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TMI Blog2014 (10) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... made on account of depreciation of Guest House ignoring the fact that depreciation is not allowable on Guest House as upheld in the case of CIT vs. Ponni Sugar & Chemicals Ltd., 260 ITR 605 (Mad.) and Britannia Industries Ltd. vs. CIT, 278 ITR 546 (SC). 4.0 The Ground No. 5 of the Revenue is treated as Ground No. (iii) of the Revenue which reads as under:- (iii) The ld. CIT(A) has erred in deleting the addition of Rs. 68,09,000/- made on account of non-inclusion of Excise Duty in the closing stock u/s 145A of the I.T. Act, 1961 ignoring the decision relied upon by the AO in the case of CIT vs. British Paints India Ltd., 188 ITR 44 (SC) 5.0 The Ground Nos. 6 and 7 of the Revenue are treated as Ground No. (iv) of the Revenue which is related to only one issue i.e. deletion of addition of Rs. 1,37,45,680/- for computation of book profit u/s 115JA, relatable to interest and other expenses shown as non-taxable asset. 6.0 The Ground No. 8 of the Revenue is treated as Ground No. (v) of the Revenue which reads as under:- (v) The ld. CIT(A) has erred in deleting the addition made on account of Long term capital loss of Rs. 73,59,094/- by accepting the additional evidence without giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitability while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future.'' 10. The ld. AR further placed reliance before the ld. CIT(A) as under:- (i) Panipat Cooperative Sugar Mills Ltd. vs. CIT ,108 ITR 111 (P&H). (ii) CIT vs. Venkateswara Hatchery (P) Ltd. 27 ITR 116 (A.P.) (iii) CIT vs. Chemaux Ltd., 74 Taxman 201 (Bom.) (iv) L.H. Sugar Factory Oil Mills (P) Ltd. vs. CIT , 125 ITR 293 (SC) 11. The ld. CIT(A) deleted the addition made by the AO by following observation. ''4.5 I therefore, hold that expenditure incurred on repair of roads by appellant is revenue expenditure and allowable u/s 37. AO is not justified to make disallowance of Rs. 32,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 3 is thus allowed.' 14. Apropos Ground No. (iii) of the Revenue in respect of non-inclusion of Excise Duty in the closing stock. The brief facts of the case are that the assessee valued its closing stock as per consistently followed practice of excluding the Excise Duty element of valuation of closing stock. The AO increased the closing stock of the assessee by following observations. ''05 ........ As per Note No. 9 of Schedule 19(B) of accounting policy the Excise Duty liability amounting to Rs. 68.09 lacs on Cement Product but not dispatched from the factory has been provided and not included in the value of the finish good. In response of the query the assessee vide annexure 7 letter dated 21-02-2003 have also admitted that during the year under consideration we have not included the Excise Duty amounting to Rs. 68.09 lacs in the value of the closing stock of the Cement as silo as the same was not debited to P&L a/c. Finance Act, 1998 inserted a new clause 145 w.e.f. 1-4-1999 the valuation of inventory for the purpose of determining the income chargeable under the heads profits of business and profession included in any tax, duty, cess or fees actually paid incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 43B of the Act read with first proviso thereto. Thus, in view of the above, there would have been no addition even as per the contentions raised.'' The ld. CIT(A) found the assessee's contentions as correct that entire amount of Excise Duty on closing stock was paid before due date of filing of return and he deleted the addition by following observation. ''6.3 In this case statutory auditors have certifie4d that even though provision for Excise Duty has not been made on closing stock, the same has no impact on profit for year. Appellant also explained before AO that in any case the entire amount of Excise Duty on closing stock was duly paid before due date of filing of return. In such a situation, AO is not justified to make addition of Rs. 68,09,000/- and same is directed to be deleted. Ground No. 4 is thus allowed.'' 16. Apropos Ground No. (iv) of the Revenue (i.e. Ground No. 6 & 7 as mentioned by the Department) is in respect of book profit calculation amounting to Rs. 1,37,45,680/-. The brief facts of the case are that the assessee company earned dividend income on shares amounting to Rs. 1,82,700/- which was exempted u/s 10(33) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the office expenses and administrative on this account disallowed Rs. 1.5 lacs and added back to the total income of the assessee. Accordingly total amounts as per para (a) (b) and (c) as discussed above are disallowed to the tune of Rs. 1,37,33,680/-'' 17. Before the ld. CIT(A), the assessee contended as under:- ''8.2......b. investment in the tax free bonds of NTPC was made in financial year 1992-93 and equity shares of IDBI in financial year 1995-96. During these two years appellant earned profits of Rs. 57.03 lacs and Rs. 4137.98 lacs respectively. The appellant also declared dividend in these years. Thus it was argued that investment was made out of profit and not from borrowed funds. c. The total interest free funds constituting share capital plus reserves and surplus amounted to Rs. 385.87 crores as on 31-03- 2000 and Rs. 185.84 crores as on 31-03-1999. Therefore, the own funds of appellant company were far in excess of the investment made of Rs. 4 crores. d. M/s. Karvy Consultants were appointed for consultation on Secretarial matters and no amount was paid to them on account of investment in shares.'' 8.3 Appellant also placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to them in respect of investment of appellant company in shares. There is no justification for disallowance of Rs. 4,69,627/- made to M/s. Karvy Consultants. 8.11 Provisions of Section 14A apply only when there is actual expenditure in relation to an exempt income. It does not create any legal fiction to treat any expenditure as incurred in relation to exempt income on estimate basis. This view derives support from decision of Hon'ble ITAT Mumbai Bench in the case of ACIT vs. Claridges Investments & Finance (P) Ltd. (2007) 18 SOT 390 (Mum.) Similar view was held by Hon'ble ITAT Delhi Bench in the case of ACIT vs. Eicher Ltd. (2006) 101 TTJ 369 (Del.) and Hon'ble ITAT Mumbai Bench in the case of DCIT vs. B.S.E.S. Ltd. (2008) 113 TTJ 227 (Mumbai). 8.12 I, therefore, hold that there is no justification for disallowance of interest of Rs. 1,31,24,053/-, administrative expenses of Rs. 4,69,627/- and office expenses of Rs. 1,50,000/- by AO. The disallowance are directed to be deleted. Ground No. 6 is thus allowed.'' 18. By Ground No (v), (i.e. Ground No. 8 as per grounds of appeal of the Department ) the Revenue has agitated the issue that the ld. CIT(A) has acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court decision in the case of CIT vs. Panadian Chemicals Ltd. (supra), the decision has been rendered in the backdrop of the subsidy and the road in question was a new road It is a conversion of WMB Road that existing asset has been converted into a concrete road. This new asset came into existence. The ld. CIT(A) has rightly appreciated the facts and circumstances of the case and catena of case laws and the ld. AR has relied on Hon'ble Apex Court judgement in the case of Empire Jute Co. Ltd. vs. CIT, 124 ITR 1 wherein the Hon'ble Supreme Court categorically laid down that any expenditure though may be for enduring benefit if incurred for augmenting revenue generating apparatus of the assessee's business is to be allowed as a Revenue expenditure. It is undisputed fact that the assessee's premises is involved with huge and heavy vehicle traffic movement and having the proper road and its maintenance will increase the efficiency of movement of raw materials as well as clearance of finished goods. Therefore, there is no infirmity in the order of the ld. CIT(A) which deserves to be upheld on this issue. 26. Apropos 2nd issue about depreciation on guest house, ld co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sle free. This had impact on profit earning potential due to ease of transportation. We are of the view that Hon'ble Supreme court judgment in the case of Empire Jute Co.(supra) has been rightly applied by ld. CIT(A). Hon'ble court laid down that it is not every advantage of enduring nature derived by assessee which is to be held as capital and not revenue in nature. If the advantage results in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitability, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. We find further merit in the plea that no new asset came into existence in as much as the WBM road was already in existence and a concrete road instead of metal road resulted by this expenditure. Thus the existence of old asset i.e. road continued with better physical properties. Since no new asset came into existence the expenditure becomes one of patently revenue nature. In view of these observations and relying on the catena of other case laws cited by assesse, we see no infirmity in the order of ld CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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