NRB BEARINGS LTD,MUMBAI vs. ADDL CIT 2(2), MUMBAI

The assessee is a manufacturer of needle and roller ball bearing. We shall dispose of the appeals of both the parties together by adjudicating the each of the issues urged in both the years.

The first individual issue urged by the assessee in AY 2009-10 relates to the determination of Annual letting value of the property u/s 23 of the Act. The assessee had taken huge amount as interest free deposit and rent was received at lower amount. Hence the AO determined the Annual Letting value at a higher figure. The same was also confirmed by Ld CIT(A) by following his decision rendered in AY 2007-08 and 2008-09. This issue was considered by the Tribunal in AY 2007-08 in & 1982/Mum/2011 dated 30-10- 2015 and it was restored to the file of the AO with the direction to examine the issue afresh by following the decision rendered by Hon’ble Bombay High Court in the case of Tip Top Typography. The identical issue urged in AY 2008-09 was also restored to the file of the AO by the Tribunal in its order dated 31-07- 2017 passed in ITA No.3481/Mum/2012. Accordingly the Ld A.R submitted that this issue may be restored to the file of the AO.

We heard ld D.R and perused the record. Since the assessee had taken huge amount of interest free deposit, the AO has determined the ALV of the property at a higher amount. The principles for determining Annual letting Value has since been laid down by Hon’ble Bombay High Court in the case of Tip Top Typography (368 ITR 330). Hence the Tribunal has restored the issue to the file of the AO in order to determine the ALV by following the decision rendered in the above said case. Accordingly, consistent with the view taken in AY 2007-08 and 2008-09 in the assessee’s own case, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with similar directions.

The second individual issue urged by the assessee in AY 2009-10 relates to the disallowance made u/s 40(a)(ia) of the Act. The AO disallowed a sum of Rs.123.06 lakhs u/s 40(a)(ia) of the Act by holding that the payment of TDS has not been made in time. The assessee claimed that it has remitted the TDS amount before the due date for filing return of income and hence no disallowance was called for as per the proviso inserted to sec. 40(a)(ia) of the 3 M/s. NRB Bearings Ltd.

We notice that identical disallowance was made in AY 2008-09 also. Before the Tribunal, the assessee relied upon the decision rendered Hon’ble Calcutta High Court in the case of CIT Vs. Virgin Creations (ITA No.302 of 2011) in order to contend that the first proviso inserted by Finance Act, 2010 is retrospective in nature. Accordingly it was contended that no disallowance u/s 40(a)(ia) is not called for, as the assessee has remitted the TDS amount before the due date for filing return of income. Accordingly the Tribunal deleted the disallowance accepting the contentions of the assessee.

We notice that the Hon’ble Calcutta High Court has held in the case of Virgin Creations (supra) that the first proviso inserted by Finance Act, 2010 is retrospective in nature. The provisions of sec. 40(a)(ia) amended by Finance Act 2010 provides that no disallowance shall be made u/s 40(a)(ia) of the Act shall be made, if the TDS amount is remitted before the due date for filing return of income u/s 139(1) of the Act. Accordingly, if the assessee has paid the TDS amount before the due date for filing return of income u/s 139(1) of the Act, no disallowance u/s 40(a)(ia) is required to be made. Accordingly we modify the order passed by Ld CIT(A) and direct the AO to verify the date of payment of TDS amount and delete the disallowance if the TDS amount is paid before the due date for filing return of income u/s 139(1) of the Act.

The next individual issue contested by the assessee in AY 2009-10 relates to the addition of notional interest of Rs.2,59,300/- in respect of interest free loan given to Thailand subsidiary. Identical addition was also made in AY 2008-09 and the Tribunal has restored the issue to the file of the AO to examine the issue afresh by following the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Tata Auto-Comp Systems (374 ITR 516). Consistent with the view taken by the Tribunal in AY 2008-09, we restore this issue to the file of the AO with similar directions.

We shall now take up the individual issue contested by the revenue, which relates to the Scientific Research Expenditure. This issue is contested by the revenue in both AY 2009-10 and 2010-11. The AO disallowed the claim of Scientific research expenditure u/s 35(2AB) for the reason that the assessee could not file Form 3CL before him. However, the assessee filed Form 3CL before Ld CIT(A) in AY 2009-10 and accordingly, the Ld CIT(A) deleted the impugned disallowance made in both the years. The revenue is aggrieved by his decision in both the years.

The Ld D.R submitted that the ld CIT(A) has deleted the disallowance without examining Form 3CL.

The Ld A.R submitted that the furnishing of Form 3CL is only directory and not mandatory for claiming deduction u/s 35(2AB) of the Act. In this regard, he placed reliance on the following case laws:- a. DCIT Vs. Famy Care Ltd 952 taxmann.com 461) b. Sun Pharmaceutical Industries Ltd Vs. Pr. CIT (162 ITD 484) c. Sri biotech Laboratories India Ltd Vs. ACIT (36 ITR (T) 88) d. Mahindra and Mahindra ltd Vs. Addl CIT (ITA No.586/Mum/2013)

We heard the parties on this issue and perused the record. Identical disallowance made by the AO in AY 2007-08 and 2008-09 has since been deleted by the Tribunal. In AY 2008-09, the assessee has field Form 3CL before the Tribunal and hence the Tribunal has observed that there should not be any bar for the assessee in availing the deduction u/s 35(2AB). However, since the AO has not examined Form 3CL, the Tribunal directed the AO to allow the claim after verifying Form 3CL.

From the order passed by Ld CIT(A) for AY 2009-10, we notice that the assessee has furnished Form 3CL dated 07-03-2012 before Ld CIT(A) in AY

The next issue relates to the addition made to Gross profit by rejecting the books of accounts. This issue is common in AY 2009-10 and 2010-11. Both the assessee as well as the revenue is contesting the decision of Ld CIT(A) in both the years.

The AO had rejected the books of account and had enhanced the Gross profit by 1% in AY 2007-08 and 2008-09 by rejecting books of accounts. Following the same, the AO enhanced the Gross profit by 1% in AY 2009-10 and 2010-11 also by rejecting books of accounts.

In AY 2007-08 and 2008-09, the Ld CIT(A) has held that the rejection of books of accounts is not warranted and accordingly held that the provisions of sec. 145 are not attracted. However he held that in terms of sec.145A of the Act, CENVAT & VAT are to be added to the Closing stock. Accordingly he has directed the AO to work out the addition on the basis of particulars to be submitted by the assessee in respect of closing stock. Accordingly, by following his decision rendered in AY 2007-08 and 2008-09, the Ld CIT(A) set aside the rejection of books of accounts and restricted the addition only to Closing stock as per the direction given in AY 2007-08.

The Tribunal upheld the order of Ld CIT(A) both in AY 2007-08 and 2009-10.

Both the parties are aggrieved by the decision rendered by Ld CIT(A) on this issue in both the years under consideration. We heard the parties on this issue and perused the record. Since a particular view has already been taken by the Tribunal on identical issue in AY 2007-08 and 2008-09, following the 6 M/s. NRB Bearings Ltd.

The next issue contested by both the parties in AY 2009-10 relates to the disallowance made u/s 14A of the Act. The AO noticed that the assessee has made investments of Rs.17.92 crores. The assessee has also received dividend income of Rs.1,24,000/- and claimed the same as exempt. The AO computed the disallowance at Rs.36,05,921/- under Rule 8D of the I.T Rules as under:- Direct expenditure under Rule 8D(2)(i) - 441 Interest expenditure under Rule 8D(2)(ii) - 30,11,762 Administrative expenses under Rule 8D(2)(iii) - 5,93,718 ------------------ 36,05,921 ================== However, the AO added a sum of Rs.41,95,811/- to the total income of the assessee u/s 14A of the Act.

In the appellate proceedings, the Ld CIT(A) granted relief in respect of interest paid on ECB Loan and accordingly confirmed the balance amount of addition. Aggrieved, both the parties are in appeal.

We heard the parties on this issue. From the Balance sheet, we notice the assessee is having own funds of Rs.18061.83 lakhs and Rs.17450.33 lakhs respectively as on 31.3.2008 and 31.3.2009. The total value of investments stands at Rs.1781.45 lakhs and Rs.1792.70 lakhs as on 31.3.2008 and 31.3.2009 respectively. Admittedly, the own funds available with the assessee is in far excess of the value of investments. Accordingly the presumption would be that the assessee has used its own funds for making investments as per the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd (383 ITR 529). Accordingly disallowance of interest expenditure u/r 8D(2)(ii) is not called for. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of interest expenditure u/s 8D(2)(ii) of the I T Rules.

With regard to the disallowance made out of administrative expenses under Rule 8D(2)(iii) of the IT Rules, we notice that the assessee has brought forward most of the investments from the prior year. During the year under consideration, the assessee has made a fresh investment of Rs.11.25 lakhs in a joint venture company. The assessee has received dividend income of Rs.1.24 lakhs. Thus we notice that the activity of the assessee in the investment portfolio is very minimal. Under these set of facts, we are of the view that the application of Rule 8D(2)(iii) is not warranted in this case. Considering the activities of the assessee, we are of the view that a round sum disallowance of Rs.10,000/- out of administrative expenses would meet the requirement of sec. 14A of the Act. Accordingly we modify the order passed by Ld CIT(A) and direct the AO to restrict the disallowance out of administrative expenses to Rs.10,000/-.

In the result, both the appeals of the revenue are dismissed. The appeal of the assessee for AY 2009-10 is treated as partly allowed. The appeal of the assessee for AY 2010-11 is dismissed. Order has been pronounced in the Court on 15.3.2018.