TMI Blog2014 (2) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... made towards installation of plant – Held that:- The assessee has incurred the expenses on the replacement of heavy duty internal mixer and reduction gear box – the Assessing Officer has not made out the case that the expenditure in question has resulted in bringing into the existence any independent capital asset nor the same has in any way enhanced the capacity / efficiency of the machines – Relying upon COMMISSIONER OF INCOME-TAX Versus SARAVANA SPINNING MILLS P. LTD. [2007 (8) TMI 16 - SUPREME COURT OF INDIA] - since the items in question are part and parcel of Banbury mixture and 3 Roll Calendar respectively, the same would fall within the meaning of current repairs only – the expenditure has been incurred by the assessee on Banberry mixtures etc. in the earlier years also - it is a running expenses incurred to keep the machine in running condition - Thus, the disallowance of expenditure in the relevant previous year is not sustainable even on the ground of consistency – the order of the CIT(A) upheld – Decided against Revenue. Disallowance of prior period expenses – Electricity and Water Charges - Held that:- The CIT(A) is correct in holding that assessee has not accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relationship with Modi Stone Ltd. In such situation, there is cogency in the submissions of the assessee that there was commercial expediency involved in advancing the loan in this regard – Relying upon SA Builders Ltd. vs. C.I.T. [2006 (12) TMI 82 - SUPREME COURT] - in the absence of one to one nexus between borrowed funds and loan advance to Modi Stone Ltd., the presumption in law is that the loan to Modi Stone Ltd. should be presumed to have come out of own funds – thus, the order of the CIT(A) set aside- Decided in favour of Assessee. - I.T.A. No. 1816/Del/2010 and I.T.A. No. 1846/Del/2010 - - - Dated:- 23-8-2013 - SHRI I.C. SUDHIR AND SHRI SHAMIM, JJ. For the Appellant : Sh. Ajay Vohra, Adv., Sh. Rohit Garg For the Respondent : Sh. Gunjan Prasad, C.I.T.(D.R.) ORDER PER SHAMIM YAHYA : AM; These cross appeals by the Assessee and Revenue emanate out of order of the Ld. Commissioner of Income Tax (Appeals)-VIII, New Delhi for assessment year 2001-02. REVENUE S APPEAL :- 2. The issues raised in the Revenue s appeal read as under:- 1. The order of Ld. Commissioner of Income Tax (A) is erroneous and contrary to facts and law. 2. On the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of C.I.T. vs. Vinay Cement Ltd. 213 CTR 268. In the light of the aforesaid submissions and precedents, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same. 7. As regards the contribution towards superannuation fund, Assessing Officer was of the opinion that the payment was to be made by the assessee company before the end of March, 2001 and therefore, the sums paid in the month of April, 2001 and May, 2001 were to be disallowed in terms of section 43B of the Act. 8. Upon assessee s appeal Ld. Commissioner of Income Tax (A) deleted the addition in this regard. 9. Against the above order the Revenue is in appeal before us. 10. In this regard, the submissions of the assessee are as under:- As regards the contribution towards superannuation fund, it is respectfully submitted, that as per the Employees Superannuation Scheme of the assessee, the ordinary annual contribution towards superannuation fund can be paid in one installment or in two or more installments every year. It is obvious that the due date for payment of contribution towards superannuation fund, relating to financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May, 2001 respectively, was within the due date and the disallowance of the same u/s. 43B of the Act was not warranted. Accordingly, we uphold the order of the Ld. Commissioner of Income Tax (A) on this issue. 12. Apropos issue of deletion of addition of Rs. 3,97,53,676/- towards installation of plant. In this case during the year under consideration, the assessee incurred an expenditure of Rs. 3,97,53,676/- on overhauling of certain plant and machinery, which was treated by the assessee as deferred revenue expenditure and 20% of the same was charged to the profit and loss account. But in tax computation the entire amount of Rs.3,97,53,676/- was claimed as revenue deduction. The particulars of expenditure incurred for repair and maintenance is as under:- S. No. Particulars of Machinery Amount (Rs.) 1. Banbury G.K. 255 N (Internal Body) 3,22,57,936/- 2. 3 Roll Calendar (Gear Boxes) 41,23,890/- 3. Banbury F-370 33,71,850/- The Assessing Officer, in the original assessment proceedings, alleged that the expenditure of Rs. 3,97,53,676/- was capital expenditure, allowed 25% d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Ld. counsels appearing on behalf of the appellant company have submitted that the heavy duty internal mixture and reduction gear box purchased by the appellant company during the year under consideration were internal and integral part of the existing plant and machinery and were not an independent machinery as the learned assessing officer has tried to make it out to be. As per the learned counsels in a plant such as the one being run by the appellant company heavy expenditure is normally incurred on maintenance and upkeep of machineries which always include replacement of old and worn out parts of such plant and machinery. However, it is claimed that merely because heavy expenses are debited should not by itself be taken as a basis to treat such expenditures as capital expenditure. It is argued that the expenditure in question has not resulted in bringing into existence any independent capital asset nor the same has in any way enhanced the capacity/efficiency of the machines. 8.4 I also find that the learned AO has not considered the issue in right perspective. He has not recorded any finding as to how the Banbury mixture and gear boxes can function independently an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished all the necessary vouchers alongwith the explanation to claim the aforesaid as revenue expenditure. c) Assessing officer did not provide reasonable opportunity to the assessee in as much as assessee was not intimated about any further requirement as to documents which the assessing officer needed in order to examine the nature of the aforesaid expenditure, in case the assessing officer was not satisfied with the assessee's claim in the first instance. The aforesaid expenditure was incurred by the assessee for the maintenance and upkeep of the machinery and replace of the old and worn out parts of plant and machinery, which was necessary for keeping the machines in working order. There was no replacement of entire independent machinery and the aforesaid expenses were, thus, not capital in nature. For example, the Banbury G.K. 255 N as mentioned in the invoice is one of the internal part of the body of the whole Banbury Mixture and the gear box is also an internal part of the 3 Roll Calendar. Thus, no new asset came into existence by incurring of the said expenditure and there was no enhancement in the capacity/efficiency of the machines. Therefore, the said e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely because heavy expenses are debited the same should not by itself be taken as a basis to treat such expenditure as capital expenditure. 19.1 We find that Assessing Officer has not made out the case that the expenditure in question has resulted in bringing into the existence any independent capital asset nor the same has in any way enhanced the capacity / efficiency of the machines. We further find that Ld. Commissioner of Income Tax (A) has observed that the internal mixture G.K. 225 N is an integral part of Banburry G.K. 225 N which apart from mixtures also has components like body, rotors, electric motor and panels, cooling conveyers and gear boxes. Similar is the case with the roll calendars which has other components namely, gear box, rolls and rotors and electric motors and panels. Thus, we agree with the Ld. Commissioner of Income Tax (A) that having regard to the basic parameters laid down by the Hon ble Apex Court in the case of C.I.T. vs. Saravana Spinning Mills (P) Ltd., since the items in question are part and parcel of Banbury mixture and 3 Roll Calendar respectively, the same would fall within the meaning of current repairs only. 20. We further note that expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore given to Modi Stone Ltd. 5. That the Ld. Commissioner of Income Tax (A) erred on facts and in law in not appreciating that the said loans and advances were made in earlier years out of own funds and for business expediency and disallowance of interest was, therefore, not called for. The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal before or at the time of hearing. 23. Apropos issue of disallowance of prior period expenses amounting to Rs. 1,96,61,963/-. On this issue Assessing Officer observed that the details furnished by the assessee in respect of prior period expenditure is very cryptic. These explanations do not evidence that how the expenditure got crystalized during the year. He held that assessee company has failed to prove that the prior period expenditures have been finalized/ settled/ crystalised during the year. Assessing Officer held that since the assessee has failed to discharge its onus, by way of documentary proof/ evidence that earlier years expenditure have actually been crystalised during the year. The disallowance of Rs. 1,96,61,963/- was made to prior period expense. 24. Upon assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces under which the exgratia to senior management was declared in the month of June, 2000. No details in this regard about the persons, the services and the nature of the benefits including the payment have been furnished. In these circumstances, we find that Ld. Commissioner of Income Tax (A) is correct in holding that in the absence of necessary details, Assessing Officer has rightly considered the assessee s response as a very cryptic. Hence, we uphold the order of the Ld. Commissioner of Income Tax (A) for the disallowance in this regard. Ld. Commissioner of Income Tax (A) in his order has observed that other claims on account of stores and raw materials consumed, interest on sales tax, interest on security deposit, C F Agents, share registration charges are also without any supporting. He has observed that it is settled position of law that before coming to the admissibility or otherwise of an expenditure the Assessing Officer has to ascertain primary fact of incurring of such expenditure. Ld. Commissioner of Income Tax (A) has given a categorical finding that though it is the assessee s claim that the expenditure claimed was actually incurred and the liability to incur suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax (A) noted that there was no information/ evidence with respect to the balance amount of Rs. 53,26,640/- as to whether the same was paid to compensate the government exchequer for delayed payments or it was penal in nature. Therefore, the Ld. Commissioner of Income Tax (A) held that in the absence of necessary details / evidence, he did not agree with the assessee company that it was compensatory in nature and therefore the same was not an admissible expenditure in terms of section 37(1) of the I.T. Act. 29. Against the above order the Assessee is in appeal before us. 30. We have heard both the counsel and perused the records. We find that Ld. Commissioner of Income Tax (A) has disallowed a sum of Rs. 53,26,640/- on the ground that assessee has not submitted necessary details / evidence in this regard. Ld. Counsel of the assessee has contended that this amount was allowable. However, ld. Counsel of the assessee has not submitted any detail in this regard. Ld. Counsel of the assessee has claimed that the above interest paid by the assessee was compensatory and not penal in nature. However, necessary details in this regard are not available. Under the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, we note that Assessing Officer and Ld. Commissioner of Income Tax (A) had noted that assessee has not submitted any detail/ supporting with respect to this expenditure. We agree with the Ld. Commissioner of Income Tax (A) that this claim of the assessee is not supported with any credible or tangible evidence. There is no information as to the immediate requirement of the funds, if any, borrowed and services rendered by these parties in arranging the funds in question. Under the circumstances, since the assessee has failed to submit the proper evidence in this regard, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (A). Accordingly, we uphold the same. 35. Apropos issue of disallowance of Rs. 24,00,000/- On this issue the Assessing Officer disallowed interest of Rs. 89,82,208/- on the ground that the assessee had advanced interest free loan to various group companies while the assessee was paying huge interest to bank and financial institutions on the borrowings. The Assessing Officer has computed interest @ 12% per annum on the outstanding balance in respect of the following:- Modi Spg. Wvg. Mills Co. Ltd. Rs. 1,98,51,747 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried forward from earlier years. There is no fresh loan or advance made by the assessee during the relevant previous year. There was no such disallowance made in earlier years. It has been submitted that no interest income should be accrued where the financial position of the debtor is not good and the ultimate recovery of the interest is itself doubtful. 39. Ld. Departmental Representative on the other hand relied upon the orders of the authorities below. 40. We have considered the submissions and perused the records. We find considerable cogency in the submissions of the assessee that there is no fresh loan or advance made by the assessee to M/s Modi Stone Ltd. during the relevant previous year. The advance was made in the earlier period. Assessee had business relationship with Modi Stone Ltd. In such situation, there is cogency in the submissions of the assessee that there was commercial expediency involved in advancing the loan in this regard. In this regard, decision of Hon ble Apex Court in SA Builders Ltd. vs. C.I.T. : 288 ITR 1 (SC) is germane and supports the case f the assessee. We further find that it is the claim of the assessee that it had mixed pool of funds co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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