ACIT 3 (2)(1), MUMBAI vs. M/S LML LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No.01/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2012-13) बिधम/ ACIT-3(2)(1) M/s. LML Ltd. Room No.674, 6th Floor, 714, Raheja Chambers, 213, Vs. Aayakar Bhavan, M. K. Nariman Point, Mumbai- Road, Mumbai-400020. 400021. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACL0141N (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Revenue by: Shri Brajendra Kumar (DR) Assessee by: None सुनवाई की तारीख / Date of Hearing: 12/08/2021 घोषणा की तारीख /Date of Pronouncement: 01 /09/2021 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 23.10.2019 passed by the Commissioner of Income Tax (Appeals) -09 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13. 2. The revenue has raised the following grounds: - "1. "Whether on the facts and circumstances and in law, the Ld. CIT(A) was justified in allowing the claim of the assessee on account of delayed payments of Provident Fund and ESIC amounting to Rs.29,50,937/- by relying on the decision of Hon'ble JTAT, Mumbai forAY 2009-10 which was based on the decision of the Hon'ble High Court of Bombay in the case of

ITA No. 01/Mum/2020 A.Y.2012-13 M/s. Hindustan Organic Chemicals Ltd., 366 ITR 001 (2014) without appreciating the fact that the said decision of the Hon'ble Court has not been accepted by the Revenue and SLP is filed before the Hon'ble Supreme Court which is pending for decision and further not appreciating the fact that the department has challenged the decision of the ITATfor AY2009- 1O in ITA No. 4396/Mum/2013 and has filed appeal u/s. 260A to the Hon'ble Bombay High Court vide Income Tax Appeal No. 1689/2017.

ITA No. 01/Mum/2020 A.Y.2012-13 where taxpayer in a particular year has not earned any exempt income. 5. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. 6. The appellant craves leave to amend, alter, delete or add grounds which may be necessary.?" 3. The brief facts of the case are that the assessee filed its return of income on 27.09.2012 declaring a total loss to the tune of Rs.13,44,56,717/- for the A.Y.2012-13. The return was processed u/s 143(1) of the Act. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of Manufacturing of two wheelers vehicles. On verification, it was found that the amount of Rs.218.27 lakhs and Rs.940.01 lakhs were receivable from VCCL ltd which has been shown as other loans and advances. The assessee was having substantial borrowings on which interest expenses were allowed. The proportionate interest in sum of Rs.1158.28 was disallowed and added to the income of the assessee. The AO also noticed that the assessee was deducting Employee Contribution fund which was deposited later, therefore, an amount of Rs.29,50,937/- was disallowed and added to the income of the assessee. Some disallowance u/s 14A r.w.s. 8D of Rs.1,17,410/- was also made and after some other disallowance, the total income of the assessee was assessed to the tune of Rs.(-)11,74,83,247/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) partly allowed the claim of the assessee but the revenue was not satisfied, therefore, filed the present appeal before us.

ITA No. 01/Mum/2020 A.Y.2012-13 ISSUE No.1

“4.3.2 I have carefully gone through the assessment order and the written submission filed by the appellant. The Assessing Officer has disallowed a sum of Rs.29,50,937/- on account of employees contribution to ESIC and PP u/s. 36(1)(va) by holding that they are not eligible for deduction since, there is a delay in depositing the same on or before the due date under the respective Act. On the other hand, the appellant relied upon various case laws and urged that no disallowance is called for as the appellant has made the payments towards employee's contribution for PF/ESIC within the due date of filing the return of income for the year under consideration.

4.3.3 I have carefully gone through the assessment order and the written submission filed by the appellant. It is noticed that the appellant has made the payments towards employee's contribution for PF/ESIC within the due date of tiling the return of income for the year under consideration. Hence, the facts of the case are squarely covered by the decision of the Jurisdictional High in the case of CIT Vs. Hindustan Organics Chemicals Ltd. (48 Taxmann.com 421) and CIT Vs. Ghatge Patil Transports Ltd. (368 ITR 749). Respectfully following the decisions of the Jurisdictional High Court, the claim of the appellant in respect of employee's contribution towards PF/ESIC

ITA No. 01/Mum/2020 A.Y.2012-13 is allowed. Also, find that on identical facts and circumstances, the Hon’ble ITAT, Mumbai, in appellant's own case for AY. 2009-10 in ITA No. 4396/Mum/2013 dated 31-03-2017, has decided the issue in favour of the appellant. Accordingly, disallowance of Rs. 29,50,937/- is hereby deleted. This ground is allowed.” 5. On appraisal of the above mentioned finding, we find that the CIT(A) has allowed the claim of the assessee on the basis of decision in the case of CIT Vs. Hindustan Organics Chemicals Ltd. (48 Taxmann.com 421) & CIT Vs. Ghatge Patil Transports Ltd. (368 ITR 749) and the decision of Hon’ble ITAT in the assessee’s own case for the A.Y.2009-10 bearing ITA. No.4396/Mum/2013 dated 31.03.2017. Since the issue has duly been covered by the decision of Hon’ble ITAT as well as the other decision mentioned above, therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfere with at this appellate stage, hence, we decide this issue in favour of the assessee against the revenue.

ISSUE NO.2 6. Issue no.2 is in connection with the allowance of the claim of interest of Rs.1,38,99,000/-. The Ld. Representative of the Department has argued that the claim of the interest has wrongly been allowed. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-

“4.1 1 have carefully considered the grounds of appeal, submissions made by the appellant and assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961.

ITA No. 01/Mum/2020 A.Y.2012-13 4.2 Ground No. 1: This ground is against the addition of notional interest on part advances to M/s. Vespa Car Company Ltd. amounting to Rs. 1,38,99,000/-. The appellant had advanced interest free loan totalling to Rs. 1158.28 lakhs to VCCL Ltd. As per the AO, the advance to subsidiary company could not be construed to be for the purpose of business and hence, proportionate interest allocable to loan of Rs. 1158.28 lakhs (218.27 lakhs + 940.01 lakhs) was calculated @ 12% and

accordingly, an amount of Rs. 1,38,99,000/- was disallowed and added back to the total income of the appellant by the AO.

4.2.1 The appellant has provided various arguments in the submission. The relevant portion of the submission is reproduced below:

"The sum of Rs. 1,38,99,000/- has been disallowed based on the discussion in previous assessment years since there is no changes in facts of the case.

The above referred has been decided by the 1TAT/CIT(A) in previous assessment years in favour of assessee.

The above referred issue has been dealt with in 1TAT's order for A. Y. 2009-10 on page 4 to 8 and para 8 & 9 of the order. The copy of order dated 31-03-201 7 is enclosed [Page No. 12 to 16/27 to 29 of Paper Book)."

4.2.2 I have carefully considered the submissions of the appellant vis a vis the Assessment order. I find that on identical facts and circumstances, the Hon'ble ITAT, Mumbai, in appellant's own case for

ITA No. 01/Mum/2020 A.Y.2012-13 A.Y. 2009-10 in ITA No. 4396/Mum/2013 dated 31-03-2017, has decided the issue in favour of the appellant by holding as under:

"We now advert to the disallowance of Rs.1,81,81,940/- made under Sec. 36(1) which had been deleted by the CIT(A). The Ld. assailing the order of the CIT(A) therein submitted that the disallowance of interest of Rs. 1,81,81,940/- (supra) so made by the AO in respect of interest free loans advanced by the assessee company to VCCL Ltd. had wrongly been deleted by the CIT(A) for the reason that the similar disallowance had been deleted by his predecessor in A.Y. 2000-01 which thereafter was followed by the successor C1T(A) while disposing of the appeal for A.1'. 2006-07, coupled with the fact that on the similar basis, the disallowance had been deleted by the CIT(A) in the case of the assessee while disposing of the appeals of the assessee company for A. Y. 2001-02, 2005-06, 2007-08 and 2008-09. It was vehemently submitted by the Ld. DR that res-judicata is not applicable to Income Tax proceedings. That on the other hand, the Ld. A.O. strongly supported the order of the C1T(A) and therein submitted that the addition/disallowance had rightly been deleted by the CIT(A) we though in agreement with the contention of the Ld DR. that the res-judicata is not applicable to Income Tax proceedings, but then now when it remains as a matter of fact that the facts involved in the case as regards the issue under consideration are the some as against those which were involved in the case of the assessee for the aforesaid preceding years viz. A. V. 2000-01, 2001-02 to 2005-06. 2005-06, 2007-08 and 2008-09 and nothing had been draft on record before the lower authorities not before its which could go to persuade us that either the facts or issue involved therein were distinguishable as against those involved in the aforesaid preceding years, we are

ITA No. 01/Mum/2020 A.Y.2012-13 unable to persuade ourselves to subscribe to the view of the Ld. Dl? that despite from being no shift from the facts which were involved in the said preceding years, the reasoning and the view adopted therein be liable to be dislodged. We are thus; of the considered view that in light of our aforesaid observations, we find no reason to take a view different from that arrived at by the CIT(A). Thus, in the backdrop of the aforesaid facts now when it emerges from the records that in the backdrop of the fact that the disallowance of interest pertaining to the amounts by the assessee company to VCCL Ltd in order to facilitate the latter-s onetime settlement (OTS) obligation with banks and financial institution as carried out by the A0 while framing the assessment hands of the assessment company for A. V 1997-98, 1998- 99 and 1999-2000 was substantially modified of appeal by the CIT(A) as under:

Assessment year As per AO As per CIT(A)’s directives 1997-98 1,23,886 1,06,814 1998-99 43,55,815 3,90,265 1999-00 1,66,86,012 28,310 Read in light of the fact that in the year 1999-2000, the aforesaid company, viz. VCCL Ltd repaid the sum of Rs. 13.55 crores to the assessee company, in the in the backdrop of the factual position the disallowance of interest pertaining to the said amount made by the AO for A. V 2000-01 was deleted by the C!T(A), we are thereof of tile considered view that in the backdrop of the aforesaid facts, specifically in light of the4 very fact that no material had been placed on record before us which could go on the basis of which we could be persuaded to hold that the facts involved during the year under

ITA No. 01/Mum/2020 A.Y.2012-13 consideration on the aforesaid issue are distinguishable as against those involved in the aforesaid orders, we are of the considered view they remains no scope for carrying out any disallowance of interest connected with the amount funded for OTS. That as regards the current amount outstanding in respect of VCCL Ltd. (excluding the amount) outstanding on account of, we are of the considered view that in the absence of any material being placed on record by the Ld. DR, in order to persuade us to take a view otherwise for the reason that any new facts had emerged during the year under consideration, we are constrained to conclude that as stand covered from the findings of the lower authorities in the case of the assessee for the preceding years, as no nexus had been proved by the A0 in respect of the current amount outstanding in respect of the aforesaid compan 76y, viz. VCCL Ltd. and the borrowed funds, therefore, no disallowance as regards any part of the said amount is called for under Sec. 36(1)(iii) of the Act, in the hands of the assessee company. We thus, in light of our aforesaid observations are of the considered view that the CIT(A) by way of a reasoned order had rightly deleted the addition/disallowance of Rs. 1,81,81,940/, Thus, the order of the CIT(A) to the said extent is upheld and the ground of appeal No. 2 raised by the revenue before us is dismissed."

4.2.3 Since there is no change in the facts and the law continues to be the same, respectfully following the order of the jurisdictional Hon’ble ITAT in appellant's own case for A.V.2009-10, the disallowance made on account of interest on interest free loan advanced to VCCL of Rs. 1,38,99,000/- is deleted. This ground is allowed.”

ITA No. 01/Mum/2020 A.Y.2012-13 7. On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of decision of Hon’ble ITAT in the assessee’s own case for the A.Y. 2009-10 in ITA. No.4396/Mum/2013 dated 31.03.2017, therefore, we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue.

ISSUE Nos. 3 & 4 8. Under these issues the revenue has challenged the allowance of claim raised in view of the Section 14A r.w. Rule 8D of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record: -

“4.4.2 I have gone through the assessment order as well as submission made by the appellant. The appellant argued that since the dividend income earned by the appellant is Rs.43.334/-, hence the disallowance u/s 14A of the act cannot exceed the exempt income. As per the evolved judicial view, the disallowance provided under section 14A cannot be more than the exempt income earned by the appellant. In the instant case, the appellant has earned dividend income of Rs. 43,334/- only, hence the disallowance needs to be restricted to the exempt income earned by the appellant. It has been held by various courts that the disallowance u/s 14A read 8D should be restricted to the exempt income earned during the year. The decisions are as under:

ITA No. 01/Mum/2020 A.Y.2012-13 (i) Joint Investment Pvt. Ltd. (Hon'ble Delhi High Court) (372 ITR 694) (ii) Nimbus Communications Ltd. (Hon'ble ITAT, Mumbai) 47 ITR(T) 496 (iii) Daga Global Chemicals Pvt. Ltd. (Hon’ble ITAT, Mumbai)(ITA No.5592/Mum/2012) (iv) Pest Control India Pvt Ltd vs DCIT (Mum ITAT) (ITA No.5048/Mum/2016 & ITA No. 5608/Mum/2016) a. Pr.CIT vs MIs Empire Package Pvt. Ltd. (Punjab & Haryana High Court (ITA No. 415 of 2015) (v) Sanghavi Exports International P Ltd vs ACIT (ITA No.3405/Mum/2015) 4.2.3 The issue of restriction of the disallowance under section 34A to the exempt income has been conclusively decided the Hon'ble Supreme Court in its recent judgement in the case of Maxopp Investment Ltd. v. CIT ( 91 Taxmann.com 154). The Hon'ble Supreme Court in para 40 of the judgement has observed as under:

"We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula

contained in Rule 81) of the Rules and holding that section 14A of the Act would be applicable.

In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT."

ITA No. 01/Mum/2020 A.Y.2012-13 4.2.4 Thus it is clear that the disallowance under section 14A of the Act made by the AO cannot be more than the exempt income as per the settled judicial position. hence the disallowance needs to be restricted to the exempt income earned of Rs.43,334/-. The AO is directed to delete the balance disallowance of Rs.74,076/-. The ground of appeal is partly allowed.” 9. On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim on the basis of decision in the case of Maxopp Investment Ltd. Vs. CIT (91 Taxmann.com 154). Moreover, we find that this issue has also covered by decision of Hon’ble Delhi Benches in the case of Vireet Investment 82 taxmann.com. 415 in which it is specific held that the no disallowance could be made beyond the exempt income. Accordingly, it is quite clear that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage.

ISSUE Nos. 5 & 6 10. Issue nos. 5 & 6 are formal in nature which is not required for adjudicated. 11. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 27/09/2021

Sd/- Sd/- (SHAMIM YAHYA) (AMARJIT SINGH) न्यधनिक सदस्य/JUDICIAL MEMBER लेखध सदस्य / ACCOUNTANT MEMBER मुंबई Mumbai; ददनांक Dated : 27/09/2021 Vijay Pal Singh (Sr. P.S.)

ITA No. 01/Mum/2020 A.Y.2012-13 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai