NRB BEARINGS LTD, MUMBAI V. ADDL CIT 2(2), MUMBAI

ITA 3770/MUM/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9942 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 22-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V JENARDHANAN
• Keywords: Rejection of books of accounts; Notional interest
• Section: 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 3770/MUM/2014 (ASSESSMENT YEAR 2009-10) I.T.A. NO. 3785/MUM/2014 (ASSESSMENT YEAR 2010-11) M/S. NRB BEARINGS LTD. DHANUR, 15 SIR P.M. ROAD MUMBAI-400 001. PAN NO. AAACN3479P VS. ADDL.CIT- 2(2)/DCIT (OSD)-2(3) MUMBAI ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 4133/MUM/2014 (ASSESSMENT YEAR 2010-11) I.T.A. NO. 4134/MUM/2014 (ASSESSMENT YEAR 2009-10) DCIT(OSD)-2(3) MUMBAI VS. M/S. NRB BEARINGS LTD. DHANUR, 15 SIR P.M. ROAD MUMBAI-400 001. PAN NO. AAACN3479P (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI DHARMESH SHAH DEPARTMENT BY SHRI V. JENARDHANAN DATE OF HEARING 15 . 3 . 201 8 DATE OF PRONOUNCEMENT 15.3.2018 O R D E R PER BENCH:- THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)- 5, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2 009-10 AND 2010-11. AS MOST OF THE ISSUES URGED IN THESE APPEALS ARE IDENT ICAL IN NATURE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IS A MANUFACTURER OF NEEDLE AND ROLLER BALL BEARING. WE SHALL DISPOSE OF THE APPEALS OF BOTH THE PARTIES TO GETHER BY ADJUDICATING THE EACH OF THE ISSUES URGED IN BOTH THE YEARS. M/S. NRB BEARINGS LTD. 2 3. THE FIRST INDIVIDUAL ISSUE URGED BY THE ASSE SSEE IN AY 2009-10 RELATES TO THE DETERMINATION OF ANNUAL LETTING VALUE OF THE PR OPERTY U/S 23 OF THE ACT. THE ASSESSEE HAD TAKEN HUGE AMOUNT AS INTEREST FREE DEPOSIT AND RENT WAS RECEIVED AT LOWER AMOUNT. HENCE THE AO DETERMINED THE ANNUAL LETTING VALUE AT A HIGHER FIGURE. THE SAME WAS ALSO CONFIRMED BY LD CIT(A) BY FOLLOWING HIS DECISION RENDERED IN AY 2007-08 AND 2008-09. THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN AY 2007-08 IN ITA NO.672 & 1982/MUM /2011 DATED 30-10- 2015 AND IT WAS RESTORED TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH BY FOLLOWING THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF TIP TOP TYPOGRAPHY. THE IDENTICAL I SSUE URGED IN AY 2008-09 WAS ALSO RESTORED TO THE FILE OF THE AO BY THE TRIB UNAL IN ITS ORDER DATED 31-07- 2017 PASSED IN ITA NO.3481/MUM/2012. ACCORDINGLY T HE LD A.R SUBMITTED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF THE AO. 4. WE HEARD LD D.R AND PERUSED THE RECORD. SIN CE THE ASSESSEE HAD TAKEN HUGE AMOUNT OF INTEREST FREE DEPOSIT, THE AO HAS DE TERMINED THE ALV OF THE PROPERTY AT A HIGHER AMOUNT. THE PRINCIPLES FOR DE TERMINING ANNUAL LETTING VALUE HAS SINCE BEEN LAID DOWN BY HONBLE BOMBAY HI GH COURT IN THE CASE OF TIP TOP TYPOGRAPHY (368 ITR 330). HENCE THE TRIBUN AL HAS RESTORED THE ISSUE TO THE FILE OF THE AO IN ORDER TO DETERMINE THE ALV BY FOLLOWING THE DECISION RENDERED IN THE ABOVE SAID CASE. ACCORDINGLY, CONS ISTENT WITH THE VIEW TAKEN IN AY 2007-08 AND 2008-09 IN THE ASSESSEES OWN CAS E, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE S AME TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. 5. THE SECOND INDIVIDUAL ISSUE URGED BY THE A SSESSEE IN AY 2009-10 RELATES TO THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. THE AO DISALLOWED A SUM OF RS.123.06 LAKHS U/S 40(A)(IA) OF THE ACT BY HOLDING THAT THE PAYMENT OF TDS HAS NOT BEEN MADE IN TIME. THE ASSESSEE CLAIMED TH AT IT HAS REMITTED THE TDS AMOUNT BEFORE THE DUE DATE FOR FILING RETURN OF INC OME AND HENCE NO DISALLOWANCE WAS CALLED FOR AS PER THE PROVISO INSE RTED TO SEC. 40(A)(IA) OF THE M/S. NRB BEARINGS LTD. 3 ACT BY FINANCE ACT, 2010. THE TAX AUTHORITIES DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE. 6. WE NOTICE THAT IDENTICAL DISALLOWANCE WAS M ADE IN AY 2008-09 ALSO. BEFORE THE TRIBUNAL, THE ASSESSEE RELIED UPON THE D ECISION RENDERED HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. VIRGIN C REATIONS (ITA NO.302 OF 2011) IN ORDER TO CONTEND THAT THE FIRST PROVISO IN SERTED BY FINANCE ACT, 2010 IS RETROSPECTIVE IN NATURE. ACCORDINGLY IT WAS CON TENDED THAT NO DISALLOWANCE U/S 40(A)(IA) IS NOT CALLED FOR, AS THE ASSESSEE HA S REMITTED THE TDS AMOUNT BEFORE THE DUE DATE FOR FILING RETURN OF INCOME. A CCORDINGLY THE TRIBUNAL DELETED THE DISALLOWANCE ACCEPTING THE CONTENTIONS OF THE ASSESSEE. 7. WE NOTICE THAT THE HONBLE CALCUTTA HIGH COU RT HAS HELD IN THE CASE OF VIRGIN CREATIONS (SUPRA) THAT THE FIRST PROVISO INS ERTED BY FINANCE ACT, 2010 IS RETROSPECTIVE IN NATURE. THE PROVISIONS OF SEC. 40 (A)(IA) AMENDED BY FINANCE ACT 2010 PROVIDES THAT NO DISALLOWANCE SHALL BE MAD E U/S 40(A)(IA) OF THE ACT SHALL BE MADE, IF THE TDS AMOUNT IS REMITTED BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S 139(1) OF THE ACT. ACCORDINGL Y, IF THE ASSESSEE HAS PAID THE TDS AMOUNT BEFORE THE DUE DATE FOR FILING RETUR N OF INCOME U/S 139(1) OF THE ACT, NO DISALLOWANCE U/S 40(A)(IA) IS REQUIRED TO BE MADE. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO VERIFY THE DATE OF PAYMENT OF TDS AMOUNT AND DELETE THE DISALLOWANCE I F THE TDS AMOUNT IS PAID BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S 139(1) OF THE ACT. 8. THE NEXT INDIVIDUAL ISSUE CONTESTED BY THE A SSESSEE IN AY 2009-10 RELATES TO THE ADDITION OF NOTIONAL INTEREST OF RS.2,59,300 /- IN RESPECT OF INTEREST FREE LOAN GIVEN TO THAILAND SUBSIDIARY. IDENTICAL ADDIT ION WAS ALSO MADE IN AY 2008-09 AND THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE ISSUE AFRESH BY FOLLOWING THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TATA AUTO- COMP SYSTEMS (374 ITR 516). CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUN AL IN AY 2008-09, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH SIMIL AR DIRECTIONS. M/S. NRB BEARINGS LTD. 4 9. WE SHALL NOW TAKE UP THE INDIVIDUAL ISSUE CO NTESTED BY THE REVENUE, WHICH RELATES TO THE SCIENTIFIC RESEARCH EXPENDITUR E. THIS ISSUE IS CONTESTED BY THE REVENUE IN BOTH AY 2009-10 AND 2010-11. THE AO DISALLOWED THE CLAIM OF SCIENTIFIC RESEARCH EXPENDITURE U/S 35(2AB) FOR THE REASON THAT THE ASSESSEE COULD NOT FILE FORM 3CL BEFORE HIM. HOWEVER, THE AS SESSEE FILED FORM 3CL BEFORE LD CIT(A) IN AY 2009-10 AND ACCORDINGLY, THE LD CIT(A) DELETED THE IMPUGNED DISALLOWANCE MADE IN BOTH THE YEARS. THE REVENUE IS AGGRIEVED BY HIS DECISION IN BOTH THE YEARS. 10. THE LD D.R SUBMITTED THAT THE LD CIT(A) HAS DELETED THE DISALLOWANCE WITHOUT EXAMINING FORM 3CL. 11. THE LD A.R SUBMITTED THAT THE FURNISHING OF F ORM 3CL IS ONLY DIRECTORY AND NOT MANDATORY FOR CLAIMING DEDUCTION U/S 35(2AB ) OF THE ACT. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING CASE LA WS:- A. DCIT VS. FAMY CARE LTD 952 TAXMANN.COM 461) B. SUN PHARMACEUTICAL INDUSTRIES LTD VS. PR. CIT (162 ITD 484) C. SRI BIOTECH LABORATORIES INDIA LTD VS. ACIT (3 6 ITR (T) 88) D. MAHINDRA AND MAHINDRA LTD VS. ADDL CIT (ITA NO .586/MUM/2013) THE LD A.R FURTHER SUBMITTED THAT FORM 3CL IS ISSUE D BY DSIR AND THE ASSESSEE HAS GOT NO CONTROL OVER THE SAME. ACCORDI NGLY HE SUBMITTED THAT THE ORDER PASSED BY LD CIT(A) SHOULD BE UPHELD. 12. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. IDENTICAL DISALLOWANCE MADE BY THE AO IN AY 2007-08 AND 2008- 09 HAS SINCE BEEN DELETED BY THE TRIBUNAL. IN AY 2008-09, THE ASSESS EE HAS FIELD FORM 3CL BEFORE THE TRIBUNAL AND HENCE THE TRIBUNAL HAS OBSE RVED THAT THERE SHOULD NOT BE ANY BAR FOR THE ASSESSEE IN AVAILING THE DEDUCTI ON U/S 35(2AB). HOWEVER, SINCE THE AO HAS NOT EXAMINED FORM 3CL, THE TRIBUNA L DIRECTED THE AO TO ALLOW THE CLAIM AFTER VERIFYING FORM 3CL. 13. FROM THE ORDER PASSED BY LD CIT(A) FOR AY 2009 -10, WE NOTICE THAT THE ASSESSEE HAS FURNISHED FORM 3CL DATED 07-03-2012 BE FORE LD CIT(A) IN AY M/S. NRB BEARINGS LTD. 5 2009-10. IN ANY CASE, IN THE CASE LAWS RELIED UPON BY THE ASSESSEE, FURNISHING OF FORM 3CL WAS HELD TO BE NOT MANDATORY. UNDER TH ESE SET OF FACTS, WE ARE OF THE VIEW THAT THERE IS NO REASON TO INTERFERE WITH THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION . 14. THE NEXT ISSUE RELATES TO THE ADDITION MADE TO GROSS PROFIT BY REJECTING THE BOOKS OF ACCOUNTS. THIS ISSUE IS COMMON IN AY 2009-10 AND 2010-11. BOTH THE ASSESSEE AS WELL AS THE REVENUE IS CONTEST ING THE DECISION OF LD CIT(A) IN BOTH THE YEARS. 15. THE AO HAD REJECTED THE BOOKS OF ACCOUNT AN D HAD ENHANCED THE GROSS PROFIT BY 1% IN AY 2007-08 AND 2008-09 BY REJECTING BOOKS OF ACCOUNTS. FOLLOWING THE SAME, THE AO ENHANCED THE GROSS PROFI T BY 1% IN AY 2009-10 AND 2010-11 ALSO BY REJECTING BOOKS OF ACCOUNTS. 16. IN AY 2007-08 AND 2008-09, THE LD CIT(A) HAS HELD THAT THE REJECTION OF BOOKS OF ACCOUNTS IS NOT WARRANTED AND ACCORDINGLY HELD THAT THE PROVISIONS OF SEC. 145 ARE NOT ATTRACTED. HOWEVER HE HELD THAT I N TERMS OF SEC.145A OF THE ACT, CENVAT & VAT ARE TO BE ADDED TO THE CLOSING ST OCK. ACCORDINGLY HE HAS DIRECTED THE AO TO WORK OUT THE ADDITION ON THE BAS IS OF PARTICULARS TO BE SUBMITTED BY THE ASSESSEE IN RESPECT OF CLOSING STO CK. ACCORDINGLY, BY FOLLOWING HIS DECISION RENDERED IN AY 2007-08 AND 2 008-09, THE LD CIT(A) SET ASIDE THE REJECTION OF BOOKS OF ACCOUNTS AND RESTRI CTED THE ADDITION ONLY TO CLOSING STOCK AS PER THE DIRECTION GIVEN IN AY 2007 -08. 17. THE TRIBUNAL UPHELD THE ORDER OF LD CIT(A) BOTH IN AY 2007-08 AND 2009-10. 18. BOTH THE PARTIES ARE AGGRIEVED BY THE DECIS ION RENDERED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. SINCE A PARTICULAR V IEW HAS ALREADY BEEN TAKEN BY THE TRIBUNAL ON IDENTICAL ISSUE IN AY 2007-08 AN D 2008-09, FOLLOWING THE M/S. NRB BEARINGS LTD. 6 SAME WE UPHOLD THE ORDER PASSED BY LD CIT(A) ON THI S ISSUE IN BOTH THE YEARS UNDER CONSIDERATION. 