Appeal details
Counselvise Citation
[2018] 123 COUNSELVISE.COM (IT) 3730 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 9 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
11-04-2018
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
Not Allotted
Next Hearing Date
27-02-2017
Assessment Year
2009-2010
Appeal Filed On
01-07-2016
Judgement Text
ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.6659/MUM/2014 ( / ASSESSMENT YEAR: 2009-10) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(2)(1) ROOM NO.338,3 RD FLOOR AAYKAR BHAVAN,M.K.ROAD MUMBAI-400 020 / VS. MAHINDRA CIE AUTOMOTIVE LIMITED ( THE MERGED ENTITY OF MAHINDRA UGINE STEEL CO.LTD) 74,GANESH APARTMENT OPP.SITLADEVI TEMPLE LADY JAMSHEDJI ROAD, MAHIM MUMBAI-400 016 !' ./ ./ PAN/GIR NO.AAACM-4998-G/AABCM-6632-J ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) & CROSS OBJECTION NO . 96/MUM/2016 ( / ASSESSMENT YEAR: 2009-10) MAHINDRA CIE AUTOMOTIVE LIMITED ( THE MERGED ENTITY OF MAHINDRA UGINE STEEL CO.LTD) MAHINDRA TOWERS,1 ST FLOOR DR.G.M.BHOSALE MARG, WORLI MUMBAI-400 018 / VS. ASSISTANT COMMISSIONER OF INCOME TAX RANGE-6(3) ROOM NO.573,5 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 !' ./ ./ PAN/GIR NO.AABCM-6632-J/AAACM-4998-G ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) REVENUE BY : SAURABH KUMAR RAI, LD.DR ASSESSEE BY : H.P.MAHAJANI & PRASAD BAPAT,LD.ARS / DATE OF HEARING : 05/04/2018 / DATE OF PRONOUNCEMENT : 11/04/2018 2 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 / O R D E R PER BENCH 1.1 THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2009-10 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-12 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-12/ACIT.6(3)/IT-136/2011-12 DATED 04/08/2014. THE ASSESSMENT FOR IMPUGNED AY WAS FRAM ED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -6(3), MUMBAI [AO ] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 30/12/2011 WHEREIN THE LOSS HAS BEEN ASSESSED AT RS.22.78 CRORES AFTER CERTAIN DISALLOWANCES AS A GAINST RETURNED LOSS OF RS.25.57 CRORES E-FILED BY THE ASSESSEE ON 29/09/2009. THE ASSESSEE IS IN CROSS OBJECTION AGAINST THE SAME. 1.2 THE ERSTWHILE ASSESSEE NAMELY MAHINDRA UGINE STEEL COMPANY LIMITED HAS MERGED WITH MAHINDRA CIE AUTOMOTIVE LIMITED WITH EFFECT FROM 01/10/2013 IN TERMS OF THE ORDER OF HONBLE BOMBAY HIGH COURT DATED 31/10/2014, A COPY OF WHICH HAS BEEN PLACED ON RECO RD. ACCORDINGLY, THE REVENUE HAS FILED REVISED FORM NO.36 REFLECTING THE AFORESAID CHANGE AND THE SAME IS IN ORDER. 1.3 THE REGISTRY HAS NOTED THAT ASSESSEES CROSS OB JECTION HAS BEEN FILED WITH A DELAY OF 50 DAYS AND THE ASSESSEE HAS SOUGHT CONDONATION OF DELAY ON THE STRENGTH OF AN AFFIDAVIT DATED 21/06/2016 EX ECUTED BY MANAGING DIRECTOR OF THE ASSESSEE COMPANY . UPON PERUSAL OF THE SAME, WE FIND THAT DELAY HAS BEEN ATTRIBUTED TO CHANGE IN MANAGEMENT / TAX CONSULTANT IN VIEW OF THE FACT THAT THE ERSTWHILE ASSESSEE COMPAN Y MERGED WITH THE NEW 3 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 ENTITY WHICH INVOLVED HUGE MIGRATION FROM AND INTEG RATION OF DATA, RECORDS, MANPOWER AND OPERATIONS OF THE TWO COMPANIES. FINDI NG THE SAME TO BE A PLAUSIBLE ONE AND KEEPING IN VIEW THE PRINCIPLE OF NATURAL JUSTICE, WE CONDONE THE DELAY AND PROCEED TO DISPOSE-OFF THE SA ME. 1.4 THE EFFECTIVE GROUNDS RAISED IN REVENUES APPEA L READS AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO VERIFY AND TO TAKE REMEDIAL ACTION, AS REGARDS INTEREST COMPONENT ATTRIBUTABLE TO CAPITAL WORK-IN- PROGRESS IN VIEW OF THE PROVISO TO SECTION 36(I)(III), WITHOUT APPRECIATING THE FAC T THAT THE A.O.IS NOT EMPOWERED UNDER THE ACT TO REVISIT THE ASSESSMENT ONCE COMPLE TED U/S.143(3). 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O TO EXAMINE APPLICABILITY OF THE PROVISO TO SECTION 36(1)(III) AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE LD. CIT(A) IS EMPOWE RED BY VIRTUE OF SECTION 251(1)(A) OF THE I.T. ACT TO CONFIRM, REDUCE, ENHAN CE OR ANNUL THE ASSESSMENT BUT HAS NO POWER TO SET ASIDE AN ISSUE NOT ARISING FROM THE ASSESSMENT ORDER TO THE A.O FOR VERIFICATION. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO VERIFY AND TO TAKE REMEDIAL ACTION AS REGARDS INTEREST COMPONENT ATTRIBUTABLE TO INTEREST-FREE LO ANS AND ADVANCES GIVEN BY THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE A. O. IS NOT EMPOWERED UNDER THE ACT TO REVISIT THE ASSESSMENT ONCE COMPLETED U/S 14 3(3). 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O TO VERIFY WHETHER ANY IN TEREST PAID IS ATTRIBUTABLE TO INTEREST-FREE LOANS AND ADVANCES GIVEN BY ASSESSEE, AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHOUT APPRECIATING T HE FACT THAT THE LD. CIT(A) IS EMPOWERED BY VIRTUE OF SECTION 251(1)(A) OF THE I.T . ACT, TO CONFIRM, REDUCE, ENHANCE OR ANNUAL THE ASSESSMENT BUT HAS NOT POWER TO SET ASIDE AN ISSUE NOT ARISING FROM THE ASSESSMENT ORDER TO THE A.O FOR VE RIFICATION. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO VERIFY AND TO DISALLOW, PROVISION FOR DIMINUTION IN VALUE OF ASSETS AS THE SAME NOT BEING ALLOWABLE UNDER ANY PROVISION OF THE ACT AND ALSO THE SAME BEING DIRECTLY RELATABLE EXPENDIT URE U/S 14A, WITHOUT APPRECIATING THE FACT THAT THE A.O. IS NOT EMPOWERE D UNDER THE ACT TO REVISIT THE ASSESSMENT ONCE COMPLETED U/S 143(3). 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT(A) ERRED IN GIVING DIRECTION TO A.O TO VERIFY WHETHER THE PR OVISION FOR DIMINUTION IN VALUE OF ASSETS IS DEBITED IN THE PROFIT AND LOSS ACCOUNT, A FTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHOUT APPRECIATING THE FAC T THAT THE LD. CIT(A) IS EMPOWERED BY VIRTUE OF SECTION 251(1)(A) OF THE I.T . ACT, TO CONFIRM, REDUCE, ENHANCE OR ANNUAL THE ASSESSMENT BUT HAS NO POWER T O SET ASIDE ON ISSUE NOT ARISING FROM THE ASSESSMENT ORDER TO THE A.O. FOR V ERIFICATION. 7. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O MAKING ADJUSTMENT S U/S 145A TO THE OPENING 4 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 AND CLOSING STOCKS OF THIS YEAR I.E. A.Y.2009-10 AL ONE, WITHOUT MAKING SIMILAR ADJUSTMENTS IN THE OPENING AND CLOSING STOCKS OF TH E EARLIER YEARS, WITHOUT APPRECIATING THE FACT THAT SUCH AN ADJUSTMENT WILL RESULT IN DISCORDANT RESULTS. 8. THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT (A) ON THE ABOVE GROUNDS BE CONFIRMED THE ORDER OF THE AO. 1.5 THE EFFECTIVE GROUNDS RAISED IN ASSESSEES CROS S-OBJECTION READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECTS THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE INCOME-TAX ACT,1961 (THE ACT), AT RS.1,51,23,277, REJECTING THE CONTENTIONS OF THE RESPONDENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECTS THAT THE LEARNED CIT(A) ALSO ERRED IN DIREC TING THE ASSESSING OFFICER TO EXAMINE WHETHER ANY INTEREST NEEDS TO BE ATTRIBUTED TO CAPITAL WORK-IN-PROGRESS AND INTEREST FREE LOANS, FOR THE PURPOSE OF DISALLO WANCE U/S 36(1)(III) OF THE ACT, WITHOUT APPRECIATING THE FACT THAT IN ANY EVENT THE LEARNED CIT(A) FAILED TO GIVE THE APPELLANT AN OPPORTUNITY OF BEING HEARD IN THIS REG ARD AND THAT THE LEARNED CIT(A) HAD NO POWER TO SET ASIDE AN ISSUE TO THE AO. 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THERE SHOULD BE NO DUPLICATION OF DISALL OWANCE U/S 14A AND 36(1)(III) IN RESPECT OF THE SAME INVESTMENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECTS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.54,14,362/- U/S 14A R.W. RULE 8D OF THE ACT AS H AVING BEEN INCURRED IN RELATION TO EXEMPT INCOME. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECT THAT THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE AO TO REDUCE THE AMOUNT OF RS.35 LACS BEING PROVISION FOR DIMINUTION IN VALUE OF INV ESTMENTS WHILE CALCULATING DISALLOWANCE U/S 14A OF THE ACT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECTS THAT THE LEARNED CIT(A) ALSO ERRED IN DIREC TING THE AO TO VERIFY THE PROFIT AND LOSS ACCOUNT AND DISALLOW THE EXPENDITURE IN RESPEC T OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENTS WITHOUT APPRECIATING THE F ACT THAT LEARNED CIT(A) HAD NOT POWER TO SET ASIDE AN ISSUE NOT ARISING FROM AN ASS ESSMENT ORDER TO THE AO FOR VERIFICATION. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE RESPONDENT OBJECTS THAT THE LEARNED CIT(A) ERRED IN NOT DIRECT ING THE AO TO RECOMPUTED THE ADDITION U/S 145A WITHOUT APPRECIATING THE FACT THA T SECTION 145A WAS TAX/REVENUE NEUTRAL. THE ASSESSEE, VIDE LETTER DATED 20/02/2018 HAS PLEA DED FOR ADMISSION OF ADDITIONAL GROUND OF CROSS-OBJECTION WHICH READS AS UNDER:- 5 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.59,87,867/- TO WARDS PAYMENT FOR JCMM SCHOOL U/S 40A(9). THE ASSESSEE HAS SUBMITTED THAT THE SAID GROUND COU LD NOT BE RAISED DUE TO INADVERTENT OMISSION. WE FIND THAT THIS GROUND W AS CONTESTED BY THE ASSESSEE BEFORE LD. FIRST APPELLATE AUTHORITY ALSO AND THEREFORE, ACCEPTING THE SUBMISSION OF THE ASSESSEE, THE SAME IS ADMITTE D AS GROUND NO.8. IN THE ABOVE BACKDROP, WE PROCEED TO DISPOSE-OFF TH E APPEAL AS WELL AS CROSS OBJECTIONS IN SUCCEEDING PARAGRAPHS. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN MANUFACTURING OF TOOLS, ALLOY STEEL, SPECIAL STEEL & PRESSING OF METAL SHEETS WAS ASSESSED U/S 143(3) ON 30/12/2011 WHEREIN IT HA S BEEN SADDLED WITH FOLLOWING DISALLOWANCES:- NO. NATURE OF DISALLOWANCE AMOUNT (RS.) 1. INTEREST DISALLOWANCE U/S 36(1)(III) 1,51,23,277 /- 2. DISALLOWANCE U/S 14A 54,14,362/- 3. DISALLOWANCE U/S 145A 14,53,332/- 4. DISALLOWANCE U/S 40A(9) 59,87,867/- TOTAL 2,79,78,838/- ALL THE ABOVE DISALLOWANCES AS STATED ABOVE ARE THE SUBJECT MATTER OF THIS APPEAL. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE CLAIMED INTEREST EXPENDITURE OF RS.36.05 CRORES WHE REAS IT WAS HAVING INVESTMENT OF RS.14.09 CRORES AND THEREFORE, INTERE ST DISALLOWANCE U/S 36(1)(III) WAS CALLED FOR AGAINST THE AFORESAID INV ESTMENT. THE ASSESSEE SUBMITTED THAT THE INTEREST EXPENDITURE WAS MAINLY AGAINST WORKING CAPITAL 6 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 LOAN AND NO SPECIFIC LOAN WAS OBTAINED FOR CAPITAL EXPENDITURE AND THEREFORE, FULLY ALLOWABLE TO THE ASSESSEE. HOWEVER , NOT CONVINCED, LD. AO COMPUTED A PROPORTIONATE INTEREST DISALLOWANCE U/S 36(1)(III) AGAINST INVESTMENTS VIS--VIS TOTAL LOAN FUND OF THE ASSESS EE AND WORKED OUT THE DISALLOWANCE AT RS.1,51,23,277/-. 2.3 FURTHER, IT WAS NOTED THAT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.12,355/- WHICH CALLED FOR DISALLOWANCE U/S 14A. THE ASSESSEE CONTENDED THAT NO EXPENSE WAS INCURRED TO EARN THE EXEMPT INCOME AND THEREFORE, NO DISALLOWANCE WAS MADE / CALLED FOR. H OWEVER, NOT CONVINCED, LD. AO APPLYING RULE 8D WORKED OUT AGGREGATE DISALL OWANCE OF RS.54,14,362/- WHICH COMPRISED OF INTEREST DISALLOW ANCE U/R 8D(2)(II) FOR RS.50,51,612/- AND EXPENSE DISALLOWANCE U/R 8D(2)(I II) FOR RS.3,62,750/-. 2.4 UPON PERUSAL OF TAX AUDIT REPORT , IT WAS OBSERVED THAT THE ASSESSEE HAD UNUTILIZED CENVAT / MODVAT CREDIT BALANCE OF RS.1,22,04,676/- AT YEAR- END WHICH, IN THE OPINION OF LD. AO, WAS REQUIRED T O BE ADDED BACK TO THE FIGURES OF CLOSING STOCK IN TERMS OF THE PROVISIONS OF SECTION 145A. THE ASSESSEE CONTENDED THAT THE COMPANY FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING TO ACCOUNT EXCISE DUTY AND ACCORDINGLY, CENVAT CREDIT AVAILED WAS ADJUSTED IN MATERIAL CONSUMPTION OR COST OF FIX ED ASSETS / STORES & SPARES AND BALANCE UNUTILIZED CREDIT WAS CARRIED FO RWARD AS LOANS AND ADVANCES FOR SIMILAR ADJUSTMENT IN FUTURE PERIOD. H OWEVER, NOT CONVINCED, LD. AO APPLYING THE RATIO OF JUDGMENT OF HONBLE BO MBAY HIGH COURT RENDERED IN THE MAHALAXMI GLASS WORKS WORKED OUT THE NET DISALLOWANCE 7 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 OF 14,53,332/- WHICH WAS ARRIVED AT AFTER ADJUSTING THE CENVAT CREDIT ON OPENING STOCK FROM CENVAT CREDIT ON CLOSING STOCK. 2.5 THE LAST DISALLOWANCE OF RS.59,87,867/- WAS MAD E U/S 40A(9). THIS PAYMENT REPRESENTED REIMBURSEMENT OF PAYMENT TO AN EDUCATIONAL SOCIETY TOWARDS A SCHOOL NAMELY J.C.MAHINDRA SCHOOL , WHERE MAINLY THE CHILDREN OF ASSESSEES EMPLOYEES WERE STUDYING. THE SAME, IN TH E OPINION OF LD. AO, WAS NOT INCURRED FOR THE BUSINESS PURPOSES OF THE A SSESSEE AND THEREFORE, NOT ALLOWABLE IN TERMS OF SECTION 40A(9). 