The ACIT,(OSD) Circle-8, Ahmedabad V. M/s. Sahitya Mudranalaya Pvt.Ltd., Ahmedabad

ITA 3318/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76858 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2010
• Court: TRIBUNAL
• Department Lawyers: RAJNISH K VOHRA
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A; 32; 263

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , !'# !$ !'# !$ !'# !$ !'# !$0 00 0! !! !0 00 0 %$ %$ %$ %$, , , , &' ( &' ( &' ( &' ( & & & & BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 3318/AHD/2010 ASSESSMENT YEAR 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-8, AHMEDABAD. VS SAHITYA MUDRANALAYA PVT. LTD. CITY MILL COMPOUND, KANKARIA ROAD, AHMEDABAD. PAN: AACCS9591B )*/ APPELLANT ,-)* / RESPONDENT REVENUE BY : SHRI RAJNISH K. VOHRA, SR. DR ASSESSEE(S) BY : SHRI MUKESH M. PATEL, AR $'. / 0'/ // / DATE OF HEARING : 03/06/2014 123 / 0' / DATE OF PRONOUNCEMENT : 20/06/2014 &4 &4 &4 &4/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-XIV, AHMEDABAD DATED 08.09.2010. 2. THE FIRST GROUND OF APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING RS 6, 25,000/- ON ACCOUNT OF DEPRECIATION ON GOODWILL. 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 2 - DEPRECIATION OF RS 6,25,000/- ON GOODWILL. HE OBSE RVED THAT DURING THE ASSESSMENT YEAR 2006-07, ISSUE OF DEPRECIATION ON G OODWILL WAS EXAMINED AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE AND FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF DEPRECIATIO N ON GOODWILL WAS DISALLOWED. HOWEVER, ON APPEAL, THE COMMISSIONER O F INCOME TAX (APPEALS) HAS DELETED THE ADDITION AND ALLOWED THE DEPRECIATI ON TO THE ASSESSEE ON GOODWILL. THE DEPARTMENT DID NOT ACCEPT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND FILED APPEAL THEREAGAINST TO THE TRIBUNAL AND THEREFORE, HE MADE THE DISALLOWANCE FOR DEPRECIATIO N ON GOODWILL OF RS 6,25,000/- IN THE YEAR UNDER APPEAL. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2006-07 ALLOWED THE C LAIM OF DEPRECIATION ON GOODWILL TO THE ASSESSEE. 5. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE F ILED BEFORE US COPY OF THE ORDER OF THIS TRIBUNAL IN THE CASE OF T HE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2006-07 PASSED IN ITA NO. 2062/AHD/ 2009 ORDER DATED 17.06.2011 AND SUBMITTED THAT THE TRIBUNAL CONFIRME D THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING THE C LAIM OF DEPRECIATION ON GOODWILL TO THE ASSESSEE AND DISMISSED THE APPEAL O F THE REVENUE. THEREFORE, FOLLOWING THE SAME, THE GROUND OF APPEAL OF THE REVENUE IN THE PRESENT YEAR OF APPEAL SHOULD ALSO BE DISMISSED. 6. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION OF RS 6,25,000/- ON GOODWILL TO THE ASSESSEE BY FOL LOWING HIS ORDER FOR THE ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 3 - EARLIER ASSESSMENT YEAR 21006-07. ON APPEAL, THE C OMMISSIONER OF INCOME TAX (APPEALS) VACATED THE DISALLOWANCE BY FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2006-07. WE FIND THAT THE TRIBUNAL IN THE CASE OF ASSESSEE IN ASSESSMENT YEAR 2006-07 CONFIRMED THE ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING THE CLAIM OF DEPRECIA TION ON GOOD TO THE ASSESSEE AND DISMISSED THE APPEAL OF THE REVENUE BY OBSERVING AS UNDER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LEARNED CIT(A)-XIV, AHMEDABAD DATED 13-04-2009 FOR ASSES SMENT YEAR 2006- 07, CHALLENGING THE ORDER OF THE LEARNED CIT(A) I N ALLOWING RS.6,25,000/- ON ACCOUNT OF DEPRECIATION ON GOODWILL. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE A O DISALLOWED DEPRECIATION ON GOODWILL CONSIDERING THE SAME AS NOT AN INTANGIBLE ASSET. THE ASSESSEE EXPLAINED THAT IT WAS ENGAGED IN THE BUSINESS OF PR INTING AND RELATED WORK AND DURING THE YEAR, IT ACQUIRED BUSINESS RIGHT AND RUNNING BUSINESS OF SAHITYA MUDRANALAYA, A PROPRIETARY CONCERN OF BHAGW ATI TRUST AND FOR THE VALUE OF THE BUSINESS RIGHTS AND GOODWILL IT HA S TO PAY RS.25,00,000/- WHICH WAS BASICALLY FOR BUSINESS RIGHTS ETC. WHICH WAS ENJOYED BY THE ABOVE FIRM FOR MANY YEARS. IT WAS SUBMITTED THAT TH OUGH IN THE BOOK ACCOUNTING IT HAS BEEN NAMED AS GOODWILL BUT IT REP RESENTED BUSINESS RIGHTS WHICH ARE WELL COVERED IN THE TERM OF INTANGIBLE AS SET. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND RELIED UP ON THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF BHARATBHAI J. VYAS 9 7 ITD 248. THE AO DISALLOWED THE CLAIM AND ALSO NOTED THAT IN SECT ION 32 (1) (II) OF THE IT ACT THE WORD GOODWILL IS NOT MENTIONED, THEREFORE, DEPRECIATION WAS DISALLOWED. 3. THE ASSESSEE REITERATED THE SUBMISSIONS BEF ORE THE LEARNED CIT(A) AND IT WAS CONTENDED THAT THOUGH THE TERM USED IN T HE BOOKS STOOD AS GOODWILL, IT EFFECTIVELY REPRESENTED BUSINESS RIGHT S OF THE RUNNING BUSINESS OF THE PROPRIETARY CONCERN OF SAHITYA MUDRANALAYA WHIC H WAS ACQUIRED BY THE ASSESSEE AND HENCE, IT FELL WITHIN THE SCOPE OF DEFINITION OF INTANGIBLE ASSET AS COVERED U/S 32 OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE RELIANCE PLACED BY THE AO ON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF BHARATBHAI J. VYAS 97 ITD 248 IS NOT IN ORDER, AS IN THAT CASE, THE PAYMENT WAS MADE TO A RETIRING PARTNER TOWARDS GOODWILL AND THE FIRM MADE A CLAIM FOR DEPR ECIATION ON THE AMOUNT OF GOODWILL PAID TO THE PARTNERS, WHEREAS IN THE AS SESSEES CASE AN AMOUNT OF RS.25,00,000/- HAS BEEN PAID FOR THE PURCHASE CO NSIDERATION OF BUSINESS AND COMMERCIAL RIGHTS FOR ACQUIRING THE RUNNING BUS INESS OF SAHITYA MUDRANALAYA WHICH WAS IN EXISTENCE FOR THE PAST SEV ERAL YEARS AND THE ASSESSEE HAD ACQUIRED RUNNING BUSINESS OF THE SAID FIRM WHICH WAS SUCCESSFULLY BEING CONDUCTED FOR SEVERAL YEARS. IN SUPPORT OF HIS CONTENTION THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SKYLINE CATERERS PVT. L TD. VS ITO, 118 TTJ 344 ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 4 - (MUMBAI), WHEREBY THE TRIBUNAL HELD THAT ACQUISITIO N OF BUSINESS WITH ITS BUSINESS AND COMMERCIAL RIGHTS CONSTITUTED AN INTAN GIBLE ASSET ENTITLED TO DEPRECIATION U/S 32 OF THE IT ACT AND WHILE DECIDIN G THE ISSUE, THE TRIBUNAL HAD ELABORATELY DISCUSSED THE CASE OF BHARATBHAI J. VYAS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER FURNISHED A COPY O F AUDITED PROFIT & LOSS ACCOUNT OF THE COMPANY FOR THE YEAR ENDED 31-03-200 4 TO 31-03-2006 AND SUBMITTED THAT AFTER TAKING OVER THE FIRM OF M/ S. SAHITYA MUDRANALAYA, THE TURNOVER OF THE ASSESSEE HAS INCRE ASED BY 20% FROM YEAR TO YEAR AND HENCE, TAKING OVER OF BUSINESS RIGHTS H AS BEEN MUCH BENEFICIAL TO THE ASSESSEE COMPANY EVEN AFTER PAYING RS.25,00, 000/- TOWARDS BUSINESS AND COMMERCIAL RIGHTS AND GOODWILL. 4. THE LEARNED CIT(A) CONSIDERING THE FACTS OF THE CASE AND SUBMISSION OF THE ASSESSEE, ALLOWED THE CLAIM OF THE ASSESSEE. H IS FINDINGS IN PARA 2.3 ARE REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A.R. OF THE APPELLAN T. FROM THE DETAILS FURNISHED, IT IS SEEN THAT THE APPELLANT HA D MADE PAYMENT OF RS.25 LAKHS FOR GOODWILL AND ALL OTHER BUSINESS RIG HTS OF A FIRM, M/S. SAHITYA MUDRANALAYA, WHICH WAS ALSO ENGAGED IN THE BUSINESS OF PRINTING FOR SEVERAL YEARS AND ULTIMATELY THE TAKIN G OVER OF THE SAID FIRM AND THE BUSINESS RIGHTS OF THE LATTER, HAS BEN EFITED THE APPELLANT COMPANY. IT IS ALSO SEEN THAT DUE TO AN I NADVERTENT MISTAKE, THE CLAIM OF DEPRECIATION WAS NOT MADE IN LAST YEAR AND IT WAS NOT A CASE OF DOUBTING THE GENUINENESS OF THE C LAIM, BUT IT WAS REJECTED SIMPLY ON THE GROUND THAT THE CLAIM WA S NOT MADE BY REVISING THE RETURN OF INCOME. FURTHER, AS CONTENDE D BY THE A. R. THE FACTS OF THE CASE OF BHARATBHAI VYAS ARE DIFFERENT AS IN THAT CASE COMPENSATION HAS BEEN PAID TO A RETIRING PARTNER A S A GOODWILL, AND THERE WAS NO ACQUISITION OF ANY RIGHTS BUT IN THE C ASE OF THE APPELLANT, PAYMENT HAS BEEN MADE FOR ACQUIRING BUSI NESS RIGHTS AND IT HAS RESULTED IN INCREASE OF TURNOVER OF THE APPE LLANT. SINCE THE PAYMENT HAS BEEN MADE BY THE APPELLANT FOR A CQUIRING THE BUSINESS RIGHTS OF A FIRM, THE FACTS OF THE CASE AR E SIMILAR TO THAT OF SKYLINE CATERERS PVT. LTD. VS ITO, 118 TTJ 344 AND FOLLOWING THAT DECISION, I AM OF THE VIEW THAT DEPRECIATION IS ALLOWABLE ON THE SAID PAYMENT AS BUSINESS RIGHTS HAVE BEEN A CQUIRED WHICH ARE IN THE NATURE OF INTANGIBLE ASSET. I, THEREFO RE, DIRECT THE A.O. TO DELETE THE DISALLOWANCE MADE ON THIS COUNT. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON T HE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF B. RAVEENDRA PILLAI VS CIT 194 TAXMAN 477 (KER) AND SUBMITTED THAT SINCE THE DECIS ION OF THE HONBLE HIGH COURT IS DIRECTLY APPLICABLE TO THE MATTER IN ISSUE , THEREFORE, DEPARTMENTAL APPEAL HAS NO MERIT AND THE SAME MAY BE DISMISSED. ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 5 - 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D GONE THROUGH THE ABOVE DECISION AND WE FIND THAT THE ISSUE IS FINALL Y DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE KERALA HIGH COURT. THE HON BLE KERALA HIGH COURT IN THE CASE OF R. RAVEENDRA PILLAI VS CIT 332 ITR 5 31 (SUPRA) HELD AS UNDER: HELD, ALLOWING THE APPEAL, THAT IN FACT, WITHOUT R ESORTING TO THE RESIDUARY ENTRY THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE SAME, TRADE MARK AND LOGO UNDER THE SPECIFIC HE AD PROVIDED UNDER SECTION 32 (1) (II) WHICH COVERED TRADE MARK AND FRANCHISE. ADMITTEDLY THE HOSPITAL WAS RUN IN THE SAME BUILDIN G, IN THE SAME TOWN, IN THE SAME NAME FOR SEVERAL YEARS PRIOR TO P URCHASE BY THE ASSESSEE. BY TRANSFERRING THE RIGHTS TO USE THE NAME OF THE HOSPITAL ITSELF, THE PREVIOUS OWNER HAD TRANSFERRED THE GOODWILL TO THE ASSESSEE AND THE BENEFIT DERIVED BY THE ASSESSE E WAS RETENTION OF CONTINUED TRUST OF THE PATIENTS WHO WE RE PATIENTS OF THE PREVIOUS OWNERS. WHEN THE GOODWILL PAID WAS FOR ENS URING RETENTION AND CONTINUED BUSINESS IN THE HOSPITAL, I T WAS FOR ACQUIRING A BUSINESS AND COMMERCIAL RIGHTS AND IT WAS COMPARA BLE WITH TRADE MARK, FRANCHISE, COPYRIGHT ETC. REFERRED TO I N THE FIRST PART OF CLAUSE (II) OF SECTION 32(1) AND SO MUCH SO, GOODWI LL WAS COVERED BY THE ABOVE PROVISION OF THE ACT ENTITLING THE ASSESS EE FOR DEPRECIATION. 6.1 THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS HINDUSTAN COCO COLA BEVERAGES PVT. LTD. 331 ITR 192 HELD AS UNDER: HELD, THAT IT WAS CLEAR FROM THE ORDER PASSED BY T HE TRIBUNAL, THAT THE DEPRECIATION WAS CLAIMED ON GOODWILL BY THE ASS ESSEE ON ACCOUNT OF PAYMENT MADE FOR THE MARKETING AND TRADING REPUT ATION, TRADE STYLE AND NAME, MARKETING AND DISTRIBUTION, TERRITO RIAL KNOW-HOW, INCLUDING INFORMATION OR CONSUMPTION PATTERNS AND H ABITS OF CONSUMERS IN THE TERRITORY AND DIFFERENCE BETWEEN THE CONSIDERATION PAID FOR BUSINESS AND VALUE OF TA NGIBLE ASSETS. THE TRIBUNAL HAD TREATED IT TO BE VALUABLE COMMERCIAL A SSET SIMILAR TO OTHER INTANGIBLES MENTIONED IN THE DEFINITION OF TH E BLOCK OF ASSETS AND, HENCE, ELIGIBLE TO DEPRECIATION. IT HAD ALSO B EEN NOTED BY THE TRIBUNAL THAT THESE FACTS WERE STATED BY THE ASSESS EE IN THE AUDIT REPORT AND THE ASSESSING OFFICER HAD EXAMINED THE A UDIT REPORT AND ALSO MADE QUERIES AND ACCEPTED THE EXPLANATION PREF ERRED BY THE ASSESSEE. THE ACCEPTANCE OF THE CLAIM OF THE ASSESS EE BY THE ASSESSING OFFICER WOULD COME IN THE COMPARTMENT OF TAKING A PLAUSIBLE VIEW INASMUCH AS BASICALLY INTANGIBLE ASS ETS WERE IDENTIFIABLE NON-MONETARY ASSETS THAT COULD NOT BE SEEN OR TOUCHED OR PHYSICAL MEASURES WHICH WERE CREATED THROUGH TIM E AND/OR EFFORT AND THAT WERE IDENTIFIABLE AS A SEPARATE ASSET. THE Y COULD BE IN THE FORM OF COPYRIGHTS, PATENTS, TRADEMARKS, GOODWILL, TRADE SECRETS, CUSTOMER LISTS, MARKETING RIGHTS, FRANCHISES, ETC. WHICH EITHER ARISE ON ACQUISITION OR WERE INTERNALLY GENERATED. GOODWILL CONVEYS ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 6 - A POSITIVE REPUTATION BUILT BY A PERSON/COMPANY/BUS INESS CONCERN OVER A PERIOD OF TIME. THE TRIBUNAL WAS JUSTIFIED I N HOLDING THAT IF TWO VIEWS WERE POSSIBLE AND WHEN THE ASSESSING OFFICER HAD ACCEPTED ONE VIEW WHICH WAS A PLAUSIBLE ONE, IT WAS NOT APPR OPRIATE ON THE PART OF THE COMMISSIONER TO EXERCISE HIS POWER UNDE R SECTION 263 SOLELY ON THE GROUND THAT IN THE BOOKS OF ACCOUNT I T WAS MENTIONED AS GOODWILL AND NOTHING ELSE. 7. CONSIDERING THE FACTS IN THE LIGHT OF THE A BOVE DECISIONS, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. THE SA ME IS ACCORDINGLY DISMISSED. IN ABSENCE OF ANY DISTINGUISHABLE FEATURES POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE, RESPECTFULLY FOLLOWING THE ABOVE QU OTED DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS TH E GROUND OF APPEAL OF THE REVENUE. 8. GROUND NO. 2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING RS 2, 50,000/- ON ACCOUNT OF BUILDING REPAIR EXPENSES. 9. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER OBSERVED THAT THERE WAS A SUBSTANTIAL INCREASE IN EXPENSES UNDER THE HEAD BUILDING REPAI RS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE EXPLAINE D THAT THE PREMISES ARE RENTED ONE AND IS PART OF MORE THAN 100 YEARS OLD T EXTILE MILL. THE WALLS, ROOFS, FLOORING ARE IN A DEPLETED CONDITION AND THE PRINTING MACHINERY AND RAW MATERIALS BEING HEAVY PAPER ROLLS, DAMAGES THE STRUCTURES, WALLS AND FLOORING WHICH REQUIRES CONSTANT REPAIRS AND REPLAC EMENT ON REGULAR BASIS AND SOMETIME ADDITIONAL WALLS OR REPLACEMENT OF EXI STING WALLS OR FLOORING IS REQUIRED TO BE DONE. THE ASSESSEE SUBMITTED COPY O F THE LEDGER ACCOUNT. THE ASSESSING OFFICER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE OBSERVED THAT THERE WAS NO CHECK TO IDENTIFY THE CAPITAL OR REVENUE NATURE OF EXPENSES ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 7 - AS WELL AS SOME OF THE EXPENSES WHICH ARE NOT VOUCH ED. HE, THEREFORE, DISALLOWED RS 2,50,000/- OUT OF THE BUILDING REPAIR S EXPENSES. 10. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSING OFFICER HAS NOT MADE CLEAR IN TH E ASSESSMENT ORDER IN RESPECT OF THE NATURE OF EXPENSES FOR WALLS, ROOFS AND FLOORINGS. HE FURTHER OBSERVED THAT LOOKING AT THE NATURE OF EXPENSES AND CONDITION OF BUILDING AS RENTED ONE, THE EXPENDITURE APPEARS TO BE REGULAR O NE INCURRED ON MONTHLY BASIS WHENEVER THERE WAS A REQUIREMENT TO MAINTAIN THE RENTED BUILDING. HENCE, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE, AND HE VACATED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF REPAIRS AN D MAINTENANCE AND THE ASSESSING OFFICER OBSERVING THAT THERE WAS NO CHECK TO IDENTIFY WHETHER THE EXPENDITURE WAS CAPITAL OR REVENUE IN NATURE MADE A DISALLOWANCE OF RS 2,50,000/- OUT OF BUILDING REPAIRS CLAIMED BY THE A SSESSEE. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE DE DUCTION TO THE ASSESSEE BY OBSERVING THAT LOOKING AT THE NATURE OF EXPENSES AND CONDITION OF BUILDING WHICH WAS RENTED ONE, THE EXPENDITURE A PPEARS TO BE REGULARLY INCURRED ON MONTHLY BASIS AS PER REQUIREMENT TO MAI NTAIN THE BUILDING, AND THEREFORE, IT WAS REVENUE IN NATURE. THE DEPARTMEN TAL REPRESENTATIVE MERELY RELIED ON THE ORDER OF THE ASSESSING OFFICER . NO MATERIAL COULD BE BROUGHT ON RECORD TO SHOW THAT ANY PART OF THE EXPE NDITURE OF RS 2,50,000/- ALLOWED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WAS CAPITAL AND NOT REVENUE EXPENDITURE. HENCE, WE FIND NO INFIRMITY I N THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE SAME IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF REVENUE IS DISMISSED. ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 8 - 12. GROUND NO. 3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE A DDITION OF RS 6,58,652/- MADE U/S. 14A OF THE ACT. 13. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT THE ASSESSEE HAS RECEIVED EXEMPT DIVI DEND INCOME OF RS 9,94,877/-. ACCORDING TO THE ASSESSING OFFICER, AS PER THE PROVISION OF SECTION 14A, NO DEDUCTION SHOULD BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME. HE OBSERVED THAT THE ASSESSEE HAS I NCURRED INTEREST EXPENSES OF RS 8,63,818/- ON BORROWED FUNDS. FURTHER, THERE ARE ADMINISTRATIVE EXPENSES TO DEPLOY THE FUNDS AND EARN EXEMPT DIVIDE ND INCOME. THEREFORE, HE COMPUTED THE DISALLOWANCE AS PER RULE 8D OF THE ACT AND MADE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES OF RS 3,43,283/- AND OUT OF INTEREST EXPENSES OF RS 3,15,370/- AND THEREBY M ADE A TOTAL DISALLOWANCE OF RS 6,58,652/- U/S. 14A OF THE ACT. 14. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT AS ON 31.03.2007, THE ASSESSEE HAD SHARE CAPIT AL OF RS 50 LAKHS AND RESERVES AND SURPLUS OF RS 13,33,35,273/- TOTALLING TO RS 13,83,85,273/- AND INVESTMENT OF RS 8,26,00,390/- WAS MADE BY THE ASSESSEE DURING THE YEAR. THUS, HE OBSERVED THAT IT IS SEEN THAT THE C APITAL AND RESERVES AND SURPLUS WAS MORE THAN THE INVESTMENT MADE BY THE AS SESSEE DURING THE YEAR. HE FURTHER OBSERVED THAT THERE WAS NET INTER EST INCOME OF RS 1,81,400/- AND INTEREST EXPENDITURE OF RS 8,63,818/ -. HE THUS OBSERVED THAT THE INTEREST EXPENDITURE WAS DUE TO SHORT TERM BORROWINGS ONLY FOR WORKING CAPITAL REQUIREMENTS. THUS, THERE WAS NO C OST OF FUNDS TO EARN THE EXEMPT INCOME. THEREFORE, HE VACATED THE DISALLOWA NCE OF RS 3,15,370/- OUT OF INTEREST EXPENSES. REGARDING THE ADMINISTRA TIVE EXPENSES OF RS 3,43,283/-, THE COMMISSIONER OF INCOME TAX (APPEALS ) OBSERVED THAT THE ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 9 - AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAD NOT A GITATED THE SAME DURING THE APPEAL PROCEEDINGS AND CONFIRMED THE SAID DISAL LOWANCE. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EA RNED TAX FREE DIVIDEND INCOME OF RS 9,94,877/-. IN THE OPINION OF THE ASS ESSING OFFICER, THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME WAS NOT ALLOWABLE DEDUCTION TO THE ASSESSEE. HE FURTHER OBSERVED THA T THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF RS 8,63,818/- ON FUND S BORROWED BY IT. THEREFORE, THE ASSESSING OFFICER, OBSERVING THAT TH E ASSESSEE MAY HAVE UTILIZED BORROWED FUNDS FOR MAKING INVESTMENT FOR E ARNING TAX FREE DIVIDEND INCOME, MADE A PROPORTIONATE DISALLOWANCE OUT OF IN TEREST EXPENDITURE OF RS 3,15,370/-. 16. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) VACATED THE DISALLOWANCE BY OBSERVING THAT THE ASSESSEE WAS HAVING INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL OF RS 50 LAKHS A ND RESERVE AND SURPLUS OF RS 13,33,35,273/- AGGREGATING TO RS 13,83,85,273/- AND THE INVESTMENT OF THE ASSESSEE AT THE YEAR ENDING ON 31.03.2007 WAS O NLY RS 8,26,00,390/-. HE, THEREFORE, HELD THAT THE ASSESSEE HAD SUFFICIEN T INTEREST FREE FUNDS FOR MAKING INVESTMENT OF RS 8,26,00,390/- AND DELETED T HE DISALLOWANCE OF INTEREST EXPENDITURE OF RS 3,15,370/-. 17. BEING AGGRIEVED BY THIS ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 18. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). ITA NO. 3318/AHD/2010 SAHITYA MUDRANALAYA PVT. LTD., AHD FOR A.Y. 2007-08 - 10 - 19. WE FIND THAT THE ASSESSING OFFICER HAS NOT SHO WN ANY NEXUS BETWEEN THE BORROWED FUNDS OF THE ASSESSEE AND THE INVESTMENT MADE BY THE ASSESSEE TO ESTABLISH THAT THE BORROWED FUNDS W ERE UTILIZED BY THE ASSESSEE IN MAKING THE INVESTMENTS. THEREFORE, WE FIND NO ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) H OLDING THAT THE ASSESSEE HAD INTEREST FREE FUNDS FAR IN EXCESS OF T HE INVESTMENT MADE BY IT AS AT THE YEAR ENDING ON 31.03.2007 AND DELETING TH E DISALLOWANCE OF INTEREST EXPENDITURE OF RS 3,15,370/-. THUS, THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 20 TH OF JUNE, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 20/06/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. ,-)* / THE RESPONDENT. 3. ## 7 / CONCERNED CIT 4. 7() / THE CIT(A)-III, AHMEDABAD 5. 5': ,$ , , / DR, ITAT, AHMEDABAD 6. ;< =. / GUARD FILE. &4$ &4$ &4$ &4$ / BY ORDER, / // / # # # # ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD