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TMI Blog2015 (5) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... .318/Ahd/2011- for AY 2006-07. 1. The Learned Commissioner (Appeal) failed to understand the facts and circumstances of the case. 2. The Learned Commissioner (Appeal) erred in confirming the disallowance of Rs. 2,69,966/- being administrative expenses u/s.14A of the Act, considering them incurred in relation to exempted dividend income. 3. The appellant prays for appropriate relief on the above grounds of appeals. 4. The appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal as circumstances may justify. (b) Revenue's appeal in ITA No.613/Ahd/2011- for AY 2006-07. 1. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 4,09,899/- being liquidated damages made by the A.O., without appreciating the facts and materials brought on record by the Assessing Officer. 2. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 34,39,000/- being bad debts, made by the A.O., without appreciating the facts and materials brought on record by the Assessing Officer. 3. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,12,14,000/- being provision for warranty e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and addition of Arms Length Price in respect of sale material to associated-concern amounting to Rs. 2,28,082/-. The ld.CIT(A) deleted the disallowance of Rs. 4,09,899/- made on account of liquidated damages. The ld.CIT(A) also deleted the addition made on account of bad-debts written off of Rs. 34,49,000/- by following the order of his predecessor in AY 2005-06. In respect of disallowance of provisions for warranty expenses of Rs. 1,12,14,000/-, the ld.CIT(A) deleted the same by following his predecessor's order passed in AY 2005-06. However, in respect of disallowance of Rs. 26,13,682/- made u/s.14A of the Act, the ld.CIT(A) partly allowed the appeal, whereby the ld.CIT(A) deleted the addition made on account of the interest expenses and sustained the addition made on account of administrative expenses of Rs. 2,69,966/-. In respect of disallowance made u/s.36(1)(iii) of Rs. 1,86,650/-, the ld.CIT(A) following his predecessor's order passed in AY 2005-06 deleted the addition. In respect of the addition made on account of royalty of Rs. 49,60,500/-, the ld.CIT(A) following his predecessor's order passed in AY 2005-06, deleted the addition. The ground raised in respect of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of administrative expenditure can be made as there is no direct nexus. As a result, this grounds is allowed. In this year also, the AO has not established the nexus. Moreover, the ld.counsel for the assessee has relied on the decision of the Hon'ble Kerala High Court in the case of CIT vs. Catholic Syrian Bank Ltd. reported at (2012) 207 Taxman 2 :: (2011) 9 taxmann.com 148 (Ker.)(Mag), wherein the Hon'ble High Court has held that so far as disallowance of administrative expense is concerned, there is no precious formula or proportionate disallowance, hence no disallowance can be called for under the identical facts. On the other hand, the ld.DR has relied on the decision of Hon'ble Calcutta High Court in the case of Dhanuka & Sons(supra). Since different views have been expressed by the Hon'ble Calcutta High Court and Hon'ble Kerala High Court, view which is in favour of assessee is to be Adopted as held by the Hon'ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. reported at 88 ITR 192 (SC). Therefore, respectfully following the decision of Hon'ble Kerala High Court in the case of Catholic Syrian Bank Ltd.(supra), this ground of assessee's appeal is allowed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the file of AO. 12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon'ble Coordinate Bench in ITA No.2002/Ahd/2007 for AY 2003-04 vide para-56 has restored this issued back to the file of AO. The Hon'ble Tribunal in para-56 has given the following direction:- "56. We have heard the parties and carefully perused the material on record. In our considered view the issue regarding liquidated damages requires a fresh look by the AO. He would allow the claim on actual basis. Wherever the other party has claimed liquidated damages against the assessee in the current year Asst.Year it should be allowed. The assessee would submit individual account and the AO will examine such accounts and take a decision as per law. This ground is allowed but for statistical purposes." 12.1. After considering the totality of the facts, we feel that a similar direction may also be issued in this case as well. Accordingly, the AO is directed to decide this issue afresh in the light of the direction issued in ITA No.2002/Ahd/2007 (supra). Thus, this ground of the Revenue is allowed but for statistical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon.Supreme Court, we confirm the order of ld.CIT(A) and dismiss this ground of Revenue." 14.1. Since the facts are identical in this case also and the Revenue has not pointed out any change in the facts and circumstances of the case, therefore we uphold the order of the ld.CIT(A) and dismiss this ground of the Revenue's appeal." 9.1. Since the facts are identical to the facts as were raised in ITA No.2923/Ahd/2008 for AY 2005-06 and the Revenue has not pointed out any change into the facts and circumstances of the case, therefore following the decision of Coordinate Bench passed in ITA No.2923/Ahd/2008, the issue is decided in favour of assessee in this year as well. Hence, the finding of the ld.CIT(A) is sustained and this ground of Revenue's appeal is rejected. 10. Ground No.3 is against the deletion of disallowance of Rs. 1,12,14,000/- being provision for warranty expenses made by the AO. 10.1. The ld.Sr.DR submitted that the Tribunal in earlier assessment year, i.e. AY 2005-06 was pleased to restore this issue to the file of AO. He drew our attention towards para-15 of the Tribunal's order passed in ITA Noa.2923/Ahd/2008(supra). 10.2. The ld.Sr.counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the decision of the Coordinate Bench passed in ITA No.2923/Ahd/2008, in this year also, this issue is restored back to the file of AO for decision afresh. Thus, this ground of Revenue's appeal is allowed for statistical purposes. 12. Ground No.4 is against the deletion of disallowance of interest expenses of Rs. 23,43,716/- being interest expenses made by the AO u/s.14A of the Act. 12.1. At the outset, ld.Sr.counsel for the assessee pointed out that the identical issue came before the Hon'ble Tribunal by way of ITA No.2923/Ahd/2008-Revenue's appeal, wherein the Hon'ble Tribunal has decided the issue in favour of assessee. 12.2. The ld.Sr.DR has fairly conceded the fact that the Tribunal has decided this issue in favour of assessee for AY 2005-06. However, he supported the order of the AO. 13. We have heard the parties. We find that the ld.CIT(A), while deciding the issue, has followed his predecessor's order passed in AY 2005-06 and the issue travelled upto the stage of Tribunal by way of ITA No.2923/Ahd/2008 and the Tribunal has decided the issue in favour of assessee by holding as under:- "16. Ground No.4 is against the deletion of disallowance of interest expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free advances can be considered to be flowing from such profits. Hon'ble Bombay High Court in CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) held that if there are fund available both interest free and interest bearing, then a presumption arise that investment were out of interest free funds generated or available with the assessee. If the interest free funds were sufficient to meet the investment no disallowance of interest paid on borrowed funds would be necessary. Once such presumption is established claim of interest was allowable. 15. There is another aspect of the matter. If the assessee has made investment in subsidiaries out of mixed funds and for commercial expediency then no interest out of payment made on borrowed funds can be disallowed as held in S.A.Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC). Hon'ble Punjab & Haryana High Court in CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P& H) held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. 16. Since assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 & 16 by observing as under:- "9. Ground No.4(a) relates to disallowance of proportionate interest of Rs. 10,70,7000/-. The AO disallowed proportionate interest out of interest paid on borrowed funds on the assumption that borrowed money has been used for acquisition of investment as on balance sheet date. As per AO the Company had made total investment to the extent of Rs. 1008.51 lacs in the equity shares and Mutual funds. During the year the investment in shares and Mutual funds were increased from 940.32 lacs to Rs. 1008.51 lacs. Out of this investment, to the tune of Rs. 61 lacs, is made in subsidiary Companies namely Karamsad Investment Ltd. & Karamsad Holding Ltd. Since the assessee had purchased shares in those companies being sister concerns, the nature of investment is the same as in shares and Mutual Fund of other companies. The assessee company had earned dividend income of Rs. 94.47 lacs during the year and has claimed as exempt under section 10(33). Invoking section 14A AO held that expenditure for earning exempted income cannot be allowed as deduction. Similarly, the AO identified that administrative expenditure which could have been incurred for handling the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed in ITA No.2923/Ahd/2008, the issue is decided in favour of assessee in this year as well. Hence, the finding of the ld.CIT(A) is sustained and this ground of Revenue's appeal is rejected. 16. Ground No.6 of Revenue's appeal is against the deletion of disallowance of Rs. 49,60,500/- being royalty expenses made by the AO. 16.1. At the outset, ld.Sr.counsel for the assessee pointed out that the identical issue came before the Hon'ble Tribunal by way of ITA No.2923/Ahd/2008-Revenue's appeal, wherein the Hon'ble Tribunal has decided the issue in favour of assessee. 16.2. The ld.Sr.DR has fairly conceded the fact that the Tribunal has decided this issue in favour of assessee for AY 2005-06. However, he supported the order of the AO. 17. We have heard the parties. We find that the issue travelled upto the stage of Tribunal by way of ITA No.2923/Ahd/2008 and the Tribunal has decided the issue in favour of assessee by holding as under:- "20. Ground No.7 is against the deletion of disallowance of royalty of Rs. 41,06,250/-. The ld.Sr.DR supported the order of the AO, whereas ld.counsel for the assessee supported the order of the ld.CIT(A) and submitted that the assessee-company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal) erred in confirming the disallowance of Rs. 9,14,475/- being administrative expenses u/s.14A of the Act, considering them incurred in relation to exempted dividend income. 3. The appellant prays for appropriate relief on the above grounds of appeals. 4. The appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal as circumstances may justify. (d) Revenue's appeal for AY 2007-08 (ITA No.614/Ahd/2011) 1. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 33,909,742/- being bad debts, made by the A.O., without appreciating the facts and materials brought on record by the Assessing Officer. 2. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,53,55,536/- being provision for warranty expenses, made by the A.O., without appreciating the facts and materials brought on record by the Assessing Officer. 3. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of interest expenses Rs. 25,28,987/- and Admn.Exoebses of Rs. 9,14,475/- made by the AO U/s.14A of the Act, without appreciating the facts and materials brought on record by the Assessing Officer. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the disallowance of Rs. 1,47,77,100/- made on account of provision for warranty expenses without appreciating facts that provision for warranty was in the nature of contingent, unascertained and non-crystallized liability. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 27,96,724/- made on account of interest expenses u/s.36(1)(iii) without appreciating the fact that once the funds are put into the business, they lose identity. 3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 62,84,947/- made on account of royalty payment without appreciating the fact that the said payment was made for the use of trade mark. 4. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 21. Now, we take up the Assessee's appeal, ITA No.319/Ahd/2011 for AY 2007-08. The only effective ground is against confirming disallowance of Rs. 9,14,475/-. The facts are identical as were in the year 2006-07. In this year also, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in ITA No.12/Ahd/2008 for AY 2004-05. Thus, this ground of Revenue's appeal is allowed for statistical purposes. 24. Ground No.3 is against the deletion of disallowance of interest expenses of Rs. 25,28,987/- and Administrative expenses of Rs. 9,14,475/-. The disallowances were made by invoking the provisions of section 14A of the Act. The ld.Sr.counsel for the assessee has pointed out that the ld.CIT(A) has followed the order passed in AY 2005-06 and the issue travelled upto the stage of the Tribunal and the Tribunal in ITA No.2923/Ahd/2008 has decided the issue in favour of assessee, in paras- 16 & 17 of its order. The ld.Sr.DR has fairly conceded the fact that the ld.CIT(A) has followed the order passed in AY 2005-06. 25. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The facts are identical as were in the AY 2005-06. This Tribunal in ITA No.2923/Ahd/2008 for AY 2005-06, order dated 28/01/014, has decided the issue in favour of assessee in paras-16 & 17 (reproduced in paras-13 & 13.1 of this order). Since there is no change into the facts and circumstances of the case, therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of provision for bad advances written off. The ld.Sr.counsel for the assessee has pointed out that the ld.CIT(A) has followed the order passed in AY 2005-06 and the issue under appeal travelled upto the stage of the Tribunal and the Tribunal in ITA No.2923/Ahd/2008 was pleased to set aside the issue to the file of AO in para-11.1 & 12.1 of its order. The ld.Sr.DR supported the order of the AO and fairly conceded that the issue has been set aside to the file of AO. 31. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has followed the order passed in AY 2005-06. The facts are identical as were in the AY 2005-06. This Tribunal in ITA No.2923/Ahd/2008 for AY 2005-06, order dated 28/01/014, has set aside the issue to the file of AO in paras-11.1 to 12.1 (reproduced in paras-7 & 7.1 of this order). Since there is no change into the facts and circumstances of the case, therefore taking a consistent view, the issue is restored to the file of AO to decide the same afresh in the light of the direction given in ITA No.2002/Ahd/2007 for AY 2003-04, dated 11/02/2011. Thus, this gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in ITA No.2923/Ahd/2008 was pleased to set aside the issue to the file of AO in para-15 of its order. The ld.Sr.DR supported the order of the AO and fairly conceded that the issue has been set aside to the file of AO. 36.1. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has followed the order passed in AY 2005-06. The facts are identical as were in the AY 2005-06. This Tribunal in ITA No.2923/Ahd/2008 for AY 2005-06, order dated 28/01/014, has set aside the issue to the file of AO in para-15 (reproduced in paras-11 & 11.1 of this order). Since there is no change into the facts and circumstances of the case, therefore taking a consistent view, the issue is restored to the file of AO to decide the same afresh in the light of the direction given in ITA No.2002/Ahd/2007 for AY 2003-04, dated 11/02/2011. Thus, this ground of Revenue's appeal is allowed for statistical purposes. 37. Ground No.2 of Revenue's appeal is against the deletion of disallowance of Rs. 27,96,724/- out of interest expenses u/s.36(1)(iii) of the Act. The ld.Sr.counsel for the assessee has pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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