C I T AJMER vs. M/S SHREE CEMENT LTD BEAWAR

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.40/2015

APPELLANT Principal Commissioner of Income Tax, Ajmer. VERSUS RESPONDENT M/s Shree Cement Limited, Bangur Nagar, Beawar. DATE OF ORDER ::: 20.09.2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE BANWARI LAL SHARMA Ms. Parinitoo Jain for the appellant. ***** By the Court (Per Hon'ble Jhaveri, J.) 1. By way of this appeal, the department has assailed the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the department. 2. The brief facts of the case are that the assessee company is the cement manufacturing industry which involves heavy vehicles movement for supply of raw material as well as clearance of finished goods. The assessee company has WBM Road which requires frequent repairs and patch up due to rains and heavy vehucular use. This caused problems in the operation of the assessee company to make the road more efficient. It was converted into concrete road for which the assessee company incurred an expenditure of Rs. 32,08,085/-. The AO held that the assessee company has derived the

2 advantage of enduring nature for converting the WBM Road into concrete road. Therefore, it was a capital expenditure and this addition was added to the income of the assessee company. 3. Two questions which are posed for consideration are as under: “1. Whether the Tribunal was legally justified in deleting the addition of Rs. 1,31,24,053/- made on account of disallowance of proportionate interest on borrowed funds relatable to investment in equities and in other tax free instruments despite the fact that the share capital and surplus fund has to be first invested in the main business which is the cement business as per the memorandum and article of association of the company and thereby leaving almost no interest free funds or very low interest free funds

for

other

activities particularly

the

investment

in equities and in other tax instruments and also despite the fact that the assessee has failed to prove reverse of it? 2. Whether the Tribunal has legally justified in holding that the expenditure incurred by the assessee company for laying concrete road over the WBM road, is a revenue expenditure instead of capital expenditure despite the fact that assessee in its books of accounts has itself treated it as capital expenditure and also despite the fact that new asset in the form of concrete road has come into existence and moreover despite the fact that it is giving advantage of enduring nature? 4. The Tribunal while considering the question of expenses and renovation/repairing of the road has discussed as under:- “30. We have heard the rival contentions and perused the material available on

3 record. Apropos the 1st issue of conversion of WBM road into concrete road the cement industry involves heavy vehicular movement for inward supply of raw material as well as clearance of finished goods. The assesses WBM road required frequent repairs and patch up work due to rains and heavy vehicular use. For more efficient business operations assessee company took a business decision to convert existing WBM road into concrete road and incurred this expenditure to make its profit earning setup better and hassle free. This had impact on profit earning potential due to ease of transportation. We are of the view that Hon'ble Supreme Court judgment in the case of Empire Jute Co.(supra) has been rightly applied by ld. CIT(A). Hon'ble court laid down that it is not every advantage of enduring nature derived by assessee which is to be held as capital and not revenue in nature. If the advantage results in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitability, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. We find further merit in the plea that no new asset came into existence in as much as the WBM road was already in existence and a concrete road instead of metal road resulted by this expenditure. Thus, the existence of old asset i.e. road continued with better physical properties. Since no new asset came into existence the expenditure becomes one of patently revenue nature. In view of these observations and relying on the catena of other case laws cited by assessee, we see no infirmity in the order of ld. CIT(A) which is upheld. Revenues grounds in this behalf are

4 dismissed. 33. Apropos the 4th issue about re- computation of book profits we find that bills raised by M/s Karvy Consultants, were paid for Folio maintenance charges acting as registers and share transfer agents. This does not amount to a payment in respect of investment of appellant company in shares, thus there is no justification

for

disallowance

of Rs.4,69,627/- made to M/s Karvy Consultants. The ld. CIT(A) is right in holding that the provisions of Section 14A apply only when there is actual expenditure in relation to an exempt income. It does not create any legal fiction to treat any expenditure as incurred in relation to exempt income on estimate basis. This view derives support from decision of Coordinate Bench i.e. ITAT Mumbai in the case of ACIT vs. Claridges Investments & Finance (P) Ltd. (2007) 18 SOT 390 (Mum) as also by ITAT Delhi Bench in the case of ACIT vs. Eicher Ltd. (2006) 101 TTJ 369 (Del.) and Mumbai Bench in the case of DCIT vs. B.S.E.S. Ltd. (2008) 113 TTJ 227 (Mumbai).” 5. We are in complete agreement with the view taken by the Tribunal on the first issue. Looking to the nature of expenses, in our opinion, it is a revenue expenses not capital as it was repairing on the road and while considering the second issue the Tribunal has relied upon the decision of the Supreme Court which prima facie is not subject matter of appeal. The department has accepted the same. 6. In view of that matter, the appeal is devoid

5 of merit and deserves to be dismissed. 7. The appeal is dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/37