DCIT 2(1), MUMBAI vs. TML DRIVELINES LTD ( FORMERLY KNOWN AS H.V. TRANSMISSIONS LTD), MUMBAI

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, , , , मुंबई आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण मुंबई मुंबई “ई ” ” ” ” खंडपीठ मुंबई खंडपीठ खंडपीठ खंडपीठ Income-tax Appellate Tribunal “E”Bench Mumbai सव�ी सव�ी राजे�� राजे��, लेखा लेखा सद�य सद�य एवं एवं पवन �सह पवन �सह, �याियक �याियक सद�य सद�य सव�ी सव�ी राजे�� राजे�� लेखा लेखा सद�य सद�य एवं एवं पवन �सह पवन �सह �याियक �याियक सद�य सद�य Before S/Sh. Rajendra,Accountant Member & Pawan Singh, Judicial Member आयकर आयकर अपील अपील संसंसंसं./I.T.A./3362/Mum/2013, िनधा�रण िनधा�रण वष� वष� /Assessment Year: 2009-10 आयकर आयकर अपील अपील िनधा�रण िनधा�रण वष� वष� DCIT-2(1) TML Drivelines Ltd. (Formerly known as H.V. Transmissions Aayakar Bhavan Ltd.) Room No.561, 5th Floor 3rd floor, Nanavati Mahalaya Vs. MK Road, 18, Homi Mody Street Mumbai-400 020. Hutatma Chowk, Mumbai-400 001. PAN:AAACH 7626 Q (अपीलाथ� /Appellant) (��यथ� / Respondent) आयकर आयकर अपील अपील संसंसंसं./I.T.A./3363/Mum/2013, िनधा�रण िनधा�रण वष� वष� /Assessment Year: 2009-10 आयकर आयकर अपील अपील िनधा�रण िनधा�रण वष� वष� TML Drivelines Ltd. DCIT-2(1) (Formerly known as H.V. Axels Ltd.) Aayakar Bhavan 3rd floor, Nanavati Mahalaya Room No.561, 5th Floor Vs. 18, Homi Mody Street MK Road, Hutatma Chowk, Mumbai-400 001. Mumbai-400 020. PAN:AAACH 7626 Q (अपीलाथ� /Appellant) (��यथ� / Respondent) वष� /Assessment Year: 2009-10 आयकर आयकर अपील अपील संसंसंसं./I.T.A./3436/Mum/2013, िनधा�रण िनधा�रण वष� आयकर आयकर अपील अपील िनधा�रण िनधा�रण वष� वष� TML Drivelines Limited DCIT-2(1) (Formerly known as H.V. Axels Ltd.) Vs. Mumbai-400 020. Mumbai-400 001. (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by: Ms. Beena Santosh -DR Assessee by: Ms. Aarti Sathe सुनवाई क� तारीख / Date of Hearing: 10.01.2017 घोषणा क� तारीख / Date of Pronouncement: 10.01.2017 आयकर आयकर अिधिनयम अिधिनयम,1961 क� क� धारा धारा 254(1)केकेकेके अ�तग�त अ�तग�त आदेश आदेश आयकर आयकर अिधिनयम अिधिनयम क� क� धारा धारा अ�तग�त अ�तग�त आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA,AM- अनुसार Challenging the order,dated 08/02/2013 of the CIT (A)-4,Mumbai the assessee and the Assessing Officer(AO)have filed cross appeals for the AY.2009-10.One appeal has been filed by the erstwhile entity of the group in its original name i.e H.V.Transmission Ltd. Thus,there are three appeals of the group.For the sake of convenience,we are dedicating all the appeals by a single common order. ITA/3436/Mum/2013 (H.V.Axles Ltd.)-AY.2009-10.(Assessee’s Appeal): Assessee-company,engaged in the business of manufacturing automobile and auto-parts, filed its return of income on 29/09/2009,declaring total income at Rs.11,92, 60,545/-. The AO completed the assessment,u/s. 143(3) of the Act, on 24/11/2011, determining its income at Rs. 15.21 crores

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2.First ground of appeal is about disallowance made u/s.14A of the act under the normal compu -tation.During the assessment proceedings, the AO found that the assessee had earned dividend income of Rs. 153.15 lakhs, that it had claimed the said income as exempt income,that it had not made any disallowance u/s. 14A on account of expenses relating to dividend income. He made a disallowance of Rs. 43.03 lakhs,invoking the provisions of section 14A read with Rule 8D of the Income Tax Rules,1962(Rules). 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).It was argued that the entire amount of dividend had been earned out of invest -ment in mutual funds, that the assessee had sufficient own funds, that the AO had made interest disallowance without considering the available fund position, that it had not borrowed any funds to make investments,that it had incurred no expenditure for earning income from investments or for realisation of dividend income.After considering the submission of the assessee and the assessment order,the FAA held that assessee must have made some efforts in making research for deciding where to invest and how much to invest,that it could not be denied that a part of administrative expenditure was not related to income generated by such investment,that disallow -ance out of the administrative expenses had to be made. With regard to the interest disallowance,the FAA directed the AO to verify the claim of the assessee and to exclude the interest expenditure,if it was found that expenditure was eligible to fixed assets and intellectual property rights.

4.During the course of hearing before us, the Authorised Representative (AR) stated that while deciding the appeal the FAA had substantially reduced the disallowance on account of adminis-trative expenses,that considering the smallness of the tax effect the assessee would not like to press the ground.First ground of appeal,raised by the assessee,is dismissed,as not pressed.

5.Next ground of appeal,is about disallowance u/s. 14A under MAT computation. During the course of hearing before us, the AR fairly conceded that the issue stand decided against the assessee by the judgment of the Hon’ble Delhi High Court,delivered in the case of Goetze (India) Ltd.(361 ITR 505), that in the earlier years the issue was decided in favour of the assessee by the Tribunal.The Departmental Representative(DR) supported the order of the FAA.

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6.We have heard the rival submissions and perused the material before us. We find that while deciding the appeal for the earlier year the appellate authorities were not having the benefit of the judgment of Hon’ble Delhi High Court in the case of Goetze (India) Ltd.(supra).Therefore, respectfully following the above decision,we decide the second ground of appeal against the assessee.

ITA/3363/Mum/2013( H.V.Transmission Ltd.),AY.2009-10(Appeal by the AO). 7.Challenging the order dated 08/02/2013, of the CIT (A)-4,Mumbai the AO has filed the present appeal.Assessee-company,engaged in business of manufacturing of gearboxes and parts, filed its return of income on 29/09/2009, declaring income of Rs.13,81,79,124/-.The AO completed the assessment on 24/11/2011,determining its income at Rs.15,05,27,763/-.

8.First ground of appeal is about deduction u/s.35 DDA of the Act.During the assessment proceedings,the AO found that the assessee had made a claim of Rs.24.2 lakhs u/s. 35DDA of the Act,that during the AY.2007-08,it had claimed and amount of Rs. 61.71 lakhs towards employee separation cost u/s. 37 (1) of the Act, that the then AO had added the said amount to the income of the assessee while completing the assessment for the AY.2007-08.During the assessment proceedings for the year under consideration,the assessee requested to allowed reduction of Rs. 12.43 lakhs (1/5 of Rs. 61.71 lakhs) that was disallowed in the AY.2007-08.. However.the AO did not entertain the claim.

9.During the course of hearing before us, it was brought over notice that for the AY.2007 – 08 the Department had allowed the claim of Rs. 61.71 lakhs u/s. 37 (1) by its order dated 31/ 03/2013 completed u/s. 147 r.w.s.143 (3) of the Act,that accordingly the Tribunal while deciding the appeal for that year (ITA/1304/Mum/2011, dated 29/07/2016) had dismissed the ground is academic in nature.We would like to reproduce the relevant portion of the said order and it reads as under: “5.The second issue in the appeal of the assessee is that the Ld. CIT (A) order in not adjudicating regarding direction of disallowance of employees separation cost which was claimed u/s. 37 (1) of the Act. 5.1. The Ld. Consul for the assessee submits that the issue becomes academic in view of the order passed u/s. 143 (3) read with section 148 wherein the Ld. CIT (A) has given relief. Thus, this ground of the assessee is dismissed.”

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From the above,it is clear that the issue of employees separation cost has become final by the order of the FAA. As an appellate authority, the FAA is authorised to admit new grounds of appeal wherein the assessee asks for the relief.The assessee is not required to file a revised return for claiming relief.Therefore, we are of the opinion that there is no need to interfere with the order of the FAA.First ground of appeal, raised by the AO,is dismissed.

10.Next ground of appeal is about direction given to the AO to allowed depreciation on the revised WDV of assets acquired by the assessee from its holding company. It was brought over notice that in the case of sister concern i.e.H.V. Axles Private Ltd. (ITA/6020/Mum/2011-AY. 2007-08,dated 31/08/2012)the Tribunal had decided the identical issue in favour of the assessee and against the AO. We are reproducing the order of the Tribunal and it reads as under-

“ The department has filed this appeal for assessment year 2007-08 against order dated 6.6.2011 of ld CIT(A) on following ground: “On the facts and in the circumstances of the case and in law, ld CIT(A) erred in allowing assessee’s appeal in violation to section 47 of the Act which clearly states that in case of transfer of asset to subsidiary company the actual cost to the transferee company shall be taken to be same as if it would have been if the transferor company had continued to hold the capital asset.” 2. The relevant facts are that assessee acquired certain assets from Tata Motors Limited (TML) in the year under consideration i.e. F.Y. 2006-07. Since assessee was 100% subsidiary of TML during the financial year 2006-07, depreciation on the assets so acquired was claimed on the Written Down Value (WDV) as appearing in the books of TML, though the assessee had acquired those assets at a higher price than the cost of the assets to TML. The said depreciation was claimed at WDV as per Explanation 6 to sub-section (1) of Section 43 of the Income tax Act. In the subsequent period i.e. F.Y. 2007-08, TML transferred certain shares of assessee company to Tata Sons Limited (TSL), another company. Hence, assessee company ceased to be 100% subsidiary of TML. In view thereof, it was stated that the treatment of the transfer of the said assets acquired by assessee from TML had to be changed in the hands of the assessee company as well as in the hands of TML in view of clause (ii) of section 47A(1) of the I.T.Act. Accordingly, assessee changed the cost of acquisition of the said assets from WDV as appearing in the books of TML at the time of transfer to the actual price paid by the assessee company to TML and, accordingly, claimed enhanced depreciation and filed revised claim. The AO did not agree to the revised claim and allowed depreciation on WDV as appearing in the books of TML at the time of transfer of the said assets. Being aggrieved, assessee filed appeal before the first appellate authority. 3. Ld CIT(A) after considering the submissions of the assessee and decision of ITAT Mumbai in the case of Essar Oil Ltd vs DCIT, 13 SOT 691 held that the issue is squarely covered in favour of the assessee and directed the AO to take the cost of acquisition of such assets as have been acquired by the assessee from TML at the cost at which they have been acquired and, accordingly allowed the depreciation to the assessee. Hence, this appeal by the department. 4. At the time of hearing, ld D.R. relied on the order of AO. 5. On the other hand, ld A.R. supported the order of ld CIT(A) and submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT in the case of Essar Oil Ltd (supra). He further submitted that Hon’ble Bombay High Court has confirmed the said order of ITAT in the appeal filed by department vide order dt.7.7.2011 in Income tax Appeal No.3160 of 2010. Ld A.R. referred the provisions of section 47A(1)(ii) and submitted that as per section 49(3) of the I.T.Act, the cost of

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acquisition acquired by the assessee from TML should be the cost for which such assets were acquired by it as TML transferred some of the shares of the assessee company to another company namely TSL before expiry of period of eight years. As such, assessee company ceased to be 100% subsidiary of TML. 6. We have carefully considered submissions of ld representatives of parties in the light of the relevant provisions of Act and orders of authorities below. We agree with ld A.R. that issue involved in this appeal is squarely covered by the decision of ITAT in the case of Essar Oil Ltd (supra). In the said case, assessee company was a wholly owned subsidiary of the company namely Essar Gujarat Ltd (hereinafter referred ‘EG’). The assessee company had taken over enery and offshore division of EG w.e.f. 31.5.1992. In the relevant assessment year, assessee claimed depreciation on the fixed assets and for that purpose; it had taken WDV of the fixed assets as appearing in the books of EG. However, assessee company ceased to be wholly owned subsidiary of the transferor company ‘EG’ on 30.9.1994. The AO allowed the depreciation by considering WDV of those assets as appearing in the books of the ‘EG’ in view of Explanation 6 to section 43(1) of the I.T.Act. Ld CIT(A) also confirmed the action of the AO. However, in further appeal before the Tribunal, the Tribunal held that the cost for which the assessee had acquired the assets should be the cost of acquisition for the purpose of computation of depreciation if the transferor company ceased to be the 100% holding company of its subsidiary within a period of eight years. We consider it prudent to reproduce para 10 of the said order, which reads as under:

“Having heard both the parties extensively and having considered the material on record, we find that the dispute relates to the value of the in the hands of the assessee for the purpose of computing the depreciation. In the present case, the following undisputed facts arise :— (i) As on the date of transfer i.e., 30-5-1999,(correct date is 30.5.1992 & appears to be typographical mistake) the transferor company M/s. Essar Gujarat Ltd. is the 100% holding company of its subsidiary M/s. Essar Oil, the transferee company and the assessee herein. (ii) The transferee company ceased to be the wholly owned subsidiary of the transferor company in September, 1994. (iii) The Energy and Offshore divisions of the holding company were taken over by the assessee as going concerns. Thus, the assessee has taken over the assets of the holding company a division by lock, stock and barrel. A division as such is completely taken over by the subsidiary. The Assessing Officer has applied the provisions of section 47(iv) of the Act to consider the nature of transfer and thereby applied the Explanation 6 sub-section (1) of section 43 for the purpose of working out the actual cost to the subsidiary company. Explanation 6 to sub-section (1) of section 43 provides as under: “Explanation 6 to sub-section (1): When any capital asset is transferred by a holding company to its subsidiary company or by a subsidiary company to its holding company, then, if the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied, the actual cost of the transferred capital asset to the transferee company shall be taken to be the same as it would have been if the transferor company had continued to hold the capital asset for the purpose of its subsidiary.”

Where a 100 per cent holding company of a subsidiary company transfer certain assets to such subsidiary company even for a price or consideration higher than the- WDV, the capital gains on such transfer has been exempted under section 47(iv). The reason being the identity of the ownership of the companies precluded its being considered as involving gain to the transferor company. As capital gain was exempt in the hands of the transferor company and in order to ensure that the transferee company does not claim depreciation on a higher cost, it was provided by the-insertion of Explanation (6) to sub-section (1) of section of the Act, that in such cases the WDV in the hands of the transferor company, shall be the cost of Acquisition in the hands of the transferee company. The Assessing Officer’s action is right as far as the situation as the date of transfer is concerned. But by 30-9-1994, the assessee company ceased to be the subsidiary of the transferor holding company. Section 47 grants

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exemption from section 45 while section 47A withdraws exemption granted under section 47 on the occurrence of the events mentioned therein. Section 47 reads as under :—

’47. Nothing contained in section 45 shall apply to the following transfers: (i) to (iii) … (iv) any transfer of a capital asset by a company to its subsidiary company, if— (a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and (b) the subsidiary company is an Indian company;” Clause (ii) of section 47A provides that the exemption granted under – Section 47 shall be withdrawn if the subsidiary company ceases to be so from the holding company within a period of 8 years from the date of transfer of the capital asset and it shall be treated as the income of the year which the transfer has taken place. The fact that the assessee has ceased be the subsidiary of the holding company on 30-9-1994 was brought to notice of the Assessing Officer during the assessment proceedings but rejected the same on the ground that the subsequent events will not have any material change with respect to changing of cost of acquisition the capital assets acquired from the holding company. But, in our opinion, the Assessing Officer should have considered the subsequent events. The application of the provisions of section 47 is not final but is subject to the occurrence of events under section 47A. If the events mentioned in section 47A occur, the exemptions granted under section 47 the Income-tax Act are withdrawn. What is the effect of such withdrawals?. In the case of the transferor company, the income is to be treated as income of the year in which the transfer has taken place. This shows that the subsequent event has the effect of withdrawing the exemption granted under section 47 and the income goes back to the date of transfer. Thus, provisions of section 47 are withdrawn on occurrence of the events mentioned under section 47A and the transaction has to be treated as a transfer under section 47(v) or (vi) of the Act as the case may be and the transferor company is liable to pay the capital gains tax. In the present case due to seizure of the assessee-company being a subsidiary of the transferor company, the provisions of section 47(iv) have ceased to apply, and the transaction has to be considered as a transfer. Section 47A provides for withdrawal of exemption and the resultant treatment to be given to income in the hands of the transferor company. What is the consequential effect on the transferee company? What should be the value of cost of acquisition in its hands? The answer lies in section 49(3). Section 49(3) reads as under :— “49(3) - Notwithstanding anything contained in sub-section (1) where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or, as the case may be, clause (v).of section 47 is deemed to be income chargeable under the head “Capital gains” by virtue of the provisions contained in section 47A, the cost of acquisition of such asset to the transferee-company shall be the cost for which such asset was acquired by it.” Sub- section (3) provides that in the hands of the transferee, the valuation of the asset regarding which the exemption granted under section (iv) has been withdrawn under section 47A of the Act, it shall be the cost for which such asset was acquired by it. Thus, in the present case, the cost 1vr which the assessee has acquired the asset should be the cost of acquisition for the purpose of computation of depreciation.” 7. At the time of hearing before us, it was also submitted by ld A.R. that the department filed appeal before the Hon’ble Bombay High Court being Income tax Appeal No.3160 of 2010 against the order of the Tribunal and the Hon’ble High Court vide its order dated 7th July, 2011 confirmed the order of the Tribunal. To substantiate his submission, ld A.R. filed a copy of the said order of Hon’ble High Court.

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Respectfully following the above order of the Tribunal, we decide the second ground of appeal against the AO.

ITA/3436 /Mum/2013-(H.V.Axles Ltd.),AY.2009-10-( Appeal by the AO).

11.The solitary issue raised by the AO, is about depreciation on the revised WDV of assets acquired by the assessee from its holding company.Following our order,in the case of H.V. Transmission Ltd.(at paragraph 10),we decide the effective ground of appeal against the AO.

As a result appeals filed by the AO and the assessee stand dismissed. फलतः िनधा�रती अिधकारी और िनधा�रती �ारा दािखल क� गईँ अपील� नामंजूर क� जाती ह� Order pronounced in the open court on 10th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 10 जनवरी, 2017 को क� गई । Sd/- Sd/- ( ( ( ( पवन �सह /Pawan Singh) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांकDated : 10.01.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब� अपीलीय आयकर आयु�, 4.The concerned CIT /संब� आयकर आयु� 5.DR “E ” Bench, ITAT, Mumbai /िवभागीय �ितिनिध, खंडपीठ,आ.अिध.मुंबई 6.Guard File/गाड� फाईल स�यािपत �ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai. 7