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

ITA 726/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4353 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 07-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAIRAM RAIPURA
• Assessee Lawyers: R SIVARAMAN
• Keywords: Recovery proceedings; Diversion of income; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 115JB; 194C; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , '.. % , * BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.506/MDS/2016 + + /ASSESSMENT YEAR: 2012-13 M/S.SHRIRAM CITY UNION FINANCE CO. LTD., NO.4, MOOKAMBIKA COMPLEX, LADY DESIKA ROAD, MYLAPORE, CHENNAI-600 004. [PAN: AAACS 7703 H] VS. THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, NEW BLOCK, 121, M.G.ROAD, 7 TH FLOOR, CHENNAI-600 034. ( . /APPELLANT) ( /0. /RESPONDENT) ./ ITA NO.726/MDS/2016 + + /ASSESSMENT YEAR: 2012-13 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, NEW BLOCK, 121, M.G.ROAD, 7 TH FLOOR, CHENNAI-600 034. VS. M/S.SHRIRAM CITY UNION FINANCE CO. LTD., NO.4, MOOKAMBIKA COMPLEX, LADY DESIKACHARY ROAD, MYLAPORE, CHENNAI-600 004. [PAN : AAACS 7703 H ] ( . /APPELLANT) ( /0. /RESPONDENT) . 1 / APPELLANT BY : MR.JAIRAM RAIPURA, CIT /0. 1 /RESPONDENT BY : MR.R.SIVARAMAN, ADV. 1 /DATE OF HEARING : 27.03.2017 1 /DATE OF PRONOUNCEMENT : 07.06.2017 ITA NOS.506 & 726/MDS/2016 :- 2 -: / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THESE CROSS APPEALS ARE FILED BY THE REVENUE AS WE LL AS THE ASSESEE AGAINST THE ORDER DATED 24.09.2015 OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, IN ITA NO.262/CIT(A)-15/14-1 5 FOR THE AY 2012- 13. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS AR E CLUBBED AND HEARD TOGETHER AND DISPOSED OFF IN COMMON ORDER AS UNDER: ITA NO.506/MDS/2016 AY 2012-13 (ASSESSEES APPEAL): GROUND NO.I IS GENERAL IN NATURE WHICH DOES NOT REQ UIRE ANY SPECIFIC ADJUDICATION. 2.0 GROUND NO.II.A( SUB-GROUND NO.I TO VI) IS RELAT ED TO THE TRANSFER OF A SUM OF THE RS.104,58,61,529/- TO THE STATUTORY R ESERVES ACCOUNT. IN THE PROFIT & LOSS ACCOUNT THE ASSESSEE DEBITED A SU M OF RS.104,58,61,529/- BEING 20% OF THE PROFIT AS STATU TORY RESERVE AND CLAIMED AS DEDUCTION. THE A.O. ASKED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED BACK TO THE INCO ME FOR THE FOLLOWING REASONS: I) IT IS ONLY AN APPLICATION OF INCOME. II) RBI GUIDELINES CANNOT OVERRIDE THE INCOME TAX PROVI SIONS. III) IT DOES NOT PARTAKE THE FORM OF EXPENDITURE TO BE D EDUCTED. IV) IT IS NOT CLAIMED IN THE PROFIT AND LOSS ACCOUNT AS EXPENDITURE. THE ASSESSEE EXPLAINED THAT THE TRANSFER OF THE AM OUNT TO STATUTORY RESERVE WAS AS PER THE MANDATORY REQUIREMENT OF SEC .45 IC, 45M AND 45Q OF THE RBI ACT. BECAUSE OF THE SPECIFIC SECTIONS O F THE RBI MENTIONED ABOVE IT HAS OVERRIDING POWER OVER THE INCOME TAX ACT. THE AO AFTER ITA NOS.506 & 726/MDS/2016 :- 3 -: EXAMINING THE ASSESSEES EXPLANATION DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.104,58,61,529/- AND AD DED BACK TO THE INCOME. THE ASSESSING OFFICER EXPLAINED THE REASONS IN DETAIL IN THE ASSESSMENT ORDER FOR MAKING SUCH DISALLOWANCE IN PA RA NO.2.3 WHICH IS EXTRACTED FOR THE SAKE OF CONVENIENCE AND CLARITY A S UNDER: 2.3 THE SUBMISSIONS OF THE ASSESSEE HAS BEEN DULY C ONSIDERED BUT THE SAME ARE NOT ACCEPTABLE FOR THE FOLLOWING REASONS: I. FOR CLAIMING ANY AMOUNT AS DEDUCTION IN THE INCOME COMPUTATION STATEMENT, EITHER IT SHALL BE AN EXPENDITURE OR INCOME NOT ACCRUED TO THE ASSESSEE. IN THE PRESENT CASE, THE DEDUCTION CLAIMED IS NOT IN CONNECTION WI TH ANY EXPENDITURE INCURRED BY THE ASSESSEE COMPANY AND IS AN INCOME ACCRUED TO TH E ASSESSEE DURING THE FINANCIAL YEAR UNDER CONSIDERATION. HENCE, IT CANNO T BE ALLOWED AS DEDUCTION U/S.37 OF THE INCOME TAX ACT. II. MOREOVER, THE AMOUNT REMAINED ON THE LIABILITY SIDE OF THE BALANCE SHEET AND THIS AMOUNT IS BEING UTILIZED BY THE ASSESSEE FOR ALL IT S BUSINESS PURPOSE. THERE IS NO OUTGO OF ANY CASH OR ASSETS ON ACCOUNT OF THIS TRAN SFER. III. THE PROVISIONS OF RBI TO CREATE A RESERVE ARE ONLY A PRUDENTIAL EFFORT TO SAFEGUARD THE INTEREST OF THE SHAREHOLDERS OF A NBFC COMPANY. IT CANNOT BE INTERPRETED AS AN AUTHORIZATION TO CREATE A NOTIONAL INCOME AND HENCE THE SAME CANNOT BE CLAIMED AS A DEDUCTION FROM THE TOTAL INCOME COMPUTED FOR INCO ME TAX PURPOSE. IV. FURTHER, THE ASSESSEE COMPANY HAS CREATED STATUTORY RESERVE FOR 20% OF THE PROFITS. HOWEVER, RESERVES ARE TO BE CREATED ONLY O UT OF PROFIT AFTER TAX BY WAY OF APPROPRIATION. HENCE, THE CREATION OF STATUTORY RES ERVE IS NOTHING BUT AN APPLICATION OF INCOME AFTER THE PROFIT HAS BEEN EARNED BY THE A SSESSEE COMPANY. AND SUCH PROFIT NEEDS TO BE TAXED. V. FOR THE SAME REASON THAT THIS RESERVE IS CREATED OU T OF THE PROFITS I.E AFTER THE INCOME HAS REACHED THE ASSESSEE, THIS ALLOCATION IS ACTUALLY ONLY AN APPLICATION OF INCOME AND NOT A DIVERSION OF INCOME AS CLAIMED AND HENCE IS LIABLE TO TAX. THE HONBLE APEX COURT IN THE CASE OF CIT VS. DALMIA CE MENTS LIMITED (237 ITR 617 (SC) & CIT VS. SITALDAS TIRATHDAS (41 ITR 367) ON EX PLAINING THE MEANING OF DIVERSION OF INCOME BY OVERRIDING TITLE HAS HELD THAT IN OUR OPINION, THE TRUE TEST IS WHETHER THE AMOUN T SOUGHT TO BE DEDUCTION IN TRUTH, NEVER REACHED THE ASSESSEE AS HIS INCOME. OBL IGATIONS, NO DOUBT, THERE ARE IN EVERY CASE, BUT IT IS THE NATURE OF THE OBLIGATI ON WHICH IS THE DECISIVE FACT. THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PERSON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY THE NATURE OF THE OBL IGATION CANNOT BE SAID TO BE A PART OF THE INCOME OF THE ASSESSEE. WHEREBY OBLIGAT ION, INCOME IS DIVERTED BEFORE IT REACHES THE ASSESSEE, IT IS DEDUCTABLE BUT WHERE TH E INCOME IS REQUIRED TO BE APPLIED TO DISCHARGE AN OBLIGATION AFTER SUCH INCOM E REACHES THE ASSESSEE, THE SAME CONSEQUENCE, IN LAW, DOES NOT FOLLOW. IT IS TH E FIRST KIND OF PAYMENT IS MERELY AN OBLIGATION TO PAY ANOTHER A PORTION OF ONES OWN INCOME, WHICH HAS BEEN RECEIVED AND IS SINCE APPIIED. SIMILARLY, THE HONBLE APEX COURT IN THE CASE OF CI T VS. TRAVANCORE SUGARS & CHEMICALS PVT. LTD. (88 ITR 1) HAS HELD THAT - IT IS THUS CLEAR THAT WHEREBY THE OBLIGATION INCOM E IS DIVERTED BEFORE REACHES THE ASSESSEE IT IS DEDUCTIBLE. BUT WHERE THE INCOME IS REQUIRED TO BE APPLIED TO ITA NOS.506 & 726/MDS/2016 :- 4 -: DISCHARGE AN OBLIGATION AFTER SUCH INCOME REACHES T HE ASSESSEE, IT IS MERELY A CASE OF APPLICATION OF INCOME TO SATISFY AN OBLIGATION O F PAYMENTS AND IS THEREFORE NOT DEDUCTABLE AS SEEN FROM THE ABOVE JUDGMENT, THE CREATION OF ST ATUTORY RESERVE IS NOTHING BUT THE APPLICATION OF INCOME BY THE ASSESSEE WHICH IS NOT DEDUCTIBLE. VI. FURTHER, THE DIRECTIVE OF RBI CANNOT OVERRIDE THE S TATUTORY PROVISIONS OF THE INCOME TAX ACT. THE FOLLOWING CASE LAWS SUPPORT THIS CLAIM : THE HONOURABLE MADRAS HIGH COURT IN THE CASE OF TAM IL NADU POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., VS. JC IT (280 ITR 491) HAS HELD THAT - ...MERELY BECAUSE THE RESERVE BANK OF INDIA HAS DI RECTED THE ASSESSEE TO PROVIDE FOR NON-PERFORMING ASSETS, THAT DIRECTION CANNOT OVERRI DE THE MANDATORY PROVISIONS OF THE INCOME TAX ACT CONTAINED IN SECTION 36(1) (VIIA) WHIC H STIPULATE FOR DEDUCTION NOT EXCEEDING 5 PERCENT, OF THE TOTAL INCOME ONLY IN RE SPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PREDOMINANTLY REVENUE IN N ATURE OR TRADE RELATED AND NOT FOR PROVISION FOR NON-PERFORMING ASSETS WHICH ARE OF PR EDOMINANTLY CAPITAL NATURE, AND HELD THAT THE A.O WAS RIGHT IN DISALLOWING THE PROVISION OF RS.30 LAKHS DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE TOWARDS NON-PERFOR MING ASSETS THE HONOURABLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES LTD, VS JCIT (320 ITR 577) HAS HELD - BEFORE CONCLUDING ON THIS POINT, WE NEED TO EMPHAS IZE THAT THE 1998 DIRECTIONS HAS NOTHING TO DO WITH THE ACCOUNTING TREATMENT OR TAXA BILITY OF INCOME UNDER THE INCOME TAX ACT. THE TWO VIZ., THE INCOME TAX ACT AND THE 1 998 DIRECTIONS OPERATE IN DIFFERENT FIELDS. RBI DIRECTIONS 1998 HAVE BEEN ISSUED UNDER SECTION 45JA OF THE RBI ACT. UNDER THAT SECTIONS POWER IS GIVEN TO RBI TO ENACT A REGULATOR Y FRAMEWORK INVOLVING PRESCRIPTION OF PRUDENTIAL NORMS FOR NBFCS WHICH ARE DEPOSIT TAKING TO ENSURE THAT NBFCS FUNCTION ON SOUND AND HEALTHY LINES. THE PRIMARY OBJECT OF THE SAID 1998 DIRECTIONS IS PRUDENCE, TRANSPARENCY AND DISCLOSURE. SECTION 45JA COMES UND ER CHAPTER 111-B WHICH DEALS WITH PROVISIONS RELATING TO FINANCIAL INSTITUTIONS, AND TO NO-BANKING INSTITUTIONS RECEIVING DEPOSITS FROM THE PUBLIC. THE SAID 1998 DIRECTIONS TOUCH VAR IOUS ASPECTS SUCH AS INCOME RECOGNITION; ASSET CLASSIFICATION; PROVISIONING, ET C. AS STATED ABOVE, THE BASIS OF THE 1998 DIRECTIONS IS THAT ANTICIPATED LOSSES MUST BE TAKEN INTO ACCOUNT BUT EXPECTED INCOME NEED NOT BE TAKEN NOTE OF. THEREFORE, THESE DIRECTIONS E NSURE CASH LIQUIDITY FOR NBFCS WHICH ARE NOW REQUIRED TO STATE TRUE AND CORRECT PROFITS, WIT HOUT PROJECTING INFLATED PROFITS. THEREFORE, IN OUR VIEW, THE RBI DIRECTIONS 1998 DEAL ONLY WITH PRESENTATION OF NPA PROVISIONS IN THE BALANCE SHEET OF AN NBFC. IT HAS NOTHING TO DO WITH COMPUTATION OR TAXABILITY OF THE PROVISIONS FOR NPA UNDER THE INCOME TAX ACT.. AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED BY RBI UNDER C HAPTER III-B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITIO N. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FOR CE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. BY VIRTUE OF SECTION 45Q AN OVERRI DING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS--VIS RECOGNITION PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECTIONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE INCOME TAX ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS CANNOT OVERRULE THE PERMIS SIBLE DEDUCTIONS OR THEIR EXCLUSION UNDER THE INCOME, TAX ACT. HENCE DISALLOWANCE OF RS.104,58,61,529/- IS MADE FR OM NORMAL COMPUTATION OF THIS GROUND. VII. THE SUBMISSIONS OF THE ASSESSEE W.R.T SIMILAR DEDU CTION FROM THE BOOK PROFITS U/S.115JB IS ALSO NOT ACCEPTABLE AS SECTION 115JB ST IPULATES THAT FOR COMPUTING THE BOOK PROFIT THE AMOUNT SET ASIDE AS PROVISION MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES HAS TO BE ADDED. AS TH E AMOUNT TRANSFERRED TO THE STATUTORY RESERVE FUND OF RS.252,00,00,000/- IS B ASED ON THE RBI GUIDELINES AND ITA NOS.506 & 726/MDS/2016 :- 5 -: NOT AN ASCERTAINED LIABILITY, IT AMOUNTS TO SETTING ASIDE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. HENCE IT LOSES IT ELI GIBILITY TO BE DEDUCTED FROM THE BOOK PROFIT U/S.115JB. HENCE, THE AMOUNT REQUIRED TO BE A DDED FOR ARRIVING AT THE BOOK PROFIT U/S.115 JB. VIII. FURTHER, THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER FOR EARLIER YEARS HAS BEEN CONTESTED BY THE ASSESSEE AND ALL SUCH DISALLOWANCE HAS BEEN CONFIRMED BY THE HONBLE ITAT. IX. IN VIEW OF THE ABOVE FACTS OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE HONBLE ITATS ORDERS OF THE EARLIER YEARS, IT IS HEREBY HELD THAT THE AMOUNT TRANSFERRED TO THE STATUTORY RESERVE IS NOT AN ALLOWABLE DEDUCTION AND THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE, BOTH IN THE NORMAL COMPUTATION FOR TAXATI ON AND ALSO TO THE COMPUTATION OF BOOK PROFIT FOR TAXATION AS PER THE PROVISIONS OF SECTIO N 115JB OF INCOME TAX ACT. X. HENCE DISALLOWANCE OF RS.68,60,00,000/- IS MADE FROM COMPUTATION OF BOOK PROFIT U/S SECTION 115JB OF INCOME TAX ACT. 3.0 THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) A ND THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO FOLLOWING THE ORDER O F ITAT IN ASSESSEES OWN CASE FOR THE AY 2003-04 AND DISMISSED THE ASSES SEES APPEAL. DURING THE APPEAL HEARING, THE LD.AR OF THE ASSESSEE FAIRL Y CONCEDED THAT THIS TRIBUNAL IN THE ASSESSEES GROUP CONCERN M/S.SHRIRA M TRANSPORT FINANCE CO. LTD., FOR THE AY 2012-13 IN ITA NO.454/MDS/2016 DISMISSED THE ASSESSEES APPEAL. 4.0 WE HEARD THE RIVAL SUBMISSIONS AND PURSUED THE MATERIAL PLACED BEFORE US. THE LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THE SAME ISSUE IN THE ASSESSEES OWN CASE FOR THE AY 2003-04 TO 2009-10 FOLLOWING THE ORDER OF THIS TRIBUNAL. ON THE SAME FACTS, THI S TRIBUNAL IN THE CASE OF M/S.SHRIRAM TRANSPORT FINANCE CO. LTD., FOR THE AY 2012-13 IN ITA NO.454/MDS/2016 DATED 24.08.2016 ALSO DISMISSED THE ASSESSEES APPEAL. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGR APHS OF THIS TRIBUNAL WHICH READS AS UNDER: ITA NOS.506 & 726/MDS/2016 :- 6 -: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAS TRANSFERRED A SUM OF RS.375,10,96,984/- TO RESERVE FUND AS REQUIRED UNDE R SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT. THE ASSESSEE CLAIMS THAT IT IS ONLY A N APPROPRIATION OF FUNDS BY OVERRIDING TITLE. THIS TRIBUNAL EXAMINED THE VERY SAME ISSUE FOR ASSE SSMENT YEARS 2003-04 TO 2009-10 AND FOUND THAT THE TRANSFER OF FUNDS, AS REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT, IS ONLY AN APPLICATION OF INCOME, THEREF ORE, LIABLE FOR TAXATION. IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CAS E, FOR ASSESSMENT YEARS 2003-04 TO 2009-10, THIS TRIBUNAL DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 5.0 RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDIN ATE BENCH IN THE ASSESSEES OWN AND THE CASE CITED (SUPRA), WE HOLD THAT THE ASSESSEES CLAIM FOR DEDUCTION OF RS.104,58,61,529/- IS NOT AL LOWABLE AND WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 6.0 GROUND NO.II-B (SUB-GROUND I TO IV) IS RELATED TO THE ADDITION OF INTEREST U/S.234D OF INCOME TAX ACT FOR A SUM OF RS.93,90,687/- . DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE ASSESSEE HAS CLAIMED THE DEDUCTION OF RS.93,90,687/- IN THE COMPUTATION OF INCOME RELATING TO THE INTEREST CHARGED U/S.234D FOR THE A YS 2004-05, 2006-07 AND 2009-10. THE A.O. DISALLOWED THE DEDUCTION CLA IMED BY THE ASSESSEE AS PENAL IN NATURE AND ADDED THE ENTIRE AMOUNT OF R S.93,90,687/- TO THE RETURNED INCOME. 7.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) HAS DISMISSED T HE ASSESSEES APPEAL. ITA NOS.506 & 726/MDS/2016 :- 7 -: STATING THAT THE REFUND RECEIVED FROM THE DEPARTMEN T IS NOT SIMILAR TO THE LOAN TAKEN FROM GOVERNMENT FOR THE PURPOSE OF BUSIN ESS AND THE INTEREST IS NOT ALLOWABLE U/S 36(1)(III) AS CLAIMED BY THE A SSESSEE. THE CLAIM OF DEDUCTION U/S.37 OF THE IT ACT WAS ALSO REJECTED B Y THE LD.CIT(A). 8.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE AS SESSEE FILED THE APPEAL BEFORE THIS TRIBUNAL. 9.0 WE HEARD THE RIVAL SUBMISSIONS AND PURSUED THE MATERIAL PLACED BEFORE US. ON THE SIMILAR FACTS IN THE ASSESSEES GROUP COMPA NY, IN THE CASE OF M/S.SHRIRAM TRANSPORT FINANCE CO. LTD., IN ITA NO.4 54/MDS/16 DATED 24.08.2016 THIS TRIBUNAL HAS DISMISSED THE ASSESSEE S APPEAL IN PARA NOS.6-9 AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY S UBMITTED BY THE LD. D.R., INTEREST IS CHARGED UNDER SECTION 234D OF THE ACT ON THE EXCESS AMOUNT REFUNDED TO THE ASSESSEE WHILE PROCESSING A RETURN UNDER SECTION 143(1) OF TH E ACT. EVEN THOUGH IT IS AN INTEREST LEVIED ON THE AMOUNT REFUNDED TO THE ASSESSEE, IN F ACT, IT IS AN INTEREST FOR DELAYED PAYMENT OF TAX. IN OTHER WORDS, THE AMOUNT REFUNDED TO THE ASSESSEE WHILE PROCESSING RETURN UNDER SECTION 143(1) OF THE ACT WAS CONSIDERE D AS NON-PAYMENT OF TAX AND INTEREST WAS CHARGED FOR THE PERIOD IN WHICH THE ASSESSEE WA S HOLDING THE AMOUNT. THEREFORE, THE INTEREST PAID BY THE ASSESSEE CANNOT BE CONSTRUED A S EXPENDITURE FOR EARNING THE INCOME OR FOR BUSINESS PURPOSE. THEREFORE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10.0 SINCE THE FACTS OF THE CASE ARE THE SAME AND N O CONTROVERT DECISION HAS BEEN BROUGHT TO OUR NOTICE, WE HOLD THAT THE IN TEREST CHARGED ON EXCESS AMOUNT REFUNDED TO THE ASSESSEE CANNOT BE CO NSIDERED AS EXPENDITURE FOR EARNING THE INCOME OR FOR BUSINESS PURPOSE. ACCORDINGLY, ITA NOS.506 & 726/MDS/2016 :- 8 -: WE CONFIRM THE DISALLOWANCE MADE BY THE AO AND UPHO LD THE ORDER OF THE LD.CIT(A). THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 11.0 GROUND NO.II-C (SUB GROUND I TO IV) IS RELATED TO THE DISALLOWANCE U/S.40(A)(IA) OF INCOME TAX ACT: DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE ASSESSEE HAS MADE THE FOLLOWING PAYMENTS WITHOUT DEDUCTION O F TAX AT SOURCE. S.NO. REIMBURSEMENT OF INCENTIVE PAID TO AMOUNT (RS .) 1 UNDER THE HEAD COMMISSION: REIMBURSEMENTS OF SALARY COST TO GROUP COMPANIES 39,47,30,811 2 UNDER THE HEAD BUSINESS PROMOTION: REIMBURSEMENT OF INCENTIVE PAID 1,14,84,489 THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY THE ADDI TION SHOULD NOT BE MADE U/S.40(A)(IA) OF INCOME TAX ACT FOR NON-DED UCTION OF TAX AT SOURCE. THE ASSESSEE SUBMITTED AN EXPLANATION OBJE CTING THE DISALLOWANCE U/S.40(A)(IA). NOT BEING CONVINCED WITH THE EXPLANA TION FURNISHED BY THE ASSESSEE, THE AO MADE THE DISALLOWANCE U/S.40(A)(IA ) OF THE I.T.ACT.. 12.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE A O HOLDING THAT THE ASSESSEE HAS COMMITTED A DEFAULT IN NOT DEDUCTI NG THE TAX AT SOURCE U/S.194C OF INCOME TAX ACT AND THE A.O HAS RIGHTLY MADE THE ADDITION U/S.40(A)(IA) OF INCOME TAX ACT. FOR READY REFEREN CE, WE REPRODUCE THE HEREUNDER THE RELEVANT EXTRACT OF THE LD.CIT(A) ORD ER MADE AVAILABLE IN 10.2 OF THE LD.CIT(A) ORDER WHICH READS AS UNDER: ITA NOS.506 & 726/MDS/2016 :- 9 -: 10.2 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS AND FINDINGS OF THE AO. THE AR OF THE APPELLANT FAILED TO CONTRADICT THE FINDINGS OF THE AO ON THE ISSUE OF LIABILITY OF TDS PROVISIONS BY FILING NECESSARY EVIDENCES BEFORE THE UNDERSIGNED. THE LIABILITY OF TDS PROVISIONS IN RESPECT OF THE AMOUNT UNDER CONSIDERA TION WAS NOT DISPUTED. MERELY FILING THE GROUNDS OF APPEAL WITHOUT FILING EVIDENCES IN SUPPO RT OF ITS CLAIM IS NOT ENOUGH FOR ALLOWING THE GROUNDS OF APPEAL ON THIS ISSUE. ON THE OTHER HA ND, THE AO HAD CLEARLY REASONED FOR MAKING DISALLOWANCE U/S.40(A)(IA) OF THE IT ACT. I AM FULLY IN AGREEMENT WITH THE VIEW OF THE AO THAT NO REIMBURSEMENT OF ACTUAL EXPENDITURE W AS INVOLVED IN THE TRANSACTIONS. NO EVIDENCE WAS ALSO FURNISHED BEFORE UNDERSIGNED TO P ROVE THAT THE EXPENSES INCURRED BY THE APPELLANT ARE IN RELATION TO REIMBURSEMENT OF EXPEN DITURE AS CLAIMED. I AM ALSO IN AGREEMENT WITH THE AOS CONTENTION THAT THERE WAS NO DEFINITE BASIS FOR THE APPORTIONMENT OF THE EXPENDITURE INCURRED ON EMPLOYEES OF THE SIS TER CONCERN ADVERTED TO SUPRA AND THAT, IN FACT, THE AMOUNT RECEIVED BY THE SISTER CHIT COM PANIES AFOREMENTIONED AMOUNTED TO CONTRACT RECEIPTS IN THEIR HANDS AND MORE IMPORTANT LY THE APPELLANTS CLAIM THAT THE GROUP COMPANIES MADE THE TDS WHEREVER APPLICABLE DOES NOT IN ANY WAY AFFECT THE APPLICABILITY OF TDS PROVISIONS IN THE ASSESSEES CASE, PARTICULA RLY WHEN THE INSTANT APPELLANT HAS CLAIMED THE SAME AS EXPENDITURE AS HELD IN THE CASE OF M/S.TORQUE PHARMACEUTICALS CITED SUPRA. FURTHER, THE CASE LAWS RELIED UPON BY THE AR IS NOT RELEVANT TO THE FACTS OF THE INSTANT CASE AS ELABORATELY DISCUSSED IN THE ASSESS MENT ORDER, THE OPERATIVE PARTS OF WHICH ARE REPRODUCED IN THE FOREGOING PARAGRAPHS AND THER EFORE NOT REITERATED HERE AGAIN EXCEPT TO STATE THAT I CONCUR WITH THE AOS INTERPRETATION OF THE RATIO OF THE SAID CASE LAWS. AS SUCH IN THE ABSENCE OF TDS BEING MADE ON THE PAYMENTS MA DE TO THE APPELLANTS SISTER CONCERNS THE APPELLANT THEREFORE SHALL BE DEEMED TO BE AN AS SESSEE IN DEFAULT U/S.201(1) OF THE ACT IN RESPECT TO SUCH TAX. BESIDES THE AMOUNTS UNDER C ONSIDERATION ARE ALSO LIABLE FOR THE DISALLOWANCE U/S.40(A)(IA) R.W.S. 194C OF THE IT ACT. THEREFORE, THE GROUND OF APPEAL RAISED ON THIS ISSUE IS DISMISSED. 13.0 DURING THE APPEAL HEARING, THE LD.AR ARGUED TH AT THE ENTIRE SALARY INCENTIVE WAS PAID BEFORE 31.03.2012 AND HENCE THE PROVISIONS OF SEC.40(IA) DOES NOT ATTRACT IN THE ASSESSEES CASE. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE ALLAHABAD IN THE CASE O F CIT V. VECTOR SHIPPING PVT. LTD. (357 ITR 642). 14.0 WE HEARD THE RIVAL SUBMISSIONS AND PURSUED THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS MADE THE PAYMENTS WITHOUT DEDUCTI ON OF TAX AT SOURCE TO THE EXTENT OF RS.40.60 CR AS PER THE DETA ILS GIVEN ABOVE. THE ASSESSEES ARGUMENT THAT THE AMOUNT WAS ALREADY PAI D BEFORE 31.03.2012 AND HENCE THE PROVISIONS OF SEC.40(A)(IA) IS NOT AT TRACTED IS NOT TENABLE. THIS TRIBUNAL HAS CONSISTENTLY FOLLOWED THAT IN CAS E THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE BUT NOT REMITTED, OR TAX NOT DEDUCTED ON THE ITA NOS.506 & 726/MDS/2016 :- 10 -: PAYMENTS WHICH ATTRACT TDS, THE DISALLOWANCE U/S.4 0(A)(IA) ATTRACTS. THIS VIEW IS SUPPORTED BY THE HONBLE CULCUTTA HIGH COUR T JUDGMENT IN THE CASE OF CRESCENT EXPORTS. IN THE CASE OF THE ASSESSEE, IT HAS TO DEDUCT THE TAX AT SOURCE BUT NOT DEDUCTED THE TDS AMOUNT WHICH REQ UIRED TO BE DEDUCTED U/S.194C OF INCOME TAX ACT. AS PER SEC.40(IA) OF INCOME TAX ACT ,IN CASE OF FAILURE OF THE ASSESSEE TO DEDUCT THE TAX A T SOURCE, SUCH AMOUNT REQUIRED TO BE BROUGHT TO TAX UNDER SECTION 40(A)(I A) OF INCOME TAX ACT. FOR READY REFERENCE, WE EXTRACT RELEVANT SECTION OF 40(A)(IA) OF INCOME TAX ACT WHICH READS AS UNDER: AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 31 [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', 32 (A) IN THE CASE OF ANY ASSESSEE ------------------------ (IA) ANY INTEREST, COMMISSION OR BROKERAGE, 34 [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, 35 [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIF IED IN SUB-SECTION (1) OF SECTION 139 :] 36 [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PR EVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 , SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.] ALTERNATIVELY, THE ASSESSEE HAS REQUESTED FOR DISA LLOWANCE 30% OF THE EXPENDITURE IN VIEW THE AMENDMENT IN FINANCE AC T, 2014. THE AMENDMENT HAS COME INTO FORCE W.E.F. 01.04.2015. T HE AY UNDER CONSIDERATION WAS 2012-13. THEREFORE, THE AMENDMEN T IS NOT APPLICABLE ITA NOS.506 & 726/MDS/2016 :- 11 -: IN THE CASE OF THE ASSESSEE. ACCORDINGLY, WE HOLD T HAT THE LD.CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION AND THE SAME IS UPHE LD. THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 15.0 GROUND NO.II-D( SUB-GROUND NO.I TOIV) IS RELAT ED TO THE DISALLOWANCE OF EXPENDITURE U/S.14A OF INCOME TAX ACT: THE ASSE SSEE HAS RECEIVED A SUM OF RS. 5,96,66,887/- AS DIVIDEND AND DISALLOWED A SUM OF RS.65,80,317/- TOWARDS THE EXPENDITURE RELATING TO THE DIVIDEND INCOME. THE ASSESSING OFFICER FURTHER DISALLOWED A SUM OF R S.5,32,500/- BY APPLYING RULE 8D OF INCOME TAX ACT. 16.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) ALLOWED PARTIAL RELIEF. THE LD.CIT(A) DIRECTED THE AO TO EXCLUDE THE INVES TMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANIES AND THE DISALL OWANCE IS RESTRICTED TO THE INVESTMENT MADE OTHER THAN SUBSIDIARY COMPANIES . THE LD.CIT(A) ALSO RELIED ON THE DECISION THIS TRIBUNAL IN THE CA SE OF EIH ASSOCIATE HOTELS LTD. V. DCIT IN ITA NO.1503/MDS/2012 & L&T INFRASTR UCTURE DEVELOPMENT PROJECTS V. ITO IN ITA NO.226/MDS/2013 AY 2007-08. 17.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE AS SESSEE IS ON APPEAL BEFORE US. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE COMPANY HAS DISALLOWED A SUM OF RS. 65,80,317/- TOWARDS THE EXP ENSES RELATING TO THE EXEMPT INCOME. THE DISALLOWANCE AS PER RULE 8D W ORKED OUT TO RS.71,12,850/- AND THE DIFFERENCE AMOUNT OF RS.5,32 ,500/- WAS ADDED BY THE AO. THE AO HAS NOT GIVEN ANY FINDING IN THE AS SESSMENT ORDER THAT ITA NOS.506 & 726/MDS/2016 :- 12 -: THE DISALLOWANCE MADE BY THE ASSESSEE WAS INSUFFICI ENT. AS PER THE PROVISIONS OF SEC.14A OF INCOME TAX ACT, THE AO CAN RESORT TO APPLY THE METHOD OF DISALLOWANCE UNDER RULE 8D OF INCOME TAX ACT ONLY, IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE DISALL OWANCE MADE BY THE ASSESSEE. THE ASSESSEE RELIED ON THE DECISIONS OF CIT V. TAIKISHA ENGINEERING PVT. LTD. (299 TAXMAN 143). ON THE OTHE R HAND THE LD.DR RELIED ON THE ORDERS OF LOWER AUTHORITIES. 18.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. IN THIS CASE, THE ASSESSEE HAS DISALLOWED A SUM OF RS.65,85,317/- AS EXPENDITURE RELATABLE TO THE DIVIDEND INCOME (EX EMPTED INCOME) RECEIVED BY THE ASSESSEE U/S.14A OF THE IT ACT. ON PERUSAL OF THE ASSESSMENT ORDER, THE AO HAS NOT RECORDED ANY SATIS FACTION WITH REGARD TO INSUFFICIENCY OF DISALLOWANCE MADE BY THE ASSESS EE. AS PER THE PROVISIONS OF SEC.14A OF IT ACT, THE AO CAN RESORT TO DISALLOW THE EXPENDITURE BY APPLYING RULE 8D OF IT ACT ONLY IN T HE FOLLOWING CONDITIONS: (I)THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF E XPENDITURE RELATING TO THE EXEMPTED INCOME OR (II)THE ASSESSEE HAS DISALLOWED THE EXPENDITURE BU T THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE 18.1 FROM THE PROVISIONS OF THE IT ACT, IT IS CLEAR THAT THE SATISFACTION OF THE AO REGARDING THE CORRECTNESS OF THE DISALLOWANC E MADE BY THE ASSESSEE REQUIRED TO BE RECORDED FOR APPLICATION OF RULE 8D OF IT ACT. IN ITA NOS.506 & 726/MDS/2016 :- 13 -: THE INSTANT CASE, THE ASSESSEE HAS MADE THE DISALLO WANCE BUT THE AO HAS NOT RECORDED THAT THE DISALLOWANCE MADE BY THE ASSE SSEE IS INSUFFICIENT. THEREFORE, IN THE ABSENCE OF ANY FINDING OF THE AO, THE DISALLOWANCE MADE U/S.14A IS NOT CORRECT AND NO DISALLOWANCE IS CALLE D FOR U/S.14A. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE AO AND SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES. THE APPEAL OF THE ASSESSEE IS ALLOWED ON THIS GROUND. 19.0 THE NEXT ISSUE IS RELATED TO THE CREDIT OF TDS OF RS.90,39,289/-: THE AO HAS GIVEN THE SHORT CREDIT OF RS.90,39,289/ - AND DID NOT GIVEN ANY REASON FOR GIVING SUCH SHORT CREDIT. THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DIRECTED THE AO TO RECONCILE THE TDS CERTIFICATE, FORM-26AS AND ALLOW DUE CREDIT FOR THE TAXES PAID/COLLECTED. 20.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSEE HAS CLAIMED THE CREDIT FOR TDS WHICH WAS NOT ALLOWED BY THE AO WITHOUT ASSIGNING ANY REASON. IT IS THE OBLIGATION OF THE AO TO ALLOW THE CREDIT FOR THE TAXES PAID BY THE ASSESSEE WHETHER BY SELF- ASSESSMENT TAX, ADVANCE TAX, TCS & TDS. WE CANNOT APPRECIATE THE ACTION OF THE AO FOR NOT GIVING CREDIT FOR THE TDS WITHOUT ASSIGNING ANY REASON. WE DIRECT THE AO TO RECONCILE THE FORM-26A S AND ALLOW THE CREDIT FOR THE TDS AMOUNT, AT THE EARLIEST. THIS GROUND O F THE APPEAL IS ALLOWED. ITA NOS.506 & 726/MDS/2016 :- 14 -: 21.0 GROUND NO.III(A): IS RELATED TO THE ADDITION OF RS.68,60,00,000/- U/S.115 JB OF IT ACT. THE ASSESSEE CLAIMED THE DEDU CTION OF RS.68,60,00,000/- BEING THE AMOUNT TRANSFERRED TO S TATUTORY RESERVE ACCOUNT FOR COMPUTING THE PROFITS AS PER COMPANIES ACT AND IN THE COMPUTATION OF BOOK PROFIT U/S 115JB OF I.T.ACT. TH E AO DISALLOWED THE AMOUNT OF RS.68,60,00,000/- AND MADE THE ADDITION U/S.115JB STATING THAT THERE IS NO PROVISION IN THE INCOME TAX ACT TO MAKE SUCH ADJUSTMENT. THE LD.CIT(A) CONFIRMED THE DISALLOWANCE MADE BY TH E AO. 22.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE A SSESSEE IS IN APPEAL BEFORE US. 23.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THIS ISSUE IS COVERED AGAINST THE ASSESSEE ON IDEN TICAL FACTS IN THE CASE OF M/S.SHRIRAM TRANSPORT FINANCE CO. LTD., IN ITA NO.454/MDS/2016 DATED 24.08.2016, WHICH WAS DISCUSSED IN THIS ORDER IN GROUND NO. II(A). FOLLOWING THE DECISION OF THIS TRIBUNAL, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND CONFIRM THE ORDER OF THE LD.CIT(A). I N THE RESULT, THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. ITA NO.726/MDS/2016 AY 2012-13 (DEPARTMENTAL APPEAL ) : 1.THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THE LD CIT (A) ERRED DELETING THE ADDITION OF PRO VISION OF BAD DEBTS OF RS.26,41,01,000/- - 2.1 THE LD CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY PAID AMOUNTING TO RS.5,65,94,842/- 2.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO D ELETE THE ADDITION MADE OF RS.5,32,000/- U/S.14A. ITA NOS.506 & 726/MDS/2016 :- 15 -: 2.2. THE LD.CIT(A) FAILS TO APPRECIATE THAT THE DEC ISION OF THE HONOURABLE ITAT RELIED UPON LEARNED CIT(A) IN THE ASSESSEES SISTER CONCERN CASE , FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 ORDER HAS NOT BECOME FINAL AND THE DEPARTME NT HAS PREFERRED APPEAL BEFORE THE HONOURABLE HIGH COURT OF MADRAS U/S.260A. 2.2 THE LD CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY PAID AMOUNT, EVENTHOUGH ROYALTY WAS PAID FOR USE OF COPY RIGHT W HICH AS PER THE PROVISIONS OF SEC 32(I) EXPLANATION (AMENDED W.E.F 01/04/1966) IN AN INTANGIBL E ASSET. 2.3 THE LD.CIT ERRED IN DELETING THE ADDITION ON AC COUNT OF ROYALTY PAID AMOUNT, EVENTHOUGH, IN EARLIER YEARS DEPARTMENT APPEALS PEN DING BEFORE HIGH COURT. 2.4 THE LD.CIT(A) ERRED IN DELETING THE ESOP EXPENSE S FOR RS.1,92,82,201/-. 2.5 THE LD.CIT (A) FAILS TO APPRECIATE THAT ESOP EXPE NSES ONLY GOING TO INCREASE THE SHARE CAPITAL OF THE COMPANY AND SHOULD BE TREATED AS CAP ITAL EXPENDITURE. 2.6 THE LD.CIT(A) FAILS TO APPRECIATE THAT CIT(A)S O RDER RELIED UPON THE ITATS ORDER IN THE ISSUE OF ESOP EXPENSES FOR THE ASSESSMENT YEAR - HAS NOT BEEN ACCEPTED AND AN APPEAL HAS BEEN FILED BEFORE THE MADRAS HIGH COURT. 3.FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING. IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASID E AND THAT OF THE ASSESSING OFFICER RESTORED. 23.0 GROUND NO.1&3 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 24.0 GROUND NO.2 IS RELATED TO THE ADDITION OF RS.2 6,41,01,000/- RELATING TO THE PROVISIONS FOR BAD DEBTS. AS PER THE P& L AC COUNT THE ASSESSEE DEBITED THE PROVISIONS AND WRITE OFF AS UNDER: PROVISION FOR NPA 2,641.01 LAC S BAD DEBTS WRITTEN OFF 14,248.80 LACS 16,881 .81 LACS. 24.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUN D THAT THE ASSESSEE CLAIMED PROVISION FOR NON-PERFORMING ASSETS AMOUNTI NG TO RS.2,641.01 LAKHS AS DEDUCTION. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNTS TO COMPLY WITH THE REQUIREMENT TO CLAIM AS BAD DEBTS UNDER THE INCOME TAX ACT AND SEPARATE SET OF BOOKS OF ACCOUNT UNDER THE COMPANIES ACT. T HE ASSESSABLE INCOME ITA NOS.506 & 726/MDS/2016 :- 16 -: OF THE COMPANY IS COMPUTED ON THE BASIS OF THE INCO ME TAX BOOKS AND FOR ARRIVING AT THE FINANCIALS TO COMPLY WITH THE COMPA NIES ACT SEPARATE BOOKS ARE MAINTAINED. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THIS METHOD OF MAINTAINING THE TWO SEPARATE BOOKS WAS AP PROVED BY THE APPELLATE AUTHORITIES IN THE EARLIER YEARS AND THE HONBLE ITAT ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT T HE INCOME HAS TO BE COMPUTED ON THE BASIS OF INCOME TAX BOOKS IN ITA NO .725/MDS/2010 DATED 16.12.2010 FOR THE AY 2006-07. NOT BEING CON VINCED WITH THE EXPLANATION OF THE ASSESSEE, THE AO DISALLOWED THE SUM OF RS.2641.01 LAKHS STATING THAT THE APPEAL IS PENDING BEFORE TH E HONBLE JURISDICTIONAL HIGH COURT AND IT WAS ONLY A MERE PROVISION WHICH IS NOT ALLOWABLE EXPENDITURE. FOR THE SAKE OF CONVENIENCE AND CLARIT Y, WE EXTRACT THE RELEVANT PARAGRAPHS OF THE ASSESSMENT ORDER MADE AV AILABLE IN THE PAGE NO.15 & 16 OF THE ASSESSMENT ORDER AS UNDER: 4.2 THE ABOVE SUBMISSIONS OF THE ASSESSEE HAS BEEN DULY CONSIDERED BUT THE SAME IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS: AS PER ACCOUNTS PREPARED AS PER COMPANY LAW AS ON 3 1.03.2012, THE PROVISIONS AND WRITE OFF IN THE SCHEDULE 20 ARE AS UNDER: PROVISION FOR NON PERFORMING ASSETS - RS.2,641.01 LAKHS BAD DEBTS WRITTEN OFF - RS.14,248.80 LAKHS. ---------------------- TOTAL RS.16,889.01 LAKHS ----------------------- HOWEVER, AS PER THE ACCOUNTS PREPARED FOR THE PURPO SE OF INCOME TAX THE ASSESSEE CLAIMED RS.168,89,81,781/- AS BAD DEBTS WRITTEN OFF BUT NO ADJUSTMENTS HAVE BEEN MADE IN THE COMPUTATION. THOUGH AS PER THE STATUTORY BOOKS THE BAD DEBTS WRITTEN OFF WERE ONLY RS.14,248.80 LAKHS, THE ASSESSEE HAS CLAIMED RS.16, 889.01 LAKHS IN THE INCOME TAX ACCOUNTS. THE AMOUNT OF RS.2,641.01 LAKHS WHICH WAS SHOWN AS PROVISION IN THE STATUTORY BOOKS WAS TAKEN AS WRITTEN OFF FOR THE PURPOSE OF I NCOME-TAX. THERE CANNOT BE PROVISION FOR THE PURPOSE OF STATUTORY BOOKS AND ACTUAL WRITE OFF FOR INCOME TAX PURPOSE. IF THE AMOUNT IS WRITTEN OFF, IT SHOULD BE SAME IN BOTH TH E ACCOUNTS. HENCE, ONE CAN FAIRLY CONCLUDE THAT THERE NO ACTUAL WRITE OFF TOOK PLACE IN THE ACCOUNTS TO THE EXTENT OF RS.2,641.01 LAKHS AND THE SAME IS DEBITED ONLY TOWA RDS PROVISION FOR NON-PERFORMING ASSET. AS PER SEC. 36(1)(VII) BAD DEBTS ACTUALLY WRI TTEN OFF IS ONLY TO BE ALLOWED AS DEDUCTION. ITA NOS.506 & 726/MDS/2016 :- 17 -: THE CONDITION PRECEDENT FOR ALLOWING BAD DEBTS UNDE R SECTION 36(1)(VII) IS THAT THE DEBT HAS TO BE WRITTEN OFF IN THE RESPECTIVE ACCOUNTS AS IRR ECOVERABLE. THESE ACCOUNTS ARE NOT WRITTEN OFF IN THE BRANCH ACCOUNTS ON THE GROUND THAT IT MA Y JEOPARDIZE THE RECOVERY PROCEEDINGS AND HENCE ARE SEEN TO BE RETAINED IN THE ACCOUNTS P REPARED AS PER COMPANY LAW. WRITING OFF IN THE FINAL ACCOUNTS PREPARED FOR INCOME TAX P URPOSE IS THEREFORE NOT TANTAMOUNT TO WRITE OFF. AS PER SEC. 36(1) (VII), ONLY BAD DEBTS A CTUALLY WRITTEN OFF CAN BE ALLOWED AS A DEDUCTION. AS THE AMOUNT OF RS.2,641.01 LAKHS IS ON LY A PROVISION, THE SAME IS NOT ALLOWABLE AS BAD DEBT AS THE SAME IS NOT ACTUALLY W RITTEN OFF IN THE BOOKS OF ACCOUNTS. 24.2 THE AO ALSO RELIED ON THE HONBLE MADRAS HIGH COURT DECISION IN , COMMISSIONER OF INCOME-TAX. V. MICROMAX SYSTEMS (P.) LTD. [ 2005] 148 TAXMAN 486 (MADRAS) AND ALSO HONBLE APEX COURT DECISION IN THE CASE O F SOUTHERN TECHNOLOGIES LTD.V.JOINT COMMISSIONER OF I NCOME-TAX , COIMBATORE REPORTED IN [2010] 187 TAXMAN 346 (SC). 25.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) ALLOWED THE ASS ESSEES APPEAL FOLLOWING THE ORDER OF THIS TRIBUNAL FOR THE A.Y.20 09-10 IN ASSESSEES OWN CASE. THE RELEVANT PARAGRAPH OF THE LD.CIT(A) ORDER IN PARA NO. NO.6.2 IS EXTRACTED AS UNDER: 6.2. I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS. THE LEARNED AUTHORISED REPRESENTATIVE FILED COPY OF THE ITAT ORDER FOR ASSE SSMENT YEAR 2009-10 AND I HAVE PERUSED THE SAME. WHILE DELETING THE ADDITION MADE TOWARDS BAD DEBTS FOR THE ASSESSMENT YEAR 2009-10 THE HONOURABLE ITAT HAS EXTRACTED PARA S FROM ITS ORDER IN I.T.A NO.726/MDS /2010 AS UNDER: 8. TO REITERATE, THE ASSESSEE HAS MAINTAINED SEPAR ATE ACCOUNTS FOR THE PURPOSE OF INCOME TAX. INCOME FOR REGULAR ASSESSMENT U/S.143 NEEDS TO BE DETERMINED ON THE BASIS OF THESE BOOKS ONLY. IT IS ONLY FOR THE PURPOSE OF APPLICATI ON OF SEC.115J OR 115JA OR 115JB THAT THE ACCOUNTS KEPT BY THE ASSESSEE IN COMPLIANCE WITH TH E PROVISIONS OF THE COMPANIES ACT ARE MADE RELEVANT BY THE INCOME TAX ACT. THE LD.CIT(A) H AS GIVEN A FINDING THAT THE INCOME TAX ACCOUNTS DO NOT CONTAIN ANY PROVISION FOR BAD D EBTS. THE ASSESSEE HAS CLAIMED IN THE REGULAR ASSESSMENT ONLY THAT SUM WHICH HAS BEEN WRI TTEN OFF. RELEVANT EXTRACTS REPRODUCED FROM THE TRIBUNALS ORDER FOR EARLIER YEARS DESCRIB E THE METHODOLOGY EMPLOYED BY THE ASSESSEE FOR IDENTIFYING THE DEBTS WHICH ARE REQUIR ED TO BE WRITTEN OFF AS BAD. IN THE CIRCUMSTANCES, WE FIND THERE IS NO SCOPE TO SUPPORT THE ALLEGATION BY THE REVENUE THAT THERE IS NO WRITE-OFF AND WHAT HAS BEEN CLAIMED IS ONLY A PROVISION. THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD VS J T. CIT, 320 ITR 577, HAS HELD THAT THE NATURE OF EXPENDITURE UNDER THE INCOME-TAX CANNOT B E CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF THE 1998 DIRECTIONS. THOUGH THEY DEVIATE FROM ACCOUNTING PRACTICE AS PROVIDED IN THE COMPANIES ACT, THEY DO NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. THEREFORE, TH E DECISION IN SOUTHERN TECHNOLOGIES CASE (SUPRA) DOES NOT COME NOT COME TO THE AID OF TH E REVENUE. ON THE CONTRARY, IN THE LIGHT OF A PROPER METHOD HAVING BEEN APPLIED TO IDE NTIFY AND WRITE OFF BAD DEBTS, INCOME TAX LAW DOES NOT ENVISAGE ANY FURTHER ENQUIRY INTO THE MATTER BY THE ASSESSING OFFICER AS ITA NOS.506 & 726/MDS/2016 :- 18 -: HELD BY THE COURTS IN A NUMBER OF CASES. IN PARTICU LAR, WE MAY REFER TO THE DECISION OF THE SUPREME COURT IN TRF LTD., VS CIT, RANCHI 323 ITR 3 97 IN WHICH IT HAS BEEN HELD THAT FOR ALLOWANCE OF BAD DEBTS, IT IS ENOUGH IF BAD DEBTS A RE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AND IT IS NOT NECESSARY FO R THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. 9. FOR THE FOREGOING REASONS, WE HAVE NO HESITATION IN UPHOLDING THE DELETION OF RS.13,57,58,000/-. CONSEQUENTLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED 26. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE RE VENUE IS ON APPEAL BEFORE US. APPEARING FOR THE REVENUE, THE LD. DR ARGUED THAT THE ASSESSEE HAS MADE PROVISION FOR BAD DEBTS AMOUNTING TO RS.2641.0 1 LAKHS WHICH WAS CLAIMED AS DEDUCTION AND THE SAME IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE INCOME TAX ACT. AS PER THE BOOKS OF ACCOUNT S, THE ASSESSEE HAS WRITTEN OFF THE AMOUNT OF RS.14,248.80 LAKHS WHEREA S THE CLAIM WAS MADE FOR DEDUCTION OF RS.16,889.01 LAKHS AND CLAIMED THE EXCESS DEDUCTION OF RS.2641.01 LAKHS. THE LD. CIT(A) COMMITTED AN ERRO R IN ALLOWING THE APPEAL. ON THE OTHER HAND, THE LD.AR ARGUED THAT T HE ASSESSEE IS MAINTAINING TWO SEPARATE SET OF BOOKS OF ACCOUNTS O NE FOR THE PURPOSE OF COMPUTATION OF INCOME AND OTHER FOR THE PURPOSE OF COMPANIES ACT. THE INCOME HAS BEEN COMPUTED AS PER THE BOOKS OF ACCOUN TS REGULARLY MAINTAINED BY THE ASSESSEE FOR INCOME TAX PURPOSE. IN THE INCOME TAX BOOKS, THE ASSESSEE HAS WRITTEN OFF ALL THE BAD DEB TS CLAIMED AS DEDUCTION, IN THE COMPANYS ACCOUNTS MAINTAINED FOR THE PURPOS E OF COMPANIES ACT, THE PROVISION WAS MADE AS NPA AND IT WAS SHOWN AS O UTSTANDING. THE MAINTENANCE OF TWO SEPARATE BOOKS OF ACCOUNTS HAS B EEN UPHELD BY THE HONBLE ITAT IN THE ORDERS REFERRED BY THE LD.CIT(A ) AND ALSO THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CAS E IN 78 TAXMANN.COM ITA NOS.506 & 726/MDS/2016 :- 19 -: 43 FOR THE AY 2006-07. THE LD.AR FURTHER ARGUED TH AT THE ISSUE IS LIMITED TO THE EXTENT OF APPLICATION OF THE HONBLE JURISDI CTIONAL HIGH COURTS DECISION IN THE ASSESSEES CASE FOR THE YEAR UNDER CONSIDERATION. SINCE THE AO AS WELL AS THE LD.CIT(A) HAS VERIFIED THE BOOKS OF ACCOUNTS, THIS TRIBUNAL HAS NO JURISDICTION TO VERIFY WHETHER THE ASSESSEE IS MAINTAINING TWO SETS OF BOOKS OF ACCOUNTS OR NOT. THE DEPARTME NTS CASE IS NOT THAT THE ASSESSEE HAS NOT MAINTAINED THE TWO SEPARATE SE TS OF BOOKS OF ACCOUNTS, IT IS THE CASE OF THE REVENUE THAT THE AS SESSEE IS MAINTAINING THE TWO SETS OF BOOKS OF ACCOUNTS AND NPA PROVISION IS NOT ALLOWABLE AS DEDUCTION U/S.36(I)(VII) OF INCOME TAX ACT. THIS I SSUE HAS BEEN SQUARELY COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT AN D THE DECISION RELIED UPON BY THE ASSESSEE AS WELL AS THE LD.CIT(A) CITED SUPRA. 27.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CAS E FOR THE AY 2006-07. THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE ASSESSEE IS FREE TO MAINTAIN TWO SETS OF BOOKS OF ACCOUNTS ONE FOR INCO ME TAX AND ANOTHER FOR CORPORATE ACCOUNTS. SINCE THE ASSESSEE IS MAINTAINI NG TWO SEPARATE BOOKS OF ACCOUNTS, THE PROVISIONS FOR THE BAD DEBTS IN TH E CORPORATE ACCOUNTS DOES NOT IMPACT THE CLAIM OF BAD DEBTS U/S.36(I)(VI I) OF INCOME TAX ACT IN REGULAR COMPUTATION OF INCOME. THE ISSUE IN THIS C ASE IS WHETHER THE ASSESSEE IS MAINTAINING TWO SEPARATE BOOKS OF ACCOU NTS OR NOT. IF THE TWO SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED WHETHER T HE ASSESSEEE HAS ITA NOS.506 & 726/MDS/2016 :- 20 -: WRITTEN OFF THE BAD DEBTS IN INCOME TAX BOOKS OR NO T? AS PER THE ASSESSMENT ORDER, IT APPEARS THAT THE AO HAS NOT VE RIFIED THE FACTS REGARDING THE MAINTENANCE OF THE TWO SEPARATE BOOKS OF ACCOUNTS BY THE ASSESSEE. THE AO HAS PROCEEDED TO COMPLETE THE ASS ESSMENT ON PRESUMPTION THAT THE ASSESSEE HAS MAINTAINED TWO SE PARATE BOOKS OF ACCOUNTS, WITHOUT ACTUALLY VERIFYING THE BOTH THE S ETS OF BOOKS OF ACCOUNTS WHICH IS EVIDENT FROM THE ASSESSMENT ORDER. THE AO HAS NOT GIVEN ANY FINDING REGARDING THE MAINTENANCE OF TWO SEPARATE B OOKS OF ACCOUNTS AND VERIFICATION OF THE SAME IN THE ASSESSMENT ORDER. SIMILARLY, THE LD.CIT(A) ALSO PROCEEDED WITH A PRESUMPTION THAT THE ASSESSEE WAS MAINTAINING TWO SETS OF BOOKS OF ACCOUNTS AND ALLOWED THE APPEAL. AS PER THE PROFIT & LOSS A/C, BALANCE SHEET FILED BY THE ASSESSEE BEFORE US, BOTH IN INCOME TAX BALANCE SHEET AND CORPORATE ACCOUNTS BALANCE SHEET THE OUTSTANDING OF LONG TERM AND SHORT TERM ADVANCES ARE ONE AND THE S AME AS UNDER: AS PER CORPORATE ACCOUNTS RS.2,45,575.13 LAKHS AS PER INCOME TAX PURPOSE RS.2,49,575.15 LAKHS 27.1 THE OUTSTANDING ADVANCES SHOWN IN BOTH IN I NCOME TAX AS WELL AS CORPORATE ACCOUNTS AS PER THE SCHEDULE-12 OF COMPAN IES ACT AND AS PER THE SCHEDULE -11 OF BALANCE SHEET PREPARED FOR INCO ME TAX PURPOSE ARE AS UNDER: SCHEDULE -12 LOANS AND ADVANCES (CORPORATE ACCOUNTS ) ITA NOS.506 & 726/MDS/2016 :- 21 -: PARTICULARS LONG-TERM SHORT-TERM AS AT MARCH 31, AS AT MARCH 31, 2012 2012 UNSECURED, CONSIDERED GOOD CAPITAL ADVANCES 719.24 -- SECURITY DEPOSITS 1,046.55 300.00 LOANS AND ADVANCES ASSETS UNDER FINANCING ACTIVITIES: - SECURED, CONSIDERED GOOD 2,27,370.63 7,68,852.49 - DOUBTFUL 1,382.21 12,432.95 - UNSECURED, CONSIDERED GOOD 19,445.40 48,259.74 - DOUBTFUL 230.94 2,657.88 - LESS: PROVISION FOR NON-PERFORMING ASSETS (230.94) (2,657.88) ADVANCES RECOVERABLE IN CASH OR IN KIND OR FOR VALUE TO BE RECEIVED UNSECURED, CONSIDERED GOOD -- 2,014.05 TOTAL 2,49,575.13 8,22,512.52 ITA NOS.506 & 726/MDS/2016 :- 22 -: ITA NOS.506 & 726/MDS/2016 :- 23 -: 27.2 FROM THE ABOVE DETAILS OF LOANS AND ADVA NCES AS AT THE END OF 31 ST MARCH BOTH FOR INCOME TAX AND CORPORATE ACCOUNTS W ERE OUTSTANDING AT RS.2495,75,14,211/- IN THE CASE OF LONG TERM LOA NS AND ADVANCES AND RS.8225,12,51,899/- , IN THE CASE OF SHORT TERM ADV ANCES AND IT APPEAR THAT THE ASSESSEE COMPANY HAS NOT WRITTEN OFF THE P ROVISION FOR NON PERFORMING ASSETS AMOUNTING TO RS.2,641.01 LAKHS. IF THE ASSESSEES CONTENTION THAT IT HAD MAINTAINED TWO SEPARATE SETS OF BOOKS OF ACCOUNTS IS CORRECT, THE ASSESSEE WOULD HAVE WRITTEN OFF T HE BAD DEBTS IN THE INCOME TAX BOOKS AND DEMONSTRATED THE DIFFERENCE OF TWO SETS. IT APPEAR THAT THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOU NTS AS PER THE COMPANIES ACT AND COMPUTED THE INCOME AS PER THE IN COME TAX ACT 27.3 THIS BENCH HAS CALLED FOR BOTH THE SETS OF ACCOUNTS PURPORTED TO BE MAINTAINED BY THE ASSESSEE I.E. CORPORATE ACCOUN TS AS WELL AS INCOME TAX ACCOUNTS. ON THE DATE OF HEARING, THE LD.AR OF THE ASSESSEE HAS FAILED TO PRODUCES BOTH THE SETS BOOKS OF ACCOUNTS STATED TO BE MAINTAINED BY IT. THE LD A.R. WAS SPECIFICALLY ASKED BY THIS TRIBUNAL TO PRODUCE THE MAIN CASH BOOKS, GENERAL LEDGERS, DEBTORS LEDGERS EXPENS ES ACCOUNT AND THE INCOME ACCOUNT, AUDIT REPORT AS PER SEC.44AB OF INC OME TAX ACT AND THE BOOKS OF ACCOUNTS MAINTAINED AS AUDITED U/S.44AB AN D THE ACCOUNTS APPROVED BY THE AGM. THE ASSESSEE MERELY PRODUCED T HREE LEDGER ACCOUNTS COPIES BUT DID NOT PRODUCE ALL THE BOOKS O F ACCOUNTS CALLED FOR AND COULD NOT DEMONSTRATE THAT IT HAS MAINTAINED TW O SETS OF BOOKS OF ACCOUNTS FOR COMPANIES ACT AND INCOME TAX ACT, AND THE PROVISION FOR NPA CLAIMED AS DEDUCTION IN FACT WAS WRITTEN OFF IN INCOME TAX BOOKS. ITA NOS.506 & 726/MDS/2016 :- 24 -: THEREFORE, THE ISSUE REGARDING MAINTENANCE OF TWO S EPARATE BOOKS OF ACCOUNTS AND THE CORRECTNESS OF THE COMPUTATION OF INCOME REQUIRED FURTHER VERIFICATION AT THE LEVEL OF AO. ON THE SI MILAR FACTS, IN THE ASSESSEES GROUP COMPANY IN ITA NO.868 & 869/MDS/20 15 THE ISSUE WAS REMITTED BACK TO THE FILE OF THE AO IN PARA NOS.13 & 14 ARE AS UNDER: 13. THE NEXT GROUND RAISED IN THE APPEAL OF THE RE VENUE IS WITH REGARD TO DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS P ROVISION FOR NON-PERFORMING ASSETS [NPA]. THE ASSESSEE HAS CLAIMED NON-PERFORMING ASSET S OF .32.36 CRORES AS BAD DEBTS. THE ASSESSING OFFICER HAS DISALLOWED THE SAME AS THE ASSESSEE HAS MADE TWO SETS OF ACCOUNTS I.E. ONE SET OF BOOKS OF ACCOUNT FOR INCOM E TAX ACT AND ANOTHER SET OF ACCOUNTS FOR COMPANIES ACT PURPOSES. ACCORDING TO THE ASSESS ING OFFICER, THE ASSESSEE CANNOT MAINTAIN TWO SETS OF ACCOUNT AND HE OBSERVED THAT T HE ASSESSEE HAS SHOWN AS PROVISION IN THE STATUTORY BOOKS AND WAS CLAIMED DEDUCTION ASS W RITTEN OFF FOR THE PURPOSE OF INCOME TAX. HE OBSERVED THAT AS PER SECTION 36(1)(VII) BAD D EBTS ACTUALLY WRITTEN OFF IS ONLY TO 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 CANNOT 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 ASSESSEE AND ALLOWED THE GROUND RAISED BY THE ASSESSEE, AGAINST WHICH, THE REVENUE IS IN APPEAL B EFORE THE TRIBUNAL FOR ALL THESE ASSESSMENT YEARS. 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 C ITED (SUPRA) AND IT HAS TO BE FOLLOWED. HOWEVER, WE OBSERVED FROM THE ORDER OF THE ASSESSIN G OFFICER THAT HE HAS GIVEN A FINDING THAT IN THE ACCOUNT PREPARED FOR THE PURPOSE OF INC OME TAX, THE ASSESSEE HAS CLAIMED .11659.84 LAKHS AS BAD DEBT WRITTEN OFF AND THE AM OUNT 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 CLEAR TO US AS TO WHETHER THIS AMOUNT HAS BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS MAINTAINED AND GOT AUDITED BY THE ASSESSEE UNDER STATUTE BY CREDITING EACH INDIVIDUAL DEBIT ACCOUNT, THEN, IT C OULD BE ALLOWED AS BAD DEBT AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V. CI T 323 ITR 397, WHEREIN, THE HONBLE SUPREME COURT 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 IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. FURTHER, IN THE PRESENT CASE, 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 REMITTED BAC K TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECT ONLY, T HAT 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 IS APPROPRIATE TO REMIT BACK THE ENTIRE ISSUE TO VERIFY WHETHER THE D EBT IS ACTUALLY WRITTEN OFF IN THE AUDITED BOOKS OF ACCOUNTS PASSING ENOUGH ENTRIES TOWARDS WR ITTEN OFF TO THE INDIVIDUAL ACCOUNT AND THEN ONLY THE ASSESSEE IS ENTITLED FOR DEDUCTION AS BAD DEBT PROVIDED THE ASSESSEE FULFILS THE CONDITION SUCH AS SATISFACTION OF INCOME TAX AC T AS CONTEMPLATED UNDER SECTION 36(2) OF THE ACT. WE, THEREFORE, DIRECT THE ASSESSING OFFI CER TO VERIFY THE REQUIREMENT OF SECTION 36(2) AND DECIDE THEREUPON. ACCORDINGLY, THIS ISSUE RAISED BY THE REVENUE IS REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 27.4 THEREFORE, WE ARE OF THE CONSIDERED OPINION TH AT IN THIS CASE THE FACT REGARDING WHETHER THE ASSESSEE IS MAINTAINING TWO S ETS OF BOOKS OF ITA NOS.506 & 726/MDS/2016 :- 25 -: ACCOUNTS OR NOT AND WHAT IS THE REGULAR METHOD OF A CCOUNTING EMPLOYED BY THE ASSESSEE FOR THE PURPOSE OF INCOME TAX ACT, WHETHER THE TRUE AND CORRECT INCOME CAN BE DEDUCED FROM THE INCOME TAX B OOKS OR NOT, WHETHER THE ASSESSEE IS CLAIMING DOUBLE DEDUCTION O F ANY BAD DEBTS ALREADY WRITTEN OFF REQUIRED FURTHER VERIFICATION A T THE END OF THE AO. THEREFORE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO VERIFY THE ABOVE ASPECTS AND RE-ADJUDICATE THE ISSUE ON MERITS . THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSE. 25.0 GROUND NO.2.1 REPEATED TWICE ON FOR THE DISALL OWANCE MADE BY THE AO U/S.14A OF THE IT ACT. THIS ISSUE HAS COME UP FOR ADJUDICATION IN THE ASS ESSEES APPEAL NO.506/2016 IN GROUND NO.II-D AND DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, WE DISMISS THE R EVENUES APPEAL ON THIS GROUND. 26.0 THE SECOND ISSUE IN GROUND NO.2.1 IS RELATED T O THE ADDITION ON ACCOUNT OF ROYALTY PAYMENT OF RS.5,65,94,842/-. TH E AO DISALLOWED A SUM OF RS.5,65,94,842/- ROYALTY PAID TO M/S.SHRIR AM OWNERSHIP TRUST FOR THE USE OF ITS LOGO. THE AO TREATED THE PAYMEN T AS CAPITAL EXPENDITURE INCURRED FOR ACQUIRING AN INTANGIBLE AS SET AND ALLOWED 25% OF ROYALTY AMOUNTING TO RS.1,41,48,710/- AS DEPRECIATI ON AND THE BALANCE PAYMENT OF ROYALTY RS.4,24,46.132/- WAS DISALLOWED AND ADDED BACK TO INCOME. ITA NOS.506 & 726/MDS/2016 :- 26 -: 27.0 ON APPEAL BEFORE THE CIT(A), THE LD.CIT(A) DEL ETED THE ADDITION FOLLOWING THE ORDER OF THIS TRIBUNAL FOR THE AY 200 9-10 IN ITA NO.1898/MDS/2012. ON IDENTICAL FACTS, IN THE ASSES SEES GROUP COMPANY M/S.SHRIRAM TRANSPORT FINANCE CO. LTD., IN ITA NO.4 54/MDS/2016 DATED 24.08.2016 ITAT HAS DELETED THE ADDITION IN RESPECT OF ROYALTY TREATING IT AS REVENUE EXPENDITURE. FOR READY REFERENCE, WE EX TRACT THE RELEVANT PARAGRAPHS OF THE ITAT ORDER IN PAGE NO.18 AT PARA NO.29 AS UNDER: 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WHAT WAS PAID BY THE ASSESSEE IS FOR THE RIGHT TO USE THE LOGO BELONGING TO SHRIRAM OWNERSHIP TRUST. WHEN THE ASSES SEE MADE PAYMENT FOR USE OF RIGHT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. THEREFORE, THE CIT(APPEALS) HAS RIGHTL Y FOUND THAT THE PAYMENT MADE BY THE ASSESSEE IS IN THE REVENUE FIELD. IN FACT, SIMILAR ADDITION MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2002-03 WAS DELETED BY THIS TRI BUNAL. THE CIT(APPEALS) BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN SHRIRAM T AMIL NADU PVT. LTD., ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CON FIRMED. FOLLOWING THE DECISION OF THIS TRIBUNAL, IN THE AS SESSEES GROUP COMPANY, WE HOLD THAT THE LD.CIT(A) HAS RIGHTLY DEL ETED THE ADDITION AND THE ORDER OF THE LD.CIT(A) IS UPHELD. THE REVENUE S APPEAL ON THIS GROUND IS DISMISSED. 28.0 GROUND NO.2.4 TO 2.6 IS RELATED TO THE ESOP EX PENSES AMOUNT TO RS.1,91,82,201/- DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE ASSESSEE CLAIMED THE AMOUNT OF RS.1,91,82,201/- TOWARDS EMPL OYEES STOCK OPTION PLAN (IN SHORT ESOP) AND CLAIMED AS REVENUE EXPE NDITURE. THE AO HELD THAT THE EXPENDITURE WAS A CONTINGENT IN NATURE AND ACCORDINGLY, DISALLOWED THE EXPENSES. ITA NOS.506 & 726/MDS/2016 :- 27 -: 28.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADD ITION FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR T HE AY 2009-10 IN ITA NO.1819/MDS/2012 DATED 11.04.2013. 29.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. IN THE ASSESSEES OWN CASE, FOR THE AY 2009-10 THI S TRIBUNAL HELD THE EXPENDITURE AS REVENUE EXPENDITURE IN ITA NO.18 19/MDS/2012. ON IDENTICAL FACTS IN THE ASSESSEES GROUP COMPANY M/S .SHRIRAM TRANSPORT FINANCE CO. LTD., IN ITA NO.728/MDS/2016 DATED 24.0 8.2016 DELETED THE ADDITION MADE BY THE AO TREATING THE ESOP EXPENDITU RE AS ALLOWABLE REVENUE EXPENDITURE IN PARA NO.33, WHICH IS RE-PROD UCED AS UNDER: 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GON E THROUGH THE ORDERS OF BOTH THE AUTHORITIES BELOW. THE ASSESSING OFFICER FOUND THAT IN THE ASSESSEE'S OWN CASE FOR EARLIER ASSESSMENT YEAR, ON THE BASIS OF VERY SAME EMPLOYEE S STOCK OPTION SCHEME, 2005, THIS TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSING OFFICER FOUND THAT THE APPEAL IS FILED BEFORE THE MA DRAS HIGH COURT AND THE SAME IS PENDING. THE ASSESSING OFFICER ALSO FOUND THAT THE REVENUE HA S FILED SLP AGAINST THE JUDGMENT OF MADRAS HIGH COURT IN PVP VENTURES LTD. (SUPRA) BEFO RE THE SUPREME COURT AND THE SAME WAS DISMISSED. PENDING FINALITY THROUGH REVIEW OR C URATIVE PETITION, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE IN ORDER TO PR OTECT THE INTEREST OF THE REVENUE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE MATTER WAS FINALLY DECIDED BY THE JURISDICTIONAL HIGH COURT AND THE REVENUES SLP WAS DISMISSED BY THE APEX COURT, THE ASSESSING OFFICER HAS TO FOLLOW THE JUDGMENT OF MADR AS HIGH COURT. MOREOVER, FOR ASSESSMENT YEAR 2009-10, THIS TRIBUNAL ALLOWED SIMI LAR CLAIM OF THE ASSESSEE ON THE BASIS OF VERY SAME EMPLOYEES STOCK OPTION SCHEME, 2005. T HEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 30.0 RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBU NAL, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE REVENUE APPEAL ON THIS ISSUE. ITA NOS.506 & 726/MDS/2016 :- 28 -: IN THE RESULT, THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . % ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 7 TH JUNE, 2017. TLN 1 /%7 87 /COPY TO: 1. . /APPELLANT 4. 9 /CIT 2. /0. /RESPONDENT 5. 7 / /DR 3. 9 ( ) /CIT(A) 6. + /GF