TMI Blog2018 (4) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... he above investments - Held that:- We restrict the impugned expenses disallowance u/s 14A to ₹ 12,355/-, being exempt income earned by the assessee. Ground No. 4 of assessee’s cross objection stands partly allowed. Disallowance u/s 145A on account of unutilized closing balance lying as Cenvat / Modvat Credit stood squarely covered in assessee’s favor by the judgment in CIT Vs Diamond Dye Chem Limited [2017 (7) TMI 616 - BOMBAY HIGH COURT] - the assessee is consistently following exclusive method to account for excise duty in the books of accounts. We also concur with the view that whatever method of accounting i.e. exclusive method or inclusive method is followed by the assessee, the same would be tax / revenue neutral in nature since the adjustment of stock in a particular period shall result into corresponding variation in the subsequent year and further, the credit balance lying as Cenvat / Modvat Credit was adjustable in subsequent year against excise duty liability arising in subsequent period. Therefore, respectfully following aforesaid binding judicial precedent, we delete the impugned additions. Addition u/s 40A(9) pertains to school expenses reimbursed by asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Accordingly, the revenue has filed revised Form No.36 reflecting the aforesaid change and the same is in order. 1.3 The registry has noted that assessee s cross objection has been filed with a delay of 50 days and the assessee has sought condonation of delay on the strength of an affidavit dated 21/06/2016 executed by Managing Director of the assessee company . Upon perusal of the same, we find that delay has been attributed to change in management / Tax consultant in view of the fact that the erstwhile assessee company merged with the new entity which involved huge migration from and integration of data, records, manpower and operations of the two companies. Finding the same to be a plausible one and keeping in view the principle of natural justice, we condone the delay and proceed to dispose-off the same. 1.4 The effective grounds raised in revenue s appeal reads as under:- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O to verify and to take remedial action, as regards interest component attributable to capital work-in-progress in view of the proviso to section 36(i)(iii), without appreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm, reduce, enhance or annual the assessment but has no power to set aside on issue not arising from the assessment order to the A.O. for verification. 7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O making adjustments u/s 145A to the opening and closing stocks of this year i.e. A.Y.2009-10 alone, without making similar adjustments in the opening and closing stocks of the earlier years, without appreciating the fact that such an adjustment will result in discordant results. 8. The appellant prays that the order of the Ld.CIT(A) on the above grounds be confirmed the order of the AO. 1.5 The effective grounds raised in assessee s cross-objection reads as under:- 1. On the facts and in the circumstances of the case and in law, the Respondent objects that the Learned CIT(A) erred in upholding the disallowance of interest u/s 36(1)(iii) of the Income-tax Act,1961 ( the Act ), at ₹ 1,51,23,277, rejecting the contentions of the Respondent. 2. On the facts and in the circumstances of the case and in law, the Respondent Objects that the learned CIT(A) also erred in directing the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the assessee, the same is admitted as Ground No.8. In the above backdrop, we proceed to dispose-off the appeal as well as cross objections in succeeding paragraphs. 2.1 Facts in brief are that the assessee being resident corporate assessee engaged in manufacturing of Tools, Alloy Steel, Special Steel pressing of metal sheets was assessed u/s 143(3) on 30/12/2011 wherein it has been saddled with following disallowances:- No. Nature of Disallowance Amount (Rs.) 1. Interest disallowance u/s 36(1)(iii) 1,51,23,277/- 2. Disallowance u/s 14A 54,14,362/- 3. Disallowance u/s 145A 14,53,332/- 4. Disallowance u/s 40A(9) 59,87,867/- Total 2,79,78,838/- All the above disallowances as stated above are the subject matter of this appeal. 2.2 During assessment proceedings, it was noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness purposes of the assessee and therefore, not allowable in terms of Section 40A(9). 3. Aggrieved, the assessee contested the same with partial success before Ld. CIT(A) vide impugned order dated 04/08/2014 where disallowance u/s 36(1)(iii), 14A 40A(9) has been confirmed whereas disallowance u/s 145A has been remitted back to the file of Ld. AO with certain directions. From the perusal of appellate order, we find that, Ld. CIT(A) while confirming the aforesaid disallowances u/s 36(1)(iii) 14A, in the process , has issued several other directions to Ld. AO to carry out examination / verification of some more aspects which is evident from paras-3.3.2 4.3.4 of the appellate order. For the sake of ready reference, the same are extracted below:- 3.3.2 Notwithstanding the fact that the ground of appeal raised by the appellant on the issue of disallowance of interest u/s.36(1)(iii) stands rejected as discussed heretofore, another issue that arises here is that as to whether the A.O. considered the attributability of interest component also to capital work-in-progress as appearing in the Balance Sheet and applicability of the proviso to section 36(1)(iii) of the Act af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative [DR] pointed out that the Ld. CIT(A) erred in giving further directions to Ld. AO which he was not empowered to do so in terms of Section 251(1)(a) of the Act. 5. We have carefully heard the rival contentions and perused relevant material on record including documents placed in the paper-book. We find all the issues primarily to be factual one and therefore, proceed to deal with the same by adjudicating assessee s cross objections at the outset. 6.1 We find that the issues of disallowance u/s 36(1)(iii) 14A to be interconnected one since the additions under both the sections have been made by Ld. AO with reference to investments held by the assessee during the impugned AY. At the outset, it is observed that disallowance under both these sections have resulted into double disallowance since both disallowances have been computed with reference to investments held by the assessee. Hence, we proceed to deal with the same concurrently. 6.2 Upon perusal of Schedule F-Investments of financial statements as placed before us, we find that no fresh investment has been made by the assessee in the impugned AY except investment of ₹ 14 crores in an entity namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO was not justified. Our view is fully supported by the analogy of the decision of Hon ble Apex Court rendered in S.A.Builders Vs. CIT [2006 288 ITR 1] where Hon ble Court has observed as under:- 34. w e agree with the view taken by the Delhi High Court in CIT Vs. Dalima Cement (Bharat) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een held that disallowance u/s 14A could not exceed the exempt income earned by the assessee. To cite a few:- (i) Hon ble Delhi High Court in Cheminvest Ltd. v. CIT [2015 378 ITR 33] (ii) Hon ble Delhi High Court in Joint Investments (P.) Ltd. v. CIT [2015 372 ITR 694] (iii) Hon ble Delhi High Court in CIT v. Holcim India (P.) Ltd. [2015 57 Taxmann.com 28] (iv) Hon ble Delhi High Court in PCIT Vs. IL FS Energy Development Co. Ltd. [84 Taxmann.com 186 dated 16/08/2017] (v) Hon ble Punjab Haryana High Court in PCIT Vs Empire Package Private Limited [2017 81 Taxmann.com 108] Therefore, without delving much deeper into the issue, we restrict the impugned expenses disallowance u/s 14A to ₹ 12,355/-, being exempt income earned by the assessee. Ground No. 4 of assessee s cross objection stands partly allowed. Accordingly, Ground No. 3, 5 6 of assessee s cross objection becomes infructuous. 7. We find that the next issue of disallowance u/s 145A on account of unutilized closing balance lying as Cenvat / Modvat Credit stood squarely covered in assessee s favor by the judgment of Hon ble Bombay High Court rendered in CIT Vs Diamond Dye Chem Limited [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of Modvat credit or unconsumed raw-material. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw-materials, that would not amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same. 6. Considering the above, the amount of the un-utilized Cenvat credit could not have been directly added to the closing stock. The Tribunal has not committed any error. We find that the assessee is consistently following exclusive method to account for excise duty in the books of accounts. We also concur with the view that whatever method of accounting i.e. exclusive method or inclusive method is followed by the assessee, the same would be tax / revenue neutral in nature since the adjustment of stock in a particular period shall result into corresponding variation in the subsequent year and further, the credit balance lying as Cenvat / Modvat Credit was adjustable in subsequent year against excise duty liability arising in subsequent period. Therefore, respectfully following aforesaid binding judicial precedent, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this account are unwarranted for since the same, in fact , would result into enhancement of the disallowance, if found tenable. Therefore, the grounds of revenue stands dismissed. At the same time, upon perusal of Schedule F-Investments , we find that the provision for diminution in the value of investment remains unchanged during impugned AY at ₹ 0.35 Crores and the Ld. AR also has made a statement that no fresh provision has been debited to the Profit Loss Account in the impugned AY. Further, we had already dealt with disallowance u/s 14A on merits in the preceding paragraphs. Therefore, the directions of Ld. CIT(A) becomes infructuous and therefore, expunged. 10. Similarly, in Ground Numbers 1 to 4, the revenue is aggrieved by certain directions of Ld. CIT(A) qua disallowance u/s 36(1)(iii). Upon perusal of the directions of Ld. CIT(A) as extracted by us in para-3 above, we find that Ld. AO has been directed to examine interest disallowance u/s 36(1)(iii) against capital work-in-progress, disallowance in terms of proviso to Section 36(1)(iii) and interest free loans and advances given by the assessee. Although Ld. AR has contended that the interest port ..... X X X X Extracts X X X X X X X X Extracts X X X X
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