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T & T Motors Ltd., 212, Okhla Industrial Estate-III, New Delhi. Vs. Addl. CIT, Range-16, New Delhi.
January, 08th 2015
                DELHI BENCHES : H : NEW DELHI


                       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.

     (Appellant)                           (Respondent)

              Assessee By     :    Shri V.K. Aggarwal, AR
              Department By   :    Shri J.P. Chandrakar, Sr.DR



       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


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

                                                      ITA No.6490/Del/2012

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

                                                   ITA No.6490/Del/2012

incurring of expenses in relation to exempt income does not hold


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,

                                                       ITA No.6490/Del/2012

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


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.

                                                        ITA No.6490/Del/2012

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
                                                   ITA No.6490/Del/2012

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


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.

                                                     ITA No.6490/Del/2012

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.

                                 ITA No.6490/Del/2012


Copy forwarded to:

     1.   Appellant
     2.   Respondent
     3.   CIT
     4.   CIT (A)
     5.   DR, ITAT

                           AR, ITAT, NEW DELHI.

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