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2005 (11) TMI 482 - AT - Income TaxDisallowance of expenses to leasehold improvements - HELD THAT:- We find that the authorities below erred in treating the above expenditure claimed as revenue expenditure by the appellant as capital in nature and it brought enduring benefit to the appellant. We agree with the arguments of Sri K.R. Pradeep, that the expenditure incurred on redesigning and restructuring the leasehold premises by providing better fittings, electrical work, civil work, wood work, etc., to make the premises suitable for business needs and for carrying on the business more profitably and efficiently are all in the nature of repairs and revenue expenditure and it does not bring any benefit of enduring nature to the appellant. The advantage obtained by the appellant is advantage in commercial sense, i.e., for the purpose of business and not for the acquisition of capital assets]. The issue is covered by the decision in Instalment Supply (P) Ltd. vs. CIT [1983 (9) TMI 67 - DELHI HIGH COURT] mentioned supra. Accordingly, we hold the above expenditure as revenue in nature and reverse the orders of the authorities below on this issue and direct the AO to allow the entire expenditure as revenue as claimed by the appellant. The appellant succeeds on this issue. Addition made on account of reduction of the exemption u/s 10A - profits earned from SEEPZ unit at Bombay and STP unit at Bangalore - It is a case of joint venture listed Indian company, where all arrangements are open for scrutiny and acceptance not only by digital group worldwide but also from joint venture partners and shareholders. Digital group overseas will not pay undue sum, which it cannot recoup entirely to exclusion of others. Hence nothing can be arranged to the exclusive benefit of overseas partner. One cannot presume the existence of close connection or possibility of an arrangement for earning more than ordinary profits. In this case the profits earned is comparable with the profits earned by other companies in the same industry. Hence there is no case for further verification. The AO has compared the profit of software unit with that of hardware unit. Thus the foundation itself is on wrong premise. There cannot be comparison between an orange and an apple. It is known fact that profitability of software units is always higher than hardware unit. The test whether the appellant has earned more than ordinary profits, in this case, the answer is obvious NO, even as found by the AO. When the profits earned are reasonable and not excessive, there is no reason to sustain the addition. Further there is no evidence of existence of any arrangement as contemplated u/s 80-I(9). If the unit books are combined with other activities, the appellant should make efforts to cull out or separate the entries pertaining to the unit and maintain and produce records or statement separating the results. Such an effort would be sufficient to comply with the condition. In fact 80-I(9) nowhere mentions maintenance of separate books. We find that the addition made by AO in invoking 10A(6) r/w 80-I(9) is not well founded. For these reasons we uphold the order of the CIT(A) deleting the additions made by AO for asst. yr. 1995-96. Since the facts and circumstances are similar for asst. yrs. 1996-97, 1997-98 and 1998-99, the same findings and directions would hold good for these years also. Accordingly the grounds of the Department on the above issue are dismissed. Addition made on ad hoc basis - We find from the records that the AO has disallowed the sum on an ad hoc basis without any cogent reasons nor has brought any evidence on record for making such disallowance. We are in agreement with the findings given by the GIT(A) in deleting the additions made by the AO on ad hoc basis. The assessee's accounts are audited by a qualified auditor and they have not pointed any inadmissible expenses. In absence of any adverse material or evidence, no disallowance of any genuine expenditure on ad hoc or notional basis can be made. Thus, we do not find any infirmity in the orders of the CIT(A) in deleting the disallowance made on ad hoc basis. Accordingly, the ground of the Department is dismissed. In the result the appeals of assessee are partly allowed. The appeal of Revenue for asst. yr. 1992-93 is partly allowed and for other years are dismissed.
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