DCIT, CHENNAI V. Shriram Transport Finance Co. Ltd., CHENNAI

ITA 728/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8709 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR U ANJANEYALU
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB; 37

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 ./ ITA NO.454/MDS/2016 ( )( / ASSESSMENT YEAR : 2012-13 M/S SHRIRAM TRANSPORT FINANCE CO. LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. PAN : AAACS 7018 R V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) ./ ITA NO. 728/MDS/2016 ( )( / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. V. M/S SHRIRAM TRANSPORT FINANCE CO. LTD., MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI - 600 004. (+,/ APPELLANT) (-.+,/ RESPONDENT) (/0 1 2 /ASSESSEE BY : SHRI R. SIVARAMAN, ADVOCATE 3 1 2 /REVENUE BY : DR. U. ANJANEYALU, CIT 4 1 0% / DATE OF HEARING : 31.05.2016 5') 1 0% / DATE OF PRONOUNCEMENT : 24.08.2016 2 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE D IRECTED AGAINST THE SAME ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS)-15, CHENNAI, DATED 24.09.2015 AND PERTAIN S TO ASSESSMENT YEAR 2012-13. THEREFORE, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. LETS FIRST TAKE THE ASSESSEES APPEAL IN I.T.A. NO.454/MDS/2016. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF ` 375,10,96,984/- TRANSFERRED TO RESERVE FUND UNDER S ECTION 45-IC OF RESERVE BANK OF INDIA ACT. 3. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE ASSESSEE TRANSFERRED A SUM OF ` 375,10,96,984/- TO RESERVE FUND AS REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT AND CLAIMED THE SAME AS APPROPRIA TION OF FUNDS BY OVERRIDING TITLE. HOWEVER, THE ASSESSING OFFICE R DISALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THE SAME AS APPLIC ATION OF INCOME. THE CIT(APPEALS) ALSO CONFIRMED THE ORDER OF THE AS SESSING OFFICER 3 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 BY PLACING RELIANCE ON THE ORDERS OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2003-04 TO 2009-10. THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE HAS ALREADY FILED AN APPEAL BEFORE THE HIGH COURT AND THE SAME IS PENDING. ACC ORDING TO THE LD. COUNSEL, IT IS ONLY AN APPROPRIATION OF PROFIT AS PER THE STATUTORY REQUIREMENT UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT, THEREFORE, IT CANNOT BE HELD AS APPLICATION OF INCO ME AT ALL. 4. ON THE CONTRARY, DR. U. ANJANEYALU, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT A SIMILAR CLAIM OF T RANSFER TO RESERVE FUND WAS MADE BY THE ASSESSEE FOR ASSESSMENT YEARS 2003-04 TO 2009-10. THE MATTER HAD COME UPTO TRIBUNAL AND NOW THE MATTER IS BEFORE THE HIGH COURT. ACCORDING TO THE LD. D.R., THE TRIBUNAL CONSISTENTLY FOUND THAT THE FUNDS TRANSFERRED TO RE SERVE FUND, AS REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT, IS ONLY AN APPLICATION OF INCOME, THEREFORE, IT IS LIA BLE FOR TAXATION. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) BY PLAC ING RELIANCE ON THE ORDERS OF THIS TRIBUNAL IN THE ASSESSEE'S OWN C ASE FOR ASSESSMENT YEARS 2003-04 TO 2009-10, HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAS TRANSFERRED A SUM OF ` 375,10,96,984/- TO RESERVE FUND AS REQUIRED UNDER SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT. THE ASSESSEE CLAIMS THAT IT IS ONLY AN APPROP RIATION OF FUNDS BY OVERRIDING TITLE. THIS TRIBUNAL EXAMINED THE VERY SAME ISSUE FOR ASSESSMENT YEARS 2003-04 TO 2009-10 AND FOUND THAT THE TRANSFER OF FUNDS, AS REQUIRED UNDER SECTION 45-IC OF THE RESER VE BANK OF INDIA ACT, IS ONLY AN APPLICATION OF INCOME, THEREFORE, L IABLE FOR TAXATION. IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE ASS ESSEE'S OWN CASE, FOR ASSESSMENT YEARS 2003-04 TO 2009-10, THIS TRIBU NAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO LEVY OF PENALTY UNDER SECTION 234D OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') TO THE EXTENT OF ` 3,48,13,498/-. 7. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT THE DEPARTMENT CHARGED INTEREST ON T HE REFUND MADE TO THE ASSESSEE. THIS INTEREST CHARGED BY THE REVE NUE UNDER SECTION 234D OF THE ACT WAS CLAIMED AS DEDUCTION UN DER SECTION 37 5 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 OF THE ACT, OTHERWISE THE INTEREST IS AN ALLOWABLE EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. THE LD.COUNSEL SUBM ITTED THAT THE INTEREST PAID BY THE ASSESSEE ON THE AMOUNT REFUNDE D BY THE DEPARTMENT HAS TO BE TAKEN AS LOAN. 8. ON THE CONTRARY, DR. U. ANJANEYALU, THE LD. DEPA RTMENTAL REPRESENTATIVE, SUBMITTED THAT THE INTEREST CHARGED UNDER SECTION 234D OF THE ACT CANNOT BE EQUATED TO THE INTEREST P AID ON THE LOAN BORROWED BY THE ASSESSEE. IT IS NOT A LOAN WHICH W AS AVAILED BY THE ASSESSEE FROM THE DEPARTMENT. PRIMA FACIE , THE DEPARTMENT FOUND THAT THERE WAS AN EXCESS PAYMENT, THEREFORE, THE SA ME WAS REFUNDED TO THE ASSESSEE. ON COMPLETION OF ASSESSM ENT, THE REVENUE FOUND THAT WHAT WAS REFUNDED TO THE ASSESSE E WAS NOT CORRECT. THEREFORE, THE INTEREST WAS CHARGED ON TH E INCOME-TAX WHICH IS DUE FROM THE ASSESSEE. THE TAX WAS NOT CO LLECTED ON THE AMOUNT REFUNDED TO THE ASSESSEE. WHAT WAS COLLECTE D FROM THE ASSESSEE IS THE TAX WHICH WAS OTHERWISE EXPECTED TO BE PAID BY THE ASSESSEE. SINCE THE ASSESSEE ENJOYED THE MONEY DUE TO THE DEPARTMENT, INTEREST WAS CHARGED UNDER SECTION 234D OF THE ACT, THEREFORE, IT IS NOT AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. 6 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. D.R., INTEREST IS CHARGED UNDE R SECTION 234D OF THE ACT ON THE EXCESS AMOUNT REFUNDED TO THE ASS ESSEE WHILE PROCESSING A RETURN UNDER SECTION 143(1) OF THE ACT . EVEN THOUGH IT IS AN INTEREST LEVIED ON THE AMOUNT REFUNDED TO THE ASSESSEE, IN FACT, IT IS AN INTEREST FOR DELAYED PAYMENT OF TAX. IN OTHER WORDS, THE AMOUNT REFUNDED TO THE ASSESSEE WHILE PROCESSING RE TURN UNDER SECTION 143(1) OF THE ACT WAS CONSIDERED AS NON-PAY MENT OF TAX AND INTEREST WAS CHARGED FOR THE PERIOD IN WHICH TH E ASSESSEE WAS HOLDING THE AMOUNT. THEREFORE, THE INTEREST PAID B Y THE ASSESSEE CANNOT BE CONSTRUED AS EXPENDITURE FOR EARNING THE INCOME OR FOR BUSINESS PURPOSE. THEREFORE, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 7 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 11. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED A S UM OF ` 1,43,40,000/- UNDER RULE 8D. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE-COMPANY ITSELF DISALLOWED SOME OF THE AMOUNT UNDER SECTION 14A OF THE ACT, TH EREFORE, THERE IS NO NEED FOR ANY FURTHER DISALLOWANCE. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER COMPUTED THE DISALLO WANCE UNDER RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962. IN FACT, THE ASSESSEE EARNED INCOME OF ` 2 LAKHS ONLY. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER IS NOT JUSTIFIED. MOREOVER, THE INVESTMENT WAS MADE IN TH E SISTER CONCERN OF THE ASSESSEE. THEREFORE, THERE WAS COMMERCIAL E XPEDIENCY IN MAKING THE INVESTMENT. HENCE, ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ANY DI SALLOWANCE. 12. ON THE CONTRARY, DR. U. ANJANEYALU, THE LD. DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT SECTION 14A OF THE A CT READ WITH RULE 8D(2) MAKES IT VERY CLEAR THAT WHEN THE ASSESS EE CLAIMS THAT NO EXPENDITURE WAS INCURRED OR THE ASSESSING OFFICE R IS SATISFIED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT CORRECT, A DISALLOWANCE CAN BE MADE BY ESTIMATING INCOME UNDER RULE 8D. 8 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE INVESTMENT MADE IN SUBSIDIARY COMPANY, THEREFORE, T HE ASSESSEE CANNOT HAVE ANY GRIEVANCE AT ALL. THE DISALLOWANCE WAS MADE ONLY IN RESPECT OF INVESTMENTS IN OTHER COMPANIES. IN F ACT, ACCORDING TO THE LD. D.R., THE DISALLOWANCE WAS COMPUTED ON THE AVERAGE INVESTMENT WHICH YIELDED INCOME AT THE RATE OF 0.5% . IN VIEW OF THE DIRECTION OF THE CIT(APPEALS), ACCORDING TO THE LD. D.R., THE ASSESSEE CANNOT HAVE ANY GRIEVANCE AT ALL. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCL UDE THE INVESTMENT MADE BY THE ASSESSEE IN THE SUBSIDIARY C OMPANY AND ALSO INVESTMENTS MADE IN THE UNQUOTED INVESTMENTS W ITH SUBORDINATE DEBTS OF YES BANK LTD. TO THE EXTENT OF ` 50 CRORES. THE CIT(APPEALS) FOUND THAT UNQUOTED INVESTMENTS WI TH SUBORDINATED DEBTS OF YES BANK LTD. WOULD NOT COME WITHIN THE PURVIEW OF SECTION 14A OF THE ACT AND AFTER THE DIR ECTION OF THE CIT(APPEALS), WHAT WAS DISPUTED IS IN RESPECT OF TH E INVESTMENT MADE BY THE ASSESSEE IN SHARES AND DEBENTURES OF OT HER COMPANIES. THIS TRIBUNAL IS OF THE CONSIDERED OPI NION THAT THE 9 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ASSESSING OFFICER HAS TO MANDATORILY COMPUTE THE EX PENDITURE INCURRED IN EARNING INCOME, WHICH DOES NOT FORM PAR T OF TOTAL INCOME, BY APPLYING RULE 8D(2) OF THE INCOME-TAX RU LES, 1962. THEREFORE, THE BORROWED FUNDS, DIRECT AND INDIRECT EXPENDITURE INCURRED BY THE ASSESSEE, WHICH IS NOT ATTRIBUTABLE TO ANY PARTICULAR INCOME AND 0.5% OF THE INVESTMENT, WHICH YIELDED IN COME WHICH DOES NOT FORM PART OF TOTAL INCOME, ALSO HAS TO BE TAKEN INTO CONSIDERATION. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 14. THE NEXT ISSUE IS WITH REGARD TO TDS CREDIT OF ` 67,16,883/-. 15. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT THE ASSESSEE CLAIMED CREDIT OF TAX D EDUCTED AT SOURCE TO THE EXTENT OF ` 24,97,95,185/-. THE ASSESSING OFFICER, HOWEVER, ALLOWED CREDIT TO THE EXTENT OF ` 24,35,30,430/-. THE CREDIT TO THE EXTENT OF ` 62,64,755/- WAS NOT GIVEN BY THE ASSESSING OFFICER. ON VERIFICATION OF FORM 26AS, THE ASSESSING OFFICER FOUND THAT THE TOTAL TDS WAS ` 25,02,47,313/- AS AGAINST ` 24,97,95,185/- CLAIMED IN THE RETURN OF INCOME. THEREFORE, ACCORDING TO T HE LD. COUNSEL, 10 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 THERE WAS AN OMISSION TO GIVE CREDIT TO THE EXTENT OF ` 67,16,883/-. THE CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO GIVE CREDIT AFTER VERIFICATION IF PERMISSIBLE UNDER THE ACT. ACCORDI NG TO THE LD. COUNSEL, THE TAX DEDUCTED AT SOURCE HAD TO BE GIVEN CREDIT WITHOUT ANY RESTRICTION. 16. ON THE CONTRARY, DR. U. ANJANEYALU, THE LD. DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT TAX DEDUCTED AT SOUR CE HAS TO BE TAKEN INTO ACCOUNT AS PROVIDED IN SECTION 140A OF T HE ACT. THE LD. D.R. FURTHER SUBMITTED THAT THE TAX DEDUCTED ON THE INCOME HAS TO BE OFFERED FOR TAXATION DURING THE YEAR UNDER CONSI DERATION. IF THE ASSESSEE HAS NOT OFFERED THE INCOME FOR TAXATION, T HEN THE CORRESPONDING TAX CREDITED CANNOT BE GIVEN CREDIT. THEREFORE, ACCORDING TO THE LD. D.R., THERE IS NOTHING WRONG I N DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E AFTER VERIFICATION, IF IT IS PERMISSIBLE UNDER THE LAW. ACCORDING TO THE LD. D.R., IF IT IS PERMISSIBLE UNDER THE LAW, IT CAN BE ALLOWED, OTHERWISE TAX DEDUCTED CANNOT BE GIVEN CREDIT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TAX DEDUCTED WHICH WAS NOT GIVEN CREDIT TO THE EXTENT O F ` 67,16,883/- IS 11 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 NOT IN DISPUTE. THE ASSESSEE CLAIMS THAT IT HAS TO BE GIVEN CREDIT WITHOUT ANY RESTRICTION. WE HAVE CAREFULLY GONE TH ROUGH THE PROVISIONS OF SECTION 140A OF THE ACT. WHEN THE SE LF-ASSESSMENT TAX WAS TO BE PAID, THE ASSESSEE HAS TO TAKE INTO A CCOUNT THE TAX ALREADY PAID AND ALSO THE TAX DEDUCTED OR COLLECTED AT SOURCE. THEREFORE, WHEN A TAX WAS COLLECTED IN RESPECT OF T HE INCOME, WHICH WAS ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION, THE SAME HAS TO BE GIVEN CREDIT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CREDIT FOUND IN FORM 26AS AND THE CERTIFICATE ISSUED BY THE DEDUCTOR UNDER FORM 16A NEED TO BE VERIFIED. THE ASSESSING OFFICER SHALL GIVE CREDIT IN ACCORDANCE W ITH LAW WHILE COMPUTING THE TAX LIABILITY OF THE ASSESSEE. THERE FORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(APPEALS) IN WHICH A DIRECTION WAS ISSUED TO GIV E CREDIT AFTER VERIFICATION, IF PERMISSIBLE UNDER THE ACT. THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT SUCH DIRECTION WOULD NOT PR EJUDICE THE INTEREST OF THE ASSESSEE IN ANY WAY. THEREFORE, TH E ORDER OF THE CIT(APPEALS) IS CONFIRMED. 18. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF ` 252 CRORES BEING THE AMOUNT TRANSFERRED TO STATUTOR Y RESERVE AS 12 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 PER RESERVE BANK OF INDIA GUIDELINES, WHILE COMPUTI NG INCOME UNDER SECTION 115JB OF THE ACT. 19. SHRI R. SIVARAMAN, THE LD.COUNSEL FOR THE ASSES SEE, SUBMITTED THAT AS PER THE GUIDELINES FRAMED BY THE RESERVE BANK OF INDIA, THE ASSESSEE HAS TRANSFERRED A SUM OF ` 252 CRORES TO STATUTORY RESERVE. THE ASSESSING OFFICER, HOWEVER, ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE WHILE COMP UTING THE TAXABLE INCOME. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER FOUND THAT THE AMOUNT WAS TRANSFERRED TO STATUTORY RESERVE ON THE GROUND THAT IT WAS A PROVISION FOR NON-PERFORMING A SSETS. ACCORDING TO THE LD. COUNSEL, THE CLAIM OF THE ASSESSEE WAS T OWARDS ASCERTAINABLE LIABILITY, THEREFORE, IT WOULD NOT FO RM PART OF TAXABLE INCOME OF THE ASSESSEE. HENCE, ACCORDING TO THE LD . COUNSEL, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTI FIED. THE LD.COUNSEL VERY FAIRLY SUBMITTED THAT FOR THE ASSES SMENT YEAR 2009- 10, THE VERY SAME ISSUE CAME BEFORE THIS TRIBUNAL I N THE ASSESSEE'S OWN CASE AND THIS TRIBUNAL CONFIRMED A SIMILAR ADDI TION MADE BY THE ASSESSING OFFICER. 20. WE HAVE HEARD DR. U. ANJANEYALU, THE LD. DEPART MENTAL REPRESENTATIVE ALSO. THE LD. D.R. SUBMITTED THAT W HILE COMPUTING 13 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE ADD ITION OR DEDUCTION HAS TO BE MADE AS PROVIDED UNDER EXPLANAT ION TO SECTION 115JB OF THE ACT. ONCE BOOK PROFIT WAS COMPUTED AS PER THE PROVISIONS OF COMPANIES ACT, NO AMOUNT CAN BE ADDED OR DEDUCTED UNLESS IT IS SPECIFICALLY PROVIDED IN EXPLANATION T O SECTION 115JB OF THE ACT. IN THE ABSENCE OF ANY PROVISION IN THE EX PLANATION TO SECTION 115JB OF THE ACT TO EXCLUDE THE STATUTORY R ESERVE FUND FROM THE BOOK PROFIT, ACCORDING TO THE LD. D.R., TH E SAME CANNOT BE DEDUCTED. IN FACT, ACCORDING TO THE LD. D.R., THIS TRIBUNAL, FOR THE ASSESSMENT YEAR 2009-10, IN THE ASSESSEE'S OWN CASE BY AN ORDER DATED 16.07.2009 IN I.T.A. NO.235/MDS/2009, CONFIRM ED A SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE PURPOSE OF SECTION 115JB OF THE ACT, THE BOOK PROFIT HAS TO BE COMPUTED AS PER THE PROVISIONS OF THE COMPANIES ACT AND FURTHER ADDITION OR DEDUCTION HAS TO BE MADE AS PROVIDED UNDER EXPLANAT ION TO SECTION 115JB OF THE ACT. IT IS NOT THE CASE OF THE ASSES SEE THAT THE AMOUNT TRANSFERRED TO STATUTORY RESERVE IS AN ITEM TO BE REDUCED FROM THE BOOK PROFIT COMPUTED AS PER THE PROVISIONS OF COMPANIES 14 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ACT. IN THE ABSENCE OF ANY PROVISION IN EXPLANATIO N TO SECTION 115JB OF THE ACT TO REDUCE THE AMOUNT TRANSFERRED T O STATUTORY RESERVE AS PER THE GUIDELINES OF RESERVE BANK OF IN DIA, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT( APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R BY PLACING HIS RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE ASSES SEE'S OWN CASE FOR THE ASSESSMENT YEAR 2009-10. THEREFORE, THIS TRIBU NAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 22. NOW COMING TO REVENUES APPEAL IN I.T.A. NO.728 /MDS/2016, THE FIRST GROUND OF APPEAL IS WITH REGARD TO DELETI ON OF BAD DEBTS TO THE EXTENT OF ` 141,94,63,000/-. 23. DR. U. ANJANEYALU, THE LD. DEPARTMENTAL R EPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE DEBT WAS WRITTEN OFF AFTER THE RESPECTIVE BRANCH MANAGERS EXPLORED A LL POSSIBILITIES OF COLLECTION. AFTER REALIZING THAT RECOVERY OF AMOUN T WAS VERY REMOTE, IT WAS WRITTEN OFF. IN FACT, THIS AMOUNT WAS ALSO CLASSIFIED AS NON- PERFORMING ASSET. WHEN IDENTICAL ISSUE CAME BEFORE THIS TRIBUNAL, FOR THE ASSESSMENT YEARS 2007-08, 2008-09, 2009-10 AND 2011-12, THIS TRIBUNAL ALLOWED SIMILAR DEBT AS BAD DEBT. TH E ASSESSING 15 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 OFFICER AFTER REFERRING TO THE ORDER OF THIS TRIBUN AL FOUND THAT THE DEPARTMENT HAS ALREADY FILED AN APPEAL BEFORE THE H IGH COURT. THEREFORE, ACCORDING TO THE LD. D.R., JUST TO KEEP THE MATTER ALIVE, THE BAD DEBT WRITTEN OFF WAS ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. 24. ON THE CONTRARY, SHRI R. SIVARAMAN, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT AS RIGHTLY SUBMITTED BY TH E LD. D.R., THIS TRIBUNAL ON IDENTICAL SET OF FACTS, ALLOWED THE CLA IM OF THE ASSESSEE. THE ASSESSING OFFICER JUST TO KEEP THE MATTER ALIVE , ADDED BACK THE BAD DEBT TO THE TOTAL INCOME SINCE THERE IS A PENDE NCY OF APPEAL BEFORE THE HIGH COURT. ACCORDING TO THE LD. COUNSE L, MERE PENDENCY OF APPEAL BEFORE THE HIGH COURT CANNOT BE A REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. THE LD.COUNSEL FURTHER SUBMITTED THAT FOR THE ASSESSMENT YEAR 2007-08, A S IMILAR DISALLOWANCE WAS DELETED BY THE CIT(APPEALS) AND TH IS TRIBUNAL CONFIRMED THE ORDER OF THE CIT(APPEALS) IN I.T.A. N O.924/MDS/2012 DATED 02.08.2012. SIMILARLY, FOR THE ASSESSMENT YE ARS 2010-11 AND 2011-12 ALSO SIMILAR ORDER OF THE CIT(APPEALS) WAS CONFIRMED BY THIS TRIBUNAL. MOREOVER, THE ASSESSEE HAS WRITTEN OFF THE BAD DEBT TO THE EXTENT OF ` 572,36,31,000/-. THIS INCLUDES THE DISPUTED 16 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 AMOUNT OF ` 141,94,63,000/- WHICH WAS CLASSIFIED AS PROVISION FOR NON-PERFORMING ASSET. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, AN IDENTICAL ISSUE CAME BEFORE THIS TRIBUNAL FOR THE E ARLIER ASSESSMENT YEAR IN THE ASSESSEE'S OWN CASE. THIS TRIBUNAL, AF TER CONSIDERING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, FOUND THAT THE BAD DEBT CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. NOW THE REVENUE CLAIMS THAT AN APPEAL HAS BEEN FILED BEFORE THE HIGH COURT AND THE SAME IS PENDING. IT IS NOT THE CASE OF THE REVENUE THAT THE ORDER OF THIS TRIBUNAL IS STAYED BY THE HIGH COURT. JUST TO KEEP THE MATTER ALIVE, THE REVENUE FILED APPEAL BEFORE THIS TRIBUNAL. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY B ECAUSE AN APPEAL IS PENDING BEFORE THE HIGH COURT THAT CANNOT BE A R EASON TO TAKE A DIFFERENT VIEW ON THE ISSUE. A PERUSAL OF THE ORDE R OF THIS TRIBUNAL SHOWS THAT ON VERIFICATION OF THE COMPUTATION OF BO OK PROFIT, THE CIT(APPEALS) FOUND THAT THE ASSESSEE HAS WRITTEN OF F BAD DEBT TO THE EXTENT OF ` 572,36,31,000/- WHICH INCLUDES A SUM OF ` 141,94,63,000/-. ON IDENTICAL SET OF FACTS, THE CI T(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER FOR EARLIER 17 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ASSESSMENT YEARS. THIS TRIBUNAL, IN FACT, CONFIRME D THE SIMILAR ORDER OF THE CIT(APPEALS). THEREFORE, THIS TRIBUN AL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 26. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ADD ITION MADE ON ACCOUNT OF ROYALTY TO THE EXTENT OF ` 13,75,69,684/-. 27. DR. U. ANJANEYALU, THE LD. DEPARTMENTAL REPRESE NTATIVE, SUBMITTED THAT THE ASSESSING OFFICER MADE AN ADDITI ON OF ` 15,72,22,496/- PAID TO SHRIRAM OWNERSHIP TRUST. TH E ASSESSING OFFICER TREATED THE SAME AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION AT THE RATE OF 12.5%. ACCORDING TO TH E LD. D.R., THE PAYMENT MADE TO SHRIRAM OWNERSHIP TRUST TOWARDS ROY ALTY IS NOTHING BUT A CAPITAL EXPENDITURE, THEREFORE, THE A SSESSING OFFICER HAS RIGHTLY ALLOWED DEPRECIATION. HENCE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN DELETING THE A DDITION MADE BY THE ASSESSING OFFICER. 28. ON THE CONTRARY, SHRI R. SIVARAMAN, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-TRUST WAS USI NG LOGO OF SHRIRAM OWNERSHIP TRUST FOR ITS BUSINESS AND PAID R OYALTY. 18 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ACCORDING TO THE LD. COUNSEL, SHRIRAM OWNERSHIP TRU ST IS A SEPARATE ENTITY. FOR USING ITS LOGO IN THE BUSINES S OF THE ASSESSEE, A PAYMENT NEEDS TO BE MADE AND THE ASSESSEE IS NOT PURCHASING THE LOGO. WHAT WAS OBTAINED BY THE ASSESSEE IS ONL Y THE RIGHT TO USE LOGO. THEREFORE, ACCORDING TO THE LD. COUNSEL, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE. 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 BE LONGING TO SHRIRAM OWNERSHIP TRUST. WHEN THE ASSESSEE MADE PA YMENT FOR USE OF RIGHT, THIS TRIBUNAL IS OF THE CONSIDERED OP INION THAT THE SAME CANNOT BE TREATED AS CAPITAL EXPENDITURE. THEREFOR E, THE CIT(APPEALS) HAS RIGHTLY FOUND THAT THE PAYMENT MAD E 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 TRIBUNAL. THE CIT(APPEALS) BY PLACING RELI ANCE ON THE ORDER OF THIS TRIBUNAL IN SHRIRAM TAMIL NADU PVT. LTD., A LLOWED 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 CONFIRMED. 19 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 30. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ESO P EXPENDITURE TO THE EXTENT OF ` 57,42,000/-. 31. DR. U. ANJANEYALU, THE LD. DEPARTMENTAL REPRESE NTATIVE, SUBMITTED THAT THE ASSESSEE CLAIMED EXPENDITURE OF ` 57,42,000/- TOWARDS ESOP. THE ASSESSEE CLAIMED BEFORE THE ASSE SSING OFFICER THAT IT IS A COMPENSATION MADE TO THE EMPLOYEES OF THE ASSESSEE. THEREFORE, THE SAME HAS TO BE ALLOWED AS REVENUE EX PENDITURE. FOR THE PURPOSE OF ALLOWING THE CLAIM OF THE ASSESSEE A S REVENUE EXPENDITURE, ACCORDING TO THE LD. D.R., THE ASSESSE E HAS TO INCUR EXPENDITURE. IN THE CASE BEFORE US, NO EXPENDITURE WAS INCURRED. ACCORDING TO THE LD. D.R., THE SO-CALLED ESOP EXPEN DITURE GOES TO INCREASE THE SHARE CAPITAL OF THE COMPANY. HENCE, IT HAS TO BE TREATED AS CAPITAL EXPENDITURE. THEREFORE, THE CIT (APPEALS), ACCORDING TO THE LD. D.R., IS NOT JUSTIFIED IN ALLO WING THE CLAIM OF THE ASSESSEE. 32. ON THE CONTRARY, SHRI R. SIVARAMAN, THE LD.COUN SEL FOR THE ASSESSEE, SUBMITTED THAT THE EMPLOYEES STOCK OPTION SCHEME, 2005 PROMOTED BY THE COMPANY WAS IMPLEMENTED WITH E FFECT FROM 13.10.2005. THE OBJECT OF THE SCHEME WAS TO MOTIVA TE THE 20 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 EMPLOYEES TO ACHIEVE THE BUSINESS GOALS AND TO RETA IN KEY TALENTED EMPLOYEES IN THE ORGANIZATION. AS PER THIS SCHEME, AN ELIGIBLE EMPLOYEE IS ENTITLED TO OWN EQUITY SHARES OF FACE V ALUE OF ` 10/- EACH AT AN EXCESS PRICE OF ` 35/- ON THE DATE OF GRANT. THE ISSUE PRICE OF ` 35/- PER SHARE AND FAIR PRICE ON THE DATE OF VESTIN G ON THE EMPLOYEE WAS TAKEN AS AMOUNT FOREGONE BY THE ASSESS EE AND THE SAME WAS CLAIMED OVER THE PERIOD OF VESTING. PLACI NG RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. PVP VEN TURES LTD. (235 TAXMANN 554), THE LD.COUNSEL SUBMITTED THAT ON IDENTICAL SET OF FACTS, THE MADRAS HIGH COURT ALLOWED THE CLAIM O F THE ASSESSEE. THE LD.COUNSEL HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF THIS TRIBUNAL IN I.T.A. NO.1891/MDS/2012 DATED 11.04.201 3. REFERRING TO THE EMPLOYEES STOCK OPTION SCHEME, 2005, THE LD.COU NSEL SUBMITTED THAT THE OPTION WAS GIVEN BY THE ASSESSEE -COMPANY DIRECTLY TO THE EMPLOYEES, THEREFORE, THE DIFFERENC E IN PRICE HAS TO BE ALLOWED. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF BOTH THE AUTHO RITIES BELOW. THE ASSESSING OFFICER FOUND THAT IN THE ASSESSEE'S OWN CASE FOR EARLIER 21 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ASSESSMENT YEAR, ON THE BASIS OF VERY SAME EMPLOYEE S STOCK OPTION SCHEME, 2005, THIS TRIBUNAL ALLOWED THE CLAI M OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10. THE ASSE SSING OFFICER FOUND THAT THE APPEAL IS FILED BEFORE THE MADRAS HI GH COURT AND THE SAME IS PENDING. THE ASSESSING OFFICER ALSO FOUND THAT THE REVENUE HAS FILED SLP AGAINST THE JUDGMENT OF MADRA S HIGH COURT IN PVP VENTURES LTD. (SUPRA) BEFORE THE SUPREME COU RT AND THE SAME WAS DISMISSED. PENDING FINALITY THROUGH REVIE W OR CURATIVE PETITION, THE ASSESSING OFFICER DISALLOWED THE CLAI M OF THE ASSESSEE IN ORDER TO PROTECT THE INTEREST OF THE REVENUE. T HIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE MATTER WAS FIN ALLY DECIDED BY THE JURISDICTIONAL HIGH COURT AND THE REVENUES SLP WAS DISMISSED BY THE APEX COURT, THE ASSESSING OFFICER HAS TO FOL LOW THE JUDGMENT OF MADRAS HIGH COURT. MOREOVER, FOR ASSESSMENT YEA R 2009-10, THIS TRIBUNAL ALLOWED SIMILAR CLAIM OF THE ASSESSEE ON T HE BASIS OF VERY SAME EMPLOYEES STOCK OPTION SCHEME, 2005. THEREFOR E, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 34. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 22 I.T.A. NO.454/MDS/16 I.T.A. NO.728/MDS/16 ORDER PRONOUNCED ON 24 TH AUGUST, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 24 TH AUGUST, 2016. KRI. 1 -089 :9)0 /COPY TO: 1. (/0 /ASSESSEE 2. ASSESSING OFFICER 3. 4 ;0 () /CIT(A)-15, CHENNAI-34 4. 4 ;0 /CIT-6, CHENNAI 5. 9< -0 /DR 6. =( > /GF.