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DCIT, Central Circle 5, New Delhi. Vs. M/s. Goyal MG Pvt. Ltd., A 38, 1st Floor, Mohan Cooperative Indl. Estates,
September, 23rd 2014
         IN THE INCOME TAX APPELLATE TRIBUNAL
              (DELHI BENCH `C' : NEW DELHI)

        BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
                            and
         SHRI B.C. MEENA, ACCOUNTANT MEMBER

                         ITA No.3854/Del./2013
                       (Assessment Year : 2005-06)

DCIT, Central Circle 5,          vs.    M/s. Goyal MG Pvt. Ltd.,
New Delhi.                              A ­ 38, 1st Floor,
                                        Mohan Cooperative Indl. Estates,
                                        Main Mathura Road,
                                        New Delhi ­ 110 044.

                                               (PAN : AAACG6972B)

       (Appellant)                                    (Respondent)

                  Assessee by : Shri R.S. Singhvi, CA
                Revenue by : Shri Satpal Singh, Senior DR

                                        ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

      This appeal filed by the revenue emanates from the order of CIT

(Appeals)-X, New Delhi dated 21.01.2013.

2.    The assessee is a company engaged in the business of manufacture

and trade of industrial gases.       The Assessing Officer made certain

additions which have been deleted by the CIT (A). Now, the revenue is

in appeal by taking the following grounds of appeal :-

     "1.     That the Commissioner of Income Tax (Appeals) erred
     in law and on the case in deleting the addition of Rs.10,96,917/-
     made by the Assessing Officer on account of disallowance of
     expenses u/s 14A of the Income Tax Act, 1961.
                                       2                  ITA No.3854/Del/2013



     2.      That the Commissioner of Income Tax (Appeals) erred
     in law and on the case in deleting the addition of Rs.23,23,100/-
     made on account of capital expenditure.

     3.      That the Commissioner of Income Tax (Appeals) erred
     in law and on the case in deleting the addition of Rs.7,60,661/-
     out of total addition of Rs.10,10,661/- made on account of
     disallowance of building repair expenses.

     4.      That the Commissioner of Income Tax (Appeals) erred
     in law and on the case in deleting the addition of Rs.12,00,000/-
     made on account of disallowance of plant repair expenses.

     5.      (a) The order of the CIT(A) is erroneous and not tenable
     in law and on facts.

              (b) The appellant craves leave to add, alter or amend
     any/all of the grounds of appeal before or during the course of
     the hearing of the appeal."





3.    In the ground no.1, the issue raised is deleting the addition of

Rs.10,96,917/- made by the Assessing Officer by invoking Section14A of

the Income-tax Act, 1961. The CIT (A) has deleted this addition by

holding as under :-

     "2.3. After going through the facts of the case, observations of
     the A.O., submissions of the A.R. of the appellant and the
     various judicial pronouncements, this ground is being decided on
     the basis of the following observations :

     (i)      From the facts it is clear that the A. R. of the appellant
     has provided specific details establishing the amount of
     investment made in the mutual funds out of the ICD refund of
     the appellant. This establishes that the amount was the
     appellant's own funds and accordingly, no nexus has been
     established between the borrowed funds and the amount invested
     in the mutual funds. The assessing officer has also not disputed
     these facts in the assessment order and has only made the
     disallowance on the basis of the assumption that proportionate
     disallowance of expenditure should be made in view of the
                                       3                 ITA No.3854/Del/2013


     investments made by the appellant, which would result in tax
     free income. The A.R. has also submitted that no exempt income
     has been earned during the year. This aspect has also not been
     disputed by the assessing officer. Accordingly, in view of the
     various judicial pronouncements' it is clear that the investments
     were made by the appellant out of its own funds and a direct
     nexus in this regard has been established by the A.R. of the
     appellant.

     (ii)     In view of the decisions of the CIT v. Hero Cycles
     (supra), SIL Investment (supra) and the facts of the present case,
     the proportionate disallowance made by the assessing officer
     without appreciating the specific facts and circumstances and
     only making a proportionate disallowance on the basis of
     investment does not appear to be justified. I am inclined to agree
     with the arguments of the A.R. of the appellant that this
     disallowance u/s 14A is not justified.

            Accordingly, this ground of the appellant is treated as
      allowed."

4.    We have heard both the sides on the issue. The CIT (A) has given

a clear cut finding that there is no nexus between the borrowed funds and

the investment in the mutual funds from where the assessee could have

earned the exempted income. Moreover, there is no exempted income

earned during the year by the assessee. In view of these facts and in view

of the decision of Hon'ble Punjab and Haryana High Court in the case of

CIT vs. Hero Cycles Ltd. Reported in 323 ITR 518, we find no merits in

this ground of revenue's appeal and the same is dismissed.

5.    In the grounds no.2, the issue involved is against deleting the

addition of Rs.23,23,100/- made on account of capital expenditure.

6.    During the year, the assessee claimed legal expenses of

Rs.23,23,100/-. The Assessing Officer treated this amount was capital in
                                       4                 ITA No.3854/Del/2013


nature. One of the reasons for treating the amount as capital was that the

assessee has entered into an agreement with M/s. GMBH and

subsequently, this agreement was breached and that resulted into several

cases of arbitration, after which certain amounts were received by

assessee in 2001 which was claimed as capital receipts. The Assessing

Officer held that where the legal expenses were incurred to bring into

rights of capital nature are to be treated as capital. The CIT (A) has

deleted the addition by holding as under :-

     "3.3. After going through the facts of the case, the A.O.,
     submissions of the A.R. of the appellant and various judicial
     pronouncements, this ground of the appellant is being finalized
     after making the following observations:

     (a)      The A. R. of the appellant has vehemently argued that
     on similar facts such legal and professional expenses have been
     allowed as revenue expenditure in earlier as well as later
     assessment years. The assessing officer has made a disallowance
     in this year by relying upon the fact that some amount of receipt
     had been shown as a capital receipt in the year 2001. Apart from
     this fact the assessing officer has not stated any other reason as
     to why these expenses should not be allowed as revenue
     expenses during the year.

     (b)      The details of these expenses had been mentioned on
     page 3 of the assessment order and these are payments made to
     various legal firms and individuals as well as International
     Chambers of Commerce. The A.O. has not painted out whether
     the nature of these expenses are of capital nature which provide
     enduring benefit to the appellant over previous years. The only
     argument provided by the A.O. was that the amount received on
     account of part settlement of this dispute relate to rights of
     capital nature like "right to exclusive operation in territory of
     India and to avail non-compete benefits", The A.O. has,
     therefore, observed that the expenses incurred for obtaining such
     rights should also be treated as capital expense.
                                        5                  ITA No.3854/Del/2013


     (iii)    From the facts which emerged it appears that this is an
     issue going on for several years and in other year such legal and
     professional expenses on account of this dispute must have been
     incurred by the appellant. The A.R. of the appellant has argued
     that such expenses had been allowed in different years and the
     facts being similar even in this year there was no justification for
     the assessing officer to disallow this amount as a capital expense,
     apart from the principle of consistency, since no capital receipt
     or non-compete fee has ever been received by the appellant for
     the year various years after 2005-06, there was no logic in the
     argument of the assessing officer to treat this expenditure as a
     capital expense.
              After carefully considering the facts of the present case,
       various judicial pronouncements as well as the treatment of the
       nature of these expenses in other years, it appears that these
       legal and professional expenses incurred by the appellant are
       revenue in nature. The A.O. has nowhere established any
       enduring benefits being the payments made to various
       professionals and parties on this account. Merely because of
       certain observations of some receipt in the year 2001 which
       have been shown as capital in nature would not justify the
       disallowance of these expenses as revenue expense.
       Accordingly, after considering the overall facts of the case, and
       the nature of payments made to specific individuals, as well as
       the fact that similar expenses have been allowed in other years,
       I am in agreement with the arguments of the A.R. of the
       appellant that this amount should be treated as revenue
       expense. Accordingly, the ground is treated as allowed."


7.    We have heard both the sides on the issue.                 We have also

considered the case laws relied upon. These expenditure were incurred

which has not brought any benefit of enduring nature. These have been

paid to various professionals. These expenditure have also not brought

any asset into existence. It is also not clear what type of long term

enduring benefit giving rights have been brought into existence.            In

absence of any such findings, we find no fault in the order of the CIT (A)

and we dismiss this ground of revenue's appeal.
                                        6                  ITA No.3854/Del/2013





8.    In the ground no.3, the revenue has raised the issue regarding

deleting the part addition out of the total addition of Rs.10,10,661/- made

on account of building repair expenses.

9.    The Assessing Officer disallowed 50% of the total expenses

debited under the head `building repair' expenses and made an addition

of Rs.10,10,661/-. This was based on Assessing Officer's findings that

certain vouchers were with respect to property no.4, Ring Road, Lajpat

Nagar, New Delhi which is a residential premises of one of the directors

of the company and some of the items like stones and marbles were not

related to the repairing of the building and some of the expenditure were

personal expenditure of the director. The CIT (A) has granted part relief

to the assessee by holding as under :-

     "4.3. After going through the facts of the case, observations of
     the A.O., submissions of the A.R. of the appellant, it is seen that
     the assessing officer had examined the details regarding building
     repairs and maintenance and was not fully satisfied with the
     supporting bills and vouchers which could be fully attributed
     building repairs and maintenance of the office of the appellant. It
     is also a matter of fact that the residential building of one of the
     directors was also being built at the same site and some of the
     expenses would not be directly attributable to the office building
     only. All the expenses and vouchers do not appear to have been
     maintained in a manner in which it could be established that all
     these expenses under the head of building and repairs was
     wholly and exclusively for the building relating to the company.
     While on one hand the argument of the A.R. of the appellant is
     justified to the extent that the estimated disallowance of 50% is
     not called for and is on the higher side in my opinion, the
     circumstances also indicate that some amount of these expenses
     has also been claimed by the appellant without properly enduring
     that the same was wholly and exclusively pertaining to the
     building repairs of the appellant. An amount of Rs.1,73,000/- has
                                       7                  ITA No.3854/Del/2013


      been clearly identified by the assessing officer and no proper
      explanation has been provided by the appellant with regard to
      these expenses. Accordingly, in my opinion, a disallowance of
      Rs.2,50,000/- on account of expenses not fully verifiable for
      business purposes needs to be sustained. Accordingly, the
      addition is restricted to Rs.2,50,000/-. This ground of the
      appellant is partly allowed."


10.    We have heard both the sides on the issue. We find that CIT (A)

has granted part relief after examination of the nature of expenses

claimed by the assessee. The CIT (A) has sustained part of the addition.

The revenue has failed to bring any material on record which could

negate the findings of the CIT (A) on this issue. Keeping all these facts

in view, we sustain the order of the CIT (A) on this ground. This ground

of revenue's appeal is failed.

11.    In the ground no.4, the revenue has raised the issue of deleting the

addition of Rs.12,00,000/- made on account of repairs for plant.

12.    The Assessing Officer made the addition by following the earlier

year pattern by disallowing 10% of the total expenditure debited on

account of plant repairs. It was claimed before us that addition in earlier

year was deleted by the CIT(A) and the revenue has not gone in any

further appeal. The CIT (A) has deleted the addition by holding as

under:-

      "5.3    After going through the facts of the case, submissions of
      the A.R. of the appellant and the observations of the A.O., it is
      seen that the addition made by the assessing officer was only
      based on the earlier year and earlier years additions has been
      deleted by the CIT(A) in A.Y. 2004-05. After considering the
                                       8                 ITA No.3854/Del/2013


      findings of the CIT(A) for A.Y. 2004-05 and 2006-07 and
      following the principles of judicial consistency and considering
      the arguments of the A.R. of the appellant, this addition of the
      appellant should be deleted. Accordingly, this ground of the
      appellant is treated as allowed."


13.    After hearing both the sides, we find that revenue has failed to

controvert the finding of the CIT (A) on this issue. Therefore, we sustain

the order of CIT (A) on this ground and dismiss this ground of revenue's

appeal.

14.    Ground No.5 is general in nature and does not require any

adjudication, hence the same is dismissed.

15.    In the result, the appeal of the revenue stands dismissed.

Order pronounced in open court on this 17th day of September, 2014.



            Sd/-                                     sd/-
         (I.C. SUDHIR)                            (B.C. MEENA)
       JUDICIAL MEMBER                       ACCOUNTANT MEMBER


Dated the 17th day of September, 2014
TS



Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A)-X, New Delhi.
     5.CIT(ITAT), New Delhi.                                        AR/ITAT

 
 
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