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M/s Dystar India Pvt Ltd Versus Jt. Commissioner of Income Tax, (OSD) -8 (1) , Mumbai and Vica-Versa

2016 (6) TMI 118 - ITAT MUMBAI

Disallowance under section 14A - Held that:- It is an undisputed fact that, the assessee has not earned any exempt income during the year on the investment made in the subsidiary company, stated for the business purpose, that is, for acquiring controlling interest and in the nature of strategic investment. Once there is no exempt income during the year, then in wake of latest Delhi High Court decision in the case of Cheminvest Ltd. vs. CIT, reported in [2015 (9) TMI 238 - DELHI HIGH COURT ], no .....

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work, painting, plumbing, aluminum, partition cum door, vertical blinds, sun control films, fire alarm systems etc. The expenditures which have been incurred on the premises does not belong to the assessee, albeit has been taken for a temporary period for conducting its business, that is, to work efficiently in the premises looking to the needs and requirements of modern business premises. The Department has referred to Explanation 1 to section 32, which only refers to any capital expenditure i .....

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fitably. Thus, if the expenditure has been incurred for carrying on business more efficiently on day-to-day basis then it has to be reckoned as revenue expenditure. - Decided in favour of assessee - ITA No. : 3045/Mum/2012, ITA No. : 3046/Mum/2012, ITA No. : 4088/Mum/2012 - Dated:- 27-4-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Appellant : Shri Jitendra Jain For The Respondent : Shri Kailash Gaikwad ORDER PER AMIT SHUKLA, JM: The aforesaid appeals .....

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lidated order. We will first take-up assessee s appeal in ITA No. 3045/Mum/2012 vide which following ground has been raised:- 1. The Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to CIT(A)] erred in confirming the disallowance of ₹ 2,17,167/- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment giving rise to the exempted income. Your Appellant submits that it has made strategic investment in shares of its subsi .....

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unting to ₹ 4,99,99,000/-, the income from these investments will not form part of the total income. In response to the show cause notice as to why disallowance under section 14A r.w. Rule 8D should not be made, the assessee submitted that, assessee has not earned any exempt income from such investments and these investments were made purely for acquiring controlling interest. However, the Ld. AO rejected the assessee s contention and held that in view of ITAT s Special Bench decision in t .....

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ision in the case of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made if there is no exempt income during the year. 5. On the other hand, Ld. DR relied upon the decision of ITAT Mumbai Bench in the case of Double dot Ltd vs DCIT, reported in [2014] 65 SOT 324 also referred to CBDT Circular No.5 of 2014 dated 11.04.2013 and contended that, even if investment in shares are capable of earning exempt income then also disallowance under section 14A can be .....

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se of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made. Hon ble High Court after discussing the various decisions including that of Hon ble Supreme Court in the case of Rajendera Prasad Moody, reported in [1978] 115 ITR 519) came to the following conclusion:- 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression does not form part of the total income in Section 14A of the envisage .....

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e is allowed. 8. Now, we will take-up ITA No. 3046/Mum/2014, vide which following grounds have been raised:- 1. The Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to CIT(A)] erred in confirming the disallowance of ₹ 14,66,757/- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment giving rise to the exempted income. Your Appellant submits that it has made strategic investment in shares of its subsidiary for acquir .....

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utandis for this year also and accordingly, we hold that, no disallowance under section 14A can be made. Accordingly, ground raised by the assessee is allowed. 10. Now, we will take-up cross appeal by the revenue in ITA no. 4088/Mum/2014, vide which following grounds have been raised:- 11. Thus, the only issue involved in revenue s appeal is disallowance of expenditure incurred on repairs and maintenance on household premises by treating the same to be capital expenditure. 12. Brief facts are th .....

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he expenses to the extent of ₹ 1,98,68,798/- was claimed as revenue expenditure. It was contended that nature of expenses was neither for any enduring benefit nor any capital asset has come into existence. The expenditure incurred and its nature thereof has been stated in the following manner:- Nature of Expenses Advantages Wall painting Makeover and fresh look to the existing Office premises providing better working Atmosphere False ceiling Heat reduction, effortlessness of alternation ea .....

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f fire accident The AO disallowed the entire expenditure as capital expenditure on the following reasons:- (i) These expenses are capital in nature and appellant itself has capitalized the same in its books of accounts; (ii) These expenses are not in the nature of current repairs as such repairs has to be for the purpose of preserving or maintaining an already existing assets; (iii) The provision of explanation 1 to section 32 of the I.T. Act applies to these renovation and repairs expenses incu .....

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y gone through the documents available on record. I find that the appellant had incurred expenditure of ₹ 1,98,68,798/- towards the leasehold improvements and claimed the same as revenue expenditure. It is also a matter of record that the appellant had taken the premises on leave & license for the period of 5 years only for the purpose of its office, laboratory, research and development work. It is also submitted that the leave & license agreement entered into by the appellant spec .....

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this expenditure as capital expenditure. The Hon'ble Bombay High Court in the case of CIT v/s. TVS Len Logistics Ltd reported in 293 ITR 432 had categorically stated that renovation or the improvement must be to the building In the instant case, repairs & renovation is in respect of the premises occupied by the appellant and not to the entire building and therefore the expenditure clearly falls in the realm of revenue expenditure. Further, similar view was expressed by the Hon'ble Bo .....

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14. After hearing both the parties and on consideration of the relevant finding given in the impugned orders, we find that it is an undisputed fact that, the repair and renovation has been done on lease premises which has been taken on Leave and License basis for the period of 5/6 years. From the perusal of the details furnished before the authorities below as well as before us, we find that it is mainly in the nature of exterior works done like electrical work, P0P and false ceiling work, pain .....

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does not speak about the revenue expenditure. Thus, reference of Explanation 1 to section 32 in the grounds of appeal may not be relevant. The section 30(a)(i) on the other hand provides that, if repairs have been carried out in the premises occupies as a tenant then it has to be allowed as deduction under section 30 as repairs that is, as cost of repairs to the premises. The Hon ble Delhi High Court in the case of High Line Pins, reported in 306 ITR 182 has dealt this issue in detail wherein i .....

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ot;. It is obvious that the word "repairs" is much wider than the expression "current repairs". This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills P. Ltd. (supra). The expression "current repairs" is much more restricted than the word "repairs" because the latter is qualified by the word "current". What the assessee has done in the present case has been construed to be repairs by the Tribunal as a fi .....

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ant for "repairs" of the premises and expenses incurred by a person who is not a tenant towards "current repairs" to the premises. This distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital .....

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