Shriram Transport Finance Company Limited, CHENNAI V. DCIT Corporate Circle 6(1), CHENNAI

ITA 1250/CHNY/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0271 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 26-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J PAVITRAN KUMAR JCIT
• Assessee Lawyers: R SIVARAMAN
• Keywords: Capital asset; Earning of tax free income; Bad and doubtful debts; Commercial expediency; Rule 8D
• Section: 143(3); 14A; 201

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NO.1250/CHNY/2019 #$% &$ / ASSESSMENT YEAR : 2013-2014. SHRIRAM TRANSPORT FINANCE COMPANY LTD, MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1) CHENNAI. [PAN AAACS 7018R] ( / APPELLANT) ( /RESPONDENT) !' '( ) * / APPELLANT BY : SHRI. R. SIVARAMAN, ADVOCATE +,'( ) * /RESPONDENT BY : SHRI. J.PAVITRAN KUMAR, JCIT. # - ) . /DATE OF HEARING : 07-11-2019 /0&% ) . /DATE OF PRONOUNCEMENT : 16-12-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-15, CHENNAI (CIT(A) FOR SHORT) DATED 29.01.2019 FOR THE ASSES SMENT YEAR (AY) 2013-2014. ITA NO.1250/2019 :- 2 -: 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE CIT(A) IN ITA.NO.24/18-19/CIT (A)-15 DATED 29.01.2019 IS AGAINST LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN CONFIRMING PART OF THE DISAL LOWANCE MADE U/S.14A R.W RULE 8D. 3. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT OUT OF THE TOTAL DIVIDEND INCOME RECEIVED OF RS.1,23,12,020/- RS.1,22,60,580/- HAS BEEN CREDITED TO THE APPELLANT S BANK ACCOUNT UNDER ECS AND ONLY THE BALANCE AMOUNT OF RS .51,440/- HAS BEEN RECEIVED BY CHEQUE AND THAT THE APPELLANT COMPANY ITSELF HAS DISALLOWED RS.40,628/- U/S.14A TAKING IN TO ACCOUNT THE ADMINISTRATIVE EXPENDITURE INCURRED. 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE ASSESSING OFFICER APPLIED RULE 8D WITHOUT RECORDED AS TO WHY HE WAS NOT SATISFIED ABOVE THE CORRECTNESS OF THE AMOUNT DISAL LOWED BY THE APPELLANT U/S.14A. IN THIS CONNECTION THE APPELLANT RELIES ON THE FOLLOWING DECISIONS. I. CIT VS TAIKISHA ENGINEERING INDIA LTD (229 TAXMA N 143) DELHI HC II. CIT VS I P SUPPORT SERVICES INDIA P LTD (378 IT R 240) DELHI HC. III. PRINCIPAL CIT VS RELIANCE CAPITAL ASSET MANAGE MENT LIMITED (BOMBAY HC (400 ITR 217)). SLP AGAINST THIS JUDGMEN T HAS BEEN DISMISSED BY THE HONBLE SC. SLP(C) NO.11379 OF 201 8 DATED 07.09.2018 (259 TAXMAN 83). 5. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE INVESTMENTS IN SUBSIDIARY COMPANIES AND ASSOCIATE C OMPANIES WERE MADE AS A MATTER OF COMMERCIAL EXPEDIENCY AND NOT WITH INTENTION OF EARNING EXEMPT INCOME. 6 WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE APPELL ANT RAISES THE FOLLOWING GROUND. A. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT WHILE APPLYING RULE 8D, THE ASSESSING OFFICER HAS TAKEN I NTO ACCOUNT THE INVESTMENTS FROM WHICH NO EXEMPT INCOME WAS RECEIVE D THOUGH ITA NO.1250/2019 :- 3 -: IN THE FOLLOWING DECISIONS, IT HAS BEEN HELD THAT, THE INVESTMENTS FROM WHICH NO EXEMPT INCOME WAS RECEIVED HAVE TO BE EXCLUDED. I. ITAT CHENNAI C BENCH DECISION IN THE CASE OF SHR IRAM OWNERSHIP TRUST IN ITA NO.406 & 407 / MDS/2017 DATE D 05.07.2017. II. ITAT SPECIAL BENCH DECISION IN THE CASE OF ACIT VS VIREET INVESTMENTS PVT LTD (82 TAXMANN.COM 415). FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED BEF ORE OR AT THE TIME OF HEARING, THE ITAT MAY BE PLEASED TO DEL ETE THE DISALLOWANCE MADE U/S.14A R.W. RULE 8D. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY SHRIRAM TRANSPORT FINANCE C OMPANY LTD, IS A COMPANY INCORPORATED UNDER THE PROVISIO NS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF FINA NCING COMMERCIAL VEHICLES. THE RETURN OF INCOME FOR THE AY 2013-14 WAS FILED ON 28.09.2013 DISCLOSING TOTAL INCOME OF RS.17,71,53, 21,550/- AND THE SAME WAS REVISED ON 30.03.2015 DISCLOSING TOTAL INC OME OF G18,23,64,72,690/-. THE ASSESSEE ALSO RETURNED BO OK PROFIT OF RS.21,12,15,69,521/- U/S.115JB OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT). AGAINST THE SAID RETURN OF INCOME, TH E ASSESSMENT WAS ORIGINALLY COMPLETED BY THE ASSESSING OFFICER VID E ORDER DATED 21.03.2016 PASSED U/S. 143(3) OF THE ACT AT TOTAL INCOME OF RS.24,31,15,65,293/-. WHILE DOING SO, THE AO MADE DISALLOWANCE U/S.14A OF THE ACT OF RS.1,56,69,564/-, DISALLOWANC E OF PROVISION FOR ITA NO.1250/2019 :- 4 -: BAD DEBTS G180,04,49,000/-, DISALLOWANCE OF ROYALT Y PAYMENT OF G13,35,73,963/-, DISALLOWANCE OF INTEREST U/S.234D OF G7,31,78,234/- AND DISALLOWANCE OF STATUTORY REVERSE OF G405,22,2 1,842/-. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE FILED APPEAL BEFO RE LD. CIT(A). THE ADDITION WERE FURTHER CONTESTED BEFORE THE TRIBU NAL ON THE ISSUE OF DISALLOWANCE U/S.14A R.W.R. 8D. THE TRIBUNAL IN IT S ORDER DATED 01.05.2017 IN ITA NO.2407 /MDS/2016 RESTORED THE IS SUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ACCO RDINGLY, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER DATED 19.06.2018 PASSED U/S.143(3) R.W.S. 254 OF THE ACT AFTER MAKI NG DISALLOWANCE OF RS.1,57,10,192/- U/S.14A OF THE ACT. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDER DIRECTED THE ASSESSING OFFI CER TO RESTRICT THE AMOUNT OF DISALLOWANCE TO THE EXTENT OF EXEMPT INCO ME OF RS.1,56,28,936/- REJECTING THE ARGUMENT THAT ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME SHALL ALONE BE CONSIDERED FO R THE PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D. 5. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. LD. COUNSEL SUBMITTED THAT ASSESSEE ITSELF HAD OFFERED DISALLOWANCE OF RS.40,628/- U/S.14A OF THE ACT. THE ASSESSING OFFICER ITA NO.1250/2019 :- 5 -: WITHOUT RECORDING ANY SATISFACTION AS TO HOW THE CLAIM OF THE ASSESSEE IS INCORRECT HAD RESORTED TO PROVISIONS O F SECTION 14A R.W.R 8D. THUS, IT WAS SUBMITTED THAT WITHOUT RECORDI NG ANY SATISFACTION, NO DISALLOWANCE U/S.14A OF THE ACT CAN BE MADE. I N THIS CONNECTION, HE PLACED RELIANCE ON THE DECISIONS OF HONBLE BOM BAY HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. RELIANCE CAPITAL ASSET MANAGEMENT LIMITED, 400 ITR 217, HONBLE DELHI HIGH COURT IN THE CASES OF CIT VS. TAIKISHA ENGINEERING INDIA LTD, 229 TAXMAN 143 AND CIT VS. I P SUPPORT SERVICES INDIA P. LTD, 378 ITR 240 . WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT NO DISALLOWANCE U/S.14A OF THE ACT CAN BE MADE IN RESPECT OF INVESTMENTS MADE IN SUBSIDIARY C OMPANY AS STRATEGIC INVESTMENTS. HE FURTHER SUBMITTED THA T RATIO DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT, (2018) 402 ITR 640 IS NOT APPLICABLE TO THE PRESENT CASE. FINALLY, LD. AUTHORISED REPRESENTATIVE CONTENDED THAT FOR TH E PURPOSE OF COMPUTING AVERAGE VALUE OF INVESTMENTS, THE AMOUNT OF DISALLOWANCE U/S.14A R.W.R.8D, INVESTMENTS WHICH YIELDED EXEM PT INCOME ALONE HAS TO BE CONSIDERED, PLACING RELIANCE ON THE DECIS ION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRIRAM OWNERSHIP TRUST IN ITA NOS.406 & 407/MDS/2017, DATED 05.07.2017 AND DECISI ON OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIR EET INVESTMENTS P LTD. 82 TAXMANN.COM 415. ITA NO.1250/2019 :- 6 -: 6. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. THE ONLY ISSUE IN THE PRESENT APPEAL RELA TES TO DISALLOWANCE U/S14A OF THE ACT. ADMITTEDLY, ASSESSEE MADE INVES TMENTS WHICH YIELDED DIVIDEND INCOME OF RS.1,23,12,020/- AND IN VESTMENTS WERE MADE IN SUBSIDIARY COMPANIES FOR STRATEGIC PURPOS E. ADMITTEDLY, ASSESSEE ITSELF HAD OFFERED SUO-MOTU DISALLOWANCE OF RS.40,628/- U/S.14A OF THE ACT. THE PROVISIONS OF SUB SECTION ( 2) OF SECTION 14A OF THE ACT PROVIDES THAT RESORT TO DISALLOWANCE U/S .14A OF THE ACT CAN BE MADE ONLY IF HE IS NOT SATISFIED WITH THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME. THEREFORE, IT IS MANDATORY ON THE PART OF T HE ASSESSING OFFICER TO RECORD A SATISFACTION AS TO CORRECTNESS OR OTHE RWISE OF THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRED TO EARN EXEMPT INCOME. IN THE PRESENT CASE, ASSESSEE SUO-MOTU OFFERED DI SALLOWANCE OF RS.40,628/-. FROM THE PERUSAL OF THE ASSESSMENT OR DER, IT IS CLEAR THAT THERE IS NO FINDINGS BY THE ASSESSING OFFICER AS TO THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF THE ASSESSEE THAT ONLY AN EXPENDITURE OF RS.40,628/- WAS INCURRED. IN THIS ABSENCE OF SUCH FINDINGS BY THE ASSESSING OFFICER, RESORT TO PROVISIONS OF SECTION 14A OF THE ACT CANNOT ITA NO.1250/2019 :- 7 -: BE MADE AS RULED BY HONBLE BOMBAY HIGH COURT IN T HE CASE OF RELIANCE CAPITAL ASSET MANAGEMENT LTD (SUPRA) AND THE SLP AGAINST THIS JUDGMENT WAS DISMISSED BY HONBLE SUPREME COUR T IN 259 TAXMAN 83. THE HONBLE SUPREME COURT IN THE CASE O F MAXOPP INVESTMENT LTD (SUPRA) HAS UPHELD THIS PRINCIPLE BY HOLDING AS UNDER:- 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MA KE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONM ENT, THE ASSESSING OFFICER NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTU DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE ASSESSING OFFICER WAS N OT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALI TY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT . FURTHER, WHILE RECORDING SUCH A SATISFACTION, THE N ATURE OF THE LOAN TAKEN BY THE ASSESSEE FOR PURCHASING TH E SHARES/ MAKING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE ASSESSING OFFICER. RECENTLY, THE CO-ORDINATE BENCH OF THE TRIBUNAL TO WHICH ONE OF US I.E. THE ACCOUNTANT MEMBER IS THE AUTHOR OF THE ORD ER, IN THE CASE OF CITY UNION BANK LTD VS. ASSISTANT COMMISSIONER OF INCOME TAX, (2019) 74 ITR TRIB (644) CHENNAI HELD AS FOLLOWS:- AS REGARDS TO OTHER LIMB OF THE ARGUMENT OF THE A SSESSEE THAT IN THE ABSENCES OF ANY FINDING BY THE ASSESSIN G OFFICER AS TO HOW THE CONTENTION OF THE ASSESSEE TH AT NO EXPENDITURE WAS INCURRED IS INCORRECT NO DISALLOWAN CE SHOULD BE MADE. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSEE BANK ITSELF HAS OFFERED A SUM OF G 2,19,751/- UNDER THE PROVISIONS OF SECTION 14A OF T HE ACT. FROM THE PERUSAL OF THE ORDER OF THE ASSESSING OFFICER, IT IS CLEAR THAT THE ASSESSING OFFICER HAD NOT ASSIGNED ANY REASON WHATSOEVER AS TO HOW THE CLAIM OF ITA NO.1250/2019 :- 8 -: THE ASSESSEE IS INCORRECT. IN THE SIMILAR FACTS, T HE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD . VS. CIT, 402 ITR 640 HELD THAT IN THE ABSENCE OF T HE FINDING OF THE ASSESSING OFFICER RESORT TO PROVISI ONS OF SECTION 14A OF THE ACT R.W.R 8D OF THE RULES CANNO T BE MADE. THIS DECISION WAS FOLLOWED BY THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN THE CASE OF KARUR VYSYA B ANK (SUPRA) CITED BY HOLDING AS UNDER:- GROUND NO. 8 CHALLENGES THE ADDITION OF G 3,88,882/- INVOKING THE PROVISION OF SECTION 14A OF THE ACT. IT IS THE CONTENTION OF THE APPELLANT THAT THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE TO EARN EXEMPT INCOME. THE ASSESSING OFFICER HAD NOT GIVEN ANY FINDINGS AS TO HOW THE CLAIM OF THE ASSESSEE- BANK THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME WAS INCORRECT. IN THE ABSENCE OF THIS FINDING RESORT TO THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES CANNOT BE MADE AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT, (2018) 402 ITR 640. THEREFORE THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED. ACCORDINGLY, THIS GROUND OF APPEAL STANDS ALLOWED IN FAVOUR OF THE ASSESSEE. SIMILAR VIEW WAS TAKEN UP BY THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. TAIKISHA ENGINEERING INDIA LTD, 370 ITR 338 AND PCIT VS. MOONSTAR SECURITIES TRADING AN D FINANCE CO. (P) LTD, 105 TAXMANN.COM 274. THE HON BLE DELHI HIGH COURT HAD FIRMLY HELD THAT MERE REJECTIO N OF THE EXPLANATION OF THE ASSESSEE PER SE CANNOT BE ACCEP TED. THIS DECISION OF DELHI HIGH COURT IN THE CASE OF MOONSTA R SECURITIES TRADING AND FINANCE CO. (P) LTD, WAS AF FIRMED BY THE HON'BLE SUPREME COURT IN THE CASE OF DISMISSAL OF SLP IN PCIT VS. MOONSTAR SECURITIES TRADING AND FINANCE CO . (P) LTD, 105 TAXMANN.COM 275. IN THE LIGHT OF THE ABOVE DECISIONS, ADMITTEDLY, IN THE PRESENT CASE, THE ASSESSING OFFICER HAD NOT RECORDED ANY FINDINGS AS TO THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF ASSESSEE COMPANY THAT ONLY EXPENDITURE OF RS.40,628/- WAS INCURRED TO EARN EXEMPT INCOME. THEREFORE, THE ITA NO.1250/2019 :- 9 -: ASSESSING OFFICER WAS NOT JUSTIFIED IN RESORTING TO PROVISIONS U/S. 14A OF THE ACT. ACCORDINGLY, NO DISALLOWANCE CAN BE MADE U/S.14A OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 1250/CHNY/2019 FOR ASSESSMENT YEAR 2013-2014 STANDS ALLOWED. ORDER PRONOUNCED ON 16TH DAY OF DECEMBER, 2019, AT CHENNAI. SD/- SD/- ( . ! ) (DUVVURU RL REDDY) ' #$ /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER 1 #- / CHENNAI 2# / DATED:16 TH DECEMBER, 2019. KV 3 ) +.4 5' !6 5&. / COPY TO: 1 . !' '( / APPELLANT 3. 7. (!' ) / CIT(A) 5. 5 :; +.#< / DR 2. +,'( / RESPONDENT 4. 7. / CIT 6. ;$ =- / GF