Kirloskar Oil Engines Limited, Pune V. Assistant Commissioner of Income-tax, Pune

ITA 1130/PUN/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8752 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 04-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIVYA BAJPAI
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 10; 264; 48

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘A’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI C.M. GARG, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1130/PUN/2017 िनधा रण वष / Assessment Year : 2012-13 Kirloskar Oil Engines Limited, Laxmanrao Kirloskar Road, Khadki, Pune 411 003 PAN : AADCK5714H Vs. ACIT, Cirle-14, Pune Appellant Respondent आयकर अपील सं. / ITA No.2108/PUN/2017 िनधा रण वष / Assessment Year : 2012-13 DCIT, Circle-14, Pune Vs. Kirloskar Oil Engines Limited, Laxmanrao Kirloskar Road, Khadki, Pune 411 003 PAN : AADCK5714H Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : These two cross appeals – one by the assessee and other by the Revenue - arise out of the order passed by the CIT(A)-7, Pune on 24-01-2017 in relation to the assessment year 2012-13. 2. The first ground taken by the assessee in its appeal is against the confirmation of disallowance of Rs.2,14,30,844/- made by the Assessee by : Shri C.H. Naniwadekar Revenue by : Ms. Divya Bajpai Date of hearing : 11-11-2021 Date of pronouncement : 11-11-2021 ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 2 Assessing Officer (AO) u/s.14A of the Income-tax Act, 1961 (hereinafter also called ‘the Act’). 3. Briefly stated, the facts of this ground are that the assessee made investment of Rs.527.42 crore in shares and mutual funds etc., which yielded exempt income of Rs.25.15 crore. No disallowance u/s.14A of the Act was offered in the return of income. On being called upon to explain the reasons, the assessee submitted that a sum of Rs.8,01,269/- was disallowable u/s.14A which was omitted to be considered in the computation of income. This amount was computed by attributing certain part of Employees’ salary cost towards exempt income. The AO held that no disallowance on account of interest for investment in shares and mutual funds was warranted u/s.14A read with Rule 8D(2). As regards other expenses warranting disallowance, the AO found that the assessee offered a meager disallowance of Rs.8.00 lakh by considering a minuscule part of the Employees’ cost, which was not proper. He, thereafter, computed disallowance under Rule 8D(2)(iii) at 0.5% of the average value of investments at Rs.2,06,29,575/- in addition to the assessee offering Rs.8,01,269/- through its letter during the course of the assessment proceedings. ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 3 This resulted into total disallowance of Rs.2,14,30,844/-. The assessee assailed the assessment order before the ld. CIT(A) on the ground that the AO failed to record proper satisfaction before making disallowance u/s.14A. Rejecting the said version, the ld. CIT(A) upheld the disallowance after noticing that the AO recorded proper satisfaction. He also went on to point out several other deficiencies in the assessee’s claim of only Rs.8.01 lakh having been incurred for earning exempt income. 4. We have heard the rival submissions and gone through the relevant material on record. The short point raised by the ld. AR is that the AO did not record proper satisfaction before resorting to rule 8D. In this regard, it is observed from the assessment order that the AO did record proper satisfaction after discussing the entire issue on pages 4 to 8 of the assessment order duly examining the assessee’s explanation and rejecting the same objectively. Thus, there is no lack of satisfaction recorded by the AO. A similar disallowance was made for the assessment year 2010-11, which the assessee challenged in further appeal before the Tribunal. Vide its order dated 21-11-2019, the Tribunal in ITA Nos. 61 and 406/PUN/2015 dismissed the assessee’s contention. ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 4 Relevant discussion has been made on page 6 para 9 of the Tribunal order. It is further observed that similar disallowance was made in the assessee’s own case for the immediately preceding assessment year 2011-12, which the assessee has accepted. Since the facts and circumstances on this issue for the year under consideration are similar to those of earlier years, respectfully following the precedent and specifically noting that the AO did record satisfaction in the assessment order, as further elaborated by the ld. CIT(A) in the impugned order, we hold that due satisfaction was recorded. Insofar as the calculation of disallowance at 0.5% under Rule 8D(2)(iii) is concerned, it is seen that the assessee itself computed such amount during the course of assessment proceedings and placed the same before the AO. To sum up, the ground raised by the assessee is dismissed. 