TaxTMI 
TaxTMI 
2017 (9) TMI 723
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....u/s 14A of the Act. 3. For appreciation of facts, we are referring the fact related to AY 2002-03 in ITA No. 636/Mum/2013, which was treated as lead case by ld. CIT(A) during first appellate stage. The assessee has raised following grounds of appeal: i. Disallowance u/s 14A The ld. CIT(A) erred in law and on facts in confirming the disallowance made by the Assessing Officer on adhoc basis of 5% of the exempt income under the provisions of section 14A of the Incometax Act, 1961, disregarding the facts of the case that no expenditure had been incurred in relation to exempt income. 4. Brief facts of the case are that during the relevant financial year the assessee earned dividend income of Rs. 1,56,94,053/-. The Assessing Officer (AO) while passing assessment order disallowed the 10% of dividend income u/s 14A of the Act. On appeal before the ld. CIT(A), the ld CIT(A) directed the AO to restrict the disallowance on reasonable basis in view of the decision of Hon'ble Bombay High Court in case of M/s Godrej & Boyce Manufacturing Co. Ltd( 328 ITR 81 Bom). The AO in order giving effect to the order of Ld CIT(A) restricted the disallowance @ 5% of the dividend incom....
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....of Rs. 2465.06 Crore. The assessee during the relevant financial year has made the investment of Rs. 1189.92 Crore. From the perusal of financial statement, we have noted that the interest free funds available with the assessee are more than the investment made during the year. The Hon'ble Bombay High Court in Reliance Utility and Power Ltd (supra) held that where both the interest free funds and interest bearing funds are available and the interest free funds are more than the investment made the presumption is that the investment is made out of interest free funds available with the assessee. The High Court further held that for the years for which Rule 8D is not applicable and in the event the AO is not satisfied with the working given by the assessee, the disallowance under section 14A has to be made on reasonable basis. The Hon'ble jurisdictional High Court in HDFC Bank Ltd. (supra) held that while considering disallowance under Section 36(1)(iii) the application of Section 14A of the Act would apply. Considering the fact that no interest bearing funds were utilized in earning the exempt income. Thus, no interest disallowance can be made while disallowance u/s 14A of the Act. ....
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....aised the following ground of appeal: i. Disallowance u/s 14A The ld. CIT(A) erred in law and on facts in confirming the disallowance made by the Assessing Officer on adhoc basis of 5% of the exempt income under the provisions of section 14A of the Income-tax Act, 1961, disregarding the facts of the case that no expenditure had been incurred in relation to exempt income. i. Disallowance u/s 14A for the purpose of MAT computation The ld. CIT(A) erred in law and on facts in confirming the book profit u/s 115JA in respect of adhoc disallowance u/s 14A of the Act. 13. Ground No.1 relates to disallowance u/s 14A of the Act (normal disallowance). We have seen that this ground of appeal is identical to the ground No,1 of appeal in ITA No. 636/Mum/2013. The facts of the appeal under consideration are similar as of appeal for AY 2002-03, wherein we have restricted the disallowance @ 1% of the exempt income. Thus, keeping in view the principle of consistency, this ground of appeal raised by assessee is allowed mutatis mutandis as allowed in ITA No. 636/Mum/2013. 14. Ground No.2 relates to disallowance u/s 14A (MAT) while determining book profit under....
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....ion of Tribunal in assessee's own case for earlier years as well as by orders of superior courts. The ld AR for the assessee filed a details in the form of a chart referring the details of order covering the grounds of appeals. The ld DR for the revenue not disputed the details of orders of various Tribunal in favour of assessee. 19. We have considered the submissions of the ld representatives of the parties and further perused the order of authorities below. First ground of appeal is general and needs no specific adjudication and hence dismissed. The ground No. 2 relates to Provision of warranty. The ld AR for the assessee argued that this ground of appeal is covered in favour of assessee by the decision of the Tribunal in assessee's own case for AY 1997-98 and 1998-99 in ITA No. 6214- 6504/M/2003 and ITA No. 7148/M/2004 dated 06.01.2017. The ld AR further relied on the decision of Hon'ble Supreme Court in Bharat Earth Movers Vs CIT (245ITR 428 SC) and Rotork Controls (P) Ltd (314ITR 62 SC). The ld DR for the revenue not disputed the submissions of the ld AR for the assessee. 20. We have considered the submissions of the parties and perused the order of the Tribunal in asses....
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.... the assessee had incurred an expenditure of Rs. 37.70 crores, that in the books of account it had treated the expenditure as deferred revenue expenditure, that in the computation of income and during the assessment proceedings it claimed that expenditure was of revenue nature, that the AO had not given any finding about allowability of the expenditure, that the expenditure was incurred for developing the tools/components. In our opinion, the entries in the books of account do not decide allowability of expenditure as revenue expenditure. Nor are the books decisive to hold expenditure as capital expenditure. What has to be seen is the nature of expenditure. The FAA has given categorical finding of fact that expenditure did not add to the fixed capital of the assessee or helped it in acquiring the source of profit. Therefore, in our opinion the FAA was justified in allowing the expenditure as revenue expenditure. Ground No.7 is decided against the AO. 23. Considering, the decision of Tribunal in assessee's own case for AY 1997-98 and for AY 1998-99, and following the principal of consistency do not find any illegality in the order passed by ld. CIT (A), hence, t....
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....he expenditure for the year under consideration, that the assessee had availed the services of a consultancy firm to improve the working of the company. As that fee was paid for improving the existing system, therefore, In our opinion the order of the FAA does not suffer from any legal infirmity. Confirming the same Ground.No.8 is decided against the AO. As a result, appeals, filed by the assessee and the AO, for the AY.1997-98 stand partly allowed. Appeal of the assessee for the AY.1998-99 is partly allowed and appeal of the AO is dismissed. 25. Considering, the decision of Tribunal in assessee's own case for AY 1997-98 and for AY 1998-99, and following the principal of consistency this ground of appeal is partly allowed as mutatis mutandis as per order dated 06.01.2017. 26. Ground No. 5 relates to Product Development Expenses of Rs. 37,14,83,200/-. The assessee claimed deduction of Product Development Expenses of Rs. 46,43,54,000/- u/s 37. The assessee incurred these expenses on Engineering Research Centre in the normal course of business. As per consistent method the assessee treated as deferred revenue expenditure in the books of account. However, the entire expenses were....
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....f the industrial undertaking, that same was capital expenditure, that the expenditure incurred on preparation of feasibility/project reports in connection with the expansion of industrial undertakings or in connection with the setting up of a new units was an admissible deduction u/s.35D of the Act. 3.1. In the appellate proceedings, upholding the order of the AO.s, FAA held that the expenditure incurred was in the capital field. We find that identical issue has been decided by us, while adjudicating the appeals for the AY.1996-97 in the following manner: 5.2.Before us, AR submitted that similar kind of expenditure in the earlier years was allowed by the Tribunal,wherein FAA had confirmed the additions made by the AO in similar fashion. DR left the issue to the discretion of the Bench. We find the in the earlier AY.s., we have dealt the issue as under: "9.Next common ground of appeal (G.12-1991-92, G.9-1994-95)is about Fees paid to Consultants for Feasibility Studies. AO. found that the assessee had paid Rs. 4.83 lakhs and Rs. 24.94 lakhs to the consultants for conducting feasibility studies for the years under appeal. AO.s were of the opinion that the ex....
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....ier years, we decide the issue of payment of fees to the consultants for conducting feasibility report in favour of the assessee." In view of the decision of earlier years, Ground no.7 is decided in favour of the assessee." Following our order for the assessment year 1996-97, Grounds no.9 (1997- 98) and1(for 1998-99 and 2000-01) is allowed." Further, the coordinate bench of the Tribunal in assessee's group case i.e. in Tata Iron & Steel Company ltd Vs DCIT in ITA 7270&7747/M/2010 for AY 2001-02 by following the decision of earlier year passed the following order; "6. Effective Ground no.1, filed by the AO, is about expenses of Rs. 4.90 lacs incurred on techno feasibility report. Before us, representatives of the both the sides admitted that the identical issue was decided by the Tribunal while adjudicating the appeal for years 1997-98 to 2000-01 (supra). We find that in the appeals for the above referred four years, the issue was dealt by the Tribunal as under: "3.Now, we would take up the common grounds of appeal raised in different years. First of them is about fees paid to consultants for feasibility studies for the AY.s.1997-98,1998-1999 and ....
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....ltants for feasibility studies, has been dealt in following manner: 16.2. Before us, AR submitted that similar issue was decided in favour of the assessee in the preceding AY.DR did not controvert the fact. We find that in the AY.1985-86 assessee had paid fees for feasibility study to the same consultant to whom fess was paid during the year also. While deciding the appeal, Tribunal at paragraph 38 has held as under: " We have perused the details of the expenses. A sum of Rs. 10 lakhs was paid for modernization project phase-I.A sum of Rs. 2 lakhs and Rs. 3 lakhs was paid for project report for feasibility of plastic lines and coated pipes and revamping the ERW Mill respectively. In AY.1968-69 in I.T.A. No.2068/Bom/74-75 the Hon'ble ITAT in assessee's own case considered expenditure on report for increasing production capacity and future development. After elaborate discussion, the Tribunal came to the conclusion that expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure. Facts and circumstances being identical in this year, respectfully following the decision of the Tribunal, we hold that the expenditure in question has to be all....
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....s of the case and in law, ld CIT (A) erred in allowing the vendor development expenses ignoring the fact that these are deferred expenses and capital in nature. 4. On the facts and in the circumstances of the case and in law, ld CIT (A) erred in allowing the product development expenses, ignoring the facts that these are capital in nature. 31. The ld AR for the assessee submitted that all the grounds of appeal raised by the revenue are covered in favour of assessee and against the revenue. The ld AR for the assessee filed the details of chart along with the details of the case by virtue of which the grounds of appeal are covered. The ld DR for the revenue has gone through the details so furnished and disputed the various orders. Ground No. 1 is general and needs no adjudication and thus the same is dismissed being general. 32. Ground No.2 relates to disallowance of the warranty expenses of Rs. 38,38,88,000/- We have seen that this ground of appeal is identical to the Ground No. 1 of appeal in ITA No.3597/M/2011 for AY 1999-2000, which we have already dismissed vide para No. (19-21) above. Hence, following the principal of consistency this ground of appeal raised by t....
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..... Ground No.2 relates to disallowance of the warranty expenses of Rs. 12,80,40,000/- We have seen that this ground of appeal is identical to the Ground No. 1 of appeal in ITA No.3597/M/2011 for AY 1999-2000, which we have already dismissed vide para No. (19-21) above. Further, we have dismissed the identical grounds of appeal raised by revenue for AY 2000-01. Hence, following the principal of consistency this ground of appeal raised by the revenue is dismissed with similar observation. 39. Ground No.3 relates to vendor development expenses of Rs. 4,60,00,000/-. We have noted that this ground of appeal is identical to the Ground No.3 of appeal by revenue in ITA No.3597/M/2011 for AY 1999-2000, which we have already dismissed vide para No. (22-23) above. Further, we have dismissed the identical grounds of appeal raised by revenue for AY 2000-01. Hence, following the principal of consistency this ground of appeal raised by the revenue is dismissed with similar observation. 40. Ground No.4 relates to product development expenses of Rs. 63,59,00,000/-. We have noted that this ground of appeal is identical to the Ground No.5 of appeal by revenue in ITA No.3597/M/2011 for AY 1999-20....
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....4. On the facts and in the circumstances of the case and in law, ld CIT (A) erred in allowing the product development expenses, ignoring the facts that these are capital in nature. 5. On the facts and in the circumstances of the case and in law, ld CIT (A) erred in allowing the expenditure, being contribution for railway overbridge, ignoring the fact that it was capital in nature. 45. Ground No. 1 is general and needs no adjudication and thus the same is dismissed being general. 46. Ground No.2 relates to disallowance of the warranty expenses of Rs. 19,82,35,000/- We have seen that this ground of appeal is identical to the Ground No. 1 of appeal in ITA No.3597/M/2011 for AY 1999-2000, which we have already dismissed vide para No. (19-21) above. Further, we have dismissed the identical grounds of appeal raised by revenue for AY 2000-01 and in 2001-02. Hence, following the principal of consistency this ground of appeal raised by the revenue is dismissed with similar observation. 47. Ground No.3 relates to vendor development expenses of Rs. 48,68,5,467/-. We have noted that this ground of appeal is identical to the Ground No.3 of appeal by revenue in ITA No.3597/M/20....
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....et was added in the asset of the assessee. Thus, we do not find any illegality or infirmity in the order of the ld CIT(A). Hence, this ground of appeal is dismissed. 50. In the result the appeal filed by the revenue is dismissed. 51. Now we shall decide the appeals ITA No.(s) 3329 to 3332/M/2011 for AY 1999-2000 to 2002-03 filed by assessee. In ITA No.3329/M/2011 for AY 1999-2000 the assessee has raised following grounds of appeal; (1) Disallowance under section 14A. The learned CIT(A) has erred in law and on facts in concluding that disallowance under section 14A is applicable without verification of the details and evidences submitted by the Appellant in support of the claim that the appellant had not incurred any expenditure in relation to exempt income. The ld. CIT(A) ought to have appreciated on the basis of the facts of the appellant that in view of the decision of the Bombay High |Court in the case of Godrej & Boyce Mfg. Co. Ltd., no disallowance can be made u/s. 14A where no expenditure had been incurred in relation to exempt income. (2) Non admission of additional grounds of appeal The ld. CIT(A) has erred both in law and ....
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.... sustainable under law. The ld AR in support of his submission relied upon the decision of National Thermal Power Corporation (NTPC) Vs CIT (229 ITR 383), Jute Corporation of India versus CIT (187 ITR 688), CIT Versus Pruthvi Brokers and Shareholders would (349 ITR 336 Bom) and Tata Industries Ltd Versus ITO (181 TTJ 600) ITAT Mumbai. The ld DR supported the order of authorities below. 54. We have considered the submission of the parties and have gone through the order of ld CIT(A). The ld CIT(A) not admitted the additional grounds holding that the assessee not raised the claim before the assessing officer either by way of revise return or in any other manner. There is no reference in the assessment order about the said claim, thus the question of pressing any additional ground of appeal does not arise. The appellate proceeding is not a substitute to the assessment proceeding and it is not legislative intent to make it open ended platform to make such claim which were not preferred before the assessing officer during the assessment proceedings. In our above reasoning given by ld CIT(A) in its order is not sustainable. We have noted that the assessee has specifically contended in....
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....ourt in case of Pruthvi Brokers and Shareholders Private Limited (supra) held that even if the claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble Court further observed that decision of Hon'ble Supreme Court in case of Goetze (India) Ltd Versus CIT (2006) Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of assessing officer and the said judgment does not restrict the power of appellate authorities to entertain such claim by way of additional ground. Considering the fact that the assessee has raised additional ground of appeal related to deduction under section 80 HHC for the first time before the Tribunal, we admit the additional ground of appeal and restore the same to the file of assessing officer to consider these additional grounds of appeal as well and pass the order in accordance with law. The AO shall grant sufficient opportunity to the assessee before passing the order. With these observation the additional ground of appeal raised before us are allowed for statistical purp....
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....o disallowance under section 14A. We have seen that similar ground of appeal was raised by assessee in ITA No. 1040/M/2013 for AY 1999-2000, which we have already decided in favour of assessee in para (7) above. Thus, this ground of appeal has become infructuous. 61. Ground No. 3 relates to non-admission of additional grounds of appeal in respect of Capital receipts of buy-back and cancellation of US Bonds. We have noted that similar ground of appeal is raised by assessee in its appeal for assessment year 1999-2000, which we have already restored to the file of ld. CIT(A). Thus, keeping in view the principle of consistency this ground of appeal is also restored to the file of ld. CIT(A) with similar directions. Hence, this ground of appeal is allowed for statistical purpose. 62. In the result appeal of the assessee is partly allowed. ITA No.3331/M/2011 for AY 2001-02 by assessee. 63. The assessee has raised following grounds of appeal; 1. Disallowance under section 43B in respect of sales tax collected under U.P State Government scheme The ld. CIT(A) has erred both in law and on facts in upholding the disallowance u/s 43B in respect of sales tax collec....
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....tuous. 65. Ground No.2 relates to disallowance under section 14A. We have seen that similar ground of appeal was raised by assessee in ITA No. 1041/M/2011 for AY 2001-02, which we have already decided in favour of assessee in para (15) above. Thus, this ground of appeal has become infructuous and is dismissed. 66. Ground No. 3 relates to disallowance of retirement benefit payment of Rs. 16,65,20,824/-. The learned and AR of the assessee submitted that the assessing officer has allowed deduction of Rs. 416,30,206/-under section 35DDA of the Act in each of the 5 years beginning from assessment year 2001- 02 to 2005-06, thus this ground of appeal is infructuous. Considering the contention of ld AR of the assessee this ground of appeal is dismissed as infructuous. 67. Ground No. 4 relates to non-admission of additional ground of appeal in respect of Capital Receipt on buy-back and cancellation of US Bonds. We have noted that similar ground of appeal is raised by assessee in its appeal for assessment year 1999-2000, which we have already restored to the file of ld. CIT(A). Thus, keeping in view the principle of consistency this ground of appeal is also restored to the file of l....