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TMI Blog2015 (6) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the registration of old building on 30.03.03 as pointed for this purpose even after holding that the said building was acquired in May, 02 and also in total disregard to the facts on the record that building was used & no new asset had come into existence etc." 5. In a connected grievance, raised by revenue's appeal as ground no.5, the Assessing Officer has raised the following grievance: "5. That the Ld. CIT(A) has erred in law by deleting the addition in respect of building repair and maintenance without appreciating the facts of the case. Hence the order of CIT(A) be cancelled and the order of the AO be restored." 6. So far as this issue is concerned, the relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed a sum of Rs. 19,44,957/- on account of building repairs and maintenance during the year. Out of this amount, Rs. 9,42,376/- was spent on Unit III and Rs. 9,83,339/- was spent on C-98 premises. When assessee was required to explain why such a heavy expenditure was incurred on repairs and why a part of the same not be treated as capital expenditure as it results in enduring be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that a new area has been constructed. It is on the record that assessee took possession of premises C-98 in May, 02 for which requisite documents are examined. So, AO is justified in making the date of registration; as an indicator for treating C 98 as a new asset, and for the capitalization of expenses. It is also a fact that the company is required to maintain the standard laid down by regulatory authority which needs set-up of this new premises strictly according to scientific norms. Thus, it cannot be overlooked that C-98 i.e. the Unit III is acquired built in the current year and because of technical nature of business it must have required large scale changes to the basic structure existing earlier, which also explains the reason for substantial purchases of sanitary items and substantial masonry and civil construction items etc. in C-98. Capital expenditure is not only on account of existence of new asset but covers any expenditure which results into advantage of enduring nature and is not merely for the protection or maintenance of the existing asset. Of course, it is on record that this new purchases C-98 was acquired fresh, and naturally, all the expenses relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l works expenses will be capital expenditure in nature. The test is not when is the expenditure incurred but what does expenditure result in. Every expenditure on a new premises, until the time it is ready for use by the assessee, is not always capital expenditure in nature. When some one buys a new house, and cleans, paints or fumigates it before moving in, cleaning, painting or fumigation expenses do not become capital expenditure in nature. This is a simple example but even with respect to little more complex situations, the principle remains the same. In the situation before us, and particularly as there is nothing to show that expenditure incurred by the assessee resulted in a new asset, or such enduring advantage so as to result in the very character of expenditure being rendered capital, we are of the considered view that impugned disallowances were wholly unwarranted and unsustainable in law. We, therefore, direct the Assessing Officer to delete the impugned disallowances in entirely. 11. Ground no.2 of the assessee is thus allowed and aground no.5 of the Revenue is dismissed. 12. In ground no.3, the assessee has raised the following grievance : "3. Because the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly considered facts of the case in the light of the applicable legal position. 16. We have noted that the payment of interest is not in dispute and the short question before us really is whether the payment of interest @ 16% can be said to be excessive or unreasonable which is sine qua non for disallowance under section 40A(2)(b) i.e. legal provision under which impugned disallowance is made. As far as the stand of the Assessing Officer is concerned, he has held that payment in excess of 9.5% interest is excessive and unreasonable, while ld. CIT(A) holds this rate at 14% to be fair and reasonable. When the Assessing Officer himself holds that the funds held as 'reserve and surplus' and 'unsecured loans' are to be presumed to have been invested in investments, and this findings or presumption remains undisturbed, the yardstick for what constitutes reasonable interest rate is the rate at which the assessee could have raised borrowings from similarly placed unrelated parties. In the details reproduced at page 24 of the assessment order, it is seen that interest received at item nos. 6, 8 and 9, interest rate is 18%. Such being the undisputed facts, interest @ 16% can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "20. We have heard the parties and perused the material available on record. The point of contention before the parties is the allocation of R & D expenses to the three units. From the ITAT order in appeal No. 5649/Del/2004, it is observed that the assessee company was originally denied the benefit of section 80IA in respect of Unit No. 2 during 1994-95 which was challenged before the CIT(A) and CIT(A) had given relief to the company. The revenue had not filed appeal against the CIT(A)'s order. During the year 2001-02 also, the case of the assessee travelled up to the stage of the Tribunal on the same issue i.e., 1/3rd allocation of R &D expenses of each unit. The case was decided in favour of the assessee. The relevant portion of the decision of the ITAT is reproduced below :- "In the appeal before the CIT(A), the assessee contended that the research project undertaken by it relates to the development of new vaccines which none of the three units was manufacturing and furnished details of vaccines manufactured during the year. It was further pointed out that the Assessing Officer himself agreed in the assessment order that the R&D expenses did not relate to any particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rving that principles of res judicata are not applicable to income tax proceedings and that the Tribunal had rejected the sand of the revenue on a technical ground that the ld. CIT(A)'s finding, in earlier year, were not challenged. We are unable to see any merits in this approach of the ld. CIT(A). As a matter of fact, when Assessing Officer does not challenge findings of an appellate authority, against him, for one assessment year, it is not open to him to challenge the same findings in a subsequent assessment year. In any case, once a co-ordinate bench taken a particular view of the matter, it is amorally not open to us to take any other view of the matter. In view of these discussions, we uphold the grievance of the assessee and dismiss the grievance raised before us by the Assessing Officer. 22. Ground no.4 of the assessee is thus allowed and ground no.4 of the Revenue is dismissed. 23. Ground no.5 is somewhat general in nature and does not call for any specific adjudication. 24. In the result, the appeal of the assessee is allowed. 25 Coming to the appeal filed by the Assessing Officer, in the first ground of appeal, the Assessing Officer has raised the following grie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a basis in the assessment order but, I observe that the same is not relevant for this matter because the same is stated to be produced in the replies produced before me. I also find it important that stock register is even signed by the Trade Tax Authorities. In any case stock register is providing proper details. Comparative figures of packing material consumption also prove that the % of expenses in the current year are comparable/lesser than the earlier year and in the earlier years no part of expenses is disallowed. I find force in argument of the Ld. Counsel that without rejecting the accounts and without finding any expenses wrong or not related to business, no lump sum disallowance should have made. In my considered view, assessee has fully proved the transaction of packing material of Rs. 12,04,041/-. Therefore, the addition of Rs. 12,04,041/- is deleted. (Relief of Rs. 12,04,041/-) 27. The Assessing Officer is aggrieved of the relief so given by the ld. CIT(A) and is in appeal before us. 28. Having heard the rival submissions and having perused the material on record, we are not inclined to disturb well reasoned findings of the learned CIT(A). As he rightly observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... channel.AO failed to indicate any specific expense which he found wrong and obviously reimbursement of expenses cannot be a ground for the rejection especially when the same is properly supported. Past history also support the claim as expenses incurred are comparable and not disallowed in the earlier year. Having considered all the facts I am inclined to agree with the Ld. Counsel that without rejecting the accounts and without finding any expenses wrong or not related to business no lump sum disallowance could have made. In my view assessee has properly roved the expenses under this head. Therefore, the addition ofRs.10,43,373/- is deleted. (Relief of Rs. 10,43,373/-)" 32. The Assessing officer is aggrieved by the relief so granted by the ld. CIT(A) and is in appeal before us. 33. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. 34. We have noted that the fact of expenditure was well established by evidences but the Assessing Officer wanted details like the end results by way of improvement of sales and details of persons contacted during visit etc. On these facts, and satisfi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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