Eicher Goodearth Investments Ltd., New Delhi V. DCIT, New Delhi

ITA 207/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7585 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: AJAY VOHARA; GAURAV JAIN UPVAN GUPTA S
• Keywords: Capital asset; Earning of tax free income; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1)

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B : NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 20 7 /DEL /201 3 ASSESSMENT YEAR : 200 7 - 200 8 M/S EICHER MOTORS LTD. (ERSTWHILE VS. D CIT, CIRCLE 11(1) EICHER GOODEARTH INVESTMENT LTD. ) NEW DELHI 3 RD FLOOR, SELECT CITY WALK A - 3, DIST. CENTRE, SAKET , NEW DELHI - 1100 17. ITA NO.52 5 /DEL /2013 ASSESSMENT YEAR: 200 7 - 200 8 DCIT, CIRCLE 11(1), VS. M/S EICHER MOTORS LIMITED NEW DELHI. (ERSTWHILE EICHER GOODEARTH INVESTMENT LTD.) 3 RD FLOOR, SELECT CITY WALK, A - 3 DIST. CENTRE SAKET NEW DELHI (APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI AJAY VOHARA, AND MS. GAURAV JAIN, UPVAN GUPTA, ADVOCATE S RESPONDENT BY: SMT. PARWINDER KAUR, CIT.DR ORDER PER SHRI GEORGE GEORGE K , J M : 1. THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT (A ) V, NEW DELHI, DATED 19.11.2012. THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 . 2. THE EFFECTIVE GROUNDS RAISED IN THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEE ARE AS FOLLOWS: ITA NO. 20 7 &5 2 5 /DEL /201 3 2 ITA NO.525/DEL/13 REVENUE S APPEAL: (I) THAT THE LD. CIT(A) HAD ERRED IN DELET ING THE ADDITION OF RS.2,12,08,600/ - BEING 10% OF TOTAL MANUFACTURING, TRADING AND OTHER EXPENSES OF RS.21,20,86,000/ - ; (II) THAT THE LD. CIT (A) HAD ALSO ERRED IN DELETING THE ADDITION OF RS.26,32,15,535/ - MADE U/S 14A READ WITH RULE 8D OF I.T. RULES, 1962; & (III) THAT THE LD. CIT (A) HAD ERRED IN DELETING THE ADDITION OF RS.90,36,373/ - MADE ON ACCOUNT OF EXPENDITURE INCURRED UNDER THE HEAD REPAIRS AND MAINTENANCE . ITA NO.207/DEL/13 ASSESSEE S APPEAL: (I) THAT THE CIT (A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OF N OTIONAL ADMINISTRATIVE EXPENSES OF RS. 3.58 LAKHS U/S 14A OF THE ACT ALLEGEDLY RELATING TO DIVIDEND INCOME; & (II) THAT THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF CONSULTANCY EXPENSES OF RS. 20,36,319/ - . 3. AS THE ISSUES RAISED IN THESE APPEAL PERTAI N TO THE SAME ASSESSEE, BOTH THE APPEALS WERE HEARD TOGETHER AND DISPOSED OFF IN THIS CONSOLIDATED ORDER. 4. WE SHALL NOW TO TAKE UP THE REVENUE S APPEAL FOR ADJUDICATION AS UNDER: (I) DELETION OF THE ADDITION OF RS.2,12,08,600/ - : THE CIT (A) HAD DELETED THE AD - HOC DISALLOWANCE OF RS. 2,12,08,600/ - MADE BY THE AO FOR THE FOLLOWING REASONS: (ON PAGE 9) 4.2. THE ISSUE INVOLVED AND SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CONSIDERED. IN SIMILAR FACTS AND CIRCUMSTANCES, THE UNDERS IGNED DOES NOT HAVE ANY REASON FOR DEVIATING FROM THE VIEW FORMED BY HIS (SIC) MY PREDECESSOR IN HER DETAILED APPEAL ORDER DATED 14.9.2011 FOR THE AY 2006 - 07. THE CIT (A) HAS GIVEN HER CLEAR FINDING AS SUBMITTED BY THE APPELLANT ABOVE, IN PARA 3.7 (PAGE 1 87 TO 188 OF THE PAPER BOOK) OF HER ORDER. THE DISALLOWANCE IS, THEREFORE, DELETED . 4.1. DURING THE COURSE OF HEARING BEFORE US, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE I.T. AUTHORITIES. ON THE OTHER HAND, THE LD. DR RELIED ON THE ASS ESSMENT ORDER AND ASSAILED THE FINDINGS OF THE CIT (A) ON THE ISSUE. ITA NO. 20 7 &5 2 5 /DEL /201 3 3 4.2. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIALS ON RECORD. AN IDENTICAL ISSUE TO THAT OF THE PRESENT ONE WAS RAISED BY THE REVENUE IN THE ASSESSEE S OWN CASE FOR THE AY 2006 - 07. AFTER DUE PERUSAL OF THE RIVAL SUBMISSIONS, THE EARLIER BENCH OF THIS TRIBUNAL, IN ITA NO. 5453/DEL/2011 DATED 21.11.2014 [IN WHICH BOTH OF US WERE SIGNATORIES TO THE SAID ORDER], FOR THE REASONS RECORDED THEREIN, DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. FOR READY REFERENCE, THE OPERATIONAL PORTIONS OF THE SAID FINDINGS ARE EXTRACTED AS UNDER: 6. . THE A.O. DISALLOWED ON AD - HOC BASIS 10% OF THE TOTAL EXPENDITURE FOR THE REASON THAT THE ASSESSEE COULD NOT FURNISH ITEM - WISE DETAILS OF PURCHASE AND SALE OF GOODS. THE CONTENTION OF THE ASSESSEE IS THAT IT IS DEALING IN VARIOUS ITEMS OF GOODS (MORE THAN 25000 ITEMS) AND DETAILS SOUGHT FOR BY THE ASSESSING OFFICER COULD NOT BE FURNISHED FULLY DUE TO PA UCITY OF TIME (DETAILS CALLED ON 26.12.2007 AND THE ASSESSMENT WAS COMPLETED ON 31.12.2007). HOWEVER, IN APPELLATE PROCEEDINGS, ON QUERIES RAISED BY THE CIT(A), THE ASSESSEE HAD FURNISHED ITEM WISE DETAILS OF THE TRADING DIVISION ALONG WITH VOUCHERS FOR P URCHASE AND SALE THEREOF ON SAMPLE BASIS, VIDE LETTER DATED 30.03.2010. THE DETAILS FURNISHED BY THE ASSESSEE AS PER THE CIT (A) DIRECTION WAS FORWARDED TO THE AO FOR HIS COMMENTS. THE AO FURNISHED A REPORT VIDE HIS LETTER DATED 30.04.2010. IN THE REPORT, THE ASSESSING OFFICER DID NOT RAISE ANY OBJECTION TO THE ASSESSEE S CASE ON MERITS BUT TECHNICAL OBJECTIONS WERE RAISED BY PLACING RELIANCE ON RULE 46A OF THE I.T. RULES, 1962. ADMITTEDLY, IN THIS CASE, THE BOOKS OF ACCOUNT WERE ACCEPTED BY THE ASSESSING O FFICER AND NO ADVERSE INFERENCE IN MAINTENANCE THEREOF WAS POINTED OUT. THE ENTIRE EXPENSES INCURRED DURING THE YEAR WAS DULY VOUCHED AND SUPPORTED BY NECESSARY DOCUMENTS. THE ASSESSING OFFICER COULD NOT HAVE MADE ANY AD - HOC DISALLOWANCES WITHOUT POINTING OUT EVEN A SINGLE INSTANCE OF INFLATION OF EXPENDITURE. ANOTHER REASON, FOR MAKING THE ABOVE SAID DISALLOWANCE WAS ON ACCOUNT OF LOW PROFIT IN TRADING DIVISION. AS MENTIONED EARLIER, THE GROSS MARGIN WAS WORKED OUT ON THE BASIS OF BOOKS OF ACCOUNT WHICH W ERE DULY AUDITED AND ACCEPTED AS CORRECT AND COMPLETE. THE GROSS PROFIT WITH REGARD TO SALE AND PURCHASE OF GOODS IN THE TRADING DIVISION WAS AT RATE OF 31.57% AND THERE WERE VARIOUS IN DIRECT EXPENSES IN THE NATURE OF HIGH RENTAL FOR RETAIL OUTLETS IN PRO MINENT LOCATION. THIS HAD PUSHED DOWN THE NET PROFIT RATE. THE CIT (A) HAS CATEGORICALLY FOUND GROSS PROFIT EARNED FROM THE TRADING DIVISION OF THE ASSESSEE IS REASONABLE AND HAS ALSO EXAMINED THE VOUCHERS OF PURCHASE AND SALE OF GOODS MADE BY THE ASSESSEE ON A SAMPLE BASIS AND HAS FOUND SAME IS TO BE CORRECT. THIS FINDING OF THE CIT (A) HAS NOT BEEN DISPELLED BY THE REVENUE PLACING ANY MATERIAL/ DOCUMENTS. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). ACCORDINGLY, WE DISMISS THIS GROUND OF THE REVENUE. ITA NO. 20 7 &5 2 5 /DEL /201 3 4 4.3. TAKING INTO ACCOUNT THE FACTS OF THE ISSUE AND ALSO IN CONFORMITY WITH OUR FINDINGS FOR THE AY 2006 - 07 IN THE ASSESSEE S OWN CASE FOR AN IDENTICAL ISSUE (SUPRA), WE CONFIRM THE FINDINGS OF THE CIT (A) FOR THIS AY TOO. IT IS ORDERED ACCORDINGLY. (II) DELETION OF THE ADDITION OF RS.26,32,15,535/ - : 5. AFTER TAKING INTO CONSIDERATION OF THE JUDICIAL VIEWS IN THE CASES OF (I) GODREJ & BOYCE MANUFACTURING COMPANY LTD. V. DCIT [328 ITR 81 (BOM)] & MAX OPP. INVERSTMENT LTD. V. CIT [203 TAXMAN 364 (DEL)]; (II) CIT V. WALFORT SHARE & STOCK BROKERS PVT. LTD [(2010) 326 ITR 1 (SC)], AND (III) SHRI RAM GLOBAL ENTERPRISES LTD V. JCIT IN ITA NO.3001/DEL/2011 DT.7.2.2012 ITAT, DELHI G BENCH; THE CIT (A) HAD OBSERVED AS UNDER: (ON PAGE 12) AS PER THE ORDER OF THE ITAT AND OF THE HIGH COURT, THERE SHOULD BE SATISFACTION OF THE AO IN REJECTING THE APPELLANT S CLAIM ARRIVED AT AFTER OBJECTIVE ANALYSIS OF FACTS. SATISFACTION IS SUBJECTIVE; THEREFORE, THE STAND ARD OF NORMAL PRUDENCE IN SIMILAR FACTS AND CIRCUMSTANCES HAS TO BE APPLIED. FROM A PERUSAL OF THE ASST. ORDER - PARA 5, IT HAS BEEN SEEN THAT THE AO IS NOT SATISFIED WITH THE VERSION OF THE APPELLANT BUT HE HAS NOT GIVEN THE BASIS AS TO WHY HE IS NOT SATI SFIED WITH VERSION OF THE APPELLANT. HOWEVER, DURING APPEAL PROCEEDINGS, THE ANNUAL REPORT OF THE APPELLANT WAS DISCUSSED WITH THE AR OF THE APPELLANT AND IT WAS POINTED OUT TO HIM THAT IT SHOWS ADMINISTRATIVE EXPENSES OF RS.21.20 CRORES AND THAT IT CANNO T BE RULED OUT THAT NO EXPENDITURE CAN BE ATTRIBUTED TO THE EARNING OF DIVIDEND INCOME. THE AR POINTED OUT THAT ENTIRE OFFICE STAFF IS NOT ENGAGED IN THIS JOB OF DECIDING INVESTMENT MATTERS AND THAT THERE MAY BE ONE OR TWO PERSONS ASSIGNED THIS PARTICULAR JOB. THE AR OF THE APPELLANT WAS ASKED TO GIVE DETAILS OF THE SPECIFIC PERSONS TO WHICH HIS REPLY HAS BEEN THAT THERE HAS BEEN ONLY ONE PERSON NAMELY, SRI SUNIL HARSH, DY. MANAGER (FINANCE) WHO WAS LOOKING AFTER TREASURY ACTIVITIES OF THE ASSESSEE COMPA NY COMPRISING OF INTER ALIA RAISING OF FUNDS, INVESTMENT IN SHARES AND OTHER MODE OF INVESTMENTS LIKE BONDS, MUTUAL FUNDS ETC., AND THAT DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT COMPANY HAD PAID GROSS SALARY OF RS.3.58 LACS TO THE AFORESAID PERSON. WITHOUT PREJUDICE TO THE SUBMISSION THAT NO PORTION OF THE ADMINISTRATIVE AND INTEREST EXPENSES CAN BE DISALLOWED; SINCE THE EXPENDITURE INCURRED HAD NO DIRECT RELATION WITH THE EARNING OF EXEMPT INCOME, IT IS ONLY SALARY PAID TO THE AFORESAID PERSONS WHI CH CAN BE DISALLOWED, IF AT ALL, ON SOME REASONABLE BASIS . ITA NO. 20 7 &5 2 5 /DEL /201 3 5 5.1. EXTENSIVELY QUOTING THE RULING OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF BINNY LIMITED V. ACIT [324 ITR 34 (MAD)], THE CIT (A) HAD, FURTHER, OBSERVED AS UNDER: (ON PAGE 14) . (IV) IT MAY BE MENTIONED THAT ON THE ISSUE OF INTEREST EXPENDITURE, THE PREDECESSOR OF THE UNDERSIGNED HAS DELETED THE DISALLOWANCE OF INTEREST, AS POINTED OUT BY THE APPELLANT AND NOTED ABOVE, WITH THE FINDING THAT THE APPELLANT HAD SURPLUS INTEREST FREE FUNDS AND THERE WAS NO NEXUS BETWEEN THE EXEMPT INCOME AND INTEREST EXPENDITURE. THE UNDERSIGNED DOES NOT HAVE ANY REASON FOR DEVIATING FROM THE VIEW FORMED BY ITS (MY) PREDECESSOR. EVEN OTHERWISE, THE AO HAS WRONGLY COMPUTED DISALLO WANCE OF INTEREST EXPENDITURE. THE CALCULATION OF DISALLOWANCE WAS WRONG IN AS MUCH AS THE AO DISALLOWED RS.16 CRORES AS AGAINST INTEREST EXPENDITURE OF RS.4.04 CRORES ONLY INCURRED DURING THE YEAR. KEEPING IN VIEW THE AFORESAID ACCUMULATIVE REASONS, DIS ALLOWANCE OF INTEREST EXPENDITURE IS DELETED. 5.2. THE LD. DR, DURING THE COURSE OF SUBMISSION BEFORE US, SUPPORTED THE REASONING OF THE AO ON THE ISSUE. ON THE OTHER HAND, THE SUBMISSIONS MADE BY THE LD. AR ARE SUMMARIZED AS UNDER: - THAT RULE 8D IS NOT APPLICABLE TO THE RELEVANT ASSESSMENT YEAR AND THAT THE ASSESSEE WAS HOLDING DEEP BUSINESS INTEREST IN EICHER LIMITED, A SUBSIDIARY COMPANY. THE SHARES OF THE SAID SUBSIDIARY WERE ACQUIRED BY THE ASSESSEE TO ACQUIRE THE ENTIRE CONTROLLING INTEREST THEREI N. SUBSEQUENTLY, THE SAID COMPANY GOT AMALGAMATED WITH THE ASSESSEE W.E.F. 4.3.2008. THEREFORE, SINCE THE PURPOSE OF MAKING INVESTMENTS IN THE SAID SUBSIDIARY WAS NOT TO EARN DIVIDEND INCOME BUT TO ACQUIRE ENTIRE CONTROLLING INTEREST THEREIN, NO DISALLOW ANCE U/S 14A OF THE ACT WAS WARRANTED IN THE PRESENT CASE; - THAT EVEN OTHERWISE, DURING THE RELEVANT AY, THE ASSESSEE S INVESTMENTS INCREASED FROM RS.6953.36 LAKHS TO RS. 12,140.38 LAKHS, I.E., AN INCREASE OF RS.5187 LAKHS, MAJORLY ON ACCOUNT OF INVESTMENTS IN EICHER LIMITED, A GROUP COMPANY OF THE ASSESSEE FOR ACQUIRING CONTROLLING INTEREST THEREIN. THE SAID COMPANY WAS PROMOTED BY THE ASSESSEE ONLY. FURTHER, THE ASSESSEE HAD SUFFICIENT CASH FUNDS AVAILABLE FOR MAKING SAID INVESTMENTS DURING THE RELEVANT AY ON ACCOUNT OF CASH FROM SALE OF CURRENT INVESTMENTS OF RS.8263 LAKHS, CASH FROM OPERATING ACTIVITIES OF RS.719 LAKHS AND CASH FROM FINANCING ACTIVITIES OF RS.2623 LAKHS, AGGREGATING TO RS.11,605 LAKHS. 5.3. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF EITHER PARTY. INCIDENTALLY, AN IDENTICAL ISSUE TO THAT OF THE ISSUE UNDER CONSIDERATION HAD CROPPED UP BEFORE THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE ITA NO. 20 7 &5 2 5 /DEL /201 3 6 ASSESSMENT YEAR 2006 - 07 WHEREIN WE HAVE DEALT WITH THE MATTER ELABORATE LY AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOR READY REFERENCE, THE RELEVANT PORTION OF OUR FINDING IS REPRODUCED VERBATIM AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ADMITTEDLY, THE DIVIDEND WHICH IS EXEMPT FROM TAXATION IS EARNED ON ACCOUNT OF INVESTMENT MADE IN SHARE IN THE EARLIER YEARS. THE ADDITIONAL SHARES ALLOTTED TO THE ASSESSEE S COMPANY IN THE CURRENT ASSESSMENT YEAR WERE ON ACCOUNT OF AMALGAMATION OF SUBSIDIARY COMPANIES. THEREFORE, NO PORTION OF T HE INTEREST EXPENSES INCURRED WAS IN RELATION TO INVESTMENTS IN SHARES. AS RIGHTLY POINTED OUT BY THE CIT (A), THE AO HAS NOT ESTABLISHED ANY NEXUS BETWEEN THE INVESTMENT AND THE BORROWED FUNDS. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE CASH FLOW STATEMENT, THE CIT(A) HAS CATEGORICALLY FOUND THAT THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS IN THE FORM OF RESERVES AND SURPLUS AND THERE WAS NO RELATION BETWEEN THE INTEREST EXPENDITURE AND THE DIVIDEND INCOME. THEREFORE, DISALLOWANCE OF IN TEREST EXPENDITURE, BY INVOKING THE PROVISION OF SECTION 14A, WAS UNCALLED FOR AND, HENCE, WE CONFIRM THE CIT(A) S ORDER ON THIS ASPECT. 5.4. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE ISSUE AS DELIBERATED UPON IN THE FORE - GOING PARAGRAP H AND IN CONSONANCE WITH OUR FINDINGS FOR THE AY 2006 - 07 IN THE ASSESSEE S OWN CASE (SUPRA), WE SUSTAIN THE FINDINGS OF THE CIT (A) ON THIS ISSUE. IT IS ORDERED ACCORDINGLY. (III) DELETION OF THE ADDITION OF RS.90,36,373/ - MADE ON ACCOUNT OF EXPENDITURE INCURRED UNDER THE HEAD REPAIRS AND MAINTENANCE: 6. THE CIT (A) HAD DELETED THE ADDITIONS, AGGREGATING TO RS.90.36 LAKHSFOR THE FOLLOWING REASONS: (ON PAGE 19)(II) ..THE SETTLED POSITION OF LAW IS THAT THERE IS NO HARD AND FA ST RULE TO DETERMINE WHETHER AN EXPENDITURE IS OF CAPITAL IN NATURE OR IT IS REVENUE IN NATURE; IT DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH CASED A SMALL EXPENDITURE LEADING TO IMPROVEMENT OF THE PRODUCTIVITY / PROFIT EARNING CAPACITY MAY BE CAPI TAL IN NATURE WHEREAS A HUGE EXPENDITURE ON REPLACEMENT OF A WORN OUT ASSET MAY BE A REVENUE EXPENDITURE. THE AO, IN THE ASST. ORDER HAS NOT EXAMINED THE ISSUE AT ALL FROM VARIOUS ANGLES KEEPING IN VIEW THE FACTS ANDCIRCUMSTANCES; IT (HE) HAS SIMPLY MADE THE DISALLOWANCE FOR THE PURPOSE OF MAKING IT. NO INQUIRY WHATSOEVER HAS BEEN CARRIED OUT AS TO NATURE OF REPAIRS CARRIED OUT AT THE FACTORY BUILDING / SHOP WHETHER IT WAS REPAIR OR CONSTRUCTION OF A FRESH BUILDING / SHOP. AMOUNT INVOLVED IS RS.64,11,938 / - . THE AO HAS NOT APPLIED ITS (HIS) MIND AT ALL. SAME HAS ITA NO. 20 7 &5 2 5 /DEL /201 3 7 BEEN IN THE CASE OF REPAIRS OF CORPORATE OFFICE - IT HAS NOT BEEN EXAMINED WHETHER IT WAS REPLACEMENT OF EXISTING ASSETS LEADING TO BETTER OPERATIONAL EFFICIENCY OF THE BUILDING OR OTHERWISE; DISAL LOWANCE HAS BEEN MADE PURELY ON AD - HOC BASIS @ 25%. AS REGARDS DISALLOWANCE OF RS. 14,42,400/ - , A JUDGMENT HAS BEEN GIVEN WITHOUT DISCUSSING THE NATURE OF EXPENSES. IN VIEW OF THE AFORESAID, THE UNDERSIGNED HAS NO ALTERNATIVE OTHER THAN DELETING ADDITIO NS OF RS.64,11,938/ - , RS.14,42,400/ - AND RS.11,47,035/ - . THE AFORESAID ADDITIONS ARE, THEREFORE, DELETED. 6.1. THE LD. DR SUPPORTED THE REASONING OF THE AO IN ADDING THE SAID SUMS UNDER THE HEAD REPAIRS AND MAINTENANCE , BUT, ASSAILED THE STAND OF THE CIT (A) ON THE ISSUE. ON THE OTHER HAND, THE LD.AR SUBMITTED THAT A SIMILAR GROUND WAS RAISED BY THE ASSESSEE FOR THE AY 2006 - 07 AND THAT THE SUBMISSIONS MADE THEREIN BE TREATED AS THE CONTENTIONS OF THE ASSESSEE FOR THE PRESENT ASSESSMENT YEAR TOO. 6.2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED RELEVANT MATERIALS ON RECORD. IT IS A FACT THAT SIMILAR ISSUE TO THAT OF THE ISSUE UNDER DISPUTE WAS CONSIDERED BY US FOR THE AY 2006 - 07 IN THE ASSESSEE S OWN CASE. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE ISSUE WHICH WE HAVE ELABORATELY DEALT WITH FOR THE AY 2006 - 07, WE ARE OF THE VIEW THAT THE FINDINGS RECORDED THEREIN HOLD - GOOD FOR THIS AY ALSO. IN SUBSTANCE, THE FINDINGS OF THE CIT (A) ARE SUSTAINED. FOR READY REFERENCE, OUR FINDINGS ON THE ISSUE FOR THE AY 2006 - 07 ARE REPRODUCED AS UNDER: 16 IT IS A FACT THAT THE ASSESSEE HAD ACQUIRED THE LAND AT BALLABGARH IN THE YEAR 1979 ON WHICH FACTORY BUILDING WAS CONSTRUCTED AND, ACCORDINGLY, CAPITALIZED IN THE BOOKS ON THE YEAR ENDING 31.3.1981 FOR AN AGGREGATE AMOUNT OF RS. 85,99,124/ - . IT WAS ALSO A FACT THAT SINCE THEN THE BUILDING WAS PUT TO USE IN THE COURSE OF BUSINESS CARRIED ON BY THE ASSESSEE AND FOR THE CONTINUOUS USE OF THE BUILDING FOR A LONG PERIOD OF OVER 20 YEARS, THE FACTORY BUILDING HAD NATURALLY REQUIRED CERTAIN REPAIRS AND ALTERATIONS FOR UNINTERRUPTED AND SMOOTH OPERATIONS OF THE BUSINESS IN THE SAID BUILDING. CONSIDERING THE LIFE OF THE BUILDING AND THE TOTAL AMOUNT OF EXPENDITURE O F RS.6,84,504/ - INCURRED ON REPAIR OF THE AFORESAID FACTORY DURING THE YEAR WAS NOMINAL COMPARED TO THE TOTAL CONSTRUCTION COST OF BUILDING OF RS. 85,99,124/ - IN THE YEAR 1981. AS ARGUED BY THE LEARNED AR DURING THE COURSE OF HEARING, THE AFORESAID EXPE NSES WERE INCURRED TOWARDS REPAIR AND RENOVATION OF THE EXISTING ITA NO. 20 7 &5 2 5 /DEL /201 3 8 FACTORY BUILDING WHICH DID NOT RESULT IN ACQUISITION OF ANY NEW CAPITAL ASSET NOR INCREASE IN PRODUCTION CAPACITY OF THE FACTORY. THE AFORESAID REPAIR EXPENSES AT THE FACTORY BUILDING ONLY FA CILITATED SMOOTH FUNCTIONING OF THE EXISTING OPERATIONS CARRIED OUT AT THE FACTORY. THEREFORE, WE ARE OF THE VIEW THAT THE SAID EXPENDITURE CANNOT BE SAID TO BE CAPITAL IN NATURE. UNDER THE PROVISIONS OF THE ACT, AN EXPENDITURE INCURRED ON REPAIR OF BUILD ING FOR THE PURPOSES OF BUSINESS, WHICH IS NOT CAPITAL IN NATURE IS ALLOWABLE DEDUCTION UNDER SECTION 30 OR 37(1) OF THE ACT. EXPENDITURE IN THE NATURE OF CURRENT REPAIRS OF BUILDING IS ALLOWABLE DEDUCTION UNDER SECTION 30 OF THE ACT. IF THE REPAIR EXPENDI TURE, WHICH IS INCURRED FOR THE PURPOSES OF BUSINESS, DOES NOT FALL WITHIN THE NATURE OF EXPENSES SPECIFIED IN, INTER ALIA, SECTION 30, AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE, IS ALLOWABLE DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE HON BLE SUPREME COURT IN THE CASES OF (I) CIT V. SARVANA SPINNING MILLS P. LTD.: 293 ITR 201 (SC) & (II) RAMARAJU SURGICAL COTTON MILLS: 294 ITR 328 (SC) HAS HELD THAT IF A REPAIR EXPENDITURE DOES NOT FALL WITHIN THE MEANING OF CURRENT REPAIR UNDER SECTION 30, B UT DOES NOT RESULT IN ACQUISITION OF ANY NEW CAPITAL ASSET, CAN BE ALLOWED AS REVENUE EXPENDITURE UNDER THE RESIDUARY PROVISION OF SECTION 37(1) OF THE ACT. EXPENDITURE IS REGARDED AS CAPITAL EXPENDITURE, IF THE SAME RESULTS IN (I) ACQUISITION OF CAPITAL ASSETS; OR (II) BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD OR ADDS TO THE PROFIT EARNING APPARATUS OF AN ASSESSEE. SINCE THE EXPENDITURE INCURRED BY THE PRESENT ASSESSEE ON THE EXISTING FACTORY BUILDING DID NOT - (I) RESULT IN ACQUISITION OF ANY NEW CAPITAL ASSET, IN AS MUCH AS, THE BUILDING WAS OLD AND HAD ALREADY STOOD CAPITALIZED IN THE BOOKS FOR THE YEAR ENDING 31.3.1981 AND (II) EVEN DID NOT ADD TO THE PROFIT EARNING CAPACITY OF THE FACTORY, SINCE THE RENOVATION IN THE FACTORY HAD NO BEARING ON I NCREASE IN THE PROFIT EARNING CAPACITY; SUCH RENOVATION ONLY FACILITATED SMOOTH FUNCTIONING OF THE EXISTING OPERATIONS OR PROFIT EARNING CAPACITY OF THE FACTORY BUILDING, WE ARE OF THE VIEW THAT THE EXPENDITURE BEING NOT CAPITAL IN NATURE AND HAVING BEEN I NCURRED FOR THE PURPOSE OF BUSINESS, IS ALLOWABLE AS REVENUE EXPENDITURE UNDER SECTION 30 OR 37(1) OF THE ACT. FOR THE ABOVE PROPOSITION, WE RELY ON THE JUDGMENTS OF THE HON BLE SUPREME COURT IN THE CASES OF (I) ASSAM BENGAL CEMENT CO. LTD. V. CIT: 27 ITR 34 (SC); (II) EMPIRE JURE CO. LTD. V. CIT: 124 ITR 1 (SC); (III) CIT V. ASSOCIATED CEMENT COMPANIES LTD.: 172 ITR 257 (SC); AND (IV) ALEMBIC CHEMCIAL WORKS CO. LTD. V. CIT: 177 ITR 377 (SC). 7. IN THE RESULT, THE REVENUE S APPEAL IS DISMISSED. 8 . ITA NO.207/DEL/13 ASSESSEE S APPEAL: (I) CONFIRMING THE DISALLOWANCE OF NOTIONAL ADMINISTRATIVE EXPENSES OF RS. 3.58 LAKHS U/S 14A OF THE ACT: THE CIT (A) HAD CONFIRMED THE DISALLOWANCE OF NOTIONAL ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS.3.58 LAKHS U/S 14A OF THE ACT ON THE GROUND THAT THE ITA NO. 20 7 &5 2 5 /DEL /201 3 9 UNDERSIGNED HAS NOT BEEN SATISFIED WITH THE VERSION OF THE APPELLANT THAT NO EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING DIVIDEND INCOME AND RECORDS ITS SATISFACTION AS REQUIRED U/S 14A. THEREFORE, THE DISALLOWAN CE IS REASONABLY REQUIRED TO BE MADE OF THE SALARY OF SRI SUNIL HARSH . [REFER: PAGE 14 OF CIT (A) S ORDER] 8.1. DURING THE COURSE OF HEARING, IT WAS SUBMITTED BY THE LD. AR THAT THE ENTIRE OFFICE WAS NOT ENGAGED IN THE JOB OF DECIDING INVESTMENT MATTERS AND THAT THERE MAY BE ONE OR TWO PERSONS ASSIGNED THIS PARTICULAR JOB. BEING QUERIED BY THE CIT (A) TO SPECIFY THE PERSON(S) TO WHOM THE JOB WAS ASSIGNED, THE LD. AR CAME UP WITH THE DETAILS THAT THERE HAS BEEN ONLY ONE PERSON NAMELY, SRI SUNIL HARSH, DY. MANAGER (FINANCE) WHO WAS LOOKING AFTER TREASURY ACTIVITIES OF THE ASSESSEE COMPANY COMPRISING OF, INTER ALIA, RAISING OF FUNDS, INVESTMENT IN SHARES AND OTHER MODE OF INVESTMENTS LIKE BONDS, MUTUAL FUNDS ETC., AND THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE COMPANY HAD PAID GROSS SALARY OF RS.3.58 LAKHS TO THE SAID PERSON. THE LD. AR, HOWEVER, PLEADED THAT NO PORTION OF THE ADMINISTRATIVE AND INTEREST EXPENSES CAN BE DISALLOWED SINCE THE EXPENDITURE INCURRED HAD NO DIRECT RELATION WITH THE EARNI NG OF EXEMPT INCOME, BUT, IT WAS ONLY SALARY PAID TO THE SAID PERSON. THE LD. DR PRESENT WAS HEARD. 8.2. WE HAVE DULY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND ALSO PERUSED THE REASONING OF THE CIT (A) IN CONFIRMING THE ADDITION TO THE EXTEN T OF RS.3.58 LAKHS BEING THE SALARY PAID TO SRI SUNIL HARSH. IT IS A FACT THAT THE TOTAL ADMINISTRATIVE EXPENSES WAS TO THE TUNE OF RS.21.53 CRORES, IN WHICH, THE DISALLOWANCE WAS RESTRICTED BY THE CIT (A) WAS ONLY TO THE EXTENT OF RS.3.58 LAKHS BEING SAL ARY PAID TO SRI SUNIL HARSH. ADMITTEDLY, THE LD. AR HAD CONCEDED BEFORE THE CIT (A ) THAT THERE HAS BEEN ONLY ONE PERSON NAMELY, SRI SUNIL HARSH, DY. MANAGER (FINANCE) WHO WAS LOOKING AFTER TREASURY ACTIVITIES OF THE ASSESSEE COMPANY COMPRISING OF INTER A LIA RAISING OF FUNDS, INVESTMENT IN SHARES AND ITA NO. 20 7 &5 2 5 /DEL /201 3 10 OTHER MODE OF INVESTMENTS LIKE BONDS, MUTUAL FUNDS ETC., AND THAT DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT COMPANY HAD PAID GROSS SALARY OF RS.3.58 LACS TO THE AFORESAID PERSON. WITHOUT PREJUDICE TO TH E SUBMISSION THAT NO PORTION OF THE ADMINISTRATIVE AND INTEREST EXPENSES CAN BE DISALLOWED; SINCE THE EXPENDITURE INCURRED HAD NO DIRECT RELATION WITH THE EARNING OF EXEMPT INCOME, IT IS ONLY SALARY PAID TO THE AFORESAID PERSONS WHICH CAN BE DISALLOWED, IF AT ALL, ON SOME REASONABLE BASIS [ SOURCE: PAGE 12 OF THE CIT S ORDER]. SINCE THE ASSESSEE ITSELF HAD ADMITTED THAT SRI SUNIL HARSH WAS RESPONSIBLE FOR LOOKING AFTER THE FINANCIAL MATTER, SUCH AS RAISING OF FUNDS, INVESTMENT IN SHARE, BOND AND MUTUAL FUN D AND THAT WHEN A PERSON WAS DIRECTLY RESPONSIBLE TO LOOKING AFTER AND TAKING CARE OF INVESTMENT, IT WAS ONLY NATURAL THAT THE SALARY OF SRI SUNIL HARSH WAS PART OF ADMINISTRATIVE EXPENSES WHICH HAD DIRECT BEARING TO THE EARNING OF EXEMPT INCOME, NAMELY, D IVIDEND INCOME. WE ARE, THEREFORE, OF THE VIEW THAT THE CIT (A) WAS JUSTIFIED IN DISALLOWING THE SUM OF RS.3.58 LAKHS BEING SALARY PAID TO SRI SUNIL HARSH [AS ADMITTED BY THE ASSESSEE ITSELF] UNDER RULE 8D(2)(III) OF I.T.RULES, 1962. IT IS ORDERED ACCORDIN GLY. (II) DISALLOWANCE OF OF CONSULTANCY EXPENSES OF RS. 20,36,319/ - : 9. THE CIT (A) HAD CONFIRMED THE ADDITION OF RS.20,36,319/ - FOR THE FOLLOWING REASONING: (ON PAGE 22) 7.2 .AS NOTED ABOVE, WHETHER AN EXPENDITURE IS CAPITAL IN NATURE OR IT IS REVENUE EX PENDITURE, NO HARD AND FAST RULE CAN BE APPLIED, IT DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN THE ISSUE UNDER CONSIDERATION ALTHOUGH THE PURCHASE OF SHARES OF SUBSIDIARY COMPANY THROUGH PUBLIC OFFER HAS NOT RESULTED IN EXPANDING THE CAPITAL BASE OF THE APPELLANT COMPANY, YET IT IS ACQUISITION OF NEW ASSET. ANY EXPENDITURE INCURRED FOR ACQUISITION OF A NEW ASSET IS CAPITAL EXPENDITURE. THE APPELLANT S VERSION THAT IT HAD PURCHASED SHARES DURING ITS NORMAL BUSINESS ACTIVITY DOES NOT HAVE ANY M ERIT BECAUSE THE APPELLANT S BUSINESS ACTIVITY AS NOTED ABOVE IS MANUFACTURE OF MAPS AND OTHER ITA NO. 20 7 &5 2 5 /DEL /201 3 11 FURNISHING ITEMS AND IT IS NOT SALE AND PURCHASE OF SHARES. ANY EXPENDITURE INCURRED ON CAPITAL ACCOUNT IS CAPITAL EXPENDITURE. THEREFORE, THE CONSULTANCY CHAR GES PAID TO J.M. MORGAN STANLEY AND ILFS INVESTMENT SECURITIES LIMITED ARE CAPITAL IN NATURE, THE SAME DESERVE TO BE DISALLOWED AND HAVE (HAS) BEEN RIGHTLY DISALLOWED BY THE AO. THE STAND OF THE AO IS CONFIRMED . 9.1. DURING THE COURSE OF HEARING BEF ORE US, THE LEARNED AR SUBMITTED THAT THE EXPENDITURE WAS INCURRED ON ACCOUNT OF BID - CUM - DELISTING OF SHARES OF EICHER LIMITED, A SUBSIDIARY COMPANY. IT WAS SUBMITTED THAT THE SAID EXPENSES WERE INCURRED FOR ACQUISITION OF THE ENTIRE CONTROLLING INTEREST IN SUBSIDIARY COMPANY EICHER LIMITED SINCE THE ASSESSEE WAS A PROMOTER OF THE SAID SUBSIDIARY AND ALSO HAS BUSINESS INTEREST IN IT. IT WAS, FURTHER, SUBMITTED THAT THE ASSESSEE BEING A PROMOTER OF EICHER LIMITED AND HOLDING BUSINESS INTEREST IN THAT COMP ANY, DECIDED TO ACQUIRE ENTIRE CONTROL OVER THAT COMPANY AND, CONSEQUENTLY, MADE AN OPEN OFFER TO THE PUBLIC SHARE - HOLDERS TO ACQUIRE THEIR SHARES AND DELIST EICHER LIMITED FROM STOCK EXCHANGE FOR WHICH SERVICES OF J M MORGAN STANLEY PVT. LTD [MERCHANT BAN KER] AND ILFS INVESTMENTS SECURITIES LIMITED [SYNDICATE MEMBER] WERE OBTAINED IN ACCORDANCE WITH THE TRIPARTITE AGREEMENT DT. 23.12.2006. IT WAS POINTED OUT THAT PURSUANT TO THE DELISTING OF SHARES OF EICHER LIMITED [AFTER ACQUISITION OF SHARES FROM PUBLIC SHARE - HOLDERS];EICHER LIMITED WAS AMALGAMATED WITH THE ASSESSEEW.E.F. 4.3.2008 PURSUANT TO THE SCHEME OF AMALGAMATION BEING APPROVED BY THE HON BLE HIGH COURT OF DELHI. IN THE ABOVE BACK - GROUND, IT WAS SUBMITTED THAT THE CONSULTANCY EXPENSES INCURRED BY THE ASSESSEE WAS AN ALLOWABLE BUSINESS DEDUCTION U/S 37(1) OF THE ACT FOR THE FOLLOWING REASONS, NAMELY: > IN TERMS OF S. 37(1) OF THE ACT, ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, OTHER THAN, INTER ALIA, CAPITAL EXPEND ITURE IS ALLOWABLE BUSINESS DEDUCTION; >THAT THE ASSESSEE WAS A PROMOTER OF EICHER LTD AND HELD BUSINESS/CONTROLLING INTEREST WITH THAT COMPANY. WITH A VIEW TO ACQUIRE COMPLETE CONTROL OVER THAT COMPANY, THE ASSESSEE DECIDED TO ACQUIRE SHARES OF EICHER LI MITED FROM PUBLIC SHAREHOLDERS AND DELIST THE SAME FROM STOCK EXCHANGES THEREAFTER. FURTHER ITA NO. 20 7 &5 2 5 /DEL /201 3 12 ACQUISITION OF SHARES IN SUBSIDIARY COMPANY TO STRENGTHEN CONTROLLING INTEREST IN SUCH COMPANY WAS IN FURTHERANCE OF THE BUSINESS OF THE ASSESSEE I.E., HOLDING INV ESTMENTS IN OPERATING COMPANIES. ACCORDINGLY, EXPENDITURE IN RELATION THERETO WOULD BE REGARDED AS BEING INCURRED FOR THE PURPOSES OF BUSINESS WHICH IS ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT. 9.2. TO STRENGTHEN HIS ARGUMENT, THE LD. AR HAD PLACED RELI ANCE ON THE FOLLOWING CASE LAWS, NAMELY: (I) ADDL. CIT V. LAXMI AGENTS (P) LTD 125 ITR 227 (GUJ); (II) CIT V. AMRITABEN R SHAH 238 ITR 777 (BOM); (III) SRISHTI SECURITIES (P) LTD V. JCIT 321 ITR 498 (BOM); (IV) CIT V. PREMIER POLY SACKS 321 ITR 450 (MA D); (V) CIT V. SRISHTI SECURITIES PVT. LTD 183 TAXMAN 159 (BOM); (VI) CIT V. TULIP STAR HOTELS LTD (2011) 16 TAXMANN.COM 335 (DEL) 9.3. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE STAND OF THE CIT (A) ON THE ISSUE. 9.4. WE HAVE CAREFULLY CONSIDERE D THE SUBMISSIONS OF THE ASSESSEEAND THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE BEING A PROMOTER OF EICHER LIMITED AND WITH A VIEW TO ACQUIRE FULL CONTROL OVER OF THE SAID COMPANY, DECIDED TO ACQUIRE THE SHARES OF EICHER LIMIT ED FROM PUBLIC SHAREHOLDERS AND TO DELIST THE SAME FROM STOCK EXCHANGES. APPARENTLY, THE ACQUISITION OF SHARES IN ITS SUBSIDIARY COMPANY [EICHER LIMITED] WAS TO STRENGTHEN ITS CONTROLLING INTEREST IN THAT COMPANY IN FURTHERANCE OF ITS BUSINESS ONLY. ACCO RDINGLY, THE EXPENDITURE INCURRED IN RELATION THERETO WOULD BE REGARDED FOR HAVING INCURRED FOR THE PURPOSES OF ITS BUSINESS WHICH IS ALLOWABLE AS A DEDUCTION U/S 37(1) OF THE ACT. WE HAVE ALSO PERUSED THE CASE LAWS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIANCE. THE RATIO LAID DOWN BY VARIOUS JUDICIARIES IS THAT INTEREST EXPENDITURE INCURRED ON BORROWED FUNDS UTILIZED FOR ACQUIRING CONTROLLING INTEREST IN COMPANIES WOULD BE ALLOWABLE BUSINESS DEDUCTION SINCE THE ACQUISITION OF CONTROLLING INTEREST IN A COMPANY IS IN FURTHERANCE OF THE BUSINESS PURPOSES OF THE ASSESSEE. TO ILLUSTRATE FURTHER, THE JUDGMENTS RENDERED BY VARIOUS JUDICIARY IN THE CONTEXT OF ALLOW ABILITY OF CLAIM OF ITA NO. 20 7 &5 2 5 /DEL /201 3 13 INTEREST U/S 36(1)(III) WOULD EQUALLY BE APPLICABLE TO THE CLAIM OF DEDUCTIO N U/S 37(1) OF THE ACT IN AS MUCH AS THE CONDITIONS PRECEDENT FOR DEDUCTION UNDER THE BOTH THE PROVISIONS IS SAME, NAMELY, AN EXPENDITURE MUST HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS. 9.5. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT IN T HE PRESENT CASE THE CONSULTANCY EXPENSES INCURRED BY THE ASSESSEE WITH A VIEW TO ACQUIRE THE SHARES OF EICHER LIMITED FROM THE PUBLIC SHAREHOLDERS TO ESTABLISH ITS HOLDING IN THAT COMPANY HAS TO BE REGARDED AS BEING INCURRED FOR THE PURPOSE OF ITS BUSINESS ONLY WHICH IS ALLOWABLE DEDUCTION U/S 37(1) OF THE ACT. IN ESSENCE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 10. IN THE RESULT : (I) THE REVENUE S APPEAL IS DISMISSED; & (II) THEASSESSEE S APPEAL IS PART LY ALLOWED AS INDICATED ABOVE. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 2 TH DECEMBER , 201 4 . SD/ - SD/ - ( J.S. REDDY ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDI CIAL MEMBER DATED: DECEMBER , 12 TH 201 4 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI