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

ITA 727/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8689 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 14A; 115JB; 37(1); 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.727/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DY. COM M ISSIONER OF INCOME-TAX CORPORATE CIRCLE 6(1) CHENNAI VS. M/S SHRIRAM CREDIT COMPANY LTD NO.4, MOOKAMBIKA COMPLEX LADY DESIKACHARY ROAD MYLAPORE,CHENNAI 600 004 [PAN AABCS 2726 B ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT /RESPONDENT BY : SHR I R . SIVARAMAN, ADVOCATE / DATE OF HEARING : 31 - 05 - 2016 ! / DATE OF PRONOUNCEMENT : 29 - 0 7 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15, CHENN AI, DATED 24.9.2015 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS COMPUTA TION OF INCOME U/S 115JB OF THE INCOME-TAX ACT, 1961. ITA NO.727/16 :- 2 -: 3. SHRI SHIVA SRINIVAS, LD. DEPARTMENTAL REPRESENTATIV E SUBMITTED THAT WHILE COMPUTING THE INCOME U/S 115J B OF THE ACT, THE ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE DISALLOWANCE MADE BY HIM TO THE EXTENT OF ` 75,16,020/- U/S 14A OF THE ACT. THE ASSESSING OFFICER ADDED THE DISALLOWANCE MADE U/S 14A OF THE ACT TO THE BOOK PROFIT COMPUTED UNDER THE PROVISIONS OF TH E COMPANIES ACT. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INVESTMENTS WERE MA DE IN THE EARLIER PREVIOUS YEAR AND SOME OF THE INVESTMENTS WERE MADE IN THE SUBSIDIARY COMPANIES. THE CIT(A) HAS NOT CONSIDERE D THE INCLUSION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT WHILE COMPUTING HE BOOK PROFIT U/S 115JB OF THE ACT. AC CORDING TO THE LD. DR, WHEN THE ASSESSEE INVESTED IN SHARES AND MUTUA L FUNDS AND EARNED EXEMPTED INCOME, THE DISALLOWANCE FOR EXPEND ITURE HAS TO BE COMPUTED UNDER RULE 8D OF THE INCOME TAX RULES, THE REFORE, THE ASSESSING OFFICER HAS RIGHTLY TAKEN THE AVERAGE INV ESTMENT MADE DURING THE FIRST DAY OF THE FINANCIAL YEAR AND LAST DAY OF THE FINANCIAL YEAR AS FOUND IN THE BALANCE SHEET AND DISALLOWED 0 .5%. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM O F THE ASSESSEE. 4. ON THE CONTRARY, SHRI R. SIVARAMAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VERY SAME ISSUE WAS CON SIDERED BY THIS ITA NO.727/16 :- 3 -: TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEA RS 2010-11 AND 2011-12 IN I.T.A.NOS. 512 & 513/MDS/2015, DATED 19. 11.2015. THIS TRIBUNAL FOUND THAT WHEN THE INVESTMENT WAS MADE I N THE SUBSIDIARY COMPANIES, THERE CANNOT BE ANY DISALLOWANCE U/S 14 A OF THE ACT. MOREOVER, THE CIT(A) HAS RIGHTLY FOUND THAT THE INV ESTMENT WAS MADE IN THE EARLIER PREVIOUS YEAR, THEREFORE, EVEN THIRD LIMB OF RULE 8D IS NOT APPLICABLE. MERELY BECAUSE THE REVENUES APPEAL AG AINST THE ORDER OF THIS TRIBUNAL IS PENDING BEFORE THE HIGH COURT, THA T CANNOT BE A REASON TO TAKE A DIFFERENT VIEW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE FOR EARNING THE EXEMPTED INCOME BY APPLYING THE PROVISIONS OF RULE 8D. IT IS NOT IN D ISPUTE THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION. RULE 8D CLEARLY SAYS THAT THE DISALLOWANCE HAS TO BE MADE IF THE ASSESSING OF FICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPE NDITURE OR WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, B Y APPLYING THE PROVISIONS OF SUB-RULE (2) OF RULE 8D. THE DISALLO WANCE SHALL BE AGGREGATE OF THE AMOUNT AS COMPUTED UNDER RULE 8D(2 ). RULE 8D(2)(III) CLEARLY SAYS THAT AN AMOUNT EQUAL TO 0.5 % OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM ITA NO.727/16 :- 4 -: PART OF THE TOTAL INCOME, AS APPEARING IN THE BALAN CE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE P REVIOUS YEAR. THE ASSESSING OFFICER IN THE IMPUGNED ORDER AT PAGE 3 H AS FOUND THAT THE VALUE OF THE INVESTMENT AS ON 31.3.2012 WAS ` 14,64,94,400/-. THE INVESTMENT AS ON 1.4.2011 WAS ` 13,84,09,890/-. THE ASSESSING OFFICER HAS ALSO FOUND THAT THE ASSESSEE HAS BORRO WED FUNDS AND PAID INTEREST DURING THE YEAR UNDER CONSIDERATION TO THE EXTENT OF ` 4,92,84,815/-. THEREFORE, IN THE ABSENCE OF ANY IN COME DIRECTLY ATTRIBUTABLE TO THE INTEREST PAID BY THE ASSESSEE, THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(II). FROM THE ASSE SSMENT ORDER IT APPEARS THAT THE ASSESSEE HAS INCURRED EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME BY WAY OF INT EREST ON THE BORROWED LOAN AND ALSO MADE INVESTMENT DURING THE Y EAR UNDER CONSIDERATION. THEREFORE, THE OBSERVATION MADE BY THE CIT(A) THAT THE ENTIRE INVESTMENT WAS MADE IN THE EARLIER PREVIOUS YEAR IS NOT CORRECT. APPARENTLY, THERE IS AN INVESTMENT DURING THE PREVI OUS YEAR WHICH IS RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . EVEN THOUGH THE CIT(A) FOUND THAT THE INVESTMENTS WERE MADE IN THE SUBSIDIARY COMPANIES, NO SUCH PARTICULARS ARE AVAILABLE HOW TH E COMPANIES IN WHICH INVESTMENTS WERE MADE ARE SUBSIDIARY OF THE A SSESSEE- COMPANY. THE CIT(A) BY REPRODUCING THE ORDER OF TH IS TRIBUNAL HAS SIMPLY FOUND THAT THE INVESTMENT IN SUBSIDIARY COMP ANIES CANNOT BE ITA NO.727/16 :- 5 -: CONSIDERED FOR DISALLOWANCE U/S 14A. IN THE ABSEN CE OF ANY MATERIAL AVAILABLE ON RECORD, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSING OFFICER HAS TO EXAMINE THE COMPANIES IN W HICH THE INVESTMENTS WERE MADE BY THE ASSESSEE AND HOW SUCH COMPANIES ARE SUBSIDIARY OR HOLDING COMPANY OF THE ASSESSEE. SI NCE SUCH AN EXERCISE WAS NOT DONE BY BOTH THE AUTHORITIES BELOW , THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATER NEEDS TO B E RECONSIDERED. APPARENTLY FEW INVESTMENTS WERE MADE DURING THE YEA R UNDER CONSIDERATION. THE ORDER OF THIS TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS VIZ. 2010-11 AND 2011-12 IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THEREFORE, THE ASSESSING OFFICER HAS TO REEX AMINE THE MATTER AFRESH BY TAKING INTO CONSIDERATION ALL THE INVESTM ENTS MADE BY THE ASSESSEE AND THEREAFTER DECIDE THE SAME IN ACCORDAN CE WITH LAW. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER SHALL REEXAMINE THE MATTER AND BRING ON RECORD THE COMPAN IES IN WHICH THE INVESTMENTS WERE MADE AND HOW SUCH COMPANIES ARE SUBSIDIARY/HOLDING COMPANY OF THE ASSESSEE AND THE REAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW MORE PARTICULARLY, IN T HE LIGHT OF THE PROVISIONS OF RULE 8D, AFTER GIVING A REASONABLE OP PORTUNITY TO THE ASSESSEE. ITA NO.727/16 :- 6 -: 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE OF EXPENDITURE MADE BY THE ASSESSEE FOR ACQUISITION O F INTANGIBLE ASSET VIZ. LOGO. 7. SHRI SHIVA SRINIVAS, LD. DR SUBMITTED THAT THE ASSESSEE INCURRED EXPENDITURE OF ` 35,87,560/- TOWARDS ROYALTY. THE SAME WAS SAID TO BE PAID TO SHRIRAM OWNERSHIP TRUST FOR USIN G THEIR LOGO. THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE INCURR ED BY THE ASSESSEE WAS IN THE NATURE OF ROYALTY, THEREFORE, IT IS IN T HE CAPITAL FIELD, HENCE, IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE A SSESSING OFFICER, HOWEVER, ALLOWED DEPRECIATION U/S 32 OF THE ACT. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND THAT THIS TRIBUNAL IN TH E CASE OF ONE OF THE GROUP COMPANIES OF THE ASSESSEE, M/S SHRIRAM TRANS PORT FINANCE COMPANY LTD., FOR ASSESSMENT YEAR 2009-10 , ALLOWE D THE CLAIM OF THE ASSESSEE ON SIMILAR SET OF FACTS. ACCORDING TO THE LD. DR, THE REVENUE HAS ALREADY FILED AN APPEAL BEFORE THE HIGH COURT A GAINST THE ORDER OF THIS TRIBUNAL IN THE CASE OF M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD., THEREFORE, THE CIT(A) SHOULD NOT HAVE PLACED RELIANCE ON THE ORDER OF THIS TRIBUNAL IN M/S SHRIRAM TRANSPORT FIN ANCE COMPANY LTD. MOREOVER, IN THE CASE BEFORE US, THE ROYALTY WAS PA ID TO A TRUST AND NOT TO A GROUP COMPANY, THEREFORE, THE FACTS ARE NO T IDENTICAL, HENCE, ITA NO.727/16 :- 7 -: ORDER OF THIS TRIBUNAL IN THE CASE OF M/S SHRIRAM T RANSPORT FINANCE COMPANY LTD. IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 8. ON THE CONTRARY, SHRI R. SIVARAMAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ROYALTY WAS PAID TO SHRIRAM CHITS & INVESTMENTS PVT. LTD AND THE ASSESSING OFFICER DISA LLOWED THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL FOUND THAT THE PAYMEN T WAS MADE TO SHRIRAM CHITS & INVESTMENTS PVT. LTD FOR THE NON-EX CLUSIVE USE OF THE LOGO BASED ON TURNOVER AND WAS NOT A LUMP SUM PAYME NT. THE ASSESSEE HAS NO RIGHT OVER THE LOGO. WHAT WAS GIVE N TO THE ASSESSEE IS ONLY A RIGHT TO USE, THEREFORE, THIS TRIBUNAL FO UND THAT THERE WAS A COMPOSITE AGREEMENT BETWEEN THE PARTIES AND ACCORD INGLY ALLOWED THE CLAIM OF THE ASSESSEE. SINCE THE FACTS ARE ID ENTICAL AS IN THE CASE OF SHRIRAM CHITS & INVESTMENTS PVT. LTD, NO INTERFE RENCE IN THE ORDER OF THE CIT(A) IS CALLED FOR. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. DU RING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS PAID ` 35,87,560/- TO SHRIRAM OWNERSHIP TRUST FOR USING THEIR LOGO. THE ASSESSE E CLAIMED THE SAME AS REVENUE EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSE SSEE ON THE GROUND THAT WHAT WAS PAID BY THE ASSESSEE IS A ROYALTY, T HEREFORE, IT IS IN THE ITA NO.727/16 :- 8 -: CAPITAL FILED AND ALLOWED DEPRECIATION U/S 32 OF T HE ACT. THE ASSESSEE CLAIMS THAT SHRIRAM OWNERSHIP TRUST IS ONE OF THE G ROUP CONCERN. IF THE ASSESSEE CLAIMS THAT SHRIRAM OWNERSHIP TRUST I S ONE OF THE GROUP CONCERN, IT IS NOT KNOWN HOW A TRUST CAN BE A GROUP CONCERN. THE ASSESSEE BEING A COMPANY ENGAGED IN THE BUSINESS, A TRUST CANNOT BE A GROUP CONCERN OF THE BUSINESS CONCERN. THE TRUST CAN BE AN INDEPENDENT ENTITY FOR CHARITABLE ACTIVITY OR OTHER ACTIVITY AS PER THE OBJECT OF THE TRUST. THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT A TRUST CANNOT BE CONSTRUED AS A GROUP CONCERN OF A B USINESS CONCERN. THE TRUST HAS TO BE ALWAYS TREATED INDEPENDENTLY AN D IT IS AN INDEPENDENT STATUTORY BODY. THE ASSESSEE NOW CLAI MS THAT THE LOGO BELONGS TO SHRIRAM OWNERSHIP TRUST WAS USED BY THE ASSESSEE IN ITS BUSINESS ACTIVITY AND PAYMENT WAS MADE ON TURNOVER BASIS. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER SUCH P AYMENT IS AN ALLOWABLE BUSINESS EXPENDITURE U/S 37(1) OF THE AC T. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN SHRIRAM OWNERS HIP TRUST IS AN INDEPENDENT STATUTORY BODY, BEING A TRUST, THE AS SESSEE HAS TO NECESSARILY MAKE PAYMENT FOR USING THE LOGO TO SHRI RAM OWNERSHIP TRUST AND SUCH PAYMENT HAS TO BE AT THE MARKET RATE . THEREFORE, THIS PAYMENT OF ` 35,87,560/- BEING AN EXPENDITURE FOR USING LOGO IS AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. THERE FORE, THIS TRIBUNAL ITA NO.727/16 :- 9 -: DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 29 TH JULY, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF