DCIT 9(2), MUMBAI vs. NESCO LTD, MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal by the Revenue and Cross Objection by the Assessee have been filed against the order of Ld. Commissioner of Income Tax (Appeals), Mumbai-20 {(in short ‘CIT(A)’}, dated 11.02.2014 passed against assessment order u/s 143(3) dated 20.03.2013 for the Assessment Year 2010- 11.

We shall first take up Revenue’s Appeal in Assessment Year 2010-11filed on the following grounds: “

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was right in deleting the addition of Rs.19,22,861/- made by the assessing officer on account of 'provisions of expenditure' without appreciating the fact that the assessee had not paid the same in the subsequent years and has written back the same only due to scrutiny assessments?”

3 Nesco Ltd.

3.1. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and submitted that no disallowance on account of interest was called for doe to the reason that assessee’s own funds are far more than the amount of investment in tax-free securities. The assessee submitted complete facts in this regard before the Ld. CIT(A). The Ld. CIT(A) considered all the facts and found that assessee had sufficient funds to make investments in tax-free securities. The detailed findings given by the Ld. CIT(A) are reproduced hereunder: “I have considered the finding of the Assessing Officer, rival submission of the appellant and have also perused the evidences on record, carefully. I find that Ld. Assessing Officer has disallowed expenditure of Rs.1,06,41,261/- (Gross Amount Rs.1,69,44,644/-)

4 Nesco Ltd. without any valid reason or on the basis of facts. Ld. Assessing Officer has wrongly considered an interest expenditure of Rs.1,28,05,216/- for disallowance of corresponding expenditure as per Rule 8D whereas there is no such element of interest expenditure relating to earning of dividend of Rs.5,65,60,705/-. It is very obvious that Ld. Assessing Officer has not properly appreciated the full facts of the case. In para 4.5 Ld. Assessing Officer has given details of negative balance between 28.04.2009 to 20.05.2009 which is found to be very vague rather contradicts the finding of the Assessing Officer. As can be seen that there is total investment reflected between this period is of Rs.7,57,05,373/-. Whereas availability of fund is of Rs.10,81,09,709/- which means, as compare to investment there is much more interest free deposits. It appears from the assessment order that Ld. Assessing Officer has ignored the fact of availability of total interest free funds and investment thereof. 5.4 During the course of appellate proceedings, Ld. A.R. has demonstrated with the help of the evidences submitted to the Assessing Officer by letter dated 04.03.2013 that total investment during the year is of Rs.1,14,93,00,000/- whereas total redemption of mutual fund, opening balance and dividend is of Rs.1,17,99,27,701/-. Thus, as compare to overall investment, appellant has got more interest free fund. The details of such availability of funds and investment thereof has been shown at Page No.17. 18 and 19 of the paper book. It is p e r tin e n t to me n tio n th a t ap p e ll an t h as b e e n su c c e s sf u l in demonstrating the evidences of interest free fund invested during the year. With a view to make this finding more authentic, it is necessary to give the details of interest free funds available with the appellant so as to explain the investment. Same is as under:

5 Nesco Ltd.

(i) Share Capital Rs.7,04,59,960 (ii) General Reserves-(including transfer during the year Rs.53,74,43,373 Rs.150,09,86,123 (iii) Balance of Profit & Loss A/c. Rs.50,00,000 Total own funds- Rs.157,64,46,083/- B Interest Free Funds- (i) Advances from IT Park Licensees Rs.2,79,45,454 (ii) Advance from Convention & Exhibition Organizers Rs.16,82,84,518 (iii) Security Deposit from Exhibitors Rs.31,19,593 (iv) Security Deposits from IT park Licensees Rs.2,81,98,595 (v) Security Deposits from Licensee (other) Rs.11,31,31,982 Total interest free funds Rs.34,06,80,142 Grand Total of own funds and interest free funds(A+B)Rs.191,71,26,225

Thus, it is very evident that as compare to total investment of Rs.1,14,93,00,000/-, appellan t has go t in terest f ree f unds of Rs.1,91,71,26,225/-. As such, the finding of the Assessing Officer is factually incorrect. 5.5 Further, the analysis of individual investment made from interest free funds support the contention of the appellant. It can be seen that on 18.03.2009, there was redemption of ICICI Prudential FMP of Rs.1 crore and on 25.3.2009 sale proceeds of mutual funds is of Rs. 2 crores which was utilized in this Financial Year i.e. 2009-10. It is very evident from the details submitted by the appellant that upto 30.04.2009, there was a redeemed amount of Rs.11,67,98,101/- whereas investment in HDFC cash management fund was only of Rs.2,05,00,000/- . Thus, there was surplus of Rs. 9,62,98,101/-. Similarly, in the month of May there is total redemption of fund of Rs.15,27,09,639/- whereas investment is only of Rs. 6 crores, thus there is positive balance of Rs.9,27.09,639/-. Similarly, in the month of June dividend and redeemed fund was of Rs.16,97,09,956/- whereas investment was of 6 Nesco Ltd.

Rs.14,35,00,000/-. There again there was surplus of Rs.2,62,09,956/-. In the month of July interest free fund is found to be of Rs. 9801.6371/- whereas investment is only of Rs.720,00,000/- thu s th ere is sur plus in te re s t f ree f und of Rs.2,60,16,731/-. further, I find that in the month of August interest free fund is of Rs.11,36,37,853/- whereas investment is only of Rs.10,40,00,000/-. Thus, there is surplus of Rs.96,37,853/-. Thus, throughout the year there is surplus of interest free fund. Such information is available in the details submitted by the appellant. The overall picture of investment and interest free fund has been clarified earlier. It is to be reiterated that during the year appellant has also received dividend of Rs.319,21,262/- which has been invested. Further, it is important to note that during the year appellant has received rental income and business income to the extent of Rs.119,81,96,927/- and has shown net profit of Rs.78,72,77,164/-. Obviously, such income is available for any such investment, hence it is wrong on the part of the Assessing Officer to presume that over draft facility has been utilized for investment. The details given by the Assessing Officer in Para 4.5 of the assessment order does not possess full information as there is opening balance comprising of redemption of Rs. 3 crores. Thus, it is - very obvious that no interest bearing fund has been utilized for investment. As such the finding of the Assessing Officer suffers with infirmity and having lack of facts. Thus, in the light of the above, I reach to the conclusion that Ld. Assessing Officer has wrongly observed that appellant has failed to prove the nexus between own funds and its utilization in investment, therefore, such disallowance of notional expenditure is not suo sustainable. Further, appellant has motto calculated the disallowable expenditure to the extent of Rs.63,O3,383/- which is reasonable and found to be acceptable as Assessing Officer has 7 Nesco Ltd. not refuted the same with any contrary evidence. Thus, the addition by way of disallowance of further expenditure of Rs.1,06,41,261/- is deleted.”

3.2. During the course of hearing, Ld. DR was not able to controvert factual findings given by the Ld. CIT(A). It is noted that Ld. CIT(A) has very carefully analysed that own funds and interest free funds of the assessee were to the tune of Rs.191.71 crores as against total investment of Rs.114.93 crores. It is further noted by the Ld. CIT(A) after perusing minute details that even if the nexus of borrowed funds and funds investment was to be analysed, it was found that no borrowed funds were used in making tax-free investments. It was found that only surplus funds or interest-free funds were used for making investment in tax-free revenue’s. Under these circumstances, we find that Ld. CIT(A) has rightly deleted disallowance made by the AO, and no interference is called for in the well reasoned order of Ld. CIT(A). Nothing has been brought on record before us to negate the factual findings recorded by the Ld. CIT(A). Therefore, we uphold the order of the Ld. CIT(A) and dismiss the grounds raised by the Revenue.

4.1. During the course of assessment proceedings it was noted by the AO that assessee has shown in its balance sheet

8 Nesco Ltd. brought forward amount of provision of expenses made in earlier years for Rs.19,22,861/-. It was further noted by him that the said amount was written back by the assessee in subsequent years. In view of these facts the AO was of the view that since the provision has been written back by the assessee in subsequent years, therefore, it was proved that provisions were actually not required to be made originally. In view of these facts, he added to the total income of the assessee, the amount of Rs.19,22,861/- being the amount of provisions made in earlier years and brought forward in the impugned year in the balance sheet.

4.2. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) wherein it was submitted that the impugned amount of provisions was made in F.Y. 2004-05 to 2008-09 and the corresponding expenses were allowed in the respective assessment year. But in the subsequent years when it was found that these amounts were neither paid nor payable, then the same were offered to tax in F.Y. 2012-13. It was further submitted that assessee had made provisions in the books of accounts in a bonafide manner and in all fairness when this amount was found to be no more payable, the same was written back. Under these circumstances this amount could not have been added back by the AO in the impugned year as neither the expenses related to impugned year nor said amount was written back in the impugned year. It was further submitted that the decision of writing back was a conscious decision taken after evaluating the actual liability. It was lastly

9 Nesco Ltd. submitted that in any case the assessee has already included this amount in its taxable income in financial Year 2012-13, and therefore, there was no justification to include the same again in the income of impugned year which has resulted into double addition of same income. After analyzing the submissions of the assessee, Ld. CIT(A) deleted the addition made by the AO against which revenue filed an appeal before the Tribunal.

4.3. We have carefully gone through the orders of the lower authorities and submissions made by the Ld. DR before us. It is noted that Ld. CIT(A) had analysed all the facts carefully and found that the addition made by the AO was contrary to law and facts of the case. The Relevant findings of his order are reproduced below: “63. I have considered the issue under appeal, carefully. I find that there is no claim of any such expenditure of Rs.19,22,864/- in this year. In fact, such liabilities were arisen in FY 2004-05 to 2008-09 on account of bills, raised for repairs and maintenance, professional charges, advertisement expenses and some miscellaneous expenses, by respective parties. These expenses were allowed in earlier year on the basis of evidences on record. The details of such expenses has been submitted by the appellant by letter dated 04.03.2013 to the Assessing Officer which has been also submitted along with paper book and details is reflected at Page No.163 onwards. Obviously, this is not the provision of expenditure of this year, rather this is outstanding liability of earlier years which was still pending in this year for payment. Thus, it is very evident that Assessing Officer has not properly appreciated the facts of the case. It is not 10 Nesco Ltd. malafide claim of any expenditure. During the course of business such liability has been arisen, therefore appellant has claimed the same in routine way in preceding years, but when, subsequently, such liability is found not payable on account of various reasons, same has been written back and offered for taxation in FY 2012713, therefore there is no reason for disallowing such expenditure and levying double tax on it. 1, therefore, find no convincing reason with the Assessing Officer to disallow such outstanding liability in this year. it is a fact that before start of scrutiny proceeding, appellant has suo motto added as per Annexure 'C' of the balance sheet such amount of Rs.19,22,861/-, hence due tax has already been offered. It is also important to point out that appellant has declared substantial income for taxation in both the years, hence there is no malafide intention to reduce tax burden or to reduce profit or income of any assessment year. There is no sort of any benefit substantial in nature, hence such disallowance of expenditure is not sustainable. Therefore, disallowance of such expenditure of Rs.19,22,8611- is deleted because same has already been offered in subsequent year and Assessing Officer has not reduced the same in s u b s e q u e n t y e ar f r o m th e a s s e s s m e n t o r h a s r e m i t te d th e corresponding refund to the appellant.”

4.4. It is noted by us that Ld. CIT(A) has rightly held that there was no occasion with the AO to make addition in the year under concern and further in any case this amount has already been offered by the assessee for Financial Year 2012- 13. Thus, taking into account all the facts and circumstances of this case there was no justification with the AO to make addition of this income in the year under concern, as per law. Thus, in our view, Ld. CIT(A) has rightly deleted this addition

11 Nesco Ltd. and we do not find any appropriate reason to make any interference in the findings recorded by the Ld. CIT(A). Thus, the order of Ld. CIT(A) is upheld and grounds raised by the revenue is dismissed.

Now we take up C.O. No.162/Mum/2015 for A.Y. 2010-11:

5.1. Since appeal of the revenue has already been dismissed on these grounds, the CO become infructuous and we do not find it necessary to adjudicate the same separately and therefore the same may be treated as dismissed being infructuous.

Order pronounced in the open court on 25th May, 2016.