19. THE NEXT ISSUE CONTESTED BY BOTH THE PARTIE S IN AY 2009-10 RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE AO N OTICED THAT THE ASSESSEE HAS MADE INVESTMENTS OF RS.17.92 CRORES. THE ASSES SEE HAS ALSO RECEIVED DIVIDEND INCOME OF RS.1,24,000/- AND CLAIMED THE SA ME AS EXEMPT. THE AO COMPUTED THE DISALLOWANCE AT RS.36,05,921/- UNDER R ULE 8D OF THE I.T RULES AS UNDER:- DIRECT EXPENDITURE UNDER RULE 8D(2)(I) - 441 INTEREST EXPENDITURE UNDER RULE 8D(2)(II) - 3 0,11,762 ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) - 5,93,718 ------------------ 36,05,921 ================== HOWEVER, THE AO ADDED A SUM OF RS.41,95,811/- TO TH E TOTAL INCOME OF THE ASSESSEE U/S 14A OF THE ACT. 20. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) GRANTED RELIEF IN RESPECT OF INTEREST PAID ON ECB LOAN AND ACCORDINGLY CONFIRMED THE BALANCE AMOUNT OF ADDITION. AGGRIEVED, BOTH THE PARTIES ARE IN APPEA L. 21. WE HEARD THE PARTIES ON THIS ISSUE. FROM THE BALANCE SHEET, WE NOTICE THE ASSESSEE IS HAVING OWN FUNDS OF RS.18061.83 LAK HS AND RS.17450.33 LAKHS RESPECTIVELY AS ON 31.3.2008 AND 31.3.2009. THE TO TAL VALUE OF INVESTMENTS STANDS AT RS.1781.45 LAKHS AND RS.1792.70 LAKHS AS ON 31.3.2008 AND 31.3.2009 RESPECTIVELY. ADMITTEDLY, THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN FAR EXCESS OF THE VALUE OF INVESTMENTS. ACCO RDINGLY THE PRESUMPTION WOULD BE THAT THE ASSESSEE HAS USED ITS OWN FUNDS F OR MAKING INVESTMENTS AS PER THE DECISION RENDERED BY HONBLE BOMBAY HIGH CO URT IN THE CASE OF HDFC BANK LTD (383 ITR 529). ACCORDINGLY DISALLOWANCE O F INTEREST EXPENDITURE U/R 8D(2)(II) IS NOT CALLED FOR. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISAL LOWANCE OF INTEREST EXPENDITURE U/S 8D(2)(II) OF THE I T RULES. M/S. NRB BEARINGS LTD. 7 22. WITH REGARD TO THE DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF THE IT RULES, WE NOTICE TH AT THE ASSESSEE HAS BROUGHT FORWARD MOST OF THE INVESTMENTS FROM THE PRIOR YEAR . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE A FRESH INVEST MENT OF RS.11.25 LAKHS IN A JOINT VENTURE COMPANY. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.1.24 LAKHS. THUS WE NOTICE THAT THE ACTIVITY OF THE ASSESSEE IN THE INVESTMENT PORTFOLIO IS VERY MINIMAL. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE APPLICATION OF RULE 8D(2)(III) IS NOT WARRANTED IN THIS CASE. CONSIDERING THE ACTIVITIES OF THE ASSESSEE, WE ARE OF THE VIEW THAT A ROUND SUM DISALLOWANCE OF RS.10,000/- OUT OF ADMINISTRATIVE E XPENSES WOULD MEET THE REQUIREMENT OF SEC. 14A OF THE ACT. ACCORDINGLY WE MODIFY THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO RESTRICT THE DISALLO WANCE OUT OF ADMINISTRATIVE EXPENSES TO RS.10,000/-. 23. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. THE APPEAL OF THE ASSESSEE FOR AY 2009-10 IS TREATED AS PARTLY ALLOWED. THE APPEAL OF THE ASSESSEE FOR AY 2010-11 IS DISMISSED. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 15.3. 2018. SD/- SD/- (SANDEEP GOSAIN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 15/3/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR PRIVATE SECRETARY) PS ITAT, MUMBAI