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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion.
Appellant, ACIT, Circle 1, LTU, New Delhi (hereinafter referred to as the ‘Revenue’) by filing the present appeals sought to Commissioner of Income - tax (Appeals)-22, New Delhi qua the Assessment Years 2013-14 & 2014-15 on the identical worded grounds, except the difference in amount, inter alia that :-
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the Assessing Officer to exclude the amount (Rs.3.08 crores & Rs. 0.08 for AYs 2013-14 & 2014-15 respectively) crores being the investment made by the assessee in Debt Oriental Mutual Funds under growth option for working out the amount of average investment for the purpose of computation or disallowance u/s 14A read with rule 8D merely by passing a cryptic order accepting the claim of the assessee that investment in mutual funds was in a debt oriented scheme under growth option not entitled to tax exempt dividend and income on sale/redemption of such mutual fund is taxable under the head 'Capital Gain', without verifying the claim made by the assessee 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing to exclude the amount (Rs.82.12 crores & Rs.89.94 crores for AYs 2013-14 & 2014-15 respectively) being the investment made by the assessee in M/s Munjal Kiriu Industries (P) Ltd., M/s Hero Chassis System (P) Ltd. and M/s Hero Global Design Ltd. for working out the amount of average investment for the purpose of computation of disallowance u/s 14A read with Rule 8D by holding that there is no nexus between the interest paid by the appellant and the investments made in these companies.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition (Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively) made by AO on the ground that the payment of expenses made to M/s Hero Global Design Ltd. were not incurred in ordinary course of business.
4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition on payment (Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively) to M/s Hero Global Design Ltd., without giving any finding in his appellate order whether the same expenses were incurred wholly and exclusively for the purpose of business.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee was into manufacturing of motorized two wheeler and auto components/spare parts for auto industry. AO during the scrutiny proceedings noticed that the assessee company has invested Rs.86,40,64,971/- & Rs.91,15,42,456/- in equity shares and units of mutual funds on which assessee had received dividend income of Rs.1,085/- & Rs.13,914/- for AYs 2013-14 & 2014-15 respectively. Assessing Officer (AO) declining the contentions raised by the assessee by invoking the provisions contained u/s 14A read with Rule 8D computed the disallowance at Rs.2,20,20,543/- & Rs.1,99,76,847/- (Rs.2,03,52,913/- - Rs.3,76,066/-) for AYs 2013-14 & 2014-15 respectively. AO also made addition of Rs.31,74,044/- & Rs.37,68,570/- being the payment of expenses made by the assessee company to M/s. Hero Global Design Ltd. by treating the same not incurred in the ordinary course of business and thereby framed the assessment at Rs.6,19,77,776/- & Rs.29,51,58,184/- for AYs 2013-14 & 2014-15 respectively.
Assessee carried the matter before the ld. CIT (A) by way of filing the appeals who has deleted the additions by partly allowing the appeals. Feeling aggrieved by the orders passed by the ld. CIT the present appeals.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUDNS NO.1 & 2 IN ITA NO.5580/DEL/20117
Undisputedly, assessee company made investment of Rs.86,40,64,971/- & Rs.91,15,42,456/- in equity shares and units of mutual funds for AYs 2013-14 & 2014-15 respectively. It is also not in dispute that assessee company has made suo motu disallowance of Rs.1,085/- & Rs.13,914/- for AYs 2013-14 & 2014-15 respectively.
In the backdrop of the aforesaid undisputed facts, when we examine impugned order passed by the ld. CIT (A) it does not lead to any conclusive findings as per grounds raised by the assessee company that disallowance cannot be more than exempt dividend income earned by the assessee during the year under consideration.
Rather ld. CIT (A) has confused the entire controversy sought to be decided by the assessee by partly following his own order passed in the assessee. Thus, the entire findings are cryptic and incomprehensible. In these circumstances, we are of the considered view that the issue has not been examined by ld. CIT(A) by thrashing the facts in the light of the law applicable thereto. Consequently, this issue is remitted back to the ld. CIT(A) to decide afresh in the light of the decisions rendered by Hon’ble Delhi High Court in the cases of as Joint Investments (P.) Ltd. vs. CIT 372 ITR 694 and Maxopp Investment Ltd. vs. CIT – (2012) 347 ITR 272 (Del.) by providing an opportunity of being heard to the assessee. So, Grounds No.1 & 2 in & 5580/Del/2017 are determined in favour of the Revenue for statistical purposes.
GROUDNS NO.1 & 2 IN ITA NO.5580/DEL/20117 8. Disallowance of Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively made by the AO being the amount paid to M/s. Hero Global Design Limited on ground of not incurring the same wholly and exclusively for the purpose of business, has been deleted by the ld. CIT (A) by returning following findings :-
6 ITA No.5579/Del./2017 ITA No.5580/Del./2017 (AY 2014-15) “Ground No.1(c) pertains to a payment to M/s. Hero Global Design Limited. This issue discovered in favour of appellant by the decision of the undersigned for AY 12-13 in the case of the appellant in appeal no.14/15-16/CIT(1)-22, dated 02nd November 2016. Therefore, ground no.1(c) of the appeal is allowed and the corresponding addition is deleted.” ITA NO.5580/DEL/2017 (AY 2014-15) “Ground No.3 pertains to a payment to M/s. Hero Global Design Limited. This issue discovered in favour of appellant by the decision of the undersigned for AY 12-13 in the case of the appellant in appeal no.14/15-16/CIT(1)-22, dated 02nd November 2016. Therefore, ground no.3 of the appeal is allowed and the corresponding addition is deleted.”
9. It is brought to our notice by the ld. AR for the assessee that aforesaid findings returned by the ld. CIT (A) being based upon his own order for AY 2012-13 have been confirmed by the coordinate Bench of the Tribunal in assessee’s own case in for AY 2012-13 order dated 26.02.2020.
We have perused the aforesaid order passed by the Tribunal which is qua identical issues as to making payment to its Associated Enterprise, M/s. Hero Global Design Ltd., for providing engineering services. Operative part of the order (supra) is as under :-
“8. It was submitted before the revenue authorities that M/s Hero Global Design Ltd. rendered Engineering Consultancy, CAD/CAM designing which are professional services technically called Re-Engineering Services using special ized software by which the fragmentation of drawings supplied by the customers of assessee into sub-parts is done to facilitate manufacturing and costing. Three diploma engineers and one ./2017 ITA No.5580/Del./2017 ITI is the total staff of M/s Hero Global Design Ltd. and the total salary of these persons in the books of M/s Hero Global Design Ltd is Rs.26.49 lakhs, while the total employee benefit expenses are Rs.28.22 lakhs. The billing is on man hour basis and the payment made by the assessee almost equals the salary cost of above four persons being employees of M/s Hero Global Design Ltd.
The assessee also explained that when it receives designs in respect of orders from its clients like BMW etc, these persons examine the drawings and fragmented designs are issued on the basis of which the manufacturing is done by suppliers. Moreover, M/s Hero Global Design Ltd. also renders assistance in costing.
10. The ld. CIT (A) held that it is a fact that M/s Hero Global Design Ltd is located in the same premises as assessee and is a lessee of the assessee. It was doing the work of only the assessee and is running in losses mainly because of the interest and software cost/amortization/depreciation. The finance has also been provided by the assessee. There is no written agreement between the assessee and M/s Hero Global Design Ltd and the nature of services claimed are also of very basic nature as the basic designs are received from clients and the product is to be manufactured as per the said designs. The nature of services can at best be called a bridge with the ancillary suppliers/manufactures. The qualifications of the persons employed also do not establish any specialized technical services as none of them is even a graduate engineer. The quantum of payment is very small considering the turnover of the assessee. Moreover, once the sample production is approved, the same product is manufactured and supplied to the client in large numbers without any further payment to M/s Hero Global Design Ltd. The work done by M/s Hero Global Design Ltd could have been done by a small section in the assessee company within the very same premises by the same four employees. However, even then the assessee would have been required to pay salary to those four persons. Though the services have been rendered through M/s Hero Global Design Ltd, the payment made by the assessee to M/s Hero Global Design Ltd just matches the employee cost of M/s Hero Global Design Ltd, which would have been incurred even if those persons had been employed by the assessee. Consequently, the ld. CIT (A) held that the expenditure incurred is allowable u/s 37(1).
Heard the arguments of both the parties and perused the material available on record. The copies of the invoices submitted by the HGD Ltd. have been examined. It is an undeniable fact that HGD Ltd. has provided services to the ./2017 ITA No.5580/Del./2017 assessee, the design engineers of HGD Ltd. are regularly available within in the shop floor of the assessee company, they have been working for the last ten years with the assessee and getting paid regularly against their services. In view of this, we decline to interfere with the order of the ld. CIT (A) in deleting the addition.” 11. Keeping in view the fact that the issue is identical and services have been rendered by M/s. Hero Global Design Limited, and since then business model has not been changed, and whose engineers were constantly available within the factory of the assessee company and have been regularly being paid for their services. So, following the order passed by the coordinate Bench of the Tribunal in assessee’s own case for AY 2012-13 (supra), we find no infirmity or illegality in the impugned deletion made by the ld. CIT (A), hence grounds no.3 & 4 are determined against the Revenue.
Resultantly, the appeals filed by the Revenue for AYs 2013- 14 & 2014-15 are partly allowed for statistical purposes. Order pronounced in open court on this 16th day of November, 2021.