TaxTMI 
TaxTMI 
2014 (12) TMI 601
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....Rs. 90,36,373/- made on account of expenditure incurred under the head 'repairs and maintenance". ITA No.207/Del/13 -Assessee's appeal: (i) That the CIT (A) had erred in confirming the disallowance of notional administrative expenses of Rs. 3.58 lakhs u/s 14A of the Act allegedly relating to dividend income; & (ii) That the CIT (A) erred in confirming the disallowance of consultancy expenses of Rs. 20,36,319/-. 3. As the issues raised in these appeal pertain to the same assessee, both the appeals were heard together and disposed off in this consolidated order. 4. We shall now to take up the Revenue's appeal for adjudication as under: (i) Deletion of the addition of Rs. 2,12,08,600/-: The CIT (A) had deleted the ad-hoc disallowance of Rs. 2,12,08,600/- made by the AO for the following reasons: "(On page 9) 4.2. The issue involved and submissions made by the appellant have been considered. In similar facts and circumstances, the undersigned does not have any reason for deviating from the view formed by his (sic) my predecessor in her detailed appeal order dated 14.9.2011 for the AY 2006-07. The CIT (A) has given her clear finding as submitted by the appellant ....
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....on of expenditure. Another reason, for making the above said disallowance was on account of low profit in trading division. As mentioned earlier, the gross margin was worked out on the basis of books of account which were duly audited and accepted as correct and complete. The gross profit with regard to sale and purchase of goods in the trading division was at rate of 31.57% and there were various in direct expenses in the nature of high rental for retail outlets in prominent location. This had pushed down the net profit rate. The CIT (A) has categorically found gross profit earned from the trading division of the assessee is reasonable and has also examined the vouchers of purchase and sale of goods made by the assessee on a sample basis and has found same is to be correct. This finding of the CIT (A) has not been dispelled by the Revenue placing any material/ documents. Therefore, we see no reason to interfere with the order of the CIT (A). Accordingly, we dismiss this ground of the Revenue." 4.3. Taking into account the facts of the issue and also in conformity with our findings for the AY 2006-07 in the assessee's own case for an identical issue (supra), we confirm the findi....
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....ns which can be disallowed, if at all, on some reasonable basis''. 5.1. Extensively quoting the ruling of the Hon'ble Madras High Court in the case of Binny Limited v. ACIT [324 ITR 34 (Mad)], the CIT (A) had, further, observed as under: "(On page 14)..................................................................................... (iv) It may be mentioned that on the issue of interest expenditure, the predecessor of the undersigned has deleted the disallowance of interest, as pointed out by the appellant and noted above, with the finding that the appellant had surplus interest free funds and there was no nexus between the exempt income and interest expenditure. The undersigned does not have any reason for deviating from the view formed by its (my) predecessor. Even otherwise, the AO has wrongly computed disallowance of interest expenditure. The calculation of disallowance was wrong in as much as the AO disallowed Rs. 16 crores as against interest expenditure of Rs. 4.04 crores only incurred during the year. Keeping in view the aforesaid accumulative reasons, disallowance of interest expenditure is deleted." 5.2. The ld. DR, during the course of submission before us,....
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....s. On the facts and circumstances of the case and perusal of the cash flow statement, the CIT(A) has categorically found that the assessee had enough interest free funds in the form of reserves and surplus and there was no relation between the interest expenditure and the dividend income. Therefore, disallowance of interest expenditure, by invoking the provision of Section 14A, was uncalled for and, hence, we confirm the CIT(A)'s order on this aspect." 5.4. Taking into account all the facts and circumstances of the issue as deliberated upon in the fore-going paragraph and in consonance with our findings for the AY 2006-07 in the assessee's own case (supra), we sustain the findings of the CIT (A) on this issue. It is ordered accordingly. (iii) Deletion of the addition of Rs. 90,36,373/- made on account of expenditure incurred under the head 'repairs and maintenance: 6. The CIT (A) had deleted the additions, aggregating to Rs. 90.36 lakhsfor the following reasons: "(On page 19)(ii) .........................................The settled position of law is that there is no hard and fast rule to determine whether an expenditure is of capital in nature or it is revenue in natur....
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....ear 1979 on which factory building was constructed and, accordingly, capitalized in the books on the year ending 31.3.1981 for an aggregate amount of Rs. 85,99,124/-. It was also a fact that since then the building was put to use in the course of business carried on by the assessee and for the continuous use of the building for a long period of over 20 years, the factory building had naturally required certain repairs and alterations for uninterrupted and smooth operations of the business in the said building. Considering the life of the building and the total amount of expenditure of Rs. 6,84,504/- incurred on repair of the aforesaid factory during the year was nominal compared to the total construction cost of building of Rs. 85,99,124/- in the year 1981. As argued by the learned AR during the course of hearing, the aforesaid expenses were incurred towards repair and renovation of the existing factory building which did not result in acquisition of any new capital asset nor increase in production capacity of the factory. The aforesaid repair expenses at the factory building only facilitated smooth functioning of the existing operations carried out at the factory. Therefore, we ar....
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.... the result, the Revenue's appeal is dismissed. 8. ITA No.207/Del/13 -Assessee's appeal: (i) confirming the disallowance of notional administrative expenses of Rs. 3.58 lakhs u/s 14A of the Act: The CIT (A) had confirmed the disallowance of notional administrative expenses to the extent of Rs. 3.58 lakhs u/s 14A of the Act on the ground that 'the undersigned has not been satisfied with the version of the appellant that no expenditure was incurred for the purpose of earning dividend income and records its satisfaction as required u/s 14A. Therefore, the disallowance is reasonably required to be made of the salary of Sri Sunil Harsh'. [Refer: page 14 of CIT (A)'s order] 8.1. During the course of hearing, it was submitted by the ld. AR that the entire office was not engaged in the job of deciding investment matters and that there may be one or two persons assigned this particular job. Being queried by the CIT (A) to specify the person(s) to whom the job was assigned, the ld. AR came up with the details that there has been only one person namely, Sri Sunil Harsh, Dy. Manager (Finance) who was looking after treasury activities of the assessee company comprising of, inter ali....
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....)(iii) of I.T.Rules, 1962. It is ordered accordingly. (ii) Disallowance of of consultancy expenses of Rs. 20,36,319/-: 9. The CIT (A) had confirmed the addition of Rs. 20,36,319/- for the following reasoning: "(On page 22) 7.2.............As noted above, whether an expenditure is capital in nature or it is revenue expenditure, no hard and fast rule can be applied, it depends on the facts and circumstances of each case. In the issue under consideration although the purchase of shares of subsidiary company through public offer has not resulted in expanding the capital base of the appellant company, yet it is acquisition of new asset. Any expenditure incurred for acquisition of a new asset is capital expenditure. The appellant's version that it had purchased shares during its normal business activity does not have any merit because the appellant's business activity as noted above is manufacture of maps and other furnishing items and it is not sale and purchase of shares. Any expenditure incurred on capital account is capital expenditure. Therefore, the consultancy charges paid to J.M. Morgan Stanley and ILFS Investment Securities Limited are capital in nature, the same deserv....
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..... To strengthen his argument, the ld. AR had placed reliance on the following case laws, namely: (i) Addl. CIT v. Laxmi Agents (P) Ltd - 125 ITR 227 (Guj); (ii) CIT v. Amritaben R Shah 238 ITR 777 (Bom); (iii) Srishti Securities (P) Ltd v. JCIT 321 ITR 498 (Bom); (iv) CIT v. Premier Poly Sacks 321 ITR 450 (Mad); (v) CIT v. Srishti Securities Pvt. Ltd 183 Taxman 159 (Bom); (vi) CIT v. Tulip Star Hotels Ltd (2011) 16 Taxmann.com 335 (Del) 9.3. On the other hand, the learned DR supported the stand of the CIT (A) on the issue. 9.4. We have carefully considered the submissions of the assesseeand the Revenue and perused the material available on record. The assessee being a promoter of Eicher Limited and with a view to acquire full control over of the said company, decided to acquire the shares of Eicher Limited from public shareholders and to delist the same from Stock Exchanges. Apparently, the acquisition of shares in its subsidiary company [Eicher Limited] was to strengthen its controlling interest in that company in furtherance of its business only. Accordingly, the expenditure incurred in relation thereto would be regarded for having incurred for the purpose....