2014 (12) TMI 294

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....2. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not considering the Explanation 1 to Section 32 of the Income-tax Act which clearly proves that the purpose of section 32 even if the assessee is not the owner of the building then also for the purpose of any expenditure in the nature of capital expenditure in the building, he will be related as the owner of the building." 4. Apropos ground No.1 relates to disallowance of Rs. 63,16,000/- u/s 14A of the Income Tax Act, 1961 (herein after 'the Act') read with Rule 8D of the Income Tax Rules, 1962 (herein after 'the Rules). 5. The AO noted that assessee was holding investments of Rs. 126.33 crores and therefore held that intention of inserting Rule 8D is to allow the AO to estimate expenses in situations where no expense can be directly attributed to investments which may lead to tax free income. Before the ld CIT(A), the assessee contended that the investments were made in its wholly owned subsidiary company M/s. L.G. Polymers India Pvt. Ltd, which did not earn any exempt income. It was submitted that no expenditure has been incurred for earning exempt income. The ld CIT(A),....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... does not arise. He also referred to the ITAT Mumbai Bench in the case of J.M. Financial Ltd, (2014-TIOL-202-ITAT-Mum) which has followed the judgement of Delhi High Court in Oriental Structure dated 15.01.2013 (2013-TIOL-97-H.C. Delhi-IT) wherein it was held that in respect of investment made in subsidiary companies, on account of commercial expediency no expenses can be attributable for disallowance u/s 14A read with Rule 8D. He also referred to the decision of the Delhi Bench of this Tribunal in the case of International Travel House (2014-TIOL-402-ITAT Del). Ld DR supported the order of the authorities below. 8. We have heard both the parties and have perused the records of the case. In the case of CIT Vs. Holcim India Ltd the Hon'ble Delhi High Court ITA No.486/2014 & ITA No.299/2014 has held as follows:- "14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....by securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax." 9. The facts of the instant case are in Pari-materia with the facts of the aforesaid case, in as much as, no exempt income has been earned by the assessee from the investment made in the subsidiary. Therefore respectfully following the binding precedent we hold that the ld CIT(A) erred in confirming the order of the AO. So we direct the deletion of Rs. 63,16,000/- added u/s 14A read Rule 8D. 10. Ground No.2 of the assessee's appeal is regarding disallowance of expenditure incurred on Air Condition ducting and ground No.1 and 2 of the revenue's appeal is regarding deletion of addition of Rs. 28,82,000/- on account of renovation of lease hold premises. 11. During the year the assessee incurred expenditure of Rs. 44,18,785/- on account of interior work, civil work, partition, ceilings, flooring, light fitting,....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....expenditure. However, in the above case it has been held that the expenditure incurred on AC unit was capital in nature. In view of the decisions discussed above and also in view of the fact that the various expenses relating to civil work, partitions, ceiling, flooring etc. do not result in any enduring benefits to the appellant therefore the disallowance made by the AO is deleted except the expenditure incurred on AHU ducting of Rs. 5,50,000/- which is in the nature of capital expenditure." 14. The ld AR, relied upon the judgement of the Hon'ble Delhi High Court in the case of CIT Vs. Amway India Enterprises 346 ITR 341 and CIT Vs. Hi Pens 306 ITR 182. He contended that all the expenditure by the assessee was revenue in nature and there was no creation of new asset. It was submitted that expenses was incurred to use the office premises for better functioning. The ld DR submitted that the expenditure incurred in the instant case is capital expenditure and therefore correctly disallowed by the AO, because the expenditure incurred by the assessee, resulted in enduring benefits to the assessee so it is a capital expenditure. 15. Having considered factual matrix, we find that th....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....pairs" as used in Section 30(a)(ii). 6.2 In CIT Vs. Escorts Finance Ltd (2006) 205 CTR (Delhi) 574, which is an earlier judgement of this court, the court was called upon to decide as to whether the expenses incurred on improvement of leasehold premises, were in the nature of revenue expenditure, as contended by the assessee. The court sustained the contention of the assessee and allowed the deduction claimed under Section 37(1) of the IT Act. The court noticed the dicta of the judgements o the Bomaby High Court in the case of CIT Vs.David Mills Ltd. (Income Tax Reference No.17/1950 decided by Chagla C.J. and Tendolkar, J on 10.10.1950) and Menor Mills Ltd. Vs/ CIT (Income Tax Reference No.36/1950 decided by the same Bench, on 30.03.1951) wherein, it has been observed that in ascertaining whether an expenditure incurred is made on revenue account or otherwise one would have to bear in mind the nature of the expenditure, that is, was it incurred for maintenance or preservation of an asset or was it expended otherwise. It thus concluded tha6 if the expenditure incurred is made on revenue account or otherwise one would have to bear in mind the nature of the expenditure, that is, wa....