GREAVES COTTON LTD,MUMBAI vs. ASST CIT CIR 6(3), MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. This set of three appeals, out of which two cross appeal for Assessment Year 2009-10 and appeal by assessee for Assessment Year 2008-09 are directed against the assessment order passed under section 143(3) r.w.s. 144C passed

in pursuance of direction of ld. Dispute Resolution Panel (ld. DRP). Mumbai

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

dated 04.09.2012 for Assessment Year 2008-09 and dated 28.10.2013 for

Assessment Year 2009-10 respectively. In all appeals, the parties have raised

certain common grounds of appeal, therefore, all the appeals were clubbed,

heard and are decided by common order for the sake of brevity and

convenience. In appeal for Assessment Year 2008-09, the assessee has raised

the following grounds of appeal related with various additions/disallowances:

Ground A: Disallowance U/S 36(1)(iii) - Rs.3,46,618/-. Ground B : Disallowance U/S 14A- Rs. 91,30,772/- Ground C: Disallowances of pooja expenses - Rs. 11,86,451/- Ground D: Disallowances of club expense - Rs.1,11,125/- Ground E: Transfer pricing adjustment for corporate guarantee – Rs. 16,78,495/-. Ground F: Capital receipt on account of TRANSFER OF TDR treated as Long Term Capital Gain. Ground G: Unutilized Cenvat credit of Rs. 22721044/-. Ground H: Interest under section 244A. Ground I: Interest under section 234D. Ground J: Addition to book profit under section 115JB on disallowance of section 14A r.w.r. 8D. 2. Brief facts of the case as gathered from the order of lower authorities are that

assessee-company is in the business of manufacturing of marine and

industrial gear boxes, diesel engines, generating sets etc. For the assessment

year under consideration the assessee filed its return of income declaring total

income of Rs. 84.53 crore under normal provision and book profit of Rs.

126.83 crore computed under section 115JB. While filing the return of

income the assessee reported international transactions with its associated

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

enterprises (AE) including of corporate guarantee of its AE in Germany.

Therefore, the assessing officer made a reference to Transfer Pricing Officer

(TPO) for computation of Arms Length Price (ALP). The TPO passed its

order under section 92CA(3) on 28.10.2011 and directed to charge a cost of

guarantee of 6% of the guarantee of Rs. 16.78 crore. After receipt of order of

TPO, the Assessing Officer passed draft assessment order under section

143(3) read with section 144C (1) dated 26.12.2011 and made adjustment of

Rs. 67,13,980/- on account of guarantee commission. The Assessing Officer

further made disallowance under section 36(1)(iii) of Rs. 3,64,618/-,

disallowance under section 14A of Rs. 91,30,772/-, disallowance of Pooja

Expenses of Rs. 11,86,451/-, Club Expenses of Rs. 1,11,125/- and added the

disallowance of Rs. 91,30,772/- under section 14A to book profit under

section 115JB. During the assessment, the assessee claimed that long term

capital gain (LTCG) declared by assessee on sale of transfer of development

right (TDR) is not taxable gain, on the basis of the decision of Hon’ble

Supreme Court in CIT vs. B.C. Srinivasa Shetty (128 ITR 294). The claim of

assessee was not accepted by Assessing Officer. 3. The assessee exercised its option for filing objection before the ld. DRP. The

DRP after hearing the assessee granted partial relief on guarantee

commission restricting the same @ 1.5% of the loan amount. However, all

other additions/disallowances were upheld. On receipt of direction of ld.

DRP, the Assessing Officer passed the final assessment order under section 3

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

143(3) r.w.s 144C(13) dated 21.11.2012. Aggrieved by the various additions/

disallowances made in pursuance of direction of ld. DRP, the assessee has

filed present appeal before this Tribunal. 4. We have heard the submission of ld. authorised representative (AR) of the

assessee and ld. departmental representative (DR) for the revenue and

perused the material available on record. At the outset of hearing, the ld. AR

of the assessee submits that most of the grounds of appeal raised by assessee

are covered in favour of assessee by the decision of Tribunal either in case of

assessee for earlier years or other decisions of Tribunal or higher courts. 5. Ground No.1 relates to disallowance under section 36(1)(iii). The ld. AR of

the assessee submits that this ground of appeal is covered in favour of

assessee by the decision of Tribunal in assessee’s own case for A.Y. 2006-07

& 2007-08 in ITA No. 7424/Mum/2010 dated 07.06.2019. There is no

variance in the facts for the year under consideration, so far as disallowance

under section 36(1)(iii) is concerned. The ld. AR further submits that the

assessee gave advance to its subsidiary in A.Y. 1998-99, out of its own fund.

The Assessing Officer made similar disallowance in earlier years, which have

been deleted by the Tribunal. 6. On the other hand, the ld. DR for the revenue relied upon the order of lower

authorities. 7. We have considered the submission of both the parties and perused the

record. We have noted that on similar set of fact similar disallowance was 4

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

made in A.Y. 2006-07 & 2007-08 and on appeal the disallowance was

deleted by the Tribunal by passing the following order:

following the same, the disallowance under section 36(1)(iii) are deleted. 5

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

The ld. AR of the assessee submits that during the relevant period under

relevant to the assessment year consideration, the assessee earned dividend

income of Rs. 2.41 crore from subsidiary company and Rs. 23,849/- from

mutual funds. The assessee offered suo moto disallowance of DMAT charges

of Rs. 105,400/- and Rs. 100,128/- being .4% of exempt income as per the

decision of Tribunal in assessee’s own case in earlier years. The ld. AR

submits that before Assessing Officer vide submission dated 18.10.2011

submitted that the assessee has sufficient own fund, investment was not made

out of borrowing and interest disallowance was not justified. The investment

of the assessee was the same as in preceding year except investment in

mutual funds which reduced to Rs. 12.73 crore from Rs. 25.26 crore in

Financial Year 2006-07. The ld.AR further submits that section 14A is not

applicable to the investment in growth fund as held by Tribunal in

Manugraph India Ltd. ITA No. 4761/Mum/2013. Further, in A.Y. 2006-07

and A.Y. 2007-08, the Tribunal restricted the similar disallowance to 2% of

the dividend income. The ld. AR submits that similar order for A.Y. 2006-07

& 2007-08 may be followed. In alternative submissions the ld AR for the

assessee submitted that indirect expenses may be restricted to .5% of average

value of investment. 10. On the other hand, the ld. DR submits that from the Assessment Year 2008—

09, the disallowance under section 14A is to be computed as per the 6

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

methodology prescribed under Rule 8D. The ld. AR submits that Hon’ble

jurisdictional High Court in Godrej & Boyce Ltd. (328 ITR 81) has upheld

the validity of Rule 8D. Thus, the decision of Tribunal for A.Y. 2006-07 and

2007-08 is not helpful to the assessee as Rule 8D was introduced from A.Y.

2008-09. 11. We have considered the submission of both the parties and perused the order

of lower authorities. The Assessing Officer while making disallowance made

disallowance of interest expenses under Rule 8D(2)(ii) of Rs. 71,83,118/- and

under Rule 8D(2)(iii) of Rs. 19,47,654/- being .5% of average value of

investment. The ld. DRP upheld the action of Assessing Officer by taking

view that Rule 8D is applicable for the Assessment Year under consideration.

We have noted that before the Assessing Officer, the assessee specifically

stated that investments are made out of the profit generated from the

operation and not from borrowed money. The Reserve & Capital of the

assessee are Rs. 332.63 crore (page no. 189/197 of the Paper Book. The

assessee made investment of Rs. 70.26 crore and remaining of Rs. 80.75

crore were invested in preceding year. Considering the fact that assessee has

made investment from its own interest free funds for the earning exempt

income or the investment made are from the income generated from the

business of assessee, therefore, no interest disallowance under Rule 8D(2)(ii)

is warranted against the assessee. So far as disallowance under section Rule

8D(2)(iii) is concerned, the Assessing Officer have made disallowance @ 7

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

.5% of average value of investment. In our view, the Assessing Officer has

correctly made the disallowance of indirect expenses by applying the formula

of Rule 8D. Therefore, we upheld the disallowance of .5% of average value

of investment. The assessing officer is directed to allow the setoff of suo

moto disallowance offered by the assessee. Thus, the assessee gets part relief

on this ground of appeal. In the result, this ground of appeal is partly allowed.

that this ground of appeal is covered by the decision of Tribunal for A.Y.

2007-08, wherein on similar disallowance was allowed subject to verification

by lower authorities.

authorities.

material available on record. We find that similar disallowance was made in

A.Y. 2007-08, which was allowed by co-ordinate bench by passing the

following order:

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

CIT(A) vide ITA No. 7123/M/2003 vide order dated 15.04.2008. The revenue filed appeal before Hon’ble Bombay High Court for challenging the order of the Tribunal in ITA No. 50 of 2010. However, the revenue has withdrawn the said appeal vide order dated 29th November 2010. The copy of the Hon’ble High Court order is available on record. Therefore, we are of the view that this ground of appeal is covered in favor of the assessee. Hence, the AO is directed to delete the Pooja expenses. In the result this ground of appeal is also allowed. 15. Considering the decision of Tribunal on similar ground of appeal in

assessee’s own case for preceding year when no variance is brought to our

notice. Thus, respectfully following the same, we direct the Assessing Officer

to delete the disallowance of Pooja Expenses.

assessee submits that this ground of appeal is covered by the decision of

Tribunal for A.Y. 2007-08, wherein on similar disallowance was allowed

subject to verification by lower authorities.

authorities.

material available on record. We find that similar disallowance was made in

A.Y. 2007-08, which was allowed by co-ordinate bench by passing the

following order:

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

membership fees only. The club membership fees was only Rs. 6,04,00/-, accordingly, the Assessing Officer disallowed the balance amount (Rs. 7,07,477 – 6,04,000). We have noted that in assessee’s own case for A.Y. 1982-83 similar disallowances was allowed vide order dated 21st January 1992 in R.A No. 2569(Bom.)/1991 in ITA No. 6154/Bom/1987. Similar relief was granted to the assessee in appeal for A.Y. 1990-91 in ITA No. 7619/Bom/1993 dated 13.02.2002. We have further noted that after the decision of Hon’ble Bombay High Court in Otis Elevator Co. Ltd. (supra), this issue is no more res-integra wherein the Hon’ble High Court while considering the question of law about the allowance of club fees incurred/paid to employees, allowed the question in favour of assessee. Therefore, respectfully following the decision of Hon’ble Bombay High Court in Otis Elevator Co. Ltd. (supra) and decision of Tribunal in assessee’s own case for A.Y. 1982-83 and 1990-91, this ground of appeal is also allowed in favour of assessee. 19. Considering the decision of Tribunal on similar ground of appeal in

assessee’s own case for preceding year when no variance is brought to our

notice. Thus, respectfully following the same, we direct the Assessing Officer

to delete the disallowance of Club Expenses.

The ld. AR of the assessee submits that corporate guarantee is not

international transaction and the amendment made in the Act is applicable

from A.Y. 2012-13. In alternative submission, the ld. AR submits that the

assessee given a corporate guarantee for Euro 2450000/- to ABN Ambro

Bank in India for credit facility extended to AE of assessee in Germany.

Though, the transaction was reported in Form 3CEB. The TPO held that a

benefit was given to AE and Arms Length compensation was required to be

received by assessee. The TPO estimated 6% of the loan amount and 10

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

suggested adjustment of Rs. 67,13,980/-. However, ld. DRP restricted the

corporate guarantee addition to 1.5% of the loan amount and accordingly, the

Assessing Officer made adjustment of Rs. 16,78,495/-. The ld. AR submits

that if adjustment required, it should be restricted to .5% of amounted

guarantee and for the period, the guarantee was given. In support of her

submission, the ld. AR of the assessee relied upon the decision of Hon’ble

Bombay High Court in Everest Canto Cylinders Ltd. (378 ITR 57) and

decision of Tribunal in IL & FS Technology Ltd. (2019) 105 taxmann.com

117 (Mum Trib.). 21. On the other hand, the ld. DR for the revenue relied upon the order of lower

authorities. 22. We have considered the submission of both the parties and perused the

material available on record. So far as contention of ld. AR of the assessee

that provision of guarantee is not international transaction is not acceptable to

us. In our view after introduction of Explanation 1(c) to section 92B with

retrospective effect from 01.04.2002, the provision of guarantee has to be

considered as international transaction. However, following the decision of

Hon’ble Bombay High Court in Everest Canto Cylinder Ltd. (supra), we

direct the Assessing Officer to charge/add guarantee commission @ 0.5%

p.a. for the period of guarantee. In the result, this ground of appeal is partly

allowed.

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

ld. AR of the assessee submits that during the assessment, the assessee vide

letter dated 26.12.2011 requested the Assessing Officer not to adjust the gain

on sale of TDR. The request of assessee was not accepted by Assessing

Officer. The ld. DRP upheld the action of Assessing Officer by taking view

that assessee had computed cost of acquisition and declared a LTCG in the

return and the prayer of assessee of assessee is that capital gain is not taxable

was rejected. The ld. AR of the assessee further submits that during the

relevant period the assessee sold TDR for Rs. 5 crore. The details of

purchaser is placed on record as per details on page no. 290 of Paper Book.

Out of the total amount of TDR certain amount was paid to two companies

namely Foseco Ltd. of Rs. 56,44,445/- and Premium Energy Transmission

Ltd. of Rs. 82,22,255/- as part of TDR belongs to those companies. Balance

consideration declared in the return and LTCG adjusted against brought

forward capital losses. Thus, capital gain written was declared Nil. The

assessee vide its letter dated 26.12.2011 requested the Assessing Officer not

to adjust the gain on sale of TDR. The ld. AR further submits that

acquiescence cannot take away from a party, the relief, which he is entitled to

where the tax is levied or collected without authority of law as held by

Hon’ble Bombay High Court in Nirmala L Mehta [269 ITR 1 (Bom)] and

Balmukand Acharya [310 ITR 310 (Bom)].

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

claim in the form of additional ground. The ld. AR relied on the decision of

Hon’ble Bombay High Court in CIT vs. Pruthvi Broker & Shareholders Pvt.

Ltd. [349 ITR 336 (Bom)] and Hon’ble Supreme Court in National Thermal

Power Corporation [229 ITR 383(SC)]. On the point that no cost of

acquisition of TDR, capital gain not taxable, the ld. AR of the assessee relied

upon the decision of Hon’ble Bombay High Court in CIT vs. Sambhaji Nagar

Co-operative Housing Society Ltd. [370 ITR 325]. 25. On the other hand, the ld. DR for the revenue submits that before Assessing

Officer, the assessee claimed relief without filing revised return of income. In

the computation of income, the assessee itself computed cost of acquisition

and declared income in the form of Capital Gain. The ld. DR submits that in

case, the additional claim of the assessee is admitted then the issue may be

restored to the file of Assessing Officer for examination of facts afresh. 26. We have considered the submission of both the parties and gone through the

orders of lower authorities. We have noted that during the assessment, the

assessee raised claim before the Assessing Officer and submitted that the

capital gain is not taxable. The contention of assessee was not accepted by

Assessing Officer by taking view that the assessee itself computed the capital

gain and adjusted against brought forward capital loss. Before us, the ld. AR

of the assessee vehemently argued that the assessee is entitled to raise

additional claim before the appellate authority. In our view, the Assessing 13

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

Officer is not entitled to accept revised claim without filing of revised return

of income, however, we are in agreement with the contention of ld. AR of the

assessee that the appellate authority have jurisdiction to consider revised

claim as held by jurisdictional High Court in Pruthvi Brokers & Shareholder

Ltd. (supra). We are also in agreement with the submission of ld. AR of the

assessee that acquiescence cannot take away the right of the parties for the

relief that he is entitled, where tax is levied or collected without authority of

law. Therefore, considering the facts of the case, we admit the additional

ground/claim raised by assessee about the receipt of income received on

transfer of capital asset/TDR. Considering the fact that we have admits the

additional ground/claim of assessee, therefore, we deem it appropriate to

restore the issue to the file of Assessing Officer to decide this issue afresh in

accordance with law. Needless to order that before passing the order, the

Assessing Officer shall grant sufficient opportunity to the assessee to

substantiate its claim. In the result, this ground of appeal is allowed for

statistical purpose. 27. Ground No. G relates to unutilized Cenvat credit of Rs. 2.27 crore. The ld.

AR of the assessee submits that this ground of appeal is covered in favour of

assessee by the decision of Tribunal in assessee’s own case for A.Y. 2007-08,

wherein similar ground of appeal was restored back to the file of Assessing

Officer.

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

authorities.

authorities. We have noted that similar ground of appeal in A.Y. 2007-08 was

restored to the file of Assessing Officer for examination of issue afresh by

passing the following order:

fact for A.Y. 2007-08, this ground of appeal is restored back to the file of

Assessing Officer with similar direction.

to interest under section 234D. The ld. AR of the assessee submits that

interest of Rs. 74,16,934/- should be allowed under section 244A instead of

Rs. 2904767/- and further interest of Rs. 2,66,719/- should have been charged

under section 234D instead of Rs. 11,19,423/-.

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

the file of Assessing Officer for recomputation of interest afresh.

are restored the file of Assessing Officer to recompute the interest under

section 244A and 234D in accordance with law. The assessee is directed to

provide necessary details to the Assessing Officer. In the result, these

grounds of appeal are treated as allowed.

profit under section 115JB. The ld. AR of the assessee submits that in A.Y.

2007-08, the Tribunal has directed that computation under clause (f) of

Explanation (1) to section 115JB(2) is to be made without resorting to

computation/disallowance under section 14A.

authorities. We have noted that similar ground of appeal in A.Y. 2007-08, the

co-ordinate bench has passed the following order:-

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

08 wherein the decision of Special Bench in Vireet Investment (supra) was

followed. Therefore, the direct the Assessing Officer to follow the decision of

Special Bench and recompute the adjustment under section 115JB. 37. In the result, appeal of the assessee is partly allowed.

ITA No. 1007/Mum/2014 by assessee 38. Ground No.1 relates to transfer pricing adjustment for corporate guarantee.

We have noted that this ground of appeal is identical to the ground no. E in

appeal for A.Y. 2008-09, wherein we have directed the Assessing

Officer/TPO to charge/add .5% of loan amount by following the decision of

Hon’ble Bombay High Court in Everest Canto Cylinders Ltd. (supra). Thus,

respectfully following the decision for A.Y. 2008-09, this ground of appeal is

allowed with similar direction. 39. Ground No. B relates to Pooja Expenses of Rs. 1001460/-. We have noted

that this ground of appeal is identical to the ground no. C in appeal for A.Y.

2008-09, which we have allowed. Thus, respectfully following the decision

for A.Y. 2008-09, this ground of appeal is allowed with similar direction. 40. Ground No. C relates to issue of transfer of TDR. We have noted that this

ground of appeal is identical to the ground no. F in appeal for A.Y. 2008-09,

which we have restored to the file of Assessing Officer for adjudication.

Therefore, respectfully following the order of A.Y. 2008-09, this ground of

appeal is allowed with similar direction. 17

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

ground of appeal is identical to the ground no. G in appeal for A.Y. 2008-09,

which we have restored to the file of Assessing Officer. Therefore,

respectfully following the order of A.Y. 2008-09, this ground of appeal is

allowed with similar direction.

Ground No. G relates to excess charge of education cess, Ground No. H

relates to interest under section 234B. The ld. AR of the assessee submits that

Assessing Officer has not given credit of TDS of Rs. 22,92,403/-.

Considering the nature of grounds with regard to various interests and charge

of education cess, the Assessing Officer is directed to verify the fact and

grant necessary adjustment and recompute the interest accordingly.

commission @ .5% of the loan amount by following the decision of Hon’ble 18

ITA No. 279 M 13, 1007 & 754 Mum 2014-Greaves Cotton Ltd.

Bombay High Court in Everest Canto (supra), therefore, the ground of appeal

raised by revenue has become infructuous.

Order pronounced in the open court on 17/01/2020.

Sd/- Sd/- SHAMIM YAHYA PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 17.01.2020 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “K” Bench, ITAT, Mumbai 6. Guard File

BY ORDER,

Dy./Asst. Registrar ITAT, Mumbai