ASST. COMMISSIONER OF INCOME TAX -7(1)(1), MUMBAI, MUMBAI V. GREAVES COTTON LIMITED, MUMBAI, MAHARASHTRA

ITA 6040/MUM/2024

AI Insights

The case involves Greaves Cotton Limited, which appealed against the disallowances made by the Assessing Officer under section 14A of the Income Tax Act, 1961, read with Rule 8D, and other disallowances related to deductions under section 35(2AB) and commission expenditures for the assessment years 2015-16 and 2016-17. The Tribunal examined the submissions and the materials on record, noting that the disallowances under section 14A should only consider investments that yielded exempt income. The Tribunal also followed the precedent in similar cases for the deductions under section 35(2AB) and commission expenditures, leading to the dismissal of the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 40876 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2015-2016
• Other Referred Cases: A.Y. 2011-12 to 2014-15
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHANGEPATIL PUSHKARAJ RAMESH
• Assessee Lawyers: AARTI VISSANJI; AMOL PATANKAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 133(6); 14A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP AND SHRI NARENDRA KUMAR BILLAIYA, AM ITA Nos. 5565 & 5566/Mum/2024 (Assessment Years: 2016-17 & 2015-16) Greaves Cotton Limited 1A, 5th Floor, Equinox Business Park, LBS Marg, Kurla West, Mumbai-400 070 Vs. ACIT, Circel-7(1)(1) Aayakar Bhavan, Mumbai-400 020 PAN/GIR No. AAACG 2062 M (Assessee) : (Revenue) and ITA Nos. 6040 & 6041/Mum/2024 Assessment Years: 2015-16 & 2016-17) ACIT, Circel-7(1)(1) Aayakar Bhavan, Mumbai-400 020 Vs. Greaves Cotton Limited 1A, 5th Floor, Equinox Business Park, LBS Marg, Kurla West, Mumbai-400 070 PAN/GIR No. AAACG 2062 M (Revenue) : (Assessee) Assessee by : Ms. Aarti Vissanji & Shri Amol Patankar Revenue by : Shri Bhangepatil Pushkaraj Ramesh Date of Hearing : 25.02.2025 Date of Pronouncement : 28.02.2025 O R D E R Per Saktijit Dey, VP: These are two sets of cross appeals, arising out of two separate order of learned Commissioner of Income Tax (Appeals)-56, Mumbai (‘ld.CIT(A) for short) , pertaining to the assessment years (A.Y.) 2015-16 and 2016-17. ITA Nos. 5565 & 5566/Mum/2024 (Assessee’s appeals) 2. The only common dispute in these appeals relates to disallowance made u/s. 14A of the Income Tax Act, 1961 read with Rule 8D. 2 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited 3. Briefly the facts are, the assessee is a resident corporate entity engaged in the business of manufacture and sale of power equipment’s. In course of assessment proceedings for the impugned assessment years, the Assessing Officer (AO) noticed that in the assessment years under dispute, the assessee had earned substantial amount of exempt income. Whereas, suo motu, it has disallowed an amount of Rs.4,94,416/- in A.Y. 2015-16 and Rs.4,15,860 in A.Y. 2016-17. On verification of the materials available on record, the A.O. noticed that the average value of exempt income yielding investment in assessment year 2015-16 is to the tune of Rs.231,21,50,000/-, whereas, in A.Y. 2016-17 it stood at an amount of Rs.331,15,75,364/-. Thus, he was of the opinion that suo motu disallowance made by the assessee is not in terms with Rule 8D. Accordingly, he proceeded to compute disallowance on his own. While doing so, he disallowed an amount of Rs.1,15,60,750/- in A.Y. 2015-16 and Rs.1,65,57,877/- in A.Y. 2016-17. 4. The assessee contested these disallowances before learned first appellate authority. However, the disallowances were sustained. 5. Before us, learned counsel appearing for the assessee submitted that disallowance under Rule 8D(2)(iii) should be made after considering only the investments which have yielded exempt income during the year and not all the investments. Whereas, the learned Departmental Representative ('ld. DR' for short) relied upon the findings of the A.O. and learned first appellate authority. 3 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited 6. Having considered rival submissions and perused the materials on record, we find substantial merit in the submissions of learned counsel of the assessee. It is now judicially well settled that while computing disallowance under Rule 8D(2)(iii) r.w.s 14A of the Act, the A.O. has to consider only those investment which yielded exempt income during the year under consideration. In view of the aforesaid, we direct the A.O. to recompute the disallowance under Rule 8D(2)(iii) by considering only those investments which yielded exempt income during the previous years relevant to assessment years under dispute. In case, the A.O. requires the details of investment yielding exempt income during the years under dispute, the assessee is directed to provide the same. Hence, these grounds are partly allowed. 7. In the result, the appeals are partly allowed. ITA Nos. 6040 & 6041/Mum/2024 (Revenue’s appeal) 8. The first common issue arising in ground numbers 1 and 2 of both the appeals relates to deletion of disallowance made of deduction claimed u/s. 35(2AB) of the Act. 9. Briefly the facts are, in course of assessment proceeding, the A.O., while examining assessee’s claim of weighted deduction u/s. 35(2AB) of the Act, noticed that the quantum of deduction claimed by the assessee is more than the expenditure certified by the Department of Scientific and Industrial Research (DSIR) in Form 3CL. Noticing the above, the A.O. called upon the assessee to explain why the excess deduction claimed should not be disallowed. Though, the assessee objected to the proposed disallowance, however, rejecting assessee’s objection, A.O. proceeded to disallow the 4 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited amount of difference between the deductions claimed by the assessee and expenditure certified by DSIR in Form 3CL. 10. The assessee contested the said disallowances before learned first appellate authority. Taking note of the fact that identical disallowance made by the A.O. in assessee’s case in A.Ys. 2011-12 to 2014-15 was deleted by the Income Tax Appellate Tribunal, learned first appellate authority followed the same and deleted the disallowances. 11. Before us, it is a common point between the parties that identical issue arising in assessee’s case in A.Ys. 2011-12 to 2014-15 has been decided in favour of the assessee. However, ld. DR submitted that the position could be different in A.Y. 2016-17 in view of amendment made to Form 3CL. 12. Per contra, learned counsel appearing for the assessee submitted that the said amendment, having been brought to the statute w.e.f. 01.07.2016, would not be applicable to the A.Y. 2016-17. 13. Having considered rival submissions, we find substantial merit in the submissions of learned counsel of the assessee. It is observed, while deciding identical issue in assessee’s own case in A.Ys. 2011-12 to 2014-15, the Tribunal has taken a consistent view that the assessee is entitled to avail the weighted deduction in respect of the expenditure incurred on Scientific Research irrespective of the quantum mentioned in the certificate issued by DSIR. Factual position being identical in the 5 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited impugned assessment years, we do not find any reason to deviate from the consistent view expressed by the co-ordinate bench. Suffice to say, the amendment to Form 3CL does not apply to the assessment years under dispute. In view of the aforesaid, we do not find any valid reason to interfere with the decision of learned first appellate authority. Grounds are dismissed. 14. The next common issue arising in ground nos. 3 & 4 of the aforesaid appeals relates to the deletion of disallowance of commission expenditure. 15. Briefly the facts are, in course of assessment proceeding, the A.O. noticed that in both the years under consideration, the assessee had claimed deduction on account of commission paid to various parties. On a query being made, the assessee furnished the details of agents to whom commissions were paid. As observed by the A.O., in order to verify the genuineness of the commission paid, notices u/s. 133(6) of the Act were issued to the parties. However, except few, majority of the parties did not confirm the receipt of commission. Thus, alleging lack of evidence, A.O. proceeded to disallow 50% of the commission paid in both the assessment years under dispute. While deciding the issue in appeal, learned first appellate authority found that identical disallowances were made in assessee’s case in A.Ys. 2011-12 to 2014-15. However, while deciding the issue, the Tribunal had deleted the disallowances. Following the decision of the Tribunal, learned first appellate authority deleted the disallowances. 16. Before us, it is a common point between the parties that while deciding identical issue in assessee’s own case in A.Ys. 2011-12 to 2014-15, the Tribunal has expressed 6 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited that no disallowance out of commission expenses can be made. Finding parity of facts, we respectfully follow the decision of the co-ordinate bench in assessee’s own case in A.Ys. 2011-12 to 2014-15 and uphold the decision of learned first appellate authority. Grounds are dismissed. 17. The only other issue left out relates to deletion of disallowance made on account of club expense in A.Y. 2016-17. Briefly stated, in course of assessment proceeding, the A.O., while verifying the tax audit report, notice that the assessee has claimed club expenses amounting to Rs.5,01,278/-. He observed that while considering identical issue in assessee’s case in A.Ys. 2010-11 to 2013-14, the Dispute Resolution Panel (DRP) has upheld the disallowance. Accordingly, the A.O. disallowed the deduction claimed by the assessee. While deciding the issue in appeal, learned first appellate authority, having found that identical issue arising in assessee’s case in A.Ys. 2011-12 to 2014-15 have been decided in favour of the assessee by the Tribunal, followed the same and deleted the disallowance. 18. Having considered rival submissions and perused the materials on record, we are convinced that the factual position relating to the dispute is identical to the issue in A.Ys. 2011-12 to 2014-15 decided in favour of the assessee by the Tribunal. Respectfully following such decision of the Tribunal in assessee’s case, we uphold the decision of learned first appellate authority. Hence, grounds are dismissed. 7 ITA Nos. 5565 & 5566/M/24 and 6040 & 6041/M/24) (A.Ys. 2015-16 & 2016-17) Greaves Cotton Limited 19. In the result, assessee’s appeals are partly allowed and Revenue’s appeals are dismissed. Order pronounced in the open court on 28.02.2025 Sd/- Sd/- (N. K. Billaiya) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 28.02.2025 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "