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M/s. Bellad and Co. Versus Deputy Commissioner of Income-tax, Hubli. and Asst. Commissioner of Income-tax, Circle 1 (1) , Hubballi Versus M/s. Bellad & Co.

2016 (9) TMI 390 - ITAT BANGALORE

Disallowance of expenditure incurred on renovation of showroom - Allowability of revenue expenditure - Held that:- We hold that expenditure was not incurred on any capital outlay. Therefore, the expenditure is revenue in nature. Even the provisions of Explanation 1 to section 32 cannot be invoked in the present case as there was no construction of any structure, extension, improvement to the building as involved. Therefore, we direct the AO to allow the same as revenue expenditure. - Deemed .....

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rofits under section 80IA, losses incurred prior to commencement of initial year should not be reckoned. We hold that since loss incurred prior to the initial year of eligible business need not be deducted for the purpose of computing amount of allowance under section 80IA(5) - ITA No.1004/Bang/2015, ITA No.1029/Bang/2015 - Dated:- 27-7-2016 - SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Assessee : Shri C.R.Nulvi, CA For The Revenue : Shri C.N.Bipin .....

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10-11 was filed on 30/09/2010 declaring income of ₹ 51,74,070/-. Against said return of income, assessment was completed by the ACIT, Circle 1(1), Hubli, vide order dated 14/03/2013 passed under section 143(3) Income-tax Act, 1961 ['the Act' for short] at a total income of ₹ 1,51,04,807/- after making several disallowances. One of those disallowances relates to expenditure incurred on renovation of showroom of ₹ 17,18,671/- treating it capital expenditure allowed deprec .....

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nfirmed the other two additions. 4. Being aggrieved by that part of the CIT(A) s order which is against the assessee, assessee is in appeal in ITA No.1004/Bang/2015 and raised the following grounds of appeal: 1. The order of the A.O is against the fact and circumstances of the case, against the judicial pronouncements and bad in law. 2. On the facts and circumstances of the case and in law, the A.O erred in making the addition U/s 40(a)(ia) for the payment made during the year. 3. On the facts a .....

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d in holding the expenditure incurred for fencing site which is temporary in nature to protect the asset as capital in nature against the claim made by the appellant in revenue in nature. 6. For these and other reasons which may be adduced at the time of hearing, the appellant prays before this Hon'ble Bench to delete the addition made by the A.O, 7. Appellant Craves Leaves, to add, to alter, to amend and to delete any of the ground at the time of hearing 5. Ground Nos.1, 6 & 7 are gener .....

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sallowance of expenditure incurred on renovation of showroom of ₹ 17,18,671/-. The assessee claimed the same as revenue expenditure. It is claimed that expenditure was incurred on repairs and renovation such as false ceiling, floor, wooden partitioning, painting etc. The said expenditure was incurred in respect of premises taken on lease. The AO treated it as capital expenditure and allowed depreciation at the rate of 10% as applicable to furniture and fixtures. On appeal before the CIT(A) .....

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asset. Therefore, according to him, expenditure should be allowed as revenue expenditure. In support of this submission, he relied on the following decisions: i. Mercantile And Marine Services vs. CIT (233 ITR 257) ii. CIT vs. Associated Cement Companies Ltd. (172 ITR 257) iii. CIT vs. Lucent Technologies Hindustan Ltd. (345 ITR 407) 8.2 On the other hand, learned Departmental Representative relied on the orders of the lower authorities. 8.3 We heard rival submissions and perused material on re .....

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s follows: (1) outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump su .....

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g capital." Applying the above principles to the facts of the present case, we hold that expenditure was not incurred on any capital outlay. Therefore, the expenditure is revenue in nature. Even the provisions of Explanation 1 to section 32 cannot be invoked in the present case as there was no construction of any structure, extension, improvement to the building as involved. Therefore, we direct the AO to allow the same as revenue expenditure. 8.4 The reasoning given above is equally applic .....

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ying on the Hon'ble Delhi High Court judgment in the case of CIT Vs. Ankitech Pvt. Ltd., reported in 340 ITR 14 and held that the advance received by the assessee firm from its sister concern (M/s Bellad & Company Pvt. Ltd.) should not be treated as deemed dividend U/s. 2(22)(e). 3. Whether, on facts & circumstances of the case, the learned CIT(A) is correct in relying on the decision of the jurisdictional High Court of Karnataka in the case of Swarnagiri Wires Insulation Ltd., where .....

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are general in nature and do not require any adjudication. 12. Ground No.2 relates to direction of the CIT(A) deleting the addition of deemed dividend. Facts surrounding this ground of appeal are as under: 12.1 During the course of assessment proceedings, the AO noticed that the assessee received loans from the company M/s.Bellad & Co. Pvt. Ltd., The partners of the assessee-firm viz., S/Shri Arvind Bellad, Chandraknt Bellad and Smt.Leelavati Bellad are also the shareholders of M/s.Bellad &a .....

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be brought to tax, was not accepted by the AO. The CIT(A), however, held that since the assessee-firm is not a shareholder in M/s.Bellad & Co., Ltd., amount of advance received by the assessee-firm cannot be brought to tax following the Hon ble Delhi High Court decision in the case of CIT vs. Gopal Clothing Pvt.Ltd (350 ITR 67) and CIT vs. Ankitech P.Ltd. (340 ITR 14) deleted the addition. 12.2 We heard rival submissions and perused material on record. An identical issue has been decided by .....

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the provisions of Section 2(22)(e) have no application to non-registered shareholders. The Hon'ble Apex Court in the case of CIT Vs. C.P. Sarathy Mudaliar (1972) 83 ITR 170 (SC) while construing the provisions of Section 2(6A)(e) of the Act, 1922 which are in pari materia with the provisions of Section 2(22)(e) of the Income-tax Act, 1961, held that the provisions governing the deemed dividend can be made applicable only in the hands of the registered shareholders. Since, admittedly, in the .....

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d only in the hands of the shareholder and not in the hands of the concern. The relevant part is extracted below: 30. It was also contended on behalf of the revenue that having regard to the plain words used in clause (e) 'to any concern', when the amount is paid or when any payment is made to a concern, the tax is levied on the concern and not on the shareholders. As far as this question is concerned, this Court following the judgment of the Bombay High Court in the case of Commissioner .....

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s shareholder do not constitute deemed dividend under section 2(22)(e) of the Act, is legal and valid and do not call for any interference. Respectfully following the above decision, we hold that deemed dividend cannot be taxed in the hands of the assessee-company as the assessee is not a shareholder in the company Shejawadkar Builders Pvt. Ltd from which loans were received. However, we add here that it is open to the department to tax it in the hands of the shareholder by initiating appropriat .....

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ssed. 13. Ground No.3 relates to deduction under section 80IA. The AO denied deduction, as according to him, there was no eligible profits available after set off brought forward business loss and depreciation losses. The contentions raised by the assessee-firm are as under: Assessee has filed the written submissions where it is mentioned that "The appellant had installed Wind Mill during the FY 2004-05 and had entered into an agreement with BESCOM for distribution of power in June 2005. De .....

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om the initial assessment year. The initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond fifteen assessment years starting from the previous year in which the under taking generates power or commencing transmission or distribution of power. The appellant has opted the financially irrelevant to AY 2009-10 as initial assessment year. It was also brought to the notice of the AO the decision of the Bangalore ITAT in the c .....

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d that loss in earlier year to initial assessment year already absorbed cannot be notionally brought forward and set off against profits of eligible business. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set of against other income of the assessee and the set off against the current income of the eligible business. The fiction is created only for the limited purpose and the same cannot be .....

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he CIT(A) accepted the claim of the assessee and directed the AO to allow deduction under section 80IA(5) following the decision of the jurisdictional High Court in the case of CIT vs. Swarnagiri Wire Insulations P Ltd. in ITA No.5050/Bang/2010 dated 27/05/2011 and the decision of the Hon ble Supreme Court in the case of Synco Industries Ltd. vs. AO(ITO) (2008) 299 ITR 444. This issue is squarely covered by the decision of the Hon ble jurisdictional High Court, following decision of the Hon ble .....

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forgotten that section 80IA of the Act is a beneficial section permitting certain deduction in respect of certain income under Chapter VIA of the Act. A provision granting incentive for promotion of economic growth and development in taxing statues should be liberally construed and restriction placed on it by way of exception, should be construed in a reasonable and purposive manner so as to advance the objects of the provision. It is a generally accepted principle that deeming provision of a pa .....

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