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Judgment
ORDER
PER MAHAVIR SINGH, VICE PRESIDENT :
These appeals have been filed by the Assessee against the respective orders passed by the Ld. CIT(A)/NFAC, New Delhi for the assessment years 2014-15 & 2015-16 respectively. Since common grounds have been raised in both the appeals, hence, these appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with the facts of the assessment year 2014-15 as lead case.
Following grounds have been raised in assessment years 2014-15 & 2015-16:-
GROUNDS RAISED IN AY-2014-15:
(a) That the Ld. CIT(A) has wrongly confirmed the disallowance of depreciation on “Commercial Vehicles” purchased between 1/1/2009 to 30/9/2009 relevant to Assessment Year 2009-10 & 2010-11 claimed at higher rate of 50% as per Appendix I to Rule 5 instead of 15% by following his predecessor’s order for Assessment Year 2012-13 and ignoring the arguments and Appeal Notes furnished before him.
That the Ld. CIT(A) has wrongly ignored the arguments of appellant for allowing the depreciation @50% instead of 15% in respect of “Block of Commercial Vehicles” as per provisions of section 43(6)(c)(ii) of Income Tax Act, 1961 for AY 2009-10 which was allowed by Ld. CIT(A) in Assessment Year 2009-10.
That the Ld. CIT(A) has failed to consider and allow the correct depreciation on Commercial Vehicles for additions made in Assessment Year 2009-10 @50% & for Assessment Year 2010-11 @15% determined by the AO proportionately 15% of 50% claimed by applicant without determining the w.d.v as per section 43(6)(c)(ii) of Income Tax Act, but simply followed the order of his predecessor for Assessment Year 2012-13.
That the Ld. CIT(A) has wrongly confirmed the “provision for warranty” claimed at Rs. 2.07 crores, which is based on principle of mercantile system of accounting, as “Contingent Liability” as held by him in earlier years, against the settled law in M/s. Rotork Controls India (P) Ltd v/s CIT, 314 ITR 62 (SC) & M/s. Bharat Earth Movers v/s CIT, 245 ITR 248 (SC).
That the Ld. CIT(A) has wrongly considered & upheld the excess amount being a difference between the amount debited to profit & loss account at Rs. 9.42 crores & actual payment of Rs. 7.35 crores, which represented the difference of opening & closing provision for warranty.That the Ld. CIT(A) failed to appreciate that the provision made for Warranty Claim is based on Scientific calculation and past experience, duly confirmed by the Ld. CIT(A) in AY 2009-10.
That the Ld. CIT(A) has wrongly confirmed the disallowance of deduction claimed u/s 35(2AB) at Rs. 11,30,310/- being the difference of amount approved by DSIR and actual expenditure incurred by the applicant company at Rs. 29,79,51,310/- by ignoring the arguments of applicant & provision of section 35(2AB) which allows the deduction two times of the expenditure so incurred.
That the Ld. CIT(A) has wrongly directed the AO to recomputed the disallowance u/s 14A read with Rules 8D(2)(ii)&(iii) by considering the investment in M/s. Magma ITL Finance Ltd, (on which applicant has not received any “Dividend” during the year) and investment in Tax Free Bonds.
That the Ld. CIT (A) has failed to upheld the non-recording of “proper satisfaction” by the AO, as held by the Hon’ble Supreme Court in the case of M/s. Maxopp Investment Ltd v/s CIT.
That the Ld. CIT (A) has failed to appreciate that -
The interest free funds available with the applicant is much more than the investment made & outstanding and accordingly no disallowance under Rule 8D(2)(iii) is called for as held by the Hon’ble Supreme Court in the case of CIT v/s Reliance Industries Ltd, 410 ITR 466.
The interest earned is much more than the interest paid by the applicant during the year.
The Ld. CIT(A) has wrongly rejected the claim made u/s 80JJAA of the Income Tax Act to give directions to the AO to allow the deduction u/s 80JJAA of Assessment Year 2011-12 & 2012-13 at Rs. 1,37,74,875/- & Rs. 1,84,19,098/- respectively when held allowable subsequently at appellate stage.
GROUNDS RAISED IN AY: 2015-16:
(a) That the Ld. CIT(A) has wrongly confirmed the disallowance of depreciation on “Commercial Vehicles” purchased between 1/1/2009 to 30/9/2009 relevant to Assessment Year 2009-10 & 2010-11 claimed at higher rate of 50% as per Appendix I to Rule 5 instead of 15% by following his predecessor’s order for Assessment Year 2012-13 and ignoring the arguments and Appeal Notes furnished before him.
That the Ld. CIT(A) has wrongly ignored the arguments of appellant for allowing the depreciation @50% instead of 15% in respect of “Block of Commercial Vehicles” as per provisions of section 43(6)(c)(ii) of Income Tax Act, 1961 for AY 2009-10 which was allowed by Ld. CIT(A) in Assessment Year 2009-10.
That the Ld. CIT(A) has failed to consider and allow the correct depreciation on Commercial Vehicles for additions made in Assessment Year 2009-10 @50% & for Assessment Year 2010- 11 @15% determined by the AO proportionately 15% of 50% claimed by applicant without determining the w.d.v as per section 43(6)(c)(ii) of Income Tax Act, but simply followed the order of his predecessor for Assessment Year 2012-13.
That the Ld. CIT(A) has wrongly confirmed the “provision for warranty” claimed at Rs. 2.09 crores, which is based on principle of mercantile system of accounting, as “Contingent Liability” as held by him in earlier years, against the settled law in M/s. Rotork Controls India (P) Ltd v/s CIT, 314 ITR 62 (SC) & M/s. Bharat Earth Movers v/s CIT, 245 ITR 248 (SC).
That the Ld. CIT(A) failed to appreciate that the provision made for Warranty Claim is based on Scientific calculation and past experience, duly confirmed by the Ld. CIT(A) in AY 2009-10.
That the Ld. CIT(A) has wrongly confirmed the disallowance of deduction claimed u/s 35(2AB) at Rs. 12,29,318/- being the difference of amount approved by DSIR and actual expenditure incurred by the applicant company at Rs. 34,48,74,318/- by ignoring the arguments of applicant & provision of section 35(2AB) which allows the deduction two times of the expenditure so incurred.
That the Ld. CIT(A) has wrongly directed the AO to recomputed the disallowance u/s. 14A read with Rules 8D(2)(ii)&(iii) by considering the investment in M/s Magma ITL Finance Ltd., (on which applicant has not received any “Dividend” during the year) and old investment in Tax Free Bonds.
That the CIT(A) has failed to upheld the non-recording of “proper satisfaction” by the AO, as held by the Hon’ble Supreme Court in the case of M/s Maxopp Investment Ltd. vs. CIT.
That the Ld. CIT(A) has failed to appreciate that –
The interest free funds available with the applicant is much more than the investment made and outstanding and accordingly no disallowance under Rule 8D(2)(iii) is called for as held be Hon’ble Supreme Court in the case of CIT vs. Reliance Industries Ltd. 310 ITR 466.
The interest earned in much more than the interest paid by the applicant during the year.
We heard the rival contentions and perused the records. At the outset, it is submitted by the Ld. AR that issue relating to denial of higher depreciation @50% in respect of high-end vehicles raised in both the appeals vide Ground no. 1 relevant to assessment year 2014-15 & 2015-16 is concerned, the same is covered by the Tribunal’s orders dated 5.3.2024 & 29.8.2025 in assessee’s own case decided in assessment year 2009-10 and vide consolidated order of AY 2010-11 to 2013-14 respectively wherein, it has been held as under:
AY 2009-10
“36.In view of the aforesaid observation considering the chart given above, considering the definition of light motor vehicle under the Motor Vehicle Act and considering the definition of Commercial Vehicle under the Income Tax Depreciation Schedule, we hold that vehicles bought by assessee between 1.1.2009 to 1.190.2009 being eligible for depreciation @50%. Accordingly, ground no. 5 raised by the revenue is dismissed….”
Consolidated order for AY 2010-11 to AY 2013-14
11.Ground No. 3 relating to disallowance of Rs. 87,19,240/- on account of Higher Depreciation on Commercial vehicles is concerned, AO noted that as per Motor Vehicle Act the vehicles purchased by the assessee do not satisfy the conditions to be called ‘commercial vehicles’ eligible for 50% depreciation, as claimed. He further noted that Assessee has not been able to furnish any evidence in support of its claim, hence, 15% depreciation on non-commercial vehicles is applicable. Whether a vehicle is commercial or non-commercial is decided by the RTO at the time of registration. Ld. CIT(A) confirmed the addition made by the AO. During the hearing, Ld. AR submitted and drew our attention towards page no. 332 of the paper book which is the copy of working of depreciation on commercial vehicles. It was submitted that the vehicles for which the depreciation at 50% is disallowed were all purchased between 01.01.2009 to 01.10.2009. It was further submitted that the AO has misinterpreted the conditions attached to the claim of higher rate of depreciation on commercial vehicles to conclude that the claim is only available when the assessee is involved in the business of running them on hire, etc. During the proceedings, before us, Ld. DR has submitted the brief written submissions on this issue, which has been duly considered. We find that the matter is already covered by the order of the ITAT in assessee’s own case for AY 2009-10 where it considered the same facts and held that “In view of the aforesaid observation considering the chart given above, considering the definition of light motor vehicle under the Motor Vehicle Act and considering the definition of Commercial Vehicle under the Income Tax Depreciation Schedule, we hold that vehicles bought by assessee between 01.01.2009 to 01.10.2009 being eligible for depreciation @50%.” In view of above facts and circumstances and respectfully following the precedent, as aforesaid, this ground of appeal raised by the assessee is allowed…..
16.Some of the issues viz. Prior Period Expenses; Disallowance of Provision for Warranty; Disallowance of Claim u/s. 80JJAA; Denial of Higher Deprecation @50% in respect of high-end vehicles and Disallowance u/s. 14A raised in these three appeals of the assessee, have already been decided in favour of the assessee in Assessee’s ITA NO. 2619/DEL/2015 (AY 2010-11). Following the consistent view, as aforesaid, these grounds are also allowed in favour of the assessee.”
Following the consistent views, as aforesaid, the ground no. 1 raised in both the appeals is allowed in favour of the assessee in the aforesaid manner.
As regards ground no. 2 raised in assessment year 2014-15 & 2015-16 relating to disallowance of provision for warranty is concerned, it is noted that the same is covered by the Tribunal’s orders dated 5.3.2024 & 29.8.2025 in assessee’s own case decided in assessment year 2009-10 and vide consolidated order of AY 2010-11 to 2013-14 respectively wherein, it has been held as under:
AY 2009-10
“21.The assessee also submitted that out of total provision made of Rs. 2.90 crores the assessee had already disallowed a sum of Rs. 1.90 crores in AY 2008-09 in the computation of income thereby drawing the attention of the Ld. CIT(A) that there is double addition made by the AO to the extent of Rs. 1.90 crores. The assessee also submitted the basis of arriving at the provision on a scientific manner which is inconsonance with the principles and parameters laid down by the Hon’ble Supreme Court in the case of Rotork Controls referred (supra), the Ld. CIT(A) appreciated the same and granted relief to the assessee. We find that the said provision is made in tune with the matching principle of accountancy wherein, the sale reported by the assessee and the provision of warranty thereon are inter related with each other and that effectively the provisions made for warranty becomes inextricably link with the sales reported by the assessee. In fact considering the nature of industry the assessee is involved and also considering the consistent practice of assessee fasten with liability on account of warranty from the customers in accordance with the warranty clause thereon; and also considering the fact that the provision for warranty thereon being given on scientific basis which is not disputed by the revenue, we hold that the decision of the Hon’ble Supreme court in the case of Rotork Control (supra) squarely applied to the facts of the assessee. Accordingly, the ground no. 3 raised by the revenue is dismissed.”
AY 2010-11 to AY 2013-14
“13.As regards ground no. 5 relating to provision for warranty is concerned, we note that before the AO it was the contention of the assessee that the provision for warranty is not a contingent liability is ab-initio incorrect. The liability crystallizes in the event of any manufacturing defect occurring in the product and the same being accepted. Such liability is allowable if the determination of the same is based on a scientific method and is consistently followed by the assessee. The figures of warranty paid to total sales defy the logic of being scientific. The wide fluctuations in percentage terms to total turnover defy any scientific method used to create the provision for warranty. Hence, the provision made in respect of warranty was disallowed and CIT(A) confirmed the same. During the hearing, ld. AR has drawn our attention towards the schedule of provision for warranty in audited financial statements. The CIT(A) has erred in contending that the assessee has failed to establish that a scientific consistent system was being followed for creation of provision. At page no. 96 of the Paper Book working of provisions of Rs. 3.10 cr has been given. It was submitted that the incremental provision amount of Rs. 20 lacs to incremental sales (Rs. 337.36 cr) is just 0.059% and this ratio clearly shows that provision has been made on a very conservative basis. It was further contended that the issue of allowability of provision for warranty is squarely covered by the order of the ITAT in assessee’s own case for AY 2009-10 wherein, the identical issue has been decided in favour of the assessee and against the department. In view of above facts and circumstances and respectfully following the precedent, as aforesaid, this ground of appeal raised by the assessee is allowed…….
16.Some of the issues viz. Prior Period Expenses; Disallowance of Provision for Warranty; Disallowance of Claim u/s. 80JJAA; Denial of Higher Deprecation @50% in respect of high-end vehicles and Disallowance u/s. 14A raised in these three appeals of the assessee, have already been decided in favour of the assessee in Assessee’s ITA NO. 2619/DEL/2015 (AY 2010-11). Following the consistent view, as aforesaid, these grounds are also allowed in favour of the assessee.”
Following the consistent views, as aforesaid, the ground no. 2 raised in both the appeals relating to assessment years 2014-15 & 2015-16 is allowed in favour of the assessee in the aforesaid manner.
Apropos issue relating to disallowance u/s. 35(2AB) raised in both the appeals raised vide Ground no. 3 relevant to assessment year 2014-15 & 2015-16 is concerned, it was the contention of the Ld. AR that Ld. CIT(A) wrongly confirmed the disallowance of deduction claimed u/s. 35(2AB) at Rs. 11,30,310/- being the difference of amount approved by DSIR and actual expenditure incurred by the applicant company at Rs. 29,79,51,310/- by ignoring the arguments of applicant and provision of section 35(2AB) which allows the deduction two times of the expenditure so incurred. We note that this issue is covered by the Tribunal’s order dated 29.8.2025 in assessee’s own case decided in consolidated order of AY 2010-11 to 2013-14 wherein, it has been held as under:
“19.Issue relating to disallowance of deduction u/s. 35(2AB) involved in assessment years 2011-12, 2012-13 & 2013-14 is concerned, we note that Ld. CIT(A) observed that the deduction under section 35(2AB) is to be limited to expenditure approved by the prescribed authority and the alternative claim of deduction u/s. 37(1) made by the appellant also cannot be approved meaning that the expenditure has not been wholly and exclusively incurred for the stated purposes of the assessee. Ld. AR submitted that it is not mandatory to take approval for the entire amount for which deduction has been claimed. The only mandatory condition is approval of the research facility by the prescribed authority. He further submitted that mandate of approval of quantum of expenditure had been put in place only with effect from 1.7.2016, hence, non-approval of quantum of expenditure for assessment year 2012-13 did not entitle AO to make disallowance under section 35(2AB), however, the expenses was taken wholly and exclusively for the purpose of business therefore, the deduction should be allowed under section 37(1) of the Act. It was also submitted that the expenditure incurred on research and development are wholly and exclusively for business purposes and hence, are allowable as business expenditure in the current year. In this behalf he relied upon the decision of the Hon’ble Delhi High Court in the case of CIT vs. JCB India Ltd. (2016) 71 taxmann.com 30 (Delhi High Court) wherein it has been held that the research and development charges should be allowed as revenue expenditure u/s. 37 of the Act. In view of above discussions, we find force in the contention of the Ld. AR and the decision relied upon by him, hence, this ground of appeal raised by the assessee in all the three assessment years is allowed.”
In view of above precedent in assessee’s own case, in our considered view, this issue is liable to be allowed. But, in view of the aforesaid contention of the assessee and in the interest of justice, we deem it fit and proper to send back the issue in dispute raised in both the appeals to the file of the Assessing officer for limited purpose of verification of the difference of amount approved by DSIR and actual expenditure incurred by the applicant, as claimed by the assessee and then allow the same, in accordance with law, after considering the aforesaid precedent in assessee’s own case. Accordingly, this ground of appeal in both the appeals is remitted back to the AO with the aforesaid directions. We hold and direct accordingly.
As regards issue relating to disallowance u/s. 14A raised in both the appeals vide Ground no. 4 relevant to assessment year 2014-15 & 2015-16 is concerned for investment in JV and investment yielding dividend and investment in tax free bonds are concerned. We note that the AO made the addition u/r 8D(2)(ii) of Rs. 1,40,43,742/- by observing that the assessee has earned exempt income of Rs. 9,75,64,893/- which is not includible in the total income for tax purpose. It was further observed by the AO that the assessee has himself added back and amount of Rs. 12,64,297/- as disallowance u/s. 14A in the computation of total income. The assessee has borrowed funds on which it paid interest of Rs. 3,26,24,666/-. We observed that there is no exempt income from investment in JV and hence, Section 14A is not attracted and disallowance cannot be made in anticipation of income arising in the future and disallowance u/s. 14A cannot be attracted in the absence of exempt income in the hands of the assessee. Even otherwise, this issue is covered by the decision of the Tribunal in assessee’s own case in AY 2009-10 and AYs 2010-11 to 2013-14, wherein, it has been held as under:-
AY 2009-10:
“14.Ground NO. 3 raised by the assessee is challenging disallowance made u/s. 14A of the Act where there is no exempt income derived by the assessee. This issue is no longer res integra in view of the decision of the Hon’ble Jurisdictional High Court in the case of PCIT vs. Era Infrastructure India Ltd. reported in 141 taxmann.com 289 wherein, the Hon’ble Jurisdictional High Court even after considering the amendment brought in by the Finance Act, 2022 in section 14A had categorically held that said amendments would be prospective in nature applicable from 1.4.2022 onwards and that there is no exempt income, the provisions of section 14A of the Act cannot be brought into service. Respectfully, following the same, the ground no. 3 raised by the assessee are allowed.”
AYrs 2010-11 to 2013-14:
“15.As regards ground no. 7 relating to disallowance u/s. 14A is concerned, it is noted that assessee has only earned capital gain on its investment which is a taxable income under the Act and therefore, section 14A cannot be brought to services in relation to such investments. Working of capital gain /loss in relation to mutual fund has been given at page no. 358 of the Paper Book. In our view, the disallowance u/s. 14A cannot be attracted in the absence of exempt income in the hands of the assessee. However, this issue is squarely covered by the order of the ITAT in assessee’s own case for AY 2009-10 wherein, the identical issue has been decided in favour of the assessee and against the department. In view of above facts and circumstances and respectfully following the precedent, as aforesaid, this ground of appeal raised by the assessee is allowed. Resultantly, Assessee’s appeal is partly allowed…..
16.Some of the issues viz. Prior Period Expenses; Disallowance of Provision for Warranty; Disallowance of Claim u/s. 80JJAA; Denial of Higher Deprecation @50% in respect of high-end vehicles and Disallowance u/s. 14A raised in these three appeals of the assessee, have already been decided in favour of the assessee in Assessee’s ITA NO. 2619/DEL/2015 (AY 2010-11). Following the consistent view, as aforesaid, these grounds are also allowed in favour of the assessee.”
Following the consistent view, as aforesaid, the addition in dispute made u/r 8D(2)(ii) is hereby deleted and accordingly, this ground is allowed in both the appeals.
As regards addition made of Rs. 4,36,77,443/- u/r 8D(2)(iii) relating to investment yielding dividend and investment in tax free bonds is concerned, it is noted that the assessee earned Rs. 7,88,97,606/- as interest on tax free bonds and dividend of Rs. 1,86,67,287/- from preference shares. The dividend yielding preference shares as well as tax free bonds were acquired in AY 2013-14 and in current year AY 2014-15. Ld. AR drew our attention towards the page no. 8 of the Paper Book which is a copy of balance sheet as on 31.3.2014 for the relevant period, showing that assessee has Reserves and Surplus of Rs. 17,638,949,628/- whereas total investment in shares was Rs. 124.09 in AY 2013-14 and AY 2014-15 Rs. 425.91 crores respectively, thus the amount invested by the assessee is significantly less than increase in the reserves and surplus during both the years. Thus, the borrowed funds may have been used for making an investment in the absence of separate books of account is incorrect. Even otherwise, it is settled law that where both interest free and interest bearing funds were available to the assesse, it is to be presumed that investments were made out of interest free funds. This view is fully fortified by the decision dated 23.7.2014 of the Hon’ble High Court of Bombay in the case of CIT vs. HDFC Bank Ltd. reported [2014] 49 taxmann.com 335 (Bombay) wherein, it has been observed as under:
“Section 14-A of the Income Tax Act, 1961 – Expenditure incurred in relation to income includible in total income (Dividends) – Assessment years 2001-02 to 2005-06 – Whether where assessee’s own funds and other non interest bearing funds were more than investment in tax free securities, impugned order passed by Assessing Officer disallowing part of interest payments under section 14A, was to be set aside – Held, yes [Para 5] (in favour of assessee).” (Heads Notes only)
Respectfully, following the aforesaid precedent, the addition in dispute is hereby deleted made u/s. 8D(2)(iii) and thus ground no. 4 raised in both the appeals are allowed in the aforesaid manner.
As regards ground no. 5 raised in assessment year 2014-15 relating to disallowance of CLAIM U/S. 80JJAA is concerned, it is noted that the same is covered by the Tribunal’s order 29.8.2025 in assessee’s own case decided vide consolidated order of AY 2010-11 to 2013-14 respectively wherein, it has been held as under:
“16.Some of the issues viz. Prior Period Expenses; Disallowance of Provision for Warranty; Disallowance of Claim u/s. 80JJAA; Denial of Higher Deprecation @50% in respect of high-end vehicles and Disallowance u/s. 14A raised in these three appeals of the assessee, have already been decided in favour of the assessee in Assessee’s ITA NO. 2619/DEL/2015 (AY 2010-11). Following the consistent view, as aforesaid, these grounds are also allowed in favour of the assessee.”
Following the consistent view, as aforesaid, the ground no. 5 raised in appeal relating to assessment year 2014-15 is allowed in favour of the assessee in the aforesaid manner.
In the result, both the appeals for assessment years 2014-15 & 2015-16 are allowed in the aforesaid very terms.