Addl.CIT, Special Range-3, New Delhi V. Escorts Ltd., Faridabad

ITA 6191/DEL/2018

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6806 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-05-2024
• Assessment Year: 2004-2005
• Appeal Filed On: 26-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Additional evidence; Cost of acquisition
• Section: 143(3); 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘B’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.5552/Del/2018 Assessment Year: 2004-05 Escorts Kubota Limited (formerly known as Escorts Ltd.), Corporate Centre, 15/5, Mathura Road, Faridabad, Haryana Vs. Dy. CIT, Circle -7(1), New Delhi PAN :AAACE0074B (Appellant) (Respondent) With ITA No.6191/Del/2018 Assessment Year: 2004-05 Dy. CIT, Circle -7(1), New Delhi Vs. Escorts Kubota Limited (formerly known as Escorts Ltd.), Corporate Centre, 15/5, Mathura Road, Faridabad, Haryana PAN :AAACE0074B (Appellant) (Respondent) Assessee by Sh. R.M. Mehta, CA Department by Sh. Vivek Kumar Upadhyay, Sr. DR Date of hearing 27.05.2024 Date of pronouncement 31.05.2024 ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 2 | P a g e ORDER PER SAKTIJIT DEY, VICE-PRESIDENT Captioned cross appeals arise out of order dated 18.07.2018 of learned Commissioner of Income Tax (Appeals)-XXVI, New Delhi, pertaining to assessment year 2004-05. ITA No.5552/Del/2018 (Assessee’s Appeal) 2. In ground no. 1 and its sub-grounds, the assessee has challenged proportionate disallowance of interest expenditure amounting to Rs.21,11,00,000/-. 3. Briefly the facts relating to this issue are, the assessee is a resident corporate entity stated to be engaged in the business of manufacturing and sale of tractors, shockers, railway equipments etc. For the assessment year under dispute, the assessee filed its return of income on 01.11.2004, declaring loss of Rs.147,50,80,523/-. In course of assessment proceedings, the Assessing Officer noticed that during the year under consideration the assessee had invested Rs.175.9 crores in various group companies. On verifying the profit and loss account, he found that the assessee during the year had incurred interest expenditure of Rs.72.82 crores and bank finance charges ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 3 | P a g e of Rs.28.95 crores towards borrowings. He observed that since the assessee had sufficient own funds, he could have utilized them for investment purposes, thereby prevented borrowings from banks and financial institutions on payment of interest. He further observed that the assessee had made investments in group companies without receiving any interest. Therefore, applying interest rate at 12%, he disallowed an amount of Rs. 21.11 crores, out of the interest expenditure. The assessee contested the aforesaid disallowance before learned first appellate authority. However, the disallowance was sustained. 4. Before us, learned counsel appearing for the assessee submitted that the investments are made in equity and preference shares of group companies, hence, they are not in the nature of loans and advances, which could have earned interest. He further submitted that when the Assessing Officer himself records a factual finding that the assessee had sufficient own funds, the logical conclusion would be that the investments in group companies were out of the own funds. Therefore, no disallowance could have been made under section 36(1)(iii) of the Act. He further submitted that identical disallowances made in the ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 4 | P a g e preceding and subsequent assessment years have been deleted by the first appellate authority and the Tribunal. Thus, he submitted, the issue is squarely covered in favour of the assessee. Further, he relied upon the following decisions: 1. S.A. Builders Ltd. v. CIT [2007] 288 ITR 1/158 Taxman 74 (SC); 2. South Indian Bank Ltd. vs. CIT (Civil Appeal No. 9606 of 2011)(SC); 3. CIT(LTU) vs. Reliance Industries Ltd. (2019) 410 ITR 466 (SC); 4. Hero Cycles (P.) Ltd. v. CIT [2015] 379 ITR 347/63 taxmann.com 308/ [2016] 236 Taxman 447 (SC); 5. Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 (SC); 6. Principal Commissioner of Income-tax v. Basti Sugar Mills Co. Ltd. [2018] 98 taxmann.com 401 (Delhi); 7. Principal Commissioner of Income-tax v. Reebok India Company [2018] 98 taxmann.com 413 (Delhi); 5. The learned Departmental Representative, though, agreed that the issue is squarely covered by the decision of Tribunal in assessee’s own case, however, he relied upon the observations of the Assessing Officer and learned first appellate authority. 6. We have considered rival submissions and perused the materials on record. We have also applied our mind to the decisions relied upon. Undisputedly, the disallowance in question ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 5 | P a g e has been made by the Assessing Officer on the ground that the borrowed funds have been utilized in making interest free advances to the group companies. The learned first appellate authority has also upheld the disallowance. However, facts on record reveal that the so called investments are not in the nature of loans and advances, but are investments in equity and preference shares of group companies. Therefore, the allegation of the departmental authorities that the assessee has diverted borrowed funds to group companies without charging any interest are factually incorrect. Further, the Assessing Officer himself has recorded a factual finding that the assessee had sufficient interest free funds available with it. 7. That being the factual position on record, as per the settled legal principle, it has to be presumed that interest free funds available with the assessee have been invested in acquisition of shares of group companies. In any case of the matter, it is observed that identical disallowances were made by the Assessing Officer in assessment years 2002-03, 2003-04 and 2005-06. While deciding the issue, learned first appellate authority deleted the disallowances. While deciding the appeals filed by the ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 6 | P a g e Revenue in ITA No.4673/Del/2005 & Ors., the Tribunal vide order dated 06.03.2019 upheld the decision of learned first appellate authority. On going through the aforesaid order of the Tribunal, we find parity of facts between the impugned assessment year and the appeals for other assessment years decided by the Tribunal. That being the factual position on record, we delete the disallowance made under section 36(1)(iii) of the Act. This ground is allowed. 8. In ground no. 2, the assessee has challenged disallowance of Rs.62,53,675/- claimed towards cost of acquisition of land. 9. Briefly the facts are, the assessee had purchased leasehold land at Pune for its tractor division in financial year 1998-99 from Maharashtra Industrial Development Corporation (MIDC). During the year under consideration, the assessee had sold the land and claimed long term capital loss of Rs.5,68,89,749/-. In course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed cost of Rs.62,53,675/-. Alleging that the assessee could not furnish the bills/vouchers pertaining to the aforesaid cost, the Assessing Officer disallowed it. The assessee contested the disallowance before learned first appellate ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 7 | P a g e authority. In course of hearing before the first appellate authority, the assessee furnished additional evidences to support its claim. However, alleging that the assessee furnished the photocopy of letter issued by MTDC and no original was furnished, learned first appellate authority sustained the disallowance. 10. We have considered rival submissions on the issue and perused the materials on record. Undisputedly, due to inadequacy of time available, the assessee could not furnish copies of bills/vouchers relating to the cost incurred on the sale of asset during assessment proceeding. However, before the first appellate authority, the assessee did furnish the additional evidences to support its claim towards cost incurred. 11. As could be seen, learned first appellate authority has rejected the additional evidence on the ground that it is only a photocopy and no original document was furnished. From the facts on record, it is observed that additional evidence furnished by the assessee is a letter from MIDC, which is a State Government organization. If learned first appellate authority had any doubt regarding the authenticity of such document, he could have conducted necessary inquiry himself or through the ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 8 | P a g e Assessing Officer to verify the authenticity of the document. Without conducting any such inquiry, he could not have rejected the additional evidences. 12. In view of the aforesaid, we restore the issue to the Assessing Officer to verify assessee’s claim by properly examining the documentary evidences furnished by the assessee by way of additional evidences. In case, any inquiry is required to be conducted with reference to such evidences, it is open to the Assessing Officer to do so. However, the Assessing Officer must provide due and reasonable opportunity of being heard to the assessee before deciding the issue. Ground is allowed for statistical purposes. 13. In ground no. 3, the assessee has challenged disallowance of long term capital loss of Rs.4.72 crores on sale of shares of Escorts Hospital & Research Centre Ltd. (EHRCL) 14. We have heard the parties and perused the materials on record. Facts on record reveal that in course of hearing before the first appellate authority the assessee had furnished certain additional evidences, however, rejecting such additional evidences, learned first appellate authority has sustained the ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 9 | P a g e disallowance. In our view, the additional evidences furnished by the assessee will have a crucial bearing for deciding the issue. Therefore, such evidences should not be rejected without verifying their authenticity. 15. In view of the aforesaid, we restore the issue to the Assessing Officer for deciding afresh after considering all the evidences, including the additional evidences filed by the assessee before learned first appellate authority. Needless to mention, the Assessing Officer must provide due and reasonable opportunity of being heard to the assessee before deciding the issue. Ground is allowed for statistical purposes. 16. In ground no. 4, the assessee has raised the issue of disallowance of long term capital loss of Rs.3,88,612/-. 17. In course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed long term capital loss of Rs.3,88,612/- on sale of shares of INAPEX Ltd. However, the Assessing Officer disallowed the claim of loss without providing any reasoning. The disallowance was contested before the first appellate authority. While deciding the issue, learned first appellate authority sustained the disallowance on the reasoning ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 10 | P a g e that the assessee failed to file complete information and further failed to discuss the entire factual matrix. 18. We have heard the parties and perused the materials on record. It is the case of the assessee that the shares of INAPEX Ltd. were acquired by the assessee by way of buy-back offer in the financial year 1995-96. It is observed, to justify its claim, the assessee had submitted copy of buy-back acceptance letter of the company and also a copy of cheque received from the company towards buy-back. While the Assessing Officer has disallowed assessee’s claim without assigning any reason, learned first appellate authority has sustained the disallowance alleging lack of complete information. 19. Considering the fact that documentary evidences furnished by the assessee have not been properly evaluated by the departmental authorities, we are inclined to restore this issue to the file of Assessing Officer for de novo adjudication after providing due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes. ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 11 | P a g e 20. In ground no. 5, the assessee has challenged the taxability of Rs.72.67 lakhs, being interest on income tax refund, pertaining to assessment year 2003-04. 21. We have heard the parties and perused the materials on record. While processing assessee’s return of income, the Assessing Officer, in the intimation issued under section 143(3) of the Act, computed interest on income tax refund payable to the assessee at Rs.72,67,332/-, which was adjusted against certain arrear demand. Subsequently, after completion of assessment under section 143(3) of the Act, the Assessing Officer, while computing the income of the assessee, withdrew the interest on income tax refund amounting to Rs.72,85,176/- due to the additional demand created on account of various additions made. However, while deciding assessee’s appeal, learned first appellate authority granted relief to the assessee. While giving effect to the order of learned Commissioner (Appeals), the Assessing Officer determined interest on income tax refund about Rs.4.28 crores, which according to the assessee, was offered to tax. Thus, it is the case of the assessee before us that once the interest on income ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 12 | P a g e tax refund is withdrawn, the addition made deserves to be deleted. 22. Having considered rival submissions, we are of the view that assessee’s claim needs to be factually verified by the Assessing Officer having regard to the facts and evidences brought on record. Therefore, we restore this issue to the Assessing Officer for fresh adjudication after providing due and reasonable opportunity of being heard to the assessee. Ground is allowed for statistical purposes. 23. In the result, assessee’s appeal is partly allowed. ITA No.6191/Del/2018 (Revenue’s Appeal) 24. In ground no.1, the Revenue has challenged deletion of disallowance of foreign as well as domestic travel expenses. 25. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that the assessee has debited foreign travel expenses of Rs.51,58,466/- and domestic travel expenses of Rs.2,21,542/-. As far as foreign travel expenses are concerned, the Assessing Officer observed that such expenses were incurred for foreign travel undertaken to Italy, Singapore, Shanghai, London, Dubai, Hong Kong etc. He observed that in these ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 13 | P a g e countries, the assessee has got no business interest. Therefore, he treated such expenses to be not in connection with the business. Accordingly, he disallowed it. 26. In so far as domestic travel expenses of Rs.2,21,543/- is concerned, the Assessing Officer observed that it was in respect of Nitasha Nanda, who is in no way connected with the business of assessee. Accordingly, he disallowed the same. Assessee contested the aforesaid disallowances before learned first appellate authority. Being of the view that there is nothing brought on record by the Assessing Officer to establish that the expenses were not incurred for the purposes of business, learned first appellate authority deleted the disallowance. 27. We have considered rival submissions and perused the materials on record. The observation of the Assessing Officer while disallowing the expenses is too ambiguous and general in nature. He has not doubted the fact that the expenses, indeed, were incurred. The only reason for disallowing foreign travel expenses is, the assessee has no business interest in the cities/countries, in respect of which, foreign travel expenses have been incurred. However, what he means by ‘business interest’ is ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 14 | P a g e not clear. There is absolutely no observation by the Assessing Officer that the foreign travel expenses were not related to assessee’s business or were personal in nature. Similarly, he has disallowed the domestic travel expenses by observing that the concerned person has no business connection to the assessee. On what basis the Assessing Officer has come to such conclusion is not forthcoming from the assessment order. In the aforesaid scenario, we do not find any infirmity in the decision of learned first appellate authority in deleting the disallowances. Ground is dismissed. 28. In ground no. 2, the Revenue has challenged deletion of disallowance of prior period expenses amounting to Rs.8,48,49,423/-. 29. Briefly the facts are, in course of assessment proceedings, the Assessing Officer, while verifying the Audit Report, noticed that the assessee has claimed prior period expenses of Rs.8,48,29,423/-. In response to the query raised by the Assessing Officer, the assessee submitted that such expenses include personnel expenses, sales and administration expenses, purchase/raw material consumption and operating expenses etc. ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 15 | P a g e Stating that such expenses pertained to earlier years and the assessee is following mercantile system of accounting, the Assessing Officer disallowed them. While deciding the issue in appeal, learned first appellate authority found that the major part of the expenses pertained to sales incentives payable to dealers of assessee’s tractor division for the financial year 2002-03. He has further given a factual finding that the claim of incentives has to be based on aggregate performance for the year, hence, it is not possible for the assessee to verify the claim of incentives by the dealers on closure of account on 31.03.2003. However, it was factually found that the sales promotion expenses actually crystallized/finalized on 30.06.2003 falling in financial year 2003- 04 corresponding to assessment year 2004-05. Thus, the liability to pay the expenditure accrued in the assessment year under dispute. That being the case, it cannot be treated as prior period expenses. It is worth mentioning that identical issue has been decided in assessee’s own case by the Tribunal in earlier assessment year. While deleting the disallowance, learned first appellate authority has also taken cognizance of the decision of Tribunal. In aforesaid view of the matter, we do not find any ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 16 | P a g e infirmity in the decision of the first appellate authority in deleting the disallowance. 30. In ground no. 3, the Revenue has challenged the deletion of disallowance of Rs.7,86,942/- made on account of sales promotion expenses. 31. We have heard the parties and perused the materials on record. As could be seen, the Assessing Officer has disallowed the sales promotion expenses on the ground that such expenses relate to payment of bills of various hotels. Observing that such expenses are not incurred for the purpose of business, the Assessing Officer disallowed it. Whereas, learned first appellate authority deleted the disallowance on the reasoning that the Assessing Officer has not established on record that such expenses are not incurred for the purpose of business. 32. Having perused the observation of the Assessing Officer, we find that the reason given for disallowance of expenditure is very much general and vague. He has not stated on what basis he has come to the conclusion that such expenses are not for the purpose of business. Undisputedly, the Assessing Officer has not doubted the fact that expenses were incurred. ITA No.5552/Del/2018 & 6191/Del/2018 AY: 2004-15 17 | P a g e 33. That being the factual position on record, we do not find any infirmity in the decision of learned first appellate authority in deleting the disallowance. This ground is dismissed. 34. In the result, Revenue’s appeal is dismissed. 35. To sum up, assessee’s appeal is partly allowed and Revenue’s appeal is dismissed. Order pronounced in the open court on 31 st May, 2024 Sd/- Sd/- (NAVEEN CHANDRA) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 31 st May, 2024. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi