TaxTMI 
TaxTMI 
2014 (7) TMI 837
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....ive, fabrication and erection of structures etc. ignoring the fact that most of the items purchased by the appellant were new identifiable assets. 2. In the facts and circumstances of the case the Ld. CIT(A) has erred in holding the acquisition of new assets for replacement of existing assets as current repairs, through the Hon'ble Supreme Court in the cases of CIT Vs. Sri Mangayarkarshi Mills (P)Ltd., 315 ITR 114, CIT Vs. Saravana Spinning Mills (P) Ltd, 293 ITR 201 has held that replacement of machinery was capital expenditure and could not be treated as current repairs." In Assessment year 2009-10 identical grounds have been raised but only difference is that the amounts are different. 3. After hearing both the parties we find that during assessment proceedings the Assessing officer noticed that assessee has claimed expenses on account of repair of building amounting to Rs. 189.77 lakhs and repair to plant & Machinery amounting to Rs. 193.39 lakhs. The assessee was asked to file the details which were duly furnished. The Assessing officer after examination of the details noticed that various items listed at para I(i) which according to him were of....
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....if the issue is set aside, therefore after examining various items we are of the opinion if 10% of items listed by the Assessing officer are held to be of capital nature, same would meet the ends of justice. Accordingly we set aside the order of the Ld. CIT(A) and direct the Assessing officer to treat 10% of the items from building repair as well as plant & Machinery repair as listed by the Assessing officer as Revenue expenditure. We may further clarify that on capital portion of the item requisite depreciation may also be allowed. 8. In the result, appeals of the Revenue in ITAs No. 599 & 600/Chd/2013 are partly allowed. ITAs No. 644 & 645/Chd/Chd/201 3 - Assessee's appeals 9. In both these appeals the assessee has raised grounds objecting to the disallowance u/s 14A r.w.r. 8D. 10. After hearing both the parties we find that during assessment proceedings the Assessing officer noticed that assessee has made fresh investment to shares and mutual funds, therefore assessee was asked to show cause as to why the expenses attributable to the exempt income should not be disallowed. In response it was stated vide letter dated 12.11.2010 as under: "In ....
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....ssue in earlier years of Assessment year 2004-05 and 2006-07 and observed that the Tribunal has made adhoc addition of Rs. 25 lakhs. He further observed that the issue relating to apportionment of the expenditure comes into picture only when the expenditure are of consolidated nature for which legislature has provided a mechanism by way of Rule 8D. He further observed that invocation of Rule 8D was justified and confirmed the action of the Assessing officer. 13. Before us. the Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that Rule 8D could not be invoked unless and until some error is pointed out in the method adopted by the assessee. 14. In respect of Assessment year 2009-10 he referred to page 13 of the paper book and pointed out that firstly profit and loss account is for the period of four months. This is so because the company was merged with Mahindra group. Therefore as far as disallowance under clause (iii) of Rule 8D(2) which is @ ½% of the value of investment should have been determined proportionately for four months because ½% would relate to whole year. Secondly during the year there ....
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.... of statutory register holding of board meeting etc. iv) Fourthly, the assessee has pointed out that it has made the investments way back. This plea of the assessee is also not tenable, here it need to be appreciated that if these funds were not blocked in these securities then these to be used in business purpose and company to that extent may not have necessarily to borrow from the bank and certainly, the interest burden shall be reduced apart from other enduring benefits derived by the company due to its easier liquidity. v) Fifthly, the company had employing bank facility since long and paying regularly heavy interest on these borrowed funds, as such, there is direct nexus between investment and borrowed funds. Accordingly, section 14 A clearly has application in this case." The above clearly show that the Assessing officer has given his reasoning. It is a common knowledge that the investments in shares and mutual fund by the Corporate sector requires big financial efforts and are handled by a department known as Treasury operations. In fact this is one of the important function of the Finance department to handle surplus funds wit....