AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 1301
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....he facts of the case in confirming the action of AO in disallowing Rs. 1,55,211/- u/s. 14A r.w.r.8D of the Income-tax Rules, 1962. 2. The learned CIT(A) has erred both in law and on the facts of the case hi confirming the disallowance of expenses and depreciation amounting to Rs.33,85,461/-. 3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of the AO of treating income from business and profession of Rs.66,563/- as income from other sources. 4. The learned CIT(A) has erred in law and on facts of the case in not adjudicating ground challenging initiation of penalty u/s.271(l)(c) of the Act. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 6. The learned CIT(A) has erred in law and on facts of the case in confir....
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....tention of the appellant is rejected. The appellant's other contention that he has not claimed any expenditure, is also not found acceptable for the reason that word used in section is 14A "expenditure incurred" and not the "expenditure claimed". It is a fact that no income can be earned without incurring any expenditure. To earn any income, some expenditure has to be incurred. The expenditure may be small fraction of the income or it may be higher than income resulting into loss. The expenditure incurred may be direct or indirect. The expenditure incurred may be hidden or may be apparent but to earn income, some expenditure has to be incurred. The appellant earned income of Rs.5,01,764/- which has been claimed as exempt. To earn this income, the appellant must have utilized some time, efforts and thinking. To deal with such situation, formula under rule 8D has been given to calculate disallowance. Looking to the above discussion, in the appellant's case, the A.O. is right in calculating the disallowance and the appellant did not point out any error in the calculation made by the A.O. Keeping in view these facts, additions of Rs. 1,55,211/- made by the A.O. are found as per....
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....hat no disallowance is called for under section 14A of the Act. 8. In the result, ground number 1 of the assessee's appeal is allowed for statistical purposes. Ground number 2: disallowances of expenses claimed in Stavya Spine Hospital (SG Road): 9. The brief facts in relation to this ground of appeal are that the assessee is practising medical professional and running a hospital in the name of Stavya Spine Clinic at Ellis Bridge, Ahmedabad. During the year under consideration, the assessee started a new hospital in the name of Stavya Spine Clinic at SG Road. The assessee claimed certain expenses in relation to the aforesaid new unit in the form of depreciation and other revenue expenses. The AO held that since the business of the assessee in respect for the new (hospital) unit had not commenced, the expenses incurred in relation to the same are to be disallowed. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: "6. The second ground of appeal is against the additions of Rs. 33, 18,898/- made by the A.O. by disallowing claim of loss in Stavya Spine Hospital (S.G. highway). During the course of assessment proceedings,....
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....een paid from the year 2012- 13. In this regard, it is noticed that the assessee has made payment of professional tax for the period 2012-13 to 2015-16_only in the year 2015 along with interest. The same has been paid on 24.04.2015, which Is evident from the copy of receipt furnished by the assessee, In addition to the tax amount, assessee has paid interest of Rs.809/-, Rs.563/- and Rs.203/- respectively for the F.Ys. 2012-13, 2013-14 & 2014-15. It is pertinent to note that the assessee has made the payment of professional tax as well as application for registration only after the issue of notice u/s. 143(2) of the Act, selecting his case for scrutiny assessment. Thus the assessee has made a clever planning to support its claim of expenditure/depreciation in Stavya Spine Hospital (SG Road) by obtaining necessary permissions to start the business from civic authorities in a later stage, in order to apprise the department that the intention of the assessee was to start business. If assessee's claim is admitted, the same can be allowed only from the year 2015-16, when the assessee has actually done some necessary formalities for starting the hospital activities. Assessee has not m....
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.... appellant are not identical with the facts of the cases cited by the appellant. Therefore, additions of Rs.33,18,898/- made by the A.O. are found factually and legally correct. Hence, these additions are confirmed, This ground of appeal is dismissed. 7. In the result, the appeal is dismissed." 10. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). Before us, the Ld. Counsel for the assessee submitted that so far as other expenses (other than depreciation is concerned) -which accounts for 14,16,147/- out of total expense of 33, 85, 461/-, the assessee's case is that the new hospital is an extension/expansion of the existing business of the assessee, and since the new hospital unit which was set up at SG Road is operated under common management and control, all the expenses are allowable in the case of the assessee. Further, the counsel for the assessee submitted that the AO has not doubted the genuineness of expenses and nor there is any allegation that the expenses are capital in nature. Accordingly, in the instant set of facts, the expenses are allowable as revenue expenditure. So far as the claim of depreciation is....
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....ew business but was only establishment of new unit of existing business. Therefore, interest paid by assessee on borrowings utilised for establishing new unit was revenue expenditure. In the case of Jay Engineering Works Ltd.166 Taxman 115 (Delhi), assessee-company was manufacturing fans and sewing machines at various units. It undertook a Fuel Injection Equipment Project in Hyderabad. Assessee claimed that pre-operative expenses incurred in relation to said project like testing charges, interest charges, bank commission, foreign travelling, etc., were in nature of revenue nature. Assessing Officer rejected assessee's claim holding that said pre-operative expenditure was in nature of expenses incurred in connection with setting up of a new line of business and, therefore, said expenditure was capital expenditure. New venture was managed from common funds; control over two units was in hands of same management and administration; and there was necessary unity of control leading to an inter-connection, inter-dependence and inter-lacing of two ventures. The High Court held that Fuel Injection Equipment Project was only an extension of existing business of assessee. Therefore, pre-....
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....ground that it was not connected to assessee's existing business or that it was pre-commencement expenditure for business of film production. In the case of Bell Ceramics Ltd.[2016] 73 taxmann.com 81 (Gujarat), assessee-company had an existing unit manufacturing glass at Baroda. For establishing a new glass manufacturing unit at Bangalore, company incurred expenditure on trial run. Assessing Officer held that Bangalore unit was not a branch of assessee's factory but was a new business and so impugned expenditure was not revenue in nature but a capital expenditure. The Gujarat High Court held that mere fact that Bangalore unit was situated many miles away from Baroda, was not of any consequence because assessee had head office at Baroda, which controlled affairs of both businesses in Baroda and Bangalore and therefore, expenditure incurred in expansion of existing manufacturing facilities was to be treated as revenue expenditure. In the case of Nicholas Piramal (India) Ltd.[2016] 69 taxmann.com 164 (Bombay), assessee-company was engaged in business of manufacturing pharmaceuticals, bulk drugs and glass bottles. During relevant year, assessee sought to expand its glass busine....
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.... was manufacturer of yarn and polyester for a number of years. It had been generating substantial cash from its existing business. With a view to utilize said surplus cash and to expand its existing operations, it commenced setting up of a spinning and weaving unit for manufacture of fabric and textiles during financial year 1995-96 in State of Karnataka. The said unit was part of process of vertical integration by utilizing products manufactured by existing units as raw material for new unit. For setting up new unit, assessee identified manpower from existing pool of resource. The unit was proposed to be established under common control of board of directors. In relation to setting up of said unit, assessee, from time-to-time, incurred expenditure in nature of salary, wages, repairs, maintenance, design and engineering fee and other expenses of administrative nature. However, assessee could not procure allotment of requisite land from Government of Karnataka and, therefore, setting up of said proposed unit was abandoned during relevant assessment year. The High Court held that assessee could be allowed deduction of project related expenses as revenue expenditure. In the case of Gr....
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....ment of interlacing before new venture and existing venture, and consequently, expenses had to be treated as revenue expenditure. The Delhi High Court held that in view of judgment in Jay Engg. Works Ltd. v. CIT [2009] 311 ITR 405/[2008] 166 Taxman 115 (Delhi), pre-capitalisation expenses would be treated as revenue expenditure. In the case of Euro India Ltd.[2014] 45 taxmann.com 173 (Delhi), the Delhi High Court held that if expenditure is incurred on obtaining feasibility report for expansion of existing business where there is unity of control and common funds, then such expenditure would be treated as business expenditure. In the case of Priya Village Roadshows Ltd[2009] 185 Taxman 44 (Delhi), the Delhi High Court held that expenditure incurred for preparation of feasibility report of a new project, which is in respect of same business which is already carried on by assessee, even if it is for expansion of business, namely, to start a new unit which is same as earlier business, and there is unity of control and a common fund, then such expenditure is to be treated as revenue expenditure. In the case of U.P. Asbestos Ltd.[2013] 37 taxmann.com 80 (Allahabad), the High Court held ....
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....ecedents on the subject, depreciation on such assets which are kept "ready to use" should be allowed to the assessee. Further, the counsel for the assessee submitted that during the year under consideration the assessee had received a sum of 66,563/- towards consultancy fees, which shows that the business of the assessee had commenced during the year under consideration. The counsel for the assessee submitted that the assets were purchased in the month of February 2013 and placed reliance on the case of Ashima Syntex Ltd 122 taxmann 230 (Gujarat), wherein the High Court held that the said position of law is that it is not necessary that the machinery must be used for a particular number of days so as to be entitled depreciation, but it requires that it should be used for the purpose of business or profession or vocation. The Counsel for the assessee submitted that lesser use of machinery, going by the electricity consumption for the impugned assessment year, is not conclusive to the fact that the machinery was not put to use. We are in agreement with the arguments of the counsel of the assessee to the effect that once the new hospital is an extension of the existing business,....