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2022 (5) TMI 331 - AT - Income TaxDisallowance made under section 14A r.w. Rule 8D - Assessee made suo moto disallowance - Mandation of recording satisfaction - HELD THAT - The assessee has received dividend income and has suo motu disallowed expenses under section 14A of the Act as expenses relating to exempt income. However, the Assessing Officer disallowed an additional amount but while making additional disallowance under section 14A of the Act, the Assessing Officer has not recorded any satisfaction as to how the claim of the assessee was incorrect and had resorted to the provisions under section 14A r.w. Rule 8D. Assessing Officer has not given any findings in the assessment order with regard to the correctness in respect of expenditure incurred to earn exempt income. Moreover, before the ld. CIT(A) also the assessee has revised the disallowance. The ld. DR could not controvert the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT - thus we hold that the Assessing Officer was not justified in making disallowance under section 14A - Decided in favour of assessee Disallowance of royalty payment - as assessee has claimed royalty paid to Shriram Ownership Trust for use of the logo by treating the expenditure as capital expenditure, the Assessing Officer allowed depreciation @25% - HELD THAT - As decided in own case 2016 (7) TMI 1642 - ITAT CHENNAI CIT(A) directed the Assessing Officer to allow the royalty payment by treating it as revenue expenditure. DR could not controvert the above decision of the Tribunal in assessee's own case. Just because the Revenue has filed an appeal against the order of the Tribunal before the Hon'ble Madras High Court, we cannot take a different view until and unless the decision of the Tribunal has been reverted or modified. The ld. CIT(A) has rightly followed the decision of the Tribunal and thus, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue stands dismissed. Interest income not offered to tax - AO has noted that the assessee has not offered the entire receipts on the ground that it is classified as NPA - Since the assessee has claimed full TDS credit as in Form 26AS, the Assessing Officer has called for explanation on why the above two amounts not offered to tax should not be added to the total income - CIT(A) has observed that as per the provision of section 198 and section 199 of the Act, an assessee can claim credit for TDS against the income declared - HELD THAT - There is no provision under the Act to assess the notional income based on TDS which is incorrectly claimed unless the Assessing Officer has material evidence towards suppression of income. Since no material evidence towards suppression of income was brought on record and in view of the above facts, the ld. CIT(A) has rightly deleted the addition of Rs. 1.23 crores made by the Assessing Officer towards undeclared interest income and further directed the Assessing Officer to assess the corresponding interest income in the relevant assessment year in which it actually arises and to allow TDS thereof in the relevant assessment year in which interest income is offered in respect of those two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Hence, we find no reason to interfere with order passed by the ld. CIT(A) on this issue and thus, the ground raised by the Revenue is dismissed. Exclusion of disallowance under section 14A while computing the book profits under section 115JB - HELD THAT - So far as disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act is concerned, in the recent judgement in the case of Sobha Developers Ltd. 2021 (1) TMI 378 - KARNATAKA HIGH COURT has held that the disallowance made under section 14A of the Act could not be added to book profits of the assessee under section 115JB. Allowability of credit for TDS by Jinal Mercantile and Mehul Chinubhai Choksi in the assessment year 2014-15 - HELD THAT - By considering the submissions of the assessee that there was uncertainty in realizing interest income and since there was no provision under the Act to assess the notional income based on TDS, the ld. CIT(A) has deleted the addition of Rs. 1.23 crores made by the Assessing Officer towards undeclared interest income. Further, the ld. CIT(A) has directed the Assessing Officer to assess the corresponding interest income in the relevant assessment year in which it actually arises and to allow TDS thereof in the relevant assessment year in which interest income is offered in respect of those two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Therefore, we are of the opinion that there is no merit in the ground raised by the assessee and accordingly, the ground raised by the assessee is dismissed.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Deletion of disallowance of royalty payment. 3. Deletion of interest income not offered to tax. 4. Exclusion of disallowance under Section 14A while computing book profits under Section 115JB. 5. Depreciation on royalty. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The primary issue was the disallowance made under Section 14A read with Rule 8D. The Assessing Officer (AO) noted that the assessee had investments worth Rs. 46,97,86,620/- and received dividend income of Rs. 1,49,15,940/-. The assessee disallowed Rs. 86,400/- as expenses related to exempt income. However, the AO computed the disallowance at Rs. 50,41,454/- under Section 14A read with Rule 8D. The CIT(A) directed the AO to verify and restrict the disallowance to Rs. 24,24,160/- based on the assessee's revised computation. The Tribunal ruled that the AO did not record any satisfaction regarding the correctness of the assessee's claim. Relying on the Supreme Court's decision in Maxopp Investment Ltd. v. CIT, the Tribunal held that without such satisfaction, the AO could not resort to the provisions of Section 14A read with Rule 8D. Hence, the disallowance under Section 14A was deleted. 2. Deletion of Disallowance of Royalty Payment: The assessee claimed royalty payment of Rs. 75,25,292/- to Shriram Ownership Trust for using the logo as revenue expenditure. The AO treated it as capital expenditure, allowing depreciation at 25% and disallowing the balance amount. The CIT(A) allowed the royalty payment as revenue expenditure, following the Tribunal's decision in the assessee's own case for previous assessment years. The Tribunal upheld the CIT(A)'s decision, stating that the royalty payment for using the logo was an allowable business expenditure under Section 37(1) of the Act. The Tribunal found no reason to interfere with the CIT(A)'s order, dismissing the Revenue's appeal. 3. Deletion of Interest Income Not Offered to Tax: The AO noted discrepancies between the interest income reported by the assessee and the amounts reflected in Form 26AS, leading to an addition of Rs. 1.23 crores as undeclared interest income. The CIT(A) deleted the addition, directing the AO to assess the interest income in the relevant assessment year when it actually arises and to allow corresponding TDS credit. The Tribunal agreed with the CIT(A), emphasizing that there was no provision under the Act to assess notional income based on TDS unless there was evidence of income suppression. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this issue. 4. Exclusion of Disallowance under Section 14A while Computing Book Profits under Section 115JB: The AO added Rs. 50,41,454/- disallowed under Section 14A to the book profits under Section 115JB. The CIT(A) directed the AO to exclude this disallowance while computing book profits, following the Tribunal's decision. The Tribunal referred to the Karnataka High Court's decision in Sobha Developers Ltd. v. DCIT, which held that disallowance under Section 14A could not be added to book profits under Section 115JB. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s direction to exclude the disallowance from book profits. 5. Depreciation on Royalty: The assessee's ground related to depreciation on royalty became redundant once the CIT(A) treated the royalty payment as revenue expenditure. The Tribunal confirmed the CIT(A)'s order, dismissing the assessee's ground on depreciation. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The key rulings included deleting the disallowance under Section 14A, treating royalty payments as revenue expenditure, and excluding disallowance under Section 14A from book profits under Section 115JB. The Tribunal's decisions were based on established legal principles and previous rulings in similar cases.
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