Chennai Port Trust, CHENNAI V. DDIT, CHENNAI

ITA 495/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90638 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 09-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VIJAYALAKSHMI
• Assessee Lawyers: K MEENATCHI SUNDARAM
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Wholly owned subsidiary; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37(1); 139(5); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.495/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. CHENNAI PORT TRUST, 1,CENTENARY BUILDING, RAJAJI SALAI, OPP. RBI CHENNAI - 600 001. VS THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, CHENNAI. PAN: AAALC0025B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.K.MEENATCHI SUNDARAM, C.A /RESPONDENT BY : MRS. VIJAYALAKSHMI, CIT /DATE OF HEARING : 12 TH MAY, 2016 /DATE OF PRONOUNCEMENT : 22 ND JULY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM: THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- VII, CHENNAI DATED 18.12.2014 IN ITA NO.241/14-15 P ASSED UNDER SECTION 143(3) & 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED THREE ELABORATE GROUNDS, HOWEVER THEY ARE CONCISED HEREIN BELOW FOR ADJUDICA TION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY T HE LEARNED ASSESSING OFFICER AMOUNTING TO RS.52,52,37,562/- BEING PAYMENT MADE BY THE ASSESSEE TO NHAI TOWARDS LAND ACQUISITION, 2 ITA NO.495/MDS/2015 RESETTLEMENT AND REHABILITATION EXPENSES BY HOLDING IT TO BE CAPITAL EXPENDITURE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY T HE LEARNED ASSESSING OFFICER AMOUNTING TO RS.1,83,09,555/- BEING EXPENDITURE INCURRED TOWARD S STRENGTHENING AND REALIGNING OF THE TRACKS IN THE H ARBOR. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN SUSTAINING THE ADDITION OF RS.1,08,47, 500/- MADE BY THE LEARNED ASSESSING OFFICER BEING EXPENSE S INCURRED FOR EARNING EXEMPT DIVIDEND INCOME BY INVOKING SECTION14A OF THE ACT R.W.R 8D. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2 011-12 ON 28.09.2011 DECLARING INCOME OF RS.17,00,14,179/-. SUBSEQUENTLY THE ASSESSEE FILED ITS REVISED RETURN UNDER SECTION 139(5) OF THE ACT ON 19.11.2012 ADMITTING I NCOME OF RS.14,22,22,469/-. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SEC TION 143(3) OF THE ACT ON 31.03.2014 WHEREIN THE LEARNED A.O MADE CERTAIN ADDITIONS AND DISALLOWANCES. GROUND NO.1: DISALLOWANCE OF RS.52,52,37,562/- BEING PAYMENT MADE TO NHAI TOWARDS LAND ACQUISITION: 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE 3 ITA NO.495/MDS/2015 HAD CLAIMED THE ENTIRE EXPENSE OF `52,52,37,562/- AS REVENUE EXPENDITURE WHICH WAS RELATED TO CONSTRUCT ION OF AN ELEVATED CORRIDOR FROM BEACH ROAD TO MADURAVOIL IN CHENNAI WHICH HAS BEEN APPROVED BY THE CENTRAL GOVERNMENT. ON QUERY, THE ASSESSEE / LEARNED ASSESSEES REPRESENTA TIVE MADE THE FOLLOWING SUBMISSIONS:- I) THIS EXPENDITURE WAS INCURRED FOR THE SMOOTH CONDUCT OF THE BUSINESS OF THE ASSESSEE IN A MORE PROFITABLE MANNER. II) THE AMOUNT WAS PAID AS PER THE UNDERSTANDING BETWEEN THE GOVERNMENT OF TAMIL NADU AND CENTRAL GOVERNMENT. III) THIS EXPENDITURE WAS NECESSARY TO EASE THE HEL P OF MOVEMENT OF CARGO BETWEEN THE PORT AND INLAND. IV) OTHER THAN THE COST OF DEVELOPMENT OF THE ROAD, CERTAIN REHABILITATION EXPENSES HAS TO BE INCURRED TOWARDS THE DISPLACEMENT OF SLUM DWELLERS, OCCUPANT S, SQUATTERS OF THE PORAMBOKKU LAND WHICH IS INEVITABL E IN ORDER TO SPEED UP THE PROJECT. 