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2019 (1) TMI 1062
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.... addition to a fixed assets, endures benefit for a long period of time and thus capital in nature? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 26,12,024/- u/s 14A ignoring the fact that disallowance u/s 14A with rule 8D has to be made if assessee has made an investment whose income is exempt or not? 4. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 1,38,24,467/- u/s 36(1)(iii) ignoring the fact that the interest paid by assessee on loan taken for acquiring the asset has to be capitalize till the date, the asset is not put to use? 5. Whether on the facts and circumstances of the case & in law, the Ld.CIT(A) erred in deleting the addition of Rs. 2,83,782/- on account of prior period expense ignoring the fact that expenses incurred by assessee do not pertain to the year under consideration? 6. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 7. That the grounds of appeal are without prejudice to each other." From the aforesaid grounds of appeal, it emerge....
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....e ruled out. He, therefore, in order to pluck any possible leakage of Revenue, disallowed 10% of the additions claimed, as noted above. 4. The AO further noticed that assessee claimed repair and maintenance expenditure on lease hold property for flooring, interior work etc. to the tune of Rs. 72,94,797/- as per details submitted before the Assessing Officer. The AO treated it as capital in nature, as these expenditure were incurred for getting enduring benefit to the assessee. The AO, therefore, after allowing applicable depreciation as per the nature of block of assets amounting to Rs. 4,31,310/-, disallowed remaining expenditure amounting to Rs. 68,63,487/- as capital expenditure. 5. The AO further noticed that the assessee had made investment of Rs. 7,23,10,255/- as per schedule-D to the balance sheet. Out of this investment, a sum of Rs. 7,22,91,759/- was made in subsidiary company alone and this investment in subsidiary company was later on written off/provision made for diminution of value leaving Rs. 1/- in the balance sheet. He noticed that the provision made for diminution in the value of investment is just a book entry and notional provision. It cannot be said that ....
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....CIT(A) was not justified to delete the disallowance of expenditure made by AO without considering the facts that personal element was involved in the said expenditure, particularly when the same were not fully verifiable. It was also contended that the assessee has incurred capital expenditure on lease hold premises as per his own requirements. The nature of expenditure incurred unequivocally warrants to be the expenditure in capital nature for fetching enduring benefit therefrom. These were not day-to-day running business expenditure. The ld. DR also submitted that therefore, the ld. AO was justified to rely on the decision of Punjab & Haryana High Court, which is squarely applicable to the present case for disallowance of expenditure u/s. 14A. The assessee had mixed funds and has paid interest on loan taken. Merely because the assessee wrote off the investment in subsidiary, it would not exonerate the assessee from disallowance u/s. 14A. He also submitted that the capital assets were put to use during year and huge interest was paid on loan, but the assessee himself did not disallow the proportionate interest upto the date when the assets were put to use. It was also submitted th....
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....& exclusively for the purposes of the business shall be allowed in computing the income chargeable under the head "Profits & Gains of Business or Profession". e) Business expenditure has to be viewed from the point of view of assessee. The nature of the expenditure must be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. f) Expenditure incurred by the assessee have direct and intimate connection with his business and therefore, the same is allowable u/s 37(1) of the Act. Once it is established that the expenditure has been factually incurred by the assessee wholly and exclusively for the purpose of business and there is nexus between the expenditure and the business of the assessee, the Revenue cannot justifiably claim to put itself in the arm chair of the businessman and assume the roll to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. Kindly see Travencore Titanium Product Ltd. vs CIT (1966) 60 ITR 277 AT 282-83(SC....
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....visited the foreign country, date of departure and arrival, fare amount, boarding lodging and other expenses. Assessing Officer was satisfied with these details, however, while framing the assessment, she disallowed 10% of the total expenditure in the guise of personal nature which is not sustainable in law. Details of domestic traveling expenses include a sum of Rs. 3,99,82,494/- spent on conveyance, employee transportation, petrol reimbursement and vehicle hire charges. It also include sum of Rs. 9,06,72,023/- incurred on traveling by the employees which included air tickets, boarding and lodging expenses. Assessee had hired various cabs at its various offices / factories to provide facility of transportation (pick-up and dropping) to its employees on daily basis. Details of domestic traveling furnished by the assessee includes month-wise details of traveling of the employees name-wise alongwith their designation, destination, fare, lodging, boarding and other expenses. Expenditure incurred by the assessee is wholly and exclusively for the purposes of business, it cannot have any element of personal user particularly when the assessee ....
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....rt of expenses for last 05 years i.e. AY 2006-07 to AY 2009-10 and pointed out that Assessing Officer had not made any addition by disallowing these expenditure even in assessment orders framed u/s 143(3) of the Act. Hence, rule of consistency demands that no expenditure under these heads can be disallowed merely on the ground of personal user. Accordingly, it is prayed that no expenditure could have been disallowed by the Assessing Officer and the addition made by her be deleted in the interest of justice. Ground No. 2 Disallowance of repair and maintenance of Rs. 68,63,487/- Department has raised the following ground of appeal: Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ^68,63,487/- on account of repair and maintenance ignoring the fact that addition to a fixed assets, endures benefit for a long period of time and thus capital in nature? a) During the assessment proceeding, assessee had furnished the details of repairs and maintenance of Rs. 4,93,74,261/- out of which Assessing Officer picked-up the details of expenditure of Rs. 72,94,797/- either from the bills or from th....
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.... g) The details furnished by the assessee reveal that by incurring the expenditure on repairs, no new asset has been brought into existence, rather the old assets are repaired. It is not the nomenclature given by the assessee but the substance of expenditure is relevant. Further even the magnitude of the expenditure is also not relevant, the real test is whether the asset is merely maintained or is replaced or improved by the expenditure incurred. Kindly see CIT vs Seraikella Glass Works (P) Ltd., 157 ITR 584 (Pat) h) As per concise oxford dictionary, "to repair" is to restore to good condition, renovate, mend by replacing or re-fix,ng parts or compensating loss or exhaustion. As per Laxicon Webster Dictionary, "to repair" is to restore to a sound or good state after decay, injury, dilapidation or partial destruction. i) Section 30(a)(ii) and section 31 (i) allow deduction in r/o current repairs. The idea of periodicity, recurrence and need is implicit in the expression "current repairs". Accumulated repairs can be understood as current repairs. The guidelines for inference of "current repair" has been set out by the Hon'ble Delhi Hi....
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....the present case, the Assessing Officer has arbitrarily picked up the items amounting to Rs. 72,94,797/- and has treated the same as capital expenditure. However, nature and character of each item reveals that it is in the nature of repair, maintenance or replacement of a part or renovation and therefore, allowable as revenue expenditure either u/s 30 or 31 or 37 as the case may be. o) It is not out of place to mention here that neither in the preceding years, nor in the subsequent year, Assessing Officer has disallowed expenditure incurred by the assessee by way of repair and maintenance. CIT(A) has considered all these details and arguments and deleted the addition treating the amount of Rs. 72,94,797/- as revenue expenditure towards repairs and maintenance. Ground No 3 Addition of Rs. 26,12,024/- invoking the provisions of section 14A Department has raised a following ground of appeal Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of T26,12,024/- u/s 14A ignoring the fact that disallowance u/s 14A with rule 8D has to be made if assessee has made an investment whose inco....
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....ion has to be made between return of investment (e.g. sale consideration of investment) and return on investment (e.g. dividend). Diminution in value of investment has impact on Balance Sheet and not on Profit & Loss A/c whereas dividend has impact on Profit & Loss A/c. In any case, it is a capital loss and not an exempted income so as to invoke provisions of section 14A of the Act. Hence the addition of Rs. 26,12,024/- is liable to be deleted. f) It is very relevant to point out here that assessee has shown Rs. 1/- as investment in subsidiary company since AY 2003-04 but no addition had been made by the Assessing Officer, in earlier years, invoking provisions of section 14A of the Act though section 14A has been inserted in the statute book by the Finance Act 2001 with retrospective effect from 01.04.1962. CIT(A) has considered the facts on record and had rightly held that the provision of section 14A are not all attracted as the same was applicable when the assessee had claimed deduction of expenditure which had been incurred in relation to exempted income against the taxable income, in the present case, assessee had not claimed any income as exempt. Expenditure....
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....preciation respectively. This accounting practice has been adopted by the assessee since the beginning and in none of the years, Assessing Officer has rejected the same. b) During the assessment proceeding, assessee had produced the details of preoperative expenses as well as their allocation to the assets. The details are now annexed as Annexure-"K". These expenses were in the nature of advertisement, consultation, bank interest, bank charges, salary, staff welfare, traveling, interest etc. c) During the year assessee had claimed total interest at Rs. 11,98,81,762/-, out of which, a sum of Rs. 2,48,87,306/- was transferred to preoperative expenses. Pre-operative expenses of Rs. 14,79,23,076/- included interest of Rs. 3,32.44,566/- which contained interest of Rs. 2,48,87,306/- transferred during the year and also the brought forward interest. Total expenses of Rs. 14,79,23,076/- has been allocated by the assessee to the fixed assets i.e. building, Plant & Machinery etc. d) Since the assessee had already allocated interest to the fixed assets, the action of the Assessing Officer in disallowing interest of Rs. 1,38,24,368/- invoking provisions of section 36....
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....reated as prior period item. Assessee is relying on the following judgements: CIT vs Modipon Ltd. (2011) 334 ITR 102 (Del) CIT vs Shri Ram Pistons & Rings Ltd. (2008) 174 Taxmann 147 (Del) Saurasthra Cement & Chemical Industries Ltd. vs CIT (1995) 213 ITR 523 (Guj) CIT(A) has deleted this addition holding that the amount had been crystallized during the year, even services had been rendered during the year and therefore, the amount cannot be treated as prior period item so as to disallow the same. Last but not the least, it is to be pointed out that neither in the preceding years nor in the subsequent years except AY 2011-12, Assessing Officer had made any addition on these grounds. Hence, Rule of Consistency demands that in this very year also no addition could be made in view of the judgement of Supreme Court in the case of Radhasoami Satsang vs CIT (193 ITR 321). It is not out of place to mention here that in AY 2011-12, Assessing Officer had made similar additions relying on the assessment order for the present year, however CIT(A) has deleted the additions. In view of above submissions, it is stated that the assessment has ....
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.... In so far as personal user is concerned, in State of Madras vs GJ Coelho (53 ITR 186)(SC), Supreme Court has explained the term "personal expenses" and has observed that any expense to discharge a personal obligation do not become a personal expense within section 5(e) of 1922 Act which is similar to section 37(1) of 1961 Act. Personal expenses would include expenses on the person of the assessee or to satisfy his personal needs such as cloths, food etc or purposes not related to the business for which the deduction is claimed. Therefore, the finding given by the Assessing Officer that there is always an element of personal user under these heads of expenses is misconceived and therefore cannot be sustained in law in the absence of any material. In so far as telephone expenses are concerned, Assessing Officer has observed that no details regarding telephone expenses was maintained phone number wise. As per the details furnished by the assessee, telephone / communication expenses of '2,80,08,325/- includes cellular phone expenses, courier, fax charges, IT charges (data card, email), mobile expense reimbursement, expenses on telephones installed at various of....
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....t given any finding as to which expenditure is not for the purposes of business. Similarly, assessee has furnished the details of domestic traveling which is given in two annexures. Annexure-1 pertains to the expenses amounting to Rs. 3,99,82,494/- incurred by the appellant on conveyance, employee transportation, petrol and diesel expenses, travel domestic allowance, vehicle hire expenses etc. Annexure-2 contains the details of traveling expenses amounting to Rs. 9,06,72,023/- which include name of employee and his designation who visited various places in India. All the details were examined by the Assessing Officer during the assessment proceeding, however, she has not given any finding as to which of the expenditure is not for the purposes of business of the assessee or have no direct nexus with the business of assessee. Assessee had hired various cabs at its various offices / factory and has provided facility of transportation (pick-up and dropping facility) to its employees on daily basis. Assessee has produced the vouchers showing payment to the travel agencies to whom the payment is made after deducting tax at source. Looking to the details furnish....
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....ided canteen facility to all its employees at various offices / factories situated in India. Group Medical Insurance Policy as well as Group Personal Accident Policy have also been taken on the lives of employees, contention of the appellant that in order to enhance productivity and efficiency of the work force, aforesaid facilities has been provided, cannot be rejected as it has direct nexus with the business activity of the appellant. The Assessing Officer has not examined as to which particular expenditure is not related to business activity. Hence the disallowance of Rs. 40,30,764/- is hereby deleted. I have also taken into consideration the comparative chart of expenses produced by the appellant for last five years and it appears that in AY 2006-07 to 2009-10, Assessing Officer has not made any addition by disallowing these expenditure even in assessment orders framed u/s 143(3) of the Income Tax Act. Hence Rule of Consistency also demands that no expenditure under these heads can be disallowed merely on the ground of personal user. Findings on disallowance of repairs and maintenance expenses: I have considered the assessment order passed by the Asse....
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....bsidiary company long back and this investment had been duly reflected in the Balance Sheet. It is also an admitted fact that in the FY 2002-03 relevant to AY 2003-04. appellant had provided a sum of Rs. 7.22.91.758/- in its Profit & Loss A/c on account of diminution in value of investment. However, the said provision had been offered for taxation in the computation of income and the same had been accepted by the Assessing Officer while framing assessment u/s 143(3) for the said AY 2003-04. Thereafter, appellant is regularly showing a sum of Rs. 1/- as investment in its Balance Sheet since AY 2003-04 and in none of the years, provisions of section 14A have been invoked by the Assessing Officer. In my opinion, provisions of section 14A are not at all attracted as the same are applicable when the assessee had claimed deduction of expenditure which had been incurred in relation to exempted income, against the taxable income. In the present case, assessee had not claimed any income as exempt. Expenditure incurred and claimed by the assessee is wholly and exclusively for the purposes of business, income of which has been shown as profit of the business and has offered for taxat....