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 04/08/2 014 WHERE DISALLOWANCE U/S 36(1)(III), 14A & 40A(9) HAS BEEN CONFIRMED WHEREAS DISALLOWANCE U/S 145A HAS BEEN REMITTED BACK TO THE FILE OF LD. AO WITH CERTAIN DIRECTIONS. FROM THE PERUSAL OF APPELLATE O RDER, WE FIND THAT, LD. CIT(A) WHILE CONFIRMING THE AFORESAID DISALLOWANCES U/S 36(1)(III) & 14A, IN THE PROCESS , HAS ISSUED SEVERAL OTHER DIRECTIONS TO LD. AO TO CARRY OUT EXAMINATION / VERIFICATION OF SOME MORE ASPECTS WHI CH IS EVIDENT FROM PARAS-3.3.2 & 4.3.4 OF THE APPELLATE ORDER. FOR THE SAKE OF READY REFE RENCE, THE SAME ARE EXTRACTED BELOW:- 3.3.2 NOTWITHSTANDING THE FACT THAT THE GROUND OF APPEAL RAISED BY THE APPELLANT ON THE ISSUE OF DISALLOWANCE OF INTEREST U/S.36(1)(III) STANDS REJE CTED AS DISCUSSED HERETOFORE, ANOTHER ISSUE THAT ARISES HERE IS THAT AS TO WHETHER THE A. O. CONSIDERED THE ATTRIBUTABILITY OF INTEREST COMPONENT ALSO TO CAPITAL WORK-IN-PROGRESS AS APPEARING IN THE BALANCE SHEET AND APPLICABILITY OF THE PROVISO TO SECTION 36(1)(I II) OF THE ACT AFTER NECESSARY VERIFICATION AND PROVIDING OPPORTUNITY OF BEING HEARD TO THE APP ELLANT AND TAKE NECESSARY REMEDIAL ACTION AS PER LAW, IF FOUND DEEMED FIT. ALONG WITH THIS ISSUE, THE A.O. IS ALSO DIRECTED TO EXAMINE AS TO WHETHER THERE ARE INTEREST-FREE LOANS AND ADVANCES (AS PER BALANCE SHEET AS AT 31.03.2009, A SUM OF RS.35.27 CRORE IS APPEARING ON ACCOUNT OF LOANS & ADVANCES AND AS PER PROFIT & LOSS ACCOUNT FOR THE YEAR, INTEREST INCOME IS SHOWN AT 8 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 RS.1.14 CRORE) AND IF SO, THE SAME CAN ALSO BE ATTR IBUTED TO INTEREST CLAIM MADE BY THE APPELLANT. .. .. 4.3.4 NOTWITHSTANDING THE DISMISSAL OF APPELLANTS GROUND OF APPEAL AGAINST THE DISALLOWANCE U/S.14A OF THE ACT, ATTENTION OF THE A.O. IS BROUGH T TO THE APPELLANTS CLAIM OF REDUCING THE VALUE OF ITS INVESTMENTS BY A SUM OF RS.35 LAKH AS APPEARING IN THE BALANCE SHEET. HOWEVER, WHETHER THE SAME CLAIM OF REDUCTION OF ITS INVESTMENTS AS PROVISION FOR DIMINUTION IN VALUE OF ASSETS HAS ALSO BEEN MADE B Y THE APPELLANT IN ITS PROFIT & LOSS ACCOUNT OR NOT, IT IS NOT VISIBLY CLEAR FROM THE PR OFIT & LOSS ACCOUNT OWING TO BROAD GROUPINGS. THE A.O.IS DIRECTED TO GO THROUGH THE GR OUPINGS AND SUB-GROUPINGS OF ALL THE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT AND I F IT IS FOUND THAT THE APPELLANT HAS MADE SUCH CLAIM EVEN IN ITS PROFIT & LOSS ACCOUNT F OR THE YEAR, HE SHOULD DISALLOW THE SAME ON TWO COUNTS, VIZ. (1) BEING PROVISION FOR DI MINUTION IN VALUE OF ASSETS WHICH IS NOT ADMISSIBLE UNDER ANY PROVISION OF THE STATUTE; AND (2) BEING DIRECTLY RELATABLE EXPENDITURE U/S.14A IN ACCORDANCE WITH CLAUSE(I) OF SUB-RULE (2) OF RULE 8D. THE A.O. IS ALSO ADVISED TO GO THROUGH A JUDGMENT OF THE HONBL E MUMBAI ITAT IN THE CASE OF ONE OF THE SUBSIDIARIES OF THE APPELLANT COMPANY VIZ. MAHI NDRA INTERTRADE LIMITED REPORTED IN [2012] 72 DTR 138 WHEREIN EVEN THE PENALTY LEVIED O N THE DISALLOWANCE OF PROVISION FOR DIMINUTION IN VALUE OF ASSETS HAS ALSO BEEN CONFIR MED. AGGRIEVED BY THE AFORESAID DIRECTIONS OF THE LD. CI T(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US WHEREAS THE ASSESSEE, IN I TS CROSS-OBJECTIONS, HAS, INTER-ALIA ASSAILED THE CONFIRMATION OF DISALLOWANCES BY LD. C IT(A). 4. THE LD. AUTHORIZED REPRESENTATIVE [AR], TAKING U S THROUGH THE DOCUMENTS PLACED IN THE PAPER-BOOK, CONTESTED THE ADDITIONS SUSTAINED BY LD. FIRST APPELLATE AUTHORITY WHEREAS THE LD. DEPAR TMENTAL REPRESENTATIVE [DR] POINTED OUT THAT THE LD. CIT(A) ERRED IN GIVIN G FURTHER DIRECTIONS TO LD. AO WHICH HE WAS NOT EMPOWERED TO DO SO IN TERMS OF SECTION 251(1)(A) OF THE ACT. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN TH E PAPER-BOOK. WE FIND 9 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 ALL THE ISSUES PRIMARILY TO BE FACTUAL ONE AND THER EFORE, PROCEED TO DEAL WITH THE SAME BY ADJUDICATING ASSESSEES CROSS OBJECTION S AT THE OUTSET. 6.1 WE FIND THAT THE ISSUES OF DISALLOWANCE U/S 36( 1)(III) & 14A TO BE INTERCONNECTED ONE SINCE THE ADDITIONS UNDER BOTH T HE SECTIONS HAVE BEEN MADE BY LD. AO WITH REFERENCE TO INVESTMENTS HELD B Y THE ASSESSEE DURING THE IMPUGNED AY. AT THE OUTSET, IT IS OBSERVED THAT DISALLOWANCE UNDER BOTH THESE SECTIONS HAVE RESULTED INTO DOUBLE DISALLOWAN CE SINCE BOTH DISALLOWANCES HAVE BEEN COMPUTED WITH REFERENCE TO INVESTMENTS HELD BY THE ASSESSEE. HENCE, WE PROCEED TO DEAL WITH THE SA ME CONCURRENTLY. 6.2 UPON PERUSAL OF SCHEDULE F-INVESTMENTS OF FINANCIAL STATEMENTS AS PLACED BEFORE US, WE FIND THAT NO FRESH INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE IMPUGNED AY EXCEPT INVESTMENT OF RS .14 CRORES IN AN ENTITY NAMELY WARDHA POWER COMPANY PRIVATE LIMITED AS SHARE APPLICATION MONEY UNDER SHARE SUBSCRIPTION AGREEMEN T. THE EXPLANATION OF THE SAME HAS BEEN PROVIDED IN NOTE NO.2 OF SCHEDULE L NOTES TO ACCOUNTS WHICH READS AS UNDER:- THE COMPANY HAS ENTERED INTO A SHARE SUBSCRIPTION A GREEMENT WITH WARDHA POWER COMPANY PRIVATE LIMITED ON 29 TH FEBRUARY, 2008 TO INVEST RS. 22.75 CRORES BY WAY O F SUBSCRIPTION TO 6,167,778 CLASS A EQUITY SHARES OF RS 10 EACH AND 7,832,222 CLASS A 0.01% REDEEMABLE PREFERENCE SHARES OF RS. 10 EACH A ND 8,750,000 CLASS C 0.01% REDEEMABLE PREFERENCE SHARES OF RS 10 EACH. THE COM PANY WILL BE ENTITLED TO 35 MW OF POWER GENERATED FROM THE GROUP CAPTIVE POWER PLA NT AS PER THE POWER DELIVERY AGREEMENT DATED 29 TH FEBRUARY, 2008. THE COMPANY HAS PAID SHARE APPLICA TION MONEY OF RS. 14 CRORES FOR CLASS A EQUITY AND REDEEMABLE PREFERENCE SHARES. 10 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 A PERUSAL OF THE POWER DELIVERY AGREEMENT & SHARE SUBSCRIPTION AGREEMENT BOTH DATED 29/02/2008 AS PLACED ON RECORD CORROBOR ATE / SUBSTANTIATE THE ABOVE FACTS. THE LD. AR HAS CONTEN DED THAT THE INVESTMENT REPRESENT OBLIGATION OF THE ASSESSEE TO APPLY FOR SHARES TO THE SAID ENTITY, WHICH IN TURN, WOULD ENTITLE THE ASSES SEE TO SOURCE 35MW OF POWER GENERATED BY THE SAID ENTITY. THUS THE INVEST MENT IN QUESTION WAS MADE IN THE COURSE OF AND FOR FURTHERANCE OF BUSINE SS INTEREST OF THE ASSESSEE SINCE THE ASSESSEE WAS IN CONTINUOUS REQUI REMENT OF POWER SUPPLY KEEPING IN VIEW ITS NATURE OF BUSINESS. UPON DUE CONSIDERATION OF THE SAME, WE FIND STRENGTH IN THE ARGUMENT OF LD. A R SINCE WE FIND THAT THE ASSESSEE WAS ENGAGED IN PRODUCTION OF VARIOUS STEEL ITEMS WHICH WAS CAPITAL INTENSIVE AND THEREFORE, IN CONTINUOUS NEED OF UNINTERRUPTED POWER SUPPLY. THE POWER SUPPLY WAS OF UTMOST IMPORTANCE T O CARRY OUT DAY TO DAY ACTIVITIES OF THE MANUFACTURING AND THE AFORESAID A GREEMENT ENTITLED THE ASSESSEE TO OBTAIN 35KWH POWER SUPPLY AT AVERAGE RA TE OF RS.2.75 PER UNIT. THEREFORE, THE SAID AGREEMENT WAS BENEFICIAL FOR THE BUSINESS INTEREST OF THE ASSESSEE AND THE INVESTMENT IN THE SAID ENTI TY WAS TO FINANCE THE POWER PROJECT AND HENCE, PART AND PARCEL OF THE SAM E TRANSACTION. FURTHER, THE ASSESSEE WAS UNDER AN OBLIGATION TO MAKE THE AF ORESAID INVESTMENT BEFORE BECOMING ENTITLED TO OBTAIN POWER IN TERMS O F THE AGREEMENT. HENCE, ON FACTUAL MATRIX, PROPORTIONATE DISALLOWANCE U/S 3 6(I)(III) AS MADE BY LD. AO WAS NOT JUSTIFIED. OUR VIEW IS FULLY SUPPORTED B Y THE ANALOGY OF THE 11 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 DECISION OF HONBLE APEX COURT RENDERED IN S.A.BUILDERS VS. CIT [2006 288 ITR 1] WHERE HONBLE COURT HAS OBSERVED AS UNDER:- 34. W E AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT VS. DALIMA CEMENT (BHARAT) LTD. (2002) 254 ITR 377 THAT ONCE IT IS ES TABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSI NESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DE CIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MAT TER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATE D ABOVE, WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIE W WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. 35. WE WISH TO MAKE IT CLEAR THAT IT IS NOT OUR OPINION THAT IN EVERY CASE INTEREST ON BORROWED LOAN HAS TO BE ALLOWED IF THE ASSESSEE ADV ANCES IT TO A SISTER CONCERN. IT ALL DEPENDS ON THE FACTS AND CIRCUMSTANCES OF TH E RESPECTIVE CASE. FOR INSTANCE, IF THE DIRECTORS OF THE SISTER CONCERN UT ILIZE THE AMOUNT ADVANCED TO IT BY THE ASSESSEE FOR THEIR PERSONAL BENEFIT, OBVIOUSLY IT CANNOT BE SAID THAT SUCH MONEY WAS ADVANCED AS A MEASURE OF COMMERCIAL EXPED IENCY. HOWEVER, MONEY CAN BE SAID TO BE ADVANCED TO A SISTER CONCERN FOR COMMERCIAL EXPEDIENCY IN MANY OTHER CIRCUMSTANCES (WHICH NEED NOT BE ENUMERA TED HERE). HOWEVER, WHERE IT IS OBVIOUS THAT A HOLDING COMPANY HAS A DE EP INTEREST IN ITS SUBSIDIARY, AND HENCE IF THE HOLDING COMPANY ADVANCES BORROWED MONEY TO A SUBSIDIARY AND THE SAME IS USED BY THE SUBSIDIARY FOR SOME BUSINES S PURPOSES, THE ASSESSEE WOULD, IN OUR OPINION, ORDINARILY BE ENTITLED TO DE DUCTION OF INTEREST ON ITS BORROWED LOANS. HENCE, ON FACTUAL MATRIX, WE DELETE THE IMPUGNED AD DITIONS MADE BY LD. AO U/S 36(1)(III). GROUND NO. 1 OF ASSESSEES CROSS -OBJECTION STANDS ALLOWED. 6.3 NOW, COMING TO INTEREST DISALLOWANCE U/S 14A RE AD WITH RULE 8D(2)(II) QUA THE ABOVE INVESTMENTS, WE FIND THE SAME ALSO TO BE UNSUSTAINABLE SINCE THE INVESTMENT WAS ONLY IN THE SHAPE OF SHARE APPLICATION MONEY 12 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 PENDING ALLOTMENT OF ACTUAL SHARES AND THESE INVEST MENTS PER-SE WERE UNABLE TO EARN ANY EXEMPT DIVIDEND INCOME SINCE DIV IDEND IS PAYABLE ONLY TO A SHAREHOLDER AND NOT TO A SHARE APPLICANT. THE SAID INVESTMENT, THEREFORE, IN OUR OPINION, WAS INCAPABLE OF YIELDIN G ANY EXEMPT DIVIDEND INCOME AND THEREFORE, COULD NOT BE TAKEN INTO ACCOU NT FOR THE PURPOSE OF COMPUTING INTEREST DISALLOWANCE U/S 14A. WE HAVE AL READY NOTED THAT IT WAS THE ONLY FRESH INVESTMENT MADE BY THE ASSESSEE DURI NG IMPUGNED AY. THEREFORE, UPON CONSIDERATION OF AFORESAID FACTS, T HE INTEREST ADDITION U/R 8D(2)(II) COULD NOT BE SUSTAINED AND THEREFORE, THE SAME IS DELETED. 6.4 SO FAR DISALLOWANCE FOR EXPENSES U/S 14A READ WITH RULE 8D(2)(III) IS CONCERNED, WE FIND THAT THE ASSESSEE HAS EARNED NOM INAL EXEMPT INCOME OF RS.12,355/- AGAINST WHICH IT HAS BEEN SADDLED WI TH DISALLOWANCE U/R 8D(2)(III) FOR RS. 3.62 LACS, WHICH WAS NOT JUSTIFI ED. WE FIND THAT IN CATENA OF VARIOUS JUDICIAL PRONOUNCEMENTS OF HONBLE HIGH COU RTS, IT HAS BEEN HELD THAT DISALLOWANCE U/S 14A COULD NOT EXCEED THE EXEM PT INCOME EARNED BY THE ASSESSEE. TO CITE A FEW:- (I) HONBLE DELHI HIGH COURT IN CHEMINVEST LTD. V. CIT [2015 378 ITR 33] (II) HONBLE DELHI HIGH COURT IN JOINT INVESTMENTS (P.) LTD. V. CIT [2015 372 ITR 694] (III) HONBLE DELHI HIGH COURT IN CIT V. HOLCIM IND IA (P.) LTD. [2015 57 TAXMANN.COM 28] (IV) HONBLE DELHI HIGH COURT IN PCIT VS. IL&FS ENERGY DEVELOPMENT CO. LTD. [84 TAXMANN.COM 186 DATED 16/08/2017] (V) HONBLE PUNJAB & HARYANA HIGH COURT IN PCIT VS EMPIRE PACKAGE PRIVATE LIMITED [2017 81 TAXMANN.COM 108] 13 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 THEREFORE, WITHOUT DELVING MUCH DEEPER INTO THE ISS UE, WE RESTRICT THE IMPUGNED EXPENSES DISALLOWANCE U/S 14A TO RS.12,355 /-, BEING EXEMPT INCOME EARNED BY THE ASSESSEE. GROUND NO. 4 OF ASSE SSEES CROSS OBJECTION STANDS PARTLY ALLOWED. ACCORDINGLY, GROUN D NO. 3, 5 & 6 OF ASSESSEES CROSS OBJECTION BECOMES INFRUCTUOUS. 7. WE FIND THAT THE NEXT ISSUE OF DISALLOWANCE U/S 145A ON ACCOUNT OF UNUTILIZED CLOSING BALANCE LYING AS CENVAT / MODVAT CREDIT STOOD SQUARELY COVERED IN ASSESSEES FAVOR BY THE JUDGMENT OF HON BLE BOMBAY HIGH COURT RENDERED IN CIT VS DIAMOND DYE CHEM LIMITED [2017 88 TAXMANN.CO M 499] WHERE THE HONBLE COURT HAS HELD AS UNDER:- 1. THE PRESENT APPEAL PERTAINS TO ASSESSMENT YEAR 200 8-09. 2. THE PRESENT APPEAL IS FILED ON ACCOUNT OF DELETING THE ADDITION OF RS.1,14,11,300/- ON ACCOUNT OF UN-UTILIZED CENVAT CREDIT TO CLOSING STO CK. 3. MR. MALHOTRA, THE LEARNED COUNSEL FOR THE APPELLAN T SUBMITS THAT THE UN-UTILIZED CENVAT CREDIT PERTAIN TO PURCHASE AND SALE OF GOODS AND INVENTORY AND NOT TO ANY CAPITAL GOODS AND SERVICES AS PER THE PROVISIONS OF SECTION 145A OF THE INCOME TAX ACT. THE TRIBUNAL ERRED IN DELETING THE SAID ADDITION. THE A SSESSING OFFICER HAD CONSIDERED THE REPLY OF THE ASSESSEE AND THEREAFTER HAD ADDED THE AMOUNT OF RS.1,14,11,300/- TO THE CLOSING STOCK. THE SAME WAS RIGHTLY DONE BY THE ASS ESSING OFFICER. THE TRIBUNAL, RELYING ON THE ORDER PASSED BY THIS COURT IN AN EARLIER ASS ESSMENT YEAR, HAS PASSED THE ORDER WITHOUT ACTUALLY CONSIDERING THE FACTUAL MATRIX INV OLVED IN THE PRESENT CASE. THE ASSESSING OFFICER HAD CONSIDERED THE DEFICIENCIES I N THE ORDER OF THE EARLIER ASSESSMENT YEAR AND THEREAFTER HAS PASSED THE ORDER. THE ASSES SEE HAD UN-UTILIZED THE SAID CENVAT CREDIT MEANING THEREBY THAT EXCESS AMOUNT WAS PAID, THE SAME WAS RIGHTLY ADDED TO THE CLOSING STOCK. 4. THE LEARNED COUNSEL FOR THE RESPONDENT SUBMITS THA T THE RESPONDENT FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING, IN WHICH THE AMOUNT OF CENVAT CREDIT IS NOT ADDED TO THE SALES AND PURCHASES BUT ARE SHOWN SEPARATELY. W HETHER EXCLUSIVE METHOD OF ACCOUNTING IS ADOPTED OR INCLUSIVE METHOD OF ACCOUN TING IS ADOPTED, THE NET RESULT WOULD BE THE SAME AND THERE IS NO DIFFERENCE IN PROFIT. T HE LEARNED COUNSEL FOR THE RESPONDENT RELIED UPON THE JUDGMENT IN THE CASE OF CIT V. INDO NIPPON CHEMICALS CO. LTD. [2003] 261 ITR 275/130 TAXMAN 179 (SC). 5. WE HAVE CONSIDERED THE SUBMISSIONS. IT IS NOT DISP UTED THAT THE ASSESSEE WAS LIABLE TO EXCISE DUTY. THE ASSESSEE GOT CREDIT IN THE EXCI SE DUTY ALREADY PAID ON THE RAW 14 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 MATERIALS PURCHASED BY IT AND UTILIZED IN THE MANUF ACTURING OF EXCISABLE GOODS. THE ASSESSEE WAS ADOPTING THE EXCLUSIVE METHOD I.E. VAL UING THE RAW-MATERIALS ON THE PURCHASE PRICE MINUS (-) THE MODVAT CREDIT. THE SAM E WOULD BE PERMISSIBLE. THE APEX COURT IN THE CASE OF INDO NIPPON CHEMICALS CO. LTD. (SUPRA) WHILE AFFIRMING THE ORDER OF HIGH COURT, HAS OBSERVED THAT THE INCOME WAS NOT GE NERATED TO THE EXTENT OF MODVAT CREDIT OR UNCONSUMED RAW-MATERIAL. MERELY BECAUSE T HE MODVAT CREDIT WAS IRREVERSIBLE CREDIT OFFERED TO MANUFACTURERS UPON PURCHASE OF DU TY PAID RAW-MATERIALS, THAT WOULD NOT AMOUNT TO INCOME WHICH WAS LIABLE TO BE TAXED U NDER THE ACT. IT IS ALSO HELD THAT WHICHEVER METHOD OF ACCOUNTING IS ADOPTED, THE NET RESULT WOULD BE THE SAME. 6. CONSIDERING THE ABOVE, THE AMOUNT OF THE UN-UTILIZ ED CENVAT CREDIT COULD NOT HAVE BEEN DIRECTLY ADDED TO THE CLOSING STOCK. THE TRIBU NAL HAS NOT COMMITTED ANY ERROR. WE FIND THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING EXCLUSIVE METHOD TO ACCOUNT FOR EXCISE DUTY IN THE BOOKS OF ACCOUNTS. W E ALSO CONCUR WITH THE VIEW THAT WHATEVER METHOD OF ACCOUNTING I.E. EXCLUSIVE METHOD OR INCLUSIVE METHOD IS FOLLOWED BY THE ASSESSEE, THE SAME WOULD BE TAX / REVENUE NEUTRAL IN NATURE SINCE THE ADJUSTMENT OF STOCK IN A PARTICULAR PERIOD SHALL RESULT INTO CORRESPONDING VARIATION IN THE SUBSEQUE NT YEAR AND FURTHER, THE CREDIT BALANCE LYING AS CENVAT / MODVAT CREDIT WAS ADJUSTABLE IN SUBSEQUENT YEAR AGAINST EXCISE DUTY LIABILITY ARISI NG IN SUBSEQUENT PERIOD. THEREFORE, RESPECTFULLY FOLLOWING AFORESAID BINDING JUDICIAL PRECEDENT, WE DELETE THE IMPUGNED ADDITIONS. ACCORDINGLY, GROUND NO. 7 OF ASSESSEES CROSS OBJECTION STANDS ALLOWED WHEREAS GROUND NO. 7 OF REVENUES APPEAL BECOMES INFRUCTUOUS. 