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2015 (8) TMI 759 - ITAT DELHI

2015 (8) TMI 759 - ITAT DELHI - TMI - Addition on proportionate notional interest on diversion of interest bearing loan amounts for non business purposes - CIT(A) deleted the addition - Held that:- 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 in the ca .....

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d of the year. The assessee has sufficient interest free funds to cover the investments. - Decided against revenue.

Disallowance relating 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 .....

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ad 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 the case of Commissioner of Income-tax IV 3 Vs. India-visit. Com Private Limited (2008 (9) TMI 8 - DELHI HIGH COURT), held that the expenditure on we .....

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avour of the claim of the assessee.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. - Decided against revenue. - ITA No. 4476/Del/2 .....

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2010 determining the total income of the assessee as ₹ 3,95,20,506/-, inter alia, disallowing claim of depreciation of ₹ 18,61,470/- on certain medical equipments, disallowing interest on the grounds that interest bearing funds were diverted for non business purposes, and disallowing Conversion charges and regularization charges paid to Municipal Corporation of Delhi on the ground that these were capital expenses. Further web-site development charges claimed as revenue expenses was a .....

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77; 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 actu .....

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7; 12,31,360/- and ₹ 18,61,470/- despite the facts that the alleged suppliers of medical equipments in their statement recorded in response to summons u/s.131 turned out to be kabadis and denied to have supplied the medical equipments to the assessee. " 5. That the grounds of appeal are without prejudice to each other. " 4. We have heard Sh. Vikram Sahay, ld Sr DR on behalf of the revenue and Shri Gautam Jain, ld counsel for the assessee. On a careful consideration of the rival c .....

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in the case CIT Vs. Reliance Utilities and Power Limited (2009) 313 ITR 340 (Bob) for the proposition that when interest free funds as well as interest bearing funds are available the presumption would arise that interest free loans or investment would have been made out of interest free funds available with or generated by the company. The Investments In question are as follows:- "a. Kalra Hospital Private Limited (For Shares) 20,99,700.00 b. SBL Plastics Private Limited 25,00,000.00 c . .....

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the same except for a small sum of ₹ 5.00 lacs which were used to acquire shares and the balance loan was returned in current year. Copy of ledger account 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 park .....

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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 ₹ 25 lacs has been invested in shares on 27.03.2008 i. E. just few days before the close of the financial year. That the assessing officer has inva .....

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ant had advanced and are appearing in the Balance Sheet as at 31.03.2008. The assessee has given ₹ 500000/- to M/ s Kumar Rexines Stores on 20.03.2007. The amount was given out of the profits earned by the assessee. The details of Investment of ₹ 15099700/ - are as follows: - Name Amount Given When Shares- Kalra Hospital Pvt. Ltd. 2099700.00 Before 2001 Shares- Lars Medicare Pvt. Ltd. 500000.00 01.03.2007 SBL Plastics Pvt. Ltd. 2500000.00 07.03.2008 Max Fund Buildmart Pvt. Ltd. 10000 .....

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s and most of the investments have been made out of previous incomes and savings. That the appellant had a bank balance of ₹ 2.06 Crores at the beginning of the year which was sufficient to cover whatever investments that he had made. That it is further brought to your notice that the appellant has not raised any loan which has been utilized for giving any further loan. The Assessing Officer has quoted a number of decided cases to support his claim, the facts of which are different from ap .....

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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 cas .....

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the carrying on the business. The High Court as well as the Tribunal and other Income Tax authorities should have approached the question of allow ability of interest on the borrowed funds from this angle." However in our case commercial expediency is proved beyond doubt as the investments are not made to its sister concern or subsidiary but to third parties and the assessing officer has nowhere doubted the commercial expediency. That the above two cases coupled with the fact that funds wer .....

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n made twice. That the Assessing Officer has nowhere established that the loans were utilized by the assessee other than those for business purpose of the assessee and the fact that the assessee had sufficient bank balance coupled with his total accumulated capital as at the beginning of the year clearly proves that the investment/ advances were made out of own capital and no interest bearing funds were used. I have carefully considered the finding of the Assessing Officer and submission of the .....

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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 cle .....

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lastics 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 revenue. 8. Ground No.2 is on the issue whether conversion charges paid to MCD is revenue expenditure or capital expenditure. The first appellate authority is dealt with the issue at Page 18 to 20 of this order. 9. The 'C' Bench of the ITAT Delhi in ITA No.5158/Del/2012 for the Assessment Year 20 .....

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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 f .....

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ition laid down in the above referred Tribunal's order, we uphold the same and dismiss ground No.2 of the revenue. 11. Ground No.3 is on the issue as to whether "Website Development Expenses" are in the nature of revenue expenses or capital expenses. The jurisdictional High Court in the case of Commissioner of Income-tax IV 3 Vs. India-visit. Com Private Limited (219 CTR 603), held that the expenditure on website development is allowable as revenue expenditure. Respectfully followi .....

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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 .....

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, cannot be under any stretch of imagination, be purchased from such parties, who deal with scrap and second hand machineries etc. He referred to the statements recorded from the persons who have issued these bills and submitted that these persons had denied supply of these equipments. Referring to Page 66 of the paper book he submitted that it is only a deal term sheet of M/s GE Capital Services India was placed on record and that there is no signature or any other authentication on this deal t .....

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first appellate authority is perverse and hence the same should be reversed. 15. The ld counsel for the assessee on the other hand pointed out that, the AO in his order dated 29.12.2009 for the Assessment Year 2006-07, had not denied the existence of the machinery. He referred to Para 7.1 at Pg 6 of this order and pointed to the comment of the AO that it is possible that the assessee had purchased old equipment, and obtained loan from GE Capital Service India. He argued that the equipment has be .....

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ent and payments were made through Account Payee cheques and there is no evidence to state that the money came back to the assessee. He argued that all the evidence that a purchaser of equipment can 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 matte .....

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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 acquired life saving medical equipment, had admitted that they have en-cashed cheques and returned the cash to the .....

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case, perusal of papers on record and orders of the authorities below, we hold as follows. The receipts evidencing purchase of medical equipment are at Pages 58 to 64 of the paper book. These bills are from dealer of second hand goods and machineries. A perusal of these bills, prima facie do not inspire confidence that these equipment were in fact sold by these persons to the assessee. Golden Trader and Everest Trading companies dealt with old machinery, vehicles and spare parts. In the stateme .....

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back of the assessee and relied upon by him and ought to have offered a opportunity to examine the persons who have made the statement It is submitted that the assessee is legally entitled to the copies of the statement if the same was proposed to be used against the assessee in a damaging in the interest of natural justice. Instead the Learned Assessing Officer had, in pursuance of his preconceived decision failed to provide time and opportunity to the appellant to examine the so called '& .....

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e 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 p .....

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ve no evidentiary value as no opportunity to cross examine has been provided, has force. The evidentiary value of these statements has to be viewed from this angle. The suppliers are the revenues witnesses and even if they are not, if the revenue has to rely on their statements, then it should give the assessee an opportunity for cross examination. In coming to this conclusion we rely on the following case laws:- i) 125 ITR 713 (SC) Kishnichand Chellaram vs. CIT ii) 288 ITR 345 (Del) CIT vs. SMC .....

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which is a Public Sector Company has insured these machineries. These are corroborative evidences. As already stated the machineries have been put to use and substantial receipts have been shown by the assessee. The AO in his order, concluded that the assessee may have acquired second hand machines. The fact that these Golden Traders and Everest Trading Corporation dealt with old machinery and they have in their bills stated that they received crossed a/c payee cheques for the sale is to be con .....

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