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2012 (6) TMI 377

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..... cts of the assessee, that the assessee’s case was not a total renovation or the entire new machinery, new furniture, etc. were brought to the existence. - this ground of the Revenue is partly allowed. Delayed payment of employee’s contribution to PF - held that:- whether the provisions of sec.36 and the provisions of 43B are independent of each other, now a decision of Honble S.C of CIT vs Alom Extrusion Ltd. [2009 (11) TMI 27 (SC)] is available. But this decision is dated 25 Nov.2009 , however, the order of the A.O. is dated 27.11.2006, hence it was not available at the assessment stage. - Matter remanded back. Disallowance u/s.36(1)(iii) being interest cost incurred by the assessee on the advances given for non-business purposes – Held that:- Assessing Officer has stated that the assessee was unable to demonstrate that the non-interest bearing funds were utilized towards investment for earning dividend income. On the other hand, the argument of the assessee was that there were sufficient reserves and share capital out of which the said investment was made. However, the findings of the Assessing Officer have not been dealt with by Learned CIT(Appeals) in their right perspe .....

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..... osphatic fertilizers. It was observed by the AO that a sum of Rs.35,86,601/- was debited in respect of repairs and maintenance. In respect of building repairs the AO has reproduced a list of items of expenditure totalling to Rs.28,33,767=72. The observation of the AO was that on physical verification of the bills it was found that the material purchased was in respect of fabrication, construction, flooring, hence, in the nature of capital expenditure. In compliance of the show-cause notice it was submitted that the expenditure on building was in the nature of revenue expenses. Explanation submitted is reproduced below : Building We are to bring to your kind knowledge that the capital expenditures incurred for construction of new building/facilities at Udaipur and Nandesari (Baroda) amounting to Rs.2833767.72 has already been capitalized during the A.Y. 2004-05 and the expenditures under scrutiny amounting to Rs.359785/- is on account of the current repairs of factory building situated at F-227, Mewar Industrial Area, Udaipur admeasuring about 5296 sq.mtrs. Yours goodself will appreciate that the nature of business of the company is manufacturer and sale of Chemical fertilize .....

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..... epairs Maintenance expenditure depends upon nature of industries as well as uses of the product. Regarding expenditure on crane bucket, it is sent hat no new crane is purchased and the expenditure represents replacement of parts of crane. 5.3.1. Regarding the expenditure listed in the Assessment Order, the list gives no indication that the expenditure is of capital nature. For example, when expenditure on M.S. angle is incurred, the same may be for creating new structure or for replacing such angle forming part of existing structure. The expenditure in former case would be capital expenditure and in the latter case it would be revenue expenditure. Assessing Officer was not justified in holding that the expenditure on M.S. Angle is always capital expenditure. Similarly, M.S. Angle may need replacement every year or may required replacement after a few years. The Assessing Officer was not justified in holding that expenditure gave benefit of enduring nature and was of capital nature. It is further observed that : (i) There was no increase in manufacturing capacity of the company as seen from the audited balance sheet. (ii) Perusal of details of said expenditure of last th .....

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..... fumes the corrosion was high. The acidic fumes have harmed the civil structure. Repairs were preventive in nature to check the corrosion or decay of the building. Repairs were also needed for safety reasons. Facts of the case thus have revealed that the assessee being owner of the property has considered necessary to maintain the property in good condition, therefore, incurred repairs which were nothing but in the nature of current repairs. Repairs were incurred to preserve and maintain an existing asset. The object of the expenditure was not bringing into existence an another new asset. By the incurring of the said expenditure, the assessee has not obtained a new advantage. It is also necessary to find out whether a particular repair was really needed and in the present case we have noticed that it was a decision of the assessee to take appropriate measure to repair the building for its maintenance as also for safety purposes. There are several judicial decisions in this regard but keeping brevity in mind we are not reproducing those decisions and hereby affirm the findings of the CIT(A). Resultantly this portion of ground of the Revenue is dismissed. 6.1. The AO has also noti .....

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..... amounts were in respect of either replacement of the machinery or under the head Repairs . Ld. DR has referred that in the cases of machinery in a textile mill it had been held by some Hon ble Courts that each spindle had worked independently and not as a mere part of the entire composite machinery, therefore, it could constitute bringing into existence a new asset. A decision in this context was cited in the grounds of appeal viz. CIT vs.Saravana Spinning Mills P.Ltd. 293 ITR 201(S.C.). The verdict was that the basic test is to find out whether expenditure is incurred to preserve and maintain an already existing asset or bring into existence a new asset so as to get an enduring advantage. The issue in that appeal was about the replacement of Ring and factually it was found that each machine including the ring frame was an independent and separate machine capable of independent and specific function. However in the present appeal before us the investigation in that direction had never been made by the AO. There is no material on record to show whether the said crane bucket purchase for Rs.3 lac amount was towards repair or towards replacement of an existing machinery. There .....

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..... on granted the relief as per the following paragraphs: 6. As regards Ground No.(3), the AO, during the course of assessment proceedings had observed that the appellant had violated the provisions of the provident fund Act and therefore, denied the deduction of expenditure claimed by the appellant in respect of delayed payments of contribution to the provident fund and added an amount of rs.12,73,555/- to the total income of the appellant. 6.1. It is discussed by the AO on page no.5 to 7 of the assessment order. 6.2. The AR while explaining as to how the disallowance was not sustainable relied on the amendment made by the Finance Act 2003, where by the due dates of relevant funds have been extended to the due dates as per the provisions of section 139(1) of the IT Act and requested for nullifying the action of the AO. 10. We have heard both the sides. We have also perused the orders of the authorities below. From the side of the assessee, ld.AR Mr.Sunil Talati has placed reliance on the decision of Hon ble Supreme Court in the case of CIT vs. Vinay Cement Ltd. reported at (2007) 213 CTR 268 (SC), for the legal proposition that under the provisions of section 43B of t .....

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..... sion is dated 25 Nov.2009 , however, the order of the A.O. is dated 27.11.2006, hence it was not available at the assessment stage. The A.O. is therefore required to find out the similarity and if on facts identical then has to follow the law laid down therein. Therefore being the objection raised from the side of the revenue, we deem it proper to give an opportunity to the revenue to re-decide as per law. This ground of the Revenue may be treated as allowed for statistical purpose. 11. Ground Nos.3(a) 3(b) are as under: 3(a) The Ld. CIT(A) erred in deleting the disallowance of Rs.13,86,222/- u/s.36(1)(iii) being interest cost incurred by the assessee on the advances given for non-business purposes. 3(b) The Ld. CIT(A) failed to appreciate that as held by the Hon.High Court in the case of CIT vs. Abhishek Land Pvt.Ltd. (288 ITR 01) the onus was entirely on the assessee to prove that all the borrowed funds were used for business. Even if mixed funds were diverted, interest u/s.36(1)(iii) is not allowable by virtue of the onus being on person who is in the special knowledge of facts in terms of section 106 of the Evidence Act. 11.1. As per the observation of the Asses .....

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..... . In the said manner, a total addition of Rs.39,28,543/- was made on account of disallowance of interest. The matter was carried before the first appellate authority. 13. The Learned CIT(Appeals) has passed a cryptic order as per the following observations:- 7.1. As far as first part A is concerned the major investment is allotment of equity shares met out of internal accruals and as such diversion of funds does not arise. The new investments during the year are in shares of Uma co-op Bank and Nandesari Environment Control Limited (NECL for short) only. It is stated by the AR that to become a member in the co-op Bank, membership has to be taken by subscribing to shares and as a member of these co-op Banks, took loan for business purposes. Hence, as the co-op Bank is not a domestic company the dividend u/s 10(34) is not exempt from tax. Since, Nandesari Environment Control Limited is non-profit organization engaged in protection of environment the appellant has to become a member compulsorily and NECL being an NGO dividend received from it is not exempt from tax. As far as second part B is concerned, the AO has not given any where the details of non-business investments wor .....

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..... eals) in their right perspective and one of the reasons of the disallowance of the invocation of section 14A of the I.T.Act has also not been dealt with, therefore, we deem it proper to restore this ground back to the stage of Learned CIT(Appeals) to decide De novo, needless to say after providing opportunity of hearing to both the sides. Since the matter has been restored back, therefore, this ground of the Revenue may be treated as allowed for statistical purposes. (B) ITA No.503/Ahd/2009 for Assessment Year 2005-06 15. Revenue has challenged the order of the CIT(A)-I, Baroda dated 4/11/2008 on the following grounds:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.6,79,458/- made on account of foreign exchange loss without appreciating the ratio of the decision in the case of Indian Overseas Bank Ltd. V/s. CIT 151 ITR 446 (Mad.). 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.9,86,209/- u/s.3691)(iii) on interest free loans/advances given to its sister concerns amounting to Rs.59,26,738/-. 16. Ground No.1 :- The assessee .....

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..... transaction from the foreign party resulting into Exchange Fluctuation Loss . The Learned Authorised Representative has stated that the Assessing Officer has not made the disallowance on account of the fact that the borrowings were towards acquisition of any capital asset. Rather as per ld.AR the transaction was in respect of the running of the business, hence, the Foreign Exchange Fluctuation Loss is admissible as Revenue expenditure. 19. On hearing the submissions of both the sides and on careful perusal of the orders of the authorities below, we have found that the issue can be decided in the light of a precedent viz. CIT vs. V.S. Dempo Co. Pvt.Ltd. reported at (1994)206 ITR 291 (Bom), wherein the legal proposition laid down was that for determining whether devaluation loss is a Revenue loss or a Capital loss , what is relevant is the utilization of the amount at the time of devaluation and not the object for which the loan had been obtained. The observation of the Court was that if at the time of devaluation the character of the transaction was in the nature of stock-in-trade or circulating capital, then the loss occurred on that account shall be held as Revenue los .....

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