IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : H : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM
ITA No.6490/Del/2012
Assessment Year : 2009-10
T & T Motors Ltd., Vs. Addl. CIT,
212, Okhla Industrial Range-16,
Estate-III, New Delhi.
New Delhi.
PAN: AAACT5980F
(Appellant) (Respondent)
Assessee By : Shri V.K. Aggarwal, AR
Department By : Shri J.P. Chandrakar, Sr.DR
ORDER
PER R.S. SYAL, AM:
This appeal by the assessee arises out of the order passed
by the CIT(A) on 05.10.2012 in relation to the assessment year
2009-10.
2. The first ground is general which does not require any
separate adjudication.
3. Ground Nos.2-4 are against the confirmation of disallowance of
`9,46,228/- u/s 14A of the Act. Briefly stated, the facts of these
ITA No.6490/Del/2012
grounds are that the assessee received a sum of `2,02,531/- as
dividend income from shares and mutual funds, which was
claimed and allowed as exempt u/s 10 of the Act. No expenditure
was disallowed against this amount. On being called upon to
explain as to why no disallowance was made u/s 14A read with
Rule 8D, the assessee submitted its explanation which has been
reproduced in the assessment order. Rejecting such submission
advanced on behalf of the assessee, the AO held that the
provisions of section 14A were attracted. He computed
disallowance as per Rule 8D amounting to `9,46,228/-. This
amount was eventually added to the total income of the assessee.
The ld.CIT(A) upheld the assessment order on this score.
4. We have heard the rival submissions and perused the
relevant material on record. It is observed that the AO did not
accept the assessee's explanation that no expenditure was
incurred in respect of exempt income. The deficiency, if any, left
by the AO in recording proper satisfaction, was made good by the
ld. CIT(A). It is settled legal position that the first appellate
authority holds the same powers in the disposal of appeal which
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the AO possesses. He can do what the AO could have done. The
Hon'ble Supreme Court in CIT Vs. Kanpur Coal Syndicate (1964)
53 ITR 225 (SC) dealt with the scope of the powers of the first
appellate authority vis-a-vis that of the Assessing Officer. It held
that : "The scope of his [CIT(A)] power is co-terminus with that of
ITO. He can do what the ITO can do and also direct him to do what
he has failed to do.' The same view has been reiterated in Jute
Corp. of India Limited Vs. CIT (1991) 187 ITR 688 (SC) by affirming
the earlier judgment in Kanpur Coal Syndicate (supra) holding
that : "The power of the AAC is co-terminus with that of the
ITO,..... Even otherwise an appellate authority while hearing
appeal against the order of a sub-ordinate authority has all the
powers which the original authority may have in deciding the
question before it subject to the restrictions or limitation, if any,
prescribed by the statutory provisions. In the absence of any
statutory provision the appellate authority is vested with all the
plenary powers which the sub-ordinate authority may have in the
matter." In view of this legal position emanating from the above
discussed judgments of the Hon'ble Summit court, it is patent that
the argument about the non-recording of satisfaction about the
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incurring of expenses in relation to exempt income does not hold
water.
5. Now coming to the merits of the addition, it is observed that
the first amount of disallowance is `8,22,725/- being the interest
towards investment in shares and mutual funds yielding exempt
income. In this regard, it is observed from the assessee's balance
sheet that total investments made by it stand at `2.33 crore.
Some of such investments yielded exempt income. When we turn
to the amount of Shareholders' funds, it can be seen that the
same stands at `18.61 crore. The Hon'ble Bombay High Court in
CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom)
has held that if there are interest free funds available with the
assessee sufficient to meet its investment and, at the same time,
loan has been raised, it can be presumed that the investments
were from interest free funds and, resultantly, no disallowance of
interest can be made. Third Member in Visen Industries Ltd. Vs.
Addl. CIT (2012) 136 ITD 309 (Mum) (TM) has also taken similar
view. The Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd.
(2014) 366 ITR 505 (Bom), has held that where assessee's capital,
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profit reserves, etc., were higher than the investment in tax free
securities, it would have to be presumed that the investment
made by the assessee would be out of interest free funds
available with the assessee and, consequently, no disallowance
could be made u/s 14A of the Act. In view of the fact that the
assessee's share capital with reserves and surpluses is far in
excess of the amount invested in securities fetching exempt
income, there can be no question of disallowance of interest
amounting to `8,22,725/-. The disallowance to this extent is
deleted.
6. As regards the remaining part of disallowance at `1,23,503/-,
we find that the same is in accordance with law as per Rule
8D(2)(iii), being an amount equal to ½% of the average of the
value of investment. Since the assessment year under
consideration is 2009-10, the mandate contained in Rule 8D
applies as per the judgment of the Hon'ble jurisdictional High
Court in the case of Maxopp Investments Ltd. Vs. CIT (2012) 347
ITR 272 (Del). We, therefore, sustain the disallowance u/s 14A at
`1,23,503/-. These grounds are partly allowed.
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7. Ground No.5 is against confirmation of disallowance of
`42,000/- on account of prior period expenses. The assessee had
shown `Prior period expenses' in its tax audit report at
`5,45,791/-. However, in the computation of income, only a sum
of `5,03,791/- was added back. On being called upon to explain
as to why the remaining amount of `42,000/- was not added, the
assessee stated that this represented the Effluent treatment plant
apportioned share demanded by Commissioner of Industries,
Government of NCT of Delhi as per copy of order dated 19.6.08.
As the expenses were crystalised during the year under
consideration, the assessee claimed that deduction was
permissible. Unconvinced, the AO made disallowance of
`42,000/-, which came to be upheld in the first appeal.
8. After considering the rival submissions and perusing the
relevant material on record, it is observed that the Commissioner
of Industries, Government of NCT of Delhi, vide notice of demand
dated 19.6.08, raised a demand of `42,000/- towards apportioned
cost of common Effluent treatment plant. From a copy of this
notice, which has been placed on record, it can be seen that the
assessee was directed to pay `42,000/- towards demand
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pertaining to financial year 2006-07 and 2007-08. The otherwise
deductibility of such expenses has not been disputed by the AO.
Since this amount became payable by virtue of notice of demand
issued by the Government on 19.6.08, the same, in our
considered opinion, is rightly allowable as deduction. Overturning
the impugned order on this score, we order for the deletion of
addition.
9. The last ground is against the confirmation of disallowance
of `10,500/- out of legal expenses. The assessee claimed
deduction of `15,000/- being legal fees paid in the case State vs.
Abdul Hameed. This was supported by a bill of the Advocate from
which it was seen that the assessee's driver, namely, Abdul
Hameed, was taken into custody pursuant to an accident and the
amount was paid as Advocate fee for seeking his bail. A further
sum of `3,000/- was claimed as deduction as certification charges
of the net worth of Directors. The AO disallowed `18,000/-. The
ld.CIT(A) restricted the disallowance to a sum of `10,500/-,
comprising `7,500/- out of legal fees paid to Advocate and
`3,000/- paid as certification charges.
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10. After considering the rival submissions and perusing the
relevant material on record, we find that the Advocate's fees of
`7,500/- for seeking bail in respect of the offence committed by
the assessee's driver is not allowable in terms of Explanation to
section 37(1) which prohibits deduction of any expenditure
incurred for any purpose which is an offence or which is
prohibited by law. As the Advocate's fee related to criminal
liability of the driver, the same, in our considered opinion, does
not call for deduction. In so far as other component of the
disallowance, namely, `3,000/- is concerned, we find that this is in
respect of certification charges of the net worth of directors,
which certificates were used for obtaining loans by the company
from banks. This expenditure, in our considered opinion, is
deductible as per law. This ground is, therefore, partly allowed.
11. In the result, the appeal is partly allowed.
The order pronounced in the open court on 07.01.2015.
Sd/- Sd/-
[A.T. VARKEY] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 07th January, 2015.
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dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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