C.I.T vs. M/S ESCORTS LTD

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ITA/1427/2006HC DelhiDLHC01061209200627 April 2026Author: HON'BLE MR. JUSTICE VINOD KUMAR,HON'BLE MR. JUSTICE DINESH MEHTA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court addressed the issues sequentially. For question (i), concerning the addition of Rs.1,71,30,343/- under Section 2(24)(iv), the revenue informed the court that this amount had been taxed in the subsequent assessment year 2006-07 and the requisite tax paid by the assessee. Consequently, the appeal on this specific question was rejected due to this subsequent development. Regarding questions (ii) to (v), the revenue argued that the ITAT had not properly appreciated the facts. However, the assessee contended that these issues were based on factual findings concurrently made by the CIT(A) and the ITAT, and no substantial question of law arose. The High Court, after hearing both sides, found no perversity in the findings of the CIT(A) as affirmed by the ITAT concerning the deletion of Rs.10,37,275/- (business expansion/diversification), Rs.4.56 crores (interest-free loan), and the disallowance under Section 14A. The court concluded that no substantial question of law arose for its consideration on these points as well. Therefore, the appeal on questions (ii) to (v) was also rejected. The operative direction was that the entire appeal was rejected.

What were the facts?

This case involves an appeal by the Commissioner of Income Tax (CIT) against an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment year(s) not explicitly stated but implied to be prior to 2006-07. The appeal challenges the ITAT's confirmation of deletions made by the Commissioner of Income Tax (Appeals) regarding several additions. These deletions pertain to amounts under Section 2(24)(iv) of the Income Tax Act, 1961, disallowance of expenditure for business expansion/diversification, interest-free loans, and disallowance under Section 14A. The High Court admitted the appeal on substantial questions of law. During the proceedings, it was revealed that the amount related to the first question of law had been taxed in a subsequent year, leading to a specific outcome for that part of the appeal.

What were the issues?

The High Court had to decide five substantial questions of law: 1. Whether the ITAT was correct in confirming the deletion of an addition of Rs.1,71,30,343/- made under Section 2(24)(iv) of the Income Tax Act, 1961. 2. Whether the ITAT was correct in confirming the deletion of an addition of Rs.10,37,275/- on account of disallowance of expenditure for business expansion and diversification, treating it as capital expenditure. 3. Whether the ITAT was correct in confirming the deletion of Rs.4.56 crores made on account of an interest-free loan advanced to M/s Escotrac & Investment Ltd. 4. Whether the ITAT was correct in confirming the deletion of an addition of Rs.2,01,88,412/- disallowed by the Assessing Officer under Section 14A of the Income Tax Act, 1961. 5. Whether the ITAT was correct in confirming the deletion of an addition of Rs.41,48,896/- on account of disallowance of expenditure for development of existing products, treating it as capital expenditure. Assessee's Arguments: The respondent (assessee) argued that questions (ii) to (v) were essentially based on evidence and pure findings of fact, concurrently recorded by the CIT(A) and the ITAT, and therefore, no substantial question of law arose. Revenue's Arguments: The appellant (revenue) relied on the ITAT's order dated 27.11.2018, arguing that the Tribunal had not properly appreciated the facts.

Which sections of the Income-tax Act were involved?

Section 2(24)(iv),Section 14A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Page 1 of 3 $~16 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 1427/2006 C.I.T .....Appellant Through: Mr. Sunil Agrawal, Sr SC with Ms Priya Sarkar, Mr Viplav Acharya, Jr SCs, Mr. Utkarsh Tiwari and Anugrah Dwivedi, Advs. versus M/S ESCORTS LTD .....Respondent Through: Mr. Simran Mehta and Mr. ARchit Vashistha, Advs. CORAM: HON'BLE MR. JUSTICE DINESH MEHTA HON'BLE MR. JUSTICE VINOD KUMAR 1. The appeal was admitted on the following substantial questions of law:-

O R D E R %

27.04.

2026 “(i) Whether the Income Tax Appellate Tribunal was correct in law in holding and confirming the deletion of addition of Rs.1,71,30,343/- made by the Commissioner of Income Tax (Appeals) under Section 2(24)(iv) of the Income Tax Act, 1961? (ii) Whether the Income Tax Appellate Tribunal was correct in law in holding and confirming the deletion of addition of Rs.10,37,275/- made by the Commissioner of Income Tax (Appeals) on account of disallowance of expenditure for This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/04/2026 at 13:02:00

expansion and diversification of the business of the Assessee by treating the expenses as capital expenses and reversing the view of the Assessing Officer? (iii) Whether the Income Tax Appellate Tribunal was correct in law in holding and confirming the deletion of Rs4.56 crores made by the Commissioner of Income Tax (Appeals) on account of interest free loan advanced to M/s Escotrac & Investment Ltd. by the Assessee? (iv) Whether the Income Tax Appellate Tribunal was correct in law in holding and confirming the deletion of addition of Rs.2,01,88,412/- by the Commissioner of Income Tax (Appeals), which was disallowed by the Assessing Officer under Section 14A of the Income Tax Act, 1961? (v) Whether the Income Tax Appellate Tribunal was correct in law in holding and confirming the deletion of addition of Rs41,48,896/- by the Commissioner of Income Tax (Appeals) on account of disallowance of expenditure for development of existing products by treating the expenditure as capital expenditure?”

2.

So far as question no.(i) in relation to deletion of addition of Rs.l,71,30,343/- made under Section 2(24)(iv) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act of 1961’) is concerned, learned counsel for the appellant informs that this particular amount has been taxed in subsequent year 2006-07 and the assesse has paid requisite tax.

3.

In view of the subsequent development, the appeal qua this question no.(i) is rejected. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/04/2026 at 13:02:00

4.

Advancing arguments qua question no. (ii) to (v), Mr. Sunil Agrawal, learned Senior Standing Counsel for the appellant relied upon the Tribunal’s order dated 27.11.2018 and findings recorded therein to argue that the Tribunal has not properly appreciated the facts.

5.

Learned counsel for the respondent, on the other hand, argued that question no. (ii) to (v) essentially emanate out of evidence and is based upon pure findings of facts which have been concurrently recorded by two Appellate Authorities (i.e. CIT and the Tribunal) and no question of law arises.

6.

Having heard learned counsel for the parties and considering that the Tribunal has confirmed the deletion of the addition of Rs.10,37,275/- in relation to disallowance of expenditure for expansion and diversification; Rs. 4.56 being interest fee/loan advanced to Escorts Ltd. and Investment Ltd. and disallowance made by the AO under Section 14A of the Act of 1961. 7. We do not find any perversity in the findings recorded by the Commissioner of Income Tax (Appeals) and which have been affirmed by the Tribunal. According to us, no substantial question of law arises for our consideration. The appeal qua question no. (ii) to (v) is also therefore rejected.

8.

The appeal is therefore rejected.

DINESH MEHTA, J

VINOD KUMAR, J APRIL 27, 2026/dd This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 30/04/2026 at 13:02:00

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