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TMI Blog2014 (12) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... htly held that gross profit earned from the trading division of the assessee is reasonable and has also examined the vouchers of purchase and sale of goods made by the assessee on a sample basis and has found it to be correct – Decided against revenue. Deletion made u/s 14A r.w. Rule 8D – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee had acquired the land at Ballabgarh in the year 1979 on which factory building was constructed and, accordingly, capitalized in the books on the year ending 31.3.1981 - repair expenses at the factory building only facilitated smooth functioning of the existing operations carried out at the factory – the expenditure cannot be to be capital in nature - an expenditure incurred on repair of building for the purposes of business, which is not capital in nature is allowable deduction under section 30 or 37(1) of the Act – as decided in CIT v. Sarvana Spinning Mills P. Ltd. [2007 (8) TMI 16 - SUPREME COURT OF INDIA] has held that if a repair expenditure does not fall within the meaning of ‘current repair’ u/s 30, but does not result in acquisition of any new capital asset, can be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Shri George George K,JJ. For the Appellant : Shri Ajay Vohara, And Ms. Gaurav Jain, Upvan Gupta, Advocates For the Respondent : Smt. Parwinder Kaur, CIT.DR ORDER Per Shri George George K, JM: 1. These are cross appeals directed against the order of the CIT (A) V, New Delhi, dated 19.11.2012. The relevant assessment year is 2007-08. 2. The effective grounds raised in the appeals of the Revenue as well as the assessee are as follows: ITA No.525/Del/13 Revenue s appeal: (i) That the ld. CIT(A) had erred in deleting the addition of ₹ 2,12,08,600/- being 10% of total manufacturing, trading and other expenses of ₹ 21,20,86,000/-; (ii) That the ld. CIT (A) had also erred in deleting the addition of ₹ 26,32,15,535/- made u/s 14A read with Rule 8D of I.T. Rules, 1962; (iii) That the ld. CIT (A) had erred in deleting the addition of ₹ 90,36,373/- made on account of expenditure incurred under the head repairs and maintenance . ITA No.207/Del/13 Assessee s appeal: (i) That the CIT (A) had erred in confirming the disallowance of notional administrative expenses of ₹ 3.58 lakhs u/s 14A of the Act allegedly rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had furnished item wise details of the trading division along with vouchers for purchase and sale thereof on sample basis, vide letter dated 30.03.2010. The details furnished by the assessee as per the CIT (A) direction was forwarded to the AO for his comments. The AO furnished a report vide his letter dated 30.04.2010. In the report, the Assessing Officer did not raise any objection to the assessee s case on merits but technical objections were raised by placing reliance on Rule 46A of the I.T. Rules, 1962. Admittedly, in this case, the books of account were accepted by the Assessing Officer and no adverse inference in maintenance thereof was pointed out. The entire expenses incurred during the year was duly vouched and supported by necessary documents. The Assessing Officer could not have made any ad-hoc disallowances without pointing out even a single instance of inflation of expenditure. Another reason, for making the above said disallowance was on account of low profit in trading division. As mentioned earlier, the gross margin was worked out on the basis of books of account which were duly audited and accepted as correct and complete. The gross profit with regard to sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment matters and that there may be one or two persons assigned this particular job. The AR of the appellant was asked to give details of the specific persons to which his reply has been that there has been only one person namely, Sri Sunil Harsh, Dy. Manager (Finance) who was looking after treasury activities of the assessee company comprising of inter alia raising of funds, investment in shares and other mode of investments like bonds, mutual funds etc., and that during the relevant previous year the appellant company had paid gross salary of ₹ 3.58 lacs to the aforesaid person. Without prejudice to the submission that no portion of the administrative and interest expenses can be disallowed; since the expenditure incurred had no direct relation with the earning of exempt income, it is only salary paid to the aforesaid persons which can be disallowed, if at all, on some reasonable basis . 5.1. Extensively quoting the ruling of the Hon ble Madras High Court in the case of Binny Limited v. ACIT [324 ITR 34 (Mad)], the CIT (A) had, further, observed as under: (On page 14) . (iv) It may be mentioned that on the issue of interest expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Tribunal in the assessee s own case for the assessment year 2006-07 wherein we have dealt with the matter elaborately and decided the issue in favour of the assessee. For ready reference, the relevant portion of our finding is reproduced verbatim as under: 11. We have heard both the parties and perused the material on record. Admittedly, the dividend which is exempt from taxation is earned on account of investment made in share in the earlier years. The additional shares allotted to the assessee s company in the current assessment year were on account of amalgamation of subsidiary companies. Therefore, no portion of the interest expenses incurred was in relation to investments in shares. As rightly pointed out by the CIT (A), the AO has not established any nexus between the investment and the borrowed funds. On the facts and circumstances of the case and perusal of the cash flow statement, the CIT(A) has categorically found that the assessee had enough interest free funds in the form of reserves and surplus and there was no relation between the interest expenditure and the dividend income. Therefore, disallowance of interest expenditure, by invoking the provision of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the submissions made therein be treated as the contentions of the assessee for the present assessment year too. 6.2. We have carefully considered the rival submissions and also perused relevant materials on record. It is a fact that similar issue to that of the issue under dispute was considered by us for the AY 2006-07 in the assessee s own case. As the issue under consideration is identical to that of the issue which we have elaborately dealt with for the AY 2006-07, we are of the view that the findings recorded therein hold-good for this AY also. In substance, the findings of the CIT (A) are sustained. For ready reference, our findings on the issue for the AY 2006-07 are reproduced as under: 16 It is a fact that the assessee had acquired the land at Ballabgarh in the year 1979 on which factory building was constructed and, accordingly, capitalized in the books on the year ending 31.3.1981 for an aggregate amount of ₹ 85,99,124/-. It was also a fact that since then the building was put to use in the course of business carried on by the assessee and for the continuous use of the building for a long period of over 20 years, the factory building had nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... add to the profit earning capacity of the factory, since the renovation in the factory had no bearing on increase in the profit earning capacity; such renovation only facilitated smooth functioning of the existing operations or profit earning capacity of the factory building, we are of the view that the expenditure being not capital in nature and having been incurred for the purpose of business, is allowable as revenue expenditure under section 30 or 37(1) of the Act. For the above proposition, we rely on the judgments of the Hon ble Supreme court in the cases of (i) Assam Bengal Cement Co. Ltd. v. CIT: 27 ITR 34 (SC); (ii) Empire Jure Co. Ltd. v. CIT: 124 ITR 1 (SC); (iii) CIT v. Associated Cement Companies Ltd.: 172 ITR 257 (SC); and (iv) Alembic Chemcial Works Co. Ltd. v. CIT: 177 ITR 377 (SC). 7. In the result, the Revenue s appeal is dismissed. 8. ITA No.207/Del/13 Assessee s appeal: (i) confirming the disallowance of notional administrative expenses of ₹ 3.58 lakhs u/s 14A of the Act: The CIT (A) had confirmed the disallowance of notional administrative expenses to the extent of ₹ 3.58 lakhs u/s 14A of the Act on the ground that the undersigned has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o direct relation with the earning of exempt income, it is only salary paid to the aforesaid persons which can be disallowed, if at all, on some reasonable basis [Source: Page 12 of the CIT s order]. Since the assessee itself had admitted that Sri Sunil Harsh was responsible for looking after the financial matter, such as raising of funds, investment in share, bond and mutual fund and that when a person was directly responsible to looking after and taking care of investment, it was only natural that the salary of Sri Sunil Harsh was part of administrative expenses which had direct bearing to the earning of exempt income, namely, dividend income. We are, therefore, of the view that the CIT (A) was justified in disallowing the sum of ₹ 3.58 lakhs being salary paid to Sri Sunil Harsh [as admitted by the assessee itself] under rule 8D(2)(iii) of I.T.Rules, 1962. It is ordered accordingly. (ii) Disallowance of of consultancy expenses of ₹ 20,36,319/-: 9. The CIT (A) had confirmed the addition of ₹ 20,36,319/- for the following reasoning: (On page 22) 7.2 .As noted above, whether an expenditure is capital in nature or it is revenue expenditure, no hard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act, any expenditure incurred wholly and exclusively for the purposes of business, other than, inter alia, capital expenditure is allowable business deduction; that the assessee was a promoter of Eicher Ltd and held business/controlling interest with that company. With a view to acquire complete control over that company, the assessee decided to acquire shares of Eicher Limited from Public shareholders and delist the same from Stock Exchanges thereafter. Further acquisition of shares in subsidiary company to strengthen controlling interest in such company was in furtherance of the business of the assessee i.e., holding investments in operating companies. Accordingly, expenditure in relation thereto would be regarded as being incurred for the purposes of business which is allowable deduction u/s 37(1) of the Act. 9.2. To strengthen his argument, the ld. AR had placed reliance on the following case laws, namely: (i) Addl. CIT v. Laxmi Agents (P) Ltd 125 ITR 227 (Guj); (ii) CIT v. Amritaben R Shah 238 ITR 777 (Bom); (iii) Srishti Securities (P) Ltd v. JCIT 321 ITR 498 (Bom); (iv) CIT v. Premier Poly Sacks 321 ITR 450 (Mad); (v) CIT v. Srishti Securiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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