4 ITA NO.495/MDS/2015 V) THIS EXPENDITURE WOULD NOT CREATE ANY ASSET TO THE ASSESSEE, HOWEVER IT WILL ONLY FACILITATE TO CONDUC T ITS BUSINESS AND EARN MORE REVENUE. VI) RELIANCE WAS ALSO PLACED IN THE DECISION OF THE HONBLE DELHI HIGH COURT IN AIRPORT AUTHORITY OF IN DIA VS. CIT 340 ITR 407 WHEREIN THE FULL BENCH OF THE HONBLE DELHI HIGH COURT AGREED WITH THE AIRPORT AUTHORITYS CLAIM THAT THE EXPENDITURE INCURRED TOW ARDS REMOVAL OF ILLEGAL ENCROACHMENTS IN AND AROUND THE AIRPORT AND REHABILITATING THE ENCROACHERS SHOULD B E ALLOWED AS REVENUE EXPENDITURE. VII) IN AN ALTERNATIVE GROUND, IT WAS ALSO CLAIMED THAT THE AFORESAID EXPENSES SHOULD BE TREATED AS CAPITAL EXPENDITURE, IF IT IS NOT ALLOWED AS REVENUE EXPEND ITURE. RELIANCE WAS PLACED IN THE DECISION OF EMPIRE JUTE COMPANY LTD. REPORTED IN 127 ITR 1 (SC), 2) CIT VS HINDUSTAN ZINC LTD. REPORTED IN 231 CTR 631. 4.2 HOWEVER, THE LEARNED ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE FOR TREATING IT AS REVENUE EX PENDITURE 5 ITA NO.495/MDS/2015 AND HELD THE EXPENDITURE TO BE IN THE NATURE OF CAP ITAL EXPENDITURE AND RELIED IN THE FOLLOWING DECISIONS:- A) CIT VS. MADRAS AUTO SERVICE (P) LTD. REPORTED IN 233 ITR 468 (SC), B) ASSAM BENGAL CEMENT CO. LTD,. VS. CIT REPORTED I N 27 ITR 34 (SC), C) CIT VS. COAL SHIPMENTS REPORTED IN 82 ITR 902 (SC) . D) ARVIND MILLS LTD. VS. CIT 197 ITR 422 (SC) 4.3 THEREAFTER, THE LEARNED ASSESSING OFFICER DISAL LOWED THE EXPENSES CLAIMED BY THE ASSESSEE UNDER SECTION 37 OF THE ACT BY OBSERVING AS UNDER:- 27. IF THE ARGUMENT OF THE COUNSEL FOR THE ASSESSE E WERE TO BE ACCEPTED, NO EXPENDITURE COULD EVER BE TERMED AS CAPITAL SINCE ALL EXPENSES ARE ULTIMATELY INCURRE D FOR FACILITATING THE CARRYING ON OF THE BUSINESS MORE P ROFITABLY AND EFFICIENTLY. IN THAT CASE ONE LIMB OF SECTION 3 7 THAT NO EXPENDITURE OF CAPITAL NATURE SHOULD BE ALLOWED I N COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS & GAINS OF BUSINESS OR PROFESSION WOULD BECOME OTI OSE. IT IS AGAIN A SETTLED LAW THAT ANY INTERPRETATION WHIC H MAKES A SECTION OF STATUTE OTIOSE SHOULD BE AVOIDED. 28. ACCORDINGLY, IT IS HELD THAT THE CONTRIBUTION O F `52.52 CRORES TO NHAI TOWARDS MEETING PARTIAL COST IN CONNECTION WITH THE FOUR LANE ELEVATED CORRIDOR PRO JECT HAS GIVEN RISE TO AN ENDURING ADVANTAGE TO THE ASSESS EE WHICH WILL GO TO BENEFIT THE ASSESSEE FOR SEVERAL Y EARS TO COME. HENCE IT SATISFIES THE PARAMETERS OF A CAPITA L EXPENDITURE AS HELD BY THE SUPREME COURT IN THE CAS E OF ASSAM BENGAL CEMENT CO.LTD. VS. CIT 27 ITR 34 (SC), CIT VS. COAL SHIPMENT PVT.LTD. 82 ITR 902 (SC) & A RVIND 6 ITA NO.495/MDS/2015 MILLS LTD. VS. CIT (SC) 197 ITR 422. ACCORDINGLY, S AID EXPENDITURE IS DISALLOWED U/S.37(1) OF THE ACT AND THE SAME AMOUNT IS ADDED TO THE INCOME OF THE ASSESSEE. 4.4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BECAUSE OF THE FOLLOWING REASONS:- I) THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT GOVERNED BY THE PROVISIONS OF SECTION 30 TO 36 OF T HE ACT. II) THE EXPENDITURE INCURRED BY THE ASSESSEE WAS NO T LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. III) THE EXPENSES INCURRED BY THE ASSESSEE ALSO DOE S NOT CREATE ANY ASSET TO THE ASSESSEE IV) EVEN AFTER INCURRING SUCH EXPENSES THE ASSESSEE IS BOUND TO PAY TOLL WHILE USING THE ELEVATED CORRIDOR TOLL ROAD. 4.5. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATI VE REITERATED THE ARGUMENTS MADE BEFORE THE REVENUE ON THE 7 ITA NO.495/MDS/2015 EARLIER OCCASIONS, WHILE AS THE LEARNED DEPARTMENTA L REPRESENTATIVE RELIED ON THE ORDERS OF THE REVENUE. 4.6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY P ERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS O F THE CASE, IT IS EVIDENT THAT THE ASSESSEE HAD INCURRED THE EX PENDITURE ONLY WITH THE PRIMARY MOTIVE OF FACILITATING ITS BU SINESS AND EARNING MORE REVENUE. JUST BECAUSE THE BENEFIT OF T HE EXPENDITURE INCURRED BY THE ASSESSEE ALSO FLOWS TO SOME UNRELATED PARTIES, THE EXPENDITURE CANNOT BE DISALL OWED UNDER SECTION 37(1) OF THE ACT. THIS IS A CONSCIOU S DECISION TAKEN BY THE ASSESSEE IN CONCURRENCE WITH THE CENTR AL GOVERNMENT AND STATE GOVERNMENT. IN THIS SITUATION , THE DECISION OF THE HONBLE DELHI HIGH COURT RELIED ON BY THE ASSESSEE IN THE CASE OF AIRPORT AUTHORITY OF INDIA VS. CIT (SUPRA) WILL BE DIRECTLY APPLICABLE AND DECISION RE LIED BY THE REVENUE WILL NOT BE APPLICABLE SINCE THE FACTS ARE NOT IDENTICAL. BY INCURRING SUCH EXPENDITURE THE ASSESS EE HAS NOT ACQUIRED ANY CAPITAL ASSET. THEREFORE, THE EXPENDI TURE CANNOT BE CAPITALIZED. THE ONLY PURPOSE OF THE EXPE NDITURE IS TO GENERATE MORE PROFIT AND THE BENEFIT OF WHICH WI LL OVERFLOW 8 ITA NO.495/MDS/2015 TO SUBSEQUENT YEARS AND THE PERIOD IS UNKNOWN. HEN CE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOTHING BUT DEFERRED REVENUE EXPENDITURE AND ACCORDINGLY THE SAME HAS TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) IN THE YEA R IN WHICH IT IS INCURRED. THEREFORE, WE HEREBY DIRECT THE LEA RNED ASSESSING OFFICER TO TREAT THE EXPENDITURE OF 52,52 ,37,562/- AS REVENUE EXPENDITURE AND ALLOW DEDUCTION ACCORDIN GLY. THUS, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED . GROUND NO.2: DISALLOWANCE OF RS.1,83,09,555/- BEIN G EXPENDITURE INCURRED TOWARDS STRENGTHENING AND REALIGNING OF THE TRACKS IN THE HARBOR: 5.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 1,83,09,558/- AS DEDUCTI ON BEING THE EXPENDITURE INCURRED TOWARDS STRENGTHENING AND REALIGNING OF SHED LINE-II AND CONNECTING LINES AT INNER HARBOR. ON QUERY, THE LEARNED AUTHORIZED REPRESENTATIVE HAD SUBMITTED THAT THE EXPENDITURE WAS INCURRED TOWARDS REPAIRING THE EXISTING RAILWAY TRACK SITUATED IN TH E PORT AREA OF THE ASSESSEE. HOWEVER, THE LEARNED ASSESSING OFFIC ER REJECTED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER:- 9 ITA NO.495/MDS/2015 36. FROM A READING OF THE ABOVE SECTION, IT WOULD BE EVIDENT THAT WHAT IS ALLOWED U/S.31 IS ONLY THE EXP ENDITURE ON ACCOUNT OF CURRENT REPAIRS AS DISTINGUISHED FROM REPAIRS. THE EXPLANATION TO SECTION 31 FURTHER PROV IDES THAT THE EXPENDITURE SO INCURRED ON CURRENT REPAIRS SHAL L NOT INCLUDE ANY EXPENDITURE IN THE NATURE CAPITAL EXPE NDITURE. IN THE LIGHT OF THE ABOVE PROVISIONS, WHEN I EXAMIN ED THE FACTS OF THIS CASE, I FIND THAT THE EXPENDITURE INC URRED BY THE ASSESSEE CANNOT BE TERMED IN THE NATURE OF CURR ENT REPAIRS RATHER IT IS ACTUALLY IN THE NATURE OF CAPI TAL EXPENDITURE. WHAT HAS BEEN ACHIEVED THROUGH THIS EXERCISE IS ACTUALLY EXTENSIVE REPLACEMENT AND RENE WAL OF THE 40 YEAR OLD RAILWAY LINE BY A NEW ONE. SUCH EXPENDITURE WILL NOT FALL UNDER THE DEFINITION OF T HE CURRENT REPAIRS. 37. EXPLAINING THE MEANING OF CURRENT REPAIRS APPEA RING IN SECTION 31 OF THE ACT AND SUPREME COURT IN THE CASE OF BALLIMAL NAVAL KISHORE VS. CIT 224 ITR 414 HAS HELD AS UNDER:- THE EXPRESSION CURRENT REPAIRS MEANS EXPENDITURE ON BUILDINGS, MACHINERY, PLANTS OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL O R RESTORATION BUT WHICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE TO THE ASSESSEE A NEW OR DIFFERENT ADVANTAGE. 38. IF THE ABOVE TEST IS APPLIED, THE PRESENT CASE WOULD NOT AMOUNT TO REPAIR ON ACCOUNT OF NORMAL WEA R AND TEAR BUT IT CONSTITUTES SUBSTANTIAL REPLACEMENT C ARRIED OUT AFTER A LONG INTERVAL OF 40 YEARS. 5.2 RELIANCE WAS PLACED BY THE LEARNED ASSESSING OF FICER IN THE FOLLOWING DECISIONS:- A) CIT VS. SRI MANGAYARKARASI MILLS P.LTD. REPORTED IN 315 ITR 114 (SC) B) MODI SPINNING & WEAVING MILLS LTD. VS. CIT REPOR TED IN 200 ITR 544(DEL) 10 ITA NO.495/MDS/2015 C) BHARAT GEARS LTD. VS. CIT REPORTED IN 337 ITR 368(DEL) 5.3 FINALLY, THE LEARNED ASSESSING OFFICER HELD THE EXPENDITURE INCURRED BY THE ASSESSEE AS CAPITAL EXP ENDITURE AND THEREFORE, DISALLOWED THE SAME AS ALLOWABLE DED UCTION EITHER UNDER SECTION 31 OR UNDER SECTION 37(1) OF T HE ACT. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) AGREED WITH THE VIEW OF THE LEARNED ASSESSING OFFIC ER, HOWEVER, DIRECTED THE ASSESSING OFFICER TO ALLOW DE PRECIATION ON THE SAME BY OBSERVING AS UNDER:- 4.9. THE ASSESSEE CLAIMED THE SUM OF `L,83,09,558/- BEING REPAIRS TO OLD RAILWAY LINES L AID OVER 40 YEARS AGO AS REVENUE EXPENDITURE/CURRENT REPAIRS. BUT THE AO TREATED THE EXPENDITURE AS CAPITAL ONE AND DISALLOWED THE CLAIM BOTH U/S 31 AND U/S 37(1) OF THE IT. ACT. THE ASSESSEE CLAIMED IT AS CURRENT REPAIRS AND ALTERNATIVELY CLAIMED IT AS CAP ITAL EXPENDITURE AND ASKED FOR ALLOWING DEPRECIATION. PL AIN READING OF SECTION 31 OF THE IT ACT REVEALS THAT IT REFERS TO REPAIRS OF MACHINERY, PLANT OR FURNITURE ONLY. B UT PERUSAL OF FINAL BILL SUBMITTED BY THE CONTRACTOR R EVEALS DISMANTLING OF THE EXISTING BROAD GAUGE TRACK RAILWAY LINE, EARTH WORK EXCAVATION, LAYING OF RAIL WAY TRACKS, SUPPLY AND LAYING OF STONE BALLAST, DISMANT LING THE EXISTING BRICK MASONRY IN FOUNDATION, LAYING PL AIN CEMENT CONCRETE FOR LEVELLING COURSE ROAD PORTION A ND FOR OTHER WORKS, CONSTRUCTION OF DRAINS, ETC. WHICH AMOUNTS TO COMPLETE REVAMPING OF THE INTERNAL TRANSPORT SYSTEM FOR MOVEMENT OF GOODS WITHIN THE PORT AREA. THIS EXPENDITURE BY NO STRETCH OF IMAGINATION CAN BE TERMED AS CURRENT REPAIRS. THE ASSESSEE ITSELF ADMITTED THAT THE RAILWAY LINE REPL ACED WAS 40 YEARS OLD. THE REPLACEMENT UNDERTAKEN NOW HAS TO TAKE INTO ACCOUNT THE TECHNOLOGY CHANGE IN T HE 11 ITA NO.495/MDS/2015 CONSTRUCTION OF INTERNAL TRANSPORT SYSTEM AND ACCORDINGLY NEW STRUCTURES WERE CONSTRUCTED AND REVEALED BY THE BILL SUBMITTED BY THE CONTRACTOR TO THE ASSESSEE. CURRENT REPAIRS MEANS EXPENDITURE FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND SUCH REPAIRS ARE CARRIED OUT AS AND WHEN NEED ARISES. BUT IN THIS CASE, TOTAL REVAM P TOOK ASSET/NEW ADVANTAGE. HENCE THE CLAIM OF ASSESSEE FOR THE CURRENT REPAIRS IS REJECTED. THE EXPENDITURE IS TREATED AS CAPITAL IN NATURE. THE AO IS DIRECTED TO ALLOW DEPRECIATION AS' PER THE PROVISIO NS OF IT ACT IF NOT ALLOWED. 5.4. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTS OF THE CASE, WE FIND THAT IT IS NECESSARY FOR THE A SSESSEE TO INCUR THESE EXPENDITURES IN ORDER TO CARRY OUT ITS BUSINESS ACTIVITIES. FURTHER, BY INCURRING SUCH EXPENDITURE A NEW ASSET IS NOT CREATED BUT ONLY THE EXISTING ASSETS ARE REC ONDITIONED BY CARRYING OUT EXTENSIVE REPAIRS. IN SUCH CIRCUMST ANCES, THE EXPENSES INCURRED BY THE ASSESSEE WILL PURELY AMOUN T TO REVENUE IN NATURE AND THEREFORE ALLOWABLE AS DEDUCT ION UNDER SECTION 37(1) OF THE ACT. IN THE CASE RELIED ON BY THE REVENUE, THE FACTS ARE NOT IDENTICAL. IN THE CASE OF CIT VS. C.MANGAYARKARASI MILLS PVT. LTD. REPORTED IN 315 IT R 114 (SC) THE ISSUE WAS WITH RESPECT TO EXPENDITURE INCU RRED ON REPLACEMENT OF A MACHINERY. OBVIOUSLY, IN THAT CASE IT WAS WITH RESPECT TO THE ISSUE OF BRINGING INTO EXISTENC E OF A NEW MACHINERY OF ENDURANCE BENEFIT AND ADDED ADVANTAGE. 12 ITA NO.495/MDS/2015 FURTHER, IN THE CASE OF BHARAT GEARS LTD. VS. CIT ( SUPRA) THE EXPENDITURE WAS OF SUCH A NATURE THAT IT BROUGHT IN TO EXISTENCE ALTOGETHER A NEW MACHINE. HOWEVER, ON A S IMILAR SITUATION THAT OF THE PRESENT ASSESSEE THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. PORTS VIYELLA INDI A LTD. REPORTED IN 124 TAXMAN 797, IT WAS CATEGORICALLY HE LD THAT CONTRIBUTION MADE TO GOVT. FOR BUILDING A NEW BRIDG E IN PLACE OF OLD ONE WITH A VIEW TO PROVIDE ACCESS TO FACTORY FOR WORKMEN AND GOODS THOUGH NOT OWNED BY THE ASSESSEE AND WHEN THERE IS NO ADDITION TO VALUE OF ANY OF ITS AS SETS WOULD BE TREATED AS A REVENUE EXPENDITURE. SIMILARLY, THE HONBLE HIGH COURT OF DELHI IN THE CASE OF AIRPORT AUTHORIT Y OF INDIA VS. CIT (SUPRA) ALSO HELD THE ISSUE IN FAVOUR OF TH E ASSESSEE. THEREFORE, FOLLOWING THE DECISIONS OF THE HONBLE J URISDICTIONAL HIGH COURT AND THE HONBLE DELHI HIGH COURT, WE HER EBY DIRECT THE LEARNED ASSESSING OFFICER TO ALLOW THE C LAIM OF THE ASSESSEE OF DEDUCTION UNDER SECTION 37(1) OF THE AC T AMOUNTING TO `1,83,09,558/- AS REPAIRS & MAINTENANC E. GROUND NO.3 : ADDITION OF RS.1,08,47,500/- UNDER SECTION14A OF THE ACT R.W.R 8D. 13 ITA NO.495/MDS/2015 6.1 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT ASSESSEE HAS INVESTED IN EQUITY SHARES OF CERTAIN C ORPORATION LIMITED COMPANIES, THE DIVIDEND EARNED FROM WHICH I S EXEMPT FROM TAX. THEREFORE, THE LEARNED ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE ACT. 6.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY OBSERVING AS FOLLOWS:- DISALLOWANCE U/S 14A OF THE LT. ACT READ WITH RULE 80 OF IT RULES: 4.10 ON THE RECEIPT INCOME OF RS.3.24 CRORES U/S 10(34) OF THE IT. ACT, THE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE SAME. THIS WAS NOT ACCEPTABLE TO THE AO FOR THE REASON THAT TH E INVESTMENT OF THE ASSESSEE INCREASED FROM RS.167 CRORES TO RS.197 CORES. THE INFERENCE OF THE ASSESSEE THAT THE AO NOWHERE MENTIONED HIS NON- SATISFACTION IS MISPLACED AND NOT TENABLE. THE AO I N HIS QUESTIONNAIRE DATED 10.02.2014 QUESTIONED ABOUT THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME. SINCE THE ASSESSEE CLAIMED NO EXPENDITURE ON THE EXEMPT INCOME, THE AO CORRECTLY INVOKED SUB-SECTION (2) OF SEC.14A OF THE ACT AND WORKED OUT THE DISALLOWANCE AS PER ANNEXURE A TO THE ASSESSMENT ORDER. I FIND NO ERROR IN THE DISALLOWANCE MADE BY THE AO AND THE DISALLOWANCE IS CONFIRMED. THE ASSESSEE'S NARROW INTERPRETATION OF S14A OF THE ACT STATING THAT NO DIRECT OR INDIRE CT EXPENDITURE WAS INCURRED IS NOT VALID AS THE ASSESSEE FAILED TO TAKE A WHOLISTIC VIEW OF THE ACTIVITIES UNDERTAKEN BY IT SUCH AS PORT OPERATION, CARGO HANDLING, INVESTMENT DECISIONS, HUMAN RESOURCES MANAGEMENT, ETC. THESE ACTIVITIES CANNOT 14 ITA NO.495/MDS/2015 BE VIEWED IN ISOLATION. ALL THE ACTIVITIES OF THE P ORT ARE INTER-RELATED AND INTERLINKED. DEFICIENCY IN ON E ACTIVITY WILL HAVE ITS REPERCUSSION IN OTHER ACTIVITIES. THEREFORE INVESTMENT IN THE SHARE CAPITAL OF OTHER COMPANIES CANNOT BE TAKEN AS AN ACTIVITY IN ISOLATION. ONE CANNOT MAKE AN INVESTMENT DECISION WITHOUT KNOWING THE. COMPLETE AFFAIRS OF T HE BUSINESS, ACCOUNTS OF HE BUSINESS, PROFIT ARISING FROM EACH YEAR, PERSONNEL INVOLVED IN ALL THESE ACTIVITIES ETC. IT IS AN OVERALL DECISION OF THE AS SESSEE TO MAKE INVESTMENTS AND NOT ISOLATED OR SINGLE ACT TO INVEST. IT CERTAINLY INVOLVES TOP MANAGEMENT OF THE PORT TRUST TO INVOLVE AND TAKE A DECISION TO INVEST. PERUSAL OF THE ASSESSMENT ORDER REVEALS EXAMINATION OF ACCOUNTS BY THE AO TO WORK OUT THE DISALLOWANCE U/S 14A OF THE IT ACT READ WITH RULE 8D OF THE I T RULES. HENCE I DECLINE TO INTERFERE IN THE DECISION OF THE ASSESSING OFFICER. 6.3 AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENT ATIVE SUBMITTED BEFORE US THAT ALL THE INVESTMENTS WERE M ADE IN ASSOCIATE GOVERNMENT COMPANIES/CORPORATIONS FOR STR ATEGIC REASONS AND HENCE THE PROVISIONS OF SECTION 14A R.W .R 8D WILL NOT BE APPLICABLE. 6.4 THE LEARNED AUTHORIZED REPRESENTATIVE ALSO PLAC ED ON RECORD THE RECENT DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE ASSESSEE OF M/S.KAMARAJAR PORT LTD. VS. DCIT IN ITA NO.2205/MDS/2015 VIDE ORDER DATED 23.03.2016 , WHEREIN ON THE IDENTICAL GROUND, THIS BENCH OF THE TRIBUNAL HAS HELD THAT WHEN INVESTMENTS ARE MADE OUT OF ITS INTEREST 15 ITA NO.495/MDS/2015 FREE FUNDS IN A SISTER CONCERN OR ASSOCIATE CONCERN S FOR STRATEGIC REASONS, THE PROVISIONS OF SECTION 14A WI LL NOT BE APPLICABLE. HENCE, IT WAS PLEADED THAT THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14A MAY BE DELET ED. 6.5 THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD N OT CONTROVERT TO THE SUBMISSIONS OF THE LEARNED AUTHOR IZED REPRESENTATIVE. 6.6 AFTER HEARING BOTH SIDES, WE FIND MERIT IN THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE. THE RELEV ANT PORTION OF THE DECISION OF THIS TRIBUNAL IN THE CAS E OF KAMARAJAR PORT (SUPRA) IS REPRODUCED HEREIN BELOW F OR REFERENCE:- 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE COMPA NY AND THOSE COMPANIES IN WHICH THE ASSESSEE HAS INVESTED IN SHARES ARE ALL GOVERNMENT UNDERTAKINGS VESTED WITH INTER- RELATED AND ANCILLARY OBJECTIVES TO PROMOTE THE ACT IVITIES OF PORT. IN THESE CIRCUMSTANCES, THE ASSESSEE COMPANY HAS MADE STRATEGIC