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TMI Blog2014 (12) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 1962." 3. The facts in relation to the first ground are as follows:- The assessee, a limited company, was engaged in the business of trading various furnishing items through its retail outlets. In the trading division, the assessee's total sale was Rs. 1285.85 lakhs, against which, net profit declared was Rs. 456.15 lakhs. The Assessing Officer, in the course of scrutiny assessment, compared the profit of the aforesaid trading division with net profit achieved by other business carried on by the assessee, namely, manufacturing and trading of maps and guides and export business. Since there was a low profit in trading business, the Assessing Officer raised various queries to the assessee to justify its low profit in the trading division. The assessee filed details comprising of purchases made during the year, justification of low net profit on account of heavy indirect expenses and division-wise profit and loss account for the relevant year ending. The Assessing Officer was not satisfied with the reply of the assessee and sought to verify the profit ability of trading division through furnishing of purchase and sale vouchers of each single item traded in the trading divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of 31.57% from sale-purchase of goods in the trading division during the relevant previous year. This substantiates the assertion of the appellant that the goods were sold by the assessee at profit only. The loss has been suffered by the assessee due to incurring of various indirect expenses in the nature of heavy rent of retail outlets opened at posh localities and at prominent locations commanding higher rent, other indirect expenses in the nature of salaries, advertisements, routine management and administration expenses aggregating to 407.22 lacs. The details of these expenses incurred during the year were also submitted by the assessee during the course of assessment proceedings. The assessing officer has not raised any doubt on same or has not even pointed out a single instance of unvouched/ inflated expenditure. The results of the trading division have been arrived at on the basis of books of account which are duly audited and no adverse inference in maintenance thereof has been pointed out by the auditors. The assessing officer has also not pointed out any defect in maintenance of books of account nor rejected the same and has finally completed the assessment on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account which were duly audited and accepted as correct and complete. The gross profit with regard to sale and purchase of goods in the trading division was at rate of 31.57% and there were various in direct expenses in the nature of high rental for retail outlets in prominent location. This had pushed down the net profit rate. The CIT (A) has categorically found 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 same is to be correct. These findings of the CIT (A) has not been dispelled by the Revenue placing any material/ documents. Therefore, we see no reason to interfere with the order of the CIT (A). Accordingly, we dismiss this ground of the Revenue. 7. As regards the second ground, namely reducing the addition u/s 14A to Rs. 1,26,710/- from Rs. 33,23,000/-. The facts in brief are as follows. In the computation statement filed along with the return of income, it was noticed by AO that assessee has earned dividend income of Rs. 4,47,30,053/-, which has been claimed as exempt u/s 10(33) of the IT Act. The assessee was asked to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Total disallowance 33.23 lakhs 9. Aggrieved by the disallowance of interest and administrative expenses, the assessee filed an appeal before the CIT(A). The CIT (A) reduced the disallowance made u/s 14A to Rs. 1,26,710/- being 0.05% of the average value of the investment in shares. The relevant finding of the CIT (A) reads as follows:- "5.3. I have carefully considered the assessment order as well as the contentions raised by the appellant in the written submission. The appellant has contended that no borrowed funds was used for the investments and moreover the investments were made in earlier years and the increase in investment in shares was by virtue of shares of certain companies which vested with the appellant co on amalgamation. The A.O has also riot established any nexus between the investment and borrowed funds. On the basis of cash flow statement, it is observed that the appellant has enough interest free funds in the form of reserves and surplus. The additional investment during the year is only Rs. 7.02 lacs. Therefore after consideration of the entire facts of the case, am unable to confirm the addition of interest apportioned to dividend income by the A.O of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om A.Y. 2008-09. The CIT (A) had, however, held that some administrative expenditure is relatable for earning of dividend income. The CIT (A) calculated the disallowance at 0.05% of the average value of investments in shares (2,534.21X.05%) which works out to Rs. 1,26,710/-. This estimation of administrative expenses relatable to the earning of dividend income is reasonable and justifiable on the facts and circumstances of this case. Therefore, we find no infirmity in the order of the CIT (A), warranting our interference. It is ordered accordingly. Assessee's appeal - ITA No. 5089/12 The effective revised grounds raised by the assessee read as follows: i) That the Commissioner of Income Tax (Appeals)-V, New Delhi has grossly erred on facts and in law in confirming the disallowance of repair and maintenance expenses related to building and office equipment to the tune of Rs. 19,94,640/- alleging the same (as) capital expenditure. ii) That the Commissioner of Income Tax (Appeals)-V, New Delhi has grossly erred on facts and in law in confirming the disallowance u/s 14A to the tune of Rs. 1,26,710/- being 0.05% of the average value of investments in shares. 12. With reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en held to be capital expenditure in the said decision. 14. The contentions/submissions of the assesse before us, briefly, are as under: Ø That the factory building was constructed way back in 1981 and since the building was in continuous use during the course of business activity for over two decades, certain repairs and alterations required to be effected for smooth functioning of the existence business operation. Accordingly, a sum of 6.84 lakhs was incurred on the building which was quite nominal and the same required to be allowed as revenue expenses; With regard to the expenses on software licenses, it was contended that - Ø It was for up-gradation of existing software or purchasing of new licenses for additional users of existing softwares 15. In view of the above, it was submitted that the expenses claimed being legitimate revenue expenses, the same is required to be allowed as deduction. On the other hand, the learned DR supported the stand of the authorities below in rejecting the assessee's claim. 16. We have carefully considered the rival submissions. It is a fact that the assessee had acquired the land at Ballabgarh in the year 1979 on which fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing nature in the capital field or adds to the profit earning apparatus of an assessee. Since the expenditure incurred by the present assessee on the existing factory building did not - (i) result in acquisition of any new capital asset, in as much as, the building was old and had already stood capitalized in the books for the year ending 31.3.1981 and (ii) even 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) . 17. In respect of e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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