DCIT, Pondicherry V. The Pondicherry Industrial Promotion Development and Investment Corporation Ltd., Pondicherry

ITA 1812/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4643 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-06-2016
• Court: TRIBUNAL
• Department Lawyers: S NATARAJA
• Keywords: Capital asset; Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I T.A. NO. 1812 /MDS/201 6 / ASSESSMENT YEAR :20 12 - 1 3 THE DEPUTY COMMISSIONER OF INCOME TAX, PONDICHERY CIRCLE, NO. 378 - 386, MAHATMA GANDHI ROAD, PONDICHERRY 605 001. VS. M/S. THE PONDICHERR Y INDUSTRIAL P ROMOTION DEVELOPMENT AND INVESTMENT CORPORATION LTD., NO. 60, ROMAIN ROLLAND STREET, PONDICHERRY 605 001. [PAN:A ADCP0446M ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S. NATARAJA , J CIT / RESPONDENT BY : SHRI PHILIP GEORGE, ADVOCATE / DATE OF HEARING : 1 4 . 0 2 .201 7 / DATE OF P RONOUNCEMENT : 09. 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVE NUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - PUDUCHERRY , C HENNAI DATED 2 9 .0 2 .2016 RELEVANT TO THE ASSESSMENT YEAR 20 12 - 1 3 . THE REVENUE HAS RAISED TWO GROUNDS VIZ., (I) THE LD. CIT(A) HAS ERRED IN ALLOWING ROAD RELAID EXPENSES AS REVENUE EXPENDITURE AND (II) THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO . 1812 /M/ 16 2 2. T HE APPEAL OF THE REVENUE IS FOUND TO HAVE BEEN FILED LATE BY 25 DAY S BEFORE THE TRIBUN AL. BY REFERRING TO THE PETITION FOR CONDONATION OF DELAY, T HE LD. DR HAS SUBMITTED THAT THE ASSESSING OFFICER WAS NOMINATED AS DDIT (INV.) AND SUB - NODAL OFFICER FOR GENERAL ELECTIONS FOR ASSEMBLY CONSTITUENCY AT PONDICHERRY AND ALSO ENGAGED IN SURVEILLANC E DUTY, BESIDES HOLDING ADDITIONAL CHARGE OF VILLUPURAM CIRCLE, VILLUPURAM, DUE O WHICH THE APPEAL PAPERS COULD NOT BE PROCESSED IN TIME AND FILED THE APPEAL BEFORE THE TRIBUNAL. THE LD. DR, CITING THE ABOVE REASONS REQUESTED FOR CONDONING THE DELAY AND T O ADMIT THE APPEAL FOR HEARING. THE LD. COUNSEL FOR THE ASSESSEE DID NOT OBJECT TO THE SUBMISSIONS OF THE LD. DR AND THUS, WE CONDONE THE DELAY OF 25 DAY S IN FILING THE APPEAL AND ADMIT THE APPEAL FOR HEARING. 3 . WITH REGARD TO THE FIRST GROUND IN RESPEC T OF EXPENDITURE INCURRED TOWARDS RELAYING OF ROAD IS CAPITAL OR REVENUE EXPENDITURE , THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS CLAIMED A SUM OF .43,93,956/ - FOR THE PURPOSE OF BLOCK TOPPING OF INTERNAL ROADS. WHEN THE DETAILS CALLED FOR, THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE INTERNAL ROADS IN THIS ESTATE ARE VERY BADLY DAMAGED DUE TO HEAVY VEHICULAR TRAFFIC AND HEAVY RA IN ON EVERY YEAR AFTER BLACK TOPPING ALL THE INTERNAL ROADS FOR AN AMOUNT OF .33.50 LAKHS DURING THE YEAR 1996. AS REQUESTED BY THE PONDICHERRY CHAMBER OF INDUSTRIES, A PART OF INTERNAL ROADS TO A LENGTH OF 2 KM. HAS BEEN STRENGTHENED AND IMPROVED FOR I.T.A. NO . 1812 /M/ 16 3 AN AMOUNT OF .31.98 LAKHS DURING THE YEAR 2004. THE REMAINING PART OF THE INTERNAL ROADS AND EXISTING DRAINS ARE NOT IMPROVED. FROM THE ABOVE, THE ASSESSING OFFICER HAS OBSERVED THAT THE PRESENT WORK IS FOR THE PURPOSE OF RELAYING THE INTERNAL ROADS WHICH WA S ORIGINALLY LAID IN 1996. SINCE THE WORK CAN BE TERMED AS REPAIRS AND MAINTENANCE IF IT RESTORES THE ORIGINAL LIFE SPAN OF A CAPITAL ASSET, BUT , CONSIDERING THE NORMAL USE, THE ASSESSING OFFICER OPINED THAT THE FULL LIFE SPAN OF THE ROAD ENDED WELL BEFORE THE PREVIOUS YEAR 2011 - 12 AND THEREFORE, THE PRESENT WORK CANNOT BE TERMED AS A REPAIRS AND MAINTENANCE WORK. FURTHER, HE OBSERVED THAT RELAYING OF ROAD IS IN THE NATURE OF A FRESH CAPITAL ASSET AS PER THE WORK ORDER, WHICH LISTED ALL THE STEPS/WORK NEEDE D FOR A FRESH LAYING OF ROAD, WITH IMPROVED SPECIFICATION AND NOT MERE REPAIRS, WHICH ALSO INVOLVES VALUE ADDITION. THEREFORE, THE ASSESSING OFFICER HAS TREATED THE EXPENDITURE INCURRED TOWARDS RELAYING OF ROAD AS CAPITAL IN NATURE AND DISALLOWED. 3.1 T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT RESURFACING AND RELAYING OF ROADS COME UNDER REVENUE EXPENDITURE ONLY AND THEREFORE, HE ALLOWED THE CLAIM OF THE ASSESSEE. 3.2 ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR HAS SUBMITTED THAT THE ROAD RELAID WAS ONLY SUBSEQUENT TO EXPIRY OF LIFE SPAN PERIOD OF OLD ROAD AND THEREFORE, THE EXPENDITURE INCURRED I.T.A. NO . 1812 /M/ 16 4 TOWARDS RELAYING THE ROAD CANNOT BE TREATED AS REVENUE IN NATURE AND PLEADED THAT THE ORDER OF THE LD. CIT(A) ON THIS ISSUE SHOULD BE REVERSED. 3.3 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY SUPPORTED THE ORDER PASSED B Y THE LD. CIT(A) ON THIS ISSUE A ND RELIED ON THE DECISION IN THE CASE OF CIT V. VOITH PAPER FABRICS INDIA LTD. 346 ITR 70 AND PRAYED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE CONFIRMED. 3 . 4 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDER S OF AUTHORITIES BELOW. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS CONSTRUCTED A NEW ROAD AND CLAIMED THE EXPENDITURE AS REVENUE IN NATURE. IT IS NOT IN DISPUTE THAT ROAD WAS ALREADY EXISTING IN THE PREMISES . THE LIFE SPAN OF A ROAD CANNOT BE DETERMINED ON PAR WITH PLANT AND MACHINERY. DUE TO HEAVY VEHICULAR TRAFFIC AND HEAVY RAIN ON EVERY YEAR, THE EXISTING ROAD WAS BADLY DAMAGED AND THEREFORE, THE ASSESSEE HAS CARRIED OUT THE RESURFACING AND RELAYING OF ROADS AND THE EXPENDITURE INCURRED W AS CLAIMED AS REVENUE EXPENDITURE , WHEREAS, THE ASSESSING OFFICER HELD THAT THE EXPENDITURE INCURRED WAS CAPITAL IN NATURE . 3.5 IN THE CASE OF CIT V. VOITH PAPER FABRICS INDIA LTD. (SUPRA), THE HON BLE PUNJAB & HARYANA HIGH COURT HAS HELD THAT THE EXPENS ES INCURRED BY THE ASSESSEE ON REPAIR OF EXISTING ROAD IN ITS FACTORY PREMISES TO MAKE IT CONDUCIVE FOR USE ARE ALLOWABLE AS REVENUE EXPENDITURE. IN THE PRESENT I.T.A. NO . 1812 /M/ 16 5 CASE, THE EXISTENCE OF ROAD WAS NOT IN DISPUTE AND THE ASSESSEE HAS NOT CREATED OR DEVELOPED OR CONSTRUCTED A NEW ROAD, WHICH MAY BE TERMED AS CAPITAL IN NATURE. 3 . 6 IN THE CASE OF CIT V. HINDUSTHAN MOTORS LTD ., 68 ITR 301 (CAL) FOR THE PROPOSITION THAT IMPROVEMENTS CARRIED OUT TO APPROACH ROAD T O A FACTORY WAS A REVENUE EXPENDITURE. FURTHER, IN THE CASE OF LAKSHMI SUGAR MILLS CO. P. LTD. V. CIT 82 ITR 376 (SC) WHEREIN IT WAS HELD THAT COST OF CONSTRUCTION AND DEVELOPMENTS OF ROADS BETWEEN SUGAR CANE FARMS AND SUGAR MILLS WAS REVENUE EXPENDITURE IN CASE OF AN ASSESSEE, WHO HAPPENS TO BE SUGAR MILLS, WHICH INCURRED THE EXPENDITURE. 3 .7 WE HAVE ALSO GONE THROUGH THE SPECIFICATION OF WORK CARRIED OUT BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HA S CARRIED OUT ONLY BLACK TOPPING AND PROVIDING DRAIN FACILITIES TO THE EXISTING ROAD, WHICH CANNOT BE HELD AS CAPITAL IN NATURE. THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 4 . THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD T O DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT AS ON 31.03.2012, THE ASSESSEE HAS MADE INVESTMENTS TO THE TUNE OF .22,30,70,000/ - AND NO EXPENDITURE IN RELATION TO THESE INVESTMENTS WAS ADMITTED. BY APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE I.T.A. NO . 1812 /M/ 16 6 ASSESSING OFFICER DETERMINED THE EXPENDITURE COMPONENT TOWARDS INVESTMENTS AND DISALLOWED .11,09,266/ - . 4 .1 TH E ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING DECISION OF THE TRIBUNAL, THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. 4 .2 ON BEING AGGRIEVED, THE REVENUE IS I N APPEAL BEFORE THE TRIBUNAL. 4 .3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN THIS CASE, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME OUT OF THE INVESTMENT AND NO EXPENDITURE WAS ADMITTED FOR MAKING INVESTMENTS . IT WAS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS UTILIZED BORROWED FUNDS FOR MAKING INVESTMENTS. HOWEVER , THE ASSESSING OFFICER DETERMINED THE EXPENDITURE COMPONENT AS PER RULE 8D(2)(III). BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V. M. BASKARAN [2014] 50 TAXMANN.COM 138 (CHENNAI TRIB), THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. I N THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C.A. NO. 520 OF 2016 DATED 23.12.2016, THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHEN THERE IS NO EXEMPT INCOME THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE BY HOLDING AS UNDER : 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTL Y THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A I.T.A. NO . 1812 /M/ 16 7 YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SU CH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT (225 ITR 802). THE LANGUAGE OF S. 14A(1) SHOULD BE READ IN THAT CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF S. 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E., IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COS TS. 4 .4 IN VIEW OF THE ABOVE DECISION, WE DO NOT FIND ANY FLAW IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON THE 09 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 09 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.