8. THE LAST ADDITION SUFFERED BY ASSESSEE U/S 40A(9 ) PERTAINS TO SCHOOL EXPENSES REIMBURSED BY ASSESSEE TO AN EDUCATIONAL S OCIETY. THE LD. AR HAS DREW OUR ATTENTION THAT THE ISSUE WAS RECURRING IN NATURE AND LD. CIT(A) IN AY 2005-06 & 2006-07 ALLOWED THE CLAIM OF THE AS SESSEE WHICH HAS BEEN ACCEPTED BY THE REVENUE AND THEREFORE, THE SAM E WAS ALLOWABLE IN THE 15 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 IMPUGNED AY ALSO. UPON PERUSAL OF IMPUGNED ORDER, W E FIND THAT LD. CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE SINCE THE SA ME DID NOT FULFILL THE PRESCRIBED CONDITIONS OF SECTION 40A(9). WE ALSO FI ND THAT THE NATURE OF PAYMENT MADE BY THE ASSESSEE DOES NOT COME WITHIN T HE PURVIEW OF SECTION 40A(9) / (10). HOWEVER, THE LD. AR HAS SUBM ITTED THAT THE SAME BEING INCURRED FOR THE WELFARE OF EMPLOYEES CHILDR EN, WHICH IN TURN, HELPS IN SMOOTH RUNNING OF ASSESSEES BUSINESS, THE SAME HAS BEEN INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND HENCE, ALLOWA BLE U/S 37(1). UPON PERUSAL, WE FIND THAT THERE IS NOT ENOUGH MATERIAL ON RECORD TO SUBSTANTIATE THIS FACT. PRIMA FACIE , THE SCHOOL IS SITUATED AT KHOPOLI WHERE THE MANUFACTURING PLANT OF THE ASSESSEE IS SITUATED AND THEREFORE, WE FIND SOME STRENGTH IN THE ARGUMENT OF LD. AR. HENCE, ON FACTU AL MATRIX, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF LD. AO FO R CONSIDERING THE ASSESSEES CLAIM U/S 37(1) WITH A DIRECTION TO THE ASSESSEE TO DEMONSTRATE THAT THE SAID EXPENDITURE HAS MAINLY BEEN INCURRED FOR THE CHILDREN OF THE ASSESSEES EMPLOYEE AND THE SAME HAS RESULTED INTO SMOOTH & EFFICIENT RUNNING OF ASSESSEES BUSINESS AND THE CONDITIONS A S ENVISAGED BY SECTION 37(1) ARE FULFILLED. GROUND NO. 8 OF ASSESSEES CRO SS OBJECTIONS STANDS ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL-ITA NO. 6659/MUM/2014 9. IN GROUND NOS. 5 & 6, THE REVENUE IS AGGRIEVED B Y CERTAIN DIRECTIONS GIVEN BY LD. CIT(A) QUA DISALLOWANCE U/S 14A WITH RESPECT TO DIMINUTION IN VALUE OF INVESTMENTS. WE FIND THAT THE LD. CIT(A) H AS NOT SET ASIDE THE 16 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 ISSUE ALTOGETHER FOR RECONSIDERATION BY LD. AO RATH ER THE LD. CIT(A), WHILE CONFIRMING THE STAND OF LD. AO, DIRECTED HIM TO CAR RY OUT SOME MORE VERIFICATIONS QUA DIMINUTION IN THE VALUE OF INVESTMENTS. THEREFORE, THE REVENUES GRIEVANCES ON THIS ACCOUNT ARE UNWARRANTE D FOR SINCE THE SAME, IN FACT , WOULD RESULT INTO ENHANCEMENT OF THE DISALLOWANCE , IF FOUND TENABLE. THEREFORE, THE GROUNDS OF REVENUE STANDS DISMISSED. AT THE SAME TIME, UPON PERUSAL OF SCHEDULE F-INVESTMENTS , WE FIND THAT THE PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT REMAINS UNCHA NGED DURING IMPUGNED AY AT RS.0.35 CRORES AND THE LD. AR ALSO HAS MADE A STATEMENT THAT NO FRESH PROVISION HAS BEEN DEBITED TO THE PROFIT & LO SS ACCOUNT IN THE IMPUGNED AY. FURTHER, WE HAD ALREADY DEALT WITH DIS ALLOWANCE U/S 14A ON MERITS IN THE PRECEDING PARAGRAPHS. THEREFORE, THE DIRECTIONS OF LD. CIT(A) BECOMES INFRUCTUOUS AND THEREFORE, EXPUNGED. 10. SIMILARLY, IN GROUND NUMBERS 1 TO 4, THE REVENU E IS AGGRIEVED BY CERTAIN DIRECTIONS OF LD. CIT(A) QUA DISALLOWANCE U/S 36(1)(III). UPON PERUSAL OF THE DIRECTIONS OF LD. CIT(A) AS EXTRACTED BY US IN PARA-3 ABOVE, WE FIND THAT LD. AO HAS BEEN DIRECTED TO EXAMINE INTEREST D ISALLOWANCE U/S 36(1)(III) AGAINST CAPITAL WORK-IN-PROGRESS, DISALLOWANCE IN T ERMS OF PROVISO TO SECTION 36(1)(III) AND INTEREST FREE LOANS AND ADVANCES GI VEN BY THE ASSESSEE. ALTHOUGH LD. AR HAS CONTENDED THAT THE INTEREST POR TION AGAINST CAPITAL WORK-IN-PROGRESS HAS ALREADY BEEN CAPITALIZED, THE FACTUAL MATRIX ON RECORD IS NOT CLEAR AND REQUIRE FURTHER EXAMINATION. THERE FORE, THE DIRECTIONS GIVEN BY LD. CIT(A) IN THIS REGARD ARE SUSTAINED. THE LD. AO IS DIRECTED TO VERIFY 17 ITA NO.6659/MUM/2014 &CO.NO.96/MUM/2016 MAHINDRA UGINE STEEL CO.LTD ASSESSMENT YEAR 2009-10 THE FACTUAL ASPECT AND RE-ADJUDICATE THE SAME AFTER CONSIDERING ASSESSEES SUBMISSION. THE ASSESSEE IS DIRECTED TO SUBSTANTIAT E THE SAME. RESULTANTLY, GROUND NUMBERS 1 TO 4 OF REVENUES APPEAL AND GROUN D NO. 2 OF ASSESSEES APPEAL STANDS DISMISSED. CONCLUSION 11. THE APPEAL AS WELL CROSS OBJECTION STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI;DATED:11.04.2018 SR.PS:-THIRUMALESH ! '# $ / COPY OF THE ORDER FORWARDED TO : 1. 123 45 / THEAPPELLANT 2. 9:45 / THERESPONDENT 3. >?> @AB123 C / THECITBAC 4. >?> @A / CIT CONCERNED 5. IJKL39AMN>?123 O1MN ? / DRITATMUMBAI 6. LRST / GUARDFILE / BYORDER !/ ! BDY./ASSTT. REGISTRARC '!8 '9:;< / ITAT< MUMBAI
