M/S. MAFATLAL INDUSTRIES LTD.,MUMBAI vs. DCIT SPL. RG. - 20, MUMBAI

This is an appeal filed by the assessee against the order dated 29.3.2005 passed by the ld. CIT(A)-25, Mumbai and it relates to the assessment year 1999-2000.

In this appeal, the assessee has taken following grounds :

At the outset the ld. AR submitted that the assessee do not want to press following grounds :

Grounds No.29 and 30 are general in nature therefore dismissed

Now we are dealing with the remaining grounds as follows:

Brief facts leading to these issues are that the return of income filed by the assessee on 31.12.1999 declaring total loss of Rs.1,55,86,44,104. The assessee is engaged in the business of manufacture and trading of fabrics and dyes and chemicals.

The first issue relates to the disallowance of interest in respect of advances to the companies Rs.1,63,12,256/-. During the course of assessment proceedings, the AO noticed that the assessee has not charged interest on the loans given to subsidiary and other companies to the tune of Rs.4,56,71,652/-. The AO called for the explanation from the assessee and on being scrutiny the same, the AO did not accept the explanation given by the assessee and calculated interest on the amount of loan given to the subsidiaries and other companies to the tune of Rs.1,63,12,256/- and added to the total income of the assessee. The ld.CIT(A) confirmed the addition made by the AO. Aggrieved by this, the assessee is in appeal before us.

At the time of hearing, the ld. AR submitted that an identical issue had come up before this Tribunal in the assessee’s own case for the assessment years 1991-92 to 1998-99, AY 2003-04 and the Tribunal has restored this issue to the file of AO for fresh adjudication following the precedent laid down by the Hon’ble Apex Court in S.A.Builders, reported in 288 ITR 1(SC). Therefore, this being identical issue, the same view may be taken as taken earlier by this Tribunal.

The ld. DR did not object to the plea put forth by the ld.AR.

After hearing both the parties and on perusal of the record, we find that the similar issue had come up before this Tribunal in assessee’s own cases in the assessment years (supra) and the Tribunal has restored this 8 issue to the file of AO for fresh adjudication. Accordingly, we set aside the order of ld.CIT(A) on this issue and restore the same to the file of AO to decide the issue denovo. Ground No.1 is allowed for statistical purposes.

At the time of hearing, the ld. AR submitted that an identical issue had come up before this Tribunal in the assessee’s own case for the assessment year 1998-99 and the Tribunal following the decision of jurisdictional High Court in Bhore Industries Ltd (264 ITR 180) (Bom) allowed the claim of the assessee.

The ld. DR did not bring any cogent material to controvert the factual proposition submitted by the ld.AR.

After hearing both the parties and on perusal of the record, we find that the similar issue had come up before this Tribunal in assessee’s own case for the assessment year 1998-99 and the Tribunal has decided this 9 issue in favour of assessee by following the decision of jurisdictional High Court(supra). Therefore, we set aside the order of ld.CIT(A) on this issue and allow Grounds No.7,8 and 9 taken by the assessee.

The facts with regard to disallowance of interest on securities of Rs.15,840/- are that the AO noticed that the assessee has received interest on securities of Rs.15,840/- and since the assessee did not receive receipt thereof from the State Government, the assessee did not mentioned it in the profit and loss account. Therefore, the assessing officer did not allow deduction thereof and added the same to the total income of the assessee. The ld. CIT(A) following the precedent laid down for the AYs 1991-92 to 1993-94, 1997-98 and 1998-99 confirmed the addition made by the AO.

Before the Tribunal, the ld.AR could not bring any material to show that the addition made by AO and confirmed the ld.CIT(A) is contrary to law. An identical issue had come up before the Tribunal in assessee’s own case for the assessment years 1998-99, 1997-98,1995-96,1994-95,1993- 94 and 1991-92 and the Tribunal has confirmed the views taken by the tax authorities below. Therefore, respectfully following the Tribunal orders for the earlier years, we Ground No.13.

Apropos the addition with regard to the import duty benefit, the AO made addition of Rs.422.93 being estimated import duty benefit. The AO added the same to the total income of the assessee as the similar additions were made in the past in assessee’s own cases.

In the appellate proceeding, the ld.CIT(A) admitted the contention of the assessee and restored the issue to the file of the AO with a direction to allow the same in the years in question a when claimed by the

At the time of hearing, the ld.AR submitted that the similar issue had come up before the Tribunal and the Tribunal following the decision rendered in the case of Jamshri Rajitsinghji Spinning and Weaving Mills Limited V/s Inspecting Assistant Commissioner reported in 41 ITD 142)(Mum) has decided this issue in favour of the assessee. The facts being the same and consistent with the view so take by this Tribunal in earlier year, we allow the claim of the assessee for this year too. Ground No.14 taken by the assessee allowed.

The AO made the addition of Rs.2,30,445/- by rejecting the claim of the assessee being pooja expenses on the ground that the revenue was disallowing the same on the ground that CIT(A) confirmed the same for the AY 1987-88 in the case of another group company namely, The Mafatlal Fine Spg.and Mfg Co.Ltd. The ld. CIT(A) also upheld the action of the AO by upholding his observations.

Before us, the contentions of the ld.AR are that the similar issued has been decided in favour of the assessee by this Tribunal in the assessment year 2003-04, 1998-98 and 1997-98 and therefore prayed that similar view be taken for this year also.

On the contrary, the ld.DR could not bring any material contrary to the submissions of the ld.AR so we can take different view than the view so taken by this Tribunal in earlier years.

After hearing both the parties and on perusal of the record and decisions cited by the Ld.AR, we are of the confirmed view that this is an

The next issue pertains to the payment to relatives of deceased employees amounting to Rs.3,49,027/-. The AO disallowed the claim of the assessee by following the decision of Hon’ble Jurisdictional High Court in Lob Theatre P Ltd (122 ITR 240) and Sirur and Co.P Ltd (109 ITR 421). The ld. CIT(A) set aside this issue to the file of AO for verification of facts in the light of judicial pronouncements and decide the issue afresh. Aggrieved by this decision of ld. CIT(A), the assessee has raised this issue before this Tribunal.

Before us, the ld.AR submitted that an Identical issue had come up before this Tribunal in assessee’s own case for the assessment years 1991-92, 1994-95, 1995-96, 1997-98, 1998-99 and 2003-04 and the Tribunal has decided this issue in favour of the assessee. The ld. DR did not object to the submissions of the ld. AR.

After hearing both the parties and perusal of the record on this issue, we are of the considered opinion that the issue raised by the assessee in these grounds stands covered in favour of the assessee. To maintain consistency with the decision taken by the Tribunal in earlier years, we allow Grounds No.17, 18 and 19 taken by the assessee for this year also and direct the AO to allow deduction.

In the grounds of appeal no.20.21 and 22, the assessee raised an issue that the ld. CIT(A) directed the AO to reduce the claim of depreciation by Rs.2,49,99,735/-.

The facts of the issue are that the assessee sold Micron division for a slump consideration of Rs.1546.24 lacks. Profit of Rs.264.09 was reduced from the same. In the assessment proceedings, the AO reduced the WDV of the assets transferred Rs.5,46,25,060/- from the sale consideration of Rs.15,46,24,000/- and again reduced 25% of the balance amount of Rs.99,99,89,940/- i.e. Rs.2,49,99,735/-. The assessee was called for to explain the exact value of the assets forming the part of the block assets and then claim depreciation. The assessee did not satisfy the AO and accordingly, the AO reduced the depreciation as mentioned above. In the first appellate proceedings, the ld. CIT(A), by following the decision of Hon’ble Supreme Court in M/s Artex Manufacturing Company reported in 227 ITR 260 (SC) upheld the action of the AO. Therefore, the assessee is in appeal before us.

Before us, the ld.AR submitted that an Identical issue had come up before this Tribunal in assessee’s own case for the assessment year 1997- 98 and the Tribunal has set aside this issue to the file of the AO for fresh adjudication in the light of the Tribunal order. In support of this contention, he placed reliance on the following decisions : a) Premier Automobiles Ltd V/s ITO (264 ITR 193)(Bom); b) M/s Artex Manufacturing Company reported in 227 ITR 260 (SC) ; c) CIT V/s Electric Control Gear Mfg.Co. 227 ITR 278 (SC); and d) CIT V/s Asea Brown Boveri Ltd 11 TTJ 502 (Mum). and submitted that the issue may be restored to the file of AO for fresh adjudication in the light of the above precedents.

The ld. DR did not object to the plea putforth by the ld.AR.

After hearing both the parties and perusal of the record on this issue, we find that the assessee has claimed depreciation on total scrap

Grounds No.23 and 24 pertains to expenses incurred by the assessee in respect of cloth coupons issued to the shareholders. The assessee claimed an expenditure of Rs.77.66 lacs towards business expenses contending that it was incurred towards promotion of business. The AO without calling explanation from the assessee outrightly rejected the claim of the assessee and added the same to the total income of the assessee.

In the first appellate proceedings, in the absence of personal details, the ld. CIT(A) gave partial relief to the assessee and directed the AO to allow deduction of 50% of the total claim.

Against the reduction of disallowance to the tune of 50%, the Revenue did not file appeal before the Tribunal and has reached finality to the issue. The assessee is aggrieved by the decision of the ld.CIT(A), hence, it has filed appeal before this Tribunal.

Before us, the ld. AR reiterated the same contentions as mentioned before the ld. CIT(A) and also vehemently contended that all these expenses incurred is wholly and fully for the purposes of business and

On the contrary, the ld. DR strongly objected to the plea raised by the ld. AR and prayed that orders of authorities below be upheld.

After hearing both the parties and on perusal of the record, we find that the decision taken by theld.CIT(A) is well reason and accordingly we confirm his action. Grounds No.23 and 24 are accordingly dismissed.

The next issue relates to setting off the expenses against dividend income. During the year under consideration, the assessee received dividend amounting to Rs.3,50,98,649/-. For earning this dividend income, the assessee has made investment of borrowed funds. The assessee paid interest on borrowed funds. Therefore, the AO asked the assessee to explain why the interest incurred on borrowed funds should not be disallowed. In reply, the assessee submitted that under the provisions of section 36(1)(iii) of the Act, the interest paid on borrowed funds utilized for business purposes is allowable expenditure. During the year under consideration, the assessee incurred interest expenses of Rs.13,165.63 lacs. The AO by invoking the provisions of section 14A, the AO disallowed Rs.3,50,98,649/-. Aggrieved by the decision of the AO, the assessee appealed before the ld.CIT(A).

Before, the first appellate authority, the assessee contended that the investment made from its own funds and assessee could not establish the nexus with own funds or borrowed funds completely. Therefore, without discussing the issue thoroughly, the ld. CIT(A) reduced the disallowance to 50%. Being aggrieved by this decision of ld. CIT(A), the assessee is in appeal before us.

Before us the ld. AR contended that the assessee made investment and earned dividend income. The said investment was made by taking funds from outside. The assessee has also paid interest on borrowed funds. Therefore, the assessee has incurred expenditure for earning dividend income. Hence the claim of the assessee is allowable and be allowed. The ld.AR also placed reliance on the decision [2010] 328 ITR 81(Bom) in Godrej & Boyce Mfg. Co. Ltd. V/s DCIT and contended that the issue be decided in favour of assessee.

On the other hand, the ld. DR contended that before the assessee has stated that it has made investment by bringing funds from outsides and paid interest there over and claimed expenditure u/s 36(1)(iii) of the Act. Before the ld. CIT(A) has stated that assessee made investment from his own fund. The assessee could not prove its case before the lower authorities to claim setting off expenses against dividend income.

We have heard both the parties and perused the record. We find that the assessee earned dividend income and claimed that the interest paid on borrowed funds for making investment is expenditure. We find that as per the provisions of section 14A the assessee cannot claim expenditure of interest for earning exempt income which is not forming part of the total income. Obviously, the assessee borrowed the funds from outside and invested it. The assessee also earned dividend income and claimed expenditure as deductible business expenditure. On perusal of the decision rendered by the Hon’ble Jurisdictional High Court, the Hon’ble High Court observed and held that : “Even prior to assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub-section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and 16 circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; The proceedings for assessment year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case.”

The last issue is in respect of disallowance of excess expenses incurred towards repairs and maintenance of house property amounting to Rs.8,69,220/-.

The assessee incurred expenses toward repairs and maintenance amounting to Rs.67,86,676/-, and the assessee on own disallowed 25% thereof. The AO restricted the claim 25% of Rs.34,76,882/-. The CIT(A) confirmed the action of the AO on the ground that the AO restricted the claim of the assessee at 1/4th of the annual value of Mafatlals House of Rs.34,76,882/-.

The ld. AR submitted that the expenditure incurred for maintenance of the house referred above be allowed fully and this is an actual expenses incurred by the assessee. In support of this, the ld. AR placed reliance in Verma Family Trust V/s ITO (71 ITD 392) and Vaswani Chambers (AOP) V. DCIT (Mum).

The ld. DR strongly relied on the orders of authorities below and submitted that the Tribunal in assessee’s own case for the assessment year 1998-98 decided this issue against the assessee and the same status quo be maintain for this year also.

After hearing both the parties and on perusal of the record, we find that the Tribunal earlier in the assessee’s own case decided this issue against the assessee. The ld. AR could not produce any material to compel us to come to the different conclusion as taken by the Tribunal earlier. Respectfully following the Tribunal order, we dismiss the Ground No.27 taken by the assessee.

In the result, appeal of the assessee is partly allowed for statistical purposes.