ACIT CORPORATE CIRCLE 6(1), CHENNAI V. M/s, Shriram City Union Finance Co. Ltd., CHENNAI

ITA 1298/CHNY/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6577 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 29-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R SIVARAMAN
• Assessee Lawyers: G JOHNSON
• Keywords: Depreciation; Earning of tax free income; Royalty expenses; Capital expenditure; TDS; Rule 8D
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , . , $ BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.1251/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) SHRIRAM CITY UNION FINANCE LTD. MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI-600 004. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1) CHENNAI-34. PAN: AAACS 7703H ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.1298/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1) CHENNAI-34. VS SHRIRAM CITY UNION FINANCE LTD. MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI-600 004. PAN: AAACS 7703H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.R.SIVARAMAN, ADVOCATE /RESPONDENT BY : MR.ABANI KANTA NAYAK, CIT & MR.G.JOHNSON, ADDL. CIT ! /DATE OF HEARING : 26.08.2021 ! /DATE OF PRONOUNCEMENT : 08 .09.2021 / O R D E R PER G.MANJUNATHA, AM: THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVEN UE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LEARNE D CIT(A)-15, CHENNAI DATED 30.01.2019 AND PERTAINS TO ASSESSMEN T YEAR 2014-15. SINCE, FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED O RDER. 2 ITA NO.1251 & 1298/CHNY/2019 ITA NO.1251/CHNY/2019 (ASSESSEE APPEAL):- 2. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.A(I) TO A(V) OF THE ASSESSEE APPEAL IS D ISALLOWANCE OF AMOUNT TRANSFERRED TO RESERVE FUND U/S.45IC OF T HE RBI ACT, FOR RS.1,54,61,33,983/-. AT THE OUTSET, THE LEARNED A.R FOR THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THI S ISSUE IS COVERED AGAINST THE ASSESSEE BY AN ORDER OF THE TRI BUNAL IN ASSESSEES GROUP COMPANY CASE IN M/S.SHRIRAM TRANSP ORT FINANCE COMPANY LTD. IN ITA NO.2572 & 2636/CHNY/201 7 DATED 24.05.2018 FOR ASSESSMENT YEAR 2014-15, WHERE AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL AND HELD THAT AMOUNT TRANSFERRED TO RESERVE FUND, AS PER PR OVISIONS OF SECTION 45IC OF THE RBI ACT IS APPROPRIATION OF PRO FITS, WHICH IS NOT DEDUCTIBLE WHILE COMPUTING PROFITS & GAINS FROM BUSINESS OR PROFESSION. 3. THE LEARNED DR, ON THE OTHER HAND, FAIRLY AGREED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN C ONSIDERED BY THE TRIBUNAL IN THE CASE OF SHRIRAM TRANSPORT FINAN CE COMPANY 3 ITA NO.1251 & 1298/CHNY/2019 LTD. IN ITA NO.2572 & 2636/CHNY/2017 DATED 24.05.2 018, WHERE THE TRIBUNAL BY FOLLOWING ITS EARLIER ORDER I N THE CASE OF M/S. SHRIRAM TRANSPORT FINANCE CO.LTD. IN ITA NO.454/MDS/2016 DATED 24.08.2016 HELD THAT TRANSFER OF FUNDS AS REQUIRED U/S.45IC OF THE RBI ACT, IS ONLY APPLIC ATION OF INCOME, THEREFORE, IT IS LIABLE FOR TAXATION. THE F ACTS ARE BEING IDENTICAL FOR YEAR UNDER CONSIDERATION AND THUS, CO NSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH IN THE CASES DI SCUSSED HEREINABOVE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 5. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO.3 OF ASSESSEE APPEAL IS ALTERNATIVE CLAIM OF DEPRECIATION ON ROYALTY AMOUNT DISALLOWED IN ASSES SMENT YEAR 2006-07 TO 2013-14. WE FIND THAT LEARNED CIT(A) H AS REJECTED ALTERNATIVE PLEA TAKEN BY THE ASSESSEE CLAIMING DE PRECIATION ON ROYALTY ON THE GROUND THAT WHEN ROYALTY EXPENSES HAS BEEN HELD TO BE REVENUE IN NATURE AND DEDUCTIBLE, THEN A LTERNATIVE PLEA OF THE ASSESSEE FOR CLAIMING DEPRECIATION ON S AID EXPENDITURE IS INFRUCTUOUS AND HENCE, NOT MAINTAIN ABLE. THE FACT REMAINS UNCHANGED. THE ASSESSEE FAILED TO BRIN G ON RECORD 4 ITA NO.1251 & 1298/CHNY/2019 ANY VALID REASON TO TAKE A DIFFERENT VIEW FROM THE VIEW TAKEN BY THE LEARNED CIT(A) AND HENCE, WE ARE INCLINED TO UP HOLD FINDINGS OF THE LEARNED CIT(A) AND REJECT GROUND TA KEN BY THE ASSESSEE. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO.III (A) (I& II) OF ASSESSEE APPEAL IS REC OMPUTATION OF BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, 1961, BY MAKING ADDITIONS TOWARDS AMOUNT TRANSFERRED TO STATUTORY RESERVE AMOUNTING TO RS.1,04,40,00,000/-. THE COUNSEL FOR T HE ASSESSEE AS WELL AS DR FOR THE REVENUE HAVE AGREED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECIS ION OF THE TRIBUNAL IN APPELLANTS GROUP COMPANY CASE OF M/S. SHRIRAM TRANSPORT FINANCE CO.LTD./ SHRIRAM INVESTMENTS LTD. IN ITA NOS.806 & 807/MDS/2008, WHERE UNDER IDENTICAL SET O F FACTS, IT WAS HELD THAT AMOUNT TRANSFERRED TO RESERVE FUND A S REQUIRED U/S. 45IC OF RBI ACT, IS ONLY AN APPROPRIATION OF I NCOME AND THUS, SAME CANNOT BE DEDUCTIBLE WHILE COMPUTING BOO K PROFIT U/S.115JB OF THE INCOME TAX ACT, 1961. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS AVAILABLE ON RECORD, WE FIND THAT THE TRIBUNAL HAS CONSIDERED 5 ITA NO.1251 & 1298/CHNY/2019 IDENTICAL ISSUE AND HELD THAT AMOUNT TRANSFERRED T O SPECIAL RESERVE FUND AS REQUIRED UNDER SECTION 45IC OF TH E RBI ACT, IS ONLY APPROPRIATION OF PROFITS BELOW THE LINE IN TH E PROFIT & LOSS ACCOUNT AND THUS, SAME IS NOT DEDUCTIBLE WHILE COM PUTING BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, 1961. THER EFORE, CONSISTENT WITH VIEW TAKEN BY CO-ORDINATE BENCH, W E ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) A ND REJECT GROUND TAKEN BY THE ASSESSEE . 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA NO.1298/CHNY/2019 ( REVENUE APPEAL):- 9. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.2 OF REVENUE APPEAL IS DELETION OF DISAL LOWANCE U/S.14A OF THE ACT FOR RS.77,36,000/-. THE ASSESSIN G OFFICER HAS DISALLOWED EXPENSES RELATABLE TO EXEMPT INCOME US/.14A R.W.R.8D OF THE I.T.RULES, 1962 AND DETERMINED DISA LLOWANCE OF RS.77,36,000/- UNDER RULE 8D(2)(III) OF INCOME TAX RULES, 1962 @ .5% OF AVERAGE VALUE OF INVESTMENTS. THE LEARNED A.R FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS.CHETTINAD LOGISTICS PVT.LTD. 95 TAXMANN 6 ITA NO.1251 & 1298/CHNY/2019 250, WHERE IT WAS HELD THAT SECTION 14A CANNOT BE I NVOKED WHERE NO INCOME WAS EARNED BY THE ASSESSEE FOR RELEVANT ASSESSMENT YEAR . 10. THE LEARNED DR, ON THE OTHER HAND, FAIRLY AGRE ED TO THE PROPOSITION, BUT STRONGLY SUPPORTED ORDER OF THE AS SESSING OFFICER. 11. HAVING HEARD BOTH THE SIDES AND CONSIDERED MAT ERIAL ON RECORD, WE FIND THAT ISSUE OF DISALLOWANCE OF EX PENSES U/S.14A R.W.R 8D OF THE I.T.RULES, 1962, WHEN NIL E XEMPT INCOME EARNED FOR THE RELEVANT ASSESSMENT YEAR IS N O LONGER RES INTEGRA . THE HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON INDIA PVT.LTD., 392 ITR 633, HAD CONSIDER ED AN IDENTICAL ISSUE AND AFTER CONSIDERING BOARD CIRCU LAR NO.5 OF 2014 DATED 11.02.2014 HELD THAT WHERE THERE IS NO E XEMPT INCOME IN RELEVANT YEAR, THERE CANNOT BE DISALLOWAN CE OF EXPENDITURE U/S.14A OF THE ACT. THE HON'BLE SUPREME COURT HAS CONSIDERED AN IDENTICAL ISSUE AND DISMISSED SL P FILED BY REVENUE AGAINST HONBLE MADRAS HIGH COURT RULING I N THE CASE OF CIT VS.CHETTINAD LOGISTICS PVT.LTD, AND HELD THA T PROVISIONS OF SECTION 14A CANNOT BE INVOKED, WHERE NO EXEMPT INCOME 7 ITA NO.1251 & 1298/CHNY/2019 WAS EARNED BY THE ASSESSEE FOR RELEVANT ASSESSMEN T YEAR . IN THIS CASE, THE LEARNED CIT(A) HAS RECORDED CATEGORI CAL FINDING THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME FOR IMPUGNED ASSESSMENT YEAR AND HENCE, DELETED ADDIT IONS MADE BY THE ASSESSING OFFICER TOWARDS EXPENSES U /S.14A OF THE ACT. HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE. 12. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3 OF REVENUE APPEAL IS DELETION OF ADDIT IONS MADE TOWARDS DISALLOWANCE OF ROYALTY EXPENDITURE. THE LE ARNED A.R FOR THE ASSESSEE MR. R.SIVARAMAN, ADVOCATE AND L EARNED DR PRESENT FOR THE REVENUE HAVE AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBU NAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 I N ITA NO. 726/MDS/2010 DATED 16.12.2010, WHERE THE TRIBUNAL HELD THAT ROYALTY PAID BY THE ASSESSEE FOR USING LOGO IS NOT A CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE AS SESSEE, BECAUSE THE ASSESSEE DOES NOT ACQUIRE ANY INTANGIBL E ASSET, AND FURTHER SAID LOGO IS NON-TRANSFERRABLE. 8 ITA NO.1251 & 1298/CHNY/2019 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIA L AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF M/S.SHRIRAM TRANSPORT FINAN CE COMPANY LTD. IN ITA NO.2572 & 2636/CHNY/2017 DATED 24.05.2 018 FOR ASSESSMENT YEAR 2014-15, WHERE IT WAS HELD THAT PAYMENT MADE BY THE ASSESSEE FOR RIGHT TO USE LOGO IS REVE NUE IN NATURE, WHICH IS DEDUCTIBLE WHILE COMPUTING INCOME FROM BUSINESS OR PROFESSION. FURTHER, SIMILAR ISSUE HAD BEEN CONSIDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2006- 07 IN ITA NO.726/MAD/2010. THEREFORE, CONSISTENT WI TH THE VIEW TAKEN BY CO-ORDINATE BENCH, WE ARE OF THE CONSIDERE D VIEW THAT THERE IS NO ERROR IN THE REASONING GIVEN BY THE LEA RNED CIT(A) TO DELETE ADDITIONS MADE TOWARDS ROYALTY AND HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LEARNED CIT(A) A ND REJECT GROUND TAKEN BY THE REVENUE. 14. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION F ROM GROUND NO.4 OF REVENUE APPEAL IS RESTRICTING DISALL OWANCE OF COMMISSION PAYMENT U/S.40(A)(IA) OF THE ACT, FOR F AILURE TO DEDUCT TDS U/S.194H OF THE ACT TO RS.18,44,989/-. T HE ASSESSING OFFICER HAS DISALLOWED COMMISSION PAYMEN T OF 9 ITA NO.1251 & 1298/CHNY/2019 RS.99,34,513/- ON THE GROUND THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS AS PER PROVISIONS OF SECTION 194H OF THE ACT, EVEN THOUGH COMMISSION PAYMENT EXCEEDS RS.5000/- IN EACH CASE. IT WAS EXPLANATION OF THE ASSESSEE BEFORE THE ASSES SING OFFICER THAT OUT OF TOTAL COMMISSION PAYMENT, A SUM OF RS.8 0,89,524/- IS OUT OF THE SCOPE OF PROVISIONS OF SECTION 194H OF THE ACT, BECAUSE EACH PAYMENT OF COMMISSION DOES NOT EXCEED RS.5000/- TO INDIVIDUAL RECIPIENT. INSOFAR AS, REM AINING COMMISSION PAYMENT OF RS.18,44,989/-, THE ASSESSEE CLAIMED THAT PAYMENT HAS BEEN MADE BEFORE END OF RELEVANT F INANCIAL YEAR AND IN LIGHT OF DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS.VECTOR SHIPPING SERVICES PVT.LTD . (357 ITR 652) PAYMENT IS NOT DISALLOWABLE, IF SUCH PAYMENT I S MADE BEFORE END OF FINANCIAL YEAR. 15. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL AVAILABLE ON RECORD, WE FIND THAT THE LEARNED CIT(A ) HAS RECORDED A CATEGORICAL FINDING IN LIGHT OF VARIOUS EVIDENCES INCLUDING LIST OF PAYMENT OF COMMISSION TO INDIVIDU AL RECIPIENTS BY THE ASSESSEE AND HELD THAT A SUM OF RS.80,89,524 /- IS OUT OF SCOPE OF SECTION 194H OF THE ACT, BECAUSE PAYMENT I N RESPECT 10 ITA NO.1251 & 1298/CHNY/2019 OF EACH PERSON DOES NOT EXCEED RS.5000/- AND HENCE , THE ASSESSEE DOES NOT REQUIRE TO DEDUCT TDS, AS PER PRO VISIONS OF SECTION 194H OF THE ACT, AND THUS, DISALLOWANCE U/S .40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TDS CANNOT BE MADE. T HE REVENUE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO COUNTER FINDINGS OF FACT RECORDED BY THE LEARNED CIT(A), E XCEPT STATING THAT THE LEARNED CIT(A) HAS ACCEPTED ADDITIONAL EVI DENCE IN CONTRAVENTION OF RULE 46A OF INCOME TAX RULES,1962. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THER E IS NO ERROR IN THE FINDINGS RECORDED BY THE LEARNED CIT(A) TO D ELETE ADDITIONS MADE TOWARDS COMMISSION PAYMENT OF RS.80,89,524/- . AS REGARDS REMAINING COMMISSION PA YMENT OF RS.18,44,989/-, THE ASSESSEE SOUGHT FOR DEDUCTION ON THE GROUND THAT SAID PAYMENT HAS BEEN MADE BEFORE END OF RELEVANT FINANCIAL YEAR IN LIGHT OF DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS.VECTOR SHIPPING SERVICES PVT.LTD.(SUPRA). THE FACT REMAINS THAT THE HON'BLE SUPREME COURT HAS SUBSEQUENTLY REVERSED DECISIONS O F VARIOUS HIGH COURTS IN THE CASE OF PALAM GAS SERVICEVS.CIT (2017) 394 ITR 300, AND HELD THAT PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT, IS APPLICABLE FOR NON-DEDUCTION OF TDS UNDER RESPECTIVE 11 ITA NO.1251 & 1298/CHNY/2019 PROVISIONS OF THE ACT, EVEN THOUGH IMPUGNED PAYMENT S ARE MADE BEFORE END OF RELEVANT FINANCIAL YEAR. THE LE ARNED CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIGHT LY SUSTAINED ADDITIONS MADE BY THE ASSESSING OFFICER TOWARDS DI SALLOWANCE OF COMMISSION OF RS.18,44,989/-. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE REASO NING GIVEN BY THE LEARNED CIT(A) INSOFAR AS ISSUE OF DISALLOWANCE OF COMMISSION AND HENCE, WE ARE INCLINED TO UPHOLD FIN DINGS OF THE LEARNED CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE. 16. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.5 OF REVENUE APPEAL IS RECOMPUTATION OF B OOK PROFIT U/S.115JB OF THE ACT BY MAKING ADDITIONS TOWARDS DI SALLOWANCE U/S.14A R.W.R 8D OF THE INCOME TAX RULES, 1962 . W E FIND THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF ITAT., DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. M/S.VIREET INVESTMENTS PVT.LTD. (165 ITD 27) (SB), WHERE IT WAS HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXPLA NATION (1) TO SECTION 115JB OF THE ACT IS TO BE MADE WITHOUT RESO RTING TO COMPUTATION AS CONTEMPLATED U/S.14A R.W.R 8D OF IN COME TAX RULES, 1962. THE CO-ORDINATE BENCH OF ITAT., CHENNA I IN THE CASE OF SHRIRAM TRANSPORT FINANCE COMPANY IN ITA NO.406 & 12 ITA NO.1251 & 1298/CHNY/2019 407/MDS/2017 HAD CONSIDERED AN IDENTICAL ISSUE AND HELD THAT DISALLOWANCES MADE U/S.14A BY INVOKING RULE 8D CANN OT BE ADDED BACK TO BOOK PROFIT COMPUTED U/S.115JB OF TH E I.T ACT, 1961. THE LEARNED CIT(A), AFTER CONSIDERING RELEVAN T FACTS HAS RIGHTLY DELETED ADDITIONS MADE BY THE ASSESSING OFF ICER TOWARDS RECOMPUTATION OF BOOK PROFIT BY MAKING ADDITIONS TO WARDS DISALLOWANCE U/S.14A R.W.R 8D OF INCOME TAX RULES, 1962 . HENCE, WE ARE INCLINED TO UPHOLD FINDINGS OF THE LE ARNED CIT(A) AND REJECT GROUND TAKEN BY THE REVENUE. 17. IN THE RESULT, APPEALS FILED BY THE ASSESSEE A ND REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH SEPTEMBER, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) (G.MANJUNATHA ) % ' / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER % /CHENNAI, * /DATED 8 TH SEPTEMBER, 2021 DS ,- .- /COPY TO: 1. APPELLANT 2. RESPONDENT 3. / () /CIT(A) 4. / /CIT 5. - 3 /DR 6. /GF .