Shriram Transport Finance Company Limited, CHENNAI V. DCIT, CHENNAI

ITA 712/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8051 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 02-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2015
• Court: TRIBUNAL
• Department Lawyers: SUNEEL VERMA
• Assessee Lawyers: B SIVARAMAN
• Keywords: Business income; Depreciation; Business expenditure; Diversion of income; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 234B; 14A; 115JB; 263

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHE NNAI , . ! , ' !# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI G. PAVAN KUMAR, JUDICIAL MEMBER I.T.A.NOS.714 AND 715/MDS/2015 ASSESSMENT YEARS : 2010-11 AND 2011-12 M/S. SHRIRAM CITY UNION FINANCE LTD., MOOKAMBIKA COMPLEX, NO. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN: AAACS7703H] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) I.T.A.NOS.868 AND 869/MDS/2015 ASSESSMENT YEARS :2010-11 AND 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. VS. M/S. SHRIRAM CITY UNION FINANCE LTD., MOOKAMBIKA COMPLEX, NO. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) I.T.A.NOS.716 AND 717/MDS/2015 ASSESSMENT YEARS :2010-11 AND 2011-12 M/S. SHRIRAM CHITS TAMILNADU PVT. LTD., 149, GREAMS ROAD, CHENNAI 600 006. [PAN: AABCS0167N] VS. THE JOINT COMMISSIONER OF INCOME TAX, COMPANY RANGE VI, CHENNAI 34. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 2 I.T.A.NOS.866 AND 867/MDS/2015 ASSESSMENT YEARS :2010-11 AND 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. VS. M/S. SHRIRAM CHITS TAMILNADU PVT. LTD., GREAMS DUGAR, IV FLOOR, 149, GREAMS ROAD, CHENNAI 600 006. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) I.T.A.NOS.711 AND 712/MDS/2015 ASSESSMENT YEARS :2010-11 AND 2011-12 M/S. SHRIRAM TRANSPORT FINANCE COMPANY LTD., MOOKAMBIKA COMPLEX, NO. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN: AAACS7018R] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) I.T.A.NOS.870 AND 871/MDS/2015 ASSESSMENT YEARS :2010-11 AND 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. VS. M/S. SHRIRAM TRANSPORT FINANCE COMPANY LTD., MOOKAMBIKA COMPLEX, NO. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. ( $% /APPELLANT ) ( &'$% / RESPONDENT ) / APPELLANT BY : SHRI B. SIVARAMAN, ADVOCATE / RESPONDENT BY : SHRI SUNEEL VERMA, CIT / DATE OF HEARING : 08.12.2015 /DATE OF PRONOUNCEMENT : 29.01.2016 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THESE CROSS APPEALS PERTAIN TO DIFFERENT ASSESSEES OF SAME GROUP COMPANIES ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE LD. COMMISSIONER OF I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 3 INCOME TAX (APPEALS)-15, CHENNAI RELEVANT TO THE AS SESSMENT YEARS 2010- 11 AND 2012. I.T.A. NOS.711/MDS./15, 712/MDS./15, 714/MDS./15 & 715/MDS/2015 [A.Y. 2010-11 & 2011-12] 2. THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDER OF THE LD. CIT(A), CHENNAI FOR THE ABOVE ASSESSMENT YE ARS. SINCE ISSUES INVOLVED IN ALL THESE ASSESSEES APPEALS ARE COMMON IN NATURE, THESE APPEALS ARE CLUBBED TOGETHER, HEARD TOGETHER, DISPO SED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE FIRST GROUND RAISED IN THESE APPEALS OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF AMOUNT TRANSFERR ED TO STATUTORY RESERVE IN COMPLIANCE WITH THE MANDATORY PROVISIONS OF RESERVE BANK OF INDIA. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNA L FOR THE ASSESSMENT YEAR 2003-04 TO 2009-10 IN I.T.A. NO. 1744/MDS/2012 DATE D 11.04.2013, WHEREIN, THE TRIBUNAL HAS GIVEN ITS FINDINGS AS FOLLOWS: 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBM ISSIONS. VIS--VIS GROUND TAKEN BY THE ASSESSEE ON TRANSFER TO STATUTORY RESERVE AND TRANSFER TO RESERVE FUND WHILE COMPUTING INCOME UNDER REGULAR PROVISIONS AND FOR ARRIVING AT THE INCOME UNDER SEC TION 115JB OF THE ACT, RESPECTIVELY, THE ISSUES HAD ALREADY COME UP B EFORE THIS TRIBUNAL IN ASSESSEES APPEALS IN I.T.A. NO. 701/MDS/2012 AN D I.T.A. NO. 702/MDS/2012. VIDE ITS ORDER DATED 28.6.2012, IT WA S 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:- I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 4 4. THE COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT T HE 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 OF 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 ASSESSEE. 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 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 ADJUDICATI ON IS WHETHER THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION O F AMOUNT TRANSFERRED TO STATUTORY RESERVE AS PER RESERVE BANK OF INDIA GUIDELINES. 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 REC ORD 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. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 5 NOS. 1944 TO 1946/MDS/2008 RESPECTIVELY, IN THE ASSESSEES' OWN CASE. BY PLACING THE ABOVE ORDERS, THE LEARNED D.R. SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE SAID ORDERS AND THE ASSESSEES APPEALS WERE DISMISSED BY UPHOLDING THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED 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 DISMISSED. IN I.T.A. NOS. 570, 571, 806 & 807/MDS/2008, WHILE DISMISSING THE APPEALS OF THE A SSESSEE, 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 SECURITY NOR THE PURPOSE OF UTILIZATION OF THE FUND HAS BEEN SPECIFIED. EVEN IF SOME OBLIGATION IS SUBSEQUENTLY ATTACHED FOR SPECIFIC APPROPRIATION OF THE FUND, IT WILL ONLY BE AN APPLICATION OF INCOME, WHICH 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 OF INCOME BY OVERRIDING CHARGE. 2.12. .THE RATIO FROM THE HONBLE APEX COURT IN 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 COMPANIES ACT, 1956 ALSO MANDATES TRANSFER TO RESERVE FUND A CERTAIN PERCENTAGE 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 CANNOT ALSO BE STATED THAT IT WAS LOSS. THE RATIO FROM THIS DECISION 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 ANY DIVIDEND IS DECLARED. THIS TRANSFER TO RESERVE FUND WAS TO BE UTILIZED FOR SUC H PURPOSES AS I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 6 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 A N APPROPRIATION OF PROFITS FOR PURPOSES WHICH HAVE NOT YET BEEN SPECIFIED. MOREOVER, AMOUNT INVOLVED IS VERY MUCH UNDER THE CONTROL OF THE ASSESSEE AND IS LYING IN ITS BUSINESS. HENCE, IN THE BACKGROUND OF AFORESAID DISCUSSION AND PRECEDENTS, WE UPHOLD THE WELL REASONED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THIS 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 ASSESSEES. 7. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE S 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 ASSESSE E S ON THESE ISSUES BOTH UNDER REGULAR COMPUTATION AND WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 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. 4. RESPECTFULLY FOLLOWING THE ABOVE ORDER, THIS GR OUND OF APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 7 5. THE NEXT GROUND RAISED IN THESE APPEALS OF THE ASSESSEE IS WITH REGARD TO ALLOWABILITY OF INTEREST LEVIED UNDER SEC TION 234D OF THE INCOME TAX ACT UNDER SECTION 36(1)(III) OR 37 OF THE ACT WHETH ER THE ABOVE AMOUNT HAS BEEN UTILIZED FOR THE PURPOSE OF TRANSACTION. ACCOR DING TO THE ASSESSEE, THE INTEREST CHARGEABLE DURING THE FINANCIAL YEAR 2009- 10 RELEVANT TO THE ASSESSMENT YEAR 2010-11 IS A DEDUCTION WHILE COMPUT ING THE BUSINESS INCOME. ACCORDING TO THE ASSESSEE, INTEREST UNDER S ECTION 234D HAS BEEN CHARGED WHILE WITHDRAWING THE REFUND ALREADY GRANTE D UNDER SECTION 143(1) OF THE ACT. SINCE THE ASSESSEE HAS UTILIZED THE REF UND AMOUNT FOR THE PURPOSE OF BUSINESS AND WHILE WITHDRAWING THE REFUN D, INTEREST HAS BEEN CHARGED, THE REFUND AMOUNT TAKES THE CHARACTER OF L OAN AVAILED BY THE ASSESSEE, INTEREST UNDER SECTION 234D HAS TO BE ALL OWED AS BUSINESS EXPENDITURE. 6. WE HAVE HEARD BOTH SIDES. THE ARGUMENT OF THE A SSESSEE IS FARFETCHED. THE INTEREST CHARGED UNDER SECTION 234D IS ON PAR WITH THE INTEREST CHARGED UNDER SECTION 234A OR 234B OR 234C OF THE ACT. THE GOVERNMENT HAS NOT ADVANCED ANY MONEY TO THE ASSESS EE SO AS TO CALL IT IS A LOAN. THE INTEREST IS COMPENSATORY NOT ONLY CHARG ED TO THE ASSESSEE AND IT CANNOT BE ALLOWED AS A BUSINESS DEDUCTION WHILE COM PUTING THE BUSINESS INCOME. ACCORDINGLY, THIS GROUND OF APPEALS OF THE ASSESSEE IS REJECTED. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 8 7. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASS ESSEE IS WITH REGARD TO SHORT CREDIT GIVEN TOWARDS TDS. THE ASSESSING OFFIC ER, WHILE RESTRICTING THE CLAIM FOR TDS HAS OBSERVED THAT CREDIT FOR TDS, ADV ANCE TAX AND PREPAID TAX, TAXES ARE ALLOWED AS PER THE AST AND IT WAS AL LOWED AS PER NSDL DATA. HOWEVER, THE LD. CIT(A) HAS GIVEN A FINDING THAT TO VERIFY ONCE AGAIN THE SAME. BEING SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS CONFIRMED AND THE GROUND OF APPEAL OF T HE ASSESSEE IS REJECTED. 8. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASS ESSEE IS WITH REGARD TO ADDITION OF AMOUNT TRANSFERRED TO STATUTORY RESERVE FUND WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. ACCORDINGLY TO TH E ASSESSEE, IT IS AN ASCERTAINED LIABILITY AND IT HAS TO BE ALLOWED. HOW EVER, WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL FOR THE ASSESSM ENT YEAR 2003-04 TO 2009-10 IN I.T.A. NO. 1744/MDS/2012 DATED 11.04.201 3 AT PAGE 4 HAS BEEN DISCUSSED AND REPRODUCED HEREINABOVE IN GROUND NO. 1 OF THIS ORDER. ACCORDINGLY, THIS GROUND OF APPEALS IS REJECTED. 9. THE GROUND RAISED IN THE APPEAL OF THE ASSESSE E IN I.T.A NO.712/MDS./15 IS WITH REGARD TO DISALLOWANCE U/S.14A READ WITH RU LE 8D OF INCOME TAX RULES, 1962. AFTER HEARING BOTH THE SIDES, WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 9 FOR THE A.Y 2009-10 IN I.T.A. NO.1745/MDS./2012 AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 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 SHOWN ONLY MIN ISCULE AMOUNT AS INDIRECT COST VIS--VIS THE TOTAL INVESTMENTS MADE BY THEM W HICH GAVE RISE TO TAX-FREE INCOME. NEVERTHELESS, WE FIND THAT ASSESSEES HAD TH EMSELVES MADE A SUO MOTU DISALLOWANCE OF `36,729/- TOWARDS INDIRECT COST. AS SESSING OFFICER HAD REJECTEDSUCH AMOUNT FOR THE SOLE REASON THAT THE AMOUNT CONSIDER ED BY THE ASSESSEES WERE VERY LOW WHEN IT COMPARED TO TOTAL INVESTMENTS 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 INVESTME NTS 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. IT WAS HELD BY TH IS TRIBUNAL AT PARAS 12 TO 17 OF ITS ORDER (SUPRA) AS UNDER:- 12. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIA LS AVAILABLE ON RECORD AND THE DECISIONS RELIED ON BY BOTH COUNSELS. IN THE CASE O F ACIT VS. SIL INVESTMENT LTD. (SUPRA), THE DELHI BENCH OF THE TRIBUNAL IN ITS ORD ER 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 INCURRED BY THE ASSES SEE COMPANY FOR EARNING THE EXEMPT INCOME. IN THE ABSENCE OF SUCH EVIDENCE, IT WAS WRONG ON THE PART OF THE AO TO PROCEED TO COMPUTE DISALLOWANCE OF THE EXPENS ES 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 DECISION 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 DATED 23.09.2011 F OR THE ASSESSMENT YEAR 2008- 09 ALSO CONSIDERED THIS ISSUE AND HELD THAT SATISFA CTION OF THE ASSESSING OFFICER IS A PRE-REQUISITE TO INVOKE THE PROVISION OF RULE 8D OF THE INCOME TAX RULES. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER: 10. NOW. COMING TO GROUND NO.3, THE DEPARTMENT ALL EGES THAT THE CIT(A) HAS ERRED IN RESTRICTING THE ADDITION U/S 14A OF THE AC T TO RS.19,43,022, AS AGAINST THAT OF ` .31,01,542/- MADE BY THE AO. THIS ISSUE WAS AL SO THERE BEFORE THE TRIBUNAL IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2007-08. ON BEHALF OF THE ASSESSEE, IT HAS BEEN CONTENDED THAT RULE 8D OF THE I.T. RULES W AS NOT APPLICABLE FOR THAT YEAR; THAT HOWEVER, IN THE YEAR UNDER CONSIDERATION, NO S ATISFACTION HAS BEEN RECORDED BY THE AO AS TO HOW THE ASSESSEES CALCULATION IS N OT CORRECT; THAT HOWEVER, THE AO STILL WENT ON TO APPLY RULE 8D TO THE CASE; THAT THE LD. CIT(A) ALSO APPLIED RULE 8D BUT GAVE ONLY PART RELIEF TO THE ASSESSEE BY RED UCING THE 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 ASSESSEES WORK ING IS TO BE ACCEPTED. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 10 11. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY SUP PORTED THE IMPUGNED ORDER IN THIS REGARD ALSO, CONTENDING THAT THE LD. CIT(A) HA S EXCLUDED SECURITY TAKEN FROM CUSTOMERS . 12. THE LD. CIT(A), IT IS SEEN, RESTRICTED THE DISA LLOWANCE U/S 14A TO RS.19,43,022/-, CALCULATING THE DISALLOWANCE OF EXPENDITURE IN TERM S 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) ] = 19,43,0 22/-. 13. THE TRIBUNAL (SUPRA), FOR ASSESSMENT YEAR 2007- 08, HAD HELD AS FOLLOWS:- 17. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HA VE PERUSED THE MATERIAL ON RECORD. DURING THE YEAR, THE ASSESSEE HAD EARNED EX EMPT 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 T UNE OF RS.1,73,038/- HAD BEEN MADE BY THE ASSESSEE U/S 14A OF THE ACT. IN THE ASS ESSMENT ORDER, THE AO MADE A DISALLOWANCE OF RS.32,18,475/- BY APPLYING THE MET HOD PROVIDED IN RULE 8D OF THE I.T. RULES, 1962. THIS WAS DONE WITHOUT POINTING OU T ANY INACCURACY IN THE METHOD OF APPORTIONMENT OR ALLOCATION OF EXPENSES, AS ADOP TED BY THE ASSESSEE. ALL THROUGH, THE ASSESSEE WAS MAINTAINED THAT THE ASSES SEE WAS DURING THE YEAR, CARRYING ON MANUFACTURING ACTIVITIES AT ITS MANUFAC TURING UNITS AT SEVERAL PLACES. ITS HEAD OFFICE WAS AT DELHI. THE ASSESSEE HAD MAINTAIN ED SEPARATE BOOKS OF ACCOUNT FOR EACH UNIT. COMMON EXPENSES INCURRED AT THE HEAD OFFICE AND THE BRANCHES WERE ATTRIBUTED TO ALL THE UNITS INCLUDING THE HEAD OFFICE. INVESTMENT IN MUTUAL FUNDS, WHICH GAVE RISE TO EXEMPT DIVIDEND INCOME, W AS DONE THROUGH THE HEAD OFFICE. IT WAS THE CASE OF THE ASSESSEE THAT TO EAR N SUCH DIVIDEND INCOME, NO DIRECT EXPENDITURE WAS REQUIRED AND NO EXPENSES WERE INCUR RED TO MAKE INVESTMENT OF SURPLUS AMOUNTS IN MUTUAL FUNDS. THE SUO MOTO DISAL LOWANCE HAD, HOWEVER, BEEN MADE BY THE ASSESSEE KEEPING IN CONSIDERATION, THE PROVISIONS OF SECTION 14A OF THE ACT. 18. NOW, AS PER SECTION 14A(2) OF THE ACT, IF THE A O, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE ASSESSEES TOTAL INCOME UNDER THE ACT, THE AO S HALL DETERMINE THE AMOUNT INCURRED IN RELATION TO SUCH INCOME, IN ACCORDANCE 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 SATISFACT ION OF THE AO REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. AS SUCH, RULE 8D OF THE RULES 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 HAD BEEN INCUR RED BY THE ASSESSEE FOR EARNING ITS DIVIDEND INCOME. MERELY, AN AD HOC DISA LLOWANCE WAS MADE. THE ONUS I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 11 WAS ON THE AO TO ESTABLISH ANY SUCH EXPENDITURE . T HIS ONUS HAS NOT BEEN DISCHARGED. IN CIT V. HERO CYCLES (P&H) 323 ITR 5 18, UNDER SIMILAR CIRCUMSTANCES, IT WAS HELD THAT THE DISALLOWANCE U/ S 14A OF THE ACT REQUIRES A CLEAR FINDING OF INCURRING OF EXPENDITURE AND THAT NO DIS ALLOWANCE CAN BE MADE ON THE BASIS OF PRESUMPTIONS IN ACIT V. EICHER LTD. 101 TTJ (DEL)369, THAT IT WAS HELD THAT THE BURDEN IS ON THE AO TO ESTABLISH NEXUS OF EXPENSES INCURRED WITH THE EARNING OF EXEMPT INCOME BEFORE MAKING ANY DISALLOW ANCE U/S 14A OF THE ACT. IN MARUTI 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 SEE DLINGS LIMITED V. DCIT 107 ITD 267 (DEL) (TM), IT HAS BEEN HELD THAT THERE CAN BE NO PRESUMPTION THAT THE ASSESSEE MUST HAVE INCURRED EXPENDITURE TO EARN TAX FREE INCOME. SIMILAR 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 THE ORDER OF THECIT(A) ON THE POINT AT ISSUE, THE SAME IS HEREBY CONFIRMED. GROUND NO.3 IS THUS REJECTED. 14. IN THE YEAR UNDER CONSIDERATION, IT IS SEEN THA T IT IS NOT INCORRECT WHEN THE ASSESSEE CONTENDS THAT NO SATISFACTION HAS BEEN REC ORDED BY THE AO REGARDING THE ASSESSEES CALCULATION BEING INCORRECT. EVEN SO, RU LE 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 TH E RULES. THE LD. CIT(A), THEREFORE, ERRED IN PARTIALLY APPROVING THE ACTION OF THE AO. 14. THE HONBLE DELHI HIGH COURT IN A BATCH OF APPE ALS IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT & OTHERS (SUPRA) ELABORATEL Y DEALT THE ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 14A READ WITH RULE 8D FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2008- 09 AND ALSO THE APPLICABI LITY OF THE SAID PROVISION FOR THE ASSESSMENT YEARS SUBSEQUENT TO ASSESSMENT YEARS 2008-09. THE HONBLE HIGH COURT IN PARAS 29 TO 31 AND 36 TO 40 HELD AS U NDER: 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT 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 INC OME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASS ESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SA ID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMP T INCOME WOULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RETURNS A FINDING THA T HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER E NTERING UPON A DETERMINATION OF I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 12 THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUB- SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE A SSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH D OES NOT FORM 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 SA TISFIED WITH THE B CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPEND ITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSE SSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BO TH CASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTA L 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. WHILE REJE CTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, A S THE CASE 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 THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE EXPRESSION USED IS - 'SUCH METHOD AS MAY BE PRESCRIBED'. WE HAVE ALREADY MENTIONED ABOVE THAT B Y VIRTUE OF NOTIFICATION NO.45/2008 DATED 24/03/2008, THE CENTRAL BOARD OF D IRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES I T CLEAR THAT WHERE THE ASSESSING OFFICER, HAVING 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 OFFICER 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 OBSER VE 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 PROVISIONS OF SUB-SECTIO NS (2) AND (3) OF SECTION 14A, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER T O HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISF ACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH T HE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN I NCURRED. 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. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 13 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF T HE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS R EGARD. IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FOR DETERMI NING THE EXPENDITURE IN RELATION TO EXEMPT INCOME HAS THREE COMPONENTS. THE FIRST CO MPONENT 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 FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT. THE FORMULA ESSENTIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTE REST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING TH E 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 ASSET S OF THE ASSESSEE. THE THIRD COMPONENT IS AN ARTIFICIAL FIGURE - ONE HALF PERCEN T OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEETS OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. IT IS THE AGGREGATE OF TH ESE THREE COMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXE MPT INCOME 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 SAID RULE, TH E AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS - (A) DIRECT AND ( B) INDIRECT. THE DIRECT EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY V IRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS B Y WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATE D ABOVE. AND, IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF THUMB 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 TAKEN. DO SUB-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D APPLY RETROSPECTIVELY ? 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 FINANCE ACT, 2006 WITH EFFECT FROM 01.04.2007. THIS IS APPARENT, FIRST OF ALL, FROM TH E 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 SO UGHT TO AMEND SECTION 14A OF THE SAID ACT. IT IS SPECIFICALLY MENTIONED IN THE S AID NOTES ON CLAUSES THAT:- 'THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 20 07 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2007-08 AND SUBSEQU ENT YEARS.' 37. FURTHERMORE, IN THE MEMORANDUM EXPLAINING THE P ROVISIONS IN THE FINANCE BILL, 2006 [281 ITR (ST) AT PAGES 281-281], IT IS ONCE AG AIN STATED WITH REFERENCE TO CLAUSE 7 WHICH PERTAINS TO THE AMENDMENT 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 YEAR 2007-08 AND SUBSEQU ENT YEARS.' I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 14 38. WE MAY ALSO REFER TO THE CBDT CIRCULAR NO.14/20 06 DATED 28.12.2006 AND TO PARAGRAPHS 11 TO 11.3 THEREOF. PARAGRAPH 11 DEALT W ITH THE METHOD FOR ALLOCATING EXPENDITURE IN RELATION TO EXEMPT INCOME AND PARAGR APHS 11.1 AND 11.2 EXPLAINED THE BASIS AND LOGIC BEHIND THE INTRODUCTION OF SUB- SECTION (2) OF SECTION 14A OF THE SAID ACT. PARAGRAPH 11.3 SPECIFICALLY PROVIDED FOR APPLICABILITY OF THE PROVISIONS OF SUB- SECTION (2) AND IT CLEARLY INDICATED THAT IT W OULD BE APPLICABLE 'FROM THE ASSESSMENT YEAR 2007-08 ONWARDS'. 39. IT IS, THEREFORE, CLEAR THAT SUB-SECTIONS (2) A ND (3) OF SECTION 14A WERE INTRODUCED WITH PROSPECTIVE EFFECT FROM THE ASSESSM ENT YEAR 2007-08 ONWARDS. HOWEVER, SUB-SECTION (2) OF SECTION 14A REMAINED AN EMPTY SHELL UNTIL THE INTRODUCTION OF RULE 8D ON 24.03.2008 WHICH GAVE CO NTENT TO THE EXPRESSION 'SUCH METHOD AS MAY BE PRESCRIBED' APPEARING IN SECTION 1 4A(2) OF THE SAID ACT. 40. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT, IN EFFECT, THE PROVISIONS OF SUB- SECTIONS (2) AND (3) OF SECTION 14A WOULD BE WORKAB LE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8D. THIS IS SO BECAUSE PRIOR TO THAT DATE, THERE WAS NO PRESCRIBED METHOD AND SUB-SECTIONS (2) AND (3) OF S ECTION 14A REMAINED UNWORKABLE. 15. THE HONBLE HIGH COURT HELD THAT IT IS A CONDIT ION PRECEDENT FOR THE ASSESSING OFFICER WHILE DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO EXEMPT INCOME THAT HE MUST RECORD THAT HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCUR RED IN RELATION TO EXEMPT INCOME. THE HONBLE HIGH COURT HELD THAT SUB-SECTIO N (3) OF SECTION 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-SECTION (2) DEALS WITH CASES, WHERE THE AS SESSEE SPECIFIES THAT EXPENDITURE HAD BEEN INCURRED IN RELATION TO INCOME , WHICH DOES NOT FORM PART OF TOTAL INCOME. THE HONBLE HIGH COURT HELD THAT IF T HE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN BOTH CASES, THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PAR T OF TOTAL INCOME UNDER A PRESCRIBED METHOD, WHICH IS RULE 8D OF THE INCOME T AX RULES. THE HONBLE HIGH COURT FURTHER HELD THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A ARE WORKABLE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8 D I.E. 24.03.2008 BECAUSE PRIOR TO THAT DATE, THERE WAS NO PRESCRIBED METHOD AND SUBSE CTIONS (2) AND (3) OF SECTION 14A REMAIN UNWORKABLE. 16. THEREFORE, FINDING OF THE ASSESSING OFFICER THA T THE CLAIM OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE OR IT HAD INCURRED ONLY SO MUCH EXPENDITURE IS INCORRECT IS A MUST FOR INVOKING THE PROVISION OF S UB-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 T HAT THE ASSESSING OFFICER HAS TO GIVE A FINDING AS TO THE CORRECTNESS OF THE CLAI M OF THE ASSESSEE BEFORE INVOKING I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 15 THE PROVISIONS OF SECTION 14A(2) READ WITH RULE 8D FOR DISALLOWING THE EXPENDITURE ATTRIBUTABLE TO THE INCOME EXEMPT UNDER THE ACT. NO DOUBT, THE DECISION OF THE HONBLE HIGH COURT WAS RENDERED FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2008-09, BUT THE HONBLE HIGH COURT HAS CONSIDERED THE EFFECT OF THE PROVISIONS OF SUB-SECTION (2) AND (3) OF SECTIO N 14A AND ITS APPLICABILITY FOR THE ASSESSMENT YEAR 2008-09 ONWARDS. THEREFORE, IN OUR CONSIDERED VIEW, THE RATIO OF THIS DECISION APPLIES TO THE ASSESSMENT YEAR 2008-0 9 AND SUBSEQUENT ASSESSMENT YEARS ALSO. FURTHER THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. JINDAL PHOTO LIMITED (SUPRA) HAS RENDERED ITS DECISION FOR THE ASSESSMENT YEAR 2008-09 AND IS APPLICABLE FOR THE ASSESSMENT YEAR UNDER APP EAL. IN THE CIRCUMSTANCES, WE HOLD THAT IN THE ASSESSEES CASE, THE ASSESSING OFF ICER HAS NOT GIVEN ANY FINDING 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. TH EREFORE, IN THE ABSENCE OF ANY SUCH FINDING BY THE ASSESSING OFFICER, WE HOLD THAT THE ASSESSING OFFICER IS NOT CORRECT IN MAKING FURTHER DISALLOWANCE OF ` 53,64,4 88/- 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 NORMA L PROVISIONS AS WELL AS UNDER THE PROVISIONS OF SECTION 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 MAN TO COME TO A CONCLUSION THAT THE DISALLOWANCE SUO MOTU MADE BY THE ASSESSEE IS I NCORRECT. THE FACTUAL FINDING IN THIS REGARD HAS TO BE A REASONED ONE AND CANNOT BE SIMPLY BASED ON COMPARISON OF THE AMOUNT WITH TOTAL INVESTMENTS. IN OUR OPINION, JUST BECAUSE AMOUNT OF INDIRECT COST OFFERED BY THE ASSESSEES AG AINST TAX-FREE INVESTMENTS WAS VERY LOW, VIS--VIS THE TOTAL INVESTMENTS MADE BY T HE ASSESSEE, IT CANNOT BE CONCLUDED THAT THE CLAIM BY ITSELF WAS INCORRECT. I N SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT ASSESSING OFFICER ERRED IN REJECTI NG THE DISALLOWANCE SUO MOTU MADE BY THE ASSESSEES AND IMPOSING ON THEM A DISALL OWANCE UNDER RULE 8D(III) OF THE ACT. 6. IN THE RESULT, WE DELETE THE DISALLOWANCE MADE U/S.14A WHILE COMPUTING INCOME, BOTH UNDER NORMAL PROVISION AS WELL AS UNDER PROVIS IONS OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED . 10. IN THE RESULT, THE ASSESSEES APPEAL IN I.T.A. NOS. 711/MDS/2015, 714/MDS/2015 715/MDS/2015 ARE DISMISSED AND IN I.T .A. NO. 712/MDS/2015 IS PARTLY ALLOWED. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 16 I.T.A. NOS. 868/MDS/2015, 869/MDS/2015, 870/MDS/201 5 &871/MDS/2015 [A.Y. 2010-11] 11. THE FIRST GROUND RAISED IN THE APPEAL OF THE R EVENUE IS WITH REGARD TO DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFI CER WITH RESPECT TO ROYALTY PAYMENT. THE LD. CIT(A) HAS DELETED THE ADD ITION TREATING IT AS REVENUE EXPENDITURE. AFTER HEARING BOTH PARTIES, WE FIND THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSMENT YEAR 2 009-10 IN I.T.A. NO. 1899/MDS/2012 DATED 11.04.2013, WHEREIN THE TRIBUNA L 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 SITUATION , IN ASSESSEE'S OWN CASE, FOR ASSESSMENT YEAR 2006-07, THIS TRIBUNAL HA D HELD IN ITS ORDER IN I.T.A. NO. 726/MDS/2010 DATED 16TH DECEMBER, 201 0, 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. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 17 17. AFTER HEARING BOTH SIDES CAREFULLY IN THE LIGHT 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 RIGHT 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 CIT WANTED TO TREAT THE PAYMENT AS CAPITAL EXPENDITURE IN THE CASE OF SHRIR AM 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 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 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 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, THEIR 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 SUPREME COURT HAS REFERRED TO ITS VARIOUS DECISIONS IN THIS JUDGMENT WHICH ALSO FAVOU R 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. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 18 15. GROUND NO.3 IS TREATED AS DISMISSED. 12. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13. THE NEXT GROUND RAISED IN THE APPEAL OF THE RE VENUE IS WITH REGARD TO DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFI CER TOWARDS PROVISION FOR NON-PERFORMING ASSETS [NPA]. THE ASSESSEE HAS CLAIM ED NON-PERFORMING ASSETS OF .32.36 CRORES AS BAD DEBTS. THE ASSESSING OFFICER H AS DISALLOWED THE SAME AS THE ASSESSEE HAS MADE TWO SETS OF ACCOU NTS I.E. ONE SET OF BOOKS OF ACCOUNT FOR INCOME TAX ACT AND ANOTHER SET OF ACCOUNTS FOR COMPANIES ACT PURPOSES. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE CANNOT MAINTAIN TWO SETS OF ACCOUNT AND HE OBSERVED THAT THE ASSESSEE HAS SHOWN AS PROVISION IN THE STATUTORY BOOKS AND WAS C LAIMED DEDUCTION ASS WRITTEN OFF FOR THE PURPOSE OF INCOME TAX. HE OBSER VED THAT AS PER SECTION 36(1)(VII) BAD DEBTS ACTUALLY WRITTEN OFF IS ONLY T O BE ALLOWED AS DEDUCTION. HE FURTHER OBSERVED THAT THE DECISION OF THE TRIBUNAL IN I.T.A. NO. 22/MDS/2011 DATED 10.10.2011 FOR THE ASSESSMENT YEAR 2006-07 CA NNOT BE APPLIED AS THERE IS AN APPEAL PENDING BEFORE THE HONBLE HIGH COURT. HOWEVER, THE LD. CIT(A) HAS CONCURRED WITH THE SUBMISSIONS OF THE AS SESSEE AND ALLOWED THE GROUND RAISED BY THE ASSESSEE, AGAINST WHICH, THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR ALL THESE ASSESSMENT YEARS. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 19 14. WE HAVE HEARD BOTH SIDES. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIB UNAL BY ORDER CITED (SUPRA) AND IT HAS TO BE FOLLOWED. HOWEVER, WE OBSE RVED FROM THE ORDER OF THE ASSESSING OFFICER THAT HE HAS GIVEN A FINDING T HAT IN THE ACCOUNT PREPARED FOR THE PURPOSE OF INCOME TAX, THE ASSESSE E HAS CLAIMED .11659.84 LAKHS AS BAD DEBT WRITTEN OFF AND THE AMO UNT 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 IN THE BOOKS O F ACCOUNTS MAINTAINED AND GOT AUDITED BY THE ASSESSEE UNDER STATUTE BY CR EDITING EACH INDIVIDUAL DEBIT ACCOUNT, THEN, IT COULD BE ALLOWED AS BAD DEB T AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT 323 IT R 397, WHEREIN, THE HONBLE SUPREME COURT HAS HELD THAT AFTER 01.04.198 9, IT IS NOT NECESSARY 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. FURTHER, IN THE PRESENT C ASE, THE ASSESSING OFFICER HAS NOT EXAMINED 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 REMI TTED BACK TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY, THAT TOO ONLY TO THE EXTENT OF WRITTEN OFF. M OREOVER, IN OUR OPINION, THE FACTS OF THE ASSESSEES CASE SQUARELY FIT INTO THE RATIO LAID DOWN BY THE ABOVE I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 20 JUDGEMENT OF THE HONBLE SUPREME COURT RATHER THAN THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED (SUPRA). BEIN G SO, IN OUR VIEW, IT IS APPROPRIATE TO REMIT BACK THE ENTIRE ISSUE TO VERIF Y WHETHER THE DEBT IS ACTUALLY WRITTEN OFF IN THE AUDITED BOOKS OF ACCOUN TS PASSING ENOUGH ENTRIES TOWARDS WRITTEN OFF TO THE INDIVIDUAL ACCOUNT AND T HEN ONLY THE ASSESSEE IS ENTITLED FOR DEDUCTION AS BAD DEBT PROVIDED THE ASS ESSEE FULFILS THE CONDITION SUCH AS SATISFACTION OF INCOME TAX ACT AS CONTEMPLA TED UNDER SECTION 36(2) OF THE ACT. WE, THEREFORE, DIRECT THE ASSESSING OFF ICER TO VERIFY THE REQUIREMENT OF SECTION 36(2) AND DECIDE THEREUPON. ACCORDINGLY, THIS ISSUE RAISED BY THE REVENUE IS REMITTED BACK TO THE ASSES SING OFFICER FOR FRESH CONSIDERATION. 15. THE NEXT GROUND RAISED IN THE APPEALS OF THE R EVENUE IS WITH REGARD TO DELETING THE DISALLOWANCE MADE TOWARDS ESOP EXPENDI TURE TREATING IT AS REVENUE EXPENDITURE. AFTER HEARING BOTH PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASS ESSEES OWN CASE IN I.T.A. NO. 1899/MDS/2012 DATED 11.04.2013, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 20. VIDE ITS GROUND NO.5, REVENUE IS AGGRIEVED RE GARDING DELETION OF DISALLOWANCE OF EMPLOYEES STOCK OPTION SCHEME (E SOP) EXPENSES. WHEN THE ISSUE CAME UP, LEARNED D.R. SUBMITTED THAT THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF I T V. PVP VENTURES LTD. [TC(A) NO.1023 OF 2005 DATED 19.6.2012] HAS NO T BEEN ACCEPTED BY THE DEPARTMENT. 21. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDERS OF CIT(APPEALS). I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 21 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 VENTURES L TD. (SUPRA). IT WAS HELD AT PARA 11 OF ITS ORDER AS UNDER:- 11. AS REGARDS THE SECOND ISSUE WHICH IS NOW CANVA SSED 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 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 A SSESSEE 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 TRIBUNAL POIN TED OUT THAT WHAT HAD BEEN ADOPTED WAS NOT NOTIONAL OR CONTINGEN T AS HAD BEEN SUBMITTED BY THE REVENUE. POINTING OUT TO THE EMPLOYEES STOCK OPTION PLAN, THE TRIBUNAL IN ITS ORDER STATED THAT IT WAS A BENEFIT CONFERRED ON THE EMPLOYEE. SO FAR AS THE CO MPANY IS CONCERNED, ONCE THE OPTION WAS GIVEN AND EXERCISED BY THE EMPLOYEE, THE LIABILITY IN THIS BEHALF GOT ASCERTAI NED. THIS WAS RECOGNIZED BY SEBI AND THE ENTIRE EMPLOYEES STOCK O PTION PLAN WAS GOVERNED BY GUIDELINES ISSUED BY SEBI. ON THE F ACTS THUS FOUND, THE TRIBUNAL HELD THAT IT WAS NOT A CASE 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 INT ERFERENCE IN THE RELIEF GRANTED BY THE ASSESSING AUTHORITY FOR T HE EXPENDITURE 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. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 22 16. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, THIS GROUND OF APPEALS OF THE REVENUE IS DISMISSED. 17. IN THE RESULT, ALL THESE APPEALS OF REVENUE IN I.T.A. NOS. 868/MDS/2015, 869/MDS/2015, 870/MDS/2015 &871/MDS/2 015 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ASSESSEES APPEAL IN I.T.A.NOS.716/MDS./2015 & 717/ MDS./2015 & REVENUES APPEAL IN I.T.A.NOS.866/MDS./2015 & 867/ MDS./2015 18. THE FIRST COMMON GROUND IN ASSESSEES APPEAL I S WITH REGARD TO CONFIRMATION OF FOREMAN DIVIDEND OF ` 4,53,21,461/- AND ` 4,38,66,670/- FOR THE ASSESSMENT YEAR 2010-11 & 2011-12 RESPECTIVELY. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT SIMILAR ISS UE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 1998-99 IN INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') NO.143/MDS./2002 VIDE ORDER DATED 15.02.2006 WHEREI N THE ISSUE WAS DECIDED AGAINST THE ASSESSEE OBSERVING THAT THE PRI NCIPLE OF MUTUALITY DOES NOT APPLY TO THE ASSESSEES CASE AND THEREBY ADDITI ON WAS CONFIRMED. ON FURTHER APPEAL TO THE HONBLE MADRAS HIGH COURT VID E ORDER DATED 30.08.2012 IN TCA NO.141 DISMISSED THE ASSESSEES A PPEAL. BEING SO, TAKING THE CONSISTENT VIEW, WE ARE CONFIRMING THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A) IN DISALLOWING THE FO REMAN DIVIDEND. THIS GROUND RAISED IN BOTH THESE APPEALS IS DISMISSED. I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 23 19. THE NEXT GROUND IN BOTH THESE APPEALS IS WITH REGARD TO CONFIRMING THE DISALLOWANCE MADE BY THE A.O U/S.14A READ WITH RULE-8D OF RULES AT ` 14,94,106/- & ` 1,27,982/- FOR THE A.Y 2010-2011-12 RESPECTIVELY A ND DISCUSSED IN EARLIER PARA OF THIS ORDER IN I.T.A NO .712/MDS./15. HENCE, THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 20. THE SECOND GROUND RAISED IN THE APPEAL OF THE ASSESSEE I.T.A NO.716/MDS./15 IS WITH REGARD TO DISALLOWANCE U/S.4 0(A)(IA) OF THE ACT. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THA T THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF SHRI N.PALANIVELU VS. ITO, SALEM REPORTED IN [2015] 40 ITR(TRIB.)325 (CHE NNAI) WHEREIN IT WAS HELD THAT THE DISALLOWANCE UNDER SECTION 40(A)( IA) OF THE ACT WAS NOT APPLICABLE, WHEN THERE WAS NO OUTSTANDING BALAN CE AT THE END OF THE CLOSE OF THE PREVIOUS YEAR. THE ASSESSEE FAILED TO BRING DETAILS OF OUTSTANDING EXPENSES OR SCHEDULE OF SUNDRY CREDITOR S SHOWING WHETHER THE AMOUNT WAS OUTSTANDING AT THE END OF THE CLOSE OF THE PREVIOUS YEAR IN THE NAME OF THE PARTY OR OUTSTANDING EXPENS ES. THE ASSESSING OFFICER WAS TO VERIFY THE MATTER AND EXAMINE AFRESH . IF NO AMOUNT WAS OUTSTANDING AT THE CLOSE OF THE PREVIOUS YEAR IN RE SPECT OF THE EXPENSES EITHER AS OUTSTANDING EXPENSES OR AS SUNDR Y CREDITORS, THE AMOUNT COULD NOT BE DISALLOWED. HENCE THE AMOUNT OU TSTANDING AS I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 24 PAYABLE AT THE END OF THE CLOSE OF THE FINANCIAL YE AR I.E. 31 ST MARCH ONLY BE DISALLOWED BY APPLYING THE PROVISIONS OF SE C.40(A)(IA) OF THE ACT. ACCORDINGLY WE DIRECT THE LD. ASSESSING OFFIC ER TO DISALLOW THE ONLY AMOUNT WHICH IS OUTSTANDING AT THE END OF THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR AND ACCORDINGL Y FOR LIMITED PURPOSE TO VERIFY THE OUTSTANDING AMOUNT TOWARDS IM PUGNED AMOUNT AT THE END OF THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR, WE REMIT THE ISSUE BACK TO THE FILE OF THE LD . ASSESSING OFFICER. 21. THE OTHER GROUND RAISED IN THE APPEAL OF THE ASSESS EE I.T.A NO.717/MDS./15 IS WITH REGARD TO CONFIRMING THE SHO RT ALLOWANCE OF CREDIT FOR TDS. THIS ISSUE WE HAVE ALREADY DECIDED IN ITA NOS . 711,712,714 & 715/MDS./15 IN THE EARLIER PARA NO.7 OF THIS ORDER. ACCORDINGL Y, THIS GROUND IS DISMISSED. 22. IN THE RESULT, BOTH THESE APPEALS OF ASSESSEE IN I.T.A. NOS. 716/MDS/2015 & 717/MDS/2015 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL IN I.T.A.NOS.866/MDS./2015 & 867/MDS./2015 23. THE ONLY ISSUE RAISED IN THE APPEALS OF THE REVENUE IS WITH REGARD TO DELETION OF ADDITION OF ` 84,15,300/- & ` 92,29,428/- MADE TOWARDS ROYALTY I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 25 PAID FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 RE SPECTIVELY. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THA T THE SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE CASE OF M/S.SHRIR AM CITY UNION FINANCE LTD., IN I.T.A. NO. 1744/MDS/2012 VIDE ORDER DATED 11.04.2013, 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 OUTGO. ROYALTY WAS PAID BY THE ASSESSEE TO M/S SHRIRAM CHITS AND INVESTMENTS FOR USING THE LOGO OWNED BY THE LATTER. ON SIMILAR FACT SITUATION, IN ASSESSEE'S OWN CASE, FOR ASSESSMENT YEAR 2006- 07, THIS TRIBUNAL HAD HELD IN ITS ORDER IN I.T.A. N O. 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 THE RO YALTY OF ` 47,85,125/- IN FULL AS REVENUE EXPENDITURE INSTEAD OF ` 11,96,281/- ALLOWED AS DEPRECIATION. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE HAD PAID ROYALTY OF ` 47,85,125/- TO SHRIRAM CHITS & INVESTMENTS PVT. LT D FOR USING THE LOGO OWNED BY THE LATTER. THE ASSESSING O FFICER HAS FOUND THAT THIS PAYMENT RELATES TO PAYMENT OF ROYALTY FOR ACQ UIRING AN INTANGIBLE ASSET. HE HAS IGNORED THE MODE AND METH OD OF PAYMENT, AND DURATION OF PAYMENT, HOLDING THEM TO BE IRRELEVANT F OR THE PURPOSE. ON THE CONTRARY, HE HAS ALLOWED DEPRECIATION @ 25% ON T HE 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 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 26 APPEAL, THE LD. CIT(A) HAS ALLOWED THE ENTIRE AMOUN T OF ` 47,85,125/- HOLDING IT TO BE A REVENUE EXPENDITURE. REVENUE IS AGGRIEVED. 17. AFTER HEARING BOTH SIDES CAREFULLY IN THE LIGH T 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 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 DRO PPED THE PROCEEDINGS INITIATED U/S 263 OF THE ACT. IN THE CASE OF SHRIR AM 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 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 SUPPORTED 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 COURT W ERE ACTUALLY CONSIDERING A CASE OF COMPOSITE AGREEMENT WHICH INV OLVED AN AGREEMENT TO IMPLEMENT A TURNKEY PROJECT RIGHT FROM PROVIDING DESIGN, ETC. IN I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711 I.T.A. NOS. 711- -- -717 & OTHERS 717 & OTHERS 717 & OTHERS 717 & OTHERS 27 ESTABLISHING THE FACTORY AND USER OF THE TECHNICAL K NOW-HOW. THEREAFTER. THEIR LORDSHIPS OF SUPREME COURT HAVE CLEARLY HELD THAT PAYMENT MADE FOR THE USER OF THE LOGO IS ALWAYS REVEN UE 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 A NY 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(APPEALS) HAD JUS TLY DELETED SUCH DISALLOWANCE. NO INTERFERENCE IS CALLED FOR. THIS GROUND RAISED IN BOTH THESE APPEALS OF THE REV ENUE IS REJECTED. 24. IN THE RESULT, BOTH THESE APPEALS OF REVENUE I N I.T.A. NOS. 866/MDS/2015 & 867/MDS/2015 ARE DISMISSED. ORDER PRONOUNCED ON THE 29 TH JANUARY, 2016 AT CHENNAI. SD/- SD/- ( G. PAVAN KUMAR ) JUDICIAL MEMBER ( CHANDRA POOJARI ) ACCOUNTANT MEMBER CHENNAI, DATED, THE 29.01.2016 VM/-/KSSUNDARAM. ! '! /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. # ( ) /CIT(A), 4. # /CIT, 5. !$% &' /DR & 6. %() * /GF.