ASSISTANT COMMISSIONER OF INCOME-TAX vs. KIRLOSKAR OIL ENGINES LTD, PUNE

These cases were heard together. Since facts common and issues are similar, these cases are being disposed of vide this consolidated order. First, we would take up the assessee‟s appeal in ITA No.407/PUN/2015 for the assessment year 2011-12 for adjudication.

In ITA No.407/PUN/2015, the assessee has raised following grounds of appeal: “1. Disallowance out of Aircraft Expenses – Rs.83,85,796/-. The learned CIT(A) erred in holding that the aircraft were used for non- business purposes when it was averred before him that the aircrafts are used for business purposes and there is no element of personal use at all. 2. Disallowance of Expenses u/s. 14A – Rs.6,92,39,354/-. The learned CIT(A) erred on facts and in law in upholding disallowance of Rs.6,92,39,354/- u/s. 14A r.w.r. 8D in Principle. He ought to have deleted the disallowance in its entirety. In any case, the learned CIT(A) erred in not appreciating assessee’s contentions, factual background and settled case law in respect of disallowance of interest expenditure u/s. 14A. The Disallowance of interest is totally wrong. The assessee has sufficient interest free fund available. The AO considered finance

Ground No.1 pertains to the disallowance out of Aircraft Expenses of Rs.83,85,796/-.

The facts with regard to this issue are that the assessee company has incurred an amount of Rs.2,48,10,000/- as aircraft expenses and a further amount of Rs.87,33,183/- towards depreciation on the aircrafts. The assessee company was asked to furnish details and documentary evidences with respect to these expenses. Thereafter, the assessee filed detailed reply before the Assessing Officer which is on record. The Assessing Officer at Para 8.2 of his order has stated that the submission of the assessee was considered but was not found tenable. The assessee has not furnished details of all flights and persons who travelled along with the purpose of visits. The assessee has not been able to contradict the non business and personal use of the aircrafts. Accordingly the Assessing Officer disallowed 1/3rd of aircraft expenses and depreciation and added back to the total income of the assessee. The disallowance works out to Rs.78,47,728/-. The Ld. AR of the assessee submitted that this disallowance works out to Rs. 33%.

The Ld.CIT(Appeals) as per Para 7.2 of his order had restricted the disallowance to 25% of the total aircraft expense and corresponding depreciation.

The Ld. AR of the assessee submitted before us that with regard to this issue in assessee‟s own case for assessment year 2010-11 in ITA No.61 & 406/PUN/2015 & ITA No.79/PUN/2015 decided on 21.11.2019, the Tribunal has observed and held as follows:

The Ld. DR fairly conceded to these facts on record.

We have perused the case records and heard the rival contentions. We find this issue is squarely covered by the decision of the Pune Bench of the Tribunal in assessee‟s own case (supra.) wherein this disallowance has been restricted to 15%. Both the parties agreed that facts and circumstances for this relevant assessment year is absolutely similar to assessment year 2010- 11 and therefore, maintaining principle of consistency, we follow our decision on this issue and for this year also, this disallowance on account of aircraft expenses and corresponding depreciation is restricted to 15%. The order of

Ground No.2 pertains to disallowance of Expenses u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).

At the very outset the Ld. AR of the assessee submitted that with regard to this issue, there were mistakes in the computation of disallowance and hence, the Ld. CIT(Appeal) remitted back the matter to the Assessing Officer. The Assessing Officer while providing appeal effect deleted the interest disallowance based on the fact that investments were not made from borrowed funds and sufficient interest free funds were available. The Ld. CIT passed the order u/s.263 of the Act against this deletion of interest. As per the instructions in the order u/s.263, the Assessing Officer passed fresh order u/s.143(3) r.w.s.263 and recomputed the disallowance u/s.14A r.w.r.8D and restricted the disallowance to Rs.1,95,95,619/-. Therefore, the assessee filed fresh appeal against this order and the matter is still pending before the Ld. CIT(A). In view of the present scenario, this ground raised before the Tribunal becomes infructuous.

We have heard the submissions of the Ld. AR and on consideration of facts on record and submissions of the parties herein, we hold this ground to be infructuous and hence, dismissed. Thus, ground No.2 raised in appeal by the assessee is dismissed.

In the result, appeal of the assessee in ITA No.407/PUN/2015 for the assessment year 2011-12 is partly allowed.

In ITA No.605/PUN/2015, the Revenue has raised following grounds of appeal: “1.Depreciation on Printers, UPS & other allied items Rs.14,96,630/- Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in holding that depreciation on printers, UPS and other allied items are allowable at higher rate of 60% i.e. rate applicable to computers without appreciating that the items do not fall within the definition of computers.

Ground No.1 pertains to the depreciation on Printers, UPS & Other allied items of Rs.14,96,630/-.

With regard to this issue, the Assessing Officer was of the opinion that the provision was ad-hoc and excessive and has also considered the utilization of the provision in subsequent years. Based on these facts, the Assessing Officer disallowed the provisions. This issue has been discussed in detail in Para 4 of the assessment order.

During the Appellate Proceedings before the Ld. CIT(Appeal), the Ld. AR of the assessee submitted that this issue has been decided in favour of the assessee for earlier assessment years. The Ld. CIT(Appeals) at Para 3.3 of his order observed and held that this issue is covered in favour of the assessee which has been elaborately discussed in the appellate order for A.Y. 2009-10 passed by Ld. CIT(A)-II, Nashik on 01.08.2014 and was also followed in A.Y. 2010-11. Therefore, the Ld. CIT(Appeal) stated that the issue involved being pari materia similar to that for the earlier assessment years and therefore, he deleted the addition.

The Ld. AR of the assessee at the time of hearing appraised the Bench that this issue has been allowed in favour of the assessee by the Tribunal for assessment year 2010-11 (supra.) vide Para 15 of the Tribunal‟s order wherein it was held and observed as follows:

The Ld. DR fairly conceded that the issue is covered in favour of the assessee.

We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed before us on record. We observe that this issue has been consistently decided in favour of the assessee from A.Y. 2009-10 onwards and the Ld.CIT(Appeal) for this year gave relief to the assessee in view of these facts on records. That further, for assessment year 2010-11 in assessee‟s own case, the Tribunal had upheld the findings of the Ld. CIT(Appeal) on this issue giving relief to the assessee. Therefore, respectfully following our findings and on similarity of facts and circumstances, we sustain the relief granted to the assessee by the Ld.CIT(Appeal). Thus, ground No.1 raised in appeal by the Revenue is dismissed.

Ground No.2 pertains to disallowance u/s.40A(2) in respect of commission paid to Directors of Rs.4,82,55,000/-

The Assessing Officer has discussed this issue vide Para 6 onwards and finally at Para 6.4, has concluded that the commission paid to the Directors are unreasonably high and are not fully allowable as assessee company could not give any specific basis for increase in commission and therefore, the Assessing Officer disallowed 50% of the amount of commission paid as per provisions of Section 40A(2) of the Act and accordingly, added Rs.4,82,55,000/- to the total income of the assessee.

The Ld. CIT(Appeal) has discussed this issue at Para 5 onwards in his order and as per detailed reasoning therein, has decided this issue in favour of the assessee. The crux of the decision in respect of the Ld. CIT(Appeal) while allowing this ground is based on the decision of the Hon‟ble Delhi High Court in the case of CIT Vs. Shriram Pistons & Rings Ltd. (1990) 181 ITR 230 (Del.) wherein it has been held that “once the remuneration and commission is approved by the company law Board then it should not ordinarily be opened to the I.T. Authorities to regard such fixation as unreasonable unless there are some other factors which can lead to the conclusion that there was no proper application of mind by the Company Law Board or full and true disclosure had not been made before the Board at the time of fixing the remuneration.” That further during the earlier years the claim of deduction of remuneration /commission paid to the Directors has been allowed by the CIT(Appeals), Nashik for A.Ys. 2005-06 to 2009-10 except for A.Y.2010-11 when the claim was partly allowed as one of the Directors was found to have been appointed on the last day of the financial year, however, during the current year no such feature is noticed on perusal of material on record by the Ld. CIT(Appeal) and in view of these factors, the Ld. CIT(Appeal) granted relief to the assessee.

The Pune Bench of the Tribunal in assessee‟s own case for the assessment year 2010-11 (supra.) at Para 17 of the order has observed and held as follows:

The Ld. DR fairly conceded that this issue is covered in favour of the assessee by the decision of Pune Bench of the Tribunal in assessee‟s own case (supra.)

We have perused the case records and heard the rival contentions. We find this issue has been consistently decided in favour of the assessee in the earlier assessment years and in this present year also, the facts being similar, we do not find any infirmity with the findings of the Ld. CIT(Appeal) and the relief provided to the assessee by the Ld. CIT(Appeals) is sustained. Thus, ground No.2 raised in appeal by the Revenue is dismissed.

Ground No.3 pertains to addition to capital subsidy of Rs.86,73,56,670/-

The Assessing Officer has discussed this issue at Para 7 onwards of his order. That as per the detailed reasoning given therein, finally at Para 7.4, the Assessing Officer holds that the subsidy received under Government of Maharashtra Package Scheme of Incentive, 2001 is revenue in nature and therefore, added the entire amount to the total income of the assessee.

That when the matter travelled before the Ld. CIT(Appeals), at Para 6.1 of his order the Ld. CIT(Appeal) observed that the issue is covered in favour of the assessee in its own case in the appellate order for A.Y.2009-10 passed by the Ld. CIT(A)-II, Nashik on 01.08.2014 and the same decision has been followed while deciding the issue in assessee‟s favour during appellate proceedings for assessment year 2010-11. Thereafter, the Ld. CIT(Appeals) at

We find that in assessee‟s own case in ITA No.1831/PUN/2014 & ITA No.1919/PUN/2014 for assessment year 2009-10 decided on 17.07.2019, the Pune Bench of the Tribunal on this issue has held as follows:

That on perusal of the entire documents on record and the findings of the Tribunal in assessee‟s own case in earlier years, we do not find any infirmity with the findings of the ld. CIT(Appeal) and the relief provided to the assessee is sustained. Thus, ground No.3 raised in appeal by the Revenue is dismissed.

Ground No.4 pertains to disallowance of Aircraft expenses- restricted to 25% to Rs.83,85,796/-. This issue is similar to the ground No.1 raised in assessee‟s appeal in ITA No.407/PUN/2015. Both the parties agreed that the facts and circumstances for both these appeals are similar and identical.

Ground No.5 is with regard to disallowance of provision for warranty of Rs.26,63,90,572/-.

The Assessing Officer discussed this issue elaborately in assessment order vide Para 9 and inferred that based on historical trends the provision created was more than the actual warranty claims which can be seen from the opening accumulated provision of Rs.31.70 crores when in fact there was no need to create any such provision for the year under consideration. It is further contended that if the warranty was inextricably linked to the sales made during the period, the accumulated provision should had been reversed considering the warranty period offered however, a very small portion of warranty provisions accumulated was written back. It was, therefore held by the Assessing Officer that the aforesaid warranty provision made by the assessee had no strong scientific basis and the case law relied upon was also found to be not applicable to the facts of the assessee companies case, hence, was disallowed being excessive after setting off current year‟s warranty claim expenses.

During the appellate proceedings before the Ld. CIT(Appeal), the Ld. AR of the assessee submitted that this issue has been allowed in assessee‟s own case for A.Ys. 2005-06, 2006-07, 2007-08 and 2010-11. The Ld. CIT(Appeal) thereafter observed that this issue is covered in favour of the assessee in its own case in the appellate order dated 01.08.2014 for A.Y.2009-10 passed by

The Tribunal in assessee‟s own case for assessment year 2010-11 (supra.) at Para 20 of the order has held and observed as follows:

We have perused case records and considered the judicial pronouncements placed before us. We find even for A.Y.2010-11 (supra.) also, the Tribunal has provided relief to the assessee on the issue. Therefore, respectfully, following the findings of the Tribunal for assessment year 2010- 11 in assessee‟s own case, we sustain the relief granted to the assessee by the Ld. CIT(Appeal). Thus, ground No.5 raised in appeal by the Revenue is dismissed.

In the result, appeal of the Revenue in ITA No.605/PUN/2015 is partly allowed.

In the combined result, both, the appeal of the assessee in ITA No.407/PUN/2015 and appeal of the Revenue in ITA No.605/PUN/2015 are partly allowed.