5. Ground No.2 of the assessee’s appeal is against the taxability of Rs.19,14,34,976/- received by the assessee under Package Scheme of Incentives (PSI) 2001 as revenue receipt chargeable to tax. The assessee claimed a sum of Rs.19.14 crore as subsidy received from Government of Maharashtra under PSI 2001 scheme as Capital receipt. The AO, following the view taken by him for ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 5 the earlier years, treated the amount as revenue in nature. The ld. CIT(A) upheld the impugned order against which the assessee has come up in appeal before the Tribunal. 6. We have heard both the sides and gone through the relevant material on record. It is seen that similar issue came up for consideration before the Tribunal in earlier years at the instance of the Revenue inasmuch the claim of the assessee was accepted by the ld. CIT(A) for the earlier years, which necessitated the Revenue to file appeal before the Tribunal. Such grounds taken by the Revenue came to be dismissed by the Tribunal. A copy of the Tribunal order for the immediately preceding assessment year has been placed at page 48 of the paper book in which relevant discussion has been made upholding the ld. CIT(A)’s point of view treating subsidy as capital receipt. We, therefore, do not countenance the view point adopted by the ld. CIT(A) in this year deviating from the earlier years for no justifiable reason. 7. The ld. CIT(A) also took alternative view by holding that Explanation 10 to section 43(1) was attracted in this case. In that view of the matter, amount ought to have been reduced from the written down value of the assets. ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 6 8. We have gone through the language of Explanation 10 to section 43(1), which gets triggered where a portion of cost of an asset has been paid directly or indirectly by the Central Government etc. in the form of a subsidy or grant. It has no application where the object of the scheme under which the subsidy is granted is to accelerate industrial development. The proviso to Explanation 10, which has been held to be applicable by the ld. CIT(A), also talks of “such subsidy”, which again traces its origin to the main part of the Explanation 10 that, in turn, refers to meeting cost of an asset directly or indirectly by the Government etc. Au contraire, where the subsidy is given for industrial development and not for meeting cost of an asset by the Government etc., the same cannot be brought within the purview of Explanation 10. The Hon’ble Bombay High court in Pr. CIT Vs. M/s. Welspun Steel Ltd. (2019) 264 Taxman 252 (Bom.) has taken similar view in deciding question no. (b) raised before it and held that the Tribunal was justified in holding that subsidy cannot be considered as a payment directly or indirectly to meet any portion of the actual cost. The assessee in that case also got subsidy for industrial development. Similar view has also been taken by the ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 7 Pune Benches of the Tribunal in M/s. Alkoplus Producers Pvt. Ltd. and Another Vs. DCIT and Another (2019) 177 ITD 150 (Pune- Tribunal). In backdrop of the above, it is overt that subsidy, in the prevailing circumstances, does not qualify for reduction from the cost of assets in pursuance of Explanation 10 to section 43(1) of the Act. We, therefore, overturn the alternative view also as canvassed in the impugned order on this score. This ground is allowed. 9. Ground No.3 of the assessee’s appeal and Ground No.3 of the Revenue’s appeal are against Aircraft expenses. The assessee incurred a sum of Rs.2,15,26,000/- as Aircraft expenses and depreciation on the same at Rs.3,44,90,818/-. Following the view taken for the preceding years, the AO made disallowance at 1/3 rd of the total expenses. The ld. CIT(A) upheld the disallowance at 25% of the gross amount of expenses. Whereas the assessee is aggrieved by the sustenance of disallowance at 25%, the Revenue wants restoration of addition to 1/3 rd of expenses. 10. Having heard both the sides and gone through the relevant material on record, it is seen that similar issue came up for consideration before the Tribunal in the assessee’s own case for the ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 8 immediately preceding assessment year 2011-12. The Tribunal has sustained the disallowance at 15% by following its orders for earlier years. Since the facts and circumstances are similar, respectfully following the precedent, we also uphold the disallowance at 15% of Aircraft expenses and depreciation thereon. 11. It is further found that while sustaining the disallowance, the ld. CIT(A) took gross figures of aircraft expenses. The assessee has placed on record a calculation at page 213 of the paper book showing that out of total expenses of Rs.560.06 lakh the assessee recovered a sum of Rs.344.80 lakh from outside parties etc., leading the net amount of expenses at Rs.215.26 lakh. The disallowance is, therefore, directed to be restricted to 15% of the net expenses after verification of the calculation shown by the assessee at page 213 of the paper book along with depreciation. We order accordingly. The ground of the Revenue is dismissed and that of the assessee is partly allowed. 12. Ground No.4 of the assessee’s appeal and Ground No.4 of the Revenue’s appeal are against Provision made for warranty. The facts of these grounds are that the assessee made a provision for warranty at Rs.28,46,28,897/-. The AO disallowed the same. The ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 9 ld. CIT(A) allowed part relief by restricting the disallowance at Rs.5,30,74,000/-. It was done by reducing Rs.1.51 crore, being, 5% of opening balance of warranty provision from the amount of reversal of provision at Rs.6.81 crore. Both the sides are in appeal on their respective stands. 13. Having heard both the sides and gone through the relevant material on record, it is found that similar issue arose for consideration before the Tribunal in the earlier years. A copy of the Tribunal order for the assessment year 2011-12 has been placed on record, which shows that the assessee’s claim has been accepted in entirety for the amount of provision created by it. Respectfully following the precedent, we allow the assessee’s ground and dismiss that of the Revenue. 14. The last ground of the assessee’s appeal is against the confirmation of disallowance of Rs.89,13,799/- out of weighted deduction claimed u/s.35(2AB) of the Act. The AO observed that the assessee claimed the weighted deduction at Rs.18,80,84,799/-. However, the Department of Scientific and Industrial Research (DSIR), New Delhi, the approving authority, reduced the amount of eligible deduction to Rs.17,91,71,000/-. The excess amount ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 10 claimed by the assessee, not allowed by the DSIR to the tune of Rs.89,13,799, got disallowed by the AO, which came to be affirmed in the first appeal. 15. Having heard both the sides and gone through the relevant material on record, it is seen that similar issue came up for consideration before the Tribunal in assessee’s own case for the preceding years in which such disallowance has been deleted. The year under consideration is prior to the statutory amendments carried out to the provision and the respective rules in this regard. The ld. DR relied on the judgment of Hon’ble Gujarat High Court in CIT Vs. Sun Pharmaceutical Industries Ltd. (2017) 85 taxmann.com 80 (Guj.) in which the matter has been sent back to the AO for verification of the amount of expenses. The ld. AR did not raise any serious objection to the verification of the amount accordingly. We, therefore, hold that the amount of weighted deduction should be allowed in entirety irrespective of the fact that it was not approved by the DSIR, subject to verification of the claim by the AO in terms of the afore referred judgment of the Hon’ble Gujarat High Court. ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 11 16. Ground No.1 of the Revenue’s appeal is against allowing depreciation at 60% on Printers, UPS and other allied items. The AO allowed depreciation at 15% as against the assessee’s claim of 60%. The ld. CIT(A) restored the assessee’s claim. 17. It is seen that similar issue came up for consideration before the Tribunal for the assessment year 2011-12. Relevant discussion has been made at page 54 of the paper book in which the opinion of the ld. CIT(A), in increasing the rate of depreciation, has been upheld. Respectfully following the same, we dismiss this ground. 18. Ground No.2 of the Revenue’s appeal is against the deletion of addition of Rs.1,55,57,094/- made by the AO u/s.40A(2) on account of commission paid to Directors. The AO treated the payment to Directors as excessive to this extent as per the mandate of section 40A(2), which was deleted in the first appeal. 19. Having heard both the sides and gone through the relevant material on record, it is seen that similar issue came up for consideration before the Tribunal in the assessee’s own case for the assessment year 2011-12. Relevant discussion has been made in para 26, whereby the view taken by the ld. CIT(A) has been ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 12 countenanced. Respectfully following the precedent, we uphold the impugned order on this score. 20. In the result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. Order pronounced in the Open Court on 11 th November, 2021. Sd/- Sd/- (C.M. GARG) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 11 th November, 2021 Satish आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent; 3. The CIT(A)-7, Pune 4. 5. 6. The Pr.CIT-6, Pune DR, ITAT, ‘A’ Bench, Pune गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA No.1130/PUN/2017 & ITA No.2108/PUN/2017 Kirloskar Oil Engines Limited 13 Date 1. Draft dictated on 11-11-2021 Sr.PS 2. Draft placed before author 11-11-2021 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *