IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI `G ` BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI I P BANSAL, JM & SHRI RAJENDRA SINGH, AM
ITA No. 7682/Mum/2010 (Assessment Year 2006-07)
ITA No. 8549/Mum/2010 (Assessment Year 2007-08)
Godery Phillips India Ltd Vs The Addl. Commr of In come Tax
Sahar Road, Chakala 8(1)( Mumbai
Andheri (E)
Mumbai 99
(Appellant) (Respondent)
&
ITA No. 7395/Mum/2010 (Assessment Year 2006-07)
The Addl. Commr of In come Tax Vs Godery Phillips India Ltd
8(1)( Mumbai Sahar Road, Chakala
Andheri (E)
Mumbai 99
(Appellant) (Respondent)
PAN No. AABCG4768K
Assessee by Shri Yogesh Thar
Revenue by Sh Amar Deep
Dt.of hearing 22nd Oct 2012
Dt of pronouncement 22nd Oct 2012
PER I P BANSAL, JM
Appeals nos 7682 and 7395/Mum/2010 are cross appeals and they are
directed against the order dated 18.8.2010 passed by the ld Commissioner of
Income Tax(Appeals) in respect of Assessment Year 2006-07. The appeal in ITA
No.8549/Mum/2010 is an appeal filed by the assessee and it is directed against the
order passed by the Commissioner of Income Tax(Appeals) dated 20.9.2010 for the
Assessment Year 2007-08.
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2 Since these appeals arise certain common issues and were argued together
by both the parties; therefore, for the sake of convenience, all these appeals are
disposed off by this common order.
3 Ground of appeal read as under:
I ITA No. 7682/Mum/2010 (Assessment Year 2006-07) (by the assessee)
1. On the facts and in the circumstances of the case and in law, the Learned
Commissioner of Income Tax (Appeals) - 16, Mumbai ("the CIT (A)") erred in
upholding the action of the Additional Commissioner of Income Tax, Range 8(1),
Mumbai ("A.O.") in disallowing 80% depreciation on the Uninterrupted Power Supply
("UPS") on the ground that, the UPS is not an energy saving device but instead an
energy supply device.
The Appellant prays that the depreciation of Rs 574,579/- as claimed by the
Appellant on UPS be allowed.
2 On the facts and in the circumstances of the case and in law, the CIT (A)
erred in partly upholding the action of the AC by disallowing interest expenditure of
Rs 3.03 lacs out of the total interest disallowed by the AC of Rs 6.64 lacs on the
alleged ground that such expenditure was not incurred for the purpose of business.
The Appellant prays that balance interest of Rs 3.03 lacs be deleted.
3 On the facts and in the circumstances of the case and in law, the CIT (A)
erred in partly upholding the action of the AC in disallowing an amount of Rs 25.59
lacs on adhoc basis in respect of leave encashment expenses claimed by the
Appellant on actual basis on the alleged ground that the said expenses would have
been claimed in the earlier years an the basis of actuarial valuation and this amounts
to double deduction.
II ITA No. 8549/Mum/2010 (Assessment Year 2007-08)(by the assessee)
1 DISALLOWANCE OF DEPRECIATION @ 80% ON UPS AMOUNTING RS. 4,72,596/-
On the facts and in the circumstances of the case and in law, the Learned
Commissioner of Income Tax (Appeals) - 16, Mumbai ("the CIT (A)") erred in
upholding the action of the Additional Commissioner of Income Tax, Range 8(1),
Mumbai ("A.O.") in disallowing 80% depreciation on the Uninterrupted Power Supply
("UPS") on the ground that, the UPS is not an energy saving device but instead an
energy storage and supply device.
The Appellant prays that the depreciation of Rs 4,72,596/- as claimed by the
Appellant on UPS be allowed.
2 DISALLOWANCE OF INTEREST ON LOAN GIVEN TO SUBSIDIARIES AMOUNTING
RS.11,34,000/-
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ITA No. 8549/Mum/2010
ITA No. 7395/Mum/2010
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On the facts and in the circumstances of the case and in law, the CIT (A) erred in
upholding the action of the AO in disallowing interest amounting to Rs.11,34,000/- on
the ground that such interest was paid on the borrowings, which were given as
interest free/subsidised loan to the subsidiaries of the Appellant.
The Appellant prays that disallowance of interest of Rsll,34,000/- be deleted.
3 DISALLOWANCE OF LEAVE ENCAHSMENT AMOUNTING RS. 35,83,000/-
On the facts and in the circumstances of the case and in law, the CIT (A) erred in
upholding the action of the AO in disallowing an amount of Rs.34,03,000/- on adhoc
basis in respect of leave encashment expenses claimed by the Appellant on actual
basis on the alleged ground that the said expenses would have been claimed in the
earlier years an the basis of actuarial valuation and this amounts to double
deduction.
III ITA No. 7395/Mum/2010 (Assessment Year 2006-07)(by the revenue)
1 on the facts and in the circumstances of the case and in law, the Ld.CIT(A)
erred in deleting the excess depreciation amounting to Rs.4,77,8401-, disallowed by
the Assessing Officer on motor car/vehicles, without appreciating the facts and
circumstances of the case and in law."
2 On the facts and in the circumstances of the case and in law, th Ld.CIT(A)
erred in reducing the disallowance made by the Assessing Officer on account of
interest on interest free/concessional loans to subsidiary company amounting to
Rs.6.64 lakhs, without appreciating the facts and circumstances of the case and in
law."
4 It may be mentioned here that all the grounds raised by the assessee in
respect of Assessment Year 2007-08 are common to grounds raised in respect of
Assessment Year 2006-07. The facts relating to the Assessment Year 2006-07 will be
taken into consideration and the decision taken thereon will equally be applicable
in respect of the grounds related to Assessment Year 2007-08.
5. Ground no.1 of assessee's appeal for the Assessment Year 2006-07 and 2007-
08 is regarding depreciation on UPS being energy saving device. It is the case of the
assessee that the UPS employed by it being an energy saving device is entitled for
higher depreciation @ 80% as against the claim of the revenue that the same is not
an energy saving device; but an energy supply device. The impact of this
disallowance is the lesser depreciation of ` 5,74,579/- and for Assessment Year 2007-
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08, the said amount is ` 4,72,596/-. It is the case of the ld AR that this issue is covered
by the decision of the Tribunal in assessee's own case for the Assessment Year 2002-
03 in ITA No. 2792/M/2006; for Assessment Year 2003-04 in ITA No.1071/M/2007; for
Assessment Year 2004-05 in ITA No.5569/M/2007 and for Assessment Year 2005-06 in
ITA No.6964/M/2008, copies of these orders are enclosed in the paper book at
pages 1 to 22; 23 to 47 and 48 to 67 respectively. For the sake of convenience, the
observations of the Tribunal in respect of the Assessment Year 2002-03 deciding the
issue are reproduced below:
"13. We have heard the rival contentions. Short question is whether UPS is a
Automatic Voltage Controller' falling within the heading of energy saving
device in the Appendix to the Income Tax Rules 1962 giving depredation
rates. Legislature in its wisdom has chosen to show an Automatic Voltage
Controller' as an electrical equipment eligible for 100% depreciation, falling
under the broader head of energy saving devices. Once Legislature deemed
that an `Automatic Voltage Controller' is a specie falling within energy saving
device, it is not for the Assessing Officer or Ld CIT(A) to further analyse
whether such an Item would indeed an energy saving device. In fact it is
beyond their powers. Hence the only question to answer, in our opinion is
whether an UPS is an Automatic Voltage Controller'. It is mentioned in the
product brochure (Paper Book Page 64) that the UPS automatically
corrected low and high voltage conditions and stepped up low voltage to
safe output levels. Thus in our opinion there cannot be a quarrel that UPS was
doing the job of voltage controlling automatically. Even when it was
supplying electricity at the time of power voltage, the outages remained
controlled. Therefore in our opinion a UPS would definitely fall under the head
of' Automatic Voltage Controller'. We are fortified in taking this view by the
decision of Jodhpur Bench in the case of Surface Finishing Equipment (supra),
As for the decision of Delhi Bench in the case of Nestle India Ltd. (supra)
referred by the Ld DR, there the question was whether UPS could be
considered as `computer' for depreciation rate of 60%. There was no issue or
question, whether ft could be considered as an Automatic Voltage
Controller" and hence in our opinion that case would not help the Revenue
here. Therefore we are of the opinion that assessee was eligible for claiming
100% depredation on UPS. Disallowance of Rs.6,82,443/- therefore stands
deleted. Ground number 3 is allowed."
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For other years the above decision was followed by the Tribunal.
6 After hearing both the parties, respectfully following the abovementioned
decisions of the Tribunal in assessee's own case, we decide this issue in favour of the
assessee and allow the ground no.1 of both the appeals filed by the assessee.
7 Apropos ground no2 of assessee's appeal for both Assessment Years and
ground no.2 of the revenue's appeal for Assessment Year 2006-07, the facts for
Assessment Year 2006-07 are that the assessee had advanced certain interest free
loans and loans at subsidised rates to its associated concerns, the details of which
are as under:
Interest free loan ` 342.65 lacs
Subsidised loan (interest @ 6%) ` 1205.04 lacs
7.1 It was noticed by the Assessing Officer that the assessee had charged
interest @ 10.25% on another loan of ` 2043.41 lacs given to another 100% subsidiary
namely M/s International Tobacco Company Ltd. The Assessing Officer also noticed
that the average cost of the assessee regarding the interest on the funds borrowed
by it was @ 4.86%. It was also noticed that the interest free loans of ` 342.65 lacs to
Kashyap Metals & Allied Industries was an old loan which was prior to the insertion of
sec. 372A of the Companies Act. Noting all these facts, the Assessing Officer has
come to a conclusion that the interest free and subsidised loan, which bears interest
@ 6%, the interest receivable by the assessee, if computed at the average cost of
4.86%, then the interest which should have been received by the assessee would
amounts to ` 75.22 lacs and the assessee had received only a sum of ` 68.58 lacs.
Thus, the balance disallowance that is amounts to ` 6.64 lacs was required to be
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made; accordingly, an amount of ` 6.64 lacs was added to the income of the
assessee.
8 Similarly for the Assessment Year 2006-07, it was noticed by the Assessing
Officer that the following loans were advanced by the assessee, being interest free
and subsidised loans:
Interest free loan ` 342.65 lacs
Subsidised loan (interest @ 6%) ` 1543.09 lacs
8.1 The average cost of interest borne by the assessee during the Assessment
Year 2007-08 was noted to be at 4.72%. Taking the aggregate of interest free loans
and subsidised loan at ` 1,885.74 lacs, the Assessing Officer computed the interest
receivable by the assessee at ` 89 lacs and noting the fact that the assessee
received only a sum of ` 77.66 lacs, the difference of ` 11.34 lacs was added to the
income of the assessee.
8.2 In respect of Assessment Year 2006-07, the ld Commissioner of Income
Tax(Appeals) has granted part relief to the assessee on the alternative contention of
the assessee to the effect that the interest disallowance, if any, has to be calculated
according to the days of the loans advanced and in this manner, the disallowance
of ` 6.64 lacs was restricted to a sum of ` 3.61 lacs.
9 The assessee in its appeal is praying for deletion of the entire disallowance
and the revenue in its appeal is agitating the disallowance deleted by the ld
Commissioner of Income Tax(Appeals). For Assessment Year 2007-08, the
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disallowance has been upheld by the ld Commissioner of Income Tax(Appeals) in its
entirety, therefore, assessee is seeking deletion of the said addition.
10 Before us, the submissions of the ld AR is that so far as it relates to interest fee
loan of ` 342.65 lacs, it has been decided by the Tribunal in its order for Assessment
Years 2003-04 and 2004-05 that the interest on opening balance of the loans and
advances which were coming from earlier years, cannot be disallowed and such
plea of the assessee is supported by the judgment et of the Hon'ble High Court of
Karnataka in the case of Commissioner of Income-tax v. Sridev Enterprises reported
in 192 ITR 165 in which it has been held that in case of loans and advances which
were being carried forward from earlier years in which there was no disallowance,
no disallowance could be made in respect of the opening balance in the current
year as the nature and status of the advances on the first day of the current year
remained the same as the nature and status of the advances on the last day of the
preceding year. Therefore, he pleaded that to the extent it relates to ` 342.65 lacs,
no disallowance can be made as per the decision of the Tribunal in respect of
Assessment Year 2003-04 and 2004-05.
11 So far it relates to the remaining amount of ` 1205.04 lacs for Assessment Year
2006-07 and ` 1543.09 lacs for Assessment Year 2007-08, being loans on subsidised
interest rate on which the assessee charged interest @ 6% per annum, it was
submitted by the ld AR that no disallowance should be made as the average cost of
interest bearing funds is only 4.86% and 4.72 % for Assessment Year 2006-07 and 2007-
08 respectively. He has submitted that the ld Assessing Officer while making the
disallowance has included the amount of ` 342.65 in both the years and made the
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disallowance. Therefore, the ld AR has pleaded that the disallowance sustained by
the ld Commissioner of Income Tax (Appeals) should be deleted.
11.1 On the other hand, the ld DR has relied upon the order passed by the
Assessing Officer and pleaded that the disallowance was rightly made by the
Assessing Officer and it is wrongly deleted by the Commissioner of Income
Tax(Appeals) in respect of Assessment Year 2006-07.
12 We have heard both the parties and their contentions carefully considered.
So far as it relates to the interest pertaining to ` 342.65 lacs, the issue is covered by
the aforementioned decision of the Tribunal (consolidated order dated 20.4.2011 for
Assessment Years 2003-04 and 2004-05 copy at pages 23 to 47 of the Paper Book.)
The relevant observations of the Tribunal are reproduced below:
"2.6.3 We have perused the records and considered the rival contentions
carefully. The dispute is regarding disallowance of interest paid by the
assessee on account of advances given to the subsidiary of the assessee
company. The assessee had advanced interest free loan of Rs.342.65 lacs, It
had also advanced further loans at concessional rate. The assessee had also
made borrowings on which substantial interest was being paid. The authorities
below have disallowed part of the interest proportionate to interest free
advances and advances given on concessional rate on the ground that
there was no material to show that the loans taken by the assessee were used
wholly and exclusively for the purpose of business or that these loans and
advances were given out of own funds. The case of the assessee is that the
interest free advances had been given since financial year 1992-93 and loans
on concessional rate had been given from financial year 1998-99. These had
been given out of own funds as the assessee had sufficient interest free funds
and profit earned during the relevant years Reliance has been placed on the
judgment of Hon'ble High Court of Mumbal in case of Reliance Utilities and
Power (supra). It has also been argued that most of the loans/ advances
were coming from the earlier years in which there were no disallowances and
therefore no disallowance could be made in respect of opening balances.
The assessee has also raised plea of commercial expediency on the ground
that loans and advances had been given to the concern which was a 100%
subsidiary of the assessee company and therefore the same had to be
treated for the purposes of business of the assessee.
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2.6.4 We have carefully considered the various aspects of the matter. We find
substance in the submission of the assessee that no disallowance could be
made in respect of the opening balances of loans and advances which were
coming from earlier years and in which there were no disallowance. The plea
of the assessee is supported by the judgment of Hon'ble High Court of
Karnataka in case of Sridev Enterprises (supra) in which it was held that in
case loans and advances were being carried forward from earlier years in
which there was no disallowance, no disallowance could be made in respect
of the opening balance in the current year as the nature and status of the
advances on the first day of the current year remained the same as the
nature and status of the advances on the last day of preceding year. In the
earlier year there were no disallowances which meant that the revenue was
satisfied that loans and advances were give from own funds. Therefore
respectfully following the judgment of Hon'ble High Court of Karnataka in
case of Sridev Enterprises (supra) we hold that no disallowance of interest will
be made in respect of the opening balances as on the first day of assessment
year involved."
13 Now the question remains in respect of subsidised loan advanced by the
assessee to its sister concerns on which interest @ 6% has been charged.
13.1 A categorical finding has been given by the Assessing Officer that the
average interest cost for the Assessment Year 2006-07 and 2007-08 are 4.86% and
4.72 % respectively. The assessee had charged @ 6% interest from its subsidiary;
therefore, the assessee has charged more interest rate than the average interest
rate borne by it on interest bearing funds. Therefore, there is no justification for
making any addition, finding force in such contention of the assessee; we delete
the entire addition for both the years. Therefore, ground no. 2 of both the appeals of
the assessee are allowed and ground no.2 of revenue's appeal for Assessment Year
2006-07 is dismissed.
14 Ground no.3 of the assessee's appeal for both the years relates to
disallowance made on account of leave encashment.
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15 It is submitted by the ld AR that this issue requires to be set aside to the file of
the Assessing Officer as in earlier years, similar issue has been set aside by the
Tribunal in respect of AYs 2003-04, 2004-05 and 2005-06. Reference in this regard was
made to the order of the Tribunal in respect of Assessment Year 2003-04 and 2004-05
in ITA No. 1071/M/2007 and 5569/M/2007 copy of such order is placed at pages 23
to 47 and in ITA No.6964/M/2008 at pages 48 to 67 of the paper book.
15.1 For the sake of convenience, the observations of the Tribunal in Assessment
Year 2004-05 ass given in para 2.8.1 are reproduced as under:
"2.8.1 We have heard both the parties, perused the records and considered
the matter carefully. The dispute is regarding disallowance of part of the
claim relating to leave encashment. The assessee had been making the
claim earlier on the basis of actuarial valuation but consequent to the
amendment of section 438 the claim was being made on payment basis from
A.Y.2003-04. The Assessing Officer has made estimated disallowance out of
the claim made on payment basis on the ground that part of the payments
made may relate to earlier year when these were allowed on actuarial basis.
The Assessing Officer has made disallowance on estimate which cannot be
sustained. Only the payment which had actually been allowed earlier can be
disallowed. In - our view matters require fresh examination and disallowance
has to be restricted to the amounts allowed in the earlier year. We therefore
set aside the order of CIT(A) and restore the issue to the file of Assessing
Officer for passing a fresh order after necessary examination and after
allowing opportunity of hearing to the assessee."
For Assessment Year 2005-06, the aforesaid decision has been followed
15.2 It was submitted by the ld AR of the assessee that similar directions may be
issued for these years also.
15.3 On the other hand, the ld DR has relied upon the order passed by the
Assessing Officer
16 After hearing both the parties, we find that this issue is covered by the
abovementioned decisions of the Tribunal. Therefore, respectfully following the
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decisions of the Tribunal, we restore the issue to the file of the Assessing Officer with
similar directions.
17 For statistical purpose, ground no.3 of the assessee's appeal for both the
years is considered to be allowed.
18 In the result, the appeals filed by the assessee are partly allowed in the
aforesaid manner whereas the appeal of the revenue is dismissed.
Order pronounced in the open Court by this 22nd day of Oct 2012.
Sd/- Sd/-
( RAJENDRA SINGH ) ( I P BANSAL )
Accountant Member Judicial Member
Place: Mumbai : Dated: 22nd Oct 2012
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai
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