LAKOZY MOTORS PVT LTD ,MUMBAI vs. NATIONAL FACELESS APPEAL CENTRE, MUMBAI

The first issue raised by the assessee pertains to the disallowance of interest expenditure amounting to INR 21,48,282.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, on verification of details Page | 2

We have considered the submissions of both sides and perused the material available on record. From the perusal of the Balance Sheet of the assessee for the year ending 31/03/2013, forming part of the paper book from pages 1-18, we find that the assessee has share capital and reserves and surplus of INR 4,35,09,958, which is more than interest-free loan of INR 1,41,49,131, advanced by the assessee to the related parties. We find that the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities & Power Ltd., [2009] 313 ITR 340 (Bom.), held that if funds are available with the assessee, which are sufficient to meet the investment, then the presumption would arise that the investment is made out of funds so available with the assessee. Accordingly, we find no basis in the proportionate disallowance of interest

The next issue raised in assessee’s appeal pertains to the disallowance of INR 25,20,300 on account of sales promotion expenses.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee has incurred sales promotion expenses of INR 32,87,444, which include a major amount paid to Ramesh Chand Auto, i.e. INR 25,20,300. In the absence of any reason for incurring the expenditure and nature of services provided by them, the AO vide order passed under section 143(3), inter-alia, disallowed the aforesaid expenditure of INR 25,20,300. The learned CIT(A), vide impugned order, after noting the fact that similar expenses under the aforesaid head were credited in the last year as well and no substantial clarification has been offered by the assessee, upheld the disallowance made by the AO. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. As per the assessee, the entries pertaining to aforesaid expenditure were passed through a common ledger named “Ramesh Chand” (employee of the company responsible as a cost centre). It is further the plea of the assessee that the said entry was passed to the said account only for the sake of accounting convenience so that all the expenses related to sales promotion paid to agents/drivers/mechanics can be accumulated under Lakozy Motors Pvt. Ltd. ITA no.2726/Mum./2023 one ledger. We find that a similar issue came up for consideration in the preceding assessment year before the coordinate bench of the Tribunal in Lakozy Motors Ltd. v/s ITO, ITAs no. 338 and 339/Mum./2018, for the assessment years 2011-12 and 2012-13. We find that vide order dated 23/05/2018, the coordinate bench restored the issue to the file of the AO for examination afresh. During the hearing, the learned AR submitted that in the remand proceedings, the AO made the disallowance of 15% of the aforesaid expenditure and the same has been accepted by the assessee. Since it is undisputed that the nature of the expenditure is similar to the preceding year, therefore the AO is directed to restrict the disallowance to 15% of the aforesaid expenditure in the present case. As a result, ground No. 2 raised in assessee’s appeal is partly allowed.

The last issue raised in assessee’s appeal pertains to the disallowance of INR 2,97,198 under section 14A read with Rule 8D of the Income Tax Rules, 1962 (“the Rules”).

The brief facts of the case pertaining to this issue, as emanating from the record, are: The AO vide order passed under section 143(3) of the Act made disallowance of INR 2,97,198 under section 14A read with Rule 8D. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee on this ground. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. From the perusal of the submissions filed by the assessee before the learned CIT(A), as noted on page 18 of the impugned

We further find that vide amendment by the Finance Act, 2022, the non- obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, Hon’ble Delhi High Court in PCIT vs M/s Era infrastructure (India) Ltd, [2022] 288 Taxman 384 (Delhi) held that the amendment by Finance Act, 2022 in section 14A is prospective and will apply in relation to the assessment year 2022–23 and subsequent assessment years. Thus, even in view of the aforesaid amendment also, the disallowance under section 14A read with Rule 8D is not permissible in the present case.

Thus, in view of the above, the disallowance computed under section 14A read with Rule 8D is directed to be deleted. Accordingly, ground no.3 raised in assessee’s appeal is allowed.

In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 05/02/2024