INVESTMENTS IN ITS SISTER COMPANIES. THEREFORE, THERE WOULD BE NO EXPENDITURE INCURRED F OR MONITORING THE INVESTMENT ACTIVITY OF THE ASSESSEE COMPANY IN ITS SISTER COMPANIES OR FOR MAKING SUCH DECISION. FURTHER, IT IS EVIDENT THAT THE ASSESSEE IS HAVING SHARE CAPITAL AND RESERVES & SURPLUS TO THE EXTENT OF RS.5,38,04,75,152/- WHICH IS MUCH MORE THAN THE 16 ITA NO.495/MDS/2015 INVESTMENT MADE BY THE ASSESSEE COMPANY IN ITS SIST ER COMPANIES AMOUNTING TO RS.43.75 CRORES. HENCE, IT I S APPARENT THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS IN ORDER TO MAKE SUCH INVESTMENTS. IN SUCH SITUATION, THIS BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION HAD H ELD THAT WHEN INVESTMENTS ARE MADE BY THE ASSESSEE COMPANY FROM ITS INTEREST FREE FUNDS IN ITS SISTER/SUBSIDIA RY COMPANIES, FOR STRATEGIC BUSINESS REASONS, THEN THE PROVISIONS OF SECTION 14A WILL NOT BE APPLICABLE. T HE GIST OF THE RELEVANT DECISION IN THE CHENNAI BENCH OF THE T RIBUNAL IN THE CASE OF M/S.DATA SOFTWARE RESEARCH COMPANY (INTERNATIONAL) PVT. LTD., VS. ACIT IN ITA NOS 2169 TO 2172/MDS/2015, ORDER DATED 03.02.2016 IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A NORMAL PRACTICE TO MAKE INVESTMENT IN SISTER COMPANIES DUE TO COMMERCIAL EXIGENCIES. WHILE DOING SO, NO EXPENSE CAN BE ATTRIBUTABLE OTHER THAN INTEREST EXPENSE FOR MAKING SUCH INVESTMENTS BECAUSE ALL MANAGEMENT COSTS WILL BE ABSORBED FOR STRATEGIC DECISION MAKING PROCESS WHICH IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE CASE OF THE ASSESSEE IT IS SUBMITTED THAT NO INTEREST COST WAS INCURRED AS THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS. FURTHER IN THE DECISION OF THE TRIBUNAL IN ITA NO.115/MDS/2015 DATED 06.01.2016, EXTRACTED HEREIN BELOW, IT HAS BEEN HELD THAT SECTION 14A OF THE ACT WILL NOT BE APPLICABLE WHEN INVESTMENTS ARE MADE IN SISTER COMPANIES. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICAL ISSUE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/2013 VIDE ORDER DATED 20/08/13 FOR THE ASSESSMENT YEAR 2009- 10 HAS REMITTED BACK THE MATTER TO THE LD. ASSESSING OFFICER TO DECIDE THE MATTER ONCE AGAIN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE HAD ACTUALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE:- 17 ITA NO.495/MDS/2015 FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HELD AS FOLLOWS:- I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF A NY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEM PT INCOME PROVISIONS 14A CANNOT BE APPLIED.. II) INTEGLOBE ENTERPRIESES LTD., VS. DCIT REPOTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPENDITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBS IDIARIES, WHICH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INC OME AND WHICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWA NCE OF INTEREST WAS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PUR POSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). III) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 2 014-TIOL- 202-ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. TH E ASSESSEE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXP ENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE IN VESTMENT MADE IN THE SUBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURR ED FOR EARNING THE EXEMPT INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON-INTEREST BEARING FUND BY WAY OF SHARE CAPITAL A ND RESERVES 18 ITA NO.495/MDS/2015 AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASS ESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTERES T WAS CALLED FOR . (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPOR TED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STA NDS ESTABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THER EFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEAR ING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED I N 2013- TIOL-796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SU BSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEE N MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACC OUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASS ESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IN IT S SUBSIDIARY IS NOT TO BE RECKONED FOR DISALLOWANCE U /S.14A R.W.R.8D. THE ASSESSING OFFICER IS DIRECTED TO RE-C OMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN IT A NO.156/MDS/13 CITED SUPRA, WE HEREBY REMIT THE MATT ER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMIN E THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPR IATE ORDER AS PER LAW AND MERITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. WHILE DOING SO, WE AL SO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DE CISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. MOREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. D CIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/M DS/2012 19 ITA NO.495/MDS/2015 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISALLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INV ESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMO TE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PER USAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL I NVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF T HE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNE D BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS P URELY INCIDENTAL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO BE RECKONED FOR DISALL OWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED T O RE- COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE P ROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE A SSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESS EE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MAD E FOR ACQUIRING THE SHARES OF THE ASSESSEES SISTER CONCE RNS. ACCORDINGLY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OF FICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 1 4A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8 D IN ACCORDANCE WITH LAW. 6.7 FOLLOWING THE ABOVE DECISION, WE HEREBY HOLD TH IS ISSUE IN FAVOUR OF THE ASSESSEE, SUBJECT TO VERIFICATION THAT ALL SUCH INVESTMENTS ARE MADE IN SISTER CONCERNS / ASSOCIATE CONCERNS 20 ITA NO.495/MDS/2015 / COMPANIES OWNED BY THE GOVERNMENT. THUS, THIS IS SUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND JULY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND JULY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF .