Principal Commissioner Of Income Tax, Ajmer v. M/S Shree Cement Limited, Bangur Nagar, Beawar

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. JHAVERIHON'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 hasassailed the judgment and order of the Tribunalwhereby the Tribunal has dismissed the appealpreferred by the department. 2.The brief facts of the case are that theassessee company is the cement manufacturingindustry which involves heavy vehicles movementfor supply of raw material as well as clearance offinished goods. The assessee company has WBM Roadwhich requires frequent repairs and patch up dueto rains and heavy vehucular use. This causedproblems in the operation of the assessee companyto make the road more efficient. It was convertedinto concrete road for which the assessee companyincurred an expenditure of Rs. 32,08,085/-. The AOheld that the assessee company has derived the advantage of enduring nature for converting theWBM Road into concrete road. Therefore, it was acapital expenditure and this addition was added tothe income of the assessee company. 3.Two questions which are posed for consideration are as under: “1. Whether the Tribunal was legallyjustified in deleting the addition ofRs. 1,31,24,053/- made on account ofdisallowance of proportionate intereston borrowed funds relatable toinvestment in equities and in othertax free instruments despite the factthat the share capital and surplusfund has to be first invested in themain business which is the cementbusiness as per the memorandum andarticle of association of the companyand thereby leaving almost no interestfree funds or very low interest freefundsforotheractivitiesparticularlytheinvestmentinequities and in other tax instrumentsand also despite the fact that theassessee has failed to prove reverseof it? 2. Whether the Tribunal has legallyjustified in holding that theexpenditure incurred by the assesseecompany for laying concrete road overthe WBM road, is a revenue expenditureinstead of capital expenditure despitethe fact that assessee in its books ofaccounts has itself treated it ascapital expenditure and also despitethe fact that new asset in the form ofconcrete road has come into existenceand moreover despite the fact that itis giving advantage of enduringnature? 4.The Tribunal while considering the questionof expenses and renovation/repairing of the roadhas discussed as under:- “30. We have heard the rival contentionsand perused the material available on 2. Whether the Tribunal has legallyjustified in holding that theexpenditure incurred by the assesseecompany for laying concrete road overthe WBM road, is a revenue expenditureinstead of capital expenditure despitethe fact that assessee in its books ofaccounts has itself treated it ascapital expenditure and also despitethe fact that new asset in the form ofconcrete road has come into existenceand moreover despite the fact that itis giving advantage of enduringnature? 4.The Tribunal while considering the questionof expenses and renovation/repairing of the roadhas discussed as under:- “30. We have heard the rival contentionsand perused the material available on record. Apropos the 1[st]issue ofconversion of WBM road into concrete roadthe cement industry involves heavyvehicular movement for inward supply ofraw material as well as clearance offinished goods. The assesses WBM roadrequired frequent repairs and patch upwork due to rains and heavy vehicularuse. For more efficient businessoperations assessee company took abusiness decision to convert existing WBMroad into concrete road and incurred thisexpenditure to make its profit earningsetup better and hassle free. This hadimpact on profit earning potential due toease of transportation. We are of theview that Hon'ble Supreme Court judgmentin the case of Empire Jute Co.(supra) hasbeen rightly applied by ld. CIT(A).Hon'ble court laid down that it is notevery advantage of enduring naturederived by assessee which is to be heldas capital and not revenue in nature. Ifthe advantage results in facilitating theassessee's trading operations or enablingthe management and conduct of assessee'sbusiness to be carried on moreefficiently or more profitability, theexpenditure would be on revenue account,even though the advantage may endure foran indefinite future. We find furthermerit in the plea that no new asset cameinto existence in as much as the WBM roadwas already in existence and a concreteroad instead of metal road resulted bythis expenditure. Thus, the existence ofold asset i.e. road continued with betterphysical properties. Since no new assetcame into existence the expenditurebecomes one of patently revenue nature.In view of these observations and relyingon the catena of other case laws cited byassessee, we see no infirmity in theorder of ld. CIT(A) which is upheld.Revenues grounds in this behalf are dismissed. 33. Apropos the 4[th] issue about re-computation of book profits we find thatbills raised by M/s Karvy Consultants,were paid for Folio maintenance chargesacting as registers and share transferagents. This does not amount to a paymentin respect of investment of appellantcompany in shares, thus there is nojustificationfordisallowanceofRs.4,69,627/- made to M/s KarvyConsultants. The ld. CIT(A) is right inholding that the provisions of Section14A apply only when there is actualexpenditure in relation to an exemptincome. It does not create any legalfiction to treat any expenditure asincurred in relation to exempt income onestimate basis. This view derives supportfrom 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 ITATDelhi Bench in the case of ACIT vs.Eicher Ltd. (2006) 101 TTJ 369 (Del.) andMumbai 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 viewtaken by the Tribunal on the first issue. Lookingto the nature of expenses, in our opinion, it is arevenue expenses not capital as it was repairingon the road and while considering the second issuethe Tribunal has relied upon the decision of theSupreme Court which prima facie is not subjectmatter of appeal. The department has accepted thesame. 6.In view of that matter, the appeal is devoid 5.We are in complete agreement with the viewtaken by the Tribunal on the first issue. Lookingto the nature of expenses, in our opinion, it is arevenue expenses not capital as it was repairingon the road and while considering the second issuethe Tribunal has relied upon the decision of theSupreme Court which prima facie is not subjectmatter of appeal. The department has accepted thesame. 6.In view of that matter, the appeal is devoid of merit and deserves to be dismissed. 7.The appeal is dismissed. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. A.Sharma/37