M/s International Tractors Ltd. vs DCIT-(LPTU)

1.

The CIT(A) erred in holding that the ground relating to passing of a non-speaking e-assessment order dated 28.12.2018 by the ACIT, LTU at a “Book Profit” u/s. 115 JB at Rs. 7,76,52,32,246/-which was uploaded in the assessee’s e-filing account and another assessment order dated 28.12.2018 assessing the book profit at Rs. 7,76,80,42,100/- served on 2.1.2019 by post, as general in nature.

(b)

That the Ld. CIT(A) has wrongly held that the ground relating to validity of two assessment orders framed u/s. 143(3) dated 28.12.2018 at different assessed book profit u/s. 115JB as general in nature.

2.

(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 and 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 AY 2012-13 by ignoring the arguments and Appeal Notes furnished before him.

(b)

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 the Income Tax Act, 1961 for AY 2009-10 which was allowed by CIT(A) in AY 2009-10.

(c)

That the Ld. CIT(A) has failed to consider and allow the correct depreciation on addition to commercial vehicles made in AY 2009-10 @50% and for assessment year 2010-11 @15% against the depreciation allowed 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 followed an order of his predecessor for AY 2012-13.

3.

That the CIT(A) has wrongly confirmed the disallowance of deduction claimed u/s. 35(2AB) at Rs. 2,65,255/- being the difference of amount approved by DSIR at RS. 38,04,97,151/- and actual expenditure incurred at Rs. 38,07,62,406/- by ignoring the arguments of applicant but followed the order of his predecessor for AY 2012-13.

4.

That the CIT(A) has wrongly confirmed the disallowance u/s. 14A (net) at Rs. 87,03,973 [11513560-2809585] without recording of “satisfaction” and without establishing any nexus of amount borrowed for investment.

5.

That the CIT(A) has wrongly confirmed the disallowance of club expenses at Rs. 53231/- which are in the nature of subscription charges paid for Directors, as employees, and charges for other facilities availed for the purpose of business at the club.

6.

That the Ld. CIT(A) has wrongly upheld the adjustment of disallowance u/s. 14A and difference in depreciation on commercial vehicles to ‘book profit’ u/s. 115JB by wrongly interpreted the provision of clause (f) of explanation (1) of section 115JB.

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.”

Consolidated order for AYrs 2014-15 & 2015-16

3.

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:…

4.

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…..”

AY 2010-11 to 2013-14

“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.”

AY 2014-15 & 2015-16

7.1

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.

“8.2

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)

8.3

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.”