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TMI Blog2014 (6) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case in the year under consideration are similar to those considered by the Tribunal in the assessee’s own case for the assessment years 2004-05, 2005-06 and 2006-07 (supra) and therefore following the said precedent - Decided in favour of assessee Ad-hoc disallowance of commission expenditure - Held that:- There is no direct clinching evidence to show that the claim made by the assessee was false or bogus and therefore the ad-hoc disallowance made by the Assessing Officer is quite unjustified. In this view of the matter, the CIT(A) ought to have deleted the entire addition rather than allowing part-relief, that too, on an ad- hoc basis. In conclusion, we hold that the income-tax authorities were not justified in making the impugned disallowance and accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the entire addition. - Decided in favour of assessee Addition on account of Bad debts - Held that:- The impugned disallowance has been made by the Assessing Officer on mere conjectures and surmises. It is quite clear that the claim of the assessee for the bad debts written-off is in terms of section 36(1)(vii) r.w.s. 36(2) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deducted at source on behalf of the assessee in the light of the judgement of the Hon’ble Allahabad High Court in the case of Rakesh Kumar Gupta ( 2014 (5) TMI 520 - ALLAHABAD HIGH COURT ). - Decided in favour of assessee for statistical purposes. - ITA No.1175/PN/2012, ITA No.1273/PN/2012, ITA No.1676/PN/2012 & ITA No.1709/PN/2012 - - - Dated:- 30-6-2014 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER Assessee by : Mr. Kirit Kamdar Mr. Nikhil Mutha Department by : Mr. Narendra Kumar ORDER PER G. S. PANNU, AM The captioned are two sets of cross-appeals by the assessee and the Revenue pertaining to the assessment years 2007-08 and 2008-09. Since some of the issues involved are common and relate to the same assessee, the appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 2. First, we shall take-up the cross-appeals for assessment year 2007-08 by the assessee and Revenue vide ITA No.1175/PN/2012 and ITA No.1273/PN/2012 respectively, which are directed against the order of the Commissioner of Income Tax (Appeals)-V, Pune dated 30.03.2012 which, in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, in cases of financial leases, it is the lessee, who is to be treated as owner of the asset, so as to be entitled to the claim of depreciation and therefore no depreciation can be allowed to the assessee-lessor in case of a financial lease. 6. At the time of hearing before us, it was a common Ground between the parties that the Pune Bench of the Tribunal in the assessee s case for assessment years 2004-05 to 2006-07 by way of a consolidated order dated 29.11.2013 vide ITA Nos.576 577/PN/2009 and ITA No.1092/PB/2010 respectively has held the issue in favour of the assessee. The following portion of the order of the Tribunal dated 29.11.2013 is relevant :- 7. We have heard the parties and perused the record. In this case, there is no dispute about the facts that the nature of transaction between the assessee and its customers as per the terms of the agreement with it s customers/clients is in nature of the financial leasing. Now the issue stands covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. Vs. CIT, 350 ITR 527 (SC). In the said case the assessee is Non-Banking Finance Company which is engaged in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of I.C.D.S. Ltd. (supra), the assessee company being the owner of assets, is entitled to depreciation even where the assets have been leased out in terms of a financial lease. The Tribunal has noted the terms and conditions of the lease arrangement and observed that during the subsistence of the lease, the assessee-lessor continued to retain the ownership of the assets. Secondly, the requirement of putting to use of the assets for the purposes of business also stands fulfilled, inasmuch as assessee has used the assets in the course of his business of leasing. In this manner, the Tribunal, following the ratio of the judgment of the Hon ble Supreme Court in the case of I.C.D.S. Ltd. (supra) held the assessee eligible for the claim of depreciation on leased assets. The facts and circumstances of the case in the year under consideration are similar to those considered by the Tribunal in the assessee s own case for the assessment years 2004-05, 2005-06 and 2006-07 (supra) and therefore following the said precedent, the present Ground of Appeal raised by the assessee is allowed. Accordingly the order of the CIT(A) is set-aside and the Assessing Officer is directed to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oc basis, which came to ₹ 2,56,75,115/-. 10. The assessee carried the matter in appeal before the CIT(A) challenging the disallowance made by the Assessing Officer, both on facts and in law. One of the points canvassed by the assessee was that a similar addition made by the Assessing Officer in the preceding assessment year of 2006-07 was deleted by the then CIT(A) and it was further contended that the transactions in this year have also been carried out with the same parties. The CIT(A) was not satisfied with the stand of the assessee because according to her, there was no plausible explanation for non-furnishing of confirmations from the remaining parties. Nevertheless, the CIT(A) was of the view that the disallowance made by the Assessing Officer at 5% of the total expenditure was on a higher side and she has reduced it to 2% of the expenditure, which came to ₹ 1,01,70,446/-, thereby allowing the assessee a relief of ₹ 1,54,05,669/-. 11. In this background, the learned counsel for the assessee pointed out that for 22 parties, which have been referred by the Assessing Officer in the assessment order, there was no dispute with respect to 9 of the parties, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce. The assessee also pointed out that there were transactions by way of commission payments with such parties in the past assessment year 2006-07 as well as for subsequent assessment year 2008-09 wherein such amounts stood allowed, as detailed by the learned counsel before us. Under these circumstances, the action of the Assessing Officer to disallow part of the expenditure, and that too, on an ad-hoc basis, is unwarranted. In the course of hearing, it has been asserted by the learned counsel for the assessee that for assessment year 2006-07 similar ad-hoc disallowance made by the Assessing Officer was deleted by the CIT(A) and the Department did not prefer any appeal on this aspect before the Tribunal. Considering the entirety of facts and circumstances, we find that there is no direct clinching evidence to show that the claim made by the assessee was false or bogus and therefore the ad-hoc disallowance made by the Assessing Officer is quite unjustified. In this view of the matter, the CIT(A) ought to have deleted the entire addition rather than allowing part-relief, that too, on an ad- hoc basis. In conclusion, we hold that the income-tax authorities were not justified in makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that (i) complete postal addresses; and, (ii) evidence regarding efforts made by the assessee for recovery of the amounts were not furnished. The Assessing Officer also noted that in the immediately preceding assessment year of 2006-07, an amount of ₹ 28,08,237/- was disallowed on this issue. In this background, the Assessing Officer proceeded to disallow 20% of the total debts i.e. ₹ 11,83,05,574/- (20% of ₹ 59,15,27,873/-) and added the same to assessee s total income. The CIT(A) has deleted the addition noticing that his predecessor in the assessee s own case for assessment year 2006-07 had deleted a similar addition. Against such order of the CIT(A), Revenue is in appeal before us. 19. At the outset, it was a common point between the parties that for assessment year 2006-07, a similar deletion made by the CIT(A) has since been affirmed by the Tribunal vide its order in ITA No.1066/PN/2010 dated 31.08.2012. The relevant discussion in the order of the Tribunal is as under :- 44. The first Ground is with regard to disallowance of bad debts written off representing sundry debit balances written off amounting to ₹ 28,08,02,837/-. The claim of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh 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. In the present case, the aforesaid aspect has been fulfilled by the assessee, as is clearly emerging from the findings of the CIT(A). The debts in question have been written-off as irrecoverable in the account books of the assessee and this aspect is also not disputed by the Assessing Officer. In fact, as per the Assessing Officer, the debts had become bad in the preceding assessment year and according to him, it is incorrect that the same have been claimed as write-off in the instant assessment year. Be that as it may, it clearly establishes that the debts have been written off in the account books as irrecoverable, which squarely is covered by the legal position propounded by the Hon ble Supreme Court in the case of TRF Ltd. (supra). The plea of the Ld. DR to the effect that the bonafides of the claim are not established is clearly untenable in as much as the Assessing Officer accepts the position that such debts had become bad in the preceding year itself. Considering the overall circumstances of the case, we therefore, find no reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned debts have arisen in the course of carrying on assessee s business of financing. In the background of the aforesaid undisputed facts, in our considered opinion, the issue is squarely covered by the proposition of law laid down by the Hon ble Supreme Court in the case of TRF Ltd. (supra). Therefore, having regard to the factual position and the parity of reasoning laid down by the Hon ble Supreme Court in the case of TRF Ltd. (supra), we find no error on the part of the CIT(A) in deleting the impugned addition. We hereby affirm the order of the CIT(A) and accordingly the Revenue fails on this Ground. 23. The second Ground in the appeal of the Revenue is with regard to an addition of ₹ 12,87,37,505/- representing income on account of non- performing assets. In this regard, the brief facts are that assessee is a non- banking financial company (NBFC), inter-alia, engaged in the business of hire purchase finance and leasing of two wheelers and other consumer durables, like computers, etc.. In relation to certain hire purchase transactions, assessee did not account for the interest income on the ground that the same were classified as Non-Performing Assets (NPAs) following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dential norms of RBI and is not a case where a provision of equivalent amount has been debited in the P L A/c and claimed as deduction u/s.36(1)(vii) or 37(1) of the Act. In case, the assessee succeeds in demonstrating the former situation then no addition would be warranted in terms of the judgement of the Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd, (supra) and in other case, the Assessing Officer shall take appropriate decision. in accordance with our aforesaid discussion and law . 13. Thus, it can be seen that the Hon'ble Jurisdictional Tribunal has clearly held the ratio that if the amount in question represents unrecognized income on a non-performing asset classified in terms of prudential norms of RBI, then no addition would be warranted in terms of the judgement of the Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra). 14. If the facts of the present case are examined, it is seen that amount of ₹ 12,87,37,505/- pertains to interest on non-performing assets, Therefore, the above ratio is clearly applicable on the facts of the case. Therefore, respectfully following the decision of the Hon'ble jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the matter be remanded back to the file of the AO in the light of the precedents. 24. The Ld. Representative for the assessee submitted that subsequent to the order of the Tribunal dated 31.03.2010 (supra), similar issue was considered by Hon ble Delhi High Court in the following decisions: CIT vs. M/s.Vasisth Chay Vyapar Ltd. (330 ITR 440)(Del) DIT vs Brahamputra Capital Financial Services Ltd. (335 ITR 182) (Del). and also by the Pune Bench of the Tribunal in the case of DCIT vs. Alfa Laval Financial Services Ltd. ITA.No.138/PN/2006 dated 30.09.2011. 25. Having considered the rival submissions on the issue in question, we deem it fit and proper to restore the issue back to the file of the Assessing Officer for re-adjudication in the light of the precedent in the assessee s own case in terms of the decision of the Tribunal dated 31.03.2010 (supra). The AO is directed to re-adjudicate the issue in the light of the observations contained in the order of the Tribunal dated 31.03.2010 and also such other legal position as prevailing at the time of the ensuing remand proceedings. The AO shall take into consideration the submissions and materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 the issue was remanded back to the file of the Assessing Officer to be considered in the light of the judgement of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) and also allowing the assessee to demonstrate the justification and criterion for identification of NPAs and non-accrual of income on such advances. Subsequently, when similar issue came up before the Tribunal is assessee s case for assessment years 2004-05 to 2006-07, the Tribunal by way of a common order dated 31.08.2012 (supra) again restored the matter back to the file of the Assessing Officer not only in terms of the decision of the Tribunal dated 31.03.2010 (supra) but also requiring the Assessing Officer to take into consideration such other legal position as prevailing at the time of ensuing remand proceedings . The aforesaid direction was in the context of the judgements of the (i) Hon ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) and Brahamputra Capital Financial Services Ltd. (supra); and, (ii) decision of the Pune Bench of the Tribunal in the case of Alfa Laval Financial Services Ltd. (supra), which was cited before the Tribunal. The aforesaid precedent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue in ITA No.1273/PN/2012 for assessment year 2007-08 is dismissed. 32. Now, we may take-up the cross-appeals for assessment year 2008-09 by the assessee and Revenue vide ITA No.1676/PN/2012 and ITA No.1709/PN/2012 respectively, which are directed against the order of the Commissioner of Income Tax (Appeals)-V, Pune dated 31.05.2012 which, in turn, has arisen from an order dated 29.12.2010 passed by the Assessing Officer u/s 143(3) of the Act. 33. The Grounds of Appeal raised in the appeal of the assessee are as follows :- Based on the facts and in the circumstances of the case, Bajaj Finance Ltd. [ the Appellant'] respectfully submits that the Hon'ble CIT(A) erred in disposing the appeal of the Appellant, on the following grounds which are without prejudice to each other: 1. DEPRECIATION ON THE ASSETS GIVEN ON LEASE UNDER FINANCIAL LEASE 1.1 The learned CIT(A) erred in upholding the action of the Assessing Officer ( AO ) in disallowing depreciation on assets given on lease under finance lease agreements amounting to ₹ 8,65,63,046/-. 2. DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX FULES, 1962 2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance both in law and on facts. On facts, the plea of the assessee was that the Assessing Officer failed to appreciate that the disallowance worked out by the assessee u/s 14A of the Act at ₹ 57,600/- was reasonable and that the disallowance worked out by the Assessing Officer by invoking rule 8D of the Rules was without any justification. In law, the invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act was assailed on the ground the Assessing Officer did not record the necessary satisfaction mandated u/s 14A(2) of the Act before invoking rule 8D of the Rules. In support of the plea that recording of an objective satisfaction is mandatory before applying rule 8D of the Rules to compute the disallowance u/s 14A of the Act, assessee relied upon the judgement of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Bom) as also the judgement of the Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. vs. CIT, (2012) 247 CTR 162 (Del). Both the pleas of the assessee have been dismissed by the CIT(A). According to the CIT(A), the provisions of rule 8D of the Rules are applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction required in terms of section 14A(2) of the Act has been formulated by the Assessing Officer. In this context, a reference was made to the discussion made by the CIT(A) in para 20 of the impugned order. According to the learned Departmental Representative, the satisfaction required in terms of section 14A of the Act is to be understood from the entire discussion in the assessment order as there is no particular methodology prescribed in section 14A(2) of the Act as to how the satisfaction is to recorded. The plea of the learned Departmental Representative is that the fact that the Assessing Officer did not agree to the computation of disallowance made by the assessee would show that he formulated the required satisfaction that the disallowance was incorrect and therefore the Assessing Officer was justified in invoking rule 8D of the Rules in order to compute the disallowance u/s14A of the Act. 40. We have carefully considered the rival submissions. Pertinently, the dispute before us revolves around the mode and manner of computing the disallowance u/s 14A of the Act. Notably, section 14A of the Act contemplates that for the purposes of computing the total income, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding that the provisions of rule 8D of the Rules were applicable from assessment year 2008-09 onwards, has also laid down that invoking of rule 8D of the Rules in order to compute the disallowance u/s 14A of the Act is neither automatic and nor is triggered merely because of the presence of an exempt income in the hands of the assessee. The invoking of rule 8D of the Rules is permissible only in circumstances where the Assessing Officer records the satisfaction mandated in section 14A(2) of the Act with regard to the incorrectness of the claim of the assessee, having regard to the accounts of the assessee. The Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. (supra) has also relied upon the judgement of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra) and opined that the Assessing Officer can determine the amount of expenditure incurred in relation to exempt income by applying rule 8D of the Rules only if he records a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee. As per the Hon ble Delhi High Court, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the earning of income which does not form part of the total income under the Act is found to be incorrect. In such a situation a method had to be devised for apportioning the expenditure incurred by the assessee between what is incurred in relation to the earning of taxable income and that which is incurred in relation to the earning of non-taxable income. As a matter of fact, the memorandum explaining the provisions of the Finance Bill, 2006, and the Central Board of Direct Taxes circular dated December 28, 2006, state that since the existing provisions of section 14A did not provide a method of computing the expenditure incurred in relation to income which did not form part of the total income, there was a considerable dispute between taxpayers and the Department on the method of determining such expenditure. It was in this background that sub-section (2) was inserted so as to provide a uniform method applicable where the Assessing Officer is not satisfied with the correctness of the claim of the assessee. Sub-section (3) clarifies that the application of the method would be attracted even to a situation where the assessee has claimed that no expenditure at all was incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n . Therefore, the satisfaction contemplated in section 14A(2) of the Act before the Assessing Officer can invoke rule 8D of the rules in order to compute the disallowance u/s 14A of the Act, is an objective satisfaction which shall be based on relevant considerations and it shall spell out reasons for his conclusion. 43. In the background of the aforesaid legal position, we may now examine the facts of the present case. In the present case, assessee has earned an income of ₹ 1,09,58,664/- which is an exempted income under Chapter-III of the Act and therefore it does form part of the total income under the Act. In the computation of income, having regard to section 14A of the Act, assessee determined the amount of expenditure incurred in relation to such income at ₹ 57,600/-. The Assessing Officer did not find it acceptable and instead determined the amount of disallowance u/s 14A of the Act by invoking rule 8D of the Rules. The said invoking of rule 8D of the Rules has to be preceeded by recording of an objective satisfaction by the Assessing Officer with regard to the incorrectness of the claim of the assessee that an expenditure of ₹ 57,600/- has been incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to record a finding that he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee. The determination of expenditure incurred in relation to the exempt income made by the assessee has been mechanically rejected without recording any objective satisfaction. This aspect of the matter, in our view, clearly shows that the Assessing Officer has not recorded the required objective satisfaction in regard to the incorrectness of the claim of the assessee that the expenditure incurred in relation to the exempt income was ₹ 57,600/-. Therefore, the action of the Assessing Officer to invoke rule 8D of the Rules for the purposes of computing the disallowance u/s 14A of the Act is untenable, as it suffers from absence of an essential requirement of sub-section (2) of section 14A of the Act. In this view of the matter, we are satisfied that the Assessing Officer was not justified in enhancing the disallowance u/s 14A of the Act to ₹ 71,70,881/- as against ₹ 57,600/- suo-motu disallowed by the assessee in its return of income. 45. Before parting, we may refer to the following discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line that he does not agree with the contention of the assessee . Ostensibly, having regard to the manner in which the Assessing Officer has discussed the issue in the assessment order, the objective satisfaction contemplated in section 14A(2) of the Act is conspicuous by its absence. Therefore, in our view, the CIT(A) erred in rejecting the plea of the assessee that there was no satisfaction recorded by the Assessing Officer as required in terms of section 14A of the Act before invoking rule 8D of the Rules. Secondly, the CIT(A) has also proceeded on the basis that from the assessment year under consideration i.e. assessment year 2008-09 onwards application of rule 8D of the Rules is automatic. No doubt, rule 8D of the Rules is effective from assessment year 2008-09 onwards, as held by the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra), so however, it is also evident that the applicability of rule 8D of the Rules is subject to the fulfillment of the condition prescribed in section 14A(2) of the Act, as we have seen in the earlier paragraphs, based on the judgement of the Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the respondents have denied refunding the TDS on the ground that the refund would only be granted when the TDS matches with the details mentioned in Form 26AS. Since the mismatching is not attributable to the assessee and the fault solely lay with the deductor, we find that a case has been made out for grant of a mandamus for refund of the TDS amount. The petitioner has also made out a case for payment of interest since we find that the delay in refunding the amount was attributable solely with the Income Tax Department and there is not fault on the part of the assessee. 51. By placing reliance on the aforesaid observations of the Hon ble Allahabad High Court, it is sought to be made out that assessee could not be denied credit for the TDS merely because there was some mismatch in the 26AS statement, which obviously is not filed by the assessee but by the tax deductors. 52. On the other hand, the learned Departmental Representative has not disputed the position canvassed by the assessee that due credit for the TDS deserves to be allowed. 53. Having considered the aforesaid position canvassed by the assessee, we deem it fit and proper to affirm the directions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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