JT CIT (OSD) 6(2)(1), MUMBAI V. DHARTI INVESTMENTS AND HOLDINGS LTD, MUMBAI

ITA 3272/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6893 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Capital asset; Business expenditure; Question of law; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 3272 / MUM/20 16 ( ASSESSMENT YEAR : 2008 - 09 ) JT. COMMISSIONER OF INCOME TAX (OSD - 6(2)(1), R.NO.563, AAYAKAR BHAVAN M.K.ROAD, CHURCHGAT E MUMBAI 400 020 VS. M/S. DHARTI INVESTMENTS AND HOLDING LTD., 1 ST FLOOR, JAI CENTRE 34, P.D.MELLO ROAD OPP. RED GATE MASJID, MUMBAI - 400098 PAN/GIR NO. AACCD2509C APPELLANT ) .. RESPONDENT ) ITA NO. 2078 /MUM/20 16 ( ASSESSMENT YEAR : 2008 - 09 ) M/S. DHARTI INVESTMENTS AND HOLDING LTD., 1 ST FLOOR, JAI CENTRE 34, P.D.MELLO ROAD OPP. RED GATE MASJID, MUMBAI - 400098 VS. ADDITIONAL COMMISSIONER OF INCOME TAX 6(2) MUMBAI PAN/GIR NO. AACCD2509C APPELLANT ) .. RESPOND ENT ) REVENUE BY SHRI RAJAT MITTAL ASSESSEE BY SHRI MADHUR AGARWAL DATE OF HEARING 07 / 06 /201 8 DATE OF PRONOUNCEMENT 12 / 06 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE CROSS APPEALS FILED BY ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) FOR THE A.Y.2008 - 09 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED AS AN INVESTMENT COMPANY DEALING IN SECURITIES AND OTHER FINANCIAL INSTRUMENTS AND ALSO ENGAGED IN FINANCE RELATED ACTIVITIES. THE ASSESSEE HAS BEEN REGISTERED AS A NON - BANKING FINANCIAL COMP ANY (NBFC) WITH THE RESERVE BANK OF INDIA. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, AO DISALLOWED RS.25,94,088/ - U/S. 94(7). AO ALSO DISALLOWED INTEREST EXPENDITURE BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D. EXPENDITURE INCURRED ON CIVIL WORK WAS A LSO PARTLY DISALLOWED BY THE AO TREATING THE SAME AS CAPITAL IN NATURE. 5. BY THE IMPUGNED ORDER, CIT(A) PARTLY ALLOWED THE EXPENDITURE INCURRED ON CIVIL WORK BY TREATING THE SAME AS REVENUE IN NATURE. HOWEVER, CIT(A) CONFIRMED THE DISALLOWANCE MADE U /S.14A AND ALSO DISALLOWANCE MADE U/S.94(7) OF THE IT ACT. 6. AGAINST THE ORDER OF CIT(A) BOTH ASSESSEE AND REVENUE ARE IN FURTHER APPEAL BEFORE US. 7. LEARNED AR APPEARING ON BEHALF OF THE ASSESSEE INVITED OUT ATTENTION TO THE INTEREST EXPENDITURE INCURRE D BY THE ASSESSEE AS WELL AS THE INTEREST INCOME EARNED BY THE ASSESSEE AND IT WAS CONTENDED THAT DISALLOWANCE U/S. 14A WITH REGARD TO THE INTEREST EXPENDITURE SHOULD BE COMPUTED WITH REFERENCE TO THE NET INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. MEAN ING THEREBY INTEREST INCOME SO EARNED SHOULD BE REDUCED ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 3 FROM THE INTEREST EXPENDITURE AND THE NET INTEREST EXPENDITURE SHOULD BE CONSIDERED FOR COMPUTING THE DISALLOWANCE. RELIANCE WAS PLACED ON THE DECISION OF GUJARAT HIGH COURT IN CASE OF NIRMA CREDIT & CAPITAL (P) LTD., 85 TAXMANN.COM 72, WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF APPLYING THE FACTORS CONTAINED IN CLAUSE (II) OF SUB - RULE (2) OF THE RULE 8D PRIOR TO ITS AMENDMENT WITH EFFECT FROM 02/06/2016, AMOUNT WOULD BE CONSIDERED AS AMOUNT OF EXPEND ITURE BY WAY OF INTEREST WOULD BE THE INTEREST PAID BY THE ASSESSEE ON THE BORROWINGS MINUS TAXABLE INTEREST EARNED DURING THE FINANCIAL YEAR. RELIANCE WAS ALSO PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF JU BILANT ENTERPRISES PVT. LTD., ORDER DATED 28/02/2017. PRECISE OBSERVATION OF HONBLE HIGH COURT WAS AS UNDER: - 2. THIS APPEAL RAISES THE FOLLOWING QUESTIONS