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2017 (5) TMI 1702 - AT - Income TaxDisallowance u/s.14A r.w.r. 8D - CIT-A directing to exclude the investment made by assessee in subsidiary companies and investments which did not yield exempt income while computing the disallowance u/s.14A r.w.Rule 8D - HELD THAT - It is appropriate to remit the issue to the file of AO to consider the disallowance u/s.14A r.w.Rules 8D to find out whether interest bearings borrowed fund were used to acquire the shares in the companies or making advance to the subsidiaries. With this observation, we restore the issue to the file of AO for fresh consideration. Payment of royalty - Nature of expenditure - capital expenditure or revenue expenditure - HELD THAT - As decided in own case payment made for the user of the logo is always revenue in nature MAT computation - addition relating to expenditure incurred for exempt income while computing the book profit u/s.115JB - HELD THAT - Disallowance made u/s.14A r.w. Rule 8D cannot be added while computing book profit u/s.115JB of the Act that the disallowance is only disallowance for the purpose of computing taxable income of the assessee in the normal course. There is no provision in the Act to add these kind of disallowance while computing book profit u/s.115JB and it cannot change the book profit on this count. Therefore even if there is an addition in view of provision u/s.14A r.w.Rule 8D, that cannot be added back to compute the book profit u/s.115JB. This ground is allowed. Transfer to Reserve Fund as required under Section 45-IC of the Reserve Bank of India Act and claimed the same as appropriation of funds by overriding title - HELD THAT - As decided in ow case 2016 (8) TMI 1204 - ITAT CHENNAI assessee claims that it is only an appropriation of funds by overriding title. This Tribunal examined the very same issue for assessment years 2003-04 to 2009-10 and found that the transfer of funds, as required under Section 45-IC of the Reserve Bank of India Act, is only an application of income, therefore, liable for taxation. In view of the decision of this Tribunal in the assessee's own case, for assessment years 2003-04 to 2009-10, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Addition of interest u/s. 234D - HELD THAT - As decided in ow case 2016 (8) TMI 1204 - ITAT CHENNAI DR rightly submitted by the Ld. D.R., interest is charged under Section 234D of the Act on the excess amount refunded to the assessee while processing a return under Section 143(1) of the Act. Even though it is an interest levied on the amount refunded to the assessee, in fact, it is an interest for delayed payment of tax. In other words, the amount refunded to the assessee while processing return under Section 143(1) of the Act was considered as nonpayment of tax and interest was charged for the period in which the assessee was holding the amount. Therefore, the interest paid by the assessee cannot be construed as expenditure for earning the income or for business purpose Disallowance made u/s.40(a)(ia) - The main contention of the ld.A.R is that nothing is payable at the end of the close of the Financial year, as such the issue is squarely covered by the order of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT 2012 (4) TMI 290 - ITAT VISAKHAPATNAM - HELD THAT - There is a force in the argument of the ld.A.R and the Special Bench cited supra considered this issue and decided the issue in favour of the assessee. We are inclined to remit this issue to the file of the ld. Assessing Officer with similar direction. These grounds raised by the assessee is allowed for statistical purposes. Bad Debts disallowance u/s 36 (1)(vii) - AO rejected the claim of bad debts of the assessee at the threshold on the reason that it was not written off in its books of accounts maintained by the assessee under Companies Act, 1956 and the A.O has not examined whether it was written off in its books of accounts maintained for income-tax purposes - HELD THAT - The Income Tax Act requires for the assessee to follow a parellelly consistent method of accounting in accordance with section 145 thereof. The books maintained for the purposes of the Income Tax Act shall comply with the provisions of section 145 and shall form the basis for an assessment thereunder. The error in the order of assessment is the juxtaposition of the two books by the assessing officer. The creation of a provision for bad debts in the corporate accounts thus does not, in any way, impact the claim of bad debt u/s 36(1)(vii) of the Act in the regular computation of income. This submission of the department stands rejected. (Para 7) Thus, it is clear that the claim of bad debts relates to debts actually written off and not a provision made in this regard and therefore, in accordance with the provisions of Section 36 (1)(vii), written off the bad debt and the claim is allowable As per the judgement of the Hon ble Supreme Court in the case of TRF Ltd. v. CIT 2010 (2) TMI 211 - SUPREME COURT as held that after 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Hence, it is appropriate on our part to remit the entire issue as done by the Tribunal in the earlier occasion to the file of AO for his due examination of the books of accounts maintained by the assessee under the Income Tax Act, 1961and the ld. Assessing Officer decides thereupon.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Payment of royalty and its classification as capital or revenue expenditure. 3. Computation of book profit under Section 115JB and inclusion of disallowance under Section 14A. 4. Transfer to Reserve Fund under Section 45-IC of the RBI Act. 5. Deductibility of interest paid under Section 234D. 6. Disallowance under Section 40(a)(ia) for non-deduction of TDS. 7. Deletion of addition towards provision for bad debts. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee and Revenue both contested the disallowance made under Section 14A read with Rule 8D. The assessee argued that the investments were made for business purposes, not for earning exempt income, and cited previous Tribunal decisions in its favor. The Revenue contended that the CIT(A) erred in excluding certain investments while computing the disallowance. The Tribunal referred to its earlier decisions and the High Court rulings, directing the AO to reassess whether interest-bearing borrowed funds were used for acquiring shares or making advances to subsidiaries, and to recompute the disallowance accordingly. 2. Payment of Royalty: The Tribunal examined whether the royalty paid for using a logo should be treated as capital expenditure or revenue expenditure. Referring to previous Tribunal decisions and Supreme Court judgments, the Tribunal held that the royalty payment was revenue in nature and thus deductible in full, dismissing the Revenue's appeal on this ground. 3. Computation of Book Profit under Section 115JB: The Tribunal addressed whether disallowance under Section 14A should be added back while computing book profit under Section 115JB. Citing previous Tribunal decisions, it was held that such disallowance cannot be added back to compute the book profit, as there is no provision in the Act for this. The Revenue's appeal on this ground was dismissed. 4. Transfer to Reserve Fund under Section 45-IC of the RBI Act: The assessee transferred a significant amount to the Reserve Fund as required under Section 45-IC of the RBI Act and claimed it as an appropriation of funds by overriding title. The AO disallowed this, treating it as an application of income. The Tribunal, following its earlier decisions, upheld the AO's view, confirming that the transfer is an application of income and thus taxable. 5. Deductibility of Interest Paid under Section 234D: The Tribunal considered whether interest paid under Section 234D on excess refund should be allowed as a business expense. It held that such interest is for delayed payment of tax and not for earning income or business purposes. Hence, it is not deductible. The Tribunal upheld the AO's disallowance on this ground. 6. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS: The Tribunal addressed the disallowance under Section 40(a)(ia) due to non-deduction of TDS on salary and incentives. It referred to the Special Bench decision in Merilyn Shipping and the Allahabad High Court ruling in Vector Shipping, which held that Section 40(a)(ia) is not applicable if there is no outstanding balance at the end of the year. The Tribunal remitted the issue back to the AO to verify if the impugned amount was outstanding at the year-end and to decide accordingly. 7. Deletion of Addition towards Provision for Bad Debts: The AO disallowed the provision for bad debts, treating it as not written off in statutory books. The CIT(A) and Tribunal, referring to earlier decisions and the Supreme Court judgment in TRF Ltd., held that bad debts written off in the books maintained for income-tax purposes are allowable. The Tribunal remitted the issue back to the AO to verify the actual write-off in the income-tax books and decide based on Section 36(2) compliance. Conclusion: The Tribunal's decisions were a mix of upholding previous rulings, remitting issues back to the AO for verification, and dismissing certain appeals. The key takeaways include the treatment of royalty as revenue expenditure, the non-inclusion of Section 14A disallowance in book profit computation, and the necessity for AO verification in cases of bad debt write-offs and TDS-related disallowances.
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