Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (8) TMI 759

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ting to 'Conversion Charges paid to MCD - revenue v/s capital expenditure - CIT(A) deleted the addition - Held that:- The assessee had paid amounts for one time conversion charges and for parking charges at the two outlets, the benefits of which might accrue to the assessee for indefinite period of time yet these were incurred to enable the profit making structures to work more efficiently leaving the source or the profit making structure untouched and moreover, the expenditure were in the nature of levies/taxes paid by an assessee to a government authority for making available the required infrastructure to run the business efficiently and effectively. Therefore, on the facts & circumstances of the case and following Judicial pronouncements, we do not find infirmity in the order of Ld. CIT(A). We are of the considered opinion that Ld. CIT(A) had rightly deleted the additions. See CIT Vs. J. K. Synthetics Ltd (2008 (12) TMI 21 - DELHI HIGH COURT) and Bikaner Gypsums Ltd. Vs. CIT (1990 (10) TMI 2 - SUPREME Court ) - Decided against revenue. Website development expenses - revenue v/s capital expenditure - CIT(A) deleted the addition - Held that:- The jurisdictional High Court in t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ieved with the relief granted by the first appellate authority, the revenue has filed this appeal on the following grounds for the Assessment Year 2008-09. 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of ₹ 18,11,964/- made on account of proportionate notional interest on diversion of interest bearing loan amounts for non business purposes. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance relating to 'Conversion Charges paid to MCD as revenue expenditure, ignoring the fact that the expenses towards 'Conversion Charges' and 'Regularization Charges were meant for utilizing the property for use other than it was actually allotted and to provide benefits of enduring nature and therefore, cannot be hold as revenue expenditure, 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in holding that the 'Website development expenses' is revenue in nature ignoring the facts that development of a website gives benefits of enduring nature. 4. Whether on the facts and circumstances of the case, the Ld. CIT( .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ount placed on record clearly proves that the funds were invested in last year out of the accruals of previous year. For the balance two investments, it is pertinent to note here that appellant had a bank balance in the form of FLC account (deposit account linked to current account where in excess funds in current account are temporarily parked for earning interest) amounting to ₹ 1,80,50,000/- as on 1.4.2007. The amount invested in other Companies has been made out of the bank balance appearing which is part of the Capital and accrued earnings of the appellant which as on the beginning of the year stood at ₹ 5.23 cr which evidences that the appellant had sufficient funds of its own to make these investments. The appellant is running a proprietary entity and all his business and personal investments are reflected in the financial statements prepared. Copy of Dena Bank Current/ Saving Bank Accounts showing clearly the source of the funds which are basically from the opening bank balance and routine business transactions is placed on record. That further on the perusal of the ledger account of SBL Plastics Private Limited, it shall be observed that the amount of ₹ 2 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... as quoted a number of decided cases to support his claim, the facts of which are different from appellant facts. In a similar case Bombay High Court in the case of Commissioner of Income Tax Vs Reliance Utilities and Power Limited [2009J 313 ITR 340 (Bom) held that if there were funds available both interest free and overdraft and/ or loans taken, then presumption would arise that investment would be out of interest free funds generated or available with the Company, if the interest free funds were sufficient to meet the investments. The interest was deductible. In the case of appellant, the funds available at the beginning of the year were invested and no loan funds were raised or used. The loans taken in earlier years have been utilized for the specific use and there is no nexus available or proved by the Assessing Officer to justify the claims of notional interest disallowance. That the subject has been discussed in detail by the Hon'ble Supreme Court in the case of S. A. Builders Limited v CIT (A) and others [2007J 288 ITR 1 (SC). That the Hon'ble Apex Court in this case while deciding the case in favour of the assessee has opined that The assessee borrowed the fund .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... inning of the year clearly proves that the investment/advances were made out of own capital and no interest bearing funds were used. In view of the above discussion and the case laws cited by the appellant, the notional interest added by the Assessing Officer to the tune of Rs. ₹ 60000/- is deleted. Appeal on this ground is allowed. 7. The ld DR could not controvert the factual contention made by the assessee before the first appellate authority. Before the ld CIT(A) it has been clearly brought out with evidence that the investments were not made out of borrowed funds. The ld CIT(A) accepted these factual contention and in the absence of any contrary evidence we find no infirmity in the same. In any event the presumption as laid down by Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd (supra) is squarely applicable in this case. Share in Kalra Hospital Pvt. Ltd. and Lara medicines Pvt. Ltd. were purchased in the earlier year and investment in SBL Plastics was made at the fag end of the year. The assessee has sufficient interest free funds to cover the investments. Thus we uphold this finding of the ld CIT(A) and dismiss ground No.1 of the reve .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ound No.4 is on the issue of disallowance of the claim of depreciation. The assessee during the year claimed to have purchased life saving medical equipments. Depreciation was claimed on the same. The AO recorded the statement from the suppliers of this medical equipment and came to conclusion that the purchases are bogus, for the various reasons given in his order. He disallowed the claim of the assessee. 13. On appeal the first appellate authority granted relief. The main ground on which the first appellate authority granted relief was that the assessee had obtained finance from the reputed agencies i. E. G. E. Capital Services India and has also obtained insurance from United India Insurance Co. Ltd. and that the assessee had declared substantial income/ revenue from the use of these equipment and hence the existence of the equipment cannot be denied. Aggrieved the revenue is in appeal before us. 14. The ld DR pointed out that the bills produced as evidence of purchase of the medical equipment were obtained by the assessee were from Kabariwalas, who dealt with old vehicles and old machinery and machine parts, motor parts, tractor parts, iron and steel scrap and electrical .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... an possibly was produce. On the statement recorded from the suppliers, he submitted that the statements were recorded behind the back of the assessee and in the absence of cross examination, these cannot be relied upon as evidence. He pointed out that the assessee sought cross examination when the matter travelled to the ld CIT(A). He submitted that it is the suppliers who only know as to why they have denied the supplies of these equipments when they have issued bills and took payment through a/c payee cheques. He pointed out that these suppliers have never stated that the cash was withdrawn after encashing the cheques and that it was returned to the assessee. He submitted that the statement was not specific to the assessee. He argued that neither the existence of the machinery nor the value thereof can be disputed. He prayed for relief. 16. In reply the ld DR pointed out that the assessee have never asked for cross examination of the supplies and under those circumstances it is well settled, that lack of cross-examination, does not result in the statements recorded not having evidentiary value. He pointed out that these parties from whom the assessee stated that it had acquire .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... vidence that the Learned Assessing Officer had pre decided to make this uncalled for and unjustified addition. 18. The same submission were made before the Assessing Officer in the remand proceeding in the written submission dated 22.07.2011 at Para 8 9. Similar submission were made by the assessee in its letter dated 17.10.2011 before the ld CIT(A). 19. In remand report dated 03.11.2011 the AO at Para 3 stated as follows:- 3. It is most humbly submitted that for re-examination of the bills of the fixes assets purchases, summons were issued to the concerned suppliers but no compliance has been made till date. As the date of time-baring i. E., 31.12.2011 is very near, it is not possible to pursue the case and garner the requisite facts. Rejoinder letter is also very detailed and needs lot of time for rebuttal. 4. Therefore you are most humbly requested to extend the time limit for submitting remand report. As time-barring date is closer, you are kindly requested to extend the time limit upto 20.01.2011 for submitting the remand report. 20. Similar report was given on 16.03.2012 by the AO to the ld CIT(A). Thus the argument of the ld counsel for the assessee that t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... re the statements recorded from the suppliers for the reason that no cross examination was provided to the assessee and the other evidence is in favour of the claim of the assessee. 23. The issue before us disallowance of depreciation. Depreciation can be allowed u/s 32 if the following precondition and fulfilled. a) The Plant and Machinery must be owned by the assessee; b) The Plant and Machinery must be used for the purpose of the business of the assessee during the year. 24. The existence of the asset is accepted by us, though the source of acquisition is under a cloud. The fact that the equipments have been used is proved by the receipt of substantial income on these equipment. Hence both the conditions for grant of depreciation have been fulfilled. Thus depreciation has to be granted on these assets. Thus we uphold the order of the ld CIT(A) and dismiss this ground of the revenue. 25. In the assessment year 2007-08 the only issue is denial of depreciation. In view of our discussion and our conclusion on this issue for Assessment Year 2008-09, this ground of revenue is dismissed as in the earlier assessment year. 26. In the result both the appeals are dismisse .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates