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TMI Blog2020 (10) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that the Foreign Travel expenditure incurred by the appellant amounting to Rs. 17,42,595/- cannot be stated as wholly and exclusively for the business of the appellant and thus not allowable under Section 37 of the Act? 2) Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in holding that the expenditure and overseas payment of Rs. 19,55,555/- paid to M/s Stehlin & Associates, Paris in connection with acquisition of M/s. Belair, France is a capital expenditure and therefore, not an allowable expenditure under Section 37 of the Act? T.C.A.No.11 of 2019: (1) Whether on the facts and circumstances of the cases the Appellate Tribunal was right in law in remitting the issue with regard to the disallowance of expenditure incurred under the head Repairs and Maintenance without any finding or conclusion? (2) Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in not considering the fact that what was replaced is only the operating system of the machine and not a replacement of a new machine and hence the expenditure is a revenue expenditure? 3. The assessee is in the business of manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. With regard to the balance amount of Rs. 17,42,595/-, the same were disallowed stating that the same was to promote the business of the subsidiary company and not of the assessee. With regard to the addition made by the assessing officer for legal and professional charges, the CITA sustained the disallowance of expenditure of Rs. 19,55,555/-, but deleted the addition of Rs. 1,77,984/-. Aggrieved by the order passed by the CITA dated 04.09.2014, the assessee preferred appeal before the Tribunal. The appeal was dismissed by the impugned order. 8. With regard to the claim made by the assessee regarding expenses incurred towards 'repairs and maintenance' of machinery, which is subject matter of T.C.A.No.11 of 2019, the assessing officer came to the conclusion that the expenditure incurred for importing and erecting the Holroyd Dual Type PC Technology is a capital expenditure and disallowed the same. However, depreciation was allowed by the assessing officer. 9. Before the CITA, the assessee provided details with regard to the said machine and after considering all the material, the CITA found on facts, that the operating system of the machine was only replaced and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and it has to be treated as expenditure incurred for the business of the assessee company amounting to Rs. 15,04,203/-. With regard to the other expenditure amounting to Rs. 17,42,595/-, the CITA stated that those expenditure cannot be stated as exclusively and wholly for the business of the assessee and it is more in the interest of the subsidiary company at China and the assessee should have apportioned the major expenditure of foreign travel to the subsidiary. We find that the CITA did not give any specific reasons as to how he came to the conclusion that the other expenditure amounting to Rs. 17,42,595/- cannot be stated as exclusively and wholly for the business of the assessee. The finding is cryptic as it is not borne out by any reasons or based on factual analysis. If the CITA was of the opinion that a few of the expenses incurred by the assessee were permissible and allowable as deduction, then, reason should have been set out as to why the other expenses should not be also allowed as a deduction?. This would be sufficient for us to interfere with the finding of the CITA. The CITA failed to note that the following expenses, which were incurred by the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by the Tribunal, is erroneous. 19. With regard to the second issue pertaining to expenses paid to M/s Stehlin and Associates, Paris, France in connection with acquisition of M/s Belair, France, the assessee furnished breakup details before the assessing officer with regard to payments made to M/s Stehlin & Associates, for the services rendered by them which included translation, documentation, corporate matters and associated filing, the assessing officer opined that the expenditure was incurred towards acquisition of a French company and it is not related to the assessee's business earnings and income and the expenditure was incurred in connection with the new unit feasibility and acquisition of a capital asset and not allowable under Section 37(1) of the Act. 20. Before the CITA, the assessee contended that they paid the fees to the Overseas Consultancy Firm towards services and market survey in Asia and Southafrica incurred by the foreign company in India. The details regarding legal and professional charges were also onceagain placed before the CITA and submitted that these expenditures being part of regular business expenditure to facilitate the acquisition and smo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Division Bench, reliance was placed on the decision of the Full Bench of the Hon'ble Supreme Court in CIT Vs. Malayalam Plantations Ltd., reported in [1964] 53 ITR 140 (SC), the Judgment of the House of Lords in Southern (H.M.Inspector of Taxes) Vs. Borax Consolidated Ltd., reported in [1942] 10 ITR Page 1 (King's Bench Division), the decision of Hon'ble Supreme Court in Travancore Titanium Product Ltd., Vs. CIT reported in [1966] 60 ITR 277 (SC), CIT Vs. Walchand & Co., (P.) Ltd., reported in [1967] 65 ITR 381 (SC) and Sassoon J.David & Co., (P) Ltd., Vs. CIT reported in [1979] 118 ITR 261. The relevant portion of the Judgment is quoted herein below:- '6.2. Justice.Shah, as he then was, speaking for the Full Bench of the Apex Court in Travancore Titanium Product Ltd. v. Commissioner of Income-tax [1966] 60 I.T.R. 277, held that to claim the expenditure incurred as a permissible deduction under Section 10(2)(xv) of the old Act, (now under Section 37(1) of the Act), there must be a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader, and not as owner of assets even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure is to be tested in the light of the commercial expediency, which is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. It is further held that the expenditure incurred for the purpose of business meant in Section 37(1) of the Act includes the expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also benefits thereby. It is not for the authorities or the Court to examine the purpose for which the assessee incurred the expenses for its commercial expediency. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets acquired had, in the normal course, to be regarded as expenditure for the purpose of the business which was carried on in the accounting periods. In the course of the judgment this Court referred to the earlier decision of this Court in State of Madras v. G.J Coelho 1964 53 ITR 186 wherein it was held that the interest on the amount borrowed for acquiring a capital asset is deductible as revenue expenditure.....' Thus by taking note of the factual position and the above referred decisions, the substantial questions of law in T.C.A.No.10 of 2019 are to be answered in favour of the appellant / assessee. 23. With regard to the substantial questions of law in T.C.A.No.11 of 2019, reference was made to the decision of the High Court of Bombay in Cresent Organics (P.) Ltd., Vs. Deputy Commissioner of Income-Tax, Range-8(1), Mumbai [2014] 49 Taxmann.com 128 [Bombay]. We find that the said decision to be wholly on the factual position prevailing to the said case and the Court came to the conclusion that the order of the Tribunal restricting the disallowance of the foreign travel expenses to 10% of the amount, was a reasonable approach. We have in the preceding paragraphs noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, functional test, submissions and judicial decisions, the order of the CITA was to be set aside and remanded to the assessing officer to decide the entire disputed issue. The Tribunal has recorded that the assessee has submitted the photographs and materials before it, which needs to be examined by the assessing officer. We find that the tribunal has not given any reasons to set aside the finding of the CITA. That part, materials which were placed before the Tribunal were already on record, as it had been placed before the assessing officer with detailed explanatory note as well as before CITA, hence we find that there is no justifiable reason for remanding the matter to the assessing officer. 27. The learned senior standing counsel for the revenue placed reliance on the decision of Hon'ble Supreme Court in Ballimal Naval Kishore Vs. Commissioner of Income Tax reported in [1997] 90 Taxman 402 (SC). The case arose under Section 31 of the Act and on facts, the Court found that the assessee, who was carrying on business of exhibiting films in the theatre, purchased a building, converted it into a cinema theatre, installed new machinery, furniture, sanitary fittings and ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was considered in the said case was whether the Tribunal is correct in concluding that each machine in Thermal Power Station is not capable of generating power independently and hence to be viewed as a composite asset, contrary to the decision of the Hon'ble Supreme Court in the case of Mangayarkarasi Mills (P) Ltd., reported in [315 ITR 114], wherein, it is held that each machine should be treated independently as such and not as mere part of an entire composite machinery of the spinning mill?. The said question was answered in favour of the assessee on the following terms:- '17. A careful look at the above decisions would show that though different tests had been formulated by Courts, the application of those tests had posed lot of difficulties, depending upon the facts and circumstances of each case. This is why the Supreme Court pointed out in Saravana Spinning Mills that the answer to the question would depend upon the facts and circumstances of each case. Therefore, we shall now get back to the facts of the case. 20. On the basis of the nature of the repairs and replacement carried out by the assessee to the boiler as well as to BWE, it is contended by Mr.V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid on account of current repairs is in the nature of capital expenditure,Section 31 cannot be invoked. Similarly, Section 37(1) cannot also be invoked. 31. On the contention of Mr.T.Ravikumar, learned Standing Counsel that the assessee originally capitalised the expenditure, but reversed the same later, we have to point out that there cannot be any estoppel in such cases. The question whether a particular expenditure would fall within the definition of the expression "current repairs" under Section 31(i) or not, does not depend upon what the assessee did or did not. After all if the expenditure is capitalised, the assessee takes the benefit of depreciation. If the expenditure is treated as revenue expenditure, it is either taken as an expenditure under Section 37(1) for computing income chargeable under the head "Profits and gains of business or profession" or treated as "current repairs" entitled to deduction under Section 31(i). Therefore, the contention of the learned Standing Counsel cannot be accepted.' 31. Bearing the above legal principle in mind, if we examine the facts of this case, as rightly noted by the CITA, who has gone into the working of the various parts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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