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TMI Blog2012 (3) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A of the Act. a) Under the facts and circumstances of the case and in law, the ld. CIT(A) has erred in partly sustaining the disallowance at the rate of 3.39% of the total interest and foreign exchange loss, based on the proportionate turnover of the STP unit in relation to the total turnover of the appellant. b) The ld. CIT(A) has erred in both law and in facts of the case in partly sustaining the disallowance when there was clearly no nexus between the interest and foreign exchange loss expenses with the STP unit and accordingly, such disallowance is based on surmises and conjectures and deserves to be quashed. Revenue s appeal (ITA no. 3374/Del/10) 1. The ld. CIT(A) has erred in law and on facts in deleting addition of Rs. 805267 on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company, AO thus arrived at an estimate of 7% of total expenses on account of interest and foreign exchange loss allocable to STP unit. Accordingly, an amount of Rs. 30,12,415/-was allocated to STP unit, which was reduced from its profit and accordingly the assessee s claim u/s 10A was reduced to this extent. 2.1. Aggrieved, assessee preferred first appeal, where the ld. CIT(Appeals) held that AO had not pointed out any nexus between STP unit s fund requirements and the ECB loan and held the disallowance to be ad hoc in nature. However, despite these observations, CIT(A) allocated expenses of 3.39% to STP unit profits and reduced the claim u/s 10A accordingly, by following observations: 3.4. The Ld. AR also furnished a chart of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a reasonable basis for allocation of interest expenses and foreign exchange loss on ECB to allocate funds to the STP unit of the appellant. The AO has not pin pointed any exact nexus between STP unit s funds requirement and the ECB loan. The rate of 7% estimated by the AO to apportion interest expenses and foreign exchange loss on ECB to the STP unit is ad hoc and being so, cannot be sustained, particularly when no borrowings were used for setting up STP unit. 3.6. However, it cannot be ignored that the funds out of common profits pool of funds of the company are available to the STP unit. That being the case, the element of borrowings in the common funds utilized by the STP unit for its working capital cannot be ruled out. In my view, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redeemed by issuing fresh ECBs in FY 2000- 01. 3. Bank overdraft 68,277,008 59,528,662 89,627,047 86,877,547 Total loans 68,277,008 59,528,662 89,627,047 554,777,547 (iii) From the above chart it is clear that borrowings were initially made by the assessee since F.Y. 1997-98 and 1998-99 i.e. prior to setting up of the STP unit, to finance its manufacturing and trading operations of photocopiers and fax machines, which were at the expanding stage at that time. These borrowings have largely continued till the year under consideration. An amount of Rs. 46.79 crores interest free external commercial borrowing were received by assessee. This was utilized to repay the earlier borrowings by way of NCDs and bank loans. There is no finding that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view thereof, we delete the allocation of these expenses @ 3.39% as made by the CIT(A). Ground is allowed. 6. In the result, assessee s appeal is allowed. Revenue s appeal: 7. Coming to revenue s appeal, ld. DR supported the order of AO on both the grounds raised. 8. On the other hand, learned counsel for the assessee, apropos ground no. 1, contends that employees contribution to PF has been deposited by the assessee before filing of the return and thus the issue is covered in its favour by the ratio of decision of Hon ble Delhi High Court in the case of CIT Vs. Amil Ltd. 321 ITR 508. 9. Apropos ground no. 2, learned counsel for the assessee contends that the expenditure in question was in the nature of alteration of flooring, interior work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd presentation. The expenditure incurred for this object, which has a bearing on the profit generating apparatus, is to be allowed as revenue expenditure. In such circumstances, the theory of enduring nature shall break down as held by Hon ble Supreme Court in the case of Empire Jute Co. (supra). 13. The facts in the case of Bigjo s India Ltd. (supra) are distinguishable as in that case Hon ble High Court held that there were structural changes made in the premises. It has further been held that the issue of depreciation was purely a question of fact, consequently the facts of each case are to be considered carefully. 14. In view thereof, on the issue of depreciation also we uphold the order of CIT(A). Ground is dismissed. 15. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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