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2016 (1) TMI 1433 - AT - Income TaxDisallowance of amount transferred to Statutory Reserve in compliance with the mandatory provisions of Reserve Bank of India - HELD THAT - As decided in own case 2013 (4) TMI 864 - ITAT CHENNAI this is only an appropriation of profits for purposes which have not yet been specified. Moreover, amount involved is very much under the control of the assessee and is lying in its business. Hence, in the background of aforesaid discussion and precedents, we uphold the well reasoned order of the learned Commissioner of Income Tax (Appeals) in this regard and decide the issue against the assessees. Allowability of interest levied under section 234D of the Income Tax Act under section 36(1)(iii) or 37 - HELD THAT - 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. 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 cannot be simply based on comparison of the amount with total investments. In our opinion, just because amount of indirect cost offered by the assessees against tax-free investments was very low, vis- -vis the total investments made by the assessee, it cannot be concluded that the claim by itself was incorrect. In such circumstances, we are of the opinion that Assessing Officer erred in rejecting the disallowance suo motu made by the assessees and imposing on them a disallowance under Rule 8D(iii) of the Act. We delete the disallowance made u/s.14A while computing income, both under normal provision as well as under provisions of Section 115JB Disallowance to royalty payment - CIT(A) has deleted the addition treating it as revenue expenditure - HELD THAT - As decided in own case 2013 (4) TMI 864 - ITAT CHENNAI Payment made for the user of the logo is always revenue in nature. Provision for non-performing assets NPA - assessee has claimed non-performing assets as bad debts - AO has disallowed the same as the assessee has made two sets of accounts i.e. one set of books of account for Income Tax Act and another set of accounts for Companies Act purposes - HELD THAT - Assessing Officer has not examined as to whether the debt has, in fact, been written off, in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted back to the Assessing Officer for de novo consideration 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) - 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. Disallowance 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 expenses - AO was to verify the matter and examine afresh. If no amount was outstanding at the close of the previous year in respect of the expenses either as outstanding expenses or as sundry creditors, the amount could not be disallowed. Hence the amount outstanding as payable at the end of the close of the Financial year i.e. 31st March only be disallowed by applying the provisions of Sec.40(a)(ia) of the Act. Accordingly we direct the ld. AO to disallow the only amount which is outstanding at the end of the close of the previous year relevant to the assessment year and accordingly for limited purpose to verify 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.
Issues Involved:
1. Disallowance of amount transferred to Statutory Reserve. 2. Allowability of interest levied under section 234D. 3. Short credit given towards TDS. 4. Addition of amount transferred to statutory reserve fund while computing Book Profit U/s.115JB. 5. Disallowance u/s.14A read with Rule 8D. 6. Disallowance of royalty payment. 7. Disallowance towards provision for non-performing assets (NPA). 8. Disallowance of ESOP expenditure. 9. Confirmation of Foreman Dividend. 10. Disallowance u/s.40(a)(ia). Detailed Analysis: 1. Disallowance of Amount Transferred to Statutory Reserve: The Tribunal confirmed the disallowance of the amount transferred to the Statutory Reserve, following its earlier decisions in similar cases. It was held that the amount transferred to the Statutory Reserve and Reserve Fund could not be deducted while computing income under regular provisions and Section 115JB of the Act. The Tribunal cited previous decisions, including the case of Shriram Transport Finance Company Ltd., where it was established that such transfers were not allowable as deductions. 2. Allowability of Interest Levied Under Section 234D: The Tribunal rejected the assessee's argument that interest levied under section 234D should be allowed as a business expenditure. It was held that the interest charged under section 234D is compensatory and not akin to interest on a loan. Therefore, it cannot be allowed as a business deduction. 3. Short Credit Given Towards TDS: The Tribunal upheld the CIT(A)'s order directing the Assessing Officer to verify the TDS credit once again. The assessee's claim for short credit was not found to have any infirmity, and the ground of appeal was rejected. 4. Addition of Amount Transferred to Statutory Reserve Fund While Computing Book Profit U/s.115JB: The Tribunal dismissed the assessee's appeal on this issue, reiterating its earlier decision that the transfer to the statutory reserve fund is not an ascertained liability and cannot be allowed while computing book profit under Section 115JB. 5. Disallowance u/s.14A Read with Rule 8D: The Tribunal allowed the assessee's appeal, noting that the Assessing Officer had not provided a satisfactory reason for rejecting the assessee's suo motu disallowance of indirect costs. It was emphasized that the satisfaction of the Assessing Officer regarding the correctness of the claim is a prerequisite for invoking Rule 8D. The Tribunal found that the Assessing Officer's comparison of the disallowance amount with total investments was insufficient to reject the assessee's claim. 6. Disallowance of Royalty Payment: The Tribunal dismissed the Revenue's appeal, confirming that royalty payments made for the non-exclusive use of a logo were revenue expenditures. This decision was consistent with previous rulings in the assessee's own case and other similar cases, where it was held that such payments do not constitute capital expenditure. 7. Disallowance Towards Provision for Non-Performing Assets (NPA): The Tribunal remitted the issue back to the Assessing Officer to verify whether the debt was actually written off in the audited books of accounts. It was highlighted that, as per the Supreme Court's decision in TRF Ltd. v. CIT, it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. 8. Disallowance of ESOP Expenditure: The Tribunal dismissed the Revenue's appeal, following the jurisdictional High Court's decision in the case of PVP Ventures Ltd., which held that ESOP expenses are allowable as staff welfare expenditure. The Tribunal found no reason to interfere with the CIT(A)'s order allowing the ESOP expenditure as revenue expenditure. 9. Confirmation of Foreman Dividend: The Tribunal dismissed the assessee's appeal, upholding the CIT(A)'s order disallowing the Foreman Dividend. It was noted that the principle of mutuality does not apply to the assessee's case, as previously decided by the Tribunal and affirmed by the High Court. 10. Disallowance u/s.40(a)(ia): The Tribunal remitted the issue back to the Assessing Officer to verify whether the amount was outstanding at the end of the financial year. It was directed that only the amount outstanding at the close of the financial year should be disallowed under Section 40(a)(ia). Conclusion: The Tribunal's judgment addressed multiple issues related to disallowances and deductions claimed by the assessee. The decisions were based on previous rulings, statutory interpretations, and specific case facts, ensuring consistency and adherence to legal principles. The appeals were disposed of with directions for further verification where necessary, and the Tribunal upheld or dismissed claims based on established legal precedents.
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