M/S. JAY BHARAT MARUTI LTD.,NEW DELHI vs. DCIT, NEW DELHI
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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI SAKTIJIT DEY
PER SAKTIJIT DEY, JM:
Captioned appeals and cross-objections arise out of three
separate orders of learned Commissioner of Income Tax (Appeals),
New Delhi, pertaining to assessment years 2005-06, 2006-07 and
2012-13.
2 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
ITA No.908/Del/2012 (Revenue’s Appeal for AY: 2005-06)
The effective grounds raised by the Revenue in this appeal
are as under:
On the fact and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.6,68,43,636/- made on account of depreciation on leased assets. 3. The Ld. CIT(A) ignored the finding recorded by the AO that the assessee had already debited Rs.19,82,97,000/- on account of lease rent in P & L account and therefore, the deduction claimed by the assessee at Rs.6,68,43,636/- needed to be disallowed. 4. The Ld. CIT(A) has appreciated the facts that the Assessing Officer did not give any finding in respect of allowability of lease rentals in earlier assessment years and that the Principle of Res-Judicata is not applicable as every proceeding is a separate proceeding.
As could be seen from the grounds raised, the only issue
arising for consideration is deletion of addition of
Rs.6,68,43,636/- representing deduction claimed by the assessee
towards rental of leased assets.
Briefly the facts are, the assessee is a resident corporate
entity. As stated by the Assessing Officer, the assessee is engaged
in manufacturing of sheet metal components, fuel neck, rear axle
assemblies, sub-assemblies and muffler assemblies &
components. For the assessment year under dispute, the assessee
3 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
filed its return of income on 31.12.2007 declaring income of
Rs.8,16,16,740/-. The assessment in case of the assessee was
originally completed under section 143(3) of the Income-tax Act,
1961 (in short ‘the Act’) determining the total income at
Rs.9,47,96,215/-. Subsequently, based on audit objection, the
Assessing Officer reopened the assessment under section 147 of
the Act. The reason being, though, the assessee had already
debited an amount of Rs.19,28,97,000/- to the profit and loss
account on account of lease rent, the assessee has again claimed
deduction for an amount of Rs.6,68,42,636/- on account of lease
rent paid on leased assets. According to the Assessing Officer,
this amounted to double deduction claimed by the assessee
towards lease rent. In course of reassessment proceeding, the
Assessing Officer issued a show-cause notice to the assessee to
explain, why the deduction claimed towards payment of lease rent
amounting to Rs.6,68,43,636/- to State Bank of India should not
be disallowed. In response to the show-cause notice, the assessee
submitted that the lease rent of Rs.19,28,97,000/- debited to the
profit and loss account was on assets taken on lease prior to
01.04.2001. Whereas, the assessee submitted, the lease rent of
Rs.6,68,42,636/- was on assets taken on lease after 01.04.2001. 4 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
Explaining further, the assessee submitted that as per accounting
standard AS-19 introduced, w.e.f., 01.04.2001 in case of Finance
lease the lessee has to recognized it as capital asset and liability
towards depreciation and finance charge is charged in the profit
and loss account in place of lease rent in accordance with
Companies Act provision. However, for Income tax purpose the
depreciation and finance charge debited to the profit and loss
account is audited back in the computation of income and
deduction is claimed under section 37 of the Act towards payment
of lease rental. Thus, the assessee submitted that there is no
double deduction claimed by the assessee, as, both the amounts
are distinct and separate. The Assessing Officer, however, was not
convinced with the submission of the assessee and disallowed the
deduction claimed towards lease rental amounting to
Rs.6,68,43,636/-. The assessee contested the aforesaid
disallowance before learned first appellate authority. After
considering the submissions of the assessee in the context of
facts and materials on record, learned Commissioner (Appeals),
being convinced that the deduction claimed of Rs.6,68,43,636/-
towards lease rental is distinct and separate from the lease rental
of Rs.19,28,97,000/-, deleted the disallowance. While doing so, he 5 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
took note of the fact that in assessment years 2002-03, 2003-04
and 2004-05, the assessee claimed similar deduction of lease
rental in respect of assets leased prior to 01.04.2001 and post
01.04.2001 and the Assessing Officer allowed such deduction.
We have considered rival submissions and perused
materials on record. As could be seen from the facts on record,
the assessee had taken assets on lease from banks and financial
institutions. For assets taken on lease prior to 01.04.2001, the
assessee debits the lease rentals paid to banks and financial
institutions in the profit and loss account. However, for assets
taken on lease from State Bank of India post 01.04.2001 the
assessee apportioned the lease rental paid to SBI to finance
charges and depreciation and debited to the profit and loss
account. The assessee had to resort to this accounting treatment
in view of introduction of accounting standard AS-19, which
provided that in respect of lease assets obtained after introduction
of AS-19, the lease rental has to be apportioned between finance
charge and depreciation and debited to the profit and loss
account. However, as per the provisions of Income Tax Act as well
as legal position, it is the lessor, being the owner of the leased
assets, can claim depreciation on the leased assets. The assessee 6 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
being a lessee cannot claim depreciation on the leased assets.
Thus, in view of the aforesaid legal position, though, the assessee
had debited the leased rentals as finance charges and
depreciation to the profit and loss account, however, for Income
Tax purpose, while computing the income in the computation of
income, the assessee has added back the amount debited to the
profit and loss account and claimed deduction of the very same
amount towards leased rentals paid, under section 37(1) of the
Act. From the facts on record, it is very much clear that the
amount of Rs.19,20,97,309/- debited to the profit and loss
account towards leased rental is for assets taken on lease prior to
01.04.2016. Whereas, the amount of Rs.6,68,43,636/- claimed as
deduction under section 37(1) of the Act is towards lease rental
paid for assets taken on lease after 01.04.2001. Learned
Commissioner (Appeals) has given a categorical factual finding
that both the amounts have been shown separately by the
assessee to ensure that the leased assets taken before 01.04.2001
and after 01.04.2001 are not mixed up. The aforesaid factual
finding of learned Commissioner (Appeals) could not be
controverted by Revenue with any cogent evidence.
7 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
On the contrary, it appears, the Assessing Officer has
completely misconceived the facts while disallowing the deduction
claimed, by wrongly assuming that the assessee has claimed
deduction twice. The aforesaid conclusion of the Assessing Officer
is factually incorrect. It will be relevant to observe, the Assessing
Officer himself has allowed similar deduction claimed by the
assessee in various other assessment years, such as, assessment
years 2002-03, 2003-04, 2004-05 and 2007-08. It will be
interesting to note the following observations of the Assessing
Officer while dealing with identical issue in assesse’s own case in
assessment year 2007-08:
“………..The reply filed by the assessee is considered and after due consideration the contention of the assessee appears to be correct as it is found that lease rental claimed for 10.64 lacs was on account of lease taken on assets before 01.04.2001 and further a sum of 296.24 lacs claimed in computation of income is in respect of lease rental after the period 01.04.2001 and accordingly depredation on lease rent of 274.20 lacs and interest on lease assets of 8,72 lacs aggregating to 282.92 lacs (debited in Profit & Loss Account) has been added in computation of income as per A5-1.9. Further, reliance is also placed on ICDS Ltd. vs. CIT, Mysore (2013) 29 Taxrnan.com 129 (SC) wherein it was categorically held that the lessor i.e. owner of the asset is entitled to claim depreciation in respect of assets which are leased out. Thus, in the case of assessee who is a lessee is not entitled to claim depreciation or interest but only lease rental as the said depreciation is entitled to be claimed by the lessor……….” 8 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
Undisputedly, the assessee has followed identical practice in
the impugned assessment year, as well, while claiming deduction
in respect of lease rental for assets taken on lease prior to
01.04.2001 and post 01.04.2001. This, being the factual position
emerging on record, we do not find any valid reason to interfere
with the decision of learned Commissioner (Appeals) on the issue.
Grounds raised are dismissed.
In the result, the appeal is dismissed.
C.O. No.113/Del/2012 (Assessee’s Cross Objections for AY: 2005-06)
In the cross-objection, the assessee has taken grounds
challenging the validity of reopening of assessment under section
147 of the Act. In view of our decision in Revenue’s Appeal being
ITA No. 908/Del/2012 above, the cross-objection has become
infructuous, hence, dismissed.
ITA No.909/Del/2012 (Revenue’s Appeal for AY: 2006-07
The effective grounds raised by the Revenue are as under:
“2. On the fact and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.6,68,43,6361- made on account of depreciation on leased assets.
9 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
The Ld. CIT(A) ignored the finding recorded by the AO that the assessee had already debited Rs.19,82,97,0001- on account of lease rent in P & L account and therefore, the deduction claimed by the assessee at Rs.6,68,43,6361- needed to be disallowed. 4. The Ld. CIT (A) has appreciated the facts that the Assessing Officer did not given any finding in respect of allowability of lease rentals in earlier assessment years and that the Principle of Res-Judicata is not applicable as every proceeding is a separate proceeding. 5. On the fact and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting addition of Rs.44,45,3631- pm account of trial run expenses as the trial run expenses will give the assessee the benefit of enduring nature and thus need to be capitalized.”
Ground nos. 2, 3 and 4 are identical to ground nos. 2, 3 and
4 of ITA No.908/Del/2012 decided in the earlier part of the order.
Following our decision therein, we uphold the order of learned
Commissioner (Appeals) on the issue. These grounds are
dismissed.
In ground no. 5, the Revenue has challenged the deletion of
addition of Rs.44,45,363/- claimed by the assessee towards trial
run expenses.
Briefly the facts are, in course of assessment proceeding, the
Assessing Officer noticed that the amount of Rs.44,45,363/- on
account trial run expenses, though, were capitalized in the books
but claimed as deduction in computation of income. Being of the
10 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
view that the expenditure is of capital nature, the Assessing
Officer called upon the assessee to explain, why the deduction
claimed should not be disallowed. The assessee furnished its
explanation objecting to the proposed disallowance. However,
rejecting the submissions of the assessee, the Assessing Officer
proceeded to disallow the amount by treating it as an expense
incurred prior to commencement of commercial production,
hence, capital expenditure. The assessee contested the aforesaid
disallowance before learned Commissioner (Appeals). After
considering facts and materials on record and being convinced
with the submissions of the assessee, learned Commissioner
(Appeals) deleted the disallowance.
We have considered rival submissions and perused the
materials on record. It is evident, in response to the query raised
by the Assessing Officer, the assessee had specifically submitted
that the expenditure was incurred towards payment to a
Japanese entity for sending their engineers for supervising the
Swift Rear Axle Line after the start of production. It was further
explained that the entire amount consists of travelling as well as
hotel and other expenses of the engineers during their stay in
India. In sum and substance, the assessee has submitted that, 11 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
though, the expenditure was nomenclatured as trial run
expenses, however, in reality the expenditure was after start of
production of new production line, hence, in the nature of post
production expenditure, hence, is allowable as deduction under
section 37 of the Act.
In our view, the Assessing Officer has failed to appreciate the
factual position correctly. Whereas, learned Commissioner
(Appeals) having taken note of the fact that the expense incurred
was towards travelling and hotel expenses as well as supervision
charges of foreign technicians who visited to inspect the
production line, was convinced that the expenditure incurred was
post commencement of production, hence, deleted the
disallowance. No contrary material has been brought on record by
the Revenue to demonstrate that the nature of expenditure is not
relating to travel and other expenses of foreign technicians who
visited India to supervise the production, hence, is post
production expenditure.
In view of the aforesaid, we do not find any reason to
interfere with the decision of learned Commissioner (Appeals).
This ground is dismissed.
In the result, the appeal is dismissed. 12 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
C.O. No.114/Del/2012 Assessee’s Cross Objections for AY: 114/Del/2012
In the cross-objection, the assessee has taken grounds
challenging the validity of reopening of assessment under section
147 of the Act. In view of our decision in Revenue’s Appeal being
ITA No. 909/Del/2012 above, the cross-objection has become
infructuous, hence, dismissed.
ITA No.4672/Del/2011 Assessee’s Appeal for AY: 2005-06
In this appeal, the assessee has challenged the decision of
learned Commissioner (Appeals) in upholding the imposition of
penalty under section 271(1)(c) of the Act in respect of
addition/disallowance of capital loss.
Briefly the facts are, in course of assessment proceedings,
the Assessing Officer noticed that the assessee had claimed short
term capital loss of Rs.11,16,769/- by considering the market
value of the investment at the end of the year. The Assessing
Officer was of the view that since the redemption/sale of the
investment has not taken place, the loss claimed by the assessee
is in the nature of a notional loss, hence, not allowable in terms of
13 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
section 94(7) of the Act. Accordingly, loss claimed was disallowed.
Though, the assessee contested the disallowance before the first
appellate authority, however, ultimately, he withdrew the ground.
In sum and substance, the issue regarding claim of short term
capital loss on investment remained undecided before the first
appellate authority.
Be that as it may, on disallowance of short term capital loss
of Rs.11,16,769/- as well some other additions, the Assessing
Officer initiated proceeding for imposition of penalty under section
271(1)(c) of the Act alleging furnishing of inaccurate particulars of
income and ultimately imposed penalty under the said provision.
However, presently, penalty imposed under section 271(1)(c) of
the Act is surviving only in respect of disallowance of short term
capital loss of Rs.11,16,769/-.
Before us, learned counsel appearing for the assessee
submitted that since, the assessee withdrew its ground against
the disallowance of short-term capital loss before learned
Commissioner (Appeals) it cannot be said that the issue was
decided against the assessee. Further, he submitted, all facts and
materials relating to the claimed of loss was furnished before the
Assessing Officer and nothing was concealed. Only because the 14 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
assessee made a claim, which was disallowed, it cannot lead to
imposition of penalty on the allegation of furnishing of inaccurate
particulars of income. He submitted, in regular course, assessee
was investing in units of mutual funds and getting dividends. He
submitted, prior to 01.04.2005, transaction in purchase and sale
of units were not covered by the provision of section 94(7) of the
Act. He submitted, this being the first year, wherein, section 94(7)
became applicable, the assessee being unaware of the change in
law acted bonafide in claiming the loss in the return of income
filed for the assessment year under disputed. He submitted, once
the assessee became aware of the change in the statutory
provisions, it voluntarily offered the income and did not contest
the issue. Thus, he submitted, penalty levied should be deleted.
Learned Departmental Representative strongly relied upon
the observations of the Assessing Officer and learned
Commissioner (Appeals).
We have considered rival submissions and perused the
materials on record. As far as the factual aspect of the issue is
concerned, there is no dispute that the assessee has claimed
short term capital loss of Rs.11,16,769 based on the market value
of the units at the end of the year. However, since, there was no 15 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
actual transaction of sale, the Assessing Officer disallowed the
claim by invoking the provisions of section 94(7) of the Act.
Undisputedly, section 94(7)(b) and section 94(8) were introduced
to the Statute by Finance Act, 2004, w.e.f. 01.04.2005. Therefore,
assessee’s claim that being unaware of the change in the
statutory provision, which for the first time became applicable to
the impugned assessment year, the assessee acted bona fide by
claiming short term capital loss, in our view, is believable and the
assessee can be given the benefit of doubt in terms of section
273B of the Act. Even, otherwise also, penalty under section
271(1)(c) of the Act has been imposed alleging furnishing of
inaccurate particulars of income. However, facts on record reveal
that all material facts relating to investments in shares and
mutual funds as well as capital gain/loss derived therefrom have
been furnished by the assessee before the Assessing Officer.
Thus, the assessee has disclosed all material facts in its return
before the Assessing Officer. It is a fact on record that various
other additions made by the Assessing Officer have been deleted
either by the first appellate authority or by the Tribunal. The only
addition which survived is the addition on which penalty under
section 271(1)(c) of the Act. It is a fact that the assessee, though, 16 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
contested the disallowance of short term capital loss before
learned Commissioner (Appeals), however, ultimately, he
withdrew the ground, being conscious of the legal position. Merely
because the assessee withdrew the ground taken before learned
Commissioner (Appeals), it cannot lead to the conclusion that the
assessee has knowingly and deliberately tried to suppress a part
of its income. Thus, on overall consideration of facts and
materials on record, we are of the view that penalty imposed
under section 271(1)(c) of the Act deserves to be deleted.
Accordingly, we do so.
In the result, the appeal is allowed.
ITA No.1885/Del/2017 Revenue’s Appeal for AY: 2012-13
The effective grounds raised by the Revenue are as under:
The Ld. CIT (A) has erred in law and on facts in holding the income of Rs.28,92,2000/- as rental income and allowing standard deduction of 30% at Rs.8,67,600/- on the same by ignoring that the industrial shed is neither a building nor land appertent thereto and such industrial shed is not a house property to which section 22 of the Income Tax Act applies. 2. The Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.1,73,27,3731- on account of capitalization of bins by ignoring the fact that bins are inseparable part of plant & machinery and cost of such bins cannot be allowed as revenue expenditure at 100%.
17 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
Insofar as ground no. 1 is concerned, briefly the facts are, in
course of assessment proceedings, the Assessing Officer while
verifying the return filed by the assessee noticed that the rental
income of Rs.28,92,000/- received by the assessee from letting
out an industrial shed has been offered as income under the head
‘income from house property’ and the assessee has claimed
deduction at the rate of 30% under section 24 of the Act. Being of
the view that the property let out was used for the purpose of
business or profession of the assessee, the Assessing Officer
concluded that the rental income received would not fall in the
category of house property income but has to be assessed as
income from business. Accordingly, he disallowed assessee’s
claim of deduction under section 24 of the Act, instead, he
allowed depreciation at the rate or 10%. The assessee contested
the aforesaid decision of the Assessing Officer before learned
Commissioner (Appeals). After considering the submissions of the
assessee in the context of facts and materials on record, learned
Commissioner (Appeals) accepted assessee’s claim and deleted the
disallowance made by the Assessing Officer.
We have considered rival submissions and perused the
materials on record. As could be seen from the facts on record, 18 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
the premises from which the assessee derived the rental income
was let out to M/s. Neel Metal Products Ltd. from assessment
year 2005-06. From assessment years 2005-06 onwards, the
assessee is offering the rental income under the head ‘income
from house property’ and assessee’s claim has been accepted by
the Assessing Officer in assessment years 2005-06 and 2006-07.
However, from assessment year 2007-08 onwards, the Assessing
Officer treated the rental income as income from business.
However, learned Commissioner (Appeals) reversed the decision of
the Assessing Officer and allowed assessee’s claim of income from
house property. It is observed, though, the Revenue challenged
the decision of the first appellate authority in assessment years
2005-06, 2007-08, 2008-09, 2009-10, 20010-11, 2011-12, 2013-
14 and 2014-15 before the Tribunal, however, due to low tax
effect Revenue’s appeals were dismissed. Thus, in sum and
substance, the decision of learned Commissioner (Appeals) in
holding that the rental income received by the assessee is to be
assessed as income from house property has attained finality.
Since, the claim of the assessee has prevailed in past as well as
subsequent assessment years, by applying the rule of
19 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
consistency; we hold that no interference is called for on this
issue. Ground raised is dismissed.
In ground no. 2, the Revenue has challenged deletion of
addition of Rs.1,73,27,373/-.
Briefly the facts are, in course of assessment proceeding, the
Assessing Officer noticed that the assessee has claimed deduction
under section 37 of the Act for an amount of Rs.2,66,77,515/-
representing replacement of bins capitalized in the books.
Noticing that similar claim by the assessee was disallowed by the
Assessing Officer in assessment years 205-06, 2006-07, 2007-08,
2008-09, 2009-10, 2010-11 and 2011-12, the Assessing Officer
followed the earlier assessment orders and disallowed the
deduction claimed. However, he allowed deduction of 30% on the
expenditure claimed on account of depreciation by treating the
asset as capital asset. Thus, he made a net disallowance of
Rs.73,40,385/-. The assessee contested the aforesaid
disallowance before learned Commissioner (Appeals). After
considering the submissions of the assessee in the context of
facts and materials on record and taking note of the fact that in
assessment year 2005-06 similar disallowance was deleted by the
20 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
first appellate authority, learned Commissioner (Appeals) deleted
the disallowance.
We have considered rival submissions and perused the
materials on record. Undisputedly, the disputed disallowance has
been made in respect of assessee’s claim of expenditure incurred
on bins and trolleys for storing and supplying automobile parts
and components to M/s. Maruti Suzuki Ltd. It appears from facts
and record, the bins and trolleys have limited self life of one year
or so depending upon the extent of wear and tear or uses.
Therefore, no enduring benefit is derived from such assets so as
to treat it as capital expenditure. The material facts on record
reveal that similar deduction claimed by assessee in assessment
years 2002-03, 2003-04 and 2004-05 was accepted by the
Assessing Officer in scrutiny assessments. In assessment year
2005-06, though, the Assessing Officer disallowed the
expenditure claimed by treating it as capital expenditure,
however, learned first appellate authority allowed assessee’s claim
of deduction and the order of first appellate authority attained
finality as Revenue’s appeal was dismissed by the Tribunal due to
low tax effect. Thus, in sum and substance, the issue has been
decided in favour of the assessee by learned first appellate 21 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
authority from assessment years 2005-06 till 2014-15. Therefore,
applying the rule of consistency, deduction claimed by the
assessee has to be allowed. Even otherwise also, the reasonings of
learned Commissioner (Appeals) while treating the expenditure
incurred as revenue expenditure are sound and reasonable,
considering the fact that the bins and trolleys on which the
assessee has incurred the expenditure have limited self life due to
high degree of wear and tear, hence, cannot be considered to be
assets of enduring nature.
In view of the aforesaid, we uphold the decision of learned
Commissioner (Appeals) on the issue. Ground raised is dismissed.
In the result, the appeal is dismissed.
ITA No.2180/Del/2017 Assessee’s Appeal for AY: 2012-13
The only issue arising for consideration is disallowance
made under section 14A of the Act read with Rule 8D of the
Income-tax Rules, 1962 (in short ‘the Rules’).
Briefly the facts are, in course of assessment proceedings,
the Assessing Officer noticed that in the year under consideration
the assessee had received exempt income by way of dividend
amounting to Rs.5,33,911/-. Whereas, the assessee has 22 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
disallowed an amount of Rs.1,19,275/- suo motu, being 0.5% of
the average value of investment. The Assessing Officer, however,
was not convinced with the disallowance made by the Assessing
Officer and was of the view that it is not in accordance with Rule
8D. Having held so, he proceeded to compute disallowance by
applying Rule 8D. In the process, he disallowed interest expenses
of Rs.10,54,730/- under Rule 8D(2)(ii), in addition, to suo motu
disallowance made by the assessee. Though, the assessee
contested disallowance before learned Commissioner (Appeals),
however, the disallowance was sustained.
We have considered rival submissions and perused the
materials on record. Undisputedly, during the year under
consideration, the assessee had earned exempt income of
Rs.5,33,911/-. Whereas, voluntarily the assessee has disallowed
an amount of Rs.1,19,275/- under Rule 8D(2)(iii). The suo motu
disallowance made under Rule 8D(2)(iii) has been accepted by the
Assessing Officer. However, insofar as, the disallowance of
interest expenditure under Rule 8D(2)(ii), the assessee specifically
submitted that the investments on which the dividend income
was earned are old investments and, as such, no expenditure was
incurred on them. Whereas, the interest cost relates to term loan, 23 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
working capital loan, vehicles loan, cash discount & ECB loan
etc., which were exclusively utilized for the purpose of business.
The aforesaid explanation of the assessee has not been
appreciated by the Assessing Officer and learned Commissioner
(Appeals). This, in our view, is unacceptable. When investments,
on which, the assessee has earned dividend income are
continuing from past years and the interest cost has no linkage
with such investments, in our view, no disallowance under Rule
8D(2)(ii) is called for. In any case of the matter, the disallowance
made by the Assessing Officer is far in excess of the quantum of
exempt income earned by the assessee during the year. As per the
settled legal principle, the disallowance under section 14A of the
Act cannot exceed the quantum of exempt income.
Be that as it may, while rejecting the suo motu disallowance
made by the assessee, the Assessing Officer has not recorded any
satisfaction as required under section 14A(2) read with Rule
8D(2). It is further relevant to observe, while deciding identical
issue in assessee’s own case for assessment years 2005-06, 2007-
08, 2008-09, 2009-10, 2010-11, 2011-12 and 2013-14, the
Coordinate Bench has observed as under:
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ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
“5. In assessee's appeal for the Assessment Year 2007 - 08; Cross Objection for Assessment Year 2008-09; and in appeal for the Assessment Year 2009-10, the assesses has challenged disallowance of Section 14A read with Rule 8D, viz., Assessment Year 2007-08 disallowance of Rs.4,28,237/-, Assessment Year 2008-09 disallowance of Rs.7,32,750/- and Assessment Year 2009- 10 disallowance of Rs.8,87,866/-. Since the facts and issues in all the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. In all the Assessing Officer noted that assessee has made investments in equity shares of various companies as well as units of mutual funds on which it has earned dividend income of Rs.5,10,255/- in Assessment Years 2007-08, dividend income of Rs.2,68,280/- Assessment Year 2008-09 and dividend income of Rs.479336/- in the Assessment Year 2009-10 which was claimed exempt. In the return of income the assesses has suo motu disallowed sum of Rs.5103 in the Assessment Year 2007-08; Rs.26,828/- in the Assessment Year 2008-09; and Rs.47,934/- in the Assessment Year 2009-10, which was added back to the income treating the same as expenditure attributable f or earning of the exempt income u/s.14A. The Assessing Off icer mechanically applied Rule 8D and made disallowance of Rs.4,28,237/- in the Assessment Year 2007-08; Rs.7,32,650/- in the Assessment Year 2008-09; and Rs.8,87,866/- in the Assessment Year 2009-10, which included major amount of disallowance of interest and disallowance of indirect expenditure by taking 0.5% of the average investments. This disallowance has been conf irmed by the Ld. CIT(A). 6. Before the authorities below, the submissions of the assessee as incorporated in the impugned orders are that, in so far as disallowance of interest expenditure is concerned, the assessee had categorically explained that f irstly, no loan was utilized for making the investments; and secondly, assessee had huge surplus funds in the form of net profits and capital surplus. For instance, in the Assessment Year 2007-08, the assessee had earned net profit after taxation at Rs.1197.41 lakhs and capital and reserves of Rs.5410.87 lakhs; for the Assessing Year 2008-09 net profit of Rs.1583.62 lakhs and capital and reserves at Rs.6704.62 lakhs; and in Assessment Year 2009-10 the net prof it of Rs.1036.08 lakh and capital and reserves Of Rs.7187.41 lakh. The investments made in the purchase of equity shares in 25 | P a g e
ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
Assessment Year 2007-08 was Rs.235 lakhs in Assessment Year 2007-08; no investment in Assessment Year 2008-09; and in Assessment Year 2009- 10 the investment was only Rs.6 lakh. Apart from that, assesses had also given break up of secured loan including cash credit that all these loans were for specific purpose and none of the loan account was utilized for purchasing the investments. Thus, interest expenditure could have been disallowed. In so far as disallowance of indirect, expenditure is concerned the assessee has given detailed working of suo motu disallowance attributing indirect expenditure on which Assessing Officer has neither point out any defect nor has recorded any satisfaction that why the claim of the assesses; is not maintainable. Once the assessee had sufficient interest free Funds for making such investment and interest bearing loan has not been diverted in any investment earning exempt income, then there is no question of any disallowance of interest expenditure and same is directed to be deleted. Even the disallowance of indirect expenditure is uncalled for, firstly for the reason that assessee has given the working of suo motu disallowance and Assessing Officer has not recorded any satisfaction which is mandatory requirement before proceeding to apply Rule 8D in terms of Section 14A(2). Hence, all the disallowance are directed to be deleted.”
Facts in the impugned assessment years are
identical to the facts involved in the assessment
years, wherein, the Tribunal has recorded the
aforesaid finding. In view of the aforesaid, we are
inclined to delete the disallowance made by the
Assessing Officer, over and above, the suo motu
disallowance made by the assessee.
In the result, the appeal is allowed.
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ITA Nos.908 & 909/Del/2012; C.O. Nos.113 & 114/Del/2012 ITA Nos.4672/Del/2011; 2180 & 1885/Del/2017
In nutshell, the appeals are decided as under:
I TA No . 908/ De l/20 12 Re v enue’ s A ppea l AY: 2005- 06 Dis m iss e d 2. C O No . 113/ De l/ 2 012 As s esse e ’s C ro ss- AY: 2005- 06 Dis m iss e d O bje ct ions 3. I TA No . 909/ De l/20 12 Re v enue’ s A ppea l AY: 2006- 07 Dis m iss e d 4. C O No . 114/ De l/ 2 012 As s esse e ’s C ro ss- AY: 2006- 07 Dis m iss e d o bje c tions 5. I TA No . 4672/ Del/ 2 011 As s esse e ’s Ap pe a l AY: 2005- 06 A llow e d 6. I TA No . 1885/ Del/ 2 017 Re v enue’ s A ppea l AY: 2012- 13 Dis m iss e d 7. I TA No . 2180/ Del/ 2 017 As s esse e ’s Ap pe a l AY: 2012- 13 A llow e d Order pronounced in the open court on 29th November, 2022
Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER
Dated: 29th November, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi
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