DCIT Corporate Circle 2(1), CHENNAI V. Fullerton India Credit Company Ltd., CHENNAI

ITA 1473/CHNY/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8977 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RU GEORGE
• Keywords: Depreciation; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 115JB; 145

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER I.T.A. NOS. 1083, 1084 & 1085/CHNY/2018 ASSESSMENT YEARS: 2010-11, 11-12 & 12-13 M/S. FULLERTON INDIA CREDIT CO. LTD., MEGH TOWERS, 1-3RD FLOOR, OLD NO. 307, NEW NO. 165, POONAMALLEE HIGH ROAD, MADURAVOYAL, CHENNAI 600 095. [PAN:AAACD1707C] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) I.T.A. NOS. 1472 & 1473/CHNY/2018 ASSESSMENT YEARS: 2011-12 & 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI. VS. M/S. FULLERTON INDIA CREDIT CO. LTD., MEGH TOWERS, 1-3RD FLOOR, OLD NO. 307, NEW NO. 165, POONAMALLEE HIGH ROAD, MADURAVOYAL, CHENNAI 600 095. ( /APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : SHRI G.S.P. BABU, ADVOCATE DEPARTMENT BY : MRS. RUBY GEORGE, CIT / DATE OF HEARING : 11.10.2018 /DATE OF PRONOUNCEMENT : 05.12.2018 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BOTH THE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 2 (APPEALS) 13, CHENNAI BOTH DATED 29.01.2018 RELEVANT TO THE ASSESSMENT YEARS 2011-12 AND 2012-13. THE ASSESSEE ALSO FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A) RELEVANT TO THE ASSESSMENT YEAR 2010-11. 2. THE FIRST COMMON GROUND RAISED IN THE APPEALS OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF INTEREST INCOME ON NON- PERFORMING ASSETS. 3. THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND TAXED THE INTEREST ON NPA ON RECEIPT BASIS. SINCE THE RBI GUIDELINES WOULD NOT OVERWRITE THE MANDATORY PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT AND THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE INTEREST INCOME ON NPA BECOMES TAXABLE ON ACCRUAL BASIS, THE DISALLOWANCE OF INTEREST AMOUNT WAS CONSIDERED AS INCOME OF THE YEAR FOR ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF JCIT V. INDIA EQUIPMENT LEASING LTD. 111 ITD 37, THE LD. CIT(A) CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BESIDES STRONGLY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 3 COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT 320 ITR 577, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISIONS OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. ELGI FINANCE 293 ITR 357, CIT V. ANNAMALAI FINANCE LTD. 319 ITR 196) AND IN THE CASE OF CIT V. COIMBATORE LAKSHMI INVESTMENT & FINANCE CO. LTD. 331 ITR 229, AND SUBMITTED THAT THE INTEREST INCOME ON NPA COULD BE RECOGNIZED ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS. FURTHER, RELIANCE WAS ALSO PLACED IN THE CASE OF VASISTH CHAY VYAPAR LTD. 90 TAXMANN.COM 365 ON THE PRETEXT THAT THE INCOME RECOGNITION FOR INTEREST ON NPA, THE PROVISIONS OF SECTION 145 OF THE ACT HAS NO ROLE TO PLAY AND PRAYED FOR DELETING THE ADDITION. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IS A NON- BANKING FINANCE COMPANY. THE RECEIPT OF INTEREST INCOME ON NPA WAS HIGHLY UNCERTAIN; THE ASSESSEE HAS OFFERED THE INTEREST INCOME ON NPA ON RECEIPT BASIS. SINCE THE INTEREST INCOME ON NPA NEED NOT BE RECOGNIZED ON RECEIPT BASIS IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF JCIT V. INDIA EQUIPMENT LEASING LTD. (SUPRA), THE ACCRUED INTEREST INCOME ON THE NPA WAS BROUGHT TO TAX, WHICH WAS CONFIRMED BY THE LD. CIT(A) IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL. EVEN THOUGH, THE HONBLE JURISDICTIONAL HIGH COURT DECIDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 4 INDIA EQUIPMENT LEASING LTD. 293 ITR 350, WHEREIN, BY UPHOLDING THE CLAIM OF THE ASSESSEE IT WAS HELD THAT THE INTEREST WOULD BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SAME BECAUSE, THE ASSESSMENT YEAR IN WHICH THE MADRAS HIGH COURT DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE PERTAINED TO PRIOR TO ASSESSMENT YEAR 1997- 98, WHERE THE ASSESSEE COULD FOLLOW HYBRID SYSTEM OF ACCOUNTING. 6.1 HOWEVER, IN THE CASE OF CIT V. ELGI FINANCE LTD. (SUPRA), THE HONBLE MADRAS HIGH COURT HAS HELD THAT THE INTEREST INCOME ON NPA COULD BE RECOGNIZED ON ACTUAL RECEIPT BASIS ONLY. FURTHER, BY REFERRING TO THE DECISION IN THE CASE OF CIT V. ELGI FINANCE LTD. AS WELL AS IN THE CASE OF CIT V. INDIA EQUIPMENT LEASING LTD., IN THE CASE OF CIT V. COIMBATORE LAKSHMI INVESTMENT & FINANCE CO. LTD. 331 ITR 229, THE HONBLE MADRAS HIGH COURT HAS HELD THAT IF NO INCOME WAS RECOGNISED AT ALL FROM SUCH ASSET, THERE WAS NO QUESTION OF APPLYING THE PRINCIPLE OF ACCRUAL. 6.1 MOREOVER, WHILE HOLDING THAT THE INCOME TAX IS A TAX ON REAL INCOME AND NOT ON ACCRUED INCOME, IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT (SUPRA), THE HONBLE SUPREME COURT HAS OBSERVED THAT: THE NON-BANKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998, ARE ONLY DISCLOSURE NORMS: THEY HAVE NOTHING TO DO WITH THE COMPUTATION OF TOTAL TAXABLE INCOME UNDER THE INCOME- TAX ACT, 1961, OR WITH ACCOUNTING TREATMENT. THE DIRECTIONS ONLY LAY DOWN THE MANNER OF PRESENTATION OF NPA (NON-PERFORMING ASSETS) IN THE BALANCE SHEET OF A NON-BANKING FINANCIAL COMPANY. THE OBJECT OF THE DIRECTIONS THAT NON-BANKING FINANCIAL COMPANIES HAVE TO ACCEPT THE I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 5 CONCEPT OF 'INCOME' EVOLVED BY THE RESERVE BANK OF INDIA AFTER DEDUCTING PROVISION AGAINST NON-PERFORMING ASSETS IS ONLY DISCLOSURE AND PROVISIONING AND SUCH TREATMENT IS CONFINED TO PRESENTATION/ DISCLOSURE AND HAS NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME UNDER THE INCOME-TAX ACT. PROVISION FOR NON-PERFORMING ASSETS IN TERMS OF THE DIRECTIONS OF THE RESERVE BANK OF INDIA DOES NOT CONSTITUTE 'EXPENSE' ON THE BASIS OF WHICH DEDUCTION CAN BE CLAIMED BY THE NON- BANKING FINANCIAL COMPANIES UNDER SECTION 36(1)(VII) OF THE ACT. FROM THE ABOVE IT IS VERY CLEAR THAT THE RESERVE BANK OF INDIA DIRECTIONS OF 1998 ARE MERELY PRUDENTIAL NORMS REGARDING PRESENTATION OF THE NON- PERFORMING ASSETS PROVISION IN THE BALANCE SHEET AND THE CONCEPT OF INCOME EVOLVED HAS NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME UNDER THE INCOME TAX ACT. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND THE ADDITION OF INTEREST INCOME ON NON- PERFORMING ASSETS STANDS DELETED FOR ALL THE ASSESSMENT YEARS UNDER APPEAL. SINCE WE HAVE DELETED THE ADDITION, THE ALTERNATIVE PLEA OF THE ASSESSEE FOR ALLOWANCE OF UNRECOVERED AMOUNT AS A BAD DEBT IS UNWARRANTED. 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2012-13 IS THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ADDING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT TO THE BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. ON PERUSAL OF THE APPELLATE ORDER, WE FIND THAT THE LD. CIT(A) HAS NOT RECORDED ANY EXPLICIT FINDINGS WHILE SUSTAINING SUCH ADDITION. WE FIND THAT NO ADDITION OR ADJUSTMENT COULD BE MADE IN RESPECT OF THE DISALLOWANCE OF EXPENSES QUANTIFIED UNDER SECTION 14A OF THE ACT IN THE BOOK PROFIT I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 6 COMPUTATION UNDER SECTION 115JB OF THE ACT AND FOR MORE CLARITY, ANY DISALLOWANCE MADE UNDER SECTION14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, SINCE, THE DISALLOWANCE IS ONLY A DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE IN THE NORMAL COURSE. THERE IS NO PROVISION IN THE ACT TO ADD THIS KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT AND IT CANNOT CHANGE THE BOOK PROFIT ON THIS COUNT. SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF KPR MILLS LIMITED V. DCIT IN I.T.A. NO. 2886/MDS/2016 DATED 15.03.2017 FOR THE ASSESSMENT YEAR 2012-13 BY FOLLOWING THE DECISION IN THE CASE OF SHRIRAM CAPITAL LIMITED V. ACIT IN I.T.A. NOS. 512 & 513/MDS/2015 DATED 26.06.2015 FOR THE ASSESSMENT YEAR 2010-11 & 2011-12, WHEREIN, THE TRIBUNAL HAS OBSERVED AS UNDER: 22. WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THESE TWO ASSESSMENT YEARS BY INVOKING PROVISION U/S.14A R.W. RULE 8D, WAS ALREADY ADJUDICATED BY US IN OUR EARLIER PARA OF THIS ORDER. IN OUR OPINION, DISALLOWANCE MADE U/S.14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT THAT THE DISALLOWANCE IS ONLY DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE IN THE NORMAL COURSE. THERE IS NO PROVISION IN THE ACT TO ADD THESE KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/S.115JB AND IT CANNOT CHANGE THE BOOK PROFIT ON THIS COUNT. THEREFORE EVEN IF THERE IS AN ADDITION IN VIEW OF PROVISION U/S.14A R.W. RULE 8D, THAT CANNOT BE ADDED BACK TO COMPUTE THE BOOK PROFIT U/S.115JB. THIS GROUND IS ALLOWED. 7.1 IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 7 8. THE COMMON GROUND RAISED IN THE APPEALS OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME. BY RELYING UPON VARIOUS DECISION OF THE TRIBUNAL AS WELL AS HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVEST V. CIT 378 ITR 33 INCLUDING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT 392 ITR 633, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. WE FIND THAT IN A RECENT JUDGEMENT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT IN CIVIL APPEAL NOS. 104-109 OF 2015 DATED 12.02.2018, THE HONBLE SUPREME COURT HAS ALSO CONFIRMED THE VIEW OF RESTRICTING THE DISALLOWANCE TO THE QUANTUM OF EXEMPT INCOME. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. THUS, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. 9. THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2011-12 IS THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT DEPRECIATION FOR UPS HAS TO BE GRANTED AT THE RATE OF 60% AND NOT AT THE RATE OF 15%. AS PER DEPRECIATION STATEMENT, THE ASSESSING OFFICER NOTICED THAT TH ASSESSEE HAS CLAIMED 60% DEPRECIATION ON UPS ALONG WITH COMPUTERS. THE ASSESSING OFFICER RESTRICTED THE DEPRECIATION @ 15% SINCE THE UPS COMES UNDER THE CLASSIFICATION OF PLANT AND MACHINERY. ON APPEAL, BY FOLLOWING I.T.A. NOS. 1083-1085 & 1472-1473/CHNY/18 8 VARIOUS DECISIONS OF VARIOUS BENCHES THE TRIBUNAL AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ORIENT CERAMICS & INDUSTRIES LTD. 11 TAXMANN.COM 417, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON UPS AT THE RATE OF 60 PER CENT AS CLAIMED BY THE ASSESSEE. THE CHENNAI BENCHES OF THE TRIBUNAL, IN VARIOUS CASES, CONSISTENTLY HELD THAT THE UPS IS AN INTEGRAL PART OF THE COMPUTER AND THUS, ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60 PER CENT AS APPLICABLE TO A COMPUTER. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. 10. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED AND THE APPEALS FILED BY THE REVENUE ARE DISMISSED. . ORDER PRONOUNCED ON THE 05 TH DECEMBER, 2018 AT CHENNAI. SD/ - SD/ - (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 05.12.2018 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.