TMI Blog2023 (3) TMI 1301X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no disallowance is called for under section 14A of the Act. Nature of expenses - Disallowances of expenses claimed in Stavya Spine Hospital (SG Road) - HELD THAT:- The opening of new hospital at the SG Road in the same line of speciality i.e. spine treatment, would constitute extension/expansion of the existing business and since the said expansion is in the same line of business and the same/common management as the existing hospital at Ashram Road, the expenses should be allowed as revenue expenses. It is not the case of Revenue that the expenses are capital nature or that the same have not been incurred exclusively for the purpose of business of the assessee. Accordingly, other expenses i.e. expenses other than depreciation are concerned, the same should be allowed as revenue expenditure. Depreciation for the year under consideration - claim of the assessee is that the depreciation should be allowed since the assets purchased during the year under consideration are ready to use - HELD THAT:- We are in agreement with the arguments of the counsel of the assessee to the effect that once the new hospital is an extension of the existing business, the machinery viz. Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4. The learned CIT(A) has erred in law and on facts of the case in not adjudicating ground challenging initiation of penalty u/s.271(l)(c) of the Act. 5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. Ground number 1: disallowance of 1,55,211/- u/s 14A of the Act: 4. The brief facts in relation to this ground of appeal are that during the year under consideration, the assessee claimed exempt income of 5,01,764/- from PPF interest, dividend income and int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect. The expenditure incurred may be hidden or may be apparent but to earn income, some expenditure has to be incurred. The appellant earned income of Rs.5,01,764/- which has been claimed as exempt. To earn this income, the appellant must have utilized some time, efforts and thinking. To deal with such situation, formula under rule 8D has been given to calculate disallowance. Looking to the above discussion, in the appellant's case, the A.O. is right in calculating the disallowance and the appellant did not point out any error in the calculation made by the A.O. Keeping in view these facts, additions of Rs. 1,55,211/- made by the A.O. are found as per the provisions of the Act. Therefore, these are confirmed. This ground of appeal is dismissed. 6. Before us, the counsel for the assessee drew our attention to page 96 of the paper book and submitted that the assessee is having substantial interest free funds and hence no disallowance is called for under section 14A of the Act. In response, DR relied upon the observations made by the Ld. CIT(Appeals) and the AO in their respective orders. 7. We have heard the rival contentions and perused the material on record. In our vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of Stavya Spine Clinic at SG Road. The assessee claimed certain expenses in relation to the aforesaid new unit in the form of depreciation and other revenue expenses. The AO held that since the business of the assessee in respect for the new (hospital) unit had not commenced, the expenses incurred in relation to the same are to be disallowed. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee with the following observations: 6. The second ground of appeal is against the additions of Rs. 33, 18,898/- made by the A.O. by disallowing claim of loss in Stavya Spine Hospital (S.G. highway). During the course of assessment proceedings, the A.O. found that the appellant being orthopedic surgeon has shown receipt of Rs. 66,400/- for newly opened Satvya Spine Hospital (S.G. Highway). Against this receipt, the appellant claimed loss of Rs. 33, 18, 898/- under the head of various expenses and depreciation. The A.O. enquired from the appellant stating that the building for the new hospital was purchased on 22nd January, 2013. Therefore, it was requested that the appellant should submit details to prove that the newly purchased building was put to use before the end of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation for registration only after the issue of notice u/s. 143(2) of the Act, selecting his case for scrutiny assessment. Thus the assessee has made a clever planning to support its claim of expenditure/depreciation in Stavya Spine Hospital (SG Road) by obtaining necessary permissions to start the business from civic authorities in a later stage, in order to apprise the department that the intention of the assessee was to start business. If assessee's claim is admitted, the same can be allowed only from the year 2015-16, when the assessee has actually done some necessary formalities for starting the hospital activities. Assessee has not made any efforts to set-up his business during the previous year relevant to A.Y.2013-14. The business can be said to be set-up only established and ready to commence business. 5.12. The consumption of electricity during the period December 2012 to important aspect to suggest that not only business activities, the a installed the electrical fittings/furniture, claims to have been bought in Spine (SG Road) at the premises. This is because if any furnishing/fitting out at the premises, the consumption would have been at a higher side used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of total expense of 33, 85, 461/-, the assessee s case is that the new hospital is an extension/expansion of the existing business of the assessee, and since the new hospital unit which was set up at SG Road is operated under common management and control, all the expenses are allowable in the case of the assessee. Further, the counsel for the assessee submitted that the AO has not doubted the genuineness of expenses and nor there is any allegation that the expenses are capital in nature. Accordingly, in the instant set of facts, the expenses are allowable as revenue expenditure. So far as the claim of depreciation is concerned, the counsel for the assessee submitted that the Underlying assets were ready to use and hence depreciation should have been allowed on the same. The assessee relied upon certain case laws in this respect. In response, DR relied upon the observations made by Ld. CIT(Appeals) and AO in their respective orders. 11. We have heard the rival contentions and perused the material on record. We observe that during the year under consideration, the assessee had shown a sum of 66,400/- as consultancy income from the new hospital at SG Road. Further, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue nature. Assessing Officer rejected assessee's claim holding that said pre-operative expenditure was in nature of expenses incurred in connection with setting up of a new line of business and, therefore, said expenditure was capital expenditure. New venture was managed from common funds; control over two units was in hands of same management and administration; and there was necessary unity of control leading to an inter-connection, inter-dependence and inter-lacing of two ventures. The High Court held that Fuel Injection Equipment Project was only an extension of existing business of assessee. Therefore, pre-operative expenditure incurred by assessee on said project was revenue expenditure. In the case of Woodcraft Products Ltd69 Taxman 415 (Calcutta), assesseecompany was exploring possibility of setting up a factory at Kenya and travelling expenses were incurred in connection with this expansion. However, said proposed expansion of existing business did not materialise. The High Court held that such travel expenditure was an allowable deduction. In the case of Ghanashyam Steel Work Ltd.[2010] 195 Taxman 180 (Gujarat), assessee was engaged in business of manufacture of chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Gujarat High Court held that mere fact that Bangalore unit was situated many miles away from Baroda, was not of any consequence because assessee had head office at Baroda, which controlled affairs of both businesses in Baroda and Bangalore and therefore, expenditure incurred in expansion of existing manufacturing facilities was to be treated as revenue expenditure. In the case of Nicholas Piramal (India) Ltd.[2016] 69 taxmann.com 164 (Bombay), assessee-company was engaged in business of manufacturing pharmaceuticals, bulk drugs and glass bottles. During relevant year, assessee sought to expand its glass business and for said purpose, assessee set up and commissioned a new plant to manufacture glass bottles. Assessee claimed interest paid on loan taken for purposes of setting up a new glass bottles manufacturing plant as a revenue expenditure. Assessing Officer rejected assessee's claim holding that interest had to be capitalised till asset had been first put into use. Another reason for rejecting assessee's claim was that three activities, viz., pharmaceutical, bulk drugs and glass bottles, of assessee were not interlinked by common management, funds and control. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source. The unit was proposed to be established under common control of board of directors. In relation to setting up of said unit, assessee, from time-to-time, incurred expenditure in nature of salary, wages, repairs, maintenance, design and engineering fee and other expenses of administrative nature. However, assessee could not procure allotment of requisite land from Government of Karnataka and, therefore, setting up of said proposed unit was abandoned during relevant assessment year. The High Court held that assessee could be allowed deduction of project related expenses as revenue expenditure. In the case of Gravis Foods (P.) Ltd[2015] 64 taxmann.com 407 (Mumbai), expenditure incurred by assessee, engaged in manufacturing of ice-creams, on aborted project of 'Mawa', which was covered by nature of assessee's declared business of dairy/milk products, and was under same management and control, was allowable deduction. In the case of Olive Bar Kitchen (P.) Ltd.[2019] 102 taxmann.com 98 (Mumbai - Trib.), the assessee, engaged in business of running restaurants and related activities, had expanded its existing business by opening three more restaurants at different pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch expenditure would be treated as business expenditure. In the case of Priya Village Roadshows Ltd[2009] 185 Taxman 44 (Delhi), the Delhi High Court held that expenditure incurred for preparation of feasibility report of a new project, which is in respect of same business which is already carried on by assessee, even if it is for expansion of business, namely, to start a new unit which is same as earlier business, and there is unity of control and a common fund, then such expenditure is to be treated as revenue expenditure. In the case of U.P. Asbestos Ltd.[2013] 37 taxmann.com 80 (Allahabad), the High Court held that where borrowed funds were exclusively utilized for purpose of expansion of existing business having common administration and common fund, which resulted enhancement of production by thrice, interest paid on loan borrowed was to be treated as revenue in nature and accordingly, same was allowable under section 36(1)(iii) of the Act. In the case of Blue Coast Infrastructure Development Ltd.[2021] 131 taxmann.com 282 (Chandigarh - Trib.), the assessee-company was engaged in business of real estate development and financing. During the year, assessee claimed expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the said position of law is that it is not necessary that the machinery must be used for a particular number of days so as to be entitled depreciation, but it requires that it should be used for the purpose of business or profession or vocation. The Counsel for the assessee submitted that lesser use of machinery, going by the electricity consumption for the impugned assessment year, is not conclusive to the fact that the machinery was not put to use. We are in agreement with the arguments of the counsel of the assessee to the effect that once the new hospital is an extension of the existing business, the machinery viz. Air-conditioning unit and electrical fittings have been purchased during the year under consideration, the assessee has shown consultancy receipts from the new hospital unit at SG Road, the new hospital is in the same line of business i.e. Spine Speciality as the existing hospital at Ashram Road, then depreciation on the assets should be allowed to the assessee during the year under consideration. Notably, in the assessment order passed for the year under consideration, the AO held that business of the assessee commenced from assessment year 2015-16, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings. However, the AO made an addition of 1, 63,232/- by taking 5% of the average investment under Rule 8D(iii). In appellate proceedings, the Ld. CIT(Appeals) observed that the assessee did not press adjudication of this issue, hence he confirmed the addition. 20. We observe that we have adjudication on this issue in the immediately previous assessment year in the preceding paragraphs of the order. Accordingly, the observations made for assessment year 2014-15 shall also apply to the assessee for the impugned assessment year. 21. In the result, ground number 2 of the assessee s appeal is allowed for statistical purposes. 22. Ground number 3 relates to assessee s contention that the figure of interest disallowance has been incorrectly mentioned. For this limited aspect, the matter is being restored to the file of the AO to carry out the necessary verification as regards the figure of interest disallowance. 23. In the result, the appeal of the assessee is allowed for statistical purposes. 24. In the combined result, both the appeals of the assessee are allowed for statistical purposes. Order pronounced in the open court on 20-12-2022 - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
