AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1416
X X X X Extracts X X X X
X X X X Extracts X X X X
....ricultural income of Rs. 9,27,850/-. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter called as 'the Act'). Subsequently, the case has been selected for scrutiny and accordingly, notices u/s. 143(2) & 142(1) of the Act were issued. In response to the notices, the Authorised representative of the assessee appeared from time to time and furnished books of accounts, bills & vouchers and other requisite information called for. The A.O. after considering the explanations furnished by the assessee completed the assessment u/s. 143(3) of the Act and determined total income of Rs. 58,73,07,979/-, by making various additions and disallowance of expenditure. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The CIT(A) after considering the explanations furnished by the assessee, partly allowed the appeal filed by the assessee. Aggrieved by the CIT(A) order, the revenue as well as assessee are in appeal before us. 3. The assessee has raised common grounds for all the assessment years. From these grounds of appeal, the assessee has agitated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure by way of salary and other indirect expenditure to maintain the investment portfolio, as the declaration of dividend is the business of the company which declares the dividend. The assessee company need not to maintain separate staff for managing the investment affairs as the dividend is received by way of warrants and which is credited into the bank account directly and hence, no expenditure is attributable to the said income either directly or indirectly. 5. The A.O. after considering the explanations of the assessee held that in view of the provisions of section 14A of the Act, pro-rata expenses on interest relatable to investment in shares for earning exempt dividend income is to be disallowed against taxable income. The A.O. further held that the expression expenditure incurred by the assessee in relation to income which does not form part of the total income in section 14A of the Act has to be given a wider meaning and would include both direct and indirect expenses. Therefore, the indirect expenditure incurred by the assessee is to be allocated on pro-rata basis. The A.O. further held that admittedly, the assessee has not maintained any separate books of accounts for it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee submitted that the CIT(A) is not correct in attributing part of the administrative expenses, salaries of employees, repairs to assets and other expenditure towards earning of dividend income, since the corresponding investment in shares was made 15 to 20 years ago and not in the year of under question and no expenditure was incurred in the year of earning of income. The Ld. A.R. further submitted that as regards the additions of interest on pro-rata basis, the ITAT in assessee's own case for earlier assessment year has held that in the absence of direct nexus between investment in shares and borrowed funds, additions cannot be made u/s. 14A of the Act. 8. On the other hand, the Ld. D.R. submitted that the Ld. CIT(A) is not justified in deleting the additions made on account of disallowance of interest expenditure u/s. 14A of the Act allocated on pro-rata basis to the exempt income. The D.R. further submitted that the CIT(A) having upheld the addition on account of administrative and other expenditure to the exempt income, ought to have sustained the addition on account of pro-rata interest expenditure also as the assessee has failed to prove that it has not utilized th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilized the borrowed funds for the purpose of investments in shares. Therefore, in view of the amended provisions of section 14A of the Act, any expenditure relatable to earning of exempt income should be disallowed u/s. 14A of the Act. It is the contention of the assessee that it has not utilized the borrowed funds for the purpose of earning of exempt income. There are two aspects in this case, i.e. disallowance of interest expenditure and disallowance of administrative expenditure. The A.O. invoked Rule 8D and worked out the proportionate interest and indirect expenses of head office as provided under Rule 8D. As for as interest expenditure is concerned, the assessee proved that it has not utilized borrowed funds and its own surplus fund is invested in its subsidiary companies, that too more than 15 to 20 years back. Though, there is further investment in the financial year 2007-08, the assessee proved that it has surplus funds which was invested in the shares and no interest bearing funds are diverted for investments. Therefore, we are of the opinion that the A.O. was not correct in disallowing the interest expenditure. As regards the disallowance of administrative expenditure of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rightly deleted the additions made towards proportionate interest and upheld the additions made towards indirect expenditure. We do not see any error or infirmity in the order passed by the CIT(A). Hence, we inclined to uphold the order passed by the CIT(A) and reject the ground raised by the assessee as well as revenue. 13. The next issue that came up for our consideration is disallowance of deduction u/s. 80IA of the Act. During the course of hearing, the Ld. A.R. for the assessee submitted that ground relating to reducing the deductions u/s. 80IA of the Act for all the years is not pressed. The D.R. did not raise any objections. Therefore, we dismiss the ground relating to reducing the deduction u/s. 80IA of the Act for all the years as not pressed. 14. The next issue that came up for our consideration is disallowance of expenditure under the head repairs and maintenance. During the course of assessment proceedings, the A.O. disallowed various expenditures under the head repairs and maintenance. The A.O. disallowed the expenditures for the reason that the assessee has claimed certain item of expenditure as revenue though, the expenditure incurred was in the nature of capital e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ous process plant, therefore, these items cannot be used as independent machines. 15. We have heard both the parties and perused the materials available on record. The A.O. disallowed certain items of repairs and maintenance on the ground that the expenditure incurred under the head repairs and maintenance are capital in nature and cannot be allowed as revenue expenditure. The A.O. was of the opinion that the assessee has replaced the existing plant and machinery with new plant and machinery and which are giving enduring benefit to the assessee, therefore, these items cannot be allowed as revenue expenditure. It was further observed that these items are independent machineries, which can function independently. It is the contention of the assessee that the A.O. is not correct in holding that the assessee has got enduring benefit by replacing the components of machinery. It is further contended that these are items of continuous process plant and assessee has repaired or replaced the existing plant and machinery to keep the plant in a working condition. Therefore, these items cannot be considered as capital expenditure. 16. We have gone through the orders of the authorities below ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the assessee has replaced certain machineries such as motors, Nefion Membrane Sheets, Level Transmitter, Bottom Shell, Blower FR, Air Conditioner, Pumps, SS DSM Screener, Multifunction Control, Paperless Recorders, Gas Detection Systems, Pipe Cutting Machine, Paharpur Cooling Tower, Sensors, Air Dying units, HP printers, UPS, Tractor Trucks Welding Machine etc., which are capable of function independently whether or not fixed to a continuous process plant. On perusal of items of expenditure disallowed by the A.O. we find that except few items, many of the items are independent machineries (Most of them or motors and Pumps) having distinct characteristics of Machines and also capable of independent function whether or not fixed to continuous process plant. Just because, these machineries are part of continuous process plant, they do not lose their independent identity or function. It may be true that each machine in a sugar factory is part of the integrated process of manufacturing system and is integrally connected to the other machines in the plant for production of the final product. However, this interconnection does not take away the independent identity and distinct functi....