ASSITANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 1(1), CHENNAI, NUNGAMBAKKAM, CHENNAI V. M/S CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY LTD, CHENNAI

ITA 652/CHNY/2025

AI Insights

The case involves the Assistant Commissioner of Income Tax, Corporate Circle-1(1), Chennai as the appellant and Cholamandalam Investment and Finance Company Ltd. as the respondent. The appeal pertains to the assessment year 2013-14 and challenges the order of the CIT(A) which had deleted certain disallowances made by the Assessing Officer. The main issues revolved around the treatment of prepaid finance charges, the application of section 14A concerning exempt income, and the depreciation claimed on leasehold premises and motor vehicles. The Tribunal examined precedents and previous rulings in the assessee's own cases for similar assessment years to arrive at their decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793069 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 28-02-2025
• Other Referred Cases: Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66, Bhagwati Appliances vs ITO (Guj) 337 ITR 286, Soma Finance & Leasing Co ltd Vs CIT (Cal) 244 ITR 440, Maxopp investment Ltd vs. CIT 91 Taxman.com 154, ICDS Ltd. v. CIT [2013] 29 taxmann.com 129 (SC), CIT v. Annamalai Finance Ltd. [2005] 275 ITR 451 (Mad)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJIT JAIN; C.A VIRTUAL
• Assessee Lawyers: E.PAVUNA SUNDARI
• Keywords: Set aside; Revenue expenditure; Depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

" आयकर अपीलीय अिधकरण, ‘ए’ \u0011ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0011ा ियक सद! एवं \u0019ी जगदीश, लेखा सद! क े सम( BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.652/Chny/2025 िनधा8रण वष8 /Assessment Year: 2013-14 The Asst. Commissioner of Income Tax, Corporate Circle-1(1), Chennai. Vs. M/s. Cholamandalam Investment and Finance company Ltd., Chola Crest, C54 & C55, Super B-4, Thiru vi ka Industrial Estate, Guindy Industrial Estate, Chennai – 600 032. PAN: AAACC 1226H (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/ Appellant by : Shri Ajit Jain, C.A (virtual) Shri Kunal Shah, C.A HIथ की ओर से /Respondent by : Ms. E. Pavuna Sundari, CIT सुनवाई की तारीख/Date of Hearing : 02.07.2025 घोषणा की तारीख /Date of Pronouncement : 24.09.2025 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2013-14 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 14.087.2024 in the Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 2 -: matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) on 31.03.2016. 2. The ground of appeal raised by the Revenue are as under: “i. The order of the learned CIT(A) is contrary to the facts and circumstances of the case. ii. The Ld. CIT(A) has erred in holding the prepaid finance charges are allowable even though the said expenditure results in continuing benefit over a number of years, thus deciding against the Matching Principle? iii. The Ld. CIT(A) has erred in holding that just because the payments have been made, the said expenses are allowable even though the expenses do not pertain to the instant Previous year and thus not allowable? iv. The Ld. CIT(A) has erred in giving relief to the assessee just because the assessee has already paid the said charges, when the expenses do not pertain to the instant Previous year and thus not allowable. v. The Ld. CIT(A) has erred in holding that the disallowance u/s 14A could not exceed exempt income earned by the assessee ignoring the amendment brought in by Finance Act, 2022 in section 14A by way of insertion of an explanation. vi. Whether, the amendment made to section 14A by Finance Act, 2022 by way of insertion of explanation is applicable retrospectively as it is only clarificatory in nature? viii.. The Ld. CIT(A) has erred in allowing the depreciation on improvements made to leasehold premises @ 100% by relying on the decision of the Ld. CIT(A) appeal in the assessee’s own case for the AY 2010-11, where the CIT(A) has not allowed the appeal but had allowed the appeal subject to verification by the AO. viii. The Ld. CIT(A) has failed to consider the fact that for the relied upon AY 2010-11, the issue was with respect to disallowance of depreciation claimed on temporary structures in leasehold premises. ix. The Ld. CIT(A) has failed to consider the decision in the case of Bhagwati Appliances vs ITO (Guj) 337 ITR 286 and Soma Finance Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 3 -: & Leasing Co ltd Vs CIT (Cal) 244 ITR 440 which wasas congruent with the disallowance made by the AO with respect of the hiring of motor car. x. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 3. Grounds No.1 & 10 are general in nature therefore, no adjudication is required for the same. 3.1 Grounds No.2 to 4 are relating to disallowance of prepaid finance charges. The assessee, in its return of income, claimed deduction of Rs.1,56,84,289/- towards prepaid finance charges, being the difference between the upfront financial charges incurred and the prepaid finance charges amortized during the year and debited to the Profit & Loss account. The Assessing Officer disallowed the claim on the ground that prepaid finance charges are incurred for a period subsequent to the assessment year also and therefore represents deferred revenue expenditure. The A.O also noted that the claim of finance charges does not harmonize with the matching principle of income verses expenditure. The A.O placed reliance on the decision of the Hon’ble Allahabad High Court in Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 in support of his contention. On appeal, the Ld. CIT(A) deleted the disallowance, following the decision of the ITAT in Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 4 -: the assessee’s own case for A.Y. 2011-12 in ITA No. 846/Chny/2020. Aggrieved, the Revenue has preferred this appeal. 3.2 The Ld. Departmental Representative (DR) supported the order of the Assessing Officer and submitted that merely because the payment was made upfront, the entire amount of prepaid finance charges cannot be allowed in the year of payment if the expenditure pertains to subsequent years. 3.3 The Ld. Authorized Representative (AR) for the assessee, on the other hand, submitted that the issue is squarely covered in favour of the assessee by the order of the Co-ordinate Bench of this Tribunal in ITA No. 846/Chny/2020 for A.Y. 2011-12 in assessee’s own case and Hon’ble Tribunal for A.Y 2012-13 also vide order dated 14th August 2024 has deleted the disallowances in respect of prepaid finance charges . 3.4 We have heard the rival submissions and perused the materials available on record. The Assessing Officer disallowed prepaid finance charges of Rs.1,56,84,249/- on the ground that the loan tenure extended beyond the relevant financial year and, therefore, applying the matching principle, the expenditure could not be allowed in Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 5 -: entirety. The Ld. CIT(A), however, has deleted the addition by following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2011-12, wherein the same issue was adjudicated. Since the issue stands covered by the decision of the Tribunal for A.Y. 2011-12 and A.Y 2012-13 , we find no infirmity in the order of the Ld. CIT(A). Accordingly, the same is being upheld. 4. Grounds No. 5 & 6 relate to the addition of Rs.11,62,31,646/- made u/s 14A of the Act. 4.1 The Assessing Officer has made disallowance of Rs.11,62,31,646/- u/s 14A of the Income-tax Rules, 1963 (hereinafter “the Rules”) in respect of exempt income earned u/s 10(34) of Rs 1,49,636/ by applying Rule 8D of I T Rule . On appeal, the Ld. CIT(A) restricted the disallowance to the extent of exempt income of Rs.1,49,636/-, relying on the order of the Tribunal in the assessee’s own case for A.Y. 2010-11 in ITA No. 12/Chny/2020. 4.2 The Ld. DR contended that the Ld. CIT(A) was not justified in holding that disallowance u/s 14A of the Act cannot exceed exempt income, especially in view of the amendment made by the Finance Act, 2022, inserting an Explanation to section 14A of the Act. Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 6 -: According to the Ld. DR, the amendment being clarificatory in nature, is applicable retrospectively. 4.5 The Ld. AR, on the other hand, submitted that the Ld. CIT(A) has merely followed the binding order of the Tribunal in the assessee’s own case for A.Y. 2010-11. It was further argued that the Explanation to section 14A cannot be applied to the present case where exempt income is only Rs.1,49,636/-, earned in the form of dividend. 4.6 We have heard the rival submissions and perused the materials available on record. The assessee has earned exempt income in the form of dividend of Rs.1,49,636/-. The Assessing Officer, has disallowed Rs.11,62,31,646/- u/s 14A applying Rule 8D as expenditure related to earn exempt income. The Ld. CIT(A),considering the decision of Hon’ble Supreme Court in the case of Maxopp investment Ltd vs. CIT 91 Taxman.com 154 and following the decision of the Tribunal in ITA No. 12/Chny/2020 (supra) in assessee’s own case has restricted the disallowance to the exempt income. As the issue is squarely covered in favour of the assessee by the earlier decision of the Co-ordinate Bench, we find no infirmity in the order of the Ld. CIT(A). Accordingly, the same is upheld and Revenue’s grounds are dismissed. Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 7 -: 5. Grounds No. 7 & 8 relates to depreciation on leasehold premises claimed @100%. 5.1 The assessee incurred expenditure of Rs.9,11,98,770/- on improvements to leasehold premises and claimed depreciation @100%. The Assessing Officer restricted the allowance to 10%. On appeal, the Ld. CIT(A), relying on the order of the Tribunal in assessee’s own case for A.Y. 2010-11 order dated 26.02.2019, deleted the addition. 5.2 The Ld. DR relied on the order of the Assessing Officer and submitted that in A.Y. 2010-11, the Tribunal had allowed the claim only subject to verification by the Assessing Officer. Therefore, the Ld. CIT(A) was not justified in deleting the addition outright. 5.3 The Ld. AR, on the other hand, submitted that the expenditure did not result in creation of a new asset but only made the premises suitable for business use. It was further explained that such temporary structures cannot provide an enduring benefit since the assessee would vacate the premises without carrying away these improvements due to high dismantling costs. The Ld. AR also pointed out that in assessee’s own case for A.Ys. 2014-15 and 2015-16, order dated Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 8 -: 28.04.2025, the Tribunal had remanded the matter to the Assessing Officer for verification. 5.4 We have heard the rival submissions and perused the materials on record. The Ld CIT(A) relying on the decision of Ld. CIT(A) in A.Y 2010-11 has deleted the addition . However, we find that the Tribunal in A.Y. 2010-11, on the same issue has directed A.O verify the expenses claimed and grant depreciation accordingly. The Hon’ble Tribunal in assessee’s own case for A.Y 2014-15 and 2015-16 dated 28th April 2025 has remanded back matter to the A.O for verification. We, therefore, restore the matter to the file of the Assessing Officer to allow the claim as per direction given in A.Y. 2014-15. 6. Ground No. 9 relates to the disallowance of depreciation on motor vehicles. 6.1 The assessee claimed depreciation @30% amounting to Rs.68,060/- on motor vehicles that were financed on hire purchase basis. The Assessing Officer restricted the allowance to 15%, holding that the assessee was engaged in leasing vehicles and not running them on hire, and thus not entitled to the higher rate. On appeal, the Ld. CIT(A) allowed depreciation @30% relying on the judgment of the Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 9 -: Hon’ble Jurisdictional High Court in CIT v. Annamalai Finance Ltd. [2005] 275 ITR 451 (Mad). 6.2 The Ld. DR has argued that the assesseeis engaged in leasing motor vehicle and not running them on hire , therefore not elgible for higher rate of depreciation. The Ld AR relied on the order of Bhagwati Appliances v. ITO (Guj) 337 ITR 286 and Soma Finance & Leasing Co. Ltd. v. CIT (Cal) 244 ITR 440 in support of his contention. 6.3 The Ld. AR, in response, relied on the judgment of the Hon’ble Supreme Court in ICDS Ltd. v. CIT [2013] 29 taxmann.com 129 (SC), as well as the decision of the Hon’ble Madras High Court in CIT v. Annamalai Finance Ltd. (supra). 6.4 We have heard both sides and perused the record. The Ld. CIT(A) has followed the binding decision of the Hon’ble Jurisdictional High Court in CIT v. Annamalai Finance Ltd. (supra) to hold that vehicles leased out by the assessee are eligible for higher rate of depreciation . We , therefore find no infirmity in the order of Ld CIT(A) Printed from counselvise.com ITA No.652/Chny/2025 Cholamandalam Investment and Finance Co. Ltd. :- 10 -: and uphold the same. Accordingly, the ground raised by the Revenue is dismissed. 7. In the result, the appeal filed by the Revenue is partially allowed Order pronounced on 24th day of September, 2025 at Chennai. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0011ाियक सद! / Judicial Member (जगदीश) (Jagadish) लेखा सद! /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 24th September, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF Printed from counselvise.com "