Ceat Ltd, Mumbai vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं चंि पुजार , लेखा सदःय के सम BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER

ITA NO.824/MUM/2012 (A.Y. 2008-09) M/s. Ceat Limited, Addl. Commissioner of Income RPG House, 463, Dr. Annie Besant Tax, Range 6(2), Road, Mumbai 400030. Vs. Mumbai. PAN:AAACC1645G (Appellant ) (Respondent) ITA NO.8610/MUM/2011(A.Y.2008-09) Addl. Commissioner of Income Tax, M/s. Ceat Limited, Range 6(2), RPG House, 463, Dr. Annie Mumbai. Vs. Besant Road, Mumbai 400030. PAN:AAACC1645G (Appellant ) (Respondent)

Revenue by : Mrs. Parminder Kaur & Shri Premanand J. Respondent by : Shri . S. Sriram

Date of hearing : 26/02/2015 Date of pronouncement : 26/02/2015

ORDER

PER I.P.BANSAL, J.M:

These are cross appeals and are directed against order passed by Ld. CIT(A)- 12, Mumbai dated 13/10/2011 for A.Y 2008-09. Grounds of appeal read as under:

Grounds of Assessee's Appeal:

A. The Ld. Commissioner of Income Tax (Appeals) erred in disallowing expenditure amounting to Rs.42,16,000 in terms of Rule 8D. Investments 2 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

materially decreased in the present financial year compared to the previous financial year & hence, no fresh investments were made in the present financial year. Further, the non- interest bearing own funds far exceed the interest bearing funds. Therefore no part of the expense can be attributed to the exempted income.

B. The Ld. Commissioner of income Tax (Appeals) erred in disallowing expenditure amounting to Rs.42,16.000 in terms of Rule 8D. The Appellants submit that the disallowance cannot exceed the income claimed as exempt even under Rule 8D. If disallowance of expenditure exceeds income claimed as exempt. the assessee is at disadvantage & in such a situation, it is better to withdraw the exemption. It is well settled law that claiming exemption is privilege and a privilege cannot be converted into a burden. Accordingly, the Appellants wish to withdraw their claim for exemption under Section 10(34) since the Appellants have claimed exemption under Section 10(34) for a miniscule amount of Rs.6.36,000 only when compared to the huge expenditure of Rs.42,16,000 sought to be disallowed. In view of the above, the disallowance of Rs.42,16,000 is incorrect.

C. The Ld. Commissioner of Income Tax (Appeals) erred in making addition to the extent of Rs.5.33,21,978/- (21,25,43.792 - 9,35,57,915 - 6.56.53.877) in the closing stock. The CIT(A) has correctly granted the deduction of Rs.9,35.57915 on the ground that the same should be part of opening stock. The appellants have already admitted an amount of Rs.6,56,53,877/- which is required to be added in the closing stock. Therefore, the net addition upheld by the CIT(A) on ground of alleged under valuation of closing stock is Rs.5,33,2l,978. The C1T(A) erred in computing the value of closing stock by taking into consideration excise duly on that portion of closing stock where no excise duty is actually payable in law (goods procured under advance license, exempted, etc.). The addition of excise duty on closing stock is totally arbitrary, perverse, bogus and contrary to record. The CIT(A) has not considered certificate of Chartered Accountant certifying the actual data for the purpose of computation of closing stock and the submissions made by the appellants.

D. The Ld. Commissioner of Income Tax (Appeals) erred in disallowing the expenditure in respect of guest houses and residential flats amounting to Rs. 1,11,44,055/- on the ground that the appellants have failed to produce documentary evidence in respect of use of guest house and residential flats. The Ld. CIT (A) has not considered the documentary evidence which has 3 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

been submitted before the lower authorities. An affidavit of Mr.Govind Sharma, VP. - Taxation & Corp Affairs of the appellants company is enclosed herewith as Annexure-1 affirming the details of expenditure incurred on account of guest house and residential houses.

E. The Ld. Commissioner of Income Tax (Appeals) has erred in disallowing exemption claimed in respect of dividend income earned from subsidiary based in Sri Lanka. The Appellants submit that they did not claim exemption in respect of dividend income earned from subsidiary based in Sri Lanka. The Ld. Commissioner of Income Tax (Appeals) has erred in rejecting the present ground on the basis that the same has not been pressed by the appellants at the time of hearing. The appellants have mistakenly not pressed the present ground because the appellants relied upon wrong statement showing computation of income. The appellants wrote a letter dateN 23.12.2011 (Annewre-2) to the CIT(A) that the present ground is correct and the Additional Commissioner is incorrect in holding that the appellants have claimed exemption for dividend income. In fact, in the return filed, the appellants have indeed offered dividend income earned from subsidiary based in Sri Lanka for taxation in India and also claimed credit of TDS deducted in Sri Lanka. The Ld. Additional Commissioner has made error disallowing exemption which in fact is not claimed by the Appellants in the first place.

F. The Ld. Commissioner of Income Tax (Appeals) erred in remanding the matter for consideration of the Assessing Officer with regards to brought forward depreciation worth Rs.26.36,45,365 while re-computing the Total Income. In fact, the Assessing Officer has considered the issue while passing the assessment order. It was obligatory on the Ld. Commissioner of Income Tax (Appeals) to pass an order on this point instead of remanding this point.

G. The Appellants submit that. in law, denying the benefit of carry forward of carry forward of unabsorbed depreciation is incorrect since it is well settled that law applicable on the first day of the assessment year is relevant for the assessment of that ear. On the first day of AY 2008-09, there was no law restricting set-off of unabsorbed depreciation upto eight years. In the present case, on the first day of AY 2008-09. Section 32(2) provided for carry forward of unabsorbed depreciation for unlimited period. Further, by a fiction, unabsorbed depreciation of previous years merges with the depreciation of current year and this fiction has to be given full effect. Once 4 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

merger happens, the identity of unabsorbed depreciation to the year in which it was generated, gets lost.

Grounds of Revenue's Appeal:

"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of club membership expenses of Rs.22,94,292/- by relying on the decision of the Bombay High Court in the case of M/s. Otis Elevator Co. (India) Ltd. 195 ITR 682 (Bom), without appreciating that the facts of this case are not applicable to the facts of the assessee's case."

ITA No.824Mum/2012:Assessee's Appeal:

2. Ground "A & B" relates to disallowance made under section 14A r.w.r 8D.

The disallowance was worked out by the AO as per Rule 8D as follows:

Working disallowance u/s. 14A r.w. Rule -8D:

Rs. Lakhs Rs. lakhs i)Direct Expenditure relating to exempt income .8 ii)Amount computed as per rule 8D(2)(ii) a) Expenditure by way of interest other than 5693.88 (i)above Value of the investments as on 1st April NIL b) Average value of investments during the year 640.74 Value of the total assets as on 1st April 89417.35 Value of the total assets as on 31st March 101815.99 c)Average value of total assets during the year 95616.67 Amount of disallowance [a (b/c)] 38.16 iii) 0.5% of Average Investment of 640.74 lacs 3.20 TOTAL DISALLWOANCE U/S.14A (i+ii+iii) 42.16

2.2 The aforementioned table was referred during the course of hearing of this appeal and it was submitted by Ld. AR that the grievance of the assessee in the present appeal is limited to the extent of Rs.38,16,000/-, which is on account of interest disallowance. Therefore, to that extent the Tribunal may consider the submissions of the assessee. In this respect, it is the argument of Ld. AR that no 5 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

disallowance on account of interest is called for as the own funds of the assessee which include share capital and reserves and surplus is much more than the investment made by the assessee from where the assessee has earned tax free income. Reference in this regard was made to financial statement submitted in the paper book at page 87, wherein the share capital of the assessee is a sum of Rs.34.24crores and reserves and surplus are Rs.479.01 crores and investment in the shares and securities out of which interest free income has been earned is only a sum of rs.9.60 crores. In this regard Ld. AR relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd, 366 ITR 505(Bom). In the said case, it has been held that if assessee's own funds and other non-interest bearing funds are more than investment in the tax free securities, then it would be presumed that the investment made by the assessee would be out of the interest free funds available with the assessee. For holding so their Lordships' have relied upon the earlier decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd., 313 ITR 340(Bom).

3. On the other hand, it was submitted by Ld. DR that Ld. CIT(A) has rightly confirmed the disallowance and his order should be upheld.

4. We have heard both the parties and their contentions have carefully been considered. The factual position regarding own funds of the assessee has not been disputed by the Revenue. Similarly, the factual position regarding investment made by the assessee in tax free securities is also not disputed. If it is so, then the investment of the assessee in the tax fee securities would be a meager sum of Rs.9.60 crores, against own funds available with the assessee of Rs.513.25 crores.

Respectfully following the decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (supra), we hold that according to the facts of the present 6 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

case no disallowance on account of interest factor is called for. Therefore, Ground No.A & B of the assessee's appeal to the extent it relates to interest portion are considered to be allowed and so far as it relates to other portions, since Ld. AR of the assessee clearly expressed that the grievance of the assessee in the present case is only to the extent of interest, other part is confirmed. Ground "A & B" are partly allowed.

5. Ground "C" was stated to be covered by earlier decision of the Tribunal in assessee's own case for assessment year 2007-08. The decision is dated 25/06/2014, rendered in ITA No.1933/Mum/2011, copy of which is filed at pages 42 to 50 of the paper book and this issue has been dealt by the Tribunal as under:

"8. Third issue raised by the assessee relates to the valuation of closing stock. At the outset, Ld Counsel for the assessee mentioned that this issue should also be remanded to the file of the AO. To justify the same, Ld Counsel mentioned that the assessee is following 'inclusive method of accounting' and the only actuals are entered in the books of accounts. There is no need for adjustment of inventories as they were already adjusted basing on the actuals in accordance with the provisions of section 145A of the Act. Ld Counsel for the assessee vehemently argued by stating that the judgments relied on by the Revenue Authorities have no relevance to the facts of the present case. Further, referring to the Annexure-A to the assessment order, Ld Counsel mentioned that there are patent errors in matters of closing stock. He mentioned that some unknown errors are found placed in the order of the AO. Bringing our attention to 'Item No. V' of the said Annexure-A, Ld Counsel mentioned that the figures suggest Rs.96,11,053/-; Rs. 10,15,39,384/- & Rs. 11,74,59,949/- are unconnected to the assessee. In all probability, these figures were imported from some other assessees in his jurisdiction.

9. On the other hand, Ld DR relied on the orders of the Revenue Authorities.

10. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On hearing 7 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

both the parties and on perusal of the material on record, we are of the opinion that this issue needs to revisit the file of the AC and the closing stock valuations have to be redone in the light of the provisions of section 145A of the Act. Accordingly, we remand the issue to the file of the AO for adjudicating the issue afresh after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground No.3 raised by the assessee is allowed for statistical purposes.

5.1 It was submitted by Ld. AR that similar order may be passed.

6. On the other hand, Ld. DR relied upon the order passed by Ld. CIT(A).

7. After hearing both the parties, respectfully following the aforementioned decision of the Tribunal in assessee's own case we pass similar order and this ground of the assessee is considered to be allowed for statistical purposes in the manner aforesaid.

8. Apropos Ground "D", it was submitted that it is also covered by the aforementioned decision of Tribunal in assessee's own case and this issue is dealt in para-7. It was submitted that this issue was also restored back to the file of AO with the following observations:

" 7. Second issue relates to the expenditure on guest house and residential flats. At the very outset, Ld Counsel for the assessee brought our attention to page 182 of the paper book-I, which is an affidavit filed by Shri Govind Sharma, Vice President (Taxation & Crop. Affairs), and mentioned that the confirmation given by Shri Sharma is supported by the 'guest house register', which is placed in the paper book-I vide page 174 onwards. He also mentioned that this issue can also be remanded to the file of the AD to examine the expenditure incurred on guest houses and residential flats owned by the employees. It is also submitted that the expenditure incurred on employees may be fully allowed as it is incurred for the business purposes. As such, it is not dear from the record that why the assessee has to incur on the residential flats allotted to the employees of the company. Considering the no objection from the Ld DR, we remand the matter to the 8 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

file of the AO with a direction to decide the issue afresh after examining the details and contents made in the said affidavit and pass a speaking order after granting a reasonable opportunity of being heard to the assessee. Accordingly, ground no.2 raised by the assessee is allowed for statistical purposes."

8.1 It was further submitted that facts and circumstances of present year are similar and affidavit of Shri Govind Sharma is also filed in the paper book.

9. In this view of the situation, after hearing both the parties, respectfully following the aforementioned decision of Tribunal in assessee's own case, we pass similar order and the matter is restored back to the file of AO with similar directions. This ground is also considered to be allowed for statistical purposes in the manner aforesaid.

10. Apropos Ground "E", it is the claim of the assessee that since dividend income earned by the assessee from its subsidiary based in Sri Lanka were already offered for taxation in the returned papers itself, therefore, this disallowance was not called for. It was submitted that Ld. CIT(A) has wrongly dismissed this grievance of the assessee on the ground that assessee did not press it. It was submitted that assessee had pressed the same but Ld. CIT(A) has wrongly dismissed the same. It was submitted that in the interest of justice, since income has already been offered to tax disallowance is not called for and this fact may be verified by the AO.

11. We have heard both the parties on this issue and we are of the opinion that it will serve the interest of justice if the matter is restored back to the file of AO for the purpose of verification of claim of the assessee that dividend income received from subsidiary based at Sri Lanka has already been offered to tax, if after 9 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

verification the AO found that the version of the assessee is correct, then disallowance to that extent is not called for. We remit this matter to the file of AO with the above direction and this ground is also treated to be allowed for statistical purposes in the manner aforesaid.

12. Apropos Ground "F & G", the issue has been decided by Ld. CIT(A) as follows:

"15. The final ground of appeal is regarding the action of the AO in not giving effect to brought forward losses of Rs. 26,36,45,365/- while re- computing total income.

15.1 I have considered this issue. I find that the AO has passed order u/s. 154 of the IT Act regarding A.Y 2006-07 and 2007-08 dated 25/04/2011 on the issue concerned. As in this year also, the issue being a subject matter of rectification requires action u/s. 154 of the I.T. Act, the AO is directed to take necessary action accordingly."

12.1 It is the case of Ld. AR that though directions have been given by Ld. CIT(A), but till date no action has been taken by AO. It was submitted that directions may be given to the AO to pass appropriate order as per directions given by Ld. CIT(A).

13. We have heard both the parties on this issue and keeping in view that no effect has been given by AO to this ground, we consider it just and proper to direct the AO to give effect to the directions given by Ld. CIT(A) to him, as the assessee is entitled to get benefit of the brought forward losses which are determined in the earlier years subject to fulfillment of other conditions laid down for valid claim for set off of brought forward losses. The AO will pass appropriate order after giving the assessee a reasonable opportunity of hearing. This ground is also considered to be allowed for statistical purposes in the manner aforesaid.

10 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

ITA No.8610/Mum/2011:Revenue's Appeal:

14. The sole grievance of the Revenue in the present appeal is regarding grant of relief by Ld. CIT(A) against expenses incurred towards club membership and this issue has been dealt with by the Tribunal in Departmental appeal for A.Y 2007-08 in the aforementioned order dated 25/6/2014 passed in ITA No.2538/Mum/2011(cross appeal with assessee's appeal ITA No.1933/Mum/2011) and this issue is dealt with by the Tribunal as follows:

"20. Ground no.3 relates to the disallowance of Rs.6,16,455/- in respect of club expenses. Briefly stated, in the return assessee claimed Rs.6,16,455/- as expenditure on account of payments made to clubs which includes annual subscription as well as cost of club services. During the assessment proceedings, AO is not satisfied with the explanation given by the assessee and disallowed the same by holding that no evidence could be produced by the assessee to substantiate its claim. Matter traveled to the first appellate authority wherein the CIT (A), after considering the submissions of the assessee in this regard, deleted the addition vide para 8 of his order. Aggrieved, Revenue is in appeal before us.

21. During the proceedings before us, Ld DR relied on the order of the AC.

22. On the other hand, Id Counsel for the assessee relied on the order of the CIT (A).

23. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On perusal of the order of the CIT (A) in general, para 8 in particular, we find the same is relevant here which reads as under:

"8. The next ground of appeal relates to disallowance of Rs. 6,16,455/- made by the AO in respect of payments made to dubs treating the same as non-business purpose expenses. In the immediately preceding year on the same issue, the CTT (A) in his order dated 12.10.2009 has held as under: "On this issue, the CIT (A) has decided in favour of the appellant in A Y 2003- 2004. In his order dated 29.3.2007, relying on the Mumbai High 11 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

Court decision in Otis Elevator vs. CIT (195 TR 682) and the Mumbai Tribunal decision in Jindal Dye International (P) Ltd (1 SIT 243). Following the decision of the CIT (A)-VI in the appellant's case in eariler years, the disallowance of dub expenses is deleted."

8.1. As the facts of the case have remained the same and I find that I have no reason to disagree with the observation of the CIT (A) reproduced above, in the current year a/so the addition made is deleted."

24. From the above, we find that in the earlier years, the similar issue has been consistently decided by the Revenue in favour of the assessee by relying on the judgment of the Hon'ble High Court in the case of Otis Elevator vs. CT (supra). Considering the same, we are of the opinion that the CIT (A) has rightly adjudicated the issue following the principle of consistency and the binding nature of the judgment. Therefore, we find no infirmity in the order of the CIT (A) and it does not call for any interference. Accordingly, the ground no.3 raised by the Revenue is dismissed".

15. After hearing both the parties, since the issue has been decided by following the decision of Hon'ble Jurisdictional High Court we decline to interfere in the relief granted by Ld. CIT(A) and the ground of the Revenue is dismissed.

16. In the result, the appeal filed by the assessee is partly allowed in the manner aforesaid and appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 26/02/2015 आदे श क" घोषणा खुले यायालय म& 'दनांकः 26/02/2015 को क" गई ।

Sd/- Sd/- (चंि पुजार /CHANDRA POOJARI ) (आय.पी. बंसल / I.P. BANSAL) लेखा सदःय /ACCOUNTANT MEMBER याियक सदःय / JUDICIAL EMBER मुंबई Mumbai; 'दनांक Dated 26/02/2015 12 ITA NO.824/MUM/2012 (A.Y. 2008-09) ITA NO.8610/MUM/2011(A.Y.2008-09)

आदे श क" ूितिल.प अमे.षत/Copy षत of the Order forwarded to : 1. अपीलाथ1 / The Appellant 2. ू2यथ1 / The Respondent. 3. आयकर आयु3(अपील) / The CIT(A)- 4. आयकर आयु3 / CIT 5. .वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स2या.पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai व.िन.स./Vm, Sr. PS