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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI AMIT SHUKLA
O R D E R PER AMIT SHUKLA, JM The aforesaid appeal has been filed by the Revenue against order dated 02.02.2018 passed by Ld. CIT (A)-38, Delhi for the quantum of assessment passed under section 143(3) for the assessment year 2011-12. In the grounds of appeal Revenue has raised following grounds:- 1. “Whether on the facts and circumstances of the case, the Ld CIT(A) is legally justified in allowing the expense of Rs. 6,91,20,350/- by ignoring the findings of the Assessing Officer (hereinafter referred as “the AO”) and also the fact that the assessee had not discharged its initial onus u/s 37(1) of the income Tax Act, 1961 (hereinafter referred as “the Act”) by not furnishing any credible evidence that expenditure was actually incurred wholly and exclusively for the business purpose of the assessee?
2. Whether on the facts and circumstances of the case, the Ld CIT(A) is legally justified in restricting the disallowance of Rs. 79,39,020/- u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 (hereinafter referred as ‘the Rules”) to Rs. 16,67,500/- by not considering the provisions of Section 14A of the Act which stipulate computation of disallowance u/s 14A of the Act mandatorily under Rule 8D(2) of the Rules? 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in restricting the disallowance of Rs. 79,39,020/- u/s 14A of the Act to Rs. 16,67,500/- without considering legal principle that the allowability or disallowablity of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon’ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 and without considering ratio decidendi as upheld in the cases of CIT vs. Walfort Share and Stock Brokers P. Ltd, [2010] 326 ITR 1 (SC) and Maxopp Investment Vs. CIT [2012] 347 ITR 272 (Delhi) on application of provisions of sectionl4A of the Act? 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) is legally justified in allowing relief to the assessee on the basis of its earlier order in the assessee’s own case ignoring the fact that principle of res-judicata is not applicable to Income Tax proceedings as each assessment year is a separate year?”
Brief facts are that the assessee is a public limited company engaged in the business of manufacturing, sale and trading of automotive tyres, tubes and flaps. The Assessing Officer has made ad-hoc disallowance of business expenditure of Rs. 6,91,20,350/- and disallowance under section 14A of Rs. 79,39,020/-. The Assessing Officer has made ad-hoc disallowance on the following expenses in the following manner:- Particulars Expense %age Amount incurred disallowance disallowed (in Rs.) (in Rs.) Rent 24,60,000 100% 24,60,000 Repairs & maintenance of building 42,47,000 50% 21,23,500 Repairs and maintenance of others 14,08,000 50% 7,04,000 Salaries and wages 1,28,76,000 50% 64,38,000 Rates and taxes 12,47,000 50% 6,23,500 Insurance charges 4,18,000 50% 2,09,000 Audit remuneration 5,06,000 50% 2,53,000
Travelling & conveyance 68,08,000 70% 47,65,600 Electricity consumed 22,31,000 50% 11,15,000 Legal & professional charges 2,98,41,000 50% 1,49,20,500 Repairs & maintenance to vehicles 5,22,000 50% 2,61,000 Telephone & Postal Expenses 6,94,000 50% 3,47,000 2,75,86,000 100% 2,75,86,000 Sales Tax paid (includes interest and penalty) Directors’ sitting fees 2,37,500 50% 1,18,750 Miscellaneous Expenses 143,90,000 50% 71,95,000 TOTAL Rs.6,91,20,350 The reason given by the Assessing Officer that the assessee does not have income out of business activities but income declared only relates to interest received on fixed deposits, dividend income and rent and other income which have been qualified under the head “other income”. Thus, expenses claimed under the above heads are not only excessive but does not have any justifiable relation to the quantum results declared during the year. Since assessee is a corporate entity in the business of maintaining certain amount of expenses under the above heads is necessary. Accordingly, he has proceeded to make ad-hoc disallowance in the aforesaid manner.
The Ld. CIT (A) has deleted the disallowance holding that all the aforesaid expenditure were incurred for the purpose of business and maintaining corporate entity.
After considering the submissions made by the parties, we find that Assessing Officer has not disputed the genuineness of these expenditures and only case of the Assessing Officer is that part of the aforesaid expenditure are excessive and does not have any justifiable relation to the quantum of results declared by the assessee. It has been stated by the Ld. Counsel that the entire expenditure incurred was duly supported by proper details/documents/vouchers and duly recorded in the books of account which had been audited. No single defect or discrepancy has been pointed out by the Assessing Officer. He further submitted that in assessee’s own case this Tribunal in assessment year 2008-09 and 2009-10 have deleted the similar ad-hoc disallowance. The observation and the finding of the Tribunal in the appeal for assessment year 2008-09 in reads as under:-
“7. We have heard the rival contentions and perused the facts of the case. The total expenditure incurred is Rs. 64,06,041/- whereas the disallowance made by the Assessing Officer is to the extent of Rs. 25,13,385/- as mentioned in the Assessing Officer’s order reproduced hereinabove. From a careful reading of the assessment order, it is evident that the Assessing Officer has not disallowed 100% expenditure and he had considered the maximum expenditure as genuine and having been incurred for the purpose of business u/s 37(1) of the Act, which means that the expenditure claimed by the assessee has been considered as excessive. Nowhere in the order of the Assessing Officer there is a whisper as to how the expenditure is excessive and how the expenditure to the extent of Rs. 25,13,385/- is not having been incurred for the purpose of business u/s 37(1) of the Act or there is a personal expenditure. Making of estimation for disallowance under such circumstances and facts of the case is not permissible. Accordingly, we do not find any infirmity in the order of the Id. CIT(A) who has relied upon the following decisions: a)CIT Vs. Malayalam Plantations Ltd 53 ITR 140 (SC) b) CIT V Birla Cotton Spinning & Weaving Mills Ltd 82 ITR 166 [SC] c) Madhav Prasad Jatia Vs. CIT 118 ITR 200 [SC]
Reliance was also placed by the Id. counsel for the assessee on the decision of the Hon'ble Supreme Court in the case of J.J. Enterprises Vs. CIT reported at 254 ITR 216 [SC] where, as per the ‘Head Notes’, it has been held as under: "In its principal order, the Tribunal had concluded that the addition was unsustainable because it had been made "on the basis of pure guess work". The Revenue moved the High Court under Section 256(2) of the Income-tax Act, 1961, and the High Court called for a reference on the basis that the question was a question of law. We are unable to agree with the High Court. In the first place, the Tribunal has held that the addition had been made on the basis of pure guess work and this is a matter of fact in respect of which the Tribunal's conclusion is final. In the second place, there was no question of remanding the matter to the Assessing Officer for re¬examination of the same question.
9. Reliance was also placed on the decision of the ITAT Delhi Bench in the case of Dwarka Prasad Agarwal Vs. ITO reported at 52 ITD 239 wherein it has been held that the Assessing Officer has not pointed out any expenditure of personal nature relating to partner of employee of the assessee. The adhoc disallowance made by the Assessing Officer without supporting evidence was not permissible. Reliance was also placed on the decision of the ITAT Delhi Bench in the case of ACIT Vs. Amtek Auto Ltd reported at 112 TTJ 455 wherein it has been held that regarding foreign tour expenditure, the Assessing Officer made disallowance on adhoc basis but no specific instance of any non business related expenditure was pointed out and the appeal of the assessee was decided in favour of the assessee. Under such facts and circumstances of the case, the order o the Ld. CIT(A_ is a correct order and as mentioned above, we do not find any infirmity in the same. Thus, Ground No. 1 of the Revenue stands dismissed.”
It has been followed in assessment year 2009-10 by the Tribunal in ITA No. 1952/Del/2014. 5. Thus, consistent view taken with the earlier years on similar facts and reasoning by the Assessing Officer, the order of the Ld. CIT(A) deleting the addition is upheld. Consequently ground No. 1 raised by the Revenue is dismissed.
In so far as disallowance under section 14A, the brief facts are that assessee has earned divided income of Rs. 3,35,50,000/- and profit on sale of shares of Rs. 36,068/- which was claimed as exempt. Before us, the Ld. Counsel pointed out that exempt income of Rs. 3,33,86,068/- was on account of investment in shares of company M/s. Gujarat Guardian Ltd. wherein investment of Rs. 33,35,00,000/- was made in the year 1993-94. He further pointed out that firstly no expenditure debited to the profit and loss account as there was no co-relation with the earning of the dividend income in that particular shares. Moreover, in assessment year 2008-09 the Tribunal on same dividend income received from the same shares has deleted the addition on the ground that assessee had a surplus funds while making the investment. Apart from that the interest expenditure debited to the profit and loss account finance cost of Rs. 68.55 lacs comprises of the following:-
Particulars Amount (in Rs.) Interest Expenses: Interest on Bank 5,42,000 Other interest 1,08,000 TOTAL ( A ) 6.50.000 Other Borrowing Costs: Bank Charges and Guarantee Commission 62,05,000 TOTAL (B) 62.05.000
TOTAL (A+B) 68.55,000 The interest component relatable to business activities is only Rs.5.42 lacs, which was paid on loan taken from Yes Bank as short-term measure to refinance the unsecured loan and capital expenditure to be incurred at Modi Nagar tyre plant and no part of such interest expenditure could be attributed towards earning of above exempt income.
Thus, no interest disallowance was warranted. He also drew our attention to the position of funds as on 30.06.1994 and 31.03.2011 which was as under:-
Particulars As on As on 31.03.2011 30.06.1994 (Rs. In lacs (Rs. in lacs) Shareholders’ 16,356.03 8305.63 Funds In view of the above, he submitted that no disallowance of interest is at all warranted.
8. After considering the aforesaid submissions and on perusal of the impugned order, we find that Ld. CIT(A) has deleted the interest expenditure following the appellate order for assessment year 2008-09 and 2009-10 after noting down the dismissal of the appeal filed by the Revenue by the Tribunal in those years on the same very issue. However he has confirmed disallowance of Rs. 16,67,500/- out of total disallowance made by the Assessing Officer of Rs. 79,39,020/- which consisted of disallowance of interest under Rule 8D(2)(i) and Rule 8D(2)(iii). Ld. CIT(A) held that the computation of disallowance for purpose of Rule 8D(2)(iii) would be considered only from the dividend income received from M/s. Gujarat Guardian Limited which worked out to Rs. 2,22,500/-.
On perusal of the said finding, we find that the decisions of the Ld. CIT(A) under the facts and circumstances of the case are justified and to the extent of disallowance made by the Ld. CIT(A) is confirmed and rest what has been deleted as the Ld. CIT(A) is also justified. Consequently ground No. 2 and 3 raised by the Revenue are dismissed. 10. In the result the appeal of the Revenue is dismissed.