TaxTMI 
TaxTMI 
2010 (9) TMI 1285
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....sment Year 2006-07 by treating it as revenue expenditure and not capital expenditure as held by the Assessing Officer. Facts in brief as observed by the Assessing Officer for Assessment Year 2005-06 are that at the time of scrutiny, the assessee was asked to produce details purchase of stores and spares. Perusal of the details reveal that during the year the assessee had claimed purchase of 'Rolls' as revenue expenses under the head 'stores & spares'. As per provision of Income-Tax Rules, Rolls in iron & Steel Industries are eligible for depreciation @ 80%. When confronted with such finding the assessee relied on the decision of the court in the case of Malhotra Industries Corporation (Madras) 254 ITR 635. The Assessing Officer was of the view that the court in a terse order precluded the Revenue from referring the issue of depreciation as no such question was referred to in the memorandum of appeal. Thus, only on technical issues the appeal of the Department was turned down. Hence, the case is not applicable & 80%/40% depreciation will only be allowed on purchase of 'Rolls' in the case of the assessee. He thus, arrived at the conclusion that considering the high rate of wear and t....
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....he order passed by the Ld. CIT(A) may kindly be set aside and that of Assessing Officer be restored. 5. On the other hand, the Ld. Counsel for the assessee while reiterating his same submissions as submitted before the Ld. CIT(A) further placed reliance on Explanatory Notes, Second Edition (1996) Volume 3 on Harmonized Commodity Description & Coding System (Relevant part of the notes has been filed) and submitted that rolls for rolling mills are parts of the machinery which are replaced from time to time during the year itself and do not give rise to any asset or an advantage of any enduring nature which could be treated as capital expenditure liable for depreciation. For making this submission, he placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. Saravana Spinning Mills P. Ltd. (2007) 293 ITR 201 (SC) and further placed reliance on the following decisions : i) CIT Vs. Malhotra Industrial Corporation (2002) 254 ITR 635 (P&H), ii) CIT Vs. Mysore Spun Concrete Pipe Pvt. Ltd. (1992) 194 ITR 159 (Kar) and iii) CIT -Vs- Renu Sagar Power Co. Ltd. (2008) 298 ITR 94 (All) To meet the argument of the Ld. DR that since as per provision of I. T. Rules rol....
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....n replacement of rolls as revenue expenditure Up to the assessment year 1991-92, the Department has allowed the same as deduction. In none of the earlier assessment years, the expenditure was treated as capital expenditure Now, the only issue before us is that the mere fact that the Appendix cited supra prescribed the rate of depreciation of rolls prior to September 30, 1991, as 100 per cent and thereafter at 50 per cent would show that the Legislature had intended to treat the same as capital in nature We are unable to accept the reasoning given by the Commissioner of Income-tax (Appeals) that if the intention of the Legislature was not to treat such expenditure as capital in nature, there was no necessity in providing the rate of depreciation on the rolls for the simple reason that expenditure incurred on rolls prior to the commencement of the business would be capital in nature. Therefore, it is necessary to provide the rate of depreciation on rolls so that depreciation at that rate could be allowed to the assessee. But it does not mean that expenditure incurred on replacement of rolls subsequent to the commencement of the business would also be a capital expenditure. The judgme....
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....entitled to claim deduction as current repairs. In this view of the matter, we set aside the orders of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to allow deduction on the replacement cost of rolls as current repairs Accordingly, this ground of appeal is allowed for both the assessment years." The Hon'ble Supreme Court in the case of CIT -Vs- Saravana Spinning Mills P. Ltd. (Supra) at page 208 has observed as under : "To give an example, a compressor is an important part of an air-condition machine. Repair of the compressor will come in the connotation of the word "current repairs" in section 31(i) of the said Act because the assessee does not replace the air-condition machine. At the highest, he replaces a part of the air-condition machine. So is the case of the picture tube in a television set, when the picture tube is replaced the television set is not replaced, therefore, such repairs alone can come within the connotation of the word "current repairs" in section 31(i) of the said Act as it stood at the material time." In the case of CIT -Vs- Mysore Spun Concrete Pipe Pvt. Ltd. (supra), the Hon'ble Karnataka High Court has held as under : "....
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....with the view taken by the Commissioner (Appeals) and held in favour of the assessee." In view of the above, we find no infirmity in the orders of the Ld. CIT(A) in deleting the additions for both the assessment years. Therefore, the grounds of appeal of the revenue for both the assessment years are dismissed. 7. Ground Nos. 2 and 3 for both the assessment years relate to deletion of additions on account deemed dividend u/s. 2(22)(e) of the Act. Briefly stated facts of the case as observed by the AO are as under : "Examination of the accounts also revealed that the assessee during the year had taken a loan of Ps. 5,45,00,000/- from M/s Bazaloni Group Ltd. In order to investigate further in this matter the assessee was asked to submit shareholding pattern of both the companies. Comparison revealed that both were sister concerns sharing common director/promoters. Hence, in the requisition dated 06. 10.08 it was pointed out, "In reply to my query raised in respect of applicability of section 2(22)(e) of the Act on acceptance of loan by the assessee from M/s. Bazaloni Group Ltd., please submit names of the Directors with their shareholding ratios and also mention other major (10% ....
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....t the assessee, in itself, was not a company in which the public are substantially interested. The status of the assessee was dependent upon the status of other companies holding its shares. It was observed that only M/s Soyuz Trading Co. Ltd., M/s Rishi Trading Co. Ltd. and M/s. Penrose Mercantile Ltd., among shareholders, were quoted companies. Total 31.72% of shares of the assessee company was held by these three companies. Clearly, this fell much short of criteria set out in section 2(18)(b)(B) of the Act. The A/Rs further argued that M/s Jindal Photo Investment Ltd., which was holding 11.99% of shares of the assessee company, was a 100% subsidiary of M/s. Consolidated Finvest & Holding Ltd. And M/s Consolidated Finvest & Holding Ltd. being a quoted company, the assessee claimed the status of being a substantially interested by virtue of provision u/s 2(18)(b)(B)(c) of the Act. The arguments of the assessee, share holding patterns and section 2(18)(b)(B)(c) of the Act and Explanation, thereof was exhaustively perused. It was also observed that directly none of the companies, i.e., M/s. Bazaloni Group Ltd. and th assessee, met the criteria of being widely held companies. F....
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....of Rs. 5,24,80,60/-, addition on account of deemed dividend in the hands of the assessee is restricted to the sum of Rs.5,24,80,600/" Likewise in respect of Assessment Year 2006-07 on the same analogy the Assessing Officer made the addition of Rs.18,32,228/-. In appeal, the Ld. CIT(A) deleted both the additions of Rs.5,24,80,660/- and Rs.18,32,228/- for Assessment Year 2005-06 and 2006-07 respectively made on account of Deemed Dividend. Aggrieved by the said order, now the revenue is in appeals before us. 8. At the time of hearing before us, the Ld. DR relied on the order of the Assessing Officer and urged before the bench to set aside the order of the Ld. CIT(A) and restore that of the Assessing Officer. 9. On the other hand, the Ld. Counsel for the assessee, while reiterating his same submissions as submitted before the lower authorities relied on the order of the Ld. CIT(A). 10. After hearing the rival submissions and perusing the material available on record, we find that the Ld. CIT(A) while deleting the addition of Rs.5,24,80,660/- for Assessment Year 2005-06 has observed as under : "I have gone through the assessment order and the reasons stated by the assessing offic....
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....re held by two companies who were subsidiaries of the holding company which interim was a listed Company. The two companies holding more than 50% shares of the company were to be treated as a Company in which the Public were substantially interested. The two Companies, even though they were limited companies subsidiaries of the holding company, (the holding company being a Company in which the Public were substantially interested) were also to be treated as Companies in which the Public were substantially interested. This relevant observations of the Gujarat High Court on this issue appears at page 273. Further, of the ITR quoted above the Gujarat High Court observed that it is an admitted position that between in quotations (P B. Investments and Trusts Ltd. and K. B. Investment Ltd.), the two companies in question hold more than 50% of the share capital of the assessee company and were held to the companies to which Sections 2(18)(b)(B)(c) of the Act applies. This, being the case, so far as the Assessee Company is concerned, is not less than 50% of the shares having been unconditionally allotted to P.B. Investments and Trust Ltd. and K.B. Investment Ltd. together and since P.B. In....