Corporate Tax and Transfer Pricing Ruling: Summary for AY 2012-13 to 2015-16

ORDER

Rakesh Mishra, Accountant Member.- These appeals filed by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals)-22, Kolkata [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AYs 2012-13, 2013-14, 2014-15 & 2015-16 dated 31.01.2019 and 22.05.2019, respectively.

1.1. The Registry has informed that all the four appeals filed by the Revenue are barred by limitation by 17 days. An application seeking condonation of delay has been filed by the Revenue stating that there were proceedings under progress with the Ld. Pr. CIT, authorisation for filing of second appeal only on corporate ground (other than TP issue) was received and proceedings were under progress with the Ld. Pr. CIT for according approval towards transfer pricing issue only. Thereafter, approval was received for grounds of appeal with respect to transfer pricing issue on 21.05.2019. The Ld. DR requested the Bench that the delay may be condoned in view of the aforesaid reasons. Considering the application for condonation of delay and the reasons stated therein, we are satisfied that the Revenue had a reasonable and sufficient cause and was prevented from filing the instant appeals within statutory time limit. We, therefore, condone the delay and admit the appeals for adjudication.

2. The Revenue is in appeal before the Tribunal raising the following grounds of appeal:

“1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the sum of Rs.77,70,880/- incurred towards professional fees to legal advisors which was treated as capital expenditure by the A.O.

2. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in giving part relief to the extent of Rs.86,08,865/-, being 90% of the actual disallowance made by the A.O. of Rs.95,65,406/- under Repairs and Maintenance without there being any justification of as to why such disallowance should be restricted to 10% and not more or fully disallowed.

3. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in law as well as facts in deleting the disallowance of excess depreciation of Rs.12,61,664/- claimed on building whereas the assessee company failed to substantiate its claim properly and had no approvals / permits from various authorities to use such a premise for guest house.

4. That on the facts and circumstances of the case, the Ld. CIT(A) erred in correct in treating the expenditure of Rs.55,07,700/- claimed towards Trademark and Copyright consultancy under the head “Professional Fees” as revenue expenditure instead of capital expenditure as treated by the AO in the assessment proceeding.

5. That on the facts and circumstances of the case, the Ld. CIT(A) erred in correct in directing the AO to delete the disallowance of Rs.1,19,67,718/-computed u/s.14A read with Rule 8D(2) (ii) and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s. 14A of the Act.

6. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in restricting the Addition of Rs.1,19,67,718/- being expenses incurred on exempt income, while computing book profit u/s.115JB of the Act and directing the AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs.5,53,878/.

7. That the Ld. CIT(A) has erred on facts and law in deleting the arm’s length price adjustment of Rs.4,47,18,502/- made by the AO/TPO on account of loan advanced to AE.

8. That the Ld. CIT(A) has erred on facts and law by not allowing the method of benchmarking of the transaction by taking cost of funds plus credit spread as the most appropriate method in the facts of the case of the assessee.

9. That the Ld. CIT(A) has erred on facts and law by not determining the arm’s length rate of interest in accordance with Section 92C of the Incometax Act 1961 (the Act) read with Rule 10B & 10C of Income Tax Rules’ 1962 (the Rules).

10. That the Ld. CIT(A) has erred in facts and law to also ignore the fundamental fact that LIBOR is just the inter-bank rate to transact between banks and to determine arm’s length interest rate for loan transactions between two companies (assessee and its associated enterprise), an appropriate adjustment for difference between international transaction and comparable uncontrolled transaction as envisaged under Rule 10B & 10C of the Rules becomes imperative.

11. That the Ld. CIT(A) has erred on facts and law by restricting the guarantee fee rate to 1% which is much lower than the CG rate of 3.6% determined by the Ld. TPO, for a non-fund based financial assistance.

12. That the Ld. CIT(A) has erred on facts and law in stating that the CG rate charged by the TPO at 3.6% is highly excessive or unreasonable without giving any scientific or logical reasoning or the same while the TPO had determined the rate at 3.6% based on the information available on record.

13. That the Ld. CIT(A) has erred on facts and law restricting the CG rate at 1% without considering the credit rating of the AE which is a vital factor while availing loan from a financial institution and accordingly, the effective rate of interest was calculated and CG rate was determined accurately.

14. That the Ld. CIT(A) has erred on facts and law in determining the arm’s length rate of interest in accordance with 92C of the Income-tax Act, 1961 (the Act) read with Rule 10B & Rule 10C of the Income-tax Rules, 1962 (the Rules).

15. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds herein above before or hearing of this appeal. “

“1. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting in correct in treating the expenditure of Rs.77,56,332/- as revenue expenditure instead of capital expenditure as treated by the then AO in the assessment proceeding.

2. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in directing the AO to delete the disallowance computed u/s.14A read with Rule 8D(2)(ii) and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s.14A of the Act.

3. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in restricting the Addition of Rs.51,48,540/- being expenses incurred on exempt income, while computing book profit u/s.115JB of the Act and directing the AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs.4,19,505/.

4. That the Ld. CIT(A) has erred on facts and law by restricting the guarantee fee rate 1% which is much lower than the CG rate of 3.6% is highly excessive or unreasonable without giving any scientific or logical reasoning for the same while the TPO had determined the rate at 3.6% based on the information available on record.

5. That the Ld. CIT(A) has erred on facts and law in stating that the CG rate charged by the TPO at 3.6% is highly excessive or unreasonable without giving any scientific or logical reasoning for the same while the TPO had determined the rate at 3.6% based on the information available on record.

6. That the Ld. CIT(A) has erred on facts and law by restricting the CG rate at 1% without considering the credit rating of the AE which is a vital factor while availing loan from a financial institution and accordingly, the effective rate of interest was calculated and CG rate was determined accurately.

7. That the Ld. CIT(A) has erred on facts and law in determining the arm’s length rate of interest in accordance with 92C of the Income-tax Act, 1961 (the Act) read with Rule 10B and Rule 10C of the Income tax Rules, 1962 (the Rules).

8. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds herein above before or hearing of this appeal. “

“1. That on the facts and circumstances of the case the Ld. CIT(A) erred in correct upholding the Order of the Ld. CIT(A) deleting the disallowance made by the AO of excess depreciation of Rs. 43,39,284/- claimed by the assessee, as the assessee-company except for claiming that the equipment identified for having claimed excess depreciation are integral to the manufacturing process, has not been able to prove or justify as to in which way the concerned in terms have been able to enhance the production process or output of the assessee’s business.

2. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in giving part relief to the extent of Rs. 40,89,253/-, being 90% of the actual disallowance made by the AO of Rs.45,43,615/- under Repairs and Maintenance without there being any justification of as to why such disallowance should be restricted to 10% and not more or fully disallowed.

3. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in law as well as facts in deleting the disallowance of Rs 2,84,02,596/- being excess payment of remuneration made to Executive Director Gazette, when the fact is that Notification No.GSR534(E) dated 14.07.2011, issued by the Ministry of Corporate Affairs, Government of India is applied for listed entities, and the assessee-company is not a listed one.

4. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in treating the expenditure of Rs.26,84,657/- claimed towards Trademark and Copyright consultancy under the head Professional Fees as revenue expenditure instead of capital expenditure as treated by the A.O. in the assessment proceeding.

5. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in directing the AO to delete the disallowance of Rs.2,97,71,945/-computed u/s.14A read with Rule 8D(2)(ii) and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s. 14A of the Act.

6. That on the facts and the circumstances of the case, the Ld. CIT(A) erred in correct in restricting the Addition of Rs.2,97,71,945/- being expenses incurred on exempt income, while computing book profit u/s.115JB of the Act and directing the AO to restrict the addition in terms of clause (1) contained in the Explanation 1 to section 115JB of the Act to Rs.49,670/-

7. That the Ld. CIT(A) has erred on facts and law by restricting the guarantee fee rate 1% which is much lower that the CG rate of 3.6% determined by the Ld. TPO, for a non-fund based financial assistance.

8. That the Ld. CIT(A) has erred on facts and law in stating that the CG rate charged by the TPO at 3.6% is highly excessive or unreasonable without giving any scientific or logical reasoning for the same while the TPO had determined the rate at 3.6% based on the information available on record

9. That the Ld. CIT(A) has erred on facts and law by restricting the CG rate at 1% without considering the credit rating of the AE which is a vital factor while availing loan from a financial institution and accordingly, the effective rate of interest was calculated and CG rate was determined accurately

10. That the Ld. CIT(A) has erred on facts and law in determining the arm’s length rate of interest in accordance with 92C of the Income-tax Act, 1961 (the Act) read with Rule 10B and Rule 100 of the Income tax Rules, 1962 (the Rules).

11. That the appellant craves leave to add to and/or alter, amend, modify or rescind the grounds herein above before or hearing of this appeal.”

“1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.50,73,670/- made by the A.O on account of Excess depreciation on Furniture & Fixtures when the assessee, except for claiming that the equipment identified for having claimed excess depreciation are integral to the manufacturing process, has not been able to prove or justify as to how the concerned items enhance the production process or output of the business.

2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.46,75,775/- being 90% of the actual addition made by the A.O on account of Repairs & Maintenance of Rs. 51,95,305/-.

3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3,71,75,123/- made by the A.O on account of disallowance computed u/s 14A r.w. Section 8D(2) (ii) and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year.

4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs. 2,12,146/-

5. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.2,06,17,228/- being excess payment to remuneration made to Executive Director as the Gazette Notification No. GSR 534(E) dtd. 14.07.2011 in question applied to listed entities which the assessee is not. 6. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.24,99,734/-made by the A.O by treating the renewal of previously sanctioned IPR/Trademark as capital expenditure instead of revenue expenditure.

Transfer Pricing Ground

7. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the guarantee fee rate to 1% which is much lower than the CG rate of 3.6% & 2.85% determined by the Ld. TPO, for a non fund based financial assistance.

8. The Ld. CIT(A) has erred on the facts and in law in stating that the CG rate charged by the TPO at 3.6% & 2.85% is highly excessive or

unreasonable without giving any specific or logical reasoning for the same while the TPO had determined the rate at 3.6% and 2.85% based on the information available on record.

9. The Ld. CIT(A) has erred on the facts and in law by restricting the CG rate at 1% without considering the credit rating of the AE which is a vital factor while availing loan from a financial institution, and accordingly, the effective rate of interest was calculated and CG rate was determined accurately.

10. The Ld. CIT(A) has erred on the facts and in law in determining the arm’s length rate of interest in accordance with 92C of the Income Tax Act, 1961 (the Act) r.w. Rule 10B & 100 of the Income Tax Rules, 1962 (the Rules).

11. The Ld. CIT(A) has erred on the facts and in law as it failed to appreciate that, the act of giving CG by the assessee to its AE has benefitted the AE and hence the benefit needs to be equally shared between the guarantor and the receiver.

12. That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.”

2.1 Since the issues are common, all the four appeals were heard together and are being decided vide this common order for the sake of convenience and brevity.

A. We shall first take up the appeal in ITA No. 1246/KOL/2019; AY 2012-13 for adjudication.

3. Brief facts of the case are that the assessee is a company engaged in the business of trading and servicing of vacuum cleaners, water filters cum purifiers, water & waste water treatment plant, electronic air cleaning systems, small household appliances and digital security system, etc. The assessee had filed its return of income for AY 2012-13 showing total income of Rs. 28,94,75,270/-. The return was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued to the assessee. In respect of the international transactions entered during the assessment year, a reference was made to the Ld. Transfer Pricing Officer, Kolkata (“TPO”) u/s 92CA(1) of the Act. The Ld. TPO computed the Arm’s Length Price and passed an Order u/s 92CA(3) of the Act on January 25, 2016. On receipt of the Ld. TPO’s order, the Draft Assessment Order was passed on 10.03.2016 and was sent to the assessee. Vide letter dated 22^nd March, 2016 the assessee stated that they were not filing any application with the Dispute Resolution Panel against the Draft Assessment Order and would prefer an appeal with the Ld. CIT(A). Thereafter, a Final Assessment Order u/s 143(3) r.w.s. 144C of the Act was passed assessing the total income of the assessee at Rs. 52,72,64,911/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who considered the facts of the case, the Assessing Officer’s (hereinafter referred to as Ld. ‘AO’) findings, the submissions of the assessee and passed a detailed order dated 31.01.2019 and partly allowed the appeal of the assessee.

4. Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal. It may be mentioned that the assessee had also filed appeals against the orders of the Ld. CIT(A) for all the four years but the same were not pressed and were dismissed as not pressed vide common order dated 08.10.2024 for all the four years.

5. Rival contentions were heard and the submissions made have been examined.

6. Ground No. 1 relates to the Ld. CIT(A) erring in deleting a sum of Rs. 77,70,880/- incurred towards professional fees to legal advisors which was treated as capital expenditure by the Ld. AO.

6.1 The Ld. AO had observed as under regarding this issue:

“Disallowance of Rs.77,70,880/- paid as Professional Fees to various legal advisors for the works related to either acquisition of new unit or expansion of the existing undertaking:

1. From the details filed by the assessee it is seen that the assessee has paid to various professionals for the works/services which pertain to either acquisition/setting up of a new unit which has not yielded any revenue or for the expansion of existing business. Out of those Rs.77,70,880/- has been paid to Borel and Barbey for acquisition (of) a company/business unit in foreign country which not yet generated any revenue and the assessee has claimed the same as revenue expenditure. Though the assessee has tried to impress that it is not an expansion of existing business and also not an effort of setting up of a new business unit and it should not be covered by the provision of section 35D of I.T. Act, 1961.

2. The contention of the assessee is considered and compared with the language of section 35D of I.T. Act, 1961 and it is observed that the said expenditure does not qualify for deduction either u/s.36(2) or 37(1) as the said unit is not yet operational during this year. Further, the details of professional activities done by Borel & Barbey according to the work sheet filed by the assessee during the course of hearing has revealed that it comprises review of draft amendment to the Article of association, amendments to Articles, drafting of Board Regulations, draft legal opinion of Lux International AG which led to charge of Rs.77,70,880/- as legal/professional charges to help in acquisition of a foreign business is being disallowed as a capital expenditure. However, the assessee is at liberty to bifurcate this disallowance at 1/5th of total expanse and may start claiming as expenditure u/s. 35D for 10 consecutive years from the year in which such business will be operational or ready for operation. Therefore, the disallowance proposed here to the extent of Rs.77,70,880/- and added back to the returned income of the assessee. “

6.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee gave his findings as under:

“1. I have carefully considered the action of the Ld. A.O in making the impugned disallowance of Rs.77,70,880/- paid as professional fees to legal advisors on the alleged ground that the same are related to either acquisition of new unit or expansion of the existing undertaking and is to be governed by provisions of section 35D of the Act. In a nutshell, the relevant jurisdictional facts are that during the subject assessment year under consideration, the assessee-company paid a sum of Rs. 77.71 lacs to M/s Borel and Barley, Advocates based in Geneva, Switzerland, for rendering various services like analysis, amendments to the proposed Share Purchase Agreement and Shareholders Agreement, review and finalization of due diligence reports, conference calls, e-mails and communication with clients and in legal matters, draft legal opinion on agreement with LUX International AG (“new acquisition”) relating to the acquisition of new unit. After examining the matter, the Ld. A.O has concluded that the impugned expenditure did not qualify for deduction u/s. 37(1) or 36(2) of the Income Tax Act. While so concluding the Ld. A.O has observed that the assessee-company was at liberty to bifurcate the expense u/s. 35D at 1/5^th of total expenditure.

In appeal, the appellant-company Ld. A.R have advanced arguments and made the following submissions:

3. After carefully examining the submissions made by the appellant along with the necessary evidence placed in the Paper Book and weighing the same against the observations and conclusions as made by the Ld. A.O, I find that there could be no dispute in the claim of the assessee that the impugned expenses were incurred in order to expand its existing business, in this case by the takeover of a subsidiary. Therefore I find myself in agreement with the argument of the assessee that any expenditure incurred towards “expansion” of the existing business of the Appellant has to be held as “laid out or expended wholly and exclusively for the purpose of business” and as such allowable u/s 37(1)’of the Act. I observe that the case of the appellant is well covered by the Hon’ble Jurisdictional High Court of Calcutta which had held in the case of M/s Kesoram Industries & Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Cal) that:

4. I am also in agreement with the appellant-company that its situation was also covered by the case of Commissioner of income tax v. Priya village Roadshows Ltd (Delhi High Court) expenditure incurred for preparation of feasibility report of a new project, is in respect of same business which is already carried on by assessee, to start a new unit which is same as earlier business, and there Is unity of control and a common fund, then such expenditure is to be treated as revenue expenditure. In the light of the circumstances narrated, I am unable to agree with the Ld. A.O that the expenditure of capital Nature, and was therefore to be allowed. I hold that the impugned expenditure of Rs.77,70,880/- had been “laid out or expended wholly and exclusively for the purpose of business” by the appellant-company, and was deductible allowable u/s 37(1) of the Income Tax act, 1961. The disallowance made by the Ld. A.O strands deleted, and the ground of appeal stands allowed. “

6.3 The Ld. DR submitted that the Ld. CIT(A) had based his findings on the decisions which were distinguishable and not applicable to the facts of the case of the assessee. The Ld. AR submitted that the Ld. CIT(A) had rightly followed the decision of the jurisdictional High Court of Calcutta in the case of Kesoram Industries & Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Calcutta) and the decision of the Hon’ble Delhi High Court in the case of CIT v. Priya Village Roadshows Ltd. ITR 594 (Delhi). The principle laid down by the two Hon’ble High Courts in these two decisions fully apply to the facts of the instant case as on record and set out in para 12.1 of the impugned order and para 12.2(a) and (b). In the premises, there being no infirmity in the findings of the Ld. CIT(A) on this issue, the contention of the Department cannot survive.

6.4 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). In the case of Kesoram Industries & Cotton Mills Ltd. (supra) it has been held that the principles are well-settled. It cannot be disputed that if the expenses are incurred in connection with the setting up of a new business, such expenses will be on capital account. But where the setting up does not amount to starting of a new business but expansion or extension of the business already being carried on by the assessee, expenses in connection with such expansion or extension of the business must be held to be deductible as revenue expenses. One has to consider the purposes of the expenditure and its object and effect. The finding of the Tribunal in this case is that there was an expansion or extension of the existing business of the assessee. The assessee is a manufacturer of cement. In addition to its factory in Andhra Pradesh, it proposed to start another cement factory in Rajasthan. There is one business. Although the factory at Rajasthan was not set up in the previous year relevant to the assessment year, this fact, in our view, is not a relevant factor in determining whether the deduction is allowable or not. The expenses in this case are miscellaneous expenses and legal charges for the proposed cement factory project. This expenditure is not related to the setting up of a new factory, it pertains to exploring the feasibility of expanding or extending the existing business by setting up a new factory in the same line of business. The assessee, during the course of its business, may incur expenditure for obtaining a project report or legal opinion regarding the viability of such project. This cannot, in our view, be considered as capital expenditure as, in that case, any legal expenses incurred by an assessee for taking any opinion on the desirability or feasibility of expansion of the business will not be allowable as deduction. Such expenditure is unmistakably connected with the running of the business. Thus, in that case the issue related to the feasibility of expansion of the business while the assessee was acquiring a new unit and it was an extension of his undertaken / setting up a new unit. In the case of Priya Village Roadshows Ltd. (supra), it has been held that in the instant case, expenditure was incurred in respect of same business, which was already carried on by the assessee. Two projects which were undertaken were for the expansion of the same business, namely, one for taking over another cinema for conversion into multiplex and operation and management thereof and other for conversion of self-owned cinema into multiplex. Payments were made to the consultants for preparing feasibility reports in respect of both the projects. However, ultimately projects were not found to be financially and technically viable and were shelved. Thus, finding given, that no new asset came into existence, which was the basis adopted by the Assessing Officer for treating the expenditure as capital expenditure was wrong. Thus, in both these cases, the issue related to feasibility report, and whether the expenditure was capital or revenue in nature and the applicability of section 35D of the Act was not under consideration. The Ld. AO has mentioned that the expenditure related to the extension of the undertaking or in connection with the setting up of a new unit and discovered under section 35D (1)(ii) of the Act in the case of an Indian company and for the expenditure incurred after the 31/03 /1998, 1/5 of such expenditure for each of the 5 successive previous year shall be allowed, beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed the new unit commences production or operation. It has been held in the case of Nathmal Bankatlal Parikh & Co. v. CIT (Andhra Pradesh) that section 37(1) being a residual provision, it cannot be taken aid of, unless and until it is established that none of the provisions of sections 30 to 36 are applicable to a given case. Before examining the question, applying section 37(1), it is the duty of the assessing authority to see whether the claim of the assessees falls under any one of the items of deduction specified in sections 30 to 36. Where the case specifically falls under any one of the specific provisions of sections 30 to 36, although, it was not specifically pleaded by the assessee, the assessing authority has a statutory duty and obligation to consider the claim of the assessee pertaining to a particular item as revenue expenditure. Since there is a specific provision under section 35D for amortization of certain preliminary expenses which was applicable on the facts of the case, the recourse could not have been had to the residuary provision of section 37(1) of the Act. Thus, on the facts of the case, the decision of the Ld. CIT(A) is not correct and is reversed, the findings of the Ld. AO are upheld and Ground No. 1 of the appeal is allowed.

7. Ground No. 2 relates to the Ld. CIT(A) erring in giving part relief to the extent of Rs. 86,08,865/-, being 90% of the actual disallowance made by the Ld. AO of Rs. 95,95,406/- under repairs and maintenance without there being any justification of as to why such disallowance should be restricted to 10% and not more or fully disallowed.

7.1 The Ld. AO had observed as under regarding this ground:

“The expenditure of Rs.1,27,53,875/- spent for renovation of various offices premises taken on rent/lease for three years of term, but renewed continuously is disallowed being capital expenditure:

13.1. During the course of scrutiny proceedings, it is noticed that the assessee company has incurred Rs.1,27,53,875/- for Renovation on leased premises for the financial year 2011-12 under “Repairs and maintenance” to the various offices taken on either Rent or Leased basis and the assessee has claimed at such expense was allowed by Kolkata ITAT vide I.T.A. No. 1346/Cal/1999. The details of such expenditures are submitted vide Annexure-9 to the written submission dated: 10th Dec, 2016 and the sample copy of agreement enclosed thereof revealed that substantial amount of expenditures is incurred the assessee for different premises across the country.

13.2. Further, all such rental or leasehold offices have been running more than three years or not because, it is a prevailing market system to make an agreement for the maximum period of three years by the landlords to avoid the litigation due to tenancy right. The assessee was requested to furnish the details of such rented and leasehold office premises and which gave the breakthrough on this issue which is different from the reasons mentioned in the said assessment order which was dealt by Hon’ble ITAT, Kolkata. On verification of details, it is noticed that the assessee company has claimed repair and maintenance expenses amounting to Rs.1,27,53,875/- in its profit & loss account for the office premises which are taken on rent or lease for three years at a time per agreement but those office premises have been continuing without any intervention for a long time by way of time to time renewal. The stay period of all the hired (rent/lease) office premises was more than the three years. The assessee has not denied said fact.

13.3. On perusal of details it is further seen that most of the expenses are relating to furniture and fixtures. The said expenditure includes partition work, electrical fittings, work stations, parking lots, and extension of twowheeler parking, D.G. set rooms etc. Further, the said expenses were incurred for the office premises which have been continuously using due to renewal of three years of rental or lease agreement and cognizance of this fact was not given in earlier occasions or not discussed in the assessment order where the assessee had been given relief by Hon’ble ITAT. The period of agreement in that occasion was mentioned for three years only and the continuous renewal without any intervention with prior intention to continue there was not brought on record. It is a very common practice across the country not to allow any private party as tenant to occupy any building for more than three years, in a single agreement, only to avoid the litigation but not with an intention to not renew the same. Therefore, in view of this the above discussed expenses of Rs.1,27,53,875/- is in the nature of capital expenditure as the same provides the enduring benefit to the assessee. However, the assessee has claimed the said expenses as revenue in nature. The assessee has also claimed that in the case of the assessee an order was passed by the ITAT for A.Y. 1992-93 in favour of the assessee and therefore no issue should be taken in the relevant A.Y. 2012-13. The above claim of the assessee is not acceptable as the facts are totally different in this year from those of the A.Y. 1992-93. Hence, the doctrine of res judicata is not applicable here. The expenses have been incurred for major renovation and remodelling of the office premises with an intention to continue there are being considered as capital in nature. As the expenses are capital in nature, the said are allowed to be capitalized. However, considering the average span of the lease period the assessee is allowed 25% of such expenditure to claim as deferred revenue expenditure. Accordingly, 25% or 1/4th of the said expenses of Rs.1,27,53,875/- is allowed and the balance 3/4th or 75% i.e. Rs.95,65,406/- is added back with the total Income of the assessee.”

7.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee has given his finding in para 15 of the appeal order and relied upon his findings on this issue for preceding year AY 2011-12 which had been confirmed by the ITAT, and thereafter has held as under:

“I also find that the matter had been agitated by Revenue before the Hon’ble ITAT for the two A. Ys 2010-11 and 2011-12, and the Hon’ble ITAT by their orders and adjudication at Paragraphs 29, 30, and 31 have confirmed my findings. Therefore following my findings and adjudication for the A.Ys 2010-11 and 2011- 12, as well as respectfully bound by the orders of the Hon’ble ITAT for the A.Ys 2010-11 and 2011-12, in this year also this ground is partly allowed, meaning thereby that 10% of the overall disallowance remains confirmed, being treated as capital in nature, and the appellant is relieved of the balance 90% of the disallowance. The ground is therefore in effect partly allowed.”

7.3 The Ld. DR relied upon the order of the Ld. AO and requested that the addition may be confirmed. The Ld. AR submitted vide the written submissions filed that the assessee had preferred an appeal against the order of the Ld. AO in disallowing the repairs and maintenance expenditure incurred on various office premises taken on lease/rent on the alleged ground that the continuous renewal of rent/lease agreement by the assessee company displays an intention to continue occupation of the premises and accordingly such repairs and maintenance expenditure would lead to benefit of enduring nature. On the said premises the expenses were treated as deferred revenue expenditure and disallowed to the extent contained in the respective assessment orders. The Ld. CIT(A), while confirming 10% of the overall disallowances considering the same as capital in nature, deleted the disallowance of the balance 90% following his earlier decision in respect of earlier assessment years, which have been affirmed by this Hon’ble Bench of the Tribunal. The Ld. AR further submitted that in deciding this issue, the Ld. CIT(A) has followed the orders passed by the Hon’ble Tribunal in assessee’s own cases for the AYs 2008-09 and 2009-10, being Dy. CIT v. Eureka Forbes Ltd. [IT Appeal Nos. 2126 & 2625 (Kol) of 2013 dated 21-12-2016] and for AYs 2010-11 and 2011-12 passed in Dy. CIT v. Eureka Forbes Ltd [IT Appeal Nos. 2159, 2160, 2170 and 2171(Kol) of 2017, dated 28-11-2018].

7.4 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The Ld. CIT(A) has given his finding in para 15 of the appeal order. He noted that the Ld. AO has disallowed the said expenses to the extent of Rs. 95.65 lakh (3/4^th of Rs.127.53 lakh) on the alleged ground that the said expenses are deferred revenue expenses and, therefore, the expenses are allowed over a span of 4 years. He has also gone through the appeal on identical issue decided by him for the earlier year AY 2011-12 and has reproduced the order and relied upon the order of the Hon’ble Tribunal in ITA No. 2126 & 2625/KOL/2013 for AY 2008-09 & AY 2009-10 order dated 21.12.2016 in which the Hon’ble Tribunal has held as under:

“6. Repairs and Maintenance Expenditure of Rs. 1,43,46,644/- claimed as Revenue, AO Treated as Capital in nature.

6.1 The ld. DR for the Revenue had submitted that the entries in the annexure 9 which was submitted by Assessee before Assessing Officer, do not bear the character of revenue expenditure or not in nature of repairs and maintenance. The ld. CIT(A) did not follow the proper procedure and he could not obtain the remand report from the Assessing Officer. As per section 250(4) of the Act, the Id CIT (A) did not conduct further inquiry to establish whether expenditure is in the nature of Revenue or Capital. It is settled position of law that a lot of factors would determine whether the expenditure is capital or revenue in nature. It is seen in the said Annexure that the assessee has debited expenses like purchase of scanners, UPS, batteries, provisions for earlier years, huge plumbing expenses, expenditure in civil construction like extra space for godown, aluminium cubicles and fittings, purchase of chairs, sofas. There are some entries which do not have any head but only amount has been mentioned. The expenditure mentioned by the assessee have an enduring benefit and has brought into existence a new capital asset for the assessee. Like for example, the scanner, the battery, the chairs are permanent assets. The office of the assessee, the godown, the computer, the building are permanent business assets of the assessee and hence, any expenditure incurred by the assessee for renovating the office, godown etc. is to be treated as capital expenditure. The assessee has failed to establish as to how the expenditures mentioned by him can help the assessee in the process of earning profit in the course of his business activities. These expenditures are adding value to the property, creating new property or appreciably prolonging its life. The assessee is in the business of selling vacuum cleaners, water purifiers etc. and definitely not in the computer business or cinema theatre etc. to justify the expenditures mentioned above as being incidental to his business. The assessee has incurred huge expenditure which has resulted in long term benefit to the assessee and such expenditure is not allowable as revenue expenditure and the same cannot be passed as repair and maintenance. Therefore, an amount of Rs. 1,43,46,644/- out of a total of Rs.4,09,64,919/- incurred under the head ‘repairs and maintenance’ is treated as capital in nature. This way, the ld. DR has reiterated the stand taken by the Assessing Officer. The ld DR also relied on the following judgment:

CIT, Madurai v. Saravana Spg. Mills (P) Ltd. (SC):

6.2 The Ld. AR submitted that during the year under consideration, the assessee had incurred expenses on repairs & maintenance of Rs.4,09,64,919/- out of such amount the AO has disallowed Rs. 1,43,46,644/-. The assessee submitted complete details regarding the above mentioned expenditure as well as explained the nature thereof. The Ld. AR further submitted that all these expenses have been incurred by the assessee on Leased Assets. The assessee is not owner of leased assets. Therefore any repairs and maintenance expenditure incurred by the assessee on leased assets do not give ownership to claim depreciation. That is, in order to claim depreciation the assessee must be legal owner of the asset. Therefore, the expenditure incurred to maintain the leasehold property is revenue in nature. The Id AR for the assessee has shown us lease agreements and lease details. The AR for the assessee also relied on the following judgment:

6.3 Heaving heard the rival submissions, perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the proposition canvassed by the Id.AR for the assessee are supported by the judgment of hon’ble supreme court in the case of CIT v. Madras Auto Service (P) Ltd. (supra). The Id AR pointed out that the assessee spent the amount to repair leased property. The leased property belongs to the Lessor and not to the assessee. The assessee can not claim depreciation also. Considering the factual position, we are of the view that order passed by the Id CIT (A) does not contain any infirmity. Therefore, we confirm the order of ld. CIT(A).

6.4 In the result, the appeal filed by the revenue on this issue is dismissed.”

7.5 Thereafter, relying upon the orders in appeal in AY 2010-11 & AY 2011-12 in which the Hon’ble Tribunal have adjudicated in para 29, 30 and 31 this issue and has confirmed his finding, he has confirmed 10% of the overall disallowance being treated as capital in nature and has allowed 90% of the disallowance and has given part relief. We note that whether the expenditure is capital or revenue can only be examined by considering the nature of repair and any repair which is of enduring benefit can only be treated as capital in nature since every year assessment is different and the nature of repairs would also not be identical with that of AY 2012-13. In the AYs 2008-09 and 2009-10, it was submitted by the Ld. AR that major expenditure was on leased assets of which the assessee was not a legal owner and the issue was decided relying upon the decision of the Hon’ble Supreme Court in the case of CIT v. Saravana Spg. Mills (P.) Ltd. (SC). The Ld. AO has mentioned that the entire expenditure of Rs. 1,27,53,875/- (3/4th of which was disallowed being of Rs. 95,95,406/) was incurred on various office premises taken on lease/rent on the conclusion that the continuous renewal of rent/lease agreement by the assessee company displayed an intention to continue occupation of the premises of enduring nature and the same was treated as deferred revenue expenditure. However, the decision in the case relied upon was rendered on the fact that in the Annexure that the assessee had debited expenses like purchase of scanners, UPS, batteries, provisions for earlier years, huge plumbing expenses, expenditure in civil construction like extra space for godown, aluminium cubicals and fittings, purchase of chairs, sofas etc. In the decision of Saravana Spg. Mills (P) Ltd. (supra) the issue is limited to current repairs and plant & machinery and in the case of Madras Auto Service (P) Ltd. (supra) it has been held that the expenditure was revenue in nature as the leased property belongs to the Lessor and not to the assessee and the assessee cannot claim depreciation also. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) who has confirmed 10% of the overall expenses on estimated basis and granted relief in respect of the rest of the amount as the Ld. AO has himself mentioned that the expenditure relates to renovation of various office premises taken on rent/lease for three years of term, but renewed continuously whereas in the case of Madras Auto Service (P) Ltd. (supra) the lease was a long lease of a newly constructed building and the assessee got the benefit for 39 years by expending these amounts, yet the amount was treated as revenue in nature. Hence, in view of the findings of the Tribunal in the assessee’s own case in A.Y. 2008-09 and others, Ground No. 2 of the appeal is dismissed and the findings of the Ld. CIT(A) are confirmed.

8. Ground No. 3 relates to the Ld. CIT(A) erring in deleting the disallowance of excess depreciation of Rs. 12,61,664/- claimed on building as the assessee company failed to substantiate its claim properly and had no approvals/permits from various authorities to use such a premise for guest house.

8.1 The Ld. AO has observed as under regarding this issue:

“6. The assessee has claimed depreciation @10% on the residential flats and the details submitted vide Annexure-7 vide written submission dated 10-032016 during the course of hearing which reveals that the flats ore situated at Starling Sea Face, Dr. Annie Bessant Road, Worli, Mumbai -400018 [Flat No. A/701 & B/1103) along with two car parking spaces and at Eden Wood “Cedar House” Co-operative Housing Society Limited, Flat No.8C/8D/9C, Thane (West), 400061 (occupied by the employees-submitted by the assessee). Though the assessee has claimed that all those flats are used for guest house purpose yet they could not file the occupancy registers for the whole year and also failed to furnish about utilizing the same for commercial purpose or business purpose other than the residential purpose. The total depreciation of Rs.25,23,328/- claimed in this regard, on WDV of Rs.2,52,33,278/-, @ 10% as admissible other than the buildings used mainly for residential purposes except hotels and boarding houses, and installation of machinery & plant etc. Here, the assessee had flats within the residential complexes and neither the occupancy registers nor the permission for utilizing the same either as hotel/boarding houses/guest houses could be filed hence, the allowable depreciation is being restricted to 5% instead of 10%. Therefore, the disallowable interest is computed 1/2 of Rs.25,23,328/-, i.e. Rs.12,61,664/- is added back with the returned income.”

8.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee has given his finding in para 18 of the appeal order and relied upon his findings on this issue in the preceding year AY 2011-12, which finding has been confirmed by the Hon’ble ITAT, and thereafter has held as under:

“3. I also find that the matter had been agitated by Revenue before the Hon’ble ITAT for the two A.Ys 2010-11 and 2011-12, and the Hon’ble ITAT by their orders and adjudication at Paragraphs 24,25,26,27 and 28 have confirmed my findings. Therefore following my findings and adjudication for the A.Ys 2010-11 and 2011- 12, as well as respectfully bound by the orders of the Hon’ble ITAT for the A.Ys 2010-11 and 2011-12, in this year also this ground is allowed.”

8.3 The Ld. DR submitted that normal deposition at the rate of 5% should have been allowed in not at the rate of 10%. The Ld. AR submitted that this issue, common in AYs 2012-13 and 2014-15, stands settled by decision of the Hon’ble Tribunal in the assessee’s own case for the AYs 2010-11 & 2011-12, vide order dated November 28, 2018 passed in ITA Nos. 2159, 2160, 2170-2171/Kol/2017 for AYs: 2010-11 and 2011-12, involving similar facts. In fact, the Ld. CIT(A) has followed the said order of the Hon’ble Tribunal. The Ld. AR further submitted vide written notes filed that the contention of the Department, therefore, is unsustainable in respect of grounds referred in paragraphs 4 to 7 hereinabove following the principles of consistency laid down by the Hon’ble Apex Court in the cases of Radhasoami Satsang v. CIT (SC)/1992 (1) SCC 659, paras 16 & 17 and Pr. CIT v. Maruti Suzuki India Ltd. ITR 613 (SC), para 34 [which decision has been followed by the Hon’ble Delhi High Court in Pr. CIT v. Ms. PNB Housing Finance Ltd. ITR 476 (Delhi), [SLP of Department against which has been dismissed by the Supreme Court in Pr. CIT v. PNB Housing Finance Ltd. (SC) consistently followed by this Hon’ble Tribunal.

8.4 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Since the issue has been decided based upon the findings of the Ld. CIT(A) in A.Y. 2011-12 which have been confirmed by the Tribunal, therefore, there is no reason to interfere with the findings of the Ld. CIT(A) whose findings are confirmed and Ground No. 3 of the appeal is dismissed.

9. Ground No. 4 relates to the Ld. CIT(A) erring in treating the expenditure of Rs. 55,07,700/- claimed towards Trademark and Copyright consultancy under the head “Professional Fees” as revenue expenditure instead of capital expenditure as treated by the Ld. AO in the assessment proceeding.

9.1 The Ld. AO had observed as under regarding this issue:

“8. Disallowance of Trademark and Copyright consultancy expenditure of Rs.55,07,700/-:

8.1. The assessee has debited Rs.55,07,700/- as Trademark and Copyright consultancy under the head” Professional fees” against Suresh & Co. explaining the same as revenue expenditure as no fresh trademark and copyright has been obtained by the assessee during this year but the same has been incurred to keep continuing the current trademark and existing copy right. The contention of the assessee is considered and perused but after going through the details of the same it is observed that such voluminous expenditures of continuing the existing Trademark and Copyright is nothing but only an addition to the fixed assets under the subhead “Intangible Asset” like tangible asset where the assets are physically added with the existing assets for running further or revival of old assets.

8.2. Therefore, in view of above it is crystal clear that the assessee has incurred debited Rs.55,07,700/- as revenue expenditure which is actually the capital expenditure in the form of addition to the intangible asset for giving new life to the trademark and copyright. Hence, the aforesaid expenditure of Rs.55,07,700/- is disallowed u/s.3(l) of the Act and added back to the returned income of the assessee. However, the assessee can approach to the department for claiming for depreciation at the rate 25% on the said amount for this year and then 25% on WDV only.”

9.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee gave his findings as under:

“3. I have carefully considered the issue in appeal, and find that that there is considerable merit in the plea of the appellant-company that the impugned expenditure has been incurred on legal expenses for renewal and registration of its trademarks, and not for the creation of any new trademark. Therefore it would be true that the expenditure has been incurred for the continuance and protection of the business of the company and reduces the legal expenses of the company. In my considered view it would therefore qualify for an expense incurred wholly and exclusively for the purposes of the assessee company’s business, and as such be allowable under section 37(1) of the Income Tax Act, 1961. I also find that in a similar situation the Hon’ble High Court of Gujarat in the case of CIT -vs.- Cadila Healthcare Ltd. (Gujarat) has fortified the view. The factual matrix has been elaborated in the decision of the Hon’ble ITAT, Ahmadabad Bench in the same said case reported in (Ahmadabad Tribunal) [2015] 67 SOT 110) (Ahmadabad ITAT) where the Hon’ble bench as observed, in the relevant portion, as under:

….

4. Keeping in view the ratio emanating from the various decisions as discussed supra, I find that the Ld. AO was incorrect in not appreciating the facts of the case, and the law applicable to the relevant facts. In following the ratio emanating from the above decisions as discussed, the Ld. AO is directed to delete the addition and as a result, this ground of appeal is allowed.”

9.3 The Ld. DR relied upon the order of the Ld. AO.

9.4 The Ld. AR submitted that this issue stands concluded in favour of the assessee by the following decisions:

(i) Cadila Healthcare Ltd. v. Addl. CIT (Ahmedabad – Trib.

—affirmed by the Hon’ble Gujarat High Court in CIT v. Cadila Healthcare Ltd. (Gujarat)

(ii) Pr. CIT v. Zydus Wellness Ltd. (Gujarat)

(iii) CIT v. Shree Krishna Enterprises (Punjab & Haryana)

—in this case it has been held by the Hon’ble Punjab & Haryana High Court that mere voluminous expenditure cannot make such expenditure capital in nature. This decision completely renders nugatory the finding of the AO on the issue.

9.5 The Ld. AR further submitted that in the premises, there is no infirmity in the findings of the Ld. CIT(A) on the issue, which has been arrived at following the decision of the Hon’ble Tribunal, affirmed by the Hon’ble Gujarat High Court, in the case of Cadila Healthcare Ltd. (supra).

9.6 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). It was submitted before the Ld. AO that no fresh trademark and copyright had been obtained by the assessee but the same had been incurred to keep continuing the current trademark and existing copyright. However, it was submitted before the Ld. CIT(A) that the same was incurred to maintain the existing trademark or to defend title of existing trademarks are known new trademark/copyright given to incentive in the year. Since the required evidence was not filed before the Ld. AO, the order of the Ld. CIT(A) on this issue is set aside and the issue is remanded to the Ld. AO for fresh consideration. The assessee shall file the requisite evidence in support of the claim that the expenditure was incurred for defending the title of existing trademarks shall be considered by the Ld. AO in accordance with law and in case the contention of the assessee is supported by evidence, shall allow the same in view of the judicial pronouncements relied upon by the assessee. Hence, Ground No. 4 of the appeal is allowed for statistical purposes.

10. Ground No. 5 relates to the Ld. CIT(A) erring in directing the Ld. AO to delete the disallowance of Rs. 1,19,67,718/- computed u/s14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s 14A of the Act.

10.1 The Ld. AO had observed as under regarding this issue:

“9. Disallowance of Expenditure to the extent of Rs. 1,19,67,718/- u/s.14A w.r.t. Rule 8D:

25.1. From the accounts of the assessee it is noticed that the assessee company has invested huge amount into the shares of various subsidiary companies and in other quoted shares a/so. The assessee has received dividend income on Mutual Fund/Other Companies shares of Rs.28,103/-and Dividend from Subsidiary Company of Rs.11,08,54,000/-[exempted u/s.10(34)] during the year. The assessee has disallowed Rs.5,53,878/-u/s.14A of the I.T. Act, 1961 considering the dividend and investment made in other than the subsidiary companies. But the provisions laid down in Rule-8D vide the Clauses-(i), (ii) & (Hi) does not suggest the same. According to the assessee the company has not incurred any direct expenditures including interest in earning tax exempt dividend income and further the assessee has computed disallowance under Rule – 8D(2)(iii) is Rs.5,53,878/-and made a request to accept accordingly.

25.2. The A/R has explained in various ways with logic but the related expenses including interest on loans are indivisible and no way can be concluded that there is no direct involvement of loan with the investment. The decisions of “A” Bench of Chennai ITAT in the case of Shiva Industries & Holidays Pvt. Ltd. v. ACIT (IT Appeal No. 1917 of 2011) and “K” Bench of Mumbai ITAT in the case of Stream International Services Pvt. Ltd. v. ACIT (IT Appeal No.8997 of 2010) and the Circular issued by CBDT vide No.5 of 2014 empower the Assessing Officer to disallow the expenses u/s,14A with reference to Rule 8D, irrespective of any income received or not, which does not form the part of total income for any period(s), but the investments in the shares, mutual funds etc. are there which returns only the exempted income or the income which does not form the part of total income. Here, the assessee has earned dividend income of Rs.28,103/- for investment in Mutual fund and Rs,11,08,54,000/- for the investment in shares for the year ended on 31.03.2012 which do not form the part of total income and claimed exempt under various clauses of section 10 of I. T. Act, 1961.

25.3. It is pertinent to mention that always the quantum of Dividend shall not represent the magnitude of the investment actually made by the assessee and the expenses including interest on loans are laid out for the purpose of investment due to intricacy of accounts comprises with the investment and business and due to want of day to day apportionment thereof. Therefore, the determination of quantum of expenses as per Clause (i), Clause (ii) and Clause (Hi) to Sub-Rule (2) of Rule 8 of I. T. Rule, 1962 is the only alternative to disallow judiciously as per section 14A of the I. T. Act, 1961. In this regard the reference may be drawn from the decision of Bombay High Court also in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT, Range- 10(2), Mumbai (Bombay). Here the utilization of borrowed fund both in business and investment either directly for new investment or retain the investment is indivisible because, simply the larger amount of capital than the investment is not enough to declare that the investment is made only out of own capital or fund. There are more aspects in the business as well as investment in the case of assessee. The business house has to spend money for tangible assets, to maintain business debtors, inventories etc. also. Thus without the cash trail since the first day of investment, it is not practicable to conclude that no Interest bearing loan fund has been utilized in investment or has an impact in retaining the old investments. In this circumstances the disallowance u/s,14A with reference to the Clauses (i), Clauses (ii) and Clauses (Hi) to Sub-Rule (2) of Rule-(2) is warranted in the case of assessee and the disallowable amount is worked out according to the following manner:

25.4. The disallowance of expenditure in relation to dividend income (exempt income) due to investment in shares, is being determined in accordance with the provisions of Clause-(ii) & Clause-(iii) to sub-rule (2) of Rule 8D in following manner:

(I) The amount of expenditure directly relating to income which does not form part of total income = Not Available, hence treated as NIL.

(II) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:-

AX B/C = 7,30,81,680 X 72,38,59,254/594,23,80,382= Rs.89,02,300/- X

A = “Rs.7,30,81,680/-(in” this case) = “amount” of expenditure by way of interest and other charges according to the definition of interest as laid down in section 2 (28A) of I. T. Act, 1961 other than the amount of interest included in clause(i) incurred during the previous year.

B= Rs.72,38,59,254/-(0pening Value of Investment Rs. 76,95,98,999/- and Closing value of Investment Rs.67,81,19,510/- in this case) = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

C= “Rs.594,23,80,382/-” (Opening Value of Assets Rs. 607,91,92,945/-and Closing value of Assets Rs.580,55,67,819/- in this case) = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (Hi) An amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

In this case V2 or 0.5% of Rs. 72,38,59,254/- i.e. Rs.36,19,296/

25.5. Thus the actual disallowance of expenses (as envisaged in Rule 8D) is determined at Rs.1,25,21,596/-(Rs.89,02,300/-+Rs.36,19,296/-)but disallowed only Rs.1,19,67,718/- [(Rs1,25,21,596/- 5,53,878/-) as the assessee has suo-moto disallowed Rs.5,53,878/-. Thus, the disallowance under Rule-8D of the IT, Rule, 1962 relevant section 14A of the I.T. Act, 1961 is finally computed at Rs.1,19,67,718/- and added back with the returned income as well as to determine the book profit u/s 115JB also.

25.6. Simultaneously, the said disallowance i.e., Rs. 1,19,67,718/- is also a subject matter of addition by virtue of clause (f) under Explanation [1] to the section 115JB for determining the MAT amount payable by the assessee.”

10.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee, gave his finding as under:

“1. I have carefully considered the submissions of the Ld. A.Rs and perused various judicial decisions cited before me in support of the appellant’s claim. I have also examined the impugned order wherein the disallowance u/s 14A has been made by invoking Rule 8D of the IT Rules, 1962. According to the Ld. AO the assessee’s submission that its capital was much more than investment was not sufficient to establish that borrowed funds was not used for investment purposes. The Ld. Assessing Officer accordingly rejected the [suo-motu] disallowance of Rs.5,53,878/- which had been offered by the appellant-company u/s 14A and held that the most appropriate manner of making disallowance was to invoke Rule 8D(2)(ii) & (iii) and accordingly, interest of Rs.89,02,300/- was disallowed out of interest paid. Besides, the AO also disallowed Rs.36,19,296/- being half percent of the average investments amounting to Rs.72,38,59,254/-.

2. I have examined these findings and action of the Ld. AO in the light of the detailed submissions made by the Ld. A.Rs in the submissions as also the appellate and assessment orders passed in appellant’s own case for the earlier years. From the audited accounts, it is apparent that the average cost of investments during the relevant year was Rs.7238.59 lacs whereas the appellant’s net owned funds in the form of share capital & reserves were Rs.59423.80 lacs. As such it is apparent that the assessee’s net own funds both at the beginning and at the closing of the relevant year were substantially higher than the cost of investments. For the reasons set out in the foregoing I find merit in the submissions of the Ld. A.Rs that when the assessee has both own funds and borrowed funds, then the presumption would be that the investments were acquired out of own funds.

3. It is also noted that the jurisdictional Hon’ble Calcutta High Court in the very recent case of CIT v. Rasoi Ltd (ITA No. 109 of 2015) dated 15.02.2017 has held that when the assessee’s capital, profit reserve, surplus and current account deposit were higher than the investment in the tax-free security, then it would have to be presumed that the investment made by the assessee was out of the interest free funds. The relevant extracts of the judgment are reproduced below:

“It appears for both the assessment years the Appellate Authority held that there was no finding of direct nexus between the borrowed fund and investment in shares. The assessee’s own funds were far in excess of the average total investments. There could not be any presumption of utilization of borrowed funds. Hence disallowance under section 14A read with Rule 8D(2)(ii)was deleted while disallowance of indirect expenses of Rs.1,82,346/- by application of Rule 8D(2)(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself.

On appeal preferred by the Revenue the Tribunal held as follows:-

“We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr. DR could not controvert that the assessee has made In investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs.365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made Investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue “

We find that this case has yielded concurrent finding of facts regarding expenditure incurred by the assessee for the purpose of earning the exempt income, by the Appellate Authority and the Tribunal. As such there is no scope for interference with such concurrent findings of facts. We, therefore, are not satisfied that the case involves any substantial question of law.

The application and appeal are thus dismissed.”

4. Respectfully following the above judgment of the Hon’ble Calcutta High Court, I hold that AO was not justified in disallowing interest of Rs.89,02,300/- under Rule 8D(2)(ii) and the same is directed to be deleted.

5. The Ld. AO has further disallowed 0. 5% of the average investments amounting to Rs.36,19,296/- by invoking Rule 8D(2)(iii). It is noted that the Hon’ble ITAT, Kolkata in the case of REI Agro Ltd v. ACIT (144 ITD 141) has held that 0.5% of dividend bearing investments should be alone be considered i.e. investments from where dividends were actually received by the appellant for the purposes of Rule 8D(2)(iii).Respectfully following the aforesaid decision, the Ld. AO is directed to re-compute the disallowance under the third limb of Rule 8D(2)(iii) by considering the investments which actually yielded dividend income to the appellant for computing disallowance u/s 14A of the Act. In case the disallowance so worked out in the manner as set out in the foregoing to an amount lower than the sum of Rs.5,53,878/- voluntarily disallowed by the appellant u/s 14A in the return of income, then the Ld. AO shall restrict the disallowance u/s 14A to Rs.5,53,878/-. This ground therefore stands partly allowed.”

10.3 The Ld. DR relied upon the order of the Ld. AO.

10.4 The Ld. AR submitted that during the years under consideration dividend incomes were received by the assessee out of which the substantive part of receipt from subsidiaries in which strategic investment had been made many years ago. The assessee in its return of income offered disallowance of, e.g., Rs. 5,53,878/- in AY 2012-13 under Section 14A of the Act, in terms of Rule 8D(2)(iii) of the Rules. During the course of the appeal proceedings, however, the assessee recomputed the amount of average investment (other than foreign and strategic investments) for the four assessment years involved arriving at revised average investments figures, e.g., at Rs. 37,70,781/- for AY 2012-13 and revised amounts to be considered for the purpose of Rule 8D as, e.g., Rs. 40,05,900/- for AY 2012-13. According to the said revised computation the disallowances under Rule 8D(2)(iii) of the Rules offered by the assessee worked out to, e.g., Rs. 18,854/- instead of Rs. 5,53,878 in AY 2012-13 offered in the returns filed on the basis of consideration of incorrect computation of amounts of average investments. The Ld. AR further submitted that this issue stands settled in favour of the assessee by decisions of this Hon’ble Tribunal in the assessee’s own cases for AYs 2009-10 and 2010-11 & 2011-12, passed on April 13, 2018 and November 28, 2018 respectively in ITA No. 239/Kol/2015, ITA Nos. 2159/Kol/2017 & 2171/Kol/2017. No appeal has been preferred against three orders and they have become final. The Ld. AR submitted that from the perusal of the balance sheets of the assessee it would be seen that its capital, reserve and secured loans far exceed its shares in investments. Hence it is evident that the assessee is having sufficient own funds for making the investments and therefore no disallowance of interest under Rule 8D(2)(ii) of the Rules can be made. In this regard reliance is also placed on the decision of the Hon’ble Supreme Court in South Indian Bank Ltd. v. CIT ITR 1 (SC). The Ld. CIT(A), following the decision of the Hon’ble Calcutta High Court in CIT v. Rasoi Ltd. [IT Appeal No. 109 of 2016, dated 15-2-2017], has held that the Ld. AO was not justified in disallowing interest of Rs. 89,02,300/- under Rule 8D(2)(ii) and directed the same to be deleted. The CIT(A) following the decision of this Hon’ble Bench of the Tribunal in the case of REI Agro Ltd. v. Dy. CIT ITD 141 (Kolkata – Trib.) directed the Ld. AO to recompute the disallowance under Rule 8D(2)(iii) of the Rules by considering the investments which actually yielded dividend income to the assessee for computing disallowance under Section 14A of the Act and held that since the disallowance so worked out amounted to lower than the sum offered for disallowance by the assessee in the returns of income of the 3 years, restricted the disallowance under Section 14A to respective amounts offered by the assessee in its returns, ignoring the revised figures of disallowances offered by the assessee during the course of appeal proceedings. This finding is also in accordance with the decision of the Hon’ble Supreme Court in Maxopp Investment Ltd. v. CIT  ITR 640 (SC), paras 31 to 33 and 41. The Ld. AR further submitted that the issue as regards restriction of addition under Rule 8D(2)(iii) of the Rules to only dividend bearing investments stands settled by the aforesaid decisions of this Hon’ble Bench of the Tribunal in the assessee’s own case, being [AY 2009-10] Eureka Forbes Ltd. v. ACIT [IT Appeal No. 239/Kol/2015, dated 13.04.2018]. Therein also the Hon’ble Tribunal followed its decision in REI Agro Ltd. (supra).

10.5 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Since the Ld. CIT(A) has given a very reasoned finding based upon the judicial pronouncements therefore there is no reason to interfere with the finding of the Ld. CIT(A). Hence, the Ground No. 5 of the appeal is dismissed.

11. Ground No. 6 relates to the Ld. CIT(A) erring in restricting the addition of Rs. 1,19,67,718/- being expenses incurred on exempt income, while computing book profit u/s 115JB of the Act and directing the Ld. AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs. 5,53,878/-.

11.1 The Ld. AO had observed as under regarding this issue:

“9. Disallowance of Expenditure to the extent of Rs. 1,19,67,718/- u/s 14A w.r.t. Rule 8D:

9.1 From the accounts of the assessee it is noticed that the assessee company has invested huge amount into the shares of various subsidiary companies and in other quoted shares also. The assessee has received dividend income on Mutual Fund/Other Companies shares of Rs 28,103/-and Dividend from Subsidiary Company of Rs.11,08,54,000/-(exempted u/s.10(34)] during the year. The assessee has disallowed Rs.5,53,878/-u/s 14A of the IT Act, 1961 considering the dividend and investment made in other than the subsidiary companies. But the provisions laid down in Rule-8D vide the Clauses-(1), (ii) & (ii) does not suggest the same. According to the assessee the company has not incurred any direct expenditures including interest in earning tax exempt dividend income and further the assessee has computed disallowance under Rule-8D(2)(iii) is Rs 5,53,878/-and made a request to accept accordingly.

9.2 The A/R has explained in various ways with logic but the related expenses including interest on loans are indivisible and no way can be concluded that there is no direct involvement of loan with the investment The decisions of “A” Bench of Chennai ITAT in the case of Shiva Industries & Holidays Pvt. Ltd. v. ACIT (IT Appeal No. 1917 of 2011) and “K” Bench of Mumbai ITAT in the case of Stream International Services Pvt. Ltd v. ACIT (IT Appeal No 8997 of 2010) and the Circular issued by CBDT vide No. 5 of 2014 empower the Assessing Officer to disallow the expenses u/s 144 with reference to Rule BD, irrespective of any income received or not, which does not form the part of total income for any period (s), but the investments in the shares mutual funds etc are there which returns only the exempted income or the income which does not form the part of total income. Here the assessee has earned dividend income of Rs 28,103/- for investment in Mutual fund and Rs 11,08,54,000/-for the investment in shares for the year ended on 31.03.2012 which do not form the port of total income and claimed exempt under venous clauses of section 10 of IT Act, 1961.

9.3 It is pertinent to mention that always the quantum of Dividend shall not represent the magnitude of the investment actually made by the assessee and the expenses including interest loan are laid out for the purpose of investment due to intricacy of accounts comprises with the investment and business and due to want of day to day apportionment thereof. Therefore, the determination of quantum of expenses as per Clause (1) Clause (ii) and Clause (iii) to Sub-Rule (2) of Rule 8D of IT Rules, 1962 is the only alternative to disallow judiciously as per section 144 of the IT Act 1961. In this regard the reference may be drawn from the decision of Bombay High Court in the case of Godrej & Boyce Mfg. Co Ltd. v. DCIT, Range- 10(2), Mumbai (Bombay). Here the utilization of borrowed fund both in business and Investment either directly for new investment or retain the investment is indivisible because simply the larger amount of capital than the investment is not enough to declare that the Investment is made only out of own capital or fund. There are more aspects in the business as well as investment in the case of assessee. The business house has to spend money for tangible assets, to maintain business debtors, inventories etc. also. Thus without the cash trail since the first day of investment it is not practicable to conclude that no interest bearing loan fund has been utilised in investment or has an impact in retaining the old investments. In this circumstances the disallowance u/s 14A with reference to the Clauses (1) Clauses (ii) and Clauses (iii) to Sub-Rule (2) of Rule-8D is warranted in the case of assessee and the disallowable amount is worked out according to the following manner:

9.4 The disallowance of expenditure in relation to dividend income (exempt income) due to investment in shares, is being determined in accordance with the provisions of Clause-(ii) & Clause-(iii) to sub-rule (2) of Rule 8D in following manner.

(i) The amount of expenditure directly relating to income which does not form part of total income Not Available, hence treated as NIL.

(ii) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt on amount computed in accordance with the following formula, namely:-

AxB/C= 7,30,81,680 X 72,38,59,254/594,23,80,382 = Rs. 89,02,300/-

A= Rs. 7,30,81,680/- (in this clause) amount of expenditure by way of interest and other charges according to the definition of interest as laid down in section 2(284) of IT Act 1961 other than the amount of interest included in clause(i) incurred during the previous year.

B= Rs. 72,38,59,254/- (Opening Value of Investment Rs. 76,95,98,999/-and Closing value of Investment Rs. 67,81,19,510/- in this case) the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

C= Rs. 594,23,80,382 (Opening Value of Assets Rs. 607,91,92,945/- and Closing value of Assets Rs. 580,55,67,819/- in this case) the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

(iii) An amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.

In this case 1/2 or 0.5% of Rs. 72,38,59,254/- Rs.36,19,296/

9.5. Thus, the actual disallowance of expenses (as envisaged in Rule BD) is determined of Rs.1,25,21,596/-) 89,02,300/- Rs.36,19,296/-) but disallowed only Rs.1.19,67,718/- (Rs.1,25,21,596/- 5,53,878/- (the assessee has suo-moto disallowed Rs.5,53,878/- Thus, the disallowance under Rule-BD of the IT Rule 1962 relevant section 14A of the IT. Act, 1961 is finally computed at Rs. 1,19,67,718/- and added back with the returned income as well as to determine the book profit u/s 115JB also.

9.6 Simultaneously, the said disallowance i.e. Rs. 1,19,67,718/-is also a subject matter of addition by of clause-(f) under Explanation [1] to the section 115JB for determining the MAT amount payable by the assessee. “

11.2 The Ld. CIT(A) after considering the facts of the case and submissions of the assessee gave his findings as under:

“1. I have carefully considered the submissions of the Ld. ARs of the appellant and the relevant provisions contained in Explanation 1 to Section 115JB of the Act. After giving a thoughtful consideration to this issue, I note that there is no enabling provision in Explanation 1 to Section 115JB for making any adjustment in respect of expenditure disallowed as per Rule 8D. It is well settled in law that Section 115JB is a deeming provision and is therefore required to be strictly construed. Clause (f) of the said Section requires adjustment of ‘expenditure relatable to exempt income’. The aforesaid expression is similar to the expression used in Section 14A(1) of the I.T. Act. Accordingly, only the provisions of Section 14A(1) can be imported into clause (f) of Section 115JB. Being a deeming provision, the scope of clause (f) contained in Explanation 1 to Section 115JB cannot be enlarged in order to bring within its ambit the provisions of Sub-Section 2 & 3 of Section 14A of the I.T. Act.

2. In my considered view therefore the sum of Rs.5,53,878/- suo moto identified by the appellant for the purposes of disallowance u/s 14A(1) could have utmost been disallowed and added back under clause (f) of Explanation 1 to Section 115JB. The Ld. AO’s action of adding back the disallowance computed under Rule 8D while assessing the book profit is held to be unjustified in view of the decision of the Hon’ble ITAT, Delhi (Spl. Bench) in the case of ACIT v. Vireet Industries Ltd (165 ITD 27) and Bombay High Court in the case of CIT v. JSW Energy Ltd. . For the reasons set out in the foregoing, the Ld. AO is directed to restrict the addition in terms of clause (f) of Explanation 1 to Section 115JB to Rs.5,53,878/-. These grounds therefore stand partly allowed.”

11.3 The Ld. DR submitted that the view of the Ld. AO is correct as per law.

11.4 On the other hand, the Ld. AR submitted that in the absence of any proximity having been proved between earning exempt income and expenditure attributable to earning such exempt income, while working out the book profit under Section 115JB of the Act no addition could be made on presumption/estimation basis. This submission of the assessee is supported by several decisions of the High Courts and the Tribunal, including that of the jurisdictional Bench of the Tribunal. While holding that the Ld. AO’s action in adding back the disallowance computed under Rule 8D in its entirety while assessing the “book profit” as unjustified, in view of the decision of this Hon’ble Tribunal’s Special Bench in the case of Asstt. CIT v. Vireet Investment (P.) Ltd. (Delhi Trib)(SB) and the Hon’ble Bombay High court in the case of CIT v. JSW Energy Ltd.  (Bombay), the CIT(A) held that the provisions of Section 14A(1) of the Act can be imported into clause (1) of Section 115JB and that being a deeming provision the scope of clause (1) contained in Explanation 1 to Section 115JB cannot be enlarged in order to bring within its ambit the provisions of sub-sections (2) and (3) of Section 14A of the Act and consequently directed restricting the addition in terms of the said clause (f) of Explanation 1 to Section 115JB to Rs. 5,53,878/-.

11.5 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Once the finding had been given by the Ld. CIT(A) that the provisions of sub-section (1) of section 14A were applicable there was no justification for disallowing sub-section (2) and (3) thereof which only specify the mode of computation of expenditure relatable to income which is not includible in total income. Further, once clause (f) of Explanation (1) section 115JB of the Act specifies that the book profit as shown in the statement of profit and loss is to be increased by the amount or amounts of expenditure relatable to any income to which section 10 applies, the disallowance was required to be computed as per Rule 8D of the Rules. Therefore, the findings of the Ld. CIT(A) in this regard are reversed and the computation and the consequential addition made by the Ld. AO for the purpose of section 115JB of the Act is hereby upheld and hence, Ground No. 6 of the appeal is allowed.

12. Ground Nos. 7, 8, 9, 10 and 14 (Ground No. 14 being repetitive of Ground No. 9) relate to the Ld. CIT(A) erring in deleting the arm’s length price adjustment of Rs. 4,47,18,502/- made by the Ld. AO/TPO on account of loan advanced to AE.

12.1 The Ld. AO regarding this ground had referred the matter of international transaction to the TPO and based upon the transfer pricing study and the adjustment made by the TPO, added a sum of Rs. 4,47,18,502/- as interest on loans to AEs and a sum of Rs. 2,39,55,670/-as fee against corporate guarantee.

12.2 The Ld. CIT(A) has observed in para 31 of the appeal order based upon his finding in the appeal for A.Y. 2010-11 that the approach of the TPO in computing the ALP was unjustified and the internal CUP available as adopted by the assessee is to be restored in the matter and as such no adjustment is necessary. The internal CUP available of the LIBOR + 225 bps plus 1% (Guarantee commission) as adopted by the assessee was to be restored in the matter as such and no adjustment was necessary. Thus, in view of the finding of the Everest Kanto Cylinder v. Dy. CIT (LTU) (Mumbai) relied upon by the Ld. CIT(A) in which LIBOR + 2% has been held as the ALP in respect of loans advanced to AE, there is no reason to interfere with the finding of the Ld. CIT(A) and Ground Nos. 7, 8, 9, 10 and 14 (Ground No. 14 being repetitive of Ground No. 9) of the appeal are dismissed.

13. As regards Ground Nos. 11, 12 and 13, the issue relating to corporate guarantee, the Ld. CIT(A) has held as under:

“8. It is noted that in the above decision of Dy. CIT v. National Engineering Industries Ltd (supra) and the appellant itself in the subsequent years has held 1% to be appropriate arm’s length price of corporate guarantees issued by assessees to its foreign subsidiaries. Following the decision of Hon’ble ITAT, Kolkata; the Ld. AO is accordingly directed to restrict the adjustment on account of corporate guarantee fee rate to 1% as opposed to 3.6% computed by the Ld. TPO. The Ld. TPO shall accordingly re-work the adjustment on account of corporate guarantee and pass a speaking order in this regard.”

13.1 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The order of the Ld. CIT(A) is based upon the finding of the Coordinate Bench of the Tribunal in which corporate guarantee fee has been upheld. Hence, there is no reason to interfere in the order of the Ld. CIT(A) whose findings are confirmed and Ground Nos. 11, 12 and 13 of the appeal are dismissed.

14. Ground No. 15 being general in nature does not require any separate adjudication.

15. In the result, the appeal filed by the Revenue in ITA No. 1246/KOL/2019 for AY 2012-13 is partly allowed for statistical purposes.

B. Now, we shall take up ITA No. 1247/KOL/2019 for AY 2013-14 for adjudication.

16. Ground No. 1 relates to the Ld. CIT(A) erring in deleting of Rs. 77,56,332/- treating the expenditure as revenue expenditure instead of capital expenditure as treated by the then Ld. AO in the assessment proceedings.

16.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 9.6 of the order. In view of the finding for AY 2012-13, Ground No. 1 of the appeal is allowed for statistical purposes.

17. Ground No. 2 relates to the Ld. CIT(A) erring in directing the Ld. AO to delete the disallowance computed u/s 14A read with Rule 8D(2)(ii) of the Rules and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s 14A of the Act.

17.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 10.5 of the order. In view of the finding for AY 2012-13, Ground No. 2 of the appeal is dismissed.

18. Ground No. 3 relates to the Ld. CIT(A) erring in restricting the addition of Rs. 51,48,540/- being expenses incurred on exempt income, while computing book profit u/s 115JB of the Act and directing the Ld. AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs. 4,19,505/-.

18.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 11.5 of the order. In view of the finding for AY 2012-13, Ground No. 3 of the appeal is allowed.

19. Ground Nos. 4, 5 and 6 relate to the Ld. CIT(A) erring on facts and law by restricting the guarantee fee rate 1% which is much lower than the CG rate of 3.6% is highly excessive or unreasonable without giving any scientific or logical reasoning for the same while the Ld. TPO had determined the rate at 3.6% based on the information available on record. Ground No. 5 is similar to Ground No. 12 of the appeal for A.Y. 2012-13 while Ground No. 6 is same as Ground No. 13 of the appeal for A.Y. 2012-13.

19.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 13.1 of the order. In view of the finding for AY 2012-13, Ground Nos. 4, 5 and 6 of the appeal are dismissed.

20. Ground No. 7 relates to the Ld. CIT(A) erring in determining the arm’s length rate of interest in accordance with 92C of the Act read with Rule 10B and Rule 10C of the Rules.

20.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 12.2 of the order. In view of the finding for AY 2012-13, Ground No. 7 of the appeal is dismissed.

21. Ground No. 8 being general in nature does not require any separate adjudication.

22. In the result, the appeal filed by the Revenue in ITA No. 1247/KOL/2019 for AY 2013-14 is partly allowed for statistical purposes.

C. Now, we shall take up ITA No. 1248/KOL/2019 for AY 2014-15 for adjudication.

23. Ground No. 1 relates to the Ld. CIT(A) erring in deleting the disallowance made by the Ld. AO of excess depreciation of Rs. 43,39,284/-claimed by the assessee. In the order in appeal, the Ld. CIT(A) has decided the issue in para 9 of the appeal order for A.Y. 2014-15, relying upon his findings in the case of the assessee for A.Y. 2011-12. It is noted that in the assessment order, the Ld. AO has held that since the assessee is a trader and had claimed depreciation @ 15% on various office equipment (installed or fitted at head office, branch offices and various leased or rented office (sales) premises across the country), which is applicable for plant and machinery, he made specific disallowance of 5% of excess depreciation claimed by treating these as furniture and fixture instead of plant and machinery on which depreciation @ 10% is applicable. The Ld. CIT(A) treated these as plants by relying upon the decisions in CIT v. Subrata Dutta Choudhary (Punjab & Haryana), HSBC Electronic Data Processing (I) (P.) Ltd. v. Asstt. CIT (Hyderabad – Trib.) and CIT v. Tarun Commercial Mills Ltd. (Gujarat) and restored the claim of depreciation made by the assessee by treating these equipment as plant instead of furniture and fixture. The relevant extract of his order is as under:

“3. It is also to be recorded that aggrieved by my adjudication on the impugned issue for the A. Y 2010-11 & 2011-12, Revenue had moved the matter before the Hon’ble ITAT, and the Hon’ble ITAT by their orders and adjudication at Paragraphs 4,5,6,7 and 8 have confirmed my findings. Therefore, following my findings and adjudication for the A.Ys 2010-11 and 2011-12, as well as respectfully bound by the orders of the Hon’ble ITAT for the A.Ys 2010-11 and 2011-12, in this year also this ground is allowed, meaning thereby that the claim of depreciation as made by the appellant-company stands restored. The ground is therefore in effect allowed.”

23.1 Since the findings of the Ld. CIT(A) are based upon his own findings in the earlier year, which have been confirmed by the Tribunal, therefore, there is no justification for interfering with the findings of the Ld. CIT(A) whose decision is confirmed and Ground No. 1 of the appeal is dismissed.

24. Ground No. 2 relates to the Ld. CIT(A) erring in giving part relief to the extent of Rs. 40,89,253/-, being 90% of the actual disallowance made by the Ld. AO of Rs. 45,43,615/- under repairs and maintenance without there being any justification of as to why such disallowance should be restricted to 10% and not more or fully disallowed.

24.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 7.5 of the order. In view of the finding of the Bench for AY 2012-13, Ground No. 2 of the appeal is dismissed.

25. Ground No. 3 relates to the Ld. CIT(A) erring in deleting the disallowance of Rs. 2,84,02,596/- being excess payment of remuneration made to Executive Director Gazette, when the fact is that Notification No. GSR 534(E) dated 14.07.2011, issued by the Ministry of Corporate Affairs, Government of India is applied for listed entities, and the assessee-company is not a listed one.

25.1 The Ld. CIT(A) deleted the addition by holding as under:

“24. FINDINGS & DECISION:

1. I have carefully examined the action of the Ld. A.O in disallowing an amount Rs.2,84,02,596/- on alleged grounds that the amount represented excess remuneration paid to the Executive Director of the Appellant-Company. The relevant company paid the remuneration to Executive Director which apparently exceeded the limit prescribed under schedule XIII to the Companies Act. 1956 by an amount of Rs. 2,84,02,596/, The Ld. A.O therefore has disallowed the impugned amount of Rs.2,84,02,596/- treating the said amount as excess remuneration paid to the Executive Vice Chairman of the Appellant Company.

2. Before the Ld. A.O as well as in appeal, it was argued by the appellant company that during the year under consideration, remuneration of Rs.402,24,709/- was paid to Mr S.L.Goklaney, Executive Vice Chairman of Eureka Forbes Limited. As per Point 28 clause XIV to the Notes to Financial Accounts for the year ended March 31, 2014, it was stated that Remuneration paid to Executive Vice Chairman exceeded the limit prescribed under Schedule XIII to the Companies Act, 1956 by Rs. 2,84,02,596/-. It was also mentioned in the Note that the Appellant Company was exempt from seeking approval of the Central Government since it satisfied the conditions prescribed under the provisions of GSR 544(E) dated July 14, 2011 issued by the Ministry of Corporate Affairs. It was submitted by the appellant-company that the disallowance cannot be made merely on the basis of Note to Accounts stating that Remuneration exceeds the limit prescribed, without examining the issue in completeness. It was submitted by the appellant that as per the new proviso (v) added by the Gazette notification no. GSR 534(E) dated14/07/2011 issued by the Ministry of Corporate Affairs, Government of India, no Central Government approval is required if the managerial person does not hold interest in capital of the company and the person is a graduate with specialised knowledge in the field. It was therefore argued that in the appellant’s case, the Executive Vice Chairman is a graduate and has specialized knowledge with extensive experience of marketing the company’s products. Hence, the conditions of the said notification were clearly satisfied, and as such the appellant-company was exempt from seeking approval of the Central Government under the provisions of the aforementioned notification.

3. It was submitted that in the Appellant’s case, the Appellant has complied with the provisions of the Companies Act following the Gazette notification no. GSR 534(E) dated 14/07/2011 issued by the Ministry of Corporate Affairs, Government of India. Thus, the remuneration cannot be considered excessive and therefore there has been no contravention of any provisions of the Companies Act. The appellant relied on the decision of Hon’ble Mumbai Tribunal in case of IMA PG India Limited (ITA No.5960/Mum./2013) wherein it was held that:

4. It was further argued by the appellant that as per proviso to section 40A(2)(a) of the Act states that no disallowance on account of any expenditure being excessive shall be made in respect of specified domestic transaction referred to in section 92A of the Act, if such transaction is at arm’s length price as defined in clause (li) of Section 92F of the Act. Furthermore, such disallowance has not been made by the Transfer Pricing Officer in his order dated October 25, 2017.

5. After carefully examining the matter, I find that the appellant is well covered under the new proviso (v) added by the Gazette notification no. GSR 534(E) dated 14/07/2011 issued by the Ministry of Corporate Affairs, Government of India, wherein no Central Government approval is required if the managerial person does not hold interest in capital of the company and the person is a graduate with specialised knowledge in the field. On facts, there is no doubt that in the case of the appellant, the Executive Vice Chairman is a graduate and has specialized knowledge with extensive experience of marketing the company’s products. Therefore, I find myself in agreement with the claim of the appellant that the conditions of the said notification were clearly satisfied, and as such the appellant-company was exempt from seeking approval of the Central Government under the provisions of the aforementioned notification. I also find strength in the submission of the appellant that as per proviso to section 40A(2)(a) of the Act states that no disallowance on account of any expenditure being excessive shall be made in respect of specified domestic transaction referred to in section 92A of the Act, if such transaction is at arm’s length price as defined in clause (ii) of Section 92F of the Act, and that such disallowance has not been made by the Transfer Pricing Officer in his order dated October 25, 2017. In view of the foregoing, I am unable to agree with the Ld. A.O in making the impugned disallowance. Such action of the Ld. A.O, being unsustainable in the facts and circumstances of the case is directed to be deleted. The ground of appeal stands allowed.”

25.2 The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld. The Ld. AR has made written submissions as under:

“(a) CIT(A)’s decision in favour of the assessee is covered by the Gazette Notification issued by the Government of India, Ministry of Corporate Affairs, bearing GSR 543(E) dated July 14, 2011 C II/p 87-96), wherein it has been clarified that no Central Government approval is required if the managerial person does not hold interest in capital of the company and the person is a graduate with specialised knowledge in the field, fully covers the instant case. Herein also as recorded by the CIT(A) in para 24.5 of the impugned order dated January 31, 2019 for assessment year 2014-15, it is conclusively established that the requirements laid down in the aforesaid Gazette Notification dated July 14, 2011 stands completely satisfied. The contention that this Notification is confined to listed companies only is ex-facie incorrect. This would appear from para 3 of the said Notification itself. The provision relating to listed company is contained in para 2 thereof.

(b) As per the Proviso to Section 40A(2)(a) of the Act, no disallowance on account of any expenditure being excessive is to be made in respect of specified domestic transaction referred to in Section 92A of the Act, if such transaction is at arm’s length price as defined in Section 92F(ii) of the Act. It is also a fact, as noted by the CIT(A), that no such disallowance has been made by the Transfer Pricing Officer in his order dated October 25, 2017 passed in the instant case. As such, the disallowance effected by the AO is unsustainable for this reason also.”

25.3 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Since the auditor had pointed out this issue, it was incumbent upon the Ld. CIT(A) to grant an opportunity to the Ld. AO for examining whether the requirements laid down in the notification dated 14/07/2011 were complied with, and whether the transaction was at an arm’s length. It is not mentioned whether the assessee had included this transaction in the transfer pricing study carried out by it. Hence, in order to be fair to both the assessee as well as the revenue, the order of the Ld. CIT(A) on this issue is hereby set aside and the issue is remanded to the Ld. AO. The assessee shall produce the necessary evidence in support of the claim that the notification dated 14/07/2011 was applicable and also to establish that the observation of the auditor was not correct as in the decision relied upon by the Ld. CIT(A), the remuneration paid was approved by the Central government and there was no contravention of the provision of the Companies Act and therefore, the same was allowable in that case which does not appear to be the fact in the case of the assessee. The assessee shall be at liberty to produce all evidences in this regard before the Ld. AO. Hence, Ground No. 3 of the appeal is allowed for statistical purposes.

26. Ground No. 4 relates to the Ld. CIT(A) erring in treating the expenditure of Rs. 26,84,657/- claimed towards Trademark and Copyright consultancy under the head Professional Fees as revenue expenditure instead of capital expenditure as treated by the Ld. AO in the assessment proceeding.

26.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 9.6 of the order. In view of the finding for AY 2012-13, Ground No. 4 of the appeal is allowed for statistical purposes.

27. Ground No. 5 relates to the Ld. CIT(A) erring in directing the Ld. AO to delete the disallowance of Rs. 2,97,71,945/- computed u/s 14A of the Act read with Rule 8D(2)(ii) of the Rules and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year for determination of actual disallowance u/s 14A of the Act.

27.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 10.5 of the order. In view of the finding for AY 2012-13, Ground No. 5 of the appeal is dismissed.

28. Ground No. 6 relates to the Ld. CIT(A) erring in restricting the addition of Rs. 2,97,71,945/- being expenses incurred on exempt income, while computing book profit u/s 115JB of the Act and directing the Ld. AO to restrict the addition in terms of clause (1) contained in the Explanation 1 to section 115JB of the Act to Rs. 49,670/-.

28.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 11.5 of the order. In view of the finding for AY 2012-13, Ground No. 6 of the appeal is allowed.

29. Ground Nos. 7, 8, 9 and 10 relate to the Ld. CIT(A) erring on facts and law by restricting the guarantee fee rate 1% which is much lower that the CG rate of 3.6% determined by the Ld. TPO, for a non-fund based financial assistance.

29.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 13.1 of the order. In view of the finding for AY 2012-13, Ground Nos. 7, 8, 9 and 10 of the appeal are dismissed.

30. Ground No. 11 being general in nature does not require any separate adjudication.

31. In the result, the appeal filed by the Revenue in ITA No. 1248/KOL/2019 for AY 2014-15 is partly allowed for statistical purposes.

D. Now, we shall take up ITA No. 2037/KOL/2019 for AY 2015-16 for adjudication.

32. Ground No. 1 relates to the Ld. CIT(A) erring in deleting the addition of Rs. 50,73,670/- made by the Ld. AO on account of excess depreciation on furniture & fixtures when the assessee, except for claiming that the equipment identified for having claimed excess depreciation are integral to the manufacturing process, has not been able to prove or justify as to how the concerned items enhance the production process or output of the business.

32.1 This issue has been decided in ITA No. 1248/KOL/2019 for AY 2014-15 in the preceding para no. 23.1 of the order. In view of the finding for AY 2014-15, Ground No. 1 of the appeal is dismissed.

33. Ground No. 2 relates to the Ld. CIT(A) erring in deleting the addition of Rs. 46,75,775/- being 90% of the actual addition made by the Ld. AO on account of repairs & maintenance of Rs. 51,95,305/-.

33.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 7.5 of the order. In view of the finding for AY 2012-13, Ground No. 2 of the appeal is dismissed.

34. Ground No. 3 relates to the Ld. CIT(A) erring in deleting the addition of Rs. 3,71,75,123/- made by the Ld. AO on account of disallowance computed u/s 14A r.w. section 8D(2)(ii) of the Act and to restrict expenses for the investments which actually yielded dividend income to the assessee company during the year.

34.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 10.5 of the order. In view of the finding for AY 2012-13, Ground No. 3 of the appeal is dismissed.

35. Ground No. 4 relates to the Ld. CIT(A) erring in directing the Ld. AO to restrict the addition in terms of clause (f) contained in the Explanation 1 to section 115JB of the Act to Rs. 2,12,146/-.

35.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 11.5 of the order. In view of the finding for AY 2012-13, Ground No. 4 of the appeal is allowed.

36. Ground No. 5 relates to the Ld. CIT(A) erring in deleting the addition of Rs. 2,06,17,228/- being excess payment to remuneration made to Executive Director as the Gazette Notification No. GSR 534(E) dtd. 14.07.2011 in question applied to listed entities which the assessee is not.

36.1 This issue has been decided in ITA No. 1248/KOL/2019 for AY 2014-15 in the preceding para no. 25.3 of the order. In view of the finding for AY 2014-15, Ground No. 5 of the appeal is allowed for statistical purposes as the issue is remanded to the Ld. AO for examination and reconsideration as per law.

37. Ground No. 6 relates to the Ld. CIT(A) erring in deleting the addition of Rs. 24,99,734/- made by the Ld. AO by treating the renewal of previously sanctioned IPR/Trademark as capital expenditure instead of revenue expenditure.

37.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 9.6 of the order. In view of the finding of the Bench for AY 2012-13, Ground No. 6 of the appeal is allowed for statistical purposes.

38. Ground Nos. 7, 8, 9, 10 and 11 relate to the Ld. CIT(A) erring in restricting the guarantee fee rate to 1% which is much lower than the CG rate of 3.6% & 2.85% determined by the Ld. TPO, for a non-fund based financial assistance.

38.1 This issue has been decided in ITA No. 1246/KOL/2019 for AY 2012-13 in the preceding para no. 13.1 of the order. In view of the finding for AY 2012-13, Ground Nos. 7, 8, 9, 10 and 11 of the appeal are dismissed.

39. Ground No. 12 being general in nature does not require any separate adjudication.

40. In the result, the appeal filed by the Revenue in ITA No. 2037/KOL/2019 for AY 2015-16 is partly allowed for statistical purposes.

41. In the result, the appeals filed by the Revenue in ITA Nos. 1246, 1247, 1248 & 2037/KOL/2019 for AYs 2012-13, 2013-14, 2014-15 & 2015-16 are partly allowed for statistical purposes.