TMI Blog2022 (6) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of the total income, deduction is not permissible. Therefore, the authorities below were justified in disallowing the deduction claimed by the assessees for the amount transferred to reserve fund in compliance with the mandatory provisions of the RBI Act, which do not call for any interference by this court. Accordingly, the main issue stands answered against the assessees. MAT Computation - AO added the fund transferred to the statutory reserve to the total income of the assessees, while computing the taxable income under section 115JB, which was also affirmed by the appellate authorities - HELD THAT :- Section 115JB states that for computing the book profit, the amount meeting out the liabilities other than ascertained liabilities, has to be added. The statutory reserve fund based on the RBI guidelines, is not based on any ascertained liabilities and hence, it has to be added for arriving at the book profit under section 115 JB. At this juncture, it would be relevant to refer to the decision of the Delhi High Court in SREI Infrastructure Finance Ltd [ 2015 (2) TMI 545 - DELHI HIGH COURT] wherein, an identical question of law as raised herein it was clearly stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduring in nature in the present cases. The assessing officer without appreciating the terms of the licence agreement and ascertaining the nature of the expenditure incurred by the assessee companies, disallowed the deduction of royalty payment and allowed the depreciation at 25% treating it as capital expenditure. However, the appellate authorities, while deleting the disallowances made by the assessing officer, have rightly treated the royalty payment as revenue expenditure. Once the payment of royalty is treated as revenue expenditure, automatically, it goes without saying that the assessees would be entitled to 100% deduction. Therefore, we need not interfere with the orders passed by appellate authorities. Accordingly, the substantial questions of law relating to royalty, are answered in favour of the assessees. Employees Stock Option Plan ( ESOP) expenditure - AO disallowed the said claim and added the same back to the total income of the assessee companies - HELD THAT:- This court comes to a conclusion that the Tribunal was correct in holding that the ESOP expenditure is revenue in nature and the assessee is entitled for deduction. Accordingly, the orders passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the derivative contracts, foreign exchange swap transactions against fluctuations in interest rate are hedge transactions and the loss arising out of the same is allowable as business loss. Such findings of the appellate authorities cannot be found fault with and therefore, the same are hereby confirmed. Accordingly, this issue stands answered against the Revenue. Disallowance u/s 14A r/w Rule 8D - mandation of recording satisfaction - HELD THAT:- In the instant cases, the assessing officer made disallowances u/s 14A r/w Rule 8D, but there was no reason recorded by him, as to why he was not satisfied with the claim made by the assessees. Further, there was no examination by the assessing officer about the nature of investment by the assessees in their subsidiary companies and expenditure incurred by them. The CIT(A)/Tribunal pointed out certain errors committed by the assessing officer, accepted the contentions raised by the assessees and directed the assessing officer to modify the disallowances under section 14A, by the orders impugned herein. Such course adopted by the appellate authorities cannot be countenanced, when the mandatory procedure envisaged under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th reference to the said proviso does not hold good. Having considered the rival contentions, the Tribunal was of the view that the amendment restricting the disallowance to 30% of the expenditure, came into effect only with effect from 01.04.2015 and the assessment year under consideration was 2012-13 and hence, the said amendment was not applicable to the case of the assessee. Accordingly, the alternative plea raised by the assessee was rejected by the Tribunal. The said view of the Tribunal appears to be just and proper and it needs no interference by this court, in the light of the judgment of the Hon'ble Supreme Court in Shree Choudhary Transport Company [ 2020 (8) TMI 23 - SUPREME COURT] as clearly observed that the amendment to section 40(a)(ia) by the Finance No. 2 Act 2014 with effect from 01.04.2015, is applicable only from the assessment year 2015-16. - THE HONOURABLE MR. JUSTICE R. MAHADEVAN AND THE HONOURABLE MR. JUSTICE J. SATHYA NARAYANA PRASAD For the Appellant in TCA. Nos. 755, 756, 883 to 886, 1263 to 1265 of 2009, 215 of 2011, 118 to 120 of 2012 and 278 279 of 2012 : Mr. R.V. Eswar, Senior Advocate For Mr. R. Sivaraman For the Respondent in T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCA. 407/2019 (AY 2014-15) TCA. 913/2014 (AY 2007-08) (Shriram City Union Finance Ltd) TCA. 414/2019 (AY 2013-14) Shriram Investments Ltd It is a domestic company doing the business of hire purchase financing and leasing TCA. 756/2009 (AY 2003-04) TCA. 885/2009 (AY 2004-05) TCA. 1263/2009 (AY 2005-06) Shriram Overseas Finance Limited It is involved in the business of hire purchase finance, leasing and investments TCA. 883/2009 (AY 2005-06) TCA. 118/2012 (AY 2004-05) Shriram City Union Finance Ltd It is a domestic company, doing the business of hire purchase financing leasing TCA. 886/2009 (AY 2004-05) TCA. 914/2014 (AY 2007-08) (Shriram Transport Finance Co. Ltd) TCA. 1265/2009 (AY 2005-06) TCA. 119/2012 (AY 2007-08) TCA. 278/2012 (AY 2008-09) TCA. 128/2017 (AY 2010-11) TCA. 915/2014 (AY 2007-08) (Shriram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction in computing the income of the assessee? (ii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of diminution in the value of investments to the extent of Rs. 1,05,752/- is allowable as a deduction in computing the business income of the assessee? (iii) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss on sale of investments to the extent of Rs. 2,76,120/- is allowable as a deduction in computing the business income of the assesssee? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss arising out of derivatives / hedging transactions in foreign exchange to the extent of Rs. 15,02,136/- is allowable as a deduction in computing the business of the assessee? T.C.A. No. 622 of 2013: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the claim for bad debts to the extent of Rs. 3,12,60,000/- is allowable as a deduction in computing the income of the assessee? (ii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that loss arising out of derivatives / hedging transactions in foreign exchange is allowable as deduction in computing business income of the assessee? (iv) Whether under the facts and circumstances of the case, the loss arising out of derivatives / hedging transactions in foreign exchange is not a loss in speculation business which cannot be allowed in computing income from regular business of the assessee? (v) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in allowing the claim for deduction of provision for diminution in value of investments and the same is not capital loss? (vi) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal erred in allowing the claim of the assessee in respect of provision for diminution in value of investments and giving relief in respect of writeback of investments, though the assessee did not make claims through any valid return of income? T.C.A. Nos. 915 and 916 of 2014: Whether on the facts and circumstances of the case, the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of Indian Income Tax Act, 1961 both in Regular Computation and under Section 115JB? (iii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the interest charged under Section 234D is not allowable as deduction while computing the business income? (iv) Whether on the facts and circumstances of the case, the Tribunal was right in upholding the disallowance made under Section 14A read with Rule 8D? T.C.A. No. 406 of 2019: (i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of RBI Act? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case, the Appellate Tribunal ought to have deleted the entire addition u/s.14A r/w Rule 8D, as the appellant was in the business of investment promotion and the appellant have made strategic investments in shares of group companies for acquiring controlling interest? T.C.A. No. 414 of 2019: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of amount transferred to Statutory Reserve Fund in compliance with the mandatory provisions of Section 45 IC read with Section 45Q of the Reserve Bank of India Act? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount transferred to Reserve Fund in compliance with the provisions of Reserve Bank of India Act, 1934, by the appellant from its income, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961 both in regular computation and under Section 115JB? (iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest charged under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture)? ESOP expenditure Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the assessee's claim for deduction of ESOP expenses is an allowable deduction? Loss on sale of investments / Diminution in value of investments (i)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss on sale of investments is allowable as a deduction in computing the business income of the assesssee? (ii)Whether on the facts and circumstances of the case, the Tribunal was right in holding that the write off of diminution in the value of investments is allowable as a deduction in computing the business income of the assessee? Loss arising out of derivatives / hedging transactions in foreign exchange Whether on the facts and circumstances of the case, the Tribunal was right in holding that the loss arising out of derivatives / hedging transactions in foreign exchange is allowable as a deduction in computing the business of the assessee? Section 14A r/w Rule 8D (i) Whether on the facts and circumstances of the case, the Tribunal was right in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the provisions of the RBI Act and hence, it is only an application of income. The said finding of the assessing officer was also affirmed by both the appellate authorities. Therefore, the assessees are before this court by raising the issue, as to whether the Tribunal was right in holding that there has been no diversion of income by overriding charge in respect of the amount transferred to statutory reserve fund in compliance with the provisions of the RBI Act; and raised a consequential issue, as to whether the Tribunal was right in holding that the amount transferred to reserve fund in compliance with the RBI Act by the assessees, is not an allowable deduction in computing the assessable income under the provisions of the Income Tax Act, 1961. 5.2. The learned senior counsel appearing for the appellants / assessees would contend that the Tribunal has erred in confirming the disallowance with respect to transfer of reserve fund under Section 45-IC of the RBI Act. As per Section 45-IC of the RBI Act, 20% of the net profits of the company cannot form part of the real income of the company. The company loses control over this part of the income from the commencement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transferred certain amount to the statutory reserve fund as mandated by the Reserve Bank of India Regulations as well as Section 45-IC of the RBI Act, however, the said transfer to statutory reserve cannot be termed as an expenditure at all, as the same is under the control of the assessees and the amount continues to be in the reserve. Further, the assessees had merely transferred the monies to the statutory reserve fund from the gross income shown. Therefore, the income was not diverted at source by overriding title to qualify for deduction and the said reserve fund can be allowed to be used by the assessees as per the Government Orders/RBI Regulations. It is further stated by the learned senior standing counsel that the Assessing Officer, after scrutinizing the nature of transaction and by applying the decisions of the Apex Court in Dalmia Cements Limited [237 ITR 517] and in Sitaldas Tirathdas [41 ITR 367] on explaining the meaning of 'Diversion of income by overriding title', held that the assessees are not entitled for deduction. The Tribunal also, as a fact finding authority, found that the assessees had not transferred the income at source by overriding title and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified by the Bank from time to time and every such appropriation shall be reported to the Bank within twenty-one days from the date of such withdrawal: Provided that the Bank may, in any particular case and for sufficient cause being shown, extend the period of twenty-one days by such further period as it thinks fit or condone any delay in making such report. (3) Notwithstanding anything contained in sub-section(1), the Central Government may, on the recommendation of the Bank and having regard to the adequacy of the paid-up capital and reserves of a non-banking financial company in relation to its deposit liabilities, declare by order in writing that the provisions of sub-section (1) shall not be applicable to the non-banking financial company for such period as may be specified in the order: Provided that no such order shall be made unless the amount in the reserve fund under sub-section (1) together with the amount in the share premium account is not less than the paid-up capital of the non-banking financial company. 5.7. The Assessing Officer disallowed the deduction so claimed by the assessees, on the premise that it is only an application of income. It was furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of business income. Moreover, the amount transferred to a reserve is as per Reserve Bank of India Act but the purpose for which the reserve has to be utilized has not been specified. Hence, the purposes for which reserve has been made can only be considered contingent as of present. Moreover, the funds representing the reserve are very much under the control of the assessee. There is no directive that amount equivalent to this reserve should be earmarked to a specific mode of investment. ..... 2.11. Now, we examine the present case on the anvil of above. By no stretch of imagination, it can be said that the amount sought to be deducted has in fact reached the assessee. The amount involved is only an appropriation out of company's own profits before declaration of dividend. The amount has very much reached and is in the business of the assessee. RBI has not attached any obligation that the fund be kept in any earmarked security nor the purpose of utilization 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent assessment years as well. 5.9. In Salem Co-operative Sugar Mills Ltd case, referred to on the side of the appellants, it was concluded by this court that the Tribunal was correct in holding that a portion of sale proceeds of molasses, which was accounted for and kept separately for the construction of storage tanks, cannot be included in the assessee's income for taxation, on the premise that there was diversion of income by overriding title at source. However, as rightly pointed out by the learned senior standing counsel appearing for the Revenue, such reserve was created as per the provisions of the Molasses Control (Amendment) Order and hence, the same would not be applicable to the facts of the present case. 5.10. Similarly, in Keshkal Co-operative Marketing case, relating to transfer of amount to reserve fund under section 43(2) of the Madhya Pradesh Co-operative Societies Act, the question raised was, whether it is allowable as deduction as business expenditure or as having been diverted by an overriding title. The Madhya Pradesh High Court held that the amount diverted for statutory reserve funds is deductible under section 37(1) of the Act. The said judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, whether the amount transferred to general reserve as required under section 205(2A) of the Companies Act, can be claimed as deduction, at the time of computing the total income, ultimately held that the amount transferred was out of its own profits and there was no diversion at source by overriding title even if the statute mandates the same; section 205(2A) merely restricts the declaration of entire profits as dividends and there are no other restrictions; and therefore, the amount transferred out of the income of the assessee, is not entitled to deduction of the money transferred to the reserve. Applying the ratio laid down in those decisions to the present case, wherein, the amount transferred by the assessees herein, to the reserve fund as mandated under the provisions of the RBI Act, is out of profits earned by them and hence, the same has to be treated as appropriation of profits. Furthermore, the amount so transferred is not a diversion of income at source by overriding effect, nor can the amount set apart be claimed as expenditure and it cannot be stated that it was a loss. It is relevant to refer to para No. 22 of the judgment in Travancore Case (Supra) relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit computed as per the provisions of companies Act. In the absence of any provision in Explanation to section 115JB of the Act to reduce the amount transferred to statutory reserve as per the guidelines of Reserve Bank of India, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the order of the Assessing Officer by placing his reliance on the order of this Tribunal in the assessee's own case for the assessment year 2009-10. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 5.15. Section 115JB states that for computing the book profit, the amount meeting out the liabilities other than ascertained liabilities, has to be added. The statutory reserve fund based on the RBI guidelines, is not based on any ascertained liabilities and hence, it has to be added for arriving at the book profit under section 115 JB. At this juncture, it would be relevant to refer to the decision of the Delhi High Court in SREI Infrastructure Finance Ltd v. Additional Commissioner of Income Tax, wherein, an identical question of law as raised herein i.e., whether the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit. Hence, it is debited to the profit and loss account and reduces the profit. Provisions should be created, even if there is insufficient profit. Provision is not, therefore, invested. On the other hand, 'reserve' is only appropriation of profit and therefore, it is not debited to the profit and loss account. The purpose of reserve is to strengthen the financial position and to meet unforeseen liabilities which may arise in future. The reserves are created out of adequate profits. However, once reserve is created, it reduces divisible profit. This is the amount of profit which is retained for use in business when difficulty arises. Reserves can be invested. The said investments can be even outside the business and in such cases the reserve is called the reserve fund. Reserves are shown on the liability side of the balance sheet and are generally treated as belonging to the proprietor just as capital. It is a sum owned by the business to the proprietor. Reserves themselves are not assets but represent a portion of the assets which the proprietor is free to utilise for business as one likes, i.e, the assets equalling the reserves that are not required to pay liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Standing counsel for the Revenue would contend that admittedly, the assessees are entitled for deduction only on actual bad debts written off and not on mere provision for bad debts. Whereas, in the present cases, the assessees had not written off the bad debts in the statutory books maintained by them and had merely made provision. However, the Tribunal without proper verification of records, erred in holding that the claim for bad debts is allowable as a deduction in computing the income of the Assessees. In support of the said contention, the learned senior standing counsel placed reliance on the decision of the Supreme Court in Southern Technologies Ltd. v. CIT [(2010) 2 SCC 548], wherein, it was held that mere provisions for bad debts will not be entitled to deduction u/s. 36(1)(vii) of the Act after 1.04.1989. Thus, according to the learned senior standing counsel, deduction can be allowed only when the bad debts are actually written off and not the provision for bad debts. 6.3. Adding further, the learned senior standing counsel appearing for the revenue fairly submitted that the identical issue was the subject matter for consideration in T.C.A. No. 621 of 2013, in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue relating to the assessment year 2006-07 and the same was also decided in favour of the assessee by the judgement of this court dated 23.12.2016 in TCA No. 621 of 2013, in respect of the assessee viz., Shriram Transport Finance Company limited. Stating so, the learned senior counsel prayed to decide this issue in favour of the assessees. 6.6. This court considered the rival submissions. On perusal of the records, it could be seen that the assessing officer disallowed the claim for deduction of bad debts on the premise that the assessees maintained two sets of accounts; the amount, which was written off as bad debts, was not same in both the books of accounts; and hence, the assessees had made only a provision and not a write off as required under the provisions of the Act. However, by order dated 16.12.2020, which is impugned in TCA No. 622/2013, the Tribunal, following its earlier order dated 21.04.2006 passed in respect of the assessees' own case, deleted the disallowances made by the assessing officer. Subsequently, referring to the said earlier orders dated 21.04.2006 and 16.12.2020, the Tribunal by separate orders dated 02.08.2012, 11.04.2013 and 28.11.2011, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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. Feeling aggrieved, the Revenue and the assessees are before this court with the tax case appeals to set aside the orders passed by the Tribunal in deleting the disallowances made by the assessing officer and in remanding the matters to the assessing officer for fresh consideration. 6.7. It is an accepted principle that the bad debt written off as per the income tax books, has to be allowed, even if the assessee has been maintaining two sets of accounts, once it is written off in the profit and loss account. In this connection, it would be appropriate to refer to the judgment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We make it clear that we are not doubting the correctness of the view taken by this Court in Union of India v. Kaumudini Narayan Dalal [(2001) 10 SCC 231 : (2001) 249 ITR 219] , CIT v. Narendra Doshi [(2004) 2 SCC 801] and CIT v. Shivsagar Estate [(2004) 9 SCC 420] to the effect that if the Revenue has not challenged the correctness of the law laid down by the High Court and accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause. Registry is directed to place the papers before the Hon'ble Chief Justice of India for appropriate orders. 2. In terms of the reference what is required to be decided is whether Revenue can be precluded from defending itself by relying upon the contrary decisions. It is to be noted that various High Courts have taken contrary views. While some of the Courts have decided in favour of the assessee, other High Courts have decided in favour of the Revenue. 4. In BSNL v. Union of India [(2006) 3 SCC 1] it was noted as follows: (SCC pp. 21-22, paras 20 22) 20. The decisions cited have uniformly held that res judicata does not apply in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter to a larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the State of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P. is therefore rejected. 5. In State of Maharashtra v. Digambar [(1995) 4 SCC 683] , the position was highlighted by this Court as follows: (SCC p. 691, para 16) 16. We are unable to appreciate the objection raised against the prosecution of this appeal by the appellant or other SLPs filed in similar matters. Sometimes, as it was stated on behalf of the State, the State Government may not choose to file appeals against certain judgments of the High Court rendered in writ petitions when they are considered as stray cases and not worthwhile invoking the discretionary jurisdiction of this Court under Article 136 of the Constitution, for seeking redressal therefor. At other times, it is also possible for the State, not to file appeals before this Court in some matters on account of improper advice or negligence or improper conduct of office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Bihar v. Ramdeo Yadav [(1996) 3 SCC 493 : 1996 SCC (L S) 756] wherein this Court noticed Debdas Kumar [State of W.B. v. Debdas Kumar, 1991 Supp (1) SCC 138 : 1991 SCC (L S) 841 : (1991) 17 ATC 261] by holding: (Ramdeo Yadav case [(1996) 3 SCC 493 : 1996 SCC (L S) 756] , SCC p. 494, para 4) 4. Shri B.B. Singh, the learned counsel for the appellants, contended that though an appeal against the earlier order of the High Court has not been filed, since larger public interest is involved in the interpretation given by the High Court following its earlier judgment, the matter requires consideration by this Court. We find force in this contention. In the similar circumstances, this Court in State of Maharashtra v. Digambar[(1995) 4 SCC 683] and in State of W.B. v. Debdas Kumar [State of W.B. v. Debdas Kumar, 1991 Supp (1) SCC 138 : 1991 SCC (L S) 841 : (1991) 17 ATC 261] , had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the court is entitled to go into the question. 8. In CCE v. Hira Cement [(2006) 2 SCC 439] at para 24 the position was reiterated. 9. In Govt. of A.P. v. V.J. Cornelius ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Courts. 6.9. In the judgement in TCA No. 621 of 2013 dated 23.12.2016 rendered by a co-ordinate Bench of this Court, it has been clearly held that the assessee is entitled to maintain two sets of books of accounts. The judgment of the Tribunal is not binding on us, but certainly the judgment of the co-ordinate bench, unless we take a different view or the facts are different. The method of accounting as per the provisions of the Act is contemplated under Section 145 and deduction for bad debts under the Act is provided under Section 36. All that the assessee is required to do is to write off the bad debts in the profit and loss account and such amount must be reflected in the books of accounts as contemplated under section 145 of the Act. Therefore, this court is of the opinion that the Tribunal was earlier justified in accepting the methodology adopted by the assessees in maintaining two sets of books of accounts and the entries made in the income tax books for the purpose of computation. 6.10. It is settled law that as per section 36(1)(vii) of the Act, bad debts actually written off are only to be allowed as deduction. In Vijaya Bank v. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ordinary course of business. Similarly, the debt already written off, but not accepted by the Assessing officer earlier for the reason that the same had not bad in that year, can be deducted in the subsequent year. Thus, the maintenance of books of accounts is one thing and writing off the doubtful debt as bad is completely different. For the purpose of Income Tax Act, the sine qua non for claiming deduction is that the bad debts must be written off in the profit and loss account. The entry in the books of accounts maintained for the purpose of Companies Act, as only a provision, is relevant, only for the purpose of verification and not for the purpose of deduction. A conjoint reading of Secitons 145 and 36 (2) would show that the object sought to be achieved is to verify, whether such debt has become irrecoverable in that particular year to treat it as bad and write off. At this juncture, it is relevant to refer again to the relevant portion of the judgment of the Apex Court in Vijaya Bank case (Supra), which lays down as to what constitutes a write off under the provisions of the Income Tax Act: 11. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year end, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year end in the balance sheet is shown as net of the provisions for impugned debt. 15. However, what is being insisted upon by the assessing officer is that mere reduction of the amount of loans and advances or the debtors at the year end would not suffice and, in the interest of transparency, it would be desirable for the assessee Bank to close each and every individual account of loans and advances or debtors as a precondition for claiming deduction under Section 36(1)(vii) of the 1961 Act. This view has been taken by the assessing officer because the assessing officer apprehended that the assessee Bank might be taking the benefit of deduction under Section 36(1)(vii) of the 1961 Act, twice over. [See the order of CIT(A) at pp. 66, 67 and 72 of the paper book, which refers to the apprehensions of the assessing officer.] In this context, it may be noted that there is no finding of the assessing officer that the assessee had unauthorisedly claimed the benefit of deduction under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we are of the view that the assessing officer is sufficiently empowered to tax such subsequent repayments under Section 41(4) of the 1961 Act and, consequently, there is no merit in the contention that, if the assessee succeeds, then it would result in escapement of income from assessment. 6.12. Therefore, it is clear that once the bad debts are written off by debiting the same in the profit and loss account and by giving a corresponding credit in the loans and advances/debtors on the asset side of the balance sheet, the requirement under law is satisfied. It is not necessary to make corresponding entry towards each individual account separately to qualify as a valid write off. The department has not disputed the entries in the profit and loss account and balance sheet. However, the Tribunal failed to see that once the sums written off in the books maintained for the purpose of Income Tax Act and debited in the profit and loss account and satisfied the other requirement as held by the Apex Court, it is suffice to hold that the assessees are entitled to the allowance. In such view of the matter, we are of the opinion that the Tribunal rightly deleted the disallowances made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contend that the parent company of Shriram Group of Companies is in the trade of finance and investments and they had built a good will and reputation over several years of operation. The parent company also had large data base of its existing and past clients, who had investments and had financial transactions with them. While so, the assessee companies, with the help of the parent company, started business by making investment in land, building etc., and claimed depreciation. In addition, the assessee companies also invested for use of trademark on the parent company, which has to be treated as investment in capital asset. Further, the assessee companies were allowed to use the data base of the parent company to tap them for development of business. Continuing further, the learned senior standing counsel submitted that the customers are attracted not only through trust and good will, but also by the trade mark of the parent company. Therefore, by allowing the assessee companies to use the trademark of the parent company, they had the same effect of investing in the capital assets viz., land, building etc., and the said investment/expenditure is towards the profit making apparatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the trademark, the provisions of section 32(1)(ii) of the Act are not at all attracted. Further, the document under which the permission was granted to the assessee companies can be terminated for breach of contract by either party by giving 60 days notice. Even the payment made by the companies is not in the capital field and no asset or advantage of an enduring nature has been acquired by them and therefore, the expenditure in the form of payment to the principal is a proper debit in the profit and loss account even after the introduction of section 32(1)(ii). It is also pointed out that in this case, royalty is being paid annually from 01.04.2003, which shows that there is no acquisition of any asset and the payment is only for the use of the asset without acquiring any interest therein. To substantiate his contention, the learned senior counsel referred to the decision of the Hon'ble supreme court in CIT v. Wavin India Limited [236 ITR 314]. The learned senior counsel further submitted that only the owners are entitled for depreciation. Whereas in the present case, the license agreement confers only the right to use and also imposes restrictions on such use; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of acquisition of the asset and therefore, depreciation is allowable on that sum. However, the assessing officer did not allow depreciation on the written down value (WDV) in the subsequent years, as a result of which, a ground was raised in this regard by the assessee, in the appeal filed relating to the assessment year 2014-15 before the CIT(A). The CIT(A) in his order dated 28.08.2017 dismissed the said ground as infructuous as the issue of royalty was decided in the assessee's favour. The ITAT also did not decide this issue. Therefore, the learned senior counsel sought to consider the same and pass appropriate orders in favour of the assessee. 7.6. This court considered the rival submissions and perused the materials placed before the same. It is borne out from the records that the assessee companies had paid royalty to the parent company for using its logo, based on the turnover and claimed deduction treating the said expenses as revenue in nature. Whereas, the assessing officer rendered a finding that in view of the amendment made to section 32 with effect from 1.4.1999, the deduction for royalty payment construing it as revenue expenditure, has to be disallowed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the agreement clearly show that the secret processes were not sold by the swiss company to the assessee:(a) the licence was for a period of five years, liable to be terminated in certain eventualities even before the expiry of the period; (b)the object of the government was to obtain the benefit of the technical assistance for running the business; (c)the licence was granted to the assessee subject to rights actually granted or which may be granted after the date of the agreement to other persons; (d)the assessee was expressly prohibited from divulging confidential information to third parties without the consent of the swiss company; (e)there was no transfer of the fruits of research once for all: the swiss company which was continuously carrying on research and had agreed to make it available to the assessee; and (f) the stipulated payment was recurrent dependent upon the sales, and only for the period of the agreement. We agree with the High Court that the first question was rightly answered in favour of the assessee. However, it is imperative for this court to apply the law laid down by the Apex Court to the facts of the present case, to determine the nature of the royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or the expenditure is of revenue nature, may not pose a problem. However, in case of technical information and know-how, having regard to their unique characteristic, the questions that need to be posed for determining the nature of such an expenditure are also of different nature. In case where there is a transfer of ownership in the intellectual property rights or in the licences, it would clearly be a capital expenditure. However, when no such rights are transferred but the arrangement facilitates grant of licence to use those rights for a limited purpose or limited period, the Courts have held that in such a situation, the royalty paid for use of such technical information or know-how would be in the nature of revenue expenditure as no enduring benefits is acquired thereby. This was so held in a classic case, entitled CIT v. Ciba India Limited (AIR 1968 SC 1131). 7.11. Thus, it is crystal clear from the aforesaid decisions of the Hon'ble supreme court that royalty payment made by the assessee, for use of logo or trademark for a particular period, for improvement / expansion of business, would qualify as revenue expenditure. The Judgment in Honda Siel Cars India Ltd (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.1. In the assessment year 2009-10, the assessees / respondents in TCA Nos. 360 and 361 of 2014, had claimed ESOP expenses for deduction, by debiting the same under the head 'salaries and allowances' / 'Personnel Expenses' in the profit and loss account. The assessing officer disallowed the said claim and added the same back to the total income of the assessee companies. However, the appellate authorities reversed the orders of the assessing officer by holding that the ESOP expenditure is allowable as revenue expenditure. Aggrieved over the same, the Revenue is before this court, by raising this substantial question of law, as to whether the finding of the Tribunal that the assessees' claim for deduction of ESOP expenses is an allowable deduction, was correct. 8.2. The learned Senior Standing Counsel appearing for the Revenue submitted that the assessee companies had declared their shares to the employees as Employee Stock Option Scheme (ESOP) and erroneously claimed the said expenditure as revenue expenditure, whereas such expenditure must be treated as capital expenditure as the shares of the companies are capital assets. In this context, strong relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . PVP Ventures Ltd [(2012) 211 Taxman 554 (Mad)]. It is also submitted that the assessing officer allowed the ESOP expenditure as revenue in nature, for the assessment years 2006-07, 2007-08 and 2008-09 and hence, the same has to be applied for the AY 2009-10 as well. 8.4. This court considered the rival submissions. On a close reading of the orders passed by the assessing officer, it could be seen that the assessee companies classified the ESOP expenses under the head 'salaries and allowances' / 'personnel expenses', and debited the same in the profit and loss account and claimed deduction for the same. The assessing officer disallowed the said expenditure on the premise that it is in the nature of capital expenditure. While so, the assessing officer was of the opinion that share premiums obtained on issue of shares are items of capital receipts and when such premium is foregone by issue of shares at lower cost to the employees, it can only be treated as capital expenditure; the ESOP expenditure debited was not incurred towards satisfaction of any trade liability as the employees have not given anything to procure employees stock option and hence, they are not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in favour of the assessees. Therefore, TCA Nos. 360 and 361 of 2014 at the instance of the Revenue. 8.6. Admittedly, the ESOP scheme is a voluntary scheme launched by the employer to issue shares to their employees, with an intent to give a stake to the employees in the organisation as incentives for performing better. Such an expenditure is incurred to facilitate and promote the business and there is no enduring benefit or advantage or creation of asset to the company, rather it is to earn more revenue and the expenses incurred for such purpose is nothing but revenue expenditure. It is a general principle that any expenditure incurred for the purpose of business is a deductible expenditure and the amount spent by an assessee for labour / employees' welfare, would be deductible as revenue expenditure. In Dalmia Jain Co. Ltd v. CIT [81 ITR 754], the Hon'ble supreme court held that expenditure incurred for maintenance of business is revenue in nature . 8.7. According to the assessees, the ESOP benefit is taxable in the hands of employees as 'perquisite' under section 17(2) of the Act and it was brought within the purview of Fringe Benefit Tax, which is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an expenditure. The Tribunal pointed out that what had been adopted was not notional or contingent as had been submitted by the Revenue. Pointing out to the Employees Stock Option Plan, the Tribunal in its order stated that it was a benefit conferred on the employee. So far as the company is concerned, once the option was given and exercised by the employee, the liability in this behalf got ascertained. This was recognised by SEBI and the entire Employees Stock Option Plan was governed by guidelines issued by SEBI. On the facts thus found, the Tribunal held that it was not a case of contingent liability depending on the various factors on which the assessee had no control. The expenditure in this behalf was an ascertained liability, thus the expenditure incurred being on lines of the SEBI guidelines, there could be no interference in the relief 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. 8.9. It is also to be noted at this juncture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are eligible for deduction, is liable to be rejected. It is also submitted that the assessees had earned dividend income by investing in the securities, which is exempt under section 10(34), but they came forward with the theory of stock-in-trade only for claiming deduction. 9.3. Adding further, the learned Senior Standing Counsel for the Revenue submitted that the purchase of government securities should be treated as 'investment' and not 'stock-in-trade' as claimed by the assessees. Once it is treated as an investment, it can only be disallowed as capital expenditure and cannot be allowed as deduction treating it as normal business expenditure. Moreover, it is a mere provision written off and not an actual loss. It is also submitted that the assessees had claimed the same without filing the revised return and therefore, the same cannot be allowed as deduction. 9.4. Per contra, the learned Senior Counsel for the assessees contended that the assessees deployed funds in securities to earn profits and therefore, hold it as 'stock-in-trade'. It is further submitted that the securities were held by the assessees to comply with Statutory Liquidity Ratio (SL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the SLR requirements as mandated by the RBI, for which, they made investments in government securities and hence, the same have to be treated as stock-in-trade and hence, the loss on sale of investments / diminution in value of investments is an allowable deduction. At this juncture, it is apropos to refer to the decision of this court in Lakshmi Vilas Bank Ltd v. CIT [(2006) 284 ITR 93 (Mad)], wherein, after following the various decisions of the supreme court as well as the High Courts, it was held that the Government securities held by the assessee were stock-in-trade. The relevant passage of the same is extracted below: 6. The learned counsel for the assessee relies on the recent judgment of the Supreme Court in United Commercial Bank Vs. Commissioner of Income-tax, [1999] 240 ITR 355, wherein the Apex Court, after reiterating that the principles applicable in valuation of stock are: (1) that for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower; (2) In the balance-sheet, if the securities and shares are valued at cost, from that no firm conclusion can be drawn. A taxpayer is free to employ for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stock-in-trade (investments) because the bank was required to prepare the balance-sheet in the prescribed form and it had no option to change it. For the purpose of income-tax what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case. 7. This Court, in the case of Commissioner of Income-tax Vs. Karur Vysya Bank Ltd. [2005] 273 ITR 510, to which one of us is a party (P.D.Dinakaran, J.), held that the Government Securities held by the assessee-Bank have to be treated as stock-in-trade and not investment by following the Supreme Court judgment in Karnataka State Co-operative Apex Bank's case [1999] 240 ITR 255. In view of the above reasoning of the Supreme Court, we are of the view that the Government Securities held by the assessee are stock-in-trade. 8. Further, we have seen from the order of the Tribunal that for the earlier year, the Tribunal decided the case in favour of the assessee. When the Tribunal decided the case in favour of the assessee on identical facts, it is not proper for the Tribunal to take a different view for the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h there is provision in the Income Tax Act itself. 9.In the light of the aforesaid decision of this court, it is clear that the Tribunal completely erred in coming to the conclusion it did, at variance with and opposed to the conclusion of the Tribunal on the earlier occasion. 9.7. That apart, it is to be pointed out here that the identical issue was decided in favour of the assessee by the Karnataka High Court in CIT v. Karnataka Bank Ltd [110 taxmann.com 128], however, against this, the Revenue preferred an SLP to the Supreme Court and the same is pending. 9.8. In the light of the aforesaid decisions, which are squarely applicable to the facts of the present case, this court is of the opinion that Government securities are only stock-in-trade and not capital investment and the loss, if any, on sale of them cannot be treated as capital loss and hence, the assessees are entitled for deduction of loss on sale of investments / diminution in value of investments. Therefore, the Tribunal was right in deleting the disallowances made by the assessing officer and the same need not be interfered with. Accordingly, the issue raised by the Revenue qua loss on sale of investments/ d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as follows: 11. It is well-settled that even a single transaction may constitute business under the definition of the word business in Section 2(13). But a single transaction will not be a trading adventure unless it bears clear indicia of trade. (Narain Swadeshi Weaving Mills v. CEPT ). Whether a single plunge is enough to constitute an adventure in the nature of trade or not has to be decided having regard to the surrounding circumstances of the case. This view expressed by Lord President Clyde, in the case Balgownie Land Trust Ltd. v. IRC [1929] 14 TC 684, 691, was quoted with approval by the Supreme Court in the case of G. Venkataswami Naidu and Co. v. CIT [1959] 35 ITR 594, 615. Therefore, the facts of the case will have to be looked into to decide whether a transaction is of business nature or not. Whether a transaction is of speculative nature or not does not make any difference to this principle. If a single plunge in trade may constitute business, the transactions will be an adventure in the nature of trade. If such a transaction was settled without the transfer of the contracted commodity, then the transactions will be an adventure in the nature of speculation bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing but interest swap transactions and not for any commodity and therefore, section 43(5) is not at all applicable. Continuing further, the learned senior counsel submitted that the underlying securities of the derivative transactions are foreign currencies vis-a-vis indian currency; the expression 'commodity' is not defined under the Act and hence, the same has to be given the meaning as understood in common parlance. As per Black's dictionary (Eighth edition), the expression 'commodity' means an article of trade or commerce, which is tangible in nature. Accordingly, the derivative transaction where the underlying security is currency, cannot come under the definition of commodity / goods. Hence, the proviso to section 43(5) of the Act is not applicable to the derivative transactions done by the assessees. 10.5. Elaborating further, the learned senior counsel appearing for the assessees submitted that as already stated, the transaction made by the assessees is in currency, which cannot be considered as commodity or goods and therefore, the same does not fall under the category of speculative transaction as mentioned in section 43(5). In these circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on different footing and the provision is very clear on this aspect and there is no need for verification by the department as the CIT(A) had already remanded it for verification and on such remand, the Assessing Officer had also allowed it as revenue expenditure only, based on verification. Therefore, the learned senior counsel sought for dismissal of these appeals, as the orders of the appellate authorities are perfectly correct and the same do not warrant any interference. 10.7. This court considered the rival submissions and perused the materials available on record, including the orders passed by the authorities below. The assessing officer did not consider the claim of the assessees on the ground that the loss claimed is only a notional loss and contingent in nature and therefore, is not allowable; and that, they did not file any revised return claiming the derivative loss and hence, the same cannot be considered for deduction, in the light of the decision of the Hon'ble supreme court in Goetz (India) Ltd v. CIT [284 ITR 323]. It was contended by the assessees before the CIT(A) that the derivative contracts and foreign exchange swap transactions are hedging transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; [or] (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013), shall not be deemed to be a speculative transaction. 10.9. It is to be pointed out here that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was, whether the loss claimed due to cancellation of forward contract, falls within the definition of speculative transaction and the ratio laid down by the Gujarat High Court was that 'the assessee had booked the foreign exchange in forward contracts only to hedge against the losses and it cannot be said to be a speculative transaction and must be allowed as deduction'. 10.13. In CIT v. Celebrity Fashion Ltd case, the assessee not being a dealer in foreign exchange, booked foreign exchange in the forward market to hedge losses and the issue raised was, whether the losses incurred on account of cancellation of forward contracts will be business losses or speculative losses; and it was held by this court that the booking of foreign exchange contracts was only to hedge against the losses and therefore, should be allowed as a deduction. Paragraph 29 of the said judgment is relevant and is extracted below: 29. It will be beneficial to refer to the decision of the Bombay High Court in the case of CIT Vs. Badridas Gauridu Pvt. Ltd.[reported in (2003) 261 ITR 256]. In that case, the assessee was not a dealer in foreign exchange, but was an exporter of cotton as in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h foreign currency except with the permission of the RBI under section 8 of the Foreign Exchange Regulations Act, 1973 or Section 3 of the Foreign Exchange Management Act, 1999. In view of the same, as the foreign currency cannot be called as commodity as well, the hedging contracts are not speculative and hence, Section 43(5) is not applicable. Though the assessing officer examined the issue in detail, he erred in treating the transactions done by the assessees as speculative transactions and disallowing the claim made by them. On the other hand, the appellate authorities rendered concurrent findings in favour of the assessees, to the effect that the derivative contracts, foreign exchange swap transactions against fluctuations in interest rate are hedge transactions and the loss arising out of the same is allowable as business loss. Such findings of the appellate authorities cannot be found fault with and therefore, the same are hereby confirmed. Accordingly, this issue stands answered against the Revenue. Disallowance under Section 14A r/w Rule 8 D 11.1. Heard both sides. On a perusal of the records, it could be seen that the assesses invested in shares of associate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not for earning exempted income and hence, section 14A is not applicable to the assessee companies. It was also stated that even otherwise, as per section 14A(2), the assessing officer can apply Ruly 8D only if he is not satisfied with the claim of the assessees in respect of such expenditure in relation to income which does not form part of the total income under the Act. However, in the present case, the assessing officer has not stated as to why he was not satisfied with the amount claimed as deduction by the assessees and hence, the disallowance under section 14A r/w Rule 8D is not attracted in the assessees' case. Stating so, the assessees approached the CIT(A) by filing appeals. 11.4. The CIT(A) in respect of the appeal filed by the assessee in TCA No. 717/2017 rendered the following findings: In the instant case there is no dispute that investment had been made in the subsidiary companies stated aforesaid which the AO has while computing disallowance of expenditure relating to exempt income taken into account, which is not in consonance with the judgments relied on by the AR, more particularly, the case of EIH Hotel Ltd of the Chennai ITAT quoted supra. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in ITA Nos. 512 513/Mds/2015 dated 26.06.2015, directed the AO to disallow Rs.15 lakhs. However, the Tribunal following the order of the High Court, remitted the issue to the file of the AO to consider the disallowance u/s 14A r/w Rule 8D to find out whether interest bearing borrowed funds were used to acquire the shares in the companies or making advance to the subsidiaries. 11.7. Aggrieved over the orders so passed by the Tribunal, the assessees are before this court with TCA Nos. 717/2017, 407/2019, 413 414/2019. 11.8. At the outset, it would be relevant to refer to the following decisions of the Hon'ble Supreme court and this court, wherein, it was categorically held that while applying Rule 8D, the assessing officer has to follow the mandatory procedure under section 14A(2) and record that he is not satisfied with the claim made by the assessee in respect of such expenditure in relation to income which does not form part of total income under the Act. In South Indian Bank Ltd. v. Commissioner of Income-tax [(2021) 130 taxmann.com 178(SC)], it was held by the Hon'ble Supreme Court as follows: 19. In HDFC Bank Ltd. Vs. Dy CIT [(2016) 67 taxmann.com 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fully disclose all material facts. The cited judgment, as can be seen, mainly dealt with re-opening of assessment in view of escapement of income. The contention of department for reopening was that the assessee had earned tax-free dividend and had claimed various administrative expenses for earning such dividend income and those (though not allowable) was allowed as expenditure and therefore the income had escaped assessment. On this, suffice would be to observe that the action in Honda Siel Power Products Ltd (supra) related to re-opening of assessment where full disclosure was not made. An assessee definitely has the obligation to provide full material disclosures at the time of filing of Income Tax Return but there is no corresponding legal obligation upon the assessee to maintain separate accounts for different types of funds held by it. In absence of any statutory provision which compels the assessee to maintain separate accounts for different types of funds, the judgment cited by the learned ASG will have no application to support the Revenue s contention against the assessee. 23. It would now be appropriate to advert in some detail to Maxopp Investment Ltd. v. CIT [( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. . 24. Another important judgment dealing with Section 14A disallowance which merits consideration is Godrej and Boyce Manufacturing Company Ltd. V. DCIT [(2017) 1 SCC 421]. Here the assessee had access to adequate interest free funds to make investments and the issue pertained to disallowance of expenditure incurred to earn dividend income, which was not forming part of total income of the Assessee. Justice Ranjan Gogoi writing the opinion on behalf of the Division Bench observed that for disallowance of expenditure incurred in earning an income, it is a condition precedent that such income should not be includible in total income of assessee. This Court accordingly concluded that for attracting provisions of Section 14A, the proof of fact regarding such expenditure being incurred for earning exempt income is necessary. The relevant portion of Justice Gogoi s judgment reads as follow: 36. what cannot be denied is that the requirement for attracting the provisions of Section 14-A (1) of the Act is proof of the fact that the expenditure sought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessee himself in the computation of disallowance under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank (supra) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in relation to such income, which does not form part of the total income under the Act in accordance with such method as may be prescribed. 15. It is further pointed out that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total income under the Act, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. 16. Further, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. It was further held that sub section 2 of Section 14A does not enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect to the expenditure incurred in relation to the income which does not form part of the total income, is correct. Therefore, at the first instance, the Assessing Officer has to determine whether the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s figure is liable to be accepted, then the correctness of the petition should have been directed to be decided by the Assessing Officer for which purpose the matter should have been remanded. This in our view is one more error committed by the tribunal. 21. So far as the order passed for the assessment year 201213 is concerned, we were also of the same view as expressed by Mr.R.Vijayaraghavan, learned Senior Counsel for the respondent/assessee and wondered as to why the revenue has preferred the appeal. However, on a closer reading of paragraph No. 7.3 of the impugned order, we find that though the tribunal directs the assessee to work out the expenditure component towards administrative and managerial aspect so that the same shall be disallowed in the computation of income, but has not issued any specific directions to the Assessing Officer as to what has to be done after the assessee files the working sheet. Therefore, to that extent the tribunal has committed an error. Hence, we are of the considered view that the matter should be remanded for fresh consideration of the Assessing Officer in accordance with law. 22. For the above reasons, the Tax Case Appeals are allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets aside the orders of the appellate authorities and remands the matter to the assessing officer. The assessing officer shall decide the issue relating to disallowance under section 14A and ancillary issues raised herein afresh, taking note of the observations made in the aforesaid decisions and pass appropriate orders, on merits and in accordance with law, within a period of three months from the date of receipt of a copy of this judgment. It is needless to state that such an exercise shall be completed by the Assessing officer, after providing a reasonable opportunity to the assessees to place their oral and documentary evidences. This issue stands answered accordingly. Interest under section 234D 12.1. During the course of assessment proceedings, the assessing officer noticed that the assessees while arriving at profits from business, had excluded the interest charged under section 234D and the same is not acceptable as the interest charged is penal in nature and is not an allowable deduction. The said orders of the assessing officer were also affirmed by both the appellate authorities. Therefore, the assessees are before this court. 12.2. According to the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of the CIT(A) by holding that while proceeding under section 143(1) of the Act, the amount refunded to the assessees was considered as non-payment of tax and hence, interest was charged for the period, for which the assessees were holding the amount. Further, the Tribunal in ITA Nos. 711-717/Mds/2015, by order dated 29.01.2016 while rejecting the contentions of the assessees, held that interest under section 234D is on par with the interest charged under section 234A or 234B or 234C of the Act and that, the Government has not advanced any money to the assessees so as to call it as a loan; the interest levied on the assessees is compensatory and it cannot be allowed as a business deduction, while computing the business income. 12.5. This court finds no reason much less valid reason to interfere with the findings so rendered by the authorities below, as the interest was levied on the amount refunded to the assessees, which they are not legally entitled to and for the period during which they were holding the same and hence, the same is not eligible for deduction. Therefore, this issue relating to disallowance of interest under section 234D, is decided against the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at payments made to group companies are reimbursement of actual expenditure and there was no profit element involved in the amount representing incentive paid to the employees. Therefore, the assessing officer disallowed the said expenditure claimed for deduction, by observing that the nature of expenditure is subject to the provisions of TDS and the same is not an allowable deduction, unless TDS is deducted and remitted. The stand of the assessee that the group companies deducted TDS wherever applicable, was also rejected by the assessing officer by stating that the same does not in any way affect the applicability of TDS provisions to the case of the assessee. Further, it was observed by the assessing officer that as per section 40a(ia), it is the responsibility of the assessee who claims deduction of expenses, to deduct TDS; and if someone else deducts TDS on the payments made on behalf of the assessee, it will not exonerate the assessee from its liability of deducting TDS and remitting the same to the Government. In the absence of any evidence to substantiate the contentions raised by the assessee, the reasons and the findings so rendered by the assessing officer were accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood. Having considered the rival contentions, the Tribunal was of the view that the amendment restricting the disallowance to 30% of the expenditure, came into effect only with effect from 01.04.2015 and the assessment year under consideration was 2012-13 and hence, the said amendment was not applicable to the case of the assessee. Accordingly, the alternative plea raised by the assessee was rejected by the Tribunal. The said view of the Tribunal appears to be just and proper and it needs no interference by this court, in the light of the judgment of the Hon'ble Supreme Court in Shree Choudhary Transport Company v. Income Tax Officer [(2020) 426 ITR 289], wherein, it was clearly observed that the amendment to section 40(a)(ia) by the Finance No. 2 Act 2014 with effect from 01.04.2015, is applicable only from the assessment year 2015-16. The relevant passage of the said judgment can be quoted below for ready reference: 19. In yet another alternative attempt, learned counsel for the appellant has argued that by way of Finance (No. 2) Act, 2014, disallowance under Section 40(a)(ia) has been limited to 30% of the sum payable and the said amendment deserves to be held retrospect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed. TCA No. 913 of 2014 filed by the Revenue, stands dismissed as regards the substantial question of law Nos. (i) and (ii). The third question of law is left open. TCA No. 914 of 2014 filed by the Revenue, stands dismissed in respect of substantial question of law Nos. (i), (iii), (iv), (v) and (vi). The second question of law is left open. TCA Nos. 915 and 916 of 2014 filed by the Revenue stand dismissed. TCA Nos. 125, 127, 129 131 of 2017 filed by the assesses stand allowed. TCA Nos. 124, 126, 128 and 130 of 2017 and 416 of 2019 filed by the assesses, are dismissed. TCA No. 717 of 2017 filed by the assessee stands dismissed as regards the substantial question of law Nos. (i) to (iii). In respect of the fourth question of law, relating to disallowance u/s. 14A r/w Rule 8D, the appeal stands disposed of by remanding the matter to the assessing officer for fresh consideration. TCA No. 406 of 2019 filed by the assessee stands dismissed. TCA No. 407 of 2019 filed by the assessee, stands dismissed in respect of question of law Nos. (i) to (iii). As regards the fourth question of law, the appeal stands disposed of, by remanding the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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