OF LAW FOR OUR CONSIDERATION : (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, T HE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE DIS LLOWANCE MADE UNDER SE CTION 14A READ WITH RULE 8D ON T HE BASIS OF THE NETTING OF INTE REST RELYING UPON THE DECISION OF ITS CO- ORDINATE BENCHES IN PARESH K.SHAH(ITA N O.8214/M/2011) AND M/S. TRADE A PARTMENTS LTD.? 3. REGARDING QUESTION (I): THE IMPUGNED ORDER OF THE TRIBUNAL DISMISSED THE REVENUE'S APPEAL HOLDING THAT THE DISALLOWANCE OF INTEREST UNDER SECTION 14A OF THE ACT SHOULD BE MADE WITH REFERENCE TO NET INTEREST LOAN. THIS WAS BY FOLL OWING THE DECISION OF ITS CO-ORDINATE BENCH AT MUMBAI IN CASE OF P ARESH K. SHAH (ITA NO.8214/M/2011) AND THE DECISION OF ITS CALCUTTA B ENCH IN TRADE APARTMENTS LTD. (ITA NO.1277/KOL/2011). MR. KOTANGALE, THE LEARNED COUNSEL APPEARING FOR THE REVENUE IS U NABL E TO POINT OUT WHETHER THE DECISION OF THE TRIBUNAL IN PARESH K. SHAH (S UPRA) HAS BEEN CHALLENGED IN APPEAL. THIS IN VIEW OF ABSENCE OF ANY I NSTRUCTIONS FROM THE OFFICERS OF THE REVENUE. IN THE ABOVE VIEW, ONE H AS TO PROCEED ON THE BASIS THAT THE DE CISION OF THE MUMBAI BENCH OF TH E TRIBUNAL IN PARESH K. SHAH (SUPRA) HAS BEEN ACCEPTED BY THE REVENU E. IN ANY CASE, NO DISTINGUISHING FEATURES IN FACTS OR LAW HAS BEEN POIN ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 4 TED TO US FROM THOSE IN THE CASE OF PARESH K. SHAH (SUPRA) WHICH WOULD JUSTIFY THE DISALLOWANCE ON THE GROSS INTEREST PAID AND NOT ON NET INTE REST. (B)IN THE ABOVE VIEW, QUESTION NO.(I) AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS NOT ENTERTAINED. 8 . RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOU NCEM ENTS WE ARE IN AGREEMENT WITH THE CONTENTION OF LEARNED AR THAT DISALLOWANCE U/S.14A SHOULD BE MADE WITH RESPECT TO THE NET INTEREST EXPENDITURE. ACCORDINGLY, AO IS DIRECTED TO RE COMPUTE THE DISALLOWANCE ON THE NET INTEREST EXPENDITURE AFTER GIVING CREDIT FOR THE INTEREST EARNED BY THE ASSESSEE. WE DIRECT ACCORDINGLY. 9. FROM THE RECORD WE FOUND THAT THE ASSESSEE COMPANY HAS INCURRED RS.5,66,34,575/ - TOWARDS REPAIRS & MAINTENANCE OF BUILDING. THE COMPANY HAS ACQUIRED THIS BUILDING FROM CIDCO. THESE EXPENDIT URES MAINLY INCLUDE THE EXPENSES INCURRED ON REPAIR WORK, RENOVATION, CIVIL AND ELECTRICAL INTERIOR WORK, ETC. THE COMPANY HAS CONSIDERED THESE EXPENSES AS BUSINESS EXPENSES AND CLAIMED THE SAME AS REVENUE EXPENSES. THESE EXPENSES ARE INCURRED FOR RUNNING THE BUSINESS EFFECTIVELY AND EFFICIENTLY. THE REPAIR, RENOVATION AND INTERIOR WORK WAS NECESSARY SO THAT THE BUILDING CAN BE EFFICIENTLY USED FOR THE BUSINESS. IT HAS NOT BROUGHT INTO EXISTENCE ANY NEW ADVANTAGE OR ANY NEW ASSET NOR IT HAS GIVEN ANY BENEFI T OF ENDURING NATURE. THERE ARE SETTLED CASE LAWS WHICH SHOW THAT THESE KINDS OF EXPENDITURE ARE NOTHING BUT REVENUE IN NATURE AND SO ARE ALLOWABLE. THESE EXPENDITURES INCURRED BY THE ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 5 COMPANY WERE AN INTEGRAL PART OF PROFIT EARNING PROCESS. THEREFORE, IT I S NOT CORRECT TO SAY THAT COMPANY HAS OBTAINED ANY ENDURING BENEFIT BECAUSE OF THIS EXPENDITURE. FURTHERMORE, NO CAPITAL ASSET OF ENDURING NATURE CAME INTO EXISTENCE. IT IS MERELY EXPENSES INCURRED TO RENOVATE THE BUILDING SO THAT THE SAME CAN BE USED PROP ERLY AND EFFICIENTLY FOR THE PURPOSE OF THE BUSINESS ACTIVITIES.' 10. WE ALSO FOUND THAT EXPENDITURE SO INCURRED ARE IN THE NATURE OF REPAIR EXPENSES WHICH INCLUDES FLOORING, TILING, WATER PIPE REPAIRING, PLASTERING ETC. SUCH EXPENSES HAVE BEEN CARRIED OU T BY THE CONTRACTOR USING THE OTHER MATERIAL AS ALLOWED BY A.O. AS REVENUE EXPENDITURE. THE CIT(A) H AS DEALT WITH ISSUE THREADBARE AND AFTER APPLYING VARIOUS JUDICIAL PRONOUNCEMENTS OBSERVED THAT WHILE ALLOWING THE EXPENDITURE AS CAPITAL OR REVENUE, ONE H AS TO LOOK AT THE EXPENDITURE FROM A COMMERCIAL POINT OF VIEW AND THAT NOT EVERY ADVANTAGE OF ENDURING NATURE CONSTITUTES CAPITAL EXPENDITURE. THE CIT(A) FURTHER OBSERVED THAT W HAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SE NSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE 0PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. HERE IT IS SEEN THAT THE CASE OF THE APPELLATE FALL S ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 6 IN THIS CATEGORY. THE TEST OF ENDURING BENEFIT WAS NOT AN INFALLIBLE TEST AS HELD BY THE HON'BLE SUPREME COURT, PARTICULARLY IN THE CASE OF CIT V KALYANJI MAVJI AND CO. (1980 122 ITR49 (SC) & EMPIRE JUTE CO. LTD V CIT (1980) 124 ITR 1 (SC). RELIANCE IS A LSO PLACED ON THE FOLLOWING HON'BLE JUDICIAL DECISIONS : - 1. THE HON'BLE DELHI HIGH COURT IN AIRPORT AUTHORITY OF INDIA VS. CIT 'IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BU SINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE. IF, ON THE OTHER HAND, IT IS MADE NOT FOR THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW T O PRODUCE THE PROFITS IT IS A REVENUE EXPENDITURE.' 2. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF DY. GIT V. SANDOZ (P.) LTD. BY HON'BLE MUMBAI TRIBUNAL (2012) 137 ITD 326 / 80 DTR 129 (MUM.)(TRIB.) WHEREIN THE HON'BLE TRIBUNAL HELD THAT THE BUILDING USED FOR BUSINESS PURPOSE HENCE REPAIR EXPENSES INCURRED TO IMPROVE THE CONDITION OF BUILDING HELD TO BE ALLOWABLE REVENUE EXPENDITURE. THE EXPENDITURE INCURRED BY ASSESSEE ON REPAIRS TO IMPROVE BAD CONDITION OF BUILDING WHICH WAS USED FOR ITS BUSINESS PURPOSE WAS TO BE ALLOWED AS BUSINESS EXPENDITURE. 3. IN THE CASE OF CIT .V. DBS CORPORATE SERVICES (P.) LTD. (2014) 222 TAXMAN 31 (MAG.) (BOM.)(HC) HON'BLE MUMBAI HIGH COURT ALLOWED SUCH EXPENDITURE AS REVENUE. 4. SIMILAR VIEW WAS TAKEN BY THE HON'BLE HIGH COU RT IN THE CASE OF CIT V. MANOHAR LAL HIRA LAL LTD. (2013) 219 TAXMAN 161 (MAG,) (AII.)(HC) AND ALLOWED EXPENSES INCURRED FOR REPAIRS - REPLACEMENT OF BROKEN AC SHEETS, WALL PLASTER, TOOLS AND DIES AS REVENUE EXPENDITURE. 5. IN THE CASE OF CIT V. H. P. GLOB AL SOFT LTD. (2012) 349 ITR 462 / 208 TAXMAN 275 / 248 CTR 201 / 66 DTR 242 (KARN.)(HC) SUCH KIND OF EXPENSES HAS BEEN ALLOWED AS REVENUE EXPENDITURE. 11. AFTER CONSIDERING THE NATURE OF EACH AND EVERY EXPENDITURE AND THEREAFTER APPLYING PROPOSITION OF LA W, DISCUSSED IN VARIOUS ABOVE JUDICIAL PRONOUNCEMENTS THE CIT(A) REACHED TO THE FINDING THAT EXPENDITURE SO ITA NO. 3272/MUM/2016 & 2078/MUM/2016 M/S. DHARTI INVESTMENT & HOLDINGS LTD., 7 INCURRED ON REPAIR ETC., WAS REVENUE IN NATURE. THE DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD WHICH DO NOT REQUIRE ANY IN TERFERENCE ON OUR PART. 12. GROUND RAISED WITH REGARD TO DISALLOWANCE OF RS.25,94,088/ - U/S.94(7) WAS NOT PRESSED BY LEARNED AR. ACCORDINGLY, SAME IS DISMISSED AS NOT PRESSED. 13 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED WHEREAS APPEAL OF THE ASS ESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 / 06 /201 8 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 12 / 06 /201 8 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//