TMI Blog2016 (1) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... D is on par with the interest charged under section 234A or 234B or 234C of the Act. The Government has not advanced any money to the assessee so as to call it is a loan. The interest is compensatory not only charged to the assessee and it cannot be allowed as a business deduction while computing the business income. Accordingly, this ground of appeals of the assessee is rejected. Short credit given towards TDS - HELD THAT:- AO while restricting the claim for TDS has observed that credit for TDS, advance tax and prepaid tax, taxes are allowed as per the AST and it was allowed as per NSDL data. However, the ld. CIT(A) has given a finding that to verify once again the same. Being so, we do not find any infirmity in the order of the ld. CIT(A) and the same is confirmed and the ground of appeal of the assessee is rejected. Disallowance u/s.14A read with Rule 8D of Income Tax Rules, 1962 - HELD THAT:- The satisfaction that has to be recorded by the Assessing Officer has to be relevant and reasonable enough for a common man to come to a conclusion that the disallowance suo motu made by the assessee is incorrect. The factual finding in this regard has to be a reasoned one and ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance made towards ESOP expenditure treating it as revenue expenditure - HELD THAT:- The question is whether ESOP could be allowed as staff welfare expenditure, has already been answered by Hon'ble jurisdictional High Court in its decision in the case of PVP Ventures Ltd. [ 2012 (7) TMI 696 - MADRAS HIGH COURT] Foreman Dividend - HELD THAT:- We are of the opinion that similar issue came up for consideration before this Tribunal in assessee s own case for the assessment year 1998-99 wherein the issue was decided against the assessee observing that the principle of mutuality does not apply to the assessee s case and thereby addition was confirmed. Disallowance u/s.40(a)(ia) - HELD THAT:- The case of Shri N.Palanivelu Vs. ITO, Salem [ 2015 (10) TMI 1415 - ITAT CHENNAI] wherein it was held that the disallowance under section 40(a)(ia) of the Act was not applicable, when there was no outstanding balance at the end of the close of the previous year. The assessee failed to bring details of outstanding expenses or schedule of sundry creditors showing whether the amount was outstanding at the end of the close of the previous year in the name of the party or outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions. Vis- -vis ground taken by the assessee on transfer to Statutory Reserve and transfer to Reserve Fund while computing income under regular provisions and for arriving at the income under Section 115JB of the Act, respectively, the issues had already come up before this Tribunal in assessees appeals in I.T.A. No. 701/Mds/2012 and I.T.A. No. 702/Mds/2012. Vide its order dated 28.6.2012, it was held by this Tribunal at paras 4 to 6 of I.T.A. No. 701/Mds/2012 and I.T.A. No. 702/Mds/2012, as under:- 4. The counsel for the assessee fairly conceded that the issue of disallowance of amount transferred to Statutory Reserve and amount transferred to Reserve Fund while computing normal provisions and also while computing the book profits under section 115JB are decided against the assessee by this Tribunal in the case of Shriram Transport Finance Company Ltd. in I.T.A. No. 23/Mds/2011 dated 10.10.2011, copy of the order is placed before us. 5. We have gone through the order of this Tribunal in the case of the assessee dated 10.10.2011 and find that this Tribunal followed Coordinate Bench decision in assessee s own case for the assessment year 2005-06 in I.T.A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the fund has been specified. Even if some obligation is subsequently attached for specific appropriation of the fund, it will only be an application of income, which will need to be dealt with as per relevant tax law. The transfer of Reserve Fund in this case can certainly not be called a diversion of income by overriding charge. 2.12. .the ratio from the Hon ble Apex Court in the case of CIT vs. Sitaldas Tirathdas (41 ITR 367) and Hon ble Jurisdictional High court in the case of Seshasayee Paper Boards Ltd. (237 ITR 488) is clearly applicable in this case. The Companies Act, 1956 also mandates transfer to Reserve Fund a certain percentage of the profits before declaration of dividend. The Hon'ble High Court in the case of Seshasayee Paper Boards Ltd. had held that in such a case, there is no diversion of income by overriding title nor can the amount set apart be claimed as expenditure and it cannot also be stated that it was loss. The ratio from this decision is very much applicable in this case, because as per the Reserve Bank of India Act, the assessee has to create a Reserve Fund and to transfer therein certain percentage of its profits before any divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while withdrawing the refund already granted under section 143(1) of the Act. Since the assessee has utilized the refund amount for the purpose of business and while withdrawing the refund, interest has been charged, the refund amount takes the character of loan availed by the assessee, interest under section 234D has to be allowed as business expenditure. 6. We have heard both sides. The argument of the assessee is farfetched. The interest charged under section 234D is on par with the interest charged under section 234A or 234B or 234C of the Act. The Government has not advanced any money to the assessee so as to call it is a loan. The interest is compensatory not only charged to the assessee and it cannot be allowed as a business deduction while computing the business income. Accordingly, this ground of appeals of the assessee is rejected. 7. The next ground raised in the appeal of the assessee is with regard to short credit given towards TDS. The Assessing Officer, while restricting the claim for TDS has observed that credit for TDS, advance tax and prepaid tax, taxes are allowed as per the AST and it was allowed as per NSDL data. However, the ld. CIT(A) has given a findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. In the present case, the AO did not bring any evidence on record to establish that any expenditure had been incurred by the assessee company for earning the exempt income. In the absence of such evidence, it was wrong on the part of the AO to proceed to compute disallowance of the expenses u/s 14A of the Act by merely applying Rule 8D(2)(iii) of the Rules. The above view was taken by the Tribunal taking into consideration various decisions of the Tribunal including the decision of the Delhi Bench in the case of DCIT vs. Jindal Photo Ltd. and the High Courts. 13. The Delhi Bench of the Tribunal in the case of DCIT vs. Jindal Photo Limited in I.T.A. No. 814(Del)2011 by order dated 23.09.2011 for the assessment year 2008- 09 also considered this issue and held that satisfaction of the Assessing Officer is a pre-requisite to invoke the provision of Rule 8D of the Income Tax Rules. While holding so, the Tribunal observed as under: 10. Now. Coming to ground No.3, the Department alleges that the CIT(A) has erred in restricting the addition u/s 14A of the Act to ₹ 19,43,022, as against that of Rs. .31,01,542/- made by the AO. This issue was also there befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment or allocation of expenses, as adopted by the assessee. All through, the assessee was maintained that the assessee was during the year, carrying on manufacturing activities at its manufacturing units at several places. Its head office was at Delhi. The assessee had maintained separate books of account for each unit. Common expenses incurred at the head office and the branches were attributed to all the units including the head office. Investment in mutual funds, which gave rise to exempt dividend income, was done through the head office. It was the case of the assessee that to earn such dividend income, no direct expenditure was required and no expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto disallowance had, however, been made by the assessee keeping in consideration, the provisions of section 14A of the Act. 18. Now, as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee s total income under the Act, the AO shall determine the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment Ltd. vs. CIT Others (supra) elaborately dealt the issue of applicability of provisions of section 14A read with Rule 8D for the assessment years prior to the assessment year 2008- 09 and also the applicability of the said provision for the assessment years subsequent to assessment years 2008-09. The Hon ble High Court in paras 29 to 31 and 36 to 40 held as under: 29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons (2) and (3) of Section 14A and Rule 8D apply retrospectively ? 32. ........ ............... ................. ................ 33. ........ ............... ................. ................ 34. ........ ............... ................. ................ 35. ........ ............... ................. ................ 36. Insofar as sub-sections (2) and (3) of Section 14A are concerned, they have also been introduced by virtue of the Finance Act, 2006 with effect from 01.04.2007. This is apparent, first of all, from the Notes on Clauses of the Finance Bill, 2006 [Reported in 281 ITR (ST) at pages 139- 140]. The said Notes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically mentioned in the said Notes on Clauses that:- This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years. 37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income, which does not form part of total income under a prescribed method, which is Rule 8D of the Income Tax Rules. The Hon ble High Court further held that sub-sections (2) and (3) of section 14A are workable only with effect from the date of introduction of Rule 8D i.e. 24.03.2008 because prior to that date, there was no prescribed method and subsections (2) and (3) of section 14A remain unworkable. 16. Therefore, finding of the Assessing Officer that the claim of the assessee that it had not incurred any expenditure or it had incurred only so much expenditure is incorrect is a must for invoking the provision of sub-section (2) of section 14A of the Act. 17. Respectfully following the decision of the Hon ble Delhi High Court in the case of MAXOPP Investment Ltd. v. CIT (supra), we hold that the Assessing Officer has to give a finding as to the correctness of the claim of the assessee before invoking the provisions of section 14A(2) read with Rule 8D for disallowing the expenditure attributable to the income exempt under the Act. No doubt, the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e result, the assessee s appeal in I.T.A. Nos. 711/Mds/2015, 714/Mds/2015 715/Mds/2015 are dismissed and in I.T.A. No. 712/Mds/2015 is partly allowed. I.T.A. Nos. 868/Mds/2015, 869/Mds/2015, 870/Mds/2015 871/Mds/2015 [A.Y. 2010-11] 11. The first ground raised in the appeal of the Revenue is with regard to deletion of disallowance made by the Assessing Officer with respect to royalty payment. The ld. CIT(A) has deleted the addition treating it as revenue expenditure. After hearing both parties, we find that similar issue was considered by the Tribunal in assessment year 2009-10 in I.T.A. No. 1899/Mds/2012 dated 11.04.2013, wherein the Tribunal has observed as under: 14. We have perused the orders and heard the rival submissions. The question is regarding disallowance of royalty, which was considered by the Assessing Officer as a capital outgo. Royalty was paid by the assessee to M/s Shriram Chits and Investments for using the logo owned by the latter. On similar fact situation, in assessee's own case, for assessment year 2006-07, this Tribunal had held in its order in I.T.A. No. 726/Mds/2010 dated 16th December, 2010, as under:- 16. The next issue of this appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t were actually considering a case of Composite Agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how. Thereafter, Their Lordships of Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature. While coming to the above conclusion, the Hon'ble Supreme Court has referred to its various decisions in this judgment which also favour the case of the assessee. We, therefore, do not find any force in this ground of Revenue as well. For the reasons mentioned above, we are of the opinion that disallowance of royalty was not warranted. CIT(Appeals) had justly deleted such disallowance. No interference is called for. 15. Ground No.3 is treated as dismissed. 12. Respectfully following the above order of the Tribunal, the ground raised by the Revenue is dismissed. 13. The next ground raised in the appeal of the Revenue is with regard to deletion of disallowance made by the Assessing Officer towards provision for non-performing assets [NPA]. The assessee has claimed non-performing assets of .32.36 crores as bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the above mentioned aspect only, that 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 Hon ble Supreme Court rather than the order of the Tribunal in assessee s own case cited (supra). Being so, in our view, it is appropriate to remit back the entire issue to verify whether the debt is actually written off in the Audited books of accounts passing enough entries towards written 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 Act as contemplated under section 36(2) of the Act. We, therefore, direct the Assessing Officer 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. 15. The next ground raised in the appeals of the Revenue is with regard to deleting the disallowance made towards ESOP expenditure treating it as revenue expenditure. After hearing both parties, we are of the opinion that similar issue was consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted by the Assessing Authority for the expenditure arising on account of Employees Stock Option Plan. This expenditure incurred as per SEBI guidelines and granted by the Officer could not be considered as erroneous one calling for exercise of jurisdiction under Section 263 of the Act. Considering the above decision, we do not find any reason to interfere with the order of CIT(Appeals). 23. Ground No.5 of the Revenue is dismissed. 16. Respectfully following the above order of the Tribunal, this ground of appeals of the Revenue is dismissed. 17. In the result, all these appeals of Revenue in I.T.A. Nos. 868/Mds/2015, 869/Mds/2015, 870/Mds/2015 871/Mds/2015 are partly allowed for statistical purposes. Assessee s Appeal in I.T.A.Nos.716/Mds./2015 717/Mds./2015 Revenue s Appeal in I.T.A.Nos.866/Mds./2015 867/Mds./2015 18. The first common ground in assessee s appeal is with regard to confirmation of Foreman Dividend of ₹ 4,53,21,461/- and ₹ 4,38,66,670/- for the assessment year 2010-11 2011-12 respectively. After hearing both the parties, we are of the opinion that similar issue came up for consideration before this Tribunal in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outstanding amount towards impugned amount at the end of the close of the previous year relevant to the assessment year, we remit the issue back to the file of the ld. Assessing Officer. 21. The other ground raised in the appeal of the assessee I.T.A No.717/Mds./15 is with regard to confirming the short allowance of credit for TDS. This issue we have already decided in ITA Nos. 711,712,714 715/Mds./15 in the earlier para No.7 of this order. Accordingly, this ground is dismissed. 22. In the result, both these appeals of Assessee in I.T.A. Nos. 716/Mds/2015 717/Mds/2015 are partly allowed for statistical purposes. Revenue s Appeal in I.T.A.Nos.866/Mds./2015 867/Mds./2015 23. The only issue raised in the appeals of the Revenue is with regard to deletion of addition of ₹ 84,15,300/- ₹ 92,29,428/- made towards Royalty Paid for the assessment years 2010-11 2011-12 respectively. After hearing both the parties, we are of the opinion that the similar issue was considered by the Tribunal in the case of M/s.Shriram City Union Finance Ltd., in I.T.A. No. 1744/Mds/2012 vide order dated 11.04.2013, wherein the Tribunal has observed as under:- 14. We have pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as revenue in nature and the Department has accepted this finding of the ld. CIT(A) and has not filed further appeal before the ITAT for assessment years 2004-05 and 2005-06. 18. The ld.DR has relied on the decision of Hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd vs CIT, 224 ITR 342, in support of his ground. The ld.AR has supported the order of the ld. CIT(A). 19. We have gone through the decision relied upon by the ld.DR and have found that their Lordships of Supreme Court were actually considering a case of Composite Agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how. Thereafter. Their Lordships of Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature. While coming to the above conclusion, the Hon'ble Supreme Court has referred to its various decisions in this judgment which also favour the case of the assessee. We, therefore, do not find any force in this ground of Revenue as well. For the reasons mentioned above, we are of the opinion that disallowance of roya ..... X X X X Extracts X X X X X X X X Extracts X X X X
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