the issue regarding the claim of depreciation and that too with categorical direction to confine his verification only on particular issue i.e., ownership issue. The relevant portion is reproduced below:
"Needless to say that the assessing officer once again would call for all details of court proceedings and determine whether appellant company is actually satisfying the condition of ownership of the vehicles. If this test of ownership is satisfactorily explained and proviso the appellant can be allowed depreciation notwithstanding the fact that hire charges were not received during the year. With these guidelines this issue is referred back to the file of the assessing officer for being done afresh."
9. In fact the learned CIT(A) in the first round went to the extent of holding that if the assessee fulfilled the test of ownership depreciation has to be allowed by the assessing officer. Admittedly, this specific direction has been accepted by the department as no further appeal was filed. In our considered opinion the assessing officer was duty bound to confine his verification to this extent and actually he has confined himself to that. if the assessing officer lacks jurisdiction to do so, we fail to understand how the CIT(A) could have usurped the jurisdiction. There is no denying fact that the power of the CIT(A) in the course of its appellate jurisdiction are co-terminous with the powers of the assessing officer, and the CIT(A) can do what the assessing officer could does but has not done, this applies in a reverse way as well. In other words, the CIT(A) cannot do what the assessing officer could not have done. He does not get the jurisdiction to do certain act for which the assessing officer did not have the jurisdiction.
In the present case, in second round the jurisdiction of the assessing officer was limited to the issue of ownership of assets and nothing else. In the present case nothing prevented the department to initiate revision proceeding under section 263 or to initiate action under section 147 if it was of the view that notional truck hire income was also liable to be taxed, which had not been taxed by the assessing officer in the original assessment. Under these circumstances, we hold that the CIT(A) had no jurisdiction to give direction to the assessing officer to tax the hire charges income and late fee income in the hands of the assessee. We therefore, hold that on merit no addition is called for on account of such hire charges income. As a result, the first ground taken by the assessee is allowed.
10. Ground No. 2.
This is additional ground. It is submitted that the assessee had submitted before the CIT(A) the requisite evidence to prove the ownership in the form of copies of registration of the trucks in the name of the assessee. This was in addition to the copies of lease agreements filed before the assessing officer. The learned CIT(A) has mentioned this fact in his order at para 3.2. After recording this fact, he abruptly stopped the discussion on this issue and has not brought the issue to any logical conclusion either way. After mentioning the fact of ownership, the learned CIT(A) has take up the issue of hire charges and late fees income. It is submitted that the assessee has proved the test of ownership in terms of specific directions given by the earlier CIT(A)'s order, which order and direction, was final and unchallenged by the department, the claim of depreciation should be allowed on merit. The learned departmental Representation submitted that a serious litigation was going on with the lessee. The assessee had not only lost the hire charges income but lost the hire equipments. The learned Departmental Representative supported the action of the assessing officer by contending that since no details were filed before the assessing officer, the assessing officer was perfectly, justified in refusing the claim of depreciation of the assessee. The learned Departmental Representative read over the relevant portion of the order of the assessing officer to support his argument. At this stage, attention of the learned departmental Representative was drawn by the Bench to the apparent contradiction in the stand taken by the department, more specifically by the assessing officer and by the CIT(A). While the assessing officer denied the claim of depreciation on the reasoning that there were no trucks in existence and there were no users of the trucks during the year, the CIT(A), in fact enhanced the assessment by seeking to tax the hire income supposed to have been accrued to the assessee due to user of such trucks. On our query how to reconcile the two different stands taken by the department, the learned departmental Representative submitted that he sticks to the decision of the assessing officer.
11. We have carefully considered, the submissions and facts of the case. In any case the assessee has submitted the lease agreement before the assessing officer and has submitted registration certificate before CIT(A) in the name of the assessee to prove that its ownership over the trucks. Unfortunately, the learned CIT(A) after accepting these evidence and recording this fact, did not conclude the matter further. Under these circumstances, we are of the view that the issue should go back to the CIT(A) to decide the ground taken by the assessee. Accordingly, We set aside the matter back to the file of the CIT(A) to adjudicate the same.
12. Ground No. 3This ground is against the disallowance of the claim of Rs. 9,87,32,500 on account of repairs damage of the building owned by it. The learned counsel appearing on behalf of the assessee submitted that when the original assessment was completed on 27-12-1995 under section 143(3), the assessing officer disallowed the claim on the ground that it was capital in nature as it related to capital asset i.e., hotel building. The assessing officer disallowed the claim on the ground that no such expenses were incurred in the previous year. When the matter came before the CIT(A), the learned CIT(A) confirmed the action of the assessing officer observing as under:
"Undoubtedly, the laid out expenditure of Rs. 9,87,32,500 is exclusively and wholly for the purpose of business. Much less the said expenditure was not capitalized during the year.... The expenditure in question may fall in the revenue filed as such expenditure when expended may not bring any new asset and may merely restore the hotel to its form of functional self. As during the year no amount had been expended towards repairs nor the amount to be expended had been adequately ascertained, the claim had been rightly rejected by the assessing officer. His action in this regard is wholly upheld."
It is submitted that the above finding of the CIT(A) was not challenged by the department. But the assessee carried the matter before the ITAT. When the matter was heard by the Tribunal in the first round, the learned departmental Representative filed certain materials which indicated that there was dispute between the assessee and M/s. ITC about the liability of the repairs and this material was in the form of suit filed by M/s. ITC. The learned departmental Representative drew our attention to the order of ITAT which is placed at pages 17 to 20 of the paper-book. He read out a portion of paras 3 and 4 of the Tribunal order which is reproduced below:
"3. The CIT(A) held that the expenditure may be of a revenue nature but disallowed the claim of deduction of Rs. 9,87,32,500 on the ground that the amount was not actually spent on repairs.
4. The department is not in appeal against the finding of the CIT(A) that the expenditure may be of a revenue nature. During the course of hearing, the learned counsel for the assessee mentioned that when the case came up for hearing before an earlier Bench, the learned Departmental Representative filed certain material which, according to him, indicated that there was a dispute between the appellant company and M/s. I.T.C. Hotels Ltd. about the liability for renovation of the damaged building. The learned departmental Representative filed a copy of the plaint in Suit No. 386 of 1993 filed by M/s. I.T.C. Hotel Ltd. against the assessee-company before the Hon'ble Bombay High Court and also a copy of the letter dated 17-9-1993 addressed by the assessee company to M/s. I.T.C. Hotels Ltd. on the subject and pleaded that the liability for undertaking renovation work may be of M/s. I.T.C. Hotels Ltd. and not of the assessee aTd so, the assessee is not entitled for the deduction of Rs. 9,87,32,500."
In view of the above, ultimately the issue was set aside to the file of the assessing officer to decide the matter de novo. It is submitted that the while completing fresh assessment in pursuance of the order of ITAT, the assessing officer took altogether a different stand from the stand taken by the Departmental Representative before the Tribunal. The assessing officer has observed in his order that the only issue for consideration here is whether the liability claimed by the assessee had accrued or not. Further the issue of liability of repair and maintenance is one of the several disputed issues pending before the Hon'ble High Court. Therefore, it is neither proper nor necessary to go into this question. Hence, the assessing officer restricted himself to the question of allowability or otherwise of the amount claimed as expenses under the head repairs and maintenance-Building Bomb Blast'. The learned counsel submitted that according to the assessing officer the claim was in the form of contingent liability which had neither accrued nor crystallized nor spent during the year. It is further submitted that when the matter came up before the CIT(A), he merely reproduced the relevant paragraphs from the assessment order in his appellate order and in a very cryptic way disposed of this important ground involving huge amount and many legal issues. In this regard the learned AR drew our attention to paras 4.13, 4.14 and 4.15 of the order of CIT(A). It is submitted that according to the CIT(A) the only reason for rejecting the claim was that the question as to who has to bear the burden of repair had not reach finality. In this factual background, the learned Authorised Representative submitted that the issue to be adjudicated is whether, the claim of the assessee be denied just because, according to the department, the question as to who is to bear the burden of repairs had not reached a finality. According to the learned AR this is the only issue that survives for consideration, which is in conformity with the stand taken by the department itself in the earlier proceedings. The learned counsel referred to the suit No. 1877 of 1995 filed by M/s. ITC which is placed in the paper-book. The learned AR submitted that the suit was filed by ITC against the assessee asking for compensation by way of damages from the assessee amounting to Rs. 117.86 crores, in respect of administrative expenses incurred by ITC as well as loss suffered by ITC to the assessee not carrying out the necessary repairs in time. It is submitted that it is the claim of ITC that the responsibility for carrying out the repairs is that of the assessee, which the assessee had itself admitted and due to the failure on the part of the assessee to carry out the contractual obligations, ITC had suffered loss in the form of loss of profit due to shrinkage in its business. For this the learned counsel drew our attention to various averments made by ITC in the suits before the Hon'ble Bombay High Court. The learned counsel specifically referred to the averments made at pages 8, 9, 10, 15, 16, 17 and 21 of the suits. It is submitted that the sum and substance of various averments is that as per the contract it was the responsibility and the obligation of the assessee, as owner of the said hotel, to carry out the repairs work so as to restore the said hotel to a good and proper condition to enable ITC to continue operating the said hotel and render services as contemplated by the operating license agreement in the same manner as it did before the bomb blast and such responsibility was on the assessee alone.
13. It was further submitted that it was specifically averred that the assessee had admitted its liability and had agreed to carry out the repairs in Interim Petition No. 60 of 1994 taken out by the assessee in the Arbitration Suit No. 3885 of 1993. The learned AR submitted that the receiver was appointed by the High Court for this purpose and the actual work was being done by the assessee. These specific and categorical averments made by M/s. ITC were duly supported by the various letters exchanged by the assessee and M/s. ITC. On the basis of these facts it is submitted that it is undisputed fact that the assessee being the owner of the hotel was primarily responsible for carrying out the repairs. It was only that the assessee was seeking to get reimbursement from M/s. ITC and ITC had clearly refused to own such responsibility. The learned AR further drew out attention to the fact that it was the assessee who carried out the repairs as per the direction of the Hon'ble High Court. It is further submitted that ITC had filed the suit asking for huge compensation for loss of profit due to delay in carrying out repairs by the assessee. Therefore, it was submitted by the counsel for the assessee that if the claim is not allowed in this year then the assessee may not get the deduction in the subsequent years, as that time, the department would argue that the liability had arisen or accrued in assessment year 1993-94, or it may be so held by the appellate authorities. Thus, the assessee may stand to lose the entire claim altogether. As against this, it was further submitted that if at all it is found that the actual liability was less than what has been claimed and allowed in this year, the difference in the amount could always be brought to tax as per the provisions of section 41(1) of the Act. It is submitted, that, as such, the interest of the revenue is fully safeguarded, even if the claim is allowed in this year and the interest of the assessee is not at all safeguarded, if the claim is not allowed in the year under consideration,
14. Referring to the observation of the assessing officer that no income has accrued to the assessee and no amount has been paid, the learned counsel drew our attention to section 43(2), which defines the term paid and reads as under:
"paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession"
Thus it is submitted that the Act itself deems even accrual of liability or incurring a liability/ expenses as paid for the purposes of sections 28 to 41 which includes, so far as the present appeal is concerned, section 3 1. In view of this, it is submitted that the reason given by the department that the claim is not allowable because no amount was paid during the year is not tenable in the eyes of law. It is further submitted that it is well settled legal position that business expenditure /loss is allowable as deduction in the year in which the liability arises even if the liability is not actually quantified in the year much less paid during the year. In support of this claim the learned AR has filed exhaustive legal note, citing and summarizing ratios laid down by the Supreme Court as well as by the High Courts. These decisions are as under:
(a) Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC)
(b) Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 (SC)
(c) Laxmi Ginning & Oil Mills v. CIT (1971) 82 ITR 958 (Punj. & Har.)
(d) CIT v. Burhwal Sugar Mills Co. Ltd. (1971) 82 ITR 784 (All.)
(e) CIT v. Sugar Dealers (1975) 100 ITR 424 (All.)
(f) Kundan Sugar Mills v. CIT (1977) 106 ITR 704 (All.)
(g) CIT v. Kerala Transport Co. (1999) 239 ITR 183 (Ker.)
(h) George Maijo & Co. v. CIT (2003) 261 ITR 231 (Mad.)
(i) Welding Rods Mfg. Co. Ltd. v. CIT (1997) 225 ITR 525 (Guj.)
(j) CIT v. Tulsiram Karamchand (1994) 52 ITD 180 (Pune)
(k) Yadav Transport Service v. ITO (1988) 30 TTJ (Jp.) 429.
15. To support the argument that whether the liability is disputed is still the same and are to be allowed, the learned counsel has cited the following decisions:
(a) Kedarnath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC)
(b) CIT v. Central Provinces Manganese Ore Co. Ltd. (19781112 ITR 734 (Bom.)
(c) CIT v. Investigation & Security Service (India) (P.) Ltd. (1990) 182 ITR 358 (AP)
(a) CIT v. Kalinga Tubes Ltd. (1996) 218 ITR 164 (SC)
(e) CIT v. OEN India Ltd. (1995) 213 ITR 718 (Ker.)
(f) Madira Karaya Vikraya Sangh v. CIT (1993) 203 ITR 530 (Raj.)
(g) CIT v. Tata Chemicals (1986) Taxation 82(3) 236 (Born.)
(h) CIT v. Century Enka Ltd. (1990) 239 ITR 804 (Cal.) (I) Star Paper Mills Ltd. v. CIT (2001) 252 ITR 337 (Cal.)
(j) ITO v. Pretty Cycle Industries (1987) 27 TTJ (Chd.) 530
(k) ITO v. South India Viscose Ltd. (1988) 27 ITD 501 (Mad.)
(l) Voltas Ltd. v. Dy. CIT(I998) 64 ITD 232 (Mum.) The learned counsel finally summarised his submission in support of the claim of deduction on account of repair expenses as under:
(i) as will be evident from the suit as well as other legal proceedings, the primary liability for incurring the expenses was on the assessee, which was admitted so and, in fact, carried out by the assessee.
(ii) As against that, M/s. ITC has flatly denied its liability in this regard and in fact has filed the suit against the assessee, asking for compensation for loss of profit due the shrinkage in its business.
(iii) Even out of commercial expediency, the assessee being owner of the hotel, it was prudent on the part of the assessee to ultimately to take the responsibility for the repairs and bear the liability.
(iv) The liability had actually arisen, the damage had already occurred, which was required to be undertaken in any case to restore the business to its normalcy. As such, nothing was contingent or uncertain.
(v) Even the amount was quantified scientifically, which was done by well-known and reputed architects and engineers. As such, the amount of claim was not ad hoc amount.
(vi) The actual work of repairs was undertaken by the appellant under supervision of the court receiver appointed by the High Court.
(vii) While the interest of the revenue is adequately safeguarded if the claim is allowed this year the appellant may lose the entire claim if the claim is not allowed in this year."
16. On the other hand, the learned departmental Representative strongly supported the order of the learned CIT(A). According to the learned Departmental Representative there was no work done during the year, there was no liability that could be said to have crystallized during the previous year. He referred to the copy of the suit filed by ITC against the assessee and argued that the assessee was in fact, thinking of winding up. The learned Departmental Representative submitted that the conduct and the intention of the assessee can be gauged from the fact that inspite of earning heavy income of the assessee had not paid advance tax, which according to the Departmental Representative shows that the claim of the assessee was not bona fide. Therefore, he submitted that the claim of the assessee deserved to be rejected. In a rejoinder, the learned counsel submitted that non-payment of advance tax was solely due to the internal disputes, which had led to injunction obtained by one ground against others for operation of bank accounts. In any case, the learned counsel strongly refuted the allegation that this had anything to do with the claim. According to him, it is preposterous to even thing that the assessee had anticipated the bomb blast which gripped the entire Mumbai city, that too, in the last month of the accounting year, and would have anticipated one of such bomb blast at its hotel which, in turn, would require extensive repairs expenses and would enable the assessee to claim the same and deduction so as to avoid payment of advance tax.
17. We have considered the submissions made from both sides and have examined the various papers filed in the paper-book. On the facts leading to the issue before us, it is clear that the issue before us is whether any liability/loss could said to have arisen in the previous year by the assessee on account of repairs/damage keeping in view the litigation between the assessee and M/s. ITC. In fact this was the basis on which the department had sought to set aside the earlier CIT(A) order before the Tribunal in its first inning and this is the base on which the CIT(A) in the present appeal had disallowed the claim. We must first make it clear that the disallowance of the claim by the assessing officer and CIT(A) is not on the basis that the liability was of capital nature. Thus, so far as the nature of expenditure is concerned, the liability was on the revenue field. Now coming to the issue about litigation, we have perused the entire suit papers, as well as the other correspondences and evidence filed by the assessee in the paper-book. On perusal of the suit filed by M/s. ITC against the assessee, it becomes clear that not only ITC had flatly denied having anything to do with the liability for the repairs, but the assessee itself had agreed to carry out the repairs. This is clear from the fact as reflected in the suit, more specifically from pages 8, 9, 10, 15, 17 and 2 1. This fact is duly supported by the actual correspondences exchanged between the assessee and M/s. ITC. We have also perused such correspondences, which are annexed as various Exhibits in the said plaints. What emerges on perusal of all these record is that it was purely to safeguard its own business interest that the assessee had volunteered to undertake the work of repairs so as to avoid any delay and loss of profit. This is evident from the letters of the assessee dated 21-6-1993 (p. 56 of the paper-book), letter dated 12-8-1993 (p. 55 and 56 of the paper-book), letter dated 30-8-1993 (p. 57 of the paper-book), letter of M/s. ITC dated 28-9-1993 (p. 74 and 75 of the paper-book), letters of the solicitor of M/s. ITC dated 8-10-1993 (p. 78 and p., 205-206 of the paper-book respectively), minutes of the proceedings before the High Court in Suit No. 3885 of 1993 (p. 90 to 94 of the paper-book). Apart from these letters other correspondences filed by the assessee in the paper book (part II) also supports the above fact. As such, it is evident that, ultimately, the assessee had accepted the responsibility to carry out the work, which it did under the supervision of the court Receiver. As against these hard evidences, no cogent evidence has been brought on record by the department. In fact, because there was initial delay on part of the assessee to carry out the repairs, M/s. ITC filed a suit against the assessee, demanding compensation of around Rs. 117 crores on account of loss of profit and loss of business and reputation. Even otherwise, the fact that the damage had already been done and the loss had been incurred is not disputed. The fact that the liability to carry out the repairs, required to restore the business to its normalcy, had already arisen is also not disputed. Even the amount of the claim is not based on any guess work. It is properly evaluated in a scientific manner by reputed engineers and contractors. The work is being carried out by the assessee under the supervision of the High Court, through its court Receiver. Under these circumstances, we do not see what remains to be proved for allowance of the claim. In fact, the Act itself has made it clear that even if a liability is injured - and not actually paid - in a previous year, the same should be deemed to have been paid for the purpose of sections 28 to 41 including section 3 1, which deals with allowance of deduction on account of repairs. The learned assessing officer as well as the CIT(A) have placed heavy reliance on the fact that no amount was spent by the assessee during the year. The definition of the term 'paid' as contained in section 43(2) of the Act, answers the same. In any case, the legal position of allowability of a liability, on its accrual, even if not paid or extactly quantified, during the year, is too well settled to necessitate citing plethora of judgments which have been relied and mentioned in the legal note submitted by the learned counsel of the assessee. The assessee has also referred to numerous judgments and various aspects especially the judgment of the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC), is worth mentioning. This decision has been followed subsequently in various other judgments, which have also been referred to by the learned counsel in this legal note, submitted separately. The relevant portion of the decision in the case of Calcutta Co. Ltd. is as under:
"Inasmuch as the liability which had thus accrued during the accounting year was to be discharged at a future date the amount to be expended in the discharge of that liability would have to be estimated in order that under the mercantile system of accounting the amount could be debited before it was actually disbursed.
The difficulty in the estimation thereof again would not convert an accrued liability into a conditional one, because it is always open to the income-tax authorities concerned to arrive at a proper estimate thereof having regard to all the circumstances of the case."
In view of the above discussion, we are of the opinion that the claim of the expenditure for repairs made by the assessee is clearly allowable. Accordingly the assessing officer is directed to allow the same. We may make it clear that if at all, subsequently, the liability of the assessee is found to be less than claimed and allowed in this year, the department will be free to bring to tax the difference in accordance with the law. In this way, interest of the revenue is adequately safeguarded.
18. Now coming to ground No. 4 relating to the addition of Rs. 92,27,566 made by the assessing officer on account of licence fee receivable from M/s. ITC. This issue has been raised as an additional ground. The learned counsel submitted that this addition has been made by the assessing officer for the first time in the fresh assessment order giving effect to the order of the CIT(A) on the issue of allowability of depreciation. He further submitted that the assessing officer did not have any jurisdiction to move beyond the specific and narrow scope of direction given by the CIT(A), much less to add an entirely new source of income which was neither a subject-matter of the earlier assessment order nor of the appeal order. He further submitted that this issue was specifically raised before the CIT(A), but the learned CIT(A) had not dealt with the same. On the other hand, the learned departmental Representative submitted that since the learned CIT(A) has not dealt with the relevant ground taken by the assessee, this issue may be restored back to the file of the CIT(A).
19. We have considered the submissions and have perused the orders of the authorities below. We find that while giving effect to the order of the CIT(A), the assessing officer has taken up this issue. There is lot of force in the argument of the learned counsel that the assessing officer is not competent to raise a new issue while giving effect to a specific direction given by the CIT(A). We are of the opinion that this issue requires examination on merit also. Therefore, we do not consider it proper to decide the issue. Agreeing with the submission of the learned Departmental Representative, we set aside this issue and restore it back to the file of the CIT(A) to decide the issue afresh.
20. In the result, for statistical purposes the appeal is treated as allowed.