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TMI Blog2021 (12) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... arned was also utilised for implementation of Mega City Scheme. Also referred to the decision rendered in the case of Karnataka Municipal Data Society vs, ITO [ 2016 (11) TMI 119 - KARNATAKA HIGH COURT ] wherein the Hon ble High Court held that Government money was released to assessee society for utilizing it in Government schemes and interest was accrued on grant money. In such case neither grant amount nor interest thereon could be held as income of assessee as Assessee-society held fund only as a custodian and full command for utilisation remained with Government. Thus interest earned on deposits made out of Government grants was held to be not income of the assessee. Since the Ld CIT(A) has deleted this addition in all the years following the binding decision rendered by jurisdictional High Court, we do not find any reason to interfere with his decision rendered on this issue in all the years under consideration. - Decided in favour of assessee. Disallowance of Repairs and Maintenance expenses - claim of the assessee under the head repairs and maintenance in all the three years referred above, was disallowed by the AO holding it as capital in nature - A.R contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied departments and project monitoring - CIT(A) also confirmed the same - HELD THAT:- The assessee could claim this expenditure u/s 37(1) of the Act, as per which the expenditure should be laid out or expended wholly and exclusively for the purpose of business. We notice that the tax authorities have given a specific finding that this expenditure is not related to the business activities of the assessee, viz., construction of buildings for police and allied departments and project monitoring. The contentions of Ld A.R are that the children trained under skill development scheme could be employed by the Civil Contractors, which will in turn facilitate the business activities of the assessee - connection with the business activities of the assessee sought to be established by Ld A.R is far fetched one. Accordingly, we are of the view that the assessee has failed to show that this expenditure has been incurred wholly and exclusively for the purpose of business. Accordingly, we confirm the order passed by Ld CIT(A) on this issue. Disallowance of claim of bad debts - AO noticed that the assessee has claimed Provision towards bad debts as deduction need to be disallowed - HELD THA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee did not declare interest income and treated the same as part of grant received from Government of Karnataka. 3.2 The AO did not agree with the contentions of the assessee. The view expressed by the AO in AY 2014-15 is extracted below:- 3.4 As regards the Government Order dated 05/01/2012, it was at the behest of the DGP and CMD of KSPHC that the order was issued as the DPG CMD vide his letter dated 29/11/2011 had requested the decision of the Government on the issue of treatment of interest income of KSPHC and the Government of Karnataka vide its order dated 05/01/2012 ordered that the interest earned on the grants received from Government should not be treated as income of the Corporation. Whether a particular receipt is income or not and whether such receipt/income is chargeable to income tax or not is to be determined by the provisions of the Act and the Government of Karnataka cannot override the provisions of the Act and hold that a particular receipt/receipt should not be treated as income of the Corporation. The order dated 10/02/2012 only speaks about the utilization of interest accrued. The order granting the funds were issued much earlier and by the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest, it does so, no as part of its own income, but for and on behalf of the person to whom it is payable. 10. Further, the appellant has claimed that vide Government order No.HD 173 EFS 2010, Bangalore dated 05.01.2012, the Government of Karnataka directed that the interest earned on the grants released by the Government to the appellant Corporation shall be treated as funds of the Government, and shall be used only for taking up additional works, other related development works and meeting the costs of escalation. The appellant has further submitted that vide Government Order No. HD 173 EFS 2010, Bangalore dated 10.02.2012, the State Government further clarified that the interest accrued on grant funds should be utilised only for the purpose of the scheme for which the funds were granted and that such interest should not be diverted or utilised for any other purpose. The same is scanned and examined below 3.3 The Ld CIT(A) also referred to the decision rendered by jurisdictional Karnataka High Court in the case of CIT Anr. Vs. Karnataka Urban Infrastructure Finance Corporation (284 ITR 582), wherein the Hon ble High Court held that interest accrued on bank depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision rendered on this issue in all the years under consideration. The Ld D.R submitted that the interest income assessed in AY 2013-14 was ₹ 11,50,60,757/-, whereas the Ld CIT(A) has erroneously mentioned the figure of ₹ 15,06,55,029/- in his order. Since it is a typographical mistake, we order that the amount mentioned in paragraph 19 of order passed by Ld CIT(A) for AY 2013-14 should be substituted by ₹ 11,50,60,757/-. 4. We shall now take up the appeals filed by the assessee. At the time of hearing, the Ld A.R did not press the appeal filed for AY 2013- 14, which is numbered as ITA No.143/Bang/2020. Accordingly, the said appeal is dismissed as not pressed. 5. The issues urged by the assessee are listed below assessment year wise. (A) Assessment year 2012-13:- (a) Disallowance of bad debts claimed by the assessee (b) Disallowance of Repairs Maintenance expenses. (B) Assessment year 2014-15:- (a) Disallowance of Skill development expenses (b) Disallowance of bad debts claim (c) Disallowance of Repairs Maintenance expenses (d) Disallowance of provision for leave encashment (C) Assessment year 2015-16:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l nature. However, even Section 37(1) excludes those items of expenditure which expressly falls in Sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in Sections 30 to 36. To decide the applicability of Section 31(i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is current repairs . The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to preserve and maintain an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage. In fact, in the present case, in the balance sheet the assessee, viz, M/s Saravana Spinning Mills has indicated the above expense as an item incurred for purchase of a New Asset. In our view, the High Court had erred in placing reliance on the report of SITRA in coming to the conclusion that the textile mill is a plant under Section 31(i). As stated above, each machine in a segment has an independent role to play in the mill and the output of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure. In our considered view, the claim of repair and maintenance expenses has to be examined on the basis of principles explained in the above said case. Before us, the Ld A.R placed his reliance on the decision rendered by Hon ble Karnataka High Court in the case of CIT vs. Sagar Talkies (325 ITR 133). We have gone through the said decision. In the above said case, the assessee was running a theatre installing mono sound system. The assessee replaced mono sound system with Doby system and claimed the expenses incurred on such replacement as revenue in nature. The Hon ble High Court accepted the plea of the assessee and held as under:- In this background, we have to consider whether the expenditure incurred by the assessee for replacing the sound system to its theatre amounts to revenue or capital in nature. This Court has to consider whether the change of sound system has increased the revenue or not. Admittedly, the old sound system was in existence for several years and due to use of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties on this issue and perused the record. We have earlier upheld the claim of the assessee that the interest income earned on deposits made out of Government grants is not taxable in the hands of the assessee, since the said interest income is also treated as government grant only, as per the directions of Government of Karnataka. Further, the above said view has also got support of Hon ble High Court of Karnataka. 8.2 With regard to the expenditure of ₹ 2,27,56,882/-, the Ld A.R explained that the assessee has incurred extra expenditure on construction projects, which were met out of grants given to it by Government of Karnataka. However, the Government refused to reimburse excess expenditure and hence the assessee has claimed the same as deduction against its business income. 8.3 We heard Ld D.R and perused the record. Before us, a translated copy of proceedings of meeting of Principal secretary (homes) were produced and the same reads as under:- 3. To repay the additional amount under the Repayment Scheme of AHS- 1 Scheme (Plan) In relation to AHS-1 Scheme, the additional amount of ₹ 227.00 lakhs has been brought to the notice. The economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, viz., construction of buildings for police and allied departments and project monitoring. The contentions of Ld A.R are that the children trained under skill development scheme could be employed by the Civil Contractors, which will in turn facilitate the business activities of the assessee. In our view, the connection with the business activities of the assessee sought to be established by Ld A.R is far fetched one. Accordingly, we are of the view that the assessee has failed to show that this expenditure has been incurred wholly and exclusively for the purpose of business. Accordingly, we confirm the order passed by Ld CIT(A) on this issue. 10. The next issue contested in AY 2014-15 relates to the disallowance of claim of bad debts. The AO noticed that the assessee has claimed Provision towards bad debts amounting to ₹ 2,06,950/- as deduction. Hence he disallowed the same and Ld CIT(A) also confirmed the disallowance. 10.1 Before us, the Ld A.R submitted that the assessee has written off unrealised advance given to the contractors. However, we notice from the orders of tax authorities that they have disallowed only Provision towards bad debts . Admi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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