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TMI Blog2016 (4) TMI 1143X X X X Extracts X X X X X X X X Extracts X X X X ..... re decided by this combined order. For convenient and seriatim disposal of appeals, we will first take up the appeals of the Revenue and thereafter the appeals by the assessee. ITA Nos. 560 & 561/PN/2014 (Appeals by Revenue) 2. The grounds raised by the Revenue in appeals for the assessment years 2009-10 and 2010-11 are identical. The findings given by us in the appeal of the Revenue for assessment year 2009-10 would mutatis mutandis apply to the appeal of Revenue for assessment year 2010-11. 3. The ground No. 1 raised by the Revenue in its appeal reads as under: "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made on account of gain arising out of repurchase of debentures, relying on the decision of High Court of Karnataka in the case of CIT Vs. Industrial Credit & Development Syndicate Ltd. (2006) 285 ITR 310, when the facts are distinguishable from that of the assessee." 4. The assessee during the financial year 2007-08 issued 52,48,365 debentures on right basis. During the period between March 24 and March 26, 2008 the assessee repurchased 21,86,380 debentures having face value of Rs. 500/- ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Karnataka High Court in the case of CIT Vs. Industrial Credit & Development Syndicate Ltd. reported as 285 ITR 310 (Kar.). 6. The ld. DR submitted that the assessee has not claimed deduction u/s. 41 of the Act. Therefore, condition laid down u/s. 41(1) will not apply in the present case. In support of his submissions, the ld. DR of the assessee has placed reliance on the following case laws: i. Commissioner of Income Tax Vs. Hukumchand Mohanlal, 82 ITR 624 (SC); ii. Commissioner of Income Tax Vs. Kerala Estate Mooriad Chalapuram (SC), 161 ITR 155 (SC); iii. Commissioner of Income Tax Vs. P. Ganesa Chettiar, 133 ITR 103 (Mad.). 7. On the other hand Shri Percy Pardiwalla appearing on behalf of the assessee vehemently supported the findings of Commissioner of Income Tax (Appeals). The ld. AR submitted that by repurchasing of debentures at a lesser price before maturity the assessee has pre-poned its liability and has thus, saved future expenditure by way of interest which has been credited to the P & L A/c. being surplus. The Assessing Officer has erred in making addition of the entire amount of the alleged gain on repurchase of the debentures. The case of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent, 30 percent and 40 percent, respectively of the face value thereof. During the period of redemption, the assessee- company purchased some of these debentures through a nominee at a price less than the face value thereof. The assessee credited the difference amount between the face value of the debentures purchased and the cost thereof in its books as surplus arising on redemption of debentures. The assessee credited these amounts to the profit and loss account but did not form part of the income by way of capital gains receipt and hence sought for deduction of the amount from computation of the income. The Assessing Officer held that the surplus amounts with the nominees of the assessee constituted its revenue receipts and should therefore be included within its business income. The assessee carried the matter in appeal to Tribunal. The Tribunal held that the surplus amounts were not chargeable to tax either as revenue or even as capital gain. The Department took the matter in appeal before Hon'ble High Court. The issue before Hon'ble High Court for adjudication was; Whether the amount saved by assessee by redeeming the debentures at a lower price constitutes income for it bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the reality of the situation, as the assessee has not derived any income, he is entitled not to treat it as an income. Therefore, the Tribunal was fully justified in its conclusion that the said surplus amount reflected in the balance-sheet cannot be treated as an income of the assessee. We do not find any error in the said conclusion reached by the Tribunal." 8.3 In the case of Prism Cement Ltd. Vs. Joint Commissioner of Income Tax (supra) the assessee-company had issued non-convertible debentures (NCDs) some of which were forfeited by it due to non- payment of call money. It credited the amount received earlier on such NCDs as the amount written back and set it off against the expenditure. The Assessing Officer treated the said amount as income exigible to tax on the ground that the assessee had derived monetary benefits; and that even though the commercial production was not commenced, the monies were borrowed through NCDs for the business purpose. Accordingly, he made addition in assessee's hands on that account. On appeal, the Commissioner (Appeals) upheld the impugned addition. The assessee carried the matter in second appeal before the Tribunal. The Tribunal after a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts written off Rs. 67,29,73,245/-. 11. The contention of the assessee is that amount of Rs. 30,17,702/- represents petty balances written off from various hirers accounts on final settlement. However, the assessee could not submit party wise details on the ground that the record was too voluminous. The amount of bad debts was quantified on the basis of cheques dishonoured. The Assessing Officer disallowed bad debts written off in respect of sundry debtors on the ground that the assessee has failed to prove that unrealized cheques represent bad debts. As regards disallowance of bad debts of Rs. 67,29,73,245/-, the Assessing Officer disallowed 20% of the same i.e. Rs. 13,45,94,649/-by following assessment order in the preceding assessment year. In first appeal the Commissioner of Income Tax (Appeals) deleted the addition made on both the counts under the head bad debts written off. In respect of Rs. 30,17,702/- the Commissioner of Income Tax (Appeals) held that the Assessing Officer had taken a very narrow view. The assessee company is engaged in the business of auto finance, leasing of two wheelers and consumer durables. The assessee obtains post dated cheques which represents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. After considering the replies of the assessee, the Assessing Officer found that (i) complete postal addresses; and, (ii) evidence regarding efforts made by the assessee for recovery of the amounts were not furnished. The Assessing Officer also noted that in the immediately preceding assessment year of 2006-07, an amount of Rs. 28,08,237/- was disallowed on this issue. In this background, the Assessing Officer proceeded to disallow 20% of the total debts i.e. Rs. 11,83,05,574/- (20% of Rs. 59,15,27,873/-) and added the same to assessee's total income. The CIT(A) has deleted the addition noticing that his predecessor in the assessee's own case for assessment year 2006-07 had deleted a similar addition. Against such order of the CIT(A), Revenue is in appeal before us. 19. At the outset, it was a common point between the parties that for assessment year 2006-07, a similar deletion made by the CIT(A) has since been affirmed by the Tribunal vide its order in ITA No.1066/PN/2010 dated 31.08.2012. The relevant discussion in the order of the Tribunal is as under :- "44. The first Ground is with regard to disallowance of bad debts written off representing sundry debit balances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough if the bad debt is written-off as irrecoverable in the accounts of the assessee. In the present case, the aforesaid aspect has been fulfilled by the assessee, as is clearly emerging from the findings of the CIT(A). The debts in question have been written-off as irrecoverable in the account books of the assessee and this aspect is also not disputed by the Assessing Officer. In fact, as per the Assessing Officer, the debts had become bad in the preceding assessment year and according to him, it is incorrect that the same have been claimed as write-off in the instant assessment year. Be that as it may, it clearly establishes that the debts have been written off in the account books as irrecoverable, which squarely is covered by the legal position propounded by the Hon'ble Supreme Court in the case of TRF Ltd. (supra). The plea of the Ld. DR to the effect that the bonafides of the claim are not established is clearly untenable in as much as the Assessing Officer accepts the position that such debts had become bad in the preceding year itself. Considering the overall circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not disputed by the Revenue that the impugned debts have arisen in the course of carrying on assessee's business of financing. In the background of the aforesaid undisputed facts, in our considered opinion, the issue is squarely covered by the proposition of law laid down by the Hon'ble Supreme Court in the case of TRF Ltd. (supra). Therefore, having regard to the factual position and the parity of reasoning laid down by the Hon'ble Supreme Court in the case of TRF Ltd. (supra), we find no error on the part of the CIT(A) in deleting the impugned addition. We hereby affirm the order of the CIT(A) and accordingly the Revenue fails on this Ground." The issue in present appeal is identical to the issue adjudicated by the Co-ordinate Bench of the Tribunal in assessee's own case in earlier assessment years. The ld. DR has not placed on record any material to controvert the findings of the Co-ordinate Bench on this issue. We find no reason to take a contrary view. Respectfully following the decision of the Co-ordinate Bench we dismiss ground no. 2 raised in the appeal of the Department. 13. The ground no. 3 raised by the Revenue reads as under: "3. Whether on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Pune 'B' Bench which is jurisdictional Tribunal is found in para 9 of the order which is reproduced for the sake of clarity. "................The assessee shall satisfy the Assessing Officer that it is a case where the amount of Rs. 19,95,596/- represents unrecognized income on a non-performing asset classified in terms of prudential norms of RBI and it is not a case where a provision of equivalent amount has been debited in the Profit & Loss account and claimed as deduction under section 36(1)(vii) or 37(1) of the Act. In case the assessee succeeds in demonstrating the former situation, then no addition would be warranted in terms of the judgment of the Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (supra) and in other case, the Assessing Officer shall take appropriate decision in accordance with our aforesaid discussion and in law. 24. Thus, it can be seen that the Hon'ble jurisdictional Tribunal has clearly held the ratio that if the amount in question represents unrecognized income on a non-performing asset classified in terms of prudential norms of RBI, then no addition would be warranted in terms of the judgment of the Hon'ble Delhi High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the findings of the Tribunal are as under: "27. We have carefully considered the rival submissions. The assessee before us is a NBFC, and sum and substance of the dispute relates to the stand of the assessee that interest income relating to certain hire purchase transactions did not accrue to the assessee because such transactions were classified as NPAs following the RBI guidelines. When the matter came up for the first time before the Tribunal for assessment years 1996-97 to 1999-2000 and 2000-01 to 2003-04, vide a common order dated 31.03.2010 the issue was remanded back to the file of the Assessing Officer to be considered in the light of the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) and also allowing the assessee to demonstrate the justification and criterion for identification of NPAs and non-accrual of income on such advances. Subsequently, when similar issue came up before the Tribunal is assessee's case for assessment years 2004-05 to 2006-07, the Tribunal by way of a common order dated 31.08.2012 (supra) again restored the matter back to the file of the Assessing Officer not only in terms of the decision of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue is rejected. 17. In the result, the appeals of the Revenue are dismissed. ITA No. 578/PN/2014 (A.Y. 2009-10) 18. Now, we proceed on to decide the appeals filed by the assessee. The first issue raised by the assessee in appeal relates to disallowance made u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. During the period relevant to the assessment year under appeal, the assessee has received dividend income from various companies and interest on tax free bonds. The total tax free income earned by the assessee during the financial year 2008-09 is Rs. 36,34,502/-. The contention of the assessee is that no expenditure has been incurred on earning exempt income, therefore, no disallowance u/s. 14A is warranted. However, the assessee has disallowed Rs. 50,047/- u/s. 14A as expenditure incurred in relations to the aforesaid exempt income, which includes demat charges Rs. 26,951/- and ad hoc disallowance of Rs. 23,096/- towards indirect expenses. The Assessing Officer made disallowance u/s. 14A by invoking the provisions of Rule 8D and disallowed expenditure to the tune of Rs. 33,60,173/- in respect of tax free income earned by the assessee. In appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the issue relating to disallowance u/s. 14A was adjudicated by the Tribunal in assessee's own case for assessment year 2008-09. 21. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We find that the issue relating to disallowance u/s. 14A r.w. Rule 8D had come up before the Co-ordinate Bench of the Tribunal in assessee's own case in ITA No. 1676/PN/2012 for the assessment year 2008-09 decided on 30-06-2014. In assessment year 2008-09, disallowance u/s. 14A r.w. Rule 8D was made under similar circumstances. The Tribunal while adjudicating the issue with regard to applicability of provisions of Rule 8D as well as the manner in which the satisfaction has to be recorded in terms of sub-section (2) of section 14A has held as under : "40. We have carefully considered the rival submissions. Pertinently, the dispute before us revolves around the mode and manner of computing the disallowance u/s 14A of the Act. Notably, section 14A of the Act contemplates that for the purposes of computing the total income, no deduction shall be allowed in respect of any expenditure incurred by the assessee in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down that invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because of the presence of an exempt income in the hands of the assessee. The invoking of rule 8D of the Rules is permissible only in circumstances where the Assessing Officer records the satisfaction mandated in section 14A(2) of the Act with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. The Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. & Ors. (supra) has also relied upon the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) and opined that the Assessing Officer can determine the amount of expenditure incurred in relation to exempt income by applying rule 8D of the Rules only if he records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee. As per the Hon'ble Delhi High Court, such a satisfaction on the part of the Assessing Officer was applicable in relation to sub-section (2) as well as sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Central Board of Direct Taxes circular dated December 28, 2006, state that since the existing provisions of section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a considerable dispute between taxpayers and the Department on the method of determining such expenditure. It was in this background that sub-section (2) was inserted so as to provide a uniform method applicable where the Assessing Officer is not satisfied with the correctness of the claim of the assessee. Sub-section (3) clarifies that the application of the method would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurred in relation to the earning of non-taxable income. 71. Parliament has provided an adequate safeguard to the invoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the disallowance u/s 14A of the Act, is an objective satisfaction which shall be based on relevant considerations and it shall spell out reasons for his conclusion. [underlined for emphasis by us] 43. In the background of the aforesaid legal position, we may now examine the facts of the present case. In the present case, assessee has earned an income of Rs. 1,09,58,664/- which is an exempted income under Chapter-III of the Act and therefore it does form part of the total income under the Act. In the computation of income, having regard to section 14A of the Act, assessee determined the amount of expenditure incurred in relation to such income at Rs. 57,600/-. The Assessing Officer did not find it acceptable and instead determined the amount of disallowance u/s 14A of the Act by invoking rule 8D of the Rules. The said invoking of rule 8D of the Rules has to be preceeded by recording of an objective satisfaction by the Assessing Officer with regard to the incorrectness of the claim of the assessee that an expenditure of Rs. 57,600/- has been incurred in relation to the income which does not form part of the total income under the Act. In order to examine the compliance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. The determination of expenditure incurred in relation to the exempt income made by the assessee has been mechanically rejected without recording any objective satisfaction. This aspect of the matter, in our view, clearly shows that the Assessing Officer has not recorded the required objective satisfaction in regard to the incorrectness of the claim of the assessee that the expenditure incurred in relation to the exempt income was Rs. 57,600/-. Therefore, the action of the Assessing Officer to invoke rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act is untenable, as it suffers from absence of an essential requirement of sub-section (2) of section 14A of the Act. In this view of the matter, we are satisfied that the Assessing Officer was not justified in enhancing the disallowance u/s 14A of the Act to Rs. 71,70,881/- as against Rs. 57,600/- suo-motu disallowed by the assessee in its return of income. 45. Before parting, we may refer to the following discussion in para 20 of the order of the CIT(A), which has been relied upon by the learned Departmental Representative, to say that the required satisfaction u/s 14A(2) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order, the objective satisfaction contemplated in section 14A(2) of the Act is conspicuous by its absence. Therefore, in our view, the CIT(A) erred in rejecting the plea of the assessee that there was no satisfaction recorded by the Assessing Officer as required in terms of section 14A of the Act before invoking rule 8D of the Rules. Secondly, the CIT(A) has also proceeded on the basis that from the assessment year under consideration i.e. assessment year 2008-09 onwards application of rule 8D of the Rules is automatic. No doubt, rule 8D of the Rules is effective from assessment year 2008-09 onwards, as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), so however, it is also evident that the applicability of rule 8D of the Rules is subject to the fulfillment of the condition prescribed in section 14A(2) of the Act, as we have seen in the earlier paragraphs, based on the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra). Therefore, the CIT(A) is wrong in proceeding on the basis that from assessment year 2008-09 onwards application of rule 8D of the Rules is automatic an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the representatives of rival sides and have perused the orders of the authorities below. The ld. AR of the assessee has contended that the issue relating to grant of TDS credit was considered by the Co-ordinate Bench of the Tribunal in assessee's own case in assessment year 2008-09. After perusal of the order of Co-ordinate Bench of the Tribunal in appeal by the assessee for assessment year 2008-09 (supra), we find that this issue was remitted back to the file of Assessing Officer to allow the credit for the TDS on behalf of the assessee in the light of judgment of Hon'ble Allahabad High Court in the case of Rakesh Kumar Gupta Vs. Union of India & Others (supra). Since, the issue in the present appeal is identical we deem it appropriate to remit this issue back to the file of Assessing Officer to decide the issue in similar terms. Accordingly, this ground of appeal is allowed for statistical purpose. 27. The assessee has filed an additional ground of appeal on account of claim for deduction in respect of amortization of premium paid for securities forming part of business assets. The ld. AR submitted that the assessee is a Non-Banking Finance company. The assessee is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. M/s. Lord Krishna Bank Ltd. (supra). Thus, the additional ground raised in the appeal by the assessee is allowed for statistical purpose. 29. In the result, the appeal of the assessee is partly allowed. ITA No. 579/PN/2014 (A.Y. 2010-11) 30. The first issue raised by the assessee in ground nos. 1 and 2 relates to disallowance u/s. 14A r.w. Rule 8D of the Income Tax Rules. Similar issue was raised by the assessee in appeal for the assessment year 2009-10. The findings given by us in the appeal of assessee for assessment year 2009-10 on the issue would mutatis mutandis apply in the present appeal. Thus, ground nos. 1 and 2 raised by the assessee in appeal for assessment year 2010-11 are partly allowed. 31. In ground no. 3 the assessee has raised the issue relating to non grant of TDS credit. The ld. AR of the assessee submitted that he is not pressing this ground on account of smallness of the amount involved. Accordingly, ground no. 3 raised in the appeal by the assessee is dismissed as not pressed. 32. The assessee raised additional ground as ground no. 4 on account of claim of deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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