M/S NAHAR INDUSTRIAL ENTERPRISES LIMITED,LUDHIANA vs. ACIT,CIRCLE-7, LUDHIANA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, “B”, CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI R.L NEGI, JUDICIAL MEMBER आयकर अपीलसं./ITA Nos. 262/CHD/2020 �नधा�रण वष� / Assessment Year : 20112-13 बनाम M/s Nahar Industrial The ACIT, Enterprises, Focal Point, Circle-7, Aayakar Bhawan, Ludhiana. Rishi Nagar, Ludhiana �थायीलेखासं./PAN NO: AACCN3563A अपीलाथ�/Appellant ��यथ�/Respondent Hearing through video Conferencing �नधा�रतीक�ओरसे/Assessee by : Shri Navdeep Sharma, Adv. राज�वक�ओरसे/ Revenue by : Sh. Sandeep Dhaiya, CIT DR सुनवाईक�तार�ख/Date of Hearing : 04.05.2021 उदघोषणाक�तार�ख/Date of Pronouncement : 30.07.2021 आदेश/Order Per R.L. Negi, Judicial Member:

The assessee has filed the present appeal against the order dated 03.03.2020 passed by Commissioner of Income Tax (Appeals)-3, Ludhiana [for short ’the CIT(A)’], whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short 'the Act'). 2. Brief facts of the case are that the assessee a Private Ltd. Company engaged in the business of manufacturing of yarn, processed fabrics and white crystal sugar etc., filed its return of

2 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana income for the assessment year under consideration declaring loss of Rs.1,16,24,29,351/- under the normal provisions and Nil income under section 115JB of the Act. Since the case was selected for scrutiny and the AO passed assessment order u/s 143(3) of the Act, determining the total loss at 1,06,36,46,685/- under the normal provisions of the Act and Rs 98,21,17,435/- under section 115JB of the Act, after making addition of Rs. 8,03,17,500/-on account of disallowance u/s 14A read with section 8D of the Income Tax Rules (For short ‘the Rules’), addition of Rs. 39,56,199/- on account of disallowance u/s 36(1)(iii) allocated to investment in shares and addition of Rs. 1,45,08,967/- on account of interest capitalized under proviso to section 36(1)(iii) of the Act. 3. The assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee deleted the additions made on account of disallowance u/s 36(1)(iii) allocated to investment in shares and interest capitalized under proviso to section 36(1)(iii) of the Act. However, restricted the addition u/s 14A read with Rule 8D to the exempt income earned by the assessee. Further the Ld. CIT(A) upheld the action of the AO in not allowing additional depreciation of Rs. 8,10,89,138/- being 10% on the cost of machinery which was put to use for less than 180 days during the preceding year. Still aggrieved, the assessee is in appeal before this Tribunal.

3 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana 4. The assessee has challenged the impugned order passed by the Ld. CIT(A) on the following grounds: - “1. That the worthy CIT(A) -3, Ludhiana erred in law and on facts in upholding the applicability of Rule 8D in spite of the fact that appellant itself computed the disallowance on proportionate basis u/s 14A of the Act. Directions may be given not to apply rule 8D when the appellant itself disallowed the amount in its return on the basis and method recognized by the courts on proportion basis and be restricted to amount of disallowance as computed in the return. 2. That the worthy CIT(A) -3, Ludhiana erred in law and on facts in upholding the view of the Assessing Officer in not allowing additional depreciation of Rs.8,10,89,138/- being balance 10% on the cost of machinery which was put to use for less than 180 days during the preceding year and restricted during the said year.”

4 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana central/state governments from time to time, the assessee could not file the present appeal within limitation period. The Ld. counsel further invited our attention to the office order dated 30th issued by the Hon’ble President ITAT, extending the limitation period for filing appeals and cross objections till further orders in view of the judgment of the Hon’ble Supreme Court in suo motu Writ Petition No.3/2020 dated 23rd March 2020. In view of the aforesaid facts and the circumstances and the order of the President ITAT, the Ld. counsel submitted that the application of the assessee may be allowed and the delay of 24 days in filing of the present appeal may be condoned in the interest of justice. 6. The Ld. DR did not oppose the application filed by the assessee keeping in view the sufficient cause which prevented the assessee from filing the appeal within limitation period. 7. In view of the aforesaid facts and circumstances and the aforesaid order dated 30.03.2020 issued by the Hon’ble President ITAT, we allowed the application for condonation of delay and asked the Ld. counsel for the assessee to argue the appeal of the assessee on merits. 8. Vide ground No. 1, the assessee has challenged the action of the Ld. CIT(A) in sustaining disallowance u/s 14A read with Rule 8D to the extent of the exempt income earned by the assessee company. The Ld. Counsel submitted before

5 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana us that during the year relevant to the assessment year under consideration the assessee company received divided income of Rs. 72,03,131/- on various investments made in earlier years which was claimed as exempt income. Accordingly, the assessee company made suo motu disallowance of Rs. 3,51,835/- u/s 14A on proportionate basis while computing its income. Further, the assessee company had not made any investment during the previous year. Placing reliance on the judgment of the Hon’ble Supreme Court in the case of Maxop Investment Limited vs. CIT [2018] 91 Taxman.com 154(SC), the Ld. counsel submitted that the assessee has computed the disallowance in accordance with the ratio laid down by the Hon’ble Supreme Court in the said case. The Ld. counsel further submitted that this issue is covered by the decision of the Chandigarh Bench of the ITAT in the group company case, M/s Oswal Woolen Mills Ltd. ITA No 37/Chd/2015, in which the Tribunal has allowed the suo motu disallowance u/s 14A amounting to Rs. 5,58,008/- made by the assessee on proportionate basis and rejected the disallowance made by the authorities below u/s 14A read with Rule 8D. The Ld. counsel accordingly submitted that since the facts and the issue involved in the present case are similar to the facts and the issue involved in the aforesaid case, the disallowance sustained by the Ld. CIT(A) to the extent of exempt income is

6 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana contrary to the law laid down by the Hon’ble Supreme Court and the decision of the Chandigarh Bench of the Tribunal, therefore, the findings of the Ld. CIT(A) may be set aside and the AO may be directed to accept the suo motu disallowance made by the assessee computed on proportionate basis. 9. On the other hand, the Ld. departmental representative (DR) submitted that since the Ld. CIT(A) has restricted the disallowance as per the settled law, there is no infirmity in the order of the Ld. CIT(A), the same does not warrant any further action. The Ld. DR further submitted that sine the AO has made disallowance as per the provisions of the law, and the ratio laid down by the Hon’ble Supreme court in so many cases including in the case of Maxop Investment Limited vs. CIT, there is no merit in the contention of the assessee that the AO has wrongly computed the disallowance u/s 14A read with Rule 8D of the Act and rejected the suo motu disallowance made by the assessee on proportionate basis. The Ld. DR accordingly submitted that this ground of appeal may be dismissed being devoid of any merit. 10. We have heard the rival submissions of the parties and gone through the material on record including the cases relied upon by the parties and the cases referred and relied upon by the authorities below. As pointed out by the Ld. counsel, the coordinate Bench has dealt with the identical issue in the

7 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana group company case M/s Oswal Woolen Mills Ltd.(supra) and the Bench vide order dated 03.07.2019 decided the said issue in favour of the assessee holding that there is no defect in the suo motu disallowance computed by the assessee on proportionate basis except certain portion of tax relating to the personal expenditure and allowances which were not taken into consideration. The observations of the coordinate Bench read as under: - “7. None of the lower authorities have pointed out any defect in the computation of proportionate disallowance computed by the assessee except that certain part of the administrative expenses were not taken into consideration which has been taken into consideration in the computation made above. Even the assessee has claimed that it has not incurred any administrative expenses for earning of tax-exempt income. The Assessing Officer in this respect has not recorded any dissatisfaction taking into consideration the accounts of the assessee. The Hon'ble Bombay High Court in the case of ‘Godrej & Boyce Manufacturing Co.’ 328 ITR 81 has held that under section 14A of the Act, resort can be made to Rule 8D of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. The satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Sub section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of such expenditure is correct. The satisfaction of the Assessing Officer

8 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana must be arrived at on an objective basis. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee, there would be no warrant for taking recourse to the method prescribed by the rules. An objective satisfaction contemplates a notice to the assessee, an opportunity to the assessee to place on record all the relevant facts including his accounts and in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee. We may further observe that the Hon'ble Delhi High Court in a recent decision has further given a similar view in the case of "CIT vs. Taikisha engineering India Ltd." (supra) and has held that the AO having regard to the accounts of the assessee is required to record his satisfaction that the self or voluntarily expenditure offered by the assessee or claim that no expenditure has been incurred by the assessee in relation to earning of exempt income was not correct or the same was unsatisfactory on examination of the accounts of the assessee. Without recording such a satisfaction, he cannot proceed to apply Rule 8D for the computation of disallowance under section 14A. However, as observed above, in the case in hand, the Assessing officer has not followed the guidelines of objective satisfaction as laid down by the Hon'ble Bombay High Court in the case of ‘Godrej & Boyce’ (supra) while making the disallowance. Neither the Assessing Officer nor the Ld. CIT(A) has pointed out any defect in the working given by the assessee in computing suo motu disallowance except that a certain part of tax relating to the personnel expenditure and other allowances were not taken into consideration. In the working given before us, as reproduced above, whereby, the proportionate amount of disallowance of expenditure to earn

9 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana dividend income has been computed at Rs. 9,36,183/- by including the personnel expenditure and certain other expenses, as noted above. In view of this, the disallowance of administrative expenses is restricted to Rs. 9,36,183/-. However, the assessee will get the benefit / set off at the suo motu disallowance offered by the assessee in the return of income at Rs. 1,33,928/- and accordingly the addition is restricted to Rs. 8,02,255/-.

In view of our findings given above, the appeal of the assessee is treated as partly allowed.”

10 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana defect is found to determine the same afresh after affording a reasonable opportunity of being heard to the assessee. Hence, we set aside this ground of appeal to the file of AO to verify as to whether the suo motu disallowance computed by the assessee is in accordance with the observations made by the coordinate Bench in the case of M/s Oswal Woolen Mills Ltd.(supra) and allow the same if the same is in order. 12. Vide ground No 2. the assessee has challenged the action of the Ld. CIT(A) in upholding the findings of the AO in not allowing additional depreciation of Rs. 8,10,89,138/-being balance 10% on the cost of machinery which was put to use for less than 180 days during the preceding year and restricted during the said year. During the assessment proceedings, the assessee claimed additional depreciation amounting to Rs. 8,10,89,138/-as carryforward from AY 2011- 12 on the machinery which was put to use for less than 180 days in the preceding assessment year. The AO rejected the claim of the assessee holding that there is no provision in the statute regarding carry forward of the additional depreciation. In the first appeal the Ld. CIT(A) affirmed the action of the AO and dismissed this ground of appeal. 13. The Ld. counsel at outset, submitted that this issue is covered in favour of the assessee by the order of the Chandigarh Bench of the Tribunal rendered in the group

11 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana company case ITA No 1212/Chd/2019, ACIT vs. M/s Nahar Spinning Mills Ltd. The Ld. Counsel further submitted that the facts of and the issue raised in the said case are identical to the facts and the issue raised in the present case. Accordingly, the Ld. counsel submitted that this ground of the appeal may be allowed. 14. On the other hand, the Ld. DR did not deny that the Chandigarh Bench of the Tribunal has decided the identical issue in favour of the assessee in the aforesaid case, however, supported the action of the Ld. CIT(A) contending that there is no provision under the Act to amend the return of income at the assessment stage. The Ld. DR further submitted that the action of the Ld. CIT(A) is contrary to the ratio laid down by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT 284 ITR 323, therefore liable to be set aside. 15. We have perused the material on record including the decision of the coordinate Bench relied upon by the Ld. Counsel. As pointed out by the Ld. counsel, the coordinate Bench of the Tribunal has decided the identical issue in favour of the assessee in the case of ACIT vs. M/s Nahar Spinning Mills Ltd. (supra) holding as under: -

“7. After giving thoughtful consideration to rival pleadings against and in support of impugned disallowance, we find no merit in the

12 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana Revenue’s grievance. We make it clear that the Hon'ble’ apex court’s decision in Goetze (India) Ltd. Vs CIT (supra) holds that same does not impinge upon the appellate authorities’ jurisdiction vested under the provisions of the Act. Hon’ble jurisdictional high court in Budhewal Co-operative Society Ltd. (supra) also holds that a tax payer is very much entitled to raise an additional claim without filing a revised return. The Revenue’s pleadings nowhere indicate that there is any distinction on facts since the assessee’s identical additional depreciation claim stood allowed in A.Y. 2013-14 as well (supra). We accordingly reject the Revenue’s second substantive ground as well.”

13 ITA No. 262-Chd-2020 Nahar Industrial Enterprises Limited, Ludhiana Bench upheld the findings of the Ld. CIT(A) considering the arguments and case law relied upon by the revenue. Since the coordinate Bench has decided the identical issue in favour of the assessee in the case of a group company referred above, in the similar set of facts, we do not find any reason to take a different view. Hence, respectfully following the decision of the coordinate Bench dated 11.11.2020 rendered in the case of ACIT vs. M/s Nahar Spinning Mills Ltd.(supra), we allow this ground of appeal of the assessee. In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced on 30 t h July,2021.

Sd/- Sd/-

( N.K. SAINI) (R.L.NEGI) उपा�य� /Vice President �या�यकसद�य/ Judicial Member Dated : 30.07 .2021 “आर.के.” आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु�त/ CIT 4. आयकरआयु�त (अपील)/ The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar