2021 (9) TMI 600 - AT - Income Tax

Disallowance of amount transferred to reserve fund u/s.45IC of the RBI Act - HELD THAT - We find that an identical issue has been considered by the Tribunal in the case of Shriram Transport Finance Company Ltd. 2018 (5) TMI 1935 - ITAT CHENNAI where the Tribunal by following its earlier order in the case of M/s. Shriram Transport Finance Co.Ltd. 2016 (8) TMI 1204 - ITAT CHENNAI held that transfer of funds as required u/s.45IC of the RBI Act, is only application of income, therefore, it is liable for taxation. The facts are being identical for year under consideration and thus, consistent with view taken by the co-ordinate Bench in the cases discussed hereinabove, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the assessee. Claim of depreciation on royalty amount - HELD THAT - CIT(A) has rejected alternative plea taken by the assessee claiming depreciation on royalty on the ground that when royalty expenses has been held to be revenue in nature and deductible, then alternative plea of the assessee for claiming depreciation on said expenditure is infructuous and hence, not maintainable. The fact remains unchanged. The assessee failed to bring on record any valid reason to take a different view from the view taken by the learned CIT(A) and hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the assessee. Recomputation of book profit u/s.115JB - additions towards amount transferred to statutory reserve - HELD THAT - We find that the Tribunal has considered identical issue and held that amount transferred to special reserve fund as required under section 45IC of the RBI Act, is only appropriation of profits below the line in the profit loss account and thus, same is not deductible while computing book profit u/s.115JB of the Income Tax Act, 1961. Therefore, consistent with view taken by co-ordinate Bench, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the assessee. Disallowance of expenses u/s.14A r.w.r 8D - As per assessee Nil exempt income earned for the relevant assessment year - HELD THAT - The Hon ble Madras High Court in the case of Redington India Pvt.Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT had considered an identical issue and after considering Board Circular No.5 of 2014 dated 11.02.2014 held that where there is no exempt income in relevant year, there cannot be disallowance of expenditure u/s.14A of the Act. In this case, the learned CIT(A) has recorded categorical finding that the assessee has not earned any exempt income for impugned assessment year and hence, deleted additions made by the Assessing Officer towards expenses u/s.14A of the Act. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue. TDS u/s 194H - disallowance of commission payment u/s.40(a)(ia) - HELD THAT - CIT(A) has recorded a categorical finding in light of various evidences including list of payment of commission to individual recipients by the assessee and held that a sum is out of scope of section 194H of the Act, because payment in respect of each person does not exceed ₹ 5000/- and hence, the assessee does not require to deduct TDS, as per provisions of section 194H of the Act, and thus, disallowance u/s.40(a)(ia) of the Act for non-deduction of TDS cannot be made. The revenue has failed to bring on record any evidence to counter findings of fact recorded by the learned CIT(A), except stating that the learned CIT(A) has accepted additional evidence in contravention of Rule 46A of Income Tax Rules,1962. Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) to delete additions made towards commission payment. Remaining commission payment assessee sought for deduction on the ground that said payment has been made before end of relevant financial year in light of decision in the case of CIT Vs.Vector Shipping Services Pvt.Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT The fact remains that as subsequently reversed decisions of various High Courts in the case of Palam Gas Service 2017 (5) TMI 242 - SUPREME COURT and held that provisions of section 40(a)(ia) of the Act, is applicable for non-deduction of TDS under respective provisions of the Act, even though impugned payments are made before end of relevant financial year. The learned CIT(A), after considering relevant facts has rightly sustained additions made by the Assessing Officer towards disallowance of commission. Recomputation of book profit u/s.115JB of the Act by making additions towards disallowance u/s.14A r.w.r 8D - We find that this issue is squarely covered in favour of the assessee by the decision in the case of ACIT Vs. M/s.Vireet Investments Pvt.Ltd. 2017 (6) TMI 1124 - ITAT DELHI where it was held that computation under clause (f) of Explanation (1) to section 115JB of the Act is to be made without resorting to computation as contemplated u/s.14A r.w.r 8D of Income Tax Rules, 1962. The co-ordinate Bench of ITAT., Chennai in the case of Shriram Transport Finance Company 2017 (7) TMI 1396 - ITAT CHENNAI had considered an identical issue and held that disallowances made u/s.14A by invoking Rule 8D cannot be added back to book profit computed u/s.115JB of the I.T Act, 1961. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer towards recomputation of book profit by making additions towards disallowance u/s.14A r.w.r 8D

Summary

Issues:
1. Disallowance of amount transferred to reserve fund u/s.45IC of the RBI Act
2. Alternative claim of depreciation on royalty amount
3. Recomputation of book profit u/s.115JB of the Income Tax Act
4. Deletion of disallowance u/s.14A of the Act
5. Deletion of additions made towards disallowance of royalty expenditure
6. Restricting disallowance of commission payment u/s.40(a)(ia) of the Act
7. Recomputation of book profit u/s.115JB of the Act by making additions towards disallowance u/s.14A r.w.r 8D of the Income Tax Rules

Analysis:
1. The first issue pertains to the disallowance of amount transferred to reserve fund u/s.45IC of the RBI Act. The Tribunal upheld the disallowance, following precedent cases, stating that such transfers are only an appropriation of income and not deductible while computing profits. The Tribunal rejected the assessee's appeal based on consistent views taken in similar cases.

2. The second issue involves the alternative claim of depreciation on royalty amount disallowed in previous assessment years. The Tribunal upheld the rejection of this claim by the CIT(A), stating that since royalty expenses were held to be revenue in nature and deductible, claiming depreciation on the same was deemed infructuous. The Tribunal found no valid reason to deviate from the CIT(A)'s decision.

3. The third issue concerns the recomputation of book profit u/s.115JB of the Income Tax Act by making additions towards the amount transferred to statutory reserve. The Tribunal upheld the decision of the CIT(A) based on a previous Tribunal decision, stating that such transfers are only an appropriation of income and not deductible while computing book profit u/s.115JB.

4. Moving on to the issues in the revenue appeal, the first issue was the deletion of disallowance u/s.14A of the Act. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, citing that when no exempt income was earned for the relevant assessment year, the provisions of section 14A cannot be invoked. The Tribunal relied on relevant case law and dismissed the revenue's appeal.

5. The next issue involved the deletion of additions made towards disallowance of royalty expenditure. The Tribunal upheld the CIT(A)'s decision to delete the additions, stating that the payment made by the assessee for the right to use the logo was revenue in nature and deductible while computing income from business or profession. The Tribunal found no error in the CIT(A)'s reasoning.

6. The sixth issue was about restricting disallowance of commission payment u/s.40(a)(ia) of the Act. The Tribunal upheld the CIT(A)'s decision to delete the additions made towards commission payment, as the assessee did not require to deduct TDS for certain payments, and the revenue failed to provide evidence to counter the CIT(A)'s findings.

7. Lastly, the Tribunal addressed the recomputation of book profit u/s.115JB of the Act by making additions towards disallowance u/s.14A r.w.r 8D of the Income Tax Rules. The Tribunal upheld the CIT(A)'s decision to delete the additions, following precedent cases that disallowances made under Rule 8D cannot be added back to book profit computed u/s.115JB. The Tribunal dismissed both the assessee and revenue appeals.