Mahindra & Mahindra Financial Services ... vs Assessee

आयकर अपील य अ धकरण, "बी" खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI-B,BENCH सव ी जो ग दर संह, या यक सद य एवं राजे , लेखा सद य Before S/Sh. Joginder Singh,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.6679/Mum/2011, नधारण वष/Assessment Year- 2008-09 Mahindra & Mahindra Financial Addl. CIT, Range-6(3) Services Limited,Mahindra Towers, 5th Floor, Aayakat Bhavan Worli Road No.13,Worli Vs Mumbai.

Mumbai-400 018.

PAN:AAACM2931R (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by :Shri Bhavin Shah/ Vaibhavi Patel राज व क ओर से/ Revenue by :Shri A. Ramchandran DR सुनवाई क तार ख/ Date of Hearing : 24- 07 -2015 घोषणा क तार ख / Date of Pronouncement : 29-07-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद य राजे के अनुसार PER RAJENDRA, AM-

Challenging the order dated 01.08.2011 of CIT-12 Mumbai,the assesse has raised following grounds of appeals:

1.Learned CIT(A) erred in upholding the action of Assessing Officer of disallowing depreciation on leased assets to the tune of Rs.1,58,80,468/­.

The learned CIT (A) ought to have allowed the depreciation following the orders passed by the Honorable Income Tax Appellate Tribunal, Mumbai upto Assessment Years 2002­03 in assessee's own case confirming allowance of Depreciation to the Appellant Company.

2.Learned CIT(A) erred in upholding disallowance u/s 14A in respect of Interest I expenditure of Rs.1,06,37,104 and Administrative Expenses of Rs. 7,02,925/­ (aggregate Rs.1,13,40,029/­) towards earning of exempt income of 217.57 lacs from Dividend earned by the Appellant Company. Learned CIT (A), without prejudice to each other, ought to have appreciated that

(i) Investments as of 31st March 2008 being mere 3.30% of the aggregate Owned Funds (Share Capital + Reserves) of the Company, presumption should have been that investments are made out of Owned Funds.

(ii)To the extent assessee Company having factually established that non­interest bearing funds raised through Issue of Equity Shares were temporarily parked in Units of Mutual Funds pending actual use in business, there was no occasion to invoke section 14A & apply Rule 80. Assessee company having also established that funds were specifically borrowed for the purpose of its primary business of Vehicle financing, entirety of the interest expenditure claimed by the Company was fully allowable u/s 36(1 )(iii).

(iii) Considering the fact that Investments were mainly made in Mutual Funds, expenses relatable to earning of exempt income could not have been estimated at more than 0.50% of the exempt income earned during the year.

3.The learned CIT (A) further erred in confirming the classification of UPS as Electrical Installation and hence eligible for depreciation rate of 25% applicable to General Plant & Machinery and not as an integral part of Computer eligible for depreciation @60% and thereby restricting the depreciation claim to Rs. 11,08,473/­ as against the claim made by the Company at Rs.24,87,652/­ u/s 32 of the IT Act.

4.The learned CIT(A) erred in not deleting the ad­hoc disallowance of Rs. 1,03,86,000/­ being incremental expenses on Commission and Brokerage. CIT(A) having found merit in detailed ITA/6679/Mum/2011,AY.2008-09-MMFSL

factual submissions like PAN Nos, Tax Deduction at source, confirmation, payments only by cheque etc. made before the AO and having concluded that the AO erred in rejecting the submissions and following orders of earlier years, ought to have deleted the disallowance made by the AO. On facts and circumstance of the case and in law, disallowance of legitimate expenses incurred in the course of business is entirely unwarranted and hence needs to be quashed. Your appellant reserves the right to add to, alter or amend any of the above grounds, if necessary.

Assessee-company,engaged in the business of financing automobile,filed its return on 29.09. 2008,declaring total income of Rs.420.73 crores.The assessing officer(AO)finalised the assessment u/s.143(3) of the Act,on 30.12.2010determining the income of the assessee at Rs. 424.63 crores.

2.First ground of appeal is above disallowance of appreciation of Rs.1,58,80,468/- on lease assets.At the time of hearing before us,the Authorised Representative(AR) pointed out that the issue has been decided in favour of the assessee by the orders of the Tribunal delivered for the earlier years.He referred to the order of the Tribunal dated 2.4.2014(ITA No.2846/ Mum/2007-AY 2003-04,ITA No. 05/Mum/2008- AY 2004-05 and ITA No.3280/Mum/2009

-AY.2005-06).The Department Representative(DR)fairly conceded that the identical issue has been decided in favour of the assessee by the orders of the Tribunal,relied upon the AR. 2.1.We find that the Tribunal, while deciding the appeal for the AY 2003-04 had held as under:

2.At the time of hearing before us, the AR pointed out that issue impugned in the two years, for which the ground was recalled pertained to depreciation on leased assets, which now stands settled by the decision of Horr'ble Supreme Court in the case of ICDS Ltd. vs CIT, in CA No. 3286 to 3290 of 2008, wherein it was held, "Whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers", The Hon'ble Supreme Court of India, concluded,extracted from para 28 "From a perusal' of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question"

and followed by the decision by the coordinate Bench at Mumbai in the case of Development Credit Bank Ltd. vs DCIT in ITAs No. 3006/Mum/2006 and 4892/Mum/2003 and other appeals (where one of us was a party) and other decisions rendered by coordinate Benches of Mumbai ITAT,in the cases of Sicom Ltd. ITA No. 901/Mum/2013.Borkadis Dredging Ltd.ITA No. 6151/ Mum/2010 and G.R. Shipping by Hon'ble Bombay High Court in ITA 958 of 2009.

3. Since the issue now is covered by the Hon'ble Supreme Court of T India in ICnS Ltd. (supra) and nCB Ltd. (supra), respectfully following the ratio decided in the above case,we set aside the oreder of the CIT(A)and direct the AO to claim of depreciation on leased assets,as claimed by the asseeee.

Respectfully,following the above order of the Tribunal and the judgment of the Hon'ble Supreme court in the case of ICDS Ltd.(supra),we decide the first ground of appeal in favour of the assessee.

3.Ground no.2 pertains to disallowance made u/s.14A of the Act r.w. Rule 8D of the Income Rules1962(Rules),amounting to Rs.1,13,40,029/-.During the assessment proceedings,the AO found that the assessee had earned exempt income of Rs.217asked the assessee to explain as to why necessary expenses incurred for earning the exempt income should not be disallowed.

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After considering the explanation of the assessee dated 13.09.2009,the AO held that in the earlier year similar disallowance was made. Referring to the case of Godrej & Boyce Co. Ltd. Of the Bombay High Court,the AO calculated the disallowance as under:

(A) Total interest paid equal to Rs.44681.50 lacs (B) Average investment Rs.(2556.94+254.76) /2=1405.85 lacs (C)Average Assets-Rs.(622183.59+558880.06)/2=590531.83 lakhs Disallowance as per rule 8 D(i)= 0.5% of B = 7,02,925/-

Disallowance as per rule 8 D(ii)=A*B/C= 1,06,37,104/- Total Disallowance u/s.14A of the Act 1,13,40,029/-

Finally,the AO made a disallowance of Rs.1.13 Crores to the total income of the assessee.

3.1.Aggrieved by the order of the AO,the assessee filed an appeal before the FAA,who confirmed the order of the AO.

3.2.Before us,AR argued that identical issue was dealt with by the Tribunal while deciding the appeal for the earlier years.We find that the Tribunal has deliberated upon the issue of disallowance to be made u/s.14A of the Act as under:

"Ground no. 3 & 4 pertains to disallowance 14A with regard to interest at Rs.1,41,64,000/­ and other expenses at Rs.3,59,340/­.

12.It had been argued before the revenue authorities that the assessee had substantial interest free funds available, besides interest 1aring funds. The assessee, therefore, submitted that on the mixed of funds,Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd.,reported in 313 ITR 340 (Born) held where sufficient interest free funds are available a presumption could raised that investments have been made out of such interest free funds.Hence,there could be no disallowance of interest or other administrative expenses.

13.However,the AR submitted,that the issue of restrictions of disallowance to 2% of exempt income is now settled by the Hon 'ble Bombay High Court in the case of CIT vs Godrej Agrovet Ltd. in ITA No .934 of 2011 (Bom) dated 08.01.2013 and also in Karur Vysya Bank Ltd. as reported in 20 13­ID2­GJX­0024­TMAD.

14.The AR submitted that the issue may be examined by the AO in the light of the above decisions and appropriate adjudication may be given on both the issues.DR did not object to the issue being restored to the Assessing Officer for detaied examination.

15.In these circumstances,we set aside the order of the CIT(A) on the issues covered in grounds No.3 & 4 and direct the Assessing Officer for fresh adjudication as per the ratio laid down by the Hon'ble Bombay High Court in the cases of Reliance Utilities (supra) and Godrej Agrovet (supra).

Following the above,we are restoring the issue to the file of the AO for fresh adjudication, who will decide it as per the directions contained in paragraph 15 of the earlier year's order. Ground no.2 is partly allowed in favour of the assessee.

4.Next ground of appeal pertains to restricting the depreciation claim to Rs. 11,08,473/- as against the claim made by the assessee at Rs.24,87,652/- u/s 32 of the Act.Before us,the AR and the DR agreed that in light of earlier years'decision issue has to be sent back to the file of the AO for fresh adjudication.

4.1.We find that while deciding the appeal for the AY.2006-07(ITA/1173 & 1572/Mum/ 2011),the Tribunal has restored the matter as follow:

"Ground No.3 pertains to treatment to be given to UPS for depreciation. i.e., whether it is electrical equipment and allowed depreciation of Rs.1,03,060/­@ 25% or an integral part of computer and allowed at Rs. 4,12,242/ ­,claimed by the assessee.

53. The AR, in all fairness, pointed out that in the current year,the issue needs to. be restored to the file of the AO, as in the preceding year, the issue has been restored to the AO in ITA No. 2846/Mum/2007, to verify its usage and allow the depreciation accordingly.

54.The DR did not object to the issue going back to the AO for fresh adjudication.

55.Respectfully following the order in ITA No. 2846/Mum/2007 in assessment year 2003­ 3 ITA/6679/Mum/2011,AY.2008-09-MMFSL

04in the case of the assesse,we set aside the order of the CIT(A) and restore the issue to the me of the AO for adjudication in line and for the sake of consistent stand on the issue, the decision taken in assessment years 2003­04 & 2005­06."

Following the orders for the earlier year,we direct the AO to follow the directions of the Tribunal passed for earlier year.Ground no.3 is decided in favour of the assessee,in part.

5.Last ground deals with ad-hoc disallowance of Rs.1,03,86,000/-,being incremental expenses, on account of Commission and Brokerage.

5.1.It was brought to our notice that the identical issue in the case of the appeal of the assessee was dealt by the Tribunal in earlier AY.and that same was restored back to the file of the AO.It was also stated by representatives of both the sides that the Tribunal had increased the monetary limit for verification of commission and brokerage payment to Rs.3 lakhs. We would like to produce the order of the Tribunal and same reads as under :

"93.Ground No.4 parties to disallowance of Rs.5,93,26,688/­ on account of commission & brokerage expenses.

94.At the time of hearing, the AR pointed out that in ITA No.2846/Mum/2007 in assessment year 2003­04,the issue was restored to Assessing Officer to verify the verification on the parties whom payment of Rs.1,00,000/­ was made. However, the AR submitted that in the current year, primarily the Assessing Officer has made the disallowance on incremental amount of commission and brokerage. The AR submits neither it is case of disallowance u/s 40(a)(ia) nor is the case, where the AO has noticed any disproportionate increase in the expenditure claimed by the assessee.He further adds that the Aa accepts the nature of payment.Hence the expense should be allowed.

95.The DR submits that as per the order in the earlier years, the verification has to be done and therefore to keep the consistent view, the issue must be restored to the AO.

96.The AR,at this juncture submitted that if verification has to be conducted, then, the limit set by the coordinate Bench for verification of expense of more than Rs.1,00,000/­, should be increased, i.e. from 1,00,000/­ to Rs. 5,00,000/­, as base of Rs.1,00,000/­ is too less.

97.We have considered the arguments.The issue must be verified by the AO to re­adjudicate for the sake of consistency.However,we accede to the request of the AR to increase the base of verification fixed at Rs.1,00,000/­ in the order in 2003­04, being low. We, therefore, increase the base to Rs.3,00,000/­ and above for the current year onwards.

98.We,therefore, set aside the order of the CIT{A) on this issue and direct the AO to seek confirmations from the parties to whom commission & brokerage has been paid in excess of Rs. 3,00,000/­."

Following the above,we decide ground no.4 in favour of the assessee,in part and direct the AO to get confirmation from the parties who have received commission and brokerage more than three lakhs and above from the assessee.

As a result,appeal filed by the assessee stands partly allowed.

फलतः नधा रती वारा दा खल क गई अपील अशतः मंजूर क जाती है . Order pronounced in the open court on 29th July,2015. आदे श क घोषणा खुले यायालय म दनांक 29th जुलाई ,2015 को क गई ।

Sd/- Sd/- (जो ग दर संह/ Joginder Singh) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मब ुं ई/Mumbai, दनांक/Date: 29 .07.2015 व. न.स.Jv.Sr.PS. आदे श क त ल प अ े षत/Copy of the Order forwarded to :

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1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR " " Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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