Kirloskar Pneumatic Co. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 176/PUN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93688 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.176/PN/2014 ASSESSMENT YEAR : 2009-10 KIRLOSKAR PNEUMATIC CO. LTD., HADAPSAR INDUSTRIAL ESTATE, PUNE SOLAPUR ROAD, HADAPSAR, PUNE 411 013. PAN : AAACK2479C . APPELLANT VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 11, PUNE. . RESPONDENT APPELLANT BY : SHRI C. H. NANIWADEKAR RESPONDENT BY : SHRI PRADEEP KUMAR DATE OF HEARING : 22-04-2015 DATE OF PRONOUNCEMENT : 30-04-2015 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-I, PUNE DATED 30.10.2013 RELATING TO ASSESSMENT YEAR 2009-1 0 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.14,35,835/- AS EXPENDITURE IN RE LATION TO EXEMPT INCOME U/S 14A(1) BY APPLYING RULE 8D OF THE INCOME TAX RULES, WITHOUT GIVING ANY REASONS AND RECORDING ANY DISSAT ISFACTION FOR ASSESSEE'S CLAIM. HE ALSO ERRED IN APPRECIATING THA T THE APPLICATION OF RULE 8D IS NOT AUTOMATIC BUT CAN BE APPLIED ONLY WHEN THE A.O. HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF ASSESSEE'S CLAIM, AND AS SUCH DI SALLOWANCE IS VITIATED. HE ALSO ERRED IN ACCEPTING A FACT THAT IN VESTMENTS ARE MADE FROM OWN FUNDS & NOT FROM BORROWED FUNDS. HE FURTHE R FAILED TO APPRECIATE THE CONTENTIONS AND ARGUMENTS ADVANCED B Y THE ASSESSEE IN THIS BEHALF. 2) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING BUILDING REPAIRS EXPENSES OF RS.47.91,807/- BY TREAT ING IT AS CAPITAL EXPENDITURE AS AGAINST REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. THE LEARNED CIT(A) FURTHER ERRED IN NOT A PPRECIATING THE EVIDENCE FURNISHED BEFORE HIM. ITA NO.176/PN/2014 2 3) THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF SOFTWARE EXPENSES OF RS.19,36,036/- BY TREATING IT AS CAPITAL EXPENDITURE AS AGAINST REVENUE EXPENDITURE AS CLAIM ED BY THE ASSESSEE. 4) THE APPELLANT CRAVES, LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE RAISED IN GROUND OF APPEAL NO.1 IS AGA INST THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE WAS ENGAGED IN MANUFACTURING AND SALE OF ENGINEERING GOODS AND MAC HINERY. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD CLAIMED DIVIDEND INCOME AND INCOME RECEIVED FROM UTI AT RS.1,45,93,936/- AS EXEMPT FRO M TAX. AS PER THE ASSESSEE, THERE WAS NO EXPENDITURE DIRECTLY ATTRIBUTABLE TO T HE EARNING OF SUCH INCOME AND HENCE THE PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE. THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE OBSERVED THAT AS PER THE PROVISIONS OF SECTION 14A(3) OF THE ACT EVEN WH ERE THE ASSESSEE CLAIMS TO HAVE INCURRED NO EXPENDITURE, THE PROVISIONS OF SEC TION 14A OF THE ACT ARE APPLICABLE. THE ASSESSING OFFICER, THEREAFTER, COM PUTED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF THE INCOME T AX RULES, 1962 AS PER TABULATED DETAILS AT PAGES 2 AND 3 OF THE ASSESSMEN T ORDER AND COMPUTED THE DISALLOWANCE AT RS.14,35,385/-. 5. THE CIT(A) RELYING ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, 328 ITR 81 (BOM) HELD THAT AFTER THE ENACTMENT OF SECTION 14A OF THE ACT, NO EXPENDI TURE CAN BE ALLOWED AS A DEDUCTION IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. WHERE THE BUSINESS OF THE ASSESSEE WAS COMPOSITE AND INDIVISIBLE AND THE TOTAL INCOME OF THE ASSESSEE IN CLUDED BOTH TAXABLE AND EXEMPTED INCOME FROM DIFFERENT SOURCES AND WHERE TH E ASSESSEE WAS MAINTAINING ONE COMMON PROFIT & LOSS ACCOUNT FOR AL L ITS ACTIVITIES, THE CLAIM OF THE ASSESSEE THAT THERE WAS NO DOMINANT AND IMMEDIA TE CONNECTION BETWEEN THE ITA NO.176/PN/2014 3 EXPENDITURE INCURRED AND THE EXEMPTED INCOME WAS FO UND TO BE NOT TENABLE BY THE CIT(A). IT WAS FURTHER HELD BY THE CIT(A) THAT WHERE CONSOLIDATED FINANCIAL STATEMENTS ARE PREPARED THEN THE EXPENDITURE IN REL ATION TO THE EXEMPTED INCOME HAS TO BE WORKED OUT AS PER RULE 8D OF THE RULES AT PRO-RATA BASIS AS PER FORMULA PROVIDED IN THE SAID RULE. ANOTHER CONTENTION OF T HE ASSESSEE THAT ALL THE INVESTMENTS ARE OLD AND MADE OUT OF INTEREST FREE F UNDS WAS ALSO REJECTED AND DISALLOWANCE MADE BY THE ASSESSING OFFICER BOTH ON ACCOUNT OF INTEREST EXPENDITURE AND ADMINISTRATIVE EXPENDITURE, WAS UPH ELD BY THE CIT(A). 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE CIT(A). 7. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT NO DISALLOWANCE OUT OF INTEREST EXPENDITURE COULD BE M ADE AS THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007-08. IT WAS, FURTHER, POINTED OUT BY THE LD. A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS I.E. OWN FUNDS OF RS.130.93 CRORES AND THE PROFITS OF THE YEAR OF RS. 56.86 CRORES, AGAINST WHICH INVESTMENT WAS ONLY OF RS.20 CRORES. THE AUTHORIZE D REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE COPY OF THE BALA NCE SHEET PLACED AT PAGE 26 OF THE PAPER BOOK AND ALSO POINTED OUT THAT UNDOUBT EDLY THERE WAS A FRESH INVESTMENT IN MUTUAL FUNDS FOR THE YEAR UNDER CONSI DERATION AS PER THE DETAILS PLACED AT PAGE 34 OF THE PAPER BOOK AND FURTHER EVE N THE SECURED LOAN HAD INCREASED. BUT IT WAS POINTED OUT BY THE LD. AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE FOREIGN CURRENCY LOAN RAISED BY T HE ASSESSEE WAS FOR SPECIFIC PURPOSE I.E. FOR THE PURCHASE OF MACHINERY AND HENC E THE INTEREST PAID ON SUCH LOANS COULD NOT BE CONSIDERED FOR MAKING DISALLOWAN CE UNDER SECTION 14A OF THE ACT. WITH REGARD TO THE ADMINISTRATIVE EXPENSES, T HE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT WH ERE THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION I.E. AN OBJECTIVE SATISFACTION THAT THE ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING THE EXEMPT INC OME, THERE WAS NO MERIT IN ITA NO.176/PN/2014 4 ANY DISALLOWANCE ON ACCOUNT OF THE SAID ADMINISTRAT IVE EXPENSES. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY TH E DELHI BENCH OF THE TRIBUNAL IN DCIT VS. M/S JINDAL PHOTO LIMITED VIDE ITA NO.81 4(DEL)2014 DATED 23.09.2011. 8. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE PLACED RELIANCE ON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES. THE ASSE SSEE ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION, HAD RECEIVED EXEMPT INCOM E OF RS.1,45,93,936/-. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD NOT INCURRED ANY EXPENDITURE WHICH WAS DIRECTLY ATTRIBUTABLE TO THE EARNING OF EXEMPT INCO ME AND HENCE THE PROVISIONS OF SECTION 14A OF THE ACT WERE NOT APPLICABLE. THE PE RUSAL OF THE FINANCIAL STATEMENTS FURNISHED BY THE ASSESSEE FOR THE YEAR U NDER CONSIDERATION REFLECTS THAT AS ON 31 ST MARCH, 2009, THE OWN CAPITAL OF THE ASSESSEE INCLU DING RESERVE AND SURPLUS WAS TO THE TUNE OF RS.130 CRORES AS AGA INST WHICH THE INVESTMENTS WERE TO THE EXTENT OF RS.20.71 CRORES. THE PROFIT & LOSS ACCOUNT PLACED AT PAGE 27 OF THE FINANCIAL STATEMENT REFLECTS PROFITS FOR THE YEAR UNDER CONSIDERATION AT RS.56.86 CRORES. THE ASSESSEE DURING THE YEAR UNDE R CONSIDERATION HAD RAISED FOREIGN CURRENCY TERM LOAN FROM BANK OF INDIA, WEMB LEY TO THE TUNE OF RS.28.13 CRORES AS PER THE NOTES TO THE ACCOUNTS. THE SAID LOAN WAS SECURED BY FIRST EXCLUSIVE LEGAL CHARGE ON SPECIFIC ASSETS WORTH RS. 40 CRORES TO BE ACQUIRED FROM THE SAID LOAN FACILITY VIS--VIS THE OTHER LIABILIT IES. IT IS APPARENT FROM THE PERUSAL OF BALANCE SHEET THAT NO FRESH LOANS HAVE BEEN RAIS ED IN THE YEAR UNDER CONSIDERATION OTHER THAN FOREIGN CURRENCY LOAN. TH E BREAKUP OF THE INVESTMENTS IS PLACED AT PAGE 34 OF THE FINANCIAL STATEMENT WHI CH REFLECTS THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IN ADDITION TO THE INVESTMENT IN UNQUOTED SHARES OF COMPANIES, WHICH ARE BROUGHT FORWARD FROM THE PRECEDING YEAR, HAD ITA NO.176/PN/2014 5 MADE INVESTMENT TO THE TUNE OF RS.17.48 CRORES IN M UTUAL FUNDS IN THE YEAR UNDER APPEAL ITSELF. THE ASSESSEE CLAIMS THAT THE SAID I NVESTMENT WAS MADE OUT OF THE INTERNAL ACCRUALS AND NO LOAN WAS UTILIZED FOR MAKI NG SAID INVESTMENTS. 10. THE ISSUE ARISING BEFORE US IS IN RELATION TO T HE DISALLOWANCE OF INTEREST, WHICH IS ATTRIBUTABLE TO THE INCOME EXEMPTED FROM T AX. THE FIRST ASPECT OF THE ISSUE I.E. WHETHER ANY DISALLOWANCE OF INTEREST UND ER RULE 8D(2)(II) OF THE RULES IS CALLED FOR VIS--VIS THE INVESTMENT IN SHARES AROSE BEFORE THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.175/P N/2014 RELATING TO ASSESSMENT YEAR 2007-08. THE TRIBUNAL VIDE ORDER D ATED 19.01.2015, IN TURN, RELYING ON THE RATIO LAID DOWN BY THE HONBLE BOMBA Y HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BOM ) OBSERVED THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST UNDER SECTION 1 4A OF THE ACT R.W. RULE 8D OF THE RULES CAN BE MADE IN THE HANDS OF THE ASSESSEE, IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CIT VS. RELIANCE U TILITIES AND POWER LTD. (SUPRA). THE RELEVANT DISCUSSIONS ARE AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT AS AGAINST OWN CAPITAL OF ABOUT RS.84 CRORES THE AVERAGE INVESTMENT IN SHARES AND M UTUAL FUNDS, THE INCOME OF WHICH IS EXEMPT, IS HARDLY RS.3.61 CRORES. IT IS A LSO A FACT THAT NO BORROWED FUNDS HAVE BEEN UTILISED BY THE ASSESSEE, A FACT STATED B EFORE THE LOWER AUTHORITIES AND NOT CONTROVERTED BY THE REVENUE. WE THEREFORE FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE O N ACCOUNT OF INTEREST IS REQUIRED U/S.14A R.W. RULE 8D IN VIEW OF THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD. (SUPRA). THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT AT PARA 10 OF THE ORDER READS AS UNDER : 10. IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSES SEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE F ROM THE INTEREST FREE FUNDS AVAILABLE. IN OUR OPINION THE SUPREME COURT I N EAST INDIA PHARMACEUTICAL WORKS LTD. (SUPRA) HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (SUPRA) WHERE A SIMILAR ISSUE HAD ARISEN.. BEFORE THE SUPRE ME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ES SENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO C LAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSI DERABLE FORCE, BUT ITA NO.176/PN/2014 6 CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BE EN ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSWERED. IT THEN NOTED THAT IN WOOLCOMBER'S CASE (SUPRA) THE CALCUTTA HIGH COURT HAD COME TO THE CON CLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIA BILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT OF THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNIN G OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFF ICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH C OURT. THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABL E BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION W OULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE S UFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTAB LISHED CONSIDERING THE FINDING OF FACT BOTH BY THE C.I.T. (APPEALS) AND I. T.A.T. 6.1 RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT CITED (SUPRA), WE HOLD THAT NO DISALLOWANCE OF INTE REST UNDER RULE 8D(2)(II) IS CALLED FOR UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE DISALLOWANCE OF INTEREST OF RS.2,81,400/-. 11. IN VIEW OF THE FINDINGS OF THE TRIBUNAL, WE FIN D NO MERIT IN THE DISALLOWANCE OF INTEREST RELATABLE TO THE INVESTMENTS IN SHARES BY THE ASSESSEE, WHICH IS BROUGHT FORWARD FROM THE PRECEDING YEAR. FURTHER, DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS MADE INVESTMENT IN MUTU AL FUNDS, INCOME OF WHICH IS EXEMPT FROM TAX. HOWEVER, THE SAID INVESTMENTS AS PER THE ASSESSEE WERE MADE OUT OF INTERNAL ACCRUALS. THE PERUSAL OF THE FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE I.E. BALANCE SHEET AND PROFIT & LOS S ACCOUNT REFLECT THE ASSESSEE TO HAVE OWN CAPITAL OF ABOUT 130 CRORES AN D EVEN PROFIT FOR THE YEAR UNDER CONSIDERATION WAS RS.56.86 CRORES WHICH IS MU CH HIGHER THAN INVESTMENT OF 17.99 CRORES IN MUTUAL FUNDS, MADE DURING THE YE AR. IN VIEW THEREOF AND IN THE ABSENCE OF HAVING ESTABLISHED ANY NEXUS BETWEEN THE SECURED FUNDS ON WHICH INTEREST WAS PAID BY THE ASSESSEE AND THE INVESTMEN T MADE BY THE ASSESSEE, INCOME FROM WHICH, IS EXEMPTED FROM TAX, WE FIND NO MERIT IN THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW IN VIEW OF RULE 8D(2) (II) OF THE RULES. 12. IN RESPECT OF DISALLOWANCE OF EXPENSES UNDER RU LE 8D(2)(III) OF THE RULES AMOUNTING TO RS.6,08,262/-, THE PLEA OF THE ASSESSE E BEFORE US WAS THAT THE ASSESSING OFFICER HAD NOT RECORDED ANY OBJECTIVE SA TISFACTION. THE ASSESSING ITA NO.176/PN/2014 7 OFFICER VIDE PARA 3 HAD CONSIDERED THE PLEA OF THE ASSESSEE THAT THERE WAS NO EXPENDITURE DIRECTLY ATTRIBUTABLE TO EARNING OF INC OME AND THEN CONSIDERED THE PROVISIONS OF THE ACT. WE FURTHER FIND THAT SIMILA R DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES OF RS.44,579/- WAS MADE IN THE EARLIER YEAR AND THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE WAS NOT PRESS ED. THE FACTS AND CIRCUMSTANCES OF THE CASE BEING IDENTICAL, WE FIND NO MERIT IN THE PLEA OF THE ASSESSEE IN THIS REGARD AND WE CONFIRM THE DISALLOW ANCE OF RS.6,08,262/- UNDER RULE 8D(2)(III) OF THE RULES. THUS, THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY TH E ASSESSEE IS AGAINST THE DISALLOWANCE OF BUILDING REPAIR EXPENSES OF RS.47,9 1,807/-. 14. THE FACTS RELATING TO THE ISSUE ARE THAT ON PER USAL OF THE DETAILS OF BUILDING REPAIR EXPENSES EXCEEDING RS.1,00,000/-, THE ASSESS ING OFFICER NOTED THAT SOME OF THE EXPENSES WERE OF CAPITAL IN NATURE, WHEREAS THE ASSESSEE HAD CLAIMED THE SAID EXPENDITURE TO BE REVENUE EXPENDITURE. IN VIE W OF THE NATURE OF THE EXPENDITURE AND THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN BALLIMAL NAVAL KISHOR & ANR. VS. CIT, 224 ITR 414 (SC)., THE ASSESSING OFFICER TABULATED THE DISALLOWANCE OF THE EXPENDITURE AT PAGES 4 AND 5 OF THE ASSESSMENT ORDER TOTALING RS. 51,05,561/-. THE ASSESSING OFFICER AL LOWED DEPRECIATION @ 10% ON THE SAID EXPENDITURE AND IN TURN DISALLOWED A SUM O F RS.47,91,807/-. 15. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OF FICER ON THE SURMISE THAT THE REPAIRS CARRIED OUT DURING THE YEAR WERE NOT RO UTINE CURRENT REPAIRS TO THE BUILDING AND IT WAS IN THE NATURE OF RENOVATION OF THE EXISTING ASSETS AND ALSO ACQUISITION OF NEW ASSETS. FURTHER, CERTAIN EXPEND ITURE GAVE ENDURING BENEFIT TO THE ASSESSEE AND IN VIEW THEREOF, THE EXPENDITURE C LAIMED WAS DISALLOWED AS CAPITAL EXPENDITURE. ITA NO.176/PN/2014 8 16. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE DREW OUR ATTENTION TO THE DETAILS OF THE EXPENDITURE PLACED AT PAGE 18 OF THE PAPER BOOK AND POINTED OUT THAT EXCEPT FOR 2 ITEMS WHICH AT BEST COULD BE SAID TO BE CAPITAL EXPENDITURE, THE BALANCE EXPENDITURE WAS ON ACCOUNT OF REPAIRS A ND REPLACEMENT AND WAS ALLOWABLE AS A REVENUE EXPENDITURE. 17. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE, ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF THE OF THE CIT(A). 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE PERUSAL OF THE EXPENDITURE INCURRED BY THE ASSESSEE REFLECT S THAT THE SAID EXPENDITURE HAS BEEN INCURRED FOR CARRYING OUT REPAIRS WHICH AR E IN THE NATURE OF CURRENT REPAIRS. THE ASSESSEE HAD INCURRED A SUM OF RS.5,0 7,878/- ON REPAIRS TO MACHINERY FOUNDATION AND RCC FITTING FOR STRUCTURAL COLUMN AND HAD FURTHER INCURRED RS.3,93,300/- ON REPLACING OLD DOOR BY AUT OMATIC SLIDING DOOR FOR SHOP ENTRANCE. IN ADDITION, IT HAD INCURRED CERTAIN EXP ENDITURE ON REMOVING THE EXISTING PIPELINE, RELAYING THE SAME AND ALSO REPLA CING SOLAR WATER PIPELINE THE EXPENDITURE WAS TO THE TUNE OF RS.1,89,015/- AND RS .1,42,427/-. FURTHER, THE EXPENDITURE OF RS.10,60,166/- AND RS.4,83,246/- WAS INCURRED ON ACCOUNT OF FABRICATION WORK, WHICH IS OF TEMPORARY IN NATURE A ND CANNOT BE STATED TO GIVE ENDURING BENEFIT TO THE ASSESSEE. NOW, COMING TO T HE OTHER EXPENDITURE I.E. LAYING OF DRINKING WATER PIPELINE OF RS.1,24,659/-, LAYING OF 2 GI PIPELINE FOR TESTING OF RS.2,47,985/- AND LAYING OF DRIP IRRIGAT ION PIPES OF RS.2,47,800/- WAS EXPENDITURE INCURRED FOR ENDURING BENEFIT AND IS NO T ALLOWABLE IN THE HANDS OF THE ASSESSEE AS REVENUE EXPENDITURE. THE ASSESSEE HAD FURTHER INCURRED RS.6,52,905/- FOR REMOVING BROKEN TILES FROM FLOOR AND FIXING VITRIFIED TILES AND ALSO REARRANGEMENT OF COOKING, WASHING AND TEA MAKING AR EA. THE SAID EXPENDITURE IS DEFINITELY ON ACCOUNT OF CURRENT REPAIRS AND IS TO BE ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. ACCORDIN GLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED DURING TH E YEAR UNDER CONSIDERATION AS ITA NO.176/PN/2014 9 REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE EX CEPT ON ACCOUNT OF LAYING OF DRINKING WATER PIPELINE OF RS.1,24,659/-, LAYING OF 2 GI PIPELINE FOR TESTING OF RS.2,47,985/- AND LAYING OF DRIP IRRIGATION PIPES O F RS.2,47,800/-. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS PARTLY ALLOWE D. 19. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY TH E ASSESSEE IS AGAINST THE DISALLOWANCE OF SOFTWARE EXPENSES OF RS.19,36,036/- . 20. THE AUTHORITIES BELOW HAVE TREATED THE SAME TO BE CAPITAL IN NATURE, ON WHICH DEPRECIATION @ 60% WAS ALLOWED IN THE HANDS O F THE ASSESSEE. 21. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE DREW OUR ATTENTION TO THE EXPLANATION VIS--VIS THE SAID EXPENDITURE FILE D BEFORE THE CIT(A) WHICH IS PLACED AT PAGE 3 OF THE PAPER BOOK IN WHICH IT WAS CLEARLY MENTIONED THAT THE AMOUNT WAS SPENT FOR THE RENEWAL OF LICENSE FOR MIC ROSOFT OFFICE, WHICH ARE REQUIRED TO BE PAID ON ANNUAL BASIS. THE ASSESSEE HAD LARGE NUMBER OF COMPUTERS AND THE LICENSE FEES WAS PAID FOR THE SAI D COMPUTERS AND CLAIMED AS REVENUE EXPENDITURE. OUR ATTENTION WAS DRAWN TO TH E COPIES OF THE BILLS PLACED AT PAGES 50 ONWARDS OF THE PAPER BOOK. 22. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE POINTED OUT THAT IN VIEW OF THE AMENDMENT TO THE DEFINITION OF COMPUTER S WHICH NOW INCLUDES COMPUTER SOFTWARE, EXPENDITURE INCURRED BY THE AS SESSEE IS TO BE CAPITALIZED, ON WHICH THE DEPRECIATION @ 60% IS ALLOWABLE TO THE ASSESSEE. 23. ON PERUSAL OF THE SUBMISSIONS MADE BY THE ASSES SEE, IT IS APPARENT THAT THE ASSESSEE HAD INCURRED THE AFORESAID EXPENDITURE ON THE RENEWAL OF LICENSE FOR MICROSOFT OFFICE ON ANNUAL BASIS. THE ASSESSEE HAD PAID THE SAID CHARGES AT RS.6090/- PER LICENSE FOR 200 COMPUTERS, RS.1364/- PER LICENSE FOR 90 COMPUTERS AND RS.2799/- PER LICENSE FOR 90 COMPUTERS. THE BI LLS RELATING TO THE SAID ITA NO.176/PN/2014 10 EXPENDITURE ARE PLACED AT PAGES 50 TO 55 OF THE PAP ER BOOK. THE EXPENDITURE HAVING BEEN INCURRED FOR RENEWAL OF THE LICENSES OF OPERATING SYSTEMS IS DULY ALLOWABLE AS EXPENDITURE IN THE HANDS OF THE ASSESS EE. THE ASSESSEE AT PAGE 49 OF THE PAPER BOOK HAS FURNISHED THE DETAILS OF T HE SOFTWARE EXPENSES TOTALING RS.19,36,036/- WHICH CLEARLY REFLECTS THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE IN ADDITION TO THE RENEWAL OF MICROSOFT OF FICE WAS ON ACCOUNT OF LICENSE FEE FOR MS OFFICE WIN 32 OF RS.3,54,316/- AND SERVE R LICENSE FEES OF RS.5,58,625/-. THE EXPENDITURE HAVING BEEN INCURRE D BY THE ASSESSEE IS REVENUE IN NATURE AND IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, THE GROUND OF APPEAL NO.3 RELATING TO DISALLOWANCE OF RS.19,36,036/- MADE ON SOFTWARE EXPENSES, IS THUS, ALLOWED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF APRIL, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH APRIL, 2015 SUJEET COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE