ACIT, CHENNAI V. M/s. Shriram City Union Finance Ltd., CHENNAI

ITA 1899/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2398 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-04-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 25-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Diversion of income; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1744/MDS/2012 (ASSESSMENT YEAR : 2009-10) M/S SHRIRAM CITY UNION FINANCE LTD., NO.123, ANGAPPA NAICKEN ST., CHENNAI - 600 001. PAN : AAACS 7703 H (APPELLANT) V. THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE VI, CHENNAI - 600 034 . (RESPONDENT) I.T.A. NO. 1899/MDS/2012 (ASSESSMENT YEAR : 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI - 600 034. (APPELLANT) V. M/S SHRIRAM CITY UNION FINANCE LTD., MOOKAMBIKA COMPLEX, 3 RD FLOOR, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. (RESPONDENT) I.T.A. NO. 1745/MDS/2012 (ASSESSMENT YEAR : 2009-10) M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD., NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. PAN : AAACS 7018 R (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI - 600 034. (RESPONDENT) I.T.A. NO. 1898/MDS/2012 (ASSESSMENT YEAR : 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI - 600 034. (APPELLANT) V. M/S SHRIRAM TRANSPORT FINANCE CO. LTD., MOOKAMBIKA COMPLEX, 3 RD FLOOR, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. (RESPONDENT) ASSESSEES BY : SHRI R. SIVARAMAN, ADVOCAT E REVENUE BY : DR. S. MOHARANA, CIT I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 2 DATE OF HEARING : 02.04.2013 DATE OF PRONOUNCEMENT : 11.04.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS AND CROSS-APPEALS FILED BY THE A SSESSEES AND REVENUE RESPECTIVELY, DIRECTED AGAINST ORDERS D ATED 31.7.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI. S INCE GROUNDS TAKEN BY BOTH REVENUE AND ASSESSEES ARE COMMON, THE SE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. GROUNDS TAKEN BY THE ASSESSEES ARE CONSIDERED FI RST. SUCH GROUNDS HAVE BEEN SUMMARIZED BY THE ASSESSEES AT PA RA 1 OF THEIR GROUNDS OF APPEAL AND THESE ARE REPRODUCED HEREUNDE R:- 1. THE ORDER OF THE CIT(A), TO THE EXTENT THAT IT H AS CONFIRMED I) DISALLOWANCE OF AMOUNT TRANSFERRED TO STATUTORY RESERVE ` 39,46,89,769/- IN COMPLIANCE WITH THE MANDATORY PROVISIONS OF RESERVE BANK OF INDIA; AND II) THE APPLICATION OF RULE 8D OF INCOME-TAX RULES IN COMPUTING DISALLOWANCE U/S.14A OF THE ACT. IN ARRIVING AT THE INCOME UNDER THE REGULAR PROVIS IONS OF THE INCOME-TAX ACT, 1961; AND I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 3 III) NOT ALLOWING THE APPELLANTS CLAIM FOR DEDUCTION OF ` 23,40,00,000/- TRANSFERRED TO RESERVE FUND; AND IV) CONFIRMING THE APPLICABILITY OF RULE 8D OF INCOME-T AX RULES IN COMPUTING THE DISALLOWANCE U/S.14A OF THE ACT. IN ARRIVING AT THE INCOME U/S.115JB OF THE INCOME- TAX ACT, IS AGAINST LAW AND FACTS OF THE CASE. BUT FOR THE ABOVE, THE GROUND IS SIMILARLY WORDED I N THE CASE OF ASSESSEE SHRIRAM TRANSPORT FINANCE COMPANY LTD. AS WELL. LEARNED A.R. OF THE ASSESSEES, AT THE OUTSET, SUBMITTED THA T THE ISSUES WERE COVERED BY ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 701/MDS/2012 AND I.T.A. NO. 702/MDS/2012. ACCORDING TO HIM, VERY SIMILAR GROUN DS WERE RAISED IN THE SAID APPEALS. LEARNED D.R. FAIRLY AGREED THAT SIMILAR ISSUES WERE DEALT WITH BY THIS TRIBUNAL IN ASSESSEES APPEALS F OR 2008-09. 3. VIS--VIS THE DISALLOWANCE MADE UNDER SECTION 14 A OF THE ACT, LEARNED D.R. POINTED OUT THAT THE AMOUNT DISALLOWED BY THE ASSESSING OFFICER TOWARDS INDIRECT COST IN RELATION TO INVEST MENTS GIVING RISE TO TAX-FREE INCOME, WAS VERY LOW COMPARED TO THE VALUE OF SUCH INVESTMENTS. ACCORDING TO HIM, IT WAS FOR THIS REA SON, THE ASSESSING OFFICER DECLINED TO ACCEPT THE CLAIM OF THE ASSESSE E AND INVOKED RULE 8D(III) OF INCOME-TAX RULES, 1962. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 4 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. VIS--VIS GROUND TAKEN BY THE ASSESSEE ON TRANSFER TO STATUTORY RESERVE AND TRANSFER TO RESERVE FUND WHILE COMPUTIN G INCOME UNDER REGULAR PROVISIONS AND FOR ARRIVING AT THE INCOME U NDER SECTION 115JB OF THE ACT, RESPECTIVELY, THE ISSUES HAD ALREADY CO ME UP BEFORE THIS TRIBUNAL IN ASSESSEES APPEALS IN I.T.A. NO. 701/MD S/2012 AND I.T.A. NO. 702/MDS/2012. VIDE ITS ORDER DATED 28.6.2012, IT WAS HELD BY THIS TRIBUNAL AT PARAS 4 TO 6 OF I.T.A. NO. 701/MDS/2012 AND I.T.A. NO. 702/MDS/2012, AS UNDER:- 4. THE COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED TH AT THE ISSUE OF DISALLOWANCE OF AMOUNT TRANSFERRED TO STATUTORY RES ERVE AND AMOUNT TRANSFERRED TO RESERVE FUND WHILE COMPUTING NORMAL PROVISIONS AND ALSO WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB ARE DECIDED AGAINST THE ASSESSEE BY THIS TRIBUNAL IN THE CASE O F SHRIRAM TRANSPORT FINANCE COMPANY LTD. IN I.T.A. NO. 23/MDS /2011 DATED 10.10.2011, COPY OF THE ORDER IS PLACED BEFORE US. 5. WE HAVE GONE THROUGH THE ORDER OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE DATED 10.10.2011 AND FIND THAT THIS TR IBUNAL FOLLOWED COORDINATE BENCH DECISION IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2005-06 IN I.T.A. NO. 235/MDS/2009 DATED 16.07 .2009, WHEREIN THIS TRIBUNAL DECIDED THE ISSUES AGAINST THE ASSESS EE. IN THAT APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: I. THE ORDER OF THE CITA, TO THE EXTENT THAT IT HAS CONFIRMED I) DISALLOWANCE OF AMOUNT TRANSFERRED TO STATUTORY RESERVE ` 7,55,53,760/- IN COMPLIANCE WITH MANDATORY PROVISIO NS OF RESERVE BANK OF INDIA IN COMPUTING INCOME UNDER THE REGULAR PROVISIONS OF THE INCOME TAX ACT, 1961; AND I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 5 II) ADDITION OF ` 10,00,00,000/- TRANSFERRED TO RESERVE FUND IN COMPUTING INCOME AND U/S. 115JB OF THE INCOME TAX A CT, IS AGAINST LAW AND FACTS OF THE CASE. THE TRIBUNAL HAS HELD AS UNDER: 2. THE ONLY ISSUE BROUGHT BEFORE US FOR ADJUDICAT ION IS WHETHER THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION O F AMOUNT TRANSFERRED TO STATUTORY RESERVE AS PER RESERVE BANK OF INDIA GUID ELINES. 3. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEES RELIED ON THE GROUNDS OF APPEAL AND REITERATED THE SAME AS HIS SUBMISSION. 4. ON THE OTHER HAND, THE LEARNED D.R. FILED ON RE CORD COPIES OF THE ORDERS DATED 6TH FEBRUARY, 2009 AND 6TH MAY, 2009 O F ITAT, CHENNAI IN I.T.A. NOS. 570, 571, 806 & 807/MDS/2008 AND I.T.A. NOS. 1944 TO 1946/MDS/2008 RESPECTIVELY, IN THE ASSESSEES' OWN C ASE. BY PLACING THE ABOVE ORDERS, THE LEARNED D.R. SUBMITTED THAT AN ID ENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE SAID ORDERS AND T HE ASSESSEES APPEALS WERE DISMISSED BY UPHOLDING THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIAL ON RECORD INCLUDING THE ORDERS OF THIS TRI BUNAL CITED SUPRA. WE FIND THAT AN IDENTICAL ISSUE HAD BEEN CONSIDERED BY THIS TRIBUNAL IN THE SAID ORDERS AND THE APPEALS OF THE ASSESSEES WERE DISMIS SED. IN I.T.A. NOS. 570, 571, 806 & 807/MDS/2008, WHILE DISMISSING THE APPEA LS OF THE ASSESSEE, THE TRIBUNAL HAS OBSERVED AS FOLLOWS: '2.11 NOW, WE EXAMINE THE PRESENT CASE ON THE ANVIL OF ABOVE. BY NO STRETCH OF IMAGINATION, IT CAN BE SAID THAT THE AMOUNT SOUGHT TO BE DEDUCTED HAS IN FACT NOT REACHED THE ASSESSEE. T HE AMOUNT INVOLVED IS ONLY AN APPROPRIATION OUT OF COMPANY'S OWN PROFITS BEFORE DECLARATION OF DIVIDEND. THE AMOUNT HAS VERY MUCH REACHED AND IS IN THE BUSINESS OF THE ASSESSEE. RBI HAS NOT ATTACHED ANY OBLIGATION THAT THE FUND BE KEPT IN ANY EARMARKED S ECURITY NOR THE PURPOSE OF UTILIZATION OF THE FUND HAS BEEN SPECIFI ED. EVEN IF SOME OBLIGATION IS SUBSEQUENTLY ATTACHED FOR SPECIFIC AP PROPRIATION OF THE FUND, IT WILL ONLY BE AN APPLICATION OF INCOME, WHI CH WILL NEED TO BE DEALT WITH AS PER RELEVANT TAX LAW. THE TRANSFER OF RESERVE FUND IN THIS CASE CAN CERTAINLY NOT BE CALLED A DIVERSION O F INCOME BY OVERRIDING CHARGE. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 6 2.12. .THE RATIO FROM THE HONBLE APEX COURT I N THE CASE OF CIT VS. SITALDAS TIRATHDAS (41 ITR 367) AND HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SESHASAYEE PAPER & BOARDS LTD. (237 ITR 488) IS CLEARLY APPLICABLE IN THIS CASE. THE COMPAN IES ACT, 1956 ALSO MANDATES TRANSFER TO RESERVE FUND A CERTAIN PE RCENTAGE OF THE PROFITS BEFORE DECLARATION OF DIVIDEND. THE HON'BLE HIGH COURT IN THE CASE OF SESHASAYEE PAPER & BOARDS LTD. HAD HELD THAT IN SUCH A CASE, THERE IS NO DIVERSION OF INCOME BY OVERRIDING TITLE NOR CAN THE AMOUNT SET APART BE CLAIMED AS EXPENDITURE AND IT C ANNOT ALSO BE STATED THAT IT WAS LOSS. THE RATIO FROM THIS DECISI ON IS VERY MUCH APPLICABLE IN THIS CASE, BECAUSE AS PER THE RESERVE BANK OF INDIA ACT, THE ASSESSEE HAS TO CREATE A RESERVE FUND AND TO TRANSFER THEREIN CERTAIN PERCENTAGE OF ITS PROFITS BEFORE AN Y DIVIDEND IS DECLARED. THIS TRANSFER TO RESERVE FUND WAS TO BE U TILIZED FOR SUCH PURPOSES AS SPECIFIED BY THE RESERVE BANK OF INDIA FROM TIME TO TIME. NO SUCH SPECIFICATION OF UTILIZATION. OF THAT FUND HAD BEEN ISSUED BY THE RESERVE BANK OF INDIA. HENCE, IT CANNOT BE SAID THAT THERE WAS ANY DIVERSION OF INCOME BY OVERRIDING TITLE NOR CAN THE AMOUNT SET APART BE CLAIMED AS EXPENDITURE AND IT ALSO CANNOT BE STATED THAT IT WAS A LOSS. .. . .. . .. .. ... .. .. . . .. . . . . 2.17 MOREOVER, AS DISCUSSED EARLIER, THIS IS ONLY AN APPROPRIATION OF PROFITS FOR PURPOSES WHICH HAVE NOT YET BEEN SPE CIFIED. MOREOVER, AMOUNT INVOLVED IS VERY MUCH UNDER THE CONTROL OF T HE ASSESSEE AND IS LYING IN ITS BUSINESS. HENCE, IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENTS, WE UPHOLD THE WELL REASO NED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THI S REGARD AND DECIDE THE ISSUE AGAINST THE ASSESSEES.' 6. SINCE THE FACTS IN THE PRESENT CASE ON OUR HAND ARE IDENTICAL TO THAT OF THE CASE DEALT WITH BY THE TRIBUNAL IN THE SAID ORDERS, FOLLOWING THE SAME, WE ARE DISMISSING THE APPEALS OF THE ASSESSEE S. 7. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE ES ARE DISMISSED. 6. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNA L IN I.T.A. NO. 235/MDS/2009 DATED 16.07.2009, WE DISMISS THE GROUN DS OF APPEALS OF BOTH THE ASSESSES ON THESE ISSUES BOTH UNDER REG ULAR COMPUTATION AND WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 1 15JB OF THE ACT. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 7 FOLLOWING THE ABOVE ORDER, WE DISMISS THE GROUNDS O F APPEAL OF THE ASSESSEES, BOTH ON THE ISSUE OF REGULAR COMPUTATION AND FOR COMPUTATION OF BOOK PROFIT INSOFAR AS IT CONCERNS T RANSFER TO STATUTORY RESERVE AND TRANSFER TO RESERVE FUND RESPECTIVELY. 5. AS FAR AS THE ISSUE REGARDING APPLICATION OF RUL E 8D FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT IS CONCERNED, ARGUMENT OF THE DEPARTMENT IS THAT ASSESSEES HAD SH OWN ONLY MINISCULE AMOUNT AS INDIRECT COST VIS--VIS THE TOT AL INVESTMENTS MADE BY THEM WHICH GAVE RISE TO TAX-FREE INCOME. NE VERTHELESS, WE FIND THAT ASSESSEES HAD THEMSELVES MADE A SUO MOTU DISALLOWANCE OF ` 36,729/- TOWARDS INDIRECT COST. ASSESSING OFFICER HAD REJECTED SUCH AMOUNT FOR THE SOLE REASON THAT THE AMOUNT CON SIDERED BY THE ASSESSEES WERE VERY LOW WHEN IT COMPARED TO TOTAL I NVESTMENTS MADE BY THEM. NEVERTHELESS, IT IS ALSO NOTED THAT ASSESSEES HAD IN ADDITION ALSO MADE A SUO MOTU DISALLOWANCE OF INTEREST EXPENSES ON LOANS ATTRIBUTABLE TO INVESTMENTS MADE BY THEM. AS ALREADY MENTIONED BY US, SIMILAR ISSUE HAD COME UP BEFORE T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. I T WAS HELD BY THIS TRIBUNAL AT PARAS 12 TO 17 OF ITS ORDER (SUPRA ) AS UNDER:- I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 8 12. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S AVAILABLE ON RECORD AND THE DECISIONS RELIED ON BY BOTH COUNSELS . IN THE CASE OF ACIT VS. SIL INVESTMENT LTD. (SUPRA), THE DELHI BEN CH OF THE TRIBUNAL IN ITS ORDER IN PARA 27 HELD AS UNDER: 27. IN THE PRESENT CASE, THE AO DID NOT BRING ANY EVIDENCE ON RECORD TO ESTABLISH THAT ANY EXPENDITURE HAD BEEN I NCURRED BY THE ASSESSEE COMPANY FOR EARNING THE EXEMPT INCOME. IN THE ABSENCE OF SUCH EVIDENCE, IT WAS WRONG ON THE PART OF THE AO T O PROCEED TO COMPUTE DISALLOWANCE OF THE EXPENSES U/S 14A OF THE ACT BY MERELY APPLYING RULE 8D(2)(III) OF THE RULES. THE ABOVE VIEW WAS TAKEN BY THE TRIBUNAL TAKING INT O CONSIDERATION VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING THE DEC ISION OF THE DELHI BENCH IN THE CASE OF DCIT VS. JINDAL PHOTO LTD. AND THE HIGH COURTS. 13. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. JINDAL PHOTO LIMITED IN I.T.A. NO. 814(DEL)2011 BY ORDER D ATED 23.09.2011 FOR THE ASSESSMENT YEAR 2008-09 ALSO CONSIDERED THI S ISSUE AND HELD THAT SATISFACTION OF THE ASSESSING OFFICER IS A PRE -REQUISITE TO INVOKE THE PROVISION OF RULE 8D OF THE INCOME TAX RULES. W HILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER: 10. NOW. COMING TO GROUND NO.3, THE DEPARTMENT AL LEGES THAT THE CIT(A) HAS ERRED IN RESTRICTING THE ADDITION U/S 14 A OF THE ACT TO ` 19,43,022, AS AGAINST THAT OF ` .31,01,542/- MADE BY THE AO. THIS ISSUE WAS ALSO THERE BEFORE THE TRIBUNAL IN THE ASSESSEES CA SE FOR ASSESSMENT YEAR 2007-08. ON BEHALF OF THE ASSESSEE, IT HAS BEEN CON TENDED THAT RULE 8D OF THE I.T. RULES WAS NOT APPLICABLE FOR THAT YEAR; TH AT HOWEVER, IN THE YEAR UNDER CONSIDERATION, NO SATISFACTION HAS BEEN RECOR DED BY THE AO AS TO HOW THE ASSESSEES CALCULATION IS NOT CORRECT; THAT HOW EVER, THE AO STILL WENT ON TO APPLY RULE 8D TO THE CASE; THAT THE LD. CIT(A) A LSO APPLIED RULE 8D BUT GAVE ONLY PART RELIEF TO THE ASSESSEE BY REDUCING T HE INTEREST, WHEREAS REGARDING 0.5% OF EXEMPT INVESTMENTS, HE APPROVED T HE ACTION OF THE AO; AND THAT ONCE RULE 8D CANNOT BE APPLIED, THE ASSESS EES WORKING IS TO BE ACCEPTED. 11. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY SU PPORTED THE IMPUGNED ORDER IN THIS REGARD ALSO, CONTENDING THAT THE LD. CIT(A) HAS EXCLUDED SECURITY TAKEN FROM CUSTOMERS . I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 9 12. THE LD. CIT(A), IT IS SEEN, RESTRICTED THE DIS ALLOWANCE U/S 14A TO ` 19,43,022/-, CALCULATING THE DISALLOWANCE OF EXPEND ITURE IN TERMS OF SECTION 14A READ WITH RULE 8D OF THE RULES AS FOLLOWS:- A) DIRECT EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME: NIL B) AVERAGE EXEMPT INVESTMENTS 37,82,57,180/- C) AVERAGE ASSETS 157,64,90,333/- D) INTEREST PAYMENTS MADE BY THE ASSESSEE 2,15,625/- E) INTEREST DISALLOWED: (D) X (B)/(C) = 51,736/ - F) 0.5% OF EXEMPT INVESTMENTS = 18,91,286/ - TOTAL DISALLOWANCE U/S 14A [ (E) + (F) ] = 19,43,022/-. 13. THE TRIBUNAL (SUPRA), FOR ASSESSMENT YEAR 2007 -08, HAD HELD AS FOLLOWS:- 17. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND H AVE PERUSED THE MATERIAL ON RECORD. DURING THE YEAR, THE ASSESSEE H AD EARNED EXEMPT DIVIDEND INCOME OF ` 17,97,010/- IN RESPECT OF INVESTMENT MADE IN MUTUAL FUNDS. IN THE RETURN OF INCOME FILED, A SUO MOTO DISALLOWANCE OF EXPENSES TO THE TUNE OF ` 1,73,038/- HAD BEEN MADE BY THE ASSESSEE U/S 14A OF THE ACT. IN THE ASSESSMENT ORDE R, THE AO MADE A DISALLOWANCE OF ` 32,18,475/- BY APPLYING THE METHOD PROVIDED IN RULE 8D OF THE I.T. RULES, 1962. THIS WAS DONE WITH OUT POINTING OUT ANY INACCURACY IN THE METHOD OF APPORTIONMENT OR AL LOCATION OF EXPENSES, AS ADOPTED BY THE ASSESSEE. ALL THROUGH, THE ASSESSEE WAS MAINTAINED THAT THE ASSESSEE WAS DURING THE YEAR, C ARRYING ON MANUFACTURING ACTIVITIES AT ITS MANUFACTURING UNITS AT SEVERAL PLACES. ITS HEAD OFFICE WAS AT DELHI. THE ASSESSEE HAD MAIN TAINED SEPARATE BOOKS OF ACCOUNT FOR EACH UNIT. COMMON EXPENSES INC URRED AT THE HEAD OFFICE AND THE BRANCHES WERE ATTRIBUTED TO ALL THE UNITS INCLUDING THE HEAD OFFICE. INVESTMENT IN MUTUAL FUN DS, WHICH GAVE RISE TO EXEMPT DIVIDEND INCOME, WAS DONE THROUGH TH E HEAD OFFICE. IT WAS THE CASE OF THE ASSESSEE THAT TO EARN SUCH DIVI DEND INCOME, NO DIRECT EXPENDITURE WAS REQUIRED AND NO EXPENSES WER E INCURRED TO MAKE INVESTMENT OF SURPLUS AMOUNTS IN MUTUAL FUNDS. THE SUO MOTO DISALLOWANCE HAD, HOWEVER, BEEN MADE BY THE ASSESSE E KEEPING IN CONSIDERATION, THE PROVISIONS OF SECTION 14A OF THE ACT. 18. NOW, AS PER SECTION 14A(2) OF THE ACT, IF THE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE ASSESSEES TOTAL INCOME UNDER THE ACT, THE AO SHALL DETERMINE THE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 10 AMOUNT INCURRED IN RELATION TO SUCH INCOME, IN ACCO RDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, I.E., UNDER RULE 8D OF THE I.T. RULES. HOWEVER, IN THE PRESENT CASE, THE ASSESSMENT ORDER DOES NOT EVINCE ANY SUCH SATISFACTION OF THE AO REGARDING THE CORRE CTNESS OF THE CLAIM OF THE ASSESSEE. AS SUCH, RULE 8D OF THE RULE S WAS NOT APPROPRIATELY APPLIED BY THE AO AS CORRECTLY HELD B Y THE CIT(A). IT HAS NOT BEEN SHOWN BY THE AO THAT ANY EXPENDITURE H AD BEEN INCURRED BY THE ASSESSEE FOR EARNING ITS DIVIDEND I NCOME. MERELY, AN AD HOC DISALLOWANCE WAS MADE. THE ONUS WAS ON THE A O TO ESTABLISH ANY SUCH EXPENDITURE . THIS ONUS HAS NOT BEEN DISCH ARGED. IN CIT V. HERO CYCLES (P&H) 323 ITR 518, UNDER SIMILAR CI RCUMSTANCES, IT WAS HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT R EQUIRES A CLEAR FINDING OF INCURRING OF EXPENDITURE AND THAT NO DIS ALLOWANCE CAN BE MADE ON THE BASIS OF PRESUMPTIONS IN ACIT V. EICHE R LTD. 101 TTJ (DEL)369, THAT IT WAS HELD THAT THE BURDEN IS ON TH E AO TO ESTABLISH NEXUS OF EXPENSES INCURRED WITH THE EARNING OF EXEM PT INCOME BEFORE MAKING ANY DISALLOWANCE U/S 14A OF THE ACT. IN MAR UTI UDYOG V. DCIT 92 ITD 119(DEL), IT HAS BEEN HELD THAT BEFORE MAKING ANY DISALLOWANCE U/S 14A OF THE ACT, THE ONUS TO ESTABL ISH THE NEXUS OF THE SAME WITH THE EXEMPT INCOME, IS ON THE REVENUE. IN WIMCO SEEDLINGS LIMITED V. DCIT 107 ITD 267 (DEL) (TM), IT HAS BEEN HELD THAT THERE CAN BE NO PRESUMPTION THAT THE ASSE SSEE MUST HAVE INCURRED EXPENDITURE TO EARN TAX FREE INCOME. SIMIL AR ARE THE DECISIONS IN: 1. PUNJAB NATIONAL BANK V. DCIT, 103 TTJ 908(DEL); 2. VIDYUT INVESTMENT LTD., 10 SOT 284(DEL); AND 3. D.J. MEHTA V. ITO, 290 ITR 238(MUM.)(AT). 19. IN VIEW OF THE ABOVE, FINDING NO ERROR WITH TH E ORDER OF THE CIT(A) ON THE POINT AT ISSUE, THE SAME IS HEREBY CO NFIRMED. GROUND NO.3 IS THUS REJECTED. 14. IN THE YEAR UNDER CONSIDERATION, IT IS SEEN TH AT IT IS NOT INCORRECT WHEN THE ASSESSEE CONTENDS THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO REGARDING THE ASSESSEES CALCULATION BEING INCOR RECT. EVEN SO, RULE 8D OF THE RULES HAS BEEN APPLIED. THIS, IN OUR OPINION , IS NOT CORRECT. SUCH SATISFACTION OF THE AO IS A PRE-REQUISITE TO INVOKE THE PROVISIONS OF RULE 8D OF THE RULES. THE LD. CIT(A), THEREFORE, ERRED IN P ARTIALLY APPROVING THE ACTION OF THE AO. 14. THE HONBLE DELHI HIGH COURT IN A BATCH OF APP EALS IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT & OTHERS (SUPRA) ELABORATELY I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 11 DEALT THE ISSUE OF APPLICABILITY OF PROVISIONS OF S ECTION 14A READ WITH RULE 8D FOR THE ASSESSMENT YEARS PRIOR TO THE ASSES SMENT YEAR 2008- 09 AND ALSO THE APPLICABILITY OF THE SAID PROVISION FOR THE ASSESSMENT YEARS SUBSEQUENT TO ASSESSMENT YEARS 2008-09. THE H ONBLE HIGH COURT IN PARAS 29 TO 31 AND 36 TO 40 HELD AS UNDER : 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID AC T PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQU IREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIG GERED ONLY IF THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSIN G OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE IN CURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RE CORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFS HOOT OF SUB-SECTION (2) OF SECTION 14A. SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTH ER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POS ITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLI ES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCUR RED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER , IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PR ESCRIBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIB ED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHI LE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO E XPENDITURE, AS THE CASE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 12 MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. RULE 8D 30. AS WE HAVE ALREADY NOTICED, SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMINATION OF T HE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE EXPRESSI ON USED IS - 'SUCH METHOD AS MAY BE PRESCRIBED'. WE HAVE ALREADY MENTI ONED ABOVE THAT BY VIRTUE OF NOTIFICATION NO.45/2008 DATED 24/03/2008, THE CENTRAL BOARD OF DIRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASSESSING OFFICER, HA VING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR, THE ASSESSING OFFI CER SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH INCOM E IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF RULE 8D. WE MAY O BSERVE THAT RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHILE DISCUSSING THE PROVI SIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE IS T HAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM O F EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ON LY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, WE FIND TH AT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMUL A GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY O F INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT. THE FORMULA ESSENTIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE ASSESSEE. THE THIRD COMPONE NT IS AN ARTIFICIAL FIGURE - ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVEST MENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 13 BALANCE SHEETS OF THE ASSESSEE, ON THE FIRST DAY AN D THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE AGGREGATE OF THESE THREE C OMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXEMPT IN COME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECT ION 14A OF THE SAID ACT. IT IS, THEREFORE, CLEAR THAT IN TERMS OF THE S AID RULE, THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO AS PECTS - (A) DIRECT AND (B) INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWA Y TAKEN INTO ACCOUNT BY VIRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. TH E INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATED ABOVE. AND, IN CASES WH ERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF TH UMB FIGURE OF ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT, INC OME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS TAKE N. DO SUB-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D APPLY RETROSPECTIVEL Y ? 32. ........ ............... ................. ... ............. 33. ........ ............... ................. ... ............. 34. ........ ............... ................. ... ............. 35. ........ ............... ................. ... ............. 36. INSOFAR AS SUB-SECTIONS (2) AND (3) OF SECTION 14A ARE CONCERNED, THEY HAVE ALSO BEEN INTRODUCED BY VIRTUE OF THE FIN ANCE ACT, 2006 WITH EFFECT FROM 01.04.2007. THIS IS APPARENT, FIRST OF ALL, FROM THE NOTES ON CLAUSES OF THE FINANCE BILL, 2006 [REPORTED IN 281 ITR (ST) AT PAGES 139- 140]. THE SAID NOTES ON CLAUSES REFERS TO CLAUSE 7 OF THE BILL WHICH HAD SOUGHT TO AMEND SECTION 14A OF THE SAID ACT. IT IS SPECIFICALLY MENTIONED IN THE SAID NOTES ON CLAUSES THAT:- 'THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 20 07 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2007-08 AND SUBSEQUENT YEARS.' 37. FURTHERMORE, IN THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2006 [281 ITR (ST) AT PAGES 281-281], IT IS ONCE AGAIN STATED WITH REFERENCE TO CLAUSE 7 WHICH PERTAINS TO THE AM ENDMENT TO SECTION 14A OF THE SAID ACT THAT:- 'THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 20 07 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2007-08 AND SUBSEQUENT YEARS.' 38. WE MAY ALSO REFER TO THE CBDT CIRCULAR NO.14/2 006 DATED 28.12.2006 AND TO PARAGRAPHS 11 TO 11.3 THEREOF. PA RAGRAPH 11 DEALT WITH THE METHOD FOR ALLOCATING EXPENDITURE IN RELATION T O EXEMPT INCOME AND PARAGRAPHS 11.1 AND 11.2 EXPLAINED THE BASIS AND LO GIC BEHIND THE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 14 INTRODUCTION OF SUB-SECTION (2) OF SECTION 14A OF T HE SAID ACT. PARAGRAPH 11.3 SPECIFICALLY PROVIDED FOR APPLICABILITY OF THE PROVISIONS OF SUB- SECTION (2) AND IT CLEARLY INDICATED THAT IT WOULD BE APPLI CABLE 'FROM THE ASSESSMENT YEAR 2007-08 ONWARDS'. 39. IT IS, THEREFORE, CLEAR THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A WERE INTRODUCED WITH PROSPECTIVE EFFECT FROM THE AS SESSMENT YEAR 2007-08 ONWARDS. HOWEVER, SUB-SECTION (2) OF SECTION 14A RE MAINED AN EMPTY SHELL UNTIL THE INTRODUCTION OF RULE 8D ON 24.03.2008 WHI CH GAVE CONTENT TO THE EXPRESSION 'SUCH METHOD AS MAY BE PRESCRIBED' APPEA RING IN SECTION 14A(2) OF THE SAID ACT. 40. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT, I N EFFECT, THE PROVISIONS OF SUB- SECTIONS (2) AND (3) OF SECTION 14A WOULD BE W ORKABLE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8D. THIS IS S O BECAUSE PRIOR TO THAT DATE, THERE WAS NO PRESCRIBED METHOD AND SUB-SECTIO NS (2) AND (3) OF SECTION 14A REMAINED UNWORKABLE. 15. THE HONBLE HIGH COURT HELD THAT IT IS A CONDI TION PRECEDENT FOR THE ASSESSING OFFICER WHILE DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME THAT HE MUST RECORD THAT HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM O F THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE HONBLE HIGH COURT HELD THAT SUB-SECTION (3) OF SEC TION 14A IS AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A AND THER EFORE, SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. THE HONBLE HIGH COURT HELD THAT SUB-SECTIO N (2) DEALS WITH CASES, WHERE THE ASSESSEE SPECIFIES THAT EXPENDITUR E HAD BEEN INCURRED IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. THE HONBLE HIGH COURT HELD THAT IF THE ASS ESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN BOTH CASES, THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER A PRESCRIBED ME THOD, WHICH IS RULE 8D OF THE INCOME TAX RULES. THE HONBLE HIGH C OURT FURTHER HELD THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A ARE WO RKABLE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8D I.E . 24.03.2008 BECAUSE PRIOR TO THAT DATE, THERE WAS NO PRESCRIBED METHOD AND SUB- SECTIONS (2) AND (3) OF SECTION 14A REMAIN UNWORKAB LE. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 15 16. THEREFORE, FINDING OF THE ASSESSING OFFICER TH AT THE CLAIM OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITU RE OR IT HAD INCURRED ONLY SO MUCH EXPENDITURE IS INCORRECT IS A MUST FOR INVOKING THE PROVISION OF SUB-SECTION (2) OF SECTION 14A OF THE ACT. 17. RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA), WE HOLD THAT THE ASSESSING OFFICER HAS TO GIVE A FINDING AS TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE BEFORE INVOKING THE PR OVISIONS OF SECTION 14A(2) READ WITH RULE 8D FOR DISALLOWING THE EXPEND ITURE ATTRIBUTABLE TO THE INCOME EXEMPT UNDER THE ACT. NO DOUBT, THE D ECISION OF THE HONBLE HIGH COURT WAS RENDERED FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2008-09, BUT THE HONBLE HIGH C OURT HAS CONSIDERED THE EFFECT OF THE PROVISIONS OF SUB-SECT ION (2) AND (3) OF SECTION 14A AND ITS APPLICABILITY FOR THE ASSESSMEN T YEAR 2008-09 ONWARDS. THEREFORE, IN OUR CONSIDERED VIEW, THE RAT IO OF THIS DECISION APPLIES TO THE ASSESSMENT YEAR 2008-09 AND SUBSEQUE NT ASSESSMENT YEARS ALSO. FURTHER THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. JINDAL PHOTO LIMITED (SUPRA) HAS RENDERED I TS DECISION FOR THE ASSESSMENT YEAR 2008-09 AND IS APPLICABLE FOR THE A SSESSMENT YEAR UNDER APPEAL. IN THE CIRCUMSTANCES, WE HOLD THAT IN THE ASSESSEES CASE, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDI NG AS TO HOW THE CALCULATION MADE BY THE ASSESSEE AND DISALLOWING ` 66,55,225/- IN ITS COMPUTATION OF INCOME TOWARDS EXPENDITURE INCURRED IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME IS INCORRECT. THEREFORE, IN THE ABSENCE OF ANY SUCH FINDING BY TH E ASSESSING OFFICER, WE HOLD THAT THE ASSESSING OFFICER IS NOT CORRECT IN MAKING FURTHER DISALLOWANCE OF ` 53,64,488/- BY INVOKING THE PROVISIONS OF SECTION 14A(2) OF THE ACT. THEREFORE, WE DELETE THE DISALLOWANCE MADE UNDER SECTION 14A WHILE COMPUTING INCOME BOTH UNDER NORMAL PROVISIONS AS WELL AS UNDER THE PROVISIONS OF SECTI ON 115JB OF THE ACT. THE SATISFACTION THAT HAS TO BE RECORDED BY THE ASS ESSING OFFICER HAS TO BE RELEVANT AND REASONABLE ENOUGH FOR A COMMON M AN TO COME TO A CONCLUSION THAT THE DISALLOWANCE SUO MOTU MADE BY THE ASSESSEE IS INCORRECT. THE FACTUAL FINDING IN THIS REGARD HAS TO BE A REASONED ONE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 16 AND CANNOT BE SIMPLY BASED ON COMPARISON OF THE AMO UNT WITH TOTAL INVESTMENTS. IN OUR OPINION, JUST BECAUSE AMOUNT O F INDIRECT COST OFFERED BY THE ASSESSEES AGAINST TAX-FREE INVESTMEN TS WAS VERY LOW, VIS--VIS THE TOTAL INVESTMENTS MADE BY THE ASSESSE E, IT CANNOT BE CONCLUDED THAT THE CLAIM BY ITSELF WAS INCORRECT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT ASSESSING OFFICER ERRED IN REJECTING THE DISALLOWANCE SUO MOTU MADE BY THE ASSESSEES AND IMPOSING ON THEM A DISALLOWANCE UNDER RULE 8D(III) OF THE ACT. 6. IN THE RESULT, WE DELETE THE DISALLOWANCE MADE U NDER SECTION 14A WHILE COMPUTING INCOME, BOTH UNDER NORMAL PROVI SION AS WELL AS UNDER PROVISIONS OF SECTION 115JB OF THE ACT. 7. APPEALS OF THE ASSESSEES ARE, THEREFORE, PARTLY ALLOWED. 8. NOW COMING TO APPEALS OF THE REVENUE, IT HAS TAK EN SIX GROUNDS, OF WHICH, GROUND NOS.1 AND 6 ARE GENERAL N EEDING NO ADJUDICATION. 9. GROUND NO.2 IS ON DISALLOWANCE MADE FOR BAD DEBT S, DELETED BY THE CIT(APPEALS). LEARNED A.R. SUBMITTED THAT THE CIT(APPEALS) HAD FOLLOWED TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN I.T.A. NO. 726/MDS/2010 DATED 16.12 .2010 AND FOR I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 17 ASSESSMENT YEAR 2007-08 IN I.T.A. NO.22/MDS/2011 AN D I.T.A. NO. 23/MDS/2011 DATED 8.11.2011 WHILE ALLOWING CLAIM OF THE ASSESSEE. 10. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF THE A.O. 11. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ASSESSEES HAD WRITTEN OFF BAD DEBTS IN THE BOOKS MA INTAINED FOR INCOME-TAX PURPOSES, WHEREAS, SUCH BAD DEBTS WERE S HOWN AS PROVISION IN THE BOOKS MAINTAINED UNDER COMPANIES A CT. PROVISION MADE IN THE BOOKS MAINTAINED FOR COMPANIES ACT, WHI CH WAS WRITTEN OFF IN THE BOOKS MAINTAINED FOR INCOME-TAX PURPOSES , WAS ON NON- PERFORMING ASSETS. THE QUESTION WHETHER ASSESSEE C OULD PREFER DIFFERENT TREATMENT IN THE BOOKS MAINTAINED UNDER I NCOME-TAX ACT, 1961 THAN THE ONE FOLLOWED BY IT UNDER COMPANIES AC T, 1956, HAD ALREADY COME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07. IT WAS HELD BY THIS TRIBU NAL AT PARAS 5 TO 9 IN I.T.A. NO. 726/MDS/2010 DATED 16.12.2010 AS UNDE R:- 5. THE FIRST ISSUE RAISED, VIDE GROUND NOS. 2.1 AND 2.2, IS IN RESPECT OF DELETION OF ADDITION OF ` 13,57,58,000/- MADE AFTER DISALLOWING THE CLAIM OF BAD DEBTS. THE FACTS APR OPOS THIS ISSUE ARE THAT THE ASSESSEE HAS CLAIMED TOTAL BAD DEBTS OF ` 83,24,39,801/-. THE ASSESSING OFFICER HAS DISALLOWED A SUM OF ` 13,57,58,000/- OUT OF THE TOTAL SO CLAIMED ON THE GROUND THAT IN THE B OOKS OF ACCOUNT MAINTAINED UNDER THE PROVISIONS OF INCOME-TAX ACT, THE ENTIRE BAD DEBTS HAD BEEN WRITTEN OFF, BUT IN THE BOOKS MAINTA INED UNDER THE I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 18 COMPANIES ACT, DEBTS TO THE TUNE OF ` 6964.47 LAKHS HAVE BEEN WRITTEN OFF AND A PROVISION IS MADE FOR NON-PERFOR MING ASSETS OF ` 1357.58 LAKHS TOTALING TO ` 8322.05 LAKHS. MEANING THEREBY AN AMOUNT OF ` 1357.58 LAKHS HAS NOT BEEN WRITTEN OFF IN THESE BO OKS. THE CASE OF THE ASSESSEE IS THAT THE ENTIRE BAD DEBT HAS BEE N WRITTEN OFF AS PER THE REQUIREMENTS OF SECTION 36(1)(VII) OF THE A CT. ACCORDING TO THE ASSESSEE, THE HON'BLE TRIBUNAL, IN ASSESSEES OWN CASE FOR EARLIER YEARS, IT HAS CLEARLY HELD THAT BAD DEBT AMOUNT WR ITTEN OFF AS PER INCOME TAX BOOKS HAS TO BE ALLOWED, EVEN IF THE ASS ESSEE HAS BEEN MAINTAINING TWO SETS OF ACCOUNTS. ACCORDING TO THE ASSESSEE, MIXING OF ENTRIES IN THE INCOME-TAX BOOKS WITH THOSE IN TH E COMPANY LAW BOOKS IS NOT PERMISSIBLE. AS PER THE ASSESSEE, NO PROVISION FOR BAD DEBTS HAS BEEN MADE IN THE INCOME-TAX BOOKS. AFTER FINDING THAT THE ENTIRE AMOUNT OF BAD DEBTS HAS BEEN WRITTEN OFF SA TISFYING THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AND IN VIEW OF THE TRIBUNAL ORDER DATED 21.4.2006, IN ASSESSEES OWN CASE, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF ` 13,57,58,000/-. NOW, THE REVENUE IS IN APPEAL. 6. BEFORE US, IT WAS ARGUED BY THE LD.DR THAT THE A MOUNT OF ` 13,57,58,000/- WAS ONLY A PROVISION AS PER THE BOOK S OF ACCOUNT MAINTAINED FOR COMPANY LAW PURPOSES. HENCE, THE AS SESSEE HAS NOT COMPLIED WITH THE LAW. THE LD.AR HAS HEAVILY RELIE D ON THE FINDING OF THE LD. CIT(A). 7. AFTER HEARING BOTH SIDES IN THE LIGHT OF THE AVA ILABLE MATERIAL ON RECORD AND THE RELEVANT PRECEDENTS AND PROVISIONS OF LAW, WE FIND THAT SIMILAR CLAIM RELATING TO BAD DEB TS ALONGWITH VARIOUS OTHER ISSUES RAISED IN THE REVENUES AS WEL L AS THE ASSESSEES APPEALS CAME TO BE CONSIDERED BY ITAT, C HENNAI B BENCH, IN A CONSOLIDATED ORDER DATED 21.4.2006 RELA TING TO THIS ASSESSEE AND OTHERS IN THE FOLLOWING APPEALS : ( I ) ITA NOS . 1877 & 1878 AND 1971 OF MDS/2002 ALL THE THR EE APPEALS PERTAINING TO THE CASE OF SHRIRAM CHITS TAM I LNADU ( P) L TD . (II ) I T A NOS . 334/MDS/2002 , 417/MDS/2001 , 523/MDS/2004 & 1160/MDS/2005 AND 493/MDS/2002 , 1168 , 1523 , 436 & 805/MDS/2004 AND 1565/MDS/2005 ALL IN THE CASE OF S HRIRAM TRANSPORT FINANCE CO . LTD . & I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 19 (III) APPEALS IN THE CASES OF SHRIRAM INVESTMENTS L TD & SHRIRAM CITY UNION FINANCE LTD . IN THE PRESENT APPEAL , THE REVENUE HAS NOT SPECIFICALLY CHALLENGED THE FINDINGS OF THE FIRST APPELLATE AUTHORITY THAT INCOME COMPUTATION FOR REGULAR ASSESSMENT IS REQUIRED TO B E DONE WITH REFERENCE TO THE ACCOUNTS MAINTAINED FOR THE PURPOS ES OF THE INCOME TAX ACT AND NOT WITH REFERENCE TO THE SET OF ACCOUNTS MAINTAINED FOR THE PURPOSES OF THE COMPANIES ACT AN D THAT THERE IS NO PROVISION AT ALL FOR BAD DEBTS IN THE INCOME TAX BOOKS ON THE BASIS OF WHICH I NCOME HAS TO BE COMPUTED. NEVERTHELESS IT IS APPROPRIATE TO REFER TO THE FINDINGS OF THE TRIBUNA L IN ITS ORDER DATED 21.4.2006 IN SO FAR AS THE CASES OF SHRIRAM T RANSPORT FINANCE CO LTD , SHRIRAM INVESTMENTS LTD AND SHRIRAM CITY UNION FINANCE LTD ARE CONCERNED ON THE S T R ENGTH OF WHICH THE FIRST APPELLATE AUTHORITY HAS GIVEN HIS FINDINGS. THE FOL LOWING FINDINGS EXTRACTED FROM PARAS 18,19, 33 AND 36 OF THE TRIBUN AL ORDER DATED 21.4.2006 ARE RELEVANT . '18. WE FIND THAT THE ASSESSEE HAS PREPARED PROFIT & LOSS ACCOUNT FOR THE PURPOSE OF INCOME-TAX WHICH WAS DUL Y AUDITED U/S.44AB AND REPORT IN FORM 3CB ALONG WITH DETAILS SPECIFIED IN FORM 3CD WAS FILED. SOME SAMPLE COPIES OF SUCH FORM S IN CASE OF THREE COMPANIES HAVE BEEN FILED BEFORE US. SECTI ON 44AA REQUIRES EVERY ASSESSEE TO MAINTAIN BOOKS OF ACCOUN TS AND IF THE SAME IS READ WITH SECTION 145, THEN IT EMERGES THAT THE PURPOSE OF PREPARATION OF SUCH BOOKS OF ACCOUNTS IS TO DETERMINE TRUE PROFIT OR LOSS IN CASE OF EVERY ASSE SSEE. WHENEVER SUCH TRUE PROFIT OR LOSS CANNOT BE DETERMI NED, THE ASSESSING AUTHORITY HAS GOT POWER U/S.145(3) TO REJ ECT SUCH BOOKS AND ESTIMATE THE PROFITS. IN FACT, SECTION 14 5(3) READS AND UNDER: '145 (3) WHERE THE ASSESSING OFFICER IS NOT SATISFI ED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUN TS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MA Y MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144'. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 20 19. FURTHER WE FIND THAT THERE IS NO PROHIBITION IN THE INCOME- TAX ACT THAT THE ASSESSEE CANNOT MAINTAIN THE RECOR DS AS WELL AS ACCOUNTS STATEMENT FOR THE PURPOSE OF COMPLIANCE WI TH OTHER ACTS. FOR EXAMPLE, THE COMPANIES ACT OR FOR THE PUR POSE OF CENTRAL EXCISES AND SALT ACT, 1944. WE ALSO FIND TH AT THERE IS NO PROVISION IN THE INCOME-TAX ACT, WHICH MAKES IT COM PULSORY FOR ANY ASSESSEE TO FILE REPORTS AS PER ACCOUNTS MAINTA INED FOR THE PURPOSE OF THE COMPANIES ACT. IN FACT, WHENEVER SUC H A SITUATION ARISES SPECIAL PROVISION HAS BEEN MADE. E .G., IN CASE OF SECTION 115J, SECTION 115JA AND SECTION 115JB WHERE BOOK PROFITS AS PER ACCOUNTS MAINTAINED IN COMPLIANCE TO SCHEDULE - VI OF THE COMPANIES ACT IS TO BE ADOPTED AND CERTAI N ADJUSTMENTS AS PROVIDED IN THESE PROVISIONS HAS TO BE MADE. THIS CLEARLY SHOWS THAT APART FROM THESE PROVISIONS , THE PROFITS FOR THE PURPOSE OF INCOME-TAX ACT HAS TO BE DETERMI NED ON THE BASIS OF ACCOUNTS PREPARED FOR THE PURPOSE OF INCOM E TAX. IN THE CASE BEFORE US, THE ASSESSEE HAS CLEARLY MAINTAINED SEPARATE ACCOUNTS FOR THE PURPOSE OF INCOME TAX. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND HAVE GONE THROUGH THE RELEVANT MATERIAL ON RECORD A ND HAVE ALSO PERUSED THE DECISIONS RELIED ON BY THE PARTIES. WE HAVE GONE THROUGH THE COPIES OF BALANCE SHEET AS WELL AS PROF IT & LOSS ACCOUNT FILED FOR ALL THE THREE YEARS AND WE FIND T HAT THE DEBTS HAVE BEEN REALLY WRITTEN OFF. IN CASE OF SHRIRAM TR ANSPORT FINANCE CO. LTD., FROM PAGES IS, 35 AND 53, IT BECO MES CLEAR THAT BAD DEBTS HAVE BEEN ACTUALLY WRITTEN OFF. SIMILARLY , IN CASE OF SHRIRAM CITY UNION FINANCE LTD., FROM PAGES 9, 21 & 35, IT BECOMES CLEAR THAT BAD DEBTS HAVE BEEN WRITTEN OFF. IN CASE OF SHRIRAM INVESTMENTS LTD., FROM PAGES 11, 32, 52 & 8 8, IT BECOMES CLEAR THAT BAD DEBTS HAVE BEEN WRITTEN OFF. 36. FROM THE SAMPLE SHEET FILED BEFORE US ALONG W ITH COPIES OF PARTIES ACCOUNT , IT BECOMES CLEAR THAT IN. THE CASE BEFORE US THE ASSESSEE HAS ADOPTED A VERY REASONAB L E AND AUTHENTIC SYSTEM OF WRITING OFF OF BAD DEBTS . THE SAME IS BEING DONE ON THE BASIS OF RECOVERABILITY OF A DEBT AND AFTER OBTAINING THE REPORT OF THE PARTICULAR FILED OFFICER, WHO VISITS THE PARTICULAR PARTY AND THEN SENDS THE RECOMMENDATION S ACCORDINGLY. SINCE THE ASSESSEE COMPANY IS RUNNING MANY BRANCHES AND RUNNING THE BU SINESS OF FINANCE, WHICH MEANS, THE ASSESSEE HAS TO BE VERY C AREFUL WHILE WRITING OFF THE BAD DEBTS. THE ASSESSEE COMPANY HAS AUTHORIZED ITS BRANCH MANAGERS BECAUSE IT IS NOT A CASE OF IND IVIDUAL BUSINESSMAN WHO WILL EXERCISE HIS JUDGMENT AND THER EFORE NO INTENTIONS FOR CLAIMING THE BAD DEBT JUST FOR THE P URPOSE OF TAXATION CAN BE IMPUTED TO THE ASSESSEE. WE HAVE AL SO GONE THROUGH THE DECISION IN THE CASE OF TAMIL NADU POWE R FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., VS. JC IT(280 ITR I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 21 491) (MAD) AND FIND THAT DECISION IS NOT APPLICABLE IN THIS CASE BECAUSE THE ASSESSEE COMPANY HAS NOT WRITTEN OFF DE BTS MERELY ON THE BASIS OF PRUDENTIAL NORMS PRESCRIBED BY THE RBI, BUT AS DISCUSSED ABOVE, A DETAILED PROCEDURE HAS BEEN ADOP TED AND THE BAD DEBTS ARE BEING WRITTEN OFF ONLY AFTER ASCE RTAINING THAT THE SAME HAVE BECOME BAD'. FOLLOWING THE ORDER DATED 21.4.2006(SUPRA), THE TRI BUNAL DISMISSED THE REVENUES APPEAL ON THE SAME ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN I.T.A.NO. 971/MDS/2006 VIDE ITS ORDER DATED 19.12.2007. COMING TO THE ASSESSMENT YEARS 2003-04 , 2004-05 & 2005-06, WE FIND THE ASSESSING OFFICER MADE SIM I LAR ADDITIONS IN THE REGULAR ASSESSMENTS AND ALSO WHILE COMPUTING BOOK PROFIT FO R 115 JB ASSESSMENT. THE FIRST APPELLATE AUTHORITY DELETED T HE ADDIT I ONS AND THOUGH THE REVENUE FILED APPEALS TO THIS TRIBUNAL, IT DID NOT CHOOSE TO CHALLENGE THE DELETI ON OF THE ADDITION WITH REGARD TO CLA I M OF BAD DEBTS IN THE REGULAR ASSESSMENTS . IN THOSE APPEALS THE REVENUE CHALLENGED ONLY THE DELETION WITH REGARD TO SEC.115JB COMPUTATION A LONG WITH A FEW OTHER ISSUES. IN OTHER WORDS WE FIND THE ISSUE OF CLA I M OF BAD DEBTS FOR THE PURPOSE OF R EGULAR ASSESSMENTS FOR THE ASSESSMENT YEARS 2003-04, 2004-05 & 2005 - 06 REACHED FINALITY WITH THE CIT(A) DELETING THE ADDIT ION MADE IN THE ASSESSMENTS. 8 . T O REITERATE , THE ASSESSEE HAS MAINTAINED SEPARATE ACCOUNTS FOR THE PURPOSE OF IN C OME TAX . INCOME FOR REGULAR ASSESSMENT U/S 143 NEEDS TO BE DETERMINED ON THE BA SIS OF THESE BOOK S ON LY. IT IS ONL Y FO R THE PURPO SE OF APPL I CAT I ON OF S E C . 11 5J OR 115 J A OR 115 JB T H AT THE ACCOUNTS KEPT B Y T HE A SS ESSEE I N COMPLIANCE W I TH THE PROVIS I ONS OF THE COMPAN I E S A CT ARE MADE RELEVANT BY THE INCOME TAX ACT . THE LD. CIT(A) HAS GIVEN A FINDING T HA T THE I NCOME TAX ACCOUNTS DO NOT CONTAIN ANY PROVISION FOR BAD DEBTS . THE A S SE SS EE HA S C LAIMED I N THE REGULAR ASSESSMENT ONLY THAT SUM WHICH HAS BEEN WRITTEN OFF . RELEVAN T EXTRACTS REPRODUCED FROM THE TRIBUNAL ' S ORDER FOR EARLIER YEARS DESCRIBE THE METHODOLOGY EMPLOYED BY THE A S SESSEE FOR IDENTIFY I NG THE DEBTS WHICH ARE REQUIRED TO BE WRITTEN OFF A S BAD . I N THE C I R CUM S TANCES , WE FIND THE R E IS NO SCOPE TO SUPPOR T THE ALLEGAT I ON B Y T H E I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 22 REVENUE THAT THERE I S NO WRITE - OFF AND WHAT HAS BEEN CLA I MED IS ONL Y A PROV ISI O N . THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD VS JT. CIT, 3 20 ITR 577, HAS HELD THAT THE NATURE OF EXPENDITURE UNDER THE INCOME-TAX CANNOT BE CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF THE 199 8 DIRECTIONS. THOUGH THEY DEVIATE FROM ACCOUNTING PR ACTICE AS PROVIDED IN THE COMPANIES ACT, THEY DO NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. THEREFORE T HE DEC I S I ON IN SOUTHERN TECHNOLOG I ES CASE (SUPRA) DOES NOT C OME TO THE A I D OF THE R E V ENUE. ON THE CONTRARY , I N THE LIGHT OF A PROPER METHOD HAVING BEEN APPLIED TO IDENT I FY AND WR I T E OFF BAD DEBTS , I NCOME TAX LAW DOES NOT ENVISAGE ANY FURTHER ENQUIRY INTO THE MATTE R BY THE A S SES SI NG OFF I CER AS HELD BY THE COURTS IN A NUMBER OF CASES . IN PART I CULAR , WE M A Y R E F E R T O TH E DEC ISI ON OF T HE SUPREME COURT I N T RF LTD . , VS CIT , RANCHI 32 3 I TR 39 7 I N WH IC H IT HA S BEE N H E L D THAT FOR ALLOWANCE OF BAD DEBTS , IT I S ENOUGH IF BAD DEB T S ARE WRITTEN O FF AS I RRE C O V ERABLE I N THE ACCOUNTS OF THE ASSESSEE AND IT IS NOT NECESSARY FOR THE A SS E SS E E TO E S TABLI S H THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE . 9. FOR THE FOREGOING REASONS, WE HAVE NO HESITATIO N IN UPHOLDING THE DELETION OF ` 13,57,58,000/-. CONSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. FOLLOWING THE ABOVE ORDER OF TRIBUNAL, WE ARE OF TH E OPINION THAT REVENUES GROUND IN THIS REGARD CANNOT BE ENTERTAIN ED. 12. GROUND NO.2 OF THE REVENUE IS DISMISSED. 13. VIDE ITS GROUND NO.3, GRIEVANCE OF THE REVENUE IS REGARDING DISALLOWANCE OF ROYALTY. WHEN THE ISSUE CAME UP, L EARNED A.R. SUBMITTED THAT THIS TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 726/MDS/2010 DATED 16.10.2010 FOR ASSESSMENT YEAR 2 006-07 AND IN I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 23 I.T.A. NO.22/MDS/2011 AND I.T.A. NO. 23/MDS/2011 DA TED 10.10.2011 FOR ASSESSMENT YEAR 2007-08, HAD HELD THIS ISSUE IN FAVOUR OF ASSESSEE. LEARNED D.R. FAIRLY AGREED WITH THIS, BU T, ACCORDING TO HIM, DEPARTMENT HAD FILED APPEAL BEFORE HON'BLE JURISDIC TIONAL HIGH COURT AGAINST THE ORDERS RELIED ON BY THE CIT(APPEALS). 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE QUESTION IS REGARDING DISALLOWANCE OF ROYALTY, WHICH WAS CONSIDERED BY THE ASSESSING OFFICER AS A CAPITAL OU TGO. ROYALTY WAS PAID BY THE ASSESSEE TO M/S SHRIRAM CHITS AND INVES TMENTS FOR USING THE LOGO OWNED BY THE LATTER. ON SIMILAR FACT SITU ATION, IN ASSESSEE'S OWN CASE, FOR ASSESSMENT YEAR 2006-07, THIS TRIBUNA L HAD HELD IN ITS ORDER IN I.T.A. NO. 726/MDS/2010 DATED 16 TH DECEMBER, 2010, AS UNDER:- 16. THE NEXT ISSUE OF THIS APPEAL RELATES TO THE DI RECTION GIVEN BY THE LD. CIT(A) TO THE ASSESSING OFFICER TO ALLOW TH E ROYALTY OF ` 47,85,125/- IN FULL AS REVENUE EXPENDITURE INSTEAD OF ` 11,96,281/- ALLOWED AS DEPRECIATION. THE FACTS OF THIS ISSUE A RE THAT THE ASSESSEE HAD PAID ROYALTY OF ` 47,85,125/- TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR USING THE LOGO OWNED BY THE LATTER. T HE ASSESSING OFFICER HAS FOUND THAT THIS PAYMENT RELATES TO PAYM ENT OF ROYALTY FOR ACQUIRING AN INTANGIBLE ASSET. HE HAS IGNORED THE MODE AND METHOD OF PAYMENT, AND DURATION OF PAYMENT, HOLDING THEM TO BE IRRELEVANT FOR THE PURPOSE. ON THE CONTRARY, HE HA S ALLOWED DEPRECIATION @ 25% ON THE ENTIRE PAYMENT BY HOLDING IT A CAPITAL EXPENDITURE. ACCORDINGLY, HE HAS ADDED BACK ` 47,85,125/- AND HAS ALLOWED DEPRECIATION OF ` 11,96,281/-. IN FIRST APPEAL, THE LD. CIT(A) I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 24 HAS ALLOWED THE ENTIRE AMOUNT OF ` 47,85,125/- HOLDING IT TO BE A REVENUE EXPENDITURE. REVENUE IS AGGRIEVED. 17. AFTER HEARING BOTH SIDES CAREFULLY IN THE LIG HT OF THE AFORESAID MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE IMPU GNED PAYMENT WAS MADE TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR TH E NON-EXCLUSIVE USER OF THE LOGO BASED ON TURNOVER AND WAS NOT A LU MP SUM PAYMENT. THE ASSESSEE HAD NO OTHER RIGHTS INCLUDING THE RIGH T TO TRANSFER THE USE OF THE LOGO. SHRIRAM CHITS & INVESTMENTS PVT. LTD HAS GIVEN THE RIGHT OF USER TO OTHER COMPANIES ALSO WHICH INCLUDE SHRIRAM CHITS TAMILNADU PVT. LTD , SHRIRAM CHITS (BANGALORE) PVT. LTD AND SHRIRAM CHITS PVT. LTD. IN ASSESSMENT YEAR 2001-02, THE CI T WANTED TO TREAT THE PAYMENT AS CAPITAL EXPENDITURE IN THE CASE OF S HRIRAM CHITS TAMILNADU PVT. LTD, BUT AFTER HEARING THE ASSESSEE S OBJECTIONS, HE DROPPED THE PROCEEDINGS INITIATED U/S 263 OF THE AC T. IN THE CASE OF SHRIRAM CHITS TAMILNADU PVT. LTD, THE LD. CIT(A) HA S ACCEPTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THIS EXPENDIT URE AS REVENUE IN NATURE AND THE DEPARTMENT HAS ACCEPTED THIS FINDING OF THE LD. CIT(A) AND HAS NOT FILED FURTHER APPEAL BEFORE THE ITAT F OR ASSESSMENT YEARS 2004-05 AND 2005-06. 18. THE LD.DR HAS RELIED ON THE DECISION OF HON'BL E SUPREME COURT IN THE CASE OF JONAS WOODHEAD AND SONS (INDIA) LTD VS CIT, 224 ITR 342, IN SUPPORT OF HIS GROUND. THE LD.AR HAS SUPPO RTED THE ORDER OF THE LD. CIT(A). 19. WE HAVE GONE THROUGH THE DECISION RELIED UPON BY THE LD.DR AND HAVE FOUND THAT THEIR LORDSHIPS OF SUPREME COU RT WERE ACTUALLY CONSIDERING A CASE OF COMPOSITE AGREEMENT WHICH INV OLVED AN AGREEMENT TO IMPLEMENT A TURNKEY PROJECT RIGHT FROM PROVIDING DESIGN, ETC. IN ESTABLISHING THE FACTORY AND USER OF THE TE CHNICAL KNOW-HOW. THEREAFTER. THEIR LORDSHIPS OF SUPREME COURT HAVE CLEARLY HELD THAT PAYMENT MADE FOR THE USER OF THE LOGO IS ALWAYS REV ENUE IN NATURE. WHILE COMING TO THE ABOVE CONCLUSION, THE HON'BLE S UPREME COURT HAS REFERRED TO ITS VARIOUS DECISIONS IN THIS JUDGMENT WHICH ALSO FAVOUR THE CASE OF THE ASSESSEE. W E, THEREFORE, DO NOT FIND ANY FORCE IN THIS GROUND OF REVENUE AS WELL. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 25 FOR THE REASONS MENTIONED ABOVE, WE ARE OF THE OPIN ION THAT DISALLOWANCE OF ROYALTY WAS NOT WARRANTED. CIT(APP EALS) HAD JUSTLY DELETED SUCH DISALLOWANCE. NO INTERFERENCE IS CALL ED FOR. 15. GROUND NO.3 IS TREATED AS DISMISSED. 16. VIDE ITS GROUND NO.4, REVENUE IS AGGRIEVED ON T HE DIRECTION GIVEN TO THE ASSESSING OFFICER TO ALLOW THE LOSS AR ISING OUT OF DERIVATIVES/HEDGING TRANSACTIONS IN FOREIGN EXCHANG E. LEARNED D.R. SUBMITTED THAT CIT(APPEALS) HAD RELIED ON THIS TRIB UNAL ORDER IN ASSESSEES OWN CASE FOR 2007-08 IN I.T.A. NO. 320/M DS/2011 DATED 10.10.2011 WHICH HAD NOT REACHED FINALITY. 17. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE CIT (APPEALS) HAD CORRECTLY APPLIED THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, WHEN HE GAVE A RULING ON ROYALTY PAYMENT IN FAVOUR OF ASSESSEE. 18. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND THAT SIMILAR ISSUE WAS CONSIDERED IN THE AP PEAL OF THE REVENUE PREFERRED FOR ASSESSMENT YEAR 2007-08 AND T HE TRIBUNAL IN ITS ORDER DATED 10.10.2011 IN I.T.A. NO. 319/MDS/20 11 AND I.T.A. NO. 320/MDS/2011, HELD AT PARAS 24 TO 27, AS UNDER:- I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 26 24. THE NEXT ISSUE RAISED VIDE GROUND NOS.5.1 TO 5. 4 IS IN RELATION TO A SUM OF ` 15,02,237/- BEING PROVISION FOR DERIVATIVE CONTRAC TS, WHICH HAS BEEN ADDED BACK BY THE ASSESSEE ITSELF IN THE R ETURN OF ITS INCOME. THE FACTS OF THIS ISSUE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REQUESTED THE ASSESSING OFFICER TO ALLOW THIS SUM WHICH WAS ADDED BACK BY T HE ASSESSEE IN THE ADJUSTMENT STATEMENT, BEING PROVISION FOR DERIVATIV E CONTRACT WORKED OUT ON MARKET TO MARKET BASIS. IN DOING SO, THE AS SESSEE RELIED ON THE DECISIONS OF THE HON'BLE DELHI BENCH RENDERED IN TH E CASE OF ONGC VS DY. CIT, 261 ITR 1 AND HON'BLE MUMBAI BENCH IN THE CASE OF MASHREQ BANK VS DY. CIT, 18 SOT 233. THE CASE OF THE REVEN UE IS THAT THESE CONTRACTS ARE DERIVATIVE CONTRACTS WHICH ARE FOREIG N CURRENCY PRINCIPAL SWAP TRANSACTIONS AND ARE EXECUTED AS A H EDGE AGAINST FLUCTUATION IN THE INTEREST RATE PAYABLE/RECEIVABLE AND HENCE, THESE TRANSACTIONS ARE SPECULATIVE IN NATURE. THE LD.DR HAS SUBMITTED THAT THE DECISIONS RELIED ON BY THE ASSESSEE ARE NOT APP LICABLE TO THE FACTS OF THE GIVEN CASE AS THEY DEAL WITH FOREIGN EXCHANG E FLUCTUATION. ON THE CONTRARY, THE LD.DR HAS RELIED ON THE DECISION OF GOETZ (INDIA) LTD VS CIT (SUPRA), IN SUPPORT OF ASSESSING OFFICER S DENIAL TO ALLOW THE IMPUGNED RELIEF TO THE ASSESSEE. 25. BEFORE US SIMILAR STAND HAS BEEN MAINTAINED BY THE PARTIES. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE DERIVATIVE CONTRACTS, FOREIGN EXCH ANGE SWAP TRANSACTIONS AGAINST FLUCTUATIONS IN INTEREST RATE ARE HEDGE TRANSACTIONS. THE LOSS COMPUTED ON MARKET TO MARKE T BASIS IS REVENUE LOSS AS PER THE ACCOUNTING STANDARDS AND IS ALLOWAB LE AS BUSINESS LOSS. THE DECISION OF HON'BLE DELHI HIGH COURT RENDERED I N THE CASE OF CIT VS INDUSTRIAL FINANCE CORPORATION OF INDIA LTD, 185 TAXMAN 296, IS RELEVANT. IN THIS CASE, IT HAS BEEN HELD AS UNDE R: HELD: THE TRIBUNAL RIGHTLY HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF RS. 67.06 CRORES INC URRED IN CONNECTION WITH SWAPPING OF FOREIGN CURRENCY FUN DS IN THE YEAR UNDER CONSIDERATION, I.E. THE ASST. YR. 1995- 96. THE ASSESSEE HAD RAISED FOREIGN CURRENCY BORROWINGS AND SWAPPED SUCH FOREIGN CURRENCY INTO INDIAN RUPEES IN ORDER TO AUGMENT ITS RUPEE RESOURC ES FOR MEETING ITS LENDING REQUIREMENTS. THE FOREIGN CURRENCIES BORROWED WERE REPAYABLE TO THE FOREIGN LENDERS ON LATER DATES FALLING WITHIN THE CURRENT P REVIOUS I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 27 YEAR ENDING ON 31ST MARCH, 1995 AND IN SOME CASES FALLING IN THE NEXT PREVIOUS YEAR RELEVANT TO SUBSE QUENT ASSESSMENT YEAR. IN ORDER TO ENSURE THAT IT IS ABLE TO REPAY THE FOREIGN LENDERS IN THE FOREIGN CURRENCY O N THEIR RESPECTIVE DUE DATES OF REPAYMENTS, THE ASSES SEE HAD ENTERED INTO FORWARD CONTRACTS AS A SAFEGUARD AGAINST FOREIGN CURRENCY FLUCTUATIONS. IT IS THE DI FFERENCE BETWEEN THE FORWARD CONTRACT RATE AND THE EXCHANGE RATE ON THE DATE OF TRANSACTION WHICH WAS CLAIMED A S DEDUCTION IN THAT VERY YEAR. THE FORWARD CONTRACT I S AN AGREEMENT BETWEEN TWO PARTIES, REQUIRING THE DELIVE RY AT SOME SPECIFIED FUTURE DATE OF A SPECIFIED AMOUNT OF FOREIGN CURRENCY BY ONE OF THE PARTIES, AGAINST PAY MENT IN DOMESTIC CURRENCY TO THE OTHER PARTY, AT THE PRICE AGREED UPON IN THE CONTRACT. THE RATE OF EXCHANGE APPLICABLE TO THE FORWARD CONTRACT IS CALLED THE FO RWARD EXCHANGE RATE AND THE MARKET FOR FORWARD TRANSACTIO NS IS KNOWN AS THE FORWARD MARKET. THUS, IN CASE OF A FORWARD CONTRACT, ASSESSEE ENTERS INTO A LEGALLY BINDING, ENFORCEABLE CONTRACT FOR PURCHASE OF FOREI GN CURRENCY ON A FUTURE DATE AT THE PREDETERMINED RATE S. THE DATE AND THE RATE OF PURCHASE OF THE FOREIGN CURRENCY ARE DECIDED AT THE TIME OF ENTERING INTO CONTRACT. THE DIFFERENCE BETWEEN THE FORWARD CONTRA CT AND THE EXCHANGE RATE ON THE DATE OF ENTERING INTO THE CONTRACT HAS TO BE RECOGNIZED AS INCOME OR EXPENSES , WHICH IS ASCERTAINED AND DEFINITE, IN TERMS OF THE CONTRACT AND CANNOT BE REGARDED AS NOTIONAL OR CONTINGENT. IT IS CLEAR THAT THE SWAPPING COST INCU RRED BY THE ASSESSEE IS CAPABLE OF DETERMINATION AT THE TIME OF EXECUTION OF THE FORWARD CONTRACT AND SUCH DETERMINATION DOES NOT GET POSTPONED. IT WAS A DEBT OWED BY THE ASSESSEE, WHICH ACCRUED ON THE DATE OF ENTERING INTO THE FORWARD CONTRACT ITSELF, THOUGH A S PER THE CONTRACT, PART PAYMENT WAS TO BE MADE IN SUCCEEDING YEARS. THE EXPENDITURE UNDER THE ACCRUAL SYSTEM OF ACCOUNTING HAD, THUS, CRYSTALLIZED ON THE DATE OF THE CONTRACT. NORMALLY THE ORDINARY RULE IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS , IF THE ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THE IT DEPARTMENT CANNOT DENY THE SAME. HOWEVER, IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD TH E EXPENDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF MATCHING CONCEPT I S SATISFIED, WHICH UPTO NOW HAS BEEN RESTRICTED TO TH E CASES OF DEBENTURES.-INDUSTRIAL FINANCE CORPN. OF I NDIA LTD. VS. DY. CIT (2006) 101 TTJ (DEL) 894 AFFIRMED; CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC), MET AL I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 28 BOX COMRANY OF INDIA LTD. VS. THEIR WORKMEN (1969) 73 ITR 53 (SC) AND BHARAT EARTH MOVERS VS. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC) APPLIED; MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 80 2 (SC) DISTINGUISHED AND EXPLAINED. 26. THEREFORE, THE DECISION IN THE CASE OF GOETZ ( INDIA) LTD (SUPRA) DOES NOT APPLY TO THE TYPE OF CLAIMS MADE BY THE AS SESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SINCE WHAT HAS BEE N WRONGLY OFFERED FOR ASSESSMENT BY THE ASSESSEE IN THE ADJUS TMENT STATEMENT IS SOUGHT TO BE RECTIFIED BY THE LETTER DURING AS SESSMENT PROCEEDINGS. THIS CLAIM CANNOT TANTAMOUNT TO A CLA IM OF FRESH DEDUCTION. THE CBDT HAD ALSO CLARIFIED THIS ASPECT VIDE ITS CIRCULAR NO.14XL-35 OF 1955 DATED 11.4.1955, WHICH READS AS UNDER: ' OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS . IT IS ONE OF THEIR DUTIES TO ASSIST A TAX PAYER IN EVERY RESPONSIBLE W AY , PART I CULARLY IN THE MATTER OF C LAIMING AND SECURING RELIEF AND IN THIS REGARD T HE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TAX PAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BE FORE THEM INDICATE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD , IN THE LONG RUN , BENEFIT THE DEPARTMENT , FOR , IT WOULD INSPIRE CONFIDENCE IN H I M T H AT HE MAY BE SURE OF GETTING A SQUARE DEAL FROM TH E DEPARTME N T . ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMING REFUNDS AND RELIEF REST WITH THE ASSESSES ON WHOM IT IS IMPOSED BY LAW , OFFICERS SHOULD: (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEF TO W HI C H T H EY APPE A R T O BE CLEARLY ENT I TLED BUT WH I CH THE Y HAVE OMIT T E D TO CLAIM FOR SOME REASON OR OTHE R ; (B) FREE L Y A D VISE THEM W HEN APPROA C HED B Y TH E M AS TO T HE I R R IGHTS AND LIABILIT I ES AND AS TO THE PROCEDURE T O BE ADOPTED. 27. ACCORDINGLY, WE CONFIRM THE IMPUGNED FINDING OF THE LD. CIT(A) AND DISMISS GROUND NOS. 5.1 TO 5.4 OF REVENU ES APPEAL. OUR ABOVE OBSERVATIONS RESULTS IN DISMISSAL OF REVE NUES APPEAL. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 29 LD. CIT(APPEALS), IN OUR OPINION, WAS JUSTIFIED IN FOLLOWING THE ABOVE ORDER OF THIS TRIBUNAL, WHILE HOLDING THAT DERIVATI VE LOSS COULD BE CLAIMED BY THE ASSESSEE. WE DO NOT FIND ANY REASON TO INTERFERE. 19. GROUND NO.4 OF THE REVENUE IS DISMISSED. 20. VIDE ITS GROUND NO.5, REVENUE IS AGGRIEVED REGA RDING DELETION OF DISALLOWANCE OF EMPLOYEES STOCK OPTION SCHEME (E SOP) EXPENSES. WHEN THE ISSUE CAME UP, LEARNED D.R. SUB MITTED THAT THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT V. PVP VENTURES LTD. [TC(A) NO.1023 OF 2005 DATED 19.6.201 2] HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 21. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDERS O F CIT(APPEALS). 22. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE QUESTION IS WHETHER ESOP COULD BE ALLOWED AS ST AFF WELFARE EXPENDITURE, HAS ALREADY BEEN ANSWERED BY HON'BLE J URISDICTIONAL HIGH COURT IN ITS DECISION IN THE CASE OF PVP VENTU RES LTD. (SUPRA). IT WAS HELD AT PARA 11 OF ITS ORDER AS UNDER:- 11. AS REGARDS THE SECOND ISSUE WHICH IS NOW CANVAS SED BEFORE THIS COURT VIZ., ON THE ISSUE OF EXPENDITURE OF 66. 82 LAKHS TOWARDS THE ISSUE OF SHARES TO THE EMPLOYEES STOCK OPTION IS CONCERNED, THE TRIBUNAL POINTED OUT THAT THE SHARES WERE ISSUED I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 30 TO THE EMPLOYEES ONLY FOR THE INTEREST OF THE BUSIN ESS OF THE ASSESSEE TO INDUCE EMPLOYEES TO WORK IN THE BEST IN TEREST OF THE ASSESSEE. THE ALLOTMENT OF SHARES WAS DONE BY THE ASSESSEE IN STRICT COMPLIANCE OF SEBI REGULATIONS, WHICH MANDAT E THAT THE DIFFERENCE BETWEEN THE MARKET PRICES AND THE PRICE AT WHICH THE OPTION IS EXERCISED BY THE EMPLOYEES IS TO BE DEBIT ED TO THE PROFIT & LOSS ACCOUNT AS AN EXPENDITURE. THE TRIBU NAL POINTED OUT THAT WHAT HAD BEEN ADOPTED WAS NOT NOTIONAL OR CONTINGENT AS HAD BEEN SUBMITTED BY THE REVENUE. POINTING OUT TO THE EMPLOYEES STOCK OPTION PLAN, THE TRIBUNAL IN ITS OR DER STATED THAT IT WAS A BENEFIT CONFERRED ON THE EMPLOYEE. S O FAR AS THE COMPANY IS CONCERNED, ONCE THE OPTION WAS GIVEN AND EXERCISED BY THE EMPLOYEE, THE LIABILITY IN THIS BEHALF GOT ASCE RTAINED. THIS WAS RECOGNIZED BY SEBI AND THE ENTIRE EMPOYEES STOC K OPTION PLAN WAS GOVERNED BY GUIDELINES ISSUED BY SEBI. ON THE FACTS THUS FOUND, THE TRIBUNAL HELD THAT IT WAS NOT A CAS E OF CONTINGENT LIABILITY DEPENDING ON THE VARIOUS FACTORS ON WHICH THE ASSESSEE HAD NO CONTROL. THE EXPENDITURE IN THIS BEHALF WAS AN ASCERTAINED LIABILITY, THUS THE EXPENDITURE INCURRE D BEING ON LINES OF THE SEBI GUIDELINES, THERE COULD BE NO INTERFERE NCE IN THE RELIEF GRANTED BY THE ASSESSING AUTHORITY FOR THE E XPENDITURE ARISING ON ACCOUNT OF EMPLOYEES STOCK OPTION PLAN. THIS EXPENDITURE INCURRED AS PER SEBI GUIDELINES AND GRA NTED BY THE OFFICER COULD NOT BE CONSIDERED AS ERRONEOUS ONE CA LLING FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE A CT. CONSIDERING THE ABOVE DECISION, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 23. GROUND NO.5 OF THE REVENUE IS DISMISSED. 24. IN THE RESULT, APPEALS OF THE REVENUE STAND DIS MISSED. 25. TO SUMMARIZE THE RESULT, APPEALS OF THE ASSESSE ES ARE PARTLY ALLOWED, WHEREAS, APPEALS OF THE REVENUE ARE DISMIS SED. I.T.A. NOS.174 & 1755/MDS/12 I.T.A. NOS.1899 & 1898/MDS/12 31 ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 11 TH OF APRIL, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH APRIL, 2013. KRI. COPY TO: (1) ASSESSEES (2) ASSESSING OFFICER (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III CHENNAI (5) D.R. (6) GUARD FILE