Income Tax Appellate Tribunal - Pune
Deputy Commissioner Of Income-Tax,, vs Kirloskar Oil Engines Ltd.,, Pune on 12 February, 2018
आयकर अपील
य अ धकरण] पण
ु े यायपीठ "बी" पण
ु े म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI ANIL CHATURVEDI, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं
. / ITA No.616/PUN/2014
नधा रण वष / Assessment Year : 2007-08
Kirloskar Oil Engines Limited, .......... अपीलाथ /
Laxmanrao Kirloskar Road,
Appellant
Khadki, Pune - 411003.
PAN : AAACP3590P.
बनाम v/s
Jt. Commissioner of Income Tax, .......... यथ /
Range - 9, Akurdi, Pune - 44.
Respondent
आयकर अपील सं
. / ITA No.963/PUN/2014
नधा रण वष / Assessment Year : 2007-08
Dy.Commissioner of Income Tax, .......... अपीलाथ /
Circle - 9, Pune.
Appellant
बनाम v/s
Kirloskar Oil Engines Limited, .......... यथ /
Laxmanrao Kirloskar Road,
Respondent
Khadki, Pune - 411003.
PAN : AAACP3590P.
Assessee by : Shri C.H. Naniwadekar &
Shri A.S. Deshpande.
Revenue by : Shri Rajeev Kumar, CIT.
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing : 01.02.2018 Date of Pronouncement: 12.02.2018
आदे श / ORDER
PER ANIL CHATURVEDI, AM :
1. These cross-appeals filed by assessee and Revenue u/s 253 of the Act, emanate out of the order of Commissioner of Income- Tax (A) - 2, Nashik dt.24.02.2014 for A.Y. 2007-08. 2
2. The relevant facts as culled out from the material on record are as under :-
Assessee is a company stated to be engaged in the business of manufacturing of engines, generators, engine parts etc. Assessee electronically filed its return of income for A.Y. 2007-08 on 27.10.2007 declaring total income of Rs.1,55,61,71,300/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dt.30.12.2009 and the total income was determined at Rs.1,65,82,98,190/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who vide order dt.24.02.2014 (in appeal No.Nsk/CIT(A)-2/733/2013-14) granted substantial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee and Revenue are now in appeal before us.
3. The grounds raised by the assessee in appeal No.616/PUN/2014 reads as under :
"1.0 Bad debts and irrecoverable balances written off-- Rs.21,11,554/-
The learned CIT(A) erred on facts and in law in disallowing irrecoverable debit balances as written off under section 36(1)(vii) of the Act when the assessee has claimed amount of Rs.21,11,554/- under section 28 of the Act. The learned CIT(A) further erred in allowing him to be misguided with nature of claim u/s. 28 and bad debts u/s. 36. He failed to appreciate the written and oral arguments put before him.
2.0 Disallowance of Late Delivery fees- Rs. 21,57,815/-
The learned CIT(A) erred on facts and in law in disallowing Late Delivery Fees of Rs.21,57,815/- on the ground that the provision is made on ad-hoc basis. He failed to appreciate that the company follows mercantile system of accounting and expenses relating the previous year have been properly provided for to arrive at the correct profit during the year.
3.0 Disallowance of Expenses u/s 14A - Rs.
1,20,90,752/-
The learned CIT(A) erred on facts and in law in disallowing Rs.1,20,90,752/- u/s. 14A of the Act. The learned CIT(A) erred in considering the interest expenditure of Rs 1,10,90,752/- for the purpose of disallowance when the rule 3 mandates that it is only the interest which is not directly attributable to any particular income or receipt, has to be considered. The assessee company did not incur any expenditure attributable for earning dividend. The CIT(A) could not point out any other expenditure directly attributable for earning the tax free income and arbitrarily made ad-hoc disallowance of Rs.10,00,000/- and no nexus of the expenditure with the tax free income was established."
4. On the other hand, the ground raised by the Revenue in appeal No.963/PUN/2014 reads as under :
"1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the cost of allied civil construction and errection and commissioning are eligible for the same depreciation rate as applicable for windmill without appreciating that these are not the integral part of the windmill without which the windmill cannot be worked.
2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition of Rs.45,69,505/-on account of debit balances written off by admitting the new evidences filed by the assessee and without giving any opportunity to the AO to examine the same at his level.
3. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition of Rs. 15,60,235 on account of liquidated damages by admitting the new evidences, without giving an opportunity to the AO to examine the same at his level.
4. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition of Rs.15,60,823/- on the issue of provision for Liquidated damages, without appreciating that the provision has not been made on a scientific basis?
5.Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in restricting the addition made to Rs.1,20,90,752/- as against the addition made of Rs.8,01,87,883/- made on account of administrative and managerial expenses for earning tax free dividends u/s. 14A?
6. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition of Rs.12,46,100/- made u/s 40A(2) out of commission paid to Directors without justifying the reasonableness of the payment to Directors?
7. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in deleting the addition made on the issue of provision for warranty, without appreciating that the provision has not been made on a scientific basis.
8a. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in not appreciating that the investment by the assessee company in preference shares of a loss suffering company was only a guise of providing funds to the loss suffering company so as to restructure its debts.4
8b. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in not appreciating that KFIL was a company which had huge accumulated losses and promoted by the assessee company, and preference shares were purchased and redeemed by the company as a convenient arrangement for tax avoidance through claim of capital loss."
5. We first take up assessee's appeal in ITA No.616/PUN/2014.
6. Before us, at the outset, Ld.A.R. submitted that he does not wish to press ground Nos.1 and 3 and therefore these grounds are dismissed as not pressed.
7. Ground No.2 is with respect to disallowance of late delivery fee of Rs.21,57,815/-.
7.1 On perusing the details furnished by the assessee during the course of assessment proceedings, AO noticed that assessee has incurred expenditure on account of 'Late Delivery Fee' which was in connection with late delivery and deficiency in services. He noticed that this amount included provision of Rs.37,18,638/- towards liquidated damages. AO noticed that similar addition was made in the previous assessment year for the reason that the provision was made on adhoc basis and was excessive. He further noted that assessee could not provide requisite information about the provision despite various opportunities granted to assessee. He accordingly presumed the facts to be the same as in earlier. In the present case, according to AO since the provision was made on adhoc basis, it cannot be allowed as deduction. AO accordingly disallowed Rs.37,18,638/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who granted partial relief to assessee by holding as under :
5
"6.2 I have carefully considered the submission of the appellant, and I find it partly acceptable. Considering the fact that an amount of Rs.7,99,257/- has been paid in subsequent year on account of liquidated damages, the same cannot be treated as ad-hoc provision. On identical issue in AY 2005-06, I had allowed the claim of appellant to the extent of liquidated damages paid in subsequent years. The appellant had filed details of how the provision had been worked out, giving details of the invoice no, customer name, invoice amount, copies of PO showing LD clauses, etc. The provision for liquidated damages had been worked out on terms of· purchase orders, delay in executing the customer's order, etc. Out of disallowance of Rs.37,18,638/-,the appellant had filed details of Rs.31,68,638/-. No details of Rs.6,00,000/-(Difference of Rs.37,18,638/-less Rs. 31,68,638/-) had been provided. Therefore, disallowance of Rs. 6,00,000/- is confirmed. Considering the basis of working of the provision Rs.15,57,815/- needs to be disallowed, since the same is excess provision.
6.3 The total disallowance will be Rs.21,57,815/- (Rs.6,00,000/- + Rs.15,57,815/-). Considering the facts of this assessment year, the balance amount of Rs.15,60,823/- (Rs.37,18,638/- less Rs.6,00,000/- less Rs.15,57,815/-) is allowed. The Assessing Officer is directed to allow Rs.15,60,823/-. Accordingly, this ground is partly allowed."
Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us. Revenue is also aggrieved to the extent of relief granted by Ld.CIT(A) and has therefore raised ground No.3 in its appeal. Since the grounds are inter-connected, the grounds raised by the assessee and Revenue are considered together.
8. Before us, Ld.A.R. submitted that identical issue arose in assessee's own case in earlier years. He further submitted that the Pune Bench of the Tribunal while deciding the issue in A.Y. 2005- 06 relying on the order of Tribunal in assessee's own case in ITA Nos.857 and 854/PUN/2006 for A.Y. 2001-02, had in principal allowed the ground in favour of the assessee but restored the matter to the file of AO for verification of the factual position. He pointed to the relevant findings at page 5 of the Tribunal order. He submitted that since the facts of the case for the year under consideration are similar to that of earlier years, the matter may be 6 remitted back to the file of AO to determine the facts and decide the issue in the light of the order for A.Y.2005-06. Ld.D.R. supported the order of AO.
9. We have heard the rival submissions and perused the material on record. We find that the issue of liquidated damages arose in assessee's own case in earlier years also. We find that the Co-ordinate Bench of the Pune Tribunal while deciding the appeal for A.Y. 2005-06 relied on the order of the Pune Tribunal in ITA No.857 and 884/PUN/2006 for A.Y. 2001-02 and remitted the issue back to the file of AO to examine the facts and decide the issue in the light of the order of A.Y. 2001-02. The relevant finding of Tribunal in A.Y. 2005-06 are as under :
"38. The issue in ground of appeal No.12 is against the disallowance of liquidated damages of Rs.33,56,236/-.
39. The assessee had made a claim under the said head to the tune of Rs.1,99,10,567/-. As per the assessee, the liquidated damages represent the payments for late delivery, deficiency in quality of goods / material supplied vis-a-vis specifications / requirements, etc. The assessee explained that the liquidated damages had nothing to do with any infraction of law. The major recovery was of Rs.1,56,62,034/- effected by M/s. Oil India Ltd., who had made the said recovery as the assessee had failed to complete installation and commissioning within the agreed contract schedule.
The Assessing Officer held the same to be in the nature of penalty and disallowed the same. In this regard, he placed reliance on the ratio laid down by the Hon'ble High Court of Delhi in Rohtak Textiles Mills Vs. CIT (1997) 226 ITR 485 (Del), wherein payment of liquidated damages were held as non-deductible. As regards the other liquidated damages, since the assessee had only given general submissions, the same was not accepted and the entire claim towards liquidated damages was disallowed.
40. Before the CIT(A), the assessee pointed out that in the purchase order placed by M/s. Oil India Ltd., there was clear stipulation of completion dates and also provision of liquidated damages to be paid at specific rates on account of default in delivery. The damages were thus, in the nature of breach of contract. The assessee also filed a copy of letter dated 20.01.2001 of M/s. Oil India Ltd., wherein damages of RS.1.56 crores had been worked out and demanded. The assessee also furnished the copies of vouchers, statements, correspondence with the concerned parties in respect of balance liquidated damages paid by the assessee. The CIT(A) in view of the letter received from M/s. Oil India Ltd., wherein the 7 actual liquidated damages were of the order of RS.1,49,97,482/-, held the same as admissible and the disallowance to that extent was deleted. The remaining amount of Rs.6,64,552/- represented interest on mobilization advance. The CIT(A) noted that as per purchase order, mobilization advanced was interest free and it had to be seen as to why M/s Oil India Ltd. Demanded interest on the said mobilization advance. In the absence of complete details being filed by the assessee, the matter was restored to the file of Assessing Officer to call for relevant particulars and decide the same.
41. In respect of balance liquidated damages, the assessee filed evidences in respect of certain items and the CIT(A) held that in view of the evidences filed for Rs.3,41,724/-, Rs.5,44,987/-, 1,45,072/- and Rs.5,25,067/-, allowability towards the payment of liquidated damages had arisen during the relevant previous year and the same was held to be allowable. In respect of last item i.e. of Rs.20,82,1401-, the assessee had only made the provision, even before any demand was raised by the concerned party. Since it was not known as to whether the demands were actually received or not, the CIT(A) held that the assessee was not justified in making the claims towards liquidated damages merely on the basis of provision. Hence, out of liquidated damages of Rs.36,38,990/-, claim to the extent of Rs.20,82,139/- was held as inadmissible and the disallowance was confirmed to that extent.
42. The assessee is in appeal vide ground of appeal NO.12. The Revenue is also in appeal against the order of CIT(A) in allowing liquidated damages of Rs.1,49,97,483/- paid to M/s. Oil India Ltd. vide ground of appeal No.7.
43. The learned Authorized Representative for the assessee pointed out that out of liquidated damages paid to M/s. Oil India Ltd., sum of RS.1.49 crores was allowed by the CIT(A), against which the Revenue is in appeal. However, balance sum of Rs.6,64,552/- payable to M/s. Oil India Ltd. was to be verified by the Assessing Officer. However, till date, no such appeal effect has been allowed. He referred to page 190 of Paper Book and pointed out that clause
(iii) related to charging of interest as per purchase order and he further referred to page 199 of the Paper Book to establish that the amount has been recovered by M/s. Oil India Ltd. And hence, there is no discrepancy in the claim of assessee. He, then, referred to the provision made on account of other party i.e. Rs.20,82,140/-. He stressed that the said provision was made in respect of sales effected during the year which was customer-wise and the said principle was followed in respect of all the parties and the amounts were paid in the succeeding year and in case those are not demanded, then the provision was reversed. He further stated that out of total sum of RS.20,82, 1401-, RS.6,09,543/- was already paid during the year by the assessee. The learned Authorized Representative for the assessee further pointed out that the issue raised in the present appeal is covered by the order of Pune Bench of Tribunal in Thermax Babcock & Wilcox Ltd. Vs. Addl.CIT (2008) 7 DTR (Pune) (Trib) 162.
44. The learned Departmental Representative for the Revenue on the other hand, relied on the ratio laid down by the Hon'ble Supreme Court in Haji Aziz and Abdul Shakoor Bros. Vs. CIT (1961) 41 ITR 350 (SC), wherein liquidated damages paid were not allowed. He also placed reliance on the ratio laid down by the Hon'ble High Court of Delhi in Rohtak Textiles Mills Vs. CIT (supra), which was relied on by the Assessing Officer.8
45. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in respect of liquidated damages provided by the assessee in its books of account. The case of assessee before us is that in view of it taking up turnkey projects and as per the conditions of purchase order placed, the project has to be completed within stipulated period and in case the same is not so completed, then the assessee is liable to pay liquidated damages. Further, in case other conditions of the purchase order are not complied with by the assessee, then also as part of purchase order itself, there is a clause that the purchaser may at his discretion withhold any payments until the whole of stores has been supplied and he may also deduct recovery from the supplier liquidated damages. The major item of expenditure relates to damages of RS.1.56 crores claimed by and paid to M/s. Oil India Ltd. The assessee was duty bound to complete the said project within stipulated period and since the assessee could not fulfill the same, M/s. Oil India Ltd. vide letter dated 20.01.2001 demanded damages of RS.1.49 crores. In view of the understanding between the parties, the claim of RS.1.49 crores on account of liquidated damages being relatable to carrying on of business of assessee, is duly allowable as expenditure in the hands of assessee. Accordingly, upholding the order of CIT(A), we dismiss the ground of appeal No.7 raised by the Revenue.
46. Now, coming to the balance expenditure of Rs.6,64,552/-, which was the interest paid on mobilization advances. Clause (iii) of contract copy, which is placed at page 190 of the Paper Book and the evidence of having paid the said amount as per document at page 199 of the Paper Book, we find that the said claim of Rs.6,64,552/- is also to be allowed in the hands of assessee. In view of the facts and circumstances and the evidences which are available on record, we find no merit in the order of CIT(A) in remitting the issue to the file of Assessing Officer to call for relevant particulars. Accordingly, we reverse the findings of CIT(A) in this regard and delete the addition of Rs.6,64,552/-.
47. Now, coming to balance liquidated damages of Rs.20,82,140/- for which the assessee had made the provision in its books of account. The assessee points out that after effecting sales during the relevant years, provisions are made during the year customer-wise and the said principle has been followed by the assessee from year to year. In other words, the assessee is following the method of accounting, under which provision is made on account of any liquidated damages, which the assessee may have to pay. In case the same are paid in the next year, then the same are debited to provision and if not paid, then the provision is reversed. The assessee having followed the said system of accounting persistently and in view of the fact that the sales have been effected during the year, then where the assessee is aware of its deficiencies and having made the provisions as per purchase order, then such provision of liquidated damages merits to be allowed in the hands of assessee in entirety. We find no merit in the orders of authorities below in allowing the liquidated damages only to the extent where the amount has been paid and in not allowing the balance. In any case, the said liquidated damages are relatable to the business undertaken by the assessee and are not for infraction of law. Hence, there is no merit in disallowing any part of expenditure. Reliance placed upon by the learned Departmental Representative for the Revenue on the decisions of Hon'ble Supreme Court are misplaced as in both the cases, damages were paid on account of infraction of law and hence, were held to be not allowable as expenditure in the hands of said assessee. However, in the present case, liquidated damages are paid by the assessee on account of violation of terms of 9 contract entered into with the parties to whom the goods have been supplied by the assessee. There is no infraction of law in such cases and accordingly, we find no merit in the orders of authorities below in this regard. Reversing the order of CIT(A), we direct the Assessing Officer to allow the claim of assessee also on account of provision made of Rs.20,82,139/-. The ground of appeal No.12 raised by the assessee is thus, allowed and the ground of appeal No.7 raised by the Revenue is dismissed."
In view of the submissions of Ld.A.R., that the facts in the year under consideration are similar to earlier years and which has not been controverted by Revenue, we in principal allow the ground in favour of the assessee but for examining the facts and to decide the issue in the light of the order for A.Y. 2001-02, we restore the issue to the file of AO. Needless to state that AO shall grant reasonable opportunity of hearing to the assessee and thereafter decide the issue. Thus the ground of the assessee is allowed for statistical purposes."
10. Before us, Ld.A.R. has submitted that the facts in the year under appeal are identical to that of A.Y. 2005-06 and in A.Y. 2005- 06 the matter has been remitted back to AO and therefore the matter be remitted back to AO. The aforesaid contention of Ld.A.R. has not been controverted by Ld.D.R. We therefore following the order of the Co-ordinate Bench of the Tribunal and for similar reasons restore the issue to the file of AO. Thus, the ground of the assessee is allowed for statistical purposes and ground of Revenue is dismissed.
10.1. In the result, the appeal of the assessee is partly allowed for statistical purposes.
11. Now we take up Revenue's Appeal in ITA No.963/PUN/2014.
12. First ground is with respect to depreciation on windmill. 12.1. During the course of assessment proceedings, AO on perusing the depreciation schedule noticed that assessee has claimed depreciation of Rs.10,51,87,561/- on windmill. AO also 10 noticed that the addition made to fixed assets on account of seven windmills was to the extent of Rs.26,29,68,903/-. The assessee was asked to furnish the details with respect to addition to windmill and the calculation of depreciation on windmill. AO noticed that during the year assessee company had installed seven windmills on 30.12.2006 for generation of power and had claimed 40% depreciation on such windmills. On perusing the details, he noticed that assessee had claimed depreciation on the windmills and also on the cost of transformer, DP, civil construction and others. The submission of the assessee that the entire expenditure with cost of windmills is entitled to higher depreciation as other expenditure incurred are integral part of windmills was not found acceptable to AO. AO was of the view that the depreciation rate applicable on civil construction, earth work and foundation etc., is 10% as in the case of block of assets of buildings and not 40% as claimed by the assessee. He therefore restricted the depreciation on construction activity to 10% and on erection and commissioning expenditure to 15%, being the rate applicable to the plant and machinery, and accordingly worked out the excess depreciation to the tune of Rs.56,69,031/- and disallowed the same. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :
"4.2 I have gone through the submissions of appellant and reasons given by the AO for disallowance of depreciation on windmill. I have also gone through the decision on which the AO & the appellant have placed reliance.
4.3 The main contention of the assessee is that civil work related to foundation done to install windmill and commission charges are part of the plant & machinery Le. Windmill and the assessee is entitled for depreciation of at 80%. The assessee has also stated the Pune ITAT case (Poonawala Finwest & Agro P Ltd) on which AO had placed reliance deals with civil cost incurred on roads, control room, etc adjacent to windmill. The assessee also pleaded during the appellate proceedings that in order to treat a particular structure as 11 building, it is necessary to have a roof, flooring etc. for the same. Considering the huge structure of windmills, special foundation is required for the same and the same is integral part of windmills.
4.4 To decide the issue of the classification of asset for the purpose of depreciation, its predominant function needs to be checked. In other words, functional test needs to be applied. By applying functional test to civil foundation for windmills, there is no doubt that, without civil foundation the windmill will not generate power. In other words, it (civil foundation) is employed in carrying on the activity of generation of electricity. The civil foundation cannot be separated from the windmill & treated as building. In my opinion, cost on the foundation of windmill is eligible for depreciation rate which is applicable for windmill as it is integral part of windmill. The work order placed by the appellant on contractor for civil foundation also includes work related to construction of approach & internal roads. The appellant informed during appellate proceedings, the cost of internal road is approx. Rs. 5 lacs. Relying on the decision on Pune ITAT in Poonawala Finvest & Agro Pvt. Ltd. vs ACIT, I hold that depreciation on internal roads will not be allowable at rate of 80% but the same is allowable @ 10%. The cost of foundation will be Rs.1,24,45,634/- (i.e. cost of foundation Rs.1,24,95,634/- less cost of roads Rs. 5,00,000/-. The depreciation allowable on roads will be restricted to Rs. 25,000/-. The Assessing officer is directed to delete the addition Rs. 15,90,219/- ( Rs. 16,15,219 less Rs. 25,000).
4.5 The cost of errection commissioning includes errection of wind Energy converters (WEC), Interconnecting the WEC with grid, evacuation of power generated, etc. The cost of erection and commissioning cannot be separated from windmill as the same is directly related to functioning of windmill. In my opinion, cost of errection and commissioning is eligible for depreciation rate which is applicable for windmill as it is integral part of windmill. The Assessing officer is directed to delete the addition Rs.40,53,812/-. Accordingly, the ground is allowed."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
13. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and further submitted that the issue is also covered in favour of the assessee by the decision of Pune Bench of the Tribunal in the case of DCIT Vs. Aminity Developers and Builders in ITA No.1505/PN/2011 order dt.12.12.2012. He thus supported the order of Ld.CIT(A).
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14. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to depreciation on windmills. AO denied the claim of depreciation at 40% which is applicable to the windmills, on cost of foundation, erection and commissioning expenditure. He denied the higher rate of depreciation for the reason that he was of the view that the rate of depreciation applicable on such costs is the normal rate of depreciation which is applicable to building and plant and machinery. We find that Ld.CIT(A) while deciding the issue has given a finding that by applying functional test that without civil foundation the windmills will not generate power and that civil foundation cannot be separated from windmills and cannot be treated as a separate building. With respect to the cost of erection and commissioning expenditure, Ld.CIT(A) has given a finding that the same cannot be separated from windmills as the same are directly related to the functioning of windmills. The aforesaid findings of Ld.CIT(A) has not been controverted by Revenue. We further find that the Hon'ble Rajasthan High Court in the case of CIT Vs. Mehru Electricals and Mechanical Engineers Pvt. Ltd., reported in (2016) 388 ITR 168 (Rajasthan) has held that the rate of depreciation applicable to windmills also applies to civil foundation and electric turbine generator for windmill as they are the part of the windmill. We further find that the Hon'ble Bombay High Court in the case of CIT Vs. CTR Manufacturing Industries Pvt. Ltd., (in ITA No.2125 of 2013 order dt.01.03.2016) has held that the depreciation of windmill is to be allowed even on the cost like erection and commissioning charges, electric items, application charges etc., which are capitalized to windmill. Before us, Revenue has not placed any contrary binding decision in its support. In 13 view of the aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A) and thus, this ground of the Revenue is dismissed.
15. 2nd ground is with respect to deleting the addition of Rs.45,69,505/- on account of debit balances written off. 15.1. During the course of assessment proceedings, AO on perusing the details noticed that assessee had claimed Rs.69,53,304/- on account of debit balances written off. AO was of the view that for claiming the deduction debit balances, the amount written off should have been taken into account while computing the income of the assessee. In the present case he was of the view that the written off balances was in the nature of advances, deposits etc., and therefore the same cannot be claimed as bad debts. He accordingly denied the claim of written off debit balances of Rs.66,81,059/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :
"5.2 I have gone through the submissions of appellant. The appellant has given explanation only for few items out of various line items appearing in the details provided.
5.3 There was dispute with Karnataka Govt on applicability of Entry tax on inputs required for generation of electricity. The assessee had stated that the entry tax was actually paid amounting to Rs. 62,62,297/- and liability for the same was Rs.24,12,202/-. Thus the appellant had paid Rs. 38,50,095/- excess on account of entry tax. The appellant also explained that this amount was shown as receivable & considering the decision of authorities under Karnataka Entry Tax to levy penalty u/s 3B of the Karnataka Entry Tax Act proposing the penalty of Rs. 52,99,970/- as unjust enrichment, it was decided to write off the amount paid on account of Entry Tax. The appellant filed appeal with the Karnataka Appellate Tribunal and the dispute was decided in favour of the appellant. The entry tax paid was also refunded after the decision of Karnataka Appellate Tribunal and the appellant had offered the same for Income Tax. Considering the facts and circumstances of the case, I hold the amount is allowable as deduction under Income Tax Act. The Assessing officer is directed to delete the addition Rs.14
38,50,000/-.
5.4 The other amounts claimed by the appellant are on account of advance paid to suppliers which was neither refunded nor was material not supplied. After going through the reply, it is seen that identical issue came up in AY 2006-07, wherein the claim of the appellant was allowed. The Assessing Officer is directed to delete the addition of Rs.7,19,505/-."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
16. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and further supported the order of Ld.CIT(A).
17. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to writing off of debit balances. We find that Ld.CIT(A) after considering the submissions of the assessee has noted that with respect to the amount of Rs.7,19,505/-, it was on account of advance paid to suppliers, who had neither refunded the advances nor had supplied the materials. He also noticed that identical issue came up in assessee's own case before the Pune Bench of the Tribunal in ITA No.615/PUN/2014 for A.Y. 2006-07 wherein the claim of the assessee was allowed. He accordingly directed that the same may be allowed. With respect to the addition of Rs.38,50,000/- he noted that it was with respect to the entry tax levied by the Karnataka Government. He has noted that assessee had filed appeal before Karnataka Bench of the Tribunal and the dispute was decided in favour of the assessee and the entire tax was refunded and the assessee has offered the same as income. In such a situation, Ld.CIT(A) was of the view that the addition of Rs.38,50,000/- was not warranted. With respect to Rs.21,11,554/- 15 he noted that since assessee could not furnish the details, he confirmed the addition to that extent. Before us, Revenue has not pointed out any fallacy in the findings of Ld.CIT(A). In view of these facts, we do not find any reason to interfere with the order of Ld.CIT(A) and thus, the ground No.2 of the Revenue is dismissed.
18. 3rd and 4th grounds are inter-connected and are with respect to deletion of liquidated damages of Rs.15,60,235/-. 18.1. Before us, both the parties submitted that the issue in the present ground is inter-connected with ground No.2 of the assessee's appeal.
18.2. We have heard the rival submissions and perused the material on record. In view of the submissions of both the parties while deciding ground No.2 in assessee's appeal hereinabove, we have decided the issue in favour of assessee. We therefore for the similar reasons stated herein while deciding the ground No.2 of the assessee in assessee's favour and for similar reasons, dismiss the grounds Nos.3 and 4 of Revenue. Thus, these grounds of the Revenue are dismissed.
19. Ground No.5 is with respect to disallowances u/s 14A of the Act.
20. During the course of assessment proceedings, AO noticed that assessee had made investments in shares and mutual funds for an amount of Rs.517.38 crores and had claimed interest 16 expenditure of Rs.8.93 crores. The assessee was asked to explain as to why the expenditure incurred for any exempt income not be disallowed by applying the formula prescribed in Rule 8D of the Income Tax Rules. Assessee inter-alia submitted that it has already disallowed of Rs.5,00,000/- suo motu and that the investment activities are ancillary to assessee's principal business. The submission of the assessee was not found acceptable to the AO. AO noted that assessee had not kept separate pool of funds for managing the activities of earning exempt income. He was therefore of the view that expenditure incurred for earning of exempt income needs to be disallowed. He thereafter, following the method prescribed under Rule 8D of the Income Tax Rules, worked out the disallowance u/s 14A at Rs.8,06,87,773/- and after granting credit of Rs.5,00,000/- which was suo motu disallowed by the assessee, disallowed balance expenditure of Rs.8,01,87,773/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :
"8.2 The first issue is whether rule 8D would apply retrospectively or prospectively? The AO had relied on the decision of SB of ITAT, Mumbai ITO Vs. Daga Capital. The appellant is relying on the decision of Mumbai HC in Godrej & Boyce Mfg. Co. Ltd. (2010) 234 CTR (Bom.) 1. Following the decision of jurisdictional Hon. HC, I hold that rule 8D is applicable w. e. f. AY 2008-09 and is not applicable to AY 2007-08. The Rule 8D is applicable from AY 2008-
09. The AO cannot make recourse to Rule 8D for prior years to determine the amount of expenditure incurred by the company in relation to exempt income.
The appellant has stated that Rs. 1,10,90,752/- interest paid during the year is related to investments. The appellant has availed short term loan for the purchase of equity shares of Kirloskar Ferrous Industries Limited during the year. The loan has been repaid during this assessment year. Considering these facts and provisions of section 14A, the interest expenses are directly related to earnings of exempt income and needs to be disallowed. Similarly, the appellant stated that other direct & indirect expenses related to investments (Mutual Funds) are the salary of employees in the finance department looking after purchase and sale of Mutual Funds. The appellant has estimated these salary expenses at Rs. 5,00,000/-. The appellant has estimated only the salary expenses in the finance department looking after the purchase and sale of mutual funds for 17 the purpose of disallowance. The appellant has not considered the other indirect expenses which are also related to earning of exempt income. Thus, the working/estimate provided by the appellant is not complete. Therefore, additional amount of Rs. 5,00,000/- is considered as other indirect expenses related to the exempt income for the purpose of disallowance u/s 14A.
8.3 After going through the reply of the appellant as well as facts of the case, this issue has been decided by CIT(A) in AY 2004-05, 2005-06 wherein the disallowance was restricted to Rs.50,000/- only. In the appellate orders passed by me for AY 2005-06 & 2006- 07, the disallowance was restricted to Rs.2,00,000/-. After consideration of the facts of this assessment year, the total disallowance will be Rs.1,20,90,752/-. (Rs.1,10,90,752/- + Rs.5,00,000 + Rs.5,00,000). The AO is directed to delete disallowance of Rs.6,80,97,131/-. Accordingly, the ground is partly allowed."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
21. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and further submitted that for the year under consideration, method prescribed by Rule 8D of the Income Tax Rules are not applicable and for which he relied on the decision of Bombay High Court in the case of Godrej and Boyce Mfg., Co., Ltd., Vs. DCIT reported in (2010) 328 ITR 81 (Bom). He further submitted that aforesaid decision of Godrej and Boyce Mfg., Co., Ltd (supra) has been upheld by the Hon'ble Supreme Court reported in (2017) 394 ITR 449 (SC). He therefore submitted that the ground of Revenue needs to be dismissed. He thus supported the order of Ld.CIT(A).
22. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to disallowance of expenses u/s 14A of the Act by following Rule 8D of I.T. Rules. It is an undisputed fact that the year under consideration is A.Y. 2007-08. The Hon'ble Bombay High Court in 18 the case of Godrej and Boyce Mfg., Co., Ltd (supra) has held that the method prescribed by Rule 8D of the Income Tax Rules, for working out disallowance u/s 14A are applicable from A.Y. 2008-
09. In view of the aforesaid decision of Hon'ble Bombay High Court, the provisions of Rule 8D of I.T. Rules are not applicable to the year under consideration being A.Y. 2007-08. It is also a fact that assessee has suo-motu disallowed Rs. 5 lac u/s 14A of the Act and that the assessee is not in appeal against the aforesaid addition. Further before us, Revenue has not placed any contrary binding decision in its support. In such a situation, we find no reason to interfere with the order of Ld.CIT(A) and thus, the ground of the Revenue is dismissed.
23. Ground No.6 is with respect to deletion of addition made of Rs.12,46,100/- u/s 40A(2) of the Act.
23.1. During the course of assessment proceedings, AO noticed that assessee had paid commission of Rs.8,03,65,000/- as commission to executive and non-executive Directors. The assessee was asked to explain the reasonableness of the expenditure of commission in terms of Sec.40A(2) of the Act. Assessee inter-alia submitted that the remuneration has been paid as per the provisions of the Companies Act, 1956 and the actual payments are less than the eligible amounts prescribed under Companies Act. It was further submitted that the remuneration has been offered for tax by the respective Directors and there is no evasion of tax. It was therefore submitted that the commission to the directors was reasonable and fully allowable. The submission of the assessee was not found acceptable to the AO in view of the fact that in A.Y. 2006- 19 07 assessee had paid an amount of Rs.6.79 crores as commission and during the year it had paid Rs.8.37 crores. AO noticed that there was an increase in the commission to the tune of Rs.1.24 crores and the assessee's explanation for justifying the increase of commission was general in nature. AO thereafter disallowed 10% of the increased remuneration (Rs.8.37 crore less Rs.6.79 crore) and accordingly made a disallowance of Rs.12,46,100/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :
"9.2 Similar issue of disallowance of director commission was decided in favour of the appellant in A.Y. 2002-03, 2004-05, 2005- 06 & 2006-07. The facts of the assessment year are similar to the facts of the earlier years in which the expenditure is allowed. Accordingly, this ground is allowed and AO is directed to delete the disallowance."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
24. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and further submitted that the issue is covered in favour of the assessee by the decision of Pune Bench of Tribunal in the case of its sister concern, Kirloskar Feerous India Limited in ITA No.911/PN/2013 order dt.27.11.2014. He thus supported the order of Ld.CIT(A).
25. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to disallowance of commission u/s 40A(2) of the Act. Before us, it is assessee's submission that the payment of remuneration paid to the Directors is within the limit prescribed by the Companies Act, 20 1956 and is below the amount prescribed by the Companies Act, 1956. These facts are not controverted by Revenue. Under Sec.40A(2) of the Act, the AO can disallow the expenditure made to close associates having substantial interest in the company for goods, services and facilities. The AO can disallow only that portion of expenditure, which in his opinion, is excessive or unreasonable. Reasonableness of the expenditure has to be seen from the view point of the businessman and not from the view point of Revenue authorities. Further before disallowing the expenses, the AO must establish that the payment is excessive or unreasonable and he has to place on record evidences with respect to excessiveness and unreasonableness. He cannot proceed merely on the basis of surmises and conjectures. Before us, no material has been placed by the Revenue to demonstrate that the payment of commission was not bonafide or how it was unreasonable. Merely by comparing the commission paid between two years, it cannot be concluded that the commission was excessive. We further find that Ld.CIT(A) while deciding the issue has noted that the facts for the year under consideration are identical to that of earlier years and in earlier years, the payment of commission was allowed. Before us, Revenue has not placed any material on record to controvert the findings of Ld.CIT(A). We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the ground of Revenue is dismissed.
26. Ground No.7 is with respect to addition on account of warranty expenses.
26.1 During the course of assessment proceedings AO noticed that assessee made a provision of Rs.1.07 crores for warranties on sale 21 of small, medium and large engines. He also noticed that the provision made was not completely utilized and it was utilized only to the extent of Rs.91.86 lacs. AO therefore concluded that the provision for warranty to the extent of Rs.15.16 lacs (Rs.1.07 crore being provision - Rs.91.86 lacs being amount utilized) was not allowable. He accordingly disallowed an amount of Rs.15,16,618/-. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :
"11.2 I have gone carefully through the submission of appellant and the assessment order. Similar issue was decided in AY 2005-06 &·2006-07. The appellant has filed letter to change the ground of appeal. The appellant has requested to change the amount from Rs.15,16,618/- to Rs.1,07,02,212/-.The above change in the amount was requested since in the earlier assessment years the warranty provision was disallowed and in AY 2007-08, the AO has allowed Rs. 91,85,594/- on the basis of utilisation of warranty for earlier years.
11.3 Considering the facts of the case, the decision of SC judgment in Rotork Controls India (P) Ltd vs CIT (SC) (2009) 314 ITR 62 is applicable to the issue. The provision for warranty will be always based on past trends only and as a % of turnover. The AO cannot consider subsequent reversals made by the appellant for disallowing the provision of warranty for earlier years. The reversals of provision made by the appellant are offered for the taxation in the future years. Similarly in the case of large engines, the warranty obligation starts immediately after the sales are made by the appellant. Considering the facts of the case and following the decision of the AY 2005-06 & 2006-07, I hold the provision of warranty for Large Engines amounting to Rs.1,07,02,212/- as allowable deduction. The AO has already allowed deduction of Rs.91,85,594/- and hence the assessee will be entitled to a deduction of Rs.15,16,618/-. The assessee's revised claim of Rs.1,07,02,212/- is misconceived in as much as the assessee's claims for A.Y. 2005-06 and 2006-07 are already allowed. In the results, the appellant gets a relief of Rs.15,16,618/-. The ground is thus allowed."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
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27. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and supported the order of Ld.CIT(A).
28. We have heard the rival submissions and perused the material on record. We find that while deciding the issue, Ld.CIT(A) has given a finding that in case of large engines the warranty obligation starts immediately after the sales made by the assessee. Ld.CIT(A), following the decision of order in assessee's own case in A.Ys. 2005-06 and 2006-07 also held that the provision of warranty for large engines at Rs. 1,07,02,212/- is an allowable deduction. Before us, Revenue has not placed any material on record to controvert the findings of Ld.CIT(A). We therefore find no reason to interfere with the order of Ld.CIT(A). Thus, the ground of Revenue is dismissed.
29. Ground Nos.8(a) and 8(b) are inter-connected and are with respect to disallowance of claim of long term capital loss of Rs.31,24,06,458/-.
29.1. During the course of assessment proceedings, AO noticed that assessee has claimed loss of Rs.31,24,06,458/- on redemption of cumulative redeemable non convertible preference shares of Kirolskar Ferrous India Ltd., (KFIL). The assessee was asked to justify the claim. Assessee inter-alia submitted that KFIL was a loss making company and was in financial crisis and therefore could not pay the dues to the banks. A restructuring package was designed by which all the dues of KFIL was to be cleared by assessee. The preference shares were allotted to assessee towards 23 financial assistance provided for augmentation of KFIL's long term resources, restructuring of existing liabilities and to fund the adverse liquidity situation. It was further submitted that the preference shares were acquired by assessee as a part of one time settlement of all outstanding debts of KFIL. The assessee further submitted that the shares were redeemed prior to original date for which necessary Board resolutions were passed and that the long term capital loss was only due to indexation. The submissions of the assessee was not found acceptable to AO for the reason that KFIL was a company promoted by assessee and it was a loss making company, had huge accumulated losses and was not in a position to repay the interest on loans. He also noticed that from March 1998 to September 2002, assessee had provided huge funds by converting interest over dues as preference shares as part of financial restructuring of its existing debts. He noted that assessee was providing funds to KFIL by converting debts to preference shares and helped to overcome financial crisis. He was of the view that when the preference shares are redeemed, assessee acquires huge losses so that it escapes paying capital gains tax. He also noted that no specific reasons were forthcoming for preponing the date of redemption. He therefore concluded that the argument of acquiring and redeeming the preference shares at par was a tax planning devise employed to save taxes. He accordingly disallowed the claim of loss. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who granted relief to assessee by observing as under :
"13.3 I have gone carefully through the reasons given by the AO in the assessment order for rejection of claim of long term capital loss and also through the submission of the appellant. During appeal hearing, the appellant submitted copy of decision of Mumbai HC in CIT vs. Enam Securities Ltd.24
13.4 The appellant invested Rs 15 Crs in the equity share capital of KFIL way back in 1993-94. KFIL came out with a rights issue in FY 2006-07 & one of the objectives of issue of equity shares was redemption of preference shares. Further investment by the appellant was made in equity shares in FY 2006-07. The appellant subscribed to 2,43,00,000 equity shares of Rs. 5 each in KFIL in FY 2006-07 according to its entitlement of rights issue. The appellant also subscribed 1,46,92,002 equity shares as per undertaking to subscribe for the unsubscribed portion.
The investment in preference share capital was made (Details of purchase of preference share capital mentioned on page no 23 of the assessment order) in various years Le. FY 1997-98 to FY 2003-04. The total investment of the appellant is summarised as follows:
Sr. Particulars Face No. of As on No of As on
No. Value Shares 31.03.2007 Shares 31.03.2008
Rs. (in Rs.) Rs. (in Rs.)
1 Equity Shares 5 27000000 270000 65992002 1634720
2 1% Cumulative 10 72220000 722200
Redeemable non-
convertible
preference share
capital
3 12% Cumulative 10 32466253 274134
Redeemable non-
convertible
preference share
capital
1266334 1634720
The above table clearly indicates that appellant was having huge stake. The appellant was also dependent on KFIL as a major source of raw material and its business would have affected if KFIL would have failed to supply the material.
13.5 I have also noted the fact stated by appellant and AO that KFIL was suffering from losses and had not declared dividend and not paid preference dividend. The appellant had mentioned due to huge losses KFIL entered into restructuring arrangements and KFIL issued preference shares in lieu of its debts to financial institutions (IDBI & ICICI) and to KOEL The restructuring of loans was with lenders i.e., IDBI & ICICI. The Kirloskar Oil Engines Ltd as a promoter of KFIL was required to subscribe preference shares.
13.6 The appellant had invested in preference share capital of KFIL since it was promoted by the appellant and the KFIL was promoted as a backward integration for supply of pig iron & castings. I agree with the appellant that investments made by it in preference share capital was made with a view to protect its business interest in investment already made and outstanding amounts due. The AO had not noted the fact that KFIL had come out with rights issue of equity shares and one of the objectives of rights issue to public was redemption of presence share capital. The appellant had received back the amount of preference share capital due to redemption in AY 2007-08 and had not incurred any loss on that account. The appellant had received the arrears of preference dividend on preference share capital amounting to Rs 22.77 Crs in this assessment year before redemption of preference shares. I also agree with the statement made by the appellant that redemption was made in this AY had benefited it, since the amount was received earlier. The AO had also failed to note that the form of investment loan or preference share capital will be decided by facts 25 of the case and the same was decided by the appellant and lenders keeping its interest in mind.
There is clear distinction between loan or debt and share capital. In the case of debt, there is undertaking to pay the amount and pay interest. The expression share is defined in Companies Act to mean share in share capital of the company. The Companies Act envisages two types of share capital, equity share capital & preference share capital. Thus there is difference between a loan & preference share capital.
The investment in preference shares of a company suffering losses may be safer than loan as the same has right to receive dividends, right to receive back capital, etc. The AO had stated that the appellant escapes paying capital gains tax but not stated any facts how the appellant had escaped paying capital tax. The long term capital gains in this assessment year even after disallowing long term capital loss for this year gets adjusted against the carried forward long term loss from earlier years. The appellant confirmed during appeal proceedings that there were no frequent purchase and sale transactions of KFIL preference shares. The appellant also confirmed that in the earlier assessment years in which the investment in preference shares was made, the AO had not questioned the transaction.
13.7 I have carefully gone through the Bombay High Court decision in CIT Vs. Enam Securities Pvt. Ltd., (2012) 345 ITR 64 (Bom). The Bombay High Court had held as follows :
"Transaction was not questioned by the revenue for ten years. Both the assessee and the Company of which the assessee held redeemable preference shares were juridical entities. Mere Fact that both were under common management would not necessarily indicate that the transaction was not genuine. Revenue did not bring any material on record whatsoever to substantiate the transaction was sham. "
"The Judgment of the Supreme Court in Anarkali Sarabhai concludes the issue that redemption of preference shares by a company squarely comes within the ambit of Section 2(47) of the Income Tax Act, 1961, since it amounts to transfer."
"Section 48 denies the benefit of indexation to bonds and debentures other than capital indexed bonds issue by the Government. The four percent non-cumulative redeemable preference shares were not bonds or debentures within the meaning of that expression of section 48 of the Income Tax Act, 1961."
Relying on the decision of jurisdictional He, I hold that, the investments in preference shares (purchase) and sale (redemption) was made keeping its business interest and I do not agree with the view of the AO that the arrangement of purchasing and selling preference redeemable shares at par is tax planning device systematically employed by the assessee to avoid tax.
13.8 Considering the facts of the case and relying on the decision of the Bombay HC in Enam securities Limited, I do not agree with the reasons given by AO in the assessment order for rejecting the claim of long term capital loss. Relying on the decision of the Bombay HC 26 in Enam securities Limited, I hold that Preference Shares are capital assets within the meaning of section 2(14) of the Income Tax Act, redemption of preference shares is a transfer within the meaning of section 2(47) of the Income Tax Act and indexation benefit is available to the appellant as per provisions of section 48 of the Income Tax Act. The appellant is entitled to long term capital loss incurred on redemption of preference share capital amounting to Rs.31,24,06,458/-. Thus the appeal is allowed and the AO is directed to allow the long term capital loss. The AO will also state the Long Term Capital Losses to be carried forward considering the Long term capital loss of this year is Rs.31,24,06,458/-.Thus this ground of appeal is allowed."
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.
30. Before us, Ld.D.R. took us through the findings of AO and submitted that strategy of assessee was a tax planning devise to evade taxes. He thus supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before lower authorities and submitted that the assessee and KFIL are listed companies. KFIL is promoted by assessee and that assessee is dependent on KFIL for the procurement of raw materials required by the assessee. He submitted that in view of restructuring arrangement, assessee and other financial institutions were issued preference shares in lieu of its debts and one of the precondition for restructuring arrangement was that the prmotors should bring additional capital in KFIL. The Ld.A.R. further submitted that had the preference shares been redeemed in 2008 to 2011, assessee would have got same amount on redemption but a higher loss for income tax purpose due to extended indexation. He further submitted that assessee had also received arrears of preference dividends which have also been offered to tax by assessee. He therefore submitted that there was no evidence to prove the alleged tax planning for avoidance of taxes and therefore no interference to the order of Ld.CIT(A) is called for.
27
31. We have heard the rival submissions and perused the material on record. In the present ground, AO had disallowed the claim of long term capital loss for the reason that the transaction was a tax planning devise to evade taxes. Before us, Ld.A.R. has reiterated the submissions made before lower authorities and has submitted that the preference shares were allotted to assessee due to the restructuring exercise carried out as per the mandate of other public financial institutions. It is an undisputed fact that KFIL was promoted by assessee, is a listed company and had huge accumulated losses. The issuance of preference shares to the assessee on account of restructuring exercise undertaken to revive KFIL is an undisputed fact. It is also a fact that the assessee was issued preference shares in earlier years and in those years the transaction was not doubted by the Revenue. Further no material has been brought on record by Revenue to demonstrate that the transaction was a sham. We further find that while deciding the issue in favour of assessee, Ld.CIT(A) had relied on the decision of Hon'ble Bombay High court in the case of CIT Vs. Enam Securities Pvt. Ltd., (2012) 345 ITR 64. Before us, Revenue has not pointed out any fallacy in the findings of Ld.CIT(A) nor has pointed out as to why the ratio of decision relied upon by Ld.CIT(A) while deciding the appeal is not applicable to the present facts. Considering the totality of aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A) and thus, the ground of Revenue is dismissed.
32. Thus, the appeal of Revenue is dismissed.
28
33. In the result, the appeal of the assessee is partly allowed for statistical purposes and the appeal of the Revenue is dismissed.
Order pronounced on 12th day of February, 2018.
Sd/- Sd/-
(VIKAS AWASTHY) (ANIL CHATURVEDI)
या यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER पुणे Pune; दनांक Dated : 12th February, 2018.
Yamini आदे श क$ % त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A)-II, Nashik
4. CCIT-Nashik.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" / DR, ITAT, "B" Pune;
6. गाड- फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स या / // True Copy // // TRUE COPY // व/र0ठ %नजी स&चव / Sr. Private Secretary आयकर अपील य अ&धकरण ,पुणे / ITAT, Pune