Caparo Maruti Ltd., New Delhi V. DCIT, New Delhi

ITA 5165/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5123 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.5165/DEL/2014 ASSESSMENT YEAR : 2010-11 CAPARO MARUTI LTD., 101-104, 1 ST FLOOR, NAURANG HOUSE, 21, KG MARG, NEW DELHI. PAN: AAACC6423G VS. DCIT, LTU, NEW DELHI. ITA NO.5059/DEL/2014 ASSESSMENT YEAR : 2010-11 DCIT, LTU, NEW DELHI. VS. CAPARO MARUTI LTD., 101-104, 1 ST FLOOR, NAURANG HOUSE, 21, KG MARG, NEW DELHI. PAN: AAACC6423G (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, CA RESPONDENT BY: MS RACHNA SINGH, CIT, DR & SHRI ANSHU PRAKASH, SR. DR DATE OF HEARING : 08.08.2017 DATE OF PRONOUNCEMENT: 09.08.2017 ITA NOS.5165 & 5059/DEL/2014 2 ORDER PER R.S. SYAL, VP: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 15.07.2014 IN RELATION TO ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE RAISED IN THE REVENUES APPEAL A ND ONE OF THE ISSUES RAISED IN THE ASSESSEES APPEAL IS AGAIN ST THE DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 (H EREINAFTER ALSO CALLED THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE MADE INVESTMENTS IN SBI MAGNUM INSTA CASH FUND DAIL Y DIVIDEND OPTION (HEREINAFTER ALSO CALLED `THE FUND ) AMOUNTING TO RS.100,01,081/-. THERE WAS NO OPENING BALANCE OF SUCH INVESTMENTS. THE ASSESSEE EARNED EXEMPT DI VIDEND INCOME AMOUNTING TO RS.13,54,176/- ON SUCH INVESTME NT. THE ASSESSING OFFICER, AFTER RECORDING SATISFACTION, CO MPUTED DISALLOWANCE AMOUNTING TO RS.5,37,483 U/S 14A READ WITH RULE 8D(2) IN TWO PARTS, NAMELY, CLAUSE (II) TOWARDS INT EREST OF ITA NOS.5165 & 5059/DEL/2014 3 RS.4,87,478/- AND UNDER CLAUSE (III) @ % OF AVERAG E INVESTMENT OF RS.50,005/-. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD NET WORTH AMOUNTING TO RS.70.85 CRORE AND, HENCE, INVESTMENT OF RS.1 CRORE MADE IN SUCH FUND W AS FINANCED OUT OF THE SAME. HE, THEREFORE, DELETED S UCH DISALLOWANCE. AS REGARDS THE OTHER DISALLOWANCE UND ER RULE 8D(2)(III), THE LD. CIT(A) CONFIRMED THE DISALLOWAN CE TO RS.71,364/- AS AGAINST THE ASSESSING OFFICERS CALC ULATION AT RS.50,005/-. THIS WAS DONE IN VIEW OF THE ASSESSEE S SUBMISSIONS AS RECORDED ON PAGE 7 OF THE IMPUGNED O RDER, COMPUTING SUCH DISALLOWANCE AT RS.71,364/-. BOTH T HE SIDES ARE IN APPEAL ON THEIR RESPECTIVE STANDS. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ABOUT THE R ECORDING OF SATISFACTION BY THE ASSESSING OFFICER. THE FIRST P ART OF THE REVENUES GRIEVANCE IS AGAINST THE DELETION OF ADDI TION MADE UNDER RULE 8D(2)(II) WHICH RELATES TO DISALLOWANCE OF INTEREST TOWARDS INVESTMENTS MADE IN THE FUND. WE HAVE GONE THROUGH THE ASSESSEES BALANCE SHEET, A COPY OF WHICH HAS B EEN PLACED ITA NOS.5165 & 5059/DEL/2014 4 ON RECORD. THIS BALANCE SHEET INDICATES THE ASSESS EES NET WORTH AT RS.70.85 CRORE. AS AGAINST THE SHAREHOLDE RS FUND OF THIS MAGNITUDE, THE ASSESSEE MADE INVESTMENT IN THE FUND, YIELDING EXEMPT DIVIDEND INCOME, ONLY TO THE TUNE O F RS.1.00 CRORE AND ODD. THIS SHOWS THAT INVESTMENT IN FUNDS IS MUCH LESS THAN THE ASSESSEES SHAREHOLDERS FUND. THE H ON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. MICROLABS (2016) 383 ITR 490 (KAR), HAS HELD THAT WHEN INVESTMENTS ARE MADE FROM COMMON POOL AND NON-INTEREST BEARING FUNDS ARE MORE THAN THE INVESTMENT IN TAX FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A CAN BE MADE. THIS VIEW HAS BEE N TAKEN BY FOLLOWING THE JUDGMENTS OF THE HON'BLE BOMBAY HI GH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 515 (BOM). IT IS FURTHER OBSERVED THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGMENT DELIVERED BY THE HON'BLE SUP REME COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC), IN WHICH IT HAS BEEN HELD THAT WHEN INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AN D RESERVES ARE MORE THAN INVESTMENT, THEN NO DISALLOWANCE OF INTER EST CAN BE ITA NOS.5165 & 5059/DEL/2014 5 MADE U/S 14A. RESPECTFULLY FOLLOWING THE RATIO DECIDENDI FROM THE ABOVE JUDGMENTS, WE APPROVE THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST UND ER RULE 8D(2)(II). 5. NOW, WE TAKE UP THE SECOND COMPONENT OF DISALLOW ANCE BEING % OF THE AVERAGE VALUE OF INVESTMENT. THE L D. CIT(A), AS NOTICED ABOVE, TOOK SUCH FIGURE AT RS.71,364/-, WHICH WAS ADMITTEDLY SUPPLIED BY THE ASSESSEE ITSELF. THE COR RECTNESS OF SUCH A FIGURE IS NOT IN DISPUTE. IT IS OBSERVED FRO M THE IMPUGNED ORDER, AS ALSO ARGUED BY THE LD. AR, THAT THE ASSESSEE SUO MOTU OFFERED DISALLOWANCE OF RS.25,003/- U/S 14A IN ITS RETURN OF INCOME. THIS FACTUAL FINDING RECORDED ON PAGE 19 OF THE IMPUGNED ORDER HAS NOT BEEN CONTROVERTED BY THE LD. DR. IF THE ASSESSEE OFFERED DISALLOWANCE OF THIS MAGNITUDE , THEN NATURALLY THE TOTAL AMOUNT OF DISALLOWANCE U/S 14A OUGHT TO HAVE BEEN REDUCED WITH THE AMOUNT ALREADY OFFERED B Y THE ASSESSEE. IN THE GIVEN CIRCUMSTANCES, WE SUSTAIN TH E DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(III) FOR A SUM OF ITA NOS.5165 & 5059/DEL/2014 6 RS.46,361/- (RS.71,364/- (-) RS.25,003/-). THIS DIS POSES OF THE GROUNDS TAKEN BY BOTH THE SIDES. 6. THE ONLY OTHER ISSUE WHICH SURVIVES IN THE APPEA L OF THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS.3 27,65,554/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DOWNWAR D SALES ADJUSTMENT. 7. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AUTOMATIC COMPONENTS, WHICH ARE SUPPLIED TO MARUTI UDYOG LIMI TED. THE ASSESSEE ENTERED INTO A BASIC PRICE AGREEMENT W ITH MARUTI UDYOG LTD. THE PRICE STATED IN THIS ORDER WAS INDIC ATIVE AND SUBJECT TO REVISION BASED ON MATERIAL COST AND COST INCURRED BY THE ASSESSEE. THE ASSESSEE REVISED SALE AMOUNT WIT H ADJUSTMENT OF RS.327,65,554/-. THIS FIGURE REPRESE NTED THE ADJUSTMENT FINALIZED AFTER THE CLOSE OF THE YEAR BU T RELATING TO SALES MADE DURING THE YEAR. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION ABOUT THE CRYSTALI ZATION OF THE AMOUNT OF SALES. IN HIS OPINION, SUCH PRICE NEGOTI ATION AND ITA NOS.5165 & 5059/DEL/2014 7 ADJUSTMENT TOOK PLACE AFTER THE CLOSE OF THE FINANC IAL YEAR AND, HENCE, IT WAS A TOOL EMPLOYED BY THE ASSESSEE TO RE DUCE ITS TAX LIABILITY. HE, THEREFORE, ADDED A SUM OF RS.3.27 C RORE TO THE ASSESSEES TOTAL INCOME. THE ASSESSEE SUBMITTED DE TAILS BEFORE THE LD. CIT(A), WHICH HAVE BEEN CAPTURED ON PAGES 9 AND 10 OF THE IMPUGNED ORDER INDICATING DOWNWARD SALE ADJUSTM ENT MADE TO THE TUNE OF RS.3.27 CRORE IN ONE TABLE AND THE R ECOVERY MADE BY MARUTI UDYOG LTD. IN LATER YEAR IN THE OTHER TAB LE AMOUNTING TO RS.3.20 CRORE. THE LD. CIT(A), FOLLOW ING HIS ORDER FOR THE IMMEDIATELY PRECEDING YEAR, CHOSE TO DELETE THE ADDITION. THE REVENUE IS AGGRIEVED AGAINST THIS DE LETION OF ADDITION. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. APPEAL BY THE REVENUE FOR THE I MMEDIATELY PRECEDING YEAR CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL. VIDE ITS ORDER DATED 04.03.2015, THE TRIBUNAL, IN I TA NOS.369 & 370/DEL/2013, HAS UPHELD THE DELETION OF ADDITION EXCEPT FOR RECONCILIATION DIFFERENCE, WHICH, IN THE PRECEDING YEAR, WAS RS.1.15 CRORE AND IN THE CURRENT YEAR IS RS.7.45 LA C. IN THE ITA NOS.5165 & 5059/DEL/2014 8 ABSENCE OF ANY DISTINGUISHING FACTS HAVING BEEN BRO UGHT TO OUR NOTICE EITHER BY THE ASSESSEE OR BY THE DEPARTMENT, RESPECTFULLY FOLLOWING THE PRECEDENT, WE ORDER FOR THE DELETION OF ADDITION OF RS.3.20 CRORE AND REMIT THE MATTER T O THE ASSESSING OFFICER AS REGARDS RECONCILIATION DIFFERE NCE AMOUNTING TO RS.7.45 LAC TO BE DECIDED IN CONFORMIT Y WITH THE VIEW CANVASSED IN THE PRECEDING YEAR PURSUANT TO TH E ORDER PASSED BY THE TRIBUNAL. 9. THE ONLY ISSUE OTHER THAN SECTION 14A WHICH IS R AISED IN THE ASSESSEES APPEAL IS AGAINST CONFIRMATION OF AD DITION OF RS.55,92,096/- AND RS.12,828/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF INTEREST. 10. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSES SEE CLAIMED DEDUCTION TOWARDS INTEREST (PRIOR PERIOD ITEM) IN T HE COMPUTATION OF INCOME FOR THE ABOVE REFERRED TWO SU MS. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT THE INTERE ST LIABILITY WAS IN RESPECT OF PAYMENT OF DUES TO HSIDC FOR PLOT S OF THE ITA NOS.5165 & 5059/DEL/2014 9 LAND PURCHASED BY THE ASSESSEE FOR THE PURPOSE OF S ETTING UP NEW PLANT AT BAWAL AND HENCE CAPITAL IN NATURE. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF ADDITION. 11. AT THE OUTSET, THE LD. AR CANDIDLY ADMITTED THA T THIS INTEREST DISALLOWED BY THE ASSESSING OFFICER RELATE D TO THE LANDS PURCHASED BY THE ASSESSEE FOR THE PURPOSE OF SETTING UP NEW PLANT AT BAWAL. SINCE THE INTEREST RELATES TO T HE PERIOD BEFORE THE USE OF THE ASSET, IT WAS FRANKLY ADMITTE D THAT SUCH INTEREST OUGHT TO HAVE BEEN TREATED BY THE ASSESSEE AS CAPITAL EXPENDITURE. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.55,92,0 96/- AND RS.12,828/-. 12. THE LD. AR HAS BROUGHT TO OUR NOTICE THAT SUC H AMOUNT WAS SUO MOTU ADDED BY THE ASSESSEE IN ITS COMPUTATION OF TOTAL INCOME FOR THE IMMEDIATELY SUCCEEDING YEAR, NAMELY, A.Y. 2011-12. IT WAS SUBMITTED THAT A DIRECTION MAY BE GIVEN TO DELETE SUCH SUO MOTU ADDITION. IN VIEW OF THE FACT THAT WE HAVE UPHELD THE ADDITION OF RS.55,92,096/- AND RS.1 2,828/- IN ITA NOS.5165 & 5059/DEL/2014 10 THE INSTANT YEAR, IF THESE AMOUNTS WERE, IN FACT, SUO MOTU ADDED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL I NCOME FOR SUCCEEDING YEAR, THEN, THE SAME SHOULD BE DELETED. WE DIRECT THE ASSESSING OFFICER TO VERIFY THE ASSESSEES CONT ENTION IN THIS REGARD AND, IF THE SAME IS FOUND TO BE TRUE, T HEN, THE CORRESPONDING RELIEF SHOULD BE GIVEN IN THE ASSESSM ENT OF THE SUCCEEDING YEAR. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE ASSE SSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.08.2017. SD/- SD/- (K. NARASIMHA CHARY) (R.S. SYAL) JUDICIAL MEMBER VICE PRESIDENT DATED: 09 TH AUGUST, 2017. DK ITA NOS.5165 & 5059/DEL/2014 11 COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI