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2018 (4) TMI 639

power supply. The power supply was of utmost importance to carry out day to day activities of the manufacturing and the aforesaid agreement entitled the assessee to obtain 35KWH power supply at average rate of ₹ 2.75 per unit. Therefore, the said agreement was beneficial for the business interest of the assessee and the investment in the said entity was to finance the power project and hence, part and parcel of the same transaction. Further, the assessee was under an obligation to make the aforesaid investment before becoming entitled to obtain power in terms of the agreement. Hence, on factual matrix, proportionate disallowance u/s 36(i)(iii) as made by Ld. AO was not justified. - Interest disallowance u/s 14A read with Rule 8D(2)(ii) qua the 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 - BO .....

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Mumbai, Appeal No.CIT(A)-12/ACIT.6(3)/IT-136/2011-12 dated 04/08/2014. The assessment for impugned AY was framed by Ld. Assistant Commissioner of Income Tax Circle -6(3), Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 30/12/2011 wherein the loss has been assessed at ₹ 22.78 Crores after certain disallowances as against returned loss of ₹ 25.57 Crores e-filed by the assessee on 29/09/2009. The assessee is in cross objection against the same. 1.2 The erstwhile assessee namely Mahindra Ugine Steel Company Limited has merged with Mahindra CIE Automotive Limited with effect from 01/10/2013 in terms of the order of Hon ble Bombay High Court dated 31/10/2014, a copy of which has been placed on record. 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 .....

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in value of assets as the same not being allowable under any provision of the Act and also the same being directly relatable expenditure u/s 14A, without appreciating the fact that the A.O. is not empowered under the Act to revisit the assessment once completed u/s 143(3). 6. Whether on the facts and circumstances of case and in law, the Ld. CIT(A) erred in giving direction to A.O to verify whether the provision for diminution in value of assets is debited in the Profit and Loss Account, after giving opportunity of being heard to the assessee, without appreciating the fact that the Ld. CIT(A) is empowered by virtue of section 251(1)(a) of the I.T. Act, to confirm, 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 disc .....

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ng the fact that section 145A was tax/revenue neutral. The assessee, vide letter dated 20/02/2018 has pleaded for admission of additional ground of cross-objection which reads as under:- On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of ₹ 59,87,867/- towards payment for JCMM School u/s 40A(9). The assessee has submitted that the said ground could not be raised due to inadvertent omission. We find that this ground was contested by the assessee before Ld. first appellate authority also and therefore, accepting the submission 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, .....

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ducational society towards a school namely J.C.Mahindra School, where mainly the children of assessee s employees were studying. The same, in the opinion of Ld. AO, was not incurred for the business 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 .....

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T(A). 4. The Ld. Authorized Representative [AR], taking us through the documents placed in the paper-book, contested the additions sustained by Ld. first appellate authority whereas the Ld. Departmental Representative [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- .....

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to make the aforesaid investment before becoming entitled to obtain power in terms of the agreement. Hence, on factual matrix, proportionate disallowance u/s 36(i)(iii) as made by Ld. 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. we 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 .....

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e u/r 8D(2)(iii) for ₹ 3.62 Lacs, which was not justified. We find that in catena of various judicial pronouncements of Hon ble High Courts, it has been 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 Credi .....

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le affirming the order of High Court, has observed that the income was not generated to 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. Theref .....

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investments. Therefore, the revenue s grievances on 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. A .....

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