TMI Blog2016 (7) TMI 1650X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of which will overflow to subsequent years and the period is unknown. Hence, the expenditure incurred by the assessee is nothing but deferred revenue expenditure and accordingly the same has to be allowed as deduction under section 37(1) in the year in which it is incurred. Therefore, we hereby direct the learned Assessing Officer to treat the expenditure as revenue expenditure and allow deduction accordingly. - Decided in favour of assessee. Disallowance being expenditure incurred towards strengthening and realigning of the tracks in the harbor - As per AO assessee has claimed deduction being the expenditure incurred towards strengthening and realigning of shed line-II and connecting lines at inner harbor - AO held the expenditure incurred by the assessee as capital expenditure and therefore, disallowed the same as allowable deduction either under section 31 or under section 37(1) - CIT-A agreed with the view of AO and directed the Assessing Officer to allow depreciation on the same - HELD THAT:- We find that it is necessary for the assessee to incur these expenditures in order to carry out its business activities. Further, by incurring such expenditure a new asset is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital expenditure. ii) The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance made by the learned Assessing Officer amounting to Rs.1,83,09,555/- being expenditure incurred towards strengthening and realigning of the tracks in the harbor. iii) The learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs.1,08,47,500/- made by the learned Assessing Officer being expenses incurred for earning exempt dividend income by invoking section14A of the Act r.w.r 8D. 3. Brief facts of the case are that the assessee filed its original return of income for the assessment year 2011-12 on 28.09.2011 declaring income of Rs.17,00,14,179/-. Subsequently the assessee filed its revised return under section 139(5) of the Act on 19.11.2012 admitting income of Rs.14,22,22,469/-. Thereafter the case was selected for scrutiny and the assessment was completed under section 143(3) of the Act on 31.03.2014 wherein the learned A.O made certain additions and disallowances. Ground No.1: disallowance of Rs.52,52,37,562/- being payment made to NHAI towards land acquisition: 4.1. During the course of assessment proceedings, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee under section 37 of the Act by observing as under:- 27. If the argument of the counsel for the assessee were to be accepted, no expenditure could ever be termed as capital since all expenses are ultimately incurred for facilitating the carrying on of the business more profitably and efficiently. In that case one limb of section 37 that no expenditure of capital nature should be allowed in computing the income chargeable under the head profits gains of business or profession would become otiose. It is again a settled law that any interpretation which makes a section of statute otiose should be avoided. 28. Accordingly, it is held that the contribution of ₹ 52.52 crores to NHAI towards meeting partial cost in connection with the four lane elevated corridor project has given rise to an enduring advantage to the assessee which will go to benefit the assessee for several years to come. Hence it satisfies the parameters of a capital expenditure as held by the Supreme Court in the case of Assam Bengal Cement Co.Ltd. Vs. CIT 27 ITR 34 (SC), CIT Vs. Coal Shipment Pvt.Ltd. 82 ITR 902 (SC) Arvind Mills LTd. Vs. CIT (SC) 197 ITR 422. Accordingly, said ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly. Thus, this ground raised by the assessee is allowed. Ground No.2: disallowance of Rs.1,83,09,555/- being expenditure incurred towards strengthening and realigning of the tracks in the harbor: 5.1 During the course of assessment proceedings, it was observed by the learned Assessing Officer that the assessee has claimed deduction of ₹ 1,83,09,558/- as deduction being the expenditure incurred towards strengthening and realigning of shed line-II and connecting lines at inner harbor. On query, the learned Authorized Representative had submitted that the expenditure was incurred towards repairing the existing railway track situated in the port area of the assessee. However, the learned Assessing Officer rejected the claim of the assessee by observing as under:- 36. From a reading of the above section, it would be evident that what is allowed U/s.31 is only the expenditure on account of current repairs as distinguished from repairs. The explanation to section 31 further provides that the expenditure so incurred on current repairs shall not include any expenditure in the nature capital expenditure . In the light of the above provisions, when I examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r furniture only. But perusal of final bill submitted by the contractor reveals dismantling of the existing Broad Gauge Track Railway line, Earth work excavation, laying of railway tracks, supply and laying of stone ballast, dismantling the existing brick masonry in foundation, laying plain cement concrete for levelling course road portion and for other works, construction of drains, etc. which amounts to complete revamping of the internal transport system for movement of goods within the port area. This expenditure by no stretch of imagination can be termed as current repairs. The assessee itself admitted that the railway line replaced was 40 years old. The replacement undertaken now has to take into account the technology change in the construction of internal transport system and accordingly new structures were constructed and revealed by the bill submitted by the contractor to the assessee. Current repairs means expenditure for the purpose of preserving or maintaining an already existing asset and such repairs are carried out as and when need arises. But in this case, total revamp took asset/new advantage. Hence the claim of assessee for the current repairs is rejected. The exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Assessing Officer invoked the provisions of section 14A r.w.r 8D of the Act. 6.2 On appeal, the learned Commissioner of Income Tax (Appeals) confirmed the order of the learned Assessing Officer by observing as follows:- Disallowance u/s 14A of the LT. Act read with Rule 80 of IT Rules: 4.10 On the receipt income of Rs.3.24 crores u/s 10(34) of the IT. Act, the assessee claimed that no expenditure was incurred for earning the same. This was not acceptable to the AO for the reason that the investment of the assessee increased from Rs.167 crores to Rs.197 cores. The inference of the assessee that the AO nowhere mentioned his non- satisfaction is misplaced and not tenable. The AO in his questionnaire dated 10.02.2014 questioned about the expenditure incurred in relation to the exempt income. Since the assessee claimed no expenditure on the exempt income, the AO correctly invoked sub-section (2) of sec.14A of the Act and worked out the disallowance as per Annexure A to the assessment order. I find no error in the disallowance made by the AO and the disallowance is confirmed. The assessee's narrow interpretation of S14A of the Act stating that no direct or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and carefully perused the materials available on record. From the facts of the case, it is apparent that the assessee company and those companies in which the assessee has invested in shares are all Government undertakings vested with interrelated and ancillary objectives to promote the activities of port. In these circumstances, the assessee company has made strategic investments in its sister companies. Therefore, there would be no expenditure incurred for monitoring the investment activity of the assessee company in its sister companies or for making such decision. Further, it is evident that the assessee is having share capital and reserves surplus to the extent of Rs.5,38,04,75,152/- which is much more than the investment made by the assessee company in its sister companies amounting to Rs.43.75 crores. Hence, it is apparent that the assessee is having interest free funds in order to make such investments. In such situation, this Bench of the Tribunal on the earlier occasion had held that when investments are made by the assessee company from its interest free funds in its sister/subsidiary companies, for strategic business reasons, then the provisions of section 14A will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest free funds for making fresh investments and that too into its subsidiaries, which was not for the purpose of earning exempt income and which was for strategic purposes only, no disallowance of interest was required to be made under Rule 8D(i) 8D(ii) and strategic investment has to be excluded for purpose of arriving at disallowance under Rule 8D(iii). iii) M/s.JM Financial Ltd., Vs. ACIT reported in 2014-TIOL-202-ITAT-MUM held as follows: the department has not disputed this fact out of the total investment about 98% of the investment are in subsidiary companies of the assessee and, therefore, the purpose of investment is not for earning the dividend income but having control and business purpose and consideration. The assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the Assessing Officer is not justified, accordingly the same is deleted. (iv) CIT Vs. Bharti Televenture Ltd. reported in (2011) 331 ITR 0502. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotels Ltd v. DCIT reported in 2013 (9) TMI 604 in ITA No.1503, 1624/Mds/2012 dated 17th July, 2013, it has been held by the Chennai Bench of the Tribunal as follows:- Disallowance U/s. 14A rw Rule 8D CIT upheld disallowance Held that investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. A perusal of the order of the CIT(Appeals) shows that out of total investment of Rs.64,18,19,775/-, Rs.63,31,25,715/- is invested in wholly owned subsidiary. This fact supports the case of the assessee that the assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investments made by the assessee in its subsidiary are not to be reckoned for disallowance U/s. 14A r.w.r. 8D. The Assessing Officer is directed to recompute the average value of investment under the provisions of Rule 8D after deleting investments made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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