GARVE MOTORS PVT.LTD,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 9,, PUNE

॥ आयकर अपीलीय न्यायाधिकरण, पुणे “बी” न्यायपीठ, पुणे में ॥ IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE “B” BENCH, PUNE BEFORE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपीऱ सं. / ITA No.776/PUN/2018 निर्धारण वर्ा / Assessment Year : 2013-2014 Garve Motors Pvt. Ltd., S.No.136/1A 46, B P Road, Pune – 411016 . . . . . . . अपीऱधर्थी / Appellant PAN:AADCG4391A बनाम / V/s. Asst. Commissioner of Income Tax, . . . . . . . . प्रत्यर्थी / Respondent Circle – 9, Pune द्वारा / Appearances Assessee by : Mrs. Deepa Khare Revenue by : Shri M. G. Jasnani सुनवाई की तारीख / Date of conclusive Hearing : 26/09/2022 घोषणा की तारीख / Date of Pronouncement : 07/10/2022 आदेश / ORDER PER G. D. PADMAHSHALI, AM; The extant appeal challenges the order of Commissioner of Income Tax (Appeals)-6, Pune [for short “CIT(A)”] dt. 06/12/2017 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”], which climbed out of order of assessment dt. 15/03/2016 passed u/s 143(3) by the Asstt. Commissioner of Income Tax, Circle-9, Pune [for short “AO”] for assessment year [for short “AY”] 2013-14. ITAT-Pune Page 1 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 2. Two short issues arising for our consideration, one as to what constitutes sufficiency of interest free funds entitling diversion thereof to sister concern as such? And second as to when repairs & maintenance expenditure to tantamount capital expenditure [for short “Capex”]?

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 “ITR”] on 30/09/2013 declaring income of ₹1,09,70,250/-, wherein the case was subjected to CASS by service of notice u/s 143(2) and considering the submissions of the assessee, the assessment was culminated u/s 143(3) with additions viz; disallowance of depreciation on demo car, disallowance of interest u/s 36(1)(iii) for diversion of interest bearing funds, disallowance u/s 40a(ia) and disallowance of repairs & maintenance holding as Capex.

4.2 The assessee company challenged the action of Ld. AO contesting all the addition before the first appellate authority [for short “FAA”], wherein the Ld. CIT(A) finding force in assessee’s contention granted part relief as regards to depreciation on demo car following precedents laid in assessee’s own case for earlier years and conceded with the balance action of Ld. AO in confirming other additions. Consequently, against sustained additions / disallowances the appellant company is in appeal before this Tribunal on effectively two grounds set in para 3 hereinbefore. ITAT-Pune Page 3 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 5. During the course of physical hearing, the learned representative of the assessee [for short “AR”] at the outset referring to affidavit and application filed for condonation of delay in instituting the appeal, reiterated its contents and prayed for condonation. In so far as the first meritare ground is concerned, the Ld. AR adverting to page 11-12 of the paper book submitted that, the sum of the equity capital and balance of reserves & surplus are far more than the total amount of interest free funds lent to sister concern, hence the disallowance u/s 36(1)(iii) was unwarranted. And in so far as disallowance of repairs & maintenance is concerned, the Ld. AR contended that, the appellant company renovated its newly acquired lease premises to operationalize as showroom & work shop keeping in view with the dealership agreement and such expenses did not bring into existence any qualifying capital asset nor any structure being came into existence so has to enable the claim of depreciation thereon.

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 placing vehement arguments before the bench that, the sum of equity and reserves & surplus balance are not circulating capital of the appellant company but meant exclusively for long-term commitment such as creation of fixed assets etc., and whereas the appellant company diverted its interest bearing “Overdraft Account” [for short “OD A/c”] loan fund which is by nature a circulating fund meant exclusively for working capital needs, hence for the reason the disallowance on this accounts terminally deserves to be confirmed. Whereas the addition on account of disallowance of repairs & maintenance expenditure is concerned, the Ld. DR underlining the acquisition of new lease premises and quantum of expenditure incurred in creating new structure for enduring benefit to be enjoyed over a lease period by the appellant company, solidified the stands taken by the tax authorities below on the ground that such repairs were not undertaken under a lease obligation but self-driven and hence prayed accordingly.

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 Tax Appellate Tribunal Rules, 1963 [for short “ITAT, Rules”] perused the material placed on record, case laws relied upon by the appellant as well the respondent and duly considered the facts of the case in the light of settled legal position forewarned to either parties.

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 D of the Act, is entitled to a claim of deduction for the amount of interest paid in respect of capital borrowed for the purpose of business by virtue of clause (iii) of sub section (1) thereunder. In the extant appeal, it being an accredited fact that, the appellant borrowed funds from bank through “OD A/c” and out of such interest bearing borrowed funds ₹5,41,227/- and ₹26,41,025/- was advanced interest free to its sister concerns viz; Shri Vinak Garve and M/s Vinayak Enterprises respectively and in the absence of any substantive explanation or material rebutting the observation, proportionate interest on diverted funds was disallowed holding it such lending or diversion as non-business purpose by both the tax authorities.

9.2 At the outset we concur with contention of the Ld. DR in vouching that, the sum of the equity capital and balances standing in reserves & surplus form part of long-term capital or fund and exclusively meant for long term commitment for acquiring property, plant and machinery, hence the contention of the Ld. AR prima-facie did not inspire any confidence in the claim ITAT-Pune Page 7 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 put forth. We are mindful to the fact that, the funds borrowed on interest under “OD” facility is meant for working capital needs of the borrower & is governed by terms of loan agreement and bench is also aware of the fact that, every banker while making such a sanction invariably restricts the borrower from diverting the such loan funds or utilization thereof for any purpose outside the sanctioned tenacity by stipulating appropriate condition in the loan agreement itself. Since the appellant neither brought on the record any authorisation from the banker entitling such diversion of funds to sister concern nor placed any evidential material to substantiate such interest free payments or diversion were triggered on account of business exigencies vis-à-vis obligation and commercial expediency, consequently the claim of the appellant fails the test laid by the Hon’ble Supreme Court in “S.A. Builders Ltd. Vs CIT” reported in 288 ITR 1, thus we find no infirmity with the disallowance made on this count, ergo ground number 1 stands dismissed.

ITAT-Pune Page 8 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 10. Coming to substantive ground of disallowance of repairs & maintenance expenditure, we ex-facie observed that, both the lower tax authorities outwardly coined the disallowance vouching the quantum of expenditure incurred by the appellant which devoid of provision of section 30 of the Act. Nota bene, the legislature in his wisdom has made a fine distinction between sub-clause (i) and (ii) of section 30(a) of the Act while providing for allowance on account of repairs to building when occupied as tenant and used for the purpose of building, as against current repairs when occupied otherwise than tenancy and for the sake of clarity its apt to reproduced the text thereof as under; 30 Rent, rates, taxes, repairs and insurance for building, (a) Where the premises are occupied by the assessee- (i) As a tenant, the rent paid for such premises: and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises.

ITAT-Pune Page 9 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 11. Bare reading of the provision sufficiently clenches that, when a premises in a disfigured or dilapidated condition is occupied by the assessee, all extensive repairs meant to include current or otherwise undertaken by the assessee for making such premises tenable vis-a-vis habitable for business, unless such extensive repairs brings into existence any capital field or rights therein, shall pass the litmus test laid in sub-clause (i) of section 30(a) of the Act and accordingly the allowance.

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 by the Hon’ble Supreme Court in the case of “Alembic Chemical Works Co. Ltd. Vs CIT” reported in 177 ITR 377, wherein the Lordships have vide para 9 observed that; “The idea of “once for all” payment and “enduring benefit” are not to be treated as something akin to statutory conditions ,nor are the notions of “capital” or “revenue” a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business The expression “asset or advantage of an enduring nature” was evolved to emphasise the element of a sufficient degree of durability appropriate to the context.” 13. We are headful to quote that, expenditure incurred for enduring benefit may termed as deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved and benefit to be derived subject to limitation on enduring usage. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same-does not recognise of any concept of deferred revenue expenditure cataloguing with enduring benefit, hence for the reason we disapprove the ITAT-Pune Page 11 of 12

Grave Motors Pvt. Ltd. ITA No.776/PUN/2018 AY: 2013-14 contention of Ld. DR’s for treating the revenue expenditure as deferred expenditure, and are we are of the considered view that, the expenses incurred by the appellant squarely intra-legem to the provision of section 30(a)(i) of the Act, and the same finds fortified by the decision of the Hon’ble Calcutta High Court in “Cultural Enterprises Corp. Vs CIT” reported in 196 ITR 488, ergo we remove the infirmity in the order of both the tax authorities below by deleting the disallowance carried out u/s 30(a)(i) of the Act.

-S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 31st day of October, 2022. आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT-5, Pune (MH-India) 4. The CIT(A)-6,Pune (MH-India) 5. DR, ITAT, Pune Bench ‘B’, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / BY RDER, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune. ITAT-Pune Page 12 of 12