TATA MOTORS LTD,MUMBAI vs. CIT (LTU), MUMBAI

Tata Motors Limited ……………. Appellant Bombay House, 24, Homi Mody Street, / अपीलाथी Hutatma Chowk, Mumbai-400 001 v/s The Commissioner of Income-tax (LTU), 29th Floor, Centre 1, World Trade Centre, …………….Respondent Cuffe Parade, Mumbai-400 005 / प्रत्यथााी स्थायी लेखा िं /PAN – AAACT2727Q अपीलाथाी की ओर े / Appellant by : S/shri Rajan Vora, Nikhil Tiwari, ARs’ प्रत्यथाी की ओर े / Respondent by : Ms. Rajeev K Gubgotra, DR ुिवाई की तारीख / Date of hearing: 07.06.2019 घोर्णा की तारीख / Date of pronouncement : 03.09.2019 A a d o S a / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM: This appeal by assessee is arising out of the revision order passed under section 263 of the Income-tax Act, 1961 (hereinafter the ‘Act’) by Commissioner of Income Tax (Large Tax Payer Unit) in short CIT(LTU) Mumbai in Appeal No. Nil dated 29.03.2016. The Assessment was framed by the Asst. 2 | P a g e Commissioner of Income Tax, LTU Mumbai (in short ACIT (LTU) /ITO/ AO) for AY 2009-10 vide dated 08.01.2014 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

1. Proceeding u/s 263 is invalid and bad in law 1.1 erred in holding that the order passed by the Assessing Officer under section 143(3) r.w.s. 144C of the Act is erroneous and prejudicial to the interest of the Revenue; 3 | P a g e 1.2 erred in assuming the jurisdiction under section 263 of the Act by relying on the decision of Bombay High Court in Case of Ciba of India Ltd (jo Taxman 505) (Bom) without appreciating that the facts in appellant’s case are different; 1.3 erred in not appreciating that the proceedings under section 263 of the Act are invalid and bad in law; 1.4 erred in assuming jurisdiction under section 263 of the Act even when Assessing Officer ('AO') had already examined the issues during assessment proceedings, 1.5 erred in not appreciating that the appellant had disclosed all facts before AC and hence order under section 263 of the Act is invalid and bad in law;

2. Without prejudice- Disallowance of Nano project related expense which were revenue in nature of ₹ 43,82,54,995/- being treated as Capital in nature. 2.1 erred in directing the AO to treat normal/recurring expenses such as salary, staff welfare expenses, travelling and conveyance, hotel expenses, etc. 4 | P a g e amounting to Rs. 43,82,54,995 relating to Nano project as capital work in progress, 2.2 erred in concluding that the Nano project was not an extension of the existing business of appellant and the expenses should be allowable as revenue expenditure, 2.3 erred in not appreciating that the Nano project at Singur was abandoned and no new capital asset of enduring nature came into existence; 2.4 erred in disallowing appellants claim by relying on decision in case of Ciba of India (supra) without appreciating that the facts in appellant's case are different; 2.5 Without prejudice to the above, erred in not directing the AO to allow depreciation under section 32 of the Act on amount treated as capital in nature;

3. Without prejudice- Disallowance under section 14A of Act read with Rule 8D after taking into consideration interest relating to Research & Development (R&D) expenditure which was capitalized in the books. 5 | P a g e 3.1 erred in directed the AO to re- compute disallowance under section 14A of the Act read with Rule 8D of the Rules after considering interest expenditure on borrowings for R&D; 3.2 erred in considering interest on pertaining to R&D expenditure of the purpose of disallowance under section 14A; 3.3 erred in not appreciating that the investments, income form which is exempt, are made out of own funds and not from borrowed funds; 3.4 erred in not appreciating that the loans are taken for specific purpose and hence no interest expenses is attributable to investment and no other expenditure is incurred for earning exempt income;”

3. Briefly stated facts are that the assessee is engaged in the manufacturing of chassis and vehicles for transport of goods and passengers including motor car and parts thereof. The original assessment was completed under section 143(3) of the Act read with section 144C (13) of the Act for the assessment year 2009-10 by the ACIT(LTU), Mumbai vide order dated 08.01.2014. Subsequently, the CIT(LTU) issued show cause notice for revising assessment under section 263 of the Act on 6 | P a g e 11.02.2016, wherein he noted that on verification of records it is revealed that the assessee has claimed salary, staff welfare expenses, travelling conveyance, hotel expenses etc. in respect of Nano project established at Singur, West Bengal, which was capitalized in the books of account but claimed as revenue expenditure in the computation of income filed along with return of income under the Income Tax Act. The total expenditure claimed amounting to ₹ 43,82,54,495/- was wrongly allowed by the Assessing Officer. According to CIT(LTU) this is not in order as the Nano Project altogether a new plant set up in Singur during the relevant period and it is not an expansion of the existing one. Therefore, he proposed to disallow the above noted expenses. According to him, the assessment order passed is erroneous in so far as it is prejudicial to the interest of the Revenue. Subsequently, vide notice dated 23.02.2016, CIT (LTU) issued another notice stating that while working out the disallowance of expenses relatable to exempt income under section 14A of the Act, the AO failed to consider the interest expenses of ₹ 113.69 crores paid on borrowing for R & D expenses. On this point also, the assessment order is to be revised. The assessee replied to the show cause notice vide letter dated 09.03.2016, but he has not accepted the contentions of the assessee and finally passed the revision order under section 263 of the Act dated 29.03.2016 stating that the expenses relating to Nano Project and expenses relating to exempt income have not been properly examined. For this, he observed in Para 6.1 and 6.2 as under: - 7 | P a g e “6.1 the undersigned has gone through the entries submissions of the assessee along with its enclosures. The fact of the matter is that the ld. AR has relied on judicial pronouncements which deal with facts entirely different from the assessee’s own. Cases cited dealt with situations where order under section 263 was on the basis of change of opinion, or contemplated loss of revenue after roving enquiries. In the present case, the question whether the expenses incurred on Singur plant can be treated as revenue expenses or not, in view of relocation of manufacturing facility elsewhere, has not been properly examine. It is not a case where a view has been reached by the Assessing Officer upon due consideration of facts. Rather it is a case where the assessee’ claim has been allowed in a routine manner. Non-application of mind over the claim filed has led to an erroneous conclusion resulting into prejudice to the interest of the revenue. 6.2 In respect of allowability of interest under section 14A also, merely because details of interest were called for and calculation of disallowance of interest as 8 | P a g e per Rule 8D was made, would not ipso facto mean that there was correct disallowance worked out after due consideration of all the items includible in the formula. It is an undeniable fact that the Assessing Officer failed to consider the interest incurred on borrowings for R&D expenditure, thereby causing an error in order, and consequent prejudice to the interest of the revenue. The doctrine of merger will also not apply under the given facts. Merger is only of the opinion which has been considered. Failure on the part of the Assessing Officer to examine wither interest on borrowing for R&D expenditure would form part of Rule 8D disallowance or not, has resulted in non-examination of the same by appellate authorities too, so, this aspect of disallowance has remained to be examined.” On merit also, he observed in Para 8.1 and 8.2 as under: - “8.1 Regarding disallowance under section 14A of the Act r.w.r. 8D of the Income Tax Rules, during the year under consideration, the interest which is capitalized in books includes interest of ₹ 113.69 crores on borrowings for R & D 9 | P a g e expenditure. The assessee submitted that section 14A of the Act is not applicable in respect of the aforesaid finance cost including the interest incurred on specific borrowing for R & D expenditure. The entire investment, income from which is not liable to tax, made by the company is attributable to the self-generated funds and hence, no borrowing cost is attributable to the same. All borrowings are made towards specific purpose and none of the borrowing is made towards making such investments, income from which is not liable to tax. Since no expenditure has been incurred by the company in relation to such investments, Rule 8D is not applicable. The assessee officer has discarded the decision of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Limited, (328 ITR 81) mandating him to establish the fact that expenditure has been incurred to earn exempt income. 8.2 I have carefully considered the issue and perused the records. The fact of the matter is that the assessee’s submissions mainly challenged the Assessing Officer’s wisdom in bringing assessee’s case within 10 | P a g e the ambit of disallowance under section 14A. CIT’s jurisdiction under section 263 does not grant revisionary powers in respect of issues which are not prejudicial to the interest of revenue. The fact of the matter is that the Assessing Officer reached the right conclusion to apply Rule 8D but failed to consider one important part of the interest relating to R&D expenditure thereby causing an error which is prejudicial to the interest of revenue. The Assessing Officer is, therefore, directed re-compute the disallowance under section 14A correctly by applying Rule 8D, keeping the facts stated above in mind.” Aggrieved, now assessee is in appeal before us.

4. Before us, the learned Counsel for the assessee argued that during the course of assessment proceedings, the assessee was requested to submit the details by the AO in regard to (a) expenses related to Nano Project and (b) disallowance under section 14A of the Act read with Rule 8D of the Rules in relation to expenses relatable to exempt income. The assessee filed complete details in respect of both the expenses, he stated that the AO issued notice under section 142(1) and 143(2) of the Act asking details of major expenses vide notice dated 08.08.2012, which read as under: - 11 | P a g e “…. k) Details of purchases and major expenses shown in the P&L A/c with names and addresses of the parties with whom purchases/ expenses exceeding ₹ 5 lakhs have been made, and justification for the same vis-à-vis the revenue of the company. Also, justify that these expenses have been borne wholly and exclusively for the purpose of business in the previous year.”

5. He also referred to the same notice, wherein item 2AA, the detail of exempt income was asked by AO as under: - “aa) In case disallowance has been made by you under section 14A of the Act in your computation of income, please show the working of such disallowance. If not, then justify why disallowance under section 14A should not be made in your case.”

6. The learned Counsel for the assessee stated that the details of expenses incurred on transfer of Nano Plant from Singur, West Bengal to Sanad, Gujarat was submitted vide letter dated 11.12.2012 and the details are given in para 3 of the letter which read as under: - 12 | P a g e ”3. Details of expenses incurred on transfer of nano plant from Singur to Sanad; During year under consideration i.e. AY 2009-10 no expenses on relocation had been debited to profit and loss account.”

7. Further, the details were again given vide letter dated 8.01.2013 vide item No. 1 as under ”Details of expenses incurred on transfer of Nano Plant from Singur to Sanad We submit to your goodself that the expense incurred on relocation of nano plant from Singur to Sanad have been debited to CWIP. The relocation expenses had been debited to Profit and Loss account in FY 2009-10 (AY 2010-11) and have been added back in the computation of income of that year. We enclose wherewith the relevant annexure of the Tax Audit Report for the assessment year 2010-11 as ‘Annexure’.”

8. The assessee has given complete details of re-location expenses amounting to ₹ 144,10,49,109/-. Again, submissions were filed on 18.01.2013 regarding non-applicability of the section 14A of the Act as well as the expenses incurred for 13 | P a g e shifting of Nano plant from Singur to Sanad which read as under: - “1. Submissions alongwith cop of documents justifying non applicability of section 14A in our case is enclosed as Annexure-

1. 1.

2. In connection with your goodself’s query regarding receipts from People Financial Service, we have to submit to your goodself that during the year under consideration, we have not received income from People Financial Services.