TMI Blog2012 (4) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2,34,99,000/- out of the total of ₹ 2,59,99,000/-, made on account of apportionment of expenses u/s 14A, on adhoc basis without recording any cogent reasons, ignoring that the assessee had failed to provide separate details of expenses, pertaining to the exempt income, during the assessment proceedings and the AO had clearly established that the assessee had to incur operating administrative expenses on the investment on which huge dividend i.e. exempt income had been earned. 3. In the facts and circumstances of the case, the CIT(A) has, while restricting the disallowance u/s 14A to ₹ 25 lacs, given a finding that there is no element of interest expenditure disallowance on this account, overlooking that the assessee had incurred interest of ₹ 6.36 crores, which could have been lesser to that extent, had the assessee not diverted ₹ 6.36 crores of business funds by way of investment in shares, the dividend income of t which is exempt from taxation. 4. In the facts and circumstances of the case, the CIT(A), while restricting the disallowance u/s 14A toRs.25 lacs, failed to appreciate that the assessee, having withheld the break-up of expenses attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure on the ground that the expenditure in the year as compared to the earlier year had gone up by ₹ 17.98,000/-. The CIT(A) allowed the claim of the assessee as the expenditure was incurred for preserving and maintaining an existing asset and are to be allowed as current repairs. The issue is identical to the issue raised in the earlier years and the expenditure being incurred on the preservation and maintenance of an existing asset is to be allowed as a deduction, in line with ratio laid down in the paras herein above. We dismiss the ground No.1 raised by the Revenue. 6. In view of the legal and factual discussions, it is evident that the issue in question is, covered by the above reproduced relevant part of the Tribunal s order, in assessee's own case. Therefore, this ground of appeal, raised by the revenue is dismissed. 6(i) The ld. 'AR', at the outset, made this statement that the issue raised in Ground Nos. 2, 3 4 of the revenue s appeal is covered in favour of the assessee. Ld. 'DR', however, placed reliance on the order passed by the AO. 7. Ground Nos. 2, 3 and 4 raised by the revenue are covered in favour of the assessee, in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee could not provide separate detail of these expenses relating to dividend income. I have, therefore, to treat income earned as criteria to estimate expenses incurred to earn exempted income. 9. The ld. CIT(A) recorded his finding in para 5.7, which is reproduced hereunder : 5.7 I have considered the contention of the A.O. as well as the arguments of the assessee. I have also carefully perused the statement and. paper book filed by the counsel of the assessee. I have also gone through the detail of operating and administrative expenses. It is also clear on facts that there is no element of interest in the expenditure which could be disallowed under section 14A. Thus, the only disallowance would be from out of general administrative expenses. Further, considering the fact that operating and administrative expenses primarily relate to manufacturing activities of the assessee, I estimate the disallowance at ₹ 25 lacs in consonance with my order for A.Y. 2004-05. 1 do not subscribe to the assessee's submission that Rule 8D may be applied and disallowance should be calculated accordingly as it would be inappropriate to take a different view taken by me earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed to be set off against the business income which may nullify the mandate of section14A, can not be accepted. Disallowance u/s 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. In the present case finding on this aspect, against the Revenue, is not shown to be perverse. Consequently, disallowance is not permissible. We have taken this view earlier also in ITA No. 504 of 2008 (Commissioner of Income Tax Chandigarh II Vs M/s Winsome Textile Industries Limited, Chandigarh ) decided on25.8.2009, wherein it was observed as under:- 6. Contention raised on behalf of the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assessee was in common kitty, as held by this Court in CIT Vs Abhishek Industries Limited (2006) 286 ITR 1 and therefore, disallowance under section 14A was justified. 7. We do not find any merit in this submission. Judgment of this Court in Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er rates and dealer is paid commission separately. The said commission is added in the quotation and thus is not debited to the profit and loss account of the company. However, because of tough market conditions, during the year the assessee company promoted incentive scheme for its dealers to promote sales and to realize the sale proceeds. The scheme was based on installation, off takes and payment targets wherein incentive was paid on achieving cumulative month end sales over a certain target and also meeting the payment targets. During the year under consideration the assessee paid a sum of ₹ 1,81,72,000/- as incentive to dealers were claimed the same as business expenditure. Similar incentive to dealers was paid in assessment years 1997-98 and 1998-99 and were allowed. However, no incentive was paid in assessment years 1999-2000 and 2000-01. From the perusal of details of incentive paid to the dealers, it transpires that the assessee had paid the said incentive to 186 dealers as against 355 dealers connected to the assessee. The said incentive was paid on achieving cumulative month end sales and for meeting billing payment targets. The assessee has filed the copy of sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o dealers on the basis of targets for tractor, off-take, billing and dealer has to be ensured that they remit payment upto a particular date by holding that incentive bonus has no linkage with the payment made by the dealers and the explanation filed by the assessee is on flimsy grounds. Accordingly, AO made the disallowance. The AO disallowed 1/3rd of the total incentives paid to the workers. 15. Having regard to the rival submissions, facts of the case and findings of the CIT(A), as also the findings of the Tribunal on this issue, we are of the considered opinion that the issue stands covered by the findings of the Tribunal reproduced above. Respectfully following the decision of the Tribunal in assessee's own case, this ground of appeal of the revenue is dismissed. 16. Ground Nos. 6 7 are general in nature, therefore, need no separate adjudication. 17. In the result, appeal of the revenue is dismissed. ITA No. 102/Chd/2010 ( assessee's appeal - A.Y. 2006-07) 18. In this appeal, the assessee has raised following grounds of appeal : 1. That the order passed by the Learned CIT (A) is bad in law. 2. That the Learned CIT (A) has erred in law and on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Bombay High Court reported in 328 ITR 81 (Bom). 21. We have carefully perused the fact-situation of the present case, rival submissions and find that there is substance in the contention made by the assessee. The case of the assessee is covered by the decision of the jurisdictional High Court in the case of CIT V Hero Cycles (supra) and CIT V Metalman Auto Pvt. Ltd. (supra). Further, the issue has also been dealt with by the ITAT in ITA No. 594/Chd/2006 from para 42 to 45 in the order dated 20.11.2009, for the A.Y. 2004-05. Therefore, respectfully following the decision of the jurisdictional High Court and the relevant findings of the ITAT, the ground of appeal raised by the assessee is allowed. 22. In Ground No.3, the assessee contended that CIT(A) erred on facts and in law in disallowing ₹ 1,89,27,512/- by restricting the depreciation claimed on Plant Machinery to 15% instead of 40% claimed by the appellant, thus, ignoring the required approval received from Department of Scientific Industrial Research, Ministry of Science and Technology, Govt. of India, with regard to claim of accelerated depreciation under Rule 5(2) of the Income Tax Rules, bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972. However, assessee has not been able to establish this fact by way of documentary evidence. I agree with the observation of the A.O. that based on single agreement signed in 1972 and no further improvements thereafter in the technology, the claim for higher depreciation cannot be allowed. The fact remains that whether assessee has fulfilled all the conditions as provided under rule 5(2) both in letter and spirit and according to A.O. as is evident from discussion above the same has not been complied with fully. The then A.O., JCIT Patiala also attended during the course of appellate proceedings alongwith ACIT Circle Patiala with case records in presence of appellant's counsel and it was argued by both of them that their stand gets further substantiated in as much as in subsequent years not even a single certificate of approval has been granted till date by Secretary DSIR and when asked from the counsel about the voracity of the fact he admitted the same that subsequently no certificate till date have been received although application is pending . The counsel's plea that once the certificate is issued by the Secretary DSIR and that is conclusive and the A.O. is barred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is allowed. 26. In Ground No.4, assessee contended that CIT(A) erred in directing the AO that where the assessee does not provide PAN/GIR of dealers receiving incentive, the incentive paid to those dealers may be disallowed. 27. In the course of present appellate proceedings, it transpired that the issue is covered by the decision of the ITAT in ITA No. 270/Chd/2006 in assessee's own case. Ld. 'AR' placed reliance on the order passed by the CIT(A). 28. We have carefully perused the rival submissions, facts of the case and found that the issue is squarely covered by the decision of the Tribunal in ITA No. 270/Chd/2006 dated 20.11.2009, for the assessment year 2003-04. The relevant part as contained in para 23 of the said Tribunal s order, has been reproduced under para 12 of this order, while dealing with the same issue in the revenue s appeal, as adjudicated above. 29. In view of the above legal and fact-situation, this ground of appeal of the assessee is allowed. 30. In Ground No. 5, the assessee appellant raised the issue in respect of initiation of penalty u/s 271(1)(c) of the Act which is pre-mature in nature and, hence, the same is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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