M/S. JAY BHARAT MARUTI LTD.,NEW DELHI vs. DCIT, NEW DELHI

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. & 909/Del/2012; C.O. Nos.113 & 114/Del/2 2180 & 1885/Del/2017 (Revenue’s Appeal for AY: 2005-06)

The effective grounds raised by the Revenue in this appeal are as under:

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 2180 & 1885/Del/2017 being a lessee cannot claim depreciation on the leased assets.

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.

In the result, the appeal is dismissed.

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 above, the cross-objection has become infructuous, hence, dismissed. (Revenue’s Appeal for AY: 2006-07

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.

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 decided in the earlier part of the order.

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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).

In the result, the appeal is dismissed. 12 | P a g e & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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 above, the cross-objection has become infructuous, hence, dismissed.

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 2180 & 1885/Del/2017 section 94(7) of the Act. Accordingly, loss claimed was disallowed.

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.

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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.

In the result, the appeal is allowed. Revenue’s Appeal for AY: 2012-13

The effective grounds raised by the Revenue are as under:

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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.

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.

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. 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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 2180 & 1885/Del/2017 working capital loan, vehicles loan, cash discount & ECB loan etc., which were exclusively utilized for the purpose of business.

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: & 909/Del/2012; C.O. Nos.113 & 114/Del/2 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).

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 & 909/Del/2012; C.O. Nos.113 & 114/Del/2 2180 & 1885/Del/2017