DCIT, New Delhi V. M/s. Federal Mogul Goetze India Ltd., New Delhi

ITA 2952/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2420 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-05-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 12-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MITHUN SHETE
• Assessee Lawyers: R K KAPOOR
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 263; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B , NEW DELHI BEFORE SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 2952 /DEL/201 4 AY: 20 02 - 03 . D CIT, CIRCLE 11 (1) NEW DELHI VS . FEDERAL MOGUL GEOTZE INDIA LTD. (EARLIER KNOWN AS M/S GOETZ INDIA LTD.) 52 B, OKHLA INDUSTRIAL ESTATE PHASE III NEW DELHI 110 020 PAN: AAACG3769M (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. MITHUN SHETE, SR. D.R. ASSESSEE BY : : SH.R .K.KAPOOR, FCA DATE OF HEARING : 1 4 /02/2019 DATE OF PRONOUNCEMENT : 13 / 0 3 /2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER P RESENT APPEAL HAS BEEN FILED BY REVENUE AGAINST ORDER DATED 28/02/2014 PASSED BY LD.CIT(A) - 18, NEW DELHI ON FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,12,33,667/ - MADE U/S 14A OF THE I.T.ACT, 1961. ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.22,47,597/ - BEING EXPENSES RELATED TO PRIOR PERIOD. 3. ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.18,25,000/ - BEING PAID TO M/S UMANG CREDIT CAPITAL LTD. WHICH HAS NOT PROVIDED SERVICES IN ARRANGING THE LOAN TO THE ASSESSEE COMPANY. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: A SSESS FILED ITS RETURN OF INCOME ON 31/10/2002, DECLARING TOTAL INCOME OF RUPEES NIL UNDER NORMAL PROVISIONS OF THE ACT, AFTER S ET OF BROUGHT FORWARD LOSSES AND DEPRECIATION, TOTALLING 3,94,78,003/ - . THE TOTAL INCOME UNDER SECTION 115 JB WAS COMPUTED AT 9,71,65 ,895/ - , AND TAX WAS COMPUTED ACCORDINGLY. RETURN WAS PROCESSED UNDER SECTION 143(1). ON 13/03/2003, ASSESSEE FILED REVISE D RETURN OF INCOME AT THE SAME INCOME, REVISING CALCULATION MISTAKE IN ORIGINAL RETURN. GROSS TOTAL INCOME BEFORE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION, NOW TOTALLED TO 5,90,35,575/ - . CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 14 3 (2) WAS ISSUED , FOLLOWED BY NOTICE UNDER SECTION 143 (2) AND 142 (1). 2.1. ASSESSING OFFICER COMPLETED ASSESSMENT BY MAKING VARIOUS ADDITION S AND COMPUTED INCOME IN HANDS OF ASSESSEE AT RS.9,98,51,978/ - 2.2. A G G R IEVED BY ORDER OF LD. AO , ASSESSEE PRE FERRED APPEAL BEFORE LD. CIT (A ) , WHO DELETED ADDITIONS MADE BY LD. AO. ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 3 3. AGGRIEVED BY OR DER OF LD. CIT (A), REVENUE IS I N APPEAL BEFORE US NOW . 4. GROUND NO. 1 HAS BEEN RAISED AGAINST DELETING DISALLOWANCE OF 1,12,33,667/ - , UNDER SECTION 14 A OF THE A CT. 4.1. IT HAS BEEN SUBMITTED THAT ASSESSEE HAS EARNED DIVIDEND INCOME ON INVESTMENTS AMOUNTING TO 55.96 LAKHS. LD. S R . DR SUBMITTED THAT ASSESSEES FINANCIAL RESOURCES AND EXPENSES ARE MIXED AND THAT ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS FOR INVESTME NTS AND BUSINESS FUNDS. LD.DR SUBMITTED THAT ASSESSEE INCURS INTEREST ON ITS BORROWINGS AND SINCE FUNDS ARE MAINTAINED IN A MIXED ACCOUNT PART OF INTEREST EXPENDITURE IS TO BE HELD TOWARDS EARNING OF DIVIDEND INCOME. 4.2 . ON THE OTHER HAND LD.AR PLACED RELIANCE UPON ORDER PASSED BY THIS TRIBUNAL IN ITA NO. 410 AND 1032/ D EL/2017 VIDE ORDER DATED 27/11/2009 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001 - 0 2 , WHEREIN PROPORTIONATE DISALLOWANCE MADE WAS DELETED. 5. WE HAVE HEARD SUBMISSIONS ADVANCED BY BO TH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 5.1 . ASSESSEE PLACED RELIANCE ON ASSESSMENT ORDER FOR ASSESSMENT YEAR 2003 - 04, WHEREIN NO DISALLOWANCE UNDER SECTION 14 A HAS BEEN MADE AND ORDER OF ITAT FOR ASSESSMENT YEAR 2001 - 02, WHEREIN DISALLOWANCE OF 1% HAS BEEN DELETED. 5.2. WE HAVE PERUSED A NNEXURE C, S CHEDULES 6 TO AUDITED ACCOUNTS , WHEREIN INVESTMENTS MADE BY ASSESSEE HAVE BEEN LISTED. IT IS OBSERVED THAT ASSESSEE HAS SUFFICIENT INVESTMENTS MADE IN GOVERNMENT SECURITIES , SUBSIDIARY COMPANIES , UNIT TRUST OF INDIA , TRADE INVESTMENTS ETC. AND TO MANAGE THESE, IT CANNOT BE ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 4 HELD THAT NO EXPENDITURE COULD HAVE BEEN INCURRED BY ASSESSEE . FURTHER UPON PERUSAL OF AUDITED ACCOUNTS PLACED AT ANNEXURE C OF PAPER BOOK, IT IS OBSERVED THAT ASSESSEE HAD SUFF ICIENT RESERVE S AND SURPLUS FOR INVESTMENT MADE DURING YEAR. WE THEREFORE DO NOT AGREE W ITH DISALLOWANCE COMPUTED BY LD.AO IN RESPECT OF INTEREST EXPENDITURE BEING ALLOCATED FOR EARNING EXEMPT INCOME . 5.3. IN THE PRESENT SCENARIO OF JUDICIAL REVIEW, V I EW TAKEN BY THIS TRIBUNAL FOR ASSESSMENT YEAR 2001 - 02 (SUPRA) IN ASSESSEES OWN CASE CANNOT BE APPLIED , IN VIEW OF DECISION OF HONBLE SUPREME COURT IN CASE OF MAXO P P I NVESTMENTS VS . CIT REPORTED IN (2018) 91 TAXMANN.COM 154 (SC) . HOWEVER WE ARE CONSCIOUS OF THE FACT THAT, FOR YEAR UNDER CONSIDERATION, DISALLOWANCE CANNOT BE MADE AS PER RULE 8D OF INCOME TAX RULES, 1963. WE ARE THEREFORE INCLINED TO SET ASIDE THE ISSUE BACK TO LD.AO TO COMPUTE DISALLOWANCE HAVING REGARD TO ASSESSMEN T YEAR UNDER CONSIDERATION, AS WELL AS DECISION OF HONBLE SUPREME COURT IN CASE OF MAXOP P INVESTMENTS VS. CIT (SUPRA). LD. AO IS ALSO DIRECTED THAT THE DISALLOWANCE SO COMPUTED SHALL NOT EXCEED THE EXEMPT INCOME EARNED BY ASSESSEE DURING YEAR UNDER CONSI DERATION. 5.4. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES . 6. GROUND NO. 2 RAISED BY REVENUE IS IN RESPECT OF DELETING DISALLOWANCE OF 22,47,597/ - , BEING EXPENSES RELATED TO PRIOR PERIOD . 6.1. LD.SR.DR SUBMITTED THAT , THESE EXPENSES PERTAIN TO PRIOR PERIOD , AND HENCE ARE NOT ALLOWABLE AGAINST INCOME OF CURRENT ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 5 YEAR. PLACING RELIANCE UPON ORDER PASSED BY LD.AO HE SUBMITTED THAT ASSESSEE HAS BEEN USING MERCANTILE SYSTEM OF ACCOUNTING OF EXPENSES AND LIABILITY OF THE SAME DEPENDS UPON TIME WHEN SERVICES ARE PROVIDED, WHICH IS IN PRECEDING YEAR. 6.2. ON THE CONTRARY, LD.AR SUBMITTED THAT, BILLS IN RESPECT OF SERVICES PROVIDED WERE RECEIVED DURING YEAR AND THEREFORE EXPENSES RELATED TO CURRENT YEAR AND W ERE ALLOWABL E. IT HAS BEEN SUBMITTED THAT FOR SIMILAR REASON PROCEEDINGS UNDER SECTION 263 W AS INITIATED , FOR ASSESSMENT YEAR 2000 - 01 AND LD. CIT THEREIN UPON BEING SATISFIED GRANTED RELIEF TO ASSESSEE BY DROPPING PROCEEDINGS UNDER SECTION 263 OF THE ACT. IT HAS BEEN S UBMITTED THAT THIS TRIBUNAL FOR ASSESSMENT YEAR 2003 - 04 UPHELD VIEW OF LD.CIT (A) IN DELETING SIMILAR ADDITION. 6.3. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US, AND ORDERS RELIED UPON BY LD.AR. 6.4. IT HAS BE EN SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWING CONSISTENT METHOD OF ACCOUNTING ACCORDING TO WHICH, SUCH EXPENDITURE IS TREATED TO BE CRYSTALLISED IN YEAR IN WHICH BILLS ARE RECEIVED AND CLAIMED. T HERE IS NO ALLEGATION BY LD.DR REGARDING EXPENSES HAVING NO T BEEN INCURRED BY ASSESSEE OR ARE NOT GENUINE OR NOT FOR ANY BUSINESS PURPOSES. IT HAS BEEN SUBMITTED THAT ONLY REASON FOR DISALLOWANCE BY LD.AO IS THAT SERVICES RENDERED IN VIEW OF SUCH EXPENDITURE, DOES NOT PERTAIN TO YEAR UNDER CONSIDERATION. 6.5. IT IS OBSERVED THAT THIS TRIBUNAL IN ITA NO. 1375/ D EL/2011 PASSED FOR ASSESSMENT YEAR 2003 - 04 IN ASSESSEES OWN CASE HAS OBSERVED THAT EXPENSES ARE ALWAYS CLAIMED BY ASSESSEE IN YEAR ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 6 IN WHICH THE SAME ARE QUANTIFIED , WHILE ALLOWING CLAIM OF ASSESSEE. 6.6. IT IS OBSERVED THAT THIS METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY AUTHORITIES BELOW FROM ASSESSMENT YEAR 1991 - 92 TO 2000 - 01. IT IS ALSO OBSERVED THAT FOR ASSESSMENT YEAR 2000 - 01 NOTICE UNDER SECTION 263 HAS BEEN ISSUED BY LD.CIT, FOR EXAMINING THIS ISSUE, AND THE SAME HAS BEEN DROPPED. 6.7. ON THE BASIS OF SAME REASONING WE DO NOT FIND ANY INFIRMITY IN VIEW TAKEN BY LD. CIT (A) AND SAME IS UPHELD. 6.8. ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS DISMISSED. 7. GROUND NO. 3 HAS BEEN RAISED BY REVENUE AGAINST DELETING OF DISALLOWANCE OF COMMISSION EXPENSE AMOUNTING TO 1 8 , 25,000 / - PAID TO M/S.UMANG C REDIT C APITAL LT D. 7.1. LD. SR. DR SUBMITTED THAT BANK HAD ISSUED NOTICE UNDER SECTION 133 (6) TO E XPORT I MPORT B ANK, MUMBAI H EAD O FFICE CALLING FOR DETAILS TOWARDS SANCTION OF TERM LOAN OF 25 CRORES TO ASSESSEE. IN RESPONSE TO NOTICE UNDER SECTIO N 133 (6) BANK INFORMED LD. AO REGARDING DETAILS AS WELL AS CONFIRMED THAT M/S. UMANG C REDIT C APITAL LTD ., WAS NOT INVOLVED IN NEGOTIAT ING AND/OR ARRANGING FOR LOAN FACILITIES ON BEHALF OF ASSESSEE. LD.SR.DR SUBMITTED THAT, THERE HAVE BEEN NO SERVICES RENDERED BY M/S.UMANG CREDIT CAPITAL, IN LIEU OF WHICH COMMISSION HAS BEEN PAID, AND THEREFORE PAYMENT MADE BY ASSESSEE HAS BEEN RIGHTLY HE LD TO BE NOT GENUINE BY LD.AO. 7.2. ON THE CONTRARY , LD.A R SUBMITTED THAT , SAID SUM HAS BEEN PAID FOR RAISING TERM LOAN OF 25 CRORE FROM E X I M B ANK. IT HAS BEEN SUBMITTED THAT SUM OF 1 8 ,25,000 HAS BEEN PAID TO M/S. ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 7 UMANG C REDIT C APITAL LT D ., TOWARDS COMMISSION FOR ARRANGING TERM LOAN OF 25 CRORES. ASSESSEE SUBMITTED THAT M/S.UMANG C REDIT C APITAL LTD ., RAISED BI L L DATED 31/03/2002 , UPON ASSESSEE , WHICH HAS BEEN PLACED BEFORE AUTHORITIES BELOW. 8. WE HAVE PERUSED SUBMISSIONS OF BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 8.1 . LD.AO ALLEGED THAT ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH GENUINENESS OF PAYMENT IN THE NATURE OF COMMISSION, PAID TO M/S. UMANG CREDIT CAPITAL LTD. ASSESS EE HAS PLACED RELIANCE UPON ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2003 - 04 IN ASSESSEES OWN CASE (SUPRA), WHEREIN COMMISSION PAID FOR PROCESSING LOAN FROM BANK/FINANCIAL INSTITUTIONS HAS BEEN ALLOWED ON THE GROUND THAT NOTHING CONTRARY HAS BEEN PROVED BY REVENUE TO ESTABLISH ITS INGENUINITY. IT IS OBSERV ED THAT LD. CIT (A) FOR YEAR UNDER CONSIDERATION IS ALSO PLACING RELIANCE UPON THE SAID ORDER PASSED BY THIS TRIBUNAL AND HAS DELETED ADDITION. IT IS OBSERVED THAT LD.CIT(A) HAS IGNORED ENQUIRIES MADE BY LD.AO WITH BANK WHEREIN THERE IS A CATEGORICAL DE NIAL BY BANK IN DEALING WITH M/S.UMANG CREDIT CAPITAL LTD., FOR DISBURSEMENT OF LOAN. WE ARE OF VIEW THAT LD.CIT (A) FAILED TO EXAMINE WHETHER PARTY TO WHOM COMMISSION HAS BEEN PAID BY ASSESSEE DURING THIS YEAR IS SAME AS THAT IN EARLIER YEAR, AND WHET HER SUCH LOAN HAS BEEN TAKEN FOR PURPOSES OF ASSESSEES BUSINESS. UNDER SUCH CIRCUMSTANCES WE DO NOT AGREE WITH LD. CIT(A) AS WELL AS LD.AR THAT ISSUE STANDS COVERED BY ORDERS OF THIS T RIBUNAL IN EARLIER YEARS. WE ACCORDIN GLY SET ASIDE THIS ISSUE TO LD. AO FOR DUE VERIFICATION IN THE LIGHT OF RELEVANT DOCUMENTS ON RECORD. LD. AO IS TO VERIFY THE SAME AS PER LAW TO ASCERTAIN TRUE NATURE OF ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 8 TRANSACTION. ASSESSEE IS DIRECTED TO FILE ALL REQUISITE DETAILS AS CALLED FOR BY LD. AO IN ORDER TO DECIDE THIS ISSU E. 8.2 . ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT APPEAL FILED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /03/2019 . SD/ - SD/ - (N.K.BILLAIYA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 13 TH MARCH, 2019 GMV C OPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NO.2952/DEL/2014 M/S FEDERAL MOGUL GOETZE (INDIA) LTD. AY 2002 - 03 9 DATE DRAFT DICTATED ON 12/0 3 /2019 DRAFT PLACED BEFORE AUTHOR 1 2/03/ 19 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON & ORDER UPLOADED ON : 13/03/2019 FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.