Dinesh Mills Ltd., Baroda V. The ACIT.,Circle-4,, Baroda

ITA 2369/AHD/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6279 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 04-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADIPKUMAR MAJUMDAR
• Assessee Lawyers: K D SHAH
• Keywords: Earning of tax free income; Question of law; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1); 194C; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 2369/AHD/2010 (ASSESSMENT YEAR: 2007-08) SHRI DINESH MILLS LIMITED PADRE ROAD, P.O. BOX NO. 2501, VADODARA-390020 V/S THE ACIT CIRCLE-4, BARODA (APPELLANT) (RESPONDENT) ITA. NOS: 2313 & 2504/AHD/2011 (ASSESSMENT YEAR: 2008-09) SHRI DINESH MILLS LIMITED PADRE ROAD, P.O. BOX NO. 2501, VADODARA-390020 THE ACIT CIRCLE-4, BARODA V/S V/S THE ACIT CIRCLE-4, BARODA SHRI DINESH MILLS LIMITED PADRE ROAD, P.O. BOX NO. 2501, VADODARA-390020 (APPELLANT) (RESPONDENT) ITA. NO: 2001/AHD/2012 & C.O. NO. 191/AHD/13 (ASSESSMENT YEAR: 2009-10) THE DCIT CIRCLE-4, BARODA SHRI DINESH MILLS LIMITED V/S V/S SHRI DINESH MILLS LIMITED PADRE ROAD, P.O. BOX NO. 2501, VADODARA-390020 THE DCIT CIRCLE-4, BARODA ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 2 PADRE ROAD, P.O. BOX NO. 2501, VADODARA-390020 (APPELLANT) (RESPONDENT) PAN: AADCS 3115Q APPELLANT BY : SHRI S. N. SOPARKAR & PARIN SHAH & & K.D. SHAH, A.R. RESPONDENT BY: SHRI PRADIP KUMAR MAJUMDAR, SR.DR ( )/ ORDER DATE OF HEARING : 04 -04-201 7 DATE OF PRONOUNCEMENT : 10 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NO. 2369/AHD/2010 IS APPEAL BY THE ASSESSEE PRE FERRED AGAINST THE ORDER OF THE LD. CIT(A)-III, BARODA DATED 14.05.201 0 PERTAINING TO A.Y. 2007- 08. ITA NOS. 2313 & 2504/AHD/2011 ARE CROSS APPEAL S BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)-III, BARODA DATED 26.07.2011 PERTAINING TO A.Y. 2008-09. ITA NO. 2001 /AHD/2012 IS THE APPEAL BY THE REVENUE PREFERRED AGAINST THE ORDER O F THE LD. CIT(A)-III, BARODA DATED 29.06.2012 PERTAINING TO A.Y. 2009-10 AND C.O. NO. 191/AHD/2013 IS BY THE ASSESSEE PREFERRED AGAINST T HE VERY SAME ORDER OF THE LD. CIT(A)-III, BARODA FOR A.Y. 2009-10. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 3 2. THIS BUNCH OF APPEALS HAVE COMMON ISSUES, THEREFORE , THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 2369/AHD/2010 ASSESSEES APPEAL FOR A.Y. 20 07-08. 3. THE ONLY SURVIVING GRIEVANCE OF THE ASSESSEE RELATE S TO THE DISALLOWANCE OF RS. 31,87,067/- MADE BY A.O. INVOKING PROVISION OF SECTION 14A READ WITH RULE 8D. 4. IN THE FIRST ROUND OF LITIGATION, THIS ISSUE WAS PA RTLY DECIDED IN FAVOUR OF THE ASSESSEE AND PARTLY IN FAVOUR OF THE REVENUE. THE A SSESSEE THROUGH THE MISCELLANEOUS APPLICATION PRAYED FOR RECALLING THE ORDER OF THE TRIBUNAL SO FAR AS IT WAS AGAINST THE ASSESSEE AND THE TRIBUNAL VIDE M.A. NO. 104/AHD/2014 HELD AS UNDER:- 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND HAVE ALSO GONE THROUGH THE MISCELLANEOUS APPLICATIO N. WITH RESPECT TO DISALLOWANCE U/S, 14A IN ITA NO. 2369/AHD/2010, IT IS SEEN THAT FOR THE YEAR UNDER CONSIDERATION BEING A.Y. 2007-08, THE DISALLO WANCE U/S. 14A HAS BEEN MADE BY FOLLOWING THE PROVISIONS OF RULE 8D. WE FUR THER FIND THAT HON'BLE GUJARAT HIGH COURT IN ASSESSEE'S OWN CASE IS A.Y. 2006-07 W HILE DECIDING THE SPECIAL CIVIL APPLICATION NO. 15726 OF 2010, HAS HELD THAT PROVIS IONS OF RULE 8D ARE APPLICABLE FROM A.Y. 2008-09 AND IS NOT RETROSPECTIVE. CONSIDE RING THE AFORESAID FACT, WE ARE OF THE VIEW THAT THERE IS AN APPARENT MISTAKE IN TH E ORDER OF TRIBUNAL AND THEREFORE RECALL THE ORDER IN ITA NO. 2369/AHD/2010 FOR A LIMITED PURPOSE TO DECIDE THE ISSUE WITH RESPECT TO DISALLOWANCE U/S. 14A OF THE ACT. THE REGISTRY IS DIRECTED TO FIX THE HEARING THE APPEAL IN DUE COURS E. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 4 5. THE REVENUE PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT OF GUJARAT IN SO FAR AS THE PART WHICH HAS BEEN DECIDED AGAINS T THE REVENUE AND THE HONBLE JURISDICTIONAL HIGH COURT WAS SEIZED WITH T HE FOLLOWING SUBSTANTIAL QUESTION OF LAW IN TAX APPEAL NO. 769 OF 2015. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW AND ON FACTS IN REVERSING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING DISAL LOWANCE MADE BY THE ASSESSING OFFICER ON TOTAL INVESTMENT MADE IN SHARE S OF SUBSIDIARY COMPANY? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW AND ON FACTS IN HOLDING THAT THE INVESTMENT MADE FOR THE PURCHASE OF SHARES OF SUBSIDIARY COMPA NY WAS NOT A LEGITIMATE BUSINESS ACTIVITY OF THE APPELLANT? 6. AFTER CONSIDERING THE FACTS IN TOTALITY, THE HONBL E JURISDICTIONAL HIGH COURT OBSERVED AS UNDER:- 7. BEFORE US LEARNED COUNSEL SHRI SOPARKAR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SIZEABLE INTEREST FREE FUNDS FOR INVES TMENT WHICH WERE UTILIZED FOR INVESTMENT IN THE SUBSIDIARY COMPANY. THE ASSESSING OFFICER AS WELL AS THE TRIBUNAL COMMITTED A SERIOUS ERROR IN DISALLOWING T HE SAME. CERTAIN BORROWINGS WERE MADE DURING EARLIER ASSESSMENT YEARS. SUCH FUN DS WERE INVESTED FOR BUSINESS PURPOSE. DEDUCTION OF INTEREST UNDER SECTI ON 36(1)(III) OF THE ACT WAS ALLOWED. HE RELIED ON THE FOLLOWING DECISIONS OF TH IS COURT: 1) COMMISSIONER OF INCOME TAX-II V. HITACHI HOME AND L IFE SOLUTIONS (I) LTD. REPORTED IN (2014) 41 TAXMANN.COM 540 (GUJRAT). 2) COMMISSIONER OF INCOME TAX V. RGGHUVIR SYNTHETICS L TD. REPORTED IN (2013) 354 ITR 222 (GUJ). ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 5 8. ON THE OTHER HAND LEARNED COUNSEL SHRI PARIKH SUPPO RTED THE VIEW OF THE TRIBUNAL CONTENDING THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT INTEREST FREE FUNDS WERE AVAILABLE FOR DIVERSION TO SISTER CONCERN. THE PRIN CIPLE LAID DOWN BY THE SUPREME COURT IN CASE OF S.A. BUILDERS LTD. V. COMMISSIONER OF INCOME-TAX (APPEAL S) AND ANOTHER REPORTED IN (2007) 288 ITR 1 (SC) WOULD NOT APPLY. 9. FACTS EMERGING FROM THE RECORD ARE QUITE CLEAR. THE ASSESSEE HAD PURCHASED SHARES OF A SUBSIDIARY COMPANY BY INVESTING SUM OF RS.7.86 CRORES. IN VIEW OF THE ASSESSING OFFICER, THERE HAD TO BE DISALLOWANCE OF INTEREST MATCHING TO SUCH SUM SINCE INTEREST BEARING FUNDS WERE DIVERTED FOR SUCH PURPOSE. FIRSTLY, WE ARE UNABLE TO SEE THE RATIONALE BEHIND SUCH APPROACH. A S NOTED, FOUNDATIONAL QUERY OF THE ASSESSING OFFICER TO THE ASSESSEE IN THIS BA CKGROUND WAS THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON SUCH INVESTMENT IN SHAR E. THE ASSESSEE WAS THEREFORE, ASKED TO SHOW CAUSE WHY INTEREST' SHOULD NOT BE CHARGED ON INVESTMENT. UPON PERUSAL OF THE ORDER OF ASSESSMENT , WE DO NOT FIND THAT THE CASE OF THE ASSESSING OFFICER WAS THAT INVESTMENT M ADE BY THE COMPANY IN THE SUBSIDIARY BY PURCHASE OF SHARES WAS IN FACT, A LOA N IN DISGUISE. WHEN EVEN 'ACCORDING TO THE ASSESSING OFFICER THERE WAS NO AD VANCE MADE BY THE ASSESSEE TO THE SUBSIDIARY, THE QUESTION: OF CHARGING INTERE ST ON THE INVESTMENT MADE, WOULD NOT ARISE. THE ASSESSING OFFICER IN OUR OPINI ON THEREFORE, CLEARLY MISDIRECTED HIMSELF BY EXAMINING THE QUESTION OF CH ARGING INTEREST ON INVESTMENT BY THE ASSESSEE COMPANY IN THE SUBSIDIARY COMPANY. ENTIRE ISSUE COULD BE LOOKED FROM A DIFFERENT ANGLE HAD THE PREMISE OF ASSESSING OFFICER BEEN THAT IN DISGUISE OF INVESTMENT, WHAT THE ASSESSEE HAD DONE WAS TO AD VANCE THE SUM TO SISTER CONCERN WITHOUT CHARGING INTEREST. THAT WAS NOT EVE N THE CASE OF THE ASSESSING OFFICER. 10. IT WAS IN THIS BACKGROUND THE ASSESSEE HAD CONVEYED TO THE ASSESSING OFFICER THAT IT HAD PURCHASED SHARES WITH BUSINESS PRUDENCE IN M IND. MERELY BECAUSE DURING THE CURRENT YEAR SUCH SHARES DID NOT YIELD ANY RETU RN WOULD NOT IMPLY THAT IN FUTURE ALSO NO RETURN WOULD ACCRUE. QUITE APART FROM THIS ANGLE, EVEN THE ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 6 QUESTION OF INVESTMENT IN SUBSIDIARY COMPANY HAS NO T BEEN PROPERLY EXAMINED BY THE ASSESSING OFFICER. MERELY BECAUSE THE ASSESSEE COMPANY HAD INTEREST BEARING FUNDS FOR ITS CAPITAL INVESTMENT, CLAIMING DEDUCTIO N UNDER SECTION 36(L)(III) OF THE ACT WOULD NOT AUTOMATICALLY IMPLY THAT ANY DIVERSIO N OF FUNDS WITHOUT INTEREST TO A SUBSIDIARY WOULD AUTOMATICALLY GIVE RISE TO DISAL LOWANCE. SO MUCH HAS BEEN DISCUSSED BY THE SUPREME COURT IN CASE OF S.A. BUILDERS LTD.(SUPRA). THE ASSESSEE HAD DEMONSTRATED BEFORE THE ASSESSING OFFICE THAT I T HAD SIZEABLE NET PROFIT AND AVAILABILITY OF INTEREST FREE FUNDS FOR INVESTMENT IN SUBSIDIARY COMPANY. 11. IN CASE OF RAGHUVIR SYNTHETICS LTD (SUPRA), DIVISION BENCH OF THIS COURT FOLLOWING THE DECISION OF SUPREME COURT IN CASE OF S.A. BUILDERS LTD.(SUPRA), UPHELD THE VIEW OF THE TRIBUNAL REJECTING THE APPEAL OF THE RE VENUE ON THE GROUND THAT SUBSTANTIAL INTEREST FREE FUNDS WERE AVAILABLE, THE COMMISSIONER AND THE TRIBUNAL ALSO CONSIDERED THE QUESTION OF BUSINESS EXPEDIENCY . IN CASE OF HITACHI HOME AND LIFE SOLUTIONS (I) LTD (SUPRA), THE COURT HELD AND OBSERVED AS UNDER: '4. LEARNED COUNSEL MS. MAUNA BHATT HAS FERVENTLY UR GED THAT THE TRIBUNAL HAD HELD THE FUNDS TO BE MIXED FUNDS AND T HEREFORE, DISALLOWANCES HAD BEEN RIGHTLY MADE BY THE ASSESSIN G OFFICER, WHICH WERE NOT TO BE DISTURBED. THE TRIBUNALS HOLDING THAT RUL E 8D COULD NOT HAVE BEEN INVOKED IS CONTRARY TO ITS OWN FINDING, AND TH EREFORE, DELETION NEEDS TO BE QUASHED. RELIANCE IS PLACED ON THE DECISION O F DELHI HIGH COURT IN CASE OF MAXOPP INVESTMENT LIMITED V. COMMISSIONER OF INCOME TAX, REPORTED IN [2012] 347 ITR 272 [DELHI], WHEREIN, INTRODUCTION OF RULE 8D IS HELD PROSPECTIVE IN NATURE. HOWEVER, IT HAS BEEN HE LD THEREIN THAT THE ASSESSING OFFICER IF IS NOT SATISFIED WITH THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE, PRIOR TO TH E INTRODUCTION OF RULE 8D, IS ENTITLED UNDER THE LAW TO CALCULATE THE AMOU NT AND DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO THE INCOME. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 7 5. ON THUS HAVING HEARD LEARNED COUNSEL AND HAVING CONSIDERED AT LENGTH THE MATERIAL ON RECORD, WE ARE OF THE OPINION THAT NO INTERFERENCE IS DESIRABLE. 6. AS CAN BE NOTED FROM THE 'ELABORATE NOTINGS OF T HE ASSESSING OFFICER ITSELF, THE INTEREST FREE FUNDS WITH THE ASSESSEE W AS TO THE TUNE OF RS. 1.56 CRORES, EVEN IF THE OUTSTANDING LOAN OF RS. 2077.06 LACS AS ON 31 ST MARCH 1999 IS TAKEN INTO ACCOUNT. SINCE WE ARE ONLY CONCE RNED WITH A SUM OF RS. 18.38 LACS DISALLOWANCES OF WHICH HAS BEEN MADE UND ER SECTION 14A OF THE ACT; EVEN IF THE TRIBUNAL HAS HELD THAT THIS WA S A QUESTION OF MIXED FUNDS, THE FURTHER REASONINGS GIVEN BY THE TRIBUNAL CANNOT BE IGNORED NOR CAN EARLIER VERSION BE VIEWED IN ISOLATION. THESE F INDINGS CANNOT BE SAID TO BE IN CONSONANCE WITH THE FINDINGS OF THE ASSESSING OFFICER. WE ALSO HOLD THAT THE CIT [A] AND THE TRIBUNAL BOTH HAVE SPECIFI CALLY HELD THE SAID AMOUNT HAS NOT BEEN RIGHTLY DISALLOWED SINCE THE SA ME HAD BEEN EXPENDED FROM INTEREST FREE FUNDS, THOUGH SPENT FOR EARNING EXEMPT DIVIDEND INCOME. IT IS NOT THE QUESTION OF THE TOTA L SUM OF RS. 471 LACS, BUT, A LIMITED SUM THAT HAS BEEN SPENT FOR EARNING THE EXEMPT INCOME, THEREFORE, AS RIGHTLY HELD, WHEN THERE WAS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, THERE DOES NOT ARISE A QUESTION OF DISALLOWING EXPENDITURE UNDER SECTION 14A OF THE ACT.' 12.THE TRIBUNAL'S FINDING THAT THE INVESTMENT MADE BY THE ASSESSEE COMPANY FOR PURCHASE OF SHARES IN THE SUBSIDIARY COMPANY WAS NO T A LEGITIMATE BUSINESS ACTIVITY, WAS IN FACT, AN EXPANSION BEYOND WHAT THE ASSESSING OFFICER HAD HIMSELF ENVISAGED. IT WAS NOT EVEN THE CASE OF THE REVENUE THAT INVESTMENT MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY WAS FOR SOME ILLEGIT IMATE PURPOSE OR A MERE DEVICE TO DIVERT ITS TAX BEARING INCOME. 13. IN VIEW OF ABOVE, WE ANSWER THE QUESTION IN FAV OR OF ASSESSEE, ALLOW THE APPEAL AND REVERSE THE JUDGEMENT OF THE TRIBUNAL ON THIS ISSUE. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 8 7. A PERUSAL OF THE AFOREMENTIONED JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT QUA THE FACTS IN ISSUE BEFORE US CLEARLY TILTS THE BALANCE OF CONVENIENCE IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE. SINCE, THE ISSUE IS NOW WELL SETTLED BY THE DECISION OF THE HO NBLE JURISDICTIONAL HIGH COURT (SUPRA), WE DIRECT THE A.O. TO DELETE THE DIS ALLOWANCE OF RS. 31,87,067/-. THIS GROUND OF THE APPEAL IS ALLOWED. 8. THE NEXT GROUND RELATES TO THE DISALLOWANCE OF REPA IRS FOR WATER PROOFING AND REPLACEMENT OF CORRUGATED SHEETS AGGREGATING TO RS. 25.11 LACS TREATING THEM AS CAPITAL EXPENSES. 9. THE LD. SENIOR COUNSEL FAIRLY CONCEDED THAT THIS IS SUE IS NOT ARISING OUT OF THE ORDER OF THE FIRST APPELLATE AUTHORITY AND THE SAME IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2504/AHD/2011 REVENUES APPEAL FOR A.Y. 200 8-09 11. THE FIRST GRIEVANCE OF THE REVENUE IS IN RELATION T O THE DELETION OF THE ADDITION OF RS. 74,76,495/- MADE U/S. 36(1)(III) OF THE ACT BEING INTEREST ON INVESTMENT MADE IN THE SUBSIDIARY COMPANY. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 9 12. THIS ISSUE HAS BEEN DEALT ELABORATELY IN ITA NO. 23 69/AHD/2010 (SUPRA) QUA GROUND NO. 1 OF THAT APPEAL. FOR OUR DETAILED DISCU SSION THEREIN, WE DO NOT FIND ANY MERIT IN THIS GROUND OF THE APPEAL AND THE SAME IS DISMISSED. 13. THE NEXT GRIEVANCE OF THE REVENUE RELATES TO THE DE LETION OF THE ADDITION OF RS. 68.96 LACS MADE BY A.O. TREATING THE SAME TO BE CAPITAL EXPENDITURE. 14. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS MADE A PAYMENT OF RS. 81.14 L ACS TOWARDS CONTROL SYSTEM FOR HEAT SETTING AND STRETCHING MACHINE. THE ASSESSEE WAS REQUESTED TO SHOW CAUSE AS TO WHY THE SAID EXPENDIT URE SHOULD NOT BE TREATED AS CAPITAL IN NATURE. THE ASSESSEE FILED A DETAILED REPLY VIDE ITS LETTER DATED 13.12.2010 TO JUSTIFY ITS CLAIM OF THE SAID E XPENDITURE AS REVENUE IN NATURE. THE DETAILED REPLY OF THE ASSESSEE IS INCOR PORATED BY THE A.O. AT PAGES 6 TO 10 OF HIS ASSESSMENT ORDER. HOWEVER, THE SAID REPLY DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT A NEW SYSTEM WAS INSTALLED AFTER CHANGING THE NEW CONTROL SYSTEM AND , THEREFORE, TREATED THE AMOUNT OF RS. 68.96 LACS AS CAPITAL IN NATURE. 15. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND VEHEMENTLY CONTENDED THAT NO NEW ASSET CAME INTO EXISTENCE, TH E ENTIRE EXPENDITURE HAS BEEN INCURRED FOR THE UP-GRADATION OF THE CONTR OL SYSTEM AS THE SPARE PARTS FOR THE OLD SYSTEM AS WELL AS TECHNICAL SUPPO RT WAS NOT AVAILABLE WHICH PROMPTED THE ASSESSEE TO GO FOR THE NEW SYSTE M. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSER VED THAT THE RELIANCE ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 10 PLACED BY THE A.O. ON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS (P) LTD. 293 ITR 2 01 WAS MISPLACED INASMUCH AS IN THAT CASE THE HONBLE SUPREME COURT HAS HELD THAT IF AN INDEPENDENT MACHINE IS REPLACED THEN IT WILL AMOUNT TO CAPITAL EXPENDITURE. THE LD. CIT(A) FURTHER OBSERVED THAT T HE HONBLE SUPREME COURT IN THE SAID CASE HAS ALSO HELD THAT IF PART O F A MACHINE WHICH IS VITAL FOR ITS WORKING IS REPLACED THEN THE SAME WILL AMOU NT TO CURRENT REPAIRS. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO DEL ETE THE IMPUGNED DISALLOWANCE. 16. BEFORE US, THE LD. D.R. COULD NOT POINT OUT ANY FAC TUAL ERROR IN THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. 17. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE FACT UAL MATRIX QUA THE FINDINGS OF THE FIRST APPELLATE AUTHORITY, IN OUR C ONSIDERED OPINION, BY INCURRING THE IMPUGNED EXPENDITURE NO NEW ASSET HAS COME INTO EXISTENCE. THEREFORE, THERE IS NO ERROR OR INFIRMITY IN THE FI NDINGS OF THE LD. CIT(A). THIS GROUND IS ACCORDINGLY DISMISSED. 18. THE NEXT GROUND RELATES TO THE DELETION OF THE ADDI TION OF RS. 27.67 LACS OUT OF RS. 31.39 LACS MADE BY A.O. TREATING THE SAME AS CAPITAL EXPENDITURE. 19. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF REPAIRS TO BUILDING AMOUN TING TO RS. 66.18 LACS. THE REQUISITE DETAILS WERE FURNISHED BY THE ASSESSEE. O N PERUSAL OF THE SAME, ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 11 THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED EXPE NDITURE ON ACCOUNT OF PLASTERING, RCC WORK, FENCING, FLUSH SYSTEM, ETC. A GGREGATING TO RS. 34,88,201/-. THE ASSESSEE WAS SHOW CAUSED TO EXPLAI N WHY SAID EXPENDITURE SHOULD NOT BE HELD TO BE CAPITAL IN NAT URE. IN ITS REPLY, THE ASSESSEE STRONGLY SUBMITTED THAT THESE EXPENSES ARE PART OF THE CURRENT REPAIRS OF THE COMPANY AND NO NEW ASSETS HAVE BEEN CREATED AS A RESULT OF THE SAID EXPENDITURE. THE REPLY OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE A.O. WHO WAS OF THE FIRM BELIEF THAT THE REASON S GIVEN BY THE ASSESSEE CANNOT BE CONSIDERED GOOD FOR ALLOWING THE EXPENDIT URE AS CURRENT REPAIRS AS THE REPLACEMENTS/REPAIRS HAVE GIVEN ENDURING BEN EFIT TO THE ASSESSEE. DRAWING SUPPORT FROM THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS (P) LTD. 293 ITR 20 1, THE A.O. MADE THE ADDITION OF RS. 31.39 LACS. 20. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 21. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) HELD AS UNDER:- 7.1 I HAVE CONSIDERED THE CONTENTIONS OF THE A.O. A ND THE SUBMISSIONS MADE BY THE APPELLANT. THE A.O., WHILE MAKING DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF PLASTER WORK AND RCC WORK HAS NOT DISCUSSED THE DET AILS OF SUCH EXPENDITURE. HE HAS SIMPLY HELD THAT IF THERE HAS BEEN WEAR AND TEA R OF AN ITEM LIKE RCC WORK, PLASTERING WORK ETC., OVER A NUMBER OF YEARS AND UL TIMATELY THEY ARE REPLACED, THEN SUCH REPLACEMENT CANNOT BE RECORDED AS CURRENT EXPENDITURE. HE HAS AGAIN PLACED RELIANCE ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF MODI SPINNING ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 12 AND WEAVING MILLS CO. LTD. (200 ITR 544) AND DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILLS PVT. LTD. (2 93 ITR 201). 7.2 I HAVE GONE THROUGH THE DETAILS OF SUCH EXPENDI TURES SUBMITTED BY THE APPELLANT DURING THE COURSE OF HEARING OF APPEAL PR OCEEDINGS. THE APPELLANT HAS ALSO SUBMITTED COPIES OF BILLS FOR SUCH EXPENDITURE . THE DETAILS ARE AS FOLLOWS; DETAILS OF BUILDING REPAIRS- RS. 66,18,409/- SR. NO. NAME OF PARTY PARTICULARS AMOUNT (RS.) 1. JAISWAL & SONS OUTSIDE PLASTER AT ANKLESHWAR COLONY 1,35,133 2. SUPER PRODUCTS FENCING WORK AT ANKLESHWAR FACTORY 2,61,632 3. AOS SYSTEMS SANITARY ITEMS 1,10,137 4. JAISWAL & SONS CIVIL WORK AT ANKLESHWAR BLOCKS 1,71,363 5. -DO- PLASTER WORK AT ANKLESHWAR COLONY 1,94,147 6. -DO- PLASTER WORK AT ANKLESHWAR PLANT 1,58,509 7. S.S. GORECHA DISMANTLING OF RCC WORK ETC. 4,43,240 8. JAISWAL & SONS PAINTING WORK AT ANKLESHWAR COLONY 1,68,883 9. ROCKMAN BUILDERS PLASTERING WORK AT ANKLESHWAR OFFICE BUILDING 1,73,908 10. USHA INFINITY CONSTRUCTION CO. PVT. LTD. CIVIL WORK AT HUMIDIFICATION PLANT 1,97,692 ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 13 11. PRAMOD SHARMA EXTERIOR PAININT AT ANKLESHWAR FACTORY 4,31,690 12. JAISWAL & SONS PROVISION FOR PLASTER WORK 2,05,666 13. ROCKMAN BUILDERS PROVISION FOR REPAIRS TO R & D TOILETS 1,41,262 14. -DO- PROVISION FOR STAFF QUARTER REPAIRS 3,27,104 15 JAISWAL & SONS PLASTER WORK AT R& D 3,77,935 TOTAL 34,88,201 16 OTHERS LES THAN RS. 1 LAKH EACH GRAND TOTAL 31,30,208 66,18,409 7.3 A PERUSAL OF THE DETAILS SUBMITTED SHOWS THAT T HE FENCING WORK AT ANKLESHWAR FACTORY IS A NEW ASSET AND HENCE, THIS EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE. SIMILARLY, THE BILL OF AOS SYSTEM SHOW S THAT THE EXPENDITURE IS FOR NEW AUTO FLUSH SYSTEM FOR URINALS ETC. HENCE, THE S AME IS ALSO CAPITAL EXPENDITURE IN NATURE AS A NEW ASSET HAS BEEN ACQUIRED. OTHER E XPENDITURES ARE IN THE NATURE OF REPAIR OF PLASTER OF WALLS, BEAMS AND COLUMNS PA INTINGS ETC. BY VIRTUE OF THESE EXPENDITURES, NO NEW ASSET HAS BEEN ACQUIRED, RATHE R PARTS OF OLD BUILDING HAVE BEEN REPAIRED. IN SUCH CIRCUMSTANCES, THESE ARE HEL D TO BE IN THE NATURE OF CURRENT REPAIRS AND ALLOWABLE U/S 31(I). ACCORDINGL Y, OUT OF ADDITION MADE BY THE A.O. OF RS. 31,39,381/-, AN AMOUNT OF RS. 3,71,819/ - IS SUSTAINED AND THE BALANCE ADDITION IS DIRECTED TO BE DELETED. THE DEPRECIATIO N ALLOWABLE BY A.O. IN THE ASSESSMENT ORDER OF ADDITIONS SO DELETED, SHALL BE WITHDRAWN AT THE TIME OF GIVING EFFECT OF THIS ORDER. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 14 22. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FIN DINGS OF THE FIRST APPELLATE AUTHORITY (SUPRA). WE HAVE ALSO GONE THRO UGH THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SARAVANA SPINN ING MILLS (P) LTD. (SUPRA) RELIED UPON BY THE A.O. IN OUR CONSIDERED O PINION, THE DECISION OF THE HONBLE SUPREME COURT RELIED UPON BY THE A.O. I F CONSIDERED IN THE LIGHT OF THE FACTS OF THE CASE IN HAND, IS MORE IN FAVOUR OF THE ASSESSEE THEN THE REVENUE. THE HONBLE SUPREME COURT IN THE SAID CASE HAS LAID DOWN THE RATIO THAT THE BASIS TEST TO FIND OUT AS TO WHAT WOULD CONSTI TUTE CURRENT REPAIRS IS THAT THE EXPENDITURE MUST HAVE BEEN INCU RRED 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 OB TAIN A NEW ADVANTAGE. A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE HIGH COU RT OF GUJARAT IN THE CASE OF HOTEL OASIS (SURAT) (P.) LTD. IN TAX APPEAL NO. 289 OF 2012. 23. THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF MANOJ B. MANSUKHANI IN TAX APPEAL NO. 941 OF 2010 WAS, INTER ALIA, SEIZED WITH THE FOLLOWING QUESTION OF LAW:- (C) WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN REVERSING THE ORDER PASSED BY CIT(A) AND THEREBY DELETING THE ADD ITION MADE ON ACCOUNT OF DISALLOWANCE OF CAPITAL EXPENSES AMOUNTING TO RS. 1 7,45,865/- ? 24. AND THE HONBLE HIGH COURT HELD AS UNDER:- 12. WITH RESPECT TO DISALLOWANCE OF RS.17,45,865/- CLAIMED BY THE ASSESSEE BY WAY OF REVENUE EXPENDITURE AND INSTEAD TREATING THE SAME AS CAPITAL EXPENDITURE BY THE REVENUE AUTHORITIES, WE FIND, THAT THE ISSUE ARISES IN THE FOLLOWING FACTUAL BACKGROUND. THE ASSESSEE HAD CARRIED OUT; REPAIRS O F ITS DUMPERS BY REPLACING THE ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 15 BODY OF THE DUMPERS AND CLAIMED SUCH EXPENDITURE AS CURRENT REPAIRS. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE EXPEN DITURE WAS CAPITAL NATURE, DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION THEREOF. THE TRIBUNAL FOLLOWING THE DECISION OF THIS COURT IN THE CASE OF COMMISSIO NER OF INCOME TAX VS. SARAVANA SPINNING MILLS P. LTD., 293 ITR 201 ALLOWED' THE ASS ESSEE'S APPEAL AND GRANTED DEDUCTION AS CLAIMED. THE TRIBUNAL NOTED THAT THE A SSESSEE WAS HAVING ITS OWN TRUCKS AND DUMPERS WHICH WERE BEING USED FOR THE LO CAL TRANSPORTATION TO SHIFT- GOODS FROM ONE PLACE TO ANOTHER. THE ASSESSEE HAD T O REPLACE THE BODY OF DUMPER AND SUCH EXPENDITURE WAS CLAIMED AS REVENUE EXPENDITURE. THE TRIBUNAL TAKING NOTE OF SECTION 31 OF THE INCOME TAX ACT, 19 61 FIRMED THE OPINION THAT SUCH EXPENDITURE WOULD BE IN THE NATURE OF CURRENT REPAIRS AND THUS, ALLOWED THE ASSESSEE'S APPEAL ON THIS ASPECT. 13. IT IS NOT IN DISPUTE THAT THE VEHICLES IN QUEST ION WERE OWNED BY THE ASSESSEE AND WERE BEING USED FOR TRANSPORTATION OF THE GOODS IN THE COURSE OF ITS BUSINESS. IT IS EQUALLY NOT IN DISPUTE THAT FOR CARRYING OUT REPAIR WORKS, THE ASSESSEE HAD CHANGED BODY OF THE DUMPER. THE EXPENDITURE INCURRE D IN SUCH REPAIR WAS CLAIMED BY WAY OF REVENUE EXPENDITURE OR IN THE NAT URE OF CURRENT REPAIRS. SECTION 31(1) OF THE ACT READS AS UNDER:- '31. IN RESPECT OF REPAIRS AND INSURANCE OF MACHINE RY, PLANT OR FURNITURE USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOL LOWING DEDUCTIONS SHALL BE ALLOWED-(I) THE AMOUNT PAID ON ACCOUNT OF CU RRENT REPAIRS THERETO;' 4. IN CASE OF SARAVANA SPINNING MILLS P. LTD. (SUPR A), THE SAID PROVISION CAME UP FOR CONSIDERATION BEFORE THE APEX COURT IN BACKGROU ND OF THE FACTS WHERE THE ASSESSEE HAD REPLACED THE RING FRAMES OF ITS MACHIN ERIES INSTALLED IN THE TEXTILE MI US WHILE HOLDING THAT SUCH REPAIR WOULD FORM PART O F THE CURRENT REPAIRS, THE APEX COURT OBSERVED AS UNDER:- '13. AN ALLOWANCE IS GRANTED BY CLAUSE (I) OF SECTIO N 31 IN RESPECT OF AMOUNT EXPENDED ON CURRENT REPAIRS TO MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF BUSINESS, IRRESPECTIVE OF WHETHER THE A SSESSEE IS THE OWNER OF THE ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 16 ASSETS OR HAS ONLY USED THEM. THE EXPRESSION 'CURRE NT REPAIRS' DENOTES REPAIRS WHICH ARE ATTENDED TO WHEN THE NEED FOR THEM ARISES FROM THE VIEWPOINT OF A BUSINESSMAN. THE WORD 'REPAIR' INVOLVES RENEWAL. HOWE VER, THE WORDS USED IN SECTION 31 (I) ARE 'CURRENT REPAIRS'. THE OBJECT BEH IND SECTION. 31 (I) IS TO PRESERVE AND MAINTAIN THE ASSET AND NOT TO BRING IN A NEW AS SET. IN OUR VIEW, SECTION 31 (I) LIMITS THE SCOPE OF ALLOWABILITY OF EXPENDITURE AS DEDUCTION IN RESPECT OF REPAIRS MADE TO MACHINERY, PLANT OR FURNITURE BY RESTRICTIN G IT TO THE CONCEPT OF 'CURRENT REPAIRS'. ALL REPAIRS ARE NOT CURRENT REPAIRS. SECT ION 37(1) ALLOWS CLAIMS FOR EXPENDITURE WHICH ARE NOT OF CAPITAL NATURE. HOWEVE R, 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 D EDUCTIONS FOR REPAIRS TO THE EXTENT PROVIDED FOR IN SECTIONS 30 TO 36. TO DECIDE THE AP PLICABILITY OF SECTION 31 (I) THE TEST IS NOT WHETHER THE EXPENDITURE IS REVENUE OR C APITAL IN NATURE, WHICH TEST HAS BEEN WRONGLY APPLIED BY THE HIGH COURT, BUT WHETHER THE EXPENDITURE IS 'CURRENT REPAIRS'. V/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 O THE EXPEND ITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTA GE.' 15. BEARING IN MIND THE RATIO OF THE DECISION OF TH E APEX COURT IN THE CASE OF SARAVANA SPINNING MILLS P. LTD. (SUPRA) AND COMING BACK TO THE FACTS OF THE PRESENT CASE, IT CAN BE SEEN THAT BY CARRYING OUT T HE REPAIRS, THE ASSESSEE DID NOT BRING INTO EXISTENCE ANY NEW ASSETS BUT WAS REQUIRE D TO EXPEND AMOUNT TO PRESERVE AND MAINTAIN THE ASSET ALREADY IN EXISTENC E. 25. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE AFOREMENTIONED JUDGMENTS, WE DECLINE TO INTERFERE WITH THE FINDING S OF THE LD. CIT(A) SO FAR AS IT RELATES TO THE DELETION OF THE ADDITION OF RS . 27,67,562/- AND FOR THE REASONS GIVEN HEREINABOVE. WE SET ASIDE THE FINDING S OF THE LD. CIT(A) SO FAR ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 17 AS HIS DECISION IN UPHOLDING DISALLOWANCE OF RS. 3, 71,819/- IS CONCERNED AND THE SAME IS DIRECTED TO BE DELETED. THIS WILL DISMI SS GROUND NO. 3 OF REVENUES APPEAL AND ALLOW GROUND NO. 3 OF ASSESSEE S APPEAL IN ITA NO. 2313/AHD/2011. 26. THE NEXT GROUND TAKEN BY THE REVENUE RELATES TO THE DELETION OF THE ADDITION OF RS. 2.38 CRORES MADE BY A.O. BY INVOKIN G PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 27. WHILE SCRUTINIZING THE RETURN OF INCOME, THE A.O. N OTICED THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 238.46 LACS TO ITS VARIOU S DEALERS AS INCENTIVES. THE A.O. FURTHER FOUND THAT THE ASSESSEE HAS NOT DE DUCTED TAX AT SOURCE AS PER THE PROVISIONS OF THE LAW. INVOKING THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT, THE A.O. DISALLOWED THE SUM OF RS. 2.38 CR ORES. 28. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND VEHEMENTLY CONTENDED THAT THE ASSESSEE WAS NOT LIABLE TO DEDUC T TAX AT SOURCE AS THE IMPUGNED PAYMENTS MADE BY THE ASSESSEE WERE IN THE FORM OF INCENTIVES AND NOT COMMISSION. IT WAS EXPLAINED THAT THE INCEN TIVES HAVE BEEN GIVEN ON THE PURCHASES MADE BY THE DEALERS AND NOT FOR TH E SALES MADE BY THEM AND SUCH INCENTIVES ARE GIVEN BY THE ASSESSEE COMPA NY TO THE DEALERS DIRECTLY ON PRINCIPAL TO PRINCIPAL BASIS. 29. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS OF THE OPINION THAT THE VIEWS OF THE A.O. ARE NOT CORRECT. THE LD. CIT(A) OBSERVED ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 18 THAT SUCH INCENTIVES ARE PAID TO THE WHOLESALERS WH EN THE MINIMUM METERS MENTIONED FOR THE ENTIRE PERIOD OF THE CLAIM IS ACH IEVED BY THEM. THE LD. CIT(A) CONCLUDED BY HOLDING THAT THE DEALERS ARE GE TTING INCENTIVES NOT ON THE BASIS OF SALES MADE BY THEM BUT ON THE BASIS OF ORDERS PLACED WITH THE APPELLANT. HENCE, NO TDS REQUIRED TO BE MADE BY THE ASSESSEE COMPANY OF SUCH PAYMENT. THE LD. CIT(A) ACCORDINGLY DIRECTED T HE A.O. TO DELETE THE IMPUGNED ADDITION. 30. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE FINDINGS O F THE LD. CIT(A). STRONG RELIANCE WAS PLACE ON THE DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF GUJARAT TEA PROCESSORS & PACKERS LTD. 28 TAXMANN.COM 187. 31. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE FIND FORCE IN THE CONTENTION OF THE LD. S ENIOR COUNSEL. THE HONBLE HIGH COURT OF GUJARAT ON IDENTICAL SET OF F ACTS HAD CONSIDERED THE FOLLOWING AND HELD ACCORDINGLY:- TRADE DISCOUNT- ASSESSMENT YEAR 2006-07- ASSESSEE WAS A MANUFACTURER AND SELLER OF TEA- UNDER SALES PROMOTION SCHEME INTRODU CED BY ASSESSEE, BASED ON QUANTITY PURCHASED, RETAILER WAS GIVEN DISCOUNT-ASS ESSING OFFICER ISSUED A NOTICE UNDER SECTION 148 TO REOPEN ASSESSMENT ON GROUND TH AT DISCOUNT GIVEN BY ASSESSEE WAS NOTHING BUT COMMISSION ON WHICH TAX WA S TO BE DEDUCTED AT SOURCE UNDER SECTION 194C OR 194H AND SINCE IT WAS NOT DON E A DISALLOWANCE UNDER SECTION 40(A)(IA) WAS TO BE MADE WHETHER INSTANT WA S A CASE OF CONTRACT FOR ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 19 GOODS AND IS NEITHER A CONTRACT FOR SERVICE, NOR IS IT A CASE OF PAYING OF COMMISSION OR BROKERAGE- HELD, YES- WHETHER, THEREF ORE, IT WAS COVERED NEITHER UNDER SECTION 194C NOR UNDER SECTION 194H- HELD, YE S [PARAS 15 & 18] [IN FAVOUR OF ASSESSEE]. 32. THE HONBLE SUPREME COURT IN THE CASE OF AHMEDABAD STAMP VENDORS ASSOCIATION 348 ITR 378 HAD HELD THAT THE DISCOUNT GIVEN TO STAMP VENDORS FOR PURCHASING STAMPS IN BULK QUANTITY WAS IN NATUR E OF CASH DISCOUNT IN TRANSACTION OF SALE, AND, THEREFORE, SECTION 194H H AS NO APPLICATION TO THAT TRANSACTION. 33. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA) AND THE HONBLE S UPREME COURT (SUPRA), WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDIN GS OF THE LD. CIT(A). THIS GROUND IS ACCORDINGLY DISMISSED. 34. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO. 2313/AHD/2011 ASSESSEES APPEAL FOR A.Y. 2008-09 35. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S.14A READ WITH RULE 8D AMOUNTING TO RS. 22.82 LA CS. 36. THIS ISSUE HAS BEEN ELABORATELY DISCUSSED BY US IN ITA NO. 2369/AHD/2010 FOR A.Y. 2007-08 QUA GROUND NO. 1 OF THAT APPEAL. F OR OUR DETAILED ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 20 DISCUSSION THEREIN, NO DISALLOWANCE IS TO BE MADE S O FAR AS CLAIM OF EXPENDITURE ON ACCOUNT OF INTEREST IS CONCERNED. 37. HOWEVER, AT THE SAME TIME, IN OUR CONSIDERED OPINIO N, A REASONABLE DISALLOWANCE NEED TO BE MADE SO FAR AS ADMINISTRATI VE EXPENDITURE ARE CONCERNED, AND, THEREFORE, WE DIRECT THE A.O. TO DI SALLOW A SUM OF RS. 20,000/- WHICH SHOULD MEET THE ENDS OF JUSTICE. THI S GRIEVANCE IS ACCORDINGLY PARTLY ALLOWED. 38. THE NEXT GRIEVANCE RELATES TO THE DISALLOWANCE OF R S. 3,71,819/- BEING EXPENDITURE TREATED AS CAPITAL IN NATURE. 39. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN REV ENUES APPEAL IN ITA NO. 2504/AHD/2011 QUA GROUND NO. 3 OF THAT APPEAL. FOR OUR DETAILED DISCUSSION THEREIN, THE A.O. IS DIRECTED TO DELETE THE ADDITION OF RS. 3,71,819/-. THIS GRIEVANCE IS ACCORDINGLY ALLOWED. 40. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2001/AHD/2012 REVENUES APPEAL FOR A.Y. 200 9-10 41. THE FIRST GRIEVANCE RELATES TO THE DELETION OF THE ADDITION OF RS. 89.71 LACS BEING INTEREST ON THE INVESTMENT MADE IN SUBSIDIARY COMPANY. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 21 42. THIS ISSUE HAS BEEN CONSIDERED BY US IN DETAIL IN A SSESSEES APPEAL IN ITA NO. 2369/AHD/2010 FOR A.Y. 2007-08. FOR OUR DETAILE D DISCUSSION THEREIN, THIS GRIEVANCE OF THE REVENUE IS DISMISSED. 43. THE NEXT GRIEVANCE RELATES TO THE DELETION OF THE A DDITION OF RS. 2.78 CRORES MADE BY THE A.O. U/S. 40(A)(IA) OF THE ACT. 44. A SIMILAR ISSUE HAS BEEN CONSIDERED BY US IN ITA NO . 2504/AHD/2011 FOR A.Y. 2008-09 QUA GROUND NO. 4 OF THAT APPEAL. FOR OUR DE TAILED DISCUSSION THEREIN, THIS GRIEVANCE IS DISMISSED. 45. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. C.O. NO. 191/AHD/2013 FOR A.Y. 2009-10 46. THE CROSS OBJECTION OF THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S. 14A READ WITH RULE 8D. 47. A SIMILAR ISSUE HAS BEEN CONSIDERED BY US IN ITA NO . 2313/AHD/2011 FOR A.Y. 2008-09 WHEREIN WE HAVE DIRECTED THE A.O. TO RESTRI CT THE DISALLOWANCE TO RS. 20,000/ SHOULD MEET THE ENDS OF JUSTICE. WE, AC CORDINGLY, DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE TO RS. 20,000/- F OR THE YEAR UNDER CONSIDERATION ALSO. ITA NO. 2369 /AHD/10, & ITA NOS. 2313 & 2504/AHD/2011 & ORS. . A.YS. 2007-0 8 TO 2009-10 22 48. IN THE RESULT, THE C.O. OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10 - 04- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 10/04/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD