Shriram City Union Finance Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2406/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4674 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 19-08-2016
• Court: TRIBUNAL
• Department Lawyers: PARASHIVAIH CIT
• Assessee Lawyers: R SIVARAMAN
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Question of law; Bad and doubtful debts; Commercial expediency; Provision of bad debts; Revenue expenditure; Capital expenditure
• Section: 145; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER . /ITA NO. 2407/MDS/2016 / ASSESSMENT YEAR : 2013-14 M/S. SHRIRAM CAPITAL LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AABCS2726B ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI - 34. (/ RESPONDENT) . /ITA NO. 2502/MDS/2016 / ASSESSMENT YEAR : 2013-14 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI - 34. ( /APPELLANT) V. M/S. SHRIRAM CAPITAL LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. (/ RESPONDENT) . /ITA NO. 2406/MDS/2016 / ASSESSMENT YEAR : 2013-14 M/S. SHRIRAM CITY UNION FINANCE LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AAACS7703H ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI . (/ RESPONDENT) - - ITA 2407, 2502/MDS/16 ETC. 2 . /ITA NO. 2503/MDS/2016 / ASSESSMENT YEAR : 2013-14 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI. ( /APPELLANT) V. M/S. SHRIRAM CITY UNION FINANCE LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AAACS7703H (/ RESPONDENT) . /ITA NO. 2370/MDS/2016 / ASSESSMENT YEAR : 2013-14 M/S. SHRIRAM TRANSPORT FINANCE CO. LTD ., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AAACS7018R ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI. (/ RESPONDENT) . / ITA NO. 2504/MDS/2016 / ASSESSMENT YEAR : 2013-14 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI. ( /APPELLANT) V. M/S. SHRIRAM TRANSPORT FINANCE CO. LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AAACS7018R (/ RESPONDENT) - - ITA 2407, 2502/MDS/16 ETC. 3 . /ITA NO. 2505/MDS/2016 / ASSESSMENT YEAR : 2013-14 THE DEPUTY COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-6(1), CHENNAI. ( /APPELLANT) V. M/S. SHRIRAM AUTOMALL INDIA LTD . MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN AANCS8571L (/ RESPONDENT) ASSESSEES BY : SHRI R. SIVARAMAN, ADVOCATE DEPARTM ENT BY : SHRI PARASHIVAIH, CIT ! ' # $%& / DATE OF HEARING : 01.03.2017 '( # $%& / DATE OF PRONOUNCEMENT: 01.05.2017 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE. THESE ARE DIRECTED AGAINST THE DI FFERENT ORDERS OF THE CIT(APPEALS) FOR THE ASSESSMENT YEAR 2013-14 . FIRST WE TAKE UP ITA NO.2407/MDS/2016 & ITA NO.2502/MDS/2016 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.2407/MDS/2016 ARE AS FOLLOWS : 2. THE CIT(A) ERRED IN CONFIRMING PART OF THE DISALLOWANCE MADE U/S.14A R.W.RULE 8D - - ITA 2407, 2502/MDS/16 ETC. 4 3. THE CIT(A) ERRED IN NOT DELETING THE ENTIRE ADDI TION MADE BY THE ASSESSING OFFICER U/S.14A R.W.RULE 8D 4. THE CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE APPELLANT IS IN THE BUSINESS OF INVESTMENT PROMOTIO N, DISALLOWANCE U/S.14A R.W.RULE 8D IS NOT ATTRACTED. 2.1 ON THIS ISSUE OF DISALLOWANCE U/S.14A R.W.R 8D , THE REVENUE HAS ALSO RAISED THE SAME ISSUE IN GROUND NO .2.2. AS FOLLOWS: 2.2. THE LD. LEARNED COMMISSIONER OF INCOME TAX(A ) ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO EXCLUDE THE INVESTMENT MADE BY ASSESSEE IN SUBSIDIA RY COMPANIES AND INVESTMENTS WHICH DID NOT YIELD EXEMP T INCOME WHILE COMPUTING THE DISALLOWANCE U/S.14A R.W.RULE 8D. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENT PROMOTION BY MAKING LONG TER M STRATEGIC INVESTMENTS ON ITS OWN AND ALSO INVITING OTHERS AND PROVIDING A PLATFORM FOR ATTRACTING OUTSIDE INVESTM ENTS. ANOTHER BUSINESS PURPOSE IS TO ACQUIRE OR TO RETAIN CONTROLLING INTEREST IN OTHER COMPANIES. IT HOLDS LONG TERM STRATEGIC INVESTMENTS IN VARIOUS ENTITIES. THE ASS ESSEE IS THE PROMOTER OF THE COMPANIES UNDER ITS FOLD. IT FO CUSES AND - - ITA 2407, 2502/MDS/16 ETC. 5 PROMOTES THESE COMPANIES, INFUSES REQUIRED CAPITAL AND NURTURES THEM TO GROW INTO DEVELOPED BUSINESS ENTIT IES. IT EXTENDS ITS SUPPORT TO THE OPERATING COMPANIES TO I DENTIFY NEW PROSPECTS OF GROWTH IN EXISTING AS WELL AS NEW LINES OF BUSINESSES. THE ASSESSEE USED TO INFUSE CAPITAL IN TO ENTITIES UNDER ITS FOLD EITHER TO EXPAND THE BUSINE SS OR MEET THE SOLVENCY MARGIN OR TO COMPLY WITH REGULATORY REQUIREMENTS. THE ASSESSEE MOBILIZES REQUIRED MON EY BY INVITING PRIVATE EQUITY AND STRATEGIC PARTNERS TO C ONTRIBUTE TO THE EQUITY CAPITAL OF THE COMPANY OR IN INTERMEDIAT E/HOLDING COMPANIES. IT MAY ALSO RESORT TO TEMPORARY BORROWI NGS TO RAISE MONEY AS THE FUND RAISING FROM THE EQUITY PAR TNERS MAY TAKE SIX MONTHS TO ONE YEAR. THE TEMPORARY BORROWINGS ARE REPAID WITH THE CAPITAL RAISED FROM THE STRATEGIC EQUITY PARTNERS. THE PRIMARY OBJECTIVE O F THE INVESTMENT IN THE GROUP COMPANIES IS TO CONTRIBUTE TO THE CAPITAL, HAVING CONTROLLING STAKE AND GUIDE THEM TO GROW IN THEIR RESPECTIVE BUSINESSES. THE COMPANY MADE INVESTMENT IN THESE COMPANIES ON THE GROUND OF COMMERCIAL EXPEDIENCY WITH A VIEW TO STRENGTHEN THE CAPITAL - - ITA 2407, 2502/MDS/16 ETC. 6 BASE OF THE INVESTING COMPANIES. THE INVESTMENT CA NNOT BE CONSTRUED AS MADE FOR THE PURPOSE OF EARNING EXEMPT ED DIVIDEND INCOME. INCOME FROM DIVIDEND IS INCIDENTA L TO THE MAIN ACTIVITY OF INVESTMENT PROMOTION. THE COMPANY KEEPS THE SURPLUS MONEY RAISED FROM THE STRATEGIC INVESTO RS IN MUTUAL FUNDS TILL SUCH TIME DEPLOYMENT IN BUSINESS VENTURES IS IDENTIFIED BY THE BOARD OF DIRECTORS. THE EXPEN SES INCURRED BY THE COMPANY WAS FOR THE PURPOSE OF ITS BUSINESS OF INVESTMENT PROMOTION AND NOT FOR WARNING EXEMPTE D INCOME AND THE EXPENDITURE IS BUSINESS EXPENDITURE. THEREFORE, ACCORDING TO THE ASSESSEE, THE INVESTMEN TS MADE BY THE COMPANY ARE IN THE COURSE OF BUSINESS O F INVESTMENT PROMOTION AND TO ACQUIRE AND MAINTAIN CONTROLLING INTEREST OF A STRATEGIC NATURE AS WELL AS THE ASSESSEE DID NOT MAKE THE INVESTMENT WITH A VIEW TO DEPLOYING SURPLUS FUNDS FOR EARNING DIVIDEND. 3.1 IT WAS THE SUBMISSION OF THE ASSESSEE THAT AS T HE EXPENDITURES INCURRED BY THE COMPANY ARE ALL FOR TH E PURPOSE OF ITS BUSINESS, WHICH IS PROMOTION OF BUSINESS AND DI VIDEND INCOME EARNED WAS INCIDENTAL TO THE MAIN ACTIVITY, SEC.14A IS NOT - - ITA 2407, 2502/MDS/16 ETC. 7 APPLICABLE, WHICH WAS APPROVED BY THE TRIBUNAL IN A SSESSEES OWN CASE IN ITA NOS.512 & 513/MDS/2015 DATED 26.6.2 015. HOWEVER, AN AMOUNT OF 73,602/- HAD BEEN DISALLOWED TOWARDS PROBABLE EXPENSES RELATING TO EARNING DIVIDEND INCO ME, WHICH WERE CREDITED DIRECTLY TO THE BANK. IN CASE OF DIV IDED FROM MUTUAL FUND, THE INVESTMENT WAS IN DIVIDEND RE-INVE STMENT SCHEME, WHERE DAILY DIVIDEND WAS RE-INVESTED AUTOMA TICALLY AND RULE 8D CANNOT BE APPLIED FOR CALCULATING DISALLOWA NCE U/S.14A OF THE ACT. THE TRIBUNAL, IN ASSESSEES OWN CASE F OR THE AYS 2005-06 & 2007-08 IN ITA NOS.638 & 639 & 640/MDS/20 15 DATED 4.2.2013 HAS HELD THAT DISALLOWANCE U/S.14A IS NOT ATTRACTED IN RESPECT OF THE INTEREST PAYMENT. FURTHER, IN THE A YS 2010-11 AND 2011-12, THE AO MADE DISALLOWANCE U/S.14A R.W.R ULE 8D OF 9,53,58,731/- AND 11,56,55,300/- RESPECTIVELY AND THE AMOUNT DISALLOWED COMPRISED DISALLOWANCE UNDER RULE 8D(2)(II) & (III). HOWEVER, THE TRIBUNAL IN ITA NOS. 512 & 5 13/MDS/2015 DATED 26.6.2015 HAS CONFIRMED THE ADDITION TO THE E XTENT OF 15 LAKHS FOR EACH YEAR AND DELETED THE BALANCE ADDITIO NS. HOWEVER, THE AO HAS TAKEN THE VALUE OF THE ENTIRE INVESTMENT S INSTEAD OF TAKING THE VALUE OF INVESTMENTS WHICH HAVE EARNED E XEMPT - - ITA 2407, 2502/MDS/16 ETC. 8 INCOME DURING THE YEAR WHILE COMPUTING THE AMOUNT T O BE DISALLOWED U/S.14A R.W.RULE 8D(2)(II) & (III). AG GRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS), WH O RELYING ON THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 512 & 513/MDS/2015, DIRECTED THE AO TO RES TRICT THE ADDITION TO THE EXTENT OF 15 LAKHS AND DELETE THE BALANCE ADDITION. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 3.2. ON THIS ISSUE, THE REVENUE IS ALSO IN APPEAL I N ITA NO.2502.MDS./2016 BEFORE US, AND THE ONLY GROUND RA ISED BY THE REVENUE IS WITH REGARD TO SUSTENANCE OF DISALLOWANC E AT ` 15 LAKHS FOR THIS ASSESSMENT YEAR. 3.3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.A.R SUBMITTED THAT TRIBUNAL IN A SSESSEES OWN CASE IN ITA NOS. 512 & 513/MDS/2015 DATED 26.6.2015 WHEREIN HELD THAT: 10. CONSIDERING TOTALITY OF THE FACTS OF THE PRESE NT CASE, IN OUR OPINION IT CANNOT BE SAID THAT THE ASS ESSEE MADE INVESTMENT IN THE SHARES OF SHRIRAM RETAIL HOL DINGS PVT. LTD, SHRIRAM CREDIT COMPANY LIMITED, SHRIRAM HOLDINGS (MADRAS) PVT. LTD AND SHRIRAM LIFE INSURAN CE - - ITA 2407, 2502/MDS/16 ETC. 9 COMPANY LIMITED, FOR THE PURPOSE OF EARNING TAX FRE E DIVIDEND INCOME. ON THE OTHER HAND, THE ASSESSEE INVESTED TO HAVE A CONTROLLING INTERNAL IN THESE C OMPANIES AND STRENGTHEN THE CAPITAL BASE AND LIQUIDITY BAS E OF THESE COMPANIES. THUS IN THE GROUP COMPANIES, THE ASSES SEE COMPANY HAVE CONTROLLING INTEREST IN SHRIRAM CITY U NION FINANCE LTD, A PUBLIC LIMITED COMPANY WHOSE EQUITY SHARES ARE LISTED IN STOCK EXCHANGE. SHRIRAM CREDIT COMPA NY LTD HAS CONTROLLING INTEREST IN M/S.SHRIRAM INSIGHT SHA RE BROKERS LTD. THESE FACTS WERE NOT CONTRADICTED BY THE DEPARTMENT AND FINALLY THESE FACTS WILL DEFINITELY ENHANCE THE PROFITABILITY OF THE ASSESSEE COMPANY AS WELL A S MARKET SHARE OF THE ASSESSEES BUSINESS BY THIS INVESTMENT . BEING SO, IN OUR OPINION DISALLOWANCE MADE BY THE ASSESSI NG OFFICER AT 29,53,58,713/- FOR THE ASSESSMENT YEAR 2 010- 2011 AND 11,56,55,300/- FOR THE ASSESSMENT YEAR 201 1-12 IS AT VERY HIGH SIDE. THUS CONSIDERING THE EARLIER ORDER OF THE TRIBUNAL ON THIS ISSUE FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEE OWN CASE, WE ARE OF THE OPINION THAT TH E ABOVE ENTIRE EXPENDITURE CANNOT BE DISALLOWED. HOWEVER, W E CANNOT RULE OUT THE INCURRING OF MANAGEMENT EXPENS ES BY THE ASSESSEE TO EARN EXEMPT INCOME AND CONSIDERING THIS ASPECT, WE ARE INCLINED TO DIRECT THE ASSESSING OFF ICER TO DISALLOW `15 LAKHS FOR EACH ASSESSMENT YEAR. IN TH E RESULT, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED IN BO TH APPEALS. 3.4 THUS, IN THE ASSESSMENT YEARS 2010-11 & 2011-1 2 SUSTAINED THE DISALLOWANCE OF ` 15 LAKHS OUT OF DISALLOWANCE - - ITA 2407, 2502/MDS/16 ETC. 10 MADE BY THE AO AT ` 9,53,58,713/- AND ` 11,56,55,300/- FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY AS EXPENSES BY THE LD.CIT(A). FURTHER, HIGH COURT OF KARNATAKA IN THE CASE OF UNITED BREWERIES LTD. VS. DCIT IN [2016] 72 TAXMANN .COM (KARNATAKA) WHEREIN HELD THAT:- 8. SO FAR AS SECOND QUESTION OF APPLICABILITY OF S EC. 1 4A OF THE ACT TO THE EXPENSES INCURRED BY THE APPELLANT T OWARDS INTEREST AND OTHERS ON THE LOAN BORROWED IS CONCERN ED, THE FINDING OF THE TRIBUNAL IS AT PARAGRAPH 11 WHICH RE ADS AS UNDER: 11. THE REVENUE IS IN APPEAL AND WE HAVE CONSIDERE D THE RIVAL CONTENTIONS. IN OUR VIEW, THE RECENT JUDGMENT OF THE SPECIAL BENCH IN BOMBAY IN ITO V. DAGA CAPITAL MANAGEMENT PVT. LTD (2009) 312 ITR (AT) 1, IS APPLICABLE TO THE FACTS OF THE PRESENT C ASE. IN THIS ORDER, IT HAS BEEN HELD THAT SECTION 1 4A I S APPLICABLE EVEN WHERE THE MOTIVE IN ACQUIRING THE SHARES WAS TO OBTAIN CONTROLLING INTEREST IN THE COMPANIES. THE FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) CANNOT, THEREFORE, BE UPHELD A S IT IS CONTRARY TO THE DECISION OF THE SPECIAL BENCH . WE, ACCORDINGLY, UPHOLD IN PRINCIPLE THE APPLICABILITY OF SECTION 1 4A. HOWEVER, IT IS FOR THE ASSESSING OFFI CER TO ASCERTAIN FROM THE FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTILIZED TO ACQUIRE SHARES IN THE COMPANIES. IT IS ALSO NECESSA RY TO SEE AS TO WHETHER ANY INTEREST BEARING BORROWED FUNDS WERE USED IN MAKING THE ADVANCES AND EXPENDITURE IN THE CASE OF CASTLE BREWERIES. THIS FACTUAL EXERCISE HAS TO BE CARRIED OUT BY THE ASSES SING OFFICER AFTER GIVING DUE OPPORTUNITY TO THE ASSESS OF BEING HEARD. THE ASSESSING OFFICER MAY MAKE THE DISALLOWANCE OF INTEREST UJS. 1 4A ONLY IF IT IS FO UND THAT INTEREST BEARING BORROWED FUNDS WERE USED TO ACQUIRE SHARES IN THE COMPANIES OR FOR MAKING ADVANCES TO CASTLE BREWERIES. WE, THEREFORE, RESTOR E THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H THE - - ITA 2407, 2502/MDS/16 ETC. 11 ABOVE DIRECTIONS. THE GROUND IS TREATED AS PARTLY ALLOWED. 9. THE AFORESAID SHOWS THAT THE TRIBUNAL AFTER HOLD ING IN PRINCIPLE THE APPLICABILITY OF SEC. 1 4A, HAS FURTH ER DIRECTED THE ASSESSING OFFICER TO ASCERTAIN FROM THE FACTS O F THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTIL IZED TO ACQUIRE SHARES IN THE COMPANIES AND THE MATTER IS R ELEGATED TO THE ASSESSING OFFICER. AS PER THE LANGUAGE IN SE C. 1 4A, THE ENQUIRY HAS TO BE UNDERTAKEN BY THE ASSESSING O FFICER WHICH HAS BEEN SO ORDERED BY THE TRIBUNAL. HENCE, I T CAN BE SAID THAT THE TRIBUNAL HAS EXERCISED THE DISCRETION WHERE RIGHTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISSIBLE D EDUCTION UNDER SEC. 1 4A. WHEN SUCH A DISCRETION IS EXERCISE D AND THE RIGHTS OF THE APPELLANT-ASSESSEE IS ALSO KEPT O PEN TO SATISFY THE ASSESSING OFFICER, IT CARMOT BE SAID TH AT ANY SUBSTANTIAL QUESTIONS OF LAW WOULD ARISE FOR CONSID ERATION, AS SOUGHT TO BE CANVASSED. IN OUR VIEW, AT THE STAGE O F ENQUIRY UNDER SEC. 1 4A, IT IS OPEN TO THE ASSESSING OFFICE R TO INDEPENDENTLY CONSIDER THE TER FOR ADMISSIBILITY OF THE INTEREST ON BORROWINGS AND IF YES TO WHAT EXTENT. H ENCE. WHEN THE QUESTION AT LARGE IS FURTHER TO BE CONSIDE RED BY THE ASSESSING OFFICER, WE DO NOT FIND D R FURTHER OBSER VATIONS ARE REQUIRED TO BE MADE IN THIS REGARD. IN ANY CASE, TH E QUESTION OF LAW AS SOUGHT TO BE CANVASSED WOULD NOT ARISE FO R CONSIDERATION AT THIS STAGE ON THE SAID ASPECTS BE CANVASSED. FURTHER, THERE IS A RECENT JUDGEMENT OF JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS P LTD. I N TC(A) NO.24 OF 2017 DATED 13.03.2017. BEING SO, IN OUR OPINION IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF AO TO CONSIDER THE DISALLOWANCE U/S.14A R.W.RULES 8D TO FIND OUT WHETH ER INTEREST BEARINGS BORROWED FUND WERE USED TO ACQUIRE THE SHA RES IN THE COMPANIES OR MAKING ADVANCE TO THE SUBSIDIARIES. W ITH THIS - - ITA 2407, 2502/MDS/16 ETC. 12 OBSERVATION, WE RESTORE THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. 4. THE NEXT GROUND RAISED IN REVENUES APPEAL IN I TA NO.2502/MDS./16 IS WITH REGARD TO DELETION OF DISAL LOWANCE BY THE LD. CIT(A) ON ACCOUNT OF PAYMENT OF ROYALTY, TH OUGH IT WAS A CAPITAL EXPENDITURE AND DEPRECIATION WAS GRANTED ON IT. 4.1 AFTER HEARING BOTH PARTIES, WE FIND THAT SIMIL AR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2009- 10 IN I.T.A. NO. 868 & 869/MDS/2015 DATED 29.01.2016 FOR A.YS. 2 010-11 & 2011-12, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER : 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L 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 SITUA TION, IN ASSESSEE'S OWN CASE, FOR ASSESSMENT YEAR 2006-07, THIS TRIBUNA L HAD HELD IN ITS - - ITA 2407, 2502/MDS/16 ETC. 13 ORDER IN I.T.A. NO. 726/MDS/2010 DATED 16TH DECEMBE R, 2010, AS UNDER:- 16. THE NEXT ISSUE OF THIS APPEAL RELATES TO THE D IRECTION 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 AR E THAT THE ASSESSEE HAD PAID ROYALTY OF . 47,85,125/- TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR USING THE LOGO OWNED BY THE LATTER. THE ASSESSING OFFICER HAS FOUND THAT THIS PAYMENT RELATES TO PAYMENT 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 HAS 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) 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 LIGHT OF THE AFORESAID MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE IMPUGNED PAYMENT WAS MADE TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR THE NON-EXCLUSIVE USER OF THE LOGO BASED ON TURNOVER AND WAS NOT A LUMP SUM PAYMENT. THE ASSESSEE HAD NO OTHER RIGHTS INCLUDING THE RIGHT TO TRANSFER THE USE OF THE LOGO. SHRIRAM CHITS & INVESTMENTS PVT. LTD HAS GIVE N THE RIGHT OF USER TO OTHER COMPANIES ALSO WHICH INCLUDE SHRIR AM CHITS TAMILNADU PVT. LTD, SHRIRAM CHITS (BANGALORE) PVT. LTD AND SHRIRAM CHITS PVT. LTD. IN ASSESSMENT YEAR 2001-02, THE CIT WANTED TO TREAT THE PAYMENT AS CAPITAL EXPENDITURE IN THE CASE OF SHRIRAM CHITS TAMILNADU PVT. LTD, BUT AFTER HEARING THE ASSESSEES OBJECTIONS, HE DROPPED THE PROCEEDINGS INITIATED U/S 263 OF THE ACT. IN THE CASE OF SHRIRAM CHITS TAMILNADU PVT. LTD, THE LD. CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THIS EXPENDITURE 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 FOR ASSESS MENT YEARS 2004-05 AND 2005-06. - - ITA 2407, 2502/MDS/16 ETC. 14 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 SUPPORTED THE ORDER OF THE LD. CIT(A). 19. WE HAVE GONE THROUGH THE DECISION RELIED UPON B Y THE LD. DR AND HAVE FOUND THAT THEIR LORDSHIPS OF SUPREME COUR T WERE ACTUALLY CONSIDERING A CASE OF COMPOSITE AGREEMENT WHICH INVOLVED AN AGREEMENT TO IMPLEMENT A TURNKEY PROJECT RIGHT FROM PROVIDING DESIGN, ETC. IN ESTABLISHING THE FACTORY AND USER OF THE TECHNICAL KNOW-HOW. THEREAFTER, THE IR LORDSHIPS OF SUPREME COURT HAVE CLEARLY HELD THAT PAYMENT MADE FOR THE USER OF THE LOGO IS ALWAYS REVENUE 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. WE, THEREFORE, DO NOT FIND ANY FORCE IN THIS GROUND OF REVENUE AS WELL. FOR THE REASONS MENTIONED ABOVE, WE ARE OF THE OPIN ION THAT DISALLOWANCE OF ROYALTY WAS NOT WARRANTED. CIT(APPE ALS) HAD JUSTLY DELETED SUCH DISALLOWANCE. NO INTERFERENCE IS CALLE D FOR. 15. GROUND NO.3 IS TREATED AS DISMISSED. IN VIEW OF THE ORDER OF THE TRIBUNAL, WE ARE INCLIN ED TO DISMISS THE GROUND TAKEN BY THE REVENUE IN THIS APPEAL. 4.2 THE THIRD GROUND IN THE APPEAL OF REVENUE IS W ITH REGARD TO DELETION OF ADDITION RELATING TO EXPENDITURE INC URRED FOR EXEMPT INCOME WHILE COMPUTING THE BOOK PROFIT U/S.115JB. - - ITA 2407, 2502/MDS/16 ETC. 15 4.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT SIMILAR ISSUE WAS CONSIDER ED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 512 & 5 13/MDS/2015 DATED 26.6.2015 WHEREIN HELD THAT: 22. WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THES E TWO ASSESSMENT YEARS BY INVOKING PROVISION U/S.14A R.W. RULE 8D, WAS ALREADY ADJUDICATED BY US IN OUR EARLIER PARA OF TH IS ORDER. IN OUR OPINION, DISALLOWANCE MADE U/S.14A R.W. RULE 8D CAN NOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT TH AT THE DISALLOWANCE IS ONLY DISALLOWANCE FOR THE PURPOSE O F 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 CHANG E THE BOOK PROFIT ON THIS COUNT. THEREFORE EVEN IF THERE IS A N ADDITION IN VIEW OF PROVISION U/S.14A R.W.RULE 8D, THAT CANNOT BE AD DED BACK TO COMPUTE THE BOOK PROFIT U/S.115JB. THIS GROUND IS ALLOWED. 4.4 IN VIEW OF THE ABOVE ORDER OF TRIBUNAL, THIS G ROUND RAISED BY THE REVENUE STANDS DISMISSED. 4.5. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE IN NO.2407/MDS/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND TH E REVENUE IN ITA NO.2502/MDS/2016 IS PARTLY ALLOWED. - - ITA 2407, 2502/MDS/16 ETC. 16 5. THE FIRST GROUND IN ASSESSEES APPEAL IN ITA NOS . 2370/MDS/2016 & 2406/MDS/16 IS AS UNDER : I) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE AMOUNT OF 405,22,21,843/- TRANSFERRED TO RESERVE FUND U/S. 45IC OF THE RBI AC T BY HOLDING THAT IT IS AN APPLICATION OF INCOME. II) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T AS PER SEC.45IC OF THE ACT 20% OF THE NET PROFITS OF T HE COMPANY CANNOT FORM PART OF THE REAL INCOME OF THE COMPANY; THAT THE COMPANY LOSES CONTROL OVER THIS P ART OF THE INCOME FROM THE BEGINNING; AND THAT A PART OF T HE CORPUS OF THE RIGHT OF THE COMPANY TO HAVE THE ENTI RE INCOME IS SLICED AWAY AT THE THRESHOLD ITSELF. III) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH AT THERE IS NO DIVERSION OR APPLICATION OF INCOME SINCE THE TRANSFER IS NOT THROUGH ANY OBLIGATION CREATED BY THE COMPAN Y OUT OF ITS OWN VOLITION OR GRATUITOUSLY. IV) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T IN VIEW OF THE PROVISIONS OF SEC.45Q OF THE RBI ACT, T HE COMPANY LOSES ITS TITLE OVER 20% OF THE INCOME AT T HE THRESHOLD ITSELF AND IT DOES NOT FORM PART OF THE R EAL INCOME OF THE COMPANY AND REAL INCOME ALONE IS ASSESSABLE TO INCOME TAX. V) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IT IS AN EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ITS BUSINESS; THAT IT CANNOT SU RVIVE WITHOUT COMPLYING TO THE MANDATORY PROVISIONS OF RB I ACT; AND AS SUCH IT IS AN ADMISSIBLE DEDUCTION U/S.37 OF THE INCOME-TAX ACT INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 6. THE CRUX OF ABOVE GROUNDS IS WITH REGARD TO ASSE SSEE TRANSFERRED A SUM OF 405,22,21,843/- TO RESERVE FUND AS - - ITA 2407, 2502/MDS/16 ETC. 17 REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT AND CLAIMED THE SAME AS APPROPRIATION OF FUNDS BY O VERRIDING TITLE. HOWEVER, THE ASSESSING OFFICER DISALLOWED T HE CLAIM OF THE ASSESSEE BY HOLDING THE SAME AS APPLICATION OF INCO ME. THE CIT(APPEALS) ALSO CONFIRMED THE ORDER OF THE ASSESS ING OFFICER. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 7. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT THIS ISSUE CAME FOR CONSIDERATION BEFORE THE TRIBUN AL IN ASSESSEES GROUP CASE IN ITA NO.454/MDS/2016 DATED 24.8.2016 WHEREIN HELD THAT:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAS TRANSFERRED A SUM OF ` 375,10,96,984/- TO RESERVE FUND AS REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT. THE ASSESSEE CLAIMS THAT IT IS ONLY AN APPROPRIATION OF FUNDS BY OVERRIDING TITLE. THIS T RIBUNAL EXAMINED THE VERY SAME ISSUE FOR ASSESSMENT YEARS 2 003-04 TO 2009-10 AND FOUND THAT THE TRANSFER OF FUNDS, AS RE QUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT, IS ONLY AN APPLICATION OF INCOME, THEREFORE, LIABLE FOR TAXATI ON. IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE, FOR ASSESSMENT YEARS 2003-04 TO 2009-10, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. - - ITA 2407, 2502/MDS/16 ETC. 18 7.1 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE, WE DISMISS THIS GROUND OF APPE AL RAISED IN BOTH THE APPEALS OF ASSESSEE. 8. THE NEXT GROUND IN ITA NOS. 2370/MDS/2016 & 2406/MDS/16 IS AS FOLLOWS: I) THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF INTEREST U/S.234D CLAIMED OF 7,31,78,234/- II) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE REFUND AMOUNT TAKES THE CHARACTER OF LOAN, AS T HE DEPARTMENT HAS CHARGED INTEREST U/S.234D WHILE WITHDRAWING THE REFUND. III) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT SINCE THE REFUND AMOUNT HAS BEEN UTILIZED BY THE APPELLANT FOR ITS BUSINESS, THE INTEREST U/S.234D P AID TO THE GOVERNMENT IS AN ALLOWABLE DEDUCTION WHILE COMPUTING THE BUSINESS INCOME. IV) THE CIT(A) ERRED IN HOLDING THAT THE INTEREST CHARGED U/S.234D IS PENAL IN NATURE. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE FIND THAT THIS ISSUE ALSO WAS DECID ED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES GROUP CASE I N ITA NO.454/MDS/2016 DATED 24.8.2016 WHEREIN HELD THAT:- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. - - ITA 2407, 2502/MDS/16 ETC. 19 AS RIGHTLY SUBMITTED BY THE LD. D.R., INTEREST IS C HARGED UNDER SECTION 234D OF THE ACT ON THE EXCESS AMOUNT REFUNDED TO THE ASSESSEE WHILE PROCESSING A RETURN UNDER SECTION 143(1) OF THE ACT. EVEN THOUGH IT IS AN INT EREST LEVIED ON THE AMOUNT REFUNDED TO THE ASSESSEE, IN F ACT, IT IS AN INTEREST FOR DELAYED PAYMENT OF TAX. IN OTHER W ORDS, THE AMOUNT REFUNDED TO THE ASSESSEE WHILE PROCESSING RE TURN UNDER SECTION 143(1) OF THE ACT WAS CONSIDERED AS N ON- PAYMENT OF TAX AND INTEREST WAS CHARGED FOR THE PER IOD IN WHICH THE ASSESSEE WAS HOLDING THE AMOUNT. THEREFO RE, THE INTEREST PAID BY THE ASSESSEE CANNOT BE CONSTRUED A S EXPENDITURE FOR EARNING THE INCOME OR FOR BUSINESS PURPOSE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9.1 THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE OR DER OF THE TRIBUNAL, WE DISMISS THIS GROUND OF APPEAL IN THE A BOVE APPEALS. 10. THE NEXT GROUND IN ITA NO.2370/MDS/2016 IS AS U NDER : I) THE CIT(A) ERRED IN CONFIRMING PART OF THE DISALLOWANCE MADE U/S.14A R.W.RULE 8D II) THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FA CT THAT THE ASSESSING OFFICER HAS NOT RECORDED WITH REGARD TO ACCOUNTS OF THE APPELLANT, AS TO WHY HE WAS NOT SAT ISFIED WITH THE CORRECTNESS OF THE AMOUNT DISALLOWED BY TH E APPELLANT OF 40,628/-. III) THE CIT(A) ERRED IN OVERLOOKING THE HONBLE DE LHI HIGH COURT DECISION IN THE CASES OF CIT VS TAIKISHA - - ITA 2407, 2502/MDS/16 ETC. 20 ENGG INDIA LTD. (299 TAXMAN 143) AND CIT VS I P SUPPORT SERVICES INDIA PVT. LTD. (378 ITR 240) 11. IN VIEW OF OUR FINDINGS IN EARLIER PARAS 3.2 TO 3.5 OF THIS ORDER, THIS GROUND RAISED BY THE ASSESSEE STANDS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 12. THE NEXT GROUND IN ITA NOS.2370/MDS/2016 & 2406/MDS/2016 IS AS FOLLOWS : I) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF 280,00,00,000/- BEING AMOUNT TRANSFERRED TO STATUTO RY RESERVE AS PER RESERVE BANK OF INDIA GUIDELINES IN COMPUTING INCOME U/S.115JB OF THE ACT. II) THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T THE AMOUNT TRANSFERRED TO STATUTORY RESERVE DOES NOT FO RM PART OF THE REAL INCOME OF THE APPELLANT ON THE SAME GRO UNDS AS MENTIONED IN THE GROUNDS OF APPEAL AGAINST THE CONFIRMATION OF DISALLOWANCE IN COMPUTATION OF REGU LAR INCOME. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE AO DISALLOWED THE AMOUNT TRANSFERR ED TO STATUTORY RESERVE FUND STATING THAT IT IS NOT AN AS CERTAINED LIABILITY. ON APPEAL, THE CIT(APPEALS) RELYING ON THE ORDER OF THE TRIBUNAL IN ITA NO.235/MDS/2009 DATED 16.7.2009 DISMISSED TH E APPEAL OF THE ASSESSEE. WE ALSO FIND THAT THIS ISSUE ALSO WAS DECIDED - - ITA 2407, 2502/MDS/16 ETC. 21 AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES GROUP CASE IN ITA NO.454/MDS/2016 DATED 24.8.2016. THEREFORE, R ESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, THIS ISS UE IS DECIDED AGAINST THE ASSESSEE.. 14. THE NEXT GROUND IN ITA NO. 2406/MDS/2016 IS AS FOLLOWS : I) THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S.40(A)(IA) OF 46,92,44,944/-. II) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT T HAT BY 31.03.2013, THE APPELLANT HAD PAID THE ENTIRE SALAR Y AND INCENTIVE AND THEREFORE DISALLOWANCE U/S.40(A)(IA) IS NOT ATTRACTED IN THE LIGHT OF THE ALLAHABAD HIGH COURT DECISION IN CIT VS VECTOR SHIPPING PVT. LTD. (357 ITR 642). THE HONBLE SUPREME COURT HAS DISMISSED THE SLP FILED B Y THE DEPARTMENT AGAINST THIS JUDGMENT.(CCNO.8068/2014 DA TED 27.02.2014.) III) THE CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE EMPLOYERS HAVE TAKEN INTO ACCOUNT THE SALARY AND INCENTIVE PAID BY THE APPELLANT COMPANY TO THESE EMPLOYEES FOR COMPUTATION OF TAX DEDUCTIBLE U/S.192 AND HAVE DEDUCTED TAX WHEREVER APPLICABLE AND HENCE AS PER SEC.191 THE APPELLANT COMPANY CANNOT BE TREATED AS A DEFAULTER U/S.201(1) AND MAKE DISALLOWANCE U/S.40(A )(IA). IV. WITHOUT PREJUDICE TO THE APPELLANTS GROUNDS TH AT THE DISALLOWANCE U/S.40(A)(IA) IS NOT ATTRACTED, THE AP PELLANT RAISES THE FOLLOWING GROUND : THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF 100% OF THE EXPENDITURE U/S.40(A)(IA) THOUGH IN VIEW OF AMENDMENT BY FINANCE (NO.2) ACT 2014, THE ASSESSING OFFICER CAN DISALLOW ONLY 30% OF THE EXPENDITURE. - - ITA 2407, 2502/MDS/16 ETC. 22 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE ORDERS O F THE AUTHORITIES BELOW. THE MAIN CONTENTION OF THE LD.A.R IS THAT NOTHING IS PAYABLE AT THE END OF THE CLOSE OF THE F INANCIAL YEAR, AS SUCH THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPI NG AND TRANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VIS AKHAPATNAM) [SB]. IN OUR OPINION, THERE IS A FORCE IN THE ARGU MENT OF THE LD.A.R AND THE SPECIAL BENCH CITED SUPRA CONSIDERED THIS ISSUE AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FU RTHER, THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI N.PALANIVELU VS. ITO REPORTED IN [2015] 40 ITR (TRIB) 325 [CHENN AI] VIDE ORDER DATED 29.04.2015 WHEREIN HELD THAT:- 4. WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUN AL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT [2012 ] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] AND JUDGMENT OF THE AL LAHABAD HIGH COURT IN THE CASE OF CIT V. VECTOR SHIPPING SER VICES (P.) LTD. IN [2013] 357 ITR 642 (ALL) HELD THAT SECTION 40(A) (IA) OF THE ACT IS NOT APPLICABLE WHEN THERE IS NO OUTSTANDING BALANCE AT THE END OF THE CLOSE O F THE YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT - - ITA 2407, 2502/MDS/16 ETC. 23 OF THESE PAYMENTS. HOWEVER, THE ASSESSEE HAS NOT BROUGHT ON RECORD, THE DETAILS OF OUTSTANDING EXPEN SES OR SCHEDULE OF SUNDRY CREDITORS SHOWING WHETHER THE IMPU GNED AMOUNT IS OUTSTANDING AT THE END OF THE CLOSE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR EITHER IN THE NAME OF THE PARTY OR OUTSTANDING EXPENSES. HENCE, IN THE INTERE ST OF JUSTICE, WE ARE REMITTING THE ISSUE BACK TO THE FILE OF THE A SSESSING OFFICER WITH DIRECTION TO VERIFY THE CLAIM OF THE AS SESSEE AND THE ASSESSEE SHALL PLACE NECESSARY EVIDENCE IN SUPPORT OF HIS CLAIM. 5. FURTHER, WE MAKE IT CLEAR THAT IF THE IMPUGNED AM OUNT IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSESSME NT YEAR IN RESPECT OF THE EXPENSES EITHER AS OUTSTANDING EXPEN SES OR AS SUNDRY CREDITORS, THIS AMOUNT CANNOT BE DISALLOWED. THIS GROUND IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 15.1 IN VIEW OF THE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE LD. ASSESSING O FFICER WITH SIMILAR DIRECTION. THESE GROUNDS RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL IN ITA NOS.2503, 2504 & 2505/MDS/2 016 16. NOW, WE TAKE UP THE REVENUES APPEALS. THE FIR ST COMMON GROUND IN ALL THE REVENUES APPEAL IS WITH R EGARD TO DELETION OF ADDITION TOWARDS ROYALTY TREATING IT AS CAPITAL EXPENDITURE. - - ITA 2407, 2502/MDS/16 ETC. 24 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. ACCORDING TO THE AO, ROYALTY EXPENDITU RE OF 50,00,000/- PAID AS ROYALTY TO SHRIRAM OWNERSHIP TR UST FOR USE OF ITS LOGO IS TO BE TREATED AS CAPITAL EXPENDITURE INCURRED FOR ACQUIRING AN INTANGIBLE ASSET. THEREFORE, HE ALLOW ED DEPRECIATION @ 25% OF 12,50,000/- AND DISALLOWED BALANCE AMOUNT OF 37,50,000/-. HOWEVER, THE CIT(APPEALS) RELYING O N THE TRIBUNALS ORDER IN THE CASE OF SHRIRAM TRANSPORT F INANCE COMPANY LTD. IN ITA NOS.870 & 871/MDS/2015 DATED 29 .1.2016 FOR THE AYS 2010-11 AND 2011-12 DELETED THE ADDITIO N OF ROYALTY TREAT IS AS REVENUE EXPENDITURE. IN OUR OPINION TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AS DISCUSSED IN E ARLIER PARA- 4.1 OF THIS ORDER IN ITA NO.2502/MDS./2016 (ASSESS EES APPEAL). HENCE, THIS GROUND RAISED BY THE REVENUE IN ALL TH ESE APPEALS STANDS DISMISSED. 18. THE NEXT COMMON ISSUE IN ITA NOS.2502, 2503 & 2504/MDS/2016 IS THAT THE CIT(A) ERRED IN DIRECTING THE AO TO DISALLOW A LUMP SUM AMOUNT OF 15 LAKHS U/S.14A OVERLOOKING THE COMPUTATION PROVISIONS CONTAINED IN RULE 8D. - - ITA 2407, 2502/MDS/16 ETC. 25 19. IN CONFORMITY WITH ABOVE FINDINGS IN PARAS 3.2 TO 3.5 OF THIS ORDER, WE REMIT THIS ISSUE TO THE FILE OF AO O N SIMILAR DIRECTIONS. THIS GROUND OF APPEAL OF REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 20. THE NEXT COMMON ISSUE IN ITA NOS.2502, 2503 & 2504/MDS/2016 IS THAT THE CIT(A) ERRED IN DELETING THE ADDITION MADE TO BOOK PROFITS COMPUTED U/S.115JB BEING EXPEN DITURE INCURRED TO EARN EXEMPT INCOME EVEN THOUGH CL.(F) E XPLANATION 1 TO SEC.115JB SPECIFICALLY PROVIDES FOR IT. 21. WE FIND THAT SIMILAR ISSUE CAME FOR CONSIDERATI ON BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 513 /MDS/2015 DATED 26.06.2015 FOR THE AYS 2010-11. WE FIND THAT THIS ISSUE IS ALREADY DECIDED IN ASSESSEES GROUP CASE IN ITA NO.2502/MDS./2016 IN EARLIER PARA 4.3 OF THIS ORDER . ACCORDINGLY, THIS GROUND IS DISMISSED. - - ITA 2407, 2502/MDS/16 ETC. 26 22. THE LAST COMMON ISSUE IN ITA NOS. 2503 & 2504/MDS/2016 IS WITH REGARD TO DELETION OF ADDITIO N MADE TOWARDS PROVISION OF BAD DEBTS. 23. THE AO DISALLOWED THE PORTION OF BAD DEBTS, WHI CH WAS SHOWN AS PROVISION IN STATUTORY BOOKS BY RELYING ON CASE LAWS. HOWEVER, THE CIT(APPEALS) RELYING ON THE ORDER OF T HE TRIBUNAL FOR THE AYS 2006-07 TO 2009-2010 AND PRECEDING ASSE SSMENT YEAR 2012-13 DELETED THE ADDITION OF PORTION OF BAD DEBTS. 24. AFTER HEARING BOTH THE SIDES, WE ARE OF THE OPI NION THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TR IBUNAL IN ASSESSEES GROUP CASE IN M/S. SHRIRAM CHITS TAMILNA DU PVT. LTD., IN I.T.A.NOS.716 AND 717/MDS/2015 FOR ASSESSMENT YE ARS: 2010- 11 AND 2011-12 DATED 29.01.2016 WHEREIN HELD THAT: - 14. WE HAVE HEARD BOTH SIDES. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL BY ORDER CITED (SUPRA) AND IT HAS TO BE FO LLOWED. HOWEVER, WE OBSERVED FROM THE ORDER OF THE ASSESSING OFFICER THAT HE HAS GIVEN A FINDING THAT IN THE ACCOUNT PREPARED FOR TH E PURPOSE OF INCOME TAX, THE ASSESSEE HAS CLAIMED .11659.84 LAKHS AS BAD DEBT WRITTEN OFF AND THE AMOUNT OF .3236.89 LAKHS, WHICH WAS SHOWN AS PROVISION IN STATUTORY BOOKS WAS TAKEN AS WRITTEN OFF FOR THE PURPOSE OF INCOME TAX. FROM THIS, IT IS NOT CLE AR TO US AS TO WHETHER THIS AMOUNT HAS BEEN ACTUALLY WRITTEN OFF I N THE BOOKS OF ACCOUNTS MAINTAINED AND GOT AUDITED BY THE ASSESSEE UNDER STATUTE BY CREDITING EACH INDIVIDUAL DEBIT ACCOUNT, THEN, IT COULD BE ALLOWED AS BAD DEBT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT 323 ITR 397, WHEREIN, THE H ONBLE SUPREME COURT HAS HELD THAT AFTER 01.04.1989, IT IS NOT NECESSARY - - ITA 2407, 2502/MDS/16 ETC. 27 FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. FURT HER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D AS TO WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF, IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED BA CK TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY, THAT TOO ONLY TO THE EXTENT OF WRITTEN OFF. MOREOVER, IN OUR OPINION, THE FACTS OF THE ASSESSEE S CASE SQUARELY FIT INTO THE RATIO LAID DOWN BY THE ABOVE JUDGEMENT OF THE HONBLE SUPREME COURT RATHER THAN THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED (SUPRA). BEING SO, IN OUR VIEW, IT I S APPROPRIATE TO REMIT BACK THE ENTIRE ISSUE TO VERIFY WHETHER THE D EBT IS ACTUALLY WRITTEN OFF IN THE AUDITED BOOKS OF ACCOUNTS PASSIN G ENOUGH ENTRIES TOWARDS WRITTEN OFF TO THE INDIVIDUAL ACCOU NT AND THEN ONLY THE ASSESSEE IS ENTITLED FOR DEDUCTION AS BAD DEBT PROVIDED THE ASSESSEE FULFILS THE CONDITION SUCH AS SATISFACTION OF INCOME TAX ACT AS CONTEMPLATED UNDER SECTION 36(2) OF THE ACT. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO VERIFY THE REQUIREM ENT OF SECTION 36(2) AND DECIDE THEREUPON. ACCORDINGLY, THIS ISSUE RAISED BY THE REVENUE IS REMITTED BACK TO THE ASSESSING OFFICER F OR FRESH CONSIDERATION. 24.1 FURTHER, THE ASSESSEE FILED MISCELLANEOUS PET ITIONS IN MP NOS.31,32/MDS./16 IN ABOVE CASES, VIDE ORDER DATED 17.4.2017 WHEREIN THE TRIBUNAL DISMISSED THE MISCELLANEOUS PE TITIONS ON THE REASON THAT ASSESSEE DOES NOT WANT TO PURSUE TH E MISCELLANEOUS PETITIONS AND NOT PRESSED BEFORE THIS TRIBUNAL. 24.2 HOWEVER, LD.A.R PLACED STRONG RELIANCE ON T HE ORDER OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SH RIRAM TRANSPORT FINANCE CO. LTD., VIDE ORDER DATED 23.12.2016 IN [2 017] 78 - - ITA 2407, 2502/MDS/16 ETC. 28 TAXMANN.COM(MADRAS) WHEREIN MADRAS HIGH COURT OBSER VED THAT:- WE HAVE HEARD THE LEARNED COUNSEL AND APPLIED OUR M IND TO THE FACTS AND LEGAL POSITION INVOLVED. WE ARE OF THE VIEW THAT TH E MAINTENANCE OF TWO SEPARATE SETS OF BOOKS, ONE FOR PURPOSES OF THE COM PANIES ACT AND THE OTHER FOR INCOME TAX, IS PERFECTLY IN ORDER AND THE RE IS NO EMBARGO AGAINST THE SAME. THE BOOKS MAINTAINED FOR THE PURP OSES OF THE COMPANIES ACT DULY APPROVED BY THE BOARD OF DIRECTO RS AND PLACED BEFORE THE SHAREHOLDERS AT THE ANNUAL GENERAL BODY MEETING OF THE COMPANY BEING CONTAIN INTER ALIA THE PROFIT AND LOSS ACCOUN T FOR THE RELEVANT PREVIOUS YEAR PREPARED IN ACCORDANCE WITH THE PROVI SIONS OF PART II-III OF SCHEDULE VI TO THE COMPANIES ACT 1956 WILL FORM THE BASIS OF AN ASSESSMENT IN TERMS OF CHAPTER XII-B, SPECIAL PROVI SIONS RELATING TO CERTAIN COMPANIES, THAT PROVIDE FOR AN ASSESSMENT O F MINIMUM ALTERNATE TAX (MAT). THE INCOME TAX ACT REQUIRES FOR THE ASSE SSEE TO FOLLOW A PARELLELLY CONSISTENT METHOD OF ACCOUNTING IN ACCOR DANCE WITH SECTION 145 THEREOF. THE BOOKS MAINTAINED FOR THE PURPOSES OF T HE INCOME TAX ACT SHALL COMPLY WITH THE PROVISIONS OF SECTION 145 AND SHALL FORM THE BASIS FOR AN ASSESSMENT THEREUNDER. THE ERROR IN THE ORDER OF ASSESSMENT IS THE JUXTAPOSITION OF THE TWO BOOKS BY THE ASSESSING OFF ICER. THE CREATION OF A PROVISION FOR BAD DEBTS IN THE CORPORATE ACCOUNTS T HUS DOES NOT, IN ANY WAY, IMPACT THE CLAIM OF BAD DEBT U/S 36(1)(VII) OF THE ACT IN THE REGULAR COMPUTATION OF INCOME. THIS SUBMISSION OF THE DEPAR TMENT STANDS REJECTED. (PARA 7) THUS, IT IS CLEAR THAT THE CLAIM OF BAD DEBTS RELAT ES TO DEBTS ACTUALLY WRITTEN OFF AND NOT A PROVISION MADE IN THIS REGARD AND THEREFORE, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36 (1)(VI I), WRITTEN OFF THE BAD DEBT AND THE CLAIM IS ALLOWABLE. (PARA 9) - - ITA 2407, 2502/MDS/16 ETC. 29 IT IS A SETTLED PRINCIPLE OF LAW THAT HAVING ACCEPT ED AN ISSUE FOR SEVERAL YEARS, THE DEPARTMENT, IF IT WISHES TO LATER AGITAT E THE SAME, SHOULD PROVIDE PROPER JUSTIFICATION FOR THE CHANGE IN VIEW . BOTH THE ORDER OF ASSESSMENT DATED 30.12.2008 AS WELL AS THE MEMORAND UM OF TAX CASE (APPEAL) FILED IN 2013 ARE SILENT AS TO WHY THE ISS UE HAS BEEN SUDDENLY RAKED UP AT A DISTANCE OF MORE THAN A DECADE AND TH E CONTENTS OF THE E- MAIL IN RESPONSE TO A COMMUNICATION BY STANDING COU NSEL ON 21.11.2016, CERTAINLY CANNOT SUPPLEMENT EITHER. (CHIEF ELECTION COMMISSIONER VS. MOHINDER SINGH GILL (1978 AIR SC 851). THAT APART, THE JUSTIFICATION SET OUT IN THE E-MAIL IS IN ITSELF, FACTUALLY INCORRECT . THE FACT THAT THE ASSESSEE MAINTAINS TWO SETS OF BOOKS, ONE FOR THE PURPOSE OF COMPANIES ACT AND OTHER FOR THE PURPOSE OF THE INCOME TAX ACT AND THE DIFFERING TREATMENT OF BAD DEBTS IN BOTH WAS WELL WITHIN THE KNOWLEDGE OF THE ASSESSING OFFICER FROM 1994 WHEN THE ISSUE WAS FIRST RAISED A S WOULD BE APPARENT FROM THE ORDERS OF THE TRIBUNAL FOR EARLIER YEARS. TO SAY THAT THESE FACTS WERE UNEARTHED ONLY IN THE COURSE OF ASSESSMENT IN 2006-07 IS THUS FACTUALLY INCORRECT. (PARA 11) AS WOULD BE APPARENT FROM THE ORDERS OF THE TRIBUNA L DATED 16.12.2010 AND 21.4.2006 THE ASSESSEE HAS BEEN CONSISTENT IN T HE METHODOLOGY FOLLOWED BOTH IN RESPECT OF MAINTENANCE OF BOOKS AS WELL AS THE TREATMENT OF BAD DEBTS. THE SUPREME COURT, IN THE CASE OF COMMISSIONER OF INCOME TAX VS EXCEL INDUSTRIES (358 ITR 295) REITERATES THE PROPOSITION THAT AN ISSUE CONSISTENTLY DECIDED IN THE ASSESSE'S FAVOUR FOR SEVERAL YEARS SHOULD NOT BE DISTURBED UNLESS THERE ARE VERY CONVINCING R EASONS FOR DOING SO. (PARA 12) 24.3 WE ARE FULLY IN AGREEMENT WITH THE DECISION O F JURISDICTIONAL HIGH COURT CITED SUPRA. HOWEVER, IN THE PRESENT - - ITA 2407, 2502/MDS/16 ETC. 30 CASE AS OBSERVED BY THE TRIBUNAL IN EARLIER OCCASIO N IN ITA NOS.716 & 717/MDS./2015 DATED 29.01.2016, AO REJECT ED THE CLAIM OF BAD DEBTS OF THE ASSESSEE AT THE THRESHOLD ON THE REASON THAT IT WAS NOT WRITTEN OFF IN ITS BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE UNDER COMPANIES ACT, 195 6 AND THE A.O HAS NOT EXAMINED WHETHER IT WAS WRITTEN OFF IN ITS BOOKS OF ACCOUNTS MAINTAINED FOR INCOME-TAX PURPOSES AS PER THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT 323 ITR 397, WHEREIN, THE HONBLE SUPREME CO URT HAS HELD THAT AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE . HENCE, IT IS APPROPRIATE ON OUR PART TO REMIT THE ENTIRE ISSUE AS DONE BY THE TRIBUNAL IN T HE EARLIER OCCASION TO THE FILE OF AO FOR HIS DUE EXAMINATION OF THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE UNDER THE INCOM E TAX ACT, 1961AND THE LD. ASSESSING OFFICER DECIDES THEREUPON . 25. IN THE RESULT, THE APPEALS OF THE REVENUE IN I TA NO.2502/MDS./2016, ITA NOS.2503/MDS./2016 & 2504/MD S./2016 - - ITA 2407, 2502/MDS/16 ETC. 31 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND I TA NO.2505/MDS./2016 IS DISMISSED AND THE APPEALS OF T HE ASSESSEE ITA NO.2407/MDS./2016, ITA NO.2406/MDS./20 16 & ITA NO.2370/MDS./2016 ARE PARTLY ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED ON 1 ST MAY, 2017 AT CHENNAI. SD/- SD/- ( ! ) ! * . + ,-. ) ( /0 1 2% ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) < => /JUDICIAL MEMBER ,& =>/ACCOUNTANT MEMBER /,<' /CHENNAI, D= /DATED, THE 1 ST MAY, 2017. K S SUNDARAM =,E # $FG H,G$ /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ! I$ ( ) /CIT(A) 4. ! I$ /CIT 5. GJK $L /DR 6. K. M' /GF.