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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
O R D E R PER S. RIFAUR RAHMAN (AM)
These appeals are filed by the revenue against different orders of Learned Commissioner of Income Tax (Appeals)–50, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.10.2017, 30.03.2018, 30.03.2018, 27.03.2018 for the A.Ys.2009-10, 2010-11, 2011-12 and 2012-13 respectively.
2 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No.202/MUM/2018 for Assessment Year 2009-10 as a lead appeal.
3. Revenue has raised following grounds in its appeal: -- “1) "On the facts and circumstances of the case and in law Learned CIT(A) has erred in holding that no additions/disallowances can be made in an order passed u/s. 143(3) r.w.s.153A of the act on any other issue other than the addition which is based directly on incriminating seized material even though the other additions/disallowances are based on inquiry carried out during the proceedings." 2) "On the facts and circumstances of the case and in law Learned CIT(A) has erred in deleting the additions of Rs. 2,50,13,016/- made in respect of Annual lettable value of property determined on the basis of market valuation as per section 23 of the act without any basis." 3) "On the facts and circumstances of the case and in law Learned CIT(A) has erred in directing the A.O. to reduce the disallowance u/s. 14A r.w.r. 8D of the Income tax Rules amounting to Rs. 23,11,53,000/- though the disallowance u/s. 14A of the act has been carried out as per the formula laid down in Rule 8D of the Income tax Rules and by following the CBDT Circular No. 5/2014 dated 11/02/2014 wherein it had been held that disallowance u/s 14A r.w.r 8D can be even made when the assessee had not earned any exempt income during the year." 4) "On the facts and circumstances of the case and in law Learned CIT(A) has erred in directing the A.O. to reduce the disallowance of Rs. 1,04,70,504/- u/s. 40A(2)(b) of the act though the A.O. has clearly brought out the facts which can prove the unreasonableness of rent collected from the related party." 5) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 1,01,39,541/- paid
3 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited to M/s. Raj Textiles which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 6) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 21,14,129/-paid to M/s. Muzzafarpur Textile Agency which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search. 7) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 1,69,50,905/- paid to M/s. Bishwanath Prasad & Sons Agencies which had been disallowed by the A.O. based on the proper inquiry proving that the saidcommission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 8) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 15,27,000/-paid to M/s. Lokesh Enterprises which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 9) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 4,23,000/- paid to M/s. Goyal Enterprises which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 10) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 21,48,021/- and Rs.1,71,28,934/- paid to M/s. Saroj Corporates and M/s. BMA Trade &
4 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Holdings Pvt Ltd which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search." 11) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the disallowance made by the A.O. u/s. 37(1) of the act amounting to Rs. 87,94,466/- relating to expenditure incurred in relation to Kamala Cottage which was used by Shri Vijaypat Singhania who is in no way related to the business of the assessee and the assessee had not submitted any proof of rent paid to the other tenant of the said building (JK House) under redevelopment and the assessee company failed to give business exigency of the expenditure incurred." 12) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the disallowance made by the A.O. u/s. 37(1) of the act amounting to Rs. 4,07,07,975/- incurred at Prithvi Bungalow relating to expenditure incurred in respect of the servants of Shri Gautam Singhania and other expenses which are incurred for the personal use of Shri Gautam Singhania and the same are over and above the perks which are offered to the MD as an employee." 13) On the facts and circumstances of the case, Learned CITYA) has erred in allowing the disallowance of an expenditure and depreciation in relation to luxury sports car (Lamborghini and Ariel Atom) of Rs.5,12,378/- and Rs. 34,60,250/- respectively made by the A.O. as per proviso to section 38(2) of the act by considering that the said asset was not exclusively used for the purpose of business though the assessee has not been able to substantiate the claim of this expenditure." 14) On the facts and circumstances of the case and in law Learned CIT(A) has allowed the long term capital loss of Rs. 6,89,82,716/- in respect of Units of US64 whereas the same was not claimed by the asssessee in its return of income because of which this loss was disallowed by the A.O. by following the apex court judgment in the case of Goetze India Ltd (284 ITR 323) wherein it has been held that any claim has to be made in the return of income."
4. We shall deal with the above issues ground wise.
5 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Ground No. 1: "On the facts and circumstances of the case and in law Learned CITA) has erred in holding that no additions/ disallowances can be made in an order passed u/s. 143(3) r.w.s. 153A of the act on any other issue other than the addition which is based directly on incriminating seized material even though the other additions/disallowances are based on inquiry carried out during the proceedings'
5. Ld.DR relied on the order of the Assessing Officer and requested to set-aside the order of the Ld.CIT(A) in this regard.
6. At the time of hearing, Ld. AR of the assessee draw our attention to Para No. 6.3 (page 5) of the order of the Ld.CIT(A) wherein the Ld.CIT(A) has dismissed the ground of the assessee as it was not pressed. Therefore, it is respectfully submitted the first ground of the Revenue's appeal does not arise out of the order of the CIT(A) and requested to dismiss the ground raised by the revenue. On the other hand, Ld DR also agreed the above proposition.
Considered the rival submissions and material placed on record. We observe that the Ld CIT(A) has not adjudicated the issue raised by the revenue with regard to incriminating material. Therefore, this issue is not borne out of appellate order. Hence dismissed.
6 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Ground No. 2: "On the facts and circumstances of the case and in law Learned CIT(A) has erred in deleting the additions of Rs. 2,50,13,016/- made in respect of Annual lettable value of property determined on the basis of market valuation as per section 23 of the act without any basis.
The issue contained in the second ground of the Department's Appeal deals with determination of annual letting value (ALV) of a property. Brief facts are, assessee is the owner of J. K. House property (said premises) and during the previous year relevant to A.Y.2009-10, the assessee had let out the said premises to J. K. Trust (first floor to fourth floor) and Pashmina Holdings Ltd. (fifth floor to twelfth floor) for which it received cumulative rent of ₹.2,89,000. The same forms part of ₹.15,62,857/- which was offered to tax under the head 'income from house property. The particulars of rental income have been discussed by the Assessing Officer in Para No. 3 of the assessment order. The Assessing Officer rejected the contentions of the assessee that the rental income received by the assessee was more than Municipal Ratable Value of ₹.1,05,275 and hence, the actual rent received should be considered as ALV. According to the Assessing Officer, as per Section 23 of the Income-tax Act, 1961 (in short “Act”) market rent is to be adopted for the purpose of determining the ALV of a property, when actual rent received is less than market rent. Further, the Assessing Officer, relying
7 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited upon various judicial precedents, held that such ALV is a notional income which is to be objectively ascertained on a reasonable basis. The Assessing Officer was of the view that in the present facts, rent charged by the assesse was not fixed objectively on a reasonable basis since it stood influenced as premises was let out to companies/trusts belonging to the assessee group.
The Assessing Officer further held, by placing reliance on various judicial precedents that municipal ratable value was not binding on the Assessing Officer for determination of the ALV for the purpose of Section 23 of the Act. Accordingly, Assessing Officer ascertained the ALV using comparable rent fixed by the Directorate of Estate, Ministry of Works and Housing, Government of India in respect of residential accommodation provided to Central Government employees in a building known as 'Belvedere". The fair market rent was determined at 20% above the rates fixed at ₹.60.50 per sq feet per month for the Central Government flats located in the area i.e. ₹.72 per sq feet per month. Thus, the Assessing Officer made addition of ₹.2,50,13,017/- as income from house property' after taking into account municipal taxes, standard deduction and income offered in return.
8 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 10. Being aggrieved, assessee preferred an appeal before the Ld.CIT(A). The assessee reiterated its submissions which are extracted by the Ld.CIT(A) in Para No. 7.2 of the appellate order. After taking into account the assessment order and submissions of the assessee, the Ld.CIT(A), in his order, observed that this issue of determination of ALV is recurring one in the assessee's own case in the past several AY's. The last order on this issue was rendered by the ITAT in its order for A.Y.2006-07 (copy is placed on record) wherein the Tribunal had held that standard rent should be the basis for arriving at ALV of the said property and the same should be worked out at the rate of 12% of cost of land & building.
11. Accordingly, the Ld.CIT(A) in AY 2009-10 held that since there was no change with respect to facts, the decision of the ITAT for AY 2006-07 would squarely be applicable to the present assessment year and directed the Assessing Officer to determine the ALV by respectfully following the decision of the ITAT and working out the ALV by taking 12% value of land and building of the said property.
Against this order of the Ld.CIT(A), revenue is in appeal before us.
9 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 13. Ld.DR relied on the order of the Assessing Officer and requested to set-aside the order of the Ld.CIT(A) in this regard. Further he submitted that the Assessing Officer has considered the market rate taking the nearest property for this purpose. Therefore, the findings of the Assessing Officer may be considered.
Ld. AR reiterated the submissions made before the Ld.CIT(A) and submitted that the issue under consideration has already arisen in assessee's own case in the past and has been decided by the Hon'ble Tribunal in earlier years, latest being order of the ITAT for A.Y.2006-07 and so the issue stands covered. Ld.AR of the assessee further brought to our notice recently in assessee’s own case in ITA.No.1973/Mum/2009 dated 20.02.2019 the Coordinate Bench followed the decision for the A.Y.2005-06 and 2006-07. Ld. AR of the assessee prayed that the same may be adopted for the year under consideration.
Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided by the coordinate bench for the A.Y.2004-05. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 1973/Mum/2009 dated 20.02.2019 held as under: - 10 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited “16. We find that on this issue, the assessee has made the following submissions: In the assesse' s own appeal for A.Y. 1995-96 the CIT (A) has held to determine the annual value of the property @ 12% of the cost of land & building and dismissed the ground of Assessee. Said Judgment is confirmed as well as followed by ITAT from A.Y. 1994-95 to A.Y. 2001-02, A.Y. 2003-04, A.Y. 2005-06 and A.Y. 2006-07.
In this regard, we may gainfully refer to the adjudication of this issue in the assessee’s own case for A.Y. 2003-04 in ITA No. 1972/Mum/2009 vide order dated 21.06.2017, the same read as under: 8. Ground No.2 is in relation to income from house property. The assessee has shown the annual value of the property at Rs.2,89,000/- and A.O. has determined the annual value of the property at Rs.3,50,21,280/-.
9. The matter carried to Ld. CIT(A) and the Ld. CIT(A) has dismissed the appeal.
During the course hearing the Ld. D.R. submitted that this issue is decided against the assessee in the own case of the assessee in earlier years also. Therefore, it may be decided against the assessee.
Since the issue has already been decided against the assessee in the own case of the as sin earlier years, we dismiss ground No.2 of the assessee. In ITA No.7793/Mum/2010 in assessee’s own case for A.Y. 2005-06 vide order dated 28.10.2015, the ITAT has held as under on this issue: 3. The first ground relates to the treatment of income under the head income from house property. The assessee is aggrieved by the direction of the CIT(A) to determine the annual value of the property at 12% of the cost of land and building. At the very outset, the Counsel for the assessee fairly conceded that this issue has been decided against the assessee and in favour of the Revenue by the Tribunal vide a consolidated order dated 1st May, 2009 for assessment years 1999-2000, 2000-2001 and 2001-2002.
11 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 3.1 We find that this issue has been considered by the Tribunal in para 2.7 of its order and at 2.7.1, the Tribunal has followed the decision of the co- ordinate bench given for assessment years 1994-95 and 1995-96 to assessment year 1998-99. Following the decision of the Tribunal, the appeal of the assessee was dismissed. As the learned Senior Counsel has fairly conceded that since this issue has been decided against the assessee by the Tribunal, the same view should be taken. Respectfully following the finding of the co-ordinate bench in assessee's own case (supra) ground no.1 is dismissed. A reading of the above decisions and the pleadings of the ld. Counsel of the assessee and the submissions of the ld. DR shows that the A.O. has computed the annual value of the property at Rs.3,60,21,880/- and the income chargeable under the property can be Rs.2,56,41,066/-. The ld. CIT(A) on the other hand directed the A.O. to compute the annual value of the property with reference to the standard rate of the property determinable as per the relevant provisions of the Rent Act and modify the A.O.’s order accordingly. In this regard, the assessee’s contention is that the direction should be given in accordance with the earlier year ITAT order that the annual value of the property should be 12% of the cost and the land and building. In this regard, we note that it is the plea of the Revenue that making an annual value as a percentage of the cost of the land and building forever will lead to annual value fixed for eternity which can never be permitted. We find that the ITAT earlier had confirmed the same direction. The matter is already before the Hon'ble Jurisdictional High Court. We do not find any cogent reason to depart from the earlier order of the Tribunal in the assessee’s own case. Hence, we follow the same and direct that the ITAT’s order in assessee’s own case on this issue be followed, as the same has not been reversed by the Hon'ble Jurisdictional High Court.”
Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2004-05 and also following the principle of 12 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited consistency, we do not find infirmity in the order of the Ld.CIT(A), accordingly, ground raised by the revenue is dismissed. Ground No. 3: “On the facts and circumstances of the case and in law Learned CIT(A) has erred in directingthe A.O. to reduce the disallowance u/s. 14A r.w.r. 8D of the Income Tax Rules amounting to Rs. 23,11,53,000/-though the disallowance u/s. 14A of the act has been carried out as per the formula laid down in Rule 8D of the Income Tax Rules and by following the CBDT Circular No.5/2014 dated 11/02/2014 wherein it had been held that disallowance u/s 14A r.w.r 8D can be even made when the assessee had not earned any exempt income during the year.”
17. Brief facts relating to the issue of disallowance u/s.14A of the Act are, for the year under consideration, the assessee had suo-moto disallowed ₹.40,72,538 u/s.14A read with Rule 8D(2)(i) of the Act, being portfolio management fee and depository charges incurred to earn income from investments. The Assessing Officer did not accept the working of disallowance offered in computation of income u/s 14A of the Act. By relying on the decision of the Hon'ble Bombay High Court in the case of M/s. Godrej and Boyce Manufacturing Co. Ltd., the Assessing Officer held that the disallowance u/s 14A of the Act has to be computed as per Rule 8D of Income Tax Rules, 1962. Accordingly, the Assessing Officer further computed proportionate interest disallowance at ₹.1973.68 lakhs under limb (ii) and disallowance of administrative expenditure at ₹.337.85 lakhs under limb (iii) of the Rule 8D(2).
13 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 18. Aggrieved, assessee preferred appeal before the CIT(A) and challenged the disallowance made by the Assessing Officer for reasons elaborately discussed in Para No. 8.2 of the CIT(A)'s order. After taking into account the assessment order and submissions of the assessee, CIT(A) held that the interest cost had been incurred to the extent for the business purposes should be excluded and therefore, the disallowance of interest u/s.14A r.w.r. 8D has no basis and no justification to the extent incurred for the business purpose. The CIT(A) further held that the net interest expenditure of ₹.4107.73 lakhs should be taken for the purpose of determination of disallowance u/r 8D(2)(ii) of the IT Rules. The CIT(A) further directed that strategic investment and investments made from the interest free funds should be excluded from the total investments and only the balance investment i.e.,₹.1892.19 lakhs should be considered for determination of disallowance of proportionate interest. Regarding the disallowance made on account of administrative expenditure, the CIT(A) directed the Assessing Officer to adopt value of investments of ₹.1892.19 lakhs while determining disallowance on account of the administrative cost @ 0.5%.
Aggrieved revenue is in appeal before us.
14 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 20. At the time of hearing, Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside in view of CBDT Circular No. 5/2014 dated 11.02.2014.
21. Ld. AR of the assessee submitted a detailed working of disallowance u/s 14A, a copy of which is placed on record. Ld. AR made the following submissions, in relation to disallowance under limb (ii) of Rule 8D(2), No disallowance w.r.t interest component is called for as it is a settled position in law that no interest disallowance is called for when the own funds of the assessee are in excess of investments that has yielded exempt income. This ratio was held by the Hon'ble Apex Court in the case of South Indian Bank Limited vs. CIT 1438 ITR 1(SC)). He draw our attention to the chart and submitted that, as per the submitted chart, it is apparent that the assessee had own funds at ₹.1,12,698.37 lakhs and ₹.1,39,828.50 as on 31.03.2009 and 31.03.2008 respectively which is in excess of ₹.34,342.70 lakhs being the average value of investments for the year under consideration that has actually yielded exempt income. It is thus evident that the assessee's own funds are far exceeding the value of investment that yielded exempt income in the year under consideration. Therefore, it is respectfully submitted that, as
22. Further, with regard to disallowance under limb (iii), Ld. AR submitted that while in light of the recent landmark decision of Supreme Court in case of Maxopp Investments Ltd, argument of excluding strategic investments has been done away. However, for the purpose of determining average value of investments, the learned AR drew the attention of Hon'ble Delhi High Court decision in case of ACB India Ltd vs. ACIT [374 ITR108 (Delhi)] and Special Bench of Delhi in the case of ACIT vs. Vireet Investments Private Limited [165 ITD 27 (Del(SB)] wherein it was held that for the purpose of determining value of investments for the purpose of 14A disallowance, only those investments be considered which has actually yielded exempt income during the year under consideration. As per the submitted chart, it is apparent that the assessee had average value of investments of ₹.34,342.70 lakhs which has actually yielded exempt income. Thus, it is submitted that this average value of ₹.34,342.70 lakhs be considered for computing disallowance under limb(iii) of Rule 8D(2) of the IT Rules. we observe from the record that the assessee has made investments utilizing non-interest bearing own funds at ₹.1,12,698.37 lakhs and ₹.1,39,828.50 as on 31.03.2009 and 31.03.2008 respectively. It clearly shows that the total investments made are less than the average own funds available in the business. Therefore, the disallowance of interest expenditure proposed for this year is not as per the judicial precedents.
Respectfully following the decision of Hon'ble Apex Court in the case of South Indian Bank Limited vs. CIT 1438 ITR 1(SC)). Further with regards to disallowance u/r 8D(2)(iii), it is well settled law that the disallowance has to be on those investments which actually yielded the exempt income. Ld. AR submitted a chart which is reproduced below: -
As per Suo As per Assessment As per CIT(A) Moto Before ITAT Sr. Order order Particulars disallowance No. Amount Amount Amount Amount Amount Amount Amount Amount (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (i) Direct Expenses- Rule 40,72,000 40,72,000 40,72,000 40,72,000 8D(2)(i) i.e. Depository (Rs 63,466) and PMS charges (Rs 40,08,534) (ii) Interest Expenses- Rule 8D(2)(ii) A Amount of 0 82,43,73,000 41,07,73,000 0 expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year B The average value of 0 6,75,70,57,000 18,92,18,500 investment, income from which does not or shall not form part of the total income,
17 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited As per Suo As per Assessment As per CIT(A) Moto Before ITAT Sr. Order order Particulars disallowance No. Amount Amount Amount Amount Amount Amount Amount Amount (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) (₹.) as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 28,22,31,59,500 c The average of total 0 28,22,31,59,500 assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year AXB / C 0 AXB / C 19,73,67,533 AXB/ C 27,53,974 0 0 0 (0.5%ofRs. 3,37,85,285 9,46,093 (0.5%of 1,71,71,350 (ill) 0.5% of the average of (0.5% of Rs. Rs. 343,42,70,000) 18,92,18,500) 675,70,57,000) the value of investment: Rule 8D(2)(lii) Total disallowance (i)+(ii)+(ii 40,72,000 (i)+(ii)+(iii) 23,52,24,818 (i)+(ii)+(iii) 77,72,067 2,12,43,350 i) U/S.14A (40,72,000) (40,72,000) Less: Suo Motto (40,72,000) (40,72,000) Disallowance u/s 14A Further disallowance 0 23,11,52,818 37,00,067 1,71,71,350 u/s 14A Limb ii) CIT(A) considered the net interest expenditure Limb iii) Avg value of investments reduced since following 2 types of investments excluded: 1) strategic in nature 2) which were acquired from specific sources of interest free funds Limb ii) South Indian Bank to cover that when own funds more than investments that has yielded exempt income no interest disallowance is called for Limb iii) Sp Bench Delhi Vireet investments and ACB India Ltd (Del HC) that only those investments be considered which has yielded exempt income. Further, relief of PMS charges of Rs 40.08 lakhs as same is already disallowed by A in limb (i)
24. From the above information submitted by the assessee clearly indicates that the various investments were made by the assessee in earlier Assessment Years which is backed with the details of the non interest borrowing funds available with the assessee in the respective years. Therefore, assessee has brought to our notice clearly that assessee has enough funds at their disposal to make various
18 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited investments in the sister concerns as well as with the various investments. In our considered view with the information available on record it clearly indicates that the assessee has utilized non interest borrowing funds for making the various investments. Therefore, the Assessing Officer cannot invoke Rule 8D(2)(ii) of I.T. Rules to disallow the interest expenditure u/s. 14A of the Act.
This bench is consistently holding that, the disallowance u/s. 14A of the Act if any shall be restricted to the exempt income earned by the assessee. We find that the Delhi Special Bench of the Tribunal in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27] held that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s. 14A r.w. Rule 8D of the I.T Rules, 1962. Thus respectfully following the said decision, we restore the grounds raised by the revenue in respect of disallowance u/s. 14A while computing the book profits to the file of the Assessing Officer who shall decide in view of the decision of the Special Bench Vireet Investments Private Limited (supra). Therefore, we are directing the assessing officer to restrict the disallowance by adopting the value of investments which actually earned
19 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited exempt income during the assessment year. Accordingly, the grounds raised by the revenue is dismissed. Ground no. 4: "On the facts and circumstances of the case and in law Learned CIT(A) has erred in directing the A.O. to reduce the disallowance of Rs. 1,04,70,504/u/s. 40A(2)(b) of the act though the A.O. has clearly brought out the facts which can prove the unreasonableness of rent collected from the related party.
Brief facts relating to disallowance made by the Assessing Officer u/s. 40A(2)(b) of the Act, the Assessing Officer has dealt with this issue in para 6 of the assessment order. The assessee had paid rent to J.K.Investors (Bombay) Ltd. for using 2nd and 3rd floor of building "Mahindra Towers" situated at Worli, Mumbai. The assessee had paid rent @ ₹.200/- per sq. ft. as per the rent agreement dated 16.04.2008 for using area of 25,663 sq.ft. The Assessing Officer invoked provisions of section 40A(2) and observed that "This fact clearly indicates that the assessee has incurred the above said expenses only with a view to inflate the cost unreasonably to suppress the profits and its income. It is held by various courts that if any transaction is being carried out by the assessee with the intention of evading taxes or to do undue favor to the director or the related persons, the same is not permitted as per the provisions of law". The Assessing Officer further noted that market rent,
20 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited as per municipality reckoner was ₹.166/- per sq.ft. and accordingly, he disallowed ₹.34/- per sq.ft. [₹.200-₹.166] which worked out to ₹.1,04,70,504/- [₹.34 x 25663 x 12].
Being aggrieved, the assessee filed appeal before the CIT(A) and contended that the ratable value as per municipality reckoner cannot be universally applied to all properties situated in Worli area. It was submitted that municipality reckoner were only indicative rates and it changes from building to building. It was also submitted that the Assessing Officer had assumed that all buildings within particular locality would demand same market rent irrespective of the construction, view, ambience, amenities, décor, etc which is absurd assumption. It was brought to the notice of the CIT(A) that the premises taken on rent by the assessee was in prestigious building constructed and maintained by Mahindra and Mahindra Ltd. It was constructed with special façade, constructed with best material with glazed cladding and well finished Red Kotah stone, marble floorings, fully glazed shutter sliding doors with wooden frames, etc. and therefore, the rent paid by the assessee was fair and reasonable.
21 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 28. The CIT(A), after taking into account submissions of the assessee and assessment order, held that ratable value of municipality reckoner rate cannot be universally applied to all the properties situated in Worli area, that reckoner rates were only indicative. Taking into account various factors like quality of construction, demand and supply available in the area, etc. rental rate may differ from building to building. In the circumstances, the CIT(A) held that rent of ₹.200/- per sq.ft. paid by the assessee was quite reasonable and the same is not hit by provisions of section 40A(2)(b) of the Act. Accordingly, the CIT(A) deleted the addition made by the Assessing Officer of ₹.1,04,70,504/-. Being aggrieved, the Revenue filed the present appeal.
Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside.
Ld. AR reiterated the submissions made before the Ld.CIT(A), it is submitted that the Assessing Officer has solely relied upon the municipality reckoner without appreciating that the rent is dependent upon various other factors like amenities provided, quality of construction, ambience, etc. It is submitted that taking into account facts and circumstances of the case, the CIT(A) has rightly held that
It was also contended by the Ld. AR that, in the present case there is no evasion of taxes as alleged by the Assessing Officer on account of payment of higher expenditure by the company to its sister concern since the sister concern was also paying tax at higher rate. This ratio has been upheld by the Hon'ble Bombay High Court in the case of CIT vs Indo Saudi services (Travel)(P) Ltd. (2009] 310 ITR 306 (Bombay). Further, Ld. AR enclosed the assessment order of JK Investors Bombay Ltd for A.Y. 2009-10. He invited our attention to page 10 of such order, wherein it is evident that J.K. Investors Bombay Ltd is paying taxes at the rate of 30% and thus applying the principles of the aforesaid decision, there is no evasion of taxes by the appellant would hold good as even the related concern is paying taxes at higher rate. Therefore, observations made by the Assessing Officer in his assessment order are erroneous. Accordingly, the order passed by the CIT(A) may kindly be upheld.
Considered the rival submissions and material placed on record, we observe that Assessing Officer has invoked the provision of section 23 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 40A(2)(b) of the Act to disallow substantial amount as excess payment of rent to the related concern. At the outset, we observe that the rate adopted by the Assessing Officer without there being any bench mark or basis for adopting such rate without bringing on record the market rate at that point of time. Further we observe that the related concern J.K.Investors (Bombay) Ltd. have declared the rent receipt and paid the relevant tax and they are also falling under the tax bracket of 30% slab. Therefore, there is no evasion of tax in these transactions. As held in the case of CIT v. Indo Saudi Services (Travel)(P.) Ltd., [310 ITR 306], when there is payment to its sister concern and both the concerns are falling in same slab rate of taxation, there is no evasion of tax. In the given case also, the payments made to sister concern which also pays tax at the same slab of the assessee, there is no loss to the revenue. Hence, we are inclined to accept the findings of the Ld CIT(A). Accordingly, the ground no.4 raised by the revenue is dismissed. Ground No. 5: “On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 1,01,39,541/ paid to M/s. Raj Textiles which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search."
24 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Ground no. 6: On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 21,14,129/-paid to M/s. Muzzafarpur Textile Agency which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search."
Ground no. 7: 'On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 1,69,50,905/- paid to M/s. Bishwanath Prasad & Sons Agencies which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search' Ground no. 8: 'On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 15,27,000/-paid to M/s. Lokesh Enterprises which had been disallowed by the A.O. based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material found during the search' Ground no. 9: On the facts and circumstances of the case and in law Learned CITIA) has allowed the Commission Expenses of Rs. 4,23,000/- paid to M/s. Goyal Enterprises which had been disallowed by the AQ based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly prouded in the order and on the ground that the said addition was not based on any incriminating material found during the search."
25 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Ground no. 10: On the facts and circumstances of the case and in law Learned CIT(A) has allowed the Commission Expenses of Rs. 21,48,021/ and Rs. 1,71,28,934/- paid to M/s. Saroj Corporates and M/s. BMA Trade & Holdings Pvt Ltd which had been disallowed by the A.O based on the proper inquiry proving that the said commission expenses were not genuine in nature and all the findings of the inquiry were duly provided in the order and on the ground that the said addition was not based on any incriminating material 'found during the search
Brief facts relating to the Ground Nos. 5 to 10 of Department's appeal pertain to the issue of disallowance of commission paid to various agents appointed by the assessee viz. a) Raj Textiles: Rs. 1,01,39,541/- (ground no.5) b) Muzzafarpur Textile Agency: Rs.21,14,129/-(ground no.6) c) Bishwanath Prasad & Sons Agencies: Rs.1,69,50,905/- (ground no.7) d) Lokesh Enterprises: Rs. 15,27,000/-(ground no.8) e) Goyal Enterprises: Rs.4,23,000/- (ground no.9) f) Saroj Corporates: Rs.21,48,021/- and BMA Trade & Holdings P. Ltd. Rs.1,71,28,934/- (ground no.10)
At the outset, Ld. AR submitted w.r.t Ground no. 8 and 9, the Ld.CIT(A) has not granted any relief to the assessee. Therefore, ground no. 8 and 9 filed by the Revenue does not arise out of the order of the CIT(A). Accordingly, requested Ground No. 8 and 9 be dismissed. Ld.DR also has not raised any objection in respect of the submissions made by
With respect to ground no's 5, 6, 7 and 10, the issue of disallowance of commission paid to various agents has been briefly discussed by the Assessing Officer in para 7 of the assessment order. It is the contention of the Assessing Officer that these agents appointed by the assessee did not render any services since the buyers had directly made bookings/placed orders with the assessee and the goods ordered were also directly dispatched to the buyers by the assessee. The Assessing Officer is of the view that these agents had been working with the assessee for several years. However, these agents rendering certain services for the assessee which is not for the business and no supporting documents were submitted for actually rendering the services by the selling agents. The Assessing Officer, by relying on reports submitted by various DIT (Inv) and statement recorded on oath of Mr.Adarsh Jalan, disallowed commission paid to the above parties.
Being aggrieved, the assessee preferred appeal before Ld.CIT(A) and furnished before the CIT(A) various evidences which explained the roles of the agents appointed by the assessee, functions carried out by 27 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited them, evidences which showed that the agents had rendered services and commission was paid to them after realization of sale, confirmations from various buyers, replies to the objections of the Assessing Officer, etc., Ld.CIT(A) deleted the addition made by the Assessing Officer. Against this order, revenue is in appeal.
Ld.DR relied on the order of the Assessing Officer and submitted that the assessing officer has brought on record the various reasons of disallowances and the agents have not carried out services claimed by the assessee.
On the other hand, Ld.AR reiterated the submissions made before the Ld.CIT(A) and further submitted that the Assessing Officer had not given copy of the statement on oath recorded of Shri Adarsh Jalan, who was director in BMA Trade and Holdings P. Ltd. and Proprietor in Saroj Corporates relied upon by him. Further, the Assessing Officer has ignored the fact that many commission agents had appeared before the Assessing Officer personally and confirmed the transactions, the assessee had filed copies of returns, audited financials of the agents wherein the commission received from the assessee was shown as their respective income. The Assessing Officer has failed to appreciate that 28 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited these agents have also paid applicable service tax. It is submitted that the DIT, Investigation had carried out investigation in hurried manner, with prejudiced mindset and also submitted report without thoroughly understanding the details/replies filed by the agents. The Assessing Officer has overlooked the fact that the assessee had long association with these agents and the details of working of the commission was also provided. It is submitted that the primary function of a selling agent is to act as a "del-credere” agent i.e. he ensures timely collection from the dealers in respect of the orders taken by him. In this regard, the Selling Agent has to deposit a sum of money with the assessee company and enter into an agreement, as a confirming party, between the assessee and the dealer. Further, it is submitted that no evidence was found in the search to show that commission payment was not bonafide or genuine in nature. The Assessing Officer has also overlooked that dealers had filed confirmations before the Assessing Officer that transactions with the assessee were being routed through the respective commission agents and that no evidence to disprove the contentions of the assessee is brought on record. It is further submitted that such payment of commission to the agents is established trade practice and has been carried on since long period. Further, no disallowance has 29 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited been made on this count in earlier assessments. It is submitted that the assessee has summarized the evidences placed before the Assessing Officer at page 51 of paper-book showing how services were performed by various agents of the assessee company and the Assessing Officer has not brought any material on record to disprove the same. Therefore, taking into account the facts and circumstances of the case as well as detailed findings given by the CIT(A), the order passed by the CIT(A) may kindly be upheld.
Considered the rival submissions and material placed on record, we observe from the findings of the Ld.CIT(A) that assessee has submitted details of proof of services before the Assessing Officer vide letter dated 22.11.2013 along with details/documentary evidences to prove the bonafide nature, business purpose and to prove that the services were actually rendered by the agencies appointed by the assessee. Assessee has filed the details before the Assessing Officer as under: - i) detailed note on Commission payments along with work-flow and showing genuine/ bona-fide nature of payment, ii) why the same was imperative for the appellant, iii) how commission incurred was for the business purpose of the appellant and
This is a factual issue and Ld.CIT(A) observed that the above facts clearly indicate that services have been rendered and commission have been paid for rendering of the services. He also observed that there is no evidence of any kind on record to prove that payment of commission is not genuine. Looking to the magnitude of the turnover of the company, the company has to appoint commission agents to sell its products throughout the country. Ld.CIT(A) observed that as far as calculation of commission, SAP system generates the details of commission for every quarter, the same is sent to the selling agents for verification. Post verification the bill for commission is raised by the selling agents. For the Service tax at applicable rate is charged on the above said bill and the said bill is raised and sent to the assessee company by the end of the month succeeding the completion of quarter.
Besides the above, Ld CIT(A) observed that the agents also render services to coordinate for collection of payment; raising the invoices on dealers; delivery of goods from warehouse to dealer etc., he observed that Assessing Officer has ignored documentary evidence, which is a part of paper book, filed during the course of assessment proceedings
31 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited which substantiated rendering of service by the said agent. Further, Ld.CIT(A) observed from DIT(Inv.) report, it is not proved that services were not provided by the selling agents to the assessee nor it proves that the agents have only provided accommodation entries to the assessee. According to him, Assessing Officer has merely attempted to prove the genuine payment of commission to hold it as a non-genuine payment of commission. After observing the findings of the Ld.CIT(A) and the various submissions made before us we are of the considered view that Ld.CIT(A) has appreciated the various documents submitted before him to prove that the various agents have actually done the various services as a commission agents and also there is no direct findings even in DIT(Inv.) report that various agents have not carried out any service to substantiate the findings of the Assessing Officer. Therefore, these findings of the Ld.CIT(A) is not being controverted before us by the revenue. Therefore, we are inclined to dismiss the ground raised by the revenue. Ground no. 11: 'On the facts and circumstances of the case and in law Learned CIT(A) has allowed the disallowance made by the A.O. u/s. 37(1) of the act amounting to Rs. 87,94,466/- relating to expenditure incurred in relation to Kamala Cottage which was used by Shri Vijaypat Singhania who is in no way related to the business of the assessee and the assessee had not submitted any proof of rent paid to the other tenant of the said building (JK House) under redevelopment and the assessee
32 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited company failed to give business exigency of the expenditure incurred." The eleventh ground of the Department's appeal pertains to deletion of disallowance of Rs.87,94,466/-in respect of expenditure incurred in relation to Kamala Cottage which was used by Shri Vijaypat Singhania.
Ground no. 12: 'On the facts and circumstances of the case and in law Learned CIT(A) has allowed the disallowance made by the A.O. u/s. 37(1) of the act amounting to Rs. 4,07,07,975/- incurred at Prithvi Bungalow relating to expenditure incurred in respect of the servants of Shri Gautam Singhania and other expenses which are incurred for the personal use of Shri Gautam Singhania and the same are over and above the perks which are offered to the MD as an employee."
Ground No. 11 and 12 are relating to deleting the disallowance made by the Assessing Officer u/s. 37(1) of the Act. Brief facts relating to Ground No. 11 are, Assessing Officer has referred to the statement of Shri Vijaypat Singhania recorded on oath on 4.11.2011 wherein he admitted that expenses related to Kamala Cottage were debited in the books of the assessee. The Assessing Officer issued a show cause as to why such expenditure should not be disallowed as the same are not incurred for the purpose of business of the assessee. The assessee filed its elaborate reply which has been extracted in the assessment order at pages 42-43. However, the Assessing Officer rejected the contentions of the assessee and held that Shri Vijaypat Singhania was unable to attend affairs of business of the assessee, expenditure was personal in nature,
Ground No. 12 is in respect of deletion of disallowance made by the Assessing Officer of ₹.4,07,07,975/-in respect of accommodation related expenses and staff expenses incurred at Prithvi Bungalow for Shri Gautam Hari Singhania over and above the perks which are offered to him as Managing Director. Brief facts are, the Assessing Officer has noted in the assessment order that the assessee had spent huge amount on renovation, rent and maintenance of Prithvi Bungalow for Shri Gautam Hari Singhania. The Assessing Officer noted that this expenditure was in addition to the perks received by Shri Gautam Hari Singhania as CMD of the assessee and the same was not allowable as business expenditure. The Assessing Officer rejected the explanation of the assessee substantiating the expenditure. The Assessing Officer also held that renovation expenses were capital in nature and not incurred wholly and exclusively for the purposes of business. Thus, the Assessing Officer disallowed entire expenditure of ₹.4,07,07,975.
Being aggrieved, the assessee filed appeal before the CIT(A) and made elaborate submissions which are discussed at length in para 17.2
34 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited and Para No. 18.2 of the order of the CIT(A). After taking into account the objections of the Assessing Officer and submissions of the assessee, the CIT(A) noted that it was undisputed that Shri Vijaypat Singhania was associated with the affairs of business of the assessee as he was Chairman and MD of the assessee for very long period and possessed vast experience in the business of the assessee and meetings were held with VVIP and business associates by Shri Gautam Hari Singhania. After recording elaborate reasons, the CIT(A) deleted the addition made by the Assessing Officer.
Against this order of the Ld.CIT(A), revenue is in appeal before us.
Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside. He submitted that the expenses claimed are excessive and claimed the expenses even though regular perks are paid the CMD.
Also, during the course of the hearing, the Ld DR also pointed out that Mr. Vijaypat Singhania and Mr. Gautam Hari Singhania was a sub-tenant of the assessee in relation to the JK House property. Assessee had entered into a Leave and License agreement with 35 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Pashmina Holdings Ltd (PHL) who in turn leased the premises to Mr.Vijaypat Singhania, Mr. Gautam Hari Singhania and 2 other members of the Singhania family. He submitted that the PHL is belongs to Mr.Vijaypat Singhania. Therefore, the alternate arrangement is only to facilitate the group concerns.
During the course of hearing, Ld. AR submitted that it is undisputed that Shri Vijaypat Singhania is Chairman Emeritus of Raymond Group and the assessee has been able to achieve business success under his able leadership and guidance. Attention was invited to page no 67 to 71 of the paper-book dated 11.02.2019 which contains extract of the Boad resolution passed by the Board of Directors of the company at its meeting held on 23.06.2006 wherein following resolutions were passed: - The company approved the demolition of the building JK House as the structure had become weak and unsafe for occupation and accordingly also passed a resolution to erect a new structure on the said premises in accordance with the plans sanctioned by the MCGM
- Company to enter into a tri-parte agreement with each of the 4 sub-lessee's/sub-tenants of the duplex flats and Pashmina Holdings Ltd
- Company was to re-imburse PHL or other basis for the purpose of providing accommodation to any of the sub-
Thus, it was pointed out that the Company was under an obligation to bear alternative accommodation related expenses of the sub-lessee's (including that of Mr Vijaypat Singhania) under a contract and it was to bear such expenses for the purpose of re- development of its property. Attention was also invited to the fact that the ld. AO had not disputed amount borne by the company for other 2 sub-lessee's and had only contested expenses incurred for Mr. Vijaypat Singhania (VS) and Mr. Gautam Singhania (GS).
Further, Ld. AR submitted that substantial part of the expenses borne in case of Prithvi Bungalow pertained to rent. Also, with respect to servant expenses incurred it was clarified that, Mr. Gautam Hari Singhania was the Chairman and Managing Director of the company. To manage his busy schedule and avoid time lost in commuting from Altamount road to the assessee's corporate office at Thane, he would many a times hold several of his business related meetings from his residence i.e. Prithvi Bungalow with senior management of the assessee including CEO, CFO, VVIP's, clients and potential customers, etc. In order to conduct his business meetings, the expenses of servants/ staff
37 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited were incurred by the assessee company. It is therefore submitted that taking into account the facts and circumstances of the case, the CIT(A) has rightly allowed the expenditure.
Lastly, it was also submitted that the assessee being a company, cannot have an element of 'personal nature' as is being canvassed by the AO and accordingly no disallowance is called for as such. It is submitted that the Assessing Officer has not brought any material on record to prove contrary to the findings given by the CIT(A). It is therefore submitted that taking into account the facts and circumstances of the case, the CIT(A) has rightly allowed the expenditure. Hence, the order the CIT(A) may kindly be upheld.
Considered the rival submissions and material placed on record, we observe that the assessing officer observed that Mr. VS is not directly connected with the functioning of the assessee company. However, we observe that Mr. VS is the Group Chairman, who controls the group management. As per the tax convention, it is the management which controls the affairs of the company is relevant and are part of the management, there are various judicial precedents which held that the company is considered as subsidiary or holding company based on the 38 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited control and management, which manages/control the affairs of the company, not the composition of the board of directors as per the official register. In the given case, even though Mr. VS is not in the role of the assessee company, it is undisputed fact that he is in the helm of affairs of the assessee company and also controls the whole management. Therefore, Mr.VS is indirectly or passively controls the affairs of the assessee company. Therefore, the expenditure for the senior management and share of the holding company is also the business expenditure of the assessee company.
We observe that the assessee company officially passed a resolution to demolish the old building JK House, which was not habitable and decided to erect a new structure as per the sanctioned plans by the MCGM. Accordingly, the assessee enter into a tri-parte agreement with each of 4 sub-lessees/ sub-tenants of the duplex flats and Pashmina Holdings Ltd. It is normal practice wherever such redevelopments are planned, the existing tenants or lessess are either given compensation to vacate or allowed temporary accommodation, till such redevelopments are completed. In the given case also, the assessee offered such temporary arrangements, which the revenue is not comfortable due to the facts that these are, according to them,
39 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited unwarranted or excessive or not relevant for the business. After considering the submissions, we are of the view that Mr VS and other sub lessees are part of the senior management and sister concerns, all the more reasons to make such alternative arrangements. We already stated that the relevance of expenses incurred to Mr. VS and also his stature demands such expenditure. With regard to Pashmina Holdings Ltd and other sub-tenants, they have given consent to redevelop the property and they deserve such alternate arrangements.
The next issue is whether it is relevant or excessive, the group concern and the senior management are the key element for the existence and source for revenue generation in the assessee company. With regard to observation that these are excessive, we are of the view that what is relevant is the stature of persons dealing with, it is not ordinary arrangements like regular dealing, the assessee has to consider the stature of key management team and the sister concern, in our view, which is also falling in the same tax bracket, there is no tax evasion or excessive.
Mr. Gautham Singhania, person of senior management, the board has decided to provide the relevant facilities, the revenue cannot sit and 40 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited decide what kind of facilities to be provided to the senior management. The reasonableness and necessity is decided by the board. Revenue may consider these as part of perk offered to Mr. Gautham. In our considered view, the expenditure incurred when compared to the revenue generated by the assessee is not excessive, as a percentage of expenses to the total revenue. Therefore, we do not see any reason to interfere with the findings of Ld CIT(A). Accordingly, the grounds raised by the revenue are dismissed. Ground no. 13: On the facts and circumstances of the case, Learned CIT(A) has erred in allowing the disallowance of an expenditure and depreciation in relation to luxury sports car (Lamborghini and Ariel Atom) of Rs. 5,12,378/-and Rs 34,60,250/-respectively made by the A.O. as per proviso to section 38(2) of the act by considering that the said asset was not exclusively used for the purpose of business though the assessee has not been able to substantiate the claim of this expenditure.'
In the above ground of appeal, the revenue has challenged the relief given by the CIT(A) on the addition made by the Assessing Officer, on account of depreciation and expenses of luxury sports cars, to the extent of 50%. The Assessing Officer has disallowed ₹.39,72,628/-on account of depreciation and expenses incurred on such cars by invoking provisions of section 38(2) of the Act.
41 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 57. Aggrieved assessee filed appeal before the CIT(A) and made its submission which are considered by the CIT(A) in para 19.2.1, 19.2.2 of his order. The CIT(A), after considering the assessment order and contentions of the assessee, held that the assessee had used the cars for the business purposes and the expenses incurred on vehicles should be allowed as business expenditure. However, the CIT(A) restricted such deduction to 50% by following his appellate order in the case of one of the group companies ie. Silver Spark Apparel Ltd. for A.Y.2011-12.
Ld.DR relied on the order of the lower authorities.
The Ld AR submitted that such cars formed part of fixed assets of company. The block of assets includes the WDV of such cars and the company has been claiming depreciation at eligible rates. Also, it may be noted that such depreciation and expenses on such cars were allowed in AY 2008-09 being unabated year and in absence of any incriminating material. The assessee being a company does not have any personal element. In this regard, ratio of Mumbai Tribunal in case of NIBR Bullion P, Ltd. v DCIT in to 5524/Mum/2011 dated 17.07.2018 may be referred.
42 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 60. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in the case of NIBR Bullion P. Ltd., V. DCIT (supra) and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - “Grounds numbers 4 & 5 pertains to confirming the disallowance of Rs.1,92,114/-, being 1/6th of car and telephone expenses and further disallowance at the rate of 15% of entertainment expenses for personal use. 5.1 During hearing the ld. counsel for the assessee contended that it is a case of company wherein no disallowance can be made on the basis of personal use for which reliance was placed upon the decision of Hon'ble Gujarat High Court in Sayaji Iron &Engg. Co. vs .Commissioner of Income-tax (253 ITR 749) and Dinesh Mills Ltd. v. Commissioner of Income-tax [2002] 122 Taxman 384 (Gujarat). However, the Ld. CIT- DR defended the disallowance made by the Ld. Assessing Officer by contending that personal use cannot be ruled out. 5.2 We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the decision in the case of Sayaji Iron &Engg. Company vs CIT ((supra)) for ready reference and analysis:- “At the instance of the assessee, the following question has been referred to this Court for its opinion under the provisions of section 256(1) of the Income-tax Act, 1961 ('the Act'), by the Tribunal, Ahmedabad Bench 'C': "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing 1/6th of the total car expenses and depreciation claimed by the assessee because of the personal use of the car entrusted to the director by it ?" The learned advocate Shri Manish Shah for Mr. J.P. Shah has appeared for the applicant-assessee whereas learned advocate Shri Bharat Naik has appeared for the respondent. The assessee is a private limited company. For the purpose of its business, it owned several vehicles. For the assessment year
43 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 1979-80, the assessee had incurred expenditure to the tune of Rs. 96,653 on the vehicles maintained by it. The assessee had claimed the said amount as business expenditure, but the Assessing Officer came to the conclusion that all the vehicles of the assessee-company were not exclusively used for the business and as the directors were also using the vehicles of the company for their personal use, the Assessing Officer disallowed 1/6th of the expenditure incurred by the assessee on the vehicles. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) dismissed the appeal. The assessee thereupon filed second appeal before the Tribunal but the Tribunal also confirmed the disallowance and dismissed the appeal. The learned advocate Shri Manish Shah, appearing for the assessee, has submitted that the disallowance to the extent of 1/6th of the expenditure is not justified for the reason that the assessee-company, by way of perquisite, had permitted its directors to use the vehicles. He has submitted that as part of salary and perquisites to the directors of the company, the directors were entitled to use the vehicles of the company and, therefore, it cannot be said that the directors were using the vehicles for their personal use and, therefore, disallowance of part of the expenditure incurred by the company for the maintenance of the vehicles was not justified. He has also submitted that without having recourse to the provisions of sections 40(c) and 40A of the Act, the Assessing Officer should not have disallowed the expenditure in question. It has also been submitted by the learned advocate appearing for the assessee that except for the assessment year 1979-80, for all other assessment years the expenditure incurred by the assessee-company towards the vehicles was allowed in toto. It has also been submitted that whenever any expenditure incurred by the assessee towards maintenance of vehicles was disallowed by the Assessing Officer, the disallowance was finally set aside. It has been submitted by the learned advocate that as the expenditure was incurred for the purpose of business by way of salary and perquisites given to the directors, the said expenditure ought not to have been disallowed. On the other hand, the learned advocate Shri Bharat Naik, appearing for the revenue, has submitted that the directors of the assessee-company were using the vehicles for their personal use and as the directors were not using the vehicles
44 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited exclusively for the purpose of the business of the company, the Tribunal was justified in disallowing 1/6th expenditure of the cars and depreciation claimed by the assessee. He has, therefore, submitted that the view expressed by the Tribunal regarding disallowance of 1/6th of the expenditure is justified. We have heard the learned advocates and have also perused the impugned orders. In our opinion, as the directors of the assessee were entitled to use the vehicles of the assessee-company for their personal use as per the terms and conditions on which they were appointed, it was not proper on the part of the Assessing Officer to disallow 1/6th of the expenditure incurred by the assessee on maintenance of its vehicles. Section 309 of the Companies Act, 1956 provides the modality for determining the remuneration payable to directors, including any managing or full-time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution or if provided by articles, by a special resolution which might be passed by the company in the general meeting. This payment of remuneration is subject to overall limits of managerial remuneration laid down in section 198 of the Act. What is more material for the purpose of the present controversy is Explanation to section 198 of the Companies Act which permits and provides that 'remuneration' shall include (a) any expenditure incurred in providing any rent-free accommodation, etc., (b) any expenditure incurred in providing any other benefit or amenity free of charge or at a concessional rate, (c) any expenditure which would have been incurred by the director but for such expenditure having been incurred by the company, (d) any expenditure incurred by the company for the purpose of any insurance on the life, etc. Therefore, it is clear that the expenditure incurred by the assessee-company on maintenance of vehicles which were available to the directors for their personal use would fall within the meaning of 'remuneration' as defined in the Explanation to section 198 of the Companies Act, and once such remuneration is fixed as provided in section 309 of the Companies Act, it was not possible to state that the assessee-company incurred an expenditure for the personal use of the directors, i.e.,even if there was any personal use by the directors, the same was as per the terms and conditions of service and insofar as the assessee- company was concerned, it was a business expenditure and not disallowable as such.
45 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited There is one more aspect of the matter which requires to be considered. The assessee which is a private limited company is a distinct assessable entity as per definition of 'person' under section 2(31) of the Act. Therefore, it cannot be stated that when the vehicles are used by the directors, 'even if they are personally used by the directors' the vehicles are personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provisions of section 40(c) and section 40A(5) of the Act. It is pertinent to note that except for the assessment year in question, for no other assessment year the expenditure in question has been disallowed. We see no reason for the Tribunal to take a different view for this assessment year, especially when it is an undisputed fact that in the past all such disallowances were deleted by the Tribunal and the said decision was not challenged. The Tribunal has, in our view unfortunately, upheld the order of the Commissioner (Appeals) wherein the Tribunal's earlier orders in the assessee's own case have been distinguished by giving reasons which are, to say the least, unwarranted. The earlier orders of the Tribunal are distinguished by stating that even if there is no personal user of cars by the company, it would yet be user for 'non-business purpose'. As already stated hereinbefore once the expenditure in question is in terms as provided in sections 309 and 198 of the Companies Act, 1956, there cannot be any 'non business' purpose insofar as the assessee-company is concerned. In relation to the aforesaid approach of the Commissioner (Appeals) and the Tribunal, we cannot do better than reiterate what the Madras High Court has stated in the case of CIT v. L.G. Ramamurthi [1977]110 ITR 453 : "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the 46 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a Single Judge takes a view different from the one taken by another judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly, if a Division Bench differs from the view taken by another Division Bench, it does not express disagreement and pronounces its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the Income-tax Act itself." (p. 453) We are in respectful agreement with the aforesaid view. In the circumstances, in our opinion, the Tribunal was wrong while disallowing 1/6th of the total car expenditure and depreciation claimed by the assessee on account of the personal use of the cars which were used by the directors. We, therefore, answer the question in the negative, i.e., in favour of the assessee and against the revenue. The reference is disposed of, accordingly, with no order as to costs. 5.3 Likewise, Hon'ble Gujarat High Court in the case of Dinesh Mills Ltd. vs CIT ((supra)), vide order dated 05/12/2001 held as under:- “The Tribunal, Ahmedabad Bench 'A' has referred the following questions at the instance of the assessee as well as 47 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited Commissioner under section 256(1) of the Income-tax Act, 1961 ('the Act') : At the instance of assessee : Assessment year : 1977-78 only in (R.A. No. 223) (Ahd.) of 1987. "1. …. "2. …. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that sum of Rs. 20,000 out of motor car expenses in each of the assessment years 1977- 78, 1979-80 and 1980-81 was not disallowable as personal and non-business use of motor car in the hands of the assessee ?" For assessment year 1979-80 : (R.A. No. 242) (Ahd.) of 1987 : "2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to the depreciation as claimed and 1/7th portion of the depreciation of motor car was not disallowable ?"
The assessment years are 1977-78, 1979-80 and 1980-81, and the relevant accounting periods are calendar years 1976 to 1979, respectively. The assessee is a limited company carrying on business in textiles and maintains the accounts by mercantile system of accounting.
Insofar as the question No. 2 at the instance of the assessee, pertaining to assessment years 1979-80 and 1980-81 is concerned, Mr. Shah has not pressed the said question and, hence, it is not necessary to answer the same.
Both the questions referred to us at the instance of the revenue stand answered by decision of this Court in the case of Sayaji Iron &Engg. Co. v. CIT [2002] 253 ITR 7491 and, hence, it is not necessary to set out the facts and submissions in detail.
Question No. 1, referred at the instance of the assessee, is therefore answered in the negative, i.e., in favour of the assessee and against the revenue.
Question No. 2, referred at the instance of the assessee, is left unanswered as the same has not been pressed on behalf of the assessee.
48 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 7. Both the questions referred at the instance of the revenue are answered in the affirmative, i.e., in favour of the assessee and against the revenue.
8. The reference stands disposed of accordingly with no order as to costs.” In the light of the above decisions from Hon'ble High Court, it can be concluded that the vehicles of the assessee company are used as per terms and conditions of the service and since the assessee is a private limited company, it is assessable as a distinct assessable entity, as per the definition of ‘person’ under section 2(31) of the Act. The Hon'ble High Court clearly held that it could not be stated that when the vehicles were used by the directors 'even if they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assessee-company was concerned. While coming to the aforesaid conclusion, Hon'ble High Court followed the decision from Hon'ble Madras High Court in CIT vs L.G. Ramamurthi (1977) 110 ITR 543 (Mad.). No contrary decisions or facts were brought to our notice by the Revenue. Thus, respectfully following the aforesaid decision from Hon'ble High Court, these grounds of the assessee are allowed. Our aforesaid conclusion/order will also cover identical grounds for the Assessment Year 2007-08 (ITA No.5523/Mum/2011) and Assessment Year 2008-09 (ITA No.5524/Mum/2011) also. Thus, these grounds are allowed in the respective appeals.
Since the issue is similar and facts are also identical, respectfully following the above decision, we find merit in the submissions of the Ld.AR and there is no infirmity in the order of Ld CIT(A). Accordingly, dismiss the ground raised by the revenue.
Ground no. 14:
On the facts and circumstances of the case and in law Learned CITA) has allowed the long term capital loss of Rs. 6,89,82,716/-in respect of Units of US64 whereas the same was not claimed by the assessee in its return of income because of which this loss was disallowed by the A.O. by following the apex court judgment in the case of Goetze India Ltd (284 ITR 323) wherein it has been held that any claim has to be made in the return of income.
Brief facts relating to the issue are dealt by the Assessing Officer in para 12 of the assessment order. The assessee vide submissions dated 13.03.2014 claimed loss of ₹.6,89,82,716/- on sale of bonds acquired on conversion of units of UTI. The Assessing Officer noted that the assessee had claimed book loss in A.Y.2004-05 of ₹.80,94,642/- on conversion of units costing ₹.5,56,31,882/- into bonds worth ₹.3,75,37,240/-. However, the Assessing Officer vide his order dated 22.12.2006 declined such loss on the ground that such 'conversion' did not amount to 'transfer'. In view of this disallowance, the assessee claimed loss arising on sale of bonds in the current year after claiming benefit of indexation by filing a letter dated 13.03.2014. However, as the assessee had not claimed such loss in its return of income, in view of judgment of the Apex Court in the case of Goetze India Ltd. (284 ITR 323), the Assessing Officer rejected the claim of setting off against LTCG.
50 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 63. On appeal before the CIT(A), the assessee reiterated its stand and after taking into account facts and circumstances of the case, the CIT(A) accepted the contentions of the assessee and allowed the assessee to claim set off of loss claimed against the long term capital gain. Against this order of the Ld.CIT(A) revenue is in appeal.
Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside.
Ld. AR reiterated the submissions made before the Ld.CIT(A) and submitted that the Assessing Officer has rejected the claim of the assessee by merely relying on the judgment of the Apex Court in the case of Goetze India Ltd. (supra). However, although there are some fetters on the powers of the Assessing Officer to admit such claim, there are no restrictions on appellate authorities to consider and allow such claims. Hence, the CIT(A) has rightly allowed the claim of the assessee. Further, Ld. AR submitted that, the assessee relies on the judgment of the Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders P. Ltd. [349 ITR 336] wherein it has been held that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional
51 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited claims before them. The Hon'ble Court further observed that the jurisdiction of appellate authorities to entertain such claim has not been negated by the Supreme Court in the case of Goetze India Ltd. (supra).
Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Jurisdictional High Court in the case of CIT v. M/s. Pruthvi Brokers & Shareholders Pvt. Ltd., (supra) and decided the issue in favour of the assessee. It is held as under: - “The appellant seeks to raise the following questions of law : (A) Whether, an assessee can amend a return filed by him for making additional claim for deduction other than filing a Revised Return? (B) Whether, on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, in law, was right in holding that a claim of deduction not made in the original return and not supported by a revised return, is admissible? (C) Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal, in law, was right in not appreciating the fact that the AO has no power to entertain a claim made by an assessee after filing a original return otherwise than by filing a Revised Return? 2. …….. 19. The orders of the CIT(A) and the Tribunal clearly indicate that both the appellate authorities had exercised their jurisdiction to consider the additional claim as they were entitled to in view of the various judgments on the issue, including the judgment of the Supreme Court in National Thermal Power Corporation Limited. This is clear from the fact that these judgments have been expressly referred to in detail by the CIT(A) and by the Tribunal.
52 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited 20. We wish to clarify that both the appellate authorities have themselves considered the additional claim and allowed it. They have not remanded the matter to the Assessing Officer to consider the same. Both the orders expressly direct the Assessing Officer to allow the deduction of Rs.40,00,000/- under section 43B of the Act. The Assessing Officer is, therefore, now only to compute the respondent's tax liability which he must do in accordance with the orders allowing the respondent a deduction of Rs.40,00,000/- under section 43B of the Act.
The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The appellant has not suggested, much less established that the omission was deliberate, mala-fide or even otherwise. The inference that the omission was inadvertent is, therefore, irresistible.
It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Limited v. Commissioner of Income-tax, (2006) 157 Taxman 1. We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Company Limited vs. Commissioner of Income-tax (supra). The question before the Court was whether the appellant- assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Company Limited contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held :- “4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear 53 4072, 4073 & 4082/MUM/2018 M/s. Raymond Limited that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Incometax Act, 1961. There shall be no order as to costs.” [emphasis supplied] 23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254.
A Division Bench of the Delhi High Court dealt with a similar submission in Commissioner of Income-tax v. Jai Parabolic Springs Limited, (2008) 306 ITR 42. The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case. In the circumstances, it is not necessary to decide the other questions raised by Mr. Mistri. The appeal is, therefore, dismissed.”
Since the issue is similar and facts are also identical, respectfully following the above decision, we are of the view that Ld CIT(A) has allowed the claim of the assessee by exercising the co-terminus power, which is within his power based on the above decision, hence there is no infirmity in the order of the Ld CIT(A), accordingly, dismiss the ground raised by the revenue. , 4073 & 4082/MUM/2018 (A.Ys. 2010-11, 2011-12 & 2012-13)
Coming to the appeals relating to A.Ys. 2010-11, 2011-12 and 2012-13, since facts in these cases are mutatis mutandis, therefore the decision taken in A.Y. 2009-10 in the respective grounds are applicable to these Assessment Years also. Accordingly, these appeals of the revenue are also dismissed.
To sum-up, appeals filed by the revenue are dismissed.
Order pronounced in the open court on 28th December, 2022