Shriram Credit Co. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2749/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4352 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 23-09-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Earning of tax free income; Royalty expenses; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2749/MDS/2016 ( / ASSESSMENT YEAR: 2013-14) M/S. SHRIRAM CREDIT COMPANY LTD MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. PAN: AAGCS4497N ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.2895/MDS/2016 ( / ASSESSMENT YEAR: 2013-14) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. VS M/S. SHRIRAM CREDIT COMPANY LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. PAN: AAGCS4497N ( /APPELLANT) ( /RESPONDENT) / ASSESSEE BY : SHRI R. SIVARAMAN, ADVOCATE / REVENUE BY : SHRI A.V. SREEKANTH, JCIT /DATE OF HEARING : 13.04.2017 /DATE OF PRONOUNCEMENT : 08.06.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE AND THE REVENUE ARE DIR ECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS)-15, CHENNAI DATED 19.07.2016 I N ITA 2 ITA NO.2746 & 3007 /MDS/2016 NO.328/CIT(A)-15/15-16 FOR THE ASSESSMENT YEAR 2013 -14 PASSED U/S.250(6) R.W.S. 143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL, HOWEVER THE CRUX OF THE LONE ISSUE IS THAT THE LD.C IT(A) HAS ERRED IN PARTLY CONFIRMING THE ORDER OF LD.AO WITH RESPECT TO INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES TOWARDS INVESTMENT MADE IN MUTUAL FUNDS AND SHARES IN COMPANIES OTHER THAN SISTER CONCERNS. 3. THE REVENUE HAS ALSO RAISED SEVERAL ELABORATE GR OUNDS IN ITS APPEAL; HOWEVER THE CRUXES OF THE ISSUES ARE TH AT I. THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO T O DELETE THE ADDITION MADE TOWARDS ROYALTY PAYMENTS OF RS.80,94,575/- BY TREATING IT AS REVENUE EXPENDITURE. II. THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO TO EXCLUDE THE INVESTMENT MADE IN SISTER CONCERN WHILE COMPUTING DISALLOWANCE U/S.14A R.W.R. 8D OF THE RULES AND ALSO TO VERIFY THE CALCULATION FOR MAKING DISALLOWANCE U/S.14A R.W.R. 8D. 3 ITA NO.2746 & 3007 /MDS/2016 III. THE LD.CIT(A) HAS ERRED IN DIRECTING THE LD.AO FOR EXCLUDING THE DISALLOWANCE MADE U/S.14A OF THE ACT, WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED COMPANY ENGAGED IN INVESTMENT BUSINESS, FIL ED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 28.09. 2013. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND FINAL ORDER U/S. 143(3) WAS PASSED ON 13.03.2016 WHEREIN THE LD.AO M ADE SEVERAL ADDITIONS. 5. ASSESSEES APPEAL IN ITA NO.2749/MDS/2016: CONFIRMING THE ADDITION MADE BY THE LD.AO U/S.14A O F THE ACT WITH RESPECT TO INVESTMENT MADE IN MUTUAL FUNDS AND INVESTMENT IN COMPANIES OTHER THAN ASSESSEES SISTE R CONCERNS:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAS MADE IN VESTMENT TO THE TUNE OF RS.56,29,96,214/- WHICH EARNS TAX FR EE INCOME. IT WAS ALSO NOTICED BY THE LD.AO THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.1,76,66,207/- DURING THE RELE VANT PREVIOUS YEAR. THEREFORE THE LD.AO INVOKED THE PROVISIONS O F SECTION 14A OF THE ACT AND COMMUTED THE DISALLOWANCE OF RS.80,9 4,575/- 4 ITA NO.2746 & 3007 /MDS/2016 UNDER RULE 8D(I), (II) & (III) OF THE RULES. ON AP PEAL, THE LD.CIT(A) FOLLOWING THE DECISION OF ITS PREDECESSOR IN ITA NO .222/CIT(A)- 15/14-15 FOR THE ASSESSMENT YEAR 2012-13 DATED 24.0 9.2015 DIRECTED THE AO TO EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES. HOWEVER, CONFIRMED THE DISALLOWANCE WIT H RESPECT TO INVESTMENTS MADE IN MUTUAL FUND AND OTHER COMPAN IES. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESS EE IS BEFORE US. AFTER HEARING BOTH SIDES, WE FIND THE ISSUE S QUARELY COVERED BY THE ORDER OF THE CHENNAI BENCH OF THE TRIBUNAL O N THE IDENTICAL ISSUE IN FAVOUR OF THE REVENUE. THE GIST OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE: M/S. SIDD LIFE SCIENCES IN ITA NO.3004/MDS/2016, OR DER DATED 10.04.2017:- 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 14A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES AND SHARE APPLICATIO N MONEY. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULES 8D IN ACCORDANCE WITH LAW. 6.1 ACCORDINGLY WE HEREBY REMIT BACK THE MATTER TO THE FILE OF THE LD. AO TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL AND PASS APPROPRIATE ORDER IN ACCOR DANCE WITH MERITS AND LAW. WE ALSO MAKE IT CLEAR THAT FOR THE INVESTMENTS 5 ITA NO.2746 & 3007 /MDS/2016 MADE IN MUTUAL FUNDS, PROVISIONS OF SECTION 14A REA D WITH RULE 8D WILL BE APPLICABLE SINCE THE ASSESSEE WOULD INCU R SOME EXPENDITURE AT LEAST FOR THE DECISION MAKING PROCES S AS TO IN WHICH MUTUAL FUND THE INVESTMENT HAS TO BE MADE AND AT WHAT POINT OF TIME EXIT FROM SUCH FUNDS . IT IS ORDERED ACCORDINGLY. CONSIDERING THE ABOVE RATIO LAID DOWN BY THE CHENNA I BENCH OF THE TRIBUNAL THAT PROVISIONS OF SECTION 14A R.W.R.8 D IS APPLICABLE IN RESPECT OF INVESTMENT MADE IN MUTUAL FUNDS AND U NRELATED COMPANIES WHEREIN THE INCOME DERIVED FROM WHICH IS NON- TAXABLE, WE DO NOT FIND ANY MERIT IN THE GROUND RAI SED BY THE ASSESSEE. ACCORDINGLY WE HEREBY CONFIRM THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 6. REVENUES APPEAL IN ITA NO.2895/MDS/2016: DELETING THE ADDITION MADE BY DISALLOWING THE ROYAL TY EXPENDITURE OF RS.97,89,965/- BY TREATING IT AS REV ENUE EXPENDITURE: THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.97,89,96 5/- AS ROYALTY EXPENSES. ON QUERY IT WAS EXPLAINED THAT T HE AFORESAID AMOUNT WAS PAID TO M/S. SHRIRAM OWNERSHIP TRUST FOR USING THE COPYRIGHT LOGO AS PER THE AGREEMENT DATED 22.07.201 1. THE ASSESSEE FURTHER POINTED OUT THAT ON THE IDENTICAL ISSUE IN THE CASE OF GROUP COMPANY THE CHENNAI BENCH OF THE TRIB UNAL 6 ITA NO.2746 & 3007 /MDS/2016 ALLOWED THE CLAIM OF ROYALTY EXPENSES AS REVENUE EX PENDITURE. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HON BLE APEX COURT IN THE CIT VS. WAVIN (INDIA) LTD REPORTED IN 236 ITR 314, WHEREIN THE IDENTICAL ISSUE WAS HELD IN FAVOUR OF T HE ASSESSEE. HOWEVER, THE LD.AO REJECTED THE CLAIM OF THE ASSESS EE AND DISALLOWED THE ROYALTY EXPENSES BY TREATING IT AS C APITAL EXPENDITURE BUT ALLOWED DEPRECIATION @ 25%. ON APP EAL, THE LD.CIT(A) FOLLOWING THE DECISION OF THE CHENNAI BEN CH OF THE TRIBUNAL DELETED THE ADDITION MADE BY THE LD.AO AND ALLOWED THE CLAIM OF ROYALTY EXPENDITURE AS REVENUE EXPENDITURE BY OBSERVING AS UNDER: 5.2.2.------------MY PREDECESSOR VIDE ITA NO.222/C IT(A)- 15/14-15 FOR A.Y 2012-13 DATED 24.09.2015 HAS DIREC TED THE AO TO ALLOW ROYALTY AS REVENUE EXPENDITURE AND WITHDRA W DEPRECIATION ON IT. THE HONBLE ITAT IN THE CASE O F M/S. SHRIRAM CITY UNION FINANCE LTD. VIDE ITA NOS.868 AN D 869/MDS/2015 FOR A.Y 2010-11 AND 2011-12 ALONG WITH M/S. SHRIRAM TRANSPORT FINANCE VIDE ITA NOS.870 & 871/MD S/2015 FOR A.Y 2010-11 AND 2011-12 DATED 29.01.2016 ALLOWE D THE ROYALTY AS REVENUE EXPENDITURE. RESPECTFULLY FOLLO WING THE CASES CITE SUPRA, I DIRECT THE AO TO ALLOW ROYALTY AS REVENUE EXPENDITURE AND WITHDRAW DEPRECIATION ON IT. THIS GROUND OF APPEAL IS ALLOWED. AFTER HEARING BOTH PARTIES AND PERUSING TH E ISSUE IN DETAIL, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE O RDER OF THE 7 ITA NO.2746 & 3007 /MDS/2016 LD.CIT(A), BECAUSE ON THE IDENTICAL ISSUE, THE MATT ER HAS BEEN ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THE CH ENNAI BENCH OF THE TRIBUNAL WHICH THE LD.CIT(A) HAS ONLY JUDICI OUSLY FOLLOWED. THEREFORE WE HEREBY CONFIRM THE ORDER OF THE LD.CIT (A) ON THIS ISSUE. ACCORDINGLY THIS ISSUE IS DECIDED AGAINST T HE REVENUE. 6.2 DIRECTION OF THE LD.CIT(A) TO EXCLUDE THE INVESTMEN T MADE IN SISTER COMPANIES EARNING EXEMPT INCOME WHIL E COMPUTING DISALLOWANCE U/S.14A R.W.R. 8D OF THE RUL ES AND VERIFY THE CALCULATION MADE U/S.14A OF THE ACT:- WITH RESPECT TO THE ISSUE OF EXCLUDING THE INVEST MENT MADE IN SISTER COMPANIES, SINCE THE LD.CIT(A) HAS FOLLOW ED THE RATIO LAID DOWN IN THE DECISION OF THE CHENNAI BENCH OF T HE TRIBUNAL IN THE CASE OF M/S. SIDD LIFE SCIENCES CITED SUPRA IN THE ASSESSEES APPEAL PARA 5 HEREIN ABOVE, WE DO NOT FI ND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CI T(A) ON THIS ISSUE. THEREFORE THIS GROUND RAISED BY THE REVENUE DOES NOT HAVE MERIT AND THEREFORE DECIDED AGAINST IT. FURTHE R WE ARE ALSO OF THE OPINION THAT IN THE INTEREST OF JUSTICE THER E IS NO HARM IN 8 ITA NO.2746 & 3007 /MDS/2016 VERIFYING THE CALCULATION MADE U/S.14A OF THE ACT A S DIRECTED BY THE LD.CIT(A). THEREFORE ON THIS ISSUE ALSO, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT (A). ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE IS A LSO HELD AGAINST IT. 6.3 DELETION OF THE ADDITION MADE TO BOOK PROFITS U/S.115JB OF THE ACT:- THE LD.AO WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE U/S.115JB OF THE ACT MADE ADDITION BY DISALLOWING T HE EXPENSE COMPUTED U/S.14A OF THE ACT OF RS.80,94,575/-. ON A PPEAL THE LD.CIT(A) DELETED THE ADDITION FOLLOWING THE DECISI ON OF THE CHENNAI BENCH OF THE TRIBUNAL ON THE IDENTICAL ISSU E IN THE CASE OF ASSOCIATED COMPANY M/S. SHRIRAM CAPITAL LIMITED IN ITA NO.512&513/MDS/2015 DATED 26.06.2015, WHEREIN IT WA S HELD THAT DISALLOWANCE MADE U/S.14A OF THE ACT, READ WIT H RULE 8D CANNOT BE ADDED TO THE BOOK PROFIT U/S.115JB OF THE ACT. SINCE THE LD.CIT(A) HAS ONLY FOLLOWED THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL ON THE IDENTICAL ISSUE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT (A) ON THIS ISSUE. IT IS ALSO WORTHWHILE TO MENTION AT THIS JU NCTURE THAT WHILE 9 ITA NO.2746 & 3007 /MDS/2016 INTERPRETING FISCAL STATUTES, ON A PROVISION OF THE ACT WITH FRICTION, ANOTHER PROVISION OF THE ACT WITH FRICTION CANNOT B E SUPERIMPOSED. THEREFORE THIS GROUND RAISED BY THE REVENUE ALSO DOES NOT HAVE MERIT AND WILL NOT SURVIVE. 7. IN THE RESULT APPEAL OF THE ASSESSEE AS WELL AS THAT OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON THE 08 TH JUNE, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER $ /CHENNAI, %! /DATED 08 TH JUNE, 2017 JR ! '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF