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TMI Blog2010 (12) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... legal entities, may be belonging to the same group, have to be dealt with as per law and cannot be thrown on that ground alone - Do not find any valid basis for disallowance of long-term capital loss by the Assessing Officer Decided in favour of assessee. Collaboration agreement - Royalty - Revenue expenditure or not - As per the decision of the hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd. v. CIT [1997 -TMI - 5553 - SUPREME Court], found that their Lordships of the Supreme Court were actually considering a case of composite agreement which involved an agreement to implement a turnkey project right from providing design, etc. in establishing the factory and user of the technical know-how - Thereafter their Lordships of the Supreme Court have clearly held that payment made for the user of the logo is always revenue in nature - Decided in favour of assessee. - I. T. A. Nos. 725 and 726/Mds/2010, - - - Dated:- 16-12-2010 - O. K. Narayanan, Hari Om Maratha, JJ. Shaji P. Jacob for the Appellant V. D. Gopal for the Respondent ORDER Hari Om Maratha, Judicial Member:- These two appeals filed by the Revenue, pertaining to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the SRF is Rs. 3,701.26 lakhs. The assessee started with Rs. 14,805.07 lakhs as the profit for the purpose of adjustment statement for income-tax calculation after the transfer of the amount to the SRF. The assessment was completed on December 30, 2008 under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short) and the computation of income was made as under:- (Rs.) " Business income admitted as per the revised return:- 1,64,56,61,690 Add:- Addition as above (i) Amount set apart to statutory reserve fund 37,01,26,994 (ii) Provision for NPA 13,57,58,000 (iii) Income added under section 40(a)(ia) 11,72,097 (iv) Expenses on exempt income 4,260 Value of investment written off 11,78,613 50,82,39,964 50,82,39,964 Business income 2,15,39,01,654 Total income:- Property income as admitted 23,65,048 Business income as above 2,15,39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have looked into the aspect of circular trading, in the light of the hon'ble apex court's decision in the case of CIT v. Ashini Lease Finance P. Ltd. [2009] 309 ITR 320 (SC). 4.3 The learned Commissioner of Income-tax (Appeals)'s powers being coterminous with that of the Assessing Officer and in fact, even more, with the power of enhancement of assessment also, the learned Commissioner of Income-tax (Appeals) ought to have considered the circular trading aspect. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer restored." The first issue raised, vide grounds Nos. 2.1 and 2.2, is in respect of deletion of addition of Rs. 13,57,58,000 made after disallowing the claim of bad debts. The facts apropos this issue are that the assessee has claimed total bad debts of Rs. 83,24,39,801. The Assessing Officer has disallowed a sum of Rs. 13,57,58,000 out of the total so claimed on the ground that in the books of account maintained under the provisions of the Income-tax Act, the entire bad debts had been written off, but in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd., and (iii) appeals in the cases of Shriram Investments Ltd. and Shriram City Union Finance Ltd. In the present appeal, the Revenue has not specifically challenged the findings of the first appellate authority that income computation for regular assessment is required to be done with reference to the accounts maintained for the purposes of the Income-tax Act and not with reference to the set of accounts maintained for the purposes of the Companies Act and that there is no provision at all for bad debts in the income-tax books on the basis of which income has to be computed. Nevertheless it is appropriate to refer to the findings of the Tribunal in its order dated April 21, 2006 in so far as the cases of Shriram Transport Finance Co. Ltd., Shriram Investments Ltd. and Shriram City Union Finance Ltd. are concerned on the strength of which the first appellate authority has given his findings. The following findings extracted from paragraphs 18, 19, 33 and 36 of the Tribunal order dated April 21, 2006 are relevant:- "18. We find that the assessee has prepared the profit and loss account for the purpose of income-tax which was duly audited under section 44AB and repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bts have been really written off. In case of Shriram Transport Finance Co. Ltd., from pages is, 35 and 53, it becomes clear that bad debts have been actually written off. Similarly, in the case of Shriram City Union Finance Ltd., from pages 9, 21 and 35, it becomes clear that bad debts have been written off. In the case of Shriram Investments Ltd., from pages 11, 32, 52 and 88, it becomes clear that bad debts have been written off. 36. From the sample sheet filed before us along with copies of parties account, it becomes clear that in the case before us the assessee has adopted a very reasonable and authentic system of writing off of bad debts. The same is being done on the basis of recoverability of a debt and after obtaining the report of the particular field officer, who visits the particular party and then sends the recommendations accordingly. Since the assessee-company is running many branches and running the business of finance, which means, the assessee has to be very careful while writing off the bad debts. The assessee-company has authorised its branch managers because it is not a case of individual businessman who will exercise his judgment and therefore no intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years describe the methodology employed by the assessee for identifying the debts which are required to be written off as bad. In the circumstances, we find there is no scope to support the allegation by the Revenue that there is no write-off and what has been claimed is only a provision. The hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC), has held that the nature of expenditure under the Income-tax Act, cannot be conclusively determined by the manner in which accounts are presented in terms of the 1998 Directions. Though they deviate from accounting practice as provided in the Companies act, they do not override the provisions of the Income-tax Act. Therefore the decision in Southern Technologies (supra) case does not come to the aid of the Revenue. On the contrary, in the light of a proper method having been applied to identify and write off bad debts, income-tax law does not envisage any further enquiry into the matter by the Assessing Officer as held by the courts in a number of cases. In particular, we may refer to the decision of the Supreme Court in T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC) in which it has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank v. CIT [1999] 240 ITR 355 (SC). After circumspecting the entire records in the light of the oral as well as written submissions of the parries, we have found it for a fact that the assessee is a non-banking finance company registered with the Reserve Bank of India (RBI) for doing business in financing and is regulated by the directions issued by the Reserve Bank of India from rime to time. It accepts public deposits. Section 45-IB of the Reserve Bank of India Act stipulates that 'Every non-banking financial company shall invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than five per cent. or such higher percentage not exceeding twenty five per cent. as the bank may, from time to time and by notification in the official gazette, specify, of the deposits outstanding at the close of business on the last working day of the second preceding quarter'. The Reserve Bank of India notifies the percentage of the outstanding deposit which has to be invested in approved securities from time to time. The percenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n were not quoted on the stock exchange. There was no dispute with regard to the fact that the assessee had to divest the shares in accordance with Reserve Bank of India directions to the effect that activities unrelated to business of non-banking financial companies were to be discontinued. In such circumstances, there cannot be two opinions about the fact that the price of the shares has to be fixed by mutual agreement. The Assessing Officer has not doubted the genuineness of the transactions. We have also found the submission of the learned authorised representative to be correct that similar issue arose in the assessment year 2005-06 in the assessee's own case and the Tribunal vide its order dated March 26, 2010 in I. T. A. No. 1610/Mds/2006 has taken a favourable decision and the facts of that year are exactly identical to the facts of this year. Apart from the issue being covered in favour of the assessee by the order of the Tribunal in the assessee's own case for the assessment year 2005-06, we also observe that the computation done by the parties has not been assailed by providing any alternate computation ; and commercial transactions to run two separate legal entities, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The assessee had no other rights including the right to transfer the use of the logo. Shriram Chits and Investments P. Ltd. has given the right of user to other companies also which include Shriram Chits Tamilnadu P. Ltd., Shriram Chits (Bangalore) P. Ltd. and Shriram Chits P. Ltd. In the assessment year 2001-02, the Commissioner of Income-tax wanted to treat the payment as capital expenditure in the case of Shriram Chits Tamilnadu P. Ltd., but after hearing the assessee's objections, he dropped the proceedings initiated under section 263 of the Act. In the case of Shriram Chits Tamilnadu P. Ltd., the learned Commissioner of Income-tax (Appeals) has accepted the claim of the assessee by holding that this expenditure is revenue in nature and the Department has accepted this finding of the Commissioner of Income-tax (Appeals) and has not filed further appeal before the Income-tax Appellate Tribunal for the assessment years 2004-05 and 2005-06. The learned Departmental representative has relied on the decision of the hon'ble Supreme Court in the case of Jonas Woodhead and Sons (India) Ltd. v. CIT [1997] 224 ITR 342 (SC), in support of his ground. The learned authorised repres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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