2018 (7) TMI 2349 - HC - Income Tax

Nature of expenses - expenditure incurred by the assessee on repairs etc. - capital expenditure or revenue expenditure - HELD THAT - It is required to be noted that the property in question in which the aforesaid work was done is a leased property. In the case of Empire Jute Co. Ltd. 1980 (5) TMI 1 - SUPREME COURT as held that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may nonetheless, be on revenue account and the test of enduring benefit may break down. If the advantage merely facilitates the assessee s trading operation or enabling the management to conduct the assessee s business to be carried on more effectively or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure of an indefinite future. Considering the expenditure incurred in the present case for for plastering, flooring, replacement of doors, electrical fittings, plumbing, laying sheets and roofs, resurfacing road, etc. the same can be said to be incurred to preserve and maintain an already existing unit. Under the circumstances, the learned ITAT has rightly held the aforesaid expenditure incurred as revenue expenditure and has rightly allowed the deduction as claimed by the assessee. Decided in favour of assessee. Addition made u/s. 40(a)(ia) - HELD THAT - Similar disallowance was deleted by the learned CIT(A) which came to be confirmed by the learned ITAT and the same has attained finality. Under the circumstances, no error has been committed by the learned ITAT in confirming the deletion of the addition made u/s. 40(a)(ia) of the Act. No substantial question of law arises. Transfer Pricing Adjustment - Addition of guarantee commission - ITAT deleted addition - assessee has borrowed the money on interest of 12.25% per annum as against interest of 15% quoted by the Bank - HELD THAT - The guarantee commission of 0.75% paid by the assessee, the total cost of borrowing comes to 13% which is still lower than the rate of 15% quoted by the Bank. This in itself justifies the payment of guarantee commission. F FAA has given a categorical finding in relation to similar transactions in earlier assessment year, where no adjustment was made by the AO / TPO. Another undisputed fact is that the operating margin of the assessee company is at 18.21% which is much better as compared to the average margin of 10.36% of the other comparables. On this account also, the payment of guarantee commission is justifiable - ITAT committed no error in deleting the addition made on account of Transfer Pricing Adjustment - Decided in favour of assessee.

Summary

Issues:
1. Determination of expenses as revenue or capital expenditure.
2. Deletion of addition under Section 40(a)(ia) of the Act.
3. Deletion of addition on account of Transfer Pricing Adjustment.

Analysis:
1. The appellant challenged the order of the Income Tax Appellate Tribunal regarding the nature of expenses incurred for renovation of a factory building. The appellant argued that the expenses should be treated as capital expenditure, while the respondent contended that they were revenue expenditure. The court referred to relevant case laws and concluded that the expenses were incurred to preserve and maintain the existing asset, making them revenue expenditure. The court upheld the decision of the ITAT, stating no substantial question of law arose in this regard.

2. The appellant contested the deletion of an addition made under Section 40(a)(ia) of the Act. The court noted that similar disallowances were previously deleted and upheld by the ITAT, which had attained finality. Consequently, the court found no error in confirming the deletion of the addition under Section 40(a)(ia) and ruled that no substantial question of law arose.

3. The appellant disputed the deletion of an addition on account of Transfer Pricing Adjustment. The court considered the observations of the ITAT regarding the justification for the payment of guarantee commission and the operating margin of the assessee company. The court found no error in the ITAT's decision to delete the addition based on the facts and circumstances presented. Consequently, the court ruled that no substantial question of law arose in this regard.

In conclusion, the court concurred with the orders passed by the CIT(A) and ITAT, dismissing the present appeal as no substantial questions of law were found to warrant further consideration.