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Income Tax Appellate Tribunal, DELHI BENCHES: ‘B’, NEW DELHI
Before: SHRI N.K.BILLAIYA & SMT. BEENA A PILLAI
ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by revenue against order dated 28/02/2014 passed by Ld.CIT(A)-18, New Delhi on following grounds of appeal:
1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs.1,12,33,667/- made u/s 14A of the I.T.Act, 1961.
M/s Federal Mogul Goetze (India) Ltd. AY 2002-03 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs.22,47,597/- being expenses related to prior period.
On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs.18,25,000/- being paid to M/s Umang Credit Capital Ltd. Which has not provided services in arranging the loan to the assessee company.
4. The appellant craves leave to add, alter or amend any ground of appeal
raised above at the time of hearing.”
2. Brief facts of the case are as under: Assess filed its return of income on 31/10/2002, declaring total income of rupees “Nil” under normal provisions of the Act, after set of brought forward losses and depreciation, totalling ₹3,94,78,003/-.The total income under section 115 JB was computed at ₹9,71,65,895/-, and tax was computed accordingly. Return was processed under section 143(1). On 13/03/2003, assessee filed revised return of income at the same income, revising calculation mistake in original return. Gross total income before set off of brought forward losses and depreciation, now totalled to ₹5,90,35,575/-. Case was selected for scrutiny and notice under section 143 (2) was issued, followed by notice under section 143 (2) and 142 (1). 2.1. Assessing officer completed assessment by making various additions and computed income in hands of assessee at Rs.9,98,51,978/- 2.2. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld.CIT (A), who deleted additions made by Ld.AO.
M/s Federal Mogul Goetze (India) Ltd. AY 2002-03 3. Aggrieved by order of Ld.CIT (A), revenue is in appeal before us now.
Ground No. 1 has been raised against deleting disallowance of ₹1,12,33,667/-, under section 14 A of the Act. 4.1. It has been submitted that assessee has earned dividend income on investments amounting to ₹55.96 lakhs. Ld.Sr.DR submitted that assessee’s financial resources and expenses are mixed and that assessee has not maintained separate accounts for investments and business funds. Ld.DR submitted that assessee incurs interest on its borrowings and since funds are maintained in a mixed account part of interest expenditure is to be held towards earning of dividend income. 4.2. On the other hand Ld.AR placed reliance upon order passed by this Tribunal in and 1032/Del/2017 vide order dated 27/11/2009 in assessee’s own case for assessment year 2001-02, wherein proportionate disallowance made was deleted.
We have heard submissions advanced by both sides in light of records placed before us. 5.1. Assessee placed reliance on assessment order for assessment year 2003-04, wherein no disallowance under section 14 A has been made and order of ITAT for assessment year 2001- 02, wherein disallowance of 1% has been deleted. 5.2. We have perused Annexure C, Schedules 6 to audited accounts, wherein investments made by assessee have been listed. It is observed that assessee has sufficient investments made in government securities, subsidiary companies, unit trust of India, trade investments etc. and to manage these, it cannot be M/s Federal Mogul Goetze (India) Ltd. AY 2002-03 held that no expenditure could have been incurred by assessee. Further upon perusal of audited accounts placed at ANNEXURE C of paper book, it is observed that assessee had sufficient reserves and surplus for investment made during year. We therefore do not agree with disallowance computed by Ld.AO in respect of interest expenditure being allocated for earning exempt income. 5.3. In the present scenario of judicial review, view taken by this Tribunal for assessment year 2001-02 (supra) in assessee’s own case cannot be applied, in view of decision of Hon’ble Supreme Court in case of Maxopp Investments vs. CIT reported in (2018) 91 taxmann.com 154 (SC). However we are conscious of the fact that, for year under consideration, disallowance cannot be made as per Rule 8D of Income Tax Rules, 1963. We are therefore inclined to set aside the issue back to Ld.AO to compute disallowance having regard to assessment year under consideration, as well as decision of Hon’ble Supreme Court in case of Maxopp Investments vs. CIT (supra). Ld. AO is also directed that the disallowance so computed shall not exceed the exempt income earned by assessee during year under consideration. 5.4. Accordingly this ground raised
by revenue stands allowed for statistical purposes.
6. Ground No. 2 raised by revenue is in respect of deleting disallowance of ₹22,47,597/-, being expenses related to prior period. 6.1. Ld.Sr.DR submitted that, these expenses pertain to prior period, and hence are not allowable against income of current M/s Federal Mogul Goetze (India) Ltd. AY 2002-03 year. Placing reliance upon order passed by Ld.AO he submitted that assessee has been using mercantile system of accounting of expenses and liability of the same depends upon time when services are provided, which is in preceding year. 6.2. On the contrary, Ld.AR submitted that, bills in respect of services provided were received during year and therefore expenses related to current year and were allowable. It has been submitted that for similar reason proceedings under section 263 was initiated, for assessment year 2000-01 and Ld.CIT therein upon being satisfied granted relief to assessee by dropping proceedings under section 263 of the Act. It has been submitted that this Tribunal for assessment year 2003-04 upheld view of Ld.CIT (A) in deleting similar addition. 6.3. We have perused submissions advanced by both sides in light of records placed before us, and orders relied upon by Ld.AR. 6.4. It has been submitted that assessee has been following consistent method of accounting according to which, such expenditure is treated to be crystallised in year in which bills are received and claimed. There is no allegation by Ld.DR regarding expenses having not been incurred by assessee or are not genuine or not for any business purposes. It has been submitted that only reason for disallowance by Ld.AO is that services rendered in view of such expenditure, does not pertain to year under consideration. 6.5. It is observed that this Tribunal in passed for assessment year 2003-04 in assessee’s own case has observed that expenses are always claimed by assessee in year M/s Federal Mogul Goetze (India) Ltd. AY 2002-03 in which the same are quantified, while allowing claim of assessee. 6.6. It is observed that this method of accounting has been accepted by authorities below from assessment year 1991-92 to 2000-01. It is also observed that for assessment year 2000-01 notice under section 263 has been issued by Ld.CIT, for examining this issue, and the same has been dropped. 6.7. On the basis of same reasoning we do not find any infirmity in view taken by Ld. CIT (A) and same is upheld. 6.8. Accordingly this ground raised by revenue stands dismissed.
7. Ground No. 3 has been raised by revenue against deleting of disallowance of commission expense amounting to ₹18,25,000/- paid to M/s.Umang Credit Capital Ltd. 7.1. Ld.Sr.DR submitted that bank had issued notice under section 133 (6) to Export Import Bank, Mumbai Head Office calling for details towards sanction of term loan of ₹ 25 crores to assessee. In response to notice under section 133 (6) Bank informed Ld.AO regarding details as well as confirmed that M/s. Umang Credit Capital Ltd., was not involved in negotiating and/or arranging for loan facilities on behalf of assessee. Ld.Sr.DR submitted that, there have been no services rendered by M/s.Umang Credit Capital, in lieu of which commission has been paid, and therefore payment made by assessee has been rightly held to be not genuine by Ld.AO. 7.2. On the contrary, Ld.AR submitted that, said sum has been paid for raising term loan of ₹25 crore from Exim Bank. It has been submitted that sum of ₹18,25,000 has been paid to M/s.