JCIT (OSD) 8(1), MUMBAI vs. DYSTAR INDIA P.LTD, NAVI MUMBAI

डाय�टर इं�डया �ाइवेट �ल�मटेड 2 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 The aforesaid appeals have been filed by the assessee against separate impugned common orders of even date, 15.03.2012, passed by CIT(A)-16 Mumbai, for the quantum of assessment passed under section 143(3) for the assessment year 2008-09 and assessment year 2009-10, whereas the revenue has filed cross appeal in the assessment years 2009-10. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, they were heard together and are being disposed off by way of this consolidated order. We will first take-up assessee’s appeal in ITA No. 3045/Mum/2012 vide which following ground has been raised:-

The assessee company is engaged in the business of manufacturing, selling, trading, import and export of textile dyestuffs. Ld. AO from the perusal of the Balance-sheet noted that, assessee has purchased unquoted shares of M/s Texanlab Laboratories Private Limited amounting to Rs.4,99,99,000/-, the income from these investments will not form part of the total income. In response to the show cause notice as to why disallowance under section 14A r.w. Rule 8D should not be made, the assessee submitted that, assessee has not earned any exempt income from such investments and these investments were made

The Ld. CIT(A) too has confirmed the said addition after discussing the decision of Hon’ble High Court decision in the case of Maxopp Investment Ltd vs CIT 347 ITR 272 (Del).

Before us, the Ld. Counsel submitted that now in wake of latest High Court decision in the case of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made if there is no exempt income during the year.

On the other hand, Ld. DR relied upon the decision of ITAT Mumbai Bench in the case of Double dot Ltd vs DCIT, reported in [2014] 65 SOT 324 also referred to CBDT Circular No.5 of 2014 dated 11.04.2013 and contended that, even if investment in shares are capable of earning exempt income then also disallowance under section 14A can be made in this year.

We have considered the rival submissions and also perused the relevant finding given in the impugned order. It is an undisputed fact that, the assessee has not earned any exempt income during the year on the investment made in the subsidiary company, stated for the business purpose, that is, for acquiring controlling interest and in the nature of strategic investment. Once there is no exempt income during the year, then in wake of latest Delhi High Court decision in the case of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made. Hon’ble High Court after discussing the various decisions

Thus, respectfully following the aforesaid ratio, we hold that, no disallowance under section 14A is called for accordingly, ground raised by the assessee is allowed.

Now, we will take-up vide which following grounds have been raised:- “1. The Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to CIT(A)] erred in confirming the disallowance of Rs.14,66,757/- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment giving rise to the exempted income. Your Appellant submits that it has made strategic investment in shares of its subsidiary for acquiring controlling interest; further the Appellant has not incurred any expenditure attributable to investment activity giving rise to the exempted income and hence no disallowance u/s 14A of the Act is called for”.

Now, we will take-up cross appeal by the revenue in vide which following grounds have been raised:-

Thus, the only issue involved in revenue’s appeal is disallowance of expenditure incurred on repairs and maintenance on household premises by treating the same to be capital expenditure.

Brief facts are that, the assessee had taken two premises on leave and license basis for the purposes of its business, one at Tirpur for the period of 6 years and other premises at Rabale for the period of 5 years. In order make the said premise suitable for its business requirement, it had incurred total expenditure of Rs.2,07,20,189/- for carrying out repairs and renovation of the said premise. The said expenses were capitalized in the audited accounts. However, at the time of filing of return of income, the expenses to the extent of Rs.1,98,68,798/- was claimed as revenue expenditure. It was contended that nature of expenses was neither for any enduring benefit nor any capital asset has come into existence. The expenditure incurred and its nature thereof has been stated in the following manner:- Nature of Expenses Advantages Wall painting Makeover and fresh look to the existing Office premises providing better working Atmosphere False ceiling Heat reduction, effortlessness of alternation easily-removed ceiling panels offer instant access to the plenum, greatly simplifying repairs or modifications Plumbing For water distribution at laboratory and research & development centre. Electrical work Efficient distribution of the electricity. Aluminium Partition cum For dividing the cabins in existing premises doors Vertical Blinds Window covering that provides both privacy and controlled lighting Sun control film Controlling heat from sun rays Fire alarm system Audible alarm in case of fire accident

Before the CIT(A), detailed submissions were made, duly supported by various judicial pronouncements which has been dealt and decided by the CIT(A) from pages 5 to 6 of the appellate order. After analyzing the facts, he decided this issue in favour of the assessee after observing and holding as under:-

After hearing both the parties and on consideration of the relevant finding given in the impugned orders, we find that it is an undisputed fact that, the repair and renovation has been done on lease premises which has been taken on Leave and License basis for the period of 5/6 years. From the perusal of the details furnished before the authorities below as well as before us, we find that it is mainly in the nature of exterior works done like electrical work, P0P and false ceiling work, painting, plumbing, aluminum, partition cum door, vertical blinds, sun control films, fire alarm systems etc. The expenditures which have been incurred on the premises does not belong to the assessee, albeit has been taken for a temporary period for conducting its business, that is, to work efficiently in the premises looking to the needs and requirements of modern business premises. The Department has referred to Explanation 1 to section 32, which only refers to any capital expenditure incurred. It does not speak about the revenue expenditure. Thus, reference of Explanation 1 to section 32 in the डाय�टर इं�डया �ाइवेट �ल�मटेड 8 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 grounds of appeal may not be relevant. The section 30(a)(i) on the other hand provides that, if repairs have been carried out in the premises occupies as a tenant then it has to be allowed as deduction under section 30 as ‘repairs’ that is, as cost of repairs to the premises. The Hon’ble Delhi High Court in the case of High Line Pins, reported in 306 ITR 182 has dealt this issue in detail wherein it was observed and held as under:- After having considered the arguments advanced by the learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee’s claim for deduction under Section 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by the learned counsel for the revenue relate to "current repairs". There is a clear distinction between the expression "repairs" and the expression "current repairs". It is obvious that the word "repairs" is much wider than the expression "current repairs". This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills P. Ltd. (supra). The expression "current repairs" is much more restricted than the word "repairs" because the latter is qualified by the word "current". What the assessee has done in the present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in Section 30(a)(i). The legislature has made a distinction between expenses incurred by a tenant for "repairs" of the premises and expenses incurred by a person who is not a tenant towards "current repairs" to the premises. This distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature