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TMI Blog2016 (9) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961 ['the Act' for short] at a total income of Rs. 1,51,04,807/- after making several disallowances. One of those disallowances relates to expenditure incurred on renovation of showroom of Rs. 17,18,671/- treating it capital expenditure allowed depreciation at 10%. He also made addition of Rs. 29,02,161/- as deemed dividend under section 2(22)(e) of the Act. The AO also disallowed deduction under section 80IA(5) of the Act as, according to the AO, after setting off of brought forward loss, there was no eligible profit for deduction u/s 80IA of the Act. 3. Being aggrieved, assessee filed an appeal before the CIT(A) who, vide impugned order, allowed grounds of appeal in respect of addition of deemed dividend and 80IA deduction. However, confirmed the other two additions. 4. Being aggrieved by that part of the CIT(A)'s order which is against the assessee, assessee is in appeal in ITA No.1004/Bang/2015 and raised the following grounds of appeal: 1. The order of the A.O is against the fact and circumstances of the case, against the judicial pronouncements and bad in law. 2. On the facts and circumstances of the case and in law, the A.O erred in making the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incurred under this head represent as false ceiling, flooring, wooden partition, painting etc. which are in the nature of repairs. The expenditure does not create an asset. Therefore, according to him, expenditure should be allowed as revenue expenditure. In support of this submission, he relied on the following decisions: i. Mercantile And Marine Services vs. CIT (233 ITR 257) ii. CIT vs. Associated Cement Companies Ltd. (172 ITR 257) iii. CIT vs. Lucent Technologies Hindustan Ltd. (345 ITR 407) 8.2 On the other hand, learned Departmental Representative relied on the orders of the lower authorities. 8.3 We heard rival submissions and perused material on record. It is undisputed fact that the assessee has incurred expenditure in respect of leased premises. This expenditure was incurred on false ceiling, floor, painting etc. This expenditure has not resulted in creation of any new asset. Mere fact that expenditure resulted in enduring benefit cannot alone be the criteria to decide whether expenditure is capital or revenue. The principles laid down by the Hon'ble Supreme Court in the case of CIT vs. Madras Auto Services Pvt. Ltd. (233 ITR 463) are as follows: (1) outlay is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of Karnataka in the case of Swarnagiri Wires Insulation Ltd., where it was held that the carried forward loss of the eligible business was required to be set-off first against the income of the subsequent years of eligible business while determining the profits eligible for deduction U/s. 801A of the Act and addition made on the ground of disallowance for deduction U/s. 801A was dismissed. 4. Any other ground that may be taken during the appeal. 5. The appellant craves leave to add, alter, amend and delete any of the grounds of leave. 11. Grounds No.1, 4 and 5 are general in nature and do not require any adjudication. 12. Ground No.2 relates to direction of the CIT(A) deleting the addition of deemed dividend. Facts surrounding this ground of appeal are as under: 12.1 During the course of assessment proceedings, the AO noticed that the assessee received loans from the company M/s.Bellad & Co. Pvt. Ltd., The partners of the assessee-firm viz., S/Shri Arvind Bellad, Chandraknt Bellad and Smt.Leelavati Bellad are also the shareholders of M/s.Bellad & Co. Pvt. Ltd., holding substantial interest. The AO found that as at the end of the accounting year, an amount of Rs. 29,02,161/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der and not in the hands of the concern. The relevant part is extracted below: "30. It was also contended on behalf of the revenue that having regard to the plain words used in clause (e) 'to any concern', when the amount is paid or when any payment is made to a concern, the tax is levied on the concern and not on the shareholders. As far as this question is concerned, this Court following the judgment of the Bombay High Court in the case of Commissioner of Income Tax vs Universal Medicare (P) Limited reported in 324 ITR 263 has categorically held that when any payment is made by a company to any concern, which falls under clause (e), the tax is leviable on the shareholder only and not on the concern. We respectfully agree with the aforesaid judgment and we do not see any justification to take another view of this matter. Therefore, the finding recorded by the Tribunal that, these advances made by the BDPL to the sister concern as well as to its shareholder do not constitute deemed dividend under section 2(22)(e) of the Act, is legal and valid and do not call for any interference. " Respectfully following the above decision, we hold that deemed dividend cannot be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year against the other income, the revenue cannot rework the set off amount and bring it notionally. In coming to the decision as above the ITAT Bangalore placed reliance on the decision of the Hon'ble High Court of Madras in the case of Velayudhswamy Spinnin Mills P Ltd Vs. ACIT and CIT Vs. Mohan Breveries & Distelleries Ltd. 340 ITR 477 wherein it has been held that loss in earlier year to initial assessment year already absorbed cannot be notionally brought forward and set off against profits of eligible business. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set of against other income of the assessee and the set off against the current income of the eligible business. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. The AO however rejected the contention of the appellant following the decisions in ACIT Vs. Goldmine Shares & Finance Pvt. Ltd. 2008 (ITAT SB-Ahd.)113 ITD209 and CIT Vs. Indian Farmers Fertilizers Co-operative Ltd (Del) 197 Taxman 204. It is also stated by the